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 811-06384 --------------------- Nuveen Texas Quality Income Municipal 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: July 31 ------------------ Date of reporting period: July 31, 2009 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. LOGO: NUVEEN INVESTMENTS Closed-End Funds Nuveen Investments Municipal Closed-End Funds IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) Annual Report July 31, 2009 -------------------- -------------------- -------------------- NUVEEN ARIZONA NUVEEN ARIZONA NUVEEN ARIZONA PREMIUM INCOME DIVIDEND ADVANTAGE DIVIDEND ADVANTAGE MUNICIPAL FUND, INC. MUNICIPAL FUND MUNICIPAL FUND 2 NAZ NFZ NKR -------------------- -------------------- NUVEEN ARIZONA NUVEEN TEXAS DIVIDEND ADVANTAGE QUALITY INCOME MUNICIPAL FUND 3 MUNICIPAL FUND NXE NTX JULY 09 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! WWW.INVESTORDELIVERY.COM If you receive your Nuveen Fund dividends and statements from your financial advisor or brokerage account. OR WWW.NUVEEN.COM/ACCOUNTACCESS If you receive your Nuveen Fund dividends and statements directly from Nuveen. LOGO: NUVEEN INVESTMENTS Chairman's Letter to Shareholders [PHOTO OF ROBERT P. BREMNER] DEAR SHAREHOLDER, The financial markets in which your Funds operate continue to reflect the larger economic crosscurrents. The illiquidity that infected global credit markets over the last year appears to be slowly but steadily receding. The major institutions that are the linchpin of the international financial system are strengthening their capital structures, but many still struggle with losses in their various portfolios. There are encouraging signs of recovery in European and Asian economies, while the U.S. economy continues to feel the impact of job losses and an over-borrowed consumer. Global trends include modestly increasing trade and increased concern about the ability of the U.S. government to address its substantial budgetary deficits. Identifying those developments that will define the future is never easy, but rarely is it more difficult than at present. After considerable volatility in the first few months of 2009, both the fixed-income and equity markets have seen a partial recovery. A fundamental component of a successful long-term investment program is a commitment to remain invested during market downturns in order to share in the rewards of the inevitable recovery. Another component is to re-evaluate investment disciplines and tactics and to confirm their validity following periods of extreme volatility and market dislocation, such as we have recently experienced. Your Board carried out an intensive review of investment performance with these objectives in mind during April and May of this year as part of the annual management contract renewal process. I encourage you to read the description of this process in the Annual Investment Management Agreement Approval Process section of this report. Remaining invested through market downturns and reconfirming the appropriateness of a long term investment strategy is as important for our shareholders as it is for professional investment managers. For that reason, I again encourage you to remain in communication with your financial consultant on these subjects. For recent developments on all your Nuveen Funds, please visit the Nuveen web site: www.nuveen.com. Nuveen remains committed to resolving the issues connected with outstanding auction rate preferred shares. In September 2009, Nuveen completed the refinancing at par of all the auction rate preferred shares issued by its taxable closed-end funds that were outstanding when the preferred auctions began to fail in the February 2008. For a variety of reasons, refinancing the outstanding preferred shares issued by the municipal closed-end funds is taking longer but Nuveen is diligently pursuing a range of options to accomplish this. Please consult the Nuveen web site for the most recent information about the redemption of MuniPreferred shares. On behalf of the other members of your Fund's Board, we look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/ Robert P. Bremner ----------------------------------- Robert P. Bremner Chairman of the Board September 21,2009 Nuveen Investments 3 Portfolio Managers' Comments Nuveen Arizona Premium Income Municipal Fund (NAZ) Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) Nuveen Texas Quality Income Municipal Fund (NTX) Portfolio managers Scott Romans and Daniel Close discuss economic and municipal market conditions at both the national and state levels, key investment strategies, and the twelve-month performance of these Funds. Scott, who has been with Nuveen since 2000, has managed the Arizona Funds since 2003. Dan, who joined Nuveen in 2000, assumed portfolio management responsibility for NTX in 2007. WHAT FACTORS AFFECTED THE U.S. ECONOMIC AND MUNICIPAL MARKET ENVIRONMENTS DURING THE TWELVE-MONTH REPORTING PERIOD ENDED JULY 31, 2009? During this reporting period, downward pressure on the economy continued. In an effort to improve overall economic conditions, the Federal Reserve (Fed) continued to cut interest rates, lowering the fed funds rate from 2.00% on August 1, 2008, to a target range of zero to 0.25% in December 2008, its lowest level on record. In March 2009, the Fed announced that, in addition to maintaining the current target rate, it would buy $300 billion in long-term Treasury securities in an effort to support private credit markets and up to an additional $750 billion (for a total of $1.25 trillion) in agency mortgage-backed securities to bolster the housing market. (At its August 2009 meeting, following the end of this reporting period, the Fed continued to keep the fed funds rate unchanged.) Additionally, the federal government passed a $700 billion financial industry rescue package in October 2008, which was followed by a $787 billion stimulus package in February 2009. The Fed's efforts and the stimulus package were in part a response to the decline in U.S. economic growth, as measured by the U.S. gross domestic product (GDP). Over the four quarters ended June 30, 2009, the GDP experienced its longest decline since quarterly records began in 1947 and the worst recession in 50 years. While housing prices provided something of a bright spot in May and June 2009 by posting their first positive monthly returns after three years of decline, the depth of the housing slump continued to be a source of concern. The average home price fell 14.9% nationally over the twelve-month period ended June 2009, pushing home values to early 2003 CERTAIN STATEMENTS IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS. DISCUSSIONS OF SPECIFIC INVESTMENTS ARE FOR ILLUSTRATION ONLY AND ARE NOT INTENDED AS RECOMMENDATIONS OF INDIVIDUAL INVESTMENTS. THE FORWARD-LOOKING STATEMENTS AND OTHER VIEWS EXPRESSED HEREIN ARE THOSE OF THE PORTFOLIO MANAGERS AS OF THE DATE OF THIS REPORT. ACTUAL FUTURE RESULTS OR OCCURRENCES MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED IN ANY FORWARD-LOOKING STATEMENTS AND THE VIEWS EXPRESSED HEREIN ARE SUBJECT TO CHANGE AT ANY TIME, DUE TO NUMEROUS MARKET AND OTHER FACTORS. THE FUNDS DISCLAIM ANY OBLIGATION TO UPDATE PUBLICLY OR REVISE ANY FORWARD-LOOKING STATEMENTS OR VIEWS EXPRESSED HEREIN. 4 Nuveen Investments levels. In the labor markets, July 2009 marked the 19th consecutive month of job losses, with a total of 6.7 million jobs lost since the recession began in December 2007. The national unemployment rate for July 2009 was 9.4%, up from 5.8% in July 2008. At the same time, inflation remained subdued, as the Consumer Price Index (CPI), reflecting a 28% drop in energy prices, fell 2.1% year-over-year as of July 2009, the largest twelve-month decline since 1950. The core CPI (which excludes food and energy) rose 1.5% over this same period, within the Fed's unofficial objective of 2.0% or lower for this measure. During this period, the nation's financial institutions and markets experienced significant turmoil and reductions in demand for many types of securities, which decreased valuations. In the municipal market, this negative impact was felt across all credit ratings, reducing the net asset values of municipal bond funds. In addition, some of the dealer firms that make markets in bonds were unwilling to commit capital to purchase bonds or continue serving as dealers. The reduction in dealer involvement was accompanied by significant selling pressure by investors, especially institutions, predominantly related to lower-rated municipal bonds. Municipal bond prices were further negatively impacted by concerns that a supply overhang (such as a large backlog of new issues that had been postponed) would cause selling pressure to persist. Additionally, greater price volatility, including wider credit spreads (i.e., lower quality bonds fell in price more than higher quality bonds); greatly reduced liquidity, particularly for lower quality bonds. Market conditions began to show general signs of improvement in mid-December 2008, and municipal bonds were on an improving trend during the first seven months of 2009. Another positive impact was the reduced supply of tax-exempt municipal debt available in the marketplace, in part because of the introduction of "Build America" bonds in April 2009. This new class of taxable municipal debt--created as part of the February 2009 economic stimulus package--provides municipal issuers with a federal subsidy equal to 35% of the security's interest payments. For many borrowers, these bonds offered an attractive alternative to issuing traditional tax-exempt debt. The Build America bond program got off to a quick start, effectively diverting high-grade tax-exempt new-issue supply into the taxable market. Therefore, a combination of lower issuance along with higher demand provided additional support for municipal bond prices. Over the twelve months ended July 31, 2009, municipal bond issuance nationwide totaled $389.2 billion, a drop of approximately 16% compared with the twelve-month period ended July 31, 2008. While market conditions during this period impacted the demand for municipal bonds, investors, especially from the retail sector, continued to be attracted by the high tax-equivalent yields of the municipal bond market relative to taxable bonds. Nuveen Investments 5 HOW WERE THE ECONOMIC AND MARKET ENVIRONMENTS IN ARIZONA AND TEXAS DURING THIS PERIOD? Arizona, which had been experiencing one of the largest economic booms in the country, is now undergoing one of the biggest declines. In terms of GDP by state, growth in Arizona has fallen off dramatically ranking it 43rd in 2008. For 2008, Arizona's economy contracted at a rate of 0.6%, compared with national average growth of 0.7%. Much of this downturn can be tied to the housing decline, a major slowdown in the state's construction industry, and reduced demand in sectors such as leisure and hospitality. Arizona's unemployment rate for July 2009 was 9.2%, the highest in 26 years, up from 5.7% in