UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10523
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Nuveen Virginia Dividend Advantage Municipal Fund 2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: May 31
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Date of reporting period: February 28, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
QUARTERLY REPORT February 28, 2006
(Unaudited)
Nuveen Investments
Municipal Exchange-Traded
Closed-End
Funds
NUVEEN VIRGINIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2
NNB
Dear Shareholder:
Once again, I am pleased to report that over the nine month period covered by
this report your Fund continued to provide you with attractive monthly tax-free
income. For more details about the management strategy and performance of your
Fund, please read the Portfolio Manager's Comments, the Distribution and Share
Price Information, and the Performance Overview sections of this report.
Municipal bonds can be an important building block in a well balanced investment
portfolio. In addition to providing attractive tax-free monthly income, a
municipal bond investment like your Fund may help you achieve and benefit from
greater portfolio diversification. Portfolio diversification is a recognized way
to try to reduce some of the risk that comes with investing. I encourage you to
contact your personal financial advisor who can help explain this important
investment strategy.
Nuveen Investments is pleased to offer you choices when it comes to receiving
your fund reports. In addition to mailed print copies, you can also sign up to
receive future Fund reports and other Fund information by e-mail and the
Internet. Not only will you be able to receive the information faster, but this
also may help lower your Fund's expenses. The inside front cover of this report
contains information on how you can sign up.
We are grateful that you have chosen us as a partner as you pursue your
financial goals, and we look forward to continuing to earn your trust in the
months and years ahead. At Nuveen Investments, our mission continues to be to
assist you and your financial advisor by offering investment services and
products that can help you to secure your financial objectives.
Sincerely,
/s/ Timothy R. Schwertfeger
- ---------------------------
Timothy R. Schwertfeger
Chairman of the Board
April 3, 2006
NUVEEN INVESTMENTS MUNICIPAL EXCHANGE-TRADED CLOSED-END FUNDS
QUARTERLY REPORT FOR THE PERIOD ENDED 2/28/06
NUVEEN VIRGINIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NNB
PORTFOLIO MANAGER'S COMMENTS
PORTFOLIO MANAGER PAUL BRENNAN REVIEWS KEY INVESTMENT STRATEGIES AND THE
PERFORMANCE OF THE NUVEEN VIRGINIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 (NNB).
PAUL, WHO HAS 14 YEARS OF INVESTMENT EXPERIENCE, INCLUDING 8 YEARS WITH NUVEEN,
HAS MANAGED NNB SINCE 2001.
WHAT KEY STRATEGIES WERE USED TO MANAGE NNB DURING THE NINE-MONTH REPORTING
PERIOD ENDED FEBRUARY 28, 2006?
During this reporting period, we saw a general increase in interest rates across
the yield curve, with short-term rates rising faster than long-term rates.
Between June 1, 2005, and February 28, 2006, the Federal Reserve implemented six
increases of 0.25% each in the fed funds rate, raising this short-term target by
150 basis points.
Although the longer end of the curve remained resistant to the rate increases
experienced at the short end during the first part of this period, longer-term
yields generally began to rise in late September 2005. By the end of February
2006, the yield on the benchmark 10-year U.S. Treasury note was 4.55%, up from
3.98% nine months earlier, while the yield on the Bond Buyer 25 Revenue Bond
Index, a widely followed measure of longer-term municipal market rates, ended
February 2006 at 5.04%, an increase of 26 basis points from the end of May 2005.
As rates increased, bond
valuations generally declined, and the yield curve flattened as shorter-term
rates approached the levels of longer-term rates.
In this environment, one of our key strategies continued to be careful
duration management. Given the recent trends in interest rates, our purchase
activity during this period focused mainly on increasing NNB's exposure to bonds
maturing in 10 to 20 years. As the yield curve flattened, we believed that bonds
in this part of the curve generally offered more attractive opportunities and
the best values.
In looking for potential purchase candidates, we kept an opportunistic eye
toward all types of issuance that we believed could add value to NNB's
portfolio. Overall, portfolio activity was relatively light during this period,
due in part to the fact that we believed NNB was well positioned coming into
this period. Another factor was the significant drop-off in Virginia municipal
supply, as new issuance in the state declined 40% during the period September
2005-February 2006 compared with the previous six months. While we continued to
emphasize maintaining the Fund's weightings of bonds rated BBB or lower and
nonrated bonds, tighter supply meant fewer attractive opportunities to diversify
NNB's credit profile with additional lower-rated issues. Therefore, the majority
of our new purchases for NNB during this period were AAA and AA rated credits.
To help us maintain NNB's duration(1) within the preferred strategic range, we
were also selectively selling holdings with shorter durations, including
pre-refunded bonds, which tended to underperform in the interest rate
environment of the past nine months. The proceeds from these sales were then
generally reinvested in the 10- to 20-year part of the yield curve as attractive
opportunities arose.
Our duration management strategies in this Fund also included the use of forward
interest rate swaps, a type of derivative financial instrument. As discussed in
our last
shareholder report, we began using these swaps in late 2004 in an effort to
reduce NNB's interest rate risk. These hedges were not an attempt to profit from
correctly predicting the timing and direction of interest rate movements.
Instead, our sole objective was to reduce NNB's duration (and resulting pricing
sensitivity) without having a negative impact on its income stream or common
share dividends over the short term. During this reporting period, the hedges
performed as expected and had a positive impact on NNB's performance. As
long-term interest rates rose, the value of the hedges increased while the
valuation of the Fund's holdings generally declined. We believe this hedging
strategy was effective in achieving the intended goal of helping to reduce NNB's
net asset value (NAV) volatility, and in February 2006, we removed the hedge
from this Fund.
HOW DID NNB PERFORM DURING THIS PERIOD?
Results for NNB, as well as relevant index and peer group information, are
presented in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For periods ended 2/28/06
9-Month* 1-Year
------- ------
NNB 2.43% 4.99%
Lehman Brothers Municipal
Bond Index(2) 2.18% 3.87%
Lipper Other States
Municipal Debt Funds
Average(3) 2.61% 4.91%
* Nine-month returns are cumulative.
Past performance is not predictive of future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that shareholders may have to pay on Fund distributions or upon the sale
of Fund shares.
For additional information, see the Performance Overview for NNB in this report.
For the nine months ended February 28, 2006, NNB's cumulative return on NAV
outperformed the return on its Lehman Brothers municipal benchmark and performed
relatively in line with the average return for the Lipper Other States peer
group. It should be noted that the performance of the Lipper Other States
category represents the overall average of returns for funds from 10 different
states with a wide variety of municipal market conditions. We believe this makes
direct comparisons with a state-specific Fund like NNB less meaningful.
