<PAGE>
1999
SEMIANNUAL REPORT
[GRAPHICS]
MINNESOTA MUNICIPAL
INCOME PORTFOLIO
MXA
[LOGO] FIRST AMERICAN
ASSET MANAGMENT
<PAGE>
[LOGO] FIRST AMERICAN
ASSET MANAGMENT
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Contents
2 Fund Overview
5 Financial Statements
and Notes
14 Investments in
Securities
19 Shareholder Update
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.
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
- ------------------------------------------------------------------------------
Based on net asset value for the periods ended July 31, 1999
<TABLE>
<CAPTION>
One Year Five Year Since Inception
6/25/1993
<S> <C> <C> <C>
MINNESOTA MUNICIPAL INCOME PORTFOLIO 1.22% 8.31% 6.02%
Lipper General Municipal Bond Funds: Leveraged Average 1.05% 7.08% 5.73%
Lehman Brothers Municipal Long Bond Index 1.71% 7.56% 6.23%
</TABLE>
Average annual total returns are through July 31, 1999, 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 annual total returns based on the change in market price for the
one-year, five-year and since-inception periods ended July 31, 1999, were
8.32%, 8.35% and 5.14%, 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 annual closed-end municipal funds as characterized by
Lipper Inc. 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,
1999.
1999 Semiannual Report 1 Minnesota Municipal Income Portfolio
<PAGE>
FUND
OVERVIEW
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Fund Management
DOUGLAS WHITE, CFA,
has primary
responsibility for the
management of
Minnesota Municipal
Income Portfolio.
He has 16 years of
financial experience.
September 15, 1999
Minnesota Municipal Income Portfolio provided a net asset value total return
of -4.13%* for the six months ended July 31, 1999. The fund's market price
return was 0.95% over the same period. This compares to a -2.68% 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
had a total return of -3.54%.
Interest rates have risen almost steadily throughout 1999. This trend has had
a negative impact on returns for Minnesota Municipal Income Portfolio because
the fund has been positioned to benefit from stable or declining
intermediate-and long-term interest rates.
* 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
<TABLE>
<CAPTION>
As a percentage of total assets on July 31, 1999
<S> <C>
Hospital Revenue 7%
Electric Revenue 5%
Education Revenue 9%
Health Service HMO Revenue 16%
Water/Sewer/Pollution Control Revenue 3%
General Obligations 36%
Multiple Utility Revenue 3%
Other Assets 2%
Leasing Revenue 2%
Nursing Home Revenue 4%
Housing Revenue 13%
</TABLE>
1999 Semiannual Report 2 Minnesota Municipal Income Portfolio
<PAGE>
FUND
OVERVIEW CONTINUED
- ------------------------------------------------------------------------------
The fund's strategy for longer duration enabled it to earn income sufficient
to increase the dividend in March. Our duration is still beyond our
benchmark, which has allowed the fund to continue increasing income. In
addition, while the general level of interest rates has risen over the past
six months, municipal yields have risen more than Treasury yields, which puts
the municipal market in an attractive position. A change in interest rates
provides opportunities to realize tax losses, to help offset potential future
capital gains and to purchase new bonds at relatively higher yields.
Therefore, we are not currently considering a shift in the fund's strategy.
As interest rates have risen, the supply of new municipal bonds has fallen.
Many government entities slowed debt issuance either because higher yields
made refunding issues unattractive or because increasing tax revenues
decreased the need to take on new debt. The total supply of Minnesota
municipal bonds has gone down more than 22% from a year ago.
While the strong U.S. economy seemed to be driving interest rates up, it also
helped to improve the budget outlook for most states and municipalities that
issue tax-free bonds. This positive trend has improved credit quality in the
market as shown by the number of credit rating upgrades, which outpaced
downgrades in the second quarter by four-to-one.
Minnesota Municipal Income Portfolio emphasizes bonds with longer maturities.
