<PAGE>
MINNESOTA MUNICIPAL
TERM TRUSTS
* * *
SEMIANNUAL REPORT
1995
<PAGE>
TABLE OF CONTENTS
AVERAGE ANNUALIZED TOTAL RETURNS...... 1
FUND PERFORMANCE...................... 2
LETTER TO SHAREHOLDERS................ 3
TAX REFORM PROPOSALS.................. 9
FINANCIAL STATEMENTS AND NOTES........ 10
INVESTMENTS IN SECURITIES
MNA................................ 22
MNB................................ 25
SHAREHOLDER UPDATE.................... 28
MINNESOTA MUNICIPAL TERM TRUSTS
Minnesota Municipal Term Trust (MNA) and Minnesota Municipal Term Trust II
(MNB) are non-diversified, closed-end investment companies. The investment
objectives of MNA and MNB are to provide high current income exempt from
regular federal income tax and Minnesota personal income tax and to return
$10 per share on or shortly before April 15, 2002, and April 25, 2003,
respectively -- although each fund's termination may be extended up to five
years if necessary to assist the fund in reaching its $10 per share
objective. To realize their objectives, the funds invest in investment-grade,
tax-exempt Minnesota municipal obligations including municipal zero-coupon
securities. As with other investment companies, there can be no assurance
these funds will achieve their objectives. Since MNA's and MNB's inceptions,
September 26, 1991, and April 24, 1992, respectively, they have been rated Af
by Standard & Poor's Corporation (S&P).* Minnesota Municipal Term Trust
shares trade on the New York Stock Exchange under the symbol MNA, and
Minnesota Municipal Term Trust II shares trade on the American Stock Exchange
under the symbol MNB.
*THE FUNDS ARE RATED Af, WHICH MEANS INVESTMENTS IN EACH FUND HAVE AN OVERALL
CREDIT QUALITY OF A. CREDIT QUALITIES ARE ASSESSED BY STANDARD & POOR'S
MUTUAL FUNDS RATING GROUP. S&P DOES NOT EVALUATE THE MARKET RISK OF AN
INVESTMENT WHEN ASSIGNING A CREDIT RATING. SEE STANDARD & POOR'S CORPORATE
AND MUNICIPAL RATING DEFINITIONS FOR AN EXPLANATION OF A.
THE FUNDS ALSO HAVE BEEN GIVEN A MARKET RISK RATING BY S&P, WHICH WE CANNOT
PUBLISH DUE TO NASD REGULATIONS. RISK RATINGS EVALUATE VARIOUS INVESTMENT
RISKS THAT CAN AFFECT THE PERFORMANCE OF A BOND FUND AND INDICATE THE FUNDS'
OVERALL STABILITY AND SENSITIVITY TO CHANGING MARKET CONDITIONS. THESE
RATINGS ARE AVAILABLE BY CALLING S&P AT 1-800-424-FUND.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
MINNESOTA MUNICIPAL TERM TRUST
[GRAPHIC]
MINNESOTA MUNICIPAL TERM TRUST II
[GRAPHIC]
Average annualized total return figures are through June 30, 1995, and are
based on the change in net asset value (NAV) and reflect the reinvestment of
distributions but do not reflect the funds' sales charges. NAV-based
performance is used to measure investment management results.
Average annualized total return figures based on the change in market price
for the one-year, five-year and since inception periods ended June 30, 1995,
were 7.75%, 5.98% and 6.05% for MNA and 5.00%, 4.57% and 4.71% for MNB,
respectively. These figures also assume reinvested distributions and do not
reflect the funds' sales charges.
The Lehman Brothers 7-Year Municipal Bond Index is an unmanaged index that
represents the 7-year, high-quality, tax-exempt bond market. It assumes all
distributions are reinvested.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of perpetual and term
trust closed-end municipal bond funds as characterized by Lipper Analytical
Services. This average does not include any Minnesota funds; however, we
chose not to compare the returns of MNA and MNB to the Lipper Closed-End
Minnesota Municipal Bond Funds Average due to the small number of funds (six)
included in that average.
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.
1
<PAGE>
FUND PERFORMANCE
NET ASSET VALUE SUMMARY PER SHARE
MINNESOTA MINNESOTA
MUNICIPAL MUNICIPAL
TERM TRUST TERM TRUST II
INCEPTION INCEPTION
9/26/91 4/24/92
Initial Offering Price.............................. $10.00 $10.00
Initial Offering and Underwriting Expenses.......... - $0.66 - $0.67
(Common and Preferred Stock)
Accumulated Realized Gains or Losses
At 6/30/95.......................................... + $0.01 - $0.03
------- -------
SUBTOTAL............................................ $9.35 $9.30
Undistributed Net Investment Income
(Dividend Reserve) At 6/30/95....................... + $0.52 + $0.36
Unrealized Appreciation on Investments
At 6/30/95.......................................... + $1.02 + $0.75
------- -------
NET ASSET VALUE ON 6/30/95.......................... $10.89 $10.41
DISTRIBUTION HISTORY
MINNESOTA MINNESOTA
MUNICIPAL MUNICIPAL
TERM TRUST TERM TRUST II
INCEPTION INCEPTION
9/26/91 4/24/92
Total Monthly Income Dividends
(On a Common Share Basis) Through 6/30/95
Paid to Common Shareholders...................... $2.17 $1.77
Paid to Preferred Shareholders................... +$0.53 +$0.43
Total Capital Gains Distributions
Through 6/30/95..................................... +$0.01 +$0.00
------- -------
TOTAL DISTRIBUTIONS PER SHARE ON 6/30/95............ $2.71 $2.20
(ON A COMMON SHARE BASIS)
2
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
August 15, 1995
Dear Shareholders:
WE ARE PLEASED WITH THE ONGOING PERFORMANCE OF THE MINNESOTA MUNICIPAL TERM
TRUSTS (MNA AND MNB). The funds have objectives of providing high current
income exempt from regular federal income tax and Minnesota personal income
tax and returning $10 per share upon their termination dates. MNA and MNB
have maintained common stock distribution yields of 6.10% and 5.90%,
respectively, which have been unchanged since each fund's inception.* The
chart on the page to the left shows the history of the funds' net asset value
since inception. As of June 30, 1995, MNA and MNB had net asset values of
$10.89 and $10.41, respectively. The other chart on the left shows the
history of distributions paid in the funds since inception.
WE HAVE ADDED THE NET ASSET VALUE SUMMARY AND DISTRIBUTION HISTORY CHARTS TO
THE REPORT BECAUSE WE BELIEVE THEY PROVIDE A MORE COMPLETE PICTURE OF THE
FUNDS' RELATIVE PERFORMANCE. The term trusts are unusual because they have
defined termination dates and because there are very few tax-exempt term
trusts. These factors make it difficult to measure the funds' performance
relative to a benchmark. It is also a
[PHOTO]
[PHOTO]
Doug White, CFA, (above)
SHARES RESPONSIBILITY FOR THE MANAGEMENT OF THE
MINNESOTA MUNICIPAL TERM TRUSTS. HE HAS 12 YEARS OF FINANCIAL EXPERIENCE.
