EXPLANATION OF FINANCIAL STATEMENTS
As a shareholder in the fund, you receive shareholder reports semiannually. We strive to present this financial information in an
easy-to-understand
format; however, for many investors, the information contained in this shareholder report may seem very technical. So, we would like to take this opportunity to explain several sections of
the shareholder report.
The Schedule of Investments
details all of the securities held in the fund and their related dollar values on the last
day of the reporting period. Securities are usually presented by type (bonds, common stock, etc.) and by industry classification (healthcare, education, etc.). This information is useful for analyzing how your fund’s assets are invested and
seeing where your portfolio manager believes the best opportunities exist to meet your objectives. Holdings are subject to change without notice and do not constitute a recommendation of any individual security. The Notes to Financial Statements
provide additional details on how the securities are valued.
The Statement of Assets and Liabilities
lists the assets and liabilities of the fund
on the last day of the reporting period and presents the fund’s net asset value (“NAV”) and market price per share. The NAV is calculated by dividing the fund’s net assets (assets minus liabilities) by the number of shares
outstanding. The market price is the closing price on the exchange on which the fund’s shares trade. This price, which may be higher or lower than the fund’s NAV, is the price an investor pays or receives when shares of the fund are
purchased or sold. The investments, as presented in the Schedule of Investments, comprise substantially all of the fund’s assets. Other assets include cash and receivables for items such as income earned by the fund but not yet received.
Liabilities include payables for items such as fund expenses incurred but not yet paid.
The Statement of Operations
details the dividends and
interest income earned from investments as well as the expenses incurred by the fund during the reporting period. Fund expenses may be reduced through fee waivers or reimbursements. This statement reflects total expenses before any waivers or
reimbursements, the amount of waivers and reimbursements (if any), and the net expenses. This statement also shows the net realized and unrealized gains and losses from investments owned during the period. The Notes to Financial Statements provide
additional details on investment income and expenses of the fund.
The Statement of Changes in Net Assets
describes how the fund’s net assets
were affected by its operating results and distributions to shareholders during the reporting period. This statement is important to investors because it shows exactly what caused the fund’s net asset size to change during the period.
The Statement of Cash Flows
is required when a fund has a substantial amount of illiquid investments, a substantial amount of the fund’s
securities are internally fair valued, or the fund carries some amount of debt. When presented, this statement explains the change in cash during the reporting period. It reconciles net cash provided by and used for operating activities to the net
increase or decrease in net assets from operations and classifies cash receipts and payments as resulting from operating, investing, and financing activities.
The Financial Highlights
provide a
per-share
breakdown of the components that affected the fund’s NAV for the current and past reporting periods. It also shows
total return, net investment income ratios, expense ratios and portfolio turnover rates. The net investment income ratios summarize the income earned less expenses, divided by the average net assets. The expense ratios represent the percentage of
average net assets that were used to cover operating expenses during the period. The portfolio turnover rate represents the percentage of the fund’s holdings that have changed over the course of the period and gives an idea of how long the fund
holds on to a particular security. A 100% turnover rate implies that an amount equal to the value of the entire portfolio is turned over in a year through the purchase or sale of securities.
The Notes to Financial Statements
disclose the organizational background of the fund, its significant accounting policies, federal tax information, fees and compensation paid to affiliates, and significant
risks and contingencies.
We hope this guide to your shareholder report will help you get the most out of this important resource.
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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1
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Fund Overview
Average Annual Total Returns
Based on NAV for the period ended August 31, 2013
*The Lipper Other States Municipal Debt Funds category median is calculated using the returns of all
closed-end
exchange traded funds in this category for each period disclosed. Lipper returns assume reinvestment of dividends.
**The Barclays Municipal Bond Index: Long is comprised of municipal bonds with more than 22 years to maturity and an average credit quality of AA. Index performance is for illustrative purposes only and does not
reflect any fees or expenses. The index is unmanaged and is not available for direct investment.
The average annual total returns for the fund are
based on the change in its NAV and assume reinvestment of distributions at NAV.
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
ten-year
periods
ended August 31, 2013, were -10.99%, 8.61%, and 5.84%, respectively.
• Market price returns assume that all distributions have been
reinvested at actual prices pursuant to the fund’s dividend reinvestment plan. Market price returns reflect any broker commissions or sales charges on dividends reinvested at market price.
•
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 NAV. Therefore, you may be unable to realize the full NAV of your shares when you sell.
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2
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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Fund Overview
Investment Advisor
U.S. Bancorp Asset Management, Inc.
Sub-Advisors
Nuveen Asset Management, LLC
Nuveen Fund Advisors, LLC
Fund Management
Douglas J White, CFA
of Nuveen Asset Management, LLC is primarily responsible for the management of the fund. He has 30 years of financial experience.
Christopher L. Drahn
of Nuveen Asset Management, LLC assists with the management of the fund. He has 33 years
of financial experience.
What factors affected the economic and municipal market environments during the 12-month reporting period ended
August 31, 2013?
August 2013 saw the same general economic themes of the past several months – ongoing but less than desired growth,
incremental labor market improvement and expectations for tapering and eventual withdrawal of the Federal Reserve’s quantitative easing program. The U.S. economy continues to move forward at a modest to moderate pace. Labor market gains
continue to improve, but remain unspectacular. Expectations of eventual Fed tapering and somewhat improved economic growth indicators abroad have kept upward pressure on interest rates globally and downward pressure on fixed income returns.
Second quarter gross domestic product (GDP) growth was revised upward to a 2.5% annual rate, but the revision was due to greater inventory investment
and a temporary narrowing in the trade deficit during the quarter. July trade data reversed the improvement, and other data tracking GDP growth suggest the economy is advancing at around a 1.5% annual rate in the third quarter. Auto sales moved to a
new cyclical high of 16.0 million units (annual rate) in August, continuing to be a source of strength for the broader economy. In addition, purchasing manager indices for both the manufacturing and non-manufacturing economic sectors improved to
levels consistent with solid overall production growth, with improving indications of foreign activity supporting export sentiment. But other consumer spending categories, particularly non-durable goods and services, are not showing the same
strength.
Inflation remained contained, with the Consumer Price Index (CPI) rising 1.5% year-over-year as of August 2013, before seasonal adjustment.
Core CPI (which excludes food and energy) increased 1.8% during the period. Both of these measures show improvement from the August 2012 values.
The
August employment report showed further gains in employment, although not as robust as consensus expectations. Downward revisions to prior months’ data put labor market data more in line with other economic growth indicators. While the
unemployment rate declined further to 7.3%, labor force participation led the drop, falling to a new multi-decade low. The unemployment rate has fallen from 8.1% in August 2012, but the bulk of this decline can be attributed to falling
participation.
The most recent data available showed the average home price in the Standard & Poor’s (S&P)/Case-Shiller Index of 20 major
metropolitan areas increased 12.39% for the year ended July 2013, though the sharp rise in interest rates over the past few months and upward pressure on home prices have weakened a broad array of housing sector indicators, including mortgage
applications, new home sales, pending home sales, building permits and housing starts. However, the continuing trend in increased home prices should be a positive for local governments, though it will take a while for these price increases to
translate to growth in assessed value and property tax revenue.
Over the fund’s reporting period, the Federal Reserve maintained its benchmark
federal funds rate at the record low level of zero to 0.25% that was established in December 2008. The Federal Reserve has also continued to purchase $85 billion per month in Treasury and agency securities through its quantitative easing program.
State tax revenues have been growing for over 14 consecutive quarters, but revenue recovery has been much slower and more prolonged than in previous
recoveries. Revenues are still not back to
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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3
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Fund Overview
pre-recession levels in real terms. Revenues continued to grow over the last year, lifted largely by strong personal income tax collections in the fourth quarter of 2012 and the first half of
2013. However, the strong revenue growth is attributed to individuals accelerating income into 2012 to avoid federal tax increases, a strong stock market in 2012, a slowly improving economy and the impact from a large tax increase in California and
not necessarily representative of wholesale improvement.
The reporting period was a study of two halves with regard to bond prices and yields. Yields
were relatively stable from the fund’s fiscal year end through April 2013. In May, falling prices and yield increases began to impact all but the shortest maturities. The significant yield curve steepening of the second and third quarters
affected municipals along with the rest of the fixed income universe. Large bond fund outflows became commonplace with shareholders’ growing concerns over rising rates.
In terms of supply for the municipal market, net new issuance is down 16% year-to-date through August 2013 over the same period last year as rising rates have limited refunding issuance.
Minnesota
After lagging the national recovery in
2011, Minnesota’s economic recovery outpaced the national recovery in 2012. At GDP growth of 3.5% between 2011 and 2012, Minnesota ranked as the 5th highest state for GDP growth. The state’s diverse economic base showed particularly strong
economic growth in durable-goods manufacturing, wholesale trade, real estate and the financial and insurance industries. As of July 2013, Minnesota’s unemployment rate was 5.2%, down from 5.8% a year prior and well below the national average of
7.4%. Employment gains continued across most sectors in 2012, especially in the healthcare, real estate and mining sectors. The mining sector benefits from close proximity to North Dakota shale formations. Record low mortgage rates have helped to
boost demand for housing in some parts of the state, primarily Rochester, Duluth and Minneapolis/St. Paul. According to the S&P/Case-Shiller Index of 20 major metropolitan areas, housing prices in Minneapolis rose 9.5% during the twelve months
ending July 2013 (the most recent data available at the time this report was prepared).