History tells us that a bond portfolio that takes an aggressive stance in
bond maturities ultimately benefits from that position, even though it may be
more volatile in the short term. Bonds with longer maturities usually offer
higher yields. What's more, in a low-inflation environment such as we've
enjoyed for a number of years, bond yields tend to move favorably. Downward
interest-rate trends will reward longer-term bonds the most.
1999 Semiannual Report 3 Minnesota Municipal Income Portfolio
<PAGE>
FUND
OVERVIEW CONTINUED
- ------------------------------------------------------------------------------
Going forward, there are a number of reasons for optimism in the
municipal-bond marketplace. The glut of corporate bond offerings is expected
to taper off as the new year approaches. In addition, yields on municipal
bonds are attractive again when compared to Treasury bonds. Finally, it seems
likely that the rise in interest rates we experienced will subside.
Thank you for your investment in Minnesota Municipal Income Portfolio. We
remain committed to providing you with quality service and look forward to
helping you achieve your investment goals.
PREFERRED STOCK
The preferred stock issued by MXA pays dividends at a specified rate and has
preference over common stock in the payments of dividends and the liquidation
of assets. Rates paid on preferred stock are reset every seven days and are
based on short-term, tax-exempt interest rates. Preferred shareholders accept
these short-term rates in exchange for low credit risk (shares of preferred
stock are rated AAA by Moody's and S&P) and high liquidity (shares of
preferred stock trade at par and are remarketed every seven days). The
proceeds from the sale of preferred stock are invested at intermediate- and
long-term tax-exempt rates. Because these intermediate- and long-term rates
are normally higher than the short-term rates paid on preferred stock, common
shareholders benefit by receiving higher dividends and/or an increase to the
dividend reserve. However, the risk of having preferred stock is that if
short-term rates rise higher than intermediate- and long-term rates, creating
an inverted yield curve, common shareholders may receive a lower rate of
return than if their fund did not have any preferred stock outstanding. This
type of economic environment is unusual and historically has been short term
in nature. Investors should also be aware that the issuance of preferred
stock results in the leveraging of common stock, which increases the
volatility of both the net asset value of the fund and the market value of
shares of common stock.
1999 Semiannual Report 4 Minnesota Municipal Income Portfolio
<PAGE>
FINANCIAL STATEMENTS (Unaudited)
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES July 31, 1999
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $89,930,609
Cash in bank on demand deposit ............................ 4,738
Accrued interest receivable ............................... 1,583,267
-----------------
Total assets ............................................ 91,518,614
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................ 9,416
Payable for investment securities purchased on a when-issued
basis ................................................... 1,000,622
Accrued investment management fee ......................... 26,959
Accrued remarketing agent fee ............................. 8,436
Accrued administrative fee ................................ 11,554
Other accrued expenses .................................... 2,004
-----------------
Total liabilities ....................................... 1,058,991
-----------------
Net assets applicable to outstanding capital stock ...... $90,459,623
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ........................................ $89,146,706
Undistributed net investment income ....................... 1,004,001
Accumulated net realized loss on investments .............. (1,916,064)
Unrealized appreciation of investments .................... 2,224,980
-----------------
Total - representing net assets applicable to capital
stock ................................................. $90,459,623
-----------------
-----------------
* Investments in securities at identified cost ............ $87,705,629
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE OF COMMON STOCK:
Net assets applicable to outstanding common stock ......... $59,359,623
Shares of common stock outstanding (authorized 200 million
shares of $0.01 par value) .............................. 4,146,743
Net asset value ........................................... $ 14.31
Market price .............................................. $ 14.25
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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1999 Semiannual Report 5 Minnesota Municipal Income Portfolio
<PAGE>
FINANCIAL STATEMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Six Months Ended July 31, 1999
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest .................................................. $ 2,484,196
-----------------
EXPENSES (NOTE 5):
Investment management fee ................................. 160,818
Administrative fee ........................................ 68,922
Remarketing agent fee ..................................... 38,555
Custodian and accounting fees ............................. 31,653
