<PAGE>
Minnesota Municipal Term Trusts - 1998 Semiannual Report
1998 Semiannual Report
[LOGO]
MINNESOTA
MUNICIPAL TERM
TRUSTS
MNA
MNB
<PAGE>
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Portfolio Managers' Letter. . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements and Notes. . . . . . . . . . . . . . . . . . . . . . . 6
Investments in Securities
MNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
MNB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</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.
[LOGO]
MINNESOTA MUNICIPAL TERM TRUSTS
- -------------------------------
PRIMARY INVESTMENTS
Investment-grade, tax-exempt Minnesota municipal obligations including municipal
zero-coupon securities.
FUND OBJECTIVE
Minnesota Municipal Term Trust (MNA) and Minnesota Municipal Term Trust II (MNB)
are non-diversified, closed-end management 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
to investors on or before April 15, 2002; and April 15, 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. The funds' income
may be subject to federal and/or state of Minnesota alternative minimum tax.
Investors should consult their tax advisors. As with other investment companies,
there can be no assurance that each fund will achieve its objective.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- -------------------------------------------------------------------------------
Based on net asset value for the periods ended June 30, 1998
- -------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
ONE YEAR FIVE YEAR SINCE INCEPTION
<S> <C> <C> <C>
MINNESOTA MUNICIPAL TERM TRUST (MNA, inception 9/26/91) 6.92% 6.41% 8.54%
MINNESOTA MUNICIPAL TERM TRUST II (MNB, inception 4/24/92) 7.97% 6.48% 8.30%
</TABLE>
All total returns are through June 30, 1998, and reflect the reinvestment of
distributions but not sales charges. Net asset valuev ***(NAV)-based
performance is used to measure investment management results. As noted in
earlier shareholder reports, we no longer compare the funds NAV performance
to a market benchmark. This is because our primary goal is to meet the funds'
investment objectives of providing high current income exempt from regular
federal and state of Minnesota personal income tax and returning $10 per
share to investors at the funds' termination dates.
Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended June 30, 1998, were 8.58%,
6.28% and 7.17% for MNA and 11.33%, 6.77% and 7.04% for MNB. These returns
assume reinvestment of all distributions and reflect sales charges on those
distributions described in the funds' dividend reinvestment plan, but not on
initial purchases.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THESE INVESTMENTS. 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 these funds, 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.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 1 Minnesota Municipal Term Trusts
<PAGE>
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
[PHOTO]
DOUG WHITE, CFA,
shares responsibility for the management of the Minnesota Municipal Term Trusts.
He has 15 years of financial experience.
- --------------------------------------------------------------------------------
August 18, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
WE ARE PLEASED THAT THE MINNESOTA MUNICIPAL TERM TRUSTS (MNA AND MNB) REMAIN ON
TARGET TO MEET THEIR INVESTMENT OBJECTIVES OF PROVIDING HIGH TAX-EXEMPT INCOME
AND RETURNING $10 PER SHARE TO INVESTORS ON OR SHORTLY BEFORE THEIR TERMINATION
DATES. For the six month period ended June 30, 1998, the funds continued to earn
more than their monthly common and preferred stock*** dividends and add to their
dividend reserves. Since the funds' inceptions, MNA and MNB have maintained
monthly common stock distributions of 5.09 and 4.92 cents per share,
respectively. In addition, the funds' net asset values remain above the $10 per
share objective. As of June 30, 1998, the net asset values for MNA and MNB were
$11.29 and $10.97, respectively.
MUNICIPAL BOND PRICES CONTINUED TO BE VOLATILE, AND THE SUPPLY OF MUNICIPAL
ISSUES HAS INCREASED. Economic growth is showing signs of slowing, which
increases the probability of a recession. As more investors are looking for a
safe haven, the demand for U.S. Treasuries is surpassing the demand for
municipal obligations. This demand, along with refundings and new issuances,
have created an increased supply of municipal issues. During 1998, the Minnesota
supply of municipal issues increased by 85%, compared to 1997.
- --------------------------------------------------------------------------------
DISTRIBUTION HISTORY SINCE INCEPTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MNA MNB
Inception Inception
9/26/91 4/24/92
<S> <C> <C>
Total Monthly Income Distributions Through 6/30/98
- --------------------------------------------------------------------------------
Common Shareholders $4.01 $3.54
- --------------------------------------------------------------------------------
Preferred Shareholders (On a Common Share Basis) $1.02 $0.92
- --------------------------------------------------------------------------------
Total Capital Gains Distributions to Common
Shareholders Through 6/30/98 $0.06 $0.07
- --------------------------------------------------------------------------------
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 2 Minnesota Municipal Term Trusts
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RON REUSS, ISFA,
shares responsibility for the management of the Minnesota Municipal Term
Trusts. He has 29 years of financial experience.
- --------------------------------------------------------------------------------
AS THE FUNDS NEAR THEIR TERMINATION DATES, WE CONTINUE TO SELL LONGER
MATURITY BONDS IN FAVOR OF THOSE CLOSER TO THE FUNDS' TERMINATIONS. As shown
in the chart below, the percentage of bonds with maturity or refunded
dates*** within a year of the funds' termination dates continues to increase.
Advance refunding*** is responsible for a portion of the increase in the
percentages shown in the chart. We made appropriate trades as opportunities
arose. As interest rates fell and bond prices increased, this restructuring
generated capital gains, which were distributed to shareholders. Also,
restructuring proceeds were reinvested at lower interest rates, decreasing
fund income.
WE EXPECT THAT THE FUNDS' NET ASSET VALUES WILL DECLINE AS THE FUNDS NEAR
THEIR TERMINATION DATES. There are several events that could cause this to
occur. A number of bonds currently have prices higher than their market
values. As the maturity and/or refunding dates of these bonds approach, their
market prices will converge toward a price that is at or near their maturity
or refunding prices. In addition, as the funds approach termination, we
continue to sell longer maturity bonds in favor of bonds with shorter
maturities and lower coupons*** that come due closer to the funds'
termination dates. Any gains realized as a result of these sales will be
distributed to shareholders, reducing net asset value. If the
shorter-maturity bonds pay insufficient income to maintain our current
dividends, the funds' dividend reserves may be used to pay common and/or
preferred dividends. See the net asset value summary chart for each fund's
current accumulated
- --------------------------------------------------------------------------------
BONDS MATURING WITHIN A YEAR OF TERMINATION
- --------------------------------------------------------------------------------
The chart below illustrates the percentage of bonds in each fund with maturity
or refunded dates within a year of the funds' termination dates.
