<PAGE>
American Municipal Income Portfolio - 1998 Annual Report
1998 Annual Report
[LOGO]
AMERICAN
MUNICIPAL INCOME
PORTFOLIO
XAA
<PAGE>
[LOGO]
CONTENTS
<TABLE>
<S> <C>
Portfolio Managers' Letter................................................... 2
Financial Statements and Notes............................................... 7
Investments in Securities.................................................... 16
Independent Auditors' Report................................................. 21
Federal Tax Information...................................................... 22
Shareholder Update........................................................... 23
Glossary..................................................................... 28
</TABLE>
*** This report includes a glossary to help you understand financial terms used
in the portfolio managers' letter. When you see this symbol, it indicates a word
that is defined in the glossary.
AMERICAN MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
FUND OBJECTIVE
High current income exempt from regular federal income tax, consistent with
preservation of capital. The fund's income may be subject to state or local tax
and the federal alternative minimum tax. Investors should consult their tax
advisors. As with other investment companies, there can be no assurance this
fund will achieve its objective.
PRIMARY INVESTMENTS
A diverse range of municipal securities rated investment grade or of comparable
quality when purchased. These securities may include municipal derivative
securities, such as inverse floating rate and inverse interest-only municipal
securities, which may be more volatile than traditional municipal securities in
certain market conditions.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Based on net asset value for the periods ended January 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Since
One Three Inception
Year Year (6/25/93)
---- ----- ---------
<S> <C> <C> <C>
American Municipal Income Portfolio 13.63% 14.28% 7.61%
Lipper General Municipal Bond Funds:
Leveraged Average 12.28% 11.25% 5.99%
Lehman Brothers Municipal Long Bond Index 12.73% 11.52% 7.43%
</TABLE>
Average annualized total returns are through January 31, 1998, and are based
on the change in net asset value (NAV). They reflect the reinvestment of
distributions but do not reflect sales charges. NAV-based performance is used
to measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, three-year and since inception periods ended January 31, 1998, were
17.53%, 11.82% and 4.07%, respectively. These returns assume reinvestment of
all distributions and reflect sales charges on those distributions described
in the fund's dividend reinvestment plan, but not on initial purchases.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost. Closed-end funds, such as this fund, often
trade at discounts to net asset value. Therefore, you may be unable to realize
the full net asset value of your shares when you sell.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of leveraged perpetual
and term trust national closed-end municipal funds as characterized by Lipper
Analytical Services. The Lehman Brothers Municipal Long Bond Index is
comprised of municipal bonds with more than 22 years to maturity and an
average credit quality of AA. The index is unmanaged and does not include any
fees or expenses in its total return figures.
The since inception numbers for the Lipper average and Lehman index are
calculated from the month end following the fund's inception through January 31,
1998.
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1998 Annual Report 1 American Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
March 18, 1998
- --------------------------------------------------------------------------------
[PHOTO]
DOUG WHITE, CFA,
shares responsibility for the management of American Municipal Income
Portfolio. He has 15 years of financial experience.
DEAR SHAREHOLDERS:
AMERICAN MUNICIPAL INCOME PORTFOLIO PROVIDED A TOTAL RETURN OF 13.63% FOR THE
YEAR ENDED JANUARY 31, 1998. This compares to a 12.73% total return for the
fund's benchmark,*** the Lehman Brothers Municipal Long Bond Index. Over the
same period, the Lipper General Municipal Bond Funds: Leveraged Average gained
12.28%. The fund's monthly dividend remained stable at 6.27 cents per share
throughout the 12-month reporting period.
WE ATTRIBUTE THE FUND'S PERFORMANCE LARGELY TO OUR STRATEGY OF POSITIONING THE
PORTFOLIO TO BENEFIT FROM A DECLINE IN LONG-TERM INTEREST RATES. Entering the
reporting period, the moderate inflation
* All returns assume reinvestment of all distributions and do not reflect
sales charges, except the fund's total return based on market price, which
does reflect sales charges on those distributions described in the fund's
dividend reinvestment plan, but not on initial purchases. Past performance
does not guarantee future results. The investment return and principal value
of an investment will fluctuate so that fund shares, when sold, may be worth
more or less than their original cost.
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on January 31, 1998.
[CHART]
<TABLE>
<S> <C>
Housing Revenue 17%
Water/Sewer/Pollution Control Revenue 8%
Other Assets 3%
Health Service/HMO Revenue 1%
Hospital Revenue 18%
Electric Revenue 15%
Miscellaneous Revenue 2%
Leasing Revenue 2%
Education Revenue 5%
Parking Revenue 4%
General Obligations 25%
</TABLE>
Municipal inverse floating rate securities account for 1% of the fund's total
assets.
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 2 American Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RON REUSS, ISFA,
shares responsibility for the management of American Municipal Income
Portfolio. He has 30 years of financial experience.
- --------------------------------------------------------------------------------
outlook increased the probability that bond yields were likely to decline.
Accordingly, we kept the fund's effective duration*** toward the long end of
our target range to benefit from rising bond prices. (We discuss the fund's
effective duration strategy in greater detail later in this letter.) While we
recognized that the U.S. economy was growing at a solid pace and that the
labor market remained tight, we believed that the financial crisis in Asia
could provide enough of a drag on domestic growth to offset some of the
inflationary pressures that typically build during the latter stages of an
economic expansion.
AS EVENTS UNFOLDED, THE ASIAN CRISIS DID HELP TO PUSH LONG-TERM RATES SHARPLY
LOWER. When the first hint of the looming turmoil in Asia appeared in July,
yields on long-term Treasury bonds were 6.74%. By mid-January, Treasury-bond
yields had fallen to 5.69%, as global investors sought a safe haven amid the
chaos in Asia. Closer to home, bond buyers were reassured about the outlook
for inflation. While municipal issues did not benefit directly from the
foreign demand for Treasuries that accompanied the drop in Treasury yields,
all fixed income securities compete for investment dollars on an after-tax
basis among domestic investors. Consequently, yields on long-term municipal
bonds also drifted lower in concert with comparable Treasury issues.
