Washington, D.C. 20549
Gifford R. Zimmerman
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
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Table of Contents
| Chairman's Letter to Shareholders | 4 |
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| Portfolio Manager's Comments | 5 |
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| Fund Leverage | 8 |
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| Common Share Information | 9 |
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| Risk Considerations | 11 |
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| Performance Overview and Holding Summaries | 12 |
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| Shareholder Meeting Report | 16 |
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| Portfolios of Investments | 17 |
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| Statement of Assets and Liabilities | 29 |
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| Statement of Operations | 30 |
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| Statement of Changes in Net Assets | 31 |
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| Statement of Cash Flows | 32 |
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| Financial Highlights | 34 |
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| Notes to Financial Statements | 36 |
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| Additional Fund Information | 47 |
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| Glossary of Terms Used in this Report | 48 |
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| Reinvest Automatically, Easily and Conveniently | 50 |
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| Annual Investment Management Agreement Approval Process | 51 |
Chairman's Letter to Shareholders
Dear Shareholders,
After a sluggish first half of 2016, the U.S. economy gained some momentum in the third quarter. In fact, it was the economy's strongest quarterly acceleration in two years, propelled by healthy consumer spending, a temporary surge in exports and a turnaround in inventories. As the year winds down, 2016 looks on track to deliver the same steady-but-slow growth that has characterized the seven-year recovery.
A year ago, the U.S. Federal Reserve (Fed) took the first step toward policy "normalization" by raising its benchmark interest rate at its December 2015 meeting. Speculation about the Fed's intentions since then has been a strong influence on the markets. Currently, with the economy modestly growing, the return to "full" employment and a recent uptick in inflation, the Fed may be encouraged to again raise its target rate at the December 2016 meeting, after remaining on hold for nearly a year.
Global conditions continue to look subdued by comparison. Investors continue to adjust to the idea of a slower Chinese economy, which has helped commodity prices stabilize and lift global inflation expectations. The U.K.'s June 23rd "Brexit" vote to leave the European Union introduced a new set of economic and political uncertainties to the already fragile conditions across Europe. Moreover, there are growing concerns that global central banks' unprecedented efforts to revive growth may be showing signs of fatigue. Interest rates are currently negative in Europe and Japan and near or at zero in the U.S., U.K. and elsewhere; nonetheless, growth has remained subdued.
Given muted global growth, the risk of policy errors by central banks around the world, the unfolding Brexit process and an uncertain political outlook with the U.S. transitioning to a new presidential administration followed by key elections across Europe in 2017, we anticipate that turbulence remains on the horizon for the time being. In this environment, Nuveen remains committed to both managing downside risks and seeking upside potential. If you're concerned about how resilient your investment portfolio might be, we encourage you to talk to your financial advisor. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.
Sincerely,
William J. Schneider
Chairman of the Board
November 22, 2016
Portfolio Manager's Comments
Nuveen Build America Bond Fund (NBB)
Nuveen Build America Bond Opportunity Fund (NBD)
These Funds feature portfolio management by Nuveen Asset Management, LLC, an affiliate of Nuveen Investments, Inc. Portfolio manager Daniel J. Close, CFA, discusses key investment strategies and the six-month performance of the Nuveen Build America Bond Fund (NBB) and the Nuveen Build America Bond Opportunity Fund (NBD). Dan has managed NBB and NBD since their inceptions in April 2010 and November 2010, respectively.
What key strategies were used to manage these Funds during the six-month reporting period ended September 30, 2016?
Build America Bonds (BAB) delivered positive performance over the six-month reporting period. BAB yields, which track the yields of U.S. Treasury bonds, ended the reporting period lower, although with some volatility. The largest move occurred in the longer end of the yield curve, leading longer dated bonds to strongly outperform shorter maturities in this reporting period (as price and yield move in opposite directions).
NBB and NBD are designed to invest primarily in BABs and other taxable municipal bonds. The primary investment objective of these two Funds is to provide current income through investments in taxable municipal securities. Their secondary objective is to seek enhanced portfolio value and total return. The Funds offer strategic portfolio diversification opportunities for traditional municipal bond investors, while providing investment options to investors that have not traditionally purchased municipal bonds, including public and corporate retirement plans, endowments, life insurance companies and sovereign wealth funds. For these investors, the Funds can offer investment grade municipal credit, current income and strong call protection.
With the end of the BAB new issuance program in 2010, our focus continued to be on taking advantage of opportunities to add value and improve the liquidity profiles of both NBB and NBD by purchasing additional benchmark BAB issues in the secondary market. Benchmark BAB issues, which typically offer more liquidity than their non-benchmark counterparts, are defined as BABs over $250 million in size and therefore eligible for inclusion in the Bloomberg Barclays Aggregate-Eligible Build America Bond Index. Their greater liquidity makes them potentially easier to sell at Fund termination. In contrast, non-benchmark BABs generally are smaller issues that may offer the same credit quality as benchmark BABs, but sometimes require more detailed credit reviews before purchase and consequently may be less liquid.
Overall, our strategy during this reporting period was to continue to add value by pursuing active management. Trading activity was elevated, as has been the case for the past several years, and we found opportunities to buy in both the new issue and secondary markets. The two Funds added new issues for a non-rated tax increment district and a LaGuardia Airport terminal redevelopment project. Secondary market purchases for both Funds included a lower rated local general obligation (GO) bond, a tollroad bond and a
| |
| Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio manager as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein. |
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| For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor's (S&P), Moody's Investors Service, Inc. (Moody's) or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings, while BB, B, CCC, CC, C and D are below investment grade ratings. Certain bonds backed by U.S. Government or agency securities are regarded as having an implied rating equal to the rating of such securities. Holdings designated N/R are not rated by these national rating agencies. Ratings are not covered by the report of independent registered public accounting firm. |
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| Bond insurance guarantees only the payment of principal and interest on the bond when due, and not the value of the bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the insurer. Insurance relates specifically to the bonds in the portfolio and not to the share prices of a Fund. No representation is made as to the insurers' ability to meet their commitments. |
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| Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section. |
Portfolio Manager's Comments (continued)
short duration BB rated hospital credit. Additionally, NBB bought a short duration state appropriation bond and a dedicated tax bond. These purchases were a mix of benchmark and non-benchmark BABs. Cash for purchases came from the proceeds generated by the Funds' hedging strategy (described in the performance discussion) and from selling longer duration bonds.
Shareholders should note that, because there was no new issuance of BABs or similar U.S. Treasury-subsidized taxable municipal bonds for the 24-month period ended December 31, 2012, the Funds' contingent term provisions went into effect on January 1, 2013. During the reporting period ended September 30, 2016, NBB and NBD were managed in line with termination dates on or around June 30, 2020, and December 31, 2020, respectively, with the distribution of the Funds' assets to shareholders planned for those times. We continued our efforts to maximize the Funds' liquidity and better position NBB and NBD for termination. Even though the Funds are scheduled to terminate, we believe the opportunity still exists to add value for the shareholders of these Funds through active management and strong credit research.
How did these Funds perform over the six-month reporting period ended September 30, 2016?
The tables in each Fund's Performance Overview and Holding Summaries section of this report provide the Funds' total returns for the six-month, one-year, five-year and since-inception periods ended September 30, 2016. Each Fund's total returns on common share net asset value (NAV) are compared with the performance of a corresponding market index. For the six-month reporting period ended September 30, 2016, the total returns on common share NAV for NBB performed in line with the return for the Bloomberg Barclays Aggregate-Eligible Build America Bond Index and NBD outperformed the benchmark index.
Key management factors that influenced the returns of NBB and NBD during this reporting period included duration and yield curve positioning, credit rating and sector allocations, individual credit selection and the use of derivatives.
Duration and yield curve positioning was a detractor from NBB's performance relative to the Bloomberg Barclays Aggregate-Eligible Build America Bond Index, but very slightly added to NBD's relative performance. In this reporting period, longer duration BABs and taxable municipal bonds significantly outperformed those with shorter durations. NBB's performance was negatively impacted by its exposure to the two- to four-year duration bucket, and also its underweight allocation in the longest dated (14 years and up) category dampened relative performance. In contrast, NBD held a smaller underweight in the longest dated bonds than NBB, which reduced the drag on performance relative to the Index. At the same time, NBD also held a smaller weighting in two- to four-year duration paper, which resulted in a smaller gain compared to NBB.
Credit ratings allocations were a positive contributor to the two Funds' performance, most notably from exposure to AA rated and non-rated bonds. Sector allocations remained well diversified but underperformed during this reporting period. In terms of individual credit selection, holdings with longer durations were the best performers, while short duration, high quality credits were the weakest performers.
As part of their approach to investing, NBB and NBD use an integrated leverage and hedging strategy in their efforts to enhance current income and total return, while working to maintain a level of interest rate risk similar to that of the Bloomberg Barclays Aggregate-Eligible Build America Bond Index. As part of this integrated strategy, both NBB and NBD used inverse floating rate securities and bank borrowings as leverage to potentially magnify performance. At the same time, the Funds used interest rate swaps to reduce their leverage-adjusted durations to a level close to that of the Bloomberg Barclays Aggregate-Eligible Build America Bond Index. In addition, the Funds entered into staggered interest rate swaps to partially fix the interest cost of leverage. During this reporting period, the inverse floaters and interest rate swaps performed as expected. Due to the path of interest rates over this reporting period, the use of inverse floaters was positive for the Funds' performance but the use of swaps to shorten long-term interest rates hurt the Funds' total return performance for the reporting period. Leverage is discussed in more detail later in this report.
Given the continued news about economic problems in Puerto Rico, we should note that neither NBB nor NBD has any exposure to Puerto Rico BABs.
A Note About Investment Valuations
The municipal securities held by the Funds are valued by the Funds' pricing service using a range of market-based inputs and assumptions. A different municipal pricing service might incorporate different assumptions and inputs into its valuation methodology, potentially resulting in different values for the same securities. These differences could be significant, both as to such individual securities, and as to the value of a given Fund's portfolio in its entirety. Thus, the current net asset value of a Fund's shares may be impacted, higher or lower, if the Fund were to change pricing service, or if its pricing service were to materially change its valuation methodology. On October 4, 2016 (subsequent to the close of this reporting period), the Funds' current municipal bond pricing service was acquired by the parent company of another pricing service. Thus there is an increased risk that each Fund's pricing service may change, or that the Funds' current pricing service may change its valuation methodology, either of which could have an impact on the net asset value of each Fund's shares.
Fund Leverage
IMPACT OF THE FUNDS' LEVERAGE STRATEGY ON PERFORMANCE
One important factor impacting the returns of the Funds relative to their comparative benchmark was the Funds' use of leverage through bank borrowings and investments in inverse floating rate securities, which represent leveraged investments in underlying bonds. The Funds use leverage because our research has shown that, over time, leveraging provides opportunities for additional income, particularly in the recent market environment where short-term market rates are at or near historical lows, meaning that the short-term rates the Fund has been paying on its leveraging instruments have been much lower than the interest the Fund has been earning on its portfolio of long-term bonds that it has bought with the proceeds of that leverage. However, use of leverage also can expose the Fund to additional price volatility. When a Fund uses leverage, the Fund will experience a greater increase in its net asset value if the municipal bonds acquired through the use of leverage increase in value, but it will also experience a correspondingly larger decline in its net asset value if the bonds acquired through leverage decline in value, which will make the Fund's net asset value more volatile, and its total return performance more variable over time. In addition, income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. As mentioned previously, inverse floaters contributed positively to the performance of the Funds over this reporting period. NBB's borrowings also contributed positively to performance while NBD's borrowings detracted over this reporting period.
As of September 30, 2016, the Funds' percentages of leverage are as shown in the accompanying table.
| | NBB | NBD | |
| Effective Leverage* | 27.31% | 28.06% | |
| Regulatory Leverage* | 12.91% | 6.62% | |
| * | Effective leverage is a Fund's effective economic leverage, and includes both regulatory leverage and the leverage effects of certain derivative and other investments in a Fund's portfolio that increase the Fund's investment exposure. Currently, the leverage effects of Tender Option Bond (TOB) inverse floater holdings are included in effective leverage values, in addition to any regulatory leverage. Regulatory leverage consists of preferred shares issued or borrowings of a Fund. Both of these are part of a Fund's capital structure. Regulatory leverage is subject to asset coverage limits set forth in the Investment Company Act of 1940. |
THE FUNDS' REGULATORY LEVERAGE
Bank Borrowings
The Funds employ regulatory leverage through the use of bank borrowings. The Funds' bank borrowing activities are as shown in the accompanying table.
| | | | | | | | | | | | | | | Subsequent to the Close |
| | | Current Reporting Period | | of the Reporting Period |
| Fund | | April 1, 2016 | | | Draws | | | Paydowns | | September 30, 2016 | | | Draws | | | Paydowns | | November 28, 2016 | |
| NBB | | $ | 89,500,000 | | $ | 675,000 | | $ | — | | $ | 90,175,000 | | $ | — | | $ | — | | $ | 90,175,000 | |
| NBD | | $ | 11,800,000 | | $ | 200,000 | | $ | — | | $ | 12,000,000 | | $ | — | | $ | — | | $ | 12,000,000 | |
Refer to Notes to Financial Statements, Note 8 - Borrowing Arrangements for further details.
Common Share Information
COMMON SHARE DISTRIBUTION INFORMATION
The following information regarding the Funds' distributions is current as of September 30, 2016. Each Fund's distribution levels may vary over time based on each Fund's investment activity and portfolio investment value changes.
During the current reporting period, each Fund's distributions to common shareholders were as shown in the accompanying table.
| | | Per Common |
| | | Share Amounts |
| Monthly Distributions (Ex-Dividend Date) | | | NBB | | | NBD | |
| April 2016 | | $ | 0.1120 | | $ | 0.1085 | |
| May | | | 0.1120 | | | 0.1085 | |
| June | | | 0.1080 | | | 0.1035 | |
| July | | | 0.1080 | | | 0.1035 | |
| August | | | 0.1080 | | | 0.1035 | |
| September 2016 | | | 0.1080 | | | 0.1035 | |
| Total Distributions from Net Investment Income | | $ | 0.6560 | | $ | 0.6310 | |
| | | | | | | | |
| Yields | | | | | | | |
| Market Yield* | | | 5.71% | | | 5.44% | |
| * | Market Yield is based on the Fund's current annualized monthly distribution divided by the Fund's current market price as of the end of the reporting period. |
Each Fund in this report seeks to pay regular monthly dividends out of its net investment income at a rate that reflects its past and projected net income performance. To permit each Fund to maintain a more stable monthly dividend, the Fund may pay dividends at a rate that may be more or less than the amount of net income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it will hold the excess in reserve as undistributed net investment income (UNII) as part of the Fund's net asset value. Conversely, if a Fund has cumulatively paid in dividends more than it has earned, the excess will constitute a negative UNII that will likewise be reflected in the Fund's net asset value. Each Fund will, over time, pay all its net investment income as dividends to shareholders.
As of September 30, 2016, the Funds had positive UNII balances, based upon our best estimate, for tax purposes and negative UNII balances for financial reporting purposes.
All monthly dividends paid by each Fund during the current reporting period were paid from net investment income. If a portion of the Fund's monthly distributions was sourced from or comprised of elements other than net investment income, including capital gains and/or a return of capital, shareholders would have received a notice to that effect. For financial reporting purposes, the composition and per share amounts of each Fund's dividends for the reporting period are presented in this report's Statement of Changes in Net Assets and Financial Highlights, respectively. For income tax purposes, distribution information for each Fund as of its most recent tax year end is presented in Note 6 — Income Tax Information within the Notes to Financial Statements of this report.
Common Share Information (continued)
COMMON SHARE REPURCHASES
During August 2016, the Funds' Board of Trustees reauthorized an open-market share repurchase program, allowing each Fund to repurchase an aggregate of up to approximately 10% of its outstanding shares.
As of September 30, 2016, and since the inception of the Funds' repurchase programs, the Funds have cumulatively repurchased and retired their outstanding common shares as shown in the accompanying table.
| | NBB | NBD | |
| Common shares cumulatively repurchased and retired | 0 | 0 | |
| Common shares authorized for repurchase | 2,645,000 | 720,000 | |
OTHER COMMON SHARE INFORMATION
As of September 30, 2016, and during the current reporting period, the Funds' common share prices were trading at a premium/(discount) to their common share NAVs as shown in the accompanying table.
| | | | NBB | | | NBD | |
| Common share NAV | | $ | 22.98 | | $ | 23.49 | |
| Common share price | | $ | 22.68 | | $ | 22.81 | |
| Premium/(Discount) to NAV | | | (1.31 | )% | | (2.89 | )% |
| 6-month average premium/(discount) to NAV | | | (1.83 | )% | | (4.01 | )% |
Risk Considerations
Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation.
Nuveen Build America Bond Fund (NBB)
Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund's investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Debt or fixed income securities such as those held by the Fund, are subject to market risk, credit risk, interest rate risk, derivatives risk, liquidity risk, and income risk. As interest rates rise, bond prices fall. Lower credit debt securities may be more likely to fail to make timely interest or principal payments. The Fund's investments in Build America Bonds, which were discontinued in 2010, subject the Fund to tax risk, liquidity risk, and may negatively affect the Fund's performance. Leverage increases return volatility and magnifies the Fund's potential return and its risks; there is no guarantee a fund's leverage strategy will be successful. These and other risk considerations such as inverse floater risk, limited term risk, and tax risk are described in more detail on the Fund's web page at www.nuveen.com/NBB.
Nuveen Build America Bond Opportunity Fund (NBD)
Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund's investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Debt or fixed income securities such as those held by the Fund, are subject to market risk, credit risk, interest rate risk, derivatives risk, liquidity risk, and income risk. As interest rates rise, bond prices fall. Lower credit debt securities may be more likely to fail to make timely interest or principal payments. The Fund's investments in Build America Bonds, which were discontinued in 2010, subject the Fund to tax risk, liquidity risk, and may negatively affect the Fund's performance. Leverage increases return volatility and magnifies the Fund's potential return and its risks; there is no guarantee a fund's leverage strategy will be successful. These and other risk considerations such as inverse floater risk, limited term risk, and tax risk are described in more detail on the Fund's web page at www.nuveen.com/NBD.
| NBB | |
| | Nuveen Build America Bond Fund |
| | Performance Overview and Holding Summaries as of September 30, 2016 |
Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.
Average Annual Total Returns as of September 30, 2016
| | Cumulative | | Average Annual |
| | | | | | Since | |
| | 6-Month | | 1-Year | 5-Year | Inception | |
| NBB at Common Share NAV | 7.04% | | 14.39% | 7.78% | 9.60% | |
| NBB at Common Share Price | 8.15% | | 22.76% | 9.63% | 9.02% | |
| Bloomberg Barclays Aggregate – Eligible Build America Bond Index | 7.07% | | 14.63% | 7.86% | 9.84% | |
Since inception returns are from 4/27/10. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund's shares at NAV only. Indexes are not available for direct investment.
This data relates to the securities held in the Fund's portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor's Group, Moody's Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Certain bonds backed by U.S. Government or agency securities are regarded as having an implied rating equal to the rating of such securities. Holdings designated N/R are not rated by these national rating agencies.
| Fund Allocation | |
| (% of net assets) | |
| Long-Term Municipal Bonds | 119.1% |
| Corporate Bonds | 0.5% |
| Repurchase Agreements | 0.1% |
| Other Assets Less Liabilities | 2.9% |
| Net Assets Plus Borrowings & Floating Rate Obligations | 122.6% |
| Borrowings | (14.8)% |
| Floating Rate Obligations | (7.8)% |
| Net Assets | 100% |
| | |
| Portfolio Credit Quality | |
(% of total investment exposure)1 | |
| AAA/U.S. Guaranteed | 13.2% |
| AA | 50.8% |
| A | 22.8% |
| BBB | 6.8% |
| BB or Lower | 3.8% |
| N/R (not rated) | 2.5% |
| N/A (not applicable) | 0.1% |
| Total | 100% |
| | |
| Portfolio Composition | |
(% of total investments)1 | |
| Tax Obligation/Limited | 29.9% |
| Transportation | 21.4% |
| Tax Obligation/General | 15.9% |
| Utilities | 13.4% |
| Water and Sewer | 12.5% |
| Other | 6.8% |
| Repurchase Agreements | 0.1% |
| Total | 100% |
| | |
| States and Territories | |
| (% of total municipal bonds) | |
| California | 23.2% |
| New York | 15.2% |
| Texas | 8.4% |
| Illinois | 7.7% |
| Ohio | 5.8% |
| Georgia | 4.6% |
| Nevada | 4.6% |
| New Jersey | 4.0% |
| Virginia | 3.4% |
| Washington | 3.3% |
| Other | 19.8% |
| Total | 100% |
1 | Excluding investments in derivatives. |
| NBD | |
| | Nuveen Build America Bond Opportunity Fund |
| | Performance Overview and Holding Summaries as of September 30, 2016 |
Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.
Average Annual Total Returns as of September 30, 2016
| | Cumulative | | Average Annual |
| | | | | | Since | |
| | 6-Month | | 1-Year | 5-Year | Inception | |
| NBD at Common Share NAV | 7.28% | | 14.88% | 6.80% | 9.91% | |
| NBD at Common Share Price | 8.99% | | 24.66% | 8.16% | 9.02% | |
| Bloomberg Barclays Aggregate – Eligible Build America Bond Index | 7.07% | | 14.63% | 7.86% | 10.85% | |
Since inception returns are from 11/23/10. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund's shares at NAV only. Indexes are not available for direct investment.