Ron Reuss, (below)
SHARES RESPONSIBILITY FOR THE MANAGEMENT OF THE MINNESOTA
MUNICIPAL TERM TRUSTS. HE HAS 26 YEARS OF FINANCIAL EXPERIENCE.
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.
*THESE FIGURES REPRESENT ANNUALIZED YIELDS FOR THE SIX MONTHS ENDED JUNE 30,
1995, BASED ON THE INITIAL OFFERING PRICE OF $10 PER SHARE. ACTUAL YIELDS MAY
DIFFER, DEPENDING ON THE INDIVIDUAL SHAREHOLDER'S COST BASIS. THESE YIELD
FIGURES REPRESENT PAST PERFORMANCE. YIELDS ON FUND SHARES WILL FLUCTUATE.
3
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
challenge to evaluate the funds' performance because as they near their
respective termination dates, we will continue to shorten the portfolios'
effective duration to reduce investment risk. This will likely cause the
funds to underperform a comparable group of funds, such as the Lipper
average, because this group includes both perpetual and term trust funds.
Therefore, to help evaluate the funds' performance as we shorten their
effective duration, we will also be comparing the funds to shorter Lehman
Brothers indexes as they near termination.
WE CONTINUE TO BELIEVE THE MUNICIPAL BOND MARKET REPRESENTS AN ATTRACTIVE
OPPORTUNITY FOR LONG-TERM INVESTORS. Since early 1995, the municipal bond market
has lagged the Treasury bond market due to ongoing concerns about proposed tax
reforms (see page 9 for more information), the Orange County, California, crisis
and competition from a robust stock market. These concerns have resulted in
lower municipal bond prices, making them a relatively good value -- especially
considering the declining supply of new issues. The supply of new issue
municipal bonds in Minnesota decreased by 60% in 1994 compared to 1993 and
another 8% in the first half of 1995 compared to the first six months of 1994.
At the same time, demand for municipal bonds has steadily increased because the
Tax Reform Act of 1986 has outlawed most other tax shelters. The term trusts
should benefit from this limited supply and strong demand, as this type of
imbalance generally improves municipal bond prices.
MINNESOTA MUNICIPAL TERM TRUST
PORTFOLIO COMPOSITION
JUNE 30, 1995
[GRAPHIC]
4
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
MINNESOTA MUNICIPAL TERM TRUST II
PORTFOLIO COMPOSITION
JUNE 30, 1995
[GRAPHIC]
THE STRATEGY WE USE TO MANAGE THE TERM TRUSTS CONTINUES TO BE TO REDUCE THE
FUNDS' INVESTMENT RISK AS THEY NEAR THEIR TERMINATION DATES BY GRADUALLY
SHORTENING THE EFFECTIVE DURATION OF THE PORTFOLIOS. We do this by investing
in shorter-term municipal bonds as the funds approach their termination
dates. As the funds near termination, their net asset values will likely
decrease since the market values of many of the bonds in the portfolios are
currently higher than they will be at maturity. As these bonds move closer to
maturity, their market values will likely decline toward their maturity
values. Also, each fund has a dividend reserve (shown on page 2) that may be
used to help maintain the monthly dividend. However, please remember that the
dividend reserve is not guaranteed and may fluctuate.
ANOTHER TECHNIQUE WE USE TO MANAGE THE FUNDS IS TO HOLD BONDS THAT HAVE BEEN
CROSSOVER REFUNDED OR PREREFUNDED. By the end of June, approximately 23% of
MNA's and 20% of MNB's holdings had been crossover refunded or prerefunded to
their first call date. Prerefunded bonds are backed by U.S. government
obligations, which eliminates credit risk on this portion of the portfolios.
However, crossover refunded bonds continue to be paid from the revenue or tax
originally pledged by the issuer, so credit risk on these bonds is unchanged.
Interest rate risk on both crossover refunded and prerefunded bonds is
eliminated on their call dates, which is close to the funds' termination
date, because these holdings effectively
5
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
mature on those call dates. Prior to their call dates, however, these
securities are still subject to interest rate risk and can fluctuate in
value. Securities in the portfolio that are not crossover refunded or
prerefunded are still susceptible to both interest rate and credit risk until
they mature or are sold.
THE FUNDS' ISSUANCE OF PREFERRED STOCK HAS PROVED BENEFICIAL TO COMMON
SHAREHOLDERS DURING THE PAST SIX MONTHS. Long-term interest rates have
remained higher than short-term rates, allowing the funds to earn higher
income than the monthly common stock dividend they are paying out. As a
result, we have been able to add to each fund's dividend reserve. While the
reserve is not guaranteed, it helps maintain common stock distributions in
times when the fund may be paying higher rates on preferred stock. Rates paid
on preferred stock (3.65% for MNA and 3.62% for MNB on August 15) 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 interest 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 funds and the market value of shares of common stock.
6
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
ALTHOUGH A LARGE PORTION OF EACH PORTFOLIO IS INVESTED IN MINNESOTA MUNICIPAL
REVENUE BONDS THAT ARE BACKED SOLELY BY REVENUE GENERATED BY THE PROJECT, WE
BELIEVE WE HAVE BEEN ABLE TO MINIMIZE THE CREDIT RISK ASSOCIATED WITH THESE
INVESTMENTS. Our strategy of managing credit risk, or the risk of failure of
the issuer to make payment, involves extensive due diligence and credit
analysis prior to purchasing these bonds as well as while they are held in
the portfolios. This research, which goes beyond the ratings issued by
Moody's or S&P, helps ensure we maintain investment-grade portfolios. For
example, if a bond is rated A- by Moody's or S&P and, after completing our
research, we believe it should only be rated BBB+, we may sell the bond in
anticipation of the bond's rating being downgraded. If a bond's rating is
downgraded, not only does it have a higher risk of default, but the value of
the bond will also fall due to its lower rating. While we have not
experienced any problems associated with payment defaults so far, these funds
do have credit risk and the failure of an issuer to make payments could
result in a decrease in net asset value.
MINNESOTA CONTINUES TO ENJOY A DIVERSE ECONOMY, WHICH MINIMIZES THE CONCERN
OF GEOGRAPHIC DIVERSIFICATION THAT MANY OTHER STATE-SPECIFIC FUNDS
EXPERIENCE. No single company or industry dominates in Minnesota; seven
industries each account for 8% to 20% of the state's economy. As a result,
Minnesota usually has less severe cycles of expansion and recession than most
other states and even the United States as a whole. The state's unemployment
rate is typically one or two percentage points less than the national
average. In addition, the credit quality of many Minnesota school district
issues has been raised by a program that allows school districts to apply for
state guarantees. This enables the school districts to receive the state's AA
credit rating and reduces the school districts' cost of borrowing.