In May 2013, the Minnesota legislature used a variety of new
taxes to pass a $38.1 billion balanced budget for fiscal 2014-2015, which compared to estimated revenues of $33.9 billion in fiscal 2012-2013. The fiscal 2014-2015 budget also included using portions of the cigarette tax and increased corporate
taxes to fund the state’s $348 million commitment to the new Vikings football stadium. Previously during the fiscal 2012-2013 biennium budget period, the inability of state legislators to agree on a fiscal 2012-2013 biennium budget led to a
damaging 20-day partial government shut-down. Following the legislature’s budget problems, Fitch and S&P downgraded their ratings on the state’s general obligation bonds to AA+ from AAA in July – and September – 2011. Despite
the somewhat recent rating agency downgrades, Minnesota retained a solid credit profile reflective of its well-balanced economy, above-average wealth levels, moderate debt burden and strong debt management. For the twelve months ended August 31,
2013, Minnesota issued approximately $5.7 billion in municipal bonds, a decrease of 19% from the twelve months ended August 31, 2012. However, most of the increase in the state’s 2012 issuance was in very high-quality (AA and higher) school
district bonds.
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4
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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How did the fund perform during the twelve-month period ended August 31, 2013?
Minnesota Municipal Income Portfolio earned a total return of -6.77% based on NAV for the fiscal year ended August 31, 2013. The fund’s market price return was
-10.99% during the period. The fund’s closed-end competitive group, the Lipper Other States Municipal Debt Funds Average, produced a median return of -9.99% over the same timeframe. The Barclays Long Municipal Index, the benchmark comparison
for the fund, which reflects no fees or expenses, returned -7.43%.
Portfolio Allocation
1
As a percentage of total
investments on August 31, 2013
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Health Care Revenue
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29
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%
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Utility Revenue
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19
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Education Revenue
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17
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Housing Revenue
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15
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General Obligations
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6
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Leasing Revenue
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3
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Tax Revenue
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3
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Economic Development Revenue
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3
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Industrial Development Revenue
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2
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Miscellaneous Authority Revenue
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2
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Pre-refunded Issues
2
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1
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100
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%
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1
Portfolio allocations are subject to change and are not recommendations to buy or sell any security.
2
Within the Schedule of Investments,
pre-refunded
issues are classified under their applicable industries.
On a NAV basis, the fund outperformed both its Barclay’s benchmark and its Lipper peer group over the reporting period. The broad themes in the municipal market in this reporting period were almost reversed
from the prior year. Municipal bonds turned in very strong performance over the fund’s fiscal year ending August 31, 2012. For this fiscal year, ending August 31, 2013, the municipal market went through a moderate bear market cycle, reflected
in the fund’s negative returns over the year. The negative performance during the last four months of the fund’s fiscal year was enough to overwhelm any positive returns that were produced earlier in the fiscal year.
This year the fund’s performance benefitted most from duration and sector. The fund’s yield curve positioning – as a subset of overall duration
– was the most positive contributor. The Barclays index is primarily structured as a bullet with bond maturities out 22 years or longer. The fund has an allocation to 2019 maturities that represents approximately 9.5% of the portfolio. These
six-year issues were one of the maturity buckets that significantly outperformed the index, aiding the fund’s performance.
In terms of sector
allocation vs. the benchmark, the fund’s largest performance contributor was the substantial underweight in transportation issues. The sector itself underperformed the benchmark
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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5
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Fund Overview
and the fund’s underweight allocation was a significant positive due to the sector’s relative underperformance against the benchmark. The fund continued to have an overweight allocation
to healthcare. Healthcare has historically been an overweight sector for the fund and also one of the best performing sectors. This year, it was a slightly positive contributor to performance because the sector only slightly outperformed the
benchmark. The fund was overweight the housing sector which was a positive contributor. The fund was also overweight education and electric issues which were negative performance contributors during the fund’s fiscal year as both sectors
underperformed the benchmark. The fund’s underweight in water and sewer bonds was a positive contributor because of the sector’s relative underperformance vs. the benchmark.
Rating bucket allocations vs. the benchmark were not significant performance contributors for the fund this fiscal year. Quality spreads did widen out somewhat near the end of the period, tending to make
lower-rated investment-grade bonds underperform overall. However, the non-rated issues that the fund owns outperformed. The fund was overweight BBB-rated issues, which underperformed, impacting performance slightly negatively. The fund was
underweight A-rated issues and that was not a significant performance determinant, as the ratings category performed roughly in line with the benchmark. The fund maintained its historic underweight to higher quality AA- and AAA-rated bonds and those
outperformed the market, so those underweights were a drag on performance.
Bond Credit Quality Breakdown
3
As a percentage of long-term
investments on August 31, 2013
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AAA
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3
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%
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AA
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25
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A
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30
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BBB
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19
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BB or Lower
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4
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NR
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19
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100
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%
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3
Individual security ratings are based on information from Moody’s Investors Service Inc. (“Moody’s”),
Standard & Poor’s Financial Services LLC (“S&P”), and/or Fitch. If there are multiple ratings for a security, the lowest rating is used unless ratings are provided by all three agencies, in which case the middle rating is
used.
As reported above, Minnesota continues to be hampered by the limited supply of higher yielding new bonds in the state. Because of the lack of
attractive new issuance, we’ve had to be very selective in the secondary market to find bonds in those higher yielding sectors and ratings categories. We continue to believe the fund is being adequately compensated for the additional risk of
investing in longer duration assets, as over longer periods their incremental income has proven beneficial. We also remain comfortable with the sectors we are emphasizing and the credit composition of the portfolio. Although spreads between higher
and lower quality bonds have widened over the year, they are still attractive compared to long term averages. We continue to have a constructive view of the value of the lower-rated issues which supports our emphasis on the non-rated and lower
investment grade bonds, as these have also proven beneficial to the fund over the long term.
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6
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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As always, our research team remains vigilant regarding its mandate to closely monitor
the credit quality of the fund’s holdings. We will continue to focus on bottom-up security selection, while actively managing the fund’s overall risk profile.
Thank you for your ongoing trust in our process and your investment in the Minnesota Municipal Income Portfolio. If you have any questions, please don’t hesitate to contact us at 800.677.3863.
Douglas J. White, CFA
Senior
Vice President & Portfolio Manager
Nuveen Asset Management, LLC
Christopher L. Drahn
Senior Vice
President & Portfolio Manager
Nuveen Asset Management, LLC
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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7
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Fund Overview
Preferred Shares
The preferred shares issued by the fund pay dividends at a specified rate and have preference over common shares in the payments of dividends and the liquidation of assets. Rates paid on preferred shares 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 (preferred shares are rated Aa2 by Moody’s and
AAA by S&P). The proceeds from the sale of preferred shares 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 shares, common shareholders benefit by receiving higher dividends and/or an increase to the dividend reserve.
However, the risk of having preferred shares 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 shares 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 shares results in the
leveraging of common shares, which increases the volatility of both the NAV of the fund and the market value of common shares.
Normally, the dividend
rates on the preferred shares are set at the market clearing rate determined through a remarketing process that brings together bidders who wish to buy preferred shares and holders of preferred shares who wish to sell. Since February 13, 2008,
however, sell orders have exceeded bids and the regularly scheduled remarketings for the fund’s preferred shares have failed. When a remarketing fails, the fund is required to pay the maximum applicable rate on the preferred shares to holders
of such shares for successive dividend periods until such time as the shares are successfully remarketed. The maximum applicable rate on the preferred shares is 110% of the higher of (1) the applicable AA Composite Commercial Paper Rate or
(2) 90% of the Taxable Equivalent of the Short-Term Municipal Bond Rate.
During any dividend period, the maximum applicable rate could be higher
than the dividend rate that would have been set had the marketing been successful. In addition, the maximum applicable rate could be higher than the fund’s investment yield. Higher maximum applicable rates increase the fund’s cost of
leverage and reduce the fund’s common share earnings.
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8
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Minnesota Municipal Income Portfolio,
Inc.
