<PAGE>
1997 Annual Report
MINNESOTA MUNICIPAL INCOME PORTFOLIO
MINNESOTA MUNICIPAL INCOME PORTFOLIO - 1997 ANNUAL REPORT
MXA
PIPER CAPITAL MANAGEMENT
<PAGE>
CONTENTS
President's Letter . . . . . . . . . . 1
Portfolio Managers' Letter . . . . . . 3
Financial Statements and Notes . . . . 6
Investments in Securities. . . . . . .16
Independent Auditors' Report . . . . .21
Federal Tax Information . . . . . . .22
Shareholder Update . . . . . . . . . .23
Directors and Officers . . . . . . . .27
Glossary . . . . . . . . . . . . . . .28
PIPER CAPITAL MANAGEMENT
MINNESOTA MUNICIPAL INCOME PORTFOLIO
- --------------------------------------------------------------------------------
FUND OBJECTIVE
High current income exempt from both regular federal income tax and Minnesota
personal income tax, consistent with preservation of capital. The fund's income
may be subject to federal and/or state of Minnesota alternative minimum tax.
Investors should consult their tax advisers. As with other investment companies,
there can be no assurance this fund will achieve its objective.
PRIMARY INVESTMENTS
A wide range of Minnesota municipal securities rated investment grade or of
comparable quality when purchased. These securities may include municipal
derivative securities, such as inverse floating rate and inverse interest-only
municipal securities, which may be more volatile than traditional municipal
securities in certain market conditions.
<PAGE>
[PHOTO]
William H. Ellis
President
Piper Capital Management
PRESIDENT'S LETTER
- --------------------------------------------------------------------------------
MARCH 18, 1997
DEAR SHAREHOLDERS:
Check out the best sellers' list at your local bookstore. You'll notice a
number of books about companies that have gone through dramatic changes in
recent years. Surprising? Not really. Every company experiences change
periodically. And we're no exception. At Piper Capital Management, we've made
significant changes to enhance our ability to achieve consistent, competitive
performance and provide a higher level of quality service.
We've upgraded our toll-free telephone system so you spend less time
listening to voice response and more time receiving information you can put to
use. Also, when calling our toll-free number, you now have the option to listen
to our portfolio managers talk about their current investment strategies. Find
out the many ways to reach us on the back page of this report.
Take a close look at the annual report in your hand. We've made our
portfolio managers' commentaries simpler and more inviting, and added a glossary
of terms at the back to help you understand commonly used financial terms.
Whenever you see this symbol (***), it indicates a term defined in the glossary.
You'll hear the word "team" more often when we talk about our portfolio
managers. We've enhanced our approach, allowing managers to interact more
frequently and share their best ideas to improve the investment capabilities of
Piper Capital.
The recent changes we have made represent a new way of doing business at
Piper Capital - an approach we believe will enable us to establish an
unparalleled reputation for prudent investing and high-quality service.
That said, we look forward to serving your future financial needs and
exceeding your expectations in every way we can. Thank you for your investment.
Sincerely,
/s/ William H. Ellis
William H. Ellis
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1997 Annual Report 1 Minnesota Municipal Income Portfolio
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Based on net asset value for the period ended January 31, 1997.
[GRAPH]
Average annualized total return figures are through January 31, 1997, and
are based on the change in net asset value (NAV). They reflect the
reinvestment of distributions but do not reflect sales charges. NAV-based
performance is used to measure investment management results.
Average annualized total return figures based on the change in market price
for the one-year, three-year and since inception periods ended January 31,
1997, were 3.19%, -0.74% and 1.05%, respectively. These figures also assume
reinvested distributions and do not reflect sales charges.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY
OF PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does
not guarantee future results. The investment return and principal value of
an investment will fluctuate so that fund shares, when sold, may be worth
more or less than their original cost.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of leveraged perpetual
and term trust national closed-end municipal funds as characterized by
Lipper Analytical Services. The Lehman Brothers Municipal Long Bond Index
is comprised of municipal bonds with more than 22 years to maturity and an
average credit quality of AA. The index is unmanaged and does not include
any fees or expenses in its total return figures.
The since inception numbers for the Lipper average and Lehman index are
calculated from the month end following the fund's inception through
January 31, 1997.
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1997 Annual Report 2 Minnesota Municipal Income Portfolio
<PAGE>
[PHOTO]
DOUG WHITE, CFA,
shares responsibility for the management of Minnesota Municipal Income
Portfolio. He has 14 years of financial experience.
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
MARCH 18, 1997
DEAR SHAREHOLDERS:
THE NET ASSET VALUE TOTAL RETURN FOR MINNESOTA MUNICIPAL INCOME PORTFOLIO FOR
THE YEAR ENDED JANUARY 31, 1997, WAS 3.09%. This compares to total returns of
3.49% for the Lipper General Municipal Bond Funds: Leveraged Average and 3.76%
for the Lehman Brothers Municipal Long Bond Index. Based on market price, the
fund's total return for the year was 3.19%.*
WE ATTRIBUTE THE FUND'S UNDERPERFORMANCE TO ITS EFFECTIVE DURATION,(***)
WHICH WE KEPT LONGER THAN THE DURATION OF THE FUND'S LEHMAN BROTHERS
BENCHMARK.(***) A long effective duration generally means that the fund is
more sensitive to changes in interest rates, which were plentiful during this
reporting period. During the first half of the year, rising rates had a
negative effect on bonds in general.
