<PAGE>
Minnesota Municipal Income Portfolio - 1998 Annual Report
1998 Annual Report
[LOGO]
MINNESOTA
MUNICIPAL INCOME
PORTFOLIO
MXA
<PAGE>
[LOGO]
CONTENTS
<TABLE>
<S> <C>
Portfolio Managers' Letter................................................... 2
Financial Statements and Notes............................................... 6
Investments in Securities.................................................... 16
Independent Auditors' Report................................................. 21
Federal Tax Information...................................................... 22
Shareholder Update........................................................... 23
Glossary..................................................................... 28
</TABLE>
*** This report includes a glossary to help you understand financial terms used
in the portfolio managers' letter. When you see this symbol, it indicates a word
that is defined in the glossary.
MINNESOTA MUNICIPAL INCOME PORTFOLIO
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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.
<PAGE>
AVERAGE ANNUALIZED TOTAL RETURNS
- --------------------------------------------------------------------------------
Based on net asset value for the periods ended January 31, 1998
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<TABLE>
<CAPTION>
Since
One Three Inception
Year Year (6/25/93)
---- ----- ---------
<S> <C> <C> <C>
Minnesota Municipal Income Portfolio 13.29% 14.11% 7.36%
Lipper General Municipal Bond Funds:
Leveraged Average 12.28% 11.25% 5.99%
Lehman Brothers Municipal Long Bond Index 12.73% 11.52% 7.43%
</TABLE>
Average annualized total returns are through January 31, 1998, and are based on
the change in net asset value (NAV). They reflect the reinvestment of
distributions but do not reflect sales charges. NAV-based performance is used to
measure investment management results.
Average annualized total returns based on the change in market price for the
one-year, three-year and since inception periods ended January 31, 1998, were
19.60%, 12.61% and 4.82%, respectively. These returns assume reinvestment of all
distributions and reflect sales charges on those distributions described in the
fund's dividend reinvestment plan, but not on initial purchases.
PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF
PRINCIPAL NOR STABILITY OF INCOME IS GUARANTEED. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost. Closed-end funds, such as this fund, often trade
at discounts to net asset value. Therefore, you may be unable to realize the
full net asset value of your shares when you sell.
The Lipper General Municipal Bond Funds: Leveraged Average represents the
average total return, with distributions reinvested, of leveraged perpetual and
term trust national closed-end municipal funds as characterized by Lipper
Analytical Services. The Lehman Brothers Municipal Long Bond Index is comprised
of municipal bonds with more than 22 years to maturity and an average credit
quality of AA. The index is unmanaged and does not include any fees or expenses
in its total return figures.
The since inception numbers for the Lipper average and Lehman index are
calculated from the month end following the fund's inception through January 31,
1998.
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1998 Annual Report 1 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER
- --------------------------------------------------------------------------------
March 18, 1998
- --------------------------------------------------------------------------------
[PHOTO]
DOUG WHITE, CFA,
shares responsibility for the management of Minnesota Municipal Income
Portfolio. He has 15 years of financial experience.
DEAR SHAREHOLDERS:
MINNESOTA MUNICIPAL INCOME PORTFOLIO PROVIDED A TOTAL RETURN OF 13.29% FOR THE
YEAR ENDED JANUARY 31, 1998. This compares to a 12.73% total return for the
fund's benchmark,*** the Lehman Brothers Municipal Long Bond Index. Over the
same period, the Lipper General Municipal Bond Funds: Leveraged Average
gained 12.28%. The fund's monthly dividend remained stable at 6.31 cents per
share throughout the 12-month reporting period.
WE ATTRIBUTE THE FUND'S PERFORMANCE LARGELY TO OUR STRATEGY OF POSITIONING THE
PORTFOLIO TO BENEFIT FROM A DECLINE IN LONG-TERM INTEREST RATES. Entering the
reporting period, the moderate inflation
* All returns assume reinvestment of all distributions and do not reflect sales
charges, except the fund's total return based on market price, which does
reflect sales charges on those distributions described in the fund's dividend
reinvestment plan, but not on initial purchases. Past performance does not
guarantee future results. The investment return and principal value of an
investment will fluctuate so that fund shares, when sold, may be worth more or
less than their original cost.
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PORTFOLIO COMPOSITION
- --------------------------------------------------------------------------------
As a percentage of total assets on January 31, 1998.
[CHART]
<TABLE>
<S> <C>
Housing Revenue 14%
Nursing Home Revenue 3%
Leasing Revenue 2%
Other Assets 2%
Multiple Utility Revenue 3%
Water/Sewer/Pollution Control Revenue 4%
General Obligations 33%
Hospital Revenue 20%
Sales/Excise Tax Revenue 1%
Electric Revenue 6%
Education Revenue 11%
Health Service/HMO Revenue 1%
</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 Annual Report 2 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RON REUSS, ISFA,
shares responsibility for the management of Minnesota Municipal Income
Portfolio. He has 30 years of financial experience.
