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 811-21471
-----------------------
Nuveen Tax-Advantaged Total Return Strategy Fund
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Kevin J. McCarthy
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
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: June 30, 2007
---------------------
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 SHAREHOLDERS
Semi-Annual Report
JUNE 30, 2007
Nuveen Investments
CLOSED-END FUNDS
NUVEEN
TAX-ADVANTAGED
TOTAL RETURN
STRATEGY FUND
JTA
Opportunities for Capital Appreciation and Tax-Advantaged
Distributions from a Portfolio of Value Equities and Senior Loans
NUVEEN INVESTMENTS LOGO
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Nuveen
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<Table>
www.investordelivery.com OR www.nuveen.com/accountaccess
If you received your Nuveen Fund If you received your Nuveen Fund
dividends and statements from your dividends and statements directly from
financial advisor or brokerage Nuveen.
account.
</Table>
NUVEEN INVESTMENTS LOGO
Chairman's
LETTER TO SHAREHOLDERS
<Table>
(TIMOTHY
SCHWERTFEGER
PHOTO) Timothy R. Schwertfeger Chairman of the Board
</Table>
Dear Shareholder:
Once again, I am pleased to report that over the six-month period covered by
this report your Fund continued to provide you with attractive income. For more
details about the management strategy and performance of your Fund, please read
the Portfolio Managers' Comments, the Dividend and Share Price Information, and
the Performance Overview sections of this report.
I also wanted to take this opportunity to report some important news about
Nuveen Investments. We have accepted a buyout offer from a private equity
investment firm. While this may affect the corporate structure of Nuveen
Investments, it will have no impact on the investment objectives of the Fund,
its portfolio management strategies or its dividend policies. We will provide
you with additional information about this transaction as more details become
available.
With the recent volatility in the stock market, many have begun to wonder which
way the market is headed, and whether they need to adjust their holdings of
investments. No one knows what the future will bring, which is why we think a
well-balanced portfolio that is structured and carefully monitored with the help
of an investment professional is an important component in achieving your
long-term financial goals. A well-diversified portfolio may actually help to
reduce your overall investment risk, and we believe that investments like your
Nuveen Investments Fund can be important building blocks in a portfolio crafted
to perform well through a variety of market conditions.
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,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
August 15, 2007
Portfolio Managers' COMMENTS
NUVEEN INVESTMENTS CLOSED-END FUNDS JTA
The Fund features management by two affiliates of Nuveen Investments. The Fund's
investments in dividend-paying common and preferred stocks are managed by NWQ
Investment Management Company, LLC (NWQ), while the Fund's investments in senior
corporate loans and other debt instruments are managed by Symphony Asset
Management, LLC (Symphony). Jon Bosse, Chief Investment Officer of NWQ, leads
the Fund's management team of the firm. He has more than 22 years of corporate
finance and investment management experience.
The Symphony team is led by Gunther Stein and Lenny Mason, who have more than 25
years of combined investment management experience, much of it in evaluating and
purchasing senior corporate loans and other high-yield debt.
Here Jon, Gunther and Lenny talk about general market conditions, their
management strategies and the performance of the Fund for the six-month period
ended June 30, 2007.
WHAT WAS YOUR STRATEGY IN MANAGING THE FUND DURING THE SIX-MONTH PERIOD ENDED
JUNE 30, 2007?
There were no changes to our dividend-paying common stock strategy during the
period as the portfolio's assets continue to be well-diversified and invested in
dividend producing securities. We continue to employ an opportunistic approach
to investing, utilizing a bottom-up strategy that is focused on identifying
attractively valued companies which possess favorable risk/reward
characteristics and emerging catalysts that we believe could unlock value or
improve profitability. These catalysts include management changes, restructuring
efforts, recognition of hidden assets/free options, or a turn in the underlying
fundamentals. We also continue to focus on downside protection, and pay a great
deal of attention to a company's financial statements. We focus on cash flow
analysis believing it offers a more objective and truer picture of a company's
financial position than an evaluation based on earnings alone.
During the period, we established a position in GlaxoSmithKline PLC, and added
to our stake in Citigroup. Conversely, we eliminated Vodafone Group PLC based on
valuation, and trimmed several other positions in various sectors for company
specific reasons.
During the period we continued to manage the senior corporate loans and other
debt instruments portion of the portfolio using fundamental analysis to select
loans that we believed offer strong asset coverage and attractive risk adjusted
returns. We positioned the portfolio in a defensive manner, avoiding companies
with aggressive capital structures or companies
Discussions of specific investments are for illustration only and are not
intended as recommendations of individual investments. The views expressed
herein represent those of the portfolio managers as of the date of this report
and are subject to change at any time, based on market conditions and other
factors. The Fund disclaims any obligation to advise shareholders of such
changes.
4
that just do not have a strong credit profile. We continued to avoid second lien
loans which generally lack strong recovery and liquidity characteristics.
HOW DID THE FUND PERFORM OVER THE SIX-MONTH PERIOD?
Fund performance results, as well as the performance of a comparative benchmark,
are presented in the accompanying table.
Cumulative Total Returns on Net Asset Value
For the six months ended 6-30-07
<Table>
JTA 6.45%
Comparative Benchmark(1) 6.05%
</Table>
- --------------------------------------------------------------------------------
Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown.
Returns do not reflect the deduction of taxes that a shareholder may have to pay
on Fund distributions or upon the sale of Fund shares. For additional
information, please see the Performance Overview page in this report.
- --------------------------------------------------------------------------------
As indicated in the accompanying table, the Fund outperformed its benchmark for
the six months ended June 30, 2007.
- --------------------------------------------------------------------------------
1 The comparative benchmark designed to reflect the portfolio composition of JTA
is calculated by combining: 1) 56% of the return of the Russell 3000 Value
Index, which measures the performance of those Russell 3000 Index companies with
lower price-to book ratios and lower forecasted growth values, 2) 16% of the
return of the MSCI EAFE ex-Japan Value Index, a capitalization weighted index
that selects the lower 50% of the price-to-book ranked value stocks traded in
the developed markets of Europe, Asia and the Far East, excluding Japan, 3) 8%
of the return of the Merrill Lynch DRD (dividends received deduction) Preferred
Index, which consists of investment-grade, DRD-eligible, exchange-traded
preferred stocks with one year or more to maturity, and 4) 20% of the return of
the CSFB Leveraged Loan Index, which consists of approximately $150 billion of
tradable term loans with at least one year to maturity and rated BBB or lower.
Index returns are not leveraged, and do not include the effects of any sales
charges or management fees. It is not possible to invest directly in an index.
- --------------------------------------------------------------------------------
The equity portfolio had several positions that performed particularly well over
the period. Ongoing consolidation, as well as persistent takeover speculation,
contributed to the upward momentum (and volatility) of metal and mining stocks
during the period. Our investments in Alumina Ltd, POSCO and Rio Tinto PLC
benefited from this speculation on anticipation that they too would receive
takeover bids.
In the financial sector, strength in Aon Corp. reflects favorable organic
revenue growth and improving margins, while Federal National Mortgage
Association rose due to a friendlier political environment, improving
fundamentals, and a strong possibility the company could be current in its
financial accounting restatements in early 2008. Finally, shares of Caterpillar
Inc. appreciated based on an attractive valuation and strong earnings outlook,
driven by ongoing infrastructure growth in China, India, Europe, and the Middle
East.
In the senior loan component of the portfolio one security that positively
impacted the Fund's performance during the six-month period was the Fund's
Federal Mogul term loan position. The Federal Mogul term loan traded up during
the period due to the expectation that the company will emerge out of bankruptcy
soon. Successful restructuring efforts and financial results show progress on
the company's Chapter 11 emergence. Our positions in Amsted Industries, a
diversified manufacturer of industrial components, and media company Metro-
Goldwyn-Mayer (MGM) Studios also benefited performance.
The Fund had several equity positions that constrained performance over this
reporting period. Financial stocks faced some headwinds during the period on
concerns about slower economic growth and lending troubles in the subprime
mortgage. Specifically, lax underwriting standards during 2006 created a sizable
increase in the number of delinquencies and credit losses in many subprime
portfolios. As the value of subprime loans decreased in the secondary market,
their value as collateral for funding also declined, causing margin calls and
liquidity issues for their lenders. To date, the stresses of higher
delinquencies and credit losses have been greater in the sub-prime market than
in other areas of the residential mortgage market, reflecting in part the
differences in underwriting standards and borrower profiles in the different
segments of the residential mortgage origination business. While stresses in the
sub-prime market have been greater than in other parts of the residential
mortgage
5
market, our mortgage origination holding IndyMac Bancorp, Inc., which has
limited exposure to sub-prime mortgages, declined as subprime concerns cast a
dark cloud over the entire residential mortgage-related industry.
Our large capitalization bank holdings Citigroup Inc., JPMorgan Chase, Wells
Fargo, and Wachovia Corp. underperformed due to credit quality concerns and
margin pressures given the flat yield curve. Kimberly-Clark Corp. suffered a
decline due to higher than expected pulp prices, a key raw material input.
Motorola, Inc. declined as the company continues to encounter weakness in its
high-end 3G phones, as well as aggressive price competition in emerging markets.
These factors contributed to the company lowering its revenue and profit
forecasts for the year.
Our preferred stock returns were hampered by several factors. The SLM buyout
caused a drop in price for the perpetual preferred we held. Because we felt that
ultimately the security would fall in rating from BBB (investment grade) to CCC
(junk) and that likely eventuality was not priced in, we eliminated the position
during the second quarter. Additionally, the Qualified Dividend Income (QDI)
sector has been hit with regulatory uncertainty as Congress has drafted
legislation to remove the favorable tax treatment for a number of foreign
issuers. This has caused this sector to underperforming the Dividend Received
Deduction (DRD) preferreds held in the benchmark.
The senior loan portion of the portfolio had several positions that had a
negative impact on overall performance. In particular, detractors were; Hospital
Corp. of America (HCA), HanesBrands, a global consumer goods company and Sungard
Data Systems, Inc., a global leader in software and processing solutions.
6
Distribution and Share Price
INFORMATION
We are providing you with information regarding your Fund's distributions. This
information is as of June 30, 2007, and likely will vary over time based on the
Fund's investment activities and portfolio investment value changes. On March 1,
2007, Nuveen Investments announced that JTA would be moving from a monthly to a
quarterly distribution schedule. JTA's last monthly distribution was paid on
April 2, 2007, and its first quarterly distribution was paid on July 2, 2007.
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called FundPreferred(TM), and entered into a series of short-term
borrowing arrangements. This FundPreferred and borrowing provides a degree of
financial leverage that can enhance the Fund's returns and supplement the income
available to pay common shareholder distributions, but also can increase share
price volatility. This leveraging strategy provided incremental income and
helped enhance shareholder distributions over this reporting period.
The Fund has a managed distribution program. The goal of a managed distribution
program is to provide shareholders relatively consistent and predictable cash
flow by systematically converting its expected long-term return potential into
regular distributions. As a result, regular distributions throughout the year
will likely include a portion of expected long-term gains (both realized and
unrealized), along with net investment income.
Important points to understand about the managed distribution program are:
- - The Fund seeks to establish a relatively stable distribution rate that roughly
corresponds to the projected total return from its investment strategy over an
extended period of time. However, you should not draw any conclusions about
the Fund's past or future investment performance from its current distribution
rate.
- - Actual returns will differ from projected long-term returns (and therefore the
Fund's distribution rate), at least over shorter time periods. Over a specific
timeframe, the difference between actual returns and total distributions will
be reflected in an increasing (returns exceed distributions) or a decreasing
(distributions exceed returns) Fund net asset value.
- - Each distribution is expected to be paid from some or all of the following
sources:
- - net investment income (regular interest and dividends),
- - realized capital gains, and
- - unrealized gains, or, in certain cases, a return of principal (non-taxable
distributions)
7
- - A non-taxable distribution is a payment of a portion of the Fund's capital.
When the Fund's returns exceed distributions, it may represent portfolio gains
generated, but not realized as a taxable capital gain. In periods when the
Fund's returns fall short of distributions, it will represent a portion of
your original principal unless the shortfall is offset during other time
periods over the life of your investment (previous or subsequent) when the
Fund's total return exceeds distributions.
- - Because distribution source estimates are updated during the year, based on
the Fund's performance and forecast for its current fiscal year (which is the
calendar year for the Fund), these estimates may differ from both the tax
information reported to you in your Fund's IRS Form 1099 statement provided at
year end, as well as the ultimate economic sources of distributions over the
life of your investment.
- - The following table provides estimated information regarding the Fund's
distributions and total return performance for the six months ended June 30,
2007. The distribution information is presented on a tax basis rather than on
a generally accepted accounting principles (GAAP) basis. This information is
intended to help you better understand whether the Fund's returns for the
specified time period was sufficient to meet the Fund's distributions.
<Table>
<Caption>
- ----------------------------------------------------------------------------
As of 6/30/07 JTA
- ----------------------------------------------------------------------------
Inception date 1/27/04
Six months ended 6/30/07:
Per share distribution:
From net investment income $0.45
From realized capital gains --
From return of capital 0.49
-------
Total per share distribution $0.94
=======
Distribution rate on NAV 3.52%
Cumulative six-month total return on NAV 6.45%
Annualized one-year total return on NAV 22.45%
Annualized since inception total return on NAV 17.44%
- ----------------------------------------------------------------------------
</Table>
As of June 30, 2007, the Fund was trading at a -0.67% discount to its net asset
value. This compared with the average 0.71% premium the Fund exhibited over the
course of the entire six-month reporting period.
