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 811-21705
-----------------------
Nuveen Tax-Advantaged Floating Rate 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: June 30
-------------------
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
Annual Report
JUNE 30, 2007
Nuveen Investments
CLOSED-END FUNDS
NUVEEN
TAX-ADVANTAGED
FLOATING RATE
FUND
JFP
Opportunities for Tax-Advantaged Monthly Income
from a Portfolio Consisting Predominantly of
Adjustable Rate Preferred Securities
NUVEEN INVESTMENTS LOGO
Life is complex.
Nuveen
makes things
e-simple.
-----------------------------------
It only takes a minute to sign up
for e-Reports. Once enrolled,
you'll receive an e-mail as soon as
your Nuveen Investments Fund
information is ready--no more
waiting for delivery by regular
mail. Just click on the link within
the e-mail to see the report, and
save it on your computer if you
wish.
Free e-Reports right to your e-mail!
<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 eleven-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 JFP
The Nuveen Tax-Advantaged Floating Rate Fund (JFP) is sub-advised by a team of
specialists at Spectrum Asset Management, an affiliate of Principal Capital(SM).
Mark Lieb, Bernie Sussman and Phil Jacoby, who have more than 50 years of
combined experience in the preferred securities markets, lead the team. Here
Mark, Bernie and Phil talk about their management strategy and the performance
of the Fund for the eleven-month period ended June 30, 2007.
WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS OVER THE COURSE OF
THE 11-MONTH PERIOD?
During the eleven-month period, we saw interest rates at the short end of the
yield curve rise modestly, while longer rates generally declined. After
announcing one further rate increase in late June 2006, the Federal Reserve
(Fed) ended its unprecedented series of 17 consecutive 0.25% rate hikes that
brought the fed funds rate to 5.25% over a two-year span. During the
eleven-months of this reporting period, the Fed left monetary policy unchanged
as it kept close tabs on inflationary pressures and the pace of economic growth.
Although many market observers had expected the Fed to act on rates in early
2007 the Fed remained on the sidelines.
The U.S. gross domestic product (GDP), a closely watched measure of economic
growth, operated at below-trend levels through most of 2006, expanded at a rate
of 2.6% in the second quarter of 2006, 2.0% in the third quarter, and 2.5% in
the fourth quarter (all GDP numbers annualized). In the first quarter of 2007,
the rate of GDP slowed to 0.7%, the weakest rate since 2002. The labor market
remained tight, with a national unemployment rate of 4.5% in June 2007, down
from 4.6% in June 2006.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE ELEVEN-MONTH PERIOD ENDED JUNE
30, 2007?
The Fund's primary investment objective is to achieve an attractive level of
after-tax income with a secondary objective to preserve capital. The basic
strategies used to achieve this were to purchase non-cumulative floating rate
perpetual preferred stock of Middle Market Banking companies with credit default
probability and financial strength ratings comparable to those of issues of
securities rated investment grade quality. We were able to fund two Middle
Market Banks over the period, Southern Bancorp and Blossman Bancshares, bringing
the total investments in this sector up to 16 individual concentrations totaling
about $130 million.
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
4
shareholders of such changes.
The balance of the portfolio was invested in large-cap financial institutions
with mostly floating-rate dividends. In situations where the dividends are
fixed, we use interest rate swaps to receive a floating rate cash flow to reduce
long-term interest rate risk.
HOW DID THE FUND PERFORM OVER THE ELEVEN-MONTHS ENDED JUNE 30, 2007?
The performance of the Fund, as well as the performance of a widely followed
market index, is presented in the accompanying table.
Total Returns on Net Asset Value
For period ended 6/30/07
<Table>
<Caption>
CUMULATIVE ANNUALIZED
---------- ----------
11-MONTH 1-YEAR
JFP 7.98% 8.81%
Merrill Lynch Adjustable Rate Preferred Index(1) 6.49% 7.13%
</Table>
For the eleven months ended June 30, 2007, the Fund outperformed the Merrill
Lynch Adjustable Rate Preferred Index.
The high dividend component of the Middle Market Banks was the primary
contributor to the Fund's income. In addition, the attractive nominal yields on
the LIBOR floating rate preferred stock in the money center banking and
brokerage sectors supplemented income during our extended invest-up
period -- this sector performed well from a valuation perspective and
supplemented the Fund's secondary objective to preserve capital.
- --------------------------------------------------------------------------------
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 more information,
please see the individual Performance Overview page in this report.
- --------------------------------------------------------------------------------
As interest rates declined during the period, the interest rate swaps that we
bought lost some value. This was largely offset, however, by the increase in the
value of the underlying securities that were hedged. One exception was the
decline in the Fund's SLM Corporation position. During this period, the firm
agreed to be taken private for approximately $25B including $16.5B of new debt
and an offer to purchase its common stock at $60 per share. New debt associated
with this transaction will subordinate all existing unsecured creditors and
result in multi-notch ratings downgrades, most likely to "single B" or "double
B" levels. We sold a portion of this investment prior to this takeover
announcement.
- --------------------------------------------------------------------------------
1 The Merrill Lynch Adjustable Rate Preferred Index is an unmanaged index
composed of dollar-denominated investment-grade preferred securities,
predominantly from larger issuers. The Fund may invest a substantial portion of
its assets in below-investment-grade securities, often from smaller issuers.
- --------------------------------------------------------------------------------
5
Distribution and Share Price
INFORMATION
In addition to owning preferred stocks in its portfolio, the Fund has issued its
own preferred shares, called FundPreferred(TM). FundPreferred 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 common shareholder distributions over this reporting period. It
is the Fund's policy to seek to pay dividends that are relatively stable from
month to month, and that reflect the Fund's past results and projected future
performance. Over the course of this reporting period, the Fund experienced four
monthly distribution increases from $0.0720 per share to $0.0860 per share.
During certain periods, the Fund may pay dividends at a rate that may be more or
less than the amount of net investment income actually earned by the Fund during
the period. If a Fund has cumulatively earned more than it has paid in
dividends, it holds the excess in reserve as undistributed net investment income
(UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid
dividends in excess of its earnings, the excess constitutes negative UNII that
is likewise reflected in the Fund's NAV. As of June 30, 2007, the Fund had a
positive UNII balance for both financial statement and tax purposes.
As of June 30, 2007, the Fund was trading at a share price discount of -1.64% to
its net asset value per share. This compares with an average share price
discount of -4.48% for the entire eleven-month reporting period.
6
<Table>
JFP Nuveen Tax-Advantaged
PERFORMANCE Floating Rate Fund
OVERVIEW as of 6-30-07
</Table>
PORTFOLIO ALLOCATION (AS A % OF TOTAL INVESTMENTS)
(PORTFOLIO ALLOCATION PIE CHART)
<Table>
Preferred Securities* 93.4
Corporate Bonds 6.1
Short-Term Investments 0.5
</Table>
* 50.7% of the Preferred Securities are invested in Middle Market Banks.
** 29.9% of the Corporate Bonds are invested in Middle Market Banks.
2006-2007 MONTHLY DISTRIBUTIONS PER SHARE(2)
(MONTHLY DISTRIBUTIONS BAR CHART)
<Table>
<Caption>
JUL 0.072
- --- -----
Aug 0.072
Sep 0.0745
Oct 0.0745
Nov 0.0745
Dec 0.08
Jan 0.08
Feb 0.08
Mar 0.0835
Apr 0.0835
May 0.0835
Jun 0.086
</Table>
SHARE PRICE PERFORMANCE -- WEEKLY CLOSING PRICE
(SHARE PRICE CHART)
<Table>
7/01/06 13.18
13.19
13.56
13.71
13.58
13.72
14.44
14.15
14.33
14.29
14.65
6/30/07 14.42
</Table>
FUND SNAPSHOT
<Table>
- -------------------------------------------------------------------------------------
Common Share Price $14.42
- -------------------------------------------------------------------------------------
Common Share
Net Asset Value $14.66
- -------------------------------------------------------------------------------------
Premium/(Discount) to NAV -1.64%
- -------------------------------------------------------------------------------------
Market Yield(1) 7.16%
- -------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $203,128
- -------------------------------------------------------------------------------------
</Table>
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/28/05)
<Table>
<Caption>
- -------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
- -------------------------------------------------------------------------------------
11-Month
(Cumulative) 16.84% 7.98%
- -------------------------------------------------------------------------------------
1-Year 19.84% 8.81%
- -------------------------------------------------------------------------------------
Since
Inception 4.65% 7.12%
- -------------------------------------------------------------------------------------
</Table>
INDUSTRIES
(as a % of total investments)
<Table>
- -------------------------------------------------------------------------------------
Commercial Banks 64.4%
- -------------------------------------------------------------------------------------
Capital Markets 11.2%
- -------------------------------------------------------------------------------------
Insurance 10.9%
- -------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 5.6%
- -------------------------------------------------------------------------------------
Diversified Financial Services 3.8%
- -------------------------------------------------------------------------------------
U.S. Agency 2.5%
- -------------------------------------------------------------------------------------
Consumer Finance 1.1%
- -------------------------------------------------------------------------------------
Short-Term Investments 0.5%
- -------------------------------------------------------------------------------------
</Table>
1 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 and net realized
short-term capital gains, if any.