- --------------------------------------------------------------------------------
outlook increased the probability that bond yields were likely to decline.
Accordingly, we kept the fund's effective duration*** toward the long end of our
target range to benefit from rising bond prices. (We discuss the fund's
effective duration strategy in greater detail later in this letter.) While we
recognized that the U.S. economy was growing at a solid pace and that the labor
market remained tight, we believed that the financial crisis in Asia could
provide enough of a drag on domestic growth to offset some of the inflationary
pressures that typically build during the latter stages of an economic
expansion.
AS EVENTS UNFOLDED, THE ASIAN CRISIS DID HELP TO PUSH LONG-TERM RATES SHARPLY
LOWER. When the first hint of the looming turmoil in Asia appeared in July,
yields on long-term Treasury bonds were 6.74%. By mid-January, Treasury-bond
yields had fallen to 5.69%, as global investors sought a safe haven amid the
chaos in Asia. Closer to home, bond buyers were reassured about the outlook for
inflation. While municipal issues did not benefit directly from the foreign
demand for Treasuries that accompanied the drop in Treasury yields, all fixed
income securities compete for investment dollars on an after-tax basis among
domestic investors. Consequently, yields on long-term municipal bonds also
drifted lower in concert with comparable Treasury issues.
MUNICIPALITIES TOOK ADVANTAGE OF THE LOWER INTEREST RATES TO INCREASE
REFUNDINGS. As yields dropped across the fixed income spectrum late in the year,
municipal issuers used the occasion of lower rates to refund securities with a
higher rate. The resulting increase in the supply of municipal debt on the
market caused tax-exempt issues to underperform Treasury securities, especially
during December, when interest rates declined most significantly. Refundings in
Minnesota, however, were more limited. In fact, the supply of tax-exempt issues
in Minnesota actually contracted by about 12% from a year earlier. The reduced
supply of Minnesota bonds helped the state's tax-exempt sector to slightly
outperform national bonds (as represented by the Lehman Brothers Municipal Bond
Index) over the reporting period.
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 3 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
THE FIXED INCOME MARKET BENEFITED FROM STABLE MONETARY POLICY. Faced with little
evidence of accelerating inflation and fearful of contributing to further
turmoil overseas, the Federal Reserve Board (Fed) kept interest rates unchanged
after a 0.25% hike in the key Federal Funds rate*** in March 1997. Despite the
Asian crisis, Fed policy-makers have given no hint of any imminent cut in short-
term interest rates.
THE U.S. ECONOMY CONTINUED TO GROW RAPIDLY AND WITHOUT SIGNIFICANT INFLATION.
For all of 1997, the nation's total output of goods and services (GDP) increased
by 3.8%, the fastest growth rate since 1988. Meanwhile, unemployment fell to a
24-year low of 4.6% late in the year. Despite the robust pace of economic
activity, inflation remained under control. At the consumer level, prices
increased by only 1.6% over the 12 months through January, while producer prices
actually declined during the same period. The steady stream of good economic
news put Americans in an ebullient mood, with consumer confidence in December
soaring to its highest level in 28 years.
WE EXPECT THAT ECONOMIC FALLOUT FROM ASIA WILL BECOME INCREASINGLY EVIDENT LATER
THIS YEAR. As the reporting period ended, there was a growing expectation among
investors that the impact of the Asian crisis on the U.S. economy might be less
severe than previously feared. We believe, however, that while the effects may
be somewhat more benign than the worst-case scenarios suggested, the full impact
of the Asian crisis will only become evident as the year unfolds. Specifically,
we expect that reduced demand for U.S. goods in Asia, coupled with intense
pricing pressures from imports, may pinch corporate profit margins enough to
keep inflationary pressures in check without significant credit-tightening moves
by the Federal Reserve. In this environment, we expect long-term interest rates
to remain within a relatively tight range around present levels, with a possible
downward bias if Asian problems more negatively impact the U.S. economy.
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 4 Minnesota Municipal Income Portfolio
<PAGE>
PORTFOLIO MANAGERS' LETTER (CONTINUED)
- --------------------------------------------------------------------------------
AT THIS ADVANCED STAGE OF THE BUSINESS CYCLE, WE BELIEVE IT IS PRUDENT TO
MAINTAIN HIGH STANDARDS OF CREDIT QUALITY IN THE PORTFOLIO. The confidence shown
by investors in the health of the domestic economy has led to a nearly
unprecedented contraction in yield differentials between low- and high-rated
municipal issues. At current levels, we believe that the marginal improvement in
yields offered by lower-rated debt does not provide adequate compensation to
take on the incremental credit risk. We will continue to search for issues that
offer the combination of compelling value and the potential for significant
improvement in underlying fundamentals.
