Notes to
Financial Statements
1. General Information and Significant Accounting Policies
General Information
Fund Information
The state 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 Arizona Premium Income Municipal Fund (NAZ) (“Arizona Premium Income (NAZ)”) |
| · | Nuveen Michigan Quality Income Municipal Fund (NUM) (“Michigan Quality Income (NUM)”) |
| · | Nuveen Ohio Quality Income Municipal Fund (NUO) (“Ohio Quality Income (NUO)”) |
| · | Nuveen Texas Quality Income Municipal Fund (NTX) (“Texas Quality Income (NTX)”) |
The Funds are registered under the Investment Company Act of 1940, as amended, as diversified, closed-end registered investment companies. Arizona Premium Income (NAZ), Michigan Quality Income (NUM) and Ohio Quality Income (NUO) were organized as Massachusetts business trusts on April 8, 2013, January 7, 2013 and April 8, 2013, respectively (previously organized as Minnesota trusts on January 23, 1991, July 25, 1991 and October 17, 1991, respectively). Texas Quality Income (NTX) was organized as a Massachusetts business trust on July 26, 1991.
Investment Adviser
The Funds’ investment adviser is Nuveen Fund Advisors, LLC (the “Adviser”), a wholly-owned subsidiary of Nuveen Investments, Inc. (“Nuveen”). The Adviser is responsible for each Fund’s overall investment strategy and 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
Each Fund seeks to provide current income exempt from both regular federal and designated state income taxes by investing primarily in a portfolio of municipal obligations issued by state and local government authorities within a single state or certain U.S. territories.
Fund Reorganizations
Effective prior to the opening of business on April 8, 2013, certain Arizona and Ohio Funds were reorganized in two of the larger-state funds included in this report as follows:
Acquired Funds | Acquiring Funds |
Arizona Funds | |
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) (“Arizona Dividend Advantage (NFZ)”) | Arizona Premium Income (NAZ) |
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (“Arizona Dividend Advantage 2 (NKR)”) | |
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (“Arizona Dividend Advantage 3 (NXE)”) | |
Ohio Funds | |
Nuveen Ohio Dividend Advantage Municipal Fund (NXI) (“Ohio Dividend Advantage (NXI)”) | Ohio Quality Income (NUO) |
Nuveen Ohio Dividend Advantage Municipal Fund 2 (NBJ) (“Ohio Dividend Advantage 2 (NBJ)”) | |
Nuveen Ohio Dividend Advantage Municipal Fund 3 (NVJ) (“Ohio Dividend Advantage 3 (NVJ)”) | |
The reorganizations of the Funds were approved by the shareholders of the Acquired Funds at a special meeting on March 11, 2013.
Upon the closing of each Fund’s reorganization (each a “Reorganization” and collectively, the “Reorganizations”), the Acquired Funds transferred their assets to the Acquiring Funds in exchange for common and preferred shares of the Acquiring Funds and the assumption by the Acquiring Funds of the liabilities of the Acquired Funds. The Acquired Funds were then liquidated, dissolved and terminated in accordance with their Declaration of Trust. Shareholders of the Acquired Funds became shareholders of the Acquiring Funds. Holders of common shares of the Acquired Funds received newly issued common shares of the Acquiring Funds, the aggregate net asset value (“NAV”) of which was equal to the aggregate NAV of the common shares of the Acquired Funds held immediately prior to the Reorganizations (including for this purpose fractional Acquiring Funds shares to which shareholders would be entitled). Fractional shares were sold on the open market and shareholders received cash in lieu of such fractional shares. Holders of preferred shares of the Acquired Funds received on a one-for-one basis newly issued preferred shares of the Acquiring Funds, in exchange for preferred shares of the Acquired Funds held immediately prior to the Reorganizations. Details of each state’s Reorganizations are further described in the MuniFund Term Preferred Shares section of this note and Note 8 – Fund Reorganizations.
66 Nuveen Investments
Significant Accounting Policies
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 instructed the custodian to earmark securities in the Funds’ portfolios with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments. As of February 28, 2014, the following Funds’ outstanding when-issued/delayed delivery purchase commitments were as follows:
| | Ohio | Texas |
| | Quality | Quality |
| | Income | Income |
| | (NUO) | (NTX) |
Outstanding when-issued/delayed delivery purchase commitments | $1,969,726 | $3,132,475 |
Investment Income
Interest income, which reflects the amortization of premiums and includes 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. Should a Fund receive a refund of 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 and/or market discount 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 of net investment income, net realized capital gains and/or market discount, if any, 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.
Auction Rate Preferred Shares
Each Fund is authorized to issue Auction Rate Preferred Shares (“ARPS”). During prior fiscal periods, the Funds redeemed all of their outstanding ARPS, at liquidation value.
MuniFund Term Preferred Shares
Texas Quality Income (NTX) has issued and outstanding MuniFund Term Preferred (“MTP”) Shares, with a $10 stated par value per share. The Fund’s MTP Shares were issued in one Series and trade on the NYSE. Dividends on MTP Shares, which are recognized as interest expense for financial reporting purposes, are paid monthly at a fixed annual rate, subject to adjustments in certain circumstances.
As of February 28, 2014, the details of Texas Quality Income’s (NTX) MTP Shares outstanding were as follows:
| | | | | Shares | |
| | | | | Outstanding | |
| | | NYSE | Shares | at $10 Per Share | Annual |
| | Series | Ticker | Outstanding | Liquidation Value | Dividend Rate |
Texas Quality Income (NTX) | 2015 | NTX PRC | 7,092,000 | $70,920,000 | 2.30% |
The Fund is obligated to redeem its MTP Shares by the date as specified in its offering document (“Term Redemption Date”), unless earlier redeemed or repurchased by the Fund. MTP Shares are subject to optional and mandatory redemption in certain circumstances. MTP Shares were subject to redemption at the option of the Fund (“Optional Redemption Date”), subject to a payment of premium for one year following the Optional Redemption Date (“Premium Expiration Date”), and at par thereafter. MTP Shares also will be subject to redemption, at the option of the Fund, at par in the event of certain changes in the credit rating of the MTP Shares. The Fund may be obligated to redeem certain of the MTP Shares if the Fund fails
Nuveen Investments 67
Notes to Financial Statements (continued)
to maintain certain asset coverage and leverage ratio requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends. The Term Redemption Date, Optional Redemption Date and Premium Expiration Date for the Fund’s series of MTP Shares by NYSE ticker symbol are as follows:
| | | NYSE | Term | Optional | Premium |
| | Series | Ticker | Redemption Date | Redemption Date | Expiration Date |
Texas Quality Income (NTX) | 2015 | NTX PRC | December 1, 2015 | December 1, 2011 | November 30, 2012 |
During the current fiscal period, Arizona Premium Income (NAZ), Michigan Quality Income (NUM) and Ohio Quality Income (NUO) had issued and outstanding MTP Shares.
Arizona Premium Income (NAZ) redeemed all of its outstanding Series 2015 MTP Shares on December 20, 2013. Michigan Quality Income (NUM) redeemed all of its outstanding Series 2015 MTP Shares on December 20, 2013. Ohio Quality Income (NUO) redeemed all of its outstanding Series 2014, 2015 and 2016 MTP Shares on October 7, 2013.
Each of Arizona Premium Income’s (NAZ) and Michigan Quality Income’s (NUM) MTP Shares were redeemed at their $10.00 liquidation value per share plus dividend amounts owed using proceeds from its issuance of VMTP Shares (as described below in Variable Rate MuniFund Term Preferred Shares).
Ohio Quality Income’s (NUO) MTP Shares were redeemed at their $10.00 liquidation value per share plus dividend amounts owed using proceeds from its issuance of VRDP Shares (as described below in Variable Rate Demand Preferred Shares).
The average liquidation value for all series of MTP Shares outstanding for the Funds during the fiscal year ended February 28, 2014, was as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ)*^ | (NUM)** | (NUO)***^ | (NTX) |
Average liquidation value of MTP Shares outstanding | $50,671,000 | $16,313,000 | $73,817,550 | $70,920,000 |
| * | For the period April 8, 2013 through December 20, 2013. |
| ** | For the period March 1, 2013 through December 20, 2013. |
| *** | For the period April 8, 2013 through October 7, 2013. |
| ^ | Includes MTP Shares issued in connection with its Reorganization. |
For financial reporting purposes, the liquidation value of MTP Shares is recorded as a liability and recognized as “MuniFund Term Preferred (“MTP”) Shares, at liquidation value” on the Statement of Assets and Liabilities. Unpaid dividends on MTP Shares are recognized as a component of “Interest payable” on the Statement of Assets and Liabilities. Dividends accrued on MTP Shares are recognized as a component of “Interest expense and amortization of offering costs” on the Statement of Operations. Costs incurred by the Funds in connection with their offerings of MTP Shares were recorded as a deferred charge, which are amortized over the life of the shares and are recognized as components of “Deferred offering costs” on the Statement of Assets and Liabilities and “Interest expense and amortization of offering costs” on the Statement of Operations. In conjunction with Arizona Premium Income’s (NAZ), Michigan Quality Income’s (NUM) and Ohio Quality Income’s (NUO) redemption of MTP Shares, the remaining deferred offering costs of $407,922, $158,771 and $296,550, respectively, were fully expensed during the current fiscal period, as the redemptions were deemed an extinguishment of debt.