<TABLE>
<CAPTION>
MNA MNB
Inception Inception
9/26/91 4/24/92
<S> <C> <C>
At the Fund's Inception 0% 0%
- --------------------------------------------------------------------------------
As of June 30, 1998 60% 68%
- --------------------------------------------------------------------------------
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 3 Minnesota Municipal Term Trusts
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
realized gains,*** unrealized appreciation*** and current dividend reserve.
Shareholders also should remember that the funds are always subject to
interest rate risk*** and credit risk,*** which have an impact on net asset
value.
WE ARE OPTIMISTIC ABOUT THE MUNICIPAL MARKET AND DO NOT ANTICIPATE EVENTS THAT
WOULD CAUSE US TO CHANGE THE FUNDS' INVESTMENT STRATEGY AS THEY MOVE TOWARD
TERMINATION. However, we remain watchful for further negative economic news or
a significant increase in the number of municipal bond refundings due to lower
interest rates and will manage your funds accordingly.
Thank you for your investment in the Minnesota Municipal Term Trusts. We remain
committed to providing you with quality service and look forward to helping you
achieve your investment goals.
Sincerely,
/s/ Douglas J. White /s/ Ronald R. Reuss
Douglas J. White Ronald R. Reuss
Portfolio Manager Portfolio Manager
- --------------------------------------------------------------------------------
NET ASSET VALUE SUMMARY
- --------------------------------------------------------------------------------
Common Shares
<TABLE>
<CAPTION>
MNA MNB
Inception Inception
9/26/91 4/24/92
<S> <C> <C>
Initial Offering Price $10.00 $10.00
- --------------------------------------------------------------------------------
Initial Offering and Underwriting Expenses
(Common and Preferred Stock) - $ 0.66 - $ 0.67
- --------------------------------------------------------------------------------
Accumulated Realized Gains or Losses at 6/30/98 + $ 0.08 + $ 0.02
- --------------------------------------------------------------------------------
SUBTOTAL $ 9.42 $ 9.35
- --------------------------------------------------------------------------------
Dividend Reserve
(Undistributed Net Investment Income) at 6/30/98 + $ 0.81 + $ 0.55
- --------------------------------------------------------------------------------
Unrealized Appreciation on Investments at 6/30/98 + $ 1.06 + $ 1.07
- --------------------------------------------------------------------------------
NET ASSET VALUE PER SHARE ON 6/30/98 $11.29 $10.97
</TABLE>
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 4 Minnesota Municipal Term Trusts
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITIONS
- --------------------------------------------------------------------------------
As a percentage of total assets on June 30, 1998
Minnesota Municipal Term Trust (MNA)
[CHART]
<TABLE>
<CAPTION>
<S> <C>
Water/Sewer/Pollution Control Revenue 11%
Industrial Development Revenue 2%
Leasing Revenue 8%
Other Assets 3%
Sales/Excise Tax Revenue 5%
General Obligations 18%
Hospital Revenue 23%
Miscellaneous Revenue 1%
Electric Revenue 10%
Parking Revenue 1%
Health Services/HMO 1%
Housing Revenue 15%
Nursing Home Revenue 2%
</TABLE>
Minnesota Municipal Term Trust II (MNB)
[CHART]
<TABLE>
<CAPTION>
<S> <C>
General Obligations 18%
Nursing Home Revenue 1%
Education Revenue 6%
Parking Revenue 5%
Housing Revenue 16%
Hospital Revenue 12%
Water/Sewer/Pollution Control Revenue 9%
Other Assets 4%
Special Tax Revenue 3%
Industrial Development Revenue 7%
Electric Revenue 19%
</TABLE>
- --------------------------------------------------------------------------------
1998 Semiannual Report 5 Minnesota Municipal Term Trusts
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES June 30, 1998
................................................................................
<TABLE>
<CAPTION>
MINNESOTA MINNESOTA
MUNICIPAL MUNICIPAL
TERM TRUST TERM TRUST II
------------- --------------
<S> <C> <C>
ASSETS:
Investments in securities at market value* (note 2)
(including repurchase agreements of $800,000 and $0,
respectively) ........................................... $ 93,300,003 $ 56,245,277
Cash in bank on demand deposit ............................ 177,976 62,028
Accrued interest receivable ............................... 1,692,155 1,015,410
------------- --------------
Total assets ............................................ 95,170,134 57,322,715
------------- --------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................ 18,779 8,081
Payable for investment securities purchased on a when-issued
basis (note 2) .......................................... 1,605,838 2,001,056
Accrued investment management fee ......................... 19,195 11,353
Accrued remarketing agent fee ............................. 6,000 1,212
Accrued administrative fee ................................ 11,517 6,812
------------- --------------
Total liabilities ....................................... 1,661,329 2,028,514
------------- --------------
Net assets applicable to outstanding capital stock ...... $ 93,508,805 $ 55,294,201
------------- --------------
------------- --------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ........................................ $ 82,336,727 $ 49,636,375
Undistributed net investment income ....................... 4,653,282 1,873,253
Accumulated net realized gain on investments .............. 460,320 82,287
Unrealized appreciation of investments .................... 6,058,476 3,702,286
------------- --------------
Total - representing net assets applicable to outstanding
capital stock ......................................... $ 93,508,805 $ 55,294,201
------------- --------------
------------- --------------
* Investments in securities at identified cost ............ $ 87,241,527 $ 52,542,991
------------- --------------
------------- --------------
NET ASSET VALUE AND MARKET PRICE OF COMMON STOCK:
Net assets applicable to common stock ..................... $ 64,708,805 $ 37,944,201
Shares of common stock outstanding (authorized 200 million
shares for each fund of $0.01 par value) ................ 5,732,710 3,460,000
Net asset value ........................................... $ 11.29 $ 10.97
Market price .............................................. $ 10.88 $ 10.75
LIQUIDATION PREFERENCE OF PREFERRED STOCK:
Net assets applicable to preferred stock (note 3) ......... $ 28,800,000 $ 17,350,000
Shares of preferred stock outstanding (authorized 1 million
shares for each fund) ................................... 1,152 694
Liquidation preference per share .......................... $ 25,000 $ 25,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1998 Semiannual Report 6 Minnesota Municipal Term Trusts
<PAGE>
Financial Statements (Unaudited) (continued)
- ---------------------------------------------------------------------
STATEMENTS OF OPERATIONS For the Six Months Ended June 30, 1998
................................................................................