One of the factors affecting NNB's nine-month performance relative to that of
the unleveraged Lehman Brothers municipal index was the Fund's use of financial
leverage. While leveraging provides opportunities for additional income and
total returns for common shareholders when interest rates fall or remain
consistently low (as they have over the past several years), this benefit is
reduced when interest rates rise. With the increase in both short-term and
long-term interest rates during this period, the decline in value of the bonds
in NNB's portfolio was exacerbated by the effects of leveraging. In addition,
the benefits of leveraging are tied in part to the short-term rates a leveraged
Fund pays its MuniPreferred(R) shareholders. During periods of low short-term
rates, a leveraged Fund generally pays lower dividends to MuniPreferred
shareholders, which can leave more earnings to support common share dividends.
Conversely, when short-term interest rates rise, as they did during this
reporting period, the Fund's borrowing costs also rise, impacting the Fund's
income stream, and total return. However, we remain convinced that, over the
long term, leveraging should work to the benefit of NNB's performance.
During this reporting period, positive contributors to NNB's return included the
Fund's exposure to holdings in the long intermediate and long parts of the yield
curve and allocations to lower-rated credits. As mentioned earlier, the hedging
strategies we employed in this Fund also had a positive impact on its
performance for the period.
As the yield curve continued to flatten over the course of this period, bonds
with intermediate and long maturities generally outperformed those with shorter
maturities. NNB's exposure to the long intermediate part of the curve helped the
Fund during this period. However, NNB had less exposure to bonds in the longer
part of the curve, which meant that the Fund was not able to participate fully
in the gains made by these maturities.
With bonds rated BBB or lower and nonrated bonds generally outperforming other
credit quality sectors during this period, NNB also benefited from its
allocation of lower-quality credits. The performance of this sector was largely
the result of investor demand for the higher yields typically associated with
lower-quality bonds, which drove up their value and kept credit spreads narrow.
As of February 28, 2006, bonds rated BBB or lower and nonrated bonds accounted
for 11% of NNB's portfolio.
Among the lower-rated bonds making contributions to NNB's cumulative return for
this period were hospital and long-term care credits. The Fund's holdings of
tobacco bonds backed by the 1998 master tobacco settlement agreement also
performed well, as the litigation environment improved and supply/demand
dynamics drove the prices of these bonds higher. As of February 28, 2006, NNB
held 3% of its portfolio in unenhanced, uninsured tobacco bonds.
The rising interest rate environment during this nine-month period generally
meant that NNB's holdings of older pre-refunded bonds tended to underperform the
general municipal market, due primarily to the shorter effective maturities of
these bonds.
HOW WAS NNB POSITIONED IN TERMS OF CREDIT QUALITY AND BOND CALLS AS OF FEBRUARY
28, 2006?
As of February 28, 2006, NNB continued to offer excellent credit quality, with
82% of its portfolio allocated to bonds rated AAA/U.S. guaranteed and AA. As of
this date, none of the bonds in NNB's portfolio was subject to bond calls during
the period from March 2006 through the end of 2007, with the potential call
exposure in 2008 totaling 4% of the Fund's portfolio. The number of actual bond
calls depends largely on future market interest rates.
1 Duration is a measure of a bond's price sensitivity as interest rates
change, with longer duration bonds displaying more sensitivity to these
changes than bonds with shorter durations.
2 The Lehman Brothers Municipal Bond Index is an unleveraged, unmanaged
national index comprising a broad range of investment-grade municipal
bonds. Results for the Lehman index do not reflect any expenses.
3 The Lipper Other States Municipal Debt Funds average is calculated using
the returns of all exchange-traded closed-end funds in this category for
each period as follows: 6 months, 43, and 1 year, 43. Fund and Lipper
returns assume reinvestment of dividends.
DIVIDEND AND SHARE PRICE INFORMATION
As previously noted, NNB uses leverage to potentially enhance opportunities for
additional income for common shareholders. During periods of rising short-term
interest rates, as was the case during this reporting period, the Fund's
borrowing costs also rise, reducing the extent of the benefits of leveraging.
While NNB's dividend remained stable throughout the nine-month reporting period
ended February 28, 2006, the Fund announced a monthly dividend reduction on
March 1, 2006.
Due to normal portfolio activity, common shareholders of NNB received a
long-term capital gains distribution of $0.0666 per share at the end of December
2005.
NNB seeks to pay stable dividends at rates that reflect the Fund's past results
and projected future performance. During certain periods, the Fund may pay
dividends at a rate that may be more or less than the amount of net investment
income actually earned by the Fund during the period. If a Fund has cumulatively
earned more than it has paid in dividends, it holds the excess in reserve as
undistributed net investment income (UNII) as part of the Fund's NAV.
Conversely, if the Fund has cumulatively paid dividends in excess of its
earnings, the excess constitutes negative UNII that is likewise reflected in the
Fund's NAV. The Fund will, over time, pay all of its net investment income as
dividends to shareholders. As of February 28, 2006, NNB had a positive UNII
balances for financial statement purposes and a positive UNII balance, based on
our best estimate, for tax purposes.