We have audited the accompanying statement of assets and liabilities of Minnesota Municipal Income Portfolio, Inc. (the “fund”),
including the schedule of investments, as of August 31, 2013, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the fund’s management. Our responsibility is to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit
of the fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of
securities owned as of August 31, 2013, by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial
position of Minnesota Municipal Income Portfolio, Inc. at August 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Chicago, Illinois
October 23,
2013
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
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2013 ANNUAL REPORT
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9
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Schedule of Investments
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August 31, 2013
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Minnesota Municipal Income Portfolio (MXA)
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DESCRIPTION
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PAR
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FAIR
VALUE
¶
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(Percentages of each investment category relate to total net assets applicable to outstanding common shares)
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Municipal Long-Term Investments — 149.6%
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Economic Development Revenue — 3.9%
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Minneapolis Development, Limited Tax Supported Common Bond (AMT),
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4.85%, 12/1/17, Series 2006-1A
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$
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580,000
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$
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613,054
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4.88%, 12/1/18, Series 2006-1A
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610,000
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638,548
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5.13%, 6/1/22, Series 2007-2A
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500,000
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516,045
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Moorhead, American Crystal Sugar Company, Recovery Zone Facility, Series 2010, 5.65%, 6/1/27
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500,000
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514,925
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2,282,572
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Education Revenue — 23.4%
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Anoka County, Charter School Lease, Series 2012-A, 5.00%, 6/1/43
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290,000
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239,917
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Baytown Township, St. Croix Preparatory Academy Project, Series 2008-A, 7.00%, 8/1/38
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900,000
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918,243
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Duluth Housing & Redevelopment Authority, Public Schools Academy, Series 2010-A, 5.60%, 11/1/30
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1,000,000
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961,540
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Higher Education Facilities, Augsburg College, Series 2006-6J1, 5.00%, 5/1/28
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1,500,000
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1,469,370
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Higher Education Facilities, Bethel University, Series 2007-6R
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5.50%, 5/1/27
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1,000,000
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1,006,180
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5.50%, 5/1/37
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200,000
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195,582
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Higher Education Facilities, College of Art & Design, Series 2006-6K, 5.00%, 5/1/26
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1,000,000
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1,001,570
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Higher Education Facilities, University of St. Thomas,
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5.00%, 10/1/39, Series 2009-7A
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1,000,000
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1,011,980
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5.25%, 4/1/39, Series 2009-6X
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700,000
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706,867
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Minneapolis, University Gateway Project, Series 2006, 4.50%, 12/1/31
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2,000,000
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1,951,220
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St. Paul Housing & Redevelopment Authority, Community Peace Academy Project, Series 2006-A, 5.00%, 12/1/36
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1,365,000
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1,164,550
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St. Paul Housing & Redevelopment Authority, Conservatory for Performing Artists Project, Series 2013-A, 4.63%,
3/1/43
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250,000
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195,300
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St. Paul Housing & Redevelopment Authority, German Immersion School Project, Series 2013-A, 5.00%, 7/1/44
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855,000
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686,018
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|
St. Paul Housing & Redevelopment Authority, Nova Classical Academy, Series 2011-A, 6.38%, 9/1/31
|
|
|
650,000
|
|
|
|
671,352
|
|
|
St. Paul Housing & Redevelopment Authority, St. Paul Academy & Summit School Project, Series 2007, 5.00%,
10/1/24
|
|
|
500,000
|
|
|
|
520,095
|
|
|
University of Minnesota, Series 2011-A, 5.25%, 12/1/29
|
|
|
1,000,000
|
|
|
|
1,105,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,805,044
|
|
|
|
|
|
|
|
|
|
|
|
|
General Obligations — 9.6%
|
|
|
|
|
|
|
|
|
|
Burnsville Independent School District Number 191, Alternative Facilities, Series 2008-A (MSDCEP), 4.75%, 2/1/24
|
|
|
1,600,000
|
|
|
|
1,700,672
|
|
|
Minnesota State, Highway & Various Purpose, Series 2007, 5.00%, 8/1/25
|
|
|
3,000,000
|
|
|
|
3,249,780
|
|
|
Puerto Rico Commonwealth, Series 2011-A, 5.75%, 7/1/41
|
|
|
1,000,000
|
|
|
|
747,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,698,122
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare Revenue — 44.0%
|
|
|
|
|
|
|
|
|
|
Center City Health Care Facilities, Hazelden Foundation Project, Series 2011, 5.00%, 11/1/41
|
|
|
300,000
|
|
|
|
292,455
|
|
|
City of Cold Spring, Health Care Facilities, Assumption Home, Series 2013, 5.20%, 3/1/43
|
|
|
500,000
|
|
|
|
415,715
|
|
|
City of Sauk Rapids, Good Shepherd Lutheran Home, Series 2013, 5.13%, 1/1/39
|
|
|
215,000
|
|
|
|
181,658
|
|
|
Cuyuna Range Hospital District, Health Facilities,
|
|
|
|
|
|
|
|
|
|
5.00%, 6/1/29
|
|
|
1,000,000
|
|
|
|
966,070
|
|
|
5.50%, 6/1/35
|
|
|
1,000,000
|
|
|
|
978,810
|
|
|
Maple Grove Health Care Facilities, North Memorial Health Care, Series 2005, 5.00%, 9/1/35
|
|
|
2,000,000
|
|
|
|
1,825,700
|
|
|
Maple Grove Health Care Systems, Maple Grove Hospital, Series 2007, 5.25%, 5/1/25
|
|
|
1,000,000
|
|
|
|
1,010,330
|
|
|
Marshall Medical Center, Weiner Medical Center Project, Series 2003-A (Pre-refunded 11/1/13 @ 100), 6.00%, 11/1/28
¯
|
|
|
400,000
|
|
|
|
403,648
|
|
|
Minneapolis Health Care Facilities, Walker Campus Project, Series 2012, 4.75%, 11/15/28
|
|
|
900,000
|
|
|
|
806,130
|
|
|
Minneapolis Health Care Systems, Fairview Health Services, Series 2008-A, 6.63%, 11/15/28
|
|
|
1,800,000
|
|
|
|
2,078,550
|
|
|
Minnesota Agricultural & Economic Development Board, Essentia Health, Series 2008-E (AGC), 5.00%, 2/15/37
|
|
|
3,750,000
|
|
|
|
3,693,900
|
|
|
Minnesota Agricultural & Economic Development Board, Health Care System, Series 1997-A (NATL), 5.75%, 11/15/26
|
|
|
35,000
|
|
|
|
35,023
|
|
|
Monticello-Big Lake Community Hospital District, Health Care Facilities, Series 2003-C, 6.20%, 12/1/22
¥
|
|
|
1,000,000
|
|
|
|
1,000,330
|
|
|
Northern Itasca Hospital District, Health Facilities Gross Revenue, Series 2013-A, 4.40%, 12/1/33
|
|
|
460,000
|
|
|
|
390,627
|
|
|
Pine City Health Care & Housing, North Branch, Series 2006-A (GNMA), 4.80%, 10/20/26
|
|
|
1,000,000
|
|
|
|
1,002,190
|
|
|
Prior Lake Senior Housing, Shepard’s Path Senior Housing, Series 2006-B, 5.70%, 8/1/36
|
|
|
500,000
|
|
|
|
439,175
|
|
|
Shakopee Health Care Facilities, St. Francis Regional Medical Center, Series 2004, 5.25%, 9/1/34
|
|
|
1,000,000
|
|
|
|
954,720
|
|
|
St. Cloud Health Care, CentraCare Health System, Series 2010-A, 5.13%, 5/1/30
|
|
|
500,000
|
|
|
|
516,930
|
|
The accompanying notes are an
integral part of the financial statements.
|
|
|
|
|
|
|
10
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
Minnesota Municipal Income Portfolio (MXA)
|
|
|
|
|
|
|
|
|
|
|
DESCRIPTION
|
|
PAR
|
|
|
FAIR
VALUE
¶
|
|
|
|
|
|
|
St. Louis Park Health Care Facilities, Park Nicollet Health Services, Series 2009, 5.75%, 7/1/39
|
|
$
|
1,500,000
|
|
|
$
|
1,541,715
|
|
|
St. Paul Housing & Redevelopment Authority, Allina Health System, Series 2009-A-1, 5.25%, 11/15/29
|
|
|
1,175,000
|
|
|
|
1,204,645
|
|
|
St. Paul Housing & Redevelopment Authority, Episcopal Homes Project, Series 2013, 5.13%, 5/1/48
|
|
|
500,000
|
|
|
|
387,925
|
|
|
St. Paul Housing & Redevelopment Authority, Health Care Facility, HealthPartners Obligation Group Project, Series
2006,
5.25%, 5/15/36
|
|
|
1,430,000
|
|
|
|
1,433,232
|
|
|
St. Paul Housing & Redevelopment Authority, HealthEast Project, Series 2005, 6.00%, 11/15/30
