<PAGE>
Minnesota Municipal Income Portfolio - 1998 Semiannual Report
1998 Semiannual Report
[LOGO] FIRST AMERICAN
ASSET MANAGEMENT
MINNESOTA
MUNICIPAL INCOME
PORTFOLIO
MXA
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . . 5
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 15
Shareholder Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</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] FIRST AMERICAN
ASSET 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 advisors. 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.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Based on net asset value for the periods ended July 31, 1998
- --------------------------------------------------------------------------------
[GRAPH]
<TABLE>
<CAPTION>
SINCE INCEPTION
ONE YEAR FIVE YEAR (6/25/98)
<S> <C> <C> <C>
MINNESOTA MUNICIPAL INCOME PORTFOLIO 7.01% 7.14% 6.98%
LIPPER GENERAL MUNICIPAL BOND FUNDS: LEVERAGED AVERAGE 6.09% 7.17% 7.40%
LEHMAN BROTHERS MUNICIPAL LONG BOND INDEX 7.13% 7.25% 7.14%
</TABLE>
Average annualized total returns are through July 31, 1998, and are based on the
change in net asset value *** (NAV). They reflect the reinvestment of
distributions but do not reflect sales charges. NAV-based performance is used to
measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, five-year and since inception periods ended July 31, 1998, were 8.56%,
4.44% and 4.53%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on those distributions described in the
fund's dividend reinvestment plan, but not on initial purchases.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost. Closed-end funds, such as this fund, often trade
at discounts *** to net asset value. Therefore, you may be unable to realize the
full net asset value of your shares when you sell.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of leveraged perpetual and
term trust national closed-end municipal funds as characterized by Lipper
Analytical Services. The Lehman Brothers Municipal Long Bond Index is comprised
of municipal bonds with more than 22 years to maturity and an average credit
quality of AA. The index is unmanaged and does not include any fees or expenses
in its total return figures.
The since inception numbers for the Lipper average and Lehman index are
calculated from the month end following the fund's inception through July 31,
1998.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Semiannual Report 1 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
[PHOTO]
DOUG WHITE, CFA, shares responsibility for the management of Minnesota
Municipal Income Portfolio. He has 15 years of financial experience.
- --------------------------------------------------------------------------------
September 18, 1998
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
MINNESOTA MUNICIPAL INCOME PORTFOLIO PROVIDED A NET ASSET VALUE TOTAL RETURN OF
1.75%* FOR THE SIX-MONTH PERIOD ENDED JULY 31, 1998. The fund's market price
return was 0.91% over the same period. This compares to a 2.19% total return for
the fund's benchmark,*** the Lehman Brothers Municipal Long Bond Index. Over the
same period, the Lipper General Municipal Bond Funds: Leveraged Average gained
2.98%. The fund's monthly dividend remained stable at 6.31 cents per share
throughout the six-month reporting period.
* ALL RETURNS ASSUME REINVESTMENT OF ALL DISTRIBUTIONS AND DO NOT REFLECT SALES
CHARGES, EXCEPT THE FUND'S TOTAL RETURN BASED ON MARKET PRICE, WHICH DOES
REFLECT SALES CHARGES ON THOSE DISTRIBUTIONS DESCRIBED IN THE FUND'S DIVIDEND
REINVESTMENT PLAN, BUT NOT ON INITIAL PURCHASES. PAST PERFORMANCE DOES NOT
GUARANTEE FUTURE RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN
INVESTMENT WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR
LESS THAN THEIR ORIGINAL COST.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on July 31, 1998.
[CHART]
<TABLE>
<S> <C>
Hospital Revenue 22%
Sales/Excise Tax Revenue 1%
Electric Revenue 6%
Education Revenue 11%
Health Service/HMO Revenue 1%
General Obligations 30%
Water/Sewer/Pollution Control Revenue 4%
Mutiple Utility Revenue 3%
Other Assets 2%
Leasing Revenue 3%
Nursing Home Revenue 3%
Housing Revenue 14%
</TABLE>
Municipal inverse floating rate securities account for 3% of the fund's total
assets.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Semiannual Report 2 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
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[PHOTO]
RON REUSS, ISFA, shares responsibility for the management of Minnesota
Municipal Income Portfolio. He has 30 years of financial experience.
- --------------------------------------------------------------------------------
WE CONTINUE TO POSITION THE PORTFOLIO TO BENEFIT FROM STABLE OR DECLINING
LONG-TERM INTEREST RATES. The current moderate inflation outlook has increased
the probability of bond yields remaining stable or declining. Municipal bond
yields are currently at their most attractive levels, compared to U.S.