7
<PAGE>
MINNESOTA MUNICIPAL TERM TRUSTS
WE HAVE BEEN CLOSELY MONITORING THE PORTFOLIOS AND HAVE MADE FEW CHANGES
DURING THE PAST SIX MONTHS BECAUSE WE BELIEVE THEIR CURRENT STRUCTURES ARE
APPROPRIATE GIVEN THEIR OBJECTIVES AND THE CURRENT ECONOMIC ENVIRONMENT. In
addition, we have maintained their structure in an effort to avoid paying
capital gains distributions which would be generated if we sold a bond at a
gain and were unable to offset that gain by selling another bond at a loss.
Capital gains distributions are taxable. The funds remain fully invested in
investment-grade, Minnesota tax-exempt municipal bonds at yields that are
generally higher than yields on bonds available today with similar quality
and maturities. Average call protection on the portfolios extends
approximately to the funds' termination dates. Currently, we don't plan to
make any substantial changes in the portfolios; however, we will continue to
reduce the effective duration of the portfolios, when appropriate, as the
funds near termination.
GOING FORWARD, WE BELIEVE THE CURRENT MARKET ENVIRONMENT SHOULD CONTINUE TO
PROVIDE MUNICIPAL BOND INVESTORS WITH ATTRACTIVE AFTER-TAX RETURNS. For
example, a 6.00% tax-exempt yield for someone in the 41.4% combined federal
and state of Minnesota tax bracket represents the equivalent of a 10.24%
taxable return.+ This compares favorably to the current inflation rate of
3.00%.
Thank you for your investment in the Minnesota Municipal Term Trusts. We
consider it a privilege to manage your money and remain committed to serving
your investment needs.
Sincerely,
/s/ Ronald R. Reuss /s/ Douglas J. White
Ronald Reuss Douglas White
Co-manager Co-manager
+THIS YIELD IS USED FOR ILLUSTRATIVE PURPOSES ONLY AND IS NOT INDICATIVE OF
AN INVESTMENT IN THE FUNDS.
8
<PAGE>
TAX REFORM PROPOSALS
Over the past several years, a number of tax changes have been proposed by
politicians responding to public dissatisfaction. Among these tax reform
proposals are a flat tax, a sales tax, a consumed income tax and a
progressive income tax. Although there is no certainty when or even if these
changes would be enacted, they do have important implications for investors
and may have already had some impact on the tax-exempt municipal bond market.
Among the different tax reforms, the flat tax proposal has generated more
interest and publicity than any of the other proposals. The concept behind
the best-known flat tax proposal by Representative Dick Armey is that it
recognizes all taxpayers as equal by taxing all wage or salary income at a
flat rate. The flat tax would also do away with current deductions,
exemptions and credits such as interest on home mortgage loans, charitable
contributions, state and local taxes, and medical expenses. Also under this
proposal, Social Security benefits and income from savings and investments
would be granted a tax-exempt status.
While there are many varying flat tax initiatives, they all share some common
elements of which municipal bond investors should be aware. All flat tax
proposals would only tax income from wages and salary and would exempt from
tax the interest, dividends and capital gains earned on investments and real
estate. Proponents of a flat tax argue that this would encourage more people
to save money and would be good for investments. However, opponents of a flat
tax say it would hurt tax-exempt municipal bond investors because municipal
bonds currently have interest yields that are lower than taxable interest
yields because the interest paid on municipal bonds is free from federal
income tax. If all interest income were free of taxes, the advantage of
investing in municipal securities would be eliminated and their prices would
likely fall because municipal bonds pay lower interest yields than taxable
bonds with similar maturities and credit quality. Some analysts believe the
possibility of a flat tax has already turned away some municipal bond
investors, creating a scare in the municipal bond market.
In spite of tax reform's increasing popularity, many taxpayers -- including
special interest groups, homeowners and municipal bond investors and issuers,
among others -- have too much to lose not to put up a fight. In addition, it
would take several years for any type of tax reform to be enacted and many
key members of Congress have already said that any major reform would need to
include a provision that would offset the negative impact on existing
municipal bond investors. Until there is evidence that a major tax reform is
closer to reality, we will maintain our current strategy of managing the
municipal term trusts; however, we will be closely monitoring these tax
change proposals. We encourage investors to keep an eye on the tax reform
debate as well, but strongly suggest they continue to take advantage of the
tax-free income they can earn by investing in municipal bonds.
9
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST
JUNE 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (96.9%):
ELECTRIC REVENUE (7.7%):
Northern Minnesota Municipal Power, 7.25%, 1/1/16 ... $ 4,850,000 5,263,560
Northern Municipal Power, Zero-Coupon (AMBAC),
6.39%-6.94%, 1/1/06-1/1/10 ........................... 3,340,000(b) 1,489,593
Southern Municipal Power (Prerefunded to 1/1/96),
6.75%, 1/1/13 ........................................ 250,000(d) 258,722
----------
7,011,875
----------
GENERAL OBLIGATIONS (18.2%):
Delano ISD (AMBAC) (Crossover refunded to 2/1/01),
7.25%, 2/1/11 ........................................ 300,000(d) 337,026
Farmington School District (MBIA), 6.80%, 2/1/12 ...... 800,000 857,312
Mankato School District (CGIC) (Crossover refunded to
2/1/02), 6.35%, 2/1/13 ............................... 1,000,000(d) 1,086,000
Minneapolis/St.Paul Metro Council, 6.75%, 9/1/08 ...... 2,990,000 3,191,855
Minnesota State (Prerefunded to 8/1/01), 6.70%,
8/1/10 ............................................... 5,000,000(d) 5,532,050
Minnesota State, Zero-Coupon, 5.95%, 8/1/01 ........... 3,000,000(b) 2,223,840
St. Paul Metropolitan Airport Commission, 6.60%,
1/1/09 ............................................... 3,150,000 3,335,503
----------
16,563,586
----------
HEALTH SERVICE/HMO (0.8%):
Duluth Clinic Health Care Facilities, 6.20%,
11/1/12 .............................................. 700,000 712,327
----------
HOSPITAL REVENUE (18.6%):
Bemidji Hospital Facilities, 7.00%, 9/1/21 ............ 3,200,000 3,370,144
Burnsville Hospital System, Zero-Coupon (Escrowed to
maturity to 5/1/12), 6.76%, 5/1/12 ................... 1,000,000(b) 344,540
Minneapolis Hospital Facilities - Childrens Medical
Center, 7.00%, 12/1/20 ............................... 2,000,000 2,185,080
Minneapolis Hospital Facilities, Fairview (MBIA),
6.50%-6.70%, 1/1/11-1/1/17 ........................... 1,025,000 1,082,075
Minneapolis/St. Paul Housing Redevelopment Authority,
Health One Obligated Group (Prerefunded to 8/15/00),
8.00%, 8/15/14 . 2,000,000(d) 2,338,840
St. Louis Park Hospital Facilities (AMBAC) (Crossover
refunded to 7/1/00), 7.25%, 7/1/15 ................... 1,300,000(d) 1,471,223
St. Louis Park Hospital Facilities (AMBAC) (Prerefunded
to 7/1/00), 7.25%, 7/1/15 ............................ 5,500,000(d) 6,225,725
----------
17,017,627
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
10
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
HOUSING REVENUE (21.5%):
Burnsville Oak Leaf Apartments, 7.05%-7.15%,
1/1/12-1/1/25 ...................................... $ 3,895,000 4,050,031
City of Coon Rapids (FHA), 6.75%, 8/1/23 .............. 1,980,000 2,036,925
Minneapolis Housing Finance Authority, 6.85%-6.95%,
8/1/12-1/1/24 ........................................ 4,770,000 5,031,134
Minneapolis Multi-Family Housing, Churchill, 7.05%,
10/1/22 .............................................. 5,645,000 5,902,356
Olmsted County Housing and Redevelopment Authority,
6.10%, 2/1/13 ........................................ 2,000,000 2,048,800
St. Paul Housing Redevelopment Authority, 6.90%,
12/1/21 .............................................. 470,000 486,553
St. Paul Housing Redevelopment Authority, 6.90%,
12/1/11 .............................................. 45,000 45,196