July 2008. As of July 2009, Moody's maintained its issuer credit rating for Arizona at Aa3 with a stable outlook, while Standard & Poor's (S&P) rated the state at AA with a stable outlook. For the twelve months ended July 31, 2009, municipal issuance in Arizona totaled $8.9 billion, down approximately 10% from the previous twelve months. Although growth of the Texas economy has slowed as the national recession deepened, the state ranked eleventh in the nation in terms of GDP by state for 2008, with an economic growth rate of 2.0%, compared with the national average of 0.7%. In 2007, Texas ranked fourth in GDP by state. Fluctuations in the energy industry accounted for a large part of the variations in state GDP, while weakness in the high-tech sector also had an impact on growth. Although mainly resource-based, the Texas economy remained well diversified, including agriculture, services, and transportation, which continued to benefit from the North American Free Trade Agreement (NAFTA) and its impact on cross-border trade. While unemployment in Texas rose over the past twelve months, from 4.9% in July 2008 to 7.9% in July 2009, the state's growth helped to hold the jobless rate below the national average. As of July 31, 2009, Moody's and Fitch maintained their ratings on Texas-backed general obligation (GO) debt at Aa1 and AA+, respectively. On August 13, 2009, following the end of this reporting period, Standard & Poor's (S&P) raised Texas's GO credit rating to AA+ from AA based on the diversity and strength of the state's economy. For the twelve months ended July 31, 2009, municipal issuance in Texas totaled $36.5 billion. Although this represented a decrease of 18% from the previous twelve months, Texas ranked as the third largest state issuer behind California and New York. WHAT KEY STRATEGIES WERE USED TO MANAGE THE ARIZONA AND TEXAS FUNDS DURING THIS REPORTING PERIOD? During this twelve-month period, as the municipal market remained under pressure from price volatility, reduced liquidity and fundamental economic concerns, we continued to focus on liquidity and on finding securities that offered relative value and attractive long-term potential. In view of the relatively volatile market situation over the period, we believed that it was important to focus on managing and preserving liquidity. While this was particularly true 6 Nuveen Investments during the fall of 2008, liquidity continued to be a dominant issue throughout the period. Overall, our objective in the Arizona funds was to position them somewhat more defensively by retaining slightly more cash than usual in order to improve the Funds' liquidity profiles and have the capital we needed to reinvest at opportune times. On the whole, investment activity in the Arizona Funds was somewhat more limited than usual, as we took a more conservative approach during this period of unprecedented stress. The lower level of turnover was due in part to our efforts to preserve liquidity as well as a reaction to the availability of municipal supply, as overall economic conditions produced several quiet stretches on the issuance calendar. The Build America bond program also contributed to the reduction in new tax-exempt municipal issuance. However, this was also a period when market conditions created opportunities to add names we liked, at significantly discounted prices or at wider spreads. Supply was especially plentiful in the health care sector, due to the fact that hospitals do not qualify for the Build America program and must continue to issue bonds in the tax-exempt municipal market. In some cases, we sold bonds that we judged to be good sell candidates because of their liquidity and performance, such as water revenue bonds, and reinvested the proceeds in bonds with more attractive characteristics in other sectors, including health care. In NTX, many of our purchases were also driven by opportunities created by market conditions, particularly during late 2008 and early 2009. We sought to capitalize on this environment by continuing to take a bottom-up approach to discovering undervalued sectors and individual credits with the potential to perform well over the long term. Our purchases during the period included uninsured health care, general obligation, transit, utilities and dedicated tax bonds. In general, our emphasis was on adding bonds with longer maturities to take advantage of the spreads offered by the extremely steep yield curve. In addition to the selling in the Arizona Funds mentioned above, cash for new purchases during this period was largely generated by bond calls in all of these Funds. In the Arizona Funds, these calls typically involved community facilities district (CFD) bonds, also known as "dirt deals," and federally guaranteed housing credits. In NTX, we also closed out our position in a lower-rated health care bond that was not performing in line with our expectations. During the last part of this period, we added new inverse floating rate securities1 to all the Funds as a form of leverage. We employ inverse floaters for a variety of reasons, including duration(2) management and income enhancement. At the beginning of the period, NTX also invested in additional types of derivative instruments to help manage its duration. These derivatives were removed in September 2008. Because of the short time they were in place, all of the derivative positions used by the Funds during this period had a negligible impact on performance. (1) An inverse floating rate security, also know as inverse floaters, is a financial instrument designed to pay long-term tax-exempt interest at a rate that varies inversely with a short-term tax-exempt interest rate index. For the Nuveen Funds, the index typically used is the Securities Industry and Financial Markets (SIFM) Municipal Swap Index (previously referred to as the Bond Market Association Index or BMA). Inverse floaters, including those inverse floating rate securities in which the Funds invested during the reporting period, are further defined within the Notes to Financial Statements and Glossary of Terms Used in this Report sections of this shareholder report. (2) Duration is a measure of a bond's price sensitivity as interest rates change, with longer duration bonds displaying more sensitivity to these changes than bonds with shorter durations. Nuveen Investments 7 HOW DID THE FUNDS PERFORM? Individual results for these Funds, as well as relevant index and peer group information, are presented in the accompanying table. AVERAGE ANNUAL TOTAL RETURNS ON COMMON SHARE NET ASSET VALUE FOR PERIODS ENDED 7/31/09 1-YEAR 5-YEAR 10-YEAR ------------------------------------------------------------------------------------------------- ARIZONA FUNDS NAZ 4.73% 3.32% 4.23% NFZ 0.58% 2.10% N/A NKR 4.09% 3.43% N/A NXE 3.08% 3.24% N/A Standard & Poor's Arizona Municipal Bond Index (3) 4.57% 4.10% 4.93% Lipper Other States Municipal Debt Funds Average (4) 3.12% 3.51% 5.01% Barclays Capital Municipal Bond Index (5) 5.11% 4.21% 5.14% Standard & Poor's National Municipal Bond Index (6) 3.77% 3.98% 5.00% TEXAS FUND NTX 4.80% 3.75% 5.17% Standard & Poor's Texas Municipal Bond Index (3) 5.35% 4.27% 5.17% Lipper Other States Municipal Debt Funds Average (4) 3.12% 3.51% 5.01% Barclays Capital Municipal Bond Index (5) 5.11% 4.21% 5.14% Standard & Poor's National Municipal Bond Index (6) 3.77% 3.98% 5.00% ------------------------------------------------------------------------------------------------- For the twelve months ended July 31, 2009, the total returns on common share net asset value (NAV) for NAZ was the only Fund to outperform its relevant Standard & Poor's state index. NAZ, NKR and NTX exceeded the return for Standard & Poor's (S&P) National Municipal Index, while all the Funds underperformed the Barclays Capital Municipal Bond Index. NAZ, NKR and NTX also outperformed the Lipper Other States Municipal Debt Funds Average. Key management factors that influenced the Funds' returns during this period included duration and yield curve positioning, credit exposure and sector allocations and individual security selection. In addition, the use of leverage was an important factor affecting the Funds' performances over this period. The impact of leverage is discussed in more detail on page 9. Over the course of this twelve-month period, the municipal yield curve remained steep. Bonds in the Barclays Capital Municipal Bond Index with maturities of three to fifteen years, especially those maturing in four to eight years, benefited the most from the interest rate environment. Because they were less sensitive to interest rate changes, these bonds generally outperformed credits with longer maturities, with bonds having the longest maturities (22 years and longer) posting a loss for the period. Overall, NTX benefited from its yield curve positioning, while the Arizona Funds were generally relatively underweight in the less favorable portions of the curve. The range of these underweightings was reflected in the relative performances of the four Funds, with NAZ having only a modest underweight to the top-performing maturity categories and NFZ having a significant underexposure to these categories. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. For additional information, see the individual Performance Overview for your Fund in this report. (3) The Standard & Poor's (S&P) Municipal Bond Indexes for Arizona and Texas are unleveraged market value-weighted indexes designed to measure the performance of the investment-grade municipal bond markets in Arizona and Texas, respectively. These indexes do not reflect any initial or ongoing expenses and are not available for direct investment. (4) The Lipper Other States Municipal Debt Funds Average is calculated using the returns of all closed-end funds in this category for each period as follows: 1-year, 46 funds; 5-year, 46 funds; and 10-year, 18 funds. Fund and Lipper returns assume reinvestment of dividends. (5) The Barclays Capital (formerly Lehman Brothers) Municipal Bond Index is an unlever-aged, unmanaged national index comprising a broad range of investment-grade municipal bonds. Results for the Barclays Capital index do not reflect any expenses. An index is not available for direct investment. (6) The Standard & Poor's (S&P) National Municipal Bond Index is an unleveraged, market value-weighted index designed to measure the performance of the investment-grade U.S. municipal bond market. 