This data relates to the securities held in the Fund's portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor's Group, Moody's Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Certain bonds backed by U.S. Government or agency securities are regarded as having an implied rating equal to the rating of such securities. Holdings designated N/R are not rated by these national rating agencies.
| Fund Allocation | |
| (% of net assets) | |
| Long-Term Municipal Bonds | 104.4% |
| Corporate Bonds | 0.8% |
| Other Assets Less Liabilities | 5.1% |
| Net Assets Plus Borrowings & Floating Rate Obligations | 110.3% |
| Borrowings | (7.1)% |
| Floating Rate Obligations | (3.2)% |
| Net Assets | 100% |
| | |
| Portfolio Credit Quality | |
(% of total investment exposure)1 | |
| AAA/U.S. Guaranteed | 8.8% |
| AA | 62.4% |
| A | 13.6% |
| BBB | 4.2% |
| BB or Lower | 7.6% |
| N/R (not rated) | 3.4% |
| Total | 100% |
| | |
| Portfolio Composition | |
(% of total investments)1 | |
| Tax Obligation/Limited | 38.0% |
| Transportation | 17.3% |
| Water and Sewer | 14.7% |
| Tax Obligation/General | 10.7% |
| Utilities | 9.6% |
| Other | 9.7% |
| Total | 100% |
| | |
| States and Territories | |
| (% of total municipal bonds) | |
| California | 21.6% |
| New York | 13.7% |
| Illinois | 10.6% |
| South Carolina | 5.9% |
| Colorado | 5.2% |
| Texas | 5.1% |
| Ohio | 4.9% |
| New Jersey | 4.8% |
| Massachusetts | 3.3% |
| Tennessee | 3.2% |
| Virginia | 2.9% |
| Other | 18.8% |
| Total | 100% |
1 | Excluding investments in derivatives. |
Shareholder Meeting Report
The annual meeting of shareholders was held in the offices of Nuveen Investments on August 3, 2016 for NBB and NBD; at this meeting the shareholders were asked to elect Board Members.
| | NBB | | NBD | |
| | Common | | Common | |
| | shares | | shares | |
| Approval of the Board Members was reached as follows: | | | | |
| William C. Hunter | | | | |
| For | 23,303,233 | | 5,889,823 | |
| Withhold | 234,936 | | 152,933 | |
| Total | 23,538,169 | | 6,042,756 | |
| Judith M. Stockdale | | | | |
| For | 23,318,509 | | 5,889,819 | |
| Withhold | 219,660 | | 152,937 | |
| Total | 23,538,169 | | 6,042,756 | |
| Carole E. Stone | | | | |
| For | 23,326,771 | | 5,913,547 | |
| Withhold | 211,398 | | 129,209 | |
| Total | 23,538,169 | | 6,042,756 | |
| Margaret L. Wolff | | | | |
| For | 23,353,971 | | 5,910,322 | |
| Withhold | 184,198 | | 132,434 | |
| Total | 23,538,169 | | 6,042,756 | |
| NBB | | |
| | Nuveen Build America Bond Fund | |
| | Portfolio of Investments | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | LONG-TERM INVESTMENTS – 119.6% (99.9% of Total Investments) | | | | | | | |
| | | | | | | | | | | |
| | | | MUNICIPAL BONDS – 119.1% (99.5% of Total Investments) | | | | | | | |
| | | | | | | | | | | |
| | | | Arizona – 0.9% (0.8% of Total Investments) | | | | | | | |
| $ | 5,000 | | Mesa, Arizona, Utility System Revenue Bonds, Series 2010, 6.100%, 7/01/34 | 7/20 at 100.00 | | Aa2 | | $ | 5,625,050 | |
| | | | California – 27.6% (23.1% of Total Investments) | | | | | | | |
| | 2,520 | | Alameda Corridor Transportation Authority, California, Revenue Bonds, Refunding Taxable Subordinate Lien Series 2004B, 0.000%, 10/01/31 – AMBAC Insured | No Opt. Call | | BBB+ | | | 1,351,753 | |
| | 1,995 | | Bay Area Toll Authority, California, Revenue Bonds, San Francisco Bay Area Toll Bridge, Build America Federally Taxable Bond Series 2009F-2, 6.263%, 4/01/49 | No Opt. Call | | AA | | | 3,043,831 | |
| | | | Bay Area Toll Authority, California, Revenue Bonds, San Francisco Bay Area Toll Bridge, Subordinate Lien, Build America Federally Taxable Bond Series 2010S-1: | | | | | | | |
| | 75 | | 6.793%, 4/01/30 | No Opt. Call | | AA– | | | 98,263 | |
| | 100 | | 6.918%, 4/01/40 | No Opt. Call | | AA– | | | 148,239 | |
| | 500 | | California Infrastructure and Economic Development Bank, Revenue Bonds, University of California San Francisco Neurosciences Building, Build America Taxable Bond Series 2010B, 6.486%, 5/15/49 | No Opt. Call | | AA– | | | 695,380 | |
| | 260 | | California Municipal Finance Authority Charter School Revenue Bonds, Albert Einstein Academies Project, Taxable Series 2013B, 7.000%, 8/01/18 | No Opt. Call | | B+ | | | 259,524 | |
| | 395 | | California School Finance Authority, Charter School Revenue Bonds, City Charter School Obligated Group, Taxable Series 2016B, 3.750%, 6/01/20 | No Opt. Call | | N/R | | | 395,561 | |
| | 3,030 | | California State Public Works Board, Lease Revenue Bonds, Various Capital Projects, Build America Taxable Bond Series 2009G-2, 8.361%, 10/01/34 | No Opt. Call | | A+ | | | 4,700,378 | |
| | 2,050 | | California State Public Works Board, Lease Revenue Bonds, Various Capital Projects, Build America Taxable Bond Series 2010A-2, 8.000%, 3/01/35 | 3/20 at 100.00 | | A+ | | | 2,364,798 | |
| | 7,000 | | California State University, Systemwide Revenue Bonds, Build America Taxable Bond Series 2010B, 6.484%, 11/01/41 | No Opt. Call | | Aa2 | | | 9,669,030 | |
| | 7,115 | | California State, General Obligation Bonds, Various Purpose Build America Taxable Bond Series 2010, 7.950%, 3/01/36 | 3/20 at 100.00 | | AA– | | | 8,555,859 | |
| | 6,610 | | California State, General Obligation Bonds, Various Purpose, Build America Taxable Bond Series 2010, 7.600%, 11/01/40 | No Opt. Call | | AA– | | | 10,784,612 | |
| | 5,000 | | California State, Various Purpose General Obligation Bonds, Build America Federally Taxable Bonds, Series 2009, 7.550%, 4/01/39 | No Opt. Call | | AA– | | | 8,006,900 | |
| | 7,500 | | California Statewide Communities Development Authority, California, Revenue Bonds, Loma Linda University Medical Center, Series 2014B, 6.000%, 12/01/24 | No Opt. Call | | BB+ | | | 8,383,125 | |
| | 7,500 | | Los Angeles Community College District, California, General Obligation Bonds, Build America Taxable Bonds, Series 2010, 6.600%, 8/01/42 | No Opt. Call | | AA+ | | | 11,592,000 | |
| | 10,000 | | Los Angeles Community College District, Los Angeles County, California, General Obligation Bonds, Series 2010, 6.600%, 8/01/42 (UB) (4) | No Opt. Call | | AA+ | | | 15,456,000 | |
| | 6,000 | | Los Angeles County Metropolitan Transportation Authority, California, Measure R Sales Tax Revenue Bonds, Build America Taxable Bond Series 2010A, 5.735%, 6/01/39 | No Opt. Call | | AAA | | | 7,972,740 | |
| | | | Los Angeles County Public Works Financing Authority, California, Lease Revenue Bonds, Multiple Capital Projects I, Build America Taxable Bond Series 2010B: | | | | | | | |
| | 2,050 | | 7.488%, 8/01/33 | No Opt. Call | | AA | | | 2,889,537 | |
| | 11,270 | | 7.618%, 8/01/40 | No Opt. Call | | AA | | | 17,455,201 | |
| | 9,485 | | Los Angeles Department of Airports, California, Revenue Bonds, Los Angeles International Airport, Build America Taxable Bonds, Series 2009C, 6.582%, 5/15/39 | No Opt. Call | | AA– | | | 13,100,872 | |
| | | | Los Angeles Department of Water and Power, California, Power System Revenue Bonds, Federally Taxable – Direct Payment – Build America Bonds, Series 2010A: | | | | | | | |
| | 80 | | 5.716%, 7/01/39 | No Opt. Call | | Aa2 | | | 106,790 | |
| | 2,840 | | 6.166%, 7/01/40 | 7/20 at 100.00 | | Aa2 | | | 3,272,986 | |
| NBB | Nuveen Build America Bond Fund | |
| | Portfolio of Investments (continued) | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | California (continued) | | | | | | | |
| $ | 1,685 | | Los Angeles Department of Water and Power, California, Power System Revenue Bonds, Federally Taxable – Direct Payment – Build America Bonds, Series 2010D, 6.574%, 7/01/45 | No Opt. Call | | Aa2 | | $ | 2,581,993 | |
| | 2,000 | | Los Angeles Department of Water and Power, California, Water System Revenue Bonds, Tender Option Bond Trust T0003, 26.662%, 7/01/50 (IF) (4) | No Opt. Call | | AA+ | | | 7,679,400 | |
| | 500 | | Metropolitan Water District of Southern California, Water Revenue Bonds, Build America Taxable Bond Series 2009D, 6.538%, 7/01/39 | 7/19 at 100.00 | | AAA | | | 566,940 | |
| | 1,000 | | Metropolitan Water District of Southern California, Water Revenue Bonds, Build America Taxable Series 2010A, 6.947%, 7/01/40 | 7/20 at 100.00 | | AAA | | | 1,185,130 | |
| | 2,330 | | Oakland Redevelopment Agency, California, Subordinated Housing Set Aside Revenue Bonds, Federally Taxable Series 2011A-T, 7.500%, 9/01/19 | No Opt. Call | | A+ | | | 2,520,780 | |
| | 4,250 | | Sacramento Public Financing Authority, California, Lease Revenue Bonds, Golden 1 Center, Series 2015, 5.637%, 4/01/50 | No Opt. Call | | A+ | | | 5,154,273 | |
| | 1,365 | | San Francisco City and County Public Utilities Commission, California, Water Revenue Bonds, Build America Taxable Bonds, Series 2010B, 6.000%, 11/01/40 | No Opt. Call | | AA– | | | 1,804,093 | |
| | 4,000 | | San Francisco City and County, California, Certificates of Participation, 525 Golden Gate Avenue, San Francisco Public Utilities Commission Office Project, Tender Option Bond 2016-XFT901, 25.996%, 11/01/41 (IF) (4) | No Opt. Call | | AA | | | 10,493,800 | |
| | | | Stanton Redevelopment Agency, California, Consolidated Project Tax Allocation Bonds, Series 2011A: | | | | | | | |
| | 275 | | 6.500%, 12/01/17 | No Opt. Call | | A | | | 285,684 | |
| | 295 | | 6.750%, 12/01/18 | No Opt. Call | | A | | | 316,237 | |
| | 1,500 | | University of California, General Revenue Bonds, Build America Taxable Bonds, Series 2009R, 6.270%, 5/15/31 | 5/19 at 100.00 | | AA | | | 1,680,720 | |
| | 2,505 | | University of California, General Revenue Bonds, Limited Project, Build America Taxable Bond Series 2010F, 5.946%, 5/15/45 | No Opt. Call | | AA– | | | 3,382,827 | |
| | 115,080 | | Total California | | | | | | 167,955,256 | |
| | | | Colorado – 0.7% (0.6% of Total Investments) | | | | | | | |
| | 3,100 | | Denver School District 1, Colorado, General Obligation Bonds, Build America Taxable Bonds, Series 2009C, 5.664%, 12/01/33 | No Opt. Call | | AA+ | | | 4,147,397 | |
| | | | Connecticut – 1.2% (1.0% of Total Investments) | | | | | | | |
| | 6,300 | | Harbor Point Infrastructure Improvement District, Connecticut, Special Obligation Revenue Bonds, Harbor Point Project, Federally Taxable – Issuer Subsidy – Recovery Zone Economic Development Bond Series 2010B, 12.500%, 4/01/39 | 4/20 at 100.00 | | N/R | | | 7,291,494 | |
| | | | District of Columbia – 0.2% (0.2% of Total Investments) | | | | | | | |
| | 1,000 | | District of Columbia Water and Sewer Authority, Public Utility Revenue Bonds, Subordinate Lien, Build America Taxable Bond Series 2010A, 5.522%, 10/01/44 | No Opt. Call | | AA+ | | | 1,342,200 | |
| | | | Florida – 0.9% (0.7% of Total Investments) | | | | | | | |
| | 5,000 | | Florida State Board of Education, Public Education Capital Outlay Bonds, Build America Taxable Bonds, Series 2010G, 5.750%, 6/01/35 | 6/19 at 100.00 | | AAA | | | 5,494,500 | |
| | | | Georgia – 5.5% (4.6% of Total Investments) | | | | | | | |
| | 2,500 | | Cobb-Marietta Coliseum and Exhibit Hall Authority, Georgia, Revenue Bonds, Cobb County Coliseum Project, Taxable Series 2015, 4.500%, 1/01/47 | 1/26 at 100.00 | | AAA | | | 2,709,400 | |
| | 9,000 | | Georgia Municipal Electric Authority, Plant Vogtle Units 3 & 4 Project J Bonds, Taxable Build America Bonds Series 2010A, 6.637%, 4/01/57 | No Opt. Call | | A+ | | | 12,253,770 | |
| | 15,000 | | Georgia Municipal Electric Authority, Plant Vogtle Units 3 & 4 Project P Bonds, Refunding Taxable Build America Bonds Series 2010A, 7.055%, 4/01/57 | No Opt. Call | | A– | | | 18,645,900 | |
| | 26,500 | | Total Georgia | | | | | | 33,609,070 | |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Illinois – 9.2% (7.7% of Total Investments) | | | | | | | |
| $ | 6,940 | | Chicago Board of Education, Illinois, General Obligation Bonds, Build America Taxable Series 2009E, 6.138%, 12/01/39 | No Opt. Call | | B+ | | $ | 5,855,209 | |
| | 6,265 | | Chicago Transit Authority, Illinois, Sales Tax Receipts Revenue Bonds, Federally Taxable Build America Bonds, Series 2010B, 6.200%, 12/01/40 | No Opt. Call | | AA | | | 7,868,527 | |
| | | | Chicago, Illinois, General Airport Revenue Bonds, O'Hare International Airport, Third Lien, Build America Taxable Bond Series 2010B: | | | | | | | |
| | 10,925 | | 6.845%, 1/01/38 | 1/20 at 100.00 | | A | | | 12,332,796 | |
| | 355 | | 6.395%, 1/01/40 | No Opt. Call | | A | | | 515,254 | |
| | 135 | | Chicago, Illinois, Wastewater Transmission Revenue Bonds, Build America Taxable Bond Series 2010B, 6.900%, 1/01/40 | No Opt. Call | | AA | | | 179,555 | |
| | 14,000 | | Illinois State, General Obligation Bonds, Taxable Build America Bonds, Series 2010-3, 6.725%, 4/01/35 | No Opt. Call | | BBB+ | | | 15,187,060 | |
| | 8,090 | | Illinois Toll Highway Authority, Toll Highway Revenue Bonds, Build America Taxable Bonds, Senior Lien Series 2009A, 6.184%, 1/01/34 | No Opt. Call | | AA– | | | 10,849,014 | |
| | 1,595 | | Illinois Toll Highway Authority, Toll Highway Revenue Bonds, Build America Taxable Bonds, Senior Lien Series 2009B, 5.851%, 12/01/34 | No Opt. Call | | AA– | | | 2,137,156 | |
| | 685 | | Northern Illinois Municipal Power Agency, Power Project Revenue Bonds, Prairie State Project, Build America Taxable Bond Series 2010A, 7.820%, 1/01/40 | No Opt. Call | | A2 | | | 960,623 | |
| | 48,990 | | Total Illinois | | | | | | 55,885,194 | |
| | | | Indiana – 2.6% (2.2% of Total Investments) | | | | | | | |
| | 5,000 | | Indiana University, Consolidated Revenue Bonds, Build America Taxable Bonds, Series 2010B, 5.636%, 6/01/35 | 6/20 at 100.00 | | AAA | | | 5,529,150 | |
| | 5,000 | | Indianapolis Local Public Improvement Bond Bank, Indiana, Build America Bonds, Series 2010A-2, 6.004%, 1/15/40 | No Opt. Call | | Aa1 | | | 6,835,800 | |
| | 2,390 | | Indianapolis Local Public Improvement Bond Bank, Indiana, Build America Taxable Bonds, Series 2010B-2, 6.116%, 1/15/40 | No Opt. Call | | AA | | | 3,341,817 | |
| | 12,390 | | Total Indiana | | | | | | 15,706,767 | |
| | | | Kentucky – 1.8% (1.5% of Total Investments) | | | | | | | |
| | 5,000 | | Kentucky Municipal Power Agency, Power System Revenue Bonds, Prairie State Project, Tender Option Bond Trust 2016-XFT902, 26.620%, 9/01/37 – AGC Insured (IF) (4) | 9/20 at 100.00 | | AA | | | 7,918,500 | |
| | 1,950 | | Louisville and Jefferson County Metropolitan Sewer District, Kentucky, Sewer and Drainage System Revenue Bonds, Build America Taxable Bonds Series 2010A, 6.250%, 5/15/43 | No Opt. Call | | AA | | | 2,787,720 | |
| | 6,950 | | Total Kentucky | | | | | | 10,706,220 | |
| | | | Louisiana – 3.8% (3.1% of Total Investments) | | | | | | | |
| | 20,350 | | East Baton Rouge Sewerage Commission, Louisiana, Revenue Bonds, Series 2010B, 6.087%, 2/01/45 (UB) (4) | 2/20 at 100.00 | | AA | | | 22,891,919 | |
| | | | Massachusetts – 0.9% (0.8% of Total Investments) | | | | | | | |
| | 2,000 | | Massachusetts, Transportation Fund Revenue Bonds, Accelerated Bridge Program, Tender Option Bond Trust T0004, 22.490%, 6/01/40 (IF) (4) | No Opt. Call | | AAA | | | 5,808,700 | |
| | | | Michigan – 0.5% (0.4% of Total Investments) | | | | | | | |
| | 3,280 | | Michigan Tobacco Settlement Finance Authority, Tobacco Settlement Asset-Backed Revenue Bonds, Taxable Turbo Series 2006A, 7.309%, 6/01/34 | No Opt. Call | | B– | | | 3,259,598 | |
| | | | Missouri – 0.3% (0.2% of Total Investments) | | | | | | | |
| | 1,290 | | Curators of the University of Missouri, System Facilities Revenue Bonds, Build America Taxable Bonds, Series 2009A, 5.960%, 11/01/39 | No Opt. Call | | AA+ | | | 1,779,452 | |
| | | | Nevada – 5.4% (4.5% of Total Investments) | | | | | | | |
| | 13,890 | | Clark County, Nevada, Airport Revenue Bonds, Senior Lien Series 2009B, 6.881%, 7/01/42 | 7/19 at 100.00 | | AA– | | | 15,756,538 | |
| | 10,150 | | Clark County, Nevada, Airport Revenue Bonds, Taxable Direct Payment Build America Bond Series 2010C, 6.820%, 7/01/45 | No Opt. Call | | AA– | | | 15,831,463 | |
| NBB | Nuveen Build America Bond Fund | |
| | Portfolio of Investments (continued) | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Nevada (continued) | | | | | | | |
| $ | 1,315 | | Las Vegas, Nevada, Certificates of Participation, City Hall Project, Build America Federally Taxable Bonds, Series 2009B, 7.800%, 9/01/39 (Pre-refunded 9/01/19) | 9/19 at 100.00 | | AA– (5) | | $ | 1,549,688 | |