Treasuries, in over a decade. Accordingly, we kept the fund's effective
duration *** toward the long end of our target range. (We discuss the fund's
effective duration strategy further later in this letter.). The general level of
interest rates continued to move down due to the spreading global financial
concerns and the resulting demand for U.S. Treasury securities as a safe haven.
Simultaneously, the supply of municipal bonds grew, as the robust economy and
increased tax revenues allowed a growing number of new municipal projects.
REFUNDINGS ARE CONTRIBUTING TO THE INCREASED SUPPLY OF MUNICIPAL BONDS.
Municipal issuers have taken advantage of the lower rates to refund older,
higher-yielding securities, resulting in refundings currently being up more than
100% compared to the same time period last year. This increased supply is the
driver of underperformance for tax-exempt issues compared to their taxable
counterparts. Total new issuances are on-track to reach an all-time full year's
high, if they keep up their current pace, and new Minnesota issues are currently
up 85%. At the same time, there continues to be a minimal increase in demand for
municipal bonds.
THE U.S. ECONOMY CONTINUES TO GROW; HOWEVER, IT IS SHOWING SIGNS OF SLOWING.
The economy was growing at a rate of 0.4% in February 1998, and has steadily
decreased during the past several months to a current rate of -0.2%. The gross
domestic product *** (GDP) in the second quarter of 1998 increased 1.6%. In
1997, GDP increased by 3.8%, which was the fastest growth rate since 1988.
THE ECONOMIC FALLOUT FROM ASIA HAS BEGUN TO SPREAD THROUGHOUT THE WORLD.
International markets are working through a difficult period. The recent
upheaval in emerging markets such as
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Semiannual Report 3 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
Venezuela, Brazil, and Mexico is largely attributed to the turmoil in Russia. By
itself, Russia is an insignificant economy to the United States, given that the
major trading partners of the U.S. are Canada, Mexico, Japan and European
nations. However, when combined with the economic woes in Asia, the problems and
challenges in Russia are feared to have the potential to spread to additional
countries, thus having a direct impact on the U.S. economy.
WE HAVE MAINTAINED A LONGER EFFECTIVE DURATION IN RESPONSE TO A NEED TO INCREASE
THE FUND'S INCOME. The fund's effective duration is currently at the long end
of our target range, and we will continue to maintain a longer duration as long
as our economic outlook remains unchanged. This long duration, coupled with the
fund's leverage from preferred stock *** could have a negative impact on the
fund's net asset value during a rising interest rate environment.
WHILE CONTINUING TO FOCUS ON QUALITY, WE ARE LOOKING AT SELECTIVELY ADDING
HIGHER YIELDING SECURITIES. Credit quality spreads on municipal bonds are
beginning to widen, therefore lower quality, longer-term municipals are becoming
more attractive. Currently our team of analysts are researching these types of
value-added securities.
Thank you for your investment in the Minnesota Municipal Income Portfolio. 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
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Semiannual Report 4 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $92,304,024
Cash in bank on demand deposit ............................ 9,951
Accrued interest receivable ............................... 1,601,151
-----------------
Total assets ............................................ 93,915,126
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................ 8,137
Payable for investment securities purchased on a when-issued
basis (note 2) .......................................... 987,740
Accrued investment management fee ......................... 27,585
Accrued remarketing agent fee ............................. 14,896
Accrued administrative fee ................................ 11,822
-----------------
Total liabilities ....................................... 1,050,180
-----------------
Net assets applicable to outstanding capital stock ...... $92,864,946
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ........................................ $89,146,706
Undistributed net investment income ....................... 848,648
Accumulated net realized loss on investments .............. (2,186,253)
Unrealized appreciation of investments .................... 5,055,845
-----------------
Total - representing net assets applicable to capital
stock ................................................. $92,864,946
-----------------
-----------------
* Investments in securities at identified cost ............ $87,248,179
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets applicable to outstanding common stock ......... $61,764,946
Shares of common stock outstanding (authorized 200 million
shares of $0.01 par value) .............................. 4,146,743
Net asset value ........................................... $ 14.89
Market price .............................................. $ 13.88
LIQUIDATION PREFERENCE OF PREFERRED STOCK (NOTE 3):
Net assets applicable to outstanding preferred stock ...... $31,100,000
Shares of preferred stock outstanding (authorized 1 million
shares) ................................................. 1,244
Liquidation preference per share .......................... $ 25,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Semiannual Report 5 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (Unaudited) (continued)
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STATEMENT OF OPERATIONS For the Six Months Ended July 31, 1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest .................................................. $ 2,521,309
-----------------
EXPENSES (NOTE 5):
Investment management fee ................................. 160,971
Administrative fee ........................................ 68,988
Remarketing agent fee ..................................... 39,091
Custodian and accounting fees ............................. 34,740
