<PAGE>
1999
ANNUAL REPORT
[LOGO]
MINNESOTA MUNICIPAL
INCOME PORTFOLIO
MXA
[LOGO]FIRST AMERICAN
ASSET MANAGEMENT
<PAGE>
CONTENTS
2 Fund Overview
5 Financial Statements and Notes
14 Investments in Securities
19 Independent Auditors' Report
20 Federal Income
Tax Information
21 Shareholder Update
[LOGO]FIRST AMERICAN
ASSET MANAGEMENT
MINNESOTA MUNICIPAL INCOME PORTFOLIO
FUND OBJECTIVE
High current income exempt from both regular federal income tax, and
Minnesota personal income tax, consistent with preservation of capital. The
fund's income may be subject to federal and/or state of Minnesota alternative
minimum tax. Investors should consult their tax advisors. As with other
investment companies, there can be no assurance this fund will achieve its
objective.
PRIMARY INVESTMENTS
A wide range of Minnesota municipal securities rated investment-grade or of
comparable quality when purchased. These securities may include municipal
derivative securities, such as inverse floating-rate and inverse
interest-only municipal securities, which may be more volatile than
traditional municipal securities in certain market conditions.
- -------------------------------------------------------------------------------
NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE
- -------------------------------------------------------------------------------
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
Based on net asset value for the periods ended January 31, 1999
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL Lipper General Municipal Bond Lehman Brothers Municipal
INCOME PORTFOLIO Funds: Leveraged Average Long Bond Index
<S> <C> <C> <C>
One Year 7.44% 6.47% 6.81%
Five Year 6.87% 6.13% 6.80%
Since Inception
6/25/1993 7.37% 6.90% 7.44%
</TABLE>
Average annual total returns are through January 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 January 31, 1999, were
8.27%, 4.83% and 5.43%, 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
January 31, 1999.
1 1999 ANNUAL REPORT MINNESOTA MUNICIPAL INCOME PORTFOLIO
<PAGE>
FUND OVERVIEW
FUND MANAGEMENT
DOUG WHITE, CFA, has primary responsibility for the management of Minnesota
Municipal Income Portfolio. He has 16 years of financial experience.
RON REUSS, ISFA, assists with the management of Minnesota Municipal Income
Portfolio. He has 31 years of financial experience.
March 15, 1999
MINNESOTA MUNICIPAL INCOME PORTFOLIO PROVIDED A NET ASSET VALUE TOTAL RETURN
OF 7.44%* FOR THE YEAR ENDED JANUARY 31, 1999. The fund's market price return
was 8.27% over the same period. This compares to a 6.81% 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 6.47%.
THE PORTFOLIO IS POSITIONED TO BENEFIT MORE FROM STABLE OR DECLINING
INTERMEDIATE- AND LONG-TERM MUNICIPAL INTEREST RATES THAN FROM SIGNIFICANTLY
RISING RATES. If growth continues to increase and economic indicators stay
strong, the uncertainty for the future of interest rates increases. If rates
rise, the portfolio's value will decrease more than if it was positioned
differently.
* All returns assume reinvestment of all distributions and do not reflect
sales charges, except the fund's total return based on market price, which
does reflect sales charges on those distributions described in the fund's
dividend reinvestment plan, but not on initial purchases. Past performance
does not guarantee future results. The investment return and principal value
of an investment will fluctuate so that fund shares, when sold, may be worth
more or less than their original cost.
PORTFOLIO COMPOSITION
AS A PERCENTAGE OF TOTAL ASSETS ON JANUARY 31, 1999
General Obligations 33%
Hospital Revenue 15%
Housing Revenue 12%
Education Revenue 10%
Other Assets 9%
Electric Revenue 5%
Nursing Home Revenue 4%
Water/Sewer/Pollution Control Revenue 4%
Leasing Revenue 3%
Multiple Utility Revenue 3%
Health Service HMO Revenue 1%
Industrial Development Revenue - Misc 1%
2 1999 ANNUAL REPORT MINNESOTA MUNICIPAL INCOME PORTFOLIO
<PAGE>
FUND OVERVIEW CONTINUED
THROUGH EARLY FALL, THE GENERAL LEVEL OF INTEREST RATES MOVED DOWN DUE TO
SPREADING GLOBAL FINANCIAL CONCERNS AND THE RESULTING DEMAND FOR U.S.