| | 25,355 | | Total Nevada | | | | | | 33,137,689 | |
| | | | New Jersey – 4.7% (4.0% of Total Investments) | | | | | | | |
| | 130 | | New Jersey Transportation Trust Fund Authority, Transportation System Bonds, Build America Bonds Issuer Subsidy Program, Series 2010C, 6.104%, 12/15/28 | 12/20 at 100.00 | | A– | | | 143,455 | |
| | 4,190 | | New Jersey Turnpike Authority, Revenue Bonds, Build America Taxable Bonds, Series 2009F, 7.414%, 1/01/40 | No Opt. Call | | A+ | | | 6,589,948 | |
| | 14,510 | | New Jersey Turnpike Authority, Revenue Bonds, Build America Taxable Bonds, Series 2010A, 7.102%, 1/01/41 | No Opt. Call | | A+ | | | 22,175,343 | |
| | 18,830 | | Total New Jersey | | | | | | 28,908,746 | |
| | | | New York – 18.1% (15.1% of Total Investments) | | | | | | | |
| | 25,000 | | Dormitory Authority of the State of New York, State Personal Income Tax Revenue Bonds, Series 2010D, 5.600%, 3/15/40 (UB) (4) | No Opt. Call | | AAA | | | 33,900,000 | |
| | 5,100 | | Long Island Power Authority, New York, Electric System Revenue Bonds, Build America Taxable Bond Series 2010B, 5.850%, 5/01/41 | No Opt. Call | | A– | | | 6,628,623 | |
| | 7,965 | | Metropolitan Transportation Authority, New York, Dedicated Tax Fund Bonds, Build America Taxable Bonds, Series 2010C, 7.336%, 11/15/39 | No Opt. Call | | AA | | | 12,704,255 | |
| | 14,000 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Build America Taxable Bonds, Fiscal 2011 Series 2010CC, 6.282%, 6/15/42 | 12/20 at 100.00 | | AA+ | | | 16,424,380 | |
| | 2,120 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Build America Taxable Bonds, Fiscal 2011 Series AA, 5.790%, 6/15/41 | 6/20 at 100.00 | | AA+ | | | 2,400,200 | |
| | 2,595 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Build America Taxable Bonds, Series 2010DD, 5.952%, 6/15/42 | No Opt. Call | | AA+ | | | 3,757,690 | |
| | 2,025 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Series 2010DD, 5.952%, 6/15/42 (UB) | No Opt. Call | | AA+ | | | 2,932,301 | |
| | 1,595 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Taxable Tender Option Bonds Trust T30001-2, 24.008%, 6/15/44 (IF) | No Opt. Call | | AA+ | | | 5,201,295 | |
| | 6,690 | | New York City Transitional Finance Authority, New York, Building Aid Revenue Bonds, Build America Taxable Bond Fiscal 2011 Series 2010S-1B, 6.828%, 7/15/40 | No Opt. Call | | AA | | | 9,630,991 | |
| | 10,000 | | New York City Transitional Finance Authority, New York, Future Tax Secured Bonds, Build America Taxable Bonds, Series 2010G-1, 5.467%, 5/01/40 (4) | No Opt. Call | | AAA | | | 13,289,400 | |
| | 3,000 | | New York Transportation Development Corporation, Special Facilities Bonds, LaGuardia Airport Terminal B Redevelopment Project, Taxable Series 2016B, 3.673%, 7/01/30 | No Opt. Call | | BBB | | | 3,073,830 | |
| | 80,090 | | Total New York | | | | | | 109,942,965 | |
| | | | North Carolina – 1.8% (1.5% of Total Investments) | | | | | | | |
| | 10,100 | | North Carolina Turnpike Authority, Triangle Expressway System State Annual Appropriation Revenue Bonds, Federally Taxable Issuer Subsidy Build America Bonds, Series 2009B, 6.700%, 1/01/39 | 1/19 at 100.00 | | AA | | | 11,202,112 | |
| | | | Ohio – 6.9% (5.7% of Total Investments) | | | | | | | |
| | 10,700 | | American Municipal Power Inc., Ohio, Combined Hydroelectric Projects Revenue Bonds, Build America Bond Series 2010B, 7.834%, 2/15/41 | No Opt. Call | | A | | | 16,429,743 | |
| | 25 | | JobsOhio Beverage System, Ohio, Statewide Liquor Profits Revenue Bonds, Senior Lien Taxable Series 2013B, 4.532%, 1/01/35 | No Opt. Call | | AA | | | 29,269 | |
| | 15,500 | | Northeast Ohio Regional Sewer District, Wastewater Improvement Revenue Bonds, Build America Taxable Bonds, Series 2010, 6.038%, 11/15/40 | 11/20 at 100.00 | | AA+ | | | 17,754,475 | |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Ohio (continued) | | | | | | | |
| $ | 7,500 | | Port of Greater Cincinnati Development Authority, Ohio, Special Obligation TIF Revenue Bonds, Cooperative Township Public Parking, Kenwood Collection Redevelopment, Senior Lien Series 2016A, 6.600%, 1/01/39 | 1/26 at 100.00 | | N/R | | $ | 7,541,400 | |
| | 33,725 | | Total Ohio | | | | | | 41,754,887 | |
| | | | Oregon – 2.6% (2.2% of Total Investments) | | | | | | | |
| | 4,000 | | Oregon Department of Administrative Services, Certificates of Participation, Federally Taxable Build America Bonds, Tender Option Bond Trust 2016-TXG001, 24.405%, 5/01/35 (IF) (4) | 5/20 at 100.00 | | AA | | | 6,718,400 | |
| | 8,420 | | Warm Springs Reservation Confederated Tribes, Oregon, Tribal Economic Development Bonds, Hydroelectric Revenue Bonds, Pelton Round Butte Project, Refunding Series 2009A, 8.250%, 11/01/19 | No Opt. Call | | A3 | | | 9,269,118 | |
| | 12,420 | | Total Oregon | | | | | | 15,987,518 | |
| | | | Pennsylvania – 1.4% (1.1% of Total Investments) | | | | | | | |
| | | | Commonwealth Financing Authority, Pennsylvania, State Appropriation Lease Bonds, Build America Taxable Bonds, Series 2009D: | | | | | | | |
| | 1,225 | | 5.653%, 6/01/24 | No Opt. Call | | A+ | | | 1,422,935 | |
| | 1,915 | | 6.218%, 6/01/39 | No Opt. Call | | A+ | | | 2,428,929 | |
| | 2,000 | | Pennsylvania State, General Obligation Bonds, Build America Taxable Bonds, Third Series 2010B, 5.850%, 7/15/30 | 7/20 at 100.00 | | Aa3 | | | 2,299,320 | |
| | 1,535 | | Pennsylvania Turnpike Commission, Turnpike Revenue Bonds, Build America Taxable Bonds, Series 2009A, 6.105%, 12/01/39 | No Opt. Call | | A1 | | | 2,135,630 | |
| | 6,675 | | Total Pennsylvania | | | | | | 8,286,814 | |
| | | | South Carolina – 0.6% (0.5% of Total Investments) | | | | | | | |
| | 55 | | South Carolina Public Service Authority, Electric System Revenue Bonds, Santee Cooper, Federally Taxable Build America Tender Option Bond Trust T30002, 26.411%, 1/01/50 (IF) | No Opt. Call | | AA– | | | 183,068 | |
| | 2,245 | | South Carolina Public Service Authority, Electric System Revenue Bonds, Santee Cooper, Series 2010C, 6.454%, 1/01/50 (UB) | No Opt. Call | | AA– | | | 3,290,497 | |
| | 2,300 | | Total South Carolina | | | | | | 3,473,565 | |
| | | | Tennessee – 1.9% (1.6% of Total Investments) | | | | | | | |
| | 5,000 | | Metropolitan Government Nashville & Davidson County Convention Center Authority, Tennessee, Tourism Tax Revenue Bonds, Build America Taxable Bonds, Series 2010A-2, 7.431%, 7/01/43 | No Opt. Call | | A1 | | | 7,061,600 | |
| | 3,090 | | Metropolitan Government Nashville & Davidson County Convention Center Authority, Tennessee, Tourism Tax Revenue Bonds, Build America Taxable Bonds, Subordinate Lien Series 2010B, 6.731%, 7/01/43 | No Opt. Call | | Aa3 | | | 4,309,129 | |
| | 8,090 | | Total Tennessee | | | | | | 11,370,729 | |
| | | | Texas – 10.0% (8.4% of Total Investments) | | | | | | | |
| | 9,280 | | Dallas Convention Center Hotel Development Corporation, Texas, Hotel Revenue Bonds, Build America Taxable Bonds, Series 09B, 7.088%, 1/01/42 | No Opt. Call | | A1 | | | 13,305,386 | |
| | 2,200 | | Dallas Independent School District, Dallas County, Texas, General Obligation Bonds, School Building, Build America Taxable Bond Series 2010C, 6.450%, 2/15/35 | 2/21 at 100.00 | | AAA | | | 2,631,552 | |
| | 10,785 | | North Texas Tollway Authority, System Revenue Bonds, Taxable Build America Bond Series 2009B, 6.718%, 1/01/49 | No Opt. Call | | A1 | | | 16,866,554 | |
| | 9,220 | | North Texas Tollway Authority, System Revenue Bonds, Taxable Build America Bonds, Series 2010-B2, 8.910%, 2/01/30 | 2/20 at 100.00 | | Baa2 | | | 11,009,418 | |
| | 1,000 | | San Antonio, Texas, Electric and Gas System Revenue Bonds, Junior Lien, Build America Taxable Bond Series 2010A, 5.808%, 2/01/41 | No Opt. Call | | AA+ | | | 1,393,000 | |
| | 10 | | San Antonio, Texas, Electric and Gas System Revenue Bonds, Series 2012, 4.427%, 2/01/42 | No Opt. Call | | Aa1 | | | 11,859 | |
| | 5,000 | | San Antonio, Texas, General Obligation Bonds, Build America Taxable Bonds, Series 2010B, 6.038%, 8/01/40 | 8/20 at 100.00 | | AAA | | | 5,798,050 | |
| | 7,015 | | Texas State, General Obligation Bonds, Transportation Commission, Build America Taxable Bonds, Series 2009A, 5.517%, 4/01/39 | No Opt. Call | | AAA | | | 9,812,442 | |
| | 44,510 | | Total Texas | | | | | | 60,828,261 | |
| NBB | Nuveen Build America Bond Fund | |
| | Portfolio of Investments (continued) | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Utah – 0.9% (0.8% of Total Investments) | | | | | | | |
| $ | 4,000 | | Central Utah Water Conservancy District, Utah, Revenue Bonds, Federally Taxable Build America Bonds, Series 2010A, 5.700%, 10/01/40 | 4/20 at 100.00 | | AA+ | | $ | 4,420,800 | |
| | 1,000 | | Tooele County Municipal Building Authority, Utah, Lease Revenue Bonds, Build America Bond Series 2010A-2, 8.000%, 12/15/32 | 12/20 at 100.00 | | A+ | | | 1,117,900 | |
| | 5,000 | | Total Utah | | | | | | 5,538,700 | |
| | | | Virginia – 4.1% (3.4% of Total Investments) | | | | | | | |
| | 11,930 | | Metropolitan Washington Airports Authority, Virginia, Dulles Toll Road Second Senior Lien Revenue Bonds, Build America Bonds, Series 2009D, 7.462%, 10/01/46 – AGC Insured | No Opt. Call | | BBB+ | | | 18,518,700 | |
| | 7,125 | | Tobacco Settlement Financing Corporation of Virginia, Tobacco Settlement Asset Backed Bonds, Refunding Senior Lien Series 2007A, 6.706%, 6/01/46 | 12/16 at 100.00 | | B– | | | 6,145,883 | |
| | 19,055 | | Total Virginia | | | | | | 24,664,583 | |
| | | | Washington – 4.0% (3.3% of Total Investments) | | | | | | | |
| | 4,000 | | Seattle, Washington, Municipal Light and Power Revenue Bonds, Federally Taxable Build America Bonds, Tender Option Bond Trust T0001, 21.344%, 2/01/40 (IF) (4) | No Opt. Call | | AA | | | 9,157,000 | |
| | 11,090 | | Washington State Convention Center Public Facilities District, Lodging Tax Revenue Bonds, Build America Taxable Bond Series 2010B, 6.790%, 7/01/40 | No Opt. Call | | Aa3 | | | 14,967,175 | |
| | 15,090 | | Total Washington | | | | | | 24,124,175 | |
| | | | West Virginia – 0.6% (0.5% of Total Investments) | | | | | | | |
| | 3,810 | | Tobacco Settlement Finance Authority, West Virginia, Tobacco Settlement Asset-Backed Bonds, Taxable Turbo Series 2007A, 7.467%, 6/01/47 | No Opt. Call | | B2 | | | 3,689,833 | |
| $ | 542,280 | | Total Municipal Bonds (cost $593,880,530) | | | | | | 724,413,394 | |
| | Principal | | | | | | | | | | |
| | Amount (000) | | Description (1) | Coupon | Maturity | | Ratings (3) | | | Value | |
| | | | CORPORATE BONDS – 0.5% (0.4% of Total Investments) | | | | | | | | |
| | | | | | | | | | | | |
| | | | Diversified Consumer Services –– 0.5% (0.4% of Total Investments) | | | | | | | | |
| $ | 3,015 | | BCOM Investment Partners LLC, Taxable Notes, Burrell College of Osteopathic Medicine, Series 2015, 144A | 7.500% | 9/01/45 | | N/R | | $ | 3,017,080 | |
| $ | 3,015 | | Total Corporate Bonds (cost $3,015,000) | | | | | | | 3,017,080 | |
| | | | Total Long-Term Investments (cost $596,895,530) | | | | | | | 727,430,474 | |
| | | | | | | | | | | | |
| | Principal | | | | | | | | | | |
| | Amount (000) | | Description (1) | Coupon | Maturity | | | | | Value | |
| | | | SHORT-TERM INVESTMENTS – 0.1% (0.1% of Total Investments) | | | | | | | | |
| | | | | | | | | | | | |
| | | | REPURCHASE AGREEMENTS – 0.1% (0.1% of Total Investments) | | | | | | | | |
| $ | 586 | | Repurchase Agreement with Fixed Income Clearing Corporation, dated 9/30/16, repurchase price $586,449, collateralized by: $500,000 U.S. Treasury Bonds, 3.000%, due 11/15/45, value $583,750; $15,000 U.S. Treasury Notes, 0.125%, due 4/15/17, value $15,938 | 0.030% | 10/03/16 | | | | $ | 586,448 | |
| | | | Total Short-Term Investments (cost $586,448) | | | | | | | 586,448 | |
| | | | Total Investments (cost $597,481,978) – 119.7% | | | | | | | 728,016,922 | |
| | | | Borrowings – (14.8)% (6), (7) | | | | | | | (90,175,000 | ) |
| | | | Floating Rate Obligations – (7.8)% | | | | | | | (47,700,000 | ) |
| | | | Other Assets Less Liabilities – 2.9% (8) | | | | | | | 18,054,737 | |
| | | | Net Assets Applicable to Common Shares – 100% | | | | | | $ | 608,196,659 | |
Investment in Derivatives as of September 30, 2016
Interest Rate Swaps
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Variation | | | | |
| | | | | Fund | | | | | | Fixed Rate | | | | Optional | | | | | | Margin | | Unrealized | |
| | | Notional | | Pay/Receive | | Floating Rate | | Fixed Rate | | Payment | | Effective | | Termination | | Termination | | | | Receivable/ | | Appreciation | |
| Counterparty | | Amount | | Floating Rate | | Index | | (Annualized | ) | Frequency | | Date (9) | | Date | | Date | | Value | | (Payable | ) | (Depreciation | ) |
| Barclays Bank PLC* | | $ | 45,300,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 2.329 | % | | Semi-Annually | | | 1/25/17 | | | N/A | | | 1/25/37 | | $ | (4,754,238 | ) | $ | 580,080 | | $ | (4,754,238 | ) |
| Barclays Bank PLC* | | | 19,100,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 1.731 | | | Semi-Annually | | | 8/11/17 | | | N/A | | | 8/11/46 | | | 367,716 | | | 328,315 | | | 367,716 | |
| Morgan Stanley & Co. LLC | | | 121,000,000 | | | Receive | | | 1-Month USD LIBOR-ICE | | | 1.500 | | | Monthly | | | 1/03/17 | | | 12/01/17 | | | 12/01/19 | | | (2,250,913 | ) | | — | | | (3,353,966 | ) |
| Morgan Stanley & Co. LLC* | | | 15,500,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 1.775 | | | Semi-Annually | | | 8/25/17 | | | 7/6/26 | | | 8/25/46 | | | 140,631 | | | 268,094 | | | 140,631 | |
| | | $ | 200,900,000 | | | | | | | | | | | | | | | | | | | | | | | $ | (6,496,804 | ) | $ | 1,176,489 | | $ | (7,599,857 | ) |
| * | Citigroup Global Markets Inc. is the clearing broker for this transaction. |
| (1) | All percentages shown in the Portfolio of Investments are based on net assets applicable to common shares unless otherwise noted. |
| (2) | Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. |
| (3) | For financial reporting purposes, the ratings disclosed are the highest of Standard & Poor's Group ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") rating. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Ratings below BBB by Standard & Poor's, Baa by Moody's or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies. |
| (4) | Investment, or portion of investment, has been pledged to collateralize the net payment obligations for investments in derivatives and/or inverse floating rate transactions. |
| (5) | Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities, which ensure the timely payment of principal and interest. Certain bonds backed by U.S. Government or agency securities are regarded as having an implied rating equal to the rating of such securities. |
| (6) | Borrowings as a percentage of Total Investments is 12.4%. |
| (7) | The Fund may pledge up to 100% of its eligible investments (excluding any investments separately pledged as collateral for specific investments in derivatives, when applicable) as collateral for borrowings. |
| (8) | Other assets less liabilities includes the unrealized appreciation (depreciation) of certain over-the-counter ("OTC") derivatives as presented on the Statement of Assets and Liabilities, when applicable. The unrealized appreciation (depreciation) of OTC-cleared and exchange-traded derivatives is recognized as part of the cash collateral at brokers and/or the receivable or payable for variation margin as presented on the Statement of Assets and Liabilities, when applicable. |
| (9) | Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each contract. |
| (IF) | Inverse floating rate investment. |
| (UB) | Underlying bond of an inverse floating rate trust reflected as a financing transaction. See Notes to Financial Statements, Note 3 – Portfolio Securities and Investments in Derivatives, Inverse Floating Rate Securities for more information. |
| 144A | Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration, which are normally those transactions with qualified institutional buyers. |
| N/A | Not applicable |
| USD LIBOR-ICE | United States Dollar-London Inter-Bank Offered Rate-Intercontinental Exchange |
See accompanying notes to financial statements.