* All returns include reinvested distributions, but not sales charges. 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.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
As a percentage of total assets on January 31, 1997.
[CHART]
Housing Revenue 16% Hospital Revenue 17%
Nursing Home Revenue 3% Education Revenue 7%
Leasing Revenue 2% Industrial Development
Other Assets 4% Revenue 2%
Multiple Utility Revenue 3% Sales/Excise Tax Revenue 1%
Water/Sewer/Pollution Electric Revenue 5%
Control Revenue 3% Health Service/
General Obligations 35% HMO Revenue 2%
Municipal floating rate trust certificates, municipal inverse floating rate
securities and municipal inverse interest-only securities account for 7% of the
fund's total assets.
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1997 Annual Report 3 Minnesota Municipal Income Portfolio
<PAGE>
[PHOTO]
RON REUSS, ISFA,
shares responsibility for the management of Minnesota Municipal Income
Portfolio. He has 28 years of financial experience.
PORTFOLIO MANAGERS' LETTER (continued)
- --------------------------------------------------------------------------------
However, municipal bonds, including those in this fund, performed better than
most of their taxable counterparts for three principal reasons: subsiding
concerns about tax reform, a decreased supply of new issues, and favorable
after-tax yields for municipal bonds in comparison to taxable bonds. This
favorable performance continued for most of the year, before making a sharp
reversal in October when a substantial drop in yields during September
prompted municipal issuers to flood the market with new bonds, which forced
prices down. Rates fell (and prices rose) in November, but then mixed signals
about inflation triggered rising municipal interest rates from early December
through year-end, with a corresponding drop in municipal bond prices.
WHILE WE GENERALLY MAINTAIN AN EFFECTIVE DURATION IN THIS FUND THAT IS LONGER
THAN THAT OF ITS BENCHMARK, WE TOOK STEPS THROUGHOUT THE YEAR TO SHORTEN IT
SOMEWHAT IN ORDER TO REDUCE THE FUND'S NET ASSET VALUE VOLATILITY. While this
strategy does help to reduce price volatility, it also decreases income and
thus, increases the likelihood of reduced common stock(***) dividends. For this
reason, we have been shortening the fund's duration at a managed pace, by
selling lower-quality, long-duration securities and replacing them with high-
quality, short-term variable rate assets. These help to offset some of the drop
in income since their incomes increase as short-term interest rates increase. As
of the end of this reporting period, the fund was earning its monthly dividend
of 6.312 cents per share. Keep in mind, however, that the fund also has
outstanding floating rate preferred stock.(***) During times of rising short-
term interest rates, the rates of preferred stock also rise, which could cause a
lower rate of return for common shareholders. For more discussion about
preferred stock, see the glossary at the back of this book.
ANOTHER TOOL WE USED TO HELP MAINTAIN THE FUND'S INCOME WAS CALL
PROTECTION.(***) At year end, the average call protection of the securities in
this fund was more than 10 years, which means they cannot be redeemed by their
issuers within that time frame. Keeping long call protection allows the fund to
maximize the
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1997 Annual Report 4 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (continued)
- --------------------------------------------------------------------------------
time it can earn income, since the bonds cannot be refinanced during times of
falling interest rates until their call dates. It also helps increase the
potential for price appreciation if interest rates fall (or price depreciation
if rates rise). Call protection has always been an important tool in helping the
fund meet its objective of high current income.
AS WE MADE THESE CHANGES, WE DID NOT COMPROMISE THE QUALITY OF THE BONDS THE
FUND HOLDS. As of January 31, 1997, 81% of the fund's total assets were invested
in bonds rated A or higher by Standard & Poor's or Moody's (or another
nationally recognized statistical rating organization). This exceeds the fund's
quality guidelines, which require at least 65% in bonds rated A or higher.
MIXED SIGNALS ABOUT THE DIRECTION OF INFLATION AND INTEREST RATES CALL FOR
MAINTAINING A LESS AGGRESSIVE POSITION OVER THE NEXT SEVERAL MONTHS. This means
keeping an effective duration that is closer to that of the fund's benchmark,
while continuing our usual focus on call protection and quality. In addition, we
continue to research all holdings, and watch for signs of financial weakness or
strength in state and local entities that could affect bond ratings.
We appreciate your investment in Minnesota Municipal Income Portfolio. We look
forward to continuing our relationship with you and helping you meet your
investment goals in the new fiscal year and beyond.
Sincerely,
/s/ Douglas J. White
Douglas J. White
Portfolio Manager
/s/ Ronald R. Reuss
Ronald R. Reuss
Portfolio Manager
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1997 Annual Report 5 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements
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STATEMENT OF ASSETS AND LIABILITIES January 31, 1997
..................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ........ $87,319,502
Cash in bank on demand deposit ............................. 19,440
Receivable for investment securities sold .................. 1,516,830
Accrued interest receivable ................................ 1,733,869
-----------------
Total assets ............................................. 90,589,641
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................. 7,988
Payable for investment securities purchased ................ 1,507,563
Accrued investment management fee .......................... 26,336
Accrued remarketing agent fee .............................. 11,658
Accrued administrative fee ................................. 11,287
-----------------
Total liabilities ........................................ 1,564,832
-----------------
Net assets applicable to outstanding capital stock ......... $89,024,809
-----------------
-----------------
REPRESENTED BY:
Preferred stock - authorized 1 million shares of $25,000
liquidation preference per share; outstanding, 1,244
shares (note 3) .......................................... $31,100,000
-----------------
Common stock - authorized 200 million shares of $0.01 par
value; outstanding, 4,146,743 shares ..................... 41,467
Additional paid-in capital ................................. 58,005,239
Undistributed net investment income ........................ 582,008
Accumulated net realized loss on investments ............... (2,653,727)
Unrealized appreciation of investments ..................... 1,949,822
-----------------
Total - representing net assets applicable to outstanding
common stock ........................................... $57,924,809
-----------------
Total net assets ......................................... $89,024,809
-----------------
-----------------
Net asset value per share of outstanding common stock (net
assets divided by 4,146,743 shares of common stock
outstanding) ............................................. $ 13.97
-----------------
-----------------
* Investments in securities at identified cost ............. $85,369,680
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Annual Report 6 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended January 31, 1997
..................................................................