Transfer agent fees ....................................... 10,909
Reports to shareholders ................................... 11,754
Directors' fees ........................................... 1,488
Audit and legal fees ...................................... 20,234
Other expenses ............................................ 18,794
-----------------
Total expenses .......................................... 363,127
Less expenses paid indirectly ......................... (4,202)
-----------------
Total net expenses ...................................... 358,925
-----------------
Net investment income ................................... 2,125,271
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) ................. 123,886
Net change in unrealized appreciation or depreciation of
investments ............................................. (4,404,025)
-----------------
Net loss on investments ................................. (4,280,139)
-----------------
Net decrease in net assets resulting from operations
..................................................... $(2,154,868)
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1999 Semiannual Report 6 Minnesota Municipal Income Portfolio
<PAGE>
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
SIX MONTHS ENDED
7/31/99 YEAR ENDED
(UNAUDITED) 1/31/99
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 2,125,271 $ 4,328,140
Net realized gain on investments .......................... 123,886 439,732
Net change in unrealized appreciation or depreciation of
investments ............................................. (4,404,025) 737,530
----------------- -----------------
Net increase (decrease) in net assets resulting from
operations ............................................ (2,154,868) 5,505,402
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends .................................. (1,635,372) (3,172,673)
Preferred stock dividends ............................... (430,693) (982,824)
----------------- -----------------
Total distributions ..................................... (2,066,065) (4,155,497)
----------------- -----------------
Total increase (decrease) in net assets ................. (4,220,933) 1,349,905
Net assets at beginning of period ......................... 94,680,556 93,330,651
----------------- -----------------
Net assets at end of period ............................... $90,459,623 $94,680,556
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 1,004,001 $ 944,795
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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1999 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
- --------------------------------------------------------------------------------
1999 Semiannual Report 8 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
on the identified-cost basis. Interest income, including
amortization of bond discount and premium, is recorded on an
accrual basis.
The fund concentrates its investments in Minnesota and,
therefore, may have more credit risk related to the economic
conditions of Minnesota than a portfolio 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, 1999, the
fund had entered into outstanding when-issued or forward
commitments of $1,000,622.
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
- --------------------------------------------------------------------------------
1999 Semiannual Report 9 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
income tax purposes. In addition, due to the timing of dividend
distributions, the fiscal year in which amounts are distributed
may differ from the year that the income or realized gains or
losses were recorded by the 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, 1999, 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, 1999, the
dividend rates were 2.80% and 2.60% for class "M" and "W,"
respectively.
RP is a registered trademark of Merrill Lynch & Company.
- --------------------------------------------------------------------------------
1999 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, 1999, aggregated $7,031,686 and
$7,800,260, 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),
acting through its division, First American Asset Management.
Prior thereto, Piper Capital Management Incorporated, (Piper
Capital) which was acquired by U.S. Bancorp on May 1, 1998, had
served as the funds advisor. U.S. Bank also serves as the funds
administrator under an administration agreement effective May 1,
1998. Prior thereto, Piper Capital provided services under an
administration agreement through April 30, 1998.
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 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
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1999 Semiannual Report 11 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Unaudited) (continued)
- --------------------------------------------------------------------------------
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.
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, 1999, 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>
$1,624,891 2003
415,059 2004
-------------
$2,039,950
-------------
-------------
</TABLE>
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1999 Semiannual Report 12 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(7) FINANCIAL
HIGHLIGHTS
............................