| NBD | | |
| | Nuveen Build America Bond Opportunity Fund | |
| | Portfolio of Investments | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | LONG-TERM INVESTMENTS – 105.2% (100.0% of Total Investments) | | | | | | | |
| | | | | | | | | | | |
| | | | MUNICIPAL BONDS – 104.4% (99.3% of Total Investments) | | | | | | | |
| | | | | | | | | | | |
| | | | California – 22.5% (21.4% of Total Investments) | | | | | | | |
| $ | 1,500 | | California State Public Works Board, Lease Revenue Bonds, Various Capital Projects, Build America Taxable Bond Series 2009G-2, 8.361%, 10/01/34 | No Opt. Call | | A+ | | $ | 2,326,920 | |
| | 2,500 | | California Statewide Communities Development Authority, California, Revenue Bonds, Loma Linda University Medical Center, Series 2014B, 6.000%, 12/01/24 | No Opt. Call | | BB+ | | | 2,794,375 | |
| | 2,000 | | Los Angeles Community College District, Los Angeles County, California, General Obligation Bonds, Tender Option Bond Trust 2016-XTG002, 27.619%, 8/01/49 (IF) (4) | No Opt. Call | | AA+ | | | 7,956,500 | |
| | 1,150 | | Los Angeles Department of Airports, California, Revenue Bonds, Los Angeles International Airport, Build America Taxable Bonds, Series 2009C, 6.582%, 5/15/39 | No Opt. Call | | AA– | | | 1,588,403 | |
| | 2,000 | | Los Angeles Department of Water and Power, California, Water System Revenue Bonds, Tender Option Bond Trust T0003, 26.662%, 7/01/50 (IF) (4) | No Opt. Call | | AA+ | | | 7,679,400 | |
| | 775 | | Oakland Redevelopment Agency, California, Subordinated Housing Set Aside Revenue Bonds, Federally Taxable Series 2011A-T, 7.500%, 9/01/19 | No Opt. Call | | A+ | | | 838,457 | |
| | 2,200 | | San Diego County Regional Transportation Commission, California, Sales Tax Revenue Bonds, Build America Taxable Bonds Series 2010A, 5.911%, 4/01/48 | No Opt. Call | | AAA | | | 3,145,494 | |
| | 1,500 | | San Francisco City and County Public Utilities Commission, California, Water Revenue Bonds, Build America Taxable Bonds, Series 2010G, 6.950%, 11/01/50 | No Opt. Call | | AA– | | | 2,329,740 | |
| | 675 | | San Francisco City and County Redevelopment Financing Authority, California, Tax Allocation Revenue Bonds, San Francisco Redevelopment Projects, Taxable Series 2009E, 8.406%, 8/01/39 | No Opt. Call | | AA– | | | 953,734 | |
| | 2,000 | | San Francisco City and County, California, Certificates of Participation, 525 Golden Gate Avenue, San Francisco Public Utilities Commission Office Project, Tender Option Bond 2016-XFT901, 25.996%, 11/01/41 (IF) (4) | No Opt. Call | | AA | | | 5,246,900 | |
| | 315 | | Stanton Redevelopment Agency, California, Consolidated Project Tax Allocation Bonds, Series 2011A, 7.000%, 12/01/19 | No Opt. Call | | A | | | 349,045 | |
| | 2,000 | | The Regents of the University of California, Medical Center Pooled Revenue Bonds, Build America Taxable Bonds, Series 2010H, 6.548%, 5/15/48 | No Opt. Call | | AA– | | | 2,876,040 | |
| | 18,615 | | Total California | | | | | | 38,085,008 | |
| | | | Colorado – 5.5% (5.2% of Total Investments) | | | | | | | |
| | 4,000 | | Colorado State Bridge Enterprise Revenue Bonds, Federally Taxable Build America Series 2010A, 6.078%, 12/01/40 | No Opt. Call | | AA | | | 5,474,720 | |
| | 2,585 | | Regional Transportation District, Colorado, Sales Tax Revenue Bonds, Fastracks Project, Build America Series 2010B, 5.844%, 11/01/50 | No Opt. Call | | AA+ | | | 3,784,905 | |
| | 6,585 | | Total Colorado | | | | | | 9,259,625 | |
| | | | Connecticut – 0.9% (0.9% of Total Investments) | | | | | | | |
| | 1,355 | | Harbor Point Infrastructure Improvement District, Connecticut, Special Obligation Revenue Bonds, Harbor Point Project, Federally Taxable – Issuer Subsidy – Recovery Zone Economic Development Bond Series 2010B, 12.500%, 4/01/39 | 4/20 at 100.00 | | N/R | | | 1,568,250 | |
| | | | Georgia – 2.9% (2.7% of Total Investments) | | | | | | | |
| | 1,000 | | Cobb-Marietta Coliseum and Exhibit Hall Authority, Georgia, Revenue Bonds, Cobb County Coliseum Project, Taxable Series 2015, 4.500%, 1/01/47 | 1/26 at 100.00 | | AAA | | | 1,083,760 | |
| | 3,000 | | Georgia Municipal Electric Authority, Plant Vogtle Units 3 & 4 Project P Bonds, Refunding Taxable Build America Bonds Series 2010A, 7.055%, 4/01/57 | No Opt. Call | | A– | | | 3,729,180 | |
| | 4,000 | | Total Georgia | | | | | | 4,812,940 | |
| | | | Illinois – 11.1% (10.5% of Total Investments) | | | | | | | |
| | 3,505 | | Chicago Board of Education, Illinois, General Obligation Bonds, Build America Taxable Series 2009E, 6.138%, 12/01/39 | No Opt. Call | | B+ | | | 2,957,133 | |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Illinois (continued) | | | | | | | |
| $ | 3,715 | | Chicago Transit Authority, Illinois, Sales Tax Receipts Revenue Bonds, Federally Taxable Build America Bonds, Series 2010B, 6.200%, 12/01/40 | No Opt. Call | | AA | | $ | 4,665,854 | |
| | 1,255 | | Chicago, Illinois, General Airport Revenue Bonds, O'Hare International Airport, Third Lien, Build America Taxable Bond Series 2010B, 6.845%, 1/01/38 | 1/20 at 100.00 | | A | | | 1,416,719 | |
| | 2,000 | | Illinois State, General Obligation Bonds, Build America Taxable Bonds, Series 2010-5, 7.350%, 7.350%, 7.350%, 7/01/35 | No Opt. Call | | BBB+ | | | 2,262,500 | |
| | 5,000 | | Illinois Toll Highway Authority, Toll Highway Revenue Bonds, Build America Taxable Bonds, Senior Lien Series 2009A, 6.184%, 1/01/34 | No Opt. Call | | AA– | | | 6,705,200 | |
| | 365 | | Northern Illinois Municipal Power Agency, Power Project Revenue Bonds, Prairie State Project, Build America Bond Series 2009C, 6.859%, 1/01/39 | No Opt. Call | | A2 | | | 460,604 | |
| | 205 | | Northern Illinois Municipal Power Agency, Power Project Revenue Bonds, Prairie State Project, Build America Taxable Bond Series 2010A, 7.820%, 1/01/40 | No Opt. Call | | A2 | | | 287,486 | |
| | 16,045 | | Total Illinois | | | | | | 18,755,496 | |
| | | | Indiana – 0.8% (0.8% of Total Investments) | | | | | | | |
| | 1,000 | | Indianapolis Local Public Improvement Bond Bank, Indiana, Build America Taxable Bonds, Series 2010B-2, 6.116%, 1/15/40 | No Opt. Call | | AA | | | 1,398,250 | |
| | | | Kentucky – 2.5% (2.4% of Total Investments) | | | | | | | |
| | 3,000 | | Louisville and Jefferson County Metropolitan Sewer District, Kentucky, Sewer and Drainage System Revenue Bonds, Build America Taxable Bonds Series 2010A, 6.250%, 5/15/43 | No Opt. Call | | AA | | | 4,288,800 | |
| | | | Massachusetts – 3.4% (3.3% of Total Investments) | | | | | | | |
| | 2,000 | | Massachusetts, Transportation Fund Revenue Bonds, Accelerated Bridge Program, Tender Option Bond Trust T0004, 22.490%, 6/01/40 (IF) (4) | No Opt. Call | | AAA | | | 5,808,700 | |
| | | | Michigan – 1.2% (1.1% of Total Investments) | | | | | | | |
| | 2,000 | | Michigan Tobacco Settlement Finance Authority, Tobacco Settlement Asset-Backed Revenue Bonds, Taxable Turbo Series 2006A, 7.309%, 6/01/34 | No Opt. Call | | B– | | | 1,987,560 | |
| | | | Mississippi – 1.6% (1.5% of Total Investments) | | | | | | | |
| | 2,085 | | Mississippi State, General Obligation Bonds, Build America Taxable Bond Series 2010F, 5.245%, 11/01/34 | No Opt. Call | | AA | | | 2,664,818 | |
| | | | Nevada – 2.7% (2.6% of Total Investments) | | | | | | | |
| | 1,965 | | Clark County, Nevada, Airport Revenue Bonds, Senior Lien Series 2009B, 6.881%, 7/01/42 | 7/19 at 100.00 | | AA– | | | 2,229,057 | |
| | 1,500 | | Clark County, Nevada, Airport Revenue Bonds, Taxable Direct Payment Build America Bond Series 2010C, 6.820%, 7/01/45 | No Opt. Call | | AA– | | | 2,339,625 | |
| | 3,465 | | Total Nevada | | | | | | 4,568,682 | |
| | | | New Jersey – 5.0% (4.8% of Total Investments) | | | | | | | |
| | 3,890 | | New Jersey Turnpike Authority, Revenue Bonds, Build America Taxable Bonds, Series 2010A, 7.102%, 1/01/41 | No Opt. Call | | A+ | | | 5,945,009 | |
| | 2,000 | | Rutgers State University, New Jersey, Revenue Bonds, Build America Taxable Bond Series 2010H, 5.665%, 5/01/40 | No Opt. Call | | Aa3 | | | 2,565,340 | |
| | 5,890 | | Total New Jersey | | | | | | 8,510,349 | |
| | | | New York – 14.3% (13.6% of Total Investments) | | | | | | | |
| | 2,000 | | Dormitory Authority of the State of New York, State Personal Income Tax Revenue Bonds, Tender Option Bond trust 2016-XFT903, 22.265%, 3/15/40 (IF) (4) | No Opt. Call | | AAA | | | 5,560,000 | |
| | 1,270 | | Metropolitan Transportation Authority, New York, Transportation Revenue Bonds, Federally Taxable Issuer Subsidy Build America Bonds, Series 2010A, 6.668%, 11/15/39 | No Opt. Call | | AA– | | | 1,827,378 | |
| NBD | Nuveen Build America Bond Opportunity Fund | |
| | Portfolio of Investments (continued) | September 30, 2016 (Unaudited) |
| | Principal | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | Provisions (2) | | Ratings (3) | | | Value | |
| | | | New York (continued) | | | | | | | |
| $ | 1,500 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Build America Taxable Bonds, Fiscal 2011 Series AA, 5.440%, 6/15/43 (4) | No Opt. Call | | AA+ | | $ | 2,062,740 | |
| | 2,000 | | New York City Municipal Water Finance Authority, New York, Water and Sewer System Revenue Bonds, Second Generation Resolution, Taxable Tender Option Bonds Trust T30001-2, 24.008%, 6/15/44 (IF) | No Opt. Call | | AA+ | | | 6,522,000 | |
| | 3,750 | | New York City Transitional Finance Authority, New York, Building Aid Revenue Bonds, Build America Taxable Bond Fiscal 2011 Series 2010S-1B, 6.828%, 7/15/40 | No Opt. Call | | AA | | | 5,398,538 | |
| | 1,500 | | New York City, New York, General Obligation Bonds, Federally Taxable Build America Bonds, Series 2010-F1, 6.646%, 12/01/31 | 12/20 at 100.00 | | AA | | | 1,779,120 | |
| | 1,000 | | New York Transportation Development Corporation, Special Facilities Bonds, LaGuardia Airport Terminal B Redevelopment Project, Taxable Series 2016B, 3.673%, 7/01/30 | No Opt. Call | | BBB | | | 1,024,610 | |
| | 13,020 | | Total New York | | | | | | 24,174,386 | |
| | | | North Carolina – 1.3% (1.2% of Total Investments) | | | | | | | |
| | 1,955 | | North Carolina Turnpike Authority, Triangle Expressway System State Annual Appropriation Revenue Bonds, Federally Taxable Issuer Subsidy Build America Bonds, Series 2009B, 6.700%, 1/01/39 | 1/19 at 100.00 | | AA | | | 2,168,330 | |
| | | | Ohio – 5.1% (4.9% of Total Investments) | | | | | | | |
| | 1,500 | | American Municipal Power Inc., Ohio, Meldahl Hydroelectric Projects Revenue Bonds, Build America Bond Series 2010B, 7.499%, 2/15/50 | No Opt. Call | | A | | | 2,263,395 | |
| | 2,850 | | Northeast Ohio Regional Sewer District, Wastewater Improvement Revenue Bonds, Build America Taxable Bonds, Series 2010, 6.038%, 11/15/40 | 11/20 at 100.00 | | AA+ | | | 3,264,533 | |
| | 3,075 | | Port of Greater Cincinnati Development Authority, Ohio, Special Obligation TIF Revenue Bonds, Cooperative Township Public Parking, Kenwood Collection Redevelopment, Senior Lien Series 2016A, 6.600%, 1/01/39 | 1/26 at 100.00 | | N/R | | | 3,091,974 | |
| | 7,425 | | Total Ohio | | | | | | 8,619,902 | |
| | | | Pennsylvania – 2.1% (2.0% of Total Investments) | | | | | | | |
| | 2,715 | | Pennsylvania Turnpike Commission, Turnpike Revenue Bonds, Build America Taxable Bonds, Series 2010B, 5.511%, 12/01/45 | No Opt. Call | | A1 | | | 3,594,253 | |
| | | | South Carolina – 6.1% (5.8% of Total Investments) | | | | | | | |
| | 6,735 | | South Carolina Public Service Authority, Electric System Revenue Bonds, Santee Cooper, Series 2010C, 6.454%, 1/01/50 (UB) | No Opt. Call | | AA– | | | 9,871,490 | |
| | 155 | | South Carolina Public Service Authority, Electric System Revenue Bonds, Santee Cooper, Federally Taxable Build America Tender Option Bond Trust T30002, 26.411%, 1/01/50 (IF) | No Opt. Call | | AA– | | | 515,918 | |
| | 6,890 | | Total South Carolina | | | | | | 10,387,408 | |
| | | | Tennessee – 3.4% (3.2% of Total Investments) | | | | | | | |
| | 4,060 | | Metropolitan Government Nashville & Davidson County Convention Center Authority, Tennessee, Tourism Tax Revenue Bonds, Build America Taxable Bonds, Subordinate Lien Series 2010B, 6.731%, 7/01/43 | No Opt. Call | | Aa3 | | | 5,661,832 | |
| | | | Texas – 5.3% (5.0% of Total Investments) | | | | | | | |
| | 2,520 | | Dallas Area Rapid Transit, Texas, Sales Tax Revenue Bonds, Build America Taxable Bonds, Series 2009B, 5.999%, 12/01/44 | No Opt. Call | | AA+ | | | 3,666,071 | |
| | 2,000 | | Dallas Convention Center Hotel Development Corporation, Texas, Hotel Revenue Bonds, Build America Taxable Bonds, Series 09B, 7.088%, 1/01/42 | No Opt. Call | | A1 | | | 2,867,540 | |
| | 2,000 | | North Texas Tollway Authority, System Revenue Bonds, Taxable Build America Bonds, Series 2010-B2, 8.910%, 2/01/30 | 2/20 at 100.00 | | Baa2 | | | 2,388,160 | |
| | 6,520 | | Total Texas | | | | | | 8,921,771 | |
| | Principal | | | | Optional Call | | | | | | |
| | Amount (000) | | Description (1) | | Provisions (2) | | Ratings (3) | | | Value | |
| | | | Virginia – 3.1% (2.9% of Total Investments) | | | | | | | | |
| $ | 1,110 | | Metropolitan Washington Airports Authority, Virginia, Dulles Toll Road Second Senior Lien Revenue Bonds, Build America Bonds, Series 2009D, 7.462%, 10/01/46 – AGC Insured | | No Opt. Call | | BBB+ | | $ | 1,723,031 | |
| | 4,020 | | Tobacco Settlement Financing Corporation of Virginia, Tobacco Settlement Asset Backed Bonds, Refunding Senior Lien Series 2007A, 6.706%, 6/01/46 | | 12/16 at 100.00 | | B– | | | 3,467,572 | |
| | 5,130 | | Total Virginia | | | | | | | 5,190,603 | |
| | | | Washington – 2.3% (2.2% of Total Investments) | | | | | | | | |
| | 2,935 | | Washington State Convention Center Public Facilities District, Lodging Tax Revenue Bonds, Build America Taxable Bond Series 2010B, 6.790%, 7/01/40 | | No Opt. Call | | Aa3 | | | 3,961,105 | |
| | | | West Virginia – 1.3% (1.3% of Total Investments) | | | | | | | | |
| | 2,320 | | Tobacco Settlement Finance Authority, West Virginia, Tobacco Settlement Asset-Backed Bonds, Taxable Turbo Series 2007A, 7.467%, 6/01/47 | | No Opt. Call | | B2 | | | 2,246,826 | |
| $ | 119,010 | | Total Municipal Bonds (cost $122,703,259) | | | | | | | 176,634,894 | |
| | | | | | | | | | | | |
| | Principal | | | | | | | | | | |
| | Amount (000) | | Description (1) | Coupon | Maturity | | Ratings (3) | | | Value | |
| | | | CORPORATE BONDS – 0.8% (0.7% of Total Investments) | | | | | | | | |
| | | | | | | | | | | | |
| | | | Diversified Consumer Services – 0.8% (0.7% of Total Investments) | | | | | | | | |
| $ | 1,300 | | BCOM Investment Partners LLC, Taxable Notes, Burrell College of Osteopathic Medicine, Series 2015, 144A | 7.500% | 9/01/45 | | N/R | | $ | 1,300,897 | |
| $ | 1,300 | | Total Corporate Bonds (cost $1,300,000) | | | | | | | 1,300,897 | |
| | | | Total Long-Term Investments (cost $124,003,259) | | | | | | | 177,935,791 | |
| | | | Borrowings – (7.1)% (5), (6) | | | | | | | (12,000,000 | ) |
| | | | Floating Rate Obligations – (3.2)% | | | | | | | (5,390,000 | ) |
| | | | Other Assets Less Liabilities – 5.1% (7) | | | | | | | 8,685,951 | |
| | | | Net Assets Applicable to Common Shares – 100% | | | | | | $ | 169,231,742 | |
| NBD | Nuveen Build America Bond Opportunity Fund | |
| | Portfolio of Investments (continued) | September 30, 2016 (Unaudited) |
Investments in Derivatives as of September 30, 2016
Interest Rate Swaps
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Variation | | | | |
| | | | | Fund | | | | | | Fixed Rate | | | | Optional | | | | | | Margin | | Unrealized | |
| | | Notional | | Pay/Receive | | Floating Rate | | Fixed Rate | | Payment | | Effective | | Termination | | Termination | | | | Receivable/ | | Appreciation | |
| Counterparty | | Amount | | Floating Rate | | Index | | (Annualized | ) | Frequency | | Date (8) | | Date | | Date | | Value | | (Payable | ) | (Depreciation | ) |
| Barclays Bank PLC | | $ | 29,500,000 | | | Receive | | | 1-Month USD LIBOR-ICE | | | 1.655 | % | | Monthly | | | 1/03/17 | | | 6/01/18 | | | 6/01/20 | | $ | (770,405 | ) | $ | — | | $ | (1,086,319 | ) |
| Barclays Bank PLC* | | | 14,700,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 2.329 | | | Semi-Annually | | | 1/25/17 | | | N/A | | | 1/25/37 | | | (1,542,765 | ) | | 188,118 | | | (1,542,765 | ) |
| Barclays Bank PLC* | | | 11,900,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 1.731 | | | Semi-Annually | | | 8/11/17 | | | N/A | | | 8/11/46 | | | 229,100 | | | 204,645 | | | 229,100 | |
| Morgan Stanley & Co. LLC* | | | 34,200,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 1.972 | | | Semi-Annually | | | 4/13/17 | | | N/A | | | 4/13/27 | | | (1,493,320 | ) | | 192,528 | | | (1,493,320 | ) |
| Morgan Stanley & Co. LLC* | | | 9,500,000 | | | Receive | | | 3-Month USD LIBOR-ICE | | | 1.775 | | | Semi-Annually | | | 8/25/17 | | | 7/06/26 | | | 8/25/46 | | | 86,193 | | | 164,402 | | | 86,193 | |
| | | $ | 99,800,000 | | | | | | | | | | | | | | | | | | | | | | | $ | (3,491,197 | ) | $ | 749,693 | | $ | (3,807,111 | ) |
| * | Citigroup Global Markets Inc. is the clearing broker for this transaction. |
| (1) | All percentages shown in the Portfolio of Investments are based on net assets applicable to common shares unless otherwise noted. |
| (2) | Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. |
| (3) | For financial reporting purposes, the ratings disclosed are the highest of Standard & Poor's Group ("Standard & Poor's"), Moody's Investors Service, Inc. ("Moody's") or Fitch, Inc. ("Fitch") rating. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Ratings below BBB by Standard & Poor's, Baa by Moody's or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies. |
| (4) | Investment, or portion of investment, has been pledged to collateralize the net payment obligations for investments in derivatives and/or inverse floating rate transactions. |
| (5) | Borrowings as a percentage of Total Investments is 6.7%. |
| (6) | The Fund may pledge up to 100% of its eligible investments (excluding any investments separately pledged as collateral for specific investments in derivatives, when applicable) as collateral for borrowings. |
| (7) | Other assets less liabilities includes the unrealized appreciation (depreciation) of certain over-the-counter ("OTC") derivatives as presented on the Statement of Assets and Liabilities, when applicable. The unrealized appreciation (depreciation) of OTC-cleared and exchange-traded derivatives is recognized as part of the cash collateral at brokers and/or the receivable or payable for variation margin as presented on the Statement of Assets and Liabilities, when applicable. |
| (8) | Effective date represents the date on which both the Fund and Counterparty commence interest payment accruals on each contract. |
| (IF) | Inverse floating rate investment. |
| (UB) | Underlying bond of an inverse floating rate trust reflected as a financing transaction. See Notes to Financial Statements, Note 3 – Portfolio Securities and Investments in Derivatives, Inverse Floating Rate Securities for more information. |
| 144A | Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These investments may only be resold in transactions exempt from registration, which are normally those transactions with qualified institutional buyers. |
| N/A | Not applicable |
| USD LIBOR-ICE | United States Dollar-London Inter-Bank Offered Rate-Intercontinental Exchange |
See accompanying notes to financial statements.
| Statement of | | |
| | Assets and Liabilities | September 30, 2016 (Unaudited) |
| | | Build America | | | Build America | |
| | | | Bond | | Bond Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Assets | | | | | | | |
| Long-term investments, at value (cost $596,895,530 and $124,003,259, respectively) | | $ | 727,430,474 | | $ | 177,935,791 | |
| Short-term investments, at value (cost approximates value) | | | 586,448 | | | — | |
Cash collateral at brokers(1) | | | 10,696,718 | | | 7,067,214 | |
| Interest rate swaps premiums paid | | | 1,103,053 | | | 315,914 | |
| Receivable for: | | | | | | | |
| Interest | | | 11,776,641 | | | 3,002,510 | |
| Variation margin on swap contracts | | | 1,176,489 | | | 749,693 | |
| Other assets | | | 98,788 | | | 12,708 | |
| Total assets | | | 752,868,611 | | | 189,083,830 | |
| Liabilities | | | | | | | |
| Borrowings | | | 90,175,000 | | | 12,000,000 | |
| Cash overdraft | | | — | | | 470,277 | |
| Floating rate obligations | | | 47,700,000 | | | 5,390,000 | |
| Unrealized depreciation on interest rate swaps | | | 3,353,966 | | | 1,086,319 | |
| Payable for common share dividends | | | 2,779,328 | | | 723,619 | |
| Accrued expenses: | | | | | | | |
| Management fees | | | 402,869 | | | 117,027 | |
| Interest on borrowings | | | 103,485 | | | 13,771 | |
| Trustees fees | | | 35,227 | | | 1,036 | |
| Other | | | 122,077 | | | 50,039 | |
| Total liabilities | | | 144,671,952 | | | 19,852,088 | |
| Net assets applicable to common shares | | $ | 608,196,659 | | $ | 169,231,742 | |
| Common shares outstanding | | | 26,461,985 | | | 7,205,250 | |
| Net asset value ("NAV") per common share outstanding | | $ | 22.98 | | $ | 23.49 | |
| Net assets applicable to common shares consist of: | | | | | | | |
| Common shares, $0.01 par value per share | | $ | 264,620 | | $ | 72,053 | |
| Paid-in surplus | | | 504,137,905 | | | 137,235,390 | |
| Undistributed (Over-distribution of) net investment income | | | (5,250,759 | ) | | (1,068,835 | ) |
| Accumulated net realized gain (loss) | | | (13,890,194 | ) | | (17,132,287 | ) |
| Net unrealized appreciation (depreciation) | | | 122,935,087 | | | 50,125,421 | |
| Net assets applicable to common shares | | $ | 608,196,659 | | $ | 169,231,742 | |
| Authorized common shares | | | Unlimited | | | Unlimited | |
| (1) | Cash pledged to collateralize the net payment obligations for investments in derivatives in addition to the Fund's securities pledged as collateral as noted in the Fund's portfolio of investments. |
See accompanying notes to financial statements.