GIVEN OUR OUTLOOK FOR RELATIVELY STABLE INTEREST RATES, WE FORESEE MAKING ONLY
MINOR ADJUSTMENTS TO THE PORTFOLIO'S EFFECTIVE DURATION IN COMING MONTHS. With
the fund's effective duration near the long end of our target range, we continue
to position the portfolio to benefit from stable or falling interest rates. As
noted earlier, we believe the most likely scenario in the fixed income market is
that long-term bond yields will remain within a relatively narrow range. If the
highly fluid nature of the Asian crisis causes long-term interest rates to break
out of this trading range in either direction, we would adjust the fund's
effective duration accordingly. Please note that the fund generally maintains an
effective duration that is longer than that of its benchmark to help meet its
objective of high current income. This long duration, coupled with the fund's
leverage from preferred stock,*** could have a negative impact on the fund's net
asset value during a rising interest rate environment. The fund's longer
duration and leverage position could also benefit the fund during times of
falling interest rates.
Thank you for your investment in Minnesota Municipal Income Portfolio.
Sincerely,
/s/ Douglas J. White /s/ Ronald R. Reuss
Douglas J. White Ronald R. Reuss
Portfolio Manager Portfolio Manager
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 5 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements
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STATEMENT OF ASSETS AND LIABILITIES January 31, 1998
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ........ $92,741,281
Cash in bank on demand deposit ............................. 31,906
Accrued interest receivable ................................ 1,600,708
-----------------
Total assets ............................................. 94,373,895
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................. 9,852
Payable for investment securities purchased on a when-issued
basis (note 2) ........................................... 987,740
Accrued investment management fee .......................... 27,728
Accrued remarketing agent fee .............................. 6,041
Accrued administrative fee ................................. 11,883
-----------------
Total liabilities ........................................ 1,043,244
-----------------
Net assets applicable to outstanding capital stock ....... $93,330,651
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ......................................... $89,146,706
Undistributed net investment income ........................ 772,152
Accumulated net realized loss on investments ............... (2,479,682)
Unrealized appreciation of investments ..................... 5,891,475
-----------------
Total - representing net assets applicable to capital
stock .................................................. $93,330,651
-----------------
-----------------
* Investments in securities at identified cost ............. $86,849,806
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE OF CAPITAL STOCK:
Net assets applicable to outstanding common stock .......... $62,230,651
Shares of common stock outstanding (authorized 1 million
shares of $0.01 par value) ............................... 4,146,743
Net asset value ............................................ $ 15.01
Market price ............................................... $ 14.13
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 Annual Report 6 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENT OF OPERATIONS For the Year Ended January 31, 1998
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest ................................................... $ 5,124,846
-----------------
EXPENSES (NOTE 5):
Investment management fee .................................. 316,499
Administrative fee ......................................... 135,642
Remarketing agent fee ...................................... 79,044
Custodian and accounting fees .............................. 60,062
Transfer agent fees ........................................ 24,061
Reports to shareholders .................................... 24,813
Directors' fees ............................................ 12,165
Audit and legal fees ....................................... 47,574
Other expenses ............................................. 27,877
-----------------
Total expenses ........................................... 727,737
Less expenses paid indirectly .......................... (9,822)
-----------------
Total net expenses ....................................... 717,915
-----------------
Net investment income .................................... 4,406,931
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) .................. 166,586
Net change in unrealized appreciation or depreciation of
investments .............................................. 3,941,653
-----------------
Net gain on investments .................................. 4,108,239
-----------------
Net increase in net assets resulting from operations ... $ 8,515,170
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Annual Report 7 Minnesota Municipal Income Portfolio
<PAGE>
Financial Statements (continued)
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STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/98 1/31/97
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 4,406,931 $ 4,526,520
Net realized gain on investments ........................... 166,586 435,954
Net change in unrealized appreciation or depreciation of
investments .............................................. 3,941,653 (2,270,499)
----------------- -----------------
Net increase in net assets resulting from operations ..... 8,515,170 2,691,975
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends ................................... (3,160,648) (3,141,158)
Preferred stock dividends ................................ (1,048,680) (987,022)
----------------- -----------------
Total distributions ...................................... (4,209,328) (4,128,180)
----------------- -----------------
Total increase (decrease) in net assets .................. 4,305,842 (1,436,205)
Net assets at beginning of year ............................ 89,024,809 90,461,014
----------------- -----------------
Net assets at end of year .................................. $93,330,651 $89,024,809
----------------- -----------------
----------------- -----------------
Undistributed net investment income ........................ $ 772,152 $ 582,008
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1998 Annual Report 8 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements
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(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 Annual Report 9 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (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 January 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 Annual Report 10 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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 $7,459.
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
January 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 January 31, 1998, the dividend rates
were 2.90% and 2.875% for class "M" and "W," respectively.
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1998 Annual Report 11 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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RP is a registered trademark of Merrill Lynch & Company.
(4) INVESTMENT
SECURITY
TRANSACTIONS
................................