Variable Rate MuniFund Term Preferred Shares
The following Funds have issued and outstanding Variable Rate MuniFund Term Preferred (“VMTP”) Shares, with a $100,000 liquidation value per share. The Funds issued their VMTP Shares in privately negotiated offerings, which were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.
On December 10, 2013, Arizona Premium Income (NAZ) and Michigan Quality Income (NUM) and on October 6, 2013, Ohio Quality Income (NUO) redeemed all 280 shares of its outstanding Series 2014 VMTP, 539 shares of its outstanding Series 2014-1 VMTP and 735 shares of its outstanding Series 2014 VMTP, respectively. Arizona Premium Income (NAZ) issued 790 shares of Series 2016 VMTP through a privately negotiated offering, which was offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Michigan Quality Income (NUM) exchanged all 879 shares of its outstanding Series 2014 for 879 shares of Series 2016 VMTP. Concurrent with the exchange, Michigan Quality Income (NUM) issued an additional 711 shares of Series 2016 VMTP through a privately negotiated offering, which was offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933. Arizona Premium Income (NAZ) and Michigan Quality Income (NUM) completed their refinancing of their existing VMTP Shares with new VMTP Shares with a term redemption date of December 30, 2016.
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As of February 28, 2014, VMTP Shares outstanding, at liquidation value, for each Fund were as follows:
| | | | Shares |
| | | | Outstanding |
| | | Shares | at $100,000 Per Share |
| | Series | Outstanding | Liquidation Value |
Arizona Premium Income (NAZ) | 2016 | 790 | $79,000,000 |
Michigan Quality Income (NUM) | 2016 | 1,590 | $159,000,000 |
Each Fund is obligated to redeem its VMTP Shares by the date as specified in its offering document (“Term Redemption Date”), unless earlier redeemed or repurchased by the Fund. VMTP Shares are subject to optional and mandatory redemption in certain circumstances. The VMTP Shares are subject to redemption at the option of each Fund (“Optional Redemption Date”), subject to payment of premium for approximately one year following the date of issuance (“Premium Expiration Date”), and at par thereafter. Each Fund may be obligated to redeem certain of the VMTP Shares if the Fund fails to maintain certain asset coverage and leverage ratio requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends. The Term Redemption Date, Optional Redemption Date and Premium Expiration Date for each Fund’s series of VMTP Shares are as follows:
| | | Term | Optional | Premium |
| | Series | Redemption Date | Redemption Date | Expiration Date |
Arizona Premium Income (NAZ) | 2016 | December 30, 2016 | January 1, 2015 | December 31, 2014 |
Michigan Quality Income (NUM) | 2016 | December 30, 2016 | January 1, 2015 | December 31, 2014 |
The average liquidation value of VMTP Shares outstanding and annualized dividend rate for each Fund during the fiscal year ended February 28, 2014, were as follows:
| | Arizona | Michigan | Ohio |
| | Premium | Quality | Quality |
| | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO)* |
Average liquidation value of VMTP Shares outstanding | $41,389,041 | $149,604,110 | $73,500,000 |
Annualized dividend rate | 1.08% | 1.11% | 1.15% |
* For the period March 1, 2013 through October 6, 2013.
VMTP Shares generally do not trade, and market quotations are generally not available. VMTP Shares are short-term or short/intermediate-term instruments that pay a variable dividend rate tied to a short-term index, plus an additional fixed “spread” amount established at the time of issuance. The fair value of VMTP Shares is expected to be approximately their liquidation par value so long as the fixed “spread” on the VMTP Shares remains roughly in line with the “spread” rates being demanded by investors on instruments having similar terms in the current market environment. In present market conditions, the Funds’ Adviser has determined that the fair value of VMTP Shares is their liquidation value, but their fair value could vary if market conditions change materially. For financial reporting purposes only, the liquidation value of VMTP Shares is recorded as a liability and recognized as “Variable Rate MuniFund Term Preferred (“VMTP”) Shares, at liquidation value” on the Statement of Assets and Liabilities.
Dividends on the VMTP Shares (which are treated as interest payments for financial reporting purposes) are set weekly. Unpaid dividends on VMTP Shares are recognized as a component of “Interest payable” on the Statement of Assets and Liabilities. Dividends accrued on VMTP Shares are recognized as a component of “Interest expense and amortization of offering costs” on the Statement of Operations.
Offering costs incurred in connection with each Fund’s offering of VMTP Shares were recorded as a deferred charge, which are amortized over the life of the shares and are recognized as components of “Deferred offering costs” on the Statement of Assets and Liabilities and “Interest expense and amortization of offering costs” on the Statement of Operations. In conjunction with Arizona Premium Income’s (NAZ) and Ohio Quality Income’s (NUO) redemption of VMTP Shares, the remaining deferred offering costs of $42,905 and $138,592, respectively, were fully expensed during the current fiscal period, as the redemptions were deemed an extinguishment of debt. In conjunction with Michigan Quality Income’s (NUM) exchange and redemption of VMTP Shares, the remaining deferred offering costs of $171,591 for the Fund’s issuance of Series 2014 VMTP Shares were fully expensed during the current fiscal period, as the exchange and redemption were deemed an extinguishment of debt. Offering costs of $130,000 and $135,000, respectively, were incurred with Arizona Premium Income’s (NAZ) and Michigan Quality Income’s (NUM) issuance of Series 2016 VMTP Shares, which were recorded as a deferred charge and are being amortized over the life of the shares.
Variable Rate Demand Preferred Shares
The following Fund has issued and outstanding Variable Rate Demand Preferred (“VRDP”) Shares, with a $100,000 liquidation value per share. During the current fiscal period, Ohio Quality Income (NUO) issued 1,480 Series 1 VRDP Shares through a privately negotiated offering, which were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.
Nuveen Investments 69
Notes to Financial Statements (continued)
As of February 28, 2014, the details the Fund’s series VRDP Shares outstanding are as follows:
| | | | Shares | |
| | | | Outstanding | |
| | | Shares | at $100,000 Per Share | |
| | Series | Outstanding | Liquidation Value | Maturity |
Ohio Quality Income (NUO) | 1 | 1,480 | $148,000,000 | September 1, 2043 |
VRDP Shares include a liquidity feature that allows VRDP shareholders to have their shares purchased by a liquidity provider with whom the Fund has contracted in the event that purchase orders for VRDP Shares in a remarketing are not sufficient in number to be matched with the sale orders in that remarketing. The Fund is required to redeem any VRDP Shares that are still owned by the liquidity provider after six months of continuous, unsuccessful remarketing. The Fund pays an annual remarketing fee of .10% on the aggregate principal amount of all VRDP Shares outstanding. The Fund’s VRDP Shares have successfully remarketed since issuance.
Dividends on the VRDP Shares (which are treated as interest payments for financial reporting purposes) are set weekly at a rate established by a remarketing agent; therefore, the market value of the VRDP Shares is expected to approximate its liquidation value. If remarketings for VRDP Shares are continuously unsuccessful for six months, the maximum rate is designed to escalate according to a specified schedule in order to enhance the remarketing agent’s ability to successfully remarket the VRDP Shares.
Subject to certain conditions, VRDP Shares may be redeemed, in whole or in part, at any time at the option of the Fund. The Fund may also redeem certain of the VRDP Shares if the Fund fails to maintain certain asset coverage requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends.
The average liquidation value of VRDP Shares outstanding and annualized dividend rate for the Fund during the period September 26, 2013 (first issuance date of shares) through February 28, 2014, were as follows:
| | Ohio |
| | Quality |
| | Income |
| | (NUO) |
Average liquidation value of VRDP Shares outstanding | $148,000,000 |
Annualized dividend rate | .15% |
For financial reporting purposes, the liquidation value of VRDP Shares is a liability and recognized as “Variable Rate Demand Preferred (“VRDP”) Shares, at liquidation value” on the Statement of Assets and Liabilities. Unpaid dividends on VRDP Shares are recognized as a component of “Interest payable” on the Statement of Assets and Liabilities, when applicable. Dividends accrued on the VRDP Shares are recognized as a component of “Interest expense and amortization of offering costs” on the Statement of Operations. Costs incurred by the Fund in connection with its offerings of VRDP Shares were recorded as a deferred charge, which are amortized over the life of the shares and are recognized as a component of “Deferred offering costs” on the Statement of Assets and Liabilities and “Interest expense and amortization of offerings costs” on the Statement of Operations. Offering costs of $295,000 were incurred with Ohio Quality Income’s (NUO) issuance of 1,480 Series 1 VRDP Shares, which were recorded as a deferred charge and are being amortized over the life of the shares. In addition to interest expense, the Fund also pays a per annum liquidity fee to the liquidity provider, as well as a remarketing fee, which are recognized as “Liquidity fees” and “Remarketing fees”, respectively, on the Statement of Operations.