----------
19,600,995
----------
IDR - SOLID WASTE DISPOSAL (4.8%):
Anoka County Solid Waste Disposal Revenue (CFC), 6.95%,
12/1/08 .............................................. 4,100,000 4,355,471
----------
LEASING REVENUE (6.1%):
Hennepin County Certificates of Participation,
6.70%-6.75%, 11/15/09-11/15/11 ....................... 4,185,000 4,456,580
Washington County Jail Facility (MBIA) (Prerefunded to
2/1/02), 7.00%, 2/1/12 ............................... 1,000,000(d) 1,122,910
----------
5,579,490
----------
OTHER REVENUE (2.2%):
Minneapolis Community Development Authority, Special
Tax Assesment, 7.15%-7.35%, 12/1/03-12/1/09 .......... 835,000 885,800
Minneapolis/St. Paul Metro Council Hubert H. Humphrey
Sports Facility, 6.00%, 10/1/09 ...................... 1,110,000 1,124,807
----------
2,010,607
----------
PARKING REVENUE (1.2%):
St. Paul Housing Finance Authority, Parking Revenue
(Escrowed to maturity), 6.55%, 8/1/12 ................ 1,000,000(d) 1,099,520
----------
SALES TAX REVENUE (4.0%):
Minneapolis Community Development Authority, Special
Tax Assesment, Zero-Coupon (MBIA), 6.71%, 3/1/07 ..... 4,485,000(b) 2,301,433
Minneapolis Community Development Authority, Special
Tax Assesment, Zero-Coupon (MBIA), 7.01%, 3/1/09 ..... 3,100,000(b) 1,378,012
----------
3,679,445
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
11
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
WATER/POLLUTION CONTROL REVENUE (11.8%):
Minnesota Public Facilities Authority, 6.65%-6.70%,
3/1/08-3/1/13 ...................................... $ 10,000,000 10,777,980
----------
Total Municipal Long-Term Securities
(cost: $82,612,330) ................................. 88,408,923
----------
MUNICIPAL SHORT-TERM SECURITIES (1.1%):
Minneapolis International Center, 2.55%, 9/1/13 ....... 1,000,000(c) 1,000,000
----------
Total Municipal Short-Term Securities
(cost: $1,000,000) .................................. 1,000,000
----------
Total Investments in Securities
(cost: $83,612,330)(e) ............................ $ 89,408,923
----------
----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE OF PURCHASE.
(C) VARIABLE RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON JUNE 30, 1995.
(D) PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. CROSSOVER
REFUNDED ISSUES ARE BACKED BY THE CREDIT OF THE REFUNDING ISSUER. IN BOTH
CASES THE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED.
(E) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 5,797,931
GROSS UNREALIZED DEPRECIATION ...... (1,338)
----------
NET UNREALIZED APPRECIATION .... $ 5,796,593
----------
----------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST II
JUNE 30, 1995
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (96.7%):
EDUCATION REVENUE (8.1%):
Higher Education Facility - Macalester College, 6.30%,
3/1/14 ............................................. $ 1,125,000 1,146,915
Minnesota Higher Education-Augsburg College (Connie
Lee), 6.50%, 1/1/11 .................................. 2,055,000 2,162,620
State Higher Education - Macalester College, 6.40%,
3/1/22 ............................................... 1,000,000 1,023,820
----------
4,333,355
----------
ELECTRIC REVENUE (18.4%):
Northern Municipal Power (AMBAC), 6.00%, 1/1/19 ....... 2,000,000 2,014,380
Northern Municipal Power, Zero-Coupon (AMBAC),
6.50%-6.94%, 1/1/09-1/1/10 ........................... 9,690,000(b) 4,108,223
Southern Municipal Power Agency Supply (AMBAC), 5.75%,
1/1/18 ............................................... 1,000,000 948,100
Southern Municipal Power Agency Supply, 5.00%-5.75%,
1/1/12-1/1/18 ........................................ 2,265,000 2,100,347
Southern Municipal Power Agency Supply (Prerefunded to
1/1/18), 5.75%, 1/1/18 ............................... 635,000(e) 631,030
----------
9,802,080
----------
GENERAL OBLIGATIONS (15.7%):
Braham Independent School District (AMBAC) (Crossover
refunded to 2/1/01), 6.25%, 2/1/14 ................... 350,000(e) 376,184
Hopkins Blake School Project Revenue, 6.45%,
9/1/13-9/1/14 ........................................ 385,000 400,673
Mankato School District (CGIC) (Crossover refunded to
2/1/02), 6.35%, 2/1/13 ............................... 2,300,000(e) 2,497,800
Metropolitan Council, 6.75%, 9/1/10-9/1/11 ............ 2,500,000 2,640,080
Minneapolis/St. Paul Metropolitan Airport Commision,
6.60%, 1/1/11 ........................................ 1,000,000 1,054,990
St. Paul Independent School District, 6.45%-6.50%,
2/1/09-2/1/10 875,000 910,838
Willmar Independent School District (AMBAC), 6.25%,
2/1/15 ............................................... 500,000 511,864
----------
8,392,429
----------
HOSPITAL REVENUE (16.7%):
Duluth Health Care Facilities, Benedicitine-St. Mary's
Project (Prerefunded to 2/15/00), 8.38%, 2/15/20 ..... 2,000,000(e) 2,348,140
Duluth Hospital Facilities, St. Luke's Hospital (Connie
Lee), 6.40%, 5/1/10-5/1/18 ........................... 800,000 828,645
Minneapolis/St. Paul Health Care Facilities, Health One
(MBIA), 6.75%, 8/15/14 ............................... 2,500,000 2,677,875
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
13
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
Red Wing Health Care, 6.40%, 9/1/12 ................. $ 220,000 219,747
Rochester Health Care - Mayo Medical Center, 6.25%,
11/15/21 ............................................. 1,000,000 1,017,640
St. Louis Park Hospital Facilities (AMBAC) (Prerefunded
to 7/1/00), 7.25%, 7/1/15 ............................ 1,605,000(e) 1,816,780
----------
8,908,827
----------
HOUSING REVENUE (13.8%):
City of Moorhead - Phoenix Project, 6.35%-7.00%,
6/1/03-6/1/20 1,260,000 1,281,922
Minneapolis Housing Finance Authority, 6.85%,
1/1/24 ............................................... 975,000 1,011,416
Minnesota State Housing Finance Agency, 6.50%-6.85%,
2/1/07-1/1/26 ........................................ 3,845,000 4,068,756
Olmsted County Housing Redevelopment Authority, 6.10%,
2/1/13 ............................................... 1,000,000 1,024,400
St. Paul Housing Redevelopment Authority, 6.90%,
12/1/11 .............................................. 10,000 10,043
----------
7,396,537
----------
IDR - MISCELLANEOUS PROJECTS (6.8%):
Duluth Seaway Port Authority, Cargill Inc. Project,
6.80%, 5/1/12 2,090,000(c) 2,245,663
East Grand Forks, Pollution Control, 7.75%, 4/1/18 .... 1,300,000 1,358,942
----------
3,604,605
----------
PARKING REVENUE (5.0%):
St. Paul Housing Finance Authority, Parking Revenue
(Escrowed to maturity), 6.55%, 8/1/12 ................ 2,415,000(e) 2,655,341
----------
SPECIAL TAX ASSESSMENT REVENUE (2.9%):
Minneapolis Community Development Authority, Special
Tax Assesment, 7.40%, 12/1/21 ........................ 1,250,000 1,341,113
Minneapolis Community Development, Special Tax
Assessment, 7.10%, 12/1/02 ........................... 175,000 187,460
----------
1,528,573
----------
WATER/POLLUTION CONTROL REVENUE (9.3%):
Minnesota Public Facilities Authority, 6.50%,
3/1/14 ............................................... 4,695,000 4,973,320
----------
Total Municipal Long-Term Securities
(cost: $48,994,748) ................................. 51,595,067
----------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
14
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENTS IN SECURITIES (UNAUDITED)
MINNESOTA MUNICIPAL TERM TRUST II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Name of Issuer Amount Value (a)
- --------------------------------------------------------- --------- ----------
<S> <C> <C>
MUNICIPAL SHORT-TERM SECURITIES (1.1%):
Mankato Government Sales Tax Revenue, 2.32%,
2/1/18 ............................................. $ 600,000(d) 600,000
----------
Total Municipal Short-Term Securities
(cost: $600,000) .................................... 600,000
----------
Total Investments in Securities
(cost: $49,594,748)(f) ............................ $ 52,195,067
----------
----------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE OF PURCHASE.
(C) SECURITIES PURCHASED WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY
BE SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