|
|
|
550,000
|
|
|
|
558,332
|
|
|
St. Paul Housing & Redevelopment Authority, Nursing Home Episcopal, Series 2006, 5.63%, 10/1/33
¥
|
|
|
897,330
|
|
|
|
820,267
|
|
|
St. Paul Housing & Redevelopment Authority, Rossy & Richard Shaller, Series 2007-A, 5.25%, 10/1/42
|
|
|
650,000
|
|
|
|
535,321
|
|
|
St. Paul Port Authority, HealthEast Midway Campus,
|
|
|
|
|
|
|
|
|
|
5.75%, 5/1/25, Series 2007-A
|
|
|
100,000
|
|
|
|
102,294
|
|
|
5.88%, 5/1/30, Series 2005-A
|
|
|
500,000
|
|
|
|
508,445
|
|
|
6.00%, 5/1/30, Series 2005-B
|
|
|
900,000
|
|
|
|
917,199
|
|
|
West St. Paul Health Care Facilities, Walker Thompson Hill Project, Series 2011-A, 7.00%, 9/1/46
|
|
|
1,000,000
|
|
|
|
994,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,996,016
|
|
|
|
|
|
|
|
|
|
|
|
|
Housing Revenue — 21.6%
|
|
|
|
|
|
|
|
|
|
Coon Rapids Multifamily Housing, Margaret Place Apartments, Series 1997-A, 6.25%, 5/1/18
¥
|
|
|
290,000
|
|
|
|
290,015
|
|
|
Coon Rapids Multifamily Housing, Tralee Terrace Apartments, Series 2010 (FHLMC), 4.50%, 6/1/26
|
|
|
1,700,000
|
|
|
|
1,721,556
|
|
|
Cottage Grove Senior Housing, Cottage Grove Project, Series 2006-A, 5.00%, 12/1/31
¥
|
|
|
450,000
|
|
|
|
405,068
|
|
|
Maplewood Multifamily, Carefree Cottages II, Series 2004 (AMT) (FNMA) (Mandatory Put 4/15/19 @ 100), 4.80%, 4/15/34
|
|
|
1,000,000
|
|
|
|
1,010,670
|
|
|
Minneapolis Housing, Keeler Apartments Project, Series 2007-A, 5.00%, 10/1/37
|
|
|
750,000
|
|
|
|
622,672
|
|
|
Minneapolis Multifamily Housing, Vantage Flats Project, Series 2007 (AMT) (GNMA), 5.20%, 10/20/48
|
|
|
970,000
|
|
|
|
954,645
|
|
|
Minneapolis-St. Paul Housing Finance Board, Single Family Mortgage, Mortgage-Backed City Living, Series 2006-A4 (AMT) (FHLMC) (FNMA)
(GNMA), 5.00%, 11/1/38
|
|
|
316,171
|
|
|
|
326,102
|
|
|
Minnesota Housing Finance Agency, Homeownership Finance, Series 2011-D (FHLMC) (FNMA) (GNMA), 4.70%, 1/1/31
|
|
|
150,000
|
|
|
|
154,611
|
|
|
Minnesota Housing Finance Agency, Nonprofit Housing, State Appropriation, Series 2011, 5.00%, 8/1/31
|
|
|
1,230,000
|
|
|
|
1,250,049
|
|
|
Minnesota Housing Finance Agency, Rental Housing, Series 2011, 5.05%, 8/1/31
|
|
|
355,000
|
|
|
|
357,286
|
|
|
Minnesota Housing Finance Agency, Residential Housing,
|
|
|
|
|
|
|
|
|
|
4.70%, 7/1/27, Series 2007-D (AMT)
|
|
|
2,345,000
|
|
|
|
2,355,857
|
|
|
5.65%, 7/1/33, Series 2008-B (AMT)
|
|
|
675,000
|
|
|
|
698,834
|
|
|
3.90%, 7/1/43, Series 2013-C
|
|
|
750,000
|
|
|
|
606,675
|
|
|
Moorhead Economic Development Authority, Housing Development Eventide Project, Series 2006-A, 5.15%, 6/1/29
|
|
|
700,000
|
|
|
|
624,036
|
|
|
Moorhead Senior Housing, Sheyenne Crossing Project, Series 2006, 5.65%, 4/1/41
¥
|
|
|
800,000
|
|
|
|
709,152
|
|
|
Wayzata Senior Housing, Folkestone Senior Living Community, Series 2012-A, 6.00%, 5/1/47
|
|
|
220,000
|
|
|
|
219,241
|
|
|
Worthington Housing Authority, Meadows Worthington Project, Series 2007-A, 5.25%, 11/1/28
¥
|
|
|
520,000
|
|
|
|
485,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,791,863
|
|
|
|
|
|
|
|
|
|
|
|
|
Industry Development Revenue — 2.6%
|
|
|
|
|
|
|
|
|
|
St. Paul Port Authority, Solid Waste Disposal, Series 2012-7 (AMT), 4.50%, 10/1/37
|
|
|
1,950,000
|
|
|
|
1,511,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Leasing Revenue — 8.1%
|
|
|
|
|
|
|
|
|
|
Duluth Capital Appreciation Independent School District Number 709, Series 2012-A, Certificate of Participation, Zero Coupon Bond (MSDCEP),
4.94%, 2/1/28
°
|
|
|
1,000,000
|
|
|
|
494,770
|
|
|
Minneapolis, Chartered School Lease, Yinghua Academy Project, Series 2013-A, 6.00%, 7/1/43
|
|
|
1,000,000
|
|
|
|
923,300
|
|
|
Pine County Housing & Redevelopment Authority, Series 2005-A, 5.00%, 2/1/31
|
|
|
1,000,000
|
|
|
|
1,099,410
|
|
|
St. Paul Housing & Redevelopment Authority Lease, High Ground Academy Project, Series 2013-A, 5.00%, 12/1/33
|
|
|
500,000
|
|
|
|
436,490
|
|
|
St. Paul Housing & Redevelopment Authority, Jimmy Lee Recreation Center, Series 2008, 5.00%, 12/1/32
|
|
|
400,000
|
|
|
|
400,424
|
|
|
St. Paul Port Authority, Regions Hospital Parking Ramp Project, Series 2007-1, 5.00%, 8/1/36
|
|
|
1,000,000
|
|
|
|
881,930
|
|
|
State of Minnesota General Fund, Series 2012-B, 3.00%, 3/1/30
|
|
|
700,000
|
|
|
|
559,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,795,890
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous Revenue — 2.5%
|
|
|
|
|
|
|
|
|
|
Minneapolis, National Marrow Donor Program, Series 2010, 4.25%, 8/1/20
|
|
|
1,000,000
|
|
|
|
1,009,330
|
|
|
St. Paul Housing & Redevelopment Authority, Parking Facilities Project, Series 2010-A, 5.00%, 8/1/30
|
|
|
460,000
|
|
|
|
472,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,481,502
|
|
|
|
|
|
|
|
|
|
|
|
|
Recreation Authority Revenue — 0.7%
|
|
|
|
|
|
|
|
|
|
Moorhead Golf Course, Series 1998-B, 5.88%, 12/1/21
¥
|
|
|
395,000
|
|
|
|
394,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
11
|
|
|
|
|
|
|
Schedule of Investments
|
|
August 31, 2013
|
|
|
|
|
|
Statement of Assets and Liabilities
|
|
August 31, 2013
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Unaffiliated investments, at fair value (Cost: $87,297,486) (note 2)
|
|
$
|
88,548,335
|
|
|
Receivable for investments sold
|
|
|
698,872
|
|
|
Receivable for accrued interest
|
|
|
1,023,185
|
|
|
Prepaid expenses and other assets
|
|
|
35,954
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
90,306,346
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
Payable for preferred share distributions (note 3)
|
|
|
334
|
|
|
Payable for investment advisory fees
|
|
|
26,511
|
|
|
Payable for administration fees
|
|
|
15,255
|
|
|
Payable for postage and printing fees
|
|
|
7,286
|
|
|
Payable for audit fees
|
|
|
12,020
|
|
|
Payable for remarketing fees
|
|
|
14,618
|
|
|
Payable for legal fees
|
|
|
17,637
|
|
|
Payable for pricing fees
|
|
|
1,347
|
|
|
Payable for transfer agent fees
|
|
|
2,567
|
|
|
Payable for other expenses
|
|
|
8,583
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
106,158
|
|
|
|
|
|
|
|
|
Preferred shares, at liquidation value (note 3)
|
|
|
31,100,000
|
|
|
|
|
|
|
|
|
Net assets applicable to outstanding common shares
|
|
$
|
59,100,188
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to outstanding common shares consist of:
|
|
|
|
|
|
Common shares and additional paid-in capital
|
|
$
|
57,707,687
|
|
|
Undistributed net investment income
|
|
|
597,569
|
|
|
Accumulated net realized loss on investments
|
|
|
(455,917
|
)
|
|
Net unrealized appreciation of investments
|
|
|
1,250,849
|
|
|
|
|
|
|
|
|
Net assets applicable to outstanding common shares
|
|
$
|
59,100,188
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value and market price of common shares:
|
|
|
|
|
|
Net assets applicable to outstanding common shares
|
|
$
|
59,100,188
|
|
|
Common shares outstanding (authorized 200 million shares of $0.01 par value)
|
|
|
4,146,743
|
|
|
Net asset value per share
|
|
$
|
14.25
|
|
|
Market price per share
|
|
$
|
14.82
|
|
|
|
|
|
Liquidation preference of preferred shares (note 3):
|
|
|
|
|
|
Net assets applicable to preferred shares
|
|
$
|
31,100,000
|
|
|
Preferred shares outstanding (authorized one million shares)
|
|
|
1,244
|
|
|
Liquidation preference per share
|
|
$
|
25,000
|
|
The accompanying notes are an
integral part of the financial statements.
|
|
|
|
|
|
|
14
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
|
|
|
Statement of Operations
|
|
For the year ended August 31, 2013
|
|
|
|
|
|
|
|
Investment Income:
|
|
|
|
|
|
Interest from unaffiliated investments
|
|
$
|
4,632,154
|
|
|
Dividends from unaffiliated money market fund
|
|
|
27
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
4,632,181
|
|
|
|
|
|
|
|
|
|
|
|
Expenses (note 5)
|
|
|
|
|
|
Investment advisory fees
|
|
|
339,465
|
|
|
Administration fees
|
|
|
193,980
|
|
|
Remarketing agent fees
|
|
|
47,273
|
|
|
Custodian fees
|
|
|
6,133
|
|
|
Postage and printing fees
|
|
|
19,787
|
|
|
Transfer agent fees
|
|
|
32,470
|
|
|
Listing fees
|
|
|
8,775
|
|
|
Directors’ fees
|
|
|
72,912
|
|
|
Legal fees
|
|
|
36,033
|
|
|
Audit fees
|
|
|
55,268
|
|
|
Insurance fees
|
|
|
29,882
|
|
|
Pricing fees
|
|
|
9,457
|
|
|
Other expenses
|
|
|
38,027
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
889,462
|
|
|
|
|
|
|
|
|
Less: Indirect payments from custodian (note 5)
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
3,742,771
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gains (losses) on investments (notes 2 and 4):
|
|
|
|
|
|
Net realized gain on investments
|
|
|
400,865
|
|
|
Net change in unrealized appreciation or depreciation of investments
|
|
|
(8,325,178
|
)
|
|
|
|
|
|
|
|
|
|
|
Net loss on investments
|
|
|
(7,924,313
|
)
|
|
|
|
|
|
|
|
|
|
|
Distributions to preferred shareholders (note 2):
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(64,655
|
)
|
|
|
|
|
|
|
|
|
|
|
Net decrease in net assets applicable to outstanding common shares resulting from operations
|
|
$
|
(4,246,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
15
|
|
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
8/31/13
|
|
|
Year Ended
8/31/12
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
3,742,771
|
|
|
$
|
3,730,315
|
|
|
Net realized gain on investments
|
|
|
400,865
|
|
|
|
356,216
|
|
|
Net change in unrealized appreciation or depreciation of investments
|
|
|
(8,325,178
|
)
|
|
|
6,109,351
|
|
|
Distribution to preferred shareholders from net investment income (note 2)
|
|
|
(64,655
|
)
|
|
|
(75,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets applicable to outstanding common shares resulting from operations
|
|
|
(4,246,197
|
)
|
|
|
10,120,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to common shareholders (note 2):
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(3,682,308
|
)
|
|
|
(3,499,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase (decrease) in net assets applicable to outstanding common shares
|
|
|
(7,928,505
|
)
|
|
|
6,620,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to outstanding common shares at beginning of period
|
|
|
67,028,693
|
|
|
|
60,408,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to outstanding common shares at end of period
|
|
$
|
59,100,188
|
|
|
$
|
67,028,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net investment income
|
|
$
|
597,569
|
|
|
$
|
601,761
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the financial statements.