8 Nuveen Investments Given the difficult economic environment and the disruptions in the financial markets during this period, risk-averse investors put a priority on quality investments and bonds with higher credit quality exposure typically performed relatively well over the past twelve months. Bonds rated BBB or below and non-rated bonds generally posted poorer returns. Among the Arizona Funds, NAZ had the smallest allocation of BBB and non-rated bonds, which benefited its performance, while NFZ was negatively impacted by its underexposure to the AAA category. On the whole, NTX benefited from its overweighting of AAA rated bonds, although this was countered to a small degree by its exposure to the sub-investment grade category (bonds rated BB and lower). Pre-refunded(7) bonds, which are backed by U.S. Treasury securities, were one of the top performing segments of the municipal bond market, due primarily to their shorter effective maturities, higher credit quality and perceived safety. Additional sectors of the market that generally made positive contributions to the Funds' returns included general obligation and other tax-supported bonds, water and sewer and education credits. In particular, NAZ and NTX benefited from their heavier allocations to the water and sewer sector and to general obligation bonds, respectively. Holdings that generally detracted from the Funds' performances included industrial development revenue (IDR), health care and zero coupon bonds, which performed very poorly during this period. The Arizona Funds, especially NFZ, also allocated assets to the "other revenue" category that included CFD bonds. CFD bonds across the nation did not perform well during this period due to concerns about the decline of the housing market as well as weaker demand, particularly from retail buyers in Arizona. Individual security selection was also a factor in the Funds' performances during this period. In general, NAZ and NXE benefited from higher exposure to bonds backed by municipal bond insurers that were better able to maintain their credit ratings and whose bond insurance policies retained more value in the aftermath of the insurance industry/sub-prime mortgage crisis. In NTX, the bonds we purchased during late 2008 and early 2009, performed well following their addition to our portfolio. IMPACT OF THE FUNDS' CAPITAL STRUCTURES AND LEVERAGE STRATEGIES ON PERFORMANCE In this unusual and volatile investment environment, another factor impacting the returns of these Funds relative to the comparative indexes was the Funds' use of financial leverage. The Funds use leverage because their managers believe that, over time, leveraging provides opportunities for additional income and total returns for common shareholders. However, use of leverage also can expose common shareholders to additional risk--especially when market conditions are unfavorable. For example, as the prices of securities held by a Fund declines, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage. During this period, leverage had a mixed impact on the total return performance of these Funds. Generally, leverage was a negative factor in the fall of 2008 and a positive factor in the spring of 2009. (7) Pre-refundings, also known as advance refundings or refinancings, occur when an issuer sells new bonds and uses the proceeds to fund principal and interest payments of older existing bonds. This process often results in lower borrowing costs for bond issuers. Nuveen Investments 9 RECENT DEVELOPMENTS REGARDING THE FUND'S LEVERAGED CAPITAL STRUCTURE As noted in the last several shareholder reports, the auction rate preferred shares issued by many closed-end funds, including these Nuveen Funds, have been hampered by a lack of liquidity since February 2008. Since that time, more auction rate preferred shares have been submitted for sale in their regularly scheduled auctions than there have been offers to buy. This means that these auctions have "failed to clear," and that many, or all, of the auction rate preferred shareholders who wanted to sell their shares in these auctions were unable to do so. This decline in liquidity in auction rate preferred shares did not lower the credit quality of these shares, and auction rate preferred shareholders unable to sell their shares received distributions at the "maximum rate" applicable to failed auctions, as calculated in accordance with the pre-established terms of the auction rate preferred shares. One continuing implication for common shareholders from the auction failures is that each Fund's cost of leverage likely has been incrementally higher at times than it otherwise might have been had the auctions continued to be successful. As a result, each Fund's common share earnings likely have been incrementally lower at times than they otherwise might have been. As noted in the last shareholder report, the Funds' Board of Directors/Trustees authorized a plan to use tender option bonds (TOBs), also known as floating rate securities, to refinance a portion of the Funds' outstanding auction rate preferred shares. The amount of TOBs that a Fund may use varies according to the composition of each Fund's portfolio. Some Funds have a greater ability to use TOBs than others. As of July 31, 2009, the amounts of auction rate preferred securities redeemed and/or noticed for redemption, at par, by the following Funds are as shown in the accompanying table. AUCTION RATE % OF ORIGINAL PREFERRED SHARES AUCTION RATE FUND REDEEMED PREFERRED SHARES -------------------------------------------------------------------------------- NAZ $ 2,125,000 7.1% NFZ $ 1,400,000 11.7% NKR $ 1,875,000 10.1% NXE $ 3,600,000 16.4% NTX $ 3,950,000 5.7% -------------------------------------------------------------------------------- While the Funds' Board of Directors/Trustees and management continue to work to resolve this situation, the Funds cannot provide any assurance on when the remaining outstanding auction rate preferred shares might be redeemed. As of July 31, 2009, 78 Nuveen closed-end municipal funds have redeemed, at par, a portion of their outstanding auction rate preferred shares. These redemptions bring the total amount of Nuveen's municipal closed-end funds' auction rate preferred share redemptions to approximately $2.3 billion of the original $11 billion outstanding. For up-to-date information, please visit the Nuveen CEF Auction Rate Preferred Resource Center at: http://www.nuveen.com/ResourceCenter/AuctionRatePreferred.aspx. 10 Nuveen Investments Common Share Dividend and Share Price Information During the twelve-month reporting period ended July 31, 2009, NAZ and NTX each had two monthly dividend increases, while the dividends of NFZ, NKR and NXE remained stable throughout the reporting period. Due to normal portfolio activity, common shareholders of NTX received long-term capital gains distributions of $0.0212 per share and short-term capital gains and net ordinary income distributions of $0.0299 per share at the end of December 2008. All of the Funds in this report seek to pay stable dividends at rates that reflect each Fund's past results and projected future performance. During certain periods, each 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. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of July 31, 2009, all of the Funds in this report had positive UNII balances for both tax and financial statement purposes. Nuveen Investments 11 COMMON SHARE REPURCHASES AND SHARE PRICE INFORMATION The Funds' Board of Directors/Trustees approved an open-market share repurchase program on July 30, 2008, under which each Fund may repurchase an aggregate of up to 10% of its outstanding common shares. As of July 31, 2009, the Funds cumulatively repurchased common shares as shown in the accompanying table. Since the inception of this program, NAZ and NTX have not repurchased any of their outstanding common shares. COMMON SHARES % OF OUTSTANDING FUND REPURCHASED COMMON SHARES -------------------------------------------------------------------------------- NFZ 2,500 0.2% NKR 800 0.0% NXE 1,600 0.1% -------------------------------------------------------------------------------- During the twelve-month reporting period, the Funds repurchased common shares at a weighted average price and a weighted average discount per common share as shown in the accompanying table. WEIGHTED WEIGHTED AVERAGE AVERAGE COMMON SHARES PRICE PER SHARE DISCOUNT PER SHARE FUND REPURCHASED REPURCHASED REPURCHASED -------------------------------------------------------------------------------- NFZ 2,500 $ 9.60 19.20% NKR 800 $ 10.35 17.60% NXE 1,600 $ 9.59 18.61% -------------------------------------------------------------------------------- As of July 31, 2009, the Funds' common share prices were trading at premiums (+) or discounts (-) to their common share NAVs as shown in the accompanying table. 7/31/09 TWELVE-MONTH AVERAGE FUND (+)PREMIUM/(-)DISCOUNT (+)PREMIUM/(-)DISCOUNT -------------------------------------------------------------------------------- NAZ -4.88% -7.23% NFZ -4.11% -10.86% NKR -6.98% -8.77% NXE -8.07% -11.49% NTX +6.79% -5.71% -------------------------------------------------------------------------------- 12 Nuveen Investments NAZ Performance OVERVIEW | Nuveen Arizona Premium Income Municipal Fund, Inc. as of July 31, 2009 Credit Quality (as a % of total investments) [PIE CHART] AAA/U.S. Guaranteed 30% AA 20% A 31% BBB 8% N/R 11% 2008-2009 Monthly Tax-Free Dividends Per Common Share [BAR CHART] Aug $ 0.051 Sep 0.053 Oct 0.053 Nov 0.053 Dec 0.053 Jan 0.053 Feb 0.053 Mar 0.053 Apr 0.053 May 0.054 Jun 0.054 Jul 0.054 Common Share Price Performance -- Weekly Closing Price [LINE CHART] 8/01/08 $ 13.1 13 12.95 12.94 12.72 12.78 12.7 12.68 12.67 12.6 12.63 12.68 12.65 12.71 12.61 12.6 12.74 12.74 12.7 12.75 12.77 12.77 12.81 12.99 13 13 12.95 12.95 12.95 12.79 12.8 12.9 12.72 12.65 12.52 12.9 12.77 12.41 12.45 12.51 12.01 11.14 11.55 11.73 11.65 11.6325 11.48 11.53 11.01 10.16 9.2 9.8 10.23 10.1699 9.9 9.62 9.95 10.03 10.38 10.51 10.49 10.59 10.65 10.45 10.55 10.57 10.97 11.23 11.39 11.3956 11.5 11.48 11.234 10.83 10.62 10.77 10.5 9.67 9.85 9.19 9.36 10.2 10.09 10.01 10.09 10.09 10.13 10.1 9.85 9.84 9.84 9.84 9.6 9.49 9.35 9.39 9.35 9.17 9.23 9.2 8.94 8.98 9.01 9.052 9.23 9.13 9.19 9.22 9.65 10.1 10.3 10.15 10.55 10.82 10.82 10.75 10.5 10.27 10.56 10.64 10.67 10.41 10.4 10.53 10.67 10.65 10.64 10.8232 10.8232 10.81 10.9 10.94 11 11.01 11.048 11.2 11.2 11.15 11.23 10.9 10.98 10.98 10.8981 10.85 10.88 11.18 10.98 10.93 10.93 10.75 10.6997 10.74 10.7968 10.83 10.68 10.68 10.58 10.59 10.6501 10.82 10.85 10.98 10.95 10.96 10.96 11.15 11.2 11.02 11.23 10.93 11.02 11.04 11.02 11.1 11.12 11.18 11.18 11.12 11.0657 11.05 11.11 11.13 11.18 11.19 11.24 11.28 11.49 11.6 11.55 11.5501 11.67 11.77 11.79 11.84 11.9 11.827 11.65 11.85 11.95 12.03 11.95 11.9 11.85 11.88 12.01 12.22 12.22 12.09 11.9811 11.9 11.89 11.8985 11.8985 11.95 11.99 11.85 11.95 11.94 11.85 11.9 11.92 11.93 11.88 11.88 11.93 11.86 11.82 11.93 11.67 11.51 11.51 11.5 11.65 11.81 11.8 11.98 11.91 11.92 11.99 12.05 12.28 12.58 12.7001 12.83 13 12.6 12.6 12.7 12.63 12.65 12.46 12.37 12.4 12.41 12.44 12.33 7/31/09 12.29 FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $ 12.29 -------------------------------------------------------------------------------- Common Share Net Asset Value $ 12.92 -------------------------------------------------------------------------------- Premium/(Discount) to NAV -4.88% -------------------------------------------------------------------------------- Market Yield 