Transfer agent fees ....................................... 11,209
Reports to shareholders ................................... 10,884
Directors' fees ........................................... 9,061
Audit and legal fees ...................................... 27,993
Other expenses ............................................ 6,023
-----------------
Total expenses .......................................... 368,960
Less expenses paid indirectly ......................... (2,319)
-----------------
Total net expenses ...................................... 366,641
-----------------
Net investment income ................................... 2,154,668
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) ................. 293,429
Net change in unrealized appreciation or depreciation of
investments ............................................. (835,630)
-----------------
Net loss on investments ................................. (542,201)
-----------------
Net increase in net assets resulting from operations
..................................................... $ 1,612,467
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Semiannual Report 6 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
7/31/98 YEAR ENDED
(UNAUDITED) 1/31/98
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 2,154,668 $ 4,406,931
Net realized gain on investments .......................... 293,429 166,586
Net change in unrealized appreciation or depreciation of
investments .............................................. (835,630) 3,941,653
----------------- -----------------
Net increase in net assets resulting from operations .... 1,612,467 8,515,170
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends .................................. (1,570,579) (3,160,648)
Preferred stock dividends ............................... (507,593) (1,048,680)
----------------- -----------------
Total distributions ..................................... (2,078,172) (4,209,328)
----------------- -----------------
Total increase (decrease) in net assets ................. (465,705) 4,305,842
Net assets at beginning of period ......................... 93,330,651 89,024,809
----------------- -----------------
Net assets at end of period ............................... $92,864,946 $93,330,651
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 848,648 $ 772,152
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Semiannual Report 7 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(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
Portfolio securities for which market quotations are readily
available are valued at current market value. If market
quotations or valuations are not readily available, or if such
quotations or valuations are believed to be inaccurate,
unreliable or not reflective of market value, portfolio
securities are valued according to procedures adopted by the
fund's board of directors in good faith at "fair value", that is,
a price that the fund might reasonably expect to receive for the
security or other asset upon its current sale.
The current market value of certain fixed income securities is
provided by an independent pricing service. Fixed income
securities for which prices are not available from an independent
pricing service but where an active market exists are valued
using market quotations obtained from one or more dealers that
make markets in the securities or from a widely-used quotation
system. Short-term securities with maturities of 60 days or less
are valued at amortized cost, which approximates market value.
Securities transactions are accounted for on the date securities
are purchased or sold. Realized gains and losses are calculated
on the identified-cost basis. Interest income, including
amortization of bond discount and premium, is recorded on an
accrual basis.
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1998 Semiannual Report 8 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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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.
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 value if the fund makes such purchases while
remaining substantially fully invested. As of July 31, 1998, the
fund had entered into outstanding when-issued or forward
commitments of $987,740.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and not
be subject to federal income tax. Therefore, no income tax
provision is required. The fund also intends to distribute its
taxable net investment income and realized gains, if any, to
avoid the payment of any federal excise taxes.
Net investment income and net realized gains (losses) may differ
for financial statement and tax purposes primarily because of
market discount amortization. The character of distributions made
during the year from net investment income or net realized gains
may differ from its ultimate characterization for federal income
tax purposes. In addition, due to the timing of dividend
distributions,
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1998 Semiannual Report 9 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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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 fund.
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 fund's dividend reinvestment plan,
reinvested in additional shares of the fund's common stock. Under
the plan, common shares will be purchased in the open market.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
in the financial statements. Actual results could differ from
these estimates.
(3) REMARKETED
PREFERRED
STOCK
................................
Minnesota Municipal Income Portfolio Inc. has issued and, as of
July 31, 1998, 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 July 31, 1998, the dividend rates were
3.125% and 3.30% for class "M" and "W," respectively.
RP is a registered trademark of Merrill Lynch & Company.
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1998 Semiannual Report 10 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
(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 July 31, 1998, aggregated $9,321,314 and $9,316,370,
respectively.