<TABLE>
<CAPTION>
MINNESOTA MINNESOTA
MUNICIPAL MUNICIPAL
TERM TRUST TERM TRUST II
------------ -------------
<S> <C> <C>
INCOME:
Interest .................................................. $ 2,777,467 $ 1,578,460
------------ -------------
EXPENSES (NOTE 5):
Investment management fee ................................. 115,854 68,575
Administrative fee ........................................ 69,512 41,145
Remarketing agent fee ..................................... 36,200 21,809
Custodian and accounting fees ............................. 36,737 26,120
Transfer agent fees ....................................... 1,148 1,124
Reports to shareholders ................................... 11,601 7,419
Directors' fees ........................................... 9,061 9,061
Audit and legal fees ...................................... 30,928 31,719
Other expenses ............................................ 23,183 11,989
------------ -------------
Total expenses .......................................... 334,224 218,961
Less expenses paid indirectly ......................... (2,857) (2,861)
------------ -------------
Total net expenses ...................................... 331,367 216,100
------------ -------------
Net investment income ................................... 2,446,100 1,362,360
------------ -------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain (loss) on investments (note 4) .......... 429,552 (405)
Net change in unrealized appreciation or depreciation of
investments ............................................. (885,612) (119,634)
------------ -------------
Net loss on investments ................................. (456,060) (120,039)
------------ -------------
Net increase in net assets resulting from operations .... $ 1,990,040 $ 1,242,321
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1998 Semiannual Report 7 Minnesota Municipal Term Trusts
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL
TERM TRUST
-----------------------------
Six Months
Ended 6/30/98 Year Ended
(Unaudited) 12/31/97
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 2,446,100 $ 5,030,888
Net realized gain on investments .......................... 429,552 299,913
Net change in unrealized appreciation or depreciation of
investments ............................................. (885,612) 127,174
------------- -------------
Net increase in net assets resulting from operations .... 1,990,040 5,457,975
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends .................................. (1,458,975) (3,501,539)
Preferred stock dividends ............................... (475,145) (941,311)
From net realized gains:
Common stock dividends .................................. -- (209,817)
Preferred stock dividends ............................... -- (59,328)
------------- -------------
Total distributions ..................................... (1,934,120) (4,711,995)
------------- -------------
Total increase in net assets .......................... 55,920 745,980
Net assets at beginning of period ......................... 93,452,885 92,706,905
------------- -------------
Net assets at end of period ............................... $ 93,508,805 $ 93,452,885
------------- -------------
------------- -------------
Undistributed net investment income ....................... $ 4,653,282 $ 4,141,302
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1998 Semiannual Report 8 Minnesota Municipal Term Trusts
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL
TERM TRUST II
-----------------------------
Six Months
Ended 6/30/98 Year Ended
(Unaudited) 12/31/97
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 1,362,360 $ 2,807,704
Net realized gain (loss) on investments ................... (405) 265,558
Net change in unrealized appreciation or depreciation of
investments ............................................. (119,634) 523,753
------------- -------------
Net increase in net assets resulting from operations .... 1,242,321 3,597,015
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends .................................. (851,160) (2,042,784)
Preferred stock dividends ............................... (284,787) (544,844)
From net realized gains:
Common stock dividends .................................. -- (173,000)
Preferred stock dividends ............................... -- (49,704)
------------- -------------
Total distributions ..................................... (1,135,947) (2,810,332)
------------- -------------
Total increase in net assets .......................... 106,374 786,683
Net assets at beginning of period ......................... 55,187,827 54,401,144
------------- -------------
Net assets at end of period ............................... $ 55,294,201 $ 55,187,827
------------- -------------
------------- -------------
Undistributed net investment income ....................... $ 1,873,253 $ 1,646,840
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- ---------------------------------------------------------------------
1998 Semiannual Report 9 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) ORGANIZATION
................................
Minnesota Municipal Term Trust Inc. (MNA) and Minnesota Municipal
Term Trust Inc. II (MNB) (the funds) are registered under the
Investment Company Act of 1940 (as amended) as non-diversified,
closed-end management investment companies. MNA and MNB expect to
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. The funds invest primarily in high-quality
Minnesota municipal obligations including municipal zero-coupon
securities. Shares of Minnesota Municipal Term Trust Inc. are
listed on the New York Stock Exchange under the symbol MNA;
shares of Minnesota Municipal Term Trust Inc. II are listed on
the American Stock Exchange under the symbol MNB.
(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
funds' 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.
- ---------------------------------------------------------------------
1998 Semiannual Report 10 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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.
The funds concentrate their investments in Minnesota and,
therefore, may have more credit risk related to the economic
conditions of Minnesota than portfolios with a broader
geographical diversification.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been purchased by
the funds on a when-issued or forward-commitment 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 segregate, 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' net asset value if the funds make such purchases while
remaining substantially fully invested. As of June 30, 1998,
Minnesota Municipal Term Trust Inc. and Minnesota Municipal Term
Trust Inc. II had entered into outstanding when-issued or forward
commitments of $1,605,838 and $2,001,056 respectively.
FEDERAL TAXES
Each fund is treated separately for federal income tax purposes.
Each 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 funds also intend to distribute their
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 and losses may
differ for financial statement and tax purposes primarily because
of
- ---------------------------------------------------------------------
1998 Semiannual Report 11 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 or
losses were recorded by the funds.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income are made monthly for
common shareholders and weekly for preferred shareholders. 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 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.