<TABLE>
<S> <C>
INCOME:
Interest ................................................... $ 5,233,851
-----------------
EXPENSES (NOTE 5):
Investment management fee .................................. 307,173
Administrative fee ......................................... 131,646
Remarketing agent fee ...................................... 79,045
Custodian and accounting fees .............................. 56,717
Transfer agent fees ........................................ 26,755
Reports to shareholders .................................... 36,356
Directors' fees ............................................ 11,702
Audit and legal fees ....................................... 43,851
Other expenses ............................................. 23,300
-----------------
Total expenses ........................................... 716,545
Less expenses paid indirectly .............................. (9,214)
-----------------
Total net expenses ....................................... 707,331
-----------------
Net investment income .................................... 4,526,520
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 435,954
Net change in unrealized appreciation or depreciation of
investments .............................................. (2,270,499)
-----------------
Net loss on investments .................................. (1,834,545)
-----------------
Net increase in net assets resulting from operations ..... $ 2,691,975
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Annual Report 7 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
- ---------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
..................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/97 1/31/96
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 4,526,520 $ 4,379,601
Net realized gain (loss) on investments .................... 435,954 (55,046)
Net change in unrealized appreciation or depreciation of
investments .............................................. (2,270,499) 10,022,798
----------------- -----------------
Net increase in net assets resulting from operations ..... 2,691,975 14,347,353
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................... (3,141,158) (3,404,195)
Preferred stock dividends ................................ (987,022) (1,158,999)
----------------- -----------------
Total distributions ...................................... (4,128,180) (4,563,194)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS:
Payments for retirement of 9,500 shares (note 7) ........... -- (117,838)
----------------- -----------------
Decrease in net assets from capital share transactions ... -- (117,838)
----------------- -----------------
Total increase (decrease) in net assets .................. (1,436,205) 9,666,321
Net assets at beginning of year ............................ 90,461,014 80,794,693
----------------- -----------------
Net assets at end of year .................................. $89,024,809 $90,461,014
----------------- -----------------
----------------- -----------------
Undistributed net investment income ........................ $ 582,008 $ 201,746
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1997 Annual Report 8 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements
- ----------------------------------------
(1) ORGANIZATION
................................
Minnesota Municipal Income Portfolio Inc. (the fund) is
registered under the Investment Company Act of 1940 (as amended)
as a non-diversified, closed-end management investment company.
The fund invests in a wide range of Minnesota municipal
securities rated investment grade or of comparable quality when
purchased. These securities may include municipal derivative
securities, such as inverse floating rate and inverse
interest-only municipal securities. Fund shares are listed on the
American Stock Exchange under the symbol MXA.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
................................
INVESTMENTS IN SECURITIES
The value of certain fixed income securities will be provided by
an independent pricing service, which determines these valuations
at a time earlier than the close of the New York Stock Exchange.
Fixed income securities for which prices are not available from
an independent pricing service but where an active market exists
will be valued using market quotations obtained from one or more
dealers that make markets in the securities.
Occasionally, events affecting the value of such securities may
occur between the time valuations are determined and the close of
the New York Stock Exchange. If events materially affecting the
value of such securities occur, if the fund's management
determines for any other reason that valuations provided by the
pricing service or dealer are inaccurate or when market
quotations are not readily available, securities will be valued
at their fair value according to procedures decided upon 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.
Financial futures are valued at the last settlement price
established each day by the board of trade or exchange on which
they are traded. Such valuations are determined using independent
pricing services or prices quoted by independent brokers.
Securities transactions are accounted for on the date the
securities are purchased or sold. Realized gains and losses are
calculated on
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1997 Annual Report 9 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
the identified-cost basis. Interest income, including
amortization of bond discount and premium computed on a
level-yield basis, is accrued daily.
The fund concentrates its investments in Minnesota and,
therefore, may have more credit risk related to the economic
conditions of Minnesota than portfolios with a broader
geographical diversification.
FUTURES TRANSACTIONS
For hedging purposes, the fund may buy and sell financial futures
contracts and related options. Risks of entering into futures
contracts and related 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 fund is 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 fund 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 fund recognizes 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 fund 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 fund segregates, with its custodian, assets
with a market value equal to the amount of its purchase
commitments. The purchase of securities on a when-issued or
forward-commitment basis may increase the volatility of the
fund's net asset
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1997 Annual Report 10 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
value if the fund makes such purchases while remaining
substantially fully invested. As of January 31, 1997, the fund
had no outstanding when-issued or forward commitments.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. The fund also intends to distribute its
taxable net investment income and realized gains, if any, in
amounts sufficient to avoid the payment of any federal excise
taxes.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
market discount amortization. The character of distributions made
during the year from net investment income or net realized gains
may differ from its ultimate characterization for federal income
tax purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains
(losses) were recorded by the fund.