Common Shares Equity Shelf Programs and Offering Costs
Texas Quality Income (NTX) filed a registration statement with the Securities and Exchange Commission (“SEC”) authorizing the Fund to issue additional common shares through its ongoing equity shelf program (“Shelf Offering”), which became effective with the SEC during prior fiscal periods.
Under this Shelf Offering, the Fund, subject to market conditions, may raise additional equity capital from time to time in varying amounts and offering methods at a net price at or above the Fund’s NAV per common share.
Authorized common shares, common shares issued and offering proceeds, net of offering costs under the Fund’s Shelf Offering during the fiscal years ended February 28, 2014 and February 28, 2013 were as follows:
| | Texas Quality |
| | Income (NTX) |
| | Year | Year |
| | Ended | Ended |
| | 2/28/14 | 2/28/13 |
Additional common shares authorized | 950,000 | 950,000 |
Common shares issued | 10,120 | 398,357 |
Offering proceeds, net of offering costs | $156,238 | $6,438,085 |
70 Nuveen Investments
Costs incurred by the Fund in connection with its Shelf Offering are recorded as a deferred charge and recognized as a component of “Deferred offering costs” on the Statement of Assets and Liabilities. These deferred charges are recognized over the period such additional shares are sold by reducing the proceeds from the Shelf Offering. These deferred charges are not to exceed the one-year life of the Shelf Offering period and are recognized as a component of “Proceeds from shelf offering, net of offering costs” on the Statement of Changes in Net Assets. At the end of the one-year life of the Shelf Offering period, any remaining deferred charges will be expensed accordingly and recognized as a component of “Other expenses” on the Statement of Operations. Any additional costs the Fund may incur in connection with its Shelf Offering are expenses as incurred and recognized as a component of “Proceeds from shelf offering, net of offering costs” on the Statement of Changes in Net Assets.
During the fiscal year ended February 28, 2014, Nuveen Securities, LLC, the Funds’ distributor and a wholly-owned subsidiary of Nuveen, received commissions of $324, related to the sale of common shares from the Shelf Offering.
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 may enter into transactions subject to enforceable 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 any exposure to a specific counterparty with any collateral received or delivered to that counterparty based on the terms of the agreements. Generally, a Fund manages its cash collateral and securities collateral on a counterparty basis. As of February 28, 2014, the Funds were not invested in any portfolio securities or derivative instruments that are subject to netting agreements.
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
Investment Valuation
Prices of municipal bonds are provided by a pricing service approved by the Funds’ Board of Trustees. These securities are generally classified as Level 2 for fair value measurement purposes. 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. 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 priority of the significant inputs.
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 Funds’ Board of Trustees or its designee 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 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 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 or Level 3 depending on the priority of the significant inputs. Regardless of the method employed to value a particular security, all valuations are subject to review by the Funds’ Board of Trustees or its designee.
Nuveen Investments 71
Notes to Financial Statements (continued)
Fair Value Measurements
Fair value is defined as the price that the Funds would receive 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 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).
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:
Arizona Premium Income (NAZ) | Level 1 | Level 2 | Level 3 | Total |
Long-Term Investments*: | | | | |
Municipal Bonds | $ — | $241,834,225 | $ — | $241,834,225 |
Michigan Quality Income (NUM) | | | | |
Long-Term Investments*: | | | | |
Municipal Bonds | $ — | $471,754,431 | $ — | $471,754,431 |
Ohio Quality Income (NUO) | | | | |
Long-Term Investments*: | | | | |
Municipal Bonds | $ — | $445,349,671 | $ — | $445,349,671 |
Texas Quality Income (NTX) | Level 1 | Level 2 | Level 3 | Total |
Long-Term Investments*: | | | | |
Municipal Bonds | $ — | $222,628,742 | $ — | $222,628,742 |
* Refer to the Fund’s Portfolio of Investments for industry classifications.
The Nuveen funds’ Board of Directors/Trustees is responsible for the valuation process and has delegated 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 of Directors/Trustees, is responsible for making fair value determinations, evaluating the effectiveness of the funds’ pricing policies and reporting to the Board of Directors/Trustees. 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 of Directors/Trustees, 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 of Directors/Trustees.
72 Nuveen Investments
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, typically with a fixed interest rate, into a special purpose trust created by a broker-dealer. In turn, this trust (a) issues floating rate certificates, in face amounts equal to some fraction of the deposited bond’s par amount or market value, that typically pay short-term tax-exempt interest rates to third parties, and (b) issues to a long-term investor (such as one of the Funds) an inverse floating rate certificate (sometimes referred to as an “inverse floater”) that represents all remaining or residual interest in the trust. The income received by the inverse floater holder varies inversely with the short-term rate paid to the floating rate certificates’ holders, 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 price of an inverse floating rate security 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 floating rate certificates, and because the inverse floating rate security essentially bears the risk of loss of the greater face value of the underlying bond.
The inverse floater held by a Fund gives the Fund the right (a) to cause the holders of the floating rate certificates to tender their notes at par, and (b) to have the broker transfer the fixed-rate bond held by the trust to the Fund, thereby collapsing the trust.
A Fund may purchase an inverse floating rate security in a secondary market transaction without first owning the underlying bond (referred to as an “externally-deposited inverse floater”), or instead by first selling a fixed-rate bond to a broker-dealer for deposit into the special purpose trust and receiving in turn the residual interest in the trust (referred to as a “self-deposited inverse floater”). An investment in an externally-deposited inverse floater is identified in the Portfolio of Investments as “(IF) – Inverse floating rate investment.” The Fund’s Statement of Assets and Liabilities shows only the inverse floaters and not the underlying bonds as an asset, and does not reflect the short-term floating rate certificates as liabilities. Also, the Fund reflects in “Investment Income” only the net amount of earnings on its inverse floater investment (net of the interest paid to the holders of the short-term floating rate certificates and the expenses of the trust), and does not show the amount of that interest paid as an interest expense on the Statement of Operations.
An investment in a self-deposited inverse floater is accounted for as a financing transaction. In such instances, a fixed-rate bond deposited into a special purpose trust is identified in the Portfolio of Investments as “(UB) – Underlying bond of an inverse floating rate trust reflected as a financing transaction,” with the Fund accounting for the short-term floating rate certificates issued by the trust, at their liquidation value, as “Floating rate obligations” on the Statement of Assets and Liabilities. In addition, the Fund reflects in “Investment Income” the entire earnings of the underlying bond and recognizes the related interest paid to the holders of the short-term floating rate certificates as a component of “Interest expense and amortization of offering costs” on the Statement of Operations.
During the fiscal year ended February 28, 2014, each Fund invested in externally-deposited inverse floaters and/or self-deposited inverse floaters.
The average floating rate obligations outstanding and average annual interest rate and fees related to self-deposited inverse floaters during the fiscal year ended February 28, 2014, were as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Average floating rate obligations outstanding | $2,755,000 | $6,625,000 | $7,490,753 | $3,960,000 |
Average annual interest rate and fees | .57% | .80% | .58% | .32% |
As of February 28, 2014, the total amount of floating rate obligations issued by each Fund’s self-deposited inverse floaters and externally-deposited inverse floaters was as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Floating rate obligations: self-deposited inverse floaters | $ 2,755,000 | $ 6,625,000 | $ 8,625,000 | $3,960,000 |
Floating rate obligations: externally-deposited inverse floaters | 14,215,000 | 15,413,000 | 38,715,000 | — |
Total | $16,970,000 | $22,038,000 | $47,340,000 | $3,960,000 |
Each Fund may also enter into shortfall and forbearance agreements (sometimes referred to as a “recourse trust” or “credit recovery swap”) (such agreements referred to herein as “Recourse Trusts”) with a broker-dealer by which a Fund agrees to reimburse the broker-dealer, in certain circumstances, for the difference between the liquidation value of the fixed-rate bond held by the trust and the liquidation value of the floating rate
Nuveen Investments 73
Notes to Financial Statements (continued)
certificates issued by the trust plus any shortfalls in interest cash flows. Under these agreements, a Fund’s potential exposure to losses related to or on inverse floaters may increase beyond the value of a Fund’s inverse floater investments as a Fund may potentially be liable to fulfill all amounts owed to holders of the floating rate certificates. At period end, any such shortfall is recognized as “Unrealized depreciation on Recourse Trusts” on the Statement of Assets and Liabilities.
As of February 28, 2014, each Fund’s maximum exposure to the floating rate obligations issued by externally-deposited Recourse Trusts was as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Maximum exposure to Recourse Trusts | $14,215,000 | $8,430,000 | $15,130,000 | $ — |
Zero Coupon Securities
Each Fund is authorized to invest in 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
Each Fund is authorized to invest in certain derivative instruments such as futures, options and swap contracts. Each Fund will limit 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. Although the Funds are authorized to invest in derivative instruments and may do so in the future, they did not make any such investments during the fiscal year ended February 28, 2014.