8
<Table>
JTA Nuveen Tax-Advantaged
PERFORMANCE Total Return
OVERVIEW Strategy Fund
as of 6-30-07
</Table>
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PIE CHART)
<Table>
Common Stocks 71.4
Variable Rate Senior Loan Interests 17.1
$25 Par (or similar) Securities 7.6
Short-Term Investments 2.2
Corporate Bonds 1.2
Capital Preferred Securities 0.5
</Table>
2006-2007 DISTRIBUTIONS PER SHARE(2)
(GRAPH)
<Table>
Jul 0.130
Aug 0.130
Sep 0.140
Oct 0.140
Nov 0.140
Dec 0.150
Jan 0.150
Feb 0.150
Mar 0.155
Jun 0.484
</Table>
SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(GRAPH)
<Table>
7/01/06 22.89
23
22.26
22.37
23.4
23.69
23.52
23.53
23.69
24.45
23.66
24
24.59
24.52
24.94
24.77
25.4
25.11
25.55
25.47
25.72
25.88
26.46
27.12
26.22
27.13
26.77
26.2999
26.25
26.75
26.6689
26.71
26.26
25.623
25.76
24.57
26.21
26
26.95
26.75
26.636
26.13
26.04
26.05
26.607
26.81
27.08
27.53
27.67
27.02
26.48
26.13
6/30/07 26.51
</Table>
FUND SNAPSHOT
<Table>
- -------------------------------------------------------------------------------------
Common Share Price $26.51
- -------------------------------------------------------------------------------------
Common Share Net Asset Value $26.69
- -------------------------------------------------------------------------------------
Premium/(Discount) to NAV -0.67%
- -------------------------------------------------------------------------------------
Current Distribution Rate(1) 7.30%
- -------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $372,525
- -------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(Inception 1/27/04)
<Table>
<Caption>
- -------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- -------------------------------------------------------------------------------------
6-Month
(Cumulative) 1.41% 6.45%
- -------------------------------------------------------------------------------------
1-Year 25.18% 22.45%
- -------------------------------------------------------------------------------------
Since
Inception 16.05% 17.44%
- -------------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- -------------------------------------------------------------------------------------
Diversified Telecommunication Services 7.8%
- -------------------------------------------------------------------------------------
Insurance 7.4%
- -------------------------------------------------------------------------------------
Media 6.8%
- -------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 6.2%
- -------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 5.5%
- -------------------------------------------------------------------------------------
Commercial Banks 5.1%
- -------------------------------------------------------------------------------------
Diversified Financial Services 4.8%
- -------------------------------------------------------------------------------------
Aerospace & Defense 4.7%
- -------------------------------------------------------------------------------------
Electric Utilities 4.5%
- -------------------------------------------------------------------------------------
Other 47.2%
- -------------------------------------------------------------------------------------
</Table>
COUNTRIES
(as a % of total investments)
<Table>
- -------------------------------------------------------------------
United States 82.3%
- -------------------------------------------------------------------
United Kingdom 4.8%
- -------------------------------------------------------------------
South Korea 3.7%
- -------------------------------------------------------------------
Italy 2.8%
- -------------------------------------------------------------------
France 1.4%
- -------------------------------------------------------------------
Other 5.0%
- -------------------------------------------------------------------
</Table>
1 Current Distribution Rate is based on the Fund's current annualized quarterly
distribution divided by the Fund's current market price. The Fund's quarterly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
2 Effective March 1, 2007, the Fund changed from a monthly distribution to a
quarterly distribution schedule. The Fund's last monthly distribution was
declared March 1, 2007, and paid on April 2, 2007. The Fund's first quarterly
distribution was declared June 1, 2007, and paid on July 2, 2007.
9
<Table>
SHAREHOLDER MEETING REPORT
The shareholder meeting was held in the offices of Nuveen
Investments on April 4, 2007.
</Table>
<Table>
<Caption>
- -------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and
Preferred Preferred
shares voting shares voting
together together
as a class as a class
- -------------------------------------------------------------------------------------------
Robert P. Bremner
For 13,089,471 --
Withhold 83,779 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
Lawrence H. Brown(1)
For 13,076,487 --
Withhold 96,763 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
Jack B. Evans
For 13,090,302 --
Withhold 82,948 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
William C. Hunter
For 13,094,681 --
Withhold 78,569 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
David J. Kundert
For 13,090,073 --
Withhold 83,177 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
William J. Schneider
For -- 1,731
Withhold -- 8
- -------------------------------------------------------------------------------------------
Total -- 1,739
- -------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 1,731
Withhold -- 8
- -------------------------------------------------------------------------------------------
Total -- 1,739
- -------------------------------------------------------------------------------------------
Judith M. Stockdale
For 13,092,550 --
Withhold 80,700 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
Carole E. Stone
For 13,095,991 --
Withhold 77,259 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
Eugene S. Sunshine(2)
For 13,091,323 --
Withhold 81,927 --
- -------------------------------------------------------------------------------------------
Total 13,173,250 --
- -------------------------------------------------------------------------------------------
</Table>
(1) Mr. Lawrence H. Brown retired from the Board of Trustees on July 1, 2007.
(2) Mr. Eugene S. Sunshine resigned from the Board of Trustees on July 31, 2007.
10
JTA
Nuveen Tax-Advantaged Total Return Strategy Fund
Portfolio of INVESTMENTS
as of 6-30-07 (Unaudited)
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 100.7% (71.4% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 5.8%
94,000 Lockheed Martin Corporation $ 8,848,220
235,000 Raytheon Company 12,664,150
- ---------------------------------------------------------------------------------------------------------------------------
Total Aerospace & Defense 21,512,370
--------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 2.7%
205,000 JPMorgan Chase & Co. 9,932,250
--------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 4.4%
155,500 Wachovia Corporation 7,969,375
240,000 Wells Fargo & Company 8,440,800
- ---------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 16,410,175
--------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 3.7%
296,600 Pitney Bowes Inc. 13,886,812
- ---------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 1.8%
377,600 Motorola, Inc. 6,683,520
- ---------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 2.0%
300,000 Packaging Corp. of America 7,593,000
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.3%
385,400 Citigroup Inc. 19,767,165
- ---------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 10.0%
323,600 AT&T Inc. 13,429,400
343,000 KT Corporation, Sponsored ADR 8,046,780
235,000 Telecom Italia S.p.A., Sponsored ADR 5,174,700
256,500 Verizon Communications Inc. 10,560,105
- ---------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 37,210,985
--------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 3.3%
95,300 EDP - Energias de Portugal, S.A., Sponsored ADR 5,251,030
323,000 Korea Electric Power Corporation, Sponsored ADR 7,073,700
- ---------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 12,324,730
--------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 1.0%
114,806 Kraft Foods Inc. 4,046,912
- ---------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 2.4%
307,000 Newell Rubbermaid Inc. 9,035,010
- ---------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 2.9%
160,000 Kimberly-Clark Corporation 10,702,400
- ---------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 2.1%
200,000 General Electric Company 7,656,000
- ---------------------------------------------------------------------------------------------------------------------------
INSURANCE - 8.3%
289,400 Aon Corporation 12,331,334
187,200 Hartford Financial Services Group, Inc. 18,441,072
- ---------------------------------------------------------------------------------------------------------------------------
Total Insurance 30,772,406
--------------------------------------------------------------------------------------------------------------
MACHINERY - 1.6%
75,000 Caterpillar Inc. 5,872,500
- ---------------------------------------------------------------------------------------------------------------------------
MEDIA - 5.2%
200,000 CBS Corporation, Class B 6,664,000
339,000 Clear Channel Communications, Inc. 12,820,980
- ---------------------------------------------------------------------------------------------------------------------------
Total Media 19,484,980
--------------------------------------------------------------------------------------------------------------
</Table>
11
JTA
Nuveen Tax-Advantaged Total Return Strategy Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
<Table>
<Caption>
SHARES DESCRIPTION (1) VALUE
- ---------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 4.1%
166,900 Alumina Limited, Sponsored ADR $ 4,431,195
37,600 POSCO, ADR 4,512,000
21,000 Rio Tinto PLC, Sponsored ADR 6,428,520
- ---------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 15,371,715
--------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 1.4%
180,000 United Utilities PLC, Sponsored ADR 5,076,000
- ---------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 8.7%
80,000 Chevron Texaco Corporation 6,739,200
113,400 ConocoPhillips 8,901,900
132,500 Eni S.p.A., Sponsored ADR 9,586,375
90,000 Total SA, Sponsored ADR 7,288,200
- ---------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 32,515,675
--------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 3.7%
220,000 International Paper Company 8,591,000
270,200 Stora Enso Oyj, Sponsored ADR 5,060,846
- ---------------------------------------------------------------------------------------------------------------------------
Total Paper & Forest Products 13,651,846
--------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 3.8%
175,000 GlaxoSmithKline PLC, ADR 9,164,750
198,000 Pfizer Inc. 5,062,860
- ---------------------------------------------------------------------------------------------------------------------------
Total Pharmaceuticals 14,227,610
--------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 2.8%
90,000 Union Pacific Corporation 10,363,500
- ---------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 7.8%
260,000 Federal National Mortgage Association 16,985,800
411,000 IndyMac Bancorp, Inc. 11,988,870
- ---------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 28,974,670
--------------------------------------------------------------------------------------------------------------
TOBACCO - 5.9%
165,900 Altria Group, Inc. 11,636,226
134,900 Loews Corp - Carolina Group 10,423,723
- ---------------------------------------------------------------------------------------------------------------------------
Total Tobacco 22,059,949
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $281,037,984) 375,132,180
==============================================================================================================
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 10.7% (7.6% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 0.8%
20,000 Goldman Sachs Group Inc., (6) 6.200% A $ 509,000
77,700 Lehman Brothers Holdings Inc., Series F, (6) 6.500% A- 1,973,580
15,000 Merrill Lynch and Company, Inc. 6.375% A 381,750
- -----------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 2,864,330
----------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.8%
50,000 Abbey National PLC, Series C 7.375% A+ 1,256,000
40,000 ABN AMRO Capital Trust Fund VII 6.080% A1 932,800
75,000 Banco Santander, 144A 6.500% A 1,839,848
25,000 Banco Santander 6.410% Aa3 622,000
50,000 Bank of America Corporation, Series D, (6) 6.204% Aa3 1,288,000
20,000 HSBC Holdings PLC, Series A 6.200% A1 477,000
63,200 HSBC USA Inc., (6) 6.500% A 1,648,256
40,000 Royal Bank of Scotland Group PLC, Series M 6.400% A1 971,200
40,000 Royal Bank of Scotland Group PLC, Series N 6.350% A1 968,000
20,000 Royal Bank of Scotland Group PLC 6.600% Aa3 495,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 10,498,104
----------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.2%
17,900 SLM Corporation, Series A, (6) 6.970% Baa1 860,095
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.4%
28,900 Citigroup Inc., Series H, (6) 6.231% Aa3 1,458,294
50,000 Deutsche Bank Capital Funding Trust VIII 6.375% A 1,242,190
</Table>
12
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
15,000 ING Group N.V. 6.125% A1 $ 352,950
15,300 ING Group N.V. 7.050% A 383,724
71,900 ING Group N.V. 7.200% A1 1,808,285
- -----------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 5,245,443
----------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.6%
38,900 Alabama Power Company, Series A, (6) 5.300% BBB+ 890,421
50,000 Alabama Power Company 5.625% BBB+ 1,234,375
40,000 Georgia Power Company 6.125% Baa1 1,058,400
34,700 Interstate Power and Light Company, (6) 7.100% Baa2 886,585
36,400 Mississippi Power Company 5.250% A3 909,090
40,000 PPL Electric Utilities Corporation 6.250% BBB 996,252
- -----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 5,975,123
----------------------------------------------------------------------------------------------------------------
INSURANCE - 1.8%
60,300 Ace Ltd., Series C 7.800% Baa2 1,537,047
71,900 Aegon N.V., (6) 6.375% A- 1,751,484
22,800 Arch Capital Group Limited 8.000% BBB- 581,400
50,000 Endurance Specialty Holdings Limited 7.750% BBB- 1,307,000
30,000 Prudential PLC 6.750% A 753,000
30,000 Prudential PLC, (6) 6.500% A- 745,500
- -----------------------------------------------------------------------------------------------------------------------------
Total Insurance 6,675,431
----------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 2.1%
30,000 Federal Home Loan Mortgage Corporation, (6) 5.000% AA- 1,293,000
56,700 Federal Home Loan Mortgage Corporation, (6) 5.660% AA- 1,353,713
20,000 Federal Home Loan Mortgage Corporation, (6) 5.700% AA- 958,500
18,400 Federal Home Loan Mortgage Corporation, (6) 6.000% AA- 947,600
25,000 Federal Home Loan Mortgage Corporation, (6) 6.420% AA- 1,381,375
19,800 Federal National Mortgage Association, (6) 5.125% AA- 886,050
20,000 Federal National Mortgage Association, (6) 5.500% AA- 913,000
- -----------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 7,733,238
----------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES (COST $40,603,186) 39,851,764
================================================================================================================