TREASURY SECURITIES AS A SAFE HAVEN. Simultaneously, the supply of municipal
bonds grew as the robust domestic economy and increased tax revenues allowed
a growing number of new municipal projects to move ahead. By late fall, the
increased pace of economic growth on the domestic front outweighed
international concerns and interest rates began to rise slightly.
REFUNDINGS CONTRIBUTED TO THE INCREASED SUPPLY OF MUNICIPAL BONDS. Municipal
issuers have taken advantage of the lower rates to refund older,
higher-yielding securities, resulting in refundings currently being up more
than 100% compared to last year. National issuance for 1998 reached a high
second only to 1993, and Minnesota issuance was up over 50% compared to 1997.
At the same time, there continues to be only a minimal increase in demand for
municipal bonds. The decreasing demand for Treasuries due to the easing of
international concerns, bolstered municipals' outperformance in the latter
part of the year.
THE YEAR WAS ONE OF EXTRAORDINARY CONTRASTS IN THE ECONOMY AND FINANCIAL
MARKETS. Real economic growth was measured at nearly 4%; 1998 saw another
25%+ return on the S&P 500 stock index; interest rates fell by nearly a full
percentage point all along the yield curve. And yet, closer scrutiny of the
data reveals a number of negative trends as well: a ballooning trade deficit
and declining manufacturing sector driven by the sharp dip in U.S. exports;
outright losses for many sectors of the stock market; and dramatic widening
of credit spreads in the bond market, especially for corporate and
mortgage-backed securities.
WE HAVE MAINTAINED AN EFFECTIVE DURATION LONGER THAN THE BENCHMARK IN ORDER
TO MAINTAIN THE FUND'S INCOME. While our effective duration has decreased
somewhat over the year, we have achieved our goal of
3 1999 ANNUAL REPORT MINNESOTA MUNICIPAL INCOME PORTFOLIO
<PAGE>
FUND OVERVIEW CONTINUED
increased 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.
WE CONTINUE TO FOCUS ON QUALITY, AND HAVE ALSO SELECTIVELY ADDED HIGHER
YIELDING SECURITIES. Yield spreads on nonrated issues remain attractive and
our team of analysts are researching these additional opportunities.
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 of the fund and the market value of shares
of common stock.
4 1999 ANNUAL REPORT MINNESOTA MUNICIPAL INCOME PORTFOLIO
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES January 31, 1999
................................................................................
<TABLE>
<S> <C>
ASSETS:
Investments in securities at market value* (note 2) ....... $91,729,322
Cash in bank on demand deposit ............................ 340,802
Receivable for investment securities sold ................. 6,167,655
Accrued interest receivable ............................... 1,583,438
-----------------
Total assets ............................................ 99,821,217
-----------------
LIABILITIES:
Preferred stock dividends payable (note 3) ................ 9,977
Payable for investment securities purchased ............... 5,063,612
Accrued investment management fee ......................... 28,012
Accrued remarketing agent fee ............................. 6,165
Accrued administrative fee ................................ 12,005
Other accrued expenses .................................... 20,890
-----------------
Total liabilities ....................................... 5,140,661
-----------------
Net assets applicable to outstanding capital stock ...... $94,680,556
-----------------
-----------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital (common and
preferred stock) ........................................ $89,146,706
Undistributed net investment income ....................... 944,795
Accumulated net realized loss on investments .............. (2,039,950)
Unrealized appreciation of investments .................... 6,629,005
-----------------
Total - representing net assets applicable to capital
stock ................................................. $94,680,556
-----------------
-----------------
* Investments in securities at identified cost .......... $85,100,317
-----------------
-----------------
NET ASSET VALUE AND MARKET PRICE OF COMMON STOCK:
Net assets applicable to outstanding common stock ......... $63,580,556
Shares of common stock outstanding (authorized 200 million
shares of $0.01 par value) .............................. 4,146,743
Net asset value ........................................... $ 15.33
Market price .............................................. $ 14.50
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.