At the end of the reporting period, NNB's share price was trading at a premium
to its NAV as shown in the accompanying chart:
2/28/06 9-Month Average
Premium/Discount Premium/Discount
---------------- ----------------
NNB +10.09% +9.06%
Nuveen Virginia Dividend Advantage Municipal Fund 2
NNB
Performance
OVERVIEW As of February 28, 2006
CREDIT QUALITY
(as a % of total investments)
- ------------------------------------
AAA/U.S. Guaranteed 47%
- ------------------------------------
AA 35%
- ------------------------------------
A 7%
- ------------------------------------
BBB 5%
- ------------------------------------
BB or Lower 2%
- ------------------------------------
N/R 4%
- ------------------------------------
Bar Chart:
2005-2006 MONTHLY TAX-FREE DISTRIBUTIONS PER SHARE(1)
Mar 0.0715
Apr 0.0715
May 0.0715
Jun 0.0715
Jul 0.0715
Aug 0.0715
Sep 0.0715
Oct 0.0715
Nov 0.0715
Dec 0.0715
Jan 0.0715
Feb 0.0715
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
3/1/2005 17.03
3/4/2005 16.70
3/11/2005 16.64
3/18/2005 16.20
3/24/2005 15.80
4/1/2005 16.45
4/8/2005 16.06
4/15/2005 15.93
4/22/2005 16.39
4/29/2005 16.75
5/6/2005 16.79
5/13/2005 16.42
5/20/2005 16.65
5/27/2005 16.74
6/3/2005 16.64
6/10/2005 16.60
6/17/2005 16.78
6/24/2005 17.00
7/1/2005 16.95
7/8/2005 17.20
7/15/2005 17.20
7/22/2005 17.20
7/29/2005 17.28
8/5/2005 17.17
8/12/2005 17.20
8/19/2005 17.20
8/26/2005 17.32
9/2/2005 17.38
9/9/2005 17.44
9/16/2005 16.97
9/23/2005 16.20
9/30/2005 17.20
10/7/2005 16.98
10/14/2005 16.71
10/21/2005 16.63
10/28/2005 16.65
11/4/2005 16.63
11/11/2005 16.22
11/18/2005 15.96
11/25/2005 15.89
12/2/2005 16.14
12/9/2005 16.62
12/16/2005 16.09
12/23/2005 16.39
12/30/2005 16.64
1/6/2006 16.90
1/13/2006 16.80
1/20/2006 16.90
1/27/2006 16.89
2/3/2006 16.90
2/10/2006 17.25
2/17/2006 17.00
2/24/2006 17.15
2/28/2006 16.91
FUND SNAPSHOT
- ------------------------------------
Common Share Price $16.91
- ------------------------------------
Common Share Net
Asset Value $15.36
- ------------------------------------
Premium / (Discount) to NAV 10.09%
- ------------------------------------
Market Yield 5.07%
- ------------------------------------
Tax-Equivalent Yield(2) 7.46%
- ------------------------------------
Net Assets Applicable to
Common Shares ($000) $87,810
- ------------------------------------
Average Effective Maturity
on Securities (Years) 16.71
- ------------------------------------
Leverage-Adjusted Duration 8.13
- ------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/15/01)
- ------------------------------------
ON SHARE PRICE ON NAV
- ------------------------------------
9-Month
(Cumulative) 5.35% 2.43%
- ------------------------------------
1-Year 7.60% 4.99%
- ------------------------------------
Since Inception 8.87% 7.92%
- ------------------------------------
INDUSTRIES
(as a % of total investments)
- ------------------------------------
Tax Obligation/General 26.5%
- ------------------------------------
Tax Obligation/Limited 18.2%
- ------------------------------------
Health Care 12.0%
- ------------------------------------
Water and Sewer 10.5%
- ------------------------------------
U.S. Guaranteed 8.2%
- ------------------------------------
Housing/Single Family 6.0%
- ------------------------------------
Education and Civic
Organizations 6.0%
- ------------------------------------
Other 12.6%
- ------------------------------------
1 The Fund paid shareholders a capital gains distribution in December 2005
of $0.0666 per share.
2 Taxable-Equivalent Yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 32%.
When comparing this Fund to investments that generate qualified dividend
income, the Taxable-Equivalent Yield is lower.
Nuveen Virginia Dividend Advantage Municipal Fund 2 (NNB)
PORTFOLIO OF INVESTMENTS February 28, 2006 (Unaudited)
<Table>
<Caption>
OPTIONAL
PRINCIPAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 4.4% (3.0% OF TOTAL INVESTMENTS)
Tobacco Settlement Financing Corporation of Virginia, Tobacco
Settlement Asset-Backed Bonds, Series 2005:
$ 1,050 5.250%, 6/01/19 6/15 at 100.00 BBB $ 1,078,980
2,700 5.500%, 6/01/26 6/15 at 100.00 BBB 2,783,700
- -----------------------------------------------------------------------------------------------------------------------------------
3,750 Total Consumer Staples 3,862,680
- ------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 8.8% (6.0% OF TOTAL INVESTMENTS)
1,000 Fairfax County Economic Development Authority, Virginia, Revenue 9/09 at 101.00 Aaa 1,060,040
Bonds, National Wildlife Federation, Series 1999, 5.375%, 9/01/29 -
MBIA Insured
1,000 Prince William County Industrial Development Authority, Virginia, 10/13 at 101.00 A3 1,059,960
Educational Facilities Revenue Bonds, Catholic Diocese of Arlington,
Series 2003, 5.500%, 10/01/33
1,500 Puerto Rico Industrial, Tourist, Educational, Medical and 12/12 at 101.00 BBB- 1,577,025
Environmental Control Facilities Financing Authority, Higher Education
Revenue Refunding Bonds, Ana G. Mendez University System, Series 2002,
5.375%, 12/01/21
500 Rockbridge County Industrial Development Authority, Virginia, Horse 7/11 at 100.00 B2 502,620
Center Revenue Refunding Bonds, Series 2001C, 6.850%, 7/15/21
275 The Rector and Visitors of the University of Virginia, General Revenue 6/15 at 100.00 AAA 298,636
Bonds, Series 2005, 5.000%, 6/01/18
1,000 Virginia College Building Authority, Educational Facilities Revenue No Opt. Call Aa1 1,082,840
Bonds, Public Higher Education Financing Program, Series 2004B,
5.000%, 9/01/13
2,000 Winchester Industrial Development Authority, Virginia, Educational 10/08 at 102.00 AAA 2,110,720
Facilities First Mortgage Revenue Bonds, Shenandoah University, Series
1998, 5.250%, 10/01/28 - MBIA Insured
- -----------------------------------------------------------------------------------------------------------------------------------
7,275 Total Education and Civic Organizations 7,691,841
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 17.5% (12.0% OF TOTAL INVESTMENTS)
1,500 Albemarle County Industrial Development Authority, Virginia, Hospital 10/12 at 100.00 A2 1,549,320
Revenue Bonds, Martha Jefferson Hospital, Series 2002, 5.250%, 10/01/35
3,000 Fauquier County Industrial Development Authority, Virginia, Hospital 10/12 at 102.00 AA 3,185,100
Revenue Bonds, Fauquier Hospital, Series 2002, 5.250%, 10/01/25 - RAAI
Insured