(D) VARIABLE RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON JUNE 30, 1995.
(E) PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. CROSSOVER
REFUNDED ISSUES ARE BACKED BY THE CREDIT OF THE REFUNDING ISSUER. IN BOTH
CASES THE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED.
(F) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION .... $ 2,629,648
GROSS UNREALIZED DEPRECIATION ...... (29,329)
----------
NET UNREALIZED APPRECIATION .... $ 2,600,319
----------
----------
</TABLE>
15
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1995
Minnesota
Minnesota Municipal
Municipal Term Trust
Term Trust II
---------- -----------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (note 2) .... $ 89,408,923 52,195,067
Cash in bank on demand deposit ........................... 5,853 136,604
Accrued interest receivable .............................. 1,850,800 1,098,182
---------- -----------
Total assets ......................................... 91,265,576 53,429,853
---------- -----------
LIABILITIES:
Preferred stock dividends payable (note 3) ............... 9,895 1,925
Accrued investment management fee ........................ 18,888 11,065
Accrued remarketing agent fee ............................ 10,600 3,858
Accrued administrative fee ............................... 11,333 6,639
Other accrued expenses ................................... 8,632 31,380
---------- -----------
Total liabilities .................................... 59,348 54,867
---------- -----------
Net assets applicable to outstanding capital stock ....... $ 91,206,228 53,374,986
---------- -----------
---------- -----------
REPRESENTED BY:
Preferred stock - authorized 1 million shares for each
fund of $25,000 liquidation preference per share;
outstanding, 1,152 and 694 shares, respectively (note
3) ..................................................... 28,800,000 17,350,000
---------- -----------
Common stock - authorized 200 million shares for each fund
of $0.01 par value; outstanding, 5,732,710 and 3,460,000
shares, respectively ................................... 57,327 34,600
Additional paid-in capital ............................... 53,479,418 32,251,775
Undistributed net investment income ...................... 2,993,866 1,246,259
Accumulated net realized gain (loss) on investments ...... 79,024 (107,967 )
Unrealized appreciation of investments ................... 5,796,593 2,600,319
---------- -----------
Total - representing net assets applicable to
outstanding common stock ........................... 62,406,228 36,024,986
---------- -----------
Total net assets ................................... $ 91,206,228 53,374,986
---------- -----------
---------- -----------
Net asset value per share of outstanding common stock (net
assets divided by 5,732,710 and 3,460,000 shares of common
stock outstanding, respectively) ....................... $ 10.89 10.41
---------- -----------
---------- -----------
* Investments in securities at identified cost ........... $ 83,612,330 49,594,748
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS (UNAUDITED)
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Minnesota
Minnesota Municipal
Municipal Term Trust
Term Trust II
---------- -----------
<S> <C> <C>
INCOME:
Interest ............................................... $ 2,828,201 1,622,059
---------- -----------
EXPENSES (NOTE 5):
Investment management fee ................................ 111,489 65,178
Administrative fee ....................................... 66,893 39,107
Remarketing agent fee .................................... 36,200 21,809
Custodian, accounting and transfer agent fees ............ 13,683 9,277
Reports to shareholders .................................. 7,149 6,031
Directors' fees .......................................... 5,647 5,647
Audit and legal fees ..................................... 23,754 23,761
Other expenses ........................................... 21,932 24,131
---------- -----------
Total expenses ....................................... 286,747 194,941
---------- -----------
Net investment income ................................ 2,541,454 1,427,118
---------- -----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments (note 4) ................ 87,671 14,129
Net change in unrealized appreciation or depreciation of
investments ............................................ 4,134,788 2,970,090
---------- -----------
Net gain on investments ................................ 4,222,459 2,984,219
---------- -----------
Net increase in net assets resulting from
operations ....................................... $ 6,763,913 4,411,337
---------- -----------
---------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
MINNESOTA MUNICIPAL TERM TRUST
<TABLE>
<CAPTION>
Six Months
Ended
6/30/95 Year Ended
(Unaudited) 12/31/94
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 2,541,454 5,085,774
Net realized gain (loss) on investments .................. 87,671 (8,402)
Net change in unrealized appreciation or depreciation of
investments ............................................ 4,134,788 (8,009,076)
------------ -----------
Net increase (decrease) in net assets resulting from
operations ........................................... 6,763,913 (2,931,704)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................. (1,458,975) (3,501,539)
Preferred stock dividends .............................. (568,492) (821,480)
------------ -----------
Total distributions .................................. (2,027,467) (4,323,019)
------------ -----------
Total increase (decrease) in net assets ............ 4,736,446 (7,254,723)
Net assets at beginning of period .......................... 86,469,782 93,724,505
------------ -----------
Net assets at end of period .............................. $ 91,206,228 86,469,782
------------ -----------
------------ -----------
Undistributed net investment income ...................... $ 2,993,866 2,479,879
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN NET ASSETS
MINNESOTA MUNICIPAL TERM TRUST II
<TABLE>
<CAPTION>
Six Months
Ended
6/30/95 Year Ended
(Unaudited) 12/31/94
------------ -----------
<S> <C> <C>
OPERATIONS:
Net investment income .................................. $ 1,427,118 2,869,277
Net realized gain on investments ......................... 14,129 18,640
Net change in unrealized appreciation or depreciation of
investments ............................................ 2,970,090 (5,327,336)
------------ -----------
Net increase (decrease) in net assets resulting from
operations ........................................... 4,411,337 (2,439,419)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................. (851,160) (2,042,784)
Preferred stock dividends .............................. (340,790) (498,520)
------------ -----------
Total distributions .................................. (1,191,950) (2,541,304)
------------ -----------
Total increase (decrease) in net assets ............ 3,219,387 (4,980,723)
Net assets at beginning of period .......................... 50,155,599 55,136,322
------------ -----------
Net assets at end of period .............................. $ 53,374,986 50,155,599
------------ -----------
------------ -----------
Undistributed net investment income ...................... $ 1,246,259 1,011,091
------------ -----------
------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) ORGANIZATION
Minnesota Municipal Term Trust and Minnesota Municipal Term
Trust II (the funds) are registered under the Investment Company
Act of 1940 (as amended) as non-diversified, closed-end
management investment companies. Shares of the Minnesota
Municipal Term Trust are listed on the New York Stock Exchange;
shares of the Minnesota Municipal Term Trust II are listed on
the American Stock Exchange. Minnesota Municipal Term Trust and
Minnesota Municipal Term Trust II will terminate operations and
distribute all of their net assets to shareholders on or shortly
before April 15, 2002, and April 15, 2003, respectively;
although termination may be extended to a date no later than
April 15, 2007, and April 15, 2008, respectively, to assist the
funds in meeting their objective of returning $10 per share on
common stock.