- --------------------------------------------------------------------------------
1999 Annual Report 5 Minnesota Municipal Income Portfolio
<PAGE>
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS For the Year Ended January 31, 1999
................................................................................
<TABLE>
<S> <C>
INCOME:
Interest .................................................. $ 5,047,174
-----------------
EXPENSES (NOTE 5):
Investment management fee ................................. 326,847
Administrative fee ........................................ 140,077
Remarketing agent fee ..................................... 78,737
Custodian and accounting fees ............................. 67,863
Transfer agent fees ....................................... 23,893
Reports to shareholders ................................... 27,458
Directors' fees ........................................... 9,594
Audit and legal fees ...................................... 40,167
Other expenses ............................................ 13,573
-----------------
Total expenses .......................................... 728,209
Less expenses paid indirectly ......................... (9,175)
-----------------
Total net expenses ...................................... 719,034
-----------------
Net investment income ................................... 4,328,140
-----------------
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 4) ................. 439,732
Net change in unrealized appreciation or depreciation of
investments ............................................. 737,530
-----------------
Net gain on investments ................................. 1,177,262
-----------------
Net increase in net assets resulting from operations
..................................................... $ 5,505,402
-----------------
-----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
1999 Annual Report 6 Minnesota Municipal Income Portfolio
<PAGE>
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/99 1/31/98
----------------- -----------------
<S> <C> <C>
OPERATIONS:
Net investment income ..................................... $ 4,328,140 $ 4,406,931
Net realized gain on investments .......................... 439,732 166,586
Net change in unrealized appreciation or depreciation of
investments ............................................. 737,530 3,941,653
----------------- -----------------
Net increase in net assets resulting from operations .... 5,505,402 8,515,170
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Common stock dividends .................................. (3,172,673) (3,160,648)
Preferred stock dividends ............................... (982,824) (1,048,680)
----------------- -----------------
Total distributions ..................................... (4,155,497) (4,209,328)
----------------- -----------------
Total increase in net assets ............................ 1,349,905 4,305,842
Net assets at beginning of year ........................... 93,330,651 89,024,809
----------------- -----------------
Net assets at end of year ................................. $94,680,556 $93,330,651
----------------- -----------------
----------------- -----------------
Undistributed net investment income ....................... $ 944,795 $ 772,152
----------------- -----------------
----------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
1999 Annual Report 7 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) ORGANIZATION
............................
Minnesota Municipal Income Portfolio Inc. (the fund) is
registered under the Investment Company Act of 1940 (as amended)
as a non-diversified, closed-end management investment company.
The fund invests in a wide range of Minnesota municipal
securities rated investment grade or of comparable quality when
purchased. These securities may include municipal derivative
securities, such as inverse floating rate and inverse
interest-only municipal securities. Fund shares are listed on
the American Stock Exchange under the symbol MXA.
(2) SUMMARY OF
SIGNIFICANT
ACCOUNTING
POLICIES
............................
INVESTMENTS IN SECURITIES
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.
- --------------------------------------------------------------------------------
1999 Annual Report 8 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 January 31, 1999,
the fund had no outstanding when-issued or forward commitments.
FEDERAL TAXES
The fund intends to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and
not be subject to federal income tax. Therefore, no income tax
provision is required. The fund 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
- --------------------------------------------------------------------------------
1999 Annual Report 9 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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
January 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 January 31, 1999, the
dividend rates were 2.35% and 2.33% for class "M" and "W,"
respectively.
RP is a registered trademark of Merrill Lynch & Company.