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 24.1% (17.1% OF TOTAL INVESTMENTS) (4)
AEROSPACE & DEFENSE - 0.9%
$ 1,310 Hexcel Corporation, Term Loan B 7.108% 3/01/12 BB+ $ 1,313,603
1,602 Vought Aircraft Industries, Inc., Term Loan 7.830% 12/22/11 Ba2 1,613,057
364 Vought Aircraft Industries, Inc., Tranche B, Letter of Credit 7.822% 12/22/10 Ba2 365,909
- ----------------------------------------------------------------------------------------------------------------------------------
3,276 Total Aerospace & Defense 3,292,569
- ----------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.5%
2,000 Federal Mogul Corporation, Term Loan A, (5) 7.570% 2/24/04 N/R 1,994,375
- ----------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 0.9%
1,590 Armstrong World Industries, Term Loan 7.070% 10/02/13 BBB- 1,596,708
1,760 PP Acquisition Corporation, Term Loan 8.320% 11/12/11 Ba3 1,764,575
- ----------------------------------------------------------------------------------------------------------------------------------
3,350 Total Building Products 3,361,283
- ----------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.4%
1,243 Georgia Gulf Corporation, Term Loan B 7.820% 10/03/13 BB 1,253,040
1,985 Lyondell Citgo Refining LP, Term Loan 6.856% 8/16/13 BB+ 1,986,861
1,960 Rockwood Specialties Group, Inc., Term Loan E 7.105% 7/30/12 BB 1,971,393
- ----------------------------------------------------------------------------------------------------------------------------------
5,188 Total Chemicals 5,211,294
- ----------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 1.3%
689 Allied Waste North America, Inc., Letter of Credit 7.073% 1/15/12 BBB- 691,834
1,267 Allied Waste North America, Inc., Term Loan B 7.093% 1/15/12 BBB- 1,272,143
1,685 Aramark Corporation, Term Loan 7.360% 1/26/14 BB- 1,687,907
132 Aramark, Letter of Credit 5.360% 1/26/14 BB- 131,945
1,108 Berry Plastics Holding Corporation, Term Loan 7.355% 4/03/15 BB- 1,103,330
- ----------------------------------------------------------------------------------------------------------------------------------
4,881 Total Commercial Services & Supplies 4,887,159
- ----------------------------------------------------------------------------------------------------------------------------------
</Table>
13
JTA
Nuveen Tax-Advantaged Total Return Strategy Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
<Table>
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 0.9%
$ 1,930 Graham Packaging Company, L.P., Term Loan B 7.625% 2/14/10 B+ $ 1,939,124
175 Smurfit-Stone Container Corporation, Deposit-Funded Commitment 7.475% 11/01/11 Ba2 175,662
690 Smurfit-Stone Container Corporation, Term Loan B 7.375% 11/01/11 Ba2 694,349
420 Smurfit-Stone Container Corporation, Term Loan C 7.375% 11/01/11 Ba2 422,476
132 Smurfit-Stone Container Corporation, Tranche C-1 7.375% 11/01/11 Ba2 132,583
- -----------------------------------------------------------------------------------------------------------------------------------
3,347 Total Containers & Packaging 3,364,194
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED CONSUMER SERVICES - 0.6%
1,995 Weight Watchers International Inc., Term Loan B 6.875% 1/26/14 BB+ 2,004,975
- -----------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.1%
2,000 Cequel Communications LLC., Term Loan B 7.351% 11/05/13 B+ 1,992,955
1,985 MetroPCS Inc., Term Loan 7.625% 11/03/13 Ba3 1,993,436
- -----------------------------------------------------------------------------------------------------------------------------------
3,985 Total Diversified Telecommunication Services 3,986,391
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.5%
298 Dynegy Holdings Inc. 6.820% 4/02/13 Ba1 296,569
1,702 Dynegy, Inc., Letter of Credit 6.820% 4/02/13 Ba1 1,694,681
- -----------------------------------------------------------------------------------------------------------------------------------
2,000 Total Electric Utilities 1,991,250
- -----------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.4%
1,496 Sensus Metering Systems Inc., Term Loan B-1 7.367% 12/17/10 BB 1,503,130
141 Sensus Metering Systems Inc., Term Loan B-2 7.367% 12/17/10 BB 141,355
- -----------------------------------------------------------------------------------------------------------------------------------
1,637 Total Electrical Equipment 1,644,485
- -----------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 1.9%
1,317 Davita Inc., Term Loan B 6.852% 10/05/12 BB+ 1,320,000
1,990 HCA, Inc., Term Loan 7.610% 11/17/13 BB 2,001,077
464 IASIS Healthcare LLC, Delayed Draw Term Loan, (7) 4.646% 3/15/14 Ba2 266,800
124 IASIS Healthcare LLC 5.250% 3/15/14 Ba2 123,920
1,354 IASIS Healthcare LLC, Term Loan B 7.356% 3/31/14 Ba2 1,356,625
1,077 LifePoint Hospitals Holdings, Inc., Term Loan B 6.985% 4/15/14 BB 1,075,188
988 Quintiles Transnational Corporation, Term Loan B 7.360% 3/31/13 BB 992,849
- -----------------------------------------------------------------------------------------------------------------------------------
7,314 Total Health Care Providers & Services 7,136,459
- -----------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.7%
1,975 24 Hour Fitness Worldwide, Inc., Term Loan B 7.850% 7/01/09 Ba3 1,990,223
778 CBRL Group, Inc., Delayed Draw, Term Loan B-2 6.860% 4/27/13 BB 779,548
122 CBRL Group, Inc., Term Loan B-1, (7) 3.795% 4/27/13 BB 61,034
142 OSI Restaurant Partners, Inc., Term Loan 5.360% 6/14/13 BB- 142,915
1,858 OSI Restaurant Partners, Inc., Term Loan 7.625% 6/14/13 BB- 1,865,210
1,965 Penn National Gaming, Inc., Term Loan B 7.110% 10/03/12 BBB- 1,969,801
89 Travelport, Term Loan 7.860% 8/23/13 BB- 89,734
839 Travelport, Term Loan 7.820% 8/23/13 BB- 844,170
600 Venetian Casino Resort, LLC, Delayed Draw, Term 0.750% 5/23/14 BB (536)
Loan, (7)(8)
2,400 Venetian Casino Resort, LLC, Term Loan 7.110% 5/23/14 BB 2,397,857
- -----------------------------------------------------------------------------------------------------------------------------------
10,768 Total Hotels, Restaurants & Leisure 10,139,956
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.5%
1,913 Solo Cup Company, Term Loan 8.841% 2/27/11 B1 1,934,995
- -----------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.3%
1,174 Conseco, Inc., Term Loan 7.320% 10/10/13 BB- 1,177,697
- -----------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 0.6%
2,053 SunGard Data Systems Inc., Term Loan B 7.356% 2/28/14 BB 2,063,652
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA - 4.4%
1,980 Cablevision Systems Corporation, Incremental Term 7.070% 3/29/13 BB 1,981,568
Loan
2,200 Charter Communications Operating, LLC, Term Loan 7.320% 3/06/14 B+ 2,183,500
1,990 Idearc Inc., Term Loan 7.360% 11/17/14 BBB- 2,000,289
983 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 8.610% 4/08/12 B+ 986,031
1,985 Neilsen Finance LLC, Term Loan B 7.607% 8/09/13 Ba3 1,999,267
1,000 Tribune Company, Term Loan 7.875% 5/17/09 BB+ 1,001,771
2,000 Tribune Company, Term Loan 8.375% 5/17/14 BB+ 1,957,500
</Table>
14
<Table>
<Caption>
WEIGHTED
PRINCIPAL AVERAGE
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
MEDIA (continued)
$ 121 Univision Communications Inc., Delayed Draw, Term Loan, (7)(8) 1.000% 9/29/14 Ba3 $ (1,493)
1,879 Univision Communications Inc., Term Loan, 7.605% 9/15/14 Ba3 1,855,976
2,167 WMG Acquisition Corp., Term Loan 7.359% 2/28/11 Ba2 2,176,032
- -----------------------------------------------------------------------------------------------------------------------------------
16,305 Total Media 16,140,441
- -----------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.7%
1,032 Amsted Industries Inc., Delayed Draw Term Loan 7.360% 4/05/11 BB 1,036,911
1,416 Amsted Industries Incorporated, Term Loan B 7.351% 4/05/13 BB 1,421,455
- -----------------------------------------------------------------------------------------------------------------------------------
2,448 Total Metals & Mining 2,458,366
- -----------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.4%
400 NRG Energy Inc., Delayed Draw, Term Loan, (7)(8) 7.110% 2/01/13 Ba1 (2,500)
469 NRG Energy Inc., Term Loan 7.010% 2/01/13 Ba1 467,251
1,129 NRG Energy Inc., Term Loan 7.110% 2/01/13 Ba1 1,125,500
- -----------------------------------------------------------------------------------------------------------------------------------
1,998 Total Multi-Utilities 1,590,251
- -----------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.5%
1,960 Georgia-Pacific Corporation, Term Loan B 7.110% 12/20/10 BB+ 1,966,651
- -----------------------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 0.5%
1,995 Royalty Pharma, Term Loan 5.250% 4/16/13 Baa2 2,003,728
- -----------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.4%
1,500 LNR Property Corporation, Term Loan B 8.110% 7/12/11 B+ 1,503,214
- -----------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 0.5%
2,000 Swift Transportation, Term Loan 8.375% 5/10/14 BB- 1,978,928
- -----------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.4%
1,355 Advanced Micro Devices, Term Loan B 7.360% 12/31/13 Ba2 1,354,074
- -----------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.4%
1,500 Toys "R" Us, Inc., Term Loan 8.320% 7/19/12 B3 1,508,555
- -----------------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.5%
1,852 HanesBrands Inc., Loan 7.105% 9/05/13 BB 1,859,825
- -----------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.9%
1,000 Ashtead Group Public Limited Company, Term Loan B 7.125% 8/31/11 BB+ 1,000,000
196 Brenntag Holding GmbH and Company KG, Acquisition Facility Term Loan 7.887% 1/20/14 B1 198,327
804 Brenntag Holdings, Term Loan B2 7.887% 1/20/14 B1 806,902
337 United Rentals Inc., Credit Linked Deposit 5.320% 2/13/11 Ba1 337,564
740 United Rentals Inc., Delayed Draw Term Loan B 7.320% 2/14/11 Ba1 741,631
- -----------------------------------------------------------------------------------------------------------------------------------
3,077 Total Trading Companies & Distributors 3,084,424
- -----------------------------------------------------------------------------------------------------------------------------------
$ 90,871 TOTAL VARIABLE RATE SENIOR LOAN INTERESTS (COST 89,639,191
$89,341,491)
===================================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.6% (1.2% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 1.1%
$ 2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB $ 2,002,500
2,000 Park Place Entertainment 8.875% 9/15/08 Ba1 2,060,000
- -----------------------------------------------------------------------------------------------------------------------------------
4,000 Total Hotels, Restaurants & Leisure 4,062,500
- -----------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.5%
2,000 D.R. Horton, Inc. 7.500% 12/01/07 BBB- 2,012,376
- -----------------------------------------------------------------------------------------------------------------------------------
$ 6,000 TOTAL CORPORATE BONDS (COST $6,103,944) 6,074,876
===================================================================================================================================
<Caption>
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 0.9% (0.5% OF TOTAL INVESTMENTS)
ELECTRIC UTILITIES - 0.9%
9,000 Consolidated Edison Company of New York Inc. 5.000% 8/01/53 A3 $ 782,600
9,000 Southern California Edison Company, Series A 5.349% 4/27/35 Baa2 889,875
</Table>
15
JTA
Nuveen Tax-Advantaged Total Return Strategy Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07 (Unaudited)
<Table>
<Caption>
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- -----------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES (continued)
10,000 Southern California Edison Company, Series C 6.000% 4/30/56 Baa2 $ 1,004,063
5,000 Southern California Edison Company 6.125% 12/31/55 Baa2 505,469
- -----------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 3,182,007
----------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES (COST $3,119,300) 3,182,007
================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 3.0% (2.2% OF TOTAL INVESTMENTS)
$ 11,348 Repurchase Agreement with Fixed Income Clearing 4.000% 7/02/07 $ 11,348,082
Corporation, dated 6/29/07, repurchase price
$11,351,865, collateralized by $11,980,000 U.S.
Treasury Notes, 4.250%, due 11/15/13, value $11,575,675
========== ----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $11,348,082) 11,348,082
================================================================================================================
TOTAL INVESTMENTS (COST $431,553,987) - 141.0% 525,228,100
================================================================================================================
BORROWINGS PAYABLE - (8.9)% (9) (33,000,000)
================================================================================================================
FUNDNOTES - (20.9)% (78,000,000)
================================================================================================================
OTHER ASSETS LESS LIABILITIES - 0.9% 3,296,554
================================================================================================================
FUNDPREFERRED SHARES, AT LIQUIDATION VALUE - (12.1)% (45,000,000)
================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 372,524,654
================================================================================================================
</Table>
<Table>
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) 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.
(3) Senior Loans generally are subject to mandatory and/or optional prepayment. Because of
these mandatory prepayment conditions and because there may be significant economic
incentives for a Borrower to prepay, prepayments of Senior Loans may occur. As a result,
the actual remaining maturity of Senior Loans held may be substantially less than the
stated maturities shown.
(4) Senior Loans in which the Fund invests generally pay interest at rates which are
periodically adjusted by reference to a base short-term, floating lending rate plus an
assigned fixed rate. These floating lending rates are generally (i) the lending rate
referenced by the London Inter-Bank Offered Rate ('LIBOR'), or (ii) the prime rate offered
by one or more major United States banks.
Senior Loans may be considered restricted in that the Fund ordinarily is contractually
obligated to receive approval from the Agent Bank and/or Borrower prior to the disposition
of a Senior Loan.
(5) At or subsequent to June 30, 2007, this issue was under the protection of the Federal
Bankruptcy Court.
(6) Investment is eligible for the Dividends Received Deduction.
(7) Position or portion of position represents an unfunded Senior Loan commitment outstanding
at June 30, 2007.
(8) Negative value represents unrealized depreciation on Senior Loan commitment at June 30,
2007.
Certain mortgage-backed securities may be subject to periodic principal paydowns.
(9) Borrowings Payable as a percentage of total investments is (6.3)%.
N/R Not rated.
144A Investment is exempt from registration under Rule 144A of the Securities Act of 1933, as
amended. These investments may only be resold in transactions exempt from registration
which are normally those transactions with qualified institutional buyers.
ADR American Depositary Receipt.
</Table>
See accompanying notes to financial statements.