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
Common Shares
Transactions in common shares were as follows:
| | Arizona Premium | Michigan Quality |
| | Income (NAZ) | Income (NUM) |
| | Year | Year | Year | Year |
| | Ended | Ended | Ended | Ended |
| | 2/28/14 | 2/28/13 | 2/28/14 | 2/28/13 |
Common shares: | | | | |
Issued in the Reorganizations(1) | 7,087,734 | — | — | 9,303,434 |
Issued to shareholders due to reinvestment of distributions | 704 | 4,753 | — | — |
Repurchased and retired | — | — | (24,300) | — |
Total | 7,088,438 | 4,753 | (24,300) | 9,303,434 |
Weighted average common share: | | | | |
Price per share repurchased and retired | $ — | $ — | $12.63 | $ — |
Discount per share repurchased and retired | — | — | 12.91% | — |
(1) Refer to Note 8 – Fund Reorganizations for further details. | | | | |
N/A – The Fund is not authorized to issue additional common shares through a shelf offering. | | | |
74 Nuveen Investments
| | Ohio Quality | Texas Quality |
| | Income (NUO) | Income (NTX) |
| | Year | Year | Year | Year |
| | Ended | Ended | Ended | Ended |
| | 2/28/14 | 2/28/13 | 2/28/14 | 2/28/13 |
Common shares: | | | | |
Issued in the Reorganizations(1) | 8,710,950 | — | — | — |
Sold through shelf offering | N/A | N/A | 10,120 | 398,357 |
Issued to shareholders due to reinvestment of distributions | 7,507 | 38,469 | 2,256 | 29,023 |
Total | 8,718,457 | 38,469 | 12,376 | 427,380 |
Weighted average common share: | | | | |
Premium to NAV per shelf offering share sold | N/A | N/A | 1.35% | 3.21% |
(1) Refer to Note 8 – Fund Reorganizations for further details. | | | | |
N/A – The Fund is not authorized to issue additional common shares through a shelf offering. | | | | |
Preferred Shares
Texas Quality Income (NTX) did not have any transactions in MTP Shares during the fiscal year ended February 28, 2014. Arizona Premium Income (NAZ), Ohio Quality Income (NUO) and Texas Quality Income (NTX) did not have any transactions in MTP Shares during the fiscal year ended February 28, 2013.
Transactions in MTP Shares for the Funds, where applicable, were as follows:
| | Year Ended February 28, 2014 |
| | | NYSE/ | | |
| | | NYSE MKT | | |
| | Series | Ticker | Shares | Amount |
Arizona Premium Income (NAZ) | | | | |
MTP Shares issued in connection with the Reorganizations: | | | | |
| | 2015 | NAZ PRC | 2,982,500 | $ 29,825,000 |
| | 2016 | NAZ PRD | 2,084,600 | 20,846,000 |
MTP Shares redeemed: | | | | |
| | 2015 | NAZ PRC | (2,982,500) | (29,825,000) |
| | 2016 | NAZ PRD | (2,084,600) | (20,846,000) |
Net increase (decrease) | | | — | $ — |
Ohio Quality Income (NUO) | | | | |
MTP Shares issued in connection with the Reorganizations: | | | | |
| | 2014 | NUO PRACL | 4,271,415 | $ 42,714,150 |
| | 2015 | NUO PRCCL | 1,945,000 | 19,450,000 |
| | 2016 | NUO PRDCL | 1,165,340 | 11,653,400 |
MTP Shares redeemed: | | | | |
| | 2014 | NUO PRACL | (4,271,415) | (42,714,150) |
| | 2015 | NUO PRCCL | (1,945,000) | (19,450,000) |
| | 2016 | NUO PRDCL | (1,165,340) | (11,653,400) |
Net increase (decrease) | | | — | $ — |
Michigan Quality Income (NUM) | | | | |
MTP Shares redeemed | 2015 | NUM PRC | (1,631,300) | $(16,313,000) |
Michigan Quality Income (NUM) | | | | |
MTP Shares issued in connection with the reorganization | 2015 | NUM PRC | 1,631,300 | $16,313,000 |
Texas Quality Income (NTX) did not have any transactions in VMTP during the fiscal year ended February 28, 2014. Arizona Premium Income (NAZ), Ohio Quality Income (NUO) and Texas Quality Income (NTX) did not have any transactions in VMTP Shares during the fiscal year ended February 28, 2013.
Nuveen Investments 75
Notes to Financial Statements (continued)
Transactions in VMTP Shares for the Funds, where applicable, were as follows:
| | Year Ended February 28, 2014 |
| | Series | Shares | Amount |
Arizona Premium Income (NAZ) | | | |
VMTP Shares issued | 2016 | 790 | $ 79,000,000 |
VMTP Shares redeemed | 2014 | (280) | (28,000,000) |
Net increase (decrease) | | 510 | $ 51,000,000 |
Michigan Quality Income (NUM) | | | |
VMTP Shares issued | 2016 | 1,590 | $159,000,000 |
VMTP Shares exchanged | 2014 | (879) | (87,900,000) |
VMTP Shares redeemed | 2014-1 | (539) | (53,900,000) |
Net increase (decrease) | | 172 | $ 17,200,000 |
Ohio Quality Income (NUO) | | | |
VMTP Shares redeemed | 2014 | (735) | $(73,500,000) |
Michigan Quality Income (NUM) | | | |
VMTP Shares issued in connection with the reorganization | 2014-1 | 539 | $53,900,000 |
With the exception of Ohio Quality Income (NUO), the Funds did not have any transactions in VRDP Shares during the fiscal years ended February 28, 2014 and February 28, 2013. Ohio Quality Income (NUO) did not have any transactions in VRDP Shares during the fiscal year ended February 28, 2013.
Transactions in VRDP Shares were as follows:
| | Year Ended February 28, 2014 |
| | Series | Shares | Amount |
Ohio Quality Income (NUO) | | | |
VRDP Shares issued | 1 | 1,480 | $148,000,000 |
5. Investment Transactions
Purchases and sales (including maturities but excluding short-term investments, where applicable) during the fiscal year ended February 28, 2014, were as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Purchases | $31,779,271 | $71,004,271 | $61,359,518 | $28,579,859 |
Sales and maturities | 30,650,987 | 71,789,767 | 51,649,130 | 28,105,706 |
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. Furthermore, each Fund intends to satisfy conditions that will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, to retain such tax-exempt status when distributed to shareholders of the Funds. Net realized capital gains and ordinary income distributions paid by the Funds are subject to federal taxation.
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 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.
76 Nuveen Investments
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 taxable market discount, 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 February 28, 2014, the cost and unrealized appreciation (depreciation) of investments, as determined on a federal income tax basis, were as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Cost of investments | $229,575,101 | $447,199,660 | $417,869,257 | $211,372,133 |
Gross unrealized: | | | | |
Appreciation | 14,571,568 | 22,525,162 | 25,661,084 | 12,751,420 |
Depreciation | (5,067,453) | (4,595,417) | (6,805,929) | (5,454,815) |
Net unrealized appreciation (depreciation) of investments | $ 9,504,115 | $ 17,929,745 | $ 18,855,155 | $ 7,296,605 |
Permanent differences, primarily due to reorganization adjustments, nondeductible reorganization expenses, federal taxes paid, taxable market discount and nondeductible offering costs, resulted in reclassifications among the Funds’ components of common share net assets as of February 28, 2014, the Funds’ tax year end, as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Paid-in surplus | $ 449,963 | $(690,536) | $ 364,681 | $(295,547) |
Undistributed (Over-distribution of) net investment income | 801,640 | 588,645 | 1,054,936 | 295,237 |
Accumulated net realized gain (loss) | (1,251,603) | 101,891 | (1,419,617) | 310 |
The tax components of undistributed net tax-exempt income, net ordinary income and net long-term capital gains as of February 28, 2014, the Funds’ tax year end, were as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ) | (NUM) | (NUO) | (NTX) |
Undistributed net tax-exempt income 1 | $1,917,327 | $3,356,031 | $2,845,565 | $936,222 |
Undistributed net ordinary income 2 | 1,614 | 2,285 | — | 12,612 |
Undistributed net long-term capital gains | — | — | — | — |
| 1 | Undistributed net tax-exempt income (on a tax basis) has not been reduced for the dividend declared on February 3, 2014, paid on March 3, 2014. |
| 2 | Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. |
The tax character of distributions paid during the Funds’ tax years ended February 28, 2014 and February 28, 2013, was designated for purposes of the dividends paid deduction as follows:
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
2014 | (NAZ) | (NUM) | (NUO) | (NTX) |
Distributions from net tax-exempt income3 | $8,799,830 | $20,509,116 | $17,769,971 | $8,638,012 |
Distributions from net ordinary income2 | 23,128 | 27,103 | 94,586 | 4,011 |
Distributions from net long-term capital gains | — | — | — | — |
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
2013 | (NAZ) | (NUM) | (NUO) | (NTX) |
Distributions from net tax-exempt income | $3,775,218 | $11,395,363 | $10,282,944 | $9,187,583 |
Distributions from net ordinary income 2 | — | — | — | — |
Distributions from net long-term capital gains | — | — | — | — |
| 2 | Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. |
| 3 | The Funds hereby designated these amounts paid during the fiscal year ended February 28, 2014, as Exempt Interest Dividends. |
Nuveen Investments 77
Notes to Financial Statements (continued)
As of February 28, 2014, the Funds’ tax year end, the Funds had unused capital loss carryforwards available for federal tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as shown in the following table. The losses not subject to expiration will be utilized first by a Fund.