Cost of purchases and proceeds from sales of securities, other
than temporary investments in short-term securities for the year
ended January 31, 1998 aggregated $26,832,626 and $22,419,086,
respectively.
(5) EXPENSES
................................
INVESTMENT MANAGEMENT AND ADMINISTRATIVE FEES
The fund has entered into the following agreements with Piper
Capital Management Incorporated (the advisor and administrator):
The investment advisory agreement provides the advisor with a
monthly investment management fee equal to an annual rate of
0.35% of the fund's average weekly net assets (computed by
subtracting liabilities, which exclude preferred stock, from the
value of the total assets of the fund). For its fee, the advisor
provides investment advice and conducts the management and
investment activities of the fund.
The administration agreement provides the administrator with a
monthly fee in an amount equal to an annual rate of 0.15% of the
fund's average weekly net assets (computed by subtracting
liabilities, which exclude preferred stock, from the value of the
total assets of the fund). For its fee, the administrator
provides reporting, regulatory and record-keeping services for
the fund.
REMARKETING AGENT FEE
The fund has entered into a remarketing agent agreement with
Merrill Lynch, Pierce, Fenner & Smith (the remarketing agent).
The remarketing agreement provides the remarketing agent with a
monthly fee in an amount equal to an annual rate of 0.25% of the
fund's average amount of RP outstanding. For its fee, the
remarketing agent will remarket shares of RP tendered to it on
behalf of shareholders and will determine the applicable dividend
rate for each seven-day dividend period.
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1998 Annual Report 12 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
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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> <C>
$2,064,623 2003
415,059 2004
-------------
$2,479,682
-------------
-------------
</TABLE>
(7) PENDING
ACQUISITION
................................
On December 15,1997, Piper Jaffray Companies, Inc., the parent
company of the fund's investment advisor, announced that it had
entered into an agreement to be acquired by U.S. Bancorp. It is
anticipated that this acquisition will be completed in the second
quarter of 1998, subject to regulatory approval, the approval of
Piper Jaffray Companies shareholders and the satisfaction of
customary closing conditions.
U.S. Bancorp is a multi-state bank holding company headquartered
in Minneapolis, Minnesota with a geographic service area spanning
17 states. As of December 31, 1997, U.S. Bancorp was the 15th
largest U.S. commercial bank holding
- ---------------------------------------------------------------------
1998 Annual Report 13 Minnesota Municipal Income Portfolio
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
company, with assets of nearly $71.3 billion. U.S. Bank National
Association ("U.S. Bank"), a wholly owned subsidiary of U.S.
Bancorp, currently acts as the investment advisor to 32 mutual
funds (the "First American Funds"). As of December 31, 1997, U.S.
Bank, acting through its First American Asset Management group,
managed more than $55 billion in assets, including approximately
$20.5 billion in assets of the First American Funds.
Under the Investment Company Act of 1940, as amended (the "1940
Act"), consummation of the acquisition of Piper Jaffray Companies
by U.S. Bancorp will result in the assignment and automatic
termination of the fund's investment advisory agreement with
Piper Capital Management Incorporated. The 1940 Act requires that
any new investment advisory agreement for the fund be approved by
the fund's board of directors and shareholders.
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1998 Annual Report 14 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>
Year Ended January 31, Period
------------------------------ Ended
1998 1997 1996 1995 1/31/94(g)
------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period . $13.97 $14.32 $11.96 $14.67 $14.13
------ ------ ------ ------ --------------
Operations:
Net investment income ................ 1.06 1.09 1.06 1.09 0.55
Net realized and unrealized gains
(losses) on investments ............ 0.99 (0.44) 2.40 (2.74) 0.63
------ ------ ------ ------ --------------
Total from operations .............. 2.05 0.65 3.46 (1.65) 1.18
------ ------ ------ ------ --------------
Distributions to shareholders from net
investment income:
Paid to common shareholders .......... (0.76) (0.76) (0.82) (0.83) (0.42)
Paid to preferred shareholders ....... (0.25) (0.24) (0.28) (0.23) (0.08)
------ ------ ------ ------ --------------
Total distributions to
shareholders ..................... (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 ............................... $15.01 $13.97 $14.32 $11.96 $14.67
------ ------ ------ ------ --------------
------ ------ ------ ------ --------------
Market value, common stock, end of
period ............................... $14.13 $12.50 $12.88 $11.88 $15.50
------ ------ ------ ------ --------------
------ ------ ------ ------ --------------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ 13.29% 3.09% 27.27% (12.69)% 6.86%
Total return, common stock, market value
(b) .................................. 19.60% 3.19% 15.74% (18.11)% 6.18%
Net assets at end of period (in
millions) ............................ $ 93 $ 89 $ 90 $ 81 $ 92
Ratio of expenses to average weekly net
assets applicable to common stock
(c) .................................. 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) ............... 5.66% 6.25% 5.81% 7.00% 6.54%(h)
Portfolio turnover rate (excluding
short-term securities) ............... 26% 25% 13% 49% 55%
Remarketed preferred stock outstanding
end of period (in millions) .......... $ 31 $ 31 $ 31 $ 31 $ 31
Asset coverage ratio (f) ............... 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%, 0.82%,
0.82%, 0.79% AND 0.69% IN 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 4.87%,
5.16%, 5.06%, 5.54% AND 4.66% IN FISCAL YEARS 1998, 1997, 1996, 1995, AND
1994, RESPECTIVELY.