Per-share data for a share of common stock outstanding
throughout each period and selected information for each period
are as follows:
<TABLE>
<CAPTION>
Six months Year Ended January 31,
Ended ------------------------------------------------
7/31/99
(Unaudited) 1999(g) 1998 1997 1996 1995
----------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period ............................ $15.33 $15.01 $ 13.97 $ 14.32 $ 11.96 $ 14.67
----------- -------- ------- ------- ------- -------
Operations:
Net investment income ................ 0.51 1.05 1.06 1.09 1.06 1.09
Net realized and unrealized gains
(losses) on investments ............ (1.04) 0.28 0.99 (0.44) 2.40 (2.74)
----------- -------- ------- ------- ------- -------
Total from operations .............. (0.53) 1.33 2.05 0.65 3.46 (1.65)
----------- -------- ------- ------- ------- -------
Distributions to shareholders from net
investment income:
Paid to common shareholders .......... (0.39) (0.77) (0.76) (0.76) (0.82) (0.83)
Paid to preferred shareholders ....... (0.10) (0.24) (0.25) (0.24) (0.28) (0.23)
----------- -------- ------- ------- ------- -------
Total distributions to
shareholders ..................... (0.49) (1.01) (1.01) (1.00) (1.10) (1.06)
----------- -------- ------- ------- ------- -------
Net asset value, common stock, end of
period ............................... $14.31 $15.33 $ 15.01 $ 13.97 $ 14.32 $ 11.96
----------- -------- ------- ------- ------- -------
----------- -------- ------- ------- ------- -------
Market value, common stock, end of
period ............................... $14.25 $14.50 $ 14.13 $ 12.50 $ 12.88 $ 11.88
----------- -------- ------- ------- ------- -------
----------- -------- ------- ------- ------- -------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ (4.13)% 7.44% 13.29% 3.09% 27.27% (12.69)%
Total return, common stock, market value
(b) .................................. 0.95% 8.27% 19.60% 3.19% 15.74% (18.11)%
Net assets at end of period (in
millions) ............................ $ 90 $ 95 $ 93 $ 89 $ 90 $ 81
Ratio of expenses to average weekly net
assets applicable to common stock
(c) .................................. 1.19%(h) 1.17% 1.23% 1.26% 1.28% 1.27%
Ratio of net investment income to
average weekly net assets applicable
to common stock (d)(e) ............... 5.55%(h) 5.37% 5.66% 6.25% 5.81% 7.00%
Portfolio turnover rate (excluding
short-term securities) ............... 8% 16% 26% 25% 13% 49%
Remarketed preferred stock outstanding
end of period (in millions) .......... $ 31 $ 31 $ 31 $ 31 $ 31 $ 31
Asset coverage ratio (f) ............... 291% 304% 300% 286% 291% 260%
</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 0.79%, 0.78%,
0.80%, 0.82%, 0.82% AND 0.79% FOR THE SIX MONTHS ENDING JULY 31, 1999 AND
FISCAL YEARS 1999, 1998, 1997, 1996, AND 1995, 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 4.63%,
4.63%, 4.87%, 5.16%, 5.06% AND 5.54% FOR THE SIX MONTHS ENDING JULY 31,
1999 AND FISCAL YEARS 1999, 1998, 1997, 1996, AND 1995, RESPECTIVELY.
(f) REPRESENTS TOTAL NET ASSETS DIVIDED BY REMARKETED PREFERRED STOCK.
(g) EFFECTIVE AUGUST 10, 1998, THE ADVISOR WAS CHANGED FROM PIPER CAPITAL TO
U.S. BANK.
(h) ANNUALIZED.
- --------------------------------------------------------------------------------
1999 Semiannual Report 13 Minnesota Municipal Income Portfolio
<PAGE>
INVESTMENTS IN SECURITIES (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL INCOME PORTFOLIO July 31, 1999
.......................................................................................