MUNICIPALITIES TOOK ADVANTAGE OF THE LOWER INTEREST RATES TO INCREASE
REFUNDINGS. As yields dropped across the fixed income spectrum late in the
year, municipal issuers used the occasion of lower rates to refund securities
with a higher rate. The resulting increase in the supply of municipal debt on
the market caused tax-exempt issues to underperform Treasury securities,
especially during December, when interest rates declined most significantly.
THE FIXED INCOME MARKET BENEFITED FROM STABLE MONETARY POLICY.
Faced with little evidence of accelerating inflation and fearful of
contributing to further turmoil overseas, the Federal Reserve
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 3 American Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
Board (Fed) kept interest rates unchanged after a 0.25% hike in the key
Federal Funds rate*** in March 1997. Despite the Asian crisis, Fed policy-
makers have given no hint of any imminent cut in short-term interest rates.
THE U.S. ECONOMY CONTINUED TO GROW RAPIDLY AND WITHOUT SIGNIFICANT INFLATION.
For all of 1997, the nation's total output of goods and services (GDP)
increased by 3.8%, the fastest growth rate since 1988. Meanwhile, unemployment
fell to a 24-year low of 4.6% late in the year. Despite the robust pace of
economic activity, inflation remained under control. At the consumer level,
prices increased by only 1.6% over the 12 months through January, while
producer prices actually declined during the same period. The steady stream of
good economic news put Americans in an ebullient mood, with consumer
confidence in December soaring to its highest level in 28 years.
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GEOGRAPHICAL DISTRIBUTION
- --------------------------------------------------------------------------------
As a percentage of total assets, on January 31, 1998.
<TABLE>
<S> <C> <C> <C>
Alabama -- Montana --
Alaska 2% Nebraska --
Arizona 3% Nevada 2%
Arkansas -- New Hampshire --
California 9% New Jersey --
Colorado LESS THAN 1% New Mexico 8%
Connecticut -- New York LESS THAN 1%
Delaware -- North Carolina --
Florida 2% North Dakota 5%
Georgia 9% Ohio --
Hawaii 2% Oklahoma --
Idaho -- Oregon --
Illinois 6% Pennsylvania --
Indiana 7% Rhode Island --
Iowa 1% South Carolina 1%
Kansas 1% South Dakota 1%
Kentucky -- Tennessee --
Louisiana 4% Texas 8%
Maine -- Utah 3%
Maryland 4% Vermont --
Massachusetts -- Virginia --
Michigan 10% Washington 2%
Minnesota 6% West Virginia --
Mississippi -- Wisconsin 2%
Missouri -- Wyoming --
</TABLE>
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 4 American Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
WE EXPECT THAT ECONOMIC FALLOUT FROM ASIA WILL BECOME INCREASINGLY EVIDENT
LATER THIS YEAR. As the reporting period ended, there was a growing
expectation among investors that the impact of the Asian crisis on the U.S.
economy might be less severe than previously feared. We believe, however, that
while the effects may be somewhat more benign than the worst-case scenarios
suggested, the full impact of the Asian crisis will only become evident as the
year unfolds. Specifically, we expect that reduced demand for U.S. goods in
Asia, coupled with intense pricing pressures from imports, may pinch corporate
profit margins enough to keep inflationary pressures in check without
significant credit-tightening moves by the Federal Reserve. In this
environment, we expect long-term interest rates to remain within a relatively
tight range around present levels, with a possible downward bias if Asian
problems more negatively impact the U.S. economy.
AT THIS ADVANCED STAGE OF THE BUSINESS CYCLE, WE BELIEVE IT IS PRUDENT TO
MAINTAIN HIGH STANDARDS OF CREDIT QUALITY IN THE PORTFOLIO. The confidence
shown by investors in the health of the domestic economy has led to a nearly
unprecedented contraction in yield differentials between low- and high-rated
municipal issues. At current levels, we believe that the marginal improvement
in yields offered by lower-rated debt does not provide adequate compensation
to take on the incremental credit risk. We will continue to search for issues
that offer the combination of compelling value and the potential for
significant improvement in underlying fundamentals.
GIVEN OUR OUTLOOK FOR RELATIVELY STABLE INTEREST RATES, WE FORESEE MAKING ONLY
MINOR ADJUSTMENTS TO THE PORTFOLIO'S EFFECTIVE DURATION IN COMING MONTHS. With
the fund's effective duration near the long end of our target range, we continue
to position the portfolio to
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1998 Annual Report 5 American Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
benefit from stable or falling interest rates. As noted earlier, we believe
the most likely scenario in the fixed income market is that long-term bond
yields will remain within a relatively narrow range. If the highly fluid
nature of the Asian crisis causes long-term interest rates to break out of
this trading range in either direction, we would adjust the fund's effective
duration accordingly. Please note that the fund generally maintains an
effective duration that is longer than that of its benchmark to help meet its
objective of high current income. This long duration, coupled with the fund's
leverage from preferred stock,*** could have a negative impact on the fund's
net asset value during a rising interest rate environment. The fund's longer
duration and leverage position could also benefit the fund during times of
falling interest rates.
Thank you for your investment in the American Municipal Income Portfolio.