(5) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
On August 10, 1998, the fund entered into an investment advisory
agreement with U.S. Bank National Association (U.S. Bank). Prior
thereto, Piper Capital Management Incorporated, an affiliate of
U.S. Bank, had served as the funds advisor. U.S. Bank also serves
as the fund's administrator under an administration agreement
effective May 1, 1998. Prior thereto, Piper Capital provided
services under an administration agreement through April 30,
1998. See also footnote 7.
The investment advisory agreement provides the advisor with a
monthly investment management fee equal to an annual rate of
0.35% of the fund's average weekly net assets (computed by
subtracting liabilities, which exclude preferred stock, from the
value of the total assets of the fund). For its fee, the advisor
provides investment advice and conducts the management and
investment activities of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annual rate of 0.15% of the
fund's average weekly net assets (computed by subtracting
liabilities, which exclude preferred stock, from the value of the
total assets of the fund). For its fee, the administrator
provides reporting, regulatory and record-keeping services for
the fund.
REMARKETING AGENT FEE
The fund has entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
The remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annual rate of 0.25% of the
fund's average amount of RP outstanding. For its fee, the
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1998 Semiannual Report 11 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
remarketing agent will remarket shares of RP tendered to it on
behalf of shareholders and will determine the applicable dividend
rate for each seven-day dividend period.
OTHER FEES AND EXPENSES
In addition to the investment management, administrative and
remarketing agent fees, the fund is responsible for paying most
other operating expenses including: outside directors' fees and
expenses; custodian fees; registration fees; printing and
shareholder reports; transfer agent fees and expenses; legal,
auditing and accounting services; insurance; interest; taxes and
other miscellaneous expenses.
Expenses paid indirectly represent a reduction of custodian fees
for earnings on miscellaneous cash balances maintained by the
fund.
(6) CAPITAL LOSS
CARRYOVER
................................
For federal income tax purposes, the fund had capital loss
carryovers at January 31, 1998, which, if not offset by
subsequent capital gains, will expire on the fund's fiscal
year-ends as indicated below. It is unlikely the board of
directors will authorize a distribution of any net realized
capital gains until the available capital loss carryovers have
been offset or expire.
<TABLE>
<CAPTION>
CAPITAL LOSS
CARRYOVER EXPIRATION
------------- ---------------
<S> <C>
$2,064,623 2003
415,059 2004
-------------
$2,479,682
-------------
-------------
</TABLE>
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1998 Semiannual Report 12 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
(7) ADVISOR
ACQUISITION
................................
On May 1, 1998, Piper Jaffray Companies Inc., the parent company
of the fund's 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 June 30, 1998, U.S. Bancorp was the 14th largest
U.S. commercial bank holding company, with assets of nearly $73.8
billion. 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 June 30, 1998, U.S. Bank, acting
through its First American Asset Management group, managed more
than $77.5 billion in assets, including approximately $28.4
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
U.S. Bancorp resulted in the assignment and automatic termination
of the fund's investment advisory agreement with Piper Capital
Management Incorporated. Upon consummation of the acquisition of
Piper Jaffray Companies by U.S. Bancorp, the fund entered into a
new investment advisory agreement with Piper Capital Management,
which shareholders approved at the fund's annual meeting in
August. Shareholders also approved a new investment advisory
agreement with U.S. Bank, which replaced the agreement between
the fund and Piper Capital Management.