(2) SIGNIFICANT
ACCOUNTING
POLICIES
INVESTMENTS IN SECURITIES
The values of fixed income securities are determined using
pricing services or prices quoted by independent brokers. Open
financial futures contracts are valued at the last settlement
price. When market quotations are not readily available,
securities are valued at fair value according to methods
selected in good faith by the board of directors. 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 the
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 computed on
a level-yield basis, is accrued daily.
The funds concentrate their investments in Minnesota and,
therefore, may have more credit risks related to the economic
conditions of Minnesota than portfolios with a broader
geographical diversification.
FUTURES TRANSACTIONS
In order to gain exposure to or protect against changes in the
market, the funds may buy and sell financial futures contracts
and related options. Risks of entering into futures contracts
and related
20
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
options include the possibility there may be an illiquid market
and that a change in the value of the contract or option may not
correlate with changes in the value of the underlying
securities.
Upon entering into a futures contract, the funds are required to
deposit either cash or securities in an amount (initial margin)
equal to a certain percentage of the contract value. Subsequent
payments (variation margin) are made or received by the funds
each day. The variation margin payments are equal to the daily
changes in the contract value and are recorded as unrealized
gains and losses. The funds recognize a realized gain or loss
when the contract is closed
or expires.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the funds on a forward-commitment or when-issued basis can take
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 funds maintain, in segregated accounts
with their custodian, assets with a market value equal to the
amount of their purchase commitments. The purchase of securities
on a when-issued or forward-commitment basis may increase the
volatility of the funds' NAVs, to the extent the funds make such
purchases while remaining substantially
fully invested. As of June 30, 1995, the funds had no
outstanding when-issued or forward commitments.
FEDERAL TAXES
The funds intend to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to
distribute all of their taxable income to shareholders.
Therefore, no income tax provision is required. In addition, on
a calendar-year basis, the funds will distribute substantially
all of their taxable net investment income and realized gains,
if any, to avoid 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 and losses deferred due to "wash
sale" transactions. The character of distributions made during
the year from net investment income or net realized gains may
also differ
21
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
from their 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.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made on a monthly
basis for common shareholders and a weekly basis for preferred
stock shareholders. Common stock distributions are recorded as
of the close of business on the ex-dividend date, and preferred
stock dividends are accrued daily. Realized capital gains, if
any, will be distributed on an annual basis. Distributions are
payable in cash or, for common shareholders, pursuant to the
funds' dividend reinvestment plans, reinvested in additional
shares of the funds' common stock. Under the plans, common
shares will be purchased in the open market.
(3) REMARKETED
PREFERRED STOCK
Minnesota Municipal Term Trust and Minnesota Municipal Term
Trust II have issued and, as of June 30, 1995, have outstanding
1,152 shares and 694 shares, respectively, of remarketed
preferred stock ("RP-Registered Trademark-") with a liquidation
preference of $25,000 per share for each fund. The dividend rate
on the RP-Registered Trademark- is adjusted every seven days as
determined by the remarketing agent. On June 30, 1995, the
Minnesota Municipal Term Trust and Minnesota Municipal Term
Trust II had a dividend rate of 4.18% and 4.05%, respectively.
(4) INVESTMENT
SECURITY
TRANSACTIONS
Purchases of securities and proceeds from sales, other than
temporary investments in short-term securities, for the six
months ended June 30, 1995 were $2,985,963 and $3,776,333,
respectively, for Minnesota Municipal Term Trust, and $102,969
and $701,860, respectively, for Minnesota Municipal Term Trust
II.
(5) FEES AND
EXPENSES
The funds have entered into the following agreements with Piper
Capital Management Incorporated (the adviser and administrator):
The investment advisory agreement provides the adviser with a
monthly investment management fee calculated at the annualized
rate of 0.25% of the funds' average weekly net assets (computed
by subtracting liabilities, which exclude preferred stock, from
the value
22
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
of the total assets of the funds). For its fee, the adviser will
provide investment advice and, in general, conduct the
management and investment activity of the funds.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annualized rate of 0.15% of
the funds' 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
will provide certain reporting, regulatory, and record-keeping
services for the funds.
The funds have 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 annualized rate of 0.25% of
the fund's average amount of RP-Registered Trademark-
outstanding. For its fee, the remarketing agent will remarket
shares of RP-Registered Trademark- tendered to it, on behalf of
shareholders thereof, and will determine the applicable dividend
rate for each seven-day dividend period.
In addition to the advisory fee, the administrative and the
remarketing agent fees, the funds are responsible for paying
most other operational expenses including outside directors'
fees and expenses, custodian and registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance, interest and other
miscellaneous expenses.
(6) CAPITAL LOSS
CARRYOVER
For federal income tax purposes, Minnesota Municipal Term Trust
and Minnesota Municipal Term Trust II had capital loss
carryovers of $8,647 and $122,096, respectively as of December
31, 1994, which if not offset by subsequent capital gains, will
expire in the years 2001 and 2002. It is unlikely the board of
directors will authorize a distribution of any net realized
capital gains until the available capital loss carryover has
been offset or expires.