16
Statement of
ASSETS & LIABILITIES
June 30, 2007 (Unaudited)
<Table>
<Caption>
- ---------------------------------------------------------------------------
ASSETS
Investments, at value (cost $431,553,987) $ 525,228,100
Receivables:
Dividends 1,040,615
Interest 1,061,558
Investments sold 1,606,974
Reclaims 121,819
Deferred FundNotes offering costs 1,648,794
Other assets 35,495
- ---------------------------------------------------------------------------
Total assets 530,743,355
- ---------------------------------------------------------------------------
LIABILITIES
Borrowings 33,000,000
Payable for investments purchased 603,679
FundNotes 78,000,000
Accrued expenses:
Management fees 247,406
Interest on borrowings 1,238,151
Other 92,075
FundNotes interest payable 22,223
FundPreferred shares dividends payable 15,167
- ---------------------------------------------------------------------------
Total liabilities 113,218,701
- ---------------------------------------------------------------------------
FundPreferred shares, at liquidation value 45,000,000
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $ 372,524,654
===========================================================================
Common shares outstanding 13,958,267
===========================================================================
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 26.69
===========================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- ---------------------------------------------------------------------------
Common shares, $.01 par value per share $ 139,583
Paid-in surplus 273,895,237
Undistributed (Over-distribution of) net investment income (7,655,728)
Accumulated net realized gain (loss) from investments 12,471,449
Net unrealized appreciation (depreciation) of investments 93,674,113
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $ 372,524,654
===========================================================================
Authorized shares:
Common Unlimited
FundPreferred Unlimited
===========================================================================
</Table>
See accompanying notes to financial statements.
17
Statement of
OPERATIONS
Six months ended June 30, 2007
(Unaudited)
<Table>
<Caption>
- -----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $211,583) $ 7,743,301
Interest 3,780,351
Fees 31,314
- -----------------------------------------------------------------------------
Total investment income 11,554,966
- -----------------------------------------------------------------------------
EXPENSES
Management fees 2,290,018
FundNotes interest expense and amortization of offering
costs 1,943,280
FundNotes and FundPreferred shares - auction fees 152,487
FundNotes and FundPreferred shares - dividend disbursing
agent fees 8,233
Shareholders' servicing agent fees and expenses 241
Interest expense 945,725
Custodian's fees and expenses 67,307
Trustees' fees and expenses 7,550
Professional fees 33,550
Shareholders' reports - printing and mailing expenses 36,953
Stock exchange listing fees 4,834
Investor relations expense 28,381
Other expenses 14,930
- -----------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 5,533,489
Custodian fee credit (1,073)
Expense reimbursement (830,581)
- -----------------------------------------------------------------------------
Net expenses 4,701,835
- -----------------------------------------------------------------------------
Net investment income 6,853,131
- -----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 12,471,449
Change in net unrealized appreciation (depreciation) of
investments 4,748,727
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 17,220,176
- -----------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From and in excess of net investment income (1,015,480)
- -----------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (1,015,480)
- -----------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $23,057,827
- -----------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
18
Statement of
CHANGES in NET ASSETS (Unaudited)
<Table>
<Caption>
SIX MONTHS
ENDED YEAR ENDED
6/30/07 12/31/06
- --------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 6,853,131 $ 12,395,442
Net realized gain (loss) from investments (net of federal
corporate income taxes of $0 and $4,560,679, respectively,
on long-term capital gains retained) 12,471,449 19,797,397
Change in net unrealized appreciation (depreciation) of investments 4,748,727 42,186,210
Distributions to FundPreferred shareholders:
From and in excess of net investment income (1,015,480) --
From net investment income -- (684,168)
From accumulated net realized gains -- (1,265,973)
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares
from operations 23,057,827 72,428,908
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (13,090,888) --
From net investment income -- (12,216,747)
From accumulated net realized gains -- (9,753,316)
- --------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (13,090,888) (21,970,063)
- --------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Offering costs adjustments -- (4,264)
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 1,817,508 817,373
FundPreferred shares offering costs adjustments -- 15,800
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares
from capital share transactions 1,817,508 828,909
- --------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common shares 11,784,447 51,287,754
Net assets applicable to Common shares at the beginning of period 360,740,207 309,452,453
- --------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $ 372,524,654 $ 360,740,207
==================================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ (7,655,728) $ (402,491)
==================================================================================================
</Table>
See accompanying notes to financial statements.
19
Statement of
CASH FLOWS
Six months ended June 30, 2007
(Unaudited)
<Table>
<Caption>
- ---------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 23,057,827
Adjustments to reconcile the net increase (decrease) in net
assets applicable to Common shares from operations
to net cash provided by (used in) operating activities:
Purchases of investments (62,337,140)
Proceeds from sales of investments 76,376,625
Proceeds from (Purchases of) short-term investments, net (3,013,853)
Amortization/(Accretion) of premiums and discounts, net 119,737
(Increase) Decrease in receivable for dividends (19,493)
(Increase) Decrease in receivable for interest (58,297)
(Increase) Decrease in receivable for investments sold (1,083,337)
(Increase) Decrease in receivable for reclaims (72,898)
(Increase) Decrease in other assets (17,175)
Increase (Decrease) in payable for investments purchased (892,571)
Increase (Decrease) in payable for federal corporate
income tax (4,560,679)
Increase (Decrease) in accrued management fees (658)
Increase (Decrease) in interest on borrowings 945,725
Increase (Decrease) in accrued other liabilities (5,603)
Increase (Decrease) in FundNotes interest payable (6,351)
Increase (Decrease) in FundPreferred shares dividends
payable (6,289)
Net realized (gain) loss from investments (12,471,449)
Net realized (gain) loss from paydowns 37,591
Change in net unrealized (appreciation) depreciation of
investments (4,748,727)
- ---------------------------------------------------------------------------
Net cash provided by (used in) operating activities 11,242,985
- ---------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (11,273,380)
(Increase) Decrease in deferred FundNotes offering costs 30,395
- ---------------------------------------------------------------------------
Net cash provided by (used in) financing activities (11,242,985)
- ---------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH --
Cash at the beginning of period --
- ---------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ --
===========================================================================
</Table>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Fund paid no interest on borrowings during the six months ended June 30,
2007.
Cash paid for interest on FundNotes (excluding amortization of FundNotes
offering costs) during the six months ended June 30, 2007, was $1,919,236.
Non-cash financing activities not included herein consist of reinvestments of
Common share distributions of $1,817,508.
See accompanying notes to financial statements.
20
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Tax-Advantaged Total Return Strategy Fund (the "Fund") is a diversified,
closed-end management investment company registered under the Investment Company
Act of 1940, as amended. The Fund's Common shares are listed on the New York
Stock Exchange and trade under the ticker symbol "JTA." The Fund was organized
as a Massachusetts business trust on October 1, 2003.
The Fund seeks to provide a high level of after-tax total return consisting
primarily of tax-advantaged dividend income and capital appreciation by
investing primarily in a portfolio of dividend-paying common stocks that the
Fund believes at the time of investment are eligible to pay dividends that
qualify for favorable federal income taxation at rates applicable to long-term
capital gains ("tax-advantaged dividends"). The Fund will also invest to a more
limited extent in preferred securities that are eligible to pay tax-advantaged
dividends, as well as senior loans (both secured and unsecured), domestic
corporate bonds, notes and debentures, convertible debt securities, and other
similar types of corporate instruments, including high-yield debt securities,
that are not eligible to pay tax-advantaged dividends.
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
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities and senior
loans are generally provided by an independent pricing service approved by the
Fund's Board of Trustees. When price quotes are not readily available, the
pricing service or, in the absence of a pricing service for a particular
investment, the Board of Trustees of the Fund, or its designee, may establish
fair value using a wide variety of market data including 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 by the pricing service or the Board of Trustees' designee.
If it is determined that the market price for an investment is unavailable or
inappropriate, the Board of Trustees of the Fund, or its designee, may establish
fair value in accordance with procedures established in good faith by the Board
of Trustees. Short-term investments are valued at amortized cost, which
approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed-income securities. Consequently, the value
of senior loans, determined as described above, may differ significantly from
the value that would have been determined had there been an active market for
that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis. Trade date for
senior loans purchased in the "primary market" is considered the date on which
the loan allocations are determined. Trade date for senior loans purchased in
the "secondary market" is the date on which the transaction is entered into.
Realized gains and losses from investment transactions are determined on the
specific identification method. 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 Fund
maintains liquid assets with a current value at least equal to the amount of the
when-issued/delayed delivery purchase commitments. At June 30, 2007, the Fund
had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses, if any. Fee income, if any, consists primarily of amendment fees.
Amendment fees are earned as compensation for evaluating and accepting changes
to the original loan agreement and are recognized when received.
Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. The Fund intends to
distribute substantially all of its investment company taxable income to
shareholders. In any year when the Fund realizes net capital gains, the Fund may
choose to distribute all or a portion of its net capital gains to shareholders,
or alternatively, to retain all or a portion of its net capital gains and pay
federal corporate income taxes on such retained gains.
21
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
corporate income tax regulations, which may differ from U.S. generally accepted
accounting principles.
The Fund makes quarterly cash distributions to Common shareholders of a stated
dollar amount per share. Subject to approval and oversight by the Fund's Board
of Trustees, the Fund seeks to maintain a stable distribution level designed to
deliver the long-term return potential of the Fund's investment strategy through
regular quarterly distributions (a "Managed Distribution Policy"). Total
distributions during a calendar year generally will be made from the Fund's net
investment income, net realized capital gains and net unrealized capital gains
in the Fund's portfolio, if any. The portion of distributions paid from net
unrealized gains, if any, would be distributed from the Fund's assets and would
be treated by shareholders as a non-taxable distribution for tax purposes. If
the Fund's total return on net asset value exceeds total distributions during a
calendar year, the excess will be reflected as an increase in net asset value
per share. In the event that total distributions during a calendar year exceed
the Fund's total return on net asset value, the difference will be treated as a
return of capital for tax purposes and will reduce net asset value per share.
The final determination of the source and character of all distributions for the
fiscal year are made after the end of the fiscal year and are reflected in the
financial statements contained in the annual report as of December 31 each year.
The actual character of distributions made by the Fund during the fiscal year
ended December 31, 2006, is reflected in the accompanying financial statements.
The distributions made by the Fund during the six months ended June 30, 2007,
are provisionally classified as being "From and in excess of net investment
income", and those distributions will be classified as being from net investment
income, net realized capital gains and/or a return of capital for tax purposes
after the fiscal year end. For purposes of calculating "Undistributed
(Over-distribution of) net investment income" as of June 30, 2007, the
distribution amounts provisionally classified as "From and in excess of net
investment income" were treated as being entirely from net investment income.
Consequently, the financial statements at June 30, 2007, reflect an
over-distribution of net investment income.
FundNotes
The Fund has issued and outstanding 3,120 Series F FundNotes, $25,000 stated
value per share, that mature on April 24, 2034. The interest 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.
For the six months ended June 30, 2007, the average daily balance of FundNotes
was $78 million with an average annualized interest rate (including amortization
of the FundNotes offering costs) of 5.02%.
FundPreferred Shares
The Fund has issued and outstanding 1,800 Series W FundPreferred shares, $25,000
stated value per share, as a means of effecting financial leverage. 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.
Derivative Financial Instruments
The Fund is authorized to invest in derivatives or other transactions for the
purpose of hedging the portfolio's exposure to common stock risk, high yield
credit risk, foreign currency exchange risk and the risk of increases in
interest rates. Although the Fund is authorized to invest in such financial
instruments, and may do so in the future, it did not invest in any such
instruments during the six months ended June 30, 2007.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by net credits earned on the Fund's cash on
deposit with the bank. Such deposit arrangements are an alternative to overnight
investments. Credits for cash balances may be offset by charges for any days on
which the Fund overdraws its account at the custodian bank.
22
Organization and Offering Costs
Costs incurred by the Fund in connection with its offering of FundNotes are
recorded as a deferred charge which are being amortized over the 30 year life of
the FundNotes and included with "FundNotes interest expense and amortization of
offering costs" on the Statement of Operations.
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 expects 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:
<Table>
<Caption>
SIX MONTHS YEAR
ENDED ENDED
6/30/07 12/31/06
- ------------------------------------------------------------------------------------------------
Common shares issued to shareholders due to reinvestment of distributions 70,333 32,694
- ------------------------------------------------------------------------------------------------
</Table>
3. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short-term investments) during the six months
ended June 30, 2007, aggregated $62,337,140 and $76,376,625, respectively.
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, recognition of
premium amortization, and timing differences in recognizing certain gains and
losses on investment transactions. To the extent that differences arise that are
permanent in nature, such amounts are reclassified within the capital accounts
on the Statement of Assets and Liabilities presented in the annual report, based
on their federal tax basis treatment; temporary differences do not require
reclassification. Temporary and permanent differences do not impact the net
asset value of the Fund.
At June 30, 2007, the cost of investments was $432,002,230.
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2007, were as follows:
<Table>
- -----------------------------------------------------------------------------------
Gross unrealized:
Appreciation $99,787,296
Depreciation (6,561,426)
- -----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $93,225,870
- -----------------------------------------------------------------------------------
</Table>
The tax components of undistributed net ordinary income and net long-term
capital gains at December 31, 2006, the Fund's last tax year end, were as
follows:
<Table>
- --------------------------------------------------------------------------------
Undistributed net ordinary income * $ --
Undistributed net long-term capital gains --
- --------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
23
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The tax character of distributions paid during the Fund's last tax year ended
December 31, 2006, was designated for purposes of the dividends paid deduction
as follows:
<Table>
<Caption>
- --------------------------------------------------------------------------------
Distributions from net ordinary income * $13,681,235
Distributions from net long-term capital gains 10,235,261
- --------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
5. MANAGEMENT FEES 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. ("Nuveen"), 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 each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, is based upon the average daily
Managed Assets of the Fund as follows:
<Table>
<Caption>
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
- -----------------------------------------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
- -----------------------------------------------------------------------------------------------------------------
</Table>
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 tables below. As
of June 30, 2007, the complex level fee rate was .1828%.