| | Arizona | Michigan | Ohio | Texas |
| | Premium | Quality | Quality | Quality |
| | Income | Income | Income | Income |
| | (NAZ)4 | (NUM)4 | (NUO)4 | (NTX) |
Expiration: | | | | |
February 28, 2015 | $ 363,937 | $ — | $ — | $ — |
February 29, 2016 | 615,885 | 44,485 | 409,892 | — |
February 28, 2017 | 828,959 | 1,222,403 | 903,331 | — |
February 28, 2018 | 43,720 | 1,385,653 | 857,567 | — |
February 28, 2019 | — | — | 1,468,286 | — |
Not subject to expiration: | 1,870,251 | 258,431 | 1,544,468 | 1,226,337 |
Total | $3,722,752 | $2,910,972 | $5,183,634 | $1,226,337 |
| 4 | A portion of Arizona Premium Income’s (NAZ), Michigan Quality Income’s (NUM) and Ohio Quality Income’s (NUO) capital loss carryforward is subject to an annual limitation under the Internal Revenue Code and related regulations. |
During the Funds’ tax year ended February 28, 2014, the following Fund utilized capital loss carryforwards as follows:
| | Texas |
| | Quality |
| | Income |
| | (NTX) |
Utilized capital loss carryforwards | $342,303 |
The Funds have elected to defer late-year losses in accordance with federal income tax rules. These losses are treated as having arisen on the first day of the following fiscal year. The following Funds have elected to defer losses as follows:
| | Arizona | Michigan |
| | Premium | Quality |
| | Income | Income |
| | (NAZ) | (NUM) |
Post-October capital losses 5 | $1,441,358 | $462,413 |
Late-year ordinary losses6 | — | — |
| 5 | Capital losses incurred from November 1, 2013 through February 28, 2014, the Funds’ tax year end. |
| 6 | Ordinary losses incurred from January 1, 2014 through February 28, 2014 and specified losses incurred from November 1, 2013 through February 28, 2014. |
7. Management Fees and Other Transactions with Affiliates
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 the 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.
The annual fund-level fee for each Fund, payable monthly, is calculated according to the following schedule:
Average Daily Managed Assets* | Fund-Level Fee Rate |
For the first $125 million | .4500% |
For the next $125 million | .4375 |
For the next $250 million | .4250 |
For the next $500 million | .4125 |
For the next $1 billion | .4000 |
For the next $3 billion | .3875 |
For managed assets over $5 billion | .3750 |
78 Nuveen Investments
The annual complex-level fee for each Fund, payable monthly, is calculated according to the following schedule:
Complex-Level Managed Asset Breakpoint Level* | Effective Rate at Breakpoint Level |
$55 billion | .2000% |
$56 billion | .1996 |
$57 billion | .1989 |
$60 billion | .1961 |
$63 billion | .1931 |
$66 billion | .1900 |
$71 billion | .1851 |
$76 billion | .1806 |
$80 billion | .1773 |
$91 billion | .1691 |
$125 billion | .1599 |
$200 billion | .1505 |
$250 billion | .1469 |
$300 billion | .1445 |
| * | For the fund-level and 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 and assets in excess of $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 February 28, 2014, the complex-level fee rate for these Funds was .1672%. |
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 of Trustees 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.
8. Fund Reorganizations
The Reorganizations were structured to qualify as tax-free reorganizations under the Internal Revenue Code for federal income tax purposes, and the Acquired Funds’ shareholders will recognize no gain or loss for federal income tax purposes as a result. Prior to the closing of each of the Reorganizations, the Acquired Funds distributed all of their net investment income and capital gains, if any. Such a distribution may be taxable to the Acquired Funds’ shareholders for federal income tax purposes.
Investments
The cost, fair value and net unrealized appreciation (depreciation) of the investments of the Acquired Funds as of the date of their respective Reorganization, were as follows:
| | Arizona | Arizona | Arizona |
| | Dividend | Dividend | Dividend |
| | Advantage | Advantage 2 | Advantage 3 |
| | (NFZ) | (NKR) | (NXE) |
Cost of investments | $31,692,347 | $50,765,455 | $61,775,129 |
Fair value of investments | 34,328,681 | 54,827,769 | 66,235,496 |
Net unrealized appreciation (depreciation) of investments | 2,636,334 | 4,062,314 | 4,460,367 |
| | Ohio | Ohio | Ohio |
| | Dividend | Dividend | Dividend |
| | Advantage | Advantage 2 | Advantage 3 |
| | (NXI) | (NBJ) | (NVJ) |
Cost of investments | $88,964,805 | $64,931,242 | $46,999,229 |
Fair value of investments | 98,040,884 | 71,430,110 | 51,876,683 |
Net unrealized appreciation (depreciation) of investments | 9,076,079 | 6,498,868 | 4,877,454 |
For financial reporting purposes, assets received and shares issued by the Acquiring Funds were recorded at fair value; however, the cost basis of the investments received from the Acquired Funds were carried forward to align ongoing reporting of the Acquiring Funds’ realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Nuveen Investments 79
Notes to Financial Statements (continued)
Common Shares
For accounting and performance reporting purposes, the Acquiring Funds are the survivors. The shares outstanding, net assets and NAV per common share immediately before and after the Reorganizations are as follows:
| | Arizona | | | Arizona | | | Arizona | |
| | Dividend | | | Dividend | | | Dividend | |
| | Advantage | | | Advantage 2 | | | Advantage 3 | |
Acquired Funds – Prior to Reorganizations | (NFZ) | | | (NKR) | | | (NXE) | |
Common shares outstanding | | 1,548,446 | | | | 2,440,142 | | | | 3,066,030 | |
Net assets applicable to common shares | $ | 23,732,776 | | | $ | 38,158,301 | | | $ | 46,483,956 | |
NAV per common share outstanding | $ | 15.33 | | | $ | 15.64 | | | $ | 15.16 | |
| | Ohio | | | Ohio | | | Ohio | |
| | Dividend | | | Dividend | | | Dividend | |
| | Advantage | | | Advantage 2 | | | Advantage 3 | |
Acquired Funds – Prior to Reorganizations | (NXI) | | | (NBJ) | | | (NVJ) | |
Common shares outstanding | | 4,250,030 | | | | 3,124,341 | | | | 2,158,865 | |
Net assets applicable to common shares | $ | 68,674,255 | | | $ | 49,324,657 | | | $ | 34,722,583 | |
NAV per common share outstanding | $ | 16.16 | | | $ | 15.79 | | | $ | 16.08 | |
| | | | | | Arizona | | | Ohio | |
| | | | | | Premium | | | Quality | |
| | | | | | Income | | | Income | |
Acquiring Funds – Prior to Reorganizations | | | | | (NAZ) | | | (NUO) | |
Common shares outstanding | | | | | | 4,476,152 | | | | 9,811,005 | |
Net assets applicable to common shares | | | | | $ | 68,442,421 | | | $ | 172,007,473 | |
NAV per common share outstanding | | | | | $ | 15.29 | | | $ | 17.53 | |
| | | | | | Arizona | | | Ohio | |
| | | | | | Premium | | | Quality | |
| | | | | | Income | | | Income | |
Acquiring Funds – Post Reorganizations | | | | | (NAZ) | | | (NUO) | |
Common shares outstanding | | | | | | 11,563,886 | | | | 18,521,955 | |
Net assets applicable to common shares | | | | | $ | 176,817,454 | | | $ | 324,728,968 | |
NAV per common share outstanding | | | | | $ | 15.29 | | | $ | 17.53 | |
Preferred Shares
In connection with the Arizona Premium Income (NAZ) and Ohio Quality Income (NUO) Reorganizations, holders of MTP Shares of the Acquired Funds received on a one-for-one basis newly issued MTP Shares of the Acquiring Funds, in exchange for MTP Shares of the Acquired Funds held immediately prior to the Reorganizations.