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1998 Semiannual Report 13 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
(8) FINANCIAL
HIGHLIGHTS
................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six Months
Ended Year Ended January 31, Period
7/31/98 ---------------------------------------------- Ended
(Unaudited) 1998 1997 1996 1995 1/31/94(g)
------------ --------- --------- --------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period ............................ $15.01 $ 13.97 $ 14.32 $ 11.96 $ 14.67 $14.13
------------ --------- --------- --------- ---------- -------
Operations:
Net investment income ................ 0.52 1.06 1.09 1.06 1.09 0.55
Net realized and unrealized gains
(losses) on investments ............ (0.14) 0.99 (0.44) 2.40 (2.74) 0.63
------------ --------- --------- --------- ---------- -------
Total from operations .............. 0.38 2.05 0.65 3.46 (1.65) 1.18
------------ --------- --------- --------- ---------- -------
Distributions to shareholders from net
investment income:
Paid to common shareholders .......... (0.38) (0.76) (0.76) (0.82) (0.83) (0.42)
Paid to preferred shareholders ....... (0.12) (0.25) (0.24) (0.28) (0.23) (0.08)
------------ --------- --------- --------- ---------- -------
Total distributions to
shareholders ..................... (0.50) (1.01) (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 ............................... $14.89 $ 15.01 $ 13.97 $ 14.32 $ 11.96 $14.67
------------ --------- --------- --------- ---------- -------
------------ --------- --------- --------- ---------- -------
Market value, common stock, end of
period ............................... $13.88 $ 14.13 $ 12.50 $ 12.88 $ 11.88 $15.50
------------ --------- --------- --------- ---------- -------
------------ --------- --------- --------- ---------- -------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ 1.75% 13.29% 3.09% 27.27% (12.69)% 6.86%
Total return, common stock, market value
(b) .................................. 0.91% 19.60% 3.19% 15.74% (18.11)% 6.18%
Net assets at end of period (in
millions) ............................ $ 93 $ 93 $ 89 $ 90 $ 81 $ 92
Ratio of expenses to average weekly net
assets applicable to common stock
(c) . 1.20%(h) 1.23% 1.26% 1.28% 1.27% 1.13%(h)
Ratio of net investment income to
average weekly net assets applicable
to common stock (d)(e) ............... 5.38%(h) 5.66% 6.25% 5.81% 7.00% 6.54%(h)
Portfolio turnover rate (excluding
short-term securities) ............... 10% %26 %25 %13 %49 55%
Remarketed preferred stock outstanding
at end of period (in millions) ....... $ 31 $ 31 $ 31 $ 31 $ 31 $ 31
Asset coverage ratio (f) ............... 299% 300% 286% 291% 260% 296%
</TABLE>
(a) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT NET ASSET VALUE AND DOES NOT
REFLECT A SALES CHARGE.
(b) ASSUMES REINVESTMENT OF DISTRIBUTIONS AT ACTUAL PRICES PURSUANT TO THE
FUND'S DIVIDEND REINVESTMENT PLAN.
(c) RATIO OF EXPENSES TO TOTAL AVERAGE WEEKLY NET ASSETS IS 0.80%, 0.80%,
0.82%, 0.82%, 0.79% AND 0.69% FOR THE SIX MONTHS ENDED JULY 31, 1998, AND
FISCAL YEARS 1998, 1997, 1996, 1995 AND 1994, RESPECTIVELY. DIVIDEND
PAYMENTS TO PREFERRED SHAREHOLDERS ARE NOT CONSIDERED AN EXPENSE.
(d) RATIO REFLECTS TOTAL NET INVESTMENT INCOME LESS DIVIDENDS PAID TO PREFERRED
SHAREHOLDERS FROM NET INVESTMENT INCOME DIVIDED BY AVERAGE WEEKLY NET
ASSETS APPLICABLE TO COMMON STOCK.
(e) RATIO OF NET INVESTMENT INCOME TO TOTAL AVERAGE WEEKLY NET ASSETS IS 4.68%,
4.87%, 5.16%, 5.06%, 5.54% AND 4.66% FOR THE SIX MONTHS ENDED JULY 31,
1998, AND FISCAL YEARS 1998, 1997, 1996, 1995, AND 1994, RESPECTIVELY.
(f) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(g) COMMENCEMENT OF OPERATIONS WAS JUNE 25, 1993.
(h) ANNUALIZED.
- --------------------------------------------------------------------------------
1998 Semiannual Report 14 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL INCOME PORTFOLIO July 31, 1998
..........................................................................................