- --------------------------------------------------------------------------------
1999 Annual Report 10 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
(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, 1999, aggregated $14,414,771 and
$16,853,992, 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, which was acquired by U.S. Bancorp on May 1, 1998,
had served as the fund's advisor. U.S. Bank also serves as the
fund's administrator under an administration agreement effective
May 1, 1998. Prior thereto, Piper Capital provided services
under an administration agreement through April 30, 1998.
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
- --------------------------------------------------------------------------------
1999 Annual Report 11 Minnesota Municipal Income Portfolio
<PAGE>
NOTES TO FINANCIAL STATEMENTS (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>
- --------------------------------------------------------------------------------
1999 Annual 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>
Year Ended January 31,
------------------------------------------------
1999(g) 1998 1997 1996 1995
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, common stock, beginning
of period ............................ $15.01 $ 13.97 $ 14.32 $ 11.96 $ 14.67
-------- ------- ------- ------- -------
Operations:
Net investment income ................ 1.05 1.06 1.09 1.06 1.09
Net realized and unrealized gains
(losses) on investments ............ 0.28 0.99 (0.44) 2.40 (2.74)
-------- ------- ------- ------- -------
Total from operations .............. 1.33 2.05 0.65 3.46 (1.65)
-------- ------- ------- ------- -------
Distributions to shareholders from net
investment income:
Paid to common shareholders .......... (0.77) (0.76) (0.76) (0.82) (0.83)
Paid to preferred shareholders ....... (0.24) (0.25) (0.24) (0.28) (0.23)
-------- ------- ------- ------- -------
Total distributions to
shareholders ....................... (1.01) (1.01) (1.00) (1.10) (1.06)
-------- ------- ------- ------- -------
Net asset value, common stock, end of
period ............................... $15.33 $ 15.01 $ 13.97 $ 14.32 $ 11.96
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Market value, common stock, end of
period ............................... $14.50 $ 14.13 $ 12.50 $ 12.88 $ 11.88
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
SELECTED INFORMATION
Total return, common stock, net asset
value (a) ............................ 7.44% 13.29% 3.09% 27.27% (12.69)%
Total return, common stock, market value
(b) .................................. 8.27% 19.60% 3.19% 15.74% (18.11)%
Net assets at end of period (in
millions) ............................ $ 95 $ 93 $ 89 $ 90 $ 81
Ratio of expenses to average weekly net
assets applicable to common stock
(c) .................................. 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) ............... 5.37% 5.66% 6.25% 5.81% 7.00%
Portfolio turnover rate (excluding
short-term securities) ............... 16% 26% 25% 13% 49%
Remarketed preferred stock outstanding
end of period (in millions) .......... $ 31 $ 31 $ 31 $ 31 $ 31
Asset coverage ratio (f) ............... 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 0.78%, 0.80%,
0.82%, 0.82% AND 0.79% FOR THE 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%,
4.87%, 5.16%, 5.06% AND 5.54% FOR 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 CHANGED FROM PIPER CAPITAL
MANAGEMENT TO U.S. BANK.