On the statement of assets and liabilities, as a result of
permanent book-to-tax differences, a reclassification adjustment
has been made to decrease undistributed net investment income and
decrease accumulated net realized loss on investments by $18,078.
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. Realized capital gains, if any, will be distributed at
least annually. Distributions are payable in cash or, for common
shareholders pursuant to the fund's dividend reinvestment plan,
reinvested in additional shares of the fund's common stock. Under
the plan, common shares will be purchased in the open market.
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1997 Annual Report 11 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
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 Income Portfolio has issued and, as of
January 31, 1997, has outstanding 1,244 shares of remarketed
preferred stock (622 shares in class "M" and 622 shares in class
"W") (RP) with a liquidation preference of $25,000 per share. The
dividend rate on the RP is adjusted every seven days (on Mondays
for class "M" and on Wednesdays for class "W"), as determined by
the remarketing agent. On January 31, 1997, the dividend rates
were 3.125% and 3.125% for class "M" and "W," respectively.
RP is a registered trademark of Merrill Lynch & Company.
(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities, for the year
ended January 31, 1997, aggregated $21,073,172 and $23,953,975,
respectively.
For the year ended January 31, 1997, no brokerage commissions
were paid to Piper Jaffray Inc., an affiliated broker.
(5) EXPENSES
................................
The fund has 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 equal to an annual rate of
0.35% of the fund's average weekly net assets (computed by
subtracting liabilities, which exclude preferred stock (RP), from
the value of the total assets of the fund). For its fee, the
adviser provides investment advice and conducts the management
and investment activities of the fund.
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1997 Annual Report 12 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annual rate of 0.15% of the
fund's average weekly net assets (computed by subtracting
liabilities, which exclude preferred stock, from the value of the
total assets of the fund). For its fee, the administrator
provides reporting, regulatory and record-keeping services for
the fund.
The fund has entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
The remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annual rate of 0.25% of the
fund's average amount of RP outstanding. For its fee, the
remarketing agent will remarket shares of RP tendered to it on
behalf of shareholders and will determine the applicable dividend
rate for each seven-day dividend period.
In addition to the investment management, administrative and
remarketing agent fees, the fund is responsible for paying most
other operating expenses including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; taxes and
other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(6) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers of $2,653,727 as of January 31, 1997, which, if not
offset by subsequent capital gains, will expire in 2003 through
2004. 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.
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1997 Annual Report 13 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(7) RETIREMENT OF
FUND SHARES
................................
The fund's board of directors voted to discontinue the share
repurchase program effective February 6, 1996. Pursuant to the
plan, the fund has cumulatively repurchased and retired 19,500
shares as of January 31, 1997, which represents 0.5% of the
shares originally issued.
- ---------------------------------------------------------------------
1997 Annual Report 14 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- ---------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of common stock outstanding throughout
each period and selected information for each period are as
follows:
MINNESOTA MUNICIPAL INCOME PORTFOLIO
<TABLE>
<CAPTION>
Fiscal year ended January 31,
Period
-------------------------------- ended
1997 1996 1995 1/31/94(f)
------- ------- -------- -------
<S> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning of
period .................................... $ 14.32 $ 11.96 $ 14.67 $14.13
------- ------- -------- -------
Operations:
Net investment income ..................... 1.09 1.06 1.09 0.55
Net realized and unrealized gains (losses)
on investments .......................... (0.44) 2.40 (2.74) 0.63
------- ------- -------- -------
Total from operations ................... 0.65 3.46 (1.65) 1.18
------- ------- -------- -------
Distributions to shareholders from net
investment income:
Paid to common shareholders ............... (0.76) (0.82) (0.83) (0.42)
Paid to preferred shareholders ............ (0.24) (0.28) (0.23) (0.08)
------- ------- -------- -------
Total distributions to shareholders ..... (1.00) (1.10) (1.06) (0.50)
------- ------- -------- -------
Offering costs and underwriting discounts
associated with the remarketed preferred
stock ..................................... -- -- -- (0.14)
------- ------- -------- -------
Net asset value, common stock, end of
period .................................... $ 13.97 $ 14.32 $ 11.96 $14.67
------- ------- -------- -------
------- ------- -------- -------
Market value, common stock, end of period ... $ 12.50 $ 12.88 $ 11.88 $15.50
------- ------- -------- -------
------- ------- -------- -------
SELECTED INFORMATION
Total return, common stock, net asset value
(a) ....................................... 3.09% 27.27% (12.69)% 6.86%
Total return, common stock, market value
(b) ....................................... 3.19% 15.74% (18.11)% 6.18%
Net assets at end of period (in millions) ... $ 89 $ 90 $ 81 $ 92
Ratio of expenses to average weekly net
assets (c) ................................ 0.82% 0.82% 0.79% 0.69%(g)
Ratio of expenses to average weekly net
assets applicable to common stock (c) ..... 1.26% 1.28% 1.27% 1.13%(g)
Ratio of net investment income to average
weekly net assets ......................... 5.16% 5.06% 5.54% 4.66%(g)
Ratio of net investment income to average
weekly net assets applicable to common
stock (d) ................................. 6.25% 5.81% 7.00% 6.54%(g)
Portfolio turnover rate (excluding short-term
securities) ............................... 25% 13% 49% 55%
Remarketed preferred stock outstanding end of
period (in millions) $ 31 $ 31 $ 31 $ 31
Asset coverage ratio (e) .................... 286% 291% 260% 296%
</TABLE>
(a) BASED ON THE CHANGE IN NET ASSET VALUE OF A COMMON SHARE DURING THE PERIOD
AND ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE.