2 The Fund paid shareholders capital gains and net ordinary income distributions
in December 2006 of $0.0531 per share.
7
Report of INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN TAX-ADVANTAGED FLOATING RATE FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Nuveen Tax-Advantaged Floating Rate Fund (the
"Fund"), as of June 30, 2007, and the related statements of operations,
statements of changes in net assets and financial highlights for each of the
periods indicated therein. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Fund's internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of June 30, 2007, by correspondence with the custodian and
brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Tax-Advantaged Floating Rate Fund at June 30, 2007, the results of its
operations, changes in its net assets and its financial highlights for each of
the periods indicated therein in conformity with U.S. generally accepted
accounting principles.
(ERNST & YOUNG LLP LOGO)
CHICAGO, ILLINOIS
AUGUST 20, 2007
8
JFP
Nuveen Tax-Advantaged Floating Rate Fund
Portfolio of INVESTMENTS
as of 6-30-07
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES - 126.6% (93.4% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 15.2%
239,300 Goldman Sachs Group Inc., (3) 6.110%(4) A $ 6,225,390
200,000 Lehman Brothers Holdings Inc., Series G, (3) 6.070%(4) A- 5,112,000
73,600 Merrill Lynch & Co., Inc., (3) 6.105%(4) A 1,874,592
126,000 Merrill Lynch & Company, Series 5 5.860%(4) A 3,209,069
200,000 Morgan Stanley, Series 2006A, (3) 6.057%(4) A2 5,131,260
80 Richmond County Capital Corporation, 144A Series B 8.250% N/R 8,355,000
35,600 UBS Preferred Funding Trust IV, (3) 6.020%(4) Aa2 899,612
- ------------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 30,806,923
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 83.1%
9,000 ABN AMRO North America Capital Funding, 144A, (3) 6.968% A2 9,267,188
6,591 Banco Santander, 144A 6.500% A+ 161,686
77,826 Banco Santander 6.410% Aa3 1,936,311
120,000 Bank of America Corporation, Series D, (3) 6.204% A+ 3,091,200
135,000 Bank of America Corporation, Series E, (3) 5.707%(4) Aa3 3,467,813
7,000 City National Bancshares Corporation, Series F, 8.533% N/R 7,273,438
144A, (MMB), (3)
20,000 Cobank ABC, 144A, (3) 7.000% A 992,300
10,000 FBOP Corporation, Series 2005A, 144A, (MMB) 8.110%(4) N/R 10,384,375
6,000 First Tennessee Bank, 144A, (3) 6.210%(4) A3 6,101,250
10,000 Heartland Bank, Series A, (MMB), (3) 9.310%(4) N/R 10,393,749
220,000 HSBC USA Inc., (3) 6.100%(4) A 5,658,400
5,000 MidCarolina Financial Corporation, Series 144A, (MMB), (3) 8.342% N/R 5,196,875
10,000 Pedcor Bancorp, Series A, (MMB), (3) 9.070%(4) N/R 10,387,500
5,000 Pedcor Financial Bancorp., (MMB), (3) 9.076%(4) N/R 5,200,000
5,000 Regent Bancorp Inc., Series A, (MMB), (3) 8.481% N/R 5,198,438
10,000 River Valley Bancorp, Series A, (MMB), (3) 9.310%(4) N/R 10,396,874
10,000 Rogers Bancshares Inc., 144A Series A, (MMB), (3) 9.310%(4) N/R 10,396,874
6,500 SG Preferred Capital II LLC, (3) 6.302% A+ 6,597,500
10,000 Shorebank Corporation, Series 144A, (MMB), (3) 9.150%(4) N/R 10,396,874
5,000 Sleepy Hollow Bank, 144A Series A, (MMB), (3) 9.160%(4) N/R 5,196,875
1,000 Southern Bancorp Inc., (MMB), (3) 9.305%(4) N/R 10,409,374
200,000 SunTrust Bank Inc., (3) 5.890%(4) A2 5,350,000
3,500 Truman Bancorp Inc., (MMB), (3) 9.326%(4) N/R 3,642,188
235,000 U.S. Bancorp, Series 2006B, (3) 5.960%(4) A+ 6,077,688
10,000 Vineyard National Bancorp, 144A Series C, (MMB), (3) 9.157%(4) N/R 10,390,625
200,000 Zions Bancorporation, (3) 5.880%(4) Baa1 5,250,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 168,815,395
--------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 1.5%
39,110 SLM Corporation, (3) 6.060%(4) Baa1 3,127,580
- ------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.1%
10,000 Blossman Bancshares, Inc., (MMB) 8.730% N/R 10,372,500
- ------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 13.2%
386,500 Aegon N.V., (3) 6.375% A- 9,415,140
145,000 MetLife Inc., Series B, (3) 6.500% Baa1 3,710,550
308,800 Prudential PLC, (3) 6.500% A- 7,673,680
6,000 Zurich RegCaPS Funding Trust VI, Series 144A, (3) 6.068%(4) Baa2 6,080,625
- ------------------------------------------------------------------------------------------------------------------------------------
Total Insurance 26,879,995
--------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 5.1%
5,000 RMG Capital Corporation, (MMB), (3) 9.450%(4) N/R 5,204,688
200,000 Washington Mutual Inc., (3) 6.060%(4) Baa1 5,086,000
- ------------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 10,290,688
--------------------------------------------------------------------------------------------------------------------
</Table>
9
JFP
Nuveen Tax-Advantaged Floating Rate Fund (continued)
Portfolio of INVESTMENTS as of 6-30-07
<Table>
<Caption>
PRINCIPAL
AMOUNT (000)/
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 3.4%
40,000 Federal Home Loan Mortgage Corporation, Corporate Debt, (3) 5.570% AA- $ 944,000
120,000 Federal Home Loan Mortgage Corporation, (3) 5.660% AA- 2,865,000
71,000 Federal Home Loan Mortgage Corporation, (3) 5.100% AA- 3,141,75
- ------------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 6,950,750
--------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED SECURITIES (COST $255,302,520) 257,243,831
====================================================================================================================
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 8.3% (6.1% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 4.2%
$ 6,000 BBVA International Preferred SA, Unipersonal 5.919% 12/31/49 A $ 5,639,184
1,000 CBG Florida REIT Corporation 7.114% 5/29/49 Baa3 988,363
1,000 Northgroup Preferred Capital Corporation, 144A 6.378% 1/29/49 A1 972,796
1,000 Standard Chartered PLC, 144A 6.409% 12/31/49 BBB+ 955,284
- ------------------------------------------------------------------------------------------------------------------------------------
9,000 Total Commercial Banks 8,555,627
--------------------------------------------------------------------------------------------------------------------
INSURANCE - 1.6%
1,200 Oil Insurance Limited, 144A 7.558% 12/29/49 Baa1 1,244,617
2,000 Twin Reefs Trust Pass Through to XL Financial 6.320%(4) 12/10/49 Aa2 2,006,430
Assurance Ltd. Preferred Stock Series B
- ------------------------------------------------------------------------------------------------------------------------------------
3,200 Total Insurance 3,251,047
--------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 2.6%
5,000 MM Community Funding Trust XVIII Limited, Class D, (MMB) 7.160%(4) 12/26/39 N/R 5,025,000
- ------------------------------------------------------------------------------------------------------------------------------------
$ 29,400 TOTAL CORPORATE BONDS (COST $17,164,109) 16,831,674
========== --------------------------------------------------------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.6% (0.5% OF TOTAL INVESTMENTS)
$ 1,285 Repurchase Agreement with Fixed Income Clearing 4.00% 7/02/07 $ 1,285,424
Corporation, dated 6/29/07, repurchase price
$1,285,852, collateralized by $1,360,000 U.S.