- --------------------------------------------------------------------------------
1999 Annual Report 13 Minnesota Municipal Income Portfolio
<PAGE>
INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA MUNICIPAL INCOME PORTFOLIO January 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 (96.1%):
MUNICIPAL LONG-TERM BONDS (92.8%):
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 $ 2,653,915
Higher Education Facility-St. Benedict College
(Callable 3/1/04 at 100), 6.20%-6.38%,
3/1/14-3/1/20 ................................... 285,000 308,101
Higher Education Facility-St. Benedict College
(Prerefunded to 3/1/04), 6.20%-6.38%,
3/1/14-3/1/20 ................................... 765,000(e) 849,897
Higher Education Facility-St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ...... 1,500,000 1,562,175
Higher Education Facility-Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 ........ 2,000,000 2,180,260
Higher Education Facility-Macalester College
(Callable 3/1/05 at 100), 5.50%-5.55%,
3/1/12-3/1/16 ................................... 500,000 528,925
Higher Education Facility-St. Mary's College
(Callable 10/1/03 at 101), 6.10%, 10/1/16 ....... 500,000 524,250
Higher Education Facility-St. Thomas University
(Callable 4/1/07 at 100), 5.38%, 4/1/18 ......... 1,050,000 1,088,188
Higher Education Facility-St. Thomas University
(Callable 9/1/03 at 101), 5.50%-5.60%,
9/1/08-9/1/14 ................................... 430,000 452,148
------------
10,147,859
------------
ELECTRIC REVENUE (5.2%):
Northern Minnesota Municipal Power Agency (Callable
1/1/09 at 102), 5.40%, 1/1/15 ................... 1,000,000 1,069,520
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 3,814,785
------------
4,884,305
------------
GENERAL OBLIGATIONS (34.6%):
Albany Independent School District (Callable 2/1/08
at 100), 5.00%, 2/1/16 .......................... 1,220,000 1,242,131
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%, 2/1/13 ................... 2,000,000 2,043,420
Chaska Independent School District (Callable 2/1/06
at 100), 6.00%, 2/1/15 .......................... 2,725,000 3,069,276
Hawley Independent School District (Callable 2/1/06
at 100), 5.75%, 2/1/17 .......................... 1,000,000 1,116,350
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 Annual Report 14 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 Independent School District (MBIA)
(Callable 2/1/05 at 100), 5.25%, 2/1/11 ......... $ 2,710,000 $ 2,846,448
Lakeville Independent School District #194,
5.00%-5.13%, 2/1/17-2/1/22 ...................... 8,640,000 8,732,068
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................. 3,750,000 3,943,913
Osseo Independent School District, 5.59%,
2/1/13 .......................................... 2,000,000(d) 2,143,080
Rosemount General Obligation (Callable 4/1/06 at
100), 5.75%, 4/1/13 ............................. 1,000,000 1,097,010
St. Michael Independent School District (Callable
2/1/09 at 100), 4.88%, 2/1/17-2/1/18 ............ 3,295,000 3,303,895
Wayzata Independent School District (Callable
2/1/07 at 100), 5.50%, 2/1/17 ................... 3,000,000 3,172,950
------------
32,710,541
------------
HEALTH SERVICE/HMO (0.6%):
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ....... 500,000 554,320
------------
HOSPITAL REVENUE (14.2%):
Bemidji Health Care Facility-North Country Health
System (Callable 9/1/06 at 102), 5.63%,
9/1/15 .......................................... 1,760,000 1,844,269
Breckenridge Health Facility (Callable 11/15/03 at
102), 5.25%, 11/15/13 ........................... 4,120,000 4,353,192
Duluth Health Facility-Benedictine Health System
(Callable 2/15/03 at 102), 6.00%, 2/15/12 ....... 1,800,000 1,965,258
Fergus Falls Health Care-Lake Region Hospital
(Callable 9/1/03 at 102), 6.50%, 9/1/18 ......... 1,000,000 1,069,480
Minneapolis and St. Paul, Housing and Redevelopment
Health Care System-Children's Health Care (FSA)
(Callable 8/15/05 at 102), 5.70%, 8/15/16 ....... 500,000 533,970
Minneapolis Health Care-Fairview Hospital (MBIA)
(Callable 11/15/03 at 102), 5.25%, 11/15/13 ..... 500,000 526,795
Red Wing Health Care Facility-River Region
(Callable 9/1/03 at 102), 6.50%, 9/1/22 ......... 1,000,000 1,072,460
Rochester Health Care Facility (Callable 5/15/08 at
101), 5.50%, 11/15/27 ........................... 2,000,000 2,105,920
------------
13,471,344
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 Annual Report 15 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 (12.8%):