(f) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(g) COMMENCEMENT OF OPERATIONS WAS JUNE 25, 1993.
(h) ANNUALIZED.
- ---------------------------------------------------------------------
1998 Annual Report 15 Minnesota Municipal Income Portfolio
<PAGE>
Investments in Securities
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL INCOME PORTFOLIO January 31, 1998
.......................................................................................
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)
MUNICIPAL LONG-TERM SECURITIES (98.8%):
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 $ 2,606,470
Higher Education Facility-St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ...... 1,500,000 1,539,750
Higher Education Facility-Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 ........ 2,000,000 2,142,120
Higher Education Facility-Macalester College
(Callable 3/1/05 at 100), 5.50%-5.55%,
3/1/12-3/1/16 ................................... 500,000 518,043
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 1,109,769
Higher Education Facility-St. Mary's College
(Callable 10/1/03 at 101), 6.10%, 10/1/16 ....... 500,000 523,290
Higher Education Facility-St. Thomas University
(Callable 4/1/07 at 100), 5.38%, 4/1/18 ......... 1,050,000 1,080,167
Higher Education Facility-St. Thomas University
(Callable 9/1/03 at 101), 5.50%-5.60%,
9/1/08-9/1/14 ................................... 430,000 448,089
------------
9,967,698
------------
ELECTRIC REVENUE (6.3%):
Northern Minnesota Municipal Power Agency (Callable
1/1/09 at 102), 5.40%, 1/1/15 ................... 1,000,000(e) 1,032,170
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 4,820,635
------------
5,852,805
------------
GENERAL OBLIGATIONS (31.6%):
Albany Independent School District (Callable 2/1/08
at 100), 5.00%, 2/1/16 .......................... 1,220,000 1,221,903
Anoka County (Callable 6/1/03 at 102), 6.10%,
6/1/13 .......................................... 500,000 534,585
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ................... 2,000,000 2,008,540
Chaska Independent School District (Callable 2/1/06
at 100), 6.00%, 2/1/15 .......................... 2,725,000 2,940,166
Hawley Independent School District (Callable 2/1/06
at 100), 5.75%, 2/1/17 .......................... 1,000,000 1,044,280
Hennepin County General Obligation, 4.30%,
12/1/03 ......................................... 1,000,000 1,016,470
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 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>
Itasca County Minnesota Independent School District
(MBIA) (Callable 2/1/05 at 100), 5.25%,
2/1/11 .......................................... $ 2,710,000 $ 2,811,164
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................. 3,750,000 3,858,675
Osseo Independent School District, 5.59%,
2/1/13 .......................................... 2,000,000 2,091,380
Rosemount General Obligation (Callable 4/1/06 at
100), 5.75%, 4/1/13 ............................. 1,000,000 1,064,200
State General Obligation, 4.63%, 8/1/03 ........... 2,000,000 2,060,200
State General Obligation (Callable 8/1/03 at 100),
5.40%, 8/1/12 ................................... 4,500,000 4,670,595
State General Obligation (Callable 8/1/07 at 100),
5.00%, 8/1/17 ................................... 1,000,000 1,001,500
Wayzata Minnesota Independent School District
(Callable 2/1/07 at 100), 5.50%, 2/1/17 ......... 3,000,000 3,132,000
------------
29,455,658
------------
HEALTH SERVICE/HMO (0.6%):
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ....... 500,000 551,875
------------
HOSPITAL REVENUE (18.4%):
Bemidji Health Care Facility-North Country Health
System (Callable 9/1/06 at 102), 5.63%,
9/1/15 .......................................... 1,760,000 1,842,122
Breckenridge Health Facility, 5.21%, 11/15/13 ..... 4,120,000 4,238,903
Duluth Health Facility-Benedictine Health System
(Callable 2/15/03 at 102), 6.00%, 2/15/12 ....... 1,800,000 1,957,824
Fergus Falls Health Care-Lake Region Hospital
(Callable 9/1/03 at 102), 6.50%, 9/1/18 ......... 1,000,000 1,078,800
Minneapolis Health Care-Fairview Hospital (MBIA)
(Callable 11/15/03 at 102), 5.25%, 11/15/13 ..... 500,000 513,140
Red Wing Health Care Facility-River Region
(Callable 9/1/03 at 102), 6.50%, 9/1/22 ......... 1,000,000 1,082,350
St. Paul Housing Redevelopment Authority-Healtheast
Project (Callable 11/1/03 at 102), 6.63%,
11/1/17 ......................................... 6,000,000 6,471,780
------------
17,184,919
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 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>
HOUSING REVENUE (14.3%):
Brooklyn Center, Ponds Family Housing Project