Treasury Notes, 4.250%, due 11/15/13, value
$1,314,100
========== --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,285,424) 1,285,424
====================================================================================================================
TOTAL INVESTMENTS (COST $273,752,053) - 135.6% 275,360,929
====================================================================================================================
OTHER ASSETS LESS LIABILITIES - 2.8% 5,767,549
====================================================================================================================
FUNDPREFERRED SHARES, AT LIQUIDATION VALUE - (38.4)% (78,000,000)
====================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 203,128,478
====================================================================================================================
</Table>
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2007:
<Table>
<Caption>
FUND
PAY/RECEIVE FIXED RATE
NOTIONAL FLOATING FLOATING RATE FIXED RATE PAYMENT TERMINATION UNREALIZED
COUNTERPARTY AMOUNT RATE INDEX (ANNUALIZED) FREQUENCY DATE APPRECIATION
---------------------------------------------------------------------------------------------------------------------------
Goldman Sachs $7,000,000 Receive 3-Month USD-LIBOR 4.563% Semi-Annually 9/29/10 $ 94,290
Goldman Sachs 1,500,000 Receive 3-Month USD-LIBOR 5.278 Semi-Annually 12/09/35 112,947
Goldman Sachs 8,700,000 Receive 3-Month USD-LIBOR 5.788 Semi-Annually 6/02/36 36,474
JPMorgan 1,300,000 Receive 3-Month USD-LIBOR 4.962 Semi-Annually 7/27/35 139,220
JPMorgan 1,500,000 Receive 3-Month USD-LIBOR 5.436 Semi-Annually 9/11/36 60,349
Morgan Stanley 3,000,000 Receive 3-Month USD-LIBOR 4.590 Semi-Annually 7/15/15 167,306
Morgan Stanley 2,000,000 Receive 3-Month USD-LIBOR 4.850 Semi-Annually 7/14/35 245,827
Morgan Stanley 4,000,000 Receive 3-Month USD-LIBOR 4.880 Semi-Annually 7/15/35 474,539
Morgan Stanley 1,750,000 Receive 3-Month USD-LIBOR 4.900 Semi-Annually 7/18/35 202,584
Morgan Stanley 1,700,000 Receive 3-Month USD-LIBOR 4.930 Semi-Annually 7/21/35 189,183
---------------------------------------------------------------------------------------------------------------------------
$ 1,722,719
===========================================================================================================================
</Table>
USD-LIBOR (United States Dollar -- London Inter-Bank Offered Rate)
10
<Table>
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public accounting firm):
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) Investment is eligible for the Dividends Received Deduction.
(4) Security has a floating rate coupon which is periodically reset based on a fixed
percentage rate above a predetermined index or benchmark. The coupon rate disclosed is
that in effect at the end of the reporting period.
N/R Not rated.
(MMB) Middle Market Bank.
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.
</Table>
See accompanying notes to financial statements.
11
Statement of
ASSETS AND LIABILITIES
June 30, 2007
<Table>
- ---------------------------------------------------------------------------
ASSETS
Investments, at value (cost $273,752,053) $275,360,929
Cash 620,397
Unrealized appreciation on interest rate swaps 1,722,719
Receivables:
Dividends 1,988,897
Interest 181,887
Investments sold 1,480,779
Other assets 11,032
- ---------------------------------------------------------------------------
Total assets 281,366,640
- ---------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 133,852
Other 84,263
FundPreferred share dividends payable 20,048
- ---------------------------------------------------------------------------
Total liabilities 238,162
- ---------------------------------------------------------------------------
FundPreferred shares, at liquidation value 78,000,000
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $203,128,478
===========================================================================
Common shares outstanding 13,857,647
===========================================================================
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 14.66
===========================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
- ---------------------------------------------------------------------------
Common shares, $.01 par value per share $ 138,576
Paid-in surplus 196,525,822
Undistributed (Over-distribution of) net investment income 2,278,776
Accumulated net realized gain (loss) from investments and
derivative transactions 853,709
Net unrealized appreciation (depreciation) of investments
and derivative transactions 3,331,595
- ---------------------------------------------------------------------------
Net assets applicable to Common shares $203,128,478
===========================================================================
Authorized shares:
Common Unlimited
FundPreferred Unlimited
===========================================================================
</Table>
See accompanying notes to financial statements.
12
Statement of
OPERATIONS
<Table>
<Caption>
FOR THE ELEVEN
MONTHS ENDED YEAR ENDED
6/30/07 7/31/06
- ------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 17,794,779 $14,563,638
Interest 1,259,263 2,696,668
- ------------------------------------------------------------------------------------------------
Total investment income 19,054,042 17,260,306
- ------------------------------------------------------------------------------------------------
EXPENSES
Management fees 2,269,670 2,450,288
FundPreferred shares - auction fees 178,440 193,539
FundPreferred shares - dividend disbursing agent fees 6,661 6,454
Shareholders' servicing agent fees and expenses 31 188
Custodian's fees and expenses 56,312 79,603
Trustees' fees and expenses 6,685 5,319
Professional fees 35,102 22,605
Shareholders' reports - printing and mailing expenses 44,950 43,045
Stock exchange listing fees 8,895 5,705
Investor relations expense 32,847 33,305
Other expenses 30,406 14,897
- ------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 2,669,999 2,854,948
Custodian fee credit (5,206) (4,153)
Expense reimbursement (769,904) (821,618)
- ------------------------------------------------------------------------------------------------
Net expenses 1,894,889 2,029,177
- ------------------------------------------------------------------------------------------------
Net investment income 17,159,153 15,231,129
- ------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 1,499,764 (710,382)
Net realized gain (loss) from interest rate swaps 535,578 1,078,190
Change in net unrealized appreciation (depreciation) of
investments 97,903 1,602,977
Change in net unrealized appreciation (depreciation) of
interest rate swaps (327,337) 1,696,446
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 1,805,908 3,667,231
- ------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (3,258,329) (3,128,299)
From accumulated net realized gains (207,567) --
- ------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to FundPreferred shareholders (3,465,896) --
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $ 15,499,165 $15,770,061
================================================================================================
</Table>
See accompanying notes to financial statements.
13
Statement of
CHANGES in NET ASSETS
<Table>
<Caption>
FOR THE PERIOD
3/28/05
(COMMENCEMENT
FOR THE ELEVEN OF OPERATIONS)
MONTHS ENDED YEAR ENDED THROUGH
6/30/07 7/31/06 7/31/05
- ----------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 17,159,153 $ 15,231,129 $ 2,100,016
Net realized gain (loss) from investments 1,499,764 (710,382) 16,702
Net realized gain (loss) from interest rate swaps 535,578 1,078,190 8,000
Change in net unrealized appreciation (depreciation) of
investments 97,903 1,602,977 (92,004)
Change in net unrealized appreciation (depreciation) of
interest rate swaps (327,337) 1,696,446 353,610
Distributions to FundPreferred shareholders:
From net investment income (3,258,329) (3,128,299) (426,009)
From accumulated net realized gains (207,567) -- --
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 15,499,165 15,770,061 1,960,315
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (12,079,037) (11,067,348) (2,721,198)
From accumulated net realized gains (735,515) -- --
- ----------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Common shareholders (12,814,552) (11,067,348) (2,721,198)
- ----------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares and offering cost
adjustments, net -- 25,050 197,181,325
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 89,558 -- 134,336
FundPreferred shares offering costs and adjustments, net -- (18,509) (1,010,000)
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 89,558 6,541 196,305,661
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares 2,774,171 4,709,254 195,544,778
Net assets applicable to Common shares at the beginning of
period 200,354,307 195,645,053 100,275
- ----------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $203,128,478 $200,354,307 $ 195,645,053
================================================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ 2,278,776 $ (11,571) $ (1,047,053)
================================================================================================================
</Table>
See accompanying notes to financial statements.