Sincerely,
/s/ Douglas J. White /s/ Ronald R. Reuss
Douglas J. White Ronald R. Reuss
Portfolio Manager Portfolio Manager
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 6 American Municipal Income Portfolio
<PAGE>
Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES January 31, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ........ $132,664,317
Cash in bank on demand deposit ............................. 300,112
Accrued interest receivable ................................ 1,467,735
-----------------
Total assets ............................................. 134,432,164
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................. 12,037
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 4,122,180
Accrued investment management fee .......................... 38,717
Accrued remarketing agent fee .............................. 8,453
Accrued administrative fee ................................. 16,593
-----------------
Total liabilities ........................................ 4,197,980
-----------------
Net assets applicable to outstanding capital stock ....... $130,234,184
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ......................................... $124,031,021
Undistributed net investment income ........................ 318,471
Accumulated net realized loss on investments ............... (3,412,652)
Unrealized appreciation of investments ..................... 9,297,344
-----------------
Total - representing net assets applicable to capital
stock .................................................. $130,234,184
-----------------
-----------------
* Investments in securities at identified cost ............. $123,366,973
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets applicable to outstanding common stock .......... $86,734,184
Shares of common stock outstanding (authorized 1 million
shares of $0.01 par value) ............................... 5,756,267
Net asset value ............................................ $ 15.07
Market price ............................................... $ 13.44
LIQUIDATION PREFERENCE OF PREFERRED STOCK (NOTE 3):
Net assets applicable to outstanding preferred stock ....... $43,500,000
Shares of preferred stock outstanding (authorized 1 million
shares) .................................................. 1,740
Liquidation preference per share ........................... $ 25,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1998 Annual Report 7 American Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended January 31, 1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest ................................................... $ 6,741,993
-----------------
EXPENSES (NOTE 5):
Investment management fee .................................. 440,183
Administrative fee ......................................... 188,650
Remarketing agent fee ...................................... 110,560
Custodian and accounting fees .............................. 76,761
Transfer agent fees ........................................ 24,061
Reports to shareholders .................................... 33,690
Directors' fees ............................................ 12,165
Audit and legal fees ....................................... 45,212
Other expenses ............................................. 45,519
-----------------
Total expenses ........................................... 976,801
Less expenses paid indirectly .......................... (6,619)
-----------------
Total net expenses ....................................... 970,182
-----------------
Net investment income .................................... 5,771,811
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 938,539
Net change in unrealized appreciation or depreciation of
investments .............................................. 5,508,127
-----------------
Net gain on investments .................................. 6,446,666
-----------------
Net increase in net assets resulting from operations ... $12,218,477
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Annual Report 8 American Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/98 1/31/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 5,771,811 $ 6,133,591
Net realized gain on investments ........................... 938,539 397,404
Net change in unrealized appreciation or depreciation of
investments .............................................. 5,508,127 (3,270,332)
----------------- -----------------
Net increase in net assets resulting from operations ..... 12,218,477 3,260,663
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................... (4,363,250) (4,334,469)
Preferred stock dividends ................................ (1,565,698) (1,493,104)
----------------- -----------------
Total distributions ...................................... (5,928,948) (5,827,573)
----------------- -----------------
Total increase (decrease) in net assets .................. 6,289,529 (2,566,910)
Net assets at beginning of year ............................ 123,944,655 126,511,565
----------------- -----------------
Net assets at end of year .................................. $130,234,184 $123,944,655
----------------- -----------------
----------------- -----------------
Undistributed net investment income ........................ $ 318,471 $ 486,738
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Annual Report 9 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements
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(1) ORGANIZATION
................................
American Municipal Income Portfolio Inc. (the fund) is registered
under the Investment Company Act of 1940 (as amended) as a
diversified, closed-end management investment company. The fund
invests in a diverse range of municipal securities rated
investment grade or of comparable quality when purchased. These
securities may include municipal derivative securities, such as
inverse floating rate and inverse interest-only municipal
securities. Fund shares are listed on the New York Stock Exchange
under the symbol XAA.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not readily available, or if such
quotations or valuations are believed to be inaccurate,
unreliable or not reflective of market value, portfolio
securities are valued according to procedures adopted by the
fund's board of directors in good faith at "fair value", that is,
a price that the fund might reasonably expect to receive for the
security or other asset upon its current sale.
The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an independent
pricing service but where an active market exists are valued
using market quotations obtained from one or more dealers that
make markets in the securities or from a widely-used quotation
system. Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value.
Securities transactions are accounted for on the date securities
are purchased or sold. Realized gains and losses are calculated
on the identified-cost basis. Interest income, including
amortization of bond discount and premium, is recorded on an
accrual basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the fund on a when-issued or forward-commitment basis can take
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1998 Annual Report 10 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
place a month or more after the transaction date. During this
period, such securities do not earn interest, are subject to
market fluctuation and may increase or decrease in value prior to
their delivery. The fund segregates, with its custodian, assets
with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
fund's net asset value if the fund makes such purchases while
remaining substantially fully invested. As of January 31, 1998,
the fund had entered into outstanding when-issued or forward
commitments of $4,122,180.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. The fund also intends to distribute its
taxable net investment income and realized gains, if any, to
avoid the payment of any federal excise taxes.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
market discount amortization. The character of distributions made
during the year from net investment income or net realized gains
may differ from its ultimate characterization for federal income
tax purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains
(losses) were recorded by the fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, a reclassification adjustment
has been made to decrease undistributed net investment income and
decrease accumulated net realized loss on investments by $11,130.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly for
common shareholders and weekly for preferred shareholders.
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1998 Annual Report 11 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Common stock distributions are recorded as of the close of
business on the ex-dividend date and preferred stock dividends
are accrued daily. Net realized gains distributions, if any, will
be made at least annually. Distributions are payable in cash or,
for common shareholders pursuant to the fund's dividend
reinvestment plan, reinvested in additional shares of the fund's
common stock. Under the plan, common shares will be purchased in
the open market.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.
(3) REMARKETED
PREFERRED
STOCK
................................
American Municipal Income Portfolio has issued and, as of January
31, 1998, has outstanding 1,740 shares of remarketed preferred
stock (870 shares in class "T" and 870 shares in class "TH") (RP)
with a liquidation preference of $25,000 per share. The dividend
rate on the RP is adjusted every seven days (on Tuesdays for
class "T" and on Thursdays for class "TH"), as determined by the
remarketing agent. On January 31, 1998, the dividend rates were
3.30% and 3.50% for class "T" and "TH," respectively.