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 (95.0%):
MUNICIPAL LONG-TERM BONDS (91.9%):
BUILDING REVENUE (1.0%):
Benton County Jail Facility (FSA) (Callable 2/1/05
at 100), 5.70%, 2/1/13-2/1/16 ................... $ 900,000 $ 922,056
------------
EDUCATION REVENUE (9.6%):
Higher Education Facility - Carleton College
(Callable 11/01/07 at 100), 5.30%-5.40%,
11/1/13-11/1/14 ................................. 2,500,000 2,525,745
Higher Education Facility - St. Benedict College
(Callable 3/1/04 at 100), 6.20%-6.38%,
3/1/14-3/1/20 ................................... 285,000 298,427
Higher Education Facility - St. Benedict College
(Prerefunded to 3/1/04), 6.20%-6.38%, 3/1/04 .... 765,000(e) 819,605
Higher Education Facility - St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ...... 500,000 487,490
Higher Education Facility-Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 ........ 2,000,000 2,068,680
Higher Education Facility-Macalester College
(Callable 3/1/05 at 100), 5.50%-5.55%,
3/1/12-3/1/16 ................................... 500,000 507,647
Higher Education Facility-St. Mary's College
(Callable 10/1/03 at 101), 6.10%, 10/1/16 ....... 500,000 509,195
Higher Education Facility-St. Thomas University
(Callable 4/1/07 at 100), 5.38%, 4/1/18 ......... 1,050,000 1,026,333
Higher Education Facility-St. Thomas University
(Callable 9/1/03 at 101), 5.50%-5.60%,
9/1/08-9/1/14 ................................... 430,000 438,541
------------
8,681,663
------------
ELECTRIC REVENUE (5.1%):
Northern Minnesota Municipal Power Agency (Callable
1/1/09 at 102), 5.40%, 1/1/15 ................... 1,000,000 1,006,900
Western Minnesota Municipal Power Agency (AMBAC)
(Callable 1/1/06 at 102), 5.40%-5.50%,
1/1/09-1/1/12 ................................... 3,500,000 3,604,185
------------
4,611,085
------------
GENERAL OBLIGATIONS (31.3%):
Albany Independent School District (Callable 2/1/08
at 100), 5.00%, 2/1/16 .......................... 1,220,000 1,177,471
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ................... 2,000,000 1,933,720
Chaska Independent School District (Crossover
refunded to 2/1/06 at 100), 6.00%, 2/1/15 ....... 2,725,000(e) 2,924,661
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 Semiannual Report 14 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>
Hawley Independent School District (Crossover
refunded to 2/1/06 at 100), 5.75%, 2/1/17 ....... $ 1,000,000(e) $ 1,061,120
Itasca County Independent School District (MBIA)
(Callable 2/1/05 at 100), 5.25%, 2/1/11 ......... 1,710,000 1,723,800
Lakeville Independent School District #194,
5.00%-5.13%, 2/1/17-2/1/22 ...................... 8,640,000 8,239,324
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................. 2,000,000 2,009,220
Osseo Independent School District, 8.52%,
2/1/13 .......................................... 2,000,000(d) 2,046,180
Rosemount General Obligation (Callable 4/1/06 at
100), 5.75%, 4/1/13 ............................. 1,000,000 1,037,420
St. Michael Independent School District (Callable
2/1/09 at 100), 4.88%, 2/1/17-2/1/18 ............ 3,295,000 3,082,779
Wayzata Independent School District (Callable
2/1/07 at 100), 5.50%, 2/1/17 ................... 3,000,000 3,038,580
------------
28,274,275
------------
HEALTH CARE REVENUE (24.9%):
Bemidji Health Care Facility-North Country Health
System (Callable 9/1/06 at 102), 5.63%,
9/1/15 .......................................... 1,760,000 1,758,979
Breckenridge Health Facility, 5.25%, 11/15/13 ..... 4,120,000 4,134,997
Cuyuna Range Health Care Facility (Callable 6/1/07
at 102), 6.00%, 6/1/29 .......................... 1,000,000 938,120
Duluth Clinic Health Care Facilities (AMBAC)