14
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Tax-Advantaged Floating Rate 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 "JFP". The Fund was organized
as a Massachusetts business trust on December 29, 2004.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,275 by Nuveen Asset Management (the "Adviser"), a wholly owned subsidiary
of Nuveen Investments, Inc. ("Nuveen"), the recording of the organization
expenses ($13,500) and their reimbursement by Nuveen Investments, LLC, also a
wholly owned subsidiary of Nuveen.
The Fund's primary investment objective is to provide an attractive level of
after-tax current income. The Fund's secondary investment objective is capital
preservation. The Fund intends to pursue its investment objectives by investing
primarily in adjustable rate securities that are eligible to pay dividends
consisting primarily of tax-advantaged dividend income.
The Fund expects that substantially all of its portfolio of investments will be
comprised of securities issued by banking companies and other financial
institutions which may make the Fund more susceptible to adverse economic or
regulatory occurrences affecting these institutions. The Fund's concentration of
investments in these institutions includes the risk that banking companies and
other financial institutions may themselves have concentrated portfolios,
changes in interest rates or competition could affect their profitability, and
there could be increased costs or setbacks due to changes in the regulatory and
financial reporting requirements under which they operate.
In February 2007, the Board of Trustees of the Fund approved a change in the
Fund's fiscal year end from July 31 to June 30.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
The prices of preferred stocks issued by middle market and major banking
companies and other securities in the Fund's investment portfolio are generally
provided by one or more independent pricing services approved by the Fund's
Board of Trustees. The pricing services typically value exchange-listed
securities at the last sales price on that day; and value securities traded in
the over-the-counter market at the mean of the last bona fide bid and bona fide
ask prices when current quotations are readily available. The pricing services
may value preferred stocks issued by middle market and major banking companies
and other securities for which current quotations are not readily available at
fair value using a wide range of market data and other information and analysis,
including the obligor's credit characteristics considered relevant by such
pricing service to determine valuations. The Board of Trustees of the Fund has
approved procedures which permit the Adviser, to determine the fair value of
investments for which the applicable pricing service or services is not
providing a price, using market data and other factors such as the obligor's
credit characteristics. The Fund may engage an independent appraiser to
periodically provide an independent determination of fair value of the preferred
stocks issued by middle market banks. The prices of fixed-income securities and
derivative instruments 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 Funds, 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 the pricing service is unable to supply a price for a fixed-income or
derivative investment the Fund may use a market quote provided by a major
broker/dealer in such investments. If it is determined that the market price for
an investment is unavailable or inappropriate, the Board of Trustees of the
Funds, 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 preferred stocks issued by middle market and major banking companies in
which the Fund invests are generally not listed on an organized exchange and the
secondary market for such investments may be less liquid relative to markets for
other securities. Consequently, the value of preferred stocks issued by middle
market and major banking companies, determined as described above, may differ
significantly from the value that would have been determined had there been an
active market for that preferred stock.
15
Notes to
FINANCIAL STATEMENTS (continued)
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. 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.
Federal Income Taxes
The Fund intends to distribute substantially all net investment income and net
capital gains, if any, to shareholders and to otherwise comply with the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies. Therefore, no federal income tax provision is
required.
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
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
The Fund declares monthly distributions to Common shareholders. Net realized
capital gains from investment transactions, if any, are distributed to
shareholders not less frequently than annually. Furthermore, capital gains are
distributed only to the extent they exceed available capital loss carryforwards.
FundPreferred Shares
The Fund has issued and outstanding 3,120 Series Th 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.
Interest Rate Swap Transactions
The Fund is authorized to invest in certain derivative financial instruments.
The Fund's use of interest rate swap transactions is intended to synthetically
convert certain Fund positions in fixed-rate securities effectively into
adjustable rate instruments and thereby shorten the average interest rate reset
time and duration of the Fund's portfolio of investments. Interest rate swap
transactions involve the Fund's agreement with the counterparty to pay a
semiannual fixed rate payment in exchange for the counterparty paying the Fund a
quarterly variable rate payment. The amount of payment obligation is based on
the notional amount of the interest rate swap contract. Interest rate swaps do
not involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of loss with respect to the swap counterparty on such
transactions is limited to the net amount of interest payments that the Fund is
to receive. Interest rate swap positions are valued daily. The Fund accrues the
fixed rate payment expected to be paid and the variable rate payment expected to
be received on interest rate swap contracts on a daily basis, and for the daily
changes in the market value of the Fund's contractual rights and obligations
under the contracts, with the net amount recorded within net unrealized
appreciation (depreciation) on interest rate swaps on the Statement of Assets
and Liabilities. Once periodic payments are settled in cash, the net amount is
recorded as net realized gain (loss) from interest rate swaps, in addition to
net realized gain (loss) recorded upon the termination of interest rate swap
contracts on the Statement of Operations. For tax purposes, periodic payments
are treated as ordinary income or expense. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Fund helps manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties. In addition, all counterparties are
required to pledge collateral daily (based on the daily valuation of each swap)
on behalf of the Fund with a value approximately equal to the amount of any
unrealized gain above a pre-determined threshold. Reciprocally, when the Fund
has an unrealized loss on a swap contract, the Fund has instructed the custodian
to pledge assets of the Fund as collateral with a value approximately equal to
the amount of the unrealized loss above a pre-determined threshold. Collateral
pledges are monitored and subsequently adjusted if and when the interest rate
swap valuations fluctuate, either up or down, by at least the pre-determined
threshold amount.
16
Organization, Offering Costs and Fund Structuring Fee
Nuveen Investments, LLC agreed to reimburse all organization expenses
(approximately $13,500) and pay all Common share offering costs (other than the
sales load and fund structuring fee) that exceeded $.03 per Common share. The
Fund's share of Common share offering costs ($390,000) and fund structuring fee
($590,000) were recorded as reductions of the proceeds from the sale of Common
shares. Costs incurred by the Fund in connection with its offering of
FundPreferred shares ($1,028,509) were recorded as a reduction to paid-in
surplus.
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 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.
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 and FundPreferred shares were as follows:
<Table>
<Caption>
FOR THE PERIOD
3/28/05
FOR THE (COMMENCEMENT
ELEVEN MONTHS YEAR OF OPERATIONS)
ENDED ENDED THROUGH
6/30/07 7/31/06 7/31/05
- ---------------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- -- 13,835,000
Shares issued to shareholders due to reinvestment of
distributions 6,147 -- 9,500
- ---------------------------------------------------------------------------------------------------------------
6,147 -- 13,844,500
- ---------------------------------------------------------------------------------------------------------------
FundPreferred shares sold -- -- 3,120
- ---------------------------------------------------------------------------------------------------------------
</Table>
3. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short-term investments and derivative
transactions) for the eleven months ended June 30, 2007, aggregated $77,252,495
and $78,250,662, 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 recognition of premium amortization on debt securities, 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,
17
Notes to
FINANCIAL STATEMENTS (continued)
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 owned was $273,765,962.
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2007, were as follows:
<Table>
- -----------------------------------------------------------------------------------
Gross unrealized:
Appreciation $4,746,409
Depreciation (3,151,442)
- -----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $1,594,967
- -----------------------------------------------------------------------------------
</Table>
The tax components of undistributed net ordinary income and net long-term
capital gains at June 30, 2007, the Fund's tax year end, were as follows:
<Table>
- -----------------------------------------------------------------------------------
Undistributed net ordinary income * $3,239,042
Undistributed net long-term capital gains 867,617
- -----------------------------------------------------------------------------------
</Table>
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any. Undistributed net ordinary
income (on a tax basis) has not been reduced for the dividend declared on June
1, 2007, paid on July 2, 2007.
The tax character of distributions paid during the Fund's tax years ended June
30, 2007 and June 30, 2006, was designated for purposes of the dividends paid
deduction as follows:
<Table>
<Caption>
2007
- -----------------------------------------------------------------------------------
Distributions from net ordinary income * $17,141,011
Distributions from net long-term capital gains ** 248,510
- -----------------------------------------------------------------------------------
</Table>
<Table>
<Caption>
2006
- -----------------------------------------------------------------------------------
Distributions from net ordinary income * $13,943,288
Distributions from 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.
** The Funds hereby designate these amounts paid during the fiscal year ended
June 30, 2007, as long-term capital gain dividends pursuant to Internal
Revenue Code Section 852(b)(3).