RP is a registered trademark of Merrill Lynch & Company.
(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the year
ended January 31, 1998, aggregated $55,720,418 and $54,475,632,
respectively.
(5) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the advisor and administrator):
The investment advisory agreement provides the advisor with a
monthly investment management fee equal to an annual rate of
0.35% of the fund's average weekly net assets (computed by
- ---------------------------------------------------------------------
1998 Annual Report 12 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
subtracting liabilities, which exclude preferred stock, from the
value of the total assets of the fund). For its fee, the advisor
provides investment advice and conducts the management and
investment activities of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annual rate of 0.15% of the
fund's average weekly net assets (computed by subtracting
liabilities, which exclude preferred stock, from the value of the
total assets of the fund). For its fee, the administrator
provides reporting, regulatory and record-keeping services for
the fund.
REMARKETING AGENT FEE
The fund has entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
The remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annual rate of 0.25% of the
fund's average amount of RP outstanding. For its fee, the
remarketing agent will remarket shares of RP tendered to it on
behalf of shareholders and will determine the applicable dividend
rate for each seven-day dividend period.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative and
remarketing agent fees, the fund is responsible for paying most
other operating expenses including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; taxes and
other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(6) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at January 31, 1998, which, if not offset by
subsequent capital gains, will expire on the fund's fiscal
year-ends as indicated
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1998 Annual Report 13 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
below. It is unlikely the board of directors will authorize a
distribution of any net realized capital gains until the
available capital loss carryovers have been offset or expire.
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- -----------
<S> <C>
$1,855,078 2003
1,557,574 2004
-------------
$3,412,652
-------------
-------------
</TABLE>
(7) PENDING
ACQUISITION
................................
On December 15,1997, Piper Jaffray Companies, Inc., the parent
company of the fund's investment advisor, announced that it had
entered into an agreement to be acquired by U.S. Bancorp. It is
anticipated that this acquisition will be completed in the second
quarter of 1998, subject to regulatory approval, the approval of
Piper Jaffray Companies shareholders and the satisfaction of
customary closing conditions.
U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of December 31, 1997, U.S. Bancorp was the 15th
largest U.S. commercial bank holding company, with assets of
nearly $71.3 billion. U.S. Bank National Association ("U.S.
Bank"), a wholly owned subsidiary of U.S. Bancorp, currently acts
as the investment advisor to 32 mutual funds (the "First American
Funds"). As of December 31, 1997, U.S. Bank, acting through its
First American Asset Management group, managed more than $55
billion in assets, including approximately $20.5 billion in
assets of the First American Funds.
Under the Investment Company Act of 1940, as amended (the "1940
Act"), consummation of the acquisition of Piper Jaffray Companies
by U.S. Bancorp will result in the assignment and automatic
termination of the fund's investment advisory agreement with
Piper Capital Management Incorporated. The 1940 Act requires that
any new investment advisory agreement for the fund be approved by
the fund's board of directors and shareholders.
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1998 Annual Report 14 American Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of common stock outstanding throughout
each period and selected information for each period are as
follows:
AMERICAN MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Year Ended January 31,
------------------------------ Period Ended
1998 1997 1996 1995 1/31/94(g)
------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Net asset value, common stock, beginning of period $13.98 $14.42 $11.97 $14.88 $14.13
------ ------ ------ ------ -------------
Operations:
Net investment income .............................................. 1.00 1.07 1.07 1.14 0.58
Net realized and unrealized gains (losses) on investments .......... 1.12 (0.50) 2.52 (2.92) 0.83
------ ------ ------ ------ -------------
Total from operations ............................................ 2.12 0.57 3.59 (1.78) 1.41
------ ------ ------ ------ -------------
Distributions to shareholders:
From net investment income
Paid to common shareholders ...................................... (0.76) (0.75) (0.85) (0.87) (0.44)
Paid to preferred shareholders ................................... (0.27) (0.26) (0.29) (0.23) (0.08)
From net realized gains
Paid to common shareholders ...................................... -- -- -- (0.02) --
Paid to preferred shareholders ................................... -- -- -- (0.01) --
------ ------ ------ ------ -------------
Total distributions to shareholders .............................. (1.03) (1.01) (1.14) (1.13) (0.52)
------ ------ ------ ------ -------------
Offering costs and underwriting discounts associated with the
remarketed preferred stock ......................................... -- -- -- -- (0.14)
------ ------ ------ ------ -------------
Net asset value, common stock, end of period ......................... $15.07 $13.98 $14.42 $11.97 $14.88
------ ------ ------ ------ -------------
------ ------ ------ ------ -------------
Market value, common stock, end of period ............................ $13.44 $12.13 $12.50 $11.63 $14.63
------ ------ ------ ------ -------------
------ ------ ------ ------ -------------
SELECTED INFORMATION
Total return, common stock, net asset value (a) ...................... 13.63% 2.41% 28.31% (13.46)% 8.49%
Total return, common stock, market value (b) ......................... 17.53% 3.29% 15.21% (14.44)% 0.40%
Net assets at end of period (in millions) ............................ $ 130 $ 124 $ 127 $ 112 $ 129
Ratio of expenses to average weekly net assets applicable to common
stock (c) .......................................................... 1.19% 1.22% 1.20% 1.20% 1.15%(h)
Ratio of net investment income to average weekly net assets applicable
to common stock (d)(e) ............................................. 5.10% 5.90% 5.81% 7.43% 6.92%(h)
Portfolio turnover rate
(excluding short-term securities) .................................. 46% 28% 54% 52% 31%
Remarketed preferred stock outstanding end of period (in millions) ... $ 44 $ 44 $ 44 $ 44 $ 44
Asset coverage ratio (f) ............................................. 299% 285% 291% 258% 297%
</TABLE>
(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) RATIO OF EXPENSES TO TOTAL AVERAGE WEEKLY NET ASSETS IS 0.78%, 0.78%,
0.77%, 0.74% AND 0.70% IN FISCAL YEARS 1998, 1997, 1996, 1995 AND 1994,
RESPECTIVELY. DIVIDENDS PAID TO SHAREHOLDERS ARE NOT CONSIDERED AN EXPENSE.