(b) 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.
(c) BEGINNING IN FISCAL 1995, THE EXPENSE RATIOS REFLECT THE EFFECT OF GROSS
EXPENSES PAID INDIRECTLY BY THE FUND. PRIOR PERIOD EXPENSE RATIOS HAVE NOT
BEEN ADJUSTED.
(d) RATIO REFLECTS TOTAL NET INVESTMENT INCOME LESS DIVIDENDS PAID TO PREFERRED
SHAREHOLDERS FROM NET INVESTMENT INCOME DIVIDED BY AVERAGE WEEKLY NET
ASSETS APPLICABLE TO COMMON STOCK.
(e) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(f) COMMENCEMENT OF OPERATIONS WAS JUNE 25, 1993.
(g) ADJUSTED TO AN ANNUAL BASIS.
- ---------------------------------------------------------------------
1997 Annual Report 15 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL INCOME PORTFOLIO January 31, 1997
.......................................................................................
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 (94.1%):
MUNICIPAL BONDS (86.9%):
EDUCATION REVENUE (6.1%):
Higher Education Facility-Carleton College (Callable
5/1/06 at 100), 5.75%, 11/1/12 .................... $ 2,000,000 $ 2,043,680
Higher Education Facility-Macalester College
(Callable 3/1/05 at 100), 5.50%-5.55%,
3/1/12-3/1/16 ..................................... 500,000 496,140
Higher Education Facility-St. Benedict College
(Callable 3/1/04 at 100), 6.20%-6.38%,
3/1/14-3/1/20 ..................................... 1,050,000 1,070,965
Higher Education Facility-St. Mary's College
(Callable 10/1/03 at 101), 6.10%-6.15%,
10/1/16-10/1/23 ................................... 1,400,000 1,404,788
Higher Education Facility-St. Thomas University
(Callable 9/1/03 at 101), 5.50%-5.60%,
9/1/08-9/1/14 ..................................... 430,000 431,461
------------
5,447,034
------------
ELECTRIC REVENUE (5.3%):
Southern Municipal Power Agency (Callable 1/1/03 at
100), 4.75%, 1/1/16 ............................... 205,000 179,926
Western Minnesota Municipal Power Agency (AMBAC)
(Callable 1/1/06 at 102), 5.40%-5.50%,
1/1/09-1/1/12 ..................................... 4,500,000 4,552,415
------------
4,732,341
------------
GENERAL OBLIGATIONS (31.0%):
Anoka County (Callable 6/1/03 at 102), 6.10%,
6/1/13 ............................................ 500,000 513,240
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ..................... 2,000,000 1,859,060
Chaska Independent School District (Callable 2/1/06
at 100), 6.00%, 2/1/15 ............................ 2,725,000 2,817,786
Hawley Independent School District (Callable 2/1/06
at 100), 5.75%, 2/1/17 ............................ 1,000,000 1,001,740
Itasca County Minnesota Independent School District
(MBIA) (Callable 2/1/05 at 100), 5.25%, 2/1/11 .... 2,710,000 2,698,049
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................... 3,750,000 3,685,312
Richfield School District (FGIC) (Callable 2/1/03 at
100), 5.35%, 2/1/15 ............................... 4,000,000 3,957,440
Rosemount General Obligation (Callable 4/1/06 at
100), 5.75%, 4/1/13 ............................... 1,000,000 1,018,090
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Annual Report 16 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
State General Obligation (Callable 8/1/03 at 100),
5.40%, 8/1/12 ..................................... $ 7,000,000 $ 7,030,030
Wayzata Minnesota Independent School District
(Callable 2/1/07 at 100), 5.50%, 2/1/17 ........... 3,000,000 2,980,230
------------
27,560,977
------------
HEALTH SERVICE/HMO (1.8%):
Brainerd Health Care Facility (Callable 2/15/03 at
102), 6.00%, 2/15/12 .............................. 1,060,000 1,097,513
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ......... 500,000 529,754
------------
1,627,267
------------
HOSPITAL REVENUE (13.6%):
Duluth Health Facility-Benedictine Health System
(Callable 2/15/03 at 102), 6.00%, 2/15/12 ......... 2,800,000 2,884,392
Fergus Falls Health Care-Lake Region Hospital
(Callable 9/1/03 at 102), 6.50%, 9/1/18 ........... 1,000,000 1,016,540
Minneapolis Health Care-Fairview Hospital (Callable
11/15/03 at102), 5.25%, 11/15/19 .................. 550,000 510,329
Minneapolis Health Care-Fairview Hospital (MBIA)
(Callable 11/15/03 at102), 5.25%, 11/15/13 ........ 500,000 484,505
Red Wing Health Care Facility-River Region (Callable
9/1/03 at 102), 6.50%, 9/1/22 ..................... 1,000,000 1,019,870
St. Paul Housing Redevelopment Authority-Healtheast
Project (Callable 11/1/03 at 102), 6.63%,
11/1/17 ........................................... 6,000,000 6,140,220
------------
12,055,856
------------
HOUSING REVENUE (16.4%):
Brooklyn Center, Ponds Family Housing Project
(Callable 1/1/04 at 102), 5.90%, 1/1/20 ........... 1,050,000 1,021,671
Burnsville, Summit Park Apartments (Callable 7/1/03
at 102), 5.75%, 7/1/11 ............................ 1,000,000 1,003,910
Coon Rapids, Multifamily Development-Woodland Apts.