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 the
Adviser, 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>
18
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>
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 a Sub-Advisory Agreement with Spectrum Asset Management, Inc. ("Spectrum"),
under which Spectrum manages the investment portfolio of the Fund. Spectrum is
compensated for its services to the Fund from the management fee paid to the
Adviser. Spectrum also receives compensation on certain portfolio transactions
for providing brokerage services to the Fund.
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.
19
Notes to
FINANCIAL STATEMENTS (continued)
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
MARCH 31, MARCH 31,
- -----------------------------------------------------------------------------------------------------
2005 * .30% 2010 .30%
2006 .30 2011 .22
2007 .30 2012 .14
2008 .30 2013 .07
2009 .30
- -----------------------------------------------------------------------------------------------------
</Table>
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond March 31, 2013.
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 team 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 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 each Fund and
the Adviser, and will result in the automatic termination of each 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 management
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. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48).
FIN 48 provides guidance for 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. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Recent SEC guidance allows funds
to delay implementing FIN 48 into NAV calculations until the fund's last NAV
calculation in the first required financial statement period. As a result, the
Fund must begin to incorporate FIN 48 into its NAV calculation by December 31,
2007. At this time, management is continuing to evaluate the implications of FIN
48 and does not expect the adoption of FIN 48 will have a significant 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
20
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.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Fund declared a $.0860 Common share dividend distribution from its net
investment income which was paid on August 1, 2007, to shareholders of record on
July 15, 2007.
21
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
<Table>
<Caption>
Investment Operations
---------------------------------------------------------------
Distributions
from Net Distributions
Beginning Investment from Capital
Common Net Income to Gains to
Share Net Realized/ FundPreferred FundPreferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain holders+ holders+ Total
- ----------------------------------------------------------------------------------------------------------------
Year Ended 6/30:
2007(c) $14.46 $1.24 $.14 $(.24) $(.02) $1.12
Year Ended 7/31:
2006 14.12 1.10 .27 (.23) -- 1.14
2005(b) 14.33 .15 .02 (.03) -- .14
- ----------------------------------------------------------------------------------------------------------------
<Caption>
Less Distributions
----------------------------- Offering Costs,
Fund
Net Structuring
Investment Capital Fee 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 6/30:
2007(c) $(.87) $(.05) $(.92) $ -- $14.66 $ 14.42
Year Ended 7/31:
2006 (.80) -- (.80) -- 14.46 13.18
2005(b) (.20) -- (.20) (.15) 14.12 13.42
- ----------------------------------
</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.
*** After custodian fee credit and expense reimbursement.
+ 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.
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period March 28, 2005 (commencement of operations) through July
31, 2005.
(c) For the eleven months ended June 30, 2007.
22
<Table>
<Caption>
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets Ratios to Average Net Assets
Applicable to Common Shares Applicable to Common Shares
Total Returns Before Credit/Reimbursement After 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
- ------------------------------------------------------------------------------------------------------------------
16.84% 7.98% $203,128 1.44%* 8.84%* 1.02%* 9.26%* 28%
4.52 8.28 200,354 1.45 7.29 1.03 7.71 38
(9.24) (.08) 195,645 1.26* 2.88* .90* 3.25* 19
- ------------------------------------------------------------------------------------------------------------------
<Caption>
FundPreferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
- ------------------------------------------------------------------------------------------------------------------
$78,000 $25,000 $90,105
78,000 25,000 89,216
78,000 25,000 87,707
- ---
</Table>
See accompanying notes to financial statements.
23
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 Agreement between NAM and Spectrum Asset Management, Inc.
(the "Sub-Adviser"). NAM and the Sub-Adviser are each a "Fund Adviser." The
foregoing Investment Management Agreement with NAM and Sub-Advisory Agreement
with the Sub-Adviser are hereafter referred to as the "Original Investment
Management Agreement" and the "Original Sub-Advisory Agreement," 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 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 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 a new
Sub-Advisory Agreement (the "New Sub-Advisory Agreement") between NAM and the
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 Agreement 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 an Interim
Sub-Advisory Agreement to take effect upon the closing of the Transaction if
shareholders have not yet approved the New Investment Management Agreement and
New Sub-Advisory Agreement.
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 Agreement, the Board considered the
foregoing as part of its deliberations of the New Investment Management
Agreement and New Sub-Advisory Agreement. 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
Agreement.
I. APPROVAL OF THE ORIGINAL INVESTMENT MANAGEMENT AGREEMENT AND ORIGINAL
SUB-ADVISORY AGREEMENT
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.
24
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 Agreement, 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.
25
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
With respect to the Sub-Adviser, the Board Members also received and reviewed an
evaluation of the Sub-Adviser from NAM at the annual review. Such evaluation
outlined, among other things, the 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 applicable Original Sub-Advisory
Agreement and considered the basis for such recommendations and any
qualifications in connection therewith. In its review of the Sub-Adviser, the
Board Members also considered, among other things, the experience of the
investment personnel, the quality of the 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.
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 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.
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;
26
- - 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-Adviser, the Board Members noted that the sub-advisory
agreement was essentially an agreement for portfolio management services only
and the Sub-Adviser was 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 Fund as well as 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
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 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
27
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
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
Nuveen Tax-Advantaged Total Return Strategy 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-Adviser, in considering the fees of the 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 sub-advisers unaffiliated
with Nuveen, such as the Sub-Adviser, the Board Members noted that such fees
were the result of arm's-length negotiations.
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 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
28
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. With respect to sub-advisers
unaffiliated with Nuveen, such as the Sub-Adviser, the Board Members also
considered the Sub-Adviser's revenues from serving as Sub-Adviser to the Fund,
expenses (including the basis for allocating expenses) and profitability margins
(pre- and post-tax). Based on their review, the Board Members were satisfied
that the respective Fund Adviser's level of profitability 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 Agreement -- 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 the Sub-Adviser, the Board noted that the Sub-Adviser does not
pay excess brokerage commissions in order to receive research services but may
from time to time receive research generally provided to a broker's clients.
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.
29
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
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
Agreement and Original Sub-Advisory Agreement 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 Agreement be renewed.
II. APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT AND NEW SUB-ADVISORY
AGREEMENT
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
Agreement. 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 Agreement 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 Agreement, the Independent Board Members, through their
independent legal counsel, also requested in writing and received 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;
30
- - 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
Agreement and many of the factors considered at such reviews were applicable to
their evaluation of the New Investment Management Agreement and New Sub-Advisory
Agreement. 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, facilities, organization and personnel of NAM and the
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 the New Sub-Advisory Agreement,
including fees payable thereunder, are substantially identical to those of the
Original Sub-Advisory Agreement relating to the Fund. The Board considered that
the services to be provided and the standard of care
31
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
under the New Investment Advisory Agreement and the New Sub-Advisory Agreement
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 the Sub-Adviser. The 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.
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 Agreement.
32
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 Agreement.
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
Agreement, 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 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-Adviser, the fees paid under the New Sub-Advisory
Agreement are the same as the Original Sub-Advisory Agreement. With respect to
sub-advisers unaffiliated with Nuveen, such as the Sub-Adviser, the Board
Members considered the Sub-Adviser's revenues from serving as Sub-Adviser to the
Fund, expenses (including the basis for allocating expenses) and profitability
margins (pre- and post-tax) at the annual review. The
33
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
Transaction is not anticipated to affect the profitability of the Sub-Adviser.
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).
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
34
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
Agreement (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 Agreement 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 Agreement
should be approved and recommended to shareholders.
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 Agreement. If necessary to assure
continuity of advisory services, the Interim Investment Management Agreement and
Interim Sub-Advisory Agreement will take effect upon the closing of the
Transaction if shareholders have not yet approved the New Investment Management
Agreement and New Sub-Advisory Agreement. The terms of the Interim Investment
Management Agreement and Interim Sub-Advisory Agreement are substantially
identical to those of the
35
Annual Investment
Management Agreement
APPROVAL PROCESS (continued)
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 Interim Sub-Advisory Agreement are at least equivalent to the
scope and quality of services provided under the Original Investment Management
Agreement and Original Sub-Advisory Agreement, respectively.