(d) RATIO REFLECTS TOTAL NET INVESTMENT INCOME LESS DIVIDENDS PAID TO PREFERRED
SHAREHOLDERS FROM NET INVESTMENT INCOME DIVIDED BY AVERAGE WEEKLY NET
ASSETS APPLICABLE TO COMMON STOCK.
(e) RATIO OF NET INVESTMENT INCOME TO TOTAL AVERAGE WEEKLY NET ASSETS IS 4.58%,
5.02%, 5.13%, 5.72%, AND 4.88% IN FISCAL YEARS 1998, 1997, 1996, 1995 AND
1994, RESPECTIVELY.
(f) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(g) COMMENCEMENT OF OPERATIONS WAS JUNE 25, 1993.
(h) ANNUALIZED.
- --------------------------------------------------------------------------------
1998 Annual Report 15 American Municipal Income Portfolio
<PAGE>
Investments in Securities
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN MUNICIPAL INCOME PORTFOLIO January 31, 1998
........................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (98.1%):
MUNICIPAL BONDS (97%):
ALASKA (2.4%):
State Housing Finance Corp., 5.50%, 12/1/17 ....... $ 3,000,000 $ 3,065,250
-------------
ARIZONA (3.2%):
Pima County United School District (FGIC), 8.38%,
7/1/13 .......................................... 3,000,000 4,199,130
-------------
CALIFORNIA (9.3%):
State General Obligation, 5.00%,
10/1/14-10/1/16 ................................. 6,000,000 6,029,240
Duarte Redevelopment Agency, 6.88%, 11/1/11 ....... 5,000,000(d) 6,063,000
-------------
12,092,240
-------------
COLORADO (0.4%):
Water Reserve and Power Development (Callable
9/1/06 at 101), 5.90%, 9/1/16 ................... 500,000 533,990
-------------
FLORIDA (2.3%):
Tampa Revenue, 4.88%, 11/15/18 .................... 3,150,000(e) 3,055,626
-------------
GEORGIA (9.1%):
Municipal Electrical Authority (FGIC) (Callable
1/1/03 at 102), 6.50%, 1/1/12 ................... 10,000,000(d) 11,901,400
-------------
HAWAII (2.2%):
State Department of Budget and Finance, 6.40%,
7/1/13 .......................................... 2,415,000 2,820,913
-------------
ILLINOIS (4.9%):
Augustana College Revenue (Callable 10/01/07 at
100), 5.70%, 10/1/11 ............................ 500,000 531,785
Chicago State University Revenue (MBIA) (Callable
12/1/04 at 102), 6.00%, 12/1/12 ................. 1,000,000 1,102,110
Rochelle Electric Systems (AMBAC) (Callable 5/1/06
at 102), 5.20%, 5/1/16 .......................... 750,000 756,225
Kane County School District (FGIC) (Callable 2/1/05
at 100), 5.75%, 2/1/15 .......................... 1,000,000 1,055,940
Health Facility Authority-Alexian Brothers Medical
Centre (Callable 1/1/02 at 100), 6.80%,
1/1/22 .......................................... 1,000,000 1,074,960
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Annual Report 16 American Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
Health Facility Authority-Lutheran General Hospital
(Callable 1/1/02-4/1/15 at 100-102), 7.00%,
4/1/08-4/1/14 ................................... $ 1,500,000 $ 1,803,150
-------------
6,324,170
-------------
INDIANA (6.3%):
Valparaiso-Porter County Public Library (FGIC)
(Callable 7/1/04 at 102), 6.25%, 1/1/16 ......... 1,500,000 1,664,760
Health Facility Authority-Columbus Hospital (FSA),
7.00%, 8/15/15 .................................. 2,670,000 3,342,867
Brownsburg School Building Corporation (FSA)
(Callable 2/1/05 at 102), 5.95%, 8/1/10 ......... 2,000,000 2,191,440
Municipal Bond Bank (Callable 2/1/04 at 102),
6.00%, 2/1/16 ................................... 1,000,000 1,063,260
-------------
8,262,327
-------------
IOWA (0.8%):
Sheldon Health Care Facilities (Callable 3/1/04 at
101), 6.15%, 3/1/16 ............................. 1,000,000 1,073,040
-------------
KANSAS (0.9%):
Kansas City Utility Systems Revenue (FGIC)
(Callable 9/1/04 at 102), 6.25%, 9/1/14 ......... 1,000,000 1,117,920
-------------
LOUISIANA (4.4%):
Desoto Parish Pollution Control (Callable 1/1/03 at
102), 7.23%, 1/1/19 ............................. 5,000,000 5,744,300
-------------
MARYLAND (4.2%):
Baltimore Parking Revenue - Series A (FGIC), 5.90%,
7/1/13 . 4,865,000 5,511,558
-------------
MICHIGAN (10.1%):
Clarkston Community Schools (MBIA) (Callable
05/01/07 at 100), 5.25%, 5/1/17 ................. 1,000,000 1,014,560
Comstock Park Public Schools (FGIC) (Callable
1/1/03 at 102), 7.88%, 5/1/11 ................... 3,145,000(d) 4,120,893
Hospital Financing Authority-Daughters Charity
(Callable 11/1/05 at 101), 5.25%, 11/1/15 ....... 3,000,000 3,052,470
Kent Hospital Financial Authority-Michigan
Hospitals (MBIA) (Callable 1/15/08 at 100),
7.25%, 1/15/13 .................................. 4,000,000(d) 4,945,840
-------------
13,133,763
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Annual Report 17 American Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
MINNESOTA (4.7%):
Minneapolis Special School District (FGIC), 5.41%,
2/1/15 .......................................... $ 3,630,000(d) $ 3,717,447
Eden Praire Multifamily Housing Revenue,
5.50%-5.60%, 1/20/18-7/20/28 .................... 1,400,000 1,412,158
State Housing and Finance Agency (Callable 7/1/02
at 102), AMT, 6.85%, 1/1/24 ..................... 875,000(b) 929,189
-------------