Effective August 20, 2007, the complex-level fee schedule is as follows:
<Table>
<Caption>
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) 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
- ------------------------------------------------------------------------------------------------
</Table>
24
Prior to August 20, 2007, the complex-level fee schedule was as follows:
<Table>
<Caption>
COMPLEX-LEVEL ASSET BREAKPOINT LEVEL(1) 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 .1698
$125 billion .1617
$200 billion .1536
$250 billion .1509
$300 billion .1490
- ------------------------------------------------------------------------------------------------
</Table>
(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
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC ("NWQ")
and Symphony Asset Management, LLC ("Symphony"). Nuveen owns a controlling
interest in NWQ while key management of NWQ owns a non-controlling minority
interest. Symphony is an indirect wholly owned subsidiary of Nuveen. NWQ manages
the portion of the Fund's investment portfolio allocated to dividend-paying
common stocks including American Depositary Receipts ("ADRs"). Symphony manages
the portion of the Fund's investment portfolio allocated to senior loans and
other debt instruments. NWQ and Symphony are compensated for their services to
the Fund from the management fee paid to the Adviser.
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.
For the first eight years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
<Table>
<Caption>
YEAR ENDING YEAR ENDING
JANUARY 31, JANUARY 31,
- -------------------------------------------------------------------------------
2004 * .32% 2009 .32%
2005 .32 2010 .24
2006 .32 2011 .16
2007 .32 2012 .08
2008 .32
- -------------------------------------------------------------------------------
</Table>
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond January 31, 2012.
Agreement and Plan of Merger
On June 20, 2007, Nuveen Investments announced that it had entered into a
definitive Agreement and Plan of Merger ("Merger Agreement") with an investor
group majority-led by Madison Dearborn Partners, LLC. Madison Dearborn Partners,
LLC is a private equity investment firm based in Chicago, Illinois. The investor
group includes affiliates of Merrill Lynch, Wachovia, Citigroup, Deutsche Bank
and Morgan Stanley. It is anticipated that Merrill Lynch and its affiliates will
be indirect "affiliated persons" (as that term is defined in the Investment
Company Act of 1940) of the Fund. One important implication of this is that the
Fund will not be able to buy or sell securities to or from Merrill Lynch, but
the portfolio management teams and Fund management do not expect that this will
significantly impact the ability of the Fund to pursue its investment objectives
and policies. Under the terms of the merger, each outstanding share of Nuveen
Investments' common stock (other than dissenting shares) will be converted into
the right to receive a specified amount of cash, without interest. The merger is
expected to be completed by the end of the year, subject to
25
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
customary conditions, including obtaining the approval of Nuveen Investments
shareholders, obtaining necessary fund and client consents sufficient to satisfy
the terms of the Merger Agreement, and expiration of certain regulatory waiting
periods. The obligations of Madison Dearborn Partners, LLC to consummate the
merger are not conditioned on its obtaining financing.
The consummation of the merger will be deemed to be an "assignment" (as defined
in the 1940 Act) of the investment management agreement between the Fund and the
Adviser, and will result in the automatic termination of the Fund's agreement.
Prior to the consummation of the merger, it is anticipated that the Board of
Trustees of the Fund will consider a new investment agreement with the Adviser.
If approved by the Board, the new agreement would be presented to the Fund's
shareholders for approval, and, if so approved by shareholders, would take
effect upon consummation of the merger. There can be no assurance that the
merger described above will be consummated as contemplated or that necessary
shareholder approvals will be obtained.
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At June 30, 2007, the Fund had unfunded senior loan commitments of
$1,379,740.
7. SENIOR LOAN PARTICIPATION COMMITMENTS
With respect to the senior loans held in the Fund's portfolio, the Fund may: 1)
invest in assignments; 2) act as a participant in primary lending syndicates; or
3) invest in participations. If the Fund purchases a participation of a senior
loan interest, the Fund would typically enter into a contractual agreement with
the lender or other third party selling the participation, rather than directly
with the Borrower. As such, the Fund not only assumes the credit risk of the
Borrower, but also that of the Selling Participant or other persons
interpositioned between the Fund and the Borrower. At June 30, 2007, there were
no such outstanding participation commitments.
8. BORROWINGS
On August 2, 2006, the Fund entered into a $33 million revolving credit
agreement ($33 million maximum) with CITIBANK, N.A. On August 3, 2006, the Fund
had borrowed the full $33 million allowed under the revolving credit agreement.
For the six months ended June 30, 2007, the average daily balance of borrowings
under the revolving credit agreement was the full $33 million allowed. The
average annualized interest rate on such borrowings was 5.78%.
9. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
Effective June 29, 2007, the Fund adopted Financial Accounting Standards Board
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48).
FIN 48 provides guidance regarding how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Management of
the Fund has concluded that there are no significant uncertain tax positions
that require recognition in the Fund's financial statements. Consequently, the
adoption of FIN 48 had no impact on the net assets or results of operations of
the Fund.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of June 30, 2007, the Fund does not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
26
Financial
HIGHLIGHTS
27
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
<Table>
<Caption>
Investment Operations
----------------------------------------------------------------
Distributions
from Net Distributions
Beginning Net Investment from Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Gain Share- Share-
Value Income(a) (Loss)(b) holders+ holders+ Total
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2007(d) $25.98 $.49 $1.23 $(.07)**** $-- $1.65
2006 22.33 .89 4.48 (.05) (.09) 5.23
2005 21.54 .83 1.76 (.05) (.05) 2.49
2004(c) 19.10 .67 2.69 (.03) -- 3.33
- -----------------------------------------------------------------------------------------------------------------------------------
<Caption>
Less Distributions
------------------------------
Net Offering Costs
Investment Capital and Ending
Income to Gains to FundPreferred Common
Common Common Share Share Ending
Share- Share- Underwriting Net Asset Market
holders holders Total Discounts Value Value
- ------------------------------------------------------------------------------------------------------------------------------------
- --
Year Ended 12/31:
2007(d) $(.94)**** $-- $(.94) $ -- $26.69 $26.51
2006 (.88) (.70) (1.58) -- 25.98 27.09
2005 (.78) (.91) (1.69) (.01) 22.33 21.37
2004(c) (.67) (.10) (.77) (.12) 21.54 19.35
- -------------------------------------------------------
</Table>
<Table>
<Caption>
FundNotes at End of Period FundPreferred Shares at End of Period
------------------------------------------------- ---------------------------------------
Aggregate Average Market Asset Aggregate Liquidation
Amount Value Per Coverage Per Amount and Market Asset
Outstanding $25,000 of $1,000 of Outstanding Value Coverage
(000) Principal Amount Principal Amount (000) Per Share Per Share
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2007(d) $ 78,000 $ 25,000 $ 6,353 $ 45,000 $ 25,000 $ 231,958
2006 78,000 25,000 6,202 45,000 25,000 225,411
2005 78,000 25,000 5,544 45,000 25,000 196,918
2004(c) 78,000 25,000 5,403 45,000 25,000 190,805
- ---------------------------------------------------------------------------------------------------------------------------------
<Caption>
Borrowings at End of Period
---------------------------
Aggregate
Amount Asset
Outstanding Coverage
(000) Per $1,000
- ----------------------------------- ---------------------------
Year Ended 12/31:
2007(d) $ 33,000 $ 16,016
2006 33,000 15,659
2005 -- --
2004(c) -- --
- -----------------------------------
</Table>
* 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. The last dividend declared
in the period, which is typically paid on the first business day of the
following month, is assumed to be reinvested at the ending market price.
The actual reinvestment for the last dividend declared in the period
takes place over several days, and in some instances may not be based on
the market price, so the actual reinvestment price may be different from
the price used in the calculation. Total returns are not annualized.
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. The last dividend declared in the period, which is typically paid on
the first business day of the following month, is assumed to be reinvested
at the ending net asset value. The actual reinvest price for the last
dividend declared in the period may often be based on the fund's market
price (and not its net asset value), and therefore may be different from
the price used in the calculation. Total returns are not annualized.
- The Fund elected to retain a portion of its realized long-term capital
gains for the tax year ended December 31, 2006, and pay required federal
corporate income taxes on these gains. As reported on Form 2439, Common
shareholders of record on December 29, 2006, must include their pro-rata
share of these gains on their 2006 federal tax returns, and will receive
a corresponding credit toward their taxes, or a tax refund, for their
pro-rata share of the taxes paid by the Fund. The standardized total
returns shown above do not include the economic benefit to Common
shareholders of record of this tax credit/refund. The Fund's
corresponding 2006 total return on market value and net asset value when
this benefit is included are 37.15% and 25.75%, respectively.
*** After custodian fee credit and expense reimbursement, where applicable.
**** Represents distributions paid "From and in excess of net investment
income" for the six months ended June 30, 2007.
+ The amounts shown are based on Common share equivalents.
++ - Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares, FundNotes and borrowings.
- Each Ratio of Expenses to Average Net Assets Applicable to Common Shares
and each Ratio of Net Investment Income to Average Net Assets Applicable
to Common Shares includes the effect of the interest expense paid on
FundNotes and borrowings as follows:
<Table>
<Caption>
Ratio of FundNotes Interest Expense and
Amortization of FundNotes Offering Costs to Ratio of Borrowings Interest Expense to
Average Net Assets Applicable to Common Shares Average Net Assets Applicable to Common Shares
---------------------------------------------- ----------------------------------------------
2007(d) 1.07%* .52%*
2006 1.11 .23
2005 .80 --
2004(c) .37* --
</Table>
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) Net of federal corporate income taxes on long-term capital gains retained
by the Fund of $0.33 per share for the fiscal year ended December 31, 2006.
(c) For the period January 27, 2004 (commencement of operations) through
December 31, 2004.
(d) For the six months ended June 30, 2007.
28
<Table>
<Caption>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Ratios to Average Ratios to Average
Net Assets Applicable to Net Assets Applicable to
Common Shares Before Common Shares After
Total Returns Credit/Reimbursement Credit/Reimbursement***
------------------- ------------------------- -------------------------
Based
on
Common Ending Net
Based Share Assets
on Net Applicable to Net Net Portfolio
Market Asset Common Investment Investment Turnover
Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate
- ------------------------------------------------------------------------------------------------------------
1.41% 6.45% $372,525 3.04%* 3.30%* 2.58%* 3.76%* 12%
35.52 24.19 360,740 2.79 3.28 2.34 3.73 25
20.00 11.93 309,452 2.26 3.36 1.81 3.81 26
.91 17.18 298,449 1.80* 3.30* 1.37* 3.73* 16
- ------------------------------------------------------------------------------------------------------------
</Table>
See accompanying notes to financial statements.
29
Annual Investment
Management Agreement
APPROVAL PROCESS
The Board Members are responsible for overseeing the performance of the
investment adviser to the Fund and determining whether to continue the advisory
arrangements. At the annual review meeting held on May 21, 2007 (the "May
Meeting"), the Board Members of the Fund, including the Independent Board
Members, unanimously approved the continuance of the Investment Management
Agreement between the Fund and Nuveen Asset Management ("NAM" or the "Adviser"),
and the Sub-Advisory Agreements between NAM and NWQ Investment Management
Company, LLC ("NWQ"), and Symphony Asset Management LLC ("Symphony"),
respectively. NWQ and Symphony are each a "Sub-Adviser," and NAM and each
Sub-Adviser are each a "Fund Adviser."
The foregoing Investment Management Agreement with NAM and Sub-Advisory
Agreements with the respective Sub-Adviser are hereafter referred to as the
"Original Investment Management Agreement" and the "Original Sub-Advisory
Agreements," respectively.
Subsequent to the May Meeting, Nuveen Investments, Inc. ("Nuveen"), the parent
company of NAM, entered into a merger agreement providing for the acquisition of
Nuveen by Windy City Investments, Inc., a corporation formed by investors led by
Madison Dearborn Partners, LLC ("MDP"), a private equity investment firm (the
"Transaction"). The Original Investment Management Agreement and each Original
Sub-Advisory Agreement, as required by Section 15 of the Investment Company Act
of 1940 (the "1940 Act"), each provides for its automatic termination in the
event of its "assignment" (as defined in the 1940 Act). Any change in control of
the adviser is deemed to be an assignment. The consummation of the Transaction
will result in a change of control of NAM as well as its affiliated sub-advisers
and therefore cause the automatic termination of the Original Investment
Management Agreement and each Original Sub-Advisory Agreement, as required by
the 1940 Act. Accordingly, in anticipation of the Transaction, at a meeting held
on July 31, 2007 (the "July Meeting"), the Board Members, including the
Independent Board Members, unanimously approved a new Investment Management
Agreement (the "New Investment Management Agreement") with NAM on behalf of the
Fund and new Sub-Advisory Agreements (the "New Sub-Advisory Agreements") between
NAM and the respective Sub-Adviser on behalf of the Fund to take effect
immediately after the Transaction or shareholder approval of the new advisory
contracts, whichever is later. The 1940 Act also requires that the New
Investment Management Agreement and New Sub-Advisory Agreements be approved by
the Fund's shareholders in order for it to become effective. Accordingly, to
ensure continuity of advisory services, the Board Members, including the
Independent Board Members, unanimously approved an Interim Investment Management
Agreement and Interim Sub-Advisory Agreements to take effect upon the closing of
the Transaction if shareholders have not yet approved the New Investment
Management Agreement and New Sub-Advisory Agreements.
Because the information provided and considerations made at the annual review
continue to be relevant with respect to the evaluation of the New Investment
Management Agreement and New Sub-Advisory Agreements, the Board considered the
foregoing as part of its deliberations of the New Investment Management
Agreement and New Sub-Advisory Agreements. Accordingly, as indicated, the
discussions immediately below outline the materials and information presented to
the Board in connection with the Board's prior annual review and the analysis
undertaken and the conclusions reached by Board Members when determining to
continue the Original Investment Management Agreement and Original Sub-Advisory
Agreements.
I. APPROVAL OF THE ORIGINAL INVESTMENT MANAGEMENT AGREEMENT AND ORIGINAL
SUB-ADVISORY AGREEMENTS
During the course of the year, the Board received a wide variety of materials
relating to the services provided by the Fund Advisers and the performance of
the Fund (as applicable). At each of its quarterly meetings, the Board reviewed
investment performance (as applicable) and various matters relating to the
operations of the Fund and other Nuveen funds, including the compliance program,
shareholder services, valuation, custody, distribution and other information
relating to the nature, extent and quality of services provided by the Fund
Adviser. Between the regularly scheduled quarterly meetings, the Board Members
received information on particular matters as the need arose.