Prior to the closing of the Reorganizations, details of each Acquired Fund’s outstanding MTP Shares were as follows:
| | | | | Shares | |
| | | NYSE/ | | Outstanding | |
| | | NYSE MKT | Shares | at $10 Per Share | Annual |
Acquired Funds | Series | Ticker | Outstanding | Liquidation Value | Dividend Rate |
Arizona Dividend Advantage (NFZ) | 2015 | NFZ PRC | 1,110,000 | $11,100,000 | 2.05% |
Arizona Dividend Advantage 2 (NKR) | 2015 | NKR PRC | 1,872,500 | $18,725,000 | 2.05% |
Arizona Dividend Advantage 3 (NXE) | 2016 | NXE PRC | 2,084,600 | $20,846,000 | 2.90% |
Ohio Dividend Advantage (NXI) | | | | | |
| | 2015 | NXI PRC | 1,945,000 | $19,450,000 | 2.35% |
| | 2016 | NXI PRD | 1,165,340 | 11,653,400 | 2.95% |
Ohio Dividend Advantage 2 (NBJ) | 2014 | NBJ PRA | 2,424,400 | $24,244,000 | 2.35% |
Ohio Dividend Advantage 3 (NVJ) | 2014 | NVJ PRA | 1,847,015 | $18,470,150 | 2.35% |
80 Nuveen Investments
Details of each Fund’s MTP Shares issued in connection with the Reorganizations were as follows:
| | | | | Shares | |
| | | NYSE/ | | Outstanding | |
| | | NYSE MKT | Shares | at $10 Per Share | Annual |
Acquiring Funds | Series | Ticker | Outstanding | Liquidation Value | Dividend Rate |
Arizona Premium Income (NAZ) | | | | | |
| | 2015 | NAZ PRC | 2,982,500 | $29,825,000 | 2.05% |
| | 2016 | NAZ PRD | 2,084,600 | 20,846,000 | 2.90% |
Ohio Quality Income (NUO) | | | | | |
| | 2014 | NUO PRACL | 4,271,415 | $42,714,150 | 2.35% |
| | 2015 | NUO PRCCL | 1,945,000 | 19,450,000 | 2.35% |
| | 2016 | NUO PRDCL | 1,165,340 | 11,653,400 | 2.95% |
Pro Forma Results of Operations
The beginning of the Acquired Funds’ current fiscal period was March 1, 2013. Assuming the Reorganizations had been completed on March 1, 2013, the beginning of the Acquiring Funds’ current fiscal period, the pro forma results of operations for the fiscal year ended February 28, 2014, are as follows:
| | Arizona | Ohio |
| | Premium | Quality |
| | Income | Income |
Acquiring Funds – Pro Forma Results of Operations | (NAZ) | (NUO) |
Net investment income (loss) | $ 7,943,709 | $ 15,894,412 |
Net realized and unrealized gains (losses) | (13,982,777) | (27,412,095) |
Change in net assets resulting from operations | (6,039,068) | (11,517,683) |
Because the combined investment portfolios for each Reorganization have been managed as a single integrated portfolio since each Reorganization was completed, it is not practicable to separate the amounts of revenue and earnings of the Acquired Funds that have been included in the Statement of Operations for the Acquiring Funds since the Reorganizations were consummated.
In connection with the Reorganizations, the Acquiring Funds incurred certain associated costs and expenses. Such amounts were included as components of “Accrued other expenses” on the Statement of Assets and Liabilities.
9. Subsequent Events
Agreement and Plan of Merger
On April 14, 2014, TIAA-CREF, a national financial services organization, announced that it had entered into an agreement (the “Purchase Agreement”) to acquire Nuveen Investments, the parent company of the Adviser. The transaction is expected to be completed by the end of the year, subject to customary closing conditions, including obtaining necessary Nuveen Fund and client consents sufficient to satisfy the terms of the Purchase Agreement and obtaining customary regulatory approvals. There can be no assurance that the transaction described above will be consummated as contemplated or that necessary conditions will be satisfied.
The consummation of the transaction will be deemed to be an “assignment” (as defined in the Investment Company Act of 1940) of the investment management agreements between the Nuveen Funds and the Adviser and the investment sub-advisory agreements between the Adviser and each Nuveen Fund’s sub-adviser or sub-advisers, and will result in automatic termination of each agreement. It is anticipated that the Board of Directors/Trustees of the Nuveen Funds (the “Board”) will consider a new investment management agreement with the Adviser and new investment sub-advisory agreements with each sub-adviser. If approved by the Board, the new agreements will be presented to the Nuveen Funds’ shareholders for approval, and, if so approved by shareholders, will take effect upon consummation of the transaction or such later time as shareholder approval is obtained.
The transaction is not expected to result in any change in the portfolio management of the Funds or in the Funds’ investment objectives or policies.
Nuveen Investments 81
Board of Trustees | | | | | |
William Adams IV* | Robert P. Bremner | Jack B. Evans | William C. Hunter | David J. Kundert | John K. Nelson |
William J. Schneider | Thomas S. Schreier, Jr.* | Judith M. Stockdale | Carole E. Stone | Virginia L. Stringer | Terence J. Toth |
| |
* Interested Board Member. | | | | | |
| |
Fund Manager | Custodian | Legal Counsel | Independent Registered | Transfer Agent and |
Nuveen Fund Advisors, LLC | State Street Bank | Chapman and Cutler LLP | Public Accounting Firm | Shareholder Services |
333 West Wacker Drive | & Trust Company | Chicago, IL 60603 | Ernst & Young LLP | | State Street Bank |
Chicago, IL 60606 | Boston, MA 02111 | | Chicago, IL 60606 | | & 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.
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 Investments 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 Investments toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC on-line at http://www.sec.gov.
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.
Common Share Information
Each Fund intends to repurchase shares of its own common stock at such times and in such amounts as is deemed advisable. During the period covered by this report, the 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.
| | NAZ | NUM | NUO | NTX |
Common shares repurchased | — | 24,300 | — | — |
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.
82 Nuveen Investments
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. |
| · | 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. |
| · | 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. |
| · | Effective Leverage: Effective leverage is a fund’s effective economic leverage, and includes both regulatory leverage (see lever- age) and the leverage effects of certain derivative investments in the 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. |
| · | Gross Domestic Product (GDP): The total market value of all final goods and services produced in a country/region in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. |
| · | 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 created by a broker-dealer. 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 float- ing 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. |
| · | Leverage: Leverage is created whenever a fund has investment exposure (both reward and/or risk) equivalent to more than 100% of the investment capital. |
| · | Lipper Other States Municipal Debt Funds Classification Average: Calculated using the returns of all closed-end funds in this category. Lipper returns account for the effects of management fees and assume reinvestment of distributions, but do not reflect any applicable sales charges. |
| · | 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. |
Nuveen Investments 83
Glossary of Terms Used in this Report Process (continued)
| · | 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. |
| · | S&P Municipal Bond Indexes Arizona and Texas: Unleveraged, market value-weighted indexes designed to measure the performance of the tax-exempt, investment-grade municipal bond markets in Arizona and Texas, respectively. Index returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
| · | S&P Municipal Bond Indexes for Michigan and Ohio: Unleveraged, market value-weighted indexes designed to measure the performance of the tax-exempt, investment-grade municipal bond markets in Michigan and Ohio, respectively. Index returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
| · | S&P Municipal Bond Index: An unleveraged, market value-weighted index designed to measure the performance of the tax- exempt, investment-grade U.S. municipal bond market. Index returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
| · | Total Investment Exposure: Total investment exposure is a fund’s assets managed by the Adviser that are attributable to finan- cial 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. |
| · | 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. |
84 Nuveen Investments
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.