23
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(7) FINANCIAL
HIGHLIGHTS
Per-share data for a share of common stock outstanding
throughout each period and selected information for each period
are as follows:
MINNESOTA MUNICIPAL TERM TRUST
<TABLE>
<CAPTION>
Period
from
Six Months Year Ended December 31, 9/26/91*
Ended 6/30/95 ------------------------------ to
(Unaudited) 1994 1993 1992 12/31/91
-------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...$ 10.06 11.33 10.15 9.68 9.45
------- -------- -------- -------- --------
Operations:
Net investment income ................. 0.44 0.89 0.87 0.86 0.17
Net realized and unrealized gains
(losses) on investments ............. 0.74 (1.41) 1.04 0.37 0.29
------- -------- -------- -------- --------
Total from operations ............... 1.18 (0.52) 1.91 1.23 0.46
------- -------- -------- -------- --------
Distributions to shareholders:
From net investment income
Paid to common shareholders ......... (0.25) (0.61) (0.61) (0.60) (0.10)
Paid to preferred shareholders ...... (0.10) (0.14) (0.12) (0.15) (0.02)
From net realized gains
Paid to common shareholders ......... -- -- -- (0.01) --
Paid to preferred shareholders ...... -- -- -- -- --
------- -------- -------- -------- --------
Total distributions to shareholders (0.35) (0.75) (0.73) (0.76) (0.12)
------- -------- -------- -------- --------
Offering costs and underwriting discounts
associated with the remarketed
preferred stock ....................... -- -- -- -- (0.11)
------- -------- -------- -------- --------
Net asset value per share of common
stock, end of period ................ $ 10.89 10.06 11.33 10.15 9.68
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Market value per share of common stock,
end of period ....................... $ 10.13 9.25 11.25 10.38 10.63
------- -------- -------- -------- --------
------- -------- -------- -------- --------
Total investment return, common stock,
market value** ........................ 12.88% (12.73%) 14.50% 3.54% 7.29%
Total investment return, common stock,
net asset value+ ...................... 11.48% (6.01%) 17.96% 11.49% 3.51%
Net assets at end of period (in
millions) $ 91 86 94 87 84
Ratio of expenses to average weekly
net assets ............................ 0.64%++ 0.62% 0.63% 0.66% 0.55%++
Ratio of net investment income to average
weekly net assets ..................... 5.70%++ 5.69% 5.49% 5.80% 5.66%++
Portfolio turnover rate (excluding short-
term securities) ...................... 3% 2% 1% 17% 23%
Remarketed preferred stock, liquidation
preference of $25,000 for each of 1,152
shares outstanding (in millions) $ 29 29 29 29 29
Asset coverage for remarketed preferred
stock +++ ............................. 317% 300% 325% 302% 293%
<FN>
* COMMENCEMENT OF OPERATIONS.
** TOTAL INVESTMENT RETURN, MARKET VALUE, IS BASED ON THE CHANGE IN MARKET
PRICE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S DIVIDEND REINVESTMENT
PLAN.
+ TOTAL INVESTMENT RETURN, NET ASSET VALUE, IS BASED ON THE CHANGE IN NET
ASSET VALUE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT NET ASSET VALUE.
++ ADJUSTED TO AN ANNUAL BASIS.
+++ REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
</TABLE>
24
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(7) FINANCIAL
HIGHLIGHTS
(CONTINUED)
Per-share data for a share of common stock outstanding
throughout each period and selected information for each period
are as follows:
MINNESOTA MUNICIPAL TERM TRUST II
<TABLE>
<CAPTION>
Period
Six Months Year Ended December 31, from
Ended 4/24/92*
6/30/95 ------------------------ to
(Unaudited) 1994 1993 12/31/92
------------ --------- --------- --------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ............. $ 9.48 10.92 9.76 9.45
------------ --------- --------- --------
Operations:
Net investment income ............................ 0.41 0.83 0.82 0.50
Net realized and unrealized gains (losses) on
investments .................................... 0.87 (1.54) 1.05 0.34
------------ --------- --------- --------
Total from operations .......................... 1.28 (0.71) 1.87 0.84
------------ --------- --------- --------
Distributions to shareholders from net investment
income:
Paid to common shareholders ...................... (0.25) (0.59) (0.59) (0.34)
Paid to preferred shareholders ................... (0.10) (0.14) (0.12) (0.07)
------------ --------- --------- --------
Total distributions to shareholders ............ (0.35) (0.73) (0.71) (0.41)
------------ --------- --------- --------
Offering costs and underwriting discounts associated
with the remarketed preferred stock .............. -- -- -- (0.12)
------------ --------- --------- --------
Net asset value per share of common stock,
end of period .................................. $ 10.41 9.48 10.92 9.76
------------ --------- --------- --------
------------ --------- --------- --------
Market value per share of common stock,
end of period .................................. $ 9.75 8.63 11.38 10.38
------------ --------- --------- --------
------------ --------- --------- --------
Total investment return, common stock, market
value** .......................................... 16.52% (19.55%) 15.65% 7.22%
Total investment return, common stock, net asset
value+ ........................................... 13.12% (7.91%) 18.23% 7.01%
Net assets at end of period (in millions) ........ $ 53 50 55 51
Ratio of expenses to average weekly net assets ..... 0.75%++ 0.69% 0.70% 0.60%++
Ratio of net investment income to average weekly net
assets ........................................... 5.47%++ 5.51% 5.25% 5.51%++
Portfolio turnover rate (excluding short-term
securities) ...................................... 0% 4% 1% 42%
Remarketed preferred stock, liquidation preference
of $25,000 for each of 694 shares outstanding (in
millions) ...................................... $ 17 17 17 17
Asset coverage for remarketed preferred stock
+++ .............................................. 308% 289% 318% 295%
<FN>
* COMMENCEMENT OF OPERATIONS.
** TOTAL INVESTMENT RETURN, MARKET VALUE, IS BASED ON THE CHANGE IN MARKET
PRICE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE FUND'S DIVIDEND REINVESTMENT
PLAN.
+ TOTAL INVESTMENT RETURN, NET ASSET VALUE, IS BASED ON THE CHANGE IN NET
ASSET VALUE OF A COMMON SHARE DURING THE PERIOD AND ASSUMES REINVESTMENT OF
DISTRIBUTIONS AT NET ASSET VALUE.
++ ADJUSTED TO AN ANNUAL BASIS.