675 Fredericksburg Industrial Development Authority, Virginia, Revenue 6/12 at 100.00 A3 691,726
Bonds, MediCorp Health System, Series 2002B, 5.125%, 6/15/33
1,000 Henrico County Economic Development Authority, Virginia, Revenue 11/12 at 100.00 A- 1,054,350
Bonds, Bon Secours Health System Inc., Series 2002A, 5.600%, 11/15/30
1,155 Manassas Industrial Development Authority, Virginia, Hospital Revenue 4/13 at 100.00 A2 1,203,845
Bonds, Prince William Hospital, Series 2002, 5.250%, 4/01/33
1,000 Medical College of Virginia Hospital Authority, General Revenue Bonds, 7/08 at 102.00 AAA 1,054,270
Series 1998, 5.250%, 7/01/14 - MBIA Insured
</Table>
<Table>
<Caption>
OPTIONAL
PRINCIPAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE (continued)
$ 1,200 Norton Industrial Development Authority, Virginia, Hospital Revenue 12/11 at 101.00 A $ 1,303,104
Refunding and Improvement Bonds, Norton Community Hospital, Series
2001, 6.000%, 12/01/22 - ACA Insured
1,000 Prince William County Industrial Development Authority, Virginia, 10/08 at 102.00 Aaa 1,046,650
Hospital Facility Revenue Refunding Bonds, Potomac Hospital
Corporation of Prince William, Series 1998, 5.000%, 10/01/18 - FSA
Insured
3,915 Roanoke Industrial Development Authority, Virginia, Hospital Revenue 7/12 at 100.00 AAA 4,237,439
Bonds, Carilion Health System, Series 2002A, 5.500%, 7/01/20 - MBIA
Insured
- ------------------------------------------------------------------------------------------------------------------------------------
14,445 Total Health Care 15,325,804
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 8.8% (6.0% OF TOTAL INVESTMENTS)
7,485 Virginia Housing Development Authority, Commonwealth Mortgage Bonds, 7/11 at 100.00 AAA 7,732,679
Series 2001H-1, 5.350%, 7/01/31 - MBIA Insured
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 3.7% (2.5% OF TOTAL INVESTMENTS)
165 Albemarle County Industrial Development Authority, Virginia, 1/12 at 100.00 N/R 172,725
Residential Care Facility Revenue Bonds, Westminster Canterbury of the
Blue Ridge First Mortgage, Series 2001, 6.200%, 1/01/31
650 Chesterfield County Health Center Commission, Virginia, Mortgage 12/15 at 100.00 N/R 650,176
Revenue Bonds, Lucy Corr Village, Series 2005, 5.625%, 12/01/39
1,350 James City County Industrial Development Authority, Virginia, 3/12 at 101.00 N/R 1,448,591
Residential Care Facility First Mortgage Revenue Refunding Bonds,
Williamsburg Landing Inc., Series 2003A, 6.000%, 3/01/23
650 Virginia Beach Development Authority, Virginia, Residential Care 11/15 at 100.00 N/R 650,449
Facility Mortgage Revenue Bonds, Westminster Canterbury on Chesapeake
Bay, Series 2005, 5.000%, 11/01/22
325 Winchester Industrial Development Authority, Virginia, Residential 1/15 at 100.00 N/R 328,211
Care Facility Revenue Bonds, Westminster-Canterbury of Winchester
Inc., Series 2005A, 5.200%, 1/01/27
- ------------------------------------------------------------------------------------------------------------------------------------
3,140 Total Long-Term Care 3,250,152
- ------------------------------------------------------------------------------------------------------------------------------------
MATERIALS - 1.7% (1.1% OF TOTAL INVESTMENTS)
165 Bedford County Industrial Development Authority, Virginia, Industrial 2/08 at 102.00 B2 163,235
Development Revenue Refunding Bonds, Nekoosa Packaging Corporation,
Series 1998, 5.600%, 12/01/25 (Alternative Minimum Tax)(5)
460 Goochland County Industrial Development Authority, Virginia, 12/08 at 101.00 B2 459,411
Industrial Development Revenue Refunding Bonds, Nekoosa Packaging
Corporation Project, Series 1998, 5.650%, 12/01/25 (Alternative
Minimum Tax)(5)
1,000 Hopewell Industrial Development Authority, Virginia, Environmental No Opt. Call CCC+ 943,820
Improvement Revenue Bonds, Smurfit Stone Container Corporation, Series
2005, 5.250%, 6/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
1,625 Total Materials 1,566,466
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 38.6% (26.5% OF TOTAL INVESTMENTS)
600 Alexandria, Virginia, General Obligation Bonds, Series 2004B, 5.000%, No Opt. Call AAA 652,572
6/15/13
1,000 Arlington County, Virginia, General Obligation Bonds, Series 2005, 5/15 at 100.00 AAA 1,094,770
5.000%, 5/15/16
1,750 Chesapeake, Virginia, General Obligation Bonds, Series 2001, 5.500%, 12/11 at 100.00 AA 1,921,343
12/01/16
1,730 Loudoun County, Virginia, General Obligation Public Improvement Bonds, 11/11 at 101.00 AAA 1,796,276
Series 2001C, 4.500%, 11/01/17
95 Loudoun County, Virginia, General Obligation Public Improvement Bonds, 5/12 at 100.00 AAA 102,692
Series 2002A, 5.250%, 5/01/22
1,200 Loudoun County, Virginia, General Obligation Public Improvement Bonds, No Opt. Call AAA 1,310,580
Series 2005A, 5.000%, 7/01/14
1,000 Loudoun County, Virginia, General Obligation Public Improvement Bonds, 6/15 at 100.00 AAA 1,090,010
Series 2005B, 5.000%, 6/01/18
1,840 Newport News, Virginia, General Obligation Bonds, General Improvement 7/13 at 100.00 AA 1,967,438
and Water Projects, Series 2002A, 5.000%, 7/01/20
1,000 Newport News, Virginia, General Obligation Bonds, Series 2003B, 11/13 at 100.00 AA 1,064,320
5.000%, 11/01/22
</Table>
<Table>
<Caption>
OPTIONAL
PRINCIPAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,500 Portsmouth, Virginia, General Obligation Bonds, Series 2003, 5.000%, No Opt. Call AAA $ 1,617,615
7/01/12 - FSA Insured
565 Portsmouth, Virginia, General Obligation Public Utility Refunding 6/08 at 100.00 AAA 581,854
Bonds, Series 2001B, 5.000%, 6/01/21 - FGIC Insured
Powhatan County, Virginia, General Obligation Bonds, Series 2001:
660 5.000%, 1/15/23 - AMBAC Insured 1/11 at 101.00 AAA 697,660
1,000 5.000%, 1/15/27 - AMBAC Insured 1/11 at 101.00 AAA 1,040,460
1,000 Richmond, Virginia, General Obligation Bonds, Series 2004A, 5.000%, 7/14 at 100.00 AAA 1,072,410
7/15/21 - FSA Insured
1,000 Richmond, Virginia, General Obligation Bonds, Series 2005A, 5.000%, 7/15 at 100.00 AAA 1,079,560
7/15/20 - FSA Insured
Roanoke, Virginia, General Obligation Public Improvement Bonds, Series
2002A:
2,400 5.000%, 10/01/18 10/12 at 101.00 AA 2,578,776
2,435 5.000%, 10/01/19 10/12 at 101.00 AA 2,616,383
1,280 Roanoke, Virginia, General Obligation Public Improvement Bonds, Series 10/12 at 101.00 AAA 1,371,418
2002B, 5.000%, 10/01/15 - FGIC Insured (Alternative Minimum Tax)