36
BOARD MEMBERS & OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Fund is currently set
at eight. None of the board members who are not "interested" persons of the
Funds has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS
AND ADDRESS THE FUNDS ELECTED OR PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
APPOINTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND TERM(2) DURING PAST 5 YEARS BOARD MEMBER
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
- - TIMOTHY R. SCHWERTFEGER(1)
3/28/49 Chairman of the Board 1994 Director and Chairman (since
333 W. Wacker Drive and Board Member ANNUAL 1996) and Non-Executive
Chicago, IL 60606 Chairman (since July 1, 2007)
formerly, Chief Executive
Officer (1996-June 30, 2007)
of Nuveen Investments, Inc.,
and Nuveen Asset Management 176
and certain other
subsidiaries of Nuveen
Investments, Inc.; formerly,
Director (1992-2006) of
Institutional Capital
Corporation.
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
- - ROBERT P. BREMNER
8/22/40 Lead Independent Board 1997 Private Investor and 176
333 W. Wacker Drive member CLASS III Management Consultant.
Chicago, IL 60606
- - JACK B. EVANS
10/22/48 1999 President, The Hall-Perrine
333 W. Wacker Drive Board member CLASS III Foundation, a private philan-
Chicago, IL 60606 thropic corporation (since
1996); Director and Vice
Chairman, United Fire Group,
a publicly held company;
Member of the Board of
Regents for the State of Iowa
University System; Director,
Gazette Companies; Life
Trustee of Coe College and
Iowa College Foundation; 176
Member of the Advisory
Council of the Department of
Finance in the Tippie College
of Business, University of
Iowa; formerly, Director,
Alliant Energy; formerly,
Director, Federal Reserve
Bank of Chicago; formerly,
President and Chief Operating
Officer, SCI Financial Group,
Inc., a regional financial
services firm.
- - WILLIAM C. HUNTER
3/6/48 2004 Dean, Tippie College of
333 W. Wacker Drive Board member CLASS II Business, University of Iowa
Chicago, IL 60606 (since July 2006); formerly,
Dean and Distinguished
Professor of Finance, School
of Business at the Univer-
sity of Connecticut
(2003-2006); previously,
Senior Vice President and 176
Director of Research at the
Federal Reserve Bank of
Chicago (1995-2003); Director
(since 1997), Credit Research
Center at Georgetown Univer-
sity; Director (since 2004)
of Xerox Corporation;
Director, SS&C Technologies,
Inc. (May 2005-October 2005).
</Table>
37
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH YEAR FIRST NUMBER OF PORTFOLIOS
AND ADDRESS THE FUNDS ELECTED OR PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
APPOINTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND TERM(2) DURING PAST 5 YEARS BOARD MEMBER
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
- - DAVID J. KUNDERT
10/28/42 2005 Director, Northwestern Mutual
333 W. Wacker Drive Board member CLASS II Wealth Management Company;
Chicago, IL 60606 Retired (since 2004) as
Chairman, JPMorgan Fleming
Asset Management, President
and CEO, Banc One Investment
Advisors Corporation, and
President, One Group Mutual
Funds; prior thereto,
Executive Vice President,
Banc One Corporation and 174
Chairman and CEO, Banc One
Investment Management Group;
Board of Regents, Luther
College; member of the
Wisconsin Bar Association;
member of Board of Directors,
Friends of Boerner Botanical
Gardens; member of Board of
Directors, Milwaukee
Repertory Theater.
- - WILLIAM J. SCHNEIDER
9/24/44 1997 Chairman of Miller-Valentine
333 W. Wacker Drive Board member ANNUAL Partners Ltd., a real estate
Chicago, IL 60606 investment company; formerly,
Senior Partner and Chief
Operating Officer (retired,
2004) of Miller-Valentine
Group; formerly, Vice
President, Miller-Valentine
Realty; Board Member, Chair
of the Finance Committee and
member of the Audit Committee
of Premier Health Partners,
the not-for-profit company of
Miami Valley Hospital; Vice 176
President, Dayton
Philharmonic Orchestra
Association; Board Member,
Regional Leaders Forum, which
promotes cooperation on
economic development issues;
Director, Dayton Development
Coalition; formerly, Member,
Community Advisory Board,
National City Bank, Dayton,
Ohio and Business Advisory
Council, Cleveland Federal
Reserve Bank.
- - JUDITH M. STOCKDALE
12/29/47 1997 Executive Director, Gaylord
333 W. Wacker Drive Board member CLASS I and Dorothy Donnelley
Chicago, IL 60606 Foundation (since 1994);
prior thereto, Executive 176
Director, Great Lakes
Protection Fund (from 1990 to
1994).
- - CAROLE E. STONE
6/28/47 2007 Director, Chicago Board
333 W. Wacker Drive Board member CLASS I Options Exchange (since
Chicago, IL 60606 2006); Chair New York Racing
Association Oversight Board
(since 2005); Commissioner,
New York State Commission on
Public Authority Reform
(since 2005); formerly 176
Director, New York State
Division of the Budget
(2000-2004), Chair, Public
Authorities Control Board
(2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
</Table>
38
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
AND ADDRESS THE FUNDS YEAR FIRST DURING PAST 5 YEARS IN FUND COMPLEX
ELECTED OR OVERSEEN BY
APPOINTED(4) OFFICER
OFFICERS OF THE FUND:
- - GIFFORD R. ZIMMERMAN
9/9/56 Chief Managing Director (since
333 W. Wacker Drive Administrative 1988 2002), Assistant
Chicago, IL 60606 Officer Secretary and Associate
General Counsel,
formerly, Vice President
and Assistant General
Counsel, of Nuveen
Investments, LLC;
Managing Director (since
2002) and Assistant
Secretary and Associate
General Counsel,
formerly, Vice President
(since 1997), of Nuveen
Asset Management;
Managing Director (since
2004) and Assistant
Secretary (since 1994) of
Nuveen Investments, Inc.;
Assistant Secretary of
NWQ Investment Management
Company, LLC. (since
2002); Vice President and
Assistant Secretary of 176
Nuveen Investments
Advisers Inc. (since
2002); Managing Director,
Associate General Counsel
and Assistant Secretary
of Rittenhouse Asset
Management, Inc.,
Symphony Asset Management
LLC (since 2003),
Tradewinds Global
Investors, LLC and Santa
Barbara Asset Management,
LLC; (since 2006);
formerly, Managing
Director (2002-2004),
General Counsel
(1998-2004) and Assistant
Secretary, formerly, Vice
President of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.(3); Chartered
Financial Analyst.
- - WILLIAMS ADAMS IV
6/9/55 Executive Vice President,
333 W. Wacker Drive Vice President 2007 U.S. Structured Products
Chicago, IL 60606 of Nuveen Investments,
LLC, (since 1999), prior 119
thereto, Managing
Director of Structured
Investments.
- - JULIA L. ANTONATOS
9/22/63 Managing Director (since
333 W. Wacker Drive Vice President 2004 2005), formerly Vice
Chicago, IL 60606 President (since 2002) of 176
Nuveen Investments, LLC;
Chartered Financial
Analyst.
- - CEDRIC H. ANTOSIEWICZ
1/11/62 Managing Director, (since
333 W. Wacker Drive Vice President 2007 2004) previously, Vice 119
Chicago, IL 60606 President (1993-2004) of
Nuveen Investments, LLC.
- - MICHAEL T. ATKINSON
2/3/66 Vice President and Vice President (since
333 W. Wacker Drive Assistant Secretary 2000 2002) of Nuveen 176
Chicago, IL 60606 Investments, LLC.
- - PETER H. D'ARRIGO
11/28/67 Vice President and
333 W. Wacker Drive Vice President 1999 Treasurer of Nuveen
Chicago, IL 60606 Investments, LLC and of
Nuveen Investments, Inc.
(since 1999); Vice
President and Treasurer
of Nuveen Asset
Management (since 2002)
and of Nuveen Investments
Advisers Inc. (since
2002); Assistant
Treasurer of NWQ
Investment Management
Company, LLC. (since
2002); Vice President and
Treasurer of Nuveen
Rittenhouse Asset 176
Management, Inc. (since
2003); Treasurer of
Symphony Asset Management
LLC (since 2003) and
Santa Barbara Asset
Management, LLC (since
2006); Assistant Trea-
surer, Tradewinds Global
Investors, LLC (since
2006); formerly, Vice
President and Treasurer
(1999-2004) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.(3); Chartered
Financial Analyst.