(Callable 1/1/04 at 102), 5.90%, 1/1/20 ......... $ 1,050,000 $ 1,071,221
Burnsville, Summit Park Apartments (Callable 7/1/03
at 102), 5.75%, 7/1/11 .......................... 1,000,000 1,032,830
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%,
12/1/09 ......................................... 3,175,000 3,248,343
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 ....... 500,000 528,935
New Hope, Multifamily Housing Project (Callable
1/1/06 at 102), 6.05%, 1/1/17 ................... 450,000 472,212
St. Louis Park, Multifamily Housing Project
(Callable 12/1/04 at 102), 6.15%, 12/1/16 ....... 500,000 524,390
State Housing and Finance Agency (Callable 1/1/04
at 102), 6.30%, 7/1/25 .......................... 745,000 791,153
State Housing and Finance Agency (Callable 7/1/03
at 102), 5.95%, 1/1/17 .......................... 3,120,000 3,239,059
State Housing and Finance Agency (Callable 8/1/03
at 102), 5.70%-6.10%, 8/1/07-8/1/22 ............. 2,325,000 2,415,565
------------
13,323,708
------------
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) 314,733
------------
LEASING REVENUE (2.4%):
Benton County Jail Facility (FSA) (Callable 2/1/05
at 100), 5.70%, 2/1/13-2/1/16 ................... 900,000 949,546
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 1,276,121
------------
2,225,667
------------
MULTIPLE UTILITY REVENUE (2.9%):
Owatonna Public Utility Revenue (AMBAC) (Callable
1/1/04 at 100), 5.45%, 1/1/16 ................... 2,600,000 2,669,914
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 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>
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 $ 1,623,525
Waconia Housing Redevelopment Authority (Callable
6/4/03 at 102), 6.00%, 6/1/14 ................... 1,500,000 1,569,495
------------
3,193,020
------------
SALES TAX REVENUE (0.5%):
Minneapolis Convention Center Facilities (Callable
4/1/04 at 100), 5.40%, 4/1/12 ................... 500,000 519,280
------------
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 2,967,338
Minnesota Public Facilities Authority Water
Pollution Control Revenue (Callable 3/1/07 at
100), 5.00%, 3/1/16 ............................. 1,000,000 1,004,310
------------
3,971,648
------------
Total Municipal Bonds
(cost: $84,055,421) .......................... 89,230,925
------------
MUNICIPAL DERIVATIVE SECURITIES (3.2%):
INVERSE FLOATER (3.2%):
Duluth Health Facility-Benedictine Health System,
Series E-2, 9.19%, 2/15/12 ...................... 925,000(b)(d) 1,143,531
Osseo Independent School District (FGIC), 8.19%,
2/1/14 .......................................... 775,000(b)(d) 864,125
Rochester Health Care, 8.92%, 11/15/10 ............ 740,000(b)(d) 1,002,700
------------
Total Municipal Derivative Securities
(cost: $2,294,385) ........................... 3,010,356
------------
Total Municipal Long-Term Securities
(cost: $86,349,806) .......................... 92,241,281
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- ---------------------------------------------------------------------
1998 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 (0.6%):
Mankato, MN, 3.40%, 2/1/18
(cost: $500,000) ................................ $ 500,000(c) $ 500,000
------------
Total Investments in Securities
(cost: $86,849,806) (f) ...................... $ 92,741,281
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING
RATE SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON JANUARY 31,
1998.
(c) FLOATING OR VARIABLE RATE OBLIGATION MATURING IN MORE THAN ONE YEAR. THE
INTEREST RATE, WHICH IS BASED ON SPECIFIC, OR AN INDEX OF, MARKET INTEREST
RATES, IS SUBJECT TO CHANGE PERIODICALLY AND IS THE EFFECTIVE RATE ON
JANUARY 31, 1998. THIS INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH
ALLOWS THE RECOVERY OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT
EXCEEDING ONE YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN
REPRESENTS FINAL MATURITY.
(d) SECURITIES PURCHASED AS PART OF A PRIVATE PLACEMENT AND MAY NOT BE SOLD TO
THE PUBLIC. THESE SECURITIES ARE CONSIDERED ILLIQUID. THE FUND IS NOT
LIMITED IN ITS ABILITY TO INVEST IN ILLIQUID SECURITIES. AT JANUARY 31,
1998, THE AGGREGATE VALUE OF THESE INVESTMENTS WAS $3,325,089 OR 3.6% OF
TOTAL NET ASSETS. INFORMATION REGARDING THESE SECURITIES IS AS FOLLOWS:
<TABLE>
<CAPTION>
SECURITY PAR DATE ACQUIRED COST BASIS
- --------------------------------------------------------- --------- --------------- -----------
<S> <C> <C> <C>
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 775,000 5/94 687,275
ROCHESTER HEALTH CARE 740,000 5/94 725,185
</TABLE>
(e) ON JANUARY 31, 1998, THE TOTAL COST OF INVESTMENTS PURCHASED ON A
WHEN-ISSUED OR FORWARD COMMITMENT BASIS WAS $987,740.