5.27% -------------------------------------------------------------------------------- Taxable-Equivalent Yield (1) 7.67% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $ 57,755 -------------------------------------------------------------------------------- Average Effective Maturity on Securities (Years) 16.66 -------------------------------------------------------------------------------- Leverage-Adjusted Duration 10.14 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 11/19/92) -------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year -2.61% 4.73% -------------------------------------------------------------------------------- 5-Year 0.65% 3.32% -------------------------------------------------------------------------------- 10-Year 2.13% 4.23% -------------------------------------------------------------------------------- INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Tax Obligation/Limited 22.7% -------------------------------------------------------------------------------- U.S. Guaranteed 16.6% -------------------------------------------------------------------------------- Health Care 15.0% -------------------------------------------------------------------------------- Utilities 14.5% -------------------------------------------------------------------------------- Water and Sewer 11.8% -------------------------------------------------------------------------------- Education and Civic Organizations 7.7% -------------------------------------------------------------------------------- Tax Obligation/General 7.5% -------------------------------------------------------------------------------- Other 4.2% -------------------------------------------------------------------------------- (1) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. Nuveen Investments 13 NFZ Performance OVERVIEW | Nuveen Arizona Dividend Advantage Municipal Fund as of July 31, 2009 FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $ 12.14 -------------------------------------------------------------------------------- Common Share Net Asset Value $ 12.66 -------------------------------------------------------------------------------- Premium/(Discount) to NAV -4.11% -------------------------------------------------------------------------------- Market Yield 5.19% -------------------------------------------------------------------------------- Taxable-Equivalent Yield (1) 7.55% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $ 19,605 -------------------------------------------------------------------------------- Average Effective Maturity on Securities (Years) 14.79 -------------------------------------------------------------------------------- Leverage-Adjusted Duration 11.14 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 1/30/01) -------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year -6.12% 0.58% -------------------------------------------------------------------------------- 5-Year 0.71% 2.10% -------------------------------------------------------------------------------- Since Inception 3.12% 4.29% -------------------------------------------------------------------------------- INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Tax Obligation/Limited 28.6% -------------------------------------------------------------------------------- Utilities 21.9% -------------------------------------------------------------------------------- Health Care 12.6% -------------------------------------------------------------------------------- Tax Obligation/General 8.5% -------------------------------------------------------------------------------- Water and Sewer 7.8% -------------------------------------------------------------------------------- U.S. Guaranteed 6.7% -------------------------------------------------------------------------------- Education and Civic Organizations 5.3% -------------------------------------------------------------------------------- Other 8.6% -------------------------------------------------------------------------------- Credit Quality (as a % of total investments) [PIE CHART] AAA/U.S. Guaranteed 20% AA 27% A 32% BBB 14% N/R 7% 2008-2009 Monthly Tax-Free Dividends Per Common Share [BAR CHART] Aug $ 0.0525 Sep 0.0525 Oct 0.0525 Nov 0.0525 Dec 0.0525 Jan 0.0525 Feb 0.0525 Mar 0.0525 Apr 0.0525 May 0.0525 Jun 0.0525 Jul 0.0525 Common Share Price Performance -- Weekly Closing Price [LINE CHART] 8/01/08 $ 13.55 13.51 13.5 13.24 13.0317 13.06 13.06 12.92 12.884 12.8 12.74 12.7 12.7 12.83 12.74 12.7999 12.7999 12.99 13.22 13.19 13.25 13.25 13.2 13.2 13.06 13.1 13.15 13.15 13.1 13.1 12.94 12.91 13.04 12.7 12.883 12.9 12.87 12.6764 12.8872 12.88 12.6 11.1 11.4 11.4 11.4 11.4 10.96 10 9.9 8.66 7.95 8.6 9.05 9.1 9.1 9.1 9.5 9.54 9.51 10 9.75 9.763 9.69 9.7 9.59 9.55 9.96 9.97 10.3 10.318 10.25 10.26 10.2699 10.02 9.95 10.86 10.41 10.1 9.7 9.35 9.39 9.39 10.2 9.92 10.15 10.15 10.2 10.2 9.79 9.55 9.25 9.25 8.97 8.7893 8.7893 8.6999 8.61 8.71 8.83 8.71 8.86 8.96 9.042 8.89 9.1399 9.186 9.1 9.2999 9.44 9.8045 11.0499 10.2901 10.49 10.6493 10.6 10.6 10.1135 10.02 10.16 10.16 10.1198 10.3335 10.29 10.29 10.25 10.22 10.21 10.2465 10.2465 10.18 10.18 10.24 10.3 10.3299 10.3475 10.28 10.19 10.31 10.31 10.17 10.1 10.06 9.95 10.06 10.05 10 10.0494 10.04 10.04 9.92 10 10.0925 10.03 10.0265 9.7 9.67 9.52 9.53 9.43 9.47 9.52 9.67 9.59 9.59 10.01 10.33 10.16 9.97 9.97 9.89 10.05 10.05 10.42 10.58 10.59 10.61 11.14 11.39 11.1301 11.19 11.02 10.84 10.9 10.84 10.84 10.86 10.93 10.93 11.396 11.27 11.11 10.9901 11.33 11.37 11.37 10.94 11.18 11 11.2 11.2 10.95 10.95 10.96 10.97 10.98 11.13 11.3 11.1845 11.51 11.37 11.22 11.3199 11.3199 11.51 11.5199 11.52 11.52 11.52 11.45 11.52 11.52 11.39 11.27 11.24 11.38 11.38 11.27 11.27 11.32 11.32 11.3 11.3 11.19 11.19 11.19 11.39 11.35 11.35 11.52 11.78 11.7 11.69 11.55 11.5135 11.5135 11.5135 11.5135 11.5135 11.5135 11.46 11.5375 12.16 12.1 12.1 12.02 12.14 7/31/09 12.14 (1) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 14 Nuveen Investments NKR Performance OVERVIEW | Nuveen Arizona Dividend Advantage Municipal Fund 2 as of July 31, 2009 Credit Quality (as a % of total investments) [PIE CHART] AAA/U.S. Guaranteed 33% AA 20% A 19% BBB 12% N/R 16% 2008-2009 Monthly Tax-Free Dividends Per Common Share [BAR CHART] Aug $ 0.0585 Sep 0.0585 Oct 0.0585 Nov 0.0585 Dec 0.0585 Jan 0.0585 Feb 0.0585 Mar 0.0585 Apr 0.0585 May 0.0585 Jun 0.0585 Jul 0.0585 Common Share Price Performance -- Weekly Closing Price [LINE CHART] 8/01/08 $ 13.76 13.65 13.58 13.48 13.48 13.36 13.65 13.65 13.45 13.5 13.34 13.2701 13.34 13.32 13.3 13.3 13.363 13.87 14 13.74 13.74 13.74 13.65 13.93 13.92 13.92 13.55 13.47 13.5 13.3699 13.3 13.2999 13.14 13.24 13 12.93 12.53 12.53 12.5599 12.07 11.88 11.561 11.7 11.7 11.73 12.1 11.85 12 11.86 10.39 8 9 11.16 11.09 11.3 11.08 11.44 12.01 13.2 13 13 12.32 12.01 11.61 11.238 11.28 11.77 11.565 11.565 11.65 11.65 12.5 11.73 11.65 11.32 11.52 11.42 11.45 11.65 11.18 10.48 10.27 10.24 10.35 10.3 10.3 10.21 10.35 10.39 10.27 9.89 9.88 10.01 10.05 10.42 10.4 10.12 9.64 9.79 9.82 10.21 10.25 10.03 9.87 10.03 10.0032 9.96 10 10 10.42 10.53 10.4 10.64 11.08 11.3 11.1 11.14 11.03 11.17 11.18 11.18 10.96 11 11 11.02 11.02 11.02 11.07 11.07 11.09 11.16 11.16 11.2 11.2 11.1601 11.23 11.26 11.189 11.3 11.19 11.0701 11.0701 11.07 11.07 10.98 11.088 11.09 11.273 11.273 10.73 10.25 10.3 10.4999 10.354 10.35 10.38 10.27 10.26 10.37 10.33 10.4599 10.42 10.42 10.4401 10.4401 10.65 10.6901 10.6901 10.6901 10.6901 10.85 11.07 11.12 11.12 11.5699 11.97 11.97 11.82 11.785 11.57 11.57 11.5 11.33 11.4 11.4 11.6 11.6 11.6 11.95 12.02 12.02 12 12.03 11.8201 11.76 11.81 11.81 11.92 11.9 11.9002 11.9002 11.81 11.824 11.94 12.0072 12.05 12.1416 12.15 12.2 12.2 12.2 12.2 12.2 12.34 12.34 12.33 12.5 12.44 12.5599 12.5599 12.5599 12.34 12.2 12.19 12.24 12.05 12.1001 12.2 12.2 12.15 12.23 12.1501 12.0501 12.0501 12.05 12.17 12.18 12.4 12.4 12.4 12.4 12.83 13.121 13.2 13.1 13.05 13.05 13.05 12.69 12.58 12.48 12.4488 12.6401 12.75 12.48 12.48 7/31/09 12.52 FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $ 12.52 -------------------------------------------------------------------------------- Common Share Net Asset Value $ 13.46 -------------------------------------------------------------------------------- Premium/(Discount) to NAV -6.98% -------------------------------------------------------------------------------- Market Yield 5.61% -------------------------------------------------------------------------------- Taxable-Equivalent Yield (1) 8.17% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $ 32,829 -------------------------------------------------------------------------------- Average Effective Maturity on Securities (Years) 14.20 -------------------------------------------------------------------------------- Leverage-Adjusted Duration 8.89 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 3/25/02) -------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year -4.99% 4.09% -------------------------------------------------------------------------------- 5-Year 2.43% 3.43% -------------------------------------------------------------------------------- Since Inception 3.33% 4.91% -------------------------------------------------------------------------------- INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Tax Obligation/Limited 30.2% -------------------------------------------------------------------------------- Health Care 16.9% -------------------------------------------------------------------------------- U.S. Guaranteed 15.2% -------------------------------------------------------------------------------- Tax Obligation/General 14.6% -------------------------------------------------------------------------------- Water and Sewer 8.3% -------------------------------------------------------------------------------- Other 14.8% -------------------------------------------------------------------------------- (1) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. Nuveen Investments 15 NXE Performance OVERVIEW | Nuveen Arizona Dividend Advantage Municipal Fund 3 as of July 31, 2009 FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $ 11.73 -------------------------------------------------------------------------------- Common Share Net Asset Value $ 12.76 -------------------------------------------------------------------------------- Premium/(Discount) to NAV -8.07% -------------------------------------------------------------------------------- Market Yield 5.58% -------------------------------------------------------------------------------- Taxable-Equivalent Yield (1) 8.12% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $ 39,129 -------------------------------------------------------------------------------- Average Effective Maturity on Securities (Years) 15.51 -------------------------------------------------------------------------------- Leverage-Adjusted Duration 10.64 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/02) -------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year -6.18% 