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
................................
Minnesota Municipal Term Trust Inc. and Minnesota Municipal Term
Trust Inc. II have issued and, as of June 30, 1998, have
outstanding 1,152 shares and 694 shares, respectively, of
remarketed preferred stock (RP) with a liquidation preference of
$25,000 per share for each fund. The dividend rate on the RP is
adjusted every seven days as determined by the remarketing agent.
On June 30, 1998, Minnesota Municipal Term Trust and Minnesota
Municipal Term Trust II each had a dividend rate of 3.40%.
- ---------------------------------------------------------------------
1998 Semiannual Report 12 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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 six
months ended June 30, 1998, were as follows:
<TABLE>
<CAPTION>
MINNESOTA MINNESOTA
MUNICIPAL MUNICIPAL
TERM TRUST TERM TRUST II
---------- --------------
<S> <C> <C>
Purchases .............................. $5,384,591 $374,391
Proceeds from sales .................... $5,581,953 $130,000
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The funds have entered into an investment advisory agreement with
Piper Capital Management Incorporated. In addition, Piper Capital
provided services under an administration agreement through April
30, 1998. Effective May 1, 1998, the fund entered into an
administration agreement with U.S. Bank, an affiliate of the
advisor.
The investment advisory agreement provides the advisor with a
monthly investment management fee in an amount equal to an
annualized rate of 0.25% of the funds' average weekly net assets
(computed by subtracting liabilities, which exclude preferred
stock, from the value of the total assets of the funds). For its
fee, the advisor provides investment advice and, in general,
conducts 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 funds). For its fee, the administrator will
provide regulatory reporting and record-keeping services for the
funds.
REMARKETING AGENT FEE
The funds have entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
- ---------------------------------------------------------------------
1998 Semiannual Report 13 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
The remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annualized rate of 0.25% of
the funds' average amount of RP outstanding. For its fee, the
remarketing agent will remarket shares of RP tendered to it, on
behalf of shareholders thereof, 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 the
remarketing agent fees, the funds are 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
funds.
(6) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent company
of the funds' investment advisor, was acquired by U.S. Bancorp.
U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of March 31, 1998, U.S. Bancorp was the 15th
largest U.S. commercial bank holding company, with assets of
nearly $70.9 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 March 31, 1998, U.S. Bank, acting through its
First American Asset Management group, managed more than $65.3
billion in assets, including approximately $23.3 billion in
assets of the First American Funds.
Under the Investment Company Act of 1940, as amended,
consummation of the acquisition of Piper Jaffray Companies by
- ---------------------------------------------------------------------
1998 Semiannual Report 14 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
U.S. Bancorp resulted in the assignment and automatic termination
of the funds' investment advisory agreement with Piper Capital
Management Incorporated. The funds have entered into new
investment advisory agreements with Piper Capital Management,
which shareholders will vote on at the funds' annual meeting in
August. Shareholders were also asked to approve new investment
advisory agreeements with U.S. Bank which, if approved, will
replace the agreements between the funds and Piper Capital
Management.
- ---------------------------------------------------------------------
1998 Semiannual Report 15 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(7) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
MINNESOTA MUNICIPAL TERM TRUST
<TABLE>
<CAPTION>
Six months
Ended Year Ended December 31,
6/30/98 ---------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
------------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period ............................ $11.28 $11.15 $11.31 $10.06 $ 11.33 $10.15
------------- ------ ------ ------ ------- ------
Operations:
Net investment income ................ 0.43 0.88 0.87 0.88 0.89 0.87
Net realized and unrealized gains
(losses) on investments ............ (0.09) 0.07 (0.25) 1.17 (1.41) 1.04
------------- ------ ------ ------ ------- ------
Total from operations .............. 0.34 0.95 0.62 2.05 (0.52) 1.91
------------- ------ ------ ------ ------- ------
Distributions to shareholders:
From net investment income
Paid to common shareholders ........ (0.25) (0.61) (0.61) (0.61) (0.61) (0.61)
Paid to preferred shareholders ..... (0.08) (0.16) (0.16) (0.19) (0.14) (0.12)
From net realized gains
Paid to common shareholders ........ -- (0.04) (0.01) -- -- --
Paid to preferred shareholders ..... -- (0.01) -- -- -- --
------------- ------ ------ ------ ------- ------
Total distributions to
shareholders ..................... (0.33) (0.82) (0.78) (0.80) (0.75) (0.73)
------------- ------ ------ ------ ------- ------
Net asset value, common stock, end of
period ............................... $11.29 $11.28 $11.15 $11.31 $ 10.06 $11.33
------------- ------ ------ ------ ------- ------
------------- ------ ------ ------ ------- ------
Market value, common stock, end of
period ............................... $10.88 $11.13 $10.50 $10.63 $ 9.25 $11.25
------------- ------ ------ ------ ------- ------
------------- ------ ------ ------ ------- ------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ 2.36% 7.15% 4.23% 18.86% (6.01)% 17.96%
Total return, common stock, market value
(b) .................................. 0.51% 12.48% 4.86% 21.91% (12.73)% 14.50%
Net assets at end of period (in
millions) ............................ $ 94 $ 93 $ 93 $ 94 $ 86 $ 94
Ratio of expenses to average weekly net
assets applicable to common stock
(e) .................................. 1.04%(g) 0.97% 0.99% 0.95% 0.92% 0.92%
Ratio of net investment income to
average weekly net assets applicable
to common stock (c)(f) ............... 6.14%(g) 6.37% 6.40% 6.38% 7.06% 6.95%
Portfolio turnover rate (excluding
short-term securities) ............... 6% 8% 2% 9% 2% 1%
Remarketed preferred stock outstanding
end of period (in millions) .......... $ 29 $ 29 $ 29 $ 29 $ 29 $ 29
Asset coverage ratio (d) ............... 325% 324% 322% 325% 300% 325%
</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 REINVESTMENT PLAN.