30
In preparation for their considerations at the May Meeting, the Independent
Board Members received extensive materials, well in advance of the meeting,
which outlined or are related to, among other things:
- - the nature, extent and quality of services provided by the Fund Adviser;
- - the organization and business operations of the Fund Adviser, including the
responsibilities of various departments and key personnel;
- - the Fund's past performance as well as its performance compared to funds with
similar investment objectives based on data and information provided by an
independent third party and to recognized and/or customized benchmarks (as
appropriate);
- - the profitability of the Fund Adviser and certain industry profitability
analyses for unaffiliated advisers;
- - the expenses of the Fund Adviser in providing the various services;
- - the advisory fees and total expense ratios of the Fund, including comparisons
of such fees and expenses with those of comparable, unaffiliated funds based
on information and data provided by an independent third party (the "Peer
Universe") as well as compared to a subset of funds within the Peer Universe
(the "Peer Group") of the Fund (as applicable);
- - the advisory fees the Fund Adviser assesses to other types of investment
products or clients;
- - the soft dollar practices of the Fund Adviser, if any; and
- - from independent legal counsel, a legal memorandum describing among other
things, applicable laws, regulations and duties in reviewing and approving
advisory contracts.
At the May Meeting, NAM made a presentation to, and responded to questions from,
the Board. At the May Meeting, the Independent Board Members met privately with
their legal counsel to review the Board's duties in reviewing advisory contracts
and considering the renewal of the advisory contracts (which include the
sub-advisory contracts). The Independent Board Members, in consultation with
independent counsel, reviewed the factors set out in judicial decisions and
Securities and Exchange Commission ("SEC") directives relating to the renewal of
advisory contracts. As outlined in more detail below, the Board Members
considered all factors they believed relevant with respect to the Fund,
including, but not limited to, the following: (a) the nature, extent and quality
of the services to be provided by the Fund Adviser; (b) the investment
performance of the Fund and the Fund Adviser (as applicable); (c) the costs of
the services to be provided and profits to be realized by the Fund Adviser and
its affiliates; (d) the extent to which economies of scale would be realized;
and (e) whether fee levels reflect those economies of scale for the benefit of
the Fund's investors. In addition, as noted, the Board Members met regularly
throughout the year to oversee the Fund. In evaluating the advisory contracts,
the Board Members also relied upon their knowledge of the respective Fund
Adviser, its services and the Fund resulting from their meetings and other
interactions throughout the year. It is with this background that the Board
Members considered each advisory contract.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In considering the renewal of the Original Investment Management Agreement and
Original Sub-Advisory Agreements, the Board Members considered the nature,
extent and quality of the respective Fund Adviser's services. The Board Members
reviewed materials outlining, among other things, the Fund Adviser's
organization and business; the types of services that the Fund Adviser or its
affiliates provide or are expected to provide to the Fund; the performance
record of the Fund (as described in further detail below); and at the annual
review, any initiatives Nuveen had taken for the applicable fund product line.
As noted, at the annual review, the Board Members were already familiar with the
organization, operations and personnel of each respective Fund Adviser due to
the Board Members' experience in governing the Fund and working with such Fund
Advisers on matters relating to the Fund. At the May Meeting, the Board Members
also recognized NAM's investment in additional qualified personnel throughout
the various groups in the organization and recommended to NAM that it continue
to review staffing needs as necessary. The Board Members recognized NAM's
investment of resources and efforts to continue to enhance and refine its
investment processes.
31
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
With respect to the Sub-Advisers, the Board Members also received and reviewed
an evaluation of each Sub-Adviser from NAM at the annual review. Such evaluation
outlined, among other things, the respective Sub-Adviser's organizational
history, client base, product mix, investment team and any changes thereto,
investment process and any changes to its investment strategy, and the Fund's
investment objectives and performance (as applicable). At the May Meeting, the
Board Members noted that NAM recommended the renewal of the Original
Sub-Advisory Agreements and considered the basis for such recommendations and
any qualifications in connection therewith. In its review of the Sub-Advisers,
the Board Members also considered, among other things, the experience of the
investment personnel, the quality of the respective Sub-Adviser's investment
processes in making portfolio management decisions and any additional
refinements and improvements adopted to the portfolio management processes and
Fund performance. During the last year, the Board Members noted that they
visited several sub-advisers meeting their key investment and business
personnel. In this regard, the Board Members visited NWQ in February, 2007. The
Board Members noted such Sub-Adviser's experienced investment team. The Board
Members also noted the depth of experience of such Sub-Adviser's personnel and
disciplined investment process at the annual review.
In addition to advisory services, the Independent Board Members considered the
quality of administrative and non-advisory services provided by NAM and noted
that NAM and its affiliates provide the Fund with a wide variety of services and
officers and other personnel as are necessary for the operations of the Fund,
including:
- - product management;
- - fund administration;
- - oversight by shareholder services and other fund service providers;
- - administration of Board relations;
- - regulatory and portfolio compliance; and
- - legal support.
As the Fund operates in a highly regulated industry and given the importance of
compliance, the Board Members considered, in particular, NAM's compliance
activities for the Fund and enhancements thereto. In this regard, the Board
Members recognized the quality of NAM's compliance team. The Board Members also
considered NAM's ability and procedures to monitor the respective Sub-Adviser's
performance, business practices and compliance policies and procedures. The
Board Members further noted NAM's negotiations with other service providers and
the corresponding reduction in certain service providers' fees at the May
Meeting.
In addition to the foregoing services, the Board Members also noted the
additional services that NAM or its affiliates provide to Nuveen's closed-end
funds, including, in particular, its secondary market support activities. The
Board Members recognized Nuveen's continued commitment to supporting the
secondary market for the common shares of its closed-end funds through a variety
of programs designed to raise investor and analyst awareness and understanding
of closed-end funds. These efforts include:
- - maintaining shareholder communications;
- - providing advertising for the Nuveen closed-end funds;
- - maintaining its closed-end fund website;
- - maintaining continual contact with financial advisers;
- - providing educational symposia;
- - conducting research with investors and financial analysis regarding closed-end
funds; and
- - evaluating secondary market performance.
32
With respect to the Nuveen closed-end funds that utilize leverage through the
issuance of preferred shares ("Preferred Shares"), the Board Members noted
Nuveen's continued support for the holders of Preferred Shares by, among other
things:
- - maintaining an in-house trading desk;
- - maintaining a product manager for the Preferred Shares;
- - developing distribution for Preferred Shares with new market participants;
- - maintaining an orderly auction process;
- - managing leverage and risk management of leverage; and
- - maintaining systems necessary to test compliance with rating agency criteria.
With respect to the Sub-Advisers, the Board Members noted that the sub-advisory
agreements were essentially agreements for portfolio management services only
and the Sub-Advisers were not expected to supply other significant
administrative services to the Fund.
Based on their review, the Board Members found that, overall, the nature, extent
and quality of services provided (and expected to be provided) to the Fund under
the respective Original Investment Management Agreement or Original Sub-Advisory
Agreement, as applicable, were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS
At the May Meeting, the Board considered the investment performance for the
Fund, including the Fund's historic performance as well as its performance
compared to funds with similar investment objectives (the "Performance Peer
Group") based on data provided by an independent third party (as described
below). The Board Members also reviewed the Fund's historic performance compared
to recognized and/or customized benchmarks (as applicable).
In evaluating the performance information during the annual review at the May
Meeting, in certain instances, the Board Members noted that the closest
Performance Peer Group for a fund may not adequately reflect such fund's
investment objectives and strategies, thereby limiting the usefulness of the
comparisons of such fund's performance with that of the Performance Peer Group.
These Performance Peer Groups include those for: the Nuveen Diversified Dividend
and Income Fund; the Nuveen Multi-Strategy Income and Growth Fund; the Nuveen
Multi-Strategy Income and Growth Fund 2; the Nuveen Tax-Advantaged Floating Rate
Fund; the Nuveen Real Estate Income Fund; the Nuveen Equity Premium Advantage
Fund; the Nuveen Equity Premium Income Fund; the Nuveen Equity Premium
Opportunity Fund; and the Nuveen Equity Premium and Growth Fund.
The Board Members reviewed performance information including, among other
things, total return information compared with the Fund's Performance Peer Group
as well as recognized and/or customized benchmarks (as appropriate) for the
one-, three- and five-year periods (as applicable) ending December 31, 2006.
This information supplemented the performance information provided to the Board
at each of its quarterly meetings. Based on their review at the May Meeting, the
Board Members determined that the Fund's investment performance over time had
been satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. Fees and Expenses
During the annual review, the Board evaluated the management fees and
expenses of the Fund reviewing, among other things, the Fund's advisory fees
(net and gross management fees) and total expense ratios (before and after
expense reimbursements and/or waivers) in absolute terms as well as
comparisons to the gross management fees (before waivers), net management
fees (after waivers) and total expense ratios (before and after waivers) of
comparable funds in the Peer Universe and the Peer Group. In reviewing the
fee schedule for the Fund, the Board Members considered the fund-level and
complex-wide breakpoint schedules (described in further detail below) and any
fee waivers and reimbursements provided by Nuveen. The Board Members further
reviewed data regarding the construction of Peer Groups as well as the
methods of measurement for the fee and expense analysis and the performance
analysis. In certain cases, due to the small number of peers in the Peer
33
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
Universe, the Peer Universe and Peer Group had significant overlap or even
consisted entirely of the same unaffiliated funds. In reviewing the
comparisons of fee and expense information, the Board Members recognized that
in certain cases, the size of a fund relative to peers, the small size and
odd composition of the Peer Group (including differences in objectives and
strategies), expense anomalies, timing of information used or other factors
impacting the comparisons thereby limited some of the usefulness of the
comparative data. The Board Members also considered the differences in the
use of leverage. The Board Members also noted the limited Peer Groups
available for the Nuveen funds with multi-sleeves of investments (e.g., the
Nuveen Diversified Dividend and Income Fund, the Nuveen Multi-Strategy Income
and Growth Fund, the Nuveen Multi-Strategy Income and Growth Fund 2 and the
Fund). Based on their review of the fee and expense information provided, the
Board Members determined that the Fund's net total expense ratio was within
an acceptable range compared to peers.
2. Comparisons with the Fees of Other Clients
At the annual review, the Board Members further reviewed data comparing the
advisory fees of NAM with fees NAM charges to other clients. Such clients
include NAM's separately managed accounts and funds that are not offered by
Nuveen but are sub-advised by one of Nuveen's investment management teams. In
general, the advisory fees charged for separate accounts are somewhat lower
than the advisory fees assessed to the Fund. The Board Members considered the
differences in the product types, including, but not limited to, the services
provided, the structure and operations, product distribution and costs
thereof, portfolio investment policies, investor profiles, account sizes and
regulatory requirements. The Board Members noted, in particular, that the
range of services provided to the Fund (as discussed above) is much more
extensive than that provided to separately managed accounts. As described in
further detail above, such additional services include, but are not limited
to: product management, fund administration, oversight of third party service
providers, administration of Board relations, and legal support. The Board
Members noted that the Fund operates in a highly regulated industry requiring
extensive compliance functions compared to other investment products. Given
the inherent differences in the products, particularly the extensive services
provided to the Fund, the Board Members believe such facts justify the
different levels of fees.
With respect to the Sub-Advisers, in considering the fees of a Sub-Adviser,
the Board Members also considered the pricing schedule or fees that the
Sub-Adviser charges for similar investment management services for other fund
sponsors or clients, as applicable. With respect to Symphony, the Board
Members also reviewed the generally higher fees for equity and taxable fixed
income hedge funds and hedge accounts it manages, which include a performance
fee.
3. Profitability of Fund Advisers
In conjunction with its review of fees, the Board Members also considered the
profitability of Nuveen for its advisory activities (which incorporated
Nuveen's wholly-owned affiliated sub-advisers) and its financial condition.
At the annual review, the Board Members reviewed the revenues and expenses of
Nuveen's advisory activities for the last three years, the allocation
methodology used in preparing the profitability data as well as the 2006
Annual Report for Nuveen. The Board Members noted this information
supplemented the profitability information requested and received during the
year to help keep them apprised of developments affecting profitability (such
as changes in fee waivers and expense reimbursement commitments). In this
regard, the Board Members noted the enhanced dialogue and information
regarding profitability with NAM during the year, including more frequent
meetings and updates from Nuveen's corporate finance group. The Board Members
considered Nuveen's profitability compared with other fund sponsors prepared
by three independent third party service providers as well as comparisons of
the revenues, expenses and profit margins of various unaffiliated management
firms with similar amounts of assets under management prepared by Nuveen.
In reviewing profitability, the Board Members recognized the subjective
nature of determining profitability which may be affected by numerous factors
including the allocation of expenses. Further, the Board Members recognized
the difficulties in making comparisons as the profitability of other advisers
generally is not publicly
34
available and the profitability information that is available for certain
advisers or management firms may not be representative of the industry and
may be affected by, among other things, the adviser's particular business
mix, capital costs, types of funds managed and expense allocations.
Notwithstanding the foregoing, the Board Members reviewed Nuveen's methodology
at the annual review and assumptions for allocating expenses across product
lines to determine profitability. Last year, the Board Members also designated
an Independent Board Member as a point person for the Board to review the
methodology determinations during the year and any refinements thereto, which
relevant information produced from such process was reported to the full Board.
In reviewing profitability, the Board Members recognized Nuveen's increased
investment in its fund business. Based on its review, the Board Members
concluded that Nuveen's level of profitability for its advisory activities was
reasonable in light of the services provided.