3.08% -------------------------------------------------------------------------------- 5-Year 2.82% 3.24% -------------------------------------------------------------------------------- Since Inception 1.78% 3.51% -------------------------------------------------------------------------------- INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Tax Obligation/Limited 21.0% -------------------------------------------------------------------------------- Health Care 21.0% -------------------------------------------------------------------------------- U.S. Guaranteed 15.9% -------------------------------------------------------------------------------- Education and Civic Organizations 10.6% -------------------------------------------------------------------------------- Transportation 10.1% -------------------------------------------------------------------------------- Utilities 8.1% -------------------------------------------------------------------------------- Water and Sewer 8.1% -------------------------------------------------------------------------------- Other 5.2% -------------------------------------------------------------------------------- Credit Quality (as a % of total investments) [PIE CHART] AAA/U.S. Guaranteed 23% AA 21% A 26% BBB 17% N/R 13% 2008-2009 Monthly Tax-Free Dividends Per Common Share [BAR CHART] Aug $ 0.0545 Sep 0.0545 Oct 0.0545 Nov 0.0545 Dec 0.0545 Jan 0.0545 Feb 0.0545 Mar 0.0545 Apr 0.0545 May 0.0545 Jun 0.0545 Jul 0.0545 Common Share Price Performance -- Weekly Closing Price [LINE CHART] 8/01/08 $ 13.08 12.96 12.93 12.9 12.72 12.72 12.72 12.82 12.76 12.73 12.64 12.74 12.64 12.44 12.5 12.38 12.53 12.88 12.89 12.8 12.84 12.84 12.9799 13.19 13.11 13.019 13.11 12.65 12.65 12.49 12.4801 12.44 12.42 12.35 11.01 11.4 11.7 11.8299 11.52 11.64 11.5 11.4 11.15 11.23 11.03 10.8 10.364 9.7699 9.15 8.8 8.03 9.65 10.2968 10.6 9.6 9.4 10.11 10.55 11.235 11.235 11.13 11.13 10.4 10.38 10.09 9.97 10.04 10.07 10.122 10.16 10.205 10.16 10.3 10.26 10.309 11.0981 10.745 10.35 10.25 9.96 9.61 9.34 9.1799 9.175 9.22 9.22 9.2 9.24 9.2007 9.2 9.24 9.17 9.04 9.01 8.6601 8.63 8.5 8.67 8.6685 8.9 9.33 9.3 9.2 8.98 9.3 9.24 9.27 9.324 9.44 9.4109 9.52 9.53 9.78 10.2 10.41 10.3001 10 10.09 10.2101 10.2101 10.27 10.15 10.19 10.19 10.1699 10.1999 10.25 10.31 10.31 10.37 10.4728 10.4 10.55 10.531 10.5155 10.45 10.5 10.45 10.45 10.4 10.35 10.23 9.9999 9.99 10 10.18 10.17 10.07 10.07 10.07 9.97 10.03 9.94 9.9982 9.81 9.78 9.6782 9.5 9.51 9.5599 9.51 9.67 9.69 9.69 9.59 9.61 9.61 9.6 9.76 9.7 9.76 9.713 9.8699 9.88 9.93 10.04 10.1327 10.131 10.2 10.29 10.33 10.32 10.35 10.33 10.52 10.54 10.54 10.64 10.67 10.6001 10.5201 10.53 10.34 10.68 10.6299 10.7 10.6 10.7 10.89 11.08 10.97 10.94 10.97 11.06 11.07 11.35 11.24 11.62 11.56 11.49 11.35 11.5 11.5 11.52 11.3975 11.52 11.4801 11.4 11.24 11.31 11.31 11.31 11.26 11.26 11.37 11.31 11 11.03 10.8 10.9 11.1 11.09 11.1 11.1219 11.07 11.16 11.19 11.18 11.18 11.2461 11.37 11.56 11.444 11.5001 11.45 11.49 11.62 11.5001 11.4 11.49 11.59 11.6154 11.87 11.81 11.7 11.79 7/31/09 11.73 (1) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 31.3%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 16 Nuveen Investments NTX Performance OVERVIEW | Nuveen Texas Quality Income Municipal Fund as of July 31, 2009 Credit Quality (as a % of total investments) [PIE CHART] AAA/U.S. Guaranteed 46% AA 22% A 15% BBB 13% BB or Lower 4% 2008-2009 Monthly Tax-Free Dividends Per Common Share(2) [BAR CHART] Aug $ 0.057 Sep 0.058 Oct 0.058 Nov 0.058 Dec 0.058 Jan 0.058 Feb 0.058 Mar 0.058 Apr 0.058 May 0.062 Jun 0.062 Jul 0.062 Common Share Price Performance -- Weekly Closing Price [LINE CHART] 8/01/08 $ 12.5 12.58 12.61 12.54 12.51 12.8 12.78 12.78 12.7001 12.71 12.74 12.73 12.648 12.68 12.76 12.672 12.7 12.65 12.66 12.75 12.77 12.77 12.8 12.77 12.76 12.8 12.78 12.7901 12.78 12.72 12.6 12.59 12.89 12.59 11.99 12.2 12.11 11.84 11.84 11.59 11.37 10.86 11.15 11.44 11.59 11.54 11.16 10.82 10.12 9.39 8.43 10.3299 10.3 9.99 10.02 10.2 10.46 11.03 11.5 12.83 12.3799 12.2 12.05 11.75 11.5 11.57 11.72 11.82 11.8152 11.61 11.81 11.8 11.79 11.46 10.98 10.8 10.7 10.6 10.25 10 10.06 10.45 10.56 10.28 10.42 10.42 10.51 10.29 11 11 11.5 11.3 11 10.8 10.89 10.89 10.39 10.38 10.42 10.43 10.26 10.51 10.4 11.09 11.45 11.37 11.36 11.2575 11.94 12.01 12.29 12.22 12.3 12.5 12.5 12.47 12.14 12.15 12.19 12.3786 12.3504 12.22 12.41 12.4 12.61 12.52 12.57 12.6 12.6 12.56 13.05 12.96 12.92 12.92 12.86 12.85 12.8 12.96 12.9501 12.91 12.92 12.838 12.41 12.5 12.81 12.9 13.01 13.118 13.118 13.17 13.07 12.96 13.1 13.05 12.94 13.02 13 12.81 13.08 12.958 13.06 12.91 12.91 13.07 13.1 12.94 12.95 13.08 13.38 13.05 13.08 13.25 13.25 13.2 13.06 13.06 13.1 13.4 13.25 13.18 13.12 13.1 13.13 13.34 13.26 13.22 13.44 13.36 13.1 13.1 13.15 13.16 13.25 13.36 13.33 13.38 13.37 13.42 13.52 13.57 13.64 13.75 13.75 13.74 13.7352 13.704 13.73 13.6696 13.85 13.84 13.748 13.864 13.864 13.87 13.84 13.7 13.59 13.55 13.53 13.65 13.74 14 13.81 13.68 13.69 13.56 13.73 13.6001 13.6 13.75 14 14.1 14.1 14.11 14.223 14.0986 14.18 14.1 14.0288 13.95 14.42 14.49 14.36 14.3 14.31 14.45 14.26 14.3 14.35 14.35 14.35 14.212 14.17 14.6901 14.8 15.1 7/31/09 14.78 FUND SNAPSHOT -------------------------------------------------------------------------------- Common Share Price $ 14.78 -------------------------------------------------------------------------------- Common Share Net Asset Value $ 13.84 -------------------------------------------------------------------------------- Premium/(Discount) to NAV 6.79% -------------------------------------------------------------------------------- Market Yield 5.03% -------------------------------------------------------------------------------- Taxable-Equivalent Yield (1) 6.99% -------------------------------------------------------------------------------- Net Assets Applicable to Common Shares ($000) $ 131,513 -------------------------------------------------------------------------------- Average Effective Maturity on Securities (Years) 15.58 -------------------------------------------------------------------------------- Leverage-Adjusted Duration 8.95 -------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 10/17/91) -------------------------------------------------------------------------------- ON SHARE PRICE ON NAV -------------------------------------------------------------------------------- 1-Year 25.98% 4.80% -------------------------------------------------------------------------------- 5-Year 6.09% 3.75% -------------------------------------------------------------------------------- 10-Year 6.09% 5.17% -------------------------------------------------------------------------------- INDUSTRIES (as a % of total investments) -------------------------------------------------------------------------------- Tax Obligation/General 31.8% -------------------------------------------------------------------------------- U.S. Guaranteed 12.6% -------------------------------------------------------------------------------- Education and Civic Organizations 10.6% -------------------------------------------------------------------------------- Health Care 10.0% -------------------------------------------------------------------------------- Water and Sewer 8.4% -------------------------------------------------------------------------------- Utilities 7.5% -------------------------------------------------------------------------------- Tax Obligation/Limited 5.8% -------------------------------------------------------------------------------- Other 13.3% -------------------------------------------------------------------------------- (1) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a federal income tax rate of 28%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. (2) The Fund paid shareholders capital gains and net ordinary income distributions in December 2008 of $0.0511 per share. Nuveen Investments 17 NAZ NFZ NKR | Shareholder MEETING REPORT The annual meeting of shareholders was held in the offices of Nuveen Investments on November 18, 2008; at this meeting the shareholders were asked to vote on the election of Board Members, the elimination of Fundamental Investment Policies and the approval of new Fundamental Investment Policies. The meeting was subsequently adjourned to January 13, 2009, and additionally adjourned to March 17, 2009. NAZ NFZ NKR ------------------------------------------------------------------------------------------------------------------------------------ Common and Common and Common and Preferred Preferred Preferred Preferred Preferred Preferred shares shares voting shares voting shares voting shares voting shares voting voting together together together together together together as a class as a class as a class as a class as a class as a class ------------------------------------------------------------------------------------------------------------------------------------ TO APPROVE THE ELIMINATION OF THE FUND'S FUNDAMENTAL POLICY RELATING TO INVESTMENTS IN MUNICIPAL SECURITIES AND BELOW INVESTMENT GRADE SECURITIES. For 2,087,727 251 714,731 71 1,084,002 107 Against 187,895 39 47,565 20 81,725 16 Abstain 60,519 8 10,147 1 27,627 2 Broker Non-Votes 460,650 421 208,785 253 340,364 397 ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 981,228 345 1,533,718 522 ==================================================================================================================================== TO APPROVE THE NEW FUNDAMENTAL POLICY RELATING TO INVESTMENTS IN MUNICIPAL SECURITIES FOR THE FUND. For 2,121,019 251 713,064 71 1,087,252 106 Against 161,571 39 51,416 20 81,724 16 Abstain 53,551 8 7,963 1 24,378 3 Broker Non-Votes 460,650 421 208,785 253 340,364 397 ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 981,228 345 1,533,718 522 ==================================================================================================================================== TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY PROHIBITING INVESTMENT IN OTHER INVESTMENT COMPANIES. For 2,108,749 249 -- -- -- -- Against 168,830 39 -- -- -- -- Abstain 58,562 10 -- -- -- -- Broker Non-Votes 460,650 421 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 -- -- -- -- ==================================================================================================================================== TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY RELATING TO DERIVATIVES AND SHORT SALES. For 2,089,706 221 -- -- -- -- Against 176,141 67 -- -- -- -- Abstain 70,294 10 -- -- -- -- Broker Non-Votes 460,650 421 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 -- -- -- -- ==================================================================================================================================== TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY RELATING TO COMMODITIES. For 2,096,155 249 -- -- -- -- Against 178,482 39 -- -- -- -- Abstain 61,504 10 -- -- -- -- Broker Non-Votes 460,650 421 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 -- -- -- -- ==================================================================================================================================== TO APPROVE THE NEW FUNDAMENTAL POLICY RELATING TO COMMODITIES. For 2,085,825 249 -- -- -- -- Against 188,332 39 -- -- -- -- Abstain 61,984 10 -- -- -- -- Broker Non-Votes 460,650 421 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total 2,796,791 719 -- -- -- -- ==================================================================================================================================== 18 NUVEEN INVESTMENTS NAZ NFZ NKR ------------------------------------------------------------------------------------------------------------------------------- Common and Common and Common and Preferred Preferred Preferred Preferred Preferred Preferred shares voting shares voting shares voting shares voting shares voting shares voting together together together together together together as a class as a class as a class as a class as a class as a class ------------------------------------------------------------------------------------------------------------------------------- APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS: John P. Amboian For 2,709,807 -- 933,610 -- 1,475,214 -- Withhold 86,968 -- 47,617 -- 58,503 -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- 981,227 -- 1,533,717 -- =============================================================================================================================== Robert P. Bremner For 2,710,807 -- -- -- -- -- Withhold 85,968 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- -- -- -- -- =============================================================================================================================== Jack B. Evans For 2,710,807 -- -- -- -- -- Withhold 85,968 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- -- -- -- -- =============================================================================================================================== William C. Hunter For -- 591 -- 343 -- 471 Withhold -- 112 -- 1 -- 50 ------------------------------------------------------------------------------------------------------------------------------- Total -- 703 -- 344 -- 521 =============================================================================================================================== David J. Kundert For 2,710,807 -- 933,610 -- 1,475,214 -- Withhold 85,968 -- 47,617 -- 58,503 -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- 981,227 -- 1,533,717 -- =============================================================================================================================== William J. Schneider For -- 591 -- 343 -- 471 Withhold -- 112 -- 1 -- 50 ------------------------------------------------------------------------------------------------------------------------------- Total -- 703 -- 344 -- 521 =============================================================================================================================== Judith M. Stockdale For 2,699,552 -- -- -- -- -- Withhold 97,223 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- -- -- -- -- =============================================================================================================================== Carole E. Stone For 2,709,807 -- -- -- -- -- Withhold 86,968 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- -- -- -- -- =============================================================================================================================== Terence J. Toth For 2,690,045 -- 930,010 -- 1,473,624 -- Withhold 106,730 -- 51,217 -- 60,093 -- ------------------------------------------------------------------------------------------------------------------------------- Total 2,796,775 -- 981,227 -- 1,533,717 -- =============================================================================================================================== NUVEEN INVESTMENTS 19 NXE NTX | Shareholder MEETING REPORT (continued) NXE NTX ---------------------------------------------------------------------------------------------------------------- Common and Common and Preferred Preferred Preferred Preferred shares voting shares voting shares voting shares voting together together together together as a class as a class as a class as a class ---------------------------------------------------------------------------------------------------------------- TO APPROVE THE ELIMINATION OF THE FUND'S FUNDAMENTAL POLICY RELATING TO INVESTMENTS IN MUNICIPAL SECURITIES AND BELOW INVESTMENT GRADE SECURITIES. For 1,387,878 115 4,378,634 351 Against 92,693 -- 278,903 112 Abstain 38,459 7 118,307 1 Broker Non-Votes 449,552 693 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total 1,968,582 815 6,329,422 1,551 ================================================================================================================ TO APPROVE THE NEW FUNDAMENTAL POLICY RELATING TO INVESTMENTS IN MUNICIPAL SECURITIES FOR THE FUND. For 1,392,477 74 4,390,702 348 Against 98,029 40 264,735 112 Abstain 28,524 8 120,407 4 Broker Non-Votes 449,552 693 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total 1,968,582 815 6,329,422 1,551 ================================================================================================================ TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY PROHIBITING INVESTMENT IN OTHER INVESTMENT COMPANIES. For -- -- 4,333,782 347 Against -- -- 327,536 114 Abstain -- -- 114,526 3 Broker Non-Votes -- -- 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total -- -- 6,329,422 1,551 ================================================================================================================ TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY RELATING TO DERIVATIVES AND SHORT SALES. For -- -- 4,340,274 349 Against -- -- 318,856 114 Abstain -- -- 116,714 1 Broker Non-Votes -- -- 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total -- -- 6,329,422 1,551 ================================================================================================================ TO APPROVE THE ELIMINATION OF THE FUNDAMENTAL POLICY RELATING TO COMMODITIES. For -- -- 4,326,551 351 Against -- -- 313,627 112 Abstain -- -- 135,666 1 Broker Non-Votes -- -- 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total -- -- 6,329,422 1,551 ================================================================================================================ TO APPROVE THE NEW FUNDAMENTAL POLICY RELATING TO COMMODITIES. For -- -- 4,321,940 348 Against -- -- 308,260 112 Abstain -- -- 145,644 4 Broker Non-Votes -- -- 1,553,578 1,087 ---------------------------------------------------------------------------------------------------------------- Total -- -- 6,329,422 1,551 ================================================================================================================ 20 NUVEEN INVESTMENTS NXE NTX ------------------------------------------------------------------------------------------------- Common and Common and Preferred Preferred Preferred Preferred shares voting shares voting shares voting shares voting together together together together as a class as a class as a class as a class ------------------------------------------------------------------------------------------------- APPROVAL OF THE BOARD MEMBER WAS REACHED AS FOLLOWS: John P. Amboian For 1,846,305 -- 6,083,316 -- Withhold 122,275 -- 241,813 -- ------------------------------------------------------------------------------------------------- Total 1,968,580 -- 6,325,129 -- ================================================================================================= Robert P. Bremner For -- -- -- -- Withhold -- -- -- -- ------------------------------------------------------------------------------------------------- Total -- -- -- -- ================================================================================================= Jack B. Evans For -- -- -- -- Withhold -- -- -- -- ------------------------------------------------------------------------------------------------- Total -- -- -- -- ================================================================================================= William C. Hunter For -- 733 -- 1,256 Withhold -- 80 -- 43 ------------------------------------------------------------------------------------------------- Total -- 813 -- 1,299 ================================================================================================= David J. Kundert For 1,843,305 -- 6,086,924 -- Withhold 125,275 -- 238,205 -- ------------------------------------------------------------------------------------------------- Total 1,968,580 -- 6,325,129 -- ================================================================================================= William J. Schneider For -- 733 -- 1,256 Withhold -- 80 -- 43 ------------------------------------------------------------------------------------------------- Total -- 813 -- 1,299 ================================================================================================= Judith M. Stockdale For -- -- -- -- Withhold -- -- -- -- ------------------------------------------------------------------------------------------------- Total -- -- -- -- ================================================================================================= Carole E. Stone For -- -- -- -- Withhold -- -- -- -- ------------------------------------------------------------------------------------------------- Total -- -- -- -- ================================================================================================= Terence J. Toth For 1,839,749 -- 6,082,016 -- Withhold 128,831 -- 243,113 -- ------------------------------------------------------------------------------------------------- Total 1,968,580 -- 6,325,129 -- ================================================================================================= NUVEEN INVESTMENTS 21 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF DIRECTORS/TRUSTEES AND SHAREHOLDERS NUVEEN ARIZONA PREMIUM INCOME MUNICIPAL FUND, INC. NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund (the "Funds"), as of July 31, 2009, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' 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 Funds' internal control over financial reporting. Our audits 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 Funds' 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 July 31, 2009, by correspondence with the custodian. 