(c) RATIO REFLECTS TOTAL NET INVESTMENT INCOME LESS DIVIDENDS PAID TO PREFERRED
SHAREHOLDERS FROM NET INVESTMENT INCOME DIVIDED BY NET ASSETS APPLICABLE TO
COMMON SHARES.
(d) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(e) RATIO OF EXPENSES TO TOTAL AVERAGE WEEKLY NET ASSETS IS 0.72% (ANNUALIZED),
0.67%, 0.68%, 0.65%, 0.62% AND 0.63% FOR THE SIX MONTHS ENDED JUNE 30,
1998, FISCAL YEARS 1997, 1996, 1995, 1994 AND 1993, RESPECTIVELY. DIVIDENDS
PAID TO PREFFERRED SHAREHOLDERS ARE NOT CONSIDERED AN EXPENSE.
(f) RATIO OF NET INVESTMENT INCOME TO TOTAL AVERAGE WEEKLY NET ASSETS IS 5.28%
(ANNUALIZED), 5.41%, 5.42%, 5.57%, 5.69% AND 5.49% FOR THE SIX MONTHS ENDED
JUNE 30, 1998, FISCAL YEARS 1997, 1996, 1995, 1994, AND 1993, RESPECTIVELY.
(g) ANNUALIZED.
- ---------------------------------------------------------------------
1998 Semiannual Report 16 Minnesota Municipal Term Trusts
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(7) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
MINNESOTA MUNICIPAL TERM TRUST II
<TABLE>
<CAPTION>
Six months
Ended Year Ended December 31,
6/30/98 ---------------------------------------
(Unaudited) 1997 1996 1995 1994 1993
------------- ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period ............................ $10.94 $10.71 $10.89 $ 9.48 $ 10.92 $ 9.76
------------- ------ ------ ------ ------- ------
Operations:
Net investment income ................ 0.39 0.81 0.82 0.83 0.83 0.82
Net realized and unrealized gains
(losses) on investments ............ (0.03) 0.23 (0.24) 1.37 (1.54) 1.05
------------- ------ ------ ------ ------- ------
Total from operations .............. 0.36 1.04 0.58 2.20 (0.71) 1.87
------------- ------ ------ ------ ------- ------
Distributions to shareholders:
From net investment income
Paid to common shareholders ........ (0.25) (0.59) (0.59) (0.59) (0.59) (0.59)
Paid to preferred shareholders ..... (0.08) (0.16) (0.16) (0.19) (0.14) (0.12)
From net realized gains
Paid to common shareholders ........ -- (0.05) (0.01) (0.01) -- --
Paid to preferred shareholders ..... -- (0.01) -- -- -- --
------------- ------ ------ ------ ------- ------
Total distributions to
shareholders ..................... (0.33) (0.81) (0.76) (0.79) (0.73) (0.71)
------------- ------ ------ ------ ------- ------
Net asset value, common stock, end of
period ............................... $10.97 $10.94 $10.71 $10.89 $ 9.48 $10.92
------------- ------ ------ ------ ------- ------
------------- ------ ------ ------ ------- ------
Market value, common stock, end of
period ............................... $10.75 $10.69 $10.25 $10.38 $ 8.63 $11.38
------------- ------ ------ ------ ------- ------
------------- ------ ------ ------ ------- ------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ 2.54% 8.34% 4.04% 21.57% (7.91)% 18.23%
Total return, common stock, market value
(b) .................................. 3.38% 10.78% 4.88% 27.63% (19.55)% 15.65%
Net assets at end of period (in
millions) ............................ $ 55 $ 55 $ 54 $ 55 $ 50 $ 55
Ratio of expenses to average weekly net
assets applicable to common stock
(e) .................................. 1.16%(g) 1.09% 1.07% 1.06% 1.03% 1.03%
Ratio of net investment income to
average weekly net assets applicable
to common stock (c)(f) ............... 5.73%(g) 6.06% 6.20% 6.10% 6.78% 6.60%
Portfolio turnover rate (excluding
short-term securities) ............... 0% 10% 4% 9% 4% 1%
Remarketed preferred stock outstanding
end of period (in millions) .......... $ 17 $ 17 $ 17 $ 17 $ 17 $ 17
Asset coverage ratio (d) ............... 319% 318% 314% 317% 289% 318%
</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 REINVESTMENT PLAN.
(c) RATIO REFLECTS TOTAL NET INVESTMENT INCOME LESS DIVIDENDS PAID TO PREFERRED
SHAREHOLDERS FROM NET INVESTMENT INCOME DIVIDED BY NET ASSETS APPLICABLE TO
COMMON SHARES.
(d) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(e) RATIO OF EXPENSES TO TOTAL AVERAGE WEEKLY NET ASSETS IS 0.80% (ANNUALIZED),
0.74%, 0.73%, 0.72%, 0.69% AND 0.70% FOR THE SIX MONTHS ENDED JUNE 30,
1998, FISCAL YEARS 1997, 1996, 1995, 1994 AND 1993, RESPECTIVELY. DIVIDENDS
PAID TO PREFFERRED SHAREHOLDERS ARE NOT CONSIDERED AN EXPENSE.
(f) RATIO OF NET INVESTMENT INCOME TO TOTAL AVERAGE WEEKLY NET ASSETS IS 4.97%
(ANNUALIZED), 5.13%, 5.25%, 5.36%, 5.51% AND 5.25% FOR THE SIX MONTHS ENDED
JUNE 30, 1998, FISCAL YEARS 1997, 1996, 1995, 1994 AND 1993, RESPECTIVELY.
(g) ANNUALIZED.