(f) ON JANUARY 31, 1998, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $86,733,489. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 6,007,792
GROSS UNREALIZED DEPRECIATION ...... --
------------
NET UNREALIZED APPRECIATION ...... $ 6,007,792
------------
------------
</TABLE>
- ---------------------------------------------------------------------
1998 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, 1998, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period ended January 31, 1998, and the financial
highlights presented in note 8 to the financial statements. These financial
statements and the financial highlights are the responsibility of the fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased but not received, we request confirmations
from brokers and, where replies are not received, we carry out other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Minnesota Municipal Income Portfolio Inc. as of January 31, 1998, and the
results of its operations, the changes in its net assets and the financial
highlights for the periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 6, 1998
- ---------------------------------------------------------------------
1998 Annual Report 21 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 advisor on how to report these distributions at the state
and local levels.
COMMON STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.36% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- ---------------------------------------- ---------
<S> <C>
February 26, 1997 ...................... $0.063125
March 26, 1997 ......................... 0.063125
April 23, 1997 ......................... 0.063125
May 28, 1997 ........................... 0.063125
June 25, 1997 .......................... 0.063125
July 23, 1997 .......................... 0.063125
August 27, 1997 ........................ 0.063125
September 24, 1997 ..................... 0.063125
October 29, 1997 ....................... 0.063125
November 24, 1997 ...................... 0.067825
December 17, 1997 ...................... 0.063125
January 12, 1998 ....................... 0.063125
---------
Total .............................. $0.762200
---------
---------
</TABLE>
PREFERRED STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.36% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
Total class "M" ........................ $841.63
Total class "W" ........................ $844.35
</TABLE>
- ---------------------------------------------------------------------
1998 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, 1997. Each matter voted upon at that meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
(1) The fund's preferred shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 739 4
William H. Ellis ....................... 739 4
</TABLE>
(2) The fund's preferred and common shareholders, voting as a
class, elected the following directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
Jaye F. Dyer ........................... 2,439,353 30,568
Karol D. Emmerich ...................... 2,440,215 29,707
Luella G. Goldberg ..................... 2,439,881 30,041
David A. Hughey ........................ 2,440,215 29,707
George Latimer ......................... 2,437,015 32,907
</TABLE>
(3) The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's Boards of Directors of KPMG
Peat Marwick LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 1998. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES
VOTED SHARES BROKER
"FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------- ----------------- ----------- ---------
<S> <C> <C> <C>
2,451,163 2,957 15,802 --
</TABLE>
TERMS AND CONDITIONS OF THE DIVIDEND REINVESTMENT PLAN
As a shareholder, you may choose to participate in the Dividend
Reinvestment Plan. It's a convenient and economical way to buy
- ---------------------------------------------------------------------
1998 Annual Report 23 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
Stock Exchange (NYSE) or elsewhere on the open market.
The fund will not issue any new shares in connection with the
plan. All reinvestments will be at a market price plus a pro rata
share of any brokerage commissions, which may be more or less
than the fund's net asset value per share. The number of shares
allocated to you is determined by dividing the amount of the
dividend or distribution by the applicable price per share.
There is no direct charge for reinvestment of dividends and
capital gains, since IFTC fees are paid for by the fund. However,
each participant pays a pro rata portion of the brokerage
commissions. Brokerage charges are expected to be lower than
those for individual transactions because shares are purchased
for all
- ---------------------------------------------------------------------
1998 Annual Report 24 Minnesota Municipal Income Portfolio
<PAGE>
Shareholder Update (continued)
- --------------------------------------------------------------------------------
participants in blocks. As long as you continue to participate in
the plan, distributions paid on the shares in your account will
be reinvested.
IFTC maintains accounts for plan participants holding shares in
certificate form and will furnish written confirmation of all
transactions, including information you need for tax records.
Reinvested shares in your account will be held by IFTC in
noncertificated form in your name.
TAX INFORMATION
Distributions invested in additional shares of the fund are
subject to income tax, just as they would be if received in cash.
Shareholders, as required by the Internal Revenue Service, will
receive Form 1099 regarding the federal tax status of the prior
year's distributions.
PLAN WITHDRAWAL
If you hold your shares in certificate form, you may terminate
your participation in the plan at any time by giving written
notice to IFTC. If your shares are registered in your brokerage
firm's name, you may terminate your participation via verbal or
written instructions to your investment professional. Written
instructions should include your name and address as they appear
on the certificate or account.