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 positions of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund at July 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with US generally accepted accounting principles. /s/ERNST & YOUNG LLP Chicago, Illinois September 25, 2009 22 Nuveen Investments NAZ | Nuveen Arizona Premium Income Municipal Fund, Inc. | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 1.1% (0.8% OF TOTAL INVESTMENTS) $ 790 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 695,682 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 11.4% (7.7% OF TOTAL INVESTMENTS) 2,500 Arizona Higher Education Loan Authority, Student Loan 9/09 at 100.00 AAA 1,978,300 Revenue Bonds, Series 2007B, Auction Rate Coupon, 0.735%, 11/01/41 (4) 1,000 Arizona State University, System Revenue Bonds, Series 7/12 at 100.00 AA 1,016,220 2002, 5.000%, 7/01/25 - FGIC Insured Arizona State University, System Revenue Bonds, Series 2005: 1,455 5.000%, 7/01/20 - AMBAC Insured 7/15 at 100.00 N/R 1,512,283 750 5.000%, 7/01/21 - AMBAC Insured 7/15 at 100.00 N/R 772,403 1,500 Tempe Industrial Development Authority, Arizona, Lease 7/13 at 100.00 N/R 1,283,130 Revenue Bonds, Arizona State University Foundation Project, Series 2003, 5.000%, 7/01/34 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 7,205 Total Education and Civic Organizations 6,562,336 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 22.0% (15.0% OF TOTAL INVESTMENTS) 1,430 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 1,396,896 Bonds, Banner Health Systems, Series 2007A, 5.000%, 1/01/25 885 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 491,618 Bonds, Banner Health Systems, Series 2007B, 1.210%, 1/02/37 3,470 Arizona Health Facilities Authority, Hospital Revenue 1/18 at 100.00 A+ 3,406,221 Bonds, Banner Health Systems, Series 2008D, 5.500%, 1/01/38 675 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 557,381 Bonds, John C. Lincoln Health Network, Series 2005B, 5.000%, 12/01/37 1,110 Glendale Industrial Development Authority, Arizona, Revenue 12/17 at 100.00 BBB 890,442 Bonds, John C. Lincoln Health Network, Series 2007, 5.000%, 12/01/42 2,150 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 2,117,836 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23 2,800 Maricopa County Industrial Development Authority, Arizona, 7/17 at 100.00 A 2,527,280 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32 515 Puerto Rico Industrial, Tourist, Educational, Medical and 11/10 at 101.00 Aa1 545,756 Environmental Control Facilities Financing Authority, Hospital Revenue Bonds, Hospital de la Concepcion, Series 2000A, 6.375%, 11/15/15 1,005 Winslow Industrial Development Authority, Arizona, Hospital 12/09 at 100.00 N/R 776,955 Revenue Bonds, Winslow Memorial Hospital, Series 1998, 5.500%, 6/01/22 ------------------------------------------------------------------------------------------------------------------------------------ 14,040 Total Health Care 12,710,385 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 5.1% (3.4% OF TOTAL INVESTMENTS) 760 Phoenix and Pima County Industrial Development Authority, 7/17 at 103.00 Aaa 785,057 Arizona, Single Family Mortgage Revenue Bonds, Series 2007-4, 5.800%, 12/01/39 (Alternative Minimum Tax) 2,115 Tucson and Pima County Industrial Development Authority, 6/17 at 101.00 Aaa 2,127,563 Arizona, Joint Single Family Mortgage Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 2,875 Total Housing/Single Family 2,912,620 ------------------------------------------------------------------------------------------------------------------------------------ Nuveen Investments 23 NAZ | Nuveen Arizona Premium Income Municipal Fund, Inc. (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 11.0% (7.5% OF TOTAL INVESTMENTS) $ 1,265 Gila County Unified School District 10 Payson, Arizona, 7/18 at 100.00 A2 $ 1,262,217 School Improvement Bonds, Project 2006, Series 2008B, 3.000%, 7/01/28 1,200 Maricopa County Unified School District 95 Queen Creek, 7/18 at 100.00 Aa3 1,187,352 Arizona, General Obligation Bonds, Series 2008, 5.000%, 7/01/27 - FSA Insured 3,530 Pinal County Unified School District 1, Florence, Arizona, 7/18 at 100.00 A 3,605,436 General Obligation Bonds, Series 2008C, 5.250%, 7/01/28 330 Puerto Rico, General Obligation and Public Improvement 7/11 at 100.00 BBB- 299,564 Bonds, Series 2001A, 5.375%, 7/01/28 ------------------------------------------------------------------------------------------------------------------------------------ 6,325 Total Tax Obligation/General 6,354,569 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 33.3% (22.7% OF TOTAL INVESTMENTS) 384 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 345,926 Goodyear, Arizona, Special Assessment Lien Bonds, Series 2001A, 7.875%, 7/01/25 3,000 Glendale Western Loop 101 Public Facilities Corporation, 1/14 at 100.00 AA 3,104,790 Arizona, Third Lien Excise Tax Revenue Bonds, Series 2008B, 6.250%, 7/01/38 1,280 Greater Arizona Development Authority, Infrastructure 8/16 at 100.00 A+ 1,288,333 Revenue Bonds, Series 2006-1, 5.000%, 8/01/22 - MBIA Insured 740 Greater Arizona Development Authority, Infrastructure 8/16 at 100.00 AA- 745,646 Revenue Bonds, Series 2006A, 5.000%, 8/01/23 - MBIA Insured 575 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AA 583,545 Bonds, Series 2003, 5.000%, 7/01/28 - AMBAC Insured 1,574 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 1,269,352 Revenue Bonds, Series 2006, 4.600%, 1/01/26 3,400 Maricopa County Stadium District, Arizona, Revenue 6/12 at 100.00 N/R 3,581,084 Refunding Bonds, Series 2002, 5.375%, 6/01/18 - AMBAC Insured 3,400 Mesa, Arizona, Street and Highway User Tax Revenue Bonds, 7/15 at 100.00 AAA 3,564,662 Series 2005, 5.000%, 7/01/24 - FSA Insured 1,140 Pinetop Fire District of Navajo County, Arizona, 6/16 at 102.00 Baa2 1,117,246 Certificates of Participation, Series 2008, 7.750%, 6/15/29 1,200 Prescott Valley Municipal Property Corporation, Arizona, 1/13 at 100.00 AA- 1,209,312 Municipal Facilities Revenue Bonds, Series 2003, 5.000%, 1/01/27 - FGIC Insured 265 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 BBB- 237,281 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 1,610 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 A- 1,594,254 Facilities Excise Tax Revenue Bonds, Series 2005, 5.000%, 7/01/25 - SYNCORA GTY Insured 645 Vistancia Community Facilities District, Arizona, 7/15 at 100.00 Baa1 591,639 Restricted General Obligation Bonds, Series 2005, 5.750%, 7/15/24 ------------------------------------------------------------------------------------------------------------------------------------ 19,213 Total Tax Obligation/Limited 19,233,070 ------------------------------------------------------------------------------------------------------------------------------------ 24 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 24.4% (16.6% OF TOTAL INVESTMENTS) (5) $ 800 Arizona Health Facilities Authority, Hospital Revenue 7/10 at 101.00 N/R (5) $ 845,144 Bonds, Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10) 1,000 Arizona Health Facilities Authority, Hospital System 12/10 at 102.00 BBB (5) 1,096,650 Revenue Bonds, John C. Lincoln Health Network, Series 2000, 7.000%, 12/01/25 (Pre-refunded 12/01/10) 1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 AAA 1,370,500 Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31 (Pre-refunded 5/15/11) 1,250 Maricopa County Industrial Development Authority, Arizona, No Opt. Call A (5) 1,545,688 Hospital Revenue Refunding Bonds, Samaritan Health Services, Series 1990A, 7.000%, 12/01/16 - MBIA Insured (ETM) 385 Maricopa County, Arizona, Hospital Revenue Bonds, Sun 4/15 at 100.00 N/R (5) 443,790 Health Corporation, Series 2005, 5.000%, 4/01/16 (Pre-refunded 4/01/15) 3,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 A (5) 3,094,800 Bonds, Discovery Health System, Series 1999A, 5.750%, 1/01/25 (Pre-refunded 1/01/10) - MBIA Insured 2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/10 at 101.00 AA+ (5) 2,120,860 Wastewater System Revenue Bonds, Series 2000, 6.000%, 7/01/24 (Pre-refunded 7/01/10) - FGIC Insured 1,000 Puerto Rico Highway and Transportation Authority, Highway 7/10 at 101.00 BBB (5) 1,063,360 Revenue Bonds, Series 2000B, 6.500%, 7/01/27 (Pre-refunded 7/01/10) 735 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 Baa3 (5) 811,969 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 (Pre-refunded 7/01/12) 1,500 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 N/R (5) 1,680,570 Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11) ------------------------------------------------------------------------------------------------------------------------------------ 12,920 Total U.S. Guaranteed 14,073,331 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 21.2% (14.5% OF TOTAL INVESTMENTS) 1,000 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,158,390 Revenue Refunding Crossover Bonds, Hoover Project, Series 2001, 5.250%, 10/01/15 215 Pima County Industrial Development Authority, Arizona, 1/10 at 100.00 Aa3 216,155 Lease Obligation Revenue Refunding Bonds, Tucson Electric Power Company, Series 1988A, 7.250%, 7/15/10 - FSA Insured 2,170 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 A3 2,028,473 Series 2005RR, 5.000%, 7/01/27 - SYNCORA GTY Insured 530 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 Aa1 555,376 District, Arizona, Electric System Revenue Bonds, Series 2002B, 5.000%, 1/01/22 715 Salt River Project Agricultural Improvement and Power 1/18 at 100.00 Aa1 714,471 District, Arizona, Electric System Revenue Bonds, Tender Option Bond Trust 09-9W, 16.926%, 1/01/38 (IF) 1,000 Salt River Project Agricultural Improvement and Power 1/12 at 101.00 Aa1 1,027,550 District, Arizona, Electric System Revenue Refunding Bonds, Series 2002A, 5.125%, 1/01/27 Salt Verde Financial Corporation, Arizona, Senior Gas Revenue Bonds, Series 2007: 4,500 5.500%, 12/01/29 No Opt. Call A 3,886,739 3,500 5.000%, 12/01/37 No Opt. Call A 2,676,905 ------------------------------------------------------------------------------------------------------------------------------------ 13,630 Total Utilities 12,264,059 ------------------------------------------------------------------------------------------------------------------------------------ Nuveen Investments 25 NAZ | Nuveen Arizona Premium Income Municipal Fund, Inc. (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 17.4% (11.8% OF TOTAL INVESTMENTS) $ 1,005 Cottonwood, Arizona, Senior Lien Water System Revenue 7/14 at 100.00 BBB $ 907,716 Bonds, Municipal Property Corporation, Series 2004, 5.000%, 7/01/24 - SYNCORA GTY Insured 3,500 Glendale, Arizona, Water and Sewer Revenue Bonds, 7/13 at 100.00 AA 3,512,180 Subordinate Lien, Series 2003, 5.000%, 7/01/28 - AMBAC Insured 600 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AA- 610,212 Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 - MBIA Insured 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AA+ 1,028,460 Wastewater System Revenue Bonds, Series 2004, 5.000%, 7/01/24 - MBIA Insured 1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,506,390 Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 - FGIC Insured 1,250 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,452,750 Water System Revenue Refunding Bonds, Series 2001, 5.500%, 7/01/21 - FGIC Insured Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007: 600 4.700%, 4/01/22 4/14 at 100.00 N/R 504,108 695 4.900%, 4/01/32 4/17 at 100.00 N/R 528,978 ------------------------------------------------------------------------------------------------------------------------------------ 10,150 Total Water and Sewer 10,050,794 ------------------------------------------------------------------------------------------------------------------------------------ $ 87,148 Total Investments (cost $84,429,473) - 146.9% 84,856,846 =================------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.4% 772,885 ---------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.3)% (6) (27,875,000) ---------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 57,754,731 ================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (4) Investment valued at fair value methods determined in good faith by, or at the discretion of, the Board of Directors. For SFAS No. 157 disclosure purposes, investment categorized as Level 3. See Notes to Financial Statements, Footnote 2 - Fair Value Measurements for more information. (5) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (6) Preferred Shares, at Liquidation Value as a percentage of Total Investments is 32.8%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. See accompanying notes to financial statements. 