| Statement of | | |
| | Operations | Six Months Ended September 30, 2016 (Unaudited) |
| | | | Build America | | | Build America | |
| | | | Bond | | Bond Opportunity | |
| | | | (NBB) | | | (NBD) | |
| Investment Income | | $ | 19,676,596 | | $ | 5,128,226 | |
| Expenses | | | | | | | |
| Management fees | | | 2,451,858 | | | 712,614 | |
| Interest expense and amortization of offering costs | | | 899,986 | | | 116,013 | |
| Custodian fees | | | 40,708 | | | 19,232 | |
| Trustees fees | | | 9,632 | | | 2,565 | |
| Professional fees | | | 28,277 | | | 21,738 | |
| Shareholder reporting expenses | | | 42,915 | | | 11,432 | |
| Shareholder servicing agent fees | | | 89 | | | 89 | |
| Stock exchange listing fees | | | 4,250 | | | 3,916 | |
| Investor relations expenses | | | 39,176 | | | 9,939 | |
| Other | | | 13,946 | | | 7,421 | |
| Total expenses | | | 3,530,837 | | | 904,959 | |
| Net investment income (loss) | | | 16,145,759 | | | 4,223,267 | |
| Realized and Unrealized Gain (Loss) | | | | | | | |
| Net realized gain (loss) from: | | | | | | | |
| Investments | | | 10,515,746 | | | 4,373,129 | |
| Swaps | | | (15,058,105 | ) | | (6,954,326 | ) |
| Change in net unrealized appreciation (depreciation) of: | | | | | | | |
| Investments | | | 21,905,499 | | | 7,557,722 | |
| Swaps | | | 7,449,573 | | | 2,558,699 | |
| Net realized and unrealized gain (loss) | | | 24,812,713 | | | 7,535,224 | |
| Net increase (decrease) in net assets applicable to common shares from operations | | $ | 40,958,472 | | $ | 11,758,491 | |
See accompanying notes to financial statements.
| Statement of | | |
| | Changes in Net Assets | (Unaudited) |
| | | Build America | | Build America | |
| | | Bond (NBB) | | Bond Opportunity (NBD) | |
| | | | Six Months | | | Year | | | Six Months | | | Year | |
| | | | Ended | | | Ended | | | Ended | | | Ended | |
| | | | 9/30/16 | | | 3/31/16 | | | 9/30/16 | | | 3/31/16 | |
| Operations | | | | | | | | | | | | | |
| Net investment income (loss) | | $ | 16,145,759 | | $ | 34,024,600 | | $ | 4,223,267 | | $ | 9,142,234 | |
| Net realized gain (loss) from: | | | | | | | | | | | | | |
| Investments | | | 10,515,746 | | | 5,915,107 | | | 4,373,129 | | | 1,463,713 | |
| Swaps | | | (15,058,105 | ) | | (15,344,674 | ) | | (6,954,326 | ) | | (6,599,965 | ) |
| Change in net unrealized appreciation (depreciation) of: | | | | | | | | | | | | | |
| Investments | | | 21,905,499 | | | (21,555,569 | ) | | 7,557,722 | | | (6,096,820 | ) |
| Swaps | | | 7,449,573 | | | 5,259,280 | | | 2,558,699 | | | 1,252,886 | |
| Net increase (decrease) in net assets applicable to common shares from operations | | | 40,958,472 | | | 8,298,744 | | | 11,758,491 | | | (837,952 | ) |
| Distributions to Common Shareholders | | | | | | | | | | | | | |
| From net investment income | | | (17,359,062 | ) | | (35,776,604 | ) | | (4,546,513 | ) | | (9,460,493 | ) |
| Decrease in net assets applicable to common shares from distributions to common shareholders | | | (17,359,062 | ) | | (35,776,604 | ) | | (4,546,513 | ) | | (9,460,493 | ) |
| Net increase (decrease) in net assets applicable to common shares | | | 23,599,410 | | | (27,477,860 | ) | | 7,211,978 | | | (10,298,445 | ) |
| Net assets applicable to common shares at the beginning of period | | | 584,597,249 | | | 612,075,109 | | | 162,019,764 | | | 172,318,209 | |
| Net assets applicable to common shares at the end of period | | $ | 608,196,659 | | $ | 584,597,249 | | $ | 169,231,742 | | $ | 162,019,764 | |
| Undistributed (Over-distribution of) net investment income at the end of period | | $ | (5,250,759 | ) | $ | (4,037,456 | ) | $ | (1,068,835 | ) | $ | (745,589 | ) |
See accompanying notes to financial statements.
| Statement of | | |
| | Cash Flows | Six Months Ended September 30, 2016 (Unaudited) |
| | | | Build America | | | Build America | |
| | | | Bond | | | Bond Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Cash Flows from Operating Activities: | | | | | | | |
| Net Increase (Decrease) in Net Assets Applicable to Common Shares from Operations | | $ | 40,958,472 | | $ | 11,758,491 | |
| Adjustments to reconcile the net increase (decrease) in net assets applicable to common shares from operations to net cash provided by (used in) operating activities: | | | | | | | |
| Purchases of investments | | | (48,846,849 | ) | | (17,092,951 | ) |
| Proceeds from sales and maturities of investments | | | 59,805,253 | | | 24,158,783 | |
| Proceeds from (Purchases of) short-term investments, net | | | 16,631 | | | — | |
| Proceeds from (Payments for) swap contracts, net | | | (15,058,105 | ) | | (6,954,326 | ) |
| Amortization (Accretion) of premiums and discounts, net | | | 643,078 | | | 61,027 | |
| (Increase) Decrease in: | | | | | | | |
| Cash collateral at brokers | | | 4,543,789 | | | 106,934 | |
| Interest rate swaps premiums paid | | | (500,640 | ) | | (149,417 | ) |
| Receivable for interest | | | 57,997 | | | 61,517 | |
| Receivable for variation margin on swap contracts | | | (1,176,489 | ) | | (749,693 | ) |
| Other assets | | | (25,444 | ) | | 1,226 | |
| Increase (Decrease) in: | | | | | | | |
| Payable for variation margin on swap contracts | | | (677,444 | ) | | (376,364 | ) |
| Accrued management fees | | | (2,491 | ) | | (229 | ) |
| Accrued interest on borrowings | | | 8,244 | | | 1,214 | |
| Accrued Trustees fees | | | 2,775 | | | (77 | ) |
| Accrued other expenses | | | (8,495 | ) | | (11,198 | ) |
| Net realized (gain) loss from: | | | | | | | |
| Investments | | | (10,515,746 | ) | | (4,373,129 | ) |
| Swaps | | | 15,058,105 | | | 6,954,326 | |
| Change in net unrealized (appreciation) depreciation of: | | | | | | | |
| Investments | | | (21,905,499 | ) | | (7,557,722 | ) |
Swaps(1) | | | (197,626 | ) | | (27,075 | ) |
| Net cash provided by (used in) operating activities | | | 22,179,516 | | | 5,811,337 | |
| Cash Flows from Financing Activities: | | | | | | | |
| Proceeds from borrowings | | | 675,000 | | | 200,000 | |
| Increase (Decrease) in: | | | | | | | |
| Cash overdraft | | | — | | | 369,606 | |
| Floating rate obligations | | | (5,390,000 | ) | | (1,800,000) | |
| Cash distributions paid to common shareholders | | | (17,464,516 | ) | | (4,580,943 | ) |
| Net cash provided by (used in) financing activities | | | (22,179,516 | ) | | (5,811,337 | ) |
| Net Increase (Decrease) in Cash | | | — | | | — | |
| Cash at the beginning of period | | | — | | | — | |
| Cash at the end of period | | $ | — | | $ | — | |
| | | | | | | | |
| | | | | | | | |
| | | | Build America | | | Build America | |
| | | | Bond | | Bond Opportunity | |
| Supplemental Disclosure of Cash Flow Information | | | (NBB | ) | | (NBD | ) |
| Cash paid for interest (excluding borrowing costs) | | $ | 842,001 | | $ | 105,216 | |
(1) | Excluding over-the-counter cleared swaps. |
See accompanying notes to financial statements.
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| Financial | |
| | Highlights (Unaudited) |
Selected data for a common share outstanding throughout each period:
| | | | | | Investment Operations | | Less Distributions to Common Shareholders | | Common Share |
| | | | Beginning Common Share NAV | | | Net Investment Income (Loss)(a) | | | Net Realized/ Unrealized Gain (Loss) | | | Total | | | From Net Investment Income | | | From Accumulated Net Realized Gains | | | Total | | | Ending NAV | | | Ending Share Price | |
| Build America Bond (NBB) | |
| Year Ended 3/31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017(f) | | $ | 22.09 | | $ | 0.61 | | $ | 0.94 | | $ | 1.55 | | $ | (0.66 | ) | $ | — | | $ | (0.66 | ) | $ | 22.98 | | $ | 22.68 | |
| 2016 | | | 23.13 | | | 1.29 | | | (0.98 | ) | | 0.31 | | | (1.35 | ) | | — | | | (1.35 | ) | | 22.09 | | | 21.59 | |
| 2015 | | | 21.45 | | | 1.37 | | | 1.70 | | | 3.07 | | | (1.39 | ) | | — | | | (1.39 | ) | | 23.13 | | | 21.24 | |
| 2014 | | | 22.60 | | | 1.39 | | | (1.14 | ) | | 0.25 | | | (1.40 | ) | | — | | | (1.40 | ) | | 21.45 | | | 19.62 | |
| 2013 | | | 21.39 | | | 1.35 | | | 1.17 | | | 2.52 | | | (1.31 | ) | | — | | | (1.31 | ) | | 22.60 | | | 20.97 | |
| 2012 | | | 18.86 | | | 1.36 | | | 2.57 | | | 3.93 | | | (1.40 | ) | | — | | | (1.40 | ) | | 21.39 | | | 20.18 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Build America Bond Opportunity (NBD) | |
| Year Ended 3/31: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2017(f) | | | 22.49 | | | 0.59 | | | 1.04 | | | 1.63 | | | (0.63 | ) | | — | | | (0.63 | ) | | 23.49 | | | 22.81 | |
| 2016 | | | 23.92 | | | 1.27 | | | (1.39 | ) | | (0.12 | ) | | (1.31 | ) | | — | | | (1.31 | ) | | 22.49 | | | 21.52 | |
| 2015 | | | 22.68 | | | 1.37 | | | 1.24 | | | 2.61 | | | (1.37 | ) | | — | | | (1.37 | ) | | 23.92 | | | 21.72 | |
| 2014 | | | 23.92 | | | 1.40 | | | (1.29 | ) | | 0.11 | | | (1.35 | ) | | — | | | (1.35 | ) | | 22.68 | | | 20.50 | |
| 2013 | | | 22.56 | | | 1.34 | | | 1.31 | | | 2.65 | | | (1.29 | ) | | — | | | (1.29 | ) | | 23.92 | | | 22.12 | |
| 2012 | | | 19.43 | | | 1.45 | | | 3.17 | | | 4.62 | | | (1.49 | ) | | — | | | (1.49 | ) | | 22.56 | | | 20.97 | |
| | | Borrowings at the End of Period |
| | | | Aggregate | | | | |
| | | | Amount | | | Asset | |
| | | | Outstanding | | | Coverage | |
| | | | (000 | ) | | Per $1,000 | |
| Build America Bond (NBB) | | | | | | | |
| Year Ended 3/31: | | | | | | | |
| 2017(f) | | $ | 90,175 | | $ | 7,745 | |
| 2016 | | | 89,500 | | | 7,532 | |
| 2015 | | | 89,500 | | | 7,839 | |
| 2014 | | | 89,000 | | | 7,379 | |
| 2013 | | | 89,000 | | | 7,720 | |
| 2012 | | | 44,000 | | | 13,863 | |
| | | | | | | | |
| Build America Bond Opportunity (NBD) | | | | | | | |
| Year Ended 3/31: | | | | | | | |
| 2017(f) | | | 12,000 | | | 15,103 | |
| 2016 | | | 11,800 | | | 14,730 | |
| 2015 | | | 11,800 | | | 15,603 | |
| 2014 | | | 11,500 | | | 15,208 | |
| 2013 | | | 11,500 | | | 15,985 | |
| 2012 | | | — | | | — | |
| | | | | | | | | Common Share Supplemental Data/
Ratios Applicable to Common Shares |
| | | | Common Share
Total Returns | | | | | | Ratios to Average Net Assets(c) | | | | |
| | | | Based on
NAV | (b) | | Based on
Share
Price | (b) | | Ending
Net
Assets (000 | ) | | Expenses | (d) | | Net
Investment
Income (Loss | ) | | Portfolio
Turnover
Rate | (e) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | 7.04 | % | | 8.15 | % | $ | 608,197 | | | 1.17 | %* | | 5.33 | %* | | 7 | % |
| | | | 1.63 | | | 8.66 | | | 584,597 | | | 1.13 | | | 5.93 | | | 16 | |
| | | | 14.61 | | | 15.75 | | | 612,075 | | | 1.07 | | | 6.04 | | | 13 | |
| | | | 1.44 | | | 0.63 | | | 567,690 | | | 1.12 | | | 6.63 | | | 6 | |
| | | | 12.05 | | | 10.57 | | | 598,113 | | | 1.10 | | | 6.10 | | | 7 | |
| | | | 21.29 | | | 19.92 | | | 565,952 | | | 1.05 | | | 6.63 | | | 18 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | 7.28 | | | 8.99 | | | 169,232 | | | 1.07 | * | | 5.00 | * | | 10 | |
| | | | (0.25 | ) | | 5.68 | | | 162,020 | | | 1.08 | | | 5.73 | | | 11 | |
| | | | 11.70 | | | 12.86 | | | 172,318 | | | 1.02 | | | 5.77 | | | 6 | |
| | | | 0.76 | | | (0.85 | ) | | 163,391 | | | 1.08 | | | 6.34 | | | 4 | |
| | | | 11.97 | | | 11.88 | | | 172,331 | | | 1.07 | | | 5.74 | | | 4 | |
| | | | 24.34 | | | 21.00 | | | 162,578 | | | 0.97 | | | 6.74 | | | 7 | |
| (a) | Per share Net Investment Income (Loss) is calculated using the average daily shares method. |
| | |
| (b) | Total Return Based on Common Share NAV is the combination of changes in common share NAV, reinvested dividend income at NAV and reinvested capital gains distributions at NAV, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending NAV. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its NAV), and therefore may be different from the price used in the calculation. Total returns are not annualized. Total Return Based on Common Share Price is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. |
| | |
| (c) | Net Investment Income (Loss) ratios reflect income earned and expenses incurred on assets attributable to borrowings, where applicable. |
| | |
| (d) | The expense ratios reflect, among other things, all interest expense and other costs related to borrowings (as described in Note 8 – Borrowing Arrangements) and/or the interest expense deemed to have been paid by the Fund on the floating rate certificates issued by the special purpose trusts for the self-deposited inverse floaters held by the Fund (as described in Note 3 – Portfolio Securities and Investments in Derivatives, Inverse Floating Rate Securities), where applicable, as follows: |
| Build America Bond (NBB) | | | | |
| Year Ended 3/31: | | | | |
| 2017(f) | | | 0.30 | %* |
| 2016 | | | 0.22 | |
| 2015 | | | 0.19 | |
| 2014 | | | 0.22 | |
| 2013 | | | 0.22 | |
| 2012 | | | 0.18 | |
| Build America Bond Opportunity (NBD) | | | | |
| Year Ended 3/31: | | | | |
| 2017(f) | | | 0.14 | %* |
| 2016 | | | 0.10 | |
| 2015 | | | 0.09 | |
| 2014 | | | 0.11 | |
| 2013 | | | 0.10 | |
| 2012 | | | 0.03 | |
| (e) | Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales (as disclosed in Note 5 – Investment Transactions) divided by the average long-term market value during the period. |
| (f) | For the six months ended September 30, 2016. |
| * | Annualized |
See accompanying notes to financial statements.
Notes to Financial Statements (Unaudited)
1. General Information and Significant Accounting Policies
General Information
Fund Information
The funds covered in this report and their corresponding New York Stock Exchange ("NYSE") symbols are as follows (each a "Fund" and collectively, the "Funds"):
| | • | Nuveen Build America Bond Fund (NBB) ("Build America Bond (NBB)") |
| | • | Nuveen Build America Bond Opportunity Fund (NBD) ("Build America Bond Opportunity (NBD)") |
The Funds are registered under the Investment Company Act of 1940, as amended, as diversified closed-end management investment companies. Build America Bond (NBB) and Build America Bond Opportunity (NBD) were organized as Massachusetts business trusts on December 4, 2009 and June 4, 2010, respectively.
The end of the reporting period for the Funds is September 30, 2016, and the period covered by these Notes to Financial Statements is the six months ended September 30, 2016 (the "current fiscal period").
Investment Adviser
The Funds' investment adviser is Nuveen Fund Advisors, LLC (the "Adviser"), a wholly-owned subsidiary of Nuveen Investments, Inc. ("Nuveen"). Nuveen is an operating division of TIAA Global Asset Management. The Adviser has overall responsibility for management of the Funds, oversees the management of the Funds' portfolios, manages the Funds' business affairs and provides certain clerical, bookkeeping and other administrative services, and, if necessary, asset allocation decisions. The Adviser has entered into sub-advisory agreements with Nuveen Asset Management, LLC (the "Sub-Adviser"), a subsidiary of the Adviser, under which the Sub-Adviser manages the investment portfolios of the Funds.
Investment Objectives and Principal Investment Strategies
Each Fund's primary investment objective is to provide current income through investments in taxable municipal securities. Each Fund's secondary investment objective is to seek enhanced portfolio value and total return. The Funds seek to achieve their investment objectives by investing primarily in a diversified portfolio of taxable municipal securities known as Build America Bonds ("BABs"), which make up approximately 80% of their managed assets (as defined in Note 7 – Management Fees and Other Transactions with Affiliates). BABs are taxable municipal securities that include bonds issued by state and local governments to finance capital projects such as public schools, roads, transportation infrastructure, bridges, ports and public buildings, among others, pursuant to the American Recovery and Reinvestment Act of 2009, which offer municipal issuers a federal subsidy equal to 35% of a bond's interest payments. Under normal circumstances, the Funds may invest 20% of their managed assets in securities other than BABs, including taxable and tax-exempt municipal securities, U.S. Treasury and other U.S. government agency securities. At least 80% of each Fund's managed assets will be invested in securities that are investment grade quality at the time of purchase, as rated by at least one independent rating agency or judged to be of comparable quality by the Sub-Adviser. In addition, each Fund will use an integrated leverage and hedging strategy so that the Fund has the potential to enhance income and risk-adjusted total return over time. Each Fund may employ leverage instruments such as bank borrowings, including loans from certain financial institutions, and portfolio investments that have the economic effect of leverage, including investments in inverse floating rate securities. Each Fund's overall goal is to outperform over time the Bloomberg Barclays Aggregate-Eligible Build America Bond Index, an unleveraged index representing the BABs market, while maintaining a comparable overall level of interest rate risk.
The BAB program expired on December 31, 2010, and was not renewed. Build America Bond (NBB) and Build American Bond Opportunity (NBD) each have contingent term provisions stating that if there are no new issuances of BABs or similar U.S. Treasury-subsidized taxable municipal bonds for any twenty-four month period ending on or before December 31, 2014, Build America Bond (NBB) and Build American Bond Opportunity (NBD) will terminate on or around June 30, 2020, and December 31, 2020, respectively. Since there has been no new issuance of BABs for a twenty-four month period, the Funds are currently being managed in line with these termination dates and the distribution of each Fund's assets to shareholders is planned for those times.
Significant Accounting Policies
Each Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946 "Financial Services – Investment Companies." The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles ("U.S. GAAP").
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method, which is the same basis used for federal income tax purposes. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have earmarked securities in their portfolios with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments.
As of the end of the reporting period, the Funds did not have any outstanding when-issued/delayed delivery purchase commitments.
Investment Income
Investment income, which reflects the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Investment income also reflects paydown gains and losses, if any.
Professional Fees
Professional fees presented on the Statement of Operations consist of legal fees incurred in the normal course of operations, audit fees, tax consulting fees and, in some cases, workout expenditures. Workout expenditures are incurred in an attempt to protect or enhance an investment or to pursue other claims or legal actions on behalf of Fund shareholders. If a refund is received for workout expenditures paid in a prior reporting period, such amounts will be recognized as "Legal fee refund" on the Statement of Operations.
Dividends and Distributions to Common Shareholders
Dividends from net investment income are declared monthly. Net realized capital gains from investment transactions, if any, are distributed to shareholders at least annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards.
Distributions to common shareholders are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP.
Indemnifications
Under the Funds' organizational documents, their officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
Netting Agreements
In the ordinary course of business, the Funds have entered into transactions subject to enforceable master repurchase agreements, International Swaps and Derivative Association, Inc. ("ISDA") master agreements or other similar arrangements ("netting agreements"). Generally, the right to offset in netting agreements allows each Fund to offset certain securities and derivatives with a specific counterparty, when applicable, as well as any collateral received or delivered to that counterparty based on the terms of the agreements. Generally, each Fund manages its cash collateral and securities collateral on a counterparty basis.
The Funds' investments subject to netting agreements as of the end of the reporting period, if any, are further described in Note 3 – Portfolio Securities and Investments in Derivatives.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to common shares from operations during the reporting period. Actual results may differ from those estimates.
2. Investment Valuation and Fair Value Measurements
The fair valuation input levels as described below are for fair value measurement purposes.