- ---------------------------------------------------------------------
1998 Semiannual Report 17 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL TERM TRUST June 30, 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 (97.0%):
ELECTRIC REVENUE (9.8%):
Northern Municipal Power (Callable 1/1/99 at 102),
7.25%, 1/1/16 ..................................... $ 4,850,000 $ 5,033,912
Northern Municipal Power Agency Electric System
(FSA), 4.70%, 1/1/02 .............................. 1,605,000(e) 1,626,844
Northern Municipal Power, Zero-Coupon (AMBAC),
6.39%-6.94%, 1/1/06-1/1/10 ........................ 3,340,000(b) 2,033,396
Western Municipal Power Agency (AMBAC), 4.80%,
1/1/02 ............................................ 465,000 475,369
------------
9,169,521
------------
GENERAL OBLIGATIONS (17.6%):
Delano Independent School District (AMBAC) (Crossover
refunded to 2/1/01), 7.25%, 2/1/11 ................ 300,000(d) 323,616
Mankato School District (FSA) (Crossover refunded to
2/1/02), 6.35%, 2/1/13 ............................ 1,000,000(d) 1,074,390
Minneapolis and St. Paul Metropolitan Council
(Crossover refunded to 9/1/00), 6.75%, 9/1/08 ..... 2,990,000(d) 3,164,586
St. Paul Metropolitan Airport Commission (Callable
1/1/02 at 100), AMT, 6.60%, 1/1/09 ................ 3,150,000(f) 3,373,744
State General Obligation, 5.00%, 11/1/01 ............ 500,000 516,075
State General Obligation (Prerefunded to 8/1/01),
6.70%, 8/1/10 ..................................... 5,000,000(d) 5,389,550
State General Obligation, Zero-Coupon, 5.95%,
8/1/01 ............................................ 3,000,000(b) 2,647,620
------------
16,489,581
------------
HEALTH SERVICE/HMO (1.2%):
Minneapolis and St. Paul Minnesota Housing &
Redevelopment Authority Healthcare Systems (AMBAC),
4.25%, 11/15/99 ................................... 1,100,000 1,106,578
------------
HOSPITAL REVENUE (23.0%):
Agricultural and Economic Development Board Health
Care System, Fairview Hospital (MBIA), 4.90%-5.00%,
11/15/01-11/15/02 ................................. 1,635,000 1,681,896
Bemidji Hospital Facilities (Prerefunded to 9/1/01),
7.00%, 9/1/21 ..................................... 3,200,000(d) 3,535,264
Burnsville Hospital System, Zero-Coupon (Escrowed to
maturity to 5/1/12), 6.76%, 5/1/12 ................ 1,000,000(b) 460,920
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 18 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL TERM TRUST
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Minneapolis and St. Paul Health One Obligated Group
(Prerefunded to 8/15/00), 8.00%, 8/15/14 .......... $ 2,000,000(d) $ 2,201,300
Minneapolis Health Facility, Fairview (MBIA)
(Callable 1/1/02 at 102), 6.50%, 1/1/11 ........... 250,000 270,230
Minneapolis Hospital Facilities-Children's Medical
Center (Prerefunded to 6/1/01), 7.00%, 12/1/20 .... 2,000,000(d) 2,197,160
Monticello-Big Lake Minnesota Community Hospital
District Gross Revenue, 4.00%-4.60%,
12/1/99-12/1/02 ................................... 525,000 523,306
St. Louis Park Hospital Facility (AMBAC) (Crossover
refunded to 7/1/00), 7.25%, 7/1/15 ................ 1,300,000(d) 1,402,466
St. Louis Park Hospital Facility (AMBAC) (Prerefunded
to 7/1/00), 7.25%, 7/1/15 ......................... 5,500,000(d) 5,951,275
St. Paul Housing & Redevelopment Authority,
4.50%-4.90%, 11/1/99-11/1/02 ...................... 2,755,000 2,778,063
St. Paul Minnesota Housing & Redeveolpment Authority
Hospital Revenues, 4.60%, 11/1/00 ................. 500,000 502,170
------------
21,504,050
------------
HOUSING REVENUE (14.9%):
Burnsville Oak Leaf Apartments (GNMA) (Callable
7/1/01 at 103), 7.05%-7.15%, 1/1/12-1/1/25 ........ 3,760,000 3,982,652
City of Coon Rapids (FHA) (Callable 2/1/02 at 102),
AMT, 6.75%, 8/1/23 ................................ 1,300,000(f) 1,367,470
Minneapolis Housing-Churchill Apartments (Callable
10/1/01 at 102), 7.05%, 10/1/22 ................... 3,645,000 3,941,958
St. Paul Housing and Redevelopment Authority
(Callable 12/1/01 at 102), 6.90%,
12/1/11-12/1/21 ................................... 449,000 474,265
State Housing and Finance Agency (Callable 2/1/01 at
102), 6.95%, 2/1/14 ............................... 3,400,000 3,614,336
State Housing and Finance Agency (Callable 2/1/02 at
102), 6.90%, 8/1/12 ............................... 495,000 527,729
------------
13,908,410
------------
IDR - SOLID WASTE DISPOSAL (2.4%):
Anoka County Solid Waste Disposal Revenue (CFC)
(Callable 6/1/00 at 102), AMT, 6.95%, 12/1/08 ..... 2,100,000(f) 2,239,272
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 19 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL TERM TRUST
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
LEASING REVENUE (7.7%):
Hennepin County Certificates of Participation
(Callable 11/15/01 at 100), 6.70%-6.75%,
11/15/09-11/15/11 ................................. $ 4,085,000 $ 4,428,770
Hennepin County Minnesota Lease Revenue Certificate
of Participation, 4.50%, 11/15/02 ................. 1,655,000 1,677,889
Washington County Jail Facility (MBIA) (Prerefunded
to 2/1/02), 7.00%, 2/1/12 ......................... 1,000,000(d) 1,095,860
------------
7,202,519
------------
NURSING HOME REVENUE (2.0%):
Buffalo Minnesota Revenue, 4.30%-4.55%,
12/1/02-12/1/05 ................................... 1,350,000 1,341,166
Maplewood Health Care Facilities Revenue (Callable
11/15/01 at 102), 5.70%, 11/15/02 ................. 500,000 523,560
------------
1,864,726
------------
OTHER REVENUE (1.0%):
Minneapolis Community Development Authority (Callable
12/1/01 at 102), 7.15%-7.35%, 12/1/03-12/1/09 ..... 835,000 885,347
------------
PARKING REVENUE (1.1%):
St. Paul Housing and Finance Authority (Prerefunded
to 8/1/00), 6.55%, 8/1/12 ......................... 1,000,000(d) 1,070,110
------------
SALES TAX REVENUE (4.7%):
Minneapolis Community Development Authority, Special
Tax, Zero-Coupon (MBIA), 6.71%-7.01%,
3/1/07-3/1/09 ..................................... 6,685,000(b) 4,401,939
------------
WATER/POLLUTION CONTROL REVENUE (11.6%):
State Public Facilities Authority (Prerefunded to
3/1/01), 6.65%-6.70%, 3/1/08-3/1/13 ............... 10,000,000(d) 10,857,950
------------
Total Municipal Long-Term Securities
(cost: $84,641,527) ............................ 90,700,003
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 20 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL TERM TRUST
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
SHORT-TERM SECURITIES (2.8%):
Bloomington Minnesota Multifamily Revenue, 3.60%,
12/1/25 ........................................... $ 400,000(c) $ 400,000
Minnesota State Higher Education Facilities
Authority, 3.55%, 3/1/24 .......................... 1,400,000(c) 1,400,000
Repurchase agreement with Goldman Sachs, acquired on
6/30/98, interest of $136, 6.10%, 7/1/98 .......... 800,000(g) 800,000
------------
Total Short-Term Securities
(cost: $2,600,000) ............................. 2,600,000
------------
Total Investments in Securities (h)
(cost: $87,241,527) ............................ $ 93,300,003
------------
------------
</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) 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 JUNE
30, 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) 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) ON JUNE 30, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $1,605,838.