(Callable 12/1/03 at 100), 5.63%, 12/1/09 ......... 3,360,000 3,366,317
Minneapolis and St. Paul Housing and Redevelopment
Health Care System- Childrens Health Care (Callable
11/15/03 at 102), 4.75%, 11/15/18 ................. 1,500,000 1,292,325
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Annual Report 17 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Minneapolis and St. Paul, Housing and Redevelopment
Health Care System- Childrens Health Care (FSA)
(Callable 8/15/05 at 102), 5.70%, 8/15/16 ......... $ 500,000 $ 503,730
New Hope, Multifamily Housing Project (Callable
1/1/06 at 102), 6.05%, 1/1/17 ..................... 450,000 457,524
St. Louis Park, Multifamily Housing Project (Callable
12/1/04 at 102), 6.15%, 12/1/16 ................... 500,000 507,455
State Housing and Finance Agency (Callable 1/1/04 at
102), 6.30%, 7/1/25 ............................... 750,000 771,570
State Housing and Finance Agency (Callable 7/1/03 at
102), 5.95%, 1/1/17 ............................... 3,270,000 3,299,953
State Housing and Finance Agency (Callable 8/1/03 at
102), 5.70%-6.10%, 8/1/07-8/1/22 .................. 2,370,000 2,396,335
------------
14,620,790
------------
IDR - MISCELLANEOUS PROJECTS (0.3%):
Duluth Seaway Port Authority, Cargill Inc. Project
(Callable 12/1/03 at 102), 5.75%, 12/1/16 ......... 300,000(d) 302,910
------------
LEASING REVENUE (2.4%):
Benton County Jail Facility (FSA) (Callable 2/1/05 at
100), 5.70%, 2/1/13-2/1/16 ........................ 900,000 909,239
Waconia Housing Redevelopment Authority-Public
Project (Callable 1/1/03 at 100), 5.70%-5.75%,
1/1/10-1/1/15 ..................................... 1,240,000 1,234,556
------------
2,143,795
------------
MULTIPLE UTILITY REVENUE (2.8%):
Owatonna Public Utility Revenue (AMBAC) (Callable
1/1/04 at 100), 5.45%, 1/1/16 ..................... 2,600,000 2,509,468
------------
NURSING HOME REVENUE (3.4%):
Red Wing Elderly Housing-River Region (Callable
9/1/03 at 102), 6.50%, 9/1/22 ..................... 1,500,000 1,529,805
Waconia Housing Redevelopment Authority (Callable
6/4/03 at 102), 6.00%, 6/1/14 ..................... 1,500,000 1,506,195
------------
3,036,000
------------
SALES TAX REVENUE (0.6%):
Minneapolis Convention Center Facilities (Callable
4/1/04 at 100), 5.40%, 4/1/12 ..................... 500,000 501,405
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Annual Report 18 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
WATER/POLLUTION CONTROL REVENUE (3.2%):
Minnesota Public Facilities Authority Water Pollution
Control Revenue (Callable 3/1/06 at 100),
4.75%-5.35%, 3/1/10-3/1/12 ........................ $ 2,900,000 $ 2,797,093
------------
Total Municipal Bonds
(cost: $76,130,369) ............................ 77,334,936
------------
MUNICIPAL DERIVATIVE SECURITIES (7.2%):
FLOATING RATE TRUST CERTIFICATE (1.4%):
Osseo Minnesota Independent School District, 3.60%,
2/1/13 ............................................ 1,260,000(c) 1,260,000
------------
INVERSE FLOATERS (5.5%):
Breckenridge Health Care Series J-2, 7.08%,
11/15/13 .......................................... 1,525,000(b)(d) 1,403,000
Duluth Health Facility-Benedictine Health System,
Series E-2, 9.11%, 2/15/12 ........................ 925,000(b)(d) 1,011,719
Osseo Independent School District (FGIC), 8.09%,
2/1/13 ............................................ 740,000(b)(d) 764,975
Osseo Independent School District (FGIC), 8.10%,
2/1/14 ............................................ 775,000(b)(d) 795,344
Rochester Health Care, 8.84%, 11/15/10 .............. 740,000(b)(d) 853,775
------------
4,828,813
------------
INVERSE INTEREST-ONLY (0.3%):
State Housing and Finance Agency, 214.15%, 2/1/15 ... 9,700,000(b)(d) 295,753
------------
Total Municipal Derivative Securities
(cost: $5,639,311) ............................. 6,384,566
------------
Total Municipal Long-Term Securities
(cost: $81,769,680) ............................ 83,719,502
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1997 Annual Report 19 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MUNICIPAL SHORT-TERM SECURITIES (4.0%):
Mankato, MN, 3.40%, 2/1/18 .......................... $ 700,000(c) $ 700,000
Minneapolis and St. Paul, MN, Metropolitan Airport
Commission, 3.60%, 9/1/13 ......................... 1,400,000(c) 1,400,000
Minnesota State Higher Education Facilities
Authority, 3.60%, 3/1/24 .......................... 500,000(c) 500,000
Richfield, MN, Independent School District, 3.35%,
2/1/12 ............................................ 1,000,000(c) 1,000,000
------------
Total Municipal Short-Term Securities
(cost: $3,600,000) ............................. 3,600,000
------------
Total Investments in Securities
(cost: $85,369,680) (e) ........................ $ 87,319,502
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) Securities are valued in accordance with procedures described in note 2 to
the financial statements.