</Table>
39
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
AND ADDRESS THE FUNDS YEAR FIRST DURING PAST 5 YEARS IN FUND COMPLEX
ELECTED OR OVERSEEN BY
APPOINTED(4) OFFICER
OFFICERS OF THE FUND (CONTINUED):
- - LORNA C. FERGUSON
10/24/45 Managing Director (since
333 W. Wacker Drive Vice President 1998 2004), formerly, Vice
Chicago, IL 60606 President of Nuveen
Investments, LLC,
Managing Director (2004)
formerly, Vice President 176
(1998-2004) of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.(3); Managing
Director (since 2005) of
Nuveen Asset Management.
- - WILLIAM M. FITZGERALD
3/2/64 Managing Director (since
333 W. Wacker Drive Vice President 1995 2002), formerly, Vice
Chicago, IL 60606 President of Nuveen
Investments, LLC;
Managing Director (1997-
2004) of Nuveen Advisory
Corp. and Nuveen Institu-
tional Advisory Corp.(3); 176
Managing Director (since
2001) of Nuveen Asset
Management; Vice
President (since 2002) of
Nuveen Investments
Advisers Inc.; Chartered
Financial Analyst.
- - STEPHEN D. FOY
5/31/54 Vice President and Vice President (since
333 W. Wacker Drive Controller 1998 1993) and Funds
Chicago, IL 60606 Controller (since 1998)
of Nuveen Investments,
LLC; formerly, Vice 176
President and Funds
Controller (1998-2004) of
Nuveen Investments, Inc.;
Certified Public
Accountant.
- - WALTER M. KELLY
2/24/70 Chief Compliance Assistant Vice President
333 W. Wacker Drive Officer and 2003 and Assistant Secretary
Chicago, IL 60606 Vice President of the Nuveen Funds
(2003-2006); Vice
President (since 2006)
formerly, Assistant Vice
President and Assistant 176
General Counsel
(2003-2006) of Nuveen
Investments, LLC;
previously, Associate
(2001-2003) at the law
firm of Vedder, Price,
Kaufman & Kammholz.
- - DAVID J. LAMB
3/22/63 Vice President (since
333 W. Wacker Drive Vice President 2000 2000) of Nuveen
Chicago, IL 60606 Investments, LLC; 176
Certified Public
Accountant.
- - TINA M. LAZAR
8/27/61 Vice President of Nuveen
333 W. Wacker Drive Vice President 2002 Investments, LLC (since 176
Chicago, IL 60606 1999).
- - LARRY W. MARTIN
7/27/51 Vice President and Vice President, Assistant
333 W. Wacker Drive Assistant Secretary 1988 Secretary and Assistant
Chicago, IL 60606 General Counsel of Nuveen
Investments, LLC;
formerly, Vice President
and Assistant Secretary
of Nuveen Advisory Corp.
and Nuveen Institutional
Advisory Corp.(3); Vice
President (since 2005)
and Assistant Secretary
of Nuveen Investments,
Inc.; Vice President
(since 2005) and
Assistant Secretary
(since 1997) of Nuveen
Asset Management; Vice
President (since 2000), 176
Assistant Secretary and
Assistant General Counsel
(since 1998) of
Rittenhouse Asset
Management, Inc.; Vice
President and Assistant
Secretary of Nuveen
Investments Advisers Inc.
(since 2002); Assistant
Secretary of NWQ Invest-
ment Management Company,
LLC (since 2002),
Symphony Asset Management
LLC (since 2003) and
Tradewinds Global
Investors, LLC and Santa
Barbara Asset Management,
LLC (since 2006).
</Table>
40
<Table>
<Caption>
NAME, BIRTHDATE POSITION(S) HELD WITH PRINCIPAL OCCUPATION(S) NUMBER OF PORTFOLIOS
AND ADDRESS THE FUNDS YEAR FIRST DURING PAST 5 YEARS IN FUND COMPLEX
ELECTED OR OVERSEEN BY
APPOINTED(4) OFFICER
OFFICERS OF THE FUND (CONTINUED):
- - KEVIN J. MCCARTHY
3/26/66 Vice President and Vice President and
333 W. Wacker Drive Secretary 2007 Assistant General
Chicago, IL 60606 Counsel, Nuveen
Investments, Inc, (since
2007); Vice President,
Nuveen Investments, LLC
(since 2007); Vice
President and Assistant 176
Secretary, Nuveen Asset
Management and
Rittenhouse Asset
Management, Inc. (since
2007); prior thereto,
Partner, Bell, Boyd &
Lloyd LLP (1997-2007)
- - JOHN V. MILLER
4/10/67 Managing Director (since
333 W. Wacker Drive Vice President 2007 2007), formerly, Vice
Chicago, IL 60606 President (2002-2007) of
Nuveen Asset Management 176
and Nuveen Investments,
LLC; Chartered Financial
Analyst.
</Table>
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member of
the Adviser.
(2) Board Members serve three year terms, except for two board members who are
elected by the holders of Preferred Shares. The Board of Trustees is divided
into three classes, Class I, Class II, and Class III, with each being
elected to serve until the third succeeding annual shareholders' meeting
subsequent to its election or thereafter in each case when its respective
successors are duly elected or appointed, except two board members are
elected by the holders of Preferred Shares to serve until the next annual
shareholders' meeting subsequent to its election or thereafter in each case
when its respective successors are duly elected or appointed. The first year
elected or appointed represents the year in which the board member was first
elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
41
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.
42
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.
43
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.
44
NOTES
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.
Distribution Information
The Fund designates 90.94% of dividends declared from net investment income as
dividends qualifying for the 70% dividends received deduction for corporations
and 100% as qualified dividend income for individuals under the Jobs and Growth
Tax Relief Reconciliation Act of 2003.
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.
EAN-A-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.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. [There were no amendments to or waivers
from the Code during the period covered by this report.] The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Tax-Advantaged Floating Rate Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
Fiscal Year Ended to Fund (1) Billed to Fund (2) Billed to Fund (3) Billed to Fund (4)
===================================================================================================================
June 30, 2007 (5) $ 22,700 $ 0 $ 0 $ 1,650
- -------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- -------------------------------------------------------------------------------------------------------------------
=================================================================================
July 31, 2006 $ 21,500 $ 0 $ 800 $ 1,550
- -------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
- -------------------------------------------------------------------------------------------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for the audit of the Fund's annual
financial statements and services provided in connection with statutory and regulatory filings or engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and related services reasonably related to the
performance of the audit or review of financial statements and are not reported under "Audit Fees".
(3) "Tax Fees" are the aggregate fees billed for professional services for tax advice, tax compliance, and tax
planning.
(4) "All Other Fees" are the aggregate fees billed for products and services other than "Audit Fees", "Audit
Related Fees", and "Tax Fees".
(5) Fund changed fiscal year from July to June starting in 2007.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
<Table>
<Caption>
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS (1) SERVICE PROVIDERS
=========================================================================================================
June 30, 2007 (2) $ 0 $ 0 $ 0
- ---------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ---------------------------------------------------------------------------------------------------------
July 31, 2006 $ 0 $ 5,400 $ 0
- ---------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
- ---------------------------------------------------------------------------------------------------------
(1) The amounts reported for the Fund under the column heading "Tax Fees" represents amounts billed to
the Adviser exclusively for the preparation for the Fund's tax return, the cost of which is borne by the
Adviser. In the aggregate, for all Nuveen funds for which Ernst & Young LLP serves as independent
registered public accounting firm, these fees amounted to $161,400 in 2006. Beginning with fund fiscal
years ending August 31, 2006, Ernst & Young LLP will no longer prepare the fund tax returns.
(2) Fund changed fiscal year from July to June starting in 2007.
</Table>
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
related directly to the Affiliated Fund Service
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
=============================================================================================================================
June 30, 2007 (1) $ 1,650 $ 0 $ 0 $ 1,650
July 31, 2006 $ 2,350 $ 5,400 $ 0 $ 7,750
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax Fees" billed to Adviser in their respective
amounts from the previous table.
(1) Fund changed fiscal year from July to June starting in 2007.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Jack B. Evans, David J.
Kundert and William J. Schneider.
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.