Fair value is defined as the price that would be received upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. A three-tier hierarchy is used to maximize the use of observable
Notes to Financial Statements (Unaudited) (continued)
market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the 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. The following is a summary of the three-tiered hierarchy of valuation input levels.
| | Level 1 – | Inputs are unadjusted and prices are determined using quoted prices in active markets for identical securities. |
| | Level 2 – | Prices are determined using other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
| | Level 3 – | Prices are determined using significant unobservable inputs (including management's assumptions in determining the fair value of investments). |
Prices of fixed income securities are provided by an independent pricing service ("pricing service") approved by the Funds' Board of Trustees (the "Board"). The pricing service establishes a security's fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant. These securities are generally classified as Level 2. In pricing certain securities, particularly less liquid and lower quality securities, the pricing service may consider information about a security, its issuer or market activity, provided by the Adviser. These securities are generally classified as Level 2 or Level 3 depending on the observability of the significant inputs.
Prices of swap contracts are also provided by a pricing service approved by the Board using the same methods as described above and are generally classified as Level 2.
Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified as Level 2.
Certain securities may not be able to be priced by the pre-established pricing methods as described above. Such securities may be valued by the Board and/or its appointee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; debt securities that have gone into default and for which there is no current market quotation; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of a Fund's net asset value ("NAV") (as may be the case in non-U.S. markets on which the security is primarily traded) or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, is not deemed to reflect the security's fair value. As a general principle, the fair value of a security would appear to be the amount that the owner might reasonably expect to receive for it in a current sale. A variety of factors may be considered in determining the fair value of such securities, which may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from securities dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant. These securities are generally classified as Level 2 or Level 3 depending on the observability of the significant inputs. Regardless of the method employed to value a particular security, all valuations are subject to review by the Board and/or its appointee.
The inputs or methodologies used for valuing securities are not an indication of the risks associated with investing in those securities. The following is a summary of each Fund's fair value measurements as of the end of the reporting period:
| Build America Bond (NBB) | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
| Long-Term Investments: | | | | | | | | | | | | | |
| Municipal Bonds* | | $ | — | | $ | 724,413,394 | | $ | — | | $ | 724,413,394 | |
| Corporate Bonds** | | | — | | | 3,017,080 | | | — | | | 3,017,080 | |
| Short-Term Investments: | | | | | | | | | | | | | |
| Repurchase Agreements | | | — | | | 586,448 | | | — | | | 586,448 | |
| Investments in Derivatives: | | | | | | | | | | | | | |
| Interest Rate Swaps*** | | | — | | | (7,599,857 | ) | | — | | | (7,599,857 | ) |
| Total | | $ | — | | $ | 720,417,065 | | $ | — | | $ | 720,417,065 | |
| Build America Bond Opportunity (NBD) | | | | | | | | | | | | | |
| Long-Term Investments: | | | | | | | | | | | | | |
| Municipal Bonds* | | $ | — | | $ | 176,634,894 | | $ | — | | $ | 176,634,894 | |
| Corporate Bonds** | | | — | | | 1,300,897 | | | — | | | 1,300,897 | |
| Investments in Derivatives: | | | | | | | | | | | | | |
| Interest Rate Swaps*** | | | — | | | (3,807,111 | ) | | — | | | (3,807,111 | ) |
| Total | | $ | — | | $ | 174,128,680 | | $ | — | | $ | 174,128,680 | |
| * | Refer to the Fund's Portfolio of Investments for state classifications. |
| ** | Refer to the Fund's Portfolio of Investments for industry classifications. |
| *** | Represents net unrealized appreciation (depreciation) as reported in the Fund's Portfolio of Investments. |
The Board is responsible for the valuation process and has appointed the oversight of the daily valuation process to the Adviser's Valuation Committee. The Valuation Committee, pursuant to the valuation policies and procedures adopted by the Board, is responsible for making fair value determinations, evaluating the effectiveness of the Funds' pricing policies and reporting to the Board. The Valuation Committee is aided in its efforts by the Adviser's dedicated Securities Valuation Team, which is responsible for administering the daily valuation process and applying fair value methodologies as approved by the Valuation Committee. When determining the reliability of independent pricing services for investments owned by the Funds, the Valuation Committee, among other things, conducts due diligence reviews of the pricing services and monitors the quality of security prices received through various testing reports conducted by the Securities Valuation Team.
The Valuation Committee will consider pricing methodologies it deems relevant and appropriate when making a fair value determination, based on the facts and circumstances specific to the portfolio instrument. Fair value determinations generally will be derived as follows, using public or private market information:
| | | |
| | (i) | If available, fair value determinations shall be derived by extrapolating from recent transactions or quoted prices for identical or comparable securities. |
| | | |
| | (ii) | If such information is not available, an analytical valuation methodology may be used based on other available information including, but not limited to: analyst appraisals, research reports, corporate action information, issuer financial statements and shelf registration statements. Such analytical valuation methodologies may include, but are not limited to: multiple of earnings, discount from market value of a similar freely-traded security, discounted cash flow analysis, book value or a multiple thereof, risk premium/yield analysis, yield to maturity and/or fundamental investment analysis. |
The purchase price of a portfolio instrument will be used to fair value the instrument only if no other valuation methodology is available or deemed appropriate, and it is determined that the purchase price fairly reflects the instrument's current value.
For each portfolio security that has been fair valued pursuant to the policies adopted by the Board, the fair value price is compared against the last available and next available market quotations. The Valuation Committee reviews the results of such testing and fair valuation occurrences are reported to the Board.
3. Portfolio Securities and Investments in Derivatives
Portfolio Securities
Inverse Floating Rate Securities
Each Fund is authorized to invest in inverse floating rate securities. An inverse floating rate security is created by depositing a municipal bond (referred to as an "Underlying Bond"), typically with a fixed interest rate, into a special purpose tender option bond ("TOB") trust (referred to as the "TOB Trust") created by or at the direction of one or more Funds. In turn, the TOB Trust issues (a) floating rate certificates (referred to as "Floaters"), in face amounts equal to some fraction of the Underlying Bond's par amount or market value, and (b) an inverse floating rate certificate (referred to as an "Inverse Floater") that represents all remaining or residual interest in the TOB Trust. Floaters typically pay short-term tax-exempt interest rates to third parties who are also provided a right to tender their certificate and receive its par value, which may be paid from the proceeds of a remarketing of the Floaters, by a loan to the TOB Trust from a third party liquidity provider ("Liquidity Provider"), or by the sale of assets from the TOB Trust. The Inverse Floater is issued to a long term investor, such as one or more of the Funds. The income received by the Inverse Floater holder varies inversely with the short-term rate paid to holders of the Floaters, and in most circumstances the Inverse Floater holder bears substantially all of the Underlying Bond's downside investment risk and also benefits disproportionately from any potential appreciation of the Underlying Bond's value. The value of an Inverse Floater will be more volatile than that of the Underlying Bond because the interest rate is dependent on not only the fixed coupon rate of the Underlying Bond but also on the short-term interest paid on the Floaters, and because the Inverse Floater essentially bears the risk of loss (and possible gain) of the greater face value of the Underlying Bond.
The Inverse Floater held by a Fund gives the Fund the right to (a) cause the holders of the Floaters to tender their certificates at par (or slightly more than par in certain circumstances), and (b) have the trustee of the TOB Trust (the "Trustee") transfer the Underlying Bond held by the TOB Trust to the Fund, thereby collapsing the TOB Trust.
The Fund may acquire an Inverse Floater in a transaction where it (a) transfers an Underlying Bond that it owns to a TOB Trust created by a third party or (b) transfers an Underlying Bond that it owns, or that it has purchased in a secondary market transaction for the purpose of creating an Inverse Floater, to a TOB Trust created at its direction, and in return receives the Inverse Floater of the TOB Trust (referred to as a "self-deposited Inverse Floater"). A Fund may also purchase an Inverse Floater in a secondary market transaction from a third party creator of the TOB Trust without first owning the Underlying Bond (referred to as an "externally-deposited Inverse Floater").
An investment in a self-deposited Inverse Floater is accounted for as a "financing" transaction (i.e., a secured borrowing). For a self-deposited Inverse Floater, the Underlying Bond deposited into the TOB Trust is identified in the Fund's Portfolio of Investments as "(UB) – Underlying bond of an inverse floating rate trust reflected as a financing transaction," with the Fund recognizing as liabilities, labeled "Floating rate obligations" on the Statement of Assets and Liabilities, (a) the liquidation value of Floaters issued by the TOB Trust, and (b) the amount of any borrowings by the TOB Trust from a Liquidity Provider to enable the TOB Trust to purchase outstanding Floaters in lieu of a remarketing. In addition, the Fund recognizes in "Investment
Notes to Financial Statements (Unaudited) (continued)
Income" the entire earnings of the Underlying Bond, and recognizes (a) the interest paid to the holders of the Floaters or on the TOB Trust's borrowings, and (b) other expenses related to remarketing, administration, trustee, liquidity and other services to a TOB Trust, as a component of "Interest expense and amortization of offering costs" on the Statement of Operations.
In contrast, an investment in an externally-deposited Inverse Floater is accounted for as a purchase of the Inverse Floater and is identified in the Fund's Portfolio of Investments as "(IF) – Inverse floating rate investment." For an externally-deposited Inverse Floater, a Fund's Statement of Assets and Liabilities recognizes the Inverse Floater and not the Underlying Bond as an asset, and the Fund does not recognize the Floaters, or any related borrowings from a Liquidity Provider, as a liability. Additionally, the Fund reflects in "Investment Income" only the net amount of earnings on the Inverse Floater (net of the interest paid to the holders of the Floaters or the Liquidity Provider as lender, and the expenses of the Trust), and does not show the amount of that interest paid or the expenses of the TOB Trust as described above as interest expense on the Statement of Operations.
Fees paid upon the creation of a TOB Trust for self-deposited Inverse Floaters and externally-deposited Inverse Floaters are recognized as part of the cost basis of the Inverse Floater and are capitalized over the term of the TOB Trust.
As of the end of the reporting period, the aggregate value of Floaters issued by each Fund's TOB Trust for self-deposited Inverse Floaters and externally-deposited Inverse Floaters was as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| Floating Rate Obligations Outstanding | | | (NBB | ) | | (NBD | ) |
| Floating rate obligations: self-deposited Inverse Floaters | | $ | 47,700,000 | | $ | 5,390,000 | |
| Floating rate obligations: externally-deposited Inverse Floaters | | | 90,580,000 | | | 48,610,000 | |
| Total | | $ | 138,280,000 | | $ | 54,000,000 | |
During the current fiscal period, the average amount of Floaters (including any borrowings from a Liquidity Provider) outstanding and the average annual interest rate and fees related to self-deposited Inverse Floaters, were as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| Self-Deposited Inverse Floaters | | | (NBB | ) | | (NBD | ) |
| Average floating rate obligations outstanding | | $ | 48,907,596 | | $ | 5,793,279 | |
| Average annual interest rate and fees | | | 1.03% | | | 0.94% | |
TOB Trusts are supported by a liquidity facility provided by a Liquidity Provider pursuant to which the Liquidity Provider agrees, in the event that Floaters are (a) tendered to the Trustee for remarketing and the remarketing does not occur, or (b) subject to mandatory tender pursuant to the terms of the TOB Trust agreement, to either purchase Floaters or to provide the Trustee with an advance from a loan facility to fund the purchase of Floaters by the TOB Trust. In certain circumstances, the Liquidity Provider may otherwise elect to have the Trustee sell the Underlying Bond to retire the Floaters that were tendered and not remarketed prior to providing such a loan. In these circumstances, the Liquidity Provider remains obligated to provide a loan to the extent that the proceeds of the sale of the Underlying Bond is not sufficient to pay the purchase price of the Floaters.
The size of the commitment under the loan facility for a given TOB Trust is at least equal to the balance of that TOB Trust's outstanding Floaters plus any accrued interest. In consideration of the loan facility, fee schedules are in place and are charged by the Liquidity Provider(s). Any loans made by the Liquidity Provider will be secured by the purchased Floaters held by the TOB Trust. Interest paid on any outstanding loan balances will be effectively borne by the Fund that owns the Inverse Floaters of the TOB Trust that has incurred the borrowing and may be at a rate that is greater than the rate that would have been paid had the Floaters been successfully remarketed.
As described above, any amounts outstanding under a liquidity facility are recognized as a component of "Floating rate obligations" on the Statement of Assets and Liabilities by the Fund holding the corresponding Inverse Floaters issued by the borrowing TOB Trust. As of the end of the reporting period, there were no loans outstanding under any such facility.
Each Fund may also enter into shortfall and forbearance agreements (sometimes referred to as a "recourse arrangement" or "credit recovery swap") (TOB Trusts involving such agreements are referred to herein as "Recourse Trusts"), under which a Fund agrees to reimburse the Liquidity Provider for the Trust's Floaters, in certain circumstances, for the amount (if any) by which the liquidation value of the Underlying Bond held by the TOB Trust may fall short of the sum of the liquidation value of the Floaters issued by the TOB Trust plus any amounts borrowed by the TOB Trust from the Liquidity Provider, plus any shortfalls in interest cash flows. Under these agreements, a Fund's potential exposure to losses related to or on an Inverse Floater may increase beyond the value of the Inverse Floater as a Fund may potentially be liable to fulfill all amounts owed to holders of the Floaters or the Liquidity Provider. Any such shortfall amount in the aggregate is recognized as "Unrealized depreciation on Recourse Trusts" on the Statement of Assets and Liabilities.
As of the end of the reporting period, each Fund's maximum exposure to the Floaters issued by Recourse Trusts for self-deposited Inverse Floaters and externally-deposited Inverse Floaters was as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| Floating Rate Obligations - Recourse Trusts | | | (NBB | ) | | (NBD | ) |
| Maximum exposure to Recourse Trusts: self-deposited Inverse Floaters | | $ | 47,700,000 | | $ | 5,390,000 | |
| Maximum exposure to Recourse Trusts: externally-deposited Inverse Floaters | | | 90,580,000 | | | 48,610,000 | |
| Total | | $ | 138,280,000 | | $ | 54,000,000 | |
Repurchase Agreements
In connection with transactions in repurchase agreements, it is each Fund's policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.
The following table presents the repurchase agreements for the Funds that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.
| | | | | | | | | | Collateral | | | | | |
| | | | | | | Short-Term | | | Pledged (From | ) | | Net | | |
| Fund | | | Counterparty | | | Investments, at value | | | Counterparty* | | | Exposure | | |
| Build America Bond (NBB) | | | Fixed Income Clearing Corporation | | $ | 586,448 | | $ | (586,448 | ) | $ | — | | |
| * | As of the end of the reporting period, the value of the collateral pledged from the counterparty exceeded the value of the repurchase agreements. Refer to the Fund's Portfolio of Investments for details on the repurchase agreements. |
Zero Coupon Securities
A zero coupon security does not pay a regular interest coupon to its holders during the life of the security. Income to the holder of the security comes from accretion of the difference between the original purchase price of the security at issuance and the par value of the security at maturity and is effectively paid at maturity. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically.
Investments in Derivatives
In addition to the inverse floating rate securities in which each Fund may invest, which are considered portfolio securities for financial reporting purposes, each Fund is authorized to invest in certain other derivative instruments such as futures, options and swap contracts. Each Fund limits its investments in futures, options on futures and swap contracts to the extent necessary for the Adviser to claim the exclusion from registration by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Fund. The Funds record derivative instruments at fair value, with changes in fair value recognized on the Statement of Operations, when applicable. Even though the Funds' investments in derivatives may represent economic hedges, they are not considered to be hedge transactions for financial reporting purposes.
Interest Rate Swap Contracts
Interest rate swap contracts involve a Fund's agreement with the counterparty to pay or receive a fixed rate payment in exchange for the counterparty receiving or paying a variable rate payment. Forward interest rate swap contracts involve a Fund's agreement with a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the "effective date").
The amount of the payment obligation is based on the notional amount and the termination date of the contract. Interest rate swap contracts do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that the Fund is to receive.
Interest rate swap contracts are valued daily. Upon entering into an interest rate swap contract (and beginning on the effective date for a forward interest rate swap contract), a Fund accrues the fixed rate payment expected to be paid or received and the variable rate payment expected to be received or paid on the interest rate swap contracts on a daily basis, and recognizes the daily change in the fair value of the Fund's contractual rights and obligations under the contracts. For an over-the-counter (OTC) swap that is not cleared through a clearing house ("OTC Uncleared"), the net amount recorded on these transactions, for each counterparty, is recognized on the Statement of Assets and Liabilities as a component of "Unrealized appreciation or depreciation on interest rate swaps (, net)."
Notes to Financial Statements (Unaudited) (continued)
Upon the execution of an OTC swap cleared through a clearing house ("OTC Cleared"), the Fund is obligated to deposit cash or eligible securities, also known as "initial margin," into an account at its clearing broker equal to a specified percentage of the contract amount. Cash deposited by the Fund to cover initial margin requirements on open swap contracts, if any, is recognized as a component of "Cash collateral at brokers" on the Statement of Assets and Liabilities. Investments in OTC Cleared swaps obligate the Fund and the clearing broker to settle monies on a daily basis representing changes in the prior day's "mark-to-market" of the swap contract. If the Fund has unrealized appreciation, the clearing broker will credit the Fund's account with an amount equal to the appreciation. Conversely, if the Fund has unrealized depreciation, the clearing broker will debit the Fund's account with an amount equal to the depreciation. These daily cash settlements are also known as "variation margin." Variation margin for OTC Cleared swaps is recognized as a receivable and/or payable for "Variation margin on swap contracts" on the Statement of Assets and Liabilities. Upon the execution of an OTC Uncleared swap, neither the Fund nor the counterparty is required to deposit initial margin as the trades are recorded bilaterally between both parties to the swap contract, and the terms of the variation margin are subject to a predetermined threshold negotiated by the Fund and the counterparty. Variation margin for OTC Uncleared swaps is recognized as a component of "Unrealized appreciation or depreciation on interest rate swaps (, net)" as described in the preceding paragraph.
The net amount of periodic payments settled in cash are recognized as a component of "Net realized gain (loss) from swaps" on the Statement of Operations, in addition to the net realized gain or loss recorded upon the termination of the swap contract. For tax purposes, payments expected to be received or paid on the swap contacts are treated as ordinary income or expense, respectively. Changes in the value of the swap contracts during the fiscal period are recognized as a component of "Change in net unrealized appreciation (depreciation) of swaps" on the Statement of Operations. In certain instances, payments are made or received upon entering into the swap contract to compensate for differences between the stated terms of the swap agreements and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Payments received or made at the beginning of the measurement period, if any, are recognized as "Interest rate swaps premiums paid and/or received" on the Statement of Assets and Liabilities.
During the current fiscal period, each Fund continued to use swap contracts to reduce the duration of its bond portfolio as well as to fix its interest cost of leverage.
The average notional amount of interest rate swap contracts outstanding during the current fiscal period was as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Average notional amount of interest rate swap contracts outstanding* | | $ | 211,000,000 | | $ | 100,433,333 | |
| * | The average notional amount is calculated based on the outstanding notional at the beginning of the fiscal period and at the end of each fiscal quarter within the current fiscal period. |
The following table presents the fair value of all swap contracts held by the Funds as of the end of the reporting period, the location of these instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
| | | | | Location on the Statement of Assets and Liabilities |
| Underlying | | Derivative | | Asset Derivatives | | (Liability) Derivatives |
| Risk Exposure | | Instrument | | Location | | Value | | Location | | Value | |
| Build America Bond (NBB) | |
| Interest rate | | Swaps (OTC Uncleared) | | — | $ | — | | Unrealized depreciation on interest rate swaps | $ | (3,353,966 | ) |
| Interest rate | | Swaps (OTC Cleared) | | Cash collateral at brokers and Receivable for variation margin on swap contracts** | | 508,347 | | — | | — | |
| Interest rate | | Swaps (OTC Cleared) | | Cash collateral at brokers and Receivable for variation margin on swap contracts** | | (4,754,238 | ) | — | | — | |
| Total | | | | | $ | (4,245,891 | ) | | $ | (3,353,966 | ) |
| Build America Bond Opportunity (NBD) | |
| Interest rate | | Swaps (OTC Uncleared) | | — | $ | — | | Unrealized depreciation on interest rate swaps | $ | (1,086,319 | ) |
| Interest rate | | Swaps (OTC Cleared) | | Cash collateral at brokers and Receivable for variation margin on swap contracts** | | 315,293 | | — | | — | |
| Interest rate | | Swaps (OTC Cleared) | | Cash collateral at brokers and Receivable for variation margin on swap contracts** | | (3,036,085 | ) | — | | — | |
| Total | | | | | $ | (2,720,792 | ) | | $ | (1,086,319 | ) |
| ** | Value represents the unrealized appreciation (depreciation) of swaps as reported in the Fund's Portfolio of Investments and not the asset and/or liability amount as described in the table above. |
The following table presents the swap contracts subject to netting agreements and the collateral delivered related to those swap contracts as of end of the reporting period.
| Fund | | | Counterparty | | | Gross Unrealized Appreciation on Interest Rate Swaps | *** | | Gross Unrealized (Depreciation) on Interest Rate Swaps | *** | | Amounts Netted on Statement of Assets and Liabilities | | | Net Unrealized Appreciation (Depreciation) on Interest Rate Swaps | | Collateral Pledged to (from) Counterparty | | Net Exposure | |
| Build America Bond (NBB) | | | | | | | | | | | | | | | | | | | | | | |
| | | | Morgan Stanley & Co. LLC | | $ | — | | $ | (3,353,966 | ) | $ | — | | $ | (3,353,966 | ) | $ | 2,353,606 | | $ | (1,000,360 | ) |
| Build America Bond Opportunity (NBD) | | | | | | | | | | | | | | | | | | | | | | |
| | | | Barclays Bank PLC | | $ | — | | $ | (1,086,319 | ) | $ | — | | $ | (1,086,319 | ) | $ | 953,811 | | $ | (132,508 | ) |
| *** | Represents gross unrealized appreciation (depreciation) for the counterparty as reported in the Fund's Portfolio of Investments. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (deprecation) recognized on swap contracts on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
| | | | | | | | | | Net Realized | | | Change in Net Unrealized | |
| | | | Underlying | | | Derivative | | | Gain (Loss) from | | Appreciation (Depreciation) of | |
| Fund | | | Risk Exposure | | | Instrument | | | Swaps | | | Swaps | |
| Build America Bond (NBB) | | | Interest rate | | | Swaps | | $ | (15,058,105 | ) | $ | 7,449,573 | |
| Build America Bond Opportunity (NBD) | | | Interest rate | | | Swaps | | | (6,954,326 | ) | | 2,558,699 | |
Market and Counterparty Credit Risk
In the normal course of business each Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to the transaction to perform (counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which potentially expose each Fund to counterparty credit risk, consist principally of cash due from counterparties on forward, option and swap transactions, when applicable. The extent of each Fund's exposure to counterparty credit risk in respect to these financial assets approximates their carrying value as recorded on the Statement of Assets and Liabilities.