Principal Market
Description of Security Amount Value(a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (98.8%):
MUNICIPAL BONDS (95.6%)
EDUCATION REVENUE (10.7%):
Higher Education Facility-Carleton College
(Callable 11/01/07 at 100), 5.30%-5.40%,
11/1/13-11/1/14 ................................. $ 2,500,000 $ 2,572,300
Higher Education Facility-St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ...... 1,500,000 1,524,885
Higher Education Facility-Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 ........ 2,000,000 2,138,940
Higher Education Facility-Macalester College
(Callable 3/1/05 at 100), 5.50%-5.55%,
3/1/12-3/1/16 ................................... 500,000 515,677
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 1,125,744
Higher Education Facility-St. Mary's College
(Callable 10/1/03 at 101), 6.10%, 10/1/16 ....... 500,000 520,955
Higher Education Facility-St. Thomas University
(Callable 4/1/07 at 100), 5.38%, 4/1/18 ......... 1,050,000 1,063,335
Higher Education Facility-St. Thomas University
(Callable 9/1/03 at 101), 5.50%-5.60%,
9/1/08-9/1/14 ................................... 430,000 447,106
------------
9,908,942
------------
ELECTRIC REVENUE (6.2%):
Northern Minnesota Municipal Power Agency (Callable
1/1/09 at 102), 5.40%, 1/1/15 ................... 1,000,000(e) 1,027,210
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 4,755,740
------------
5,782,950
------------
GENERAL OBLIGATIONS (29.5%):
Albany Independent School District (Callable 2/1/08
at 100), 5.00%, 2/1/16 .......................... 1,220,000 1,205,982
Anoka County (Callable 6/1/03 at 102), 6.10%,
6/1/13 .......................................... 500,000 533,420
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ................... 2,000,000 1,984,620
Chaska Independent School District (Callable 2/1/06
at 100), 6.00%, 2/1/15 .......................... 2,725,000 2,999,135
Hawley Independent School District (Callable 2/1/06
at 100), 5.75%, 2/1/17 .......................... 1,000,000 1,043,260
Itasca County Independent School District (MBIA)
(Callable 2/1/05 at 100), 5.25%, 2/1/11 ......... 2,710,000 2,780,460
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 15 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value(a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Lakeville Independent School District #194, 5.00%,
2/1/17 .......................................... $ 3,640,000 $ 3,588,166
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................. 3,750,000 3,823,688
Osseo Independent School District, 5.59%, 2/1/13
(Callable 2/1/04 at 100) ........................ 2,000,000(d) 2,096,460
Rosemount General Obligation (Callable 4/1/06 at
100), 5.75%, 4/1/13 ............................. 1,000,000 1,058,290
St. Micheal Independent School District (Callable
2/1/09 at 100), 4.88%, 2/1/17-2/1/18 ............ 3,295,000 3,191,731
Wayzata Independent School District (Callable
2/1/07 at 100), 5.50%, 2/1/17 ................... 3,000,000 3,090,270
------------
27,395,482
------------
HEALTH SERVICE/HMO (0.6%):
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ....... 500,000 546,615
------------
HOSPITAL REVENUE (21.1%):
Bemidji Health Care Facility-North Country Health
System (Callable 9/1/06 at 102), 5.63%,
9/1/15 .......................................... 1,760,000 1,811,075
Breckenridge Health Facility, 5.21%, 11/15/13
(Callable 11/15/03 at 102) ...................... 4,120,000(d) 4,189,422
Duluth Health Facility-Benedictine Health System
(Callable 2/15/03 at 102), 6.00%, 2/15/12 ....... 1,800,000 1,943,748
Fergus Falls Health Care-Lake Region Hospital
(Callable 9/1/03 at 102), 6.50%, 9/1/18 ......... 1,000,000 1,070,450
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 ....... 500,000 524,300
Minneapolis Health Care-Fairview Hospital (MBIA)
(Callable 11/15/03 at102), 5.25%, 11/15/13 ...... 500,000 507,520
Red Wing Health Care Facility-River Region
(Callable 9/1/03 at 102), 6.50%, 9/1/22 ......... 1,000,000 1,073,700
Rochester Health Care Facility (Callable 5/15/08 at
101), 5.50%, 11/15/27 ........................... 2,000,000 2,061,120
St. Paul Housing Redevelopment Authority-Healtheast
Project (Callable 11/1/03 at 102), 6.63%,
11/1/17 ......................................... 6,000,000 6,442,140
------------
19,623,475
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 16 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value(a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
HOUSING REVENUE (13.8%):
Brooklyn Center, Ponds Family Housing Project
(Callable 1/1/04 at 102), 5.90%, 1/1/20 ......... 1,050,000 $ 1,070,759
Burnsville, Summit Park Apartments (Callable 7/1/03
at 102), 5.75%, 7/1/11 .......................... 1,000,000 1,031,560