|
|
|
|
|
|
|
16
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
Financial Highlights
Per-share data for an outstanding common share throughout each period and selected
information for each period are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31,
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Per-Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, common shares, beginning of period
|
|
$
|
16.16
|
|
|
$
|
14.56
|
|
|
$
|
15.28
|
|
|
$
|
13.39
|
|
|
$
|
13.71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
0.90
|
|
|
|
0.90
|
|
|
|
0.88
|
|
|
|
0.92
|
|
|
|
0.90
|
|
|
Net realized and unrealized gain (losses) on investments and futures contracts
|
|
|
(1.90
|
)
|
|
|
1.56
|
|
|
|
(0.71
|
)
|
|
|
1.91
|
|
|
|
(0.22
|
)
|
|
Distributions to preferred shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.03
|
)
|
|
|
(0.11
|
)
|
|
From net realized gain on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from operations
|
|
|
(1.02
|
)
|
|
|
2.44
|
|
|
|
0.14
|
|
|
|
2.80
|
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income
|
|
|
(0.89
|
)
|
|
|
(0.84
|
)
|
|
|
(0.86
|
)
|
|
|
(0.91
|
)
|
|
|
(0.79
|
)
|
|
From net realized gain on investments
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to common shareholders
|
|
|
(0.89
|
)
|
|
|
(0.84
|
)
|
|
|
(0.86
|
)
|
|
|
(0.91
|
)
|
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, common shares, end of period
|
|
$
|
14.25
|
|
|
$
|
16.16
|
|
|
$
|
14.56
|
|
|
$
|
15.28
|
|
|
$
|
13.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market value, common shares, end of period
|
|
$
|
14.82
|
|
|
$
|
17.52
|
|
|
$
|
15.37
|
|
|
$
|
15.70
|
|
|
$
|
14.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return, common shares, net asset value
1
|
|
|
(6.77
|
)%
|
|
|
17.25
|
%
|
|
|
1.30
|
%
|
|
|
21.66
|
%
|
|
|
4.85
|
%
|
|
Total return, common shares, market value
2
|
|
|
(10.99
|
)%
|
|
|
19.91
|
%
|
|
|
3.73
|
%
|
|
|
12.86
|
%
|
|
|
20.92
|
%
|
|
Net Assets applicable to outstanding common shares at end of period (in millions)
|
|
$
|
59
|
|
|
$
|
67
|
|
|
$
|
60
|
|
|
$
|
63
|
|
|
$
|
56
|
|
|
Ratio of expenses to average weekly net assets applicable to outstanding
common shares
3
|
|
|
1.35
|
%
|
|
|
1.42
|
%
|
|
|
1.46
|
%
|
|
|
1.29
|
%
|
|
|
1.42
|
%
|
|
Ratio of net investment income to average weekly net assets applicable to outstanding common shares before fee reimbursements
3
|
|
|
5.68
|
%
|
|
|
5.82
|
%
|
|
|
6.25
|
%
|
|
|
6.46
|
%
|
|
|
7.32
|
%
|
|
Portfolio turnover rate
|
|
|
11
|
%
|
|
|
6
|
%
|
|
|
10
|
%
|
|
|
16
|
%
|
|
|
16
|
%
|
|
Net assets applicable to remarketed preferred shares, end of period (in millions)
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
31
|
|
|
Asset coverage per remarketed preferred share (in thousands)
4
|
|
$
|
73
|
|
|
$
|
79
|
|
|
$
|
74
|
|
|
$
|
76
|
|
|
$
|
70
|
|
|
Liquidation preference and market value per remarketed preferred share (in thousands)
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
$
|
25
|
|
|
1
|
Assumes reinvestment of distributions at net asset value.
|
|
2
|
Assumes reinvestment of distributions at actual prices pursuant to the fund’s dividend reinvestment plan.
|
|
3
|
Ratios do not reflect the effect of dividend payments to preferred shareholders; income ratios reflect income earned on assets attributable to preferred
shares, where applicable.
|
|
4
|
Represents net assets applicable to outstanding common shares plus preferred shares at liquidation value divided by preferred shares outstanding.
|
The accompanying notes are an
integral part of the financial statements.
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
17
|
|
Notes to Financial Statements
Minnesota Municipal Income Portfolio, Inc. (the “fund”) is registered under the Investment Company Act of 1940, as amended (the
“Investment Company Act”), as a non-diversified, closed-end management investment company. The fund invests primarily in Minnesota municipal securities that, at the time of purchase, are rated investment grade or are unrated and deemed to
be of comparable quality by one of the fund’s sub-advisors Nuveen Asset Management, LLC (“NAM”). The fund may invest up to 20% of its total assets in municipal securities that, at the time of purchase, are rated lower than investment
grade or are unrated and deemed to be of comparable quality by NAM. The fund’s investments 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. The fund’s investments also may include repurchase agreements, futures contracts, options on futures contracts, options, and interest rate swaps, caps, and floors. Fund shares
are listed on the NYSE MKT under the symbol MXA.
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.
|
(2)
|
Summary of
Significant
Accounting
Policies
|
Security Valuations
Security valuations for the fund’s investments are generally furnished by an independent pricing service that has been
approved by the fund’s board of directors. Debt obligations exceeding 60 days to maturity are valued by an independent pricing service that has been approved by the fund’s board of directors. 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. Debt obligations with 60 days or
less remaining until maturity may be valued at their amortized cost, which approximates market value. Investments in open-end funds are valued at their respective net asset values on the valuation date.
The following investment vehicles, when held by the fund, are priced as follows: exchange listed futures and options on futures are priced at their
last sale price on the exchange on which they are principally traded, as determined by the fund’s investment advisor, U.S. Bancorp Asset Management, Inc. (“USBAM”), on the day the valuation is made. If there were no sales on that day,
futures and options on futures will be valued at the last reported bid price. Options on securities, indices, and currencies traded on Nasdaq or listed on a stock exchange are valued at the last sale price on Nasdaq or on any exchange on the day the
valuation is made. If there were no sales on that day, the options will be valued at the last sale price on the previous valuation date. Last sale prices are obtained from an independent pricing service. Swaps and over-the-counter options on
securities and indices are valued at the quotations received from an independent pricing service, if available.
When market quotations
are not readily available, securities are internally valued at fair value as determined in good faith by procedures established and approved by the fund’s board of directors. As of August 31, 2013, the fund held no internally fair valued
securities.
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) is the
exclusive reference of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. The fund’s financial statements are prepared in accordance with GAAP, which
may require the use of management estimates and assumptions. Actual results could differ from those estimates.
GAAP requires
disclosures regarding the inputs and valuation techniques used to measure fair value and any changes in valuation inputs or techniques. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to
transfer a liability in an orderly transactions between market participants at the measurement date (i.e. the exit price). GAAP establishes a three-tier fair value hierarchy for observable and unobservable inputs used in measuring fair value.
Observable inputs reflect the assumptions market participants would use in pricing an asset or liability and are based on market data obtained from sources independent of the
|
|
|
|
|
|
|
18
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable
inputs are based on the best information available in the circumstances. Fair value inputs are summarized in the three broad levels listed below:
Level 1
- Quoted prices in active markets for identical securities.
Level 2
- Other significant observable inputs (including quoted prices for similar securities, with similar interest rates,
prepayment speeds, credit risk, etc.).
Level 3
- Significant unobservable inputs (including the fund’s own
assumptions in determining the fair value of investments). Generally, the types of securities included in Level 3 of the fund are securities for which there is limited or no observable fair value inputs available, and as such the fair value is
determined through independent broker quotations or management’s fair value procedures established by the fund’s board of directors.
The valuation levels are not necessarily an indication of the risk associated with investing in these investments.
As of August 31, 2013, the fund’s investments were classified as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
Fair Value
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Long-Term Investments
|
|
$
|
—
|
|
|
$
|
88,436,161
|
|
|
$
|
—
|
|
|
$
|
88,436,161
|
|
|
Short-Term Investment
|
|
|
112,174
|
|
|
|
—
|
|
|
|
—
|
|
|
|
112,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments
|
|
$
|
112,174
|
|
|
$
|
88,436,161
|
|
|
$
|
—
|
|
|
$
|
88,548,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Refer to the Schedule of Investments for further security classification.
During the fiscal year ended August 31, 2013, the fund recognized no transfers between fair value levels.
Valuation Methodologies for Fair Value Measurements Categorized within Level 2
Municipal Long-Term Investments
Municipal long-term investments are valued by an independent pricing service. The pricing service may employ methodologies that utilize actual market transactions, broker-dealer supplied valuations, or other
formula-driven valuation techniques. These techniques generally consider such factors as yields or prices of bonds of comparable quality, type of issue, coupon, maturity, ratings and general market conditions.
Valuation Process for Fair Value Measurements
The fund’s board of directors (the “board”) has adopted policies and procedures for the valuation of the fund’s investments (the “valuation procedures”). The valuation procedures
establish a valuation committee consisting of representatives from USBAM investment management, legal, treasury and compliance departments (the “valuation committee”). The board has authorized the valuation committee to make fair value
determinations in accordance with the valuation procedures. The audit committee of the board meets on a regular basis to, among other things, review fair value determinations made by the valuation committee, monitor the appropriateness of any
previously determined fair value methodology, and approve in advance any proposed changes to such methodology, and presents such changes for ratification by the board.
Security Transactions and Investment Income
For financial statement purposes, the fund
records security transactions on the trade date of the security purchase or sale. Dividend income is recorded on the ex-dividend date. Interest income, including accretion of bond discounts and amortization of bond premiums, is recorded on an
accrual basis. Security gains and losses are determined on the basis of identified cost, which is the same basis used for federal income tax purposes. The resulting gain/loss is calculated as the difference between the sales price and the underlying
cost of the security on the transaction date.