If notice is received at least 10 days before the record date,
all future distributions will be paid directly to the shareholder
of record.
If your shares are issued in certificate form and you discontinue
your participation in the plan, you (or your nominee) will
receive an additional certificate for all full shares and a check
for any fractional shares in your account.
- ---------------------------------------------------------------------
1998 Annual Report 25 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.
- ---------------------------------------------------------------------
1998 Annual Report 26 Minnesota Municipal Income Portfolio
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
1998 Annual Report 27 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.
EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if
interest rates were to increase by 1%, the market value of a bond with an
effective duration of five years would decrease by about 5%, with all other
factors being constant. It is important to remember that effective duration
is based on certain assumptions and has several limitations. It is most
effective as a measure when interest rate changes are small, rapid and occur
equally across all points of the yield curve. In addition, effective duration
is difficult to calculate precisely, especially in the case of a bond that is
callable prior to maturity, and can be greatly affected by interest rate
changes.
FEDERAL FUNDS RATE
The federal funds rate is the interest charged by banks with excess reserves at
a Federal Reserve district bank to banks needing overnight loans to meet reserve
requirements. The federal funds rate is the most sensitive indicator of the
direction of interest rates, since it is set daily by the market, unlike the
prime rate and the discount rate, which are periodically changed by banks and
the Federal Reserve Board, respectively.
PREFERRED STOCK
This fund holds preferred stock, which pays dividends at a specified rate and
has preference over common stock in the payments of dividends and the
liquidation of assets. Rates paid on preferred stock are reset every seven days
and are based on short-term, tax-exempt interest rates. Preferred shareholders
accept these short-term rates in exchange for low credit risk (shares of
preferred stock are rated AAA by Moody's and S&P) and high liquidity (shares of
preferred stock trade at par and are remarketed every seven days). The proceeds
from the sale of preferred stock are invested at intermediate- and long-term
tax-exempt rates. Because these intermediate- and long-term rates are normally
higher than the short-term rates paid on preferred stock, common shareholders
benefit by receiving higher dividends and/or an increase to the dividend
reserve. However, the risk of having preferred stock is that if short-term rates
rise higher than intermediate- and long-term rates, creating an inverted yield
curve, common shareholders may receive a lower rate of return than if their fund
did not have any preferred stock outstanding. This type of economic environment
is unusual and historically has been short term in nature. Investors should also
be aware that the issuance of preferred stock results in the leveraging of
common stock, which increases the volatility of both the net asset value of the
fund and, potentially, the market value of shares of common stock.
*** This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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1998 Annual Report 28 Minnesota Municipal Income Portfolio
<PAGE>
DIRECTORS
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DAVID T. BENNETT, Chairman, Highland Homes, Inc., USL Products, Inc., Kiefer
Built, Inc., of Counsel, Gray, Plant, Mooty, Mooty & Bennett, P.A.
JAYE F. DYER, President, Dyer Management Company
WILLIAM H. ELLIS, Retired President, Piper Jaffray Companies Inc., Piper Capital
Management Incorporated
KAROL D. EMMERICH, President, The Paraclete Group
LUELLA G. GOLDBERG, Director, TCF Financial, ReliaStar Financial Corp., Hormel
Foods Corp.
DAVID A. HUGHEY, Retired Executive Vice President and Chief Administrative
Officer of Dean Witter InterCapital Inc. and Dean Witter Trust Co.
GEORGE LATIMER, Chief Executive Officer, National Equity Funds
OFFICERS
- --------------------------------------------------------------------------------
WILLIAM H. ELLIS, Chairman of the Board
PAUL A. DOW, President
ROBERT H. NELSON, Vice President and Treasurer
SUSAN SHARP MILEY, Secretary
INVESTMENT ADVISOR
- --------------------------------------------------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED
222 South Ninth Street, Minneapolis, MN 55402-3804
CUSTODIAN, ACCOUNTING AND TRANSFER AGENT
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania, Kansas City, MO 64105-1307
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
KPMG PEAT MARWICK LLP
4200 Norwest Center, Minneapolis, MN 55402
LEGAL COUNSEL
- --------------------------------------------------------------------------------
DORSEY & WHITNEY LLP
220 South Sixth Street, Minneapolis, MN 55402
FOR MORE INFORMATION
BY PHONE [GRAPHIC]
800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer your
questions.
TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.
BY MAIL [GRAPHIC]
Piper Capital Management
Attn: Mutual Fund Services
222 South Ninth Street
Minneapolis, MN 55402-3804
In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 800 866-7778, or mail a request to us.
ON-LINE [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
[LOGO]
[LOGO] THIS DOCUMENT IS PRINTED ON PAPER MADE FROM
100% TOTAL RECOVERED FIBER, INCLUDING 15% POST-CONSUMER WASTE.
#21420 3/1998 072-98