(f) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
AMT - ALTERNATIVE MINIMUM TAX. AS OF JUNE 30, 1998, THE AGGREGATE
MARKET VALUE OF SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX WAS
$6,980,411, WHICH REPRESENTS 7.47% OF NET ASSETS.
(g) REPURCHASE AGREEMENT WHICH IS COLLATERALIZED BY U.S. GOVERNMENT AGENCY
SECURITIES. ACCRUED INTEREST SHOWN REPRESENTS INTEREST DUE AT MATURITY OF
THE REPURCHASE AGREEMENT.
(h) 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 ...... $ 6,065,647
GROSS UNREALIZED DEPRECIATION ...... (7,171)
------------
NET UNREALIZED APPRECIATION ..... $ 6,058,476
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1998 Semiannual Report 21 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL TERM TRUST II June 30, 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 (97.6%):
EDUCATION REVENUE (6.1%):
Higher Education Facility-Augsburg College (Connie
Lee) (Callable 1/1/00 at 102), 6.50%, 1/1/11 ...... $ 2,055,000 $ 2,154,976
Higher Education Facility-Macalester College
(Callable 3/1/02 at 100), 6.30%, 3/1/14 ........... 1,125,000 1,207,530
------------
3,362,506
------------
ELECTRIC REVENUE (19.5%):
Northern Municipal Power (AMBAC) (Callable 1/1/99 at
100), 6.00%, 1/1/19 ............................... 2,000,000 2,018,920
Northern Municipal Power (FSA), 4.75%, 1/1/03 ....... 2,000,000(f) 2,035,460
Northern Municipal Power, Zero-Coupon (AMBAC),
6.50%-6.94%, 1/1/09-1/1/10 ........................ 9,690,000(b) 5,687,874
Western Municipal Power Agency (AMBAC), 4.90%,
1/1/03 ............................................ 1,000,000 1,028,860
------------
10,771,114
------------
GENERAL OBLIGATIONS (18.7%):
Braham Independent School District (AMBAC) (Crossover
refunded to 2/1/01), 6.25%, 2/1/14 ................ 350,000(d) 369,036
Hopkins Blake School Project Revenue (Callable 9/1/04
at 100), 6.45%, 9/1/13-9/1/14 ..................... 385,000 429,190
Mankato School District (FSA) (Crossover refunded to
2/1/02), 6.35%, 2/1/13 ............................ 2,300,000(d) 2,471,097
Metropolitan Council (Crossover refunded to 9/1/00),
6.75%, 9/1/10-9/1/11 .............................. 2,500,000(d) 2,645,975
Minneapolis and St. Paul Metropolitan Airport
Commission (Callable 1/1/02 at 100), AMT, 6.60%,
1/1/11 ............................................ 1,000,000(g) 1,068,690
St. Paul Independent School District (Prerefunded to
2/1/01), 6.45%-6.50%, 2/1/09-2/1/10 ............... 875,000(d) 927,524
State General Obligation, 5.00%, 8/1/03 ............. 1,800,000 1,872,792
Willmar Independent School District (AMBAC) (Callable
2/1/02 at 100), 6.25%, 2/1/15 ..................... 500,000 535,545
------------
10,319,849
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 22 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL TERM TRUST II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
HOSPITAL REVENUE (12.3%):
Agricultural and Economic Development Board Health
Care System, Fairview Hospital (MBIA), 5.00%,
11/15/03 .......................................... $ 695,000 $ 719,777
Duluth Health Care Facilities, Benedictine-St. Mary's
Project (Prerefunded to 2/15/00), 8.38%,
2/15/20 ........................................... 2,000,000(d) 2,178,020
Duluth Hospital Facility, St. Lukes (Connie Lee)
(Callable 5/1/02 at 102), 6.40%, 5/1/10 ........... 300,000 325,356
Minneapolis and St. Paul Health Care Facilities
(MBIA) (Callable 8/15/00 at 102), 6.75%,
8/15/14 ........................................... 2,500,000 2,668,100
Red Wing Health Care Facility (Callable 9/1/03 at
102), 6.40%, 9/1/12 ............................... 220,000 235,913
St. Paul Housing & Redevelopment Authority Hospital
Revenues, 5.00%, 11/1/03 .......................... 670,000 679,032
------------
6,806,198
------------
HOUSING REVENUE (16.2%):
Bloomington Minnesota Multifamily Revenue (AMT),
6.50%, 1/1/26 ..................................... 375,000(g) 394,852
City of Moorhead - Phoenix Project (Callable 6/1/02
at 101), AMT, 6.35%-7.00%, 6/1/03-6/1/20 .......... 1,260,000(g) 1,305,996
Olmsted County Housing Redevelopment Authority
(Callable 2/1/02 at 100), 6.10%, 2/1/13 ........... 1,000,000 1,047,340
St. Paul Housing and Redevelopment Authority
(Callable 12/1/01 at 102), 6.90%, 12/1/11 ......... 9,000 9,170
State Housing and Finance Agency, 4.85%-5.05%,
7/1/02-7/1/04 ..................................... 1,440,000 1,479,737
State Housing and Finance Agency (Callable 2/1/01 at
102), 6.85%, 2/1/07 ............................... 2,945,000 3,147,351
State Housing and Finance Agency (Callable 7/1/02 at
102), AMT, 6.75%-6.85%, 7/1/12-1/1/24 ............. 1,475,000(g) 1,561,081
------------
8,945,527
------------
IDR - MISCELLANEOUS PROJECTS (6.7%):
Duluth Seaway Port Authority, Cargill Inc. Project
(Callable 5/1/02 at 102), 6.80%, 5/1/12 ........... 2,090,000(e) 2,300,881
East Grand Forks, Pollution Control (Callable 4/1/01
at 102), 7.75%, 4/1/18 ............................ 1,300,000 1,410,019
------------
3,710,900
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 23 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL TERM TRUST II
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
NURSING HOME REVENUE (1.2%):
Maplewood Healthcare Facility (Callable 11/15/01 at
102), 5.80%, 11/15/03 ............................. $ 500,000 $ 527,105