Brooklyn Center, Ponds Family Housing Project
(Callable 1/1/04 at 102), 5.90%, 1/1/20 ......... $ 1,050,000 $ 1,081,773
Burnsville, Summit Park Apartments (Callable 7/1/03
at 102), 5.75%, 7/1/11 .......................... 1,000,000 1,040,170
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%,
12/1/09 ......................................... 3,000,000 3,101,610
St. Louis Park, Multifamily Housing Project
(Callable 12/1/04 at 102), 6.15%, 12/1/16 ....... 500,000 536,940
State Housing and Finance Agency (Callable 1/1/04
at 102), 6.30%, 7/1/25 .......................... 740,000 793,088
State Housing and Finance Agency (Callable 7/1/03
at 102), 5.95%, 1/1/17 .......................... 2,970,000 3,101,690
State Housing and Finance Agency (Callable 3/29/99
at 101), 5.70%-6.10%, 8/1/07-8/1/22 ............. 2,325,000 2,445,424
------------
12,100,695
------------
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) 316,695
------------
LEASING REVENUE (3.4%):
Anoka County (Callable 6/1/03 at 102), 6.10%,
6/1/13 .......................................... 500,000 539,425
Benton County Jail Facility (FSA) (Callable 2/1/05
at 100), 5.70%, 2/1/13-2/1/16 ................... 900,000 969,399
South Washington County Independent School District
(Callable 12/1/06 at 100), 5.00%, 12/1/11 ....... 450,000 466,200
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 1,278,824
------------
3,253,848
------------
MULTIPLE UTILITY REVENUE (2.8%):
Owatonna Public Utility Revenue (AMBAC) (Callable
1/1/04 at 100), 5.45%, 1/1/16 ................... 2,600,000 2,691,390
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 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>
NURSING HOME REVENUE (3.9%):
New Hope, Multifamily Housing Project (Callable
1/1/06 at 102), 6.05%, 1/1/17 ................... $ 450,000 $ 480,317
Red Wing Elderly Housing-River Region (Callable
9/1/03 at 102), 6.50%, 9/1/22 ................... 1,500,000 1,608,690
Waconia Housing Redevelopment Authority (Callable
6/4/03 at 102), 6.00%, 6/1/14 ................... 1,500,000 1,584,675
------------
3,673,682
------------
WATER/POLLUTION CONTROL REVENUE (4.3%):
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 3,030,813
Minnesota Public Facilities Authority Water
Pollution Control Revenue (Callable 3/1/07 at
100), 5.00%, 3/1/16 ............................. 1,000,000 1,020,630
------------
4,051,443
------------
Total Municipal Long-Term Bonds
(cost: $82,052,122) .......................... 87,856,122
------------
MUNICIPAL DERIVATIVE SECURITIES (3.3%):
INVERSE FLOATER (3.3%):
Duluth Health Facility-Benedictine Health System,
Series E-2, 10.13%, 2/15/12 ..................... 925,000(b)(d) 1,153,937
Osseo Independent School District (FGIC), 9.13%,
2/1/14 .......................................... 775,000(b)(d) 920,313
Rochester Health Care, 9.86%, 11/15/10 ............ 740,000(b)(d) 1,048,950
------------
Total Municipal Derivative Securities
(cost: $2,298,195) ........................... 3,123,200
------------
Total Municipal Long-Term Securities
(cost $84,350,317) ........................... 90,979,322
------------
MUNICIPAL SHORT-TERM SECURITIES (0.8%):
Bloomington Multifamily Revenue, 2.80%, 12/1/25 ... 400,000(c) 400,000
Minnesota State Higher Education Facilities
Authority, 2.70%, 3/1/24 ........................ 350,000(c) 350,000
------------
Total Municipal Short-Term Securities
(cost: $750,000) ............................. 750,000
------------
Total Investments in Securities
(cost: $85,100,317) (f) ...................... $ 91,729,322
------------
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
1999 Annual Report 17 Minnesota Municipal Income Portfolio
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS,
OR IN A MULTIPLE OF, A DECREASE (INCREASE) IN THE MARKET RATE PAID ON A
RELATED, FLOATING RATE SECURITY. INTEREST
RATES DISCLOSED ARE IN EFFECT ON JANUARY 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
JANUARY 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 ILLIQUID SECURITIES. ON JANUARY 31,
1999, THE AGGREGATE VALUE OF THESE INVESTMENTS WAS $5,582,975 OR 5.9% 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 5/94 882,973
OSSEO INDEPENDENT SCHOOL DISTRICT 2,000,000 2/97 1,921,180
OSSEO INDEPENDENT SCHOOL DISTRICT 775,000 5/94 688,791
ROCHESTER HEALTH CARE 740,000 5/94 725,655
</TABLE>
(e) PREREFUNDED ISSUES ARE BACKED BY STATE AND LOCAL MUNICIPAL OBLIGATIONS.