Each Fund helps manage counterparty credit risk by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be required to pledge collateral daily (based on the daily valuation of the financial asset) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when each Fund has an unrealized loss, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the valuations fluctuate, either up or down, by at least the pre-determined threshold amount.
4. Fund Shares
The Funds did not have any transactions in shares during the current and prior fiscal period.
5. Investment Transactions
Long-term purchases and sales (including maturities but excluding derivative transactions) during the current fiscal period were as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Purchases | | $ | 48,846,849 | | $ | 17,092,951 | |
| Sales and maturities | | | 59,805,253 | | | 24,158,783 | |
6. Income Tax Information
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required.
For all open tax years and all major taxing jurisdictions, management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally
Notes to Financial Statements (Unaudited) (continued)
the last four tax year ends and the interim tax period since then). Furthermore, management of the Funds is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments in inverse floating rate securities reflected as financing transactions, if any. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts as detailed below. Temporary differences do not require reclassification. Temporary and permanent differences do not impact the NAVs of the Funds.
As of September 30, 2016, the cost and unrealized appreciation (depreciation) of investments (excluding investments in derivatives), as determined on a federal income tax basis, were as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Cost of investments | | $ | 552,404,275 | | $ | 118,880,282 | |
| Gross unrealized: | | | | | | | |
| Appreciation | | $ | 128,274,124 | | $ | 53,699,155 | |
| Depreciation | | | (370,792 | ) | | (38,303 | ) |
| Net unrealized appreciation (depreciation) of investments | | $ | 127,903,332 | | $ | 53,660,852 | |
Permanent differences, primarily due to bond premium amortization and treatment of notional principal contracts, resulted in reclassifications among the Funds' components of common share net assets as of March 31, 2016, the Funds' last tax year end, as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Paid-in surplus | | $ | 1 | | $ | 1 | |
| Undistributed (Over-distribution of) net investment income | | | 409,882 | | | 44,426 | |
| Accumulated net realized gain (loss) | | | (409,883 | ) | | (44,427 | ) |
The tax components of undistributed net ordinary income and net long-term capital gains as of March 31, 2016, the Funds' last tax year end, were as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
Undistributed net ordinary income1 | | $ | 1,979,763 | | $ | 377,735 | |
| Undistributed net long-term capital gains | | | — | | | — | |
1 | Net ordinary income consists of net taxable income derived from dividends, interest and net short-term capital gains, if any. Undistributed net ordinary income (on a tax basis) has not been reduced for the dividend declared on March 1, 2016, and paid on April 1, 2016. |
The tax character of distributions paid during the Funds' last tax year ended March 31, 2016, was designated for purposes of the dividends paid deduction as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
Distributions from net ordinary income2 | | $ | 35,882,452 | | $ | 9,500,122 | |
| Distributions from net long-term capital gains | | | — | | | — | |
2 | Net ordinary income consists of net taxable income derived from dividends, interest, and net short-term capital gains, if any. |
As of March 31, 2016, the Funds' last tax year end, the Funds had unused capital losses carrying forward available for federal income tax purposes to be applied against future capital gains, if any. The capital losses are not subject to expiration.
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Capital losses to be carried forward – not subject to expiration | | $ | 10,095,558 | | $ | 14,551,090 | |
7. Management Fees and Other Transactions with Affiliates
Management Fees
Each Fund's management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Sub-Adviser is compensated for its services to the Funds from the management fees paid to the Adviser.
Each Fund's management fee consists of two components – a fund-level fee, based only on the amount of assets within each individual Fund, and a complex-level fee, based on the aggregate amount of all eligible fund assets managed by the Adviser. This pricing structure enables Fund shareholders to benefit from growth in the assets within their respective Fund as well as from growth in the amount of complex-wide assets managed by the Adviser.
For the period April 1, 2016 through July 31, 2016, the annual Fund-level fee, payable monthly, for each Fund is calculated according to the following schedule:
| Average Daily Managed Assets* | Fund-Level Fee |
| For the first $125 million | 0.4500 | % |
| For the next $125 million | 0.4375 | |
| For the next $250 million | 0.4250 | |
| For the next $500 million | 0.4125 | |
| For the next $1 billion | 0.4000 | |
| For managed assets over $2 billion | 0.3875 | |
Effective August 1, 2016, the annual Fund-level fee, payable monthly, for each Fund is calculated according to the following schedule:
| Average Daily Managed Assets* | Fund-Level Fee |
| For the first $125 million | 0.4500 | % |
| For the next $125 million | 0.4375 | |
| For the next $250 million | 0.4250 | |
| For the next $500 million | 0.4125 | |
| For the next $1 billion | 0.4000 | |
| For the next $3 billion | 0.3750 | |
| For managed assets over $5 billion | 0.3625 | |
The annual complex-level fee, payable monthly, for each Fund is calculated by multiplying the current complex-wide fee rate, determined according to the following schedule by the Fund's daily managed assets:
| Complex-Level Managed Asset Breakpoint Level* | Effective Rate at Breakpoint Level |
| $55 billion | 0.2000 | % |
| $56 billion | 0.1996 | |
| $57 billion | 0.1989 | |
| $60 billion | 0.1961 | |
| $63 billion | 0.1931 | |
| $66 billion | 0.1900 | |
| $71 billion | 0.1851 | |
| $76 billion | 0.1806 | |
| $80 billion | 0.1773 | |
| $91 billion | 0.1691 | |
| $125 billion | 0.1599 | |
| $200 billion | 0.1505 | |
| $250 billion | 0.1469 | |
| $300 billion | 0.1445 | |
| * | For the complex-level fees, managed assets include closed-end fund assets managed by the Adviser that are attributable to certain types of leverage. For these purposes, leverage includes the funds' use of preferred stock and borrowings and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trust's issuance of floating rate securities, subject to an agreement by the Adviser as to certain funds to limit the amount of such assets for determining managed assets in certain circumstances. The complex-level fee is calculated based upon the aggregate daily managed assets of all Nuveen Funds that constitute "eligible assets." Eligible assets do not include assets attributable to investments in other Nuveen Funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Adviser's assumption of the management of the former First American Funds effective January 1, 2011. As of September 30, 2016, the complex-level fee for each Fund was 0.1607%. |
Notes to Financial Statements (Unaudited) (continued)
Other Transactions with Affiliates
The Funds pay no compensation directly to those of its trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board has adopted a deferred compensation plan for independent trustees that enables trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen-advised funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen-advised funds.
Each Fund is permitted to purchase or sell securities from or to certain other funds managed by the Adviser ("inter-fund trade") under specified conditions outlined in procedures adopted by the Board. These procedures have been designed to ensure that any inter-fund trade of securities by the Fund from or to another fund that is, or could be, considered an affiliate of the Fund under certain limited circumstances by virtue of having a common investment adviser (or affiliated investment adviser), common officer and/or common trustee complies with Rule 17a-7 of the 1940 Act. Further, as defined under these procedures, each inter-fund trade is effected at the current market price as provided by an independent pricing service. Unsettled inter-fund trades as of the end of the reporting period are recognized as a component of "Receivable for investments sold" and/or "Payable for investments purchased" on the Statement of Assets and Liabilities, when applicable.
During the current fiscal period, the Funds did not engage in inter-fund trades pursuant to these procedures.
8. Borrowing Arrangements
Each Fund entered into a committed secured 364-day line of credit ("Borrowings") which permits the Funds to borrow on a secured basis as a means of leverage. Each Fund's maximum commitment amount under these Borrowings is as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Maximum commitment amount | | $ | 95,000,000 | | $ | 15,000,000 | |
As of the end of the reporting period, each Fund's outstanding balance on its Borrowings was as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Outstanding balance on Borrowings | | $ | 90,175,000 | | $ | 12,000,000 | |
During the current fiscal period, the average daily balance outstanding and average annual interest rate on each Fund's Borrowings were as follows:
| | | | Build | | | Build America | |
| | | | America | | | Bond | |
| | | | Bond | | | Opportunity | |
| | | | (NBB | ) | | (NBD | ) |
| Average daily balance outstanding | | $ | 89,953,689 | | $ | 11,934,426 | |
| Average annual interest rate | | | 1.30% | | | 1.30% | |
In order to maintain these Borrowings, the Funds must meet certain collateral, asset coverage and other requirements. Borrowings outstanding are fully secured by securities held in each Fund's portfolio of investments. Interest expense incurred on each Fund's Borrowings was calculated at a rate per annum equal to the higher of (i) the overnight Federal Funds rate plus 0.80% or (ii) the one-month London Inter-bank Offered Rate plus 0.80% for the period April 1, 2016 through June 17, 2016. In addition to the interest expense, the Funds each paid a 0.15% per annum facility fee, based on the unused portion of the commitment amount of the Borrowings at all times when the outstanding Borrowings is greater than 50% of the maximum commitment amount, otherwise the fee is increased to 0.25% per annum.
On May 18, 2016, each Fund renewed its Borrowings, at which time the termination date was extended through June 17, 2016. All other terms of the Borrowings remained unchanged. On June 17, 2016, each Fund renewed its Borrowings again, at which time the termination date was extended through May 17, 2017. The interest charged on each Fund's Borrowings was changed from the higher of (i) the overnight Federal Funds rate plus 0.80% or (ii) the one-month London Inter-bank Offered Rate plus 0.80% to the higher of (i) the overnight Federal Funds rate plus 0.85% or (ii) the one-month LIBOR plus 0.85%. Each Fund also incurred an upfront fee of 0.10% based on the maximum commitment amount of the Borrowings through the renewal date. All other terms of the Borrowings remained unchanged.
Each Fund's borrowings outstanding is recognized as "Borrowings" on the Statement of Assets and Liabilities. Interest expense, facility fees and other fees incurred on the Borrowings are recognized as a component of "Interest expense and amortization of offering costs" on the Statement of Operations.
Additional Fund Information
| Board of Trustees | | | | | |
William Adams IV* John K. Nelson | Margo Cook* William J. Schneider | Jack B. Evans Judith M. Stockdale | William C. Hunter Carole E. Stone | David J. Kundert Terence J. Toth | Albin F. Moschner Margaret L. Wolff |
* Interested Board Member.
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Fund Manager Nuveen Fund Advisors, LLC 333 West Wacker Drive Chicago, IL 60606 | Custodian State Street Bank & Trust Company One Lincoln Street Boston, MA 02111 | Legal Counsel Chapman and Cutler LLP Chicago, IL 60603 | Independent Registered Public Accounting Firm KPMG LLP 200 East Randolph Drive Chicago, IL 60601 | Transfer Agent and Shareholder Services State Street Bank & Trust Company Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 |
Quarterly Form N-Q Portfolio of Investments Information Each Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. You may obtain this information directly from the SEC. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC toll-free at (800) SEC-0330 for room hours and operation. |
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Nuveen Funds' Proxy Voting Information You may obtain (i) information regarding how each fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, without charge, upon request, by calling Nuveen toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com and (ii) a description of the policies and procedures that each fund used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC online at http://www.sec.gov. |
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CEO Certification Disclosure Each Fund's Chief Executive Officer (CEO) has submitted to the New York Stock Exchange (NYSE) the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the SEC the certification of its CEO and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. |
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Common Share Repurchases Each Fund intends to repurchase, through its open-market share repurchase program, shares of its own common stock at such times and in such amounts as is deemed advisable. During the period covered by this report, each Fund repurchased shares of its common stock as shown in the accompanying table. Any future repurchases will be reported to shareholders in the next annual or semi-annual report. |
| | NBB | NBD | |
| Common Shares repurchased | — | — | |
FINRA BrokerCheck
The Financial Industry Regulatory Authority (FINRA) provides information regarding the disciplinary history of FINRA member firms and associated investment professionals. This information as well as an investor brochure describing FINRA BrokerCheck is available to the public by calling the FINRA BrokerCheck Hotline number at (800) 289-9999 or by visiting www.FINRA.org.
Glossary of Terms Used in this Report
| ■ | Auction Rate Bond: An auction rate bond is a security whose interest payments are adjusted periodically through an auction process, which process typically also serves as a means for buying and selling the bond. Auctions that fail to attract enough buyers for all the shares offered for sale are deemed to have "failed," with current holders receiving a formula-based interest rate until the next scheduled auction. |
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| ■ | Average Annual Total Return: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment's actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. |
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| ■ | Bloomberg Barclays Aggregate-Eligible Build America Bond Index: An unleveraged index that comprises all direct pay Build America Bonds that are SEC-regulated, taxable, dollar-denominated and have at least one year to final maturity, at least $250 million par amount outstanding, and are determined to be investment grade by Bloomberg Barclays. Index returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
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| ■ | Duration: Duration is a measure of the expected period over which a bond's principal and interest will be paid, and consequently is a measure of the sensitivity of a bond's or bond fund's value to changes when market interest rates change. Generally, the longer a bond's or fund's duration, the more the price of the bond or fund will change as interest rates change. |
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| ■ | Effective Leverage: Effective leverage is a fund's effective economic leverage, and includes both regulatory leverage (see leverage) and the leverage effects of certain derivative investments in a fund's portfolio. Currently, the leverage effects of Tender Option Bond (TOB) inverse floater holdings are included in effective leverage values, in addition to any regulatory leverage. |
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| ■ | Forward Interest Rate Swap: A contractual agreement between two counterparties under which one party agrees to make periodic payments to the other for an agreed period of time based on a fixed rate, while the other party agrees to make periodic payments based on a floating rate of interest based on an underlying index. Alternatively, both series of cashflows to be exchanged could be calculated using floating rates of interest but floating rates that are based upon different underlying indices. |
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| ■ | Inverse Floating Rate Securities: Inverse floating rate securities, also known as inverse floaters or tender option bonds (TOBs), are created by depositing a municipal bond, typically with a fixed interest rate, into a special purpose trust. This trust, in turn, (a) issues floating rate certificates typically paying short-term tax-exempt interest rates to third parties in amounts equal to some fraction of the deposited bond's par amount or market value, and (b) issues an inverse floating rate certificate (sometimes referred to as an "inverse floater") to an investor (such as a fund) interested in gaining investment exposure to a long-term municipal bond. The income received by the holder of the inverse floater varies inversely with the short-term rate paid to the floating rate certificates' holders, and in most circumstances the holder of the inverse floater bears substantially all of the underlying bond's downside investment risk. The holder of the inverse floater typically also benefits disproportionately from any potential appreciation of the underlying bond's value. Hence, an inverse floater essentially represents an investment in the underlying bond on a leveraged basis. |
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| ■ | Leverage: Leverage is created whenever a fund has investment exposure (both reward and/or risk) equivalent to more than 100% of the investment capital. |
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| ■ | Net Asset Value (NAV) Per Share: A fund's Net Assets is equal to its total assets (securities, cash, accrued earnings and receivables) less its total liabilities. NAV per share is equal to the fund's Net Assets divided by its number of shares outstanding. |
| ■ | Pre-Refunding: Pre-Refunding, also known as advanced refundings or refinancings, is a procedure used by state and local governments to refinance municipal bonds to lower interest expenses. The issuer sells new bonds with a lower yield and uses the proceeds to buy U.S. Treasury securities, the interest from which is used to make payments on the higher-yielding bonds. Because of this collateral, pre-refunding generally raises a bond's credit rating and thus its value. |
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| ■ | Regulatory Leverage: Regulatory leverage consists of preferred shares issued by or borrowings of a fund. Both of these are part of a fund's capital structure. Regulatory leverage is subject to asset coverage limits set in the Investment Company Act of 1940. |
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| ■ | Total Investment Exposure: Total investment exposure is a fund's assets managed by the Adviser that are attributable to financial leverage. For these purposes, financial leverage includes a fund's use of preferred stock and borrowings and investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trust's issuance of floating rate securities. |
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| ■ | Zero Coupon Bond: A zero coupon bond does not pay a regular interest coupon to its holders during the life of the bond. Income to the holder of the bond comes from accretion of the difference between the original purchase price of the bond at issuance and the par value of the bond at maturity and is effectively paid at maturity. The market prices of zero coupon bonds generally are more volatile than the market prices of bonds that pay interest periodically. |
Reinvest Automatically, Easily and Conveniently
Nuveen makes reinvesting easy. A phone call is all it takes to set up your reinvestment account.
Nuveen Closed-End Funds Automatic Reinvestment Plan
Nuveen Closed-End Fund allows you to conveniently reinvest distributions in additional Fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of compounding. Just like distributions in cash, there may be times when income or capital gains taxes may be payable on distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market.
Easy and convenient
To make recordkeeping easy and convenient, each month you'll receive a statement showing your total distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own.
How shares are purchased
The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund's shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares' net asset value or 95% of the shares' market value on the last business day immediately prior to the purchase date. Distributions received to purchase shares in the open market will normally be invested shortly after the distribution payment date. No interest will be paid on distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions.
Flexible
You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time.
Call today to start reinvesting distributions
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787.
Annual Investment Management Agreement Approval Process (Unaudited) |
The Board of Trustees of each Fund (the "Board," and each Trustee a "Board Member"), including the Board Members who are not parties to the Funds' advisory or sub-advisory agreements or "interested persons" of any such parties (the "Independent Board Members"), is responsible for overseeing the performance of the investment adviser and sub-adviser to the respective Fund and determining whether to continue such Fund's advisory agreement (the "Investment Management Agreement") between the Fund and Nuveen Fund Advisors, LLC (the "Adviser") and the sub-advisory agreement (the "Sub-Advisory Agreement" and, together with the Investment Management Agreement, the "Advisory Agreements") between the Adviser and Nuveen Asset Management, LLC (the "Sub-Adviser"). Following an initial term with respect to each Fund upon its commencement of operations, the Board reviews each Investment Management Agreement and Sub-Advisory Agreement on behalf of each Fund and votes to determine whether the respective Advisory Agreement should be renewed. Accordingly, at an in-person meeting held on May 24-26, 2016 (the "May Meeting"), the Board, including a majority of the Independent Board Members, considered and approved the existing Advisory Agreements for the Funds.
During the year, the Board and its Committees met regularly to receive materials and discuss a variety of topics impacting the Funds including, among other things, overall market conditions and market performance, Fund investment performance, brokerage execution, valuation of securities, compliance matters, securities lending, leverage matters, risk management and ongoing initiatives. The Board had established several standing Committees, including the Open-end Fund Committee and Closed-end Fund Committee which permit the Board Members to delve further into the topics particularly relevant to the respective product line and enhance the Board's effectiveness and oversight of the Funds. The Board also seeks to meet with the Sub-Adviser and its investment team at least once over a multiple year rotation through site visits. The information and knowledge the Board gained throughout the year from the Board and Committee meetings, site visits and the related materials were relevant to the Board's evaluation of the Advisory Agreements, and the Board took such information into account in its review of the Advisory Agreements.
In addition to the materials received throughout the year, the Board received additional materials prepared specifically for its annual review of the Advisory Agreements in response to a request by independent legal counsel on behalf of the Independent Board Members. The materials addressed a variety of topics, including a description of the services provided by the Adviser and the Sub-Adviser (each, a "Fund Adviser"); a review of fund performance with a detailed focus on any performance outliers; an analysis of the investment teams; an analysis of the fees and expense ratios of the Funds, including information comparing such fees and expenses to that of peer groups; an assessment of shareholder services for the Funds and of the performance of certain service providers; a review of initiatives instituted or continued during the past year; and a review of premium/discount trends and leverage management as well as information regarding the profitability of the Fund Advisers, the compensation of portfolio managers, and compliance and risk matters.
As part of its annual review, the Board held a separate meeting on April 12-13, 2016 to review the Funds' investment performance and consider an analysis by the Adviser of the Sub-Adviser examining, among other things, the team's assets under management, investment performance, investment approach, and the stability and structure of the Sub-Adviser's organization and investment team. During the review, the Independent Board Members requested and received additional information from management. Throughout the year and throughout their review of the Advisory Agreements, the Independent Board Members were assisted by independent legal counsel. The Independent Board Members met separately with independent legal counsel without management present and received a memorandum from such counsel outlining their fiduciary duties and legal standards in reviewing the Advisory Agreements. The Independent Board Members' review of the Advisory Agreements reflected an ongoing process that incorporated the information and considerations that occurred over the years, including the most recent year, as well as the
Annual Investment Management Agreement Approval Process (Unaudited) (continued)
information specifically furnished for the renewal process. In deciding to renew the Advisory Agreements, the Independent Board Members did not identify a particular factor as controlling, but rather the decision reflected the comprehensive consideration of all the information presented. The following summarizes the principal factors, but not all the factors, the Board considered in its review of the Advisory Agreements and its conclusions.