6,058,794
-------------
NEVADA (2.5%):
Washoe County School District (MBIA) (Callable
6/1/04 at 101), 5.75%, 6/1/12 ................... 3,000,000 3,208,350
-------------
NEW MEXICO (8.2%):
Mortgage Finance Authority, 6.40%-6.88%,
7/1/15-7/1/25 ................................... 9,575,000 10,636,891
-------------
NORTH DAKOTA (2.8%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 ......................................... 3,000,000 3,707,010
-------------
SOUTH CAROLINA (1.2%):
State Highway - Series B (Callable 7/1/06 at 102),
5.63%, 7/1/15 ................................... 1,500,000 1,619,625
-------------
SOUTH DAKOTA (1.2%):
Housing and Development Authority (Callable 5/1/04
at 102), 5.80%, 5/1/14 .......................... 1,500,000 1,564,740
-------------
TEXAS (8.2%):
Brazos River Authority Revenue (AMBAC), 5.13%,
5/1/19 .......................................... 1,000,000(e) 994,800
Arlington Independent School District (Callable
2/15/05 at 100), 6.00%, 2/15/15 ................. 2,275,000 2,437,844
El Paso General Obligation, 7.00%, 8/15/07 ........ 1,000,000 1,202,520
Fort Bend Independent School District (Callable
2/15/08 at 100), 5.00%, 2/15/14 ................. 2,000,000 2,018,820
North East Independent School District, 4.50%,
2/1/16 .......................................... 2,000,000 1,857,500
United Independent School District (Callable
8/15/06 at 100), 5.00%, 8/15/14 ................. 1,150,000 1,159,522
Houston Water Conveyance System (AMBAC), 7.50%,
12/15/16 ........................................ 745,000 983,922
-------------
10,654,928
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Annual Report 18 American Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
UTAH (3.6%):
Municipal Power-San Juan Project (MBIA) (Callable
6/1/04 at 102), 6.25%, 6/1/14 ................... $ 1,300,000 $ 1,441,440
NEBO County School District (FGIC) (Callable
6/15/04 at 100), 5.75%, 6/15/14 ................. 3,000,000 3,195,390
-------------
4,636,830
-------------
WASHINGTON (2.4%):
Douglas County Public Utility District (MBIA)
(Callable 1/1/05 at 102), 6.00%, 1/1/15 ......... 1,000,000 1,086,770
State Public Power (FSA), 5.25%, 7/1/16 ........... 1,000,000 1,010,230
State Public Power Supply, 5.13%, 7/1/18 .......... 1,000,000 985,640
-------------
3,082,640
-------------
WISCONSIN (1.7%):
Health and Education Facilities-Beloit Hospital
(Callable 7/1/03 at 102), 5.80%-5.90%,
7/1/09-7/1/11 ................................... 1,180,000 1,231,924
Health and Education Facilities-Waukesha Hospital
(AMBAC) (Callable 8/15/06 at 102), 5.50%,
8/15/15 ......................................... 1,000,000 1,038,070
-------------
2,269,994
-------------
Total Municipal Bonds
(cost: $117,211,483) .......................... 126,275,429
-------------
MUNICIPAL DERIVATIVE SECURITIES (1.1%):
INVERSE FLOATER (1.1%):
Duluth, Minnesota, Health Care Trust Certificate,
Series F2, 10.27%, 5/1/18
(cost: $1,155,490) .............................. 1,110,000(b)(d) 1,388,888
-------------
Total Municipal Long-Term Securities
(cost: $118,366,973) .......................... 127,664,317
-------------
MUNICIPAL SHORT-TERM SECURITIES (3.8%):
ILLINOIS (0.8%):
Illinois Health Facilities Authority, VRDN, 3.70%,
11/1/20 ......................................... 1,100,000(b)(c) 1,100,000
-------------
INDIANA (0.6%):
Indiana Hospital Equipment Finance Authority,
3.55%, 12/1/15 .................................. 800,000(c) 800,000
-------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Annual Report 19 American Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
AMERICAN MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
NEW YORK (0.1%):
New York City, Series C, 4.00%, 10/1/23 ........... $ 100,000(c) $ 100,000
-------------
NORTH DAKOTA (2.3%):
Grand Forks, Health Care, United Hospital, 3.70%,
12/1/16 ......................................... 3,000,000(c) 3,000,000
-------------
Total Municipal Short-Term Securities
(cost: $5,000,000) ............................ 5,000,000
-------------
Total Investments in Securities
(cost: $123,366,973) (f) ...................... $ 132,664,317
-------------
-------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
AMT - ALTERNATIVE MINIMUM TAX. AS OF JANUARY 31, 1998, THE AGGREGATE MARKET
VALUE OF SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX IS $929,189,
WHICH REPRESENTS 0.7% OF NET ASSETS.
VRDN - VARIABLE RATE DEMAND NOTE
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE
SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON JANUARY 31, 1998.
(c) FLOATING OR VARIABLE RATE OBLIGATION MATURING IN MORE THAN ONE YEAR. THE
INTEREST RATE, WHICH IS BASED ON SPECIFIC, OR AN INDEX OF, MARKET INTEREST
RATES, IS SUBJECT TO CHANGE PERIODICALLY AND IS THE EFFECTIVE RATE ON
JANUARY 31, 1998. THIS INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH
ALLOWS THE RECOVERY OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT
EXCEEDING ONE YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN
REPRESENTS FINAL MATURITY.