(b) Portfolio definitions:
Inverse floater - represents securities that pay interest at rates that
increase (decrease) in the same magnitude as, or in a multiple of, a
decrease (increase) in the market rate paid on a related, floating
rate security. Interest rates disclosed are in effect on January 31,
1997.
Inverse interest-only - represents securities that entitle holders to
receive only interest payments. Interest is paid at a rate that
increases (decreases) with a decrease (increase) in the market rate
paid on a related, floating rate security. Interest rate represents
yield based upon current income and cost basis.
(c) Floating or variable rate obligation maturing in more than one year. The
interest rate, which is based on specific, or an index of, market interest
rates, is subject to change periodically and is the effective rate on
January 31, 1997. This instrument may also have a demand feature which
allows the recovery of principal at any time, or at specified intervals not
exceeding one year, on up to 30 days' notice. Maturity date shown
represents final maturity.
(d) Securities purchased as part of a private placement and are illiquid. On
January 31, 1997, the total market value of these investments was
$5,427,476, or 6.10%, of total net assets.
(e) On January 31, 1997, the cost of investments in securities for federal
income tax purposes was $85,268,861. The aggregate gross unrealized
appreciation and depreciation of investments in securities based on this
cost were as follows:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 2,322,991
GROSS UNREALIZED DEPRECIATION ...... (272,350)
------------
NET UNREALIZED APPRECIATION ...... $ 2,050,641
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1997 Annual Report 20 Minnesota Municipal Income Portfolio
<PAGE>
Independent Auditors' Report
- ----------------------------------------
THE BOARD OF DIRECTORS AND SHAREHOLDERS
MINNESOTA MUNICIPAL INCOME PORTFOLIO INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments in securities, of Minnesota Municipal Income
Portfolio Inc. as of January 31, 1997, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights presented
in note 8 to the financial statements. These financial statements and the
financial highlights are the responsibility of the fund's management. Our
responsibility is to express an opinion on these financial statements and the
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and, where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Minnesota Municipal Income Portfolio Inc. as of January 31, 1997, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 7, 1997
- ---------------------------------------------------------------------
1997 Annual Report 21 Minnesota Municipal Income Portfolio
<PAGE>
Federal Income Tax Information
- ----------------------------------------
The following per-share information describes the federal tax
treatment of distributions made during the fiscal year. Exempt-
interest dividends are exempt from federal income tax and should
not be included in your gross income, but need to be reported on
your income tax return for informational purposes. Please consult
a tax adviser on how to report these distributions at the state
and local levels.
COMMON STOCK INCOME DISTRIBUTIONS
99.92% QUALIFYING AS EXEMPT-INTEREST DIVIDENDS
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- --------------------------------------------- ----------
<S> <C>
February 21, 1996 ........................... $ 0.063125
March 27, 1996 .............................. 0.063125
April 24, 1996 .............................. 0.063125
May 29, 1996 ................................ 0.063125
June 26, 1996 ............................... 0.063125
July 24, 1996 ............................... 0.063125
August 28, 1996 ............................. 0.063125
September 25, 1996 .......................... 0.063125
October 23, 1996 ............................ 0.063125
November 27, 1996 ........................... 0.063125
December 18, 1996 ........................... 0.063125
January 10, 1997 ............................ 0.063125
----------
Total ................................... $ 0.757500
----------
----------
</TABLE>
PREFERRED STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.92% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Total class "M" ............................. $ 788.57
--------
--------
Total class "W" ............................. $ 798.28
--------
--------
</TABLE>
- ---------------------------------------------------------------------
1997 Annual Report 22 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update
- ----------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
20, 1996. Each matter voted upon at the meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
1. The fund's preferred shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLDING
VOTED AUTHORITY
"FOR" TO VOTE
------ ---
<S> <C> <C>
David T. Bennett ............................ 1,241 3
William H. Ellis ............................ 1,241 3
</TABLE>
2. The fund's preferred and common shareholders, voting as a
class, elected the following four directors:
<TABLE>
<CAPTION>
SHARES
SHARES WITHHOLDING
VOTED AUTHORITY
"FOR" TO VOTE
---------- -------
<S> <C> <C>
Jaye F. Dyer ................................ 3,777,076 63,794
Karol D. Emmerich ........................... 3,776,579 64,291
Luella G. Goldberg .......................... 3,773,001 67,869
George Latimer .............................. 3,765,012 75,858
</TABLE>
3. The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's board of directors of KPMG
Peat Marwick LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 1997. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES
SHARES VOTED BROKER
VOTED "FOR" "AGAINST" ABSTENTIONS NONVOTES
----------- -------- -------- ----------
<S> <C> <C> <C>
3,796,897 9,255 34,718 --
</TABLE>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan. It's a convenient and economical way to buy
- ---------------------------------------------------------------------
1997 Annual Report 23 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
additional shares of the fund by automatically reinvesting
dividends and capital gains. The plan is administered by
Investors Fiduciary Trust Company (IFTC), the plan agent.
ELIGIBILITY/PARTICIPATION
You may join the plan at any time. Reinvestment of distributions
will begin with the next distribution paid, provided your request
is received at least 10 days before the record date for that
distribution.