Nuveen Investments 85
Board
Members & Officers (Unaudited)
The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board of Trustees of the Funds. The number of trustees of the Funds is currently set at twelve. None of the trustees who are not “interested” persons of the Funds (referred to herein as “independent trustees”) has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the trustees and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed | Including other | in Fund Complex |
| | | and Term(1) | Directorships | Overseen by |
| | | | During Past 5 Years | Board Member |
| |
| Independent Board Members: | | | | |
| |
• WILLIAM J. SCHNEIDER | | | Chairman of Miller-Valentine Partners, a real estate investment | |
| 1944 | Chairman and | | company; formerly, Senior Partner and Chief Operating Officer (retired | |
| 333 W. Wacker Drive | Board Member | 1996 | (2004) of Miller-Valentine Group; an owner in several other Miller | 208 |
| Chicago, IL 60606 | | Class III | Valentine entities; Board Member of Med-America Health System, Tech | |
| | | | Town, Inc., a not-for-profit community development company, Board | |
| | | | Member of WDPR Public Radio station; formerly, member, Business | |
| | | | Advisory Council, Cleveland Federal Reserve Bank and University of | |
| | | | Dayton Business School Advisory Council. | |
| |
• ROBERT P. BREMNER | | | Private Investor and Management Consultant; Treasurer and Director, | |
| 1940 | Board Member | 1996 | Humanities Council of Washington, D.C.; Board Member, Independent | |
| 333 W. Wacker Drive | | Class III | Directors Council affiliated with the Investment Company Institute. | 208 |
| Chicago, IL 60606 | | | Company Institute. | |
| |
• JACK B. EVANS | | | President, The Hall-Perrine Foundation, a private philanthropic | |
| 1948 | | | corporation (since 1996); Chairman, United Fire Group, a publicly held | |
| 333 W. Wacker Drive | Board Member | 1999 | company; formerly, Member and President Pro-Tem of the Board of | 208 |
| Chicago, IL 60606 | | Class III | Regents for the State of Iowa University System; Director, Source Media | |
| | | | Group; Life Trustee of Coe College; formerly, Director, Alliant Energy; | |
| | | | formerly, Director, Federal Reserve Bank of Chicago; formerly, President | |
| | | | and Chief Operating Officer, SCI Financial Group, Inc., a regional | |
| | | | financial services firm. | |
| |
• WILLIAM C. HUNTER | | | Dean Emeritus (since June 30, 2012), formerly, Dean, Tippie College of | |
| 1948 | | | Business, University of Iowa (2006-2012); Director (since 2004) of Xerox | |
| 333 W. Wacker Drive | Board Member | 2004 | Corporation; Director (since 2005), and President (since July 2012) Beta | 208 |
| Chicago, IL 60606 | | Class I | Gamma Sigma, Inc., The International Honor Society; Director of | |
| | | | Wellmark, Inc. (since 2009); formerly, Dean and Distinguished Professor | |
| | | | of Finance, School of Business at the University of Connecticut | |
| | | | (2003-2006); previously, Senior Vice President and Director of Research | |
| | | | at the Federal Reserve Bank of Chicago (1995-2003); formerly, Director | |
| | | | (1997-2007), Credit Research Center at Georgetown University. | |
| |
• DAVID J. KUNDERT | | | Formerly, Director, Northwestern Mutual Wealth Management Company | |
| 1942 | | | (2006-2013), retired (since 2004) as Chairman, JPMorgan Fleming Asset | |
| 333 W. Wacker Drive | Board Member | 2005 | Management, President and CEO, Banc One Investment Advisors | 208 |
| Chicago, IL 60606 | | Class II | Corporation, and President, One Group Mutual Funds; prior thereto, | |
| | | | Executive Vice President, Banc One Corporation and Chairman and CEO, | |
| | | | Banc One Investment Management Group; Regent Emeritus, Member of | |
| | | | Investment Committee, Luther College; member of the Wisconsin Bar | |
| | | | Association; member of Board of Directors, Friends of Boerner Botanical | |
| | | | Gardens; member of Board of Directors and Chair of Investment | |
| | | | Committee, Greater Milwaukee Foundation; member of the Board of | |
| | | | Directors (Milwaukee), College Possible. | |
86 Nuveen Investments
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed | Including other | in Fund Complex |
| | | and Term(1) | Directorships | Overseen by |
| | | | During Past 5 Years | Board Member |
| |
| Independent Board Members (continued): | | | |
| |
• JOHN K. NELSON | | | | |
| 1962 | | | Senior external advisor to the financial services practice of Deloitte | |
| 333 West Wacker Drive | Board Member | 2013 | Consulting LLP (since 2012); Member of Board of Directors of Core12 LLC | |
| Chicago, IL 60606 | | Class II | since 2008), a private firm which develops branding, marketing and | 208 |
| | | | communications strategies for clients; Director of The Curran Center for | |
| | | | Catholic American Studies (since 2009) and The President’s Council, | |
| | | | Fordham University (since 2010); formerly, Chairman of the Board of | |
| | | | Trustees of Marian University (2010 as trustee, 2011-2014 as Chairman); | |
| | | | formerly, Chief Executive Officer of ABN AMRO N.V. North America, and | |
| | | | Global Head of its Financial Markets Division (2007-2008); prior senior | |
| | | | positions held at ABN AMRO include Corporate Executive Vice President | |
| | | | and Head of Global Markets-the Americas (2006-2007), CEO of | |
| | | | Whole- sale Banking North America and Global Head of Foreign | |
| | | | Exchange and Futures Markets (2001-2006), and Regional Commercial | |
| | | | Treasurer and Senior Vice President Trading-North America (1996-2001); | |
| | | | formerly, Trustee at St. Edmund Preparatory School in New York City. | |
| |
• JUDITH M. STOCKDALE | | | Board Member, Land Trust Alliance (since June 2013) and U.S. | |
| 1947 | | | Endowment for Forestry and Communities (since November 2013); | |
| 333 W. Wacker Drive | Board Member | 1997 | formerly, Executive Director (1994-2012), Gaylord and Dorothy Donnelley | |
| Chicago, IL 60606 | | Class I | Foundation (since 1994); prior thereto, Executive Director, Great Lakes | |
| | | | Protection Fund (1990-1994). | 208 |
| |
| |
• CAROLE E. STONE | | | Director, Chicago Board Options Exchange (since 2006); Director, C2 | |
| 1947 | | | Options Exchange, Incorporated (since 2009); Director, CBOE Holdings, | |
| 333 W. Wacker Drive | Board Member | 2007 | Inc. (since 2010); formerly, Commissioner, New York State Commission | 208 |
| Chicago, IL 60606 | | Class I | on Public Authority Reform (2005-2010); formerly, Chair, New York | |
| | | | Racing Association Oversight Board (2005-2007). | |
| |
• VIRGINIA L. STRINGER | | | Board Member, Mutual Fund Directors Forum; former governance | |
| 1944 | | | consultant and non-profit board member; former Owner and President, | |
| 333 W. Wacker Drive | Board Member | 2011 | Strategic Management Resources, Inc., a management consulting firm; | 208 |
| Chicago, IL 60606 | | Class I | former Member, Governing Board, Investment Company Institute’s | |
| | | | Independent Directors Council; previously, held several executive | |
| | | | positions in general management, marketing and human resources at | |
| | | | IBM and The Pillsbury Company; Independent Director, First American | |
| | | | Fund Complex (1987-2010) and Chair (1997-2010). | |
| |
• TERENCE J. TOTH | | | | |
| 1959 | | | Managing Partner, Promus Capital (since 2008); Director, Fulcrum IT | |
| 333 W. Wacker Drive | Board Member | 2008 | Service LLC (since 2010), Quality Control Corporation (since 2012) and | |
| Chicago, IL 60606 | | Class II | LogicMark LLC (since 2012); formerly, Director, Legal & General | 208 |
| | | | Investment Management America, Inc. (2008-2013); formerly, CEO and | |
| | | | President, Northern Trust Global Investments (2004-2007); Executive | |
| | | | Vice President, Quantitative Management & Securities Lending | |
| | | | (2000-2004); prior thereto, various positions with Northern Trust | |
| | | | Company (since 1994); member: Chicago Fellowship Board (since 2005), | |
| | | | Catalyst Schools of Chicago Board (since 2008) and Chairman, and | |
| | | | Mather Foundation Board (since 2012), and a member of its investment | |
| | | | committee; formerly, Member, Northern Trust Mutual Funds Board | |
| | | | (2005-2007), Northern Trust Global Investments Board (2004-2007), | |
| | | | Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. | |
| | | | Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004). | |
Nuveen Investments 87
Board Members & Officers (Unaudited) (continued)
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed | Including other | in Fund Complex |
| | | and Term(1) | Directorships | Overseen by |
| | | | During Past 5 Years | Board Member |
| | | | | |
| Interested Board Members: | | | | |
| |
• WILLIAM ADAMS IV(2) | | | Senior Executive Vice President, Global Structured Products (since 2010); | |
| 1955 | | | formerly, Executive Vice President, U.S. Structured Products, of Nuveen | |
| 333 W. Wacker Drive | Board Member | 2013 | Investments, Inc. (1999-2010); Co-President of Nuveen Fund Advisors, | 133 |
| Chicago, IL 60606 | | Class II | LLC (since 2011); President (since 2011), formerly, Managing Director | |
| | | | (2010-2011) of Nuveen Commodities Asset Management, LLC; Board | |
| | | | Member of the Chicago Symphony Orchestra and of Gilda s Club Chicago. | |
| |
• THOMAS S. SCHREIER, JR.(2) | | | Vice Chairman, Wealth Management of Nuveen Investments, Inc. (since | |