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
19
|
|
Notes to Financial Statements
Distributions to Shareholders
Distributions from net investment income are made monthly for
common shareholders and weekly for preferred shareholders. Common share distributions are recorded as of the close of business on the ex-dividend date and preferred share dividends are accrued daily. Net realized gain 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 common shares of the fund. Under the dividend reinvestment plan, common shares
will be purchased in the open market.
Taxes
Federal
The fund intends to continue to qualify as a regulated investment company as provided
in Subchapter M of the Internal Revenue Code, as amended, and to distribute all taxable income, if any, to its shareholders. Accordingly, no provision for federal income taxes is required.
As of August 31, 2013, the fund did not have any tax positions that did not meet the “more-likely-than-not” threshold of being
sustained by the applicable taxing authority. Generally, tax authorities can examine all the tax returns filed for the last three years.
Net investment income and net realized gains and losses may differ for financial statement and tax purposes because of temporary or permanent
book/tax differences. These differences are primarily due to deferred straddle losses. To the extent these differences are permanent, reclassifications are made to the appropriate capital accounts in the fiscal period in which the differences arise.
The character of distributions made during the fiscal period from net investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. In addition, due to the timing of dividend distributions, the fiscal period in which amounts are distributed may differ from the fiscal period that the income or realized gains or losses
were recorded by the fund.
The character of common and preferred share distributions paid during the fiscal years ended August 31,
2013, and August 31, 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
08/31/13
|
|
|
8/31/12
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
|
|
|
Tax-exempt income
|
|
$
|
3,747,267
|
|
|
$
|
3,550,542
|
|
|
Ordinary income
|
|
|
—
|
|
|
|
25,285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,747,267
|
|
|
$
|
3,575,827
|
|
|
|
|
|
|
|
|
|
|
|
As of August 31, 2013, the components of accumulated earnings (deficit) on a tax basis were as follows:
|
|
|
|
|
|
|
Undistributed tax-exempt income
|
|
$
|
594,833
|
|
|
Undistributed ordinary income
|
|
|
8,256
|
|
|
Accumulated capital and post-October losses
|
|
|
(452,405
|
)
|
|
Unrealized appreciation (depreciation)
|
|
|
1,247,337
|
|
|
Other accumulated gain (loss)
|
|
|
(5,520
|
)
|
|
|
|
|
|
|
|
Accumulated earnings (deficit)
|
|
$
|
1,392,501
|
|
|
|
|
|
|
|
Under the Regulated Investment Company Modernization Act of 2010, the fund is permitted to carry forward
capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Any losses incurred during those taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years.
Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under the previous law.
|
|
|
|
|
|
|
20
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MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
For federal income tax purposes, the fund had capital loss carryovers
at August 31, 2013, which, if not offset by subsequent capital gains, will expire on the fund’s fiscal year-ends as follows:
|
|
|
|
|
|
|
|
|
Capital Loss
Carryover
|
|
|
Expiration
|
|
|
$
|
452,405
|
|
|
|
2018
|
|
During the fiscal year the fund utilized capital loss carryovers in the amount of $399,736.
State
Minnesota taxable
net income is generally based on federal taxable income. The portion of tax-exempt dividends paid by the fund that is derived from interest on Minnesota municipal bonds will be excluded from Minnesota taxable net income of individuals, estates, and
trusts, provided that the portion of the tax-exempt dividends paid from these obligations represents 95% or more of the exempt-interest dividends paid by the fund. The remaining portion of these dividends, and dividends that are not exempt-interest
dividends or capital gains distributions, will be included in the Minnesota taxable net income of individuals, estates, and trusts, except for dividends directly attributable to interest on obligations of the U.S. Government, its territories and
possessions.
In 1995, Minnesota enacted a statement of intent that interest on obligations of Minnesota governmental units and Indian
tribes be included in the net income of individuals, estates and trusts for Minnesota income tax purposes if a court determines that Minnesota’s exemption of such interest and its taxation of interest on obligations of governmental issuers in
other states unlawfully discriminates against interstate commerce. See Minn. Stat. § 289A.50, subd. 10. This provision applies to taxable years that begin during or after the calendar year in which any such determination becomes final.
The U.S. Supreme Court has held that a state which exempts from taxation interest on the bonds of the state and its political
subdivisions, while subjecting to tax interest on bonds of other states and their political subdivisions, does not violate the Commerce Clause. However, the Court has not dealt with the treatment of private activity bonds, which leaves open the
possibility that a court in the future could hold that a state’s discriminatory treatment of private activity bonds of issuers located within or outside the state violates the Commerce Clause.
Derivatives
The fund may
invest in derivative financial instruments in order to manage risk or gain exposure to various other investments or markets. The fund’s investment objective allows the fund to enter into various types of derivative contracts, including, but not
limited to, futures contracts, options on futures contracts, options, and interest rate swaps, caps, and floors. Derivatives may contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms
of the contract, the potential for an illiquid secondary market, and the potential for market movements that may expose the fund to gains or losses in excess of the amounts shown on the Statement of Assets and Liabilities. As of August 31,
2013, the fund had no outstanding derivative contracts.
Futures Transactions
In order to protect against changes in interest rates, the fund may buy and sell interest rate futures contracts. Upon entering into a futures
contract, the fund is required to deposit cash or pledge U.S. Government securities. The margin required for a futures contract is set by the exchange on which the contract is traded. Subsequent payments, which are dependent on the daily
fluctuations in the value of the underlying security or securities, are made or received by the fund each day (daily variation margin) and recorded as unrealized gains (losses) until the contract is closed. When the contract is closed, the fund
records a realized gain (loss) equal to the difference between the proceeds from (or cost of) the closing transaction and the fund’s basis in the contract.
Risks of entering into futures contracts, in general, include the possibility that there will not be a perfect price correlation between the futures contracts and the underlying securities. Second, it is possible
that a lack of liquidity for futures contracts could exist in the secondary market, resulting in an inability to close a futures position prior to its maturity date. Third, the purchase of a futures contract involves the risk that the fund could
|
|
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|
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|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
21
|
|
Notes to Financial Statements
lose more than the original margin deposit required to initiate a futures transaction. These contracts involve market risk in excess of the amount reflected in the fund’s Statement of Assets
and Liabilities. Unrealized gains (losses) on outstanding positions in futures contracts held at the close of the period will be recognized as capital gains (losses) for federal income tax purposes. As of August 31, 2013, the fund had no
outstanding futures contracts.
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. 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 assets with a market value equal to or greater than 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 August 31, 2013, the fund had no outstanding when-issued or forward-commitment securities.
In connection with the ability to
purchase securities on a when-issued basis, the fund may also enter into dollar rolls in which the fund sells securities purchased on a forward-commitment basis and simultaneously contracts with a counterparty to repurchase similar (same type,
coupon, and maturity), but not identical securities on a specified future date. As an inducement for the fund to “rollover” its purchase commitments, the fund receives negotiated amounts in the form of reductions of the purchase price of
the commitment. Dollar rolls are considered a form of leverage. As of August 31, 2013, the fund had no dollar roll transactions.
Illiquid or Restricted Securities
A security may be considered illiquid if it lacks a readily available market. Securities are generally considered liquid if they can be sold or disposed of in the ordinary course of business within seven days at
approximately the value at which the security is valued by the fund. Illiquid securities may be valued under methods approved by the fund’s board of directors as reflecting fair value. Illiquid securities may include restricted securities,
which are often purchased in private placement transactions, are not registered under the Securities Act of 1933, and may have contractual restrictions on resale.
As of August 31, 2013, the fund held 8 illiquid securities, the fair value of which was $4,510,828, which represents 7.6% of total net assets applicable to outstanding common shares. As of August 31,
2013, there were no restricted securities. Information concerning illiquid securities, including restricted securities considered to be illiquid, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Security
|
|
Par
|
|
|
Date
Acquired
|
|
|
Cost
Basis
|
|
|
Coon Rapids Multifamily Housing, Margaret Place Apartments, Series 1997-A, 6.25%, 5/1/18
|
|
$
|
290,000
|
|
|
|
04/04
|
|
|
$
|
278,286
|
|
|
Cottage Grove Senior Housing, Cottage Grove Project, Series 2006-A, 5.00%, 12/1/31
|
|
|
450,000
|
|
|
|
12/06
|
|
|
|
450,000
|
|
|
Minneapolis Tax Increment, St. Anthony Falls Project, Series 2005, 5.65%, 2/1/27
|
|
|
450,000
|
|
|
|
11/05
|
|
|
|
450,000
|
|
|
Monticello-Big Lake Community Hospital District, Health Care Facilities, Series 2003-C, 6.20%, 12/1/22
|
|
|
1,000,000
|
|
|
|
12/02
|
|
|
|
1,000,000
|
|
|
Moorhead Golf Course, Series 1998-B, 5.88%, 12/1/21
|
|
|
395,000
|
|
|
|
12/03
|
|
|
|
397,471
|
|
|
Moorhead Senior Housing, Sheyenne Crossing Project, Series 2006, 5.65%, 4/1/41
|
|
|
800,000
|
|
|
|
04/06
|
|
|
|
788,965
|
|
|
St. Paul Housing & Redevelopment Authority, Nursing Home Episcopal, Series 2006, 5.63%, 10/1/33
|
|
|
897,330
|
|
|
|
10/06
|
|
|
|
912,113
|
|
|
Worthington Housing Authority, Meadows Worthington Project, Series 2007-A, 5.25%, 11/1/28
|
|
|
520,000
|
|
|
|
05/07
|
|
|
|
519,810
|
|
Inverse Floaters
As part of its investment strategy, the fund may invest in certain securities for which the potential income return is inversely related to changes in a floating interest rate (“inverse floaters”). In
general, income on inverse floaters will decrease when short-term interest rates increase and increase when short-term interest rates decrease.
|
|
|
|
|
|
|
22
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
Inverse floaters may be characterized as derivative securities and may subject the fund to the risks of reduced or eliminated interest payments and losses of invested principal. In addition,
inverse floaters may provide investment leverage. The market values of inverse floaters will generally be more volatile than those of fixed-rate, tax-exempt securities. Therefore, to the extent the fund invests in inverse floaters, the net asset
value of the fund’s shares may be more volatile than if the fund did not invest in such securities. As of and for the year ended August 31, 2013, the fund had no outstanding investments in inverse floaters.