Monticello-Big Lake Minnesota Community Hospital
District Gross Revenue, 4.70%, 12/1/03 ............ 125,000 124,817
------------
651,922
------------
OTHER REVENUE (0.2%):
Moorhead Minnesota Gross Revenue, 5.00%, 12/1/02 .... 125,000 125,782
------------
PARKING REVENUE (4.7%):
St. Paul Housing and Finance Authority (Prerefunded
to 8/1/00), 6.55%, 8/1/12 ......................... 2,415,000(d) 2,584,316
------------
SPECIAL TAX ASSESSMENT REVENUE (2.7%):
Minneapolis Community Development, Special Tax
Assessment (Callable 12/1/01 at 102), 7.10%-7.40%,
12/1/02-12/1/21 ................................... 1,425,000 1,508,438
------------
WATER/POLLUTION CONTROL REVENUE (9.3%):
State Public Facilities Authority (Callable 3/1/02 at
102), 6.50%, 3/1/14 ............................... 4,695,000 5,158,725
------------
Total Municipal Long-Term Securities
(cost: $50,242,991) ............................ 53,945,277
------------
SHORT-TERM SECURITIES (4.1%):
Bloomington Minnesota Multifamily Revenue, 3.60%,
12/1/25 ........................................... 1,400,000(c) 1,400,000
State Higher Education Facilities Authority, 3.55%,
3/1/24 ............................................ 900,000(c) 900,000
------------
Total Short-Term Securities
(cost: $2,300,000) ............................. 2,300,000
------------
Total Investments in Securities (h)
(cost: $52,542,991) ............................ $ 56,245,277
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 24 Minnesota Municipal Term Trusts
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
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) 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 JUNE
30, 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) 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) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND ARE CONSIDERED TO BE ILLIQUID. ON JUNE 30, 1998, THE TOTAL
MARKET VALUE OF THESE INVESTMENTS WAS $2,300,881 OR 4.16% OF TOTAL NET
ASSETS.
(f) ON JUNE 30, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $2,001,056.
(g) AMT - ALTERNATIVE MINIMUM TAX. AS OF JUNE 30, 1998, THE AGGREGATE MARKET
VALUE OF SECURITIES SUBJECT TO THE ALTERNATIVE MINIMUM TAX WAS $4,330,619,
WHICH REPRESENTS 7.83% OF NET ASSETS.
(h) 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 ...... $ 3,702,469
GROSS UNREALIZED DEPRECIATION ...... (183)
------------
NET UNREALIZED APPRECIATION ..... $ 3,702,286
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1998 Semiannual Report 25 Minnesota Municipal Term Trusts
<PAGE>
GLOSSARY OF TERMS ***
- --------------------------------------------------------------------------------
ADVANCE REFUNDING
The sale of new bonds (a refunding issue) in advance, usually by some years, of
the first call date of the old bonds (issue to be refunded). The refunding issue
would normally have a lower rate than the issue to be refunded and the proceeds
from the sale of the refunding issue would be invested, usually in government
securities, until the higher-rate bonds become callable.
COUPON
The interest rate on a bond that the issuer promises to pay to the holder until
the bond matures or resets its rate. It is expressed as an annual percentage of
face value.
CREDIT RISK
The risk that a bond issuer will not make timely principal and interest payments
and a loss to the investor will result.
DISCOUNT
Closed-end fund shares may trade in the market at prices that are equal to,
above or below their net asset value (NAV). When investors purchase or sell
shares at a price that is below current NAV, the shares are said to be trading
at a discount.
INTEREST RATE RISK
The risk that after an investor purchases a bond, interest rates will rise and
the price of the bond will go down.
NET ASSET VALUE
Net asset value (or NAV) is the value of the fund's assets less its liabilities
and preferred stock divided by the number of common shares outstanding.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 26 Minnesota Municipal Term Trusts
<PAGE>
GLOSSARY OF TERMS (CONTINUED)
- --------------------------------------------------------------------------------
PREFERRED STOCK
The preferred stock issued by MNA and MNB 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 the market value of shares of common stock.
REFUNDING DATE
The specific date when a bond is redeemed before maturity.
REALIZED GAINS
Profits earned by a fund from the sale of a security at a market price that is
higher than its cost basis.
UNREALIZED APPRECIATION
A bond is said to be trading at unrealized gains when its current market price
is higher than its cost basis.
- --------------------------------------------------------------------------------
1998 Semiannual Report 27 Minnesota Municipal Term Trusts
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
1998 Semiannual Report 28 Minnesota Municipal Term Trusts
<PAGE>
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
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 [GRAPHIC]
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 funds' 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 [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
[LOGO]
PIPER CAPITAL MANAGEMENT
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED
FIBER, INCLUDING 15% POST-CONSUMER WASTE.
#21300 8/1998 186-98
STAPLES
[GRAPHIC]