THESE BONDS ARE CALLED AND MATURE AT THE CALL DATE INDICATED.
(f) ON JANUARY 31, 1999, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $84,933,673. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 6,820,854
GROSS UNREALIZED DEPRECIATION ...... (25,205)
------------
NET UNREALIZED APPRECIATION ...... $ 6,795,649
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
1999 Annual Report 18 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, 1999, and 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, 1999 and the financial highlights
for each of the years in the five-year period ended January 31, 1999. These
financial statements and the financial highlights are the responsibility of the
fund's management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. As to securities purchased and sold but not received or delivered, we
request confirmations from brokers and, where replies are not received, we carry
out other appropriate auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of
Minnesota Municipal Income Portfolio Inc. as of January 31, 1999, 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 12, 1999
- --------------------------------------------------------------------------------
1999 Annual Report 19 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, 99.82% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
PAYABLE DATE AMOUNT
- ---------------------------------------- ---------
<S> <C>
February 25, 1998 ...................... $0.063125
March 25, 1998 ......................... 0.063125
April 22, 1998 ......................... 0.063125
May 27, 1998 ........................... 0.063125
June 24, 1998 .......................... 0.063125
July 29, 1998 .......................... 0.063125
August 26, 1998 ........................ 0.063125
September 23, 1998 ..................... 0.063125
October 28, 1998 ....................... 0.063125
November 24, 1998 ...................... 0.068225
December 16, 1998 ...................... 0.065625
January 13, 1999 ....................... 0.063125
---------
Total .................................. $0.765100
---------
---------
</TABLE>
PREFERRED STOCK INCOME DISTRIBUTIONS
(INCOME FROM TAX-EXEMPT SECURITIES, 99.82% QUALIFYING AS
EXEMPT-INTEREST DIVIDENDS)
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
Total class "M" ........................ $ 790.32
Total class "W" ........................ $ 789.78
</TABLE>
- --------------------------------------------------------------------------------
1999 Annual Report 20 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE
- --------------------------------------------------------------------------------
ANNUAL MEETING RESULTS
An annual meeting of the fund's shareholders was held on August
10, 1998. Each matter voted upon at that meeting, as well as the
number of votes cast for, against or withheld, the number of
abstentions, and the number of broker non-votes with respect to
such matters, are set forth below.