Salem, Virginia, General Obligation Public Improvement Bonds, Series
2002:
1,145 5.375%, 1/01/21 1/12 at 100.00 Aa3 1,235,512
1,200 5.375%, 1/01/22 1/12 at 100.00 Aa3 1,294,860
1,260 5.375%, 1/01/23 1/12 at 100.00 Aa3 1,359,603
1,325 5.375%, 1/01/24 1/12 at 100.00 Aa3 1,429,741
1,000 Staunton, Virginia, General Obligation Bonds, Series 2004, 6.250%, 2/14 at 101.00 AAA 1,171,210
2/01/25 - AMBAC Insured
600 Virginia Beach, Virginia, General Obligation Bonds, Series 2005, 1/16 at 100.00 AA+ 649,824
5.000%, 1/15/20
1,500 Virginia Beach, Virginia, General Obligation Public Improvement Bonds, 6/11 at 101.00 AA+ 1,599,135
Series 2001, 5.000%, 6/01/19
1,420 Virginia Beach, Virginia, General Obligation Refunding and Public 3/12 at 100.00 AA+ 1,509,744
Improvement Bonds, Series 2002, 5.000%, 3/01/21
- ------------------------------------------------------------------------------------------------------------------------------------
31,505 Total Tax Obligation/General 33,905,766
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 26.5% (18.2% OF TOTAL INVESTMENTS)
441 Bell Creek Community Development Authority, Virginia, Special 3/13 at 101.00 N/R 470,419
Assessment Bonds, Series 2003A, 6.750%, 3/01/22
1,000 Broad Street Community Development Authority, Virginia, Revenue Bonds, 6/13 at 102.00 N/R 1,118,000
Series 2003, 7.500%, 6/01/33
Buena Vista Public Recreational Facilities Authority, Virginia, Lease
Revenue Bonds, Golf Course Project, Series 2005A:
210 5.250%, 7/15/25 - ACA Insured 7/15 at 100.00 A 222,346
165 5.500%, 7/15/35 - ACA Insured 7/15 at 100.00 A 175,105
800 Commonwealth Transportation Board of Virginia, Federal Highway No Opt. Call AA 875,472
Reimbursement Anticipation Notes, Series 2005, 5.000%, 9/28/15
1,800 Loudoun County Industrial Development Authority, Virginia, Lease 3/13 at 100.00 AA+ 1,919,826
Revenue Refunding Bonds, Public Facility Project, Series 2003, 5.000%,
3/01/19
400 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 BBB 420,648
Facilities Revenue Refunding Bonds, Series 2002D, 5.250%, 7/01/27
455 Puerto Rico Public Finance Corporation, Commonwealth Appropriation 2/12 at 100.00 BBB- 484,743
Bonds, Series 2002E, 5.500%, 8/01/29
1,000 Spotsylvania County Industrial Development Authority, Virginia, Lease 8/13 at 100.00 AAA 1,074,750
Revenue Bonds, School Facilities, Series 2003B, 5.125%, 8/01/23 -
AMBAC Insured
800 Virginia Beach Development Authority, Public Facilities Revenue Bonds, 5/15 at 100.00 AA 870,184
Series 2005A, 5.000%, 5/01/16
</Table>
<Table>
<Caption>
OPTIONAL
PRINCIPAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED (continued)
$ 1,790 Virginia College Building Authority, Educational Facilities Revenue 2/12 at 100.00 AA+ $ 1,893,032
Bonds, 21st Century College Program, Series 2002A, 5.000%, 2/01/22
690 Virginia Gateway Community Development Authority, Prince William 3/13 at 102.00 N/R 757,427
County, Special Assessment Bonds, Series 2003, 6.375%, 3/01/30
1,000 Virginia Public Building Authority, Public Facilities Revenue Bonds, No Opt. Call AA+ 1,068,510
Series 2004B, 5.000%, 8/01/11
2,540 Virginia Public School Authority, School Financing Bonds, 1997 8/11 at 101.00 AA+ 2,712,009
Resolution, Series 2001B, 5.000%, 8/01/19
700 Virginia Public School Authority, School Financing Bonds, 1997 No Opt. Call AA+ 756,700
Resolution, Series 2004C, 5.000%, 8/01/13
570 Virginia Public School Authority, School Financing Bonds, 1997 8/15 at 100.00 AA+ 618,524
Resolution, Series 2005C, 5.000%, 8/01/17
1,265 Virginia Resources Authority, Infrastructure Revenue Bonds, Pooled 5/10 at 101.00 AA 1,312,450
Loan Bond Program, Series 2001D, 5.000%, 5/01/26
1,710 Virginia Transportation Board, Transportation Revenue Bonds, Northern 5/11 at 100.00 AA+ 1,772,141
Virginia Transportation District Program, Series 2001A, 5.000%, 5/15/26
Virginia Transportation Board, Transportation Revenue Bonds, U.S.
Route 58 Corridor Development Program, Series 2001B:
1,705 5.000%, 5/15/22 5/11 at 100.00 AA+ 1,799,610
1,665 5.000%, 5/15/23 5/11 at 100.00 AA+ 1,757,391
1,100 Virginia Transportation Board, Transportation Revenue Bonds, U.S. 5/14 at 100.00 AA+ 1,192,323
Route 58 Corridor Development Program, Series 2004B, 5.000%, 5/15/15
- ------------------------------------------------------------------------------------------------------------------ -----------------
21,806 Total Tax Obligation/Limited 23,271,610
- ------------------------------------------------------------------------------------------------------------------ -----------------
TRANSPORTATION - 2.2% (1.6% OF TOTAL INVESTMENTS)
1,000 Metropolitan Washington D.C. Airports Authority, Airport System 10/12 at 100.00 AAA 1,036,590
Revenue Bonds, Series 2002A, 5.125%, 10/01/26 - FGIC Insured
(Alternative Minimum Tax)
Pocahontas Parkway Association, Virginia, Senior
Lien Revenue Bonds, Route 895 Connector Toll
Road, Series 1998A:
300 5.250%, 8/15/07 No Opt. Call BB- 305,490
325 5.500%, 8/15/28 8/08 at 102.00 BB- 334,561
300 Virginia Resources Authority, Airports Revolving Fund Revenue Bonds, 2/11 at 100.00 Aa2 319,017
Series 2001A, 5.250%, 8/01/17
- ------------------------------------------------------------------------------------------------------------------ -----------------
1,925 Total Transportation 1,995,658
- ------------------------------------------------------------------------------------------------------------------ -----------------
U.S. GUARANTEED - 12.0% (8.2% OF TOTAL INVESTMENTS) (4)
1,000 Bristol, Virginia, General Obligation Utility System Revenue Bonds, No Opt. Call AAA 1,105,930
Series 2002, 5.000%, 11/01/24 - FSA Insured (ETM)
195 Fairfax County Water Authority, Virginia, Water Revenue Refunding 4/12 at 100.00 AAA 209,863
Bonds, Series 2002, 5.000%, 4/01/27 (Pre-refunded 4/01/12)
1,000 Fairfax County, Virginia, General Obligation Refunding and Improvement 6/10 at 101.00 AAA 1,068,870
Bonds, Series 2002, 5.000%, 6/01/20 (Pre-refunded 6/01/10)
Loudoun County Industrial Development Authority, Virginia, Hospital
Revenue Bonds, Loudoun Hospital Center, Series 2002A:
250 6.000%, 6/01/22 (Pre-refunded 6/01/12) 6/12 at 101.00 BBB(4) 282,010
600 6.100%, 6/01/32 (Pre-refunded 6/01/12) 6/12 at 101.00 BBB(4) 679,992
445 Loudoun County, Virginia, General Obligation Public Improvement Bonds, 5/12 at 100.00 AAA 485,873
Series 2002A, 5.250%, 5/01/22 (Pre-refunded 5/01/12)