A. Nature, Extent and Quality of Services
In evaluating the renewal of the Advisory Agreements, the Independent Board Members received and considered information regarding the nature, extent and quality of the applicable Fund Adviser's services provided to the respective Fund and the initiatives undertaken during the past year by the Adviser. The Board recognized the comprehensive set of services the Adviser provided to manage and operate the Nuveen funds, including (a) product management (such as setting dividends, positioning the product in the marketplace, maintaining and enhancing shareholder communications and reporting to the Board); (b) investment services (such as overseeing the Sub-Adviser and other service providers; analyzing investment performance and risks; overseeing risk management and disclosure; developing and interpreting investment policies; assisting in the development of products; helping to prepare financial statements and marketing disclosures; and overseeing trade execution); (c) fund administration (such as helping to prepare fund tax returns and complete other tax compliance matters; and helping to prepare regulatory filings and shareholder reports); (d) fund Board administration (such as preparing Board materials and organizing and providing assistance for Board meetings); (e) compliance (such as helping to devise and maintain the funds' compliance program and related testing); (f) legal support (such as helping to prepare registration statements and proxy statements, interpreting regulations and policies and overseeing fund activities); and (g) providing leverage management.
The Board reviewed the continued investment the Adviser had made in its business to continue to strengthen the breadth and quality of its services to the benefit of the Nuveen funds. The Board noted the Adviser's additional staffing in key areas that support the funds and the Board, including in investment services, operations, closed-end fund/structured products, fund governance, compliance, fund administration, product management, and information technology. Among the enhancements to its services, the Board recognized the Adviser's (a) expanded activities and support required as a result of regulatory developments, including in areas of compliance and reporting; (b) expanded efforts to support leverage management with a goal of seeking the most effective structure for fund shareholders given appropriate risk levels and regulatory constraints; (c) increased support for dividend management; (d) continued investment in its technical capabilities as the Adviser continued to build out a centralized fund data platform, enhance mobility and remote access capabilities, rationalize and upgrade software platforms, and automate certain regulatory liquidity determinations; (e) continued efforts to rationalize the product line through mergers, liquidations and re-positioning of Nuveen funds with the goal of increasing efficiencies, reducing costs, improving performance and addressing shareholder needs; (f) continued efforts to develop new lines of business designed to enhance the Nuveen product line and meet investor demands; and (g) continued commitment to enhance risk oversight, including the formation of the operational risk group to provide operational risk assessment, the access to platforms which provide better risk reporting to support investment teams, and the development of a new team to initially review new products and major product initiatives. The Board also recognized the Adviser's efforts to renegotiate certain fees of other service providers which culminated in reduced expenses for all funds for custody and accounting services without diminishing the breadth and quality of the services provided. The Board considered the Chief Compliance Officer's report regarding the Adviser's compliance program, the Adviser's continued development, execution and management of its compliance program, and the additions to the compliance team to support the continued growth of the Nuveen fund family and address regulatory developments.
The Board also considered information highlighting the various initiatives that the Adviser had implemented or continued during the year to enhance or support the closed-end fund product line. The Board noted the Adviser's continued efforts during 2015 (a) to rationalize the product line through mergers designed to help reduce product overlap, offer shareholders the potential for lower fees and enhanced investor acceptance, and address persistent discounts in the secondary market; (b) to oversee and manage leverage as the Adviser facilitated the rollover of existing facilities and conducted negotiations for
improved terms and pricing to reduce leverage costs; (c) to conduct capital management services including share repurchases and/or share issuances throughout the year and monitoring market conditions to capitalize on such opportunities for the closed-end funds; and (d) to implement data-driven market analytics which, among other things, provided a better analysis of the shareholder base, enhanced the ability to monitor the closed-end funds versus peers and helped to understand trading discounts. The Board also considered the quality and breadth of Nuveen's investment relations program through which Nuveen seeks to build awareness of, and educate investors and financial advisers with respect to, Nuveen closed-end funds which may help to build an active secondary market for the closed-end fund product line.
As noted, the Adviser also oversees the Sub-Adviser who primarily provides the portfolio advisory services to the Funds. The Board recognized the skill and competency of the Adviser in monitoring and analyzing the performance of the Sub-Adviser and managing the sub-advisory relationship. The Board noted that the Adviser recommended the renewal of each Sub-Advisory Agreement.
Based on their review, the Independent Board Members found that, overall, the nature, extent and quality of services provided to the respective Funds under each applicable Advisory Agreement were satisfactory.
B. The Investment Performance of the Funds and Fund Advisers
The Board considered the long-term and short-term performance history of each Fund. As noted above, the Board reviewed fund performance at its quarterly meetings throughout the year and took into account the information derived from the discussions with representatives of the Adviser about fund performance at these meetings. The Board also considered the Adviser's analysis of fund performance with particular focus on any performance outliers and the factors contributing to such performance and any steps the investment team had taken to address performance concerns. The Board reviewed, among other things, each Fund's investment performance both on an absolute basis and in comparison to peer funds (the "Performance Peer Group") and to recognized and/or customized benchmarks (i.e., generally benchmarks derived from multiple recognized benchmarks) for the quarter, one-, three- and five-year periods ending December 31, 2015, as well as performance information reflecting the first quarter of 2016.
In evaluating performance information, the Board recognized the following factors may impact the performance data as well as the consideration to be given to particular performance data:
| • | The performance data reflected a snapshot in time, in this case as of the end of the most recent calendar year or quarter. A different performance period, however, could generate significantly different results. |
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| • | Long-term performance can be adversely affected by even one period of significant underperformance so that a single investment decision or theme had the ability to disproportionately affect long-term performance. |
| | |
| • | Shareholders evaluate performance based on their own holding period which may differ from the performance period reviewed by the Board, leading to different performance results. |
| | |
| • | The Board recognized the difficulty in establishing appropriate peer groups and benchmarks for certain funds, including the Funds. The Board noted that management classified the Performance Peer Groups as low, medium and high in relevancy and took the relevancy of the Performance Peer Group into account when considering the comparative performance data. If the Performance Peer Group differed somewhat from a fund, the Board recognized that the comparative performance data may be of limited value. The Board also recognized that each fund operated pursuant to its own investment objective(s), parameters and restrictions which may differ from that of the Performance Peer Group or benchmark and that these variations lead to differences in performance results. Further, for funds that utilized leverage, the Board understood that leverage during different periods could provide both benefits and risks to a portfolio as compared to an unlevered benchmark. |
Annual Investment Management Agreement Approval Process (Unaudited) (continued)
In addition to the foregoing, the Independent Board Members continued to recognize the importance of secondary market trading for the shares of closed-end funds. At the quarterly meetings as well as the May Meeting, the Independent Board Members (either at the Board level or through the Closed-end Fund Committee) reviewed, among other things, the premium or discount to net asset value of the Nuveen closed-end funds as of a specified date and over various periods as well as in comparison to the premium/discount average in their respective Lipper peer category. At the May Meeting and/or prior meetings, the Independent Board Members (either at the Board level or through the Closed-end Fund Committee) reviewed, among other things, an analysis by the Adviser of the key economic, market and competitive trends that affected the closed-end fund market and Nuveen closed-end funds and considered any actions proposed periodically by the Adviser to address trading discounts of certain closed-end funds, including, among other things, share repurchases, fund reorganizations, adjusting fund investment mandates and strategies, and increasing fund awareness to investors. The Independent Board Members considered the evaluation of the premium and discount levels of the closed-end funds to be a continuing priority in their oversight of the closed-end funds.
With respect to any Nuveen funds for which the Board has identified performance concerns, the Board monitors such funds closely until performance improves, discusses with the Adviser the reasons for such results, considers those steps necessary or appropriate to address such issues, and reviews the results of any efforts undertaken. The Board was aware, however, that shareholders chose to invest or remain invested in a fund knowing that the Adviser and the applicable sub-adviser manage the fund, knowing the fund's investment strategy and seeking exposure to that strategy (even if the strategy was "out of favor" in the marketplace) and knowing the fund's fee structure.
For Nuveen Build America Bond Fund, the Board noted that the Fund ranked in its Performance Peer Group in the third quartile in the one-year period and second quartile in the three- and five-year periods. Although the Fund underperformed its benchmark in the one- and five-year periods, the Fund outperformed its benchmark in the three-year period. The Board determined that the Fund's performance had been satisfactory.
For Nuveen Build America Bond Opportunity Fund, the Board noted that the Fund underperformed its benchmark in the one-, three- and five-year periods. In addition, although the Fund ranked in the fourth quartile in the one-year period, the Fund ranked in the second quartile in the three- and five-year periods. The Board determined that overall the Fund's performance had been satisfactory.
C. Fees, Expenses and Profitability
1. Fees and Expenses
The Board evaluated the management fees and other fees and expenses of each Fund. The Board reviewed, among other things, the gross and net management fees and net total expenses of each Fund (expressed as a percentage of average net assets) in absolute terms and also in comparison to the fee and expense levels of a comparable universe of funds (the "Peer Universe") selected by an independent third-party fund data provider. The Independent Board Members also reviewed the methodology regarding the construction of the applicable Peer Universe.
In their evaluation of the management fee schedule, the Independent Board Members considered the fund-level and complex-wide breakpoint schedules, as described in further detail below. In this regard, the Board considered that management recently reviewed the breakpoint schedules for the closed-end funds which resulted in reduced breakpoints and/or new breakpoints at certain asset thresholds for numerous closed-end funds, including the Funds.
In reviewing the comparative fee and expense information, the Independent Board Members recognized that various factors such as the limited size and particular composition of the Peer Universe (including the inclusion of other Nuveen funds in the peer set); expense anomalies; changes in the funds comprising the Peer Universe from year to year; levels of reimbursement or fee waivers; the timing of information used; the differences in the type and use of leverage; and differences in services provided can impact the usefulness of the comparative data in helping to assess the appropriateness of a fund's fees and expenses. In
addition, in reviewing a fund's fees and expenses compared to the fees and expenses of its peers (excluding leverage costs and leveraged assets), the Board generally considered a fund's expenses and fees to be higher if they were over 10 basis points higher, slightly higher if they were 6 to 10 basis points higher, in line if they were within approximately 5 basis points higher than the peer average and below if they were below the peer average of the Peer Universe. The Board reviewed the net expense ratio in recognition that the net expense ratio generally best represented the net experience of the shareholders of a fund as it directly reflected the costs of investing in the respective fund. The Board noted that the majority of the Nuveen funds had a net expense ratio near or below the average of the respective peers. For funds with a net expense ratio of 6 basis points or higher than their respective peer average, the Independent Board Members reviewed the reasons for the outlier status and were satisfied with the explanation for the difference or with any steps taken to address the difference.
The Independent Board Members noted that the Funds had net management fees and net expense ratios below their peer averages.
Based on their review of the fee and expense information provided, the Independent Board Members determined that each Fund's management fees (as applicable) to a Fund Adviser were reasonable in light of the nature, extent and quality of services provided to the Fund.
2. Comparisons with the Fees of Other Clients
The Board also reviewed information regarding the fee rates for other types of clients advised or sub-advised by the respective Fund Adviser. For the Adviser and/or the affiliated sub-advisers of the non-municipal funds, such other clients may include: separately managed accounts (such as retail, institutional or wrap accounts), hedge funds, other investment companies that are not offered by Nuveen but are sub-advised by one of Nuveen's affiliated sub-advisers, foreign investment companies offered by Nuveen, and collective investment trusts. For the Adviser and/or the affiliated sub-advisers of the municipal funds, such other clients may include municipal separately managed accounts and passively managed exchange traded funds (ETFs).
The Board recognized that each Fund had an affiliated sub-adviser. With respect to affiliated sub-advisers, the Board reviewed, among other things, the range of advisory fee rates and average fee rate assessed for the different types of clients. The Board reviewed information regarding the different types of services provided to the Funds compared to that provided to these other clients which typically did not require the same breadth of day-to-day services required for registered funds. The Board further considered information regarding the differences in, among other things, investment policies, investor profiles, and account sizes between the Nuveen funds and the other types of clients. In addition, the Independent Board Members also recognized that the management fee rates of the foreign funds advised by the Adviser may also vary due to, among other things, differences in the client base, governing bodies, operational complexities and services covered by the management fee. The Independent Board Members recognized that the foregoing variations resulted in different economics among the product structures and culminated in varying management fees among the types of clients and funds.
The Board also was aware that, since the Funds had a sub-adviser, each Fund's management fee reflected two components, the fee retained by the Adviser for its services and the fee the Adviser paid to the Sub-Adviser. The Board noted that many of the administrative services provided to support the Funds by the Adviser may not be required to the same extent or at all for the institutional clients or other clients. In general, the Board noted that higher fee levels reflected higher levels of service provided by the Fund Adviser, increased investment management complexity, greater product management requirements and higher levels of business risk or some combination of the foregoing. Given the inherent differences in the various products, particularly the extensive services provided to the Funds, the Independent Board Members concluded such facts justify the different levels of fees.
Annual Investment Management Agreement Approval Process (Unaudited) (continued)
3. Profitability of Fund Advisers
In conjunction with their review of fees, the Independent Board Members also considered the profitability of Nuveen for its advisory activities on an absolute basis and in comparison to other investment advisers. The Independent Board Members reviewed, among other things, Nuveen's adjusted operating margins, the gross and net revenue margins (pre-tax and after-tax) for advisory activities for the Nuveen funds, and the revenues, expenses, and net income (pre-tax and after-tax) of Nuveen for each of the last two calendar years. The Independent Board Members reviewed an analysis of the key drivers behind the changes in revenues and expenses that impacted profitability in 2015. The Independent Board Members also noted that the sub-advisory fees for the Funds are paid by the Adviser, however, the Board recognized that the Sub-Adviser is affiliated with Nuveen. In their review, the Independent Board Members recognized that profitability data is rather subjective as various allocation methodologies may be reasonable to employ but yet yield different results. The Board also reviewed the results of certain alternative methodologies. The Board considered the allocation methodology employed to prepare the profitability data as well as a summary of the refinements to the methodology that had been adopted over the years which may limit some of the comparability of Nuveen's revenue margins over time. Two Independent Board Members also served as point persons for the Board throughout the year to review and discuss the methodology employed to develop the profitability analysis and any proposed changes thereto and to keep the Board apprised of such changes during the year. In reviewing the profitability data, the Independent Board Members noted that Nuveen's operating margin as well as its margins for its advisory activities to the Nuveen funds for 2015 were consistent with such margins for 2014.
The Board also considered Nuveen's adjusted operating margins compared to that of other comparable investment advisers (based on asset size and composition) with publicly available data. The Independent Board Members recognized, however, the limitations of the comparative data as the other advisers may have a different business mix, employ different allocation methodologies, have different capital structure and costs, may not be representative of the industry or other factors that limit the comparability of the profitability information. Nevertheless, the Independent Board Members noted that Nuveen's adjusted operating margins appeared comparable to the adjusted margins of the peers.
Further, as the Adviser is a wholly-owned subsidiary of Nuveen which in turn is an operating division of TIAA Global Asset Management, the investment management arm of Teachers Insurance and Annuity Association of America ("TIAA-CREF"), the Board reviewed a balance sheet for TIAA-CREF reflecting its assets, liabilities and capital and contingency reserves for the last two calendar years to have a better understanding of the financial stability and strength of the TIAA-CREF complex, together with Nuveen.
Based on the information provided, the Independent Board Members noted that the Adviser appeared to be sufficiently profitable to operate as a viable investment management firm and to honor its obligations as a sponsor of the Nuveen funds.
With respect to the Sub-Adviser, the Independent Board Members also considered the profitability of the Sub-Adviser from its relationship with the Nuveen funds. The Independent Board Members reviewed the Sub-Adviser's revenues, expenses and revenue margins (pre- and post-tax) for its advisory activities for the calendar year ended December 31, 2015. The Independent Board Members also reviewed profitability analysis reflecting the revenues, expenses and revenue margin (pre- and post-tax) by asset type for the Sub-Adviser for the calendar year ending December 31, 2015.
In evaluating the reasonableness of the compensation, the Independent Board Members also considered other amounts paid to a Fund Adviser by the Funds as well as indirect benefits (such as soft dollar arrangements), if any, the Fund Adviser and its affiliates received or were expected to receive that were directly attributable to the management of a Fund. See Section E below for additional information on indirect benefits a Fund Adviser may receive as a result of its relationship with the Funds.
Based on their review, the Independent Board Members determined that the Adviser's and the Sub-Adviser's levels of profitability were reasonable in light of the respective services provided.
D. Economies of Scale and Whether Fee Levels Reflect These Economies of Scale
The Independent Board Members recognized that as the assets of a particular fund or the Nuveen complex in the aggregate increase over time, economies of scale may be realized with respect to the management of the funds, and the Independent Board Members considered the extent to which these economies are shared with the funds and their shareholders. Although the Independent Board Members recognized that economies of scale are difficult to measure with precision, the Board noted that there were several acceptable means to share economies of scale, including through breakpoints in the management fee schedule reducing the fee rates as asset levels grow, fee waiver and expense limitation agreements and the Adviser's investment in its business which can enhance the services provided to the funds. With respect to breakpoints, the Independent Board Members noted that, subject to certain exceptions, the funds in the Nuveen complex pay a management fee to the Adviser which is generally comprised of a fund-level component and complex-level component. The fund-level fee component declines as the assets of the particular fund grow and the complex-level fee component declines when eligible assets of all the funds in the Nuveen complex combined grow. With respect to closed-end funds, the Independent Board Members noted that, although such funds may from time-to-time make additional share offerings, the growth of their assets would occur primarily through the appreciation of such funds' investment portfolios. The complex-wide fee arrangement was designed to capture economies of scale achieved when total fund complex assets increase, even if the assets of a particular fund are unchanged or decrease. The approach reflected the notion that some of Nuveen's costs were attributable to services provided to all its funds in the complex, and therefore all funds should benefit if these costs were spread over a larger asset base.
The Independent Board Members reviewed the breakpoint and complex-wide schedules and the material savings achieved from fund-level breakpoints and complex-wide fee reductions for the 2015 calendar year.
In addition, the Independent Board Members recognized the Adviser's ongoing investment in its business to expand or enhance the services provided to the Nuveen funds. The Independent Board Members noted, among other things, the additions to groups who play a key role in supporting the funds including in closed-end funds/structured products, fund administration, operations, fund governance, investment services, compliance, product management, and technology. The Independent Board Members also recognized the investments in systems necessary to manage the funds including in areas of risk oversight, information technology and compliance.
Based on their review, the Independent Board Members concluded that the current fee structure was acceptable and reflected economies of scale to be shared with shareholders when assets under management increase.
E. Indirect Benefits
The Independent Board Members received and considered information regarding other additional benefits the respective Fund Adviser or its affiliates may receive as a result of their relationship with the Funds, including compensation paid to affiliates and research received in connection with brokerage transactions (i.e., soft dollar arrangements). In this regard, the Independent Board Members noted any revenues received by affiliates of the Adviser for serving as co-manager in initial public offerings of new closed-end funds and as underwriter on shelf offerings for certain existing funds.
In addition to the above, the Independent Board Members considered that the Funds' portfolio transactions are allocated by the Sub-Adviser and the Sub-Adviser may benefit from research received through soft-dollar arrangements. The Board noted, however, that with respect to transactions in fixed income securities, such securities generally trade on a principal basis and do not generate soft dollar credits. Although the Board recognized the Sub-Adviser may benefit from a soft dollar arrangement if it does not have to pay for this research out of its own assets, the Board also recognized that any such research may benefit the Funds to the extent it enhances the ability of the Sub-Adviser to manage the Funds.
Based on their review, the Independent Board Members concluded that any indirect benefits received by a Fund Adviser as a result of its relationship with the Funds were reasonable and within acceptable parameters.
Annual Investment Management Agreement Approval Process (Unaudited) (continued)
F. Other Considerations
The Independent Board Members did not identify any single factor discussed previously as all-important or controlling. The Board Members, including the Independent Board Members, concluded that the terms of each Advisory Agreement were fair and reasonable, that the respective Fund Adviser's fees were reasonable in light of the services provided to each Fund and that the Advisory Agreements be renewed.
Notes
Nuveen:
Serving Investors for Generations
Since 1898, financial advisors and their clients have relied on Nuveen to provide dependable investment solutions through continued adherence to proven, long-term investing principles. Today, we offer a range of high quality equity and fixed-income solutions designed to be integral components of a well-diversified core portfolio.
Focused on meeting investor needs.
Nuveen helps secure the long-term goals of individual investors and the advisors who serve them. As an operating division of TIAA Global Asset Management, Nuveen provides access to investment expertise from leading asset managers and solutions across traditional and alternative asset classes. Built on more than a century of industry leadership, Nuveen's teams of experts align with clients' specific financial needs and goals, demonstrating commitment to advisors and investors through market perspectives and wealth management and portfolio advisory services. Nuveen manages $244 billion in assets as of September 30, 2016.
Find out how we can help you.
To learn more about how the products and services of Nuveen may be able to help you meet your financial goals, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Investors should consider the investment objective and policies, risk considerations, charges and expenses of any investment carefully. Where applicable, be sure to obtain a prospectus, which contains this and other relevant information. To obtain a prospectus, please contact your securities representative or Nuveen, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money.
Learn more about Nuveen Funds at: www.nuveen.com/cef
Distributed by Nuveen Investments, LLC | 333 West Wacker Drive | Chicago, IL 60606 | www.nuveen.com | |
ESA-C-0916D 20927-INV-B-11/17
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) See Portfolio of Investments in Item 1.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Gifford R. Zimmerman
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Cedric H. Antosiewicz
Stephen D. Foy