(1) The fund's preferred and common shareholders, voting as a
class, approved an interim advisory agreement between the
fund and Piper Capital Management ("Piper Capital"), and the
receipt of investment advisory fees by Piper Capital under
such agreement. The following votes were cast regarding this
matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,885,227 59,448 57,451 --
</TABLE>
(2) The fund's preferred and common shareholders, voting as a
class, approved a new investment advisory agreement between
the fund and U.S. Bank. The following votes were cast
regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,860,944 76,062 65,119 --
</TABLE>
(3) The fund's preferred shareholders elected the following
directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
David T. Bennett ....................... 1,187 20
Leonard W. Kedrowski ................... 1,187 20
</TABLE>
- --------------------------------------------------------------------------------
1999 Annual Report 21 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE (continued)
- --------------------------------------------------------------------------------
(4) The fund's preferred and common shareholders, voting as a
class, elected the following directors:
<TABLE>
<CAPTION>
SHARES SHARES WITHHOLDING
VOTED "FOR" AUTHORITY TO VOTE
------------- ------------------
<S> <C> <C>
Robert J. Dayton ....................... 3,885,732 116,394
Roger A. Gibson ........................ 3,889,772 112,354
Andrew M. Hunter III ................... 3,895,605 106,521
Robert L. Spies ........................ 3,894,395 107,731
Joseph D. Strauss ...................... 3,896,272 105,954
Virginia L. Stringer ................... 3,896,772 105,354
</TABLE>
(5) The fund's preferred and common shareholders, voting as a
class, ratified the selection by a majority of the
independent members of the fund's Board of Directors of KPMG
Peat Marwick LLP as the independent public accountants for
the fund for the fiscal year ending January 31, 1999. The
following votes were cast regarding this matter:
<TABLE>
<CAPTION>
SHARES SHARES BROKER
VOTED "FOR" VOTED "AGAINST" ABSTENTIONS NON-VOTES
------------- ----------------- ----------- ---------
<S> <C> <C> <C>
3,933,835 22,268 46,022 --
</TABLE>
INVESTMENT POLICY CHANGE
The Board of Directors of MXA has recently approved a
modification of the investment policies of the fund. The fund
may now invest up to 5% of its total assets in the securities of
unaffiliated closed-end investment companies that invest
primarily in tax-exempt obligations.
CHANGE OF ACCOUNTANTS
On September 9, 1998, the fund's board of directors, upon the
recommendation of the audit committee, appointed Ernst & Young
LLP the independent accountants for the fund for the fiscal year
ending January 31, 2000, and dismissed KPMG Peat Marwick LLP
("KPMG"). KPMG's reports on the fund's financial statements for
the past two years have not contained an adverse opinion or a
disclaimer of opinion, and have not
- --------------------------------------------------------------------------------
1999 Annual Report 22 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE (continued)
- --------------------------------------------------------------------------------
been qualified as to uncertainty, audit scope, or accounting
principles. In addition, there have not been any disagreements
with KPMG during the fund's two most recent fiscal years on any
matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if
not resolved to the satisfaction of KPMG, would have caused it
to make a reference to the subject matter of the disagreement in
connection with its reports.
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
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 the next dividend and/or capital gains distribution.
- --------------------------------------------------------------------------------
1999 Annual Report 23 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE (continued)
- --------------------------------------------------------------------------------
PLAN ADMINISTRATION
Beginning no more than five business days before the dividend
payment date, IFTC will buy shares of the fund on the fund's
primary exchange or elsewhere on the open market.
The fund will not issue any new shares in connection with the
plan. All reinvestments will be at a market price plus a pro
rata share of any brokerage commissions, which may be more or
less than the fund's net asset value per share. The number of
shares allocated to you is determined by dividing the amount of
the dividend or distribution by the applicable price per share.
There is no direct charge for reinvestment of dividends and
capital gains, since IFTC fees are paid for by the fund.
However, each participant pays a pro rata portion of the
brokerage commissions. Brokerage charges are expected to be
lower than those for individual transactions because shares are
purchased for all participants in blocks. As long as you
continue to participate in the plan, distributions paid on the
shares in your account will be reinvested.
IFTC maintains accounts for plan participants holding shares in
certificate form and will furnish written confirmation of all
transactions, including information you need for tax records.
Reinvested shares in your account will be held by IFTC in
noncertificated form in your name.
TAX INFORMATION
Distributions invested in additional shares of the fund are
subject to income tax, to the same extent 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.
- --------------------------------------------------------------------------------
1999 Annual Report 24 Minnesota Municipal Income Portfolio
<PAGE>
SHAREHOLDER UPDATE (continued)
- --------------------------------------------------------------------------------
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.
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 questions 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.
- --------------------------------------------------------------------------------
1999 Annual Report 25 Minnesota Municipal Income Portfolio