Repurchase Agreements
For
repurchase agreements entered into with certain broker-dealers, the fund, along with other affiliated registered investment companies, may transfer uninvested cash balances into a joint trading account, the daily aggregate balance of which is
invested in repurchase agreements secured by U.S. Government or agency obligations. Securities pledged as collateral for all individual and joint repurchase agreements are held by the fund’s custodian or sub-custodian until maturity of the
repurchase agreement. All agreements require that the daily market value of the collateral be in excess of the repurchase amount, including accrued interest, to protect the fund in the event of a default. As of August 31, 2013, the fund had no
outstanding repurchase agreements.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could differ from these estimates.
Events Subsequent to Fiscal Year End
Management has evaluated fund related events and transactions that occurred subsequent to August 31, 2013, through the date of issuance of the fund’s financial statements. There were no events or
transactions that occurred during this period that materially impacted the amounts or disclosures in the fund’s financial statements.
|
(3)
|
Remarketed
Preferred Shares
|
As of
August 31, 2013, the fund had outstanding 1,244 remarketed preferred shares (622 shares in Class “M” and 622 shares in Class “W”) (“RP
®
shares”) outstanding with a liquidation preference of $25,000 per share. The dividend rate on the RP
®
shares is adjusted every seven days (on Mondays for Class “M” and on Wednesdays for Class “W”), as determined by the remarketing agent, Merrill
Lynch & Co. (The “Remarketing Agent”).
Normally, the dividend rates on the RP
®
shares are set at the market clearing rate determined through a remarketing process that brings together bidders who wish to
buy RP
®
shares and holders of RP
®
shares who wish to sell. Since February 13, 2008, however, sell orders have exceeded bids and the regularly scheduled remarketings for the fund’s RP
®
shares have failed. When a remarketing fails, the fund is required to pay the maximum applicable rate on the RP
®
shares to holders of such shares for successive dividend periods until such time as the shares are successfully remarketed.
The maximum applicable rate on the RP
®
shares is 110% of the higher of (1) the applicable AA Composite Commercial
Paper Rate or (2) 90% of the Taxable Equivalent of the Short-Term Municipal Bond Rate.
During any dividend period, the maximum
applicable rate may be higher than the dividend rate that would have been set had the remarketing been successful. This increases the fund’s cost of leverage and reduces the fund’s common share earnings. On August 31, 2013, the
maximum applicable rates were 0.10% for Class “M” and 0.10% for Class “W”.
In the event of a
failed remarketing, holders of RP
®
shares will continue to receive dividends at the maximum applicable rate, but generally
will not be able to sell their shares until the next successful remarketing. There is no way to predict when or if future remarketings might succeed in attracting sufficient buyers for the shares offered.
RP
®
is
a registered trademark of the Remarketing Agent.
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
23
|
|
Notes to Financial Statements
|
(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 August 31, 2013, aggregated $10,926,670 and $12,559,449, respectively.
Investment Advisory Fees
Pursuant to an investment advisory agreement, USBAM, a subsidiary of U.S. Bank National Association (“U.S. Bank”), manages the
fund’s assets and furnishes related office facilities, equipment, research, and personnel. The agreement provides USBAM with a monthly investment advisory fee in an amount equal to an annualized rate of 0.35% of the fund’s average weekly
net assets including preferred shares. For its fee, USBAM provides investment advice and, in general, conducts the management and investment activities of the fund.
The fund may invest in related money market funds that are series of First American Funds, Inc., subject to certain limitations. In order to avoid the payment of duplicative investment advisory fees to USBAM, which
acts as the investment advisor to both the fund and the related money market funds, USBAM will reimburse the fund an amount equal to the investment advisory fee received from the related money market funds that is attributable to the assets of the
fund. These reimbursements, if any, are disclosed as “Fee reimbursements” in the Statement of Operations.
NAM and Nuveen Fund
Advisors, LLC (“NFA”) each serve as investment sub-advisor to the fund pursuant to separate investment sub-advisory agreements with USBAM. NAM makes investment decisions for the fund, places purchase and sale orders for the fund’s
portfolio transactions, and employs the fund’s portfolio managers and the securities analysts that provide research services relating to the fund. NFA provides certain other investment sub-advisory services to the fund, including assisting in
the supervision of the fund’s investment program, risk monitoring, managing the forms and level of leverage employed by the fund, assisting in dividend and distribution level determinations, providing tax advice on issues arising in connection
with management of the fund’s portfolio, and assisting with pricing of the fund’s portfolio securities. USBAM pays monthly fees to NAM and NFA for the services provided under their respective sub-advisory agreements with USBAM. USBAM pays
NAM and NFA a monthly fee at an annual rate of 0.25% and 0.05%, respectively, based upon average weekly net assets.
Administrative
Fees
USBAM serves as the fund’s administrator pursuant to an administration agreement between USBAM and the fund. Under this
agreement, USBAM receives a monthly administrative fee in an amount equal to an annualized rate of 0.20% of the fund’s average weekly net assets including preferred shares. For its fee, USBAM provides numerous services to the fund including,
but not limited to, handling the general business affairs, financial and regulatory reporting, and various other services.
Pursuant to
a sub-administration agreement between USBAM and NFA, USBAM also pays NFA an annual fee, calculated weekly and paid monthly, equal to 0.05% of the average weekly net assets of the fund for certain administrative and other services that NFA provides
to the fund.
Remarketing Agent Fees
The fund has entered into a remarketing agreement with the Remarketing Agent. The remarketing agreement provides the
Remarketing Agent with a monthly fee in an amount equal to an annualized rate of 0.15% of the fund’s average amount of
RP
®
outstanding. For its fee, the Remarketing Agent will remarket shares of RP
®
tendered to it on behalf of shareholders and will determine the applicable dividend rate for each seven-day dividend period.
Custodian Fees
U.S. Bank
serves as the fund’s custodian pursuant to a custodian agreement with the fund. The custodian fee charged to the fund is equal to an annual rate of 0.005% of average weekly net assets, including preferred shares. These fees are computed weekly
and paid monthly.
|
|
|
|
|
|
|
24
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
Under this agreement, interest earned on uninvested cash balances is
used to reduce a portion of the fund’s custodian expenses. These credits, if any, are disclosed as “Indirect payments from custodian” in the Statement of Operations. Conversely, the custodian charges a fee for any cash overdrafts
incurred, which will increase the fund’s custodian expenses. For the year ended August 31, 2013, custodian fees were increased by $3 as a result of overdrafts and reduced by $52 as a result of interest earned.
Other Fees and Expenses
In addition to the investment advisory, administrative, remarketing agent, and custodian fees, the fund is responsible for paying most other
operating expenses, including: postage and printing of shareholder reports, transfer agent fees and expenses, listing fees, outside directors’ fees and expenses, legal, auditing and accounting services, insurance, pricing, interest, taxes, and
other miscellaneous expenses. For the year ended August 31, 2013, legal fees and expenses of $1,838 were paid to a law firm of which a former Assistant Secretary of the fund had served as a partner through December 31,2012.
Expenses that are directly related to the fund are charged directly to the fund. Other operating expenses of the First American Family of Funds are
allocated to the fund on several bases, including evenly across all funds, allocated based on relative net assets of all funds within the First American Family of Funds, or a combination of both methods.
The fund enters into contracts that contain a variety of indemnifications. The fund’s maximum exposure under these arrangements is unknown.
However, the fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
|
(7)
|
Recent
Accounting
Pronouncements
|
In January 2013, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-01 Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. This update gives additional clarification to the
FASB ASU No. 2011-11 Disclosures about Offsetting Assets and Liabilities. The amendments in this ASU require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the
effect of those arrangements on its financial position. The ASU is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The guidance requires retrospective application for all
comparative periods presented. At this time management is evaluating the implications of the update and the impact to the financial statements.
|
|
|
|
|
|
|
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
25
|
|
|
|
|
|
|
Notice to Shareholders
|
|
(unaudited)
|
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 Computershare Trust Company, N.A.
(“Computershare”), 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 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 Computershare at 800.426.5523. If your shares are registered in your brokerage firm’s name or another name, ask the holder of your shares how you may participate.
If you are a beneficial owner and wish to join the plan, you must contact your bank, broker or other nominee to arrange participation in the plan on your behalf.
Alternatively, if you are a beneficial owner of our common stock, you may simply request that the number of shares of our common stock you wish to enroll in the
plan be
re-registered
by the bank, broker or other nominee in your own name as record stockholder. You can then directly participate in the plan as described above. You should contact your bank, broker or
nominee for information on how to
re-register
your shares.
Plan Administration
Beginning no more than three business days before the dividend payment date, Computershare will buy shares of the fund on the American Stock Exchange or elsewhere
on the open market.
The fund will not issue any new shares in connection with the plan. All reinvestments will be at a market price plus a pro rata
share of any brokerage commissions, which may be more or less than the fund’s net asset value per share. The number of shares allocated to you is determined by dividing the amount of the dividend or distribution by the applicable price per
share.
There is no direct charge for reinvestment of dividends and capital gains, since Computershare 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.