The Adviser has engaged Spectrum Asset Management, Inc. ("Spectrum" or
"Sub-Adviser") as Sub-Adviser to provide discretionary investment advisory
services. As part of these services, the Adviser has also delegated to the
Sub-Adviser the full responsibility for proxy voting and related duties in
accordance with the Sub-Adviser's policy and procedures. The Adviser
periodically will monitor the Sub-Adviser's voting to ensure that they are
carrying out their duties. The Sub-Adviser's proxy voting policies and
procedures are summarized as follows:
Spectrum has adopted a Policy on Proxy Voting for Investment Advisory Clients
(the "Voting Policy"), which provides that Spectrum aims to ensure that, when
delegated proxy voting authority by a client, Spectrum acts (1) solely in the
interest of the client in providing for ultimate long-term stockholder value,
and (2) without undue influence from individuals or groups who may have an
economic interest in the outcome of a proxy vote. Spectrum relies on the
custodian bank to deliver proxies to Spectrum for voting.
Spectrum has selected Institutional Shareholder Services, Inc. ("ISS") to assist
with Spectrum's proxy voting responsibilities. Spectrum generally follows ISS
standard proxy voting guidelines which embody the positions and factors Spectrum
considers important in casting proxy votes. In connection with each proxy vote,
ISS prepares a written analysis and recommendation based on its guidelines. In
order to avoid any conflict of interest for ISS, the CCO will require ISS to
deliver additional information or certify that ISS has adopted policies and
procedures to detect and mitigate such conflicts of interest in issuing voting
recommendations. Spectrum also may obtain voting recommendations from two proxy
voting services as an additional check on the independence of ISS' voting
recommendations.
Spectrum may, on any particular proxy vote, diverge from ISS' guidelines or
recommendations. In such a case, Spectrum's Voting Policy requires that: (i) the
requesting party document the reason for the request; (ii) the approval of the
Chief Investment Officer; (iii) notification to appropriate compliance
personnel; (iv) a determination that the decision is not influenced by any
conflict of interest; and (v) a written record of the process.
When Spectrum determines not to follow ISS' guidelines or recommendations,
Spectrum classifies proxy voting issues into three broad categories: (1) Routine
Administrative Items; (2) Special Interest Issues; and (3) Issues having the
Potential for Significant Economic Impact, and casts proxy votes in accordance
with the philosophy and decision guidelines developed for that category in the
Voting Policy.
- Routine Administrative Items. Spectrum is willing to defer to
management on matters of a routine administrative nature. Examples of
issues on which Spectrum will normally defer to management's
recommendation include selection of auditors, increasing the
authorized number of common shares and the election of unopposed
directors.
- Special Interest Issues. In general, Spectrum will abstain from voting
on shareholder social, political, environmental proposals because
their long-term impact on share value cannot be calculated with any
reasonable degree of confidence.
- Issues Having the Potential for Significant Economic Impact. Spectrum
is not willing to defer to management on proposals which have the
potential for major economic impact on the corporation and value of
its shares and believes such issues should be carefully analyzed and
decided by shareholders. Examples of such issues are classification of
board of directors' cumulative voting and supermajority provisions,
defensive strategies (e.g., greenmail prevention), business
combinations and restructurings and executive and director
compensation.
Conflicts of Interest. There may be a material conflict of interest when
Spectrum votes, on behalf of a client, a proxy that is solicited by an
affiliated person of Spectrum or another Spectrum client. To avoid such
conflicts, Spectrum has established procedures under its Voting Policy to seek
to ensure that voting decisions are based on a client's best interests and are
not the product of a material conflict. In addition to employee monitoring for
potential conflicts, the CCO reviews Spectrum's and its affiliates' material
business relationships and personal and financial relationships of senior
personnel of Spectrum and its affiliates to monitor for conflicts of interest.
If a conflict of interest is identified, Spectrum considers both financial and
non-financial materiality to determine if a conflict of interest is material. If
a material conflict of interest is found to exist, the CCO discloses the
conflict to affected clients and obtains consent from each client in the manner
in which Spectrum proposed to vote.
Spectrum clients can obtain a copy of the Voting Policy or information on how
Spectrum voted their proxies by calling Spectrum's Compliance Department at
(203) 322-0189.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Spectrum Asset Management, Inc. (the "Sub-Adviser") as
sub-adviser to provide discretionary investment advisory services. The following
section provides information on the portfolio managers at the Sub-Adviser.
A. PORTFOLIO MANAGER BIOGRAPHIES:
MARK A. LIEB - Mr. Lieb is Chief Financial Officer and is responsible for
business development. Prior to founding Spectrum in 1987, Mr. Lieb was a
Founder, Director and Partner of DBL Preferred Management, Inc., a wholly owned
corporate cash management subsidiary of Drexel Burnham Lambert, Inc. Mr. Lieb
was instrumental in the formation and development of all aspects of DBL
Preferred Management, Inc., including the daily management of preferred stock
portfolios for institutional clients, hedging strategies, and marketing
strategies. Mr. Lieb's prior employment included the development of the
preferred stock trading desk at Mosley Hallgarten & Estabrook. BA Economics,
Central Connecticut State College; MBA Finance, University of Hartford.
L. PHILLIP JACOBY, IV -- Managing Director and Portfolio Manager. Mr. Jacoby
joined Spectrum in 1995. From 1989-1995, Mr. Jacoby was a Senior Investment
Officer at USL Capital Corporation (a subsidiary of Ford Motor Corporation) and
was co-portfolio manager of a $600 million preferred stock portfolio. Mr. Jacoby
was a trader and portfolio manager at Northern Trust Company (1982-1983) and
Vice President of Institutional Sales, E.F. Hutton (1983-1987). BS Business
Administration & Finance, Boston University. NASD Series 55 "Equity Trader
Limited Representative".
BERNARD M. SUSSMAN - Mr. Sussman is Chief Investment Officer and Chairman of
Spectrum's Investment Committee. Prior to joining Spectrum in 1995, Mr. Sussman
was with Goldman Sachs & Co. for nearly 18 years. A General Partner and head of
the Preferred Stock Department, he was in charge of sales, trading and
underwriting for all preferred products and was instrumental in the development
of the hybrid (MIPS) market. He was a Limited Partner at Goldman Sachs from
December 1994 through November 1996. BS Industrial Relations and MBA Finance,
Cornell University. NASD Series 55 "Equity Trader Limited Representative".
B. OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
TYPE OF ACCOUNT NUMBER OF
PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS*
- --------------------------------------------------------------------------------------------
Phillip Jacoby Separately Managed accounts 33 $2,495,576,991
Pooled Accounts 16 $2,766,938,907
Registered Investment Vehicles 8 $7,848,204,575
Mark Lieb Separately Managed accounts 42 $2,504,956,682
Pooled Accounts 16 $2,766,938,907
Registered Investment Vehicles 8 $7,848,204,575
Bernard Sussman Separately Managed accounts 37 $2,502,235,091
Pooled Accounts 16 $2,766,938,907
Registered Investment Vehicles 8 $7,848,204,575
C. POTENTIAL MATERIAL CONFLICTS OF INTEREST
There are no material conflicts of interest to report.
D. FUND MANAGER COMPENSATION
All employees of Spectrum Asset Management are paid a base salary and
discretionary bonus. The bonus is paid quarterly and may represent a significant
proportion of an individual's total annual compensation. Discretionary bonuses
are determined by management after consideration of several factors including
but not necessarily limited to:
- Changes in overall firm assets under management (employees have no
direct incentive to increase assets)
- Portfolio performance relative to benchmarks
- Contribution to client servicing
- Compliance with firm and/or regulatory policies and procedures
- Work ethic
- Seniority and length of service
- Contribution to overall functioning of organization
E. OWNERSHIP OF JFP SECURITIES AS OF JUNE 30, 2007
<Table>
<Caption>
- ----------------------------------------------------------------------
DOLLAR RANGE OF EQUITY SECURITIES
NAME OF PORTFOLIO MANAGER BENEFICIALLY OWNED IN FUND
- ----------------------------------------------------------------------
Phillip Jacoby $0
- ----------------------------------------------------------------------
Mark Lieb $0
- ----------------------------------------------------------------------
Bernard Sussman $10,001 - $50,000
- ----------------------------------------------------------------------
</Table>
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.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Tax-Advantaged Floating Rate 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.