In evaluating the reasonableness of the compensation, the Board Members also
considered other amounts paid to a Fund Adviser by the Fund as well as any
indirect benefits (such as soft dollar arrangements, if any) the Fund Adviser
and its affiliates receive, or are expected to receive, that are directly
attributable to the management of the Fund, if any. See Section E below for
additional information on indirect benefits a Fund Adviser may receive as a
result of its relationship with the Fund. Based on their review of the overall
fee arrangement of the Fund, the Board Members determined that the advisory fees
and expenses of the Fund were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Board Members recognized the potential
benefits resulting from the costs of the Fund being spread over a larger asset
base. To help ensure the shareholders share in these benefits, the Board Members
reviewed and considered the breakpoints in the advisory fee schedules that
reduce advisory fees. In addition to advisory fee breakpoints, the Board also
approved a complex-wide fee arrangement in 2004. Pursuant to the complex-wide
fee arrangement, the fees of the funds in the Nuveen complex, including the
Fund, are reduced as the assets in the fund complex reach certain levels. In
evaluating the complex-wide fee arrangement, the Board Members noted that the
last complex-wide asset level breakpoint for the complex-wide fee schedule was
at $91 billion and that the Board Members anticipated further review and/or
negotiations prior to the assets of the Nuveen complex reaching such threshold.
Based on their review, the Board Members concluded that the breakpoint schedule
and complex-wide fee arrangement were acceptable and desirable in providing
benefits from economies of scale to shareholders, subject to further evaluation
of the complex-wide fee schedule as assets in the complex increase. See Section
II, Paragraph D -- "Approval of the New Investment Management Agreement and New
Sub-Advisory Agreements -- Economies of Scale and Whether Fee Levels Reflect
These Economies of Scale" for information regarding subsequent modifications to
the complex-wide fee.
E. INDIRECT BENEFITS
In evaluating fees, the Board Members also considered any indirect benefits or
profits the respective Fund Adviser or its affiliates may receive as a result of
its relationship with the Fund. In this regard, the Board Members considered the
revenues received by affiliates of NAM for serving as agent at Nuveen's
preferred trading desk and for serving as a co-manager in the initial public
offering of new closed-end exchange traded funds.
In addition to the above, the Board Members considered whether the Fund Adviser
received any benefits from soft dollar arrangements whereby a portion of the
commissions paid by the Fund for brokerage may be used to acquire research that
may be useful to the Fund Adviser in managing the assets of the Fund and other
clients. With respect to NAM, the Board Members noted that NAM does not
currently have any soft dollar arrangements; however, to the extent certain bona
fide agency transactions that occur on markets that traditionally trade on a
principal basis and riskless principal transactions are considered as generating
"commissions," NAM intends to comply with the applicable safe harbor provisions.
With respect to NWQ, the Board Members considered that such Sub-Adviser may
benefit from its soft dollar arrangements pursuant to which it receives research
from brokers that execute the Fund's portfolio transactions.
35
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
The Board Members noted that this Sub-Adviser's profitability may be lower if it
were required to pay for this research with hard dollars.
With respect to Symphony, the Board considered that this Sub-Adviser currently
does not enter into soft dollar arrangements; however, it has adopted a soft
dollar policy in the event it does so in the future.
Based on their review, the Board Members concluded that any indirect benefits
received by a Fund Adviser as a result of its relationship with the Fund were
reasonable and within acceptable parameters.
F. OTHER CONSIDERATIONS
The Board Members did not identify any single factor discussed previously as
all-important or controlling in their considerations to continue an advisory
contract. The Board Members, including the Independent Board Members,
unanimously concluded that the terms of the Original Investment Management and
Original Sub-Advisory Agreements are fair and reasonable, that the respective
Fund Adviser's fees are reasonable in light of the services provided to the Fund
and that the Original Investment Management Agreement and the Original
Sub-Advisory Agreements be renewed.
II. APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT AND NEW SUB-ADVISORY
AGREEMENTS
Following the May Meeting, the Board Members were advised of the potential
Transaction. As noted above, the completion of the Transaction would terminate
the Original Investment Management Agreement and the Original Sub-Advisory
Agreements. Accordingly, at the July Meeting, the Board of the Fund, including
the Independent Board Members, unanimously approved the New Investment
Management Agreement and New Sub-Advisory Agreements on behalf of the Fund.
Leading up to the July Meeting, the Board Members had several meetings and
deliberations with and without Nuveen management present, and with the advice of
legal counsel, regarding the proposed Transaction as outlined below.
On June 8, 2007, the Board Members held a special telephonic meeting to discuss
the proposed Transaction. At that meeting, the Board Members established a
special ad hoc committee comprised solely of Independent Board Members to focus
on the Transaction and to keep the Independent Board Members updated with
developments regarding the Transaction. On June 15, 2007, the ad hoc committee
discussed with representatives of NAM the Transaction and modifications to the
complex-wide fee schedule that would generate additional fee savings at
specified levels of complex-wide asset growth. Following the foregoing meetings
and several subsequent telephonic conferences among Independent Board Members
and independent counsel, and between Independent Board Members and
representatives of Nuveen, the Board met on June 18, 2007 to further discuss the
proposed Transaction. Immediately prior to and then again during the June 18,
2007 meeting, the Independent Board Members met privately with their independent
legal counsel. At that meeting, the Board met with representatives of MDP, of
Goldman Sachs, Nuveen's financial adviser in the Transaction, and of the Nuveen
Board to discuss, among other things, the history and structure of MDP, the
terms of the proposed Transaction (including the financing terms), and MDP's
general plans and intentions with respect to Nuveen (including with respect to
management, employees, and future growth prospects). On July 9, 2007, the Board
also met to be updated on the Transaction as part of a special telephonic Board
meeting. The Board Members were further updated at a special in-person Board
meeting held on July 19, 2007 (one Independent Board Member participated
telephonically). Subsequently, on July 27, 2007, the ad hoc committee held a
telephonic conference with representatives of Nuveen and MDP to further discuss,
among other things, the Transaction, the financing of the Transaction, retention
and incentive plans for key employees, the effect of regulatory restrictions on
transactions with affiliates after the Transaction, and current volatile market
conditions and their impact on the Transaction.
In connection with their review of the New Investment Management Agreement and
New Sub-Advisory Agreements, the Independent Board Members, through their
independent legal counsel, also requested in writing and received
36
additional information regarding the proposed Transaction and its impact on the
provision of services by NAM and its affiliates.
The Independent Board Members received, well in advance of the July Meeting,
materials which outlined, among other things:
- - the structure and terms of the Transaction, including MDP's co-investor
entities and their expected ownership interests, and the financing
arrangements that will exist for Nuveen following the closing of the
Transaction;
- - the strategic plan for Nuveen following the Transaction;
- - the governance structure for Nuveen following the Transaction;
- - any anticipated changes in the operations of the Nuveen funds following the
Transaction, including changes to NAM's and Nuveen's day-to-day management,
infrastructure and ability to provide advisory, distribution or other
applicable services to the Fund;
- - any changes to senior management or key personnel who work on Fund related
matters (including portfolio management, investment oversight, and
legal/compliance) and any retention or incentive arrangements for such
persons;
- - any anticipated effect on the Fund's expense ratio (including advisory fees)
following the Transaction;
- - any benefits or undue burdens imposed on the Fund as a result of the
Transaction;
- - any legal issues for the Fund as a result of the Transaction;
- - the nature, quality and extent of services expected to be provided to the Fund
following the Transaction, changes to any existing services and policies
affecting the Fund, and cost-cutting efforts, if any, that may impact such
services or policies;
- - any conflicts of interest that may arise for Nuveen or MDP with respect to the
Fund;
- - the costs associated with obtaining necessary shareholder approvals and who
would bear those costs; and
- - from legal counsel, a memorandum describing the applicable laws, regulations
and duties in approving advisory contracts, including, in particular, with
respect to a change of control.
Immediately preceding the July Meeting, representatives of MDP met with the
Board to further respond to questions regarding the Transaction. After the
meeting with MDP, the Independent Board Members met with independent legal
counsel in executive session. At the July Meeting, Nuveen also made a
presentation and responded to questions. Following the presentations and
discussions of the materials presented to the Board, the Independent Board
Members met again in executive session with their counsel. As outlined in more
detail below, the Independent Board Members considered all factors they believed
relevant with respect to the Fund, including the impact that the Transaction
could be expected to have on the following: (a) the nature, extent and quality
of services to be provided; (b) the investment performance of the Fund; (c) the
costs of the services and profits to be realized by Nuveen and its affiliates;
(d) the extent to which economies of scale would be realized; and (e) whether
fee levels reflect those economies of scale for the benefit of investors. As
noted above, during the past year, the Board Members had completed their annual
review of the Original Investment Management Agreement and Original Sub-Advisory
Agreements and many of the factors considered at such reviews were applicable to
their evaluation of the New Investment Management Agreement and New Sub-Advisory
Agreements. Accordingly, in evaluating such agreements, the Board Members relied
upon their knowledge and experience with the Fund Advisers and considered the
information received and their evaluations and conclusions drawn at the reviews.
While the Board reviewed many Nuveen funds at the July Meeting, the Independent
Board Members evaluated all information available to them on a fund-by-fund
basis, and their determinations were made separately in respect of the Fund.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In evaluating the nature, quality and extent of the services expected to be
provided by the Fund Adviser under the applicable New Investment Management
Agreement or New Sub-Advisory Agreement, the Independent Board Members
considered, among other things, the expected impact, if any, of the Transaction
on the operations,
37
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
facilities, organization and personnel of NAM and each Sub-Adviser (if
applicable); the potential implications of regulatory restrictions on the Fund
following the Transaction; the ability of NAM and its affiliates to perform
their duties after the Transaction; and any anticipated changes to the current
investment and other practices of the Fund.
The Board noted that the terms of the New Investment Management Agreement,
including the fees payable thereunder, are substantially identical to those of
the Original Investment Management Agreement relating to the Fund (with both
reflecting reductions to fee levels in the complex-wide fee schedule for
complex-wide assets in excess of $80 billion that have an effective date of
August 20, 2007). Similarly, the terms of each New Sub-Advisory Agreement,
including fees payable thereunder, are substantially identical to those of the
respective Original Sub-Advisory Agreement relating to the Fund. The Board
considered that the services to be provided and the standard of care under the
New Investment Advisory Agreement and the New Sub-Advisory Agreements are the
same as the corresponding original agreements. The Board Members noted the
Transaction does not alter the allocation of responsibilities between the
Adviser and each Sub-Adviser. Each Sub-Adviser will continue to furnish an
investment program in respect of, make investment decisions for and place all
orders for the purchase and sale of securities for the portion of the Fund's
investment portfolio allocated by the Adviser to the Sub-Adviser, all on behalf
of the Fund and subject to oversight of the Board and the Adviser. The Board
Members further noted that key personnel of the Adviser or Sub-Adviser who have
responsibility for the Fund in each area, including portfolio management,
investment oversight, fund management, fund operations, product management,
legal/compliance and board support functions, are expected to be the same
following the Transaction. The Board Members considered and are familiar with
the qualifications, skills and experience of such personnel. The Board also
considered certain information regarding any anticipated retention or incentive
plans designed to retain key personnel. Further, the Board Members noted that no
changes to Nuveen's infrastructure (including at the affiliated sub-adviser
level) or operations as a result of the Transaction were anticipated other than
potential enhancements as a result of an expected increase in the level of
investment in such infrastructure and personnel. The Board noted MDP's
representations that it does not plan to have a direct role in the management of
Nuveen, appointing new management personnel, or directly impacting individual
staffing decisions. The Board Members also noted that there were not any planned
"cost cutting" measures that could be expected to reduce the nature, extent or
quality of services. After consideration of the foregoing, the Board Members
concluded that no diminution in the nature, quality and extent of services
provided to the Fund and its shareholders by the Fund Advisers is expected.
In addition to the above, the Board Members considered potential changes in the
operations of the Fund. In this regard, the Board Members considered the
potential effect of regulatory restrictions on the Fund's transactions with
future affiliated persons. During their deliberations, it was noted that, after
the Transaction, a subsidiary of Merrill Lynch is expected to have an ownership
interest in Nuveen at a level that will make Merrill Lynch an affiliated person
of Nuveen. The Board Members recognized that applicable law would generally
prohibit the Fund from engaging in securities transactions with Merrill Lynch as
principal, and would also impose restrictions on using Merrill Lynch for agency
transactions. They recognized that having MDP and Merrill Lynch as affiliates
may restrict the Nuveen funds' ability to invest in securities of issuers
controlled by MDP or issued by Merrill Lynch and its affiliates even if not
bought directly from MDP or Merrill Lynch as principal. They also recognized
that various regulations may require the Nuveen funds to apply investment
limitations on a combined basis with affiliates of Merrill Lynch. The Board
Members considered information provided by NAM regarding the potential impact on
the Nuveen funds' operations as a result of these regulatory restrictions. The
Board Members considered, in particular, the Nuveen funds that may be impacted
most by the restricted access to Merrill Lynch, including: municipal funds
(particularly certain state-specific funds), senior loan funds, taxable fixed
income funds, preferred security funds and funds that heavily use derivatives.
The Board Members considered such funds' historic use of Merrill Lynch as
principal in their transactions and information provided by NAM regarding the
expected impact resulting from Merrill Lynch's affiliation with Nuveen and
available measures that could be taken to minimize such impact. NAM informed the
Board Members that, although difficult to determine with certainty, its
management did not believe that MDP's or Merrill Lynch's status as an affiliate
of Nuveen would have a material adverse effect on any Nuveen fund's ability to
pursue its investment objectives and policies.
38
In addition to the regulatory restrictions considered by the Board, the Board
Members also considered potential conflicts of interest that could arise between
the Nuveen funds and various parties to the Transaction and discussed possible
ways of addressing such conflicts.
Based on its review along with its considerations regarding services at the
annual review, the Board concluded that the Transaction was not expected to
adversely affect the nature, quality or extent of services provided by the
respective Fund Adviser and that the expected nature, quality and extent of such
services supported approval of the New Investment Management Agreement and New
Sub-Advisory Agreements.