2,750 Puerto Rico Infrastructure Financing Authority, Special Obligation 10/10 at 101.00 AAA 2,981,028
Bonds, Series 2000A, 5.500%, 10/01/40 (ETM)
1,100 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 BBB(4) 1,193,918
Facilities Revenue Refunding Bonds, Series 2002D, 5.250%, 7/01/27
(Pre-refunded 7/01/12)
</Table>
<Table>
<Caption>
OPTIONAL
PRINCIPAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED(4) (continued)
$ 1,345 Puerto Rico Public Finance Corporation, Commonwealth Appropriation 2/12 at 100.00 Aaa $ 1,478,115
Bonds, Series 2002E, 5.500%, 8/01/29 (Pre-refunded 2/01/12)
500 Virginia Beach, Virginia, Water and Sewerage System Revenue Bonds, 8/10 at 100.00 AA(4) 533,280
Series 2000, 5.125%, 8/01/14 (Pre-refunded 8/01/10)
500 Virginia Public Building Authority, Public Facilities Revenue Bonds, 8/10 at 100.00 AA+(4) 545,990
Series 2000A, 5.750%, 8/01/20 (Pre-refunded 8/01/10)
- ------------------------------------------------------------------------------------------------------------------------------------
9,685 Total U.S. Guaranteed 10,564,869
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 6.4% (4.4% OF TOTAL INVESTMENTS)
2,000 Mecklenburg County Industrial Development Authority, Virginia, Revenue 10/12 at 100.00 A3 2,244,020
Bonds, UAE Mecklenburg Cogeneration LP, Series 2002, 6.500%, 10/15/17
(Alternative Minimum Tax)
3,125 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series 7/10 at 101.00 AAA 3,337,000
2000HH, 5.250%, 7/01/29 - FSA Insured
- ------------------------------------------------------------------------------------------------------------------------------------
5,125 Total Utilities 5,581,020
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 15.3% (10.5% OF TOTAL INVESTMENTS)
805 Fairfax County Water Authority, Virginia, Water Revenue Refunding 4/12 at 100.00 AAA 842,127
Bonds, Series 2002, 5.000%, 4/01/27
Henry County Public Service Authority, Virginia, Water and Sewerage
Revenue Refunding Bonds, Series 2001:
1,000 5.500%, 11/15/17 - FSA Insured No Opt. Call AAA 1,138,930
3,000 5.500%, 11/15/19 - FSA Insured No Opt. Call AAA 3,466,110
Norfolk, Virginia, Water Revenue Refunding Bonds, Series 2001:
1,130 5.000%, 11/01/18 - FGIC Insured 11/11 at 100.00 AAA 1,200,060
1,190 5.000%, 11/01/19 - FGIC Insured 11/11 at 100.00 AAA 1,263,780
1,450 5.000%, 11/01/23 - FGIC Insured 11/11 at 100.00 AAA 1,535,492
1,525 5.000%, 11/01/24 - FGIC Insured 11/11 at 100.00 AAA 1,614,914
2,250 Virginia Resources Authority, Water and Sewerage System Revenue Bonds, 5/11 at 101.00 AA 2,339,775
Caroline County Public Improvements Project, Series 2001, 5.000%,
5/01/32
- ------------------------------------------------------------------------------------------------------------------------------------
12,350 Total Water and Sewer 13,401,188
- ------------------------------------------------------------------------------------------------------------------------------------
$ 120,116 Total Investments (cost $121,563,314) - 145.9% 128,149,733
===============---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.9% 1,660,747
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (47.8)% (42,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 87,810,480
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: Dates (month and year) and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities
may be subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are considered to be below investment grade.
(4) Investment is backed by an escrow or trust containing sufficient U.S. Government or U.S. Government
agency securities which ensure the timely payment of principal and interest. Such investments are
normally considered to be equivalent to AAA rated securities.
(5) The Issuer has received a preliminary adverse determination from the Internal Revenue Service
(the "IRS") regarding the tax-exempt status of the bonds' coupon payments. The Fund will continue to
treat coupon payments as tax-exempt income until such time that it is formally determined that the
interest on the bonds should be treated as taxable.
N/R Investment is not rated.
(ETM) Investment is escrowed to maturity.
</Table>
See accompanying notes to financial statements.
Statement of
ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
- -------------------------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $121,563,314) $128,149,733
Receivables:
Interest 1,722,079
Investments sold 60,000
Other assets 605
- -------------------------------------------------------------------------------------------------
Total assets 129,932,417
- -------------------------------------------------------------------------------------------------
LIABILITIES
Cash overdraft 45,939
Accrued expenses:
Management fees 33,607
Other 38,801
Preferred share dividends payable 3,590
- -------------------------------------------------------------------------------------------------
Total liabilities 121,937
- -------------------------------------------------------------------------------------------------
Preferred shares, at liquidation value 42,000,000
=================================================================================================
Net assets applicable to Common shares $ 87,810,480
=================================================================================================
Common shares outstanding 5,715,114
=================================================================================================
Net asset value per Common share outstanding (net assets applicable
to Common shares, divided by Common shares outstanding) $ 15.36
=================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- -------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 57,151
Paid-in surplus 81,166,874
Undistributed (Over-distribution of) net investment income 289,453
Accumulated net realized gain (loss) from investments and
derivative transactions (289,417)
Net unrealized appreciation (depreciation) of investments and
derivative transactions 6,586,419
- -------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $ 87,810,480
=================================================================================================
Authorized shares:
Common Unlimited
Preferred Unlimited
=================================================================================================
See accompanying notes to financial statements.