(Prerefunded to 11/1/04 at 100), 6.30%,
11/1/22 ......................................... 500,000(e) 536,973
Duluth Health Facility-Benedictine Health System
(Callable 2/15/03 at 102), 6.00%, 2/15/12 ....... 1,800,000 1,897,560
Fergus Falls Health Care-Lake Region Hospital
(Callable 9/1/03 at 102), 6.50%, 9/1/18 ......... 1,000,000 1,060,040
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 ....... 500,000 508,295
Minneapolis Health Care-Fairview Hospital (MBIA)
(Callable 11/15/03 at 102), 5.25%, 11/15/13 ..... 500,000 498,465
Minnesota Agriculture and Economic Development
Revenue (MBIA) (Callable 2/15/10 at 101), 5.00%,
2/15/19 ......................................... 2,000,000 1,899,460
Red Wing Elderly Housing-River Region (Callable
9/1/03 at 102), 6.50%, 9/1/22 ................... 1,500,000 1,574,235
Red Wing Health Care Facility-River Region
(Callable 9/1/03 at 102), 6.50%, 9/1/22 ......... 1,000,000 1,049,490
Rochester Health Care Facility (Callable 5/15/08 at
101), 5.50%, 11/15/27 ........................... 2,000,000 1,980,000
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 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>
St. Paul Housing and Redevelopment Authority
(Callable 10/1/09 at 100), 5.50%, 10/1/24 ....... $ 2,000,000 $ 1,941,500
Waconia Housing Redevelopment Authority (Callable
6/4/03 at 102), 6.00%, 6/1/14 ................... 1,500,000 1,518,975
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 1,240,587
------------
22,537,676
------------
HOUSING REVENUE (13.0%):
Burnsville, Summit Park Apartments (Callable 7/1/03
at 102), 5.75%, 7/1/11 .......................... 1,000,000 1,020,520
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%,
12/1/09 ......................................... 2,905,000 2,969,113
New Hope, Multifamily Housing Project (Callable
1/1/06 at 102), 6.05%, 1/1/17 ................... 450,000 468,941
St. Louis Park, Multifamily Housing Project
(Callable 12/1/04 at 102), 6.15%, 12/1/16 ....... 500,000 523,495
State Housing and Finance Agency (Callable 1/1/04
at 102), 6.30%, 7/1/25 .......................... 720,000 757,908
State Housing and Finance Agency (Callable 7/1/03
at 102), 5.95%, 1/1/17 .......................... 2,885,000 2,958,452
State Housing and Finance Agency (Callable 8/1/03
at 102), 5.70%-6.10%, 8/1/07-8/1/22 ............. 2,025,000 2,088,812
Washington County Housing and Redevelopment
Authority (Callable 8/20/09 at 100), 5.60%,
8/20/34 ......................................... 1,000,000(f) 993,880
------------
11,781,121
------------
IDR - SOLID WASTE DISPOSAL (3.2%):
Minnesota Public Facilities Authority Water
Pollution Control Revenue (Callable 3/1/06 at
100), 4.75%-5.35%, 3/1/10-3/1/12 . 2,900,000 2,883,938
------------
INDUSTRIAL DEVELOPMENT REVENUE (0.3%):
Duluth Seaway Port Authority, Cargill Inc. Project
(Callable 12/1/03 at 102), 5.75%, 12/1/16 ....... 300,000(d) 308,541
------------
LEASING REVENUE (0.6%):
Anoka County (Callable 6/1/03 at 102), 6.10%,
6/1/13 .......................................... 500,000 526,570
------------
PUBLIC UTILITY DISTRICT REVENUE (2.9%):
Owatonna Public Utility Revenue (AMBAC) (Callable
1/1/04 at 100), 5.45%, 1/1/16 ................... 2,600,000 2,613,650
------------
Total Municipal Long-Term Bonds
(cost: $81,404,482) .......................... 83,140,575
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 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>
MUNICIPAL DERIVATIVE SECURITIES (3.1%):
INVERSE FLOATER (3.1%):
Duluth Health Facility-Benedictine Health System,
Series E-2, 9.53%, 2/15/12 ...................... $ 925,000(b)(d) $ 1,073,000
Osseo Independent School District (FGIC), 8.53%,