If your shares are in certificate form, you may join the plan
directly and have your distributions reinvested in additional
shares of the fund. To enroll in this plan, call IFTC at
1-800-543-1627. If your shares are registered in your brokerage
firm's name or another name, ask the holder of your shares how
you may participate.
Banks, brokers or nominees, on behalf of their beneficial owners
who wish to reinvest dividend and capital gains distributions,
may participate in the plan by informing IFTC at least 10 days
before each share's dividend and/or capital gains distribution.
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend
payment date, IFTC will buy shares of the fund on the New York or
American Stock Exchange or elsewhere on the open market.
The fund will not issue any new shares in connection with the
plan. All reinvestments will be at a market price plus a pro rata
share of any brokerage commissions, which may be more or less
than the fund's net asset value per share. The number of shares
allocated to you is determined by dividing the amount of the
dividend or distribution by the applicable price per share.
There is no direct charge for reinvestment of dividends and
capital gains, since IFTC fees are paid for by the fund. However,
each participant pays a pro rata portion of the brokerage
commissions. Brokerage charges are expected to be lower than
those for
- ---------------------------------------------------------------------
1997 Annual Report 24 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
individual transactions because shares are purchased for all
participants in blocks. As long as you continue to participate in
the plan, distributions paid on the shares in your account will
be reinvested.
IFTC maintains accounts for plan participants holding shares in
certificate form and will furnish written confirmation of all
transactions, including information you need for tax records.
Reinvested shares in your account will be held by IFTC in
noncertificated form in your name.
TAX INFORMATION
Distributions invested in additional shares of the fund are
subject to income tax, just as they would be if received in cash.
In general, the tax basis of such shares will equal the price
paid by IFTC plus the pro rata share of any commission.
Shareholders, as required by the Internal Revenue Service, will
receive Form 1099 regarding the federal tax status of the prior
year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate
your participation in the plan at any time by giving written
notice to IFTC. If your shares are registered in your brokerage
firm's name, you may terminate your participation via verbal or
written instructions to your investment professional. Written
instructions should include your name and address as they appear
on the certificate or account.
If notice is received at least 10 days before the record date,
all future distributions will be paid directly to the shareholder
of record.
If your shares are issued in certificate form and you discontinue
your participation in the plan, you (or your nominee) will
receive an additional certificate for all full shares and a check
for any fractional shares in your account.
- ---------------------------------------------------------------------
1997 Annual Report 25 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- ---------------------------------------------------------------------
PLAN AMENDMENT/TERMINATION
The fund reserves the right to amend or terminate the plan.
Should the plan be amended or terminated, participants will be
notified in writing at least 90 days before the record date for
such dividend or distribution. The plan may also be amended or
terminated by IFTC with at least 90 days written notice to
participants in the plan.
Any question about the plan should be directed to your investment
professional or to Investors Fiduciary Trust Company, P.O. Box
419432, Kansas City, Missouri 64141, 1-800-543-1627.
- ---------------------------------------------------------------------
1997 Annual Report 26 Minnesota Municipal Income Portfolio
<PAGE>
Directors and Officers
- ----------------------------------------
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.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND CHIEF
ADMINISTRATIVE OFFICER OF DEAN WITTER INTERCAPITAL INC. AND
DEAN WITTER TRUST CO.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY FUNDS
OFFICERS
William H. Ellis,
CHAIRMAN OF THE BOARD
Paul A. Dow,
PRESIDENT
Robert H. Nelson,
VICE PRESIDENT AND TREASURER
Susan Sharp Miley,
SECRETARY
INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804
CUSTODIAN, ACCOUNTING AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402
- ---------------------------------------------------------------------
1997 Annual Report 27 Minnesota Municipal Income Portfolio
<PAGE>
GLOSSARY OF TERMS (***)
- --------------------------------------------------------------------------------
BENCHMARK
An established basis of comparison for an investment's performance, a benchmark
may be an unmanaged index or a group of similar investments.
CALL PROTECTION
Call protection is the length of time during which a security cannot be redeemed
by the issuer. For bonds, a long call protection allows the security to
maintain its income stream for a longer period of time by keeping issuers from
refinancing their bonds during times of falling interest rates. At the same
time, a long call protection leaves more opportunity for a bond's price to
increase or decrease.
COMMON STOCK
Common stock is a share of ownership. Common stockholders share in profits (or
losses) in two ways: through dividends and through a potential rise (or fall) in
the price of stock.
EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant. It is important to remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure when interest rate changes are small, rapid and occur equally across all
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, and can be greatly affected by interest rate
changes.
- -------------------------------------------------------------------------------
1997 Annual Report 28 Minnesota Municipal Income Portfolio
<PAGE>
GLOSSARY OF TERMS (***)
- --------------------------------------------------------------------------------
PREFERRED STOCK
In this fund, preferred stock 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.
FOR MORE INFORMATION
By Phone
1 800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 2, then press:
35 Minnesota Municipal
Income Portfolio
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
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 1 800 866-7778, or mail a request to us.
ON-LINE
http://www.piperjaffray.com/
money_management/
29
<PAGE>
PIPER CAPITAL MANAGEMENT
PIPER CAPITAL MANAGEMENT INCORPORATED
222 SOUTH NINTH STREET
MINNEAPOLIS, MN 55402-3804
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED FIBER,
INCLUDING 15% POST-CONSUMER WASTE.
#11420 3/1997 111-97
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Bulk Rate
U.S. Postage
PAID
Permit No. 3008
Mpls., MN
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