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%,
12/1/09 ......................................... 3,090,000 3,176,304
New Hope, Multifamily Housing Project (Callable
1/1/06 at 102), 6.05%, 1/1/17 ................... 450,000 471,344
St. Louis Park, Multifamily Housing Project
(Callable 12/1/04 at 102), 6.15%, 12/1/16 ....... 500,000 529,800
State Housing and Finance Agency (Callable 1/1/04
at 102), 6.30%, 7/1/25 .......................... 745,000 795,228
State Housing and Finance Agency (Callable 7/1/03
at 102), 5.95%, 1/1/17 .......................... 3,120,000 3,234,161
State Housing and Finance Agency (Callable 8/1/03
at 102), 5.70%-6.10%, 8/1/07-8/1/22 ............. 2,325,000 2,425,274
------------
12,734,430
------------
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) 314,229
------------
LEASING REVENUE (2.9%):
Benton County Jail Facility (FSA) (Callable 2/1/05
at 100), 5.70%, 2/1/13-2/1/16 ................... 900,000 939,466
South Washington County Independent School District
(Callable 12/1/06 at 100), 5.00%, 12/1/11 ....... 450,000 451,188
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 1,266,025
------------
2,656,679
------------
MULTIPLE UTILITY REVENUE (2.9%):
Owatonna Public Utility Revenue (AMBAC) (Callable
1/1/04 at 100), 5.45%, 1/1/16 ................... 2,600,000 2,650,102
------------
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 1,610,550
Waconia Housing Redevelopment Authority (Callable
6/1/03 at 102), 6.00%, 6/1/14 ................... 1,500,000 1,568,145
------------
3,178,695
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 17 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities (Unaudited) (continued)
- ---------------------------------------------------------------------
MINNESOTA MUNICIPAL INCOME PORTFOLIO
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value(a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
WATER/POLLUTION CONTROL REVENUE (4.2%):
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 $ 2,946,224
Minnesota Public Facilities Authority Water
Pollution Control Revenue (Callable 3/1/07 at
100), 5.00%, 3/1/16 ............................. 1,000,000 994,170
------------
3,940,394
------------
Total Municipal Bonds
(cost: $84,351,389) .......................... 88,731,993
------------
MUNICIPAL DERIVATIVE SECURITIES (3.2%):
INVERSE FLOATER (3.2%):
Duluth Health Facility-Benedictine Health System,
Series E-2, 9.11%, 2/15/12 (Callable 2/15/03 at
102) ............................................ 925,000(b)(d) 1,125,031
Osseo Independent School District, (FGIC), 8.10%,
2/1/14 (Callable 2/1/04 at 100) ................. 775,000(b)(d) 875,750
Rochester Health Care, 8.84%, 11/15/10 ............ 740,000(b)(d) 971,250
------------
2,972,031
------------
Total Municipal Derivative Securities
(cost: $2,296,790) ........................... 2,972,031
------------
Total Municipal Long-Term Securities
(cost: $86,648,179) .......................... 91,704,024
------------
MUNICIPAL SHORT-TERM SECURITIES (0.6%):
Bloomington Minnesota Multifamily Revenue, 3.60%,
12/1/25 . 500,000(c) 500,000
Minnesota State Higher Education Facilities
Authority, 3.55%, 3/1/24 ........................ 100,000(c) 100,000
------------
Total Municipal Short-Term Securities
(cost: $600,000) ............................. 600,000
------------
Total Investments in Securities
(cost: $87,248,179) (f) ...................... $ 92,304,024
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 Semiannual Report 18 Minnesota Municipal Income Portfolio
<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) PORTFOLIO ABBREVIATIONS AND 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 JULY 31,
1998.
(c) FLOATING OR VARIABLE RATE OBLIGATION MATURING IN MORE THAN ONE YEAR. THE
INTEREST RATE, WHICH IS BASED ON SPECIFIC, OR AN INDEX OF, MARKET INTEREST
RATES, IS SUBJECT TO CHANGE PERIODICALLY AND IS THE EFFECTIVE RATE ON JULY
31, 1998. THIS INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH ALLOWS THE
RECOVERY OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT EXCEEDING
ONE YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN REPRESENTS FINAL
MATURITY.
(d) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT AND MAY NOT BE SOLD TO
THE PUBLIC. THESE SECURITIES ARE CONSIDERED ILLIQUID. THE FUND IS NOT
LIMITED IN ITS ABILITY TO INVEST IN ILLIQUID SECURITIES. ON JULY 31, 1998,
THE AGGREGATE VALUE OF THESE INVESTMENTS WAS $9,572,162 OR 10.3% OF TOTAL
NET ASSETS. INFORMATION REGARDING THESE SECURITIES IS AS FOLLOWS:
<TABLE>
<CAPTION>
DATE
SECURITY PAR ACQUIRED COST BASIS
- --------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
BRECKENRIDGE HEALTH FACILITY $ 4,120,000 2/97 $ 3,800,146
DULUTH SEAWAY PORT AUTHORITY, CARGILL INC.