Computershare 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 Computershare 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 as if received in cash. Shareholders, as required by the Internal Revenue Service, will receive a Form
1099-DIV
regarding the federal tax status of the
prior year’s distributions.
Plan Withdrawal
If you hold your shares in certificate form, you may terminate your participation in the plan at any time by giving written notice to Computershare or by calling
Computershare at 800.426.5523. 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 before the record date, all future distributions will be paid directly
to the shareholder of record.
|
|
|
|
|
|
|
26
|
|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
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 Computershare
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
Computershare Trust Company, N.A., P.O.Box 43078, Providence, RI, 02940-3078, 800.426.5523.
TAX INFORMATION
The following
per-share
information describes the federal tax treatment of distributions made during the fiscal period.
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 information purposes. Please consult a tax advisor on how to report these
distributions at the state and local levels.
Common Share Income Distributions
(the fund designates income from
tax-exempt
securities, 100.00% qualifying as exempt-interest dividends)
|
|
|
|
|
|
|
Payable Date
|
|
Amount
|
|
|
September 19, 2012
|
|
$
|
0.0740
|
|
|
October 24, 2012
|
|
|
0.0740
|
|
|
November 20, 2012
|
|
|
0.0740
|
|
|
December 19, 2012
|
|
|
0.0740
|
|
|
January 10, 2013
|
|
|
0.0740
|
|
|
February 20, 2013
|
|
|
0.0740
|
|
|
March 20, 2013
|
|
|
0.0740
|
|
|
April 17, 2013
|
|
|
0.0740
|
|
|
May 15, 2013
|
|
|
0.0740
|
|
|
June 19, 2013
|
|
|
0.0740
|
|
|
July 17, 2013
|
|
|
0.0740
|
|
|
August 21, 2013
|
|
|
0.0740
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0.8880
|
|
|
|
|
|
|
|
Preferred Share Income Distributions
(the fund designates income from
tax-exempt
securities, 100.00% qualifying as exempt-interest dividends)
|
|
|
|
|
|
|
Payable Date
|
|
Amount
|
|
|
Total class “M”
|
|
$
|
54.38
|
|
|
Total class “W”
|
|
$
|
55.51
|
|
Shareholder Notification of Federal Tax Status:
The fund designates 0.00% of the ordinary income distributions during the fiscal period ended August 31, 2013 as dividends qualifying for the dividends received deduction available to corporate shareholders.
In addition, the fund designates 0.00% of the ordinary income distributions from net investment income during the fiscal period ended August 31,
2013 as qualifying dividend income available to individual shareholders under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
Additional
Information Applicable to Foreign Shareholders Only:
The fund designates 0.00% of taxable ordinary income distributions during the fiscal period
ended August 31, 2013 as interest-related dividends under Internal Revenue Code Section 871(k)(1)(C).
The fund designates 0.00% of taxable ordinary
income distributions during the fiscal period ended August 31, 2013 as short term capital gain distributions under Internal Revenue Code Section 871(k)(2)(C).
|
|
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|
|
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|
MINNESOTA MUNICIPAL INCOME PORTFOLIO
|
|
2013 ANNUAL REPORT
|
|
|
27
|
|
|
|
|
|
|
Notice to Shareholders
|
|
(unaudited)
|
HOW TO OBTAIN A COPY OF THE FUND’S PROXY VOTING POLICIES AND PROXY VOTING RECORD
A description of the
policies and procedures that the fund uses to determine how to vote proxies relating to portfolio securities, as well as information regarding how the fund voted proxies relating to portfolio securities, is available without charge upon request by
calling 800.677.3863 and on the website of the U.S. Securities and Exchange Commission (“SEC”) at www.sec.gov.
FORM
N-Q
HOLDINGS INFORMATION
The fund is required to file its complete schedule of portfolio holdings for the first
and third quarters of each fiscal year with the SEC on Form
N-Q.
The fund’s Forms
N-Q
are available without charge (1) upon request by calling 800.677.3863 and
(2) on the SEC’s website at www.sec.gov. In addition, you may review and copy the fund’s
Forms N-Q
at the SEC’s Public Reference Room in Washington, D.C. You may obtain information on
the operation of the Public Reference Room by calling 800.SEC.0330.
QUARTERLY PORTFOLIO HOLDINGS
The fund will make portfolio holdings information publicly available by posting the information at FirstAmericanFunds.com on a quarterly basis. The fund will
attempt to post such information within 10 business days of the calendar quarter end.
APPROVAL OF THE FUND’S INVESTMENT ADVISORY AGREEMENT AND
SUB-ADVISORY
AGREEMENTS
The fund’s board of directors, which is comprised entirely of independent directors,
oversees the management of the fund and, as required by law, determines annually whether to renew the fund’s advisory agreement with USBAM. In addition to determining whether to renew the advisory agreement with USBAM (the
“Agreement”), the board is also responsible for determining whether to renew
sub-advisory
agreements (the “Sub-Advisory Agreements”) for the fund.
At a meeting on June 17-18, 2013, the board considered information relating to the Agreement, and information relating to USBAM’s
sub-advisory
agreements with NAM and NFA (each, a “Sub-Advisor” and collectively, the “Sub-Advisors”). In advance of the meeting, the board received materials relating to the Agreement and the
Sub-Advisory
Agreements (collectively, the “Agreements”) and had the opportunity to ask questions and request further information in connection with its consideration. The board approved the Agreements
through June 30, 2014.
In considering the Agreements, the board, advised by independent legal counsel, reviewed and considered the factors it
deemed relevant, including: (1) the nature, quality and extent of USBAM’s and the
Sub-Advisors’
services to the fund, (2) the investment performance of the fund, (3) the profitability
of USBAM and the
Sub-Advisors
related to the fund, including an analysis of the cost of providing services and comparative expense information, and (4) other benefits that accrue to USBAM and the
Sub-Advisors
through their relationship with the fund. When reviewing and approving investment company advisory contracts, boards of directors generally also consider the extent to which economies of scale will be
realized as the investment company grows and whether fee levels reflect these economies of scale for the benefit of shareholders. The board determined, however, that because the fund is a
closed-end
fund
which, absent a secondary offering, will not issue additional shares, a consideration of economies of scale was not relevant to its evaluation of the Agreements. In its deliberations, the board did not identify any single factor which alone was
responsible for the board’s decision to approve the Agreements.
Before approving the Agreements, the independent directors met in executive session
with their independent counsel on numerous occasions to consider the materials provided by USBAM and the
Sub-Advisors
and the terms of the Agreements. Based on its evaluation of those materials, the board
concluded that the Agreements are fair and in the best interests of the fund’s shareholders. In reaching its conclusions, the board considered the following:
Nature, Quality and Extent of Investment Advisory Services
The board examined the nature, quality and extent
of the services provided by USBAM to the fund, and the nature, quality and extent of the services provided by the
Sub-Advisors
to the Fund. The board reviewed NAM’s key personnel
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who provide investment management services to the fund as well as the fact that NAM and NFA have the authority and responsibility to make and execute investment decisions for the fund within the
framework of the fund’s investment policies and restrictions, subject to the supervision of USBAM and review by the board. The board further considered that NAM and NFA’s duties with respect to the fund include investment research and
security selection, and adherence to (and monitoring compliance with) the fund’s investment policies and restrictions and the Investment Company Act of 1940.
The board considered USBAM’s responsibilities with respect to the fund, which include monitoring the performance of the
Sub-Advisors
and various organizations providing
services to the fund, including the fund’s
sub-administrator,
transfer agent and custodian. Finally, the board considered USBAM’s representation that the services provided by USBAM under the
Agreement are the type of services customarily provided by investment advisors in the fund industry.
Based on the foregoing, the board concluded that
the fund is likely to benefit from the nature, quality and extent of the services provided by USBAM and the
Sub-Advisors
under the Agreements.
Investment Performance of the Fund
The board considered the performance of the fund on a
gross-of-expenses
basis, including how the fund performed versus the median performance of a group of comparable funds selected by an independent data service (the
“performance universe”) and how the fund performed versus its benchmark index for the
one-,
three-
and five-year periods ending February 28, 2013.
The board noted that the fund outperformed both its performance universe median and its benchmark index for all periods. In light of the foregoing, the
board concluded it would be in the interest of the fund and its shareholders to renew the Agreements.
Costs of Services and Profits Realized by
USBAM
The board reviewed USBAM’s costs in serving as the fund’s investment manager, including the costs associated with the personnel and
systems necessary to manage the fund. The board also considered the profitability of USBAM and its affiliates resulting from their relationship with the fund. The board compared fee and expense information for the fund to fee and expense information
for comparable funds managed by other advisors. The board also reviewed advisory fees for other funds advised or
sub-advised
by NFA and NAM and for other accounts managed by NFA and NAM.
Using information provided by an independent data service, the board also evaluated the fund’s advisory fee compared to the median advisory fee for other funds
similar in size, character and investment strategy, and the fund’s total expense ratio compared to the median total expense ratio after waivers of comparable funds. The board noted that the fund’s actual and contractual advisory fee was
lower than the peer group median advisory fee and that the fund’s total expense ratio was lower than its peer group median total expense ratio. The board concluded that the Fund’s advisory fee and total expense ratio are reasonable in
light of the services provided.
Other Benefits to USBAM
In evaluating the benefits that accrue to USBAM through its relationship with the fund, the board noted that USBAM and certain of its affiliates serve the fund in various capacities, including as investment
advisor, administrator and custodian, and receive compensation from the fund in connection with providing services to the fund. The board considered that each service provided to the fund by USBAM or one of its affiliates is pursuant to a written
agreement, which the board evaluates periodically as required by law.
After full consideration of these factors, the board concluded that approval of
the Agreement and the
Sub-Advisory
Agreements was in the interest of the fund and its shareholders.
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Notice to Shareholders
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(unaudited)
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