+++ REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
</TABLE>
25
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(8) QUARTERLY DATA
MINNESOTA MUNICIPAL TERM TRUST
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Increase
Net Realized in Net Assets Distributions
Net and Unrealized Resulting from Net
Investment Investment Gains on from Investment
Income Income Investments Operations Income
----------- ----------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
3/31/95 $ 1,416,539 1,275,727 3,376,802 4,652,529 (855,257)
6/30/95 1,411,662 1,265,727 845,657 2,111,384 (1,172,210)
----------- ----------- --------------- ------------- -------------
$ 2,828,201 2,541,454 4,222,459 6,763,913 (2,027,467)
----------- ----------- --------------- ------------- -------------
----------- ----------- --------------- ------------- -------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Increase Distributions
Net Realized and in Net Assets from Net
Net Investment Unrealized Gains on Resulting from Investment Quarter-End
Income Investments Operations Income Net Asset Value
--------------- ------------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
3/31/95 $ 0.22 0.59 0.81 (0.15) 10.72
6/30/95 0.22 0.15 0.37 (0.20) 10.89
----- ----- ----- -----
$ 0.44 0.74 1.18 (0.35)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
26
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(8) QUARTERLY DATA (CONTINUED)
MINNESOTA MUNICIPAL TERM TRUST II
DOLLAR AMOUNTS
<TABLE>
<CAPTION>
Net Increase
Net Realized in Net Assets
Net and Unrealized Resulting Distributions from
Investment Investment Gains on from Net Investment
Income Income Investments Operations Income
----------- ----------- --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
3/31/95 $ 810,463 712,066 2,386,787 3,098,853 (502,211)
6/30/95 811,596 715,052 597,432 1,312,484 (689,739)
----------- ----------- --------------- ------------- ------------------
$ 1,622,059 1,427,118 2,984,219 4,411,337 (1,191,950)
----------- ----------- --------------- ------------- ------------------
----------- ----------- --------------- ------------- ------------------
</TABLE>
PER-SHARE AMOUNTS
<TABLE>
<CAPTION>
Net Realized Net Increase
and Unrealized in Net Assets
Net Investment Gains on Resulting from Distributions from Quarter-End
Income Investments Operations Net Investment Income Net Asset Value
--------------- ------------------- ----------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
3/31/95 $ 0.20 0.70 0.90 (0.15) 10.23
6/30/95 0.21 0.17 0.38 (0.20) 10.41
----- ----- ----- -----
$ 0.41 0.87 1.28 (0.35)
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
27
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
ANNUAL MEETING RESULTS
An annual meeting of the funds' shareholders was held on August 17, 1995. Each
matter voted upon at the meeting, as well as the number of votes cast for,
against or withheld, and the number of abstentions, with respect to such matter,
are set forth below.
1. The funds' preferred shareholders elected the following two directors:
Minnesota Municipal Term Trust Inc. (MNA)
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
------------ ------------------
<S> <C> <C>
David T. Bennett............................. 643 8
William H. Ellis............................. 643 8
</TABLE>
Minnesota Municipal Term Trust Inc. II (MNB)
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
------------ ------------------
<S> <C> <C>
David T. Bennett............................. 375 0
William H. Ellis............................. 375 0
</TABLE>
2. The funds' preferred and common shareholders, voting as a class, elected the
following six directors.
Minnesota Municipal Term Trust Inc. (MNA)
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
------------ ------------------
<S> <C> <C>
Jaye F. Dyer................................. 5,148,202 72,396
Karol D. Emmerich............................ 5,148,202 72,396
Luella G. Goldberg........................... 5,148,202 72,396
George Latimer............................... 5,148,202 72,396
</TABLE>
Minnesota Municipal Term Trust Inc. II (MNB)
<TABLE>
<CAPTION>
Shares Shares Withholding
Voted "For" Authority to Vote
------------ ------------------
<S> <C> <C>
Jaye F. Dyer................................ 3,242,422 53,246
Karol D. Emmerich........................... 3,242,922 52,746
Luella G. Goldberg.......................... 3,242,922 52,746
George Latimer.............................. 3,242,922 52,746
</TABLE>
28
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
3. The funds' preferred and common shareholders, voting as a class, ratified
the selection by a majority of the independent members of the funds' Board
of Directors of KPMG Peat Marwick LLP as the independent public accountants
for the fund for the fiscal year ending December 31, 1995. The following
votes were cast regarding this matter:
<TABLE>
<CAPTION>
Shares Shares
Voted "For" Voted "Against" Abstentions
------------ ---------------- -----------
<S> <C> <C> <C>
MNA................................. 5,163,031 17,091 40,476
MNB................................. 3,233,893 26,859 34,916
</TABLE>
SHARE REPURCHASE PROGRAM
Your fund's board of directors has reapproved the share repurchase program,
which enables the fund to 'buy back' shares of its common stock in the open
market. Repurchases may only be made when the previous day's closing market
price per share was at a discount from net asset value. Repurchases cannot
exceed 3% of the fund's originally issued shares.
WHAT EFFECT WILL THIS PROGRAM HAVE ON SHAREHOLDERS?
- - We do not expect any adverse impact on the adviser's ability to manage the
fund.
- - Because repurchases will be at a price below net asset value, remaining shares
outstanding may experience a slight increase in net asset value.
- - Although the effect of share repurchases on market price is less certain, the
board of directors believes the program may have a favorable effect on the
market price of fund shares.
- - We do not anticipate any material increase in the fund's expense ratio.
WHEN WILL SHARES BE REPURCHASED?
Share repurchases may be made from time to time and may be discontinued at any
time. Share repurchases are not mandatory when fund shares are trading at a
discount from net asset value; all repurchases will be at the discretion of the
fund's investment adviser. The board of directors will consider whether to
continue the share repurchase program on at least a semiannual basis and will
notify shareholders of its determination in the next semiannual or annual
report.
HOW WILL SHARES BE REPURCHASED?
We expect to finance the repurchase of shares by liquidating portfolio
securities or using current cash balances. We do not anticipate borrowing in
order to finance share repurchases.
29
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER UPDATE
EFFECTIVE DURATION
Effective duration estimates the interest rate risk of a security, in other
words how much the value of the security is expected to change with a given
change in interest rates. The longer a security's effective duration, the more
sensitive its price is 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 understand that, while a valuable measure, effective duration
is based upon certain assumptions and has several limitations. It is most
effective as a measure of interest rate risk when interest rate changes are
small, rapid and occur equally across all the different 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.
30
<PAGE>
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
<TABLE>
<S> <C>
DIRECTORS 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, 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.
George Latimer, DIRECTOR, SPECIAL ACTIONS OFFICE, OFFICE
OF THE SECRETARY, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT
OFFICERS William H. Ellis, CHAIRMAN OF THE BOARD
Ronald R. Reuss, PRESIDENT
Douglas J. White, EXECUTIVE/SENIOR VICE PRESIDENT
Robert H. Nelson, VICE PRESIDENT
Molly J. Destro, VICE PRESIDENT
David E. Rosedahl, SECRETARY
Charles N. Hayssen, TREASURER
INVESTMENT Piper Capital Management Incorporated
ADVISER 222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402
CUSTODIAN AND Investors Fiduciary Trust Company
TRANSFER AGENT 127 WEST TENTH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL Dorsey & Whitney P.L.L.P.
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
</TABLE>
31
<PAGE>
[LOGO]
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
[LOGO]
PIPER JAFFRAY INC., FUND SPONSOR AND NASD MEMBER.
THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
267-95 MNX-02
Bulk Rate
U.S. Postage
PAID
Permit No. 3008
Mpls., MN