(d) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT AND MAY NOT BE SOLD TO
THE PUBLIC. THESE SECURITIES ARE CONSIDERED ILLIQUID. THE FUND IS NOT
LIMITED IN ITS ABILITY TO INVEST IN ILLIQUID SECURITIES. AT THE DISCRETION
OF THE FUND, THESE SECURITIES, EXCEPT DULUTH MINNESOTA HEALTH CARE TRUST
CERTIFICATE, MAY BE CONVERTED WITHIN SEVEN DAYS INTO SECURITIES THAT ARE
AVAILABLE FOR SALE TO THE PUBLIC. AT JANUARY 31, 1998, THE AGGREGATE VALUE
OF THESE INVESTMENTS WAS $32,137,468 OR 24.7% OF TOTAL NET ASSETS.
INFORMATION REGARDING THESE SECURITIES IS AS FOLLOWS:
<TABLE>
<CAPTION>
SECURITY PAR DATE ACQUIRED COST BASIS
- ---------------------------------------------------- ----------- ------------- -----------
<S> <C> <C> <C>
DUARTE REDEVELOPMENT AGENCY $ 5,000,000 9/96-2/97 $ 5,855,466
MUNICIPAL ELECTRICAL AUTHORITY 10,000,000 10/95 10,879,724
COMSTOCK PARK PUBLIC SCHOOL 3,145,000 10/95-7/96 3,744,197
KENT HOSPITAL FINANCIAL AUTHORITY-MICHIGAN HOSPITALS 4,000,000 9/96-2/97 4,707,224
MINNEAPOLIS SPECIAL SCHOOL DISTRICT 3,630,000 2/97 3,408,128
DULUTH MINNESOTA HEALTH CARE TRUST CERTIFICATE 1,110,000 5/94 1,155,489
</TABLE>
(E) ON JANUARY 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A
WHEN-ISSUED BASIS WAS $4,122,180.
(F) ON JANUARY 31, 1998, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $123,336,673. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 9,376,568
GROSS UNREALIZED DEPRECIATION ...... (48,924)
------------
NET UNREALIZED APPRECIATION ...... $ 9,327,644
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1998 Annual Report 20 American Municipal Income Portfolio
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
AMERICAN MUNICIPAL INCOME PORTFOLIO INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of American Municipal Income
Portfolio Inc. as of January 31, 1998, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period ended January 31, 1998, and the financial
highlights presented in note 8 to the financial statements. These financial
statements and the financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers and, where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
American Municipal Income Portfolio Inc. as of January 31, 1998, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods stated in the first paragraph above, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 6, 1998
- ---------------------------------------------------------------------
1998 Annual Report 21 American Municipal Income Portfolio
<PAGE>
Federal Income Tax Information
- --------------------------------------------------------------------------------
The following per-share information describes the federal tax
treatment of distributions made during the fiscal year. Exempt-
interest dividends are exempt from federal income tax and should
not be included in your gross income, but need to be reported on
your income tax return for informational purposes. Please consult
a tax advisor on how to report these distributions at the state
and local levels.
COMMON STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.94% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- ---------------------------------------- --------
<S> <C>
February 26, 1997 ...................... $0.06275
March 26, 1997 ......................... 0.06275
April 23, 1997 ......................... 0.06275
May 28, 1997 ........................... 0.06275
June 25, 1997 .......................... 0.06275
July 23, 1997 .......................... 0.06275
August 27, 1997 ........................ 0.06275
September 24, 1997 ..................... 0.06275
October 29, 1997 ....................... 0.06275
November 24, 1997 ...................... 0.06775
December 17, 1997 ...................... 0.06275
January 12, 1998 ....................... 0.06275
--------
Total .............................. $0.75800
--------
--------
</TABLE>
PREFERRED STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.94% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
PAYABLE DATE
- ----------------------------------------
<S> <C>
Total class T .......................... $899.65
Total class TH ......................... $900.00
</TABLE>
- ---------------------------------------------------------------------
1998 Annual Report 22 American Municipal Income Portfolio
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
20, 1997. Each matter voted upon at that meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
1. The fund's preferred shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 1,125 16
William H. Ellis ....................... 1,125 16
</TABLE>
2. The fund's preferred and common shareholders, voting as a
class, elected the following directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
Jaye F. Dyer ........................... 3,594,544 47,731
Karol D. Emmerich ...................... 3,593,617 48,658
Luella G. Goldberg ..................... 3,593,150 49,125
David A. Hughey ........................ 3,594,544 47,731
George Latimer ......................... 3,593,368 48,907
</TABLE>
3. The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's Boards of Directors of KPMG
Peat Marwick LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 1998. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
-------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,591,527 25,489 25,258 --
</TABLE>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan. It's a convenient and economical way to buy
- ---------------------------------------------------------------------
1998 Annual Report 23 American Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
additional shares of the fund by automatically reinvesting
dividends and capital gains. The plan is administered by
Investors Fiduciary Trust Company (IFTC), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions
will begin with the next distribution paid, provided your request
is received at least 10 days before the record date for that
distribution.
If your shares are in certificate form, you may join the plan
directly and have your distributions reinvested in additional
shares of the fund. To enroll in this plan, call IFTC at
1-800-543-1627. If your shares are registered in your brokerage
firm's name or another name, ask the holder of your shares how
you may participate.
Banks, brokers or nominees, on behalf of their beneficial owners
who wish to reinvest dividend and capital gains distributions,
may participate in the plan by informing IFTC at least 10 days
before each share's dividend and/or capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend
payment date, IFTC will buy shares of the fund on the New York
Stock Exchange (NYSE) or elsewhere on the open market.