2/1/14 .......................................... 775,000(b)(d) 823,484
Rochester Health Care, 9.26%, 11/15/10 ............ 740,000(b)(d) 893,550
------------
Total Municipal Derivative Securities
(cost: $2,301,147) ........................... 2,790,034
------------
Total Municipal Long-Term Securities
(cost: $83,705,629) .......................... 85,930,609
------------
MUNICIPAL SHORT-TERM SECURITIES (4.4%):
Hennepin County, 3.05%, 12/1/10 ................... 2,200,000(c) 2,200,000
Minneapolis General Revenue, 3.05%, 12/1/16 ....... 1,400,000(c) 1,400,000
Bloomington Multifamily Revenue, 3.20%, 12/1/25 ... 400,000(c) 400,000
------------
Total Municipal Short-Term Securities
(cost: $4,000,000) ........................... 4,000,000
------------
Total Investments in Securities
(cost: $87,705,629) (g) ...................... $ 89,930,609
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 Semiannual Report 17 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:
AMBAC - AMERICAN MUNICIPAL BOND ASSURANCE COMPANY
FGIC -FINANCIAL GUARANTY INSURANCE CORPORATION
FHA -FEDERAL HOUSING AUTHORITY
FSA -FINANCIAL SECURITY ASSURANCE
MBIA -MUNICIPAL BOND INSURANCE ASSOCIATION
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, 1999
(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, 1999. 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 THESE ILLIQUID SECURITIES. ON JULY 31,
1999, THE AGGREGATE VALUE OF THESE INVESTMENTS WAS $5,144,755 OR 5.7% OF
TOTAL NET ASSETS. INFORMATION REGARDING THESE SECURITIES IS AS FOLLOWS:
<TABLE>
<CAPTION>
DATE COST
SECURITY PAR ACQUIRED 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 5/94 884,156
OSSEO INDEPENDENT SCHOOL DISTRICT 2,000,000 2/97 1,921,168
OSSEO INDEPENDENT SCHOOL DISTRICT 775,000 5/94 690,858
ROCHESTER HEALTH CARE 740,000 5/94 726,133
</TABLE>
(e) PREREFUNDED ISSUES ARE BACKED BY U.S. GOVERNMENT OBLIGATIONS. THESE BONDS
ARE CALLED AND MATURE AT THE CALL DATE INDICATED.
(f) ON JULY 31, 1999, THE TOTAL COST OF INVESTMENTS PURCHASED ON A WHEN-ISSUED
BASIS WAS $1,000,622.
(g) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,042,192
GROSS UNREALIZED DEPRECIATION ...... (817,212)
------------
NET UNREALIZED APPRECIATION ...... $ 2,224,980
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
1999 Semiannual Report 18 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
16, 1999. 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 ....................... 1,238 0
Leonard W. Kedrowski ................... 1,238 0
</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>
Robert J. Dayton ....................... 3,983,643 3,796
Roger A. Gibson ........................ 3,983,643 3,796
Andrew M. Hunter III ................... 3,983,643 3,796
John M. Murphy ......................... 3,983,643 3,796
Robert L. Spies ........................ 3,983,643 3,796
Joseph D. Strauss ...................... 3,983,643 3,796
Virginia L. Stringer ................... 3,983,643 3,796
</TABLE>
(3) The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's Board of Directors of
Ernst & Young LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 2000. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
---------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,980,395 533 6,517 --
</TABLE>
- --------------------------------------------------------------------------------
1999 Semiannual Report 19 Minnesota Municipal Income Portfolio
<PAGE>
[LOGO] FIRST AMERICAN
ASSET MANAGEMENT
MINNESOTA MUNICIPAL INCOME PORTFOLIO
1999 SEMIANNUAL REPORT
[LOGO] This document is printed on paper
made from 100% total recovered fiber,
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9/1999 372-99