B. PERFORMANCE OF THE FUND
With respect to the performance of the Fund, the Board considered that the
portfolio management personnel responsible for the management of the Fund's
portfolio were expected to continue to manage the portfolio following the
completion of the Transaction.
In addition, the Board Members recently reviewed Fund performance at the May
Meeting, as described above, and determined the Fund's performance was
satisfactory or better. The Board Members further noted that the investment
policies and strategies were not expected to change as a result of the
Transaction.
In light of the foregoing factors, along with the prior findings regarding
performance at the annual review, the Board concluded that its findings with
respect to performance supported approval of the New Investment Management
Agreement and New Sub-Advisory Agreements.
C. FEES, EXPENSES AND PROFITABILITY
As described in more detail above, during the annual review, the Board Members
considered, among other things, the management fees and expenses of the Fund,
the breakpoint schedules, and comparisons of such fees and expenses with peers.
At the annual review, the Board Members determined that the Fund's advisory fees
and expenses were reasonable. In evaluating the profitability of the Fund
Adviser under the New Investment Management Agreement and New Sub-Advisory
Agreements, the Board Members considered their conclusions at their prior
reviews and whether the management fees or other expenses would change as a
result of the Transaction. As described above, the investment management fee for
NAM is composed of two components -- a fund-level component and complex-wide
level component. The fee schedule under the New Investment Management Agreement
to be paid to NAM is identical to that under the Original Investment Management
Agreement, including the modified complex-wide fee schedule. As noted above, the
Board recently approved a modified complex-wide fee schedule that would generate
additional fee savings on complex-wide assets above $80 billion. The
modifications have an effective date of August 20, 2007 and are part of the
Original Investment Management Agreement. Accordingly, the terms of the
complex-wide component under the New Investment Management Agreement are the
same as under the Original Investment Management Agreement. The Board Members
also noted that Nuveen has committed for a period of two years from the date of
closing of the Transaction that it will not increase gross management fees for
any Nuveen fund and will not reduce voluntary expense reimbursement levels for
any Nuveen fund from their currently scheduled prospective levels. Based on the
information provided, the Board Members did not expect that overall Fund
expenses would increase as a result of the Transaction.
In addition, the Board Members considered that additional fund launches were
anticipated after the Transaction which would result in an increase in total
assets under management in the complex and a corresponding decrease in overall
management fees under the complex-wide fee schedule. Taking into consideration
the Board's prior evaluation of fees and expenses at the annual renewal, and the
modification to the complex-wide fee schedule, the Board determined that the
management fees and expenses were reasonable.
While it is difficult to predict with any degree of certainty the impact of the
Transaction on Nuveen's profitability for its advisory activities (which
includes its affiliated sub-advisers), at the recent annual review, the Board
Members were satisfied that Nuveen's level of profitability for its advisory
activities was reasonable. During the year, the Board Members had noted the
enhanced dialogue regarding profitability and the appointment of an Independent
Board
39
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
Member as a point person to review methodology determinations and refinements in
calculating profitability. Given their considerations at the annual review and
the modifications to the complex-wide fee schedule, the Board Members were
satisfied that Nuveen's level of profitability for its advisory activities
continues to be reasonable.
With respect to the Sub-Advisers, the fees paid under the New Sub-Advisory
Agreements are the same as the respective Original Sub-Advisory Agreements.
The Transaction is not anticipated to affect the profitability of the
Sub-Advisers. At the annual review, the Board Members were satisfied that the
respective Fund Adviser's level of profitability was reasonable in light of
the services provided. Taking into account the Board's prior evaluation and
the fact that sub-advisory fees will not change, the Board Members were
satisfied that the respective Fund Advisers' levels of profitability were
reasonable in light of the services provided.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
The Board Members have been cognizant of economies of scale and the potential
benefits resulting from the costs of the Fund being spread over a larger asset
base. To help ensure that shareholders share in the benefits derived from
economies of scale, the Board adopted the complex-wide fee arrangement in 2004.
At the May Meeting, the Board Members reviewed the complex-wide fee arrangements
and noted that additional negotiations may be necessary or appropriate as the
assets in the complex approached the $91 billion threshold. In light of this
assessment coupled with the upcoming Transaction, at the June 15, 2007 meeting,
the ad hoc committee met with representatives of Nuveen to further discuss
modifications to the complex-wide fee schedule that would generate additional
savings for shareholders as the assets of the complex grow. The proposed terms
for the complex-wide fee schedule are expressed in terms of targeted cumulative
savings at specified levels of complex-wide assets, rather than in terms of
targeted marginal complex-wide fee rates. Under the modified schedule, the
schedule would generate additional fee savings beginning at complex-wide assets
of $80 billion in order to achieve targeted cumulative annual savings at $91
billion of $28 million on a complex-wide level (approximately $0.6 million
higher than those generated under the then current schedule) and generate
additional fee savings for asset growth above complex-wide assets of $91 billion
in order to achieve targeted annual savings at $125 billion of assets of
approximately $50 million on a complex-wide level (approximately $2.2 million
higher annually than that generated under the then current schedule). At the
July Meeting, the Board approved the modified complex-wide fee schedule for the
Original Investment Management Agreement and these same terms will apply to the
New Investment Management Agreement. Accordingly, the Board Members believe that
the breakpoint schedules and revised complex-wide fee schedule are appropriate
and desirable in ensuring that shareholders participate in the benefits derived
from economies of scale.
E. INDIRECT BENEFITS
During their recent annual review, the Board Members considered any indirect
benefits that the Fund Adviser may receive as a result of its relationship with
the Fund, as described above. As the policies and operations of the Fund
Advisers are not anticipated to change significantly after the Transaction, such
indirect benefits should remain after the Transaction. The Board Members further
considered any additional indirect benefits to be received by the Fund Adviser
or its affiliates after the Transaction. The Board Members noted that other than
benefits from its ownership interest in Nuveen and indirect benefits from fee
revenues paid by the Fund under the management agreements and other
Board-approved relationships, it was currently not expected that MDP or its
affiliates would derive any benefit from the Fund as a result of the Transaction
or transact any business with or on behalf of the Fund (other than perhaps
potential Fund acquisitions, in secondary market transactions, of securities
issued by MDP portfolio companies); or that Merrill Lynch or its affiliates
would derive any benefits from the Fund as a result of the Transaction (noting
that, indeed, Merrill Lynch would stand to experience the discontinuation of
principal transaction activity with the Nuveen funds and likely would experience
a noticeable reduction in the volume of agency transactions with the Nuveen
funds).
40
F. OTHER CONSIDERATIONS
In addition to the factors above, the Board Members also considered the
following with respect to the Fund:
- - Nuveen would rely on the provisions of Section 15(f) of the 1940 Act. Section
15(f) provides, in substance, that when a sale of a controlling interest in an
investment adviser occurs, the investment adviser or any of its affiliated
persons may receive any amount or benefit in connection with the sale so long
as (i) during the three-year period following the consummation of a
transaction, at least 75% of the investment company's board of directors must
not be "interested persons" (as defined in the 1940 Act) of the investment
adviser or predecessor adviser and (ii) an "unfair burden" (as defined in the
1940 Act, including any interpretations or no-action letters of the SEC) must
not be imposed on the investment company as a result of the transaction
relating to the sale of such interest, or any express or implied terms,
conditions or understanding applicable thereto. In this regard, to help ensure
that an unfair burden is not imposed on the Nuveen funds, Nuveen has committed
for a period of two years from the date of the closing of the Transaction (i)
not to increase gross management fees for any Nuveen fund; (ii) not to reduce
voluntary expense reimbursement levels for any Nuveen fund from their
currently scheduled prospective levels during that period; (iii) that no
Nuveen fund whose portfolio is managed by a Nuveen affiliate shall use Merrill
Lynch as a broker with respect to portfolio transactions done on an agency
basis, except as may be approved in the future by the Compliance Committee of
the Board; and (iv) that each adviser/portfolio team affiliated with Nuveen
shall not cause the Fund (or sleeves thereof) and other Nuveen funds that the
team manages, as a whole, to enter into portfolio transactions with or through
the other minority owners of Nuveen, on either a principal or an agency basis,
to a significantly greater extent than both what one would expect an
investment team to use such firm in the normal course of business, and what
such team has historically done, without prior Board or Compliance Committee
approval (excluding the impact of proportionally increasing the use of such
other "minority owners" to fill the void necessitated by not being able to use
Merrill Lynch).
- - The Fund would not incur any costs in seeking the necessary shareholder
approvals for the New Investment Management Agreement or New Sub-Advisory
Agreements (except for any costs attributed to seeking shareholder approvals
of Fund specific matters unrelated to the Transaction, such as approval of
Board Members or changes to investment policies, in which case a portion of
such costs will be borne by the Fund).
- - The reputation, financial strength and resources of MDP.
- - The long-term investment philosophy of MDP and anticipated plans to grow
Nuveen's business to the benefit of the Nuveen funds.
- - The benefits to the Nuveen funds as a result of the Transaction including: (i)
as a private company, Nuveen may have more flexibility in making additional
investments in its business; (ii) as a private company, Nuveen may be better
able to structure compensation packages to attract and retain talented
personnel; (iii) as certain of Nuveen's distribution partners are expected to
be equity or debt investors in Nuveen, Nuveen may be able to take advantage of
new or enhanced distribution arrangements with such partners; and (iv) MDP's
experience, capabilities and resources that may help Nuveen identify and
acquire investment teams or firms and finance such acquisitions.
- - The historic premium and discount levels at which the shares of the Nuveen
funds have traded at specified dates with particular focus on the premiums and
discounts after the announcement of the Transaction, taking into consideration
recent volatile market conditions and steps or initiatives considered or
undertaken by NAM to address discount levels.
G. CONCLUSION
The Board Members did not identify any single factor discussed previously as
all-important or controlling. The Board Members, including the Independent Board
Members, unanimously concluded that the terms of the New Investment Management
Agreement and New Sub-Advisory Agreements are fair and reasonable, that the fees
therein are reasonable in light of the services to be provided to the Fund and
that the New Investment Management Agreement and New Sub-Advisory Agreements
should be approved and recommended to shareholders.
41
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
III. APPROVAL OF INTERIM CONTRACTS
As noted above, at the July Meeting, the Board Members, including the
Independent Board Members, unanimously approved the Interim Investment
Management Agreement and Interim Sub-Advisory Agreements. If necessary to assure
continuity of advisory services, the Interim Investment Management Agreement and
Interim Sub-Advisory Agreements will take effect upon the closing of the
Transaction if shareholders have not yet approved the New Investment Management
Agreement and New Sub-Advisory Agreements. The terms of the Interim Investment
Management Agreement and each Interim Sub-Advisory Agreement are substantially
identical to those of the corresponding Original Investment Management Agreement
and New Investment Management Agreement and the Original Sub-Advisory Agreement
and New Sub-Advisory Agreement, respectively, except for certain term and escrow
provisions. In light of the foregoing, the Board Members, including the
Independent Board Members, unanimously determined that the scope and quality of
services to be provided to the Fund under the Interim Investment Management
Agreement and each Interim Sub-Advisory Agreement are at least equivalent to the
scope and quality of services provided under the Original Investment Management
Agreement and respective Original Sub-Advisory Agreement.
42
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 DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains 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 tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or 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 dividends and 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. Dividends and distributions received to
purchase shares in the open market will normally be invested shortly after the
dividend payment date. No interest will be paid on dividends and 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 dividend or 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.
43
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
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 DIVIDENDS AND/OR 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.
44
Glossary of
TERMS USED in this REPORT
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.
Market Yield (also known as Dividend Yield or Current Yield): Market yield is
based on the Fund's current annualized monthly distribution divided by the
Fund's current market price. The Fund's monthly distributions to its
shareholders may be comprised of ordinary income, net realized capital gains
and, if at the end of the calendar year the Fund's cumulative net ordinary
income and net realized gains are less than the amount of the Fund's
distributions, a tax return of capital.
Net Asset Value (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any Preferred shares issued
in order to leverage the Fund) from its total assets and then dividing the
remainder by the number of shares outstanding. Fund NAVs are calculated at the
end of each business day.
45
NOTES
46
OTHER USEFUL INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Fund voted proxies relating to portfolio securities held during the most
recent 12-month period ended June 30, 2006, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. 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 at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
CEO Certification Disclosure
The Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
The Fund has filed with the Securities and Exchange Commission the certification
of its Chief Executive Officer and Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act.
Board of Trustees
Robert P. Bremner
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Carol E. Stone
Fund Manager
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
Custodian
State Street Bank & Trust Company
Boston, MA
Transfer Agent and
Shareholder Services
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
Legal Counsel
Chapman and Cutler LLP
Chicago, IL
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or preferred
stock in the future at such times and in such amounts as is deemed
advisable. No shares were repurchased during the period covered by
this report. Any future repurchases will be reported to shareholders
in the next annual or semi-annual report.
47
Nuveen Investments:
- -----------------------------------------------------------------------
SERVING INVESTORS FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
We offer many different investing solutions for our clients' different needs.
Managing $172 billion in assets, as of June 30, 2007, Nuveen Investments offers
access to a number of different asset classes and investing solutions through a
variety of products. Nuveen Investments markets its capabilities under six
distinct brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; Symphony,
a leading institutional manager of market-neutral alternative investment
portfolios; Santa Barbara, a leader in growth equities; and Tradewinds, a leader
in global equities.
Find out how we can help you reach your financial goals.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For 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.
ESA-C-0607D
Learn more about Nuveen Funds at: WWW.NUVEEN.COM/CEF
Share prices
Fund details
Daily financial news
Investor education
Interactive planning tools
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.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(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.
(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 to
this filing.
(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 Tax-Advantaged Total Return Strategy Fund
By (Signature and Title)* /s/ Kevin J. McCarthy
---------------------------------------
Kevin J. McCarthy
Vice President and Secretary
Date: September 6, 2007
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: September 6, 2007
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 6, 2007
* Print the name and title of each signing officer under his or her signature.