| 1962 | | | 2011); Co-President of Nuveen Fund Advisors, LLC; Chairman of Nuveen | |
| 333 W. Wacker Drive | Board Member | 2013 | Asset Management, LLC (since 2011); Co-Chief Executive Officer of | 133 |
| Chicago, IL 60606 | | Class III | Nuveen Securities, LLC (since 2011); Member of Board of Governors and | |
| | | | Chairman’s Council of the Investment Company Institute; formerly, Chief | |
| | | | Executive Officer (2000-2010) and Chief Investment Officer (2007-2010) | |
| | | | of FAF Advisors, Inc.; formerly, President of First American Funds | |
| | | | (2001-2010). | |
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed(3) | During Past 5 Years | in Fund Complex |
| | | | | Overseen |
| | | | | by Officer |
| | | | | |
| Officers of the Funds: | | | | |
| |
• GIFFORD R. ZIMMERMAN | | | Managing Director (since 2002), and Assistant Secretary of Nuveen | |
| 1956 | Chief | | Securities, LLC; Managing Director (since 2004) and Assistant Secretary | |
| 333 W. Wacker Drive | Administrative | 1988 | (since 1994) of Nuveen Investments, Inc.; Managing Director (since | 208 |
| Chicago, IL 60606 | Officer | | 2002), Assistant Secretary (since 1997) and Co-General Counsel (since | |
| | | | 2011) of Nuveen Fund Advisors, LLC; Managing Director, Assistant | |
| | | | Secretary and Associate General Counsel of Nuveen Asset Management, | |
| | | | LLC (since 2011); Managing Director, Associate General Counsel and | |
| | | | Assistant Secretary, of Symphony Asset Management LLC (since 2003); | |
| | | | Vice President and Assistant Secretary of NWQ Investment Management | |
| | | | Company, LLC (since 2002), Nuveen Investments Advisers Inc. (since | |
| | | | 2002), Santa Barbara Asset Management, LLC (since 2006), and of | |
| | | | Winslow Capital Management, LLC, (since 2010); Vice President and | |
| | | | Assistant Secretary (since 2013), formerly, Chief Administrative Officer | |
| | | | and Chief Compliance Officer (2006-2013) of Nuveen Commodities Asset | |
| | | | Management, LLC; Chartered Financial Analyst. | |
| |
• CEDRIC H. ANTOSIEWICZ | | | Managing Director of Nuveen Securities, LLC. | |
| 1962 | | | | |
| 333 W. Wacker Drive | Vice President | 2007 | | 101 |
| Chicago, IL 60606 | | | | |
| |
• MARGO L. COOK | | | Executive Vice President (since 2008) of Nuveen Investments, Inc. and of | |
| 1964 | | | Nuveen Fund Advisors, LLC (since 2011); Managing Director-Investment | |
| 333 W. Wacker Drive | Vice President | 2009 | Services of Nuveen Commodities Asset Management, LLC (since | 208 |
| Chicago, IL 60606 | | | August 2011), previously, Head of Institutional Asset Management | |
| | | | (2007-2008) of Bear Stearns Asset Management; Head of Institutional | |
| | | | Asset Management (1986-2007) of Bank of NY Mellon; Chartered | |
| | | | Financial Analyst. | |
88 Nuveen Investments
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed(3) | During Past 5 Years | in Fund Complex |
| | | | | Overseen |
| | | | | by Officer |
| |
| Officers of the Funds (continued): | | | |
| |
• LORNA C. FERGUSON | | | Managing Director (since 2005) of Nuveen Fund Advisors, LLC and | |
| 1945 | | | Nuveen Securities, LLC (since 2004). | |
| 333 W. Wacker Drive | Vice President | 1998 | | 208 |
| Chicago, IL 60606 | | | | |
| |
• STEPHEN D. FOY | | | Managing Director (since 2014), formerly, Senior Vice President | |
| 1954 | Vice President | | (2013-2014), and Vice President of Nuveen Fund Advisors, LLC; | |
| 333 W. Wacker Drive | and Controller | 1998 | Chief Financial Officer of Nuveen Commodities Asset | 208 |
| Chicago, IL 60606 | | | Management, LLC (since 2010); Senior Vice President (2010-2011), | |
| | | | Formerly Vice President (2005-2010) and Funds Controller of Nuveen | |
| | | | Securities, LLC; Certified Public Accountant. | |
| |
• SCOTT S. GRACE | | | Managing Director, Corporate Finance & Development, Treasurer (since | |
| 1970 | Vice President | | 2009) of Nuveen Securities, LLC; Managing Director and Treasurer (since | |
| 333 W. Wacker Drive | and Treasurer | 2009 | 2009) of Nuveen Fund Advisors, LLC, Nuveen Investments Advisers, Inc., | 208 |
| | | | Nuveen Investments Holdings Inc. and (since 2011) Nuveen Asset | |
| | | | Management, LLC; Vice President and Treasurer of NWQ Investment | |
| | | | Management Company, LLC, Tradewinds Global Investors, LLC, | |
| | | | Symphony Asset Management LLC and Winslow Capital Management, | |
| | | | LLC.; Vice President of Santa Barbara Asset Management, LLC; formerly, | |
| | | | Treasurer (2006-2009), Senior Vice President (2008-2009), previously, | |
| | | | Vice President (2006-2008) of Janus Capital Group, Inc.; formerly, Senior | |
| | | | Associate in Morgan Stanley’s Global Financial Services Group | |
| | | | (2000-2003); Chartered Accountant Designation. | |
| |
• WALTER M. KELLY | | | Senior Vice President (since 2008) of Nuveen Investment Holdings, Inc. | |
| 1970 | Chief Compliance | | | |
| 333 W. Wacker Drive | Officer and | 2003 | | 208 |
| Chicago, IL 60606 | Vice President | | | |
| |
• TINA M. LAZAR | | | Senior Vice President of Nuveen Investment Holdings, Inc. | |
| 1961 | | | | |
| 333 W. Wacker Drive | Vice President | 2002 | | 208 |
| Chicago, IL 60606 | | | | |
| |
• KEVIN J. MCCARTHY | | | Managing Director and Assistant Secretary (since 2008), Nuveen | |
| 1966 | Vice President | | Securities, LLC; Managing Director (since 2008), Assistant Secretary | |
| 333 W. Wacker Drive | and Secretary | 2007 | since 2007) and Co-General Counsel (since 2011) of Nuveen Fund | 208 |
| Chicago, IL 60606 | | | Advisors, LLC; Managing Director, Assistant Secretary and Associate | |
| | | | General Counsel (since 2011) of Nuveen Asset Management, LLC; | |
| | | | Managing Director (since 2008), and Assistant Secretary, Nuveen | |
| | | | Investment Holdings, Inc.; Vice President (since 2007) and Assistant | |
| | | | Secretary of Nuveen Investments Advisers Inc., NWQ Investment | |
| | | | Management Company, LLC, NWQ Holdings, LLC, Symphony Asset | |
| | | | Management LLC, Santa Barbara Asset Management, LLC, and of | |
| | | | Winslow Capital Management, LLC. (since 2010); Vice President and | |
| | | | Secretary (since 2010) of Nuveen Commodities Asset Management, LLC. | |
Nuveen Investments 89
Board Members & Officers (Unaudited) (continued)
| Name, | Position(s) Held | Year First | Principal | Number |
| Year of Birth | with the Funds | Elected or | Occupation(s) | of Portfolios |
| & Address | | Appointed(3) | During Past 5 Years | in Fund Complex |
| | | | | Overseen |
| | | | | by Officer |
| |
| Officers of the Funds (continued): | | | |
| |
• KATHLEEN L. PRUDHOMME | | | Managing Director, Assistant Secretary and Co-General Counsel (since | |
| 1953 | Vice President and | | 2011) of Nuveen Fund Advisors, LLC; Managing Director, Assistant | |
| 901 Marquette Avenue | Assistant Secretary | 2011 | Secretary and Associate General Counsel (since 2011) of Nuveen Asset | 208 |
| Minneapolis, MN 55402 | | | Management, LLC; Managing Director and Assistant Secretary (since | |
| | | | 2011) of Nuveen Securities, LLC; formerly, Deputy General Counsel, FAF | |
| | | | Advisors, Inc. (2004-2010). | |
| |
• JOEL T. SLAGER | | | Fund Tax Director for Nuveen Funds (since May, 2013); previously, Vice | |
| 1978 | Vice President and | | President of Morgan Stanley Investment Management, Inc., Assistant | |
| 333 West Wacker Drive | Assistant Secretary | 2013 | Treasurer of the Morgan Stanley Funds (from 2010 to 2013); Tax Director | 208 |
| Chicago, IL 60606 | | | at PricewaterhouseCoopers LLP (from 2008 to 2010). | |
| (1) | The Board of Trustees is divided into three classes, Class I, Class II, and Class III, with each being elected to serve until the third succeeding annual shareholders’ meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed, except two board members are elected by the holders of Preferred Shares to serve until the next annual shareholders’ meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. |
| (2) | “Interested person” as defined in the 1940 Act, by reason of his position with Nuveen Investments, Inc. and certain of its subsidiaries, which are affiliates of the Nuveen Funds. |
| (3) | Officers serve one year terms through August of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. |
90 Nuveen Investments
Notes
Nuveen Investments 91
Nuveen Investments:
Serving Investors for Generations
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Since 1898, financial advisors and their clients have relied on Nuveen Investments 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 Investments provides high-quality investment services designed to help secure the long-term goals of institutional and individual investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets a wide range of specialized investment solutions which provide investors access to capabilities of its high-quality boutique investment affiliates—Nuveen Asset Management, Symphony Asset Management, NWQ Investment Management Company, Santa Barbara Asset Management, Tradewinds Global Investors, Winslow Capital Management and Gresham Investment Management. In total, Nuveen Investments managed approximately $221 billion as of December 31, 2013.
Find out how we can help you.
To learn more about how the products and services of Nuveen Investments 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 Investments, 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
EAN-C-0214D