Statement of
OPERATIONS Nine Months Ended February 28, 2006(Unaudited)
- -------------------------------------------------------------------------------------------------
INVESTMENT INCOME $ 4,563,188
- -------------------------------------------------------------------------------------------------
EXPENSES
Management fees 622,751
Preferred shares - auction fees 78,589
Preferred shares - dividend disbursing agent fees 7,480
Shareholders' servicing agent fees and expenses 1,497
Custodian's fees and expenses 34,960
Trustees' fees and expenses 2,192
Professional fees 10,216
Shareholders' reports - printing and mailing expenses 14,800
Stock exchange listing fees 363
Investor relations expense 12,448
Other expenses 11,150
- -------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 796,446
Custodian fee credit (15,795)
Expense reimbursement (292,227)
- -------------------------------------------------------------------------------------------------
Net expenses 488,424
- -------------------------------------------------------------------------------------------------
Net investment income 4,074,764
- -------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 187,599
Net realized gain (loss) from forward swaps (161,404)
Change in net unrealized appreciation (depreciation)
of investments (1,459,866)
Change in net unrealized appreciation (depreciation)
of forward swaps 216,228
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) (1,217,443)
- -------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income (701,945)
From accumulated net realized gains (42,756)
- -------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Preferred shareholders (744,701)
- -------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ 2,112,620
=================================================================================================
See accompanying notes to financial statements.
Statement of
Changes In Net Assets (Unaudited)
NINE MONTHS
ENDED YEAR ENDED
2/28/06 5/31/05
- ----------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 4,074,764 $ 5,449,338
Net realized gain (loss) from
investments 187,599 886,193
Net realized gain (loss) from
forward swaps (161,404) (378,231)
Change in net unrealized appreciation
(depreciation) of investments (1,459,866) 6,118,300
Change in net unrealized appreciation
(depreciation) of forward swaps 216,228 (216,228)
Distributions to Preferred Shareholders:
From net investment income (701,945) (505,130)
From accumulated net realized gains (42,756) (60,997)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 2,112,620 11,293,245
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (3,675,790) (5,047,084)
From accumulated net realized gains (380,508) (1,070,956)
- ----------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (4,056,298) (6,118,040)
- ----------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common Shares:
Offering costs adjustments 10,292 --
Net proceeds from shares
issued to shareholders due to
reinvestment of distributions 107,765 202,523
Preferred shares offering costs
adjustments 10,038 --
- ----------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares from capital
share transactions 128,095 202,523
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares (1,815,583) 5,377,728
Net assets applicable to Common
shares at the beginning of period 89,626,063 84,248,335
- ----------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $87,810,480 $89,626,063
====================================================================================================
Undistributed (Over-distribution of)
net investment income at the
end of period $ 289,453 $ 592,424
====================================================================================================
See accompanying notes to financial statements.
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The fund (the "Fund") covered in this report and its corresponding Common share
American Stock Exchange symbol is Nuveen Virginia Dividend Advantage Municipal
Fund 2 (NNB). The Fund is registered under the Investment Company Act of 1940,
as amended, as a closed-end management investment company.
The Fund seeks to provide current income exempt from both regular federal and
Virginia state income taxes by investing primarily in a diversified portfolio
of municipal obligations issued by state and local government authorities within
the state of Virginia or certain U.S. territories.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
The prices of municipal bonds in the Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Trustees. When market price
quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers, evaluations
of anticipated cash flows or collateral and general market conditions. Prices of
derivative investments are also provided by an independent pricing service
approved by the Fund's Board of Trustees. If the pricing service is unable to
supply a price for a municipal bond or derivative investment, the Fund may use
a market price or fair market value quote provided by a major broker/dealer in
such investments. If it is determined that the market price or fair market value
for an investment is unavailable or inappropriate, the Board of Trustees of the
Fund, or its designee, may establish a fair value for the investment. Temporary
investments in securities that have variable rate and demand features qualifying
them as short-term investments are valued at amortized cost, which approximates
market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from transactions are determined on the specific identification method.
Investments purchased on a when-issued or delayed delivery basis may have
extended settlement periods. Any investments so purchased are subject to market
fluctuation during this period. The Fund has instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At February 28, 2006, the
Fund had no such outstanding purchase commitments.
Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.
Investment income also includes paydown gains and losses, if any.
Income Taxes
The Fund intends to distribute substantially all 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,
the Fund intends to satisfy conditions which will enable interest from municipal
securities, which is exempt from regular federal and Virginia state income
taxes, to retain such tax-exempt status when distributed to shareholders of the
Fund. Net realized capital gains and ordinary income distributions paid by the
Fund are subject to federal taxation.
Dividends and Distributions to Common Shareholders
Dividends from tax-exempt net investment income are declared monthly. Net
realized capital gains and/or market discount from investment transactions, if
any, are distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryforwards.
Distributions to Common shareholders of tax-exempt 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.
generally accepted accounting principles.
Preferred Shares
The Fund has issued and outstanding 1,680 Series M, Preferred shares,
$25,000 stated value per share, as a means of effecting financial leverage. The
Fund's Preferred shares are issued in one Series. The dividend rate paid by the
Fund is determined every seven days, pursuant to a dutch auction process
overseen by the auction agent, and is payable at the end of each rate period.
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Forward Swap Transactions
The Fund is authorized to invest in certain derivative financial instruments.
The Fund's use of forward interest rate swap transactions is intended to
mitigate the negative impact that an increase in long-term interest rates could
have on Common share net asset value. Forward interest rate swap transactions
involve the Fund's agreement with the counterparty to pay, in the future, a
fixed rate payment in exchange for the counterparty paying the Fund a variable
rate payment, the accruals for which would begin at a specified date in the
future (the "effective date"). The amount of the payment obligation is based on
the notional amount of the forward swap contract, and would increase or decrease
in value based primarily on the extent to which long-term interest rates for
bonds having a maturity of the swaps' termination date were to increase or
decrease. The Fund may close out a contract prior to the effective date, at
which point a realized gain or loss would be recognized. When a forward swap is
terminated, it ordinarily does not involve the delivery of securities or other
underlying assets or principal, but rather is settled in cash on a net basis.
The Fund intends, but is not obligated to, terminate its forward swaps before
the effective date. Accordingly, the risk of loss with respect to the swap
counterparty on such transactions is limited to the credit risk associated with
a counterparty failing to honor its commitment to pay any realized gain to the
Fund upon termination. To minimize such credit risk, all counterparties are
required to pledge collateral daily (based on the daily valuation of each swap)
on behalf of the Fund with a value approximately equal to the amount of any
unrealized gain above a pre-determined threshold. Reciprocally, when the
Fund has an unrealized loss on a swap contract, the Fund has instructed the
custodian to pledge assets of the Fund 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 swap
valuations fluctuate, either up or down, by at least the predetermined threshold
amount.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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. FUND SHARES
Transactions in Common shares were as follows:
NINE MONTHS
ENDED YEAR ENDED
2/28/06 5/31/05
- ---------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to reinvestment
of distributions 6,388 12,458
===============================================================================================================
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the nine months ended February 28, 2006,
were as follows:
- -------------------------------------------------------------------------------
Purchases $ 8,818,350
Sales and maturities 10,266,810
===============================================================================
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
4. INCOME TAX INFORMATION
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 the treatment of paydown gains and losses, timing differences
in recognizing taxable market discount and timing differences in recognizing
certain gains and losses on investment transactions.