PROJECT 300,000 11/93 300,000
DULUTH HEALTH FACILITY-BENEDICTINE HEALTH
SYSTEM 925,000 5/94 881,924
OSSEO INDEPENDENT SCHOOL DISTRICT 2,000,000 2/97 1,919,389
OSSEO INDEPENDENT SCHOOL DISTRICT 775,000 5/94 687,275
ROCHESTER HEALTH CARE 740,000 5/94 725,185
</TABLE>
(e) ON JULY 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $987,740.
(f) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 5,133,071
GROSS UNREALIZED DEPRECIATION ...... (77,226)
------------
NET UNREALIZED APPRECIATION ...... $ 5,055,845
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1998 Semiannual Report 19 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
10, 1998. Each matter voted upon at that meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
(1) The fund's preferred and common shareholders, voting as a
class, approved an interim advisory agreement between the
fund and Piper Capital Management Incorporated (Piper
Capital), and the receipt of investment advisory fees by
Piper Capital under such agreement. The following votes were
cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,885,227 59,448 57,451 --
</TABLE>
(2) The fund's preferred and common shareholders, voting as a
class, approved a new investment advisory agreement between
the fund and U.S. Bank National Association. The following
votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,860,944 76,062 65,119 --
</TABLE>
(3) The fund's preferred shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 1,187 20
Leonard W. Kedrowski ................... 1,187 20
</TABLE>
- ---------------------------------------------------------------------
1998 Semiannual Report 20 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
(4) The fund's preferred and common shareholders, voting as a
class, elected the following directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
Robert J. Dayton ....................... 3,885,732 116,394
Roger A. Gibson ........................ 3,889,772 112,354
Andrew M. Hunter III ................... 3,895,605 106,521
Robert L. Spies ........................ 3,894,395 107,731
Joseph D. Strauss ...................... 3,896,272 105,954
Virginia L. Stringer ................... 3,896,772 105,354
</TABLE>
(5) The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's Boards of Directors of KPMG
Peat Marwick LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 1999. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,933,835 22,268 46,022 --
</TABLE>
INVESTMENT POLICY CHANGE
The Board of Directors of MXA has recently approved a
modification of the investment policies of the fund. The fund may
now invest up to 5% of its total assets in the securities of
unaffiliated closed-end investment companies that invest
primarily in tax-exempt obligations.
- ---------------------------------------------------------------------
1998 Semiannual Report 21 Minnesota Municipal Income Portfolio
<PAGE>
GLOSSARY OF TERMS ***
BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments.
DISCOUNT
Closed-end funds 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.
EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant. It is important to remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure when interest rate changes are small, rapid and occur equally across all
points of the yield curve. In addition, effective duration is difficult to
calculate precisely, especially in the case of a bond that is callable prior to
maturity, and can be greatly affected by interest rate changes.
GROSS DOMESTIC PRODUCT
GDP is the value of all produced goods and services during a particular time
interval. Until 1991, the main tool used to calculate economic growth was Gross
National Product (GNP), not GDP. The two terms differ only in their geographical
coverage. GDP covers goods and services produced within the geographical
constraints of a country, whereas GNP covers goods and services produced by
labor and capital supplied by the country's residents, whether the actual
production takes place within the borders of that country or in a foreign
country.
NET ASSET VALUE
Net asset value (or NAV) is the market value of one share of a mutual fund.
PREFERRED STOCK
Preferred stock is different from common stock in that the amount of the
dividend is specified and paid before dividends on common stock. The dividend
does not increase if profits increase.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
1998 Semiannual Report 22 Minnesota Municipal Income Portfolio
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
1998 Semiannual Report 23 Minnesota Municipal Income Portfolio
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
1998 Semiannual Report 24 Minnesota Municipal Income Portfolio
<PAGE>
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
1-800-722-7161
FOR GENERAL INFORMATION
press 3, our Investor Services representatives are ready to answer your
questions.
TO ORDER LITERATURE
press 1, ask a representative to mail you additional literature, including a
Quarterly Update.
BY MAIL [GRAPHIC]
First American Asset Management
Attn: Investor Services
601 Second Avenue South
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 Investor
Services at 1-800-722-7161, or mail a request to us.
<PAGE>
[LOGO] FIRST AMERICAN NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
ASSET MANAGEMENT
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM 100% TOTAL RECOVERED FIBER,
INCLUDING 15% POST-CONSUMER WASTE.
21420 9/1998 190-98