The fund will not issue any new shares in connection with the
plan. All reinvestments will be at a market price plus a pro rata
share of any brokerage commissions, which may be more or less
than the fund's net asset value per share. The number of shares
allocated to you is determined by dividing the amount of the
dividend or distribution by the applicable price per share.
There is no direct charge for reinvestment of dividends and
capital gains, since IFTC fees are paid for by the fund. However,
each participant pays a pro rata portion of the brokerage
commissions. Brokerage charges are expected to be lower than
those for
- ---------------------------------------------------------------------
1998 Annual Report 24 American Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
individual transactions because shares are purchased for all
participants in blocks. As long as you continue to participate in
the plan, distributions paid on the shares in your account will
be reinvested.
IFTC maintains accounts for plan participants holding shares in
certificate form and will furnish written confirmation of all
transactions, including information you need for tax records.
Reinvested shares in your account will be held by IFTC in
noncertificated form in your name.
TAX INFORMATION
Distributions invested in additional shares of the fund are
subject to income tax, just as they would be if received in cash.
Shareholders, as required by the Internal Revenue Service, will
receive Form 1099 regarding the federal tax status of the prior
year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate
your participation in the plan at any time by giving written
notice to IFTC. If your shares are registered in your brokerage
firm's name, you may terminate your participation via verbal or
written instructions to your investment professional. Written
instructions should include your name and address as they appear
on the certificate or account.
If notice is received at least 10 days before the record date,
all future distributions will be paid directly to the shareholder
of record.
If your shares are issued in certificate form and you discontinue
your participation in the plan, you (or your nominee) will
receive an additional certificate for all full shares and a check
for any fractional shares in your account.
- ---------------------------------------------------------------------
1998 Annual Report 25 American Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the plan.
Should the plan be amended or terminated, participants will be
notified in writing at least 90 days before the record date for
such dividend or distribution. The plan may also be amended or
terminated by IFTC with at least 90 days written notice to
participants in the plan.
Any question about the plan should be directed to your investment
professional or to Investors Fiduciary Trust Company, P.O. Box
419432, Kansas City, Missouri 64141, 1-800-543-1627.
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1998 Annual Report 26 American Municipal Income Portfolio
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
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1998 Annual Report 27 American Municipal Income Portfolio
<PAGE>
GLOSSARY OF TERMS ***
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BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments.
EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant. It is important to remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure when interest rate changes are small, rapid and occur equally across all
points of the yield curve. In addition, effective duration is difficult to
calculate precisely, especially in the case of a
bond that is callable prior to maturity, and can be greatly affected by interest
rate changes.
FEDERAL FUNDS RATE
The federal funds rate is the interest charged by banks with excess reserves at
a Federal Reserve district bank to banks needing overnight loans to meet reserve
requirements. The federal funds rate is the most sensitive indicator of the
direction of interest rates, since it is set daily by the market, unlike the
prime rate and the discount rate, which are periodically changed by banks and
the Federal Reserve Board, respectively.
PREFERRED STOCK
This fund holds preferred stock, which pays dividends at a specified rate and
has preference over common stock in the payments of dividends and the
liquidation of assets. Rates paid on preferred stock are reset every seven days
and are based on short-term, tax-exempt interest rates. Preferred shareholders
accept these short-term rates in exchange for low credit risk (shares of
preferred stock are rated AAA by Moody's and S&P) and high liquidity (shares of
preferred stock trade at par and are remarketed every seven days). The proceeds
from the sale of preferred stock are invested at intermediate- and long-term
tax-exempt rates. Because these intermediate- and long-term rates are normally
higher than the short-term rates paid on preferred stock, common shareholders
benefit by receiving higher dividends and/or an increase to the dividend
reserve. However, the risk of having preferred stock is that if short-term rates
rise higher than intermediate- and long-term rates, creating an inverted yield
curve, common shareholders may receive a lower rate of return than if their fund
did not have any preferred stock outstanding. This type of economic environment
is unusual and historically has been short term in nature. Investors should also
be aware that the issuance of preferred stock results in the leveraging of
common stock, which increases the volatility of both the net asset value of the
fund and, potentially, the market value of shares of common stock.
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 28 American Municipal Income Portfolio
<PAGE>
DIRECTORS
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DAVID T. BENNETT, Chairman, Highland Homes, Inc., USL Products, Inc., Kiefer
Built, Inc., of Counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A.
JAYE F. DYER, President, Dyer Management Company
WILLIAM H. ELLIS, Retired President, Piper Jaffray Companies Inc., Piper Capital
Management Incorporated
KAROL D. EMMERICH, President, The Paraclete Group
LUELLA G. GOLDBERG, Director, TCF Financial, ReliaStar Financial Corp., Hormel
Foods Corp.
DAVID A. HUGHEY, Retired Executive Vice President and Chief Administrative
Officer of Dean Witter InterCapital Inc. and Dean Witter Trust Co.
GEORGE LATIMER, Chief Executive Officer, National Equity Funds
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM H. ELLIS, Chairman of the Board
PAUL A. DOW, President
ROBERT H. NELSON, Vice President and Treasurer
SUSAN SHARP MILEY, Secretary
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED
222 South Ninth Street, Minneapolis, MN 55402-3804
CUSTODIAN, ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania, Kansas City, MO 64105-1307
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
KPMG PEAT MARWICK LLP
4200 Norwest Center, Minneapolis, MN 55402
LEGAL COUNSEL
- --------------------------------------------------------------------------------
DORSEY & WHITNEY LLP
220 South Sixth Street, Minneapolis, MN 55402
FOR MORE INFORMATION
BY PHONE [LOGO]
800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.
BY MAIL [LOGO]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at
800 866-7778, or mail a request to us.
ON-LINE [LOGO]
http://www.piperjaffray.com/
<PAGE>
[LOGO]
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
#21410 3/1998 071-98