At February 28, 2006, the cost of investments was $121,817,007.
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 2006, were as follows:
- --------------------------------------------------------------------------------
Gross unrealized:
Appreciation $6,841,949
Depreciation (509,223)
- --------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $6,332,726
================================================================================
- --------------------------------------------------------------------------------
The tax components of undistributed net investment income and net realized gains
at May 31, 2005, the Fund's last tax year end, were as follows:
- --------------------------------------------------------------------------------
Undistributed net tax-exempt income * $954,043
Undistributed net ordinary income ** --
Undistributed net long-term capital gains 422,949
================================================================================
* Undistributed net tax-exempt income (on a tax basis) has not been
reduced for the dividend declared May 2, 2005, paid on June 1, 2005.
** 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 Fund's last tax year ended
May 31, 2005, was designated for purposes of the dividends paid deduction as
follows:
- ---------------------------------------------------------------------------------
Distributions from net tax-exempt income $5,574,792
Distributions from net ordinary income ** --
Distributions from net long-term capital gains 1,131,953
=================================================================================
** Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc., and a specific fund-level component, based only on the amount
of assets within the Fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within the Fund as well as
from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, for the Fund is based upon the
average daily net assets (including net assets attributable to Preferred shares)
of the Fund as follows:
AVERAGE DAILY NET ASSETS
(INCLUDING NET ASSETS
ATTRIBUTABLE TO PREFERRED SHARES) 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 net assets over $2 billion .3750
================================================================================
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of February 28, 2006, the complex-level fee rate was .1886%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
- --------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds
in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Fund pays 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 Fund 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.
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
For the first ten years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily net assets (including net
assets attributable to Preferred shares), for fees and expenses in the amounts
and for the time periods set forth below:
YEAR ENDING YEAR ENDING
NOVEMBER 30, NOVEMBER 30,
- --------------------------------------------------------------------------------
2001* .30% 2007 .25%
2002 .30 2008 .20
2003 .30 2009 .15
2004 .30 2010 .10
2005 .30 2011 .05
2006 .30
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond November 30, 2011.
6. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a Common share dividend distribution of $.0680 per share from
its tax-exempt net investment income which was paid on April 3, 2006, to
shareholders of record on March 15, 2006.
FINANCIAL HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
--------------------------------------------------------------- -------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ Preferred Preferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
===================================================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended 5/31:
2006(a) 15.70 .71 (.21) (.12) (.01) .37 (.64) (.07) (.71)
2005 14.79 .96 1.13 (.09) (.01) 1.99 (.89) (.19) (1.08)
2004 16.02 .99 (1.22) (.06) -- (.29) (.89) (.05) (.94)
2003 14.31 .97 1.69 (.08) -- 2.58 (.84) (.03) (.87)
2002(b) 14.33 .41 .09 (.04) -- .46 (.35) -- (.35)
====================================================================================================================================
Total Returns
-------------------
Based
Offering on
Costs and Ending Common
Preferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
===========================================================================================
- -------------------------------------------------------------------------------------------
Year Ended 5/31:
2006(a) -- 15.36 16.91 5.35% 2.43%
2005 -- 15.70 16.74 21.96 13.75
2004 -- 14.79 14.65 (3.81) (1.84)
2003 -- 16.02 16.14 14.58 18.51
2002(b) (.13) 14.31 14.90 1.71 2.30
===========================================================================================
Ratios/Supplemental Data
---------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
----------------------------- ------------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
========================================================================================================================
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 5/31:
2006(a) $ 87,810 1.21%* 5.71%* .74%* 6.17%* 7%
2005 89,626 1.19 5.74 .74 6.19 13
2004 84,248 1.20 5.99 .74 6.44 16
2003 91,065 1.21 6.01 .75 6.47 15
2002(b) 81,325 1.14* 5.00* .70* 5.44* 12
========================================================================================================================
Preferred Shares at End of Period
------------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
====================================================================
- --------------------------------------------------------------------
Year Ended 5/31:
2006(a) $ 42,000 $ 25,000 $ 77,268
2005 42,000 25,000 78,349
2004 42,000 25,000 75,148
2003 42,000 25,000 79,206
2002(b) 42,000 25,000 73,408
====================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the nine months ended February 28, 2006.
(b) For the period November 15, 2001 (commencement of operations) through May
31, 2002.
See accompanying notes to financial statements.
ITEM 2. CODE OF ETHICS.
Not applicable to this filing
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During this reporting period, the registrant's Board of Trustees implemented a
change to the procedures by which shareholders may recommend nominees to the
registrant's board of trustees by amending the registrant's by-laws to include a
provision specifying the date by which shareholder nominations for election as
trustee at a subsequent meeting must be submitted to the registrant.
Shareholders must deliver or mail notice to the registrant not less than
forty-five days nor more than sixty days prior to the first anniversary date of
the date on which the registrant first mailed its proxy materials for the prior
year's annual meeting; provided, however, if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty days after such anniversary date (an annual meeting date outside such
period being referred to as an "Other Annual Meeting Date" hereafter), the
shareholder notice must be given no later than the close of business on the date
forty-five days prior to such Other Annual Meeting Date or the tenth business
day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. The shareholder's notice must be in writing and set
forth the name, age, date of birth, business address, residence address and
nationality of the person(s) being nominated and the class or series, number of
all shares of the registrant owned of record or beneficially be each such
person(s), any other information regarding such person required by Item 401 of
Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities
Exchange Act of 1934, as amended, any other information regarding the person(s)
to be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees, and whether such shareholder believes any nominee is or
will be an "interested person" (as that term is defined in the Investment
Company Act of 1940, as amended) of the registrant or sufficient information to
enable the registrant to make that determination and the written and signed
consent of the person(s) to be nominated.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial
officers, or persons performing similar functions, have concluded
that the registrant's disclosure controls and procedures (as defined
in Rule 30a-3(c) under the Investment Company Act of 1940, as
amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of
a date within 90 days of the filing date of this report that
includes the disclosure required by this paragraph, based on their
evaluation of the controls and procedures required by Rule 30a-3(b)
under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) NUVEEN VIRGINIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2
-------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: May 5, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: May 5, 2006
By (Signature and Title)* /s/ Stephen D. Foy
------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: May 5, 2006
* Print the name and title of each signing officer under his or her signature.