26 Nuveen Investments NFZ | Nuveen Arizona Dividend Advantage Municipal Fund | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 7.8% (5.3% OF TOTAL INVESTMENTS) $ 280 Arizona Higher Education Loan Authority, Student Loan 9/09 at 100.00 AAA $ 221,570 Revenue Bonds, Series 2007B, Adjustable Rate, 0.735%, 11/01/41 (4) 1,000 Puerto Rico Industrial, Tourist, Educational, Medical and 8/09 at 101.00 BBB- 792,260 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, Ana G. Mendez University System, Series 1999, 5.375%, 2/01/29 300 Puerto Rico Industrial, Tourist, Educational, Medical and 9/11 at 100.00 BBB 285,042 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, University of the Sacred Heart, Series 2001, 5.250%, 9/01/21 305 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 225,483 School Revenue Bonds, Arizona Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34 ------------------------------------------------------------------------------------------------------------------------------------ 1,885 Total Education and Civic Organizations 1,524,355 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 18.6% (12.6% OF TOTAL INVESTMENTS) 565 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 551,920 Bonds, Banner Health Systems, Series 2007A, 5.000%, 1/01/25 325 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 180,538 Bonds, Banner Health Systems, Series 2007B, 1.210%, 1/02/37 720 Arizona Health Facilities Authority, Hospital Revenue 1/18 at 100.00 A+ 706,766 Bonds, Banner Health Systems, Series 2008D, 5.500%, 1/01/38 10 California Health Facilities Financing Authority, Health 3/13 at 100.00 A 8,666 Facility Revenue Bonds, Adventist Health System/West, Series 2003A, 5.000%, 3/01/28 250 Glendale Industrial Development Authority, Arizona, 12/15 at 100.00 BBB 206,438 Revenue Bonds, John C. Lincoln Health Network, Series 2005B, 5.000%, 12/01/37 415 Glendale Industrial Development Authority, Arizona, 12/17 at 100.00 BBB 332,913 Revenue Bonds, John C. Lincoln Health Network, Series 2007, 5.000%, 12/01/42 750 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 738,780 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23 1,025 Maricopa County Industrial Development Authority, Arizona, 7/17 at 100.00 A 925,165 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32 ------------------------------------------------------------------------------------------------------------------------------------ 4,060 Total Health Care 3,651,186 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 3.7% (2.5% OF TOTAL INVESTMENTS) 1,000 Maricopa County Industrial Development Authority, Arizona, 8/09 at 102.00 Baa1 733,370 Multifamily Housing Revenue Bonds, Whispering Palms Apartments, Series 1999A, 5.900%, 7/01/29 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 3.9% (2.6% OF TOTAL INVESTMENTS) 760 Tucson and Pima County Industrial Development Authority, 6/17 at 101.00 Aaa 764,514 Arizona, Joint Single Family Mortgage Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ Nuveen Investments 27 NFZ | Nuveen Arizona Dividend Advantage Municipal Fund (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 12.5% (8.5% OF TOTAL INVESTMENTS) $ 1,000 Maricopa County Unified School District 11, Peoria, 7/15 at 100.00 AA- $ 1,058,130 Arizona, General Obligation Bonds, Second Series 2005, 5.000%, 7/01/20 - FGIC Insured 1,340 Yuma & La Paz Counties Community College District, 7/16 at 100.00 A1 1,393,520 Arizona, General Obligation Bonds, Series 2006, 5.000%, 7/01/21 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 2,340 Total Tax Obligation/General 2,451,650 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 42.1% (28.6% OF TOTAL INVESTMENTS) 1,220 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 A2 1,131,086 Multipurpose Stadium Facility Project, Series 2003A, 5.000%, 7/01/31 - MBIA Insured 91 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 56,679 General Obligation Bonds, Series 2005, 5.500%, 7/15/29 208 Estrella Mountain Ranch Community Facilities District, 1/17 at 100.00 N/R 133,426 Arizona, Special Assessment Bonds, Montecito Assessment District, Series 2007, 5.700%, 7/01/27 149 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 134,227 Goodyear, Arizona, Special Assessment Lien Bonds, Series 2001A, 7.875%, 7/01/25 1,000 Greater Arizona Development Authority, Infrastructure 8/16 at 100.00 A+ 1,006,510 Revenue Bonds, Series 2006-1, 5.000%, 8/01/22 - MBIA Insured 275 Greater Arizona Development Authority, Infrastructure 8/16 at 100.00 AA- 277,098 Revenue Bonds, Series 2006A, 5.000%, 8/01/23 - MBIA Insured 1,180 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AA 1,202,196 Bonds, Series 2003, 5.000%, 7/01/23 - AMBAC Insured 550 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 443,548 Revenue Bonds, Series 2006, 4.600%, 1/01/26 150 Marley Park Community Facilities District, City of 7/17 at 100.00 N/R 97,767 Surprise, Arizona, Limited Tax General Obligation Bonds, Series 2007, 6.100%, 7/15/32 255 Merrill Ranch Community Facilities District 1, Florence, 7/18 at 100.00 N/R 194,511 Arizona, General Obligation Bonds, Series 2008A, 7.400%, 7/15/33 330 Palm Valley Community Facility District 3, Goodyear, 7/16 at 100.00 N/R 190,139 Arizona, General Obligation Bonds, Series 2006, 5.300%, 7/15/31 225 Palm Valley Community Facility District 3, Goodyear, 7/17 at 100.00 N/R 137,887 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.800%, 7/15/32 100 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 58,631 Arizona, General Obligation Bonds, Series 2006, 5.350%, 7/15/31 900 Phoenix Industrial Development Authority, Arizona, 3/12 at 100.00 A1 943,587 Government Bonds, Capitol Mall LLC II, Series 2001, 5.250%, 9/15/16 - AMBAC Insured 680 Pinal County Industrial Development Authority, Arizona, No Opt. Call BBB- 623,084 Correctional Facilities Contract Revenue Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured 600 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 A- 594,132 Facilities Excise Tax Revenue Bonds, Series 2005, 5.000%, 7/01/25 - SYNCORA GTY Insured 350 Tartesso West Community Facility District, Buckeye, 7/17 at 100.00 N/R 217,571 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.900%, 7/15/32 500 Vistancia Community Facilities District, Arizona, 7/15 at 100.00 Baa1 458,635 Restricted General Obligation Bonds, Series 2005, 5.750%, 7/15/24 354 Watson Road Community Facilities District, Arizona, 7/16 at 100.00 N/R 224,153 Special Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30 225 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 131,247 General Obligation Tax Increment Bonds Series 2006, 5.250%, 7/15/31 ------------------------------------------------------------------------------------------------------------------------------------ 9,342 Total Tax Obligation/Limited 8,256,114 ------------------------------------------------------------------------------------------------------------------------------------ 28 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 10.0% (6.7% OF TOTAL INVESTMENTS) (5) $ 365 Arizona Health Facilities Authority, Hospital Revenue 7/10 at 101.00 N/R (5) $ 385,597 Bonds, Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10) 240 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AA (5) 283,315 Arizona, General Obligation Bonds, Series 2006C, 5.000%, 7/01/24 (Pre-refunded 7/01/16) - MBIA Insured 140 Maricopa County, Arizona, Hospital Revenue Bonds, Sun 4/15 at 100.00 N/R (5) 161,378 Health Corporation, Series 2005, 5.000%, 4/01/16 (Pre-refunded 4/01/15) 1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 N/R (5) 1,120,380 Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11) ------------------------------------------------------------------------------------------------------------------------------------ 1,745 Total U.S. Guaranteed 1,950,670 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 29.8% (20.2% OF TOTAL INVESTMENTS) 1,500 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,734,554 Revenue Refunding Crossover Bonds, Hoover Project, Series 2001, 5.250%, 10/01/17 1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AA- 1,104,060 Series 2002, 5.250%, 7/01/17 - FGIC Insured 1,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 A3 940,110 Series 2005RR, 5.000%, 7/01/26 - SYNCORA GTY Insured 200 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 Aa1 209,576 District, Arizona, Electric System Revenue Bonds, Series 2002B, 5.000%, 1/01/22 560 Salt River Project Agricultural Improvement and Power 1/18 at 100.00 Aa1 559,586 District, Arizona, Electric System Revenue Bonds, Tender Option Bond Trust 09-9W, 16.926%, 1/01/38 (IF) 235 Salt River Project Agricultural Improvement and Power 1/10 at 100.00 Aa1 236,772 District, Arizona, Electric System Revenue Refunding Bonds, Series 1997A, 5.000%, 1/01/20 1,000 Salt River Project Agricultural Improvement and Power 1/12 at 101.00 Aa1 1,065,220 District, Arizona, Electric System Revenue Refunding Bonds, Series 2002A, 5.250%, 1/01/18 ------------------------------------------------------------------------------------------------------------------------------------ 5,495 Total Utilities 5,849,878 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 11.5% (7.8% OF TOTAL INVESTMENTS) 225 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AA- 228,830 Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 - MBIA Insured 1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,506,390 Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 - FGIC Insured Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007: 225 4.700%, 4/01/22 4/14 at 100.00 N/R 189,041 260 4.900%, 4/01/32 4/17 at 100.00 N/R 197,891 175 Yuma County Industrial Development Authority, Arizona, 12/17 at 100.00 N/R 128,352 Exempt Revenue Bonds, Far West Water & Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 2,385 Total Water and Sewer 2,250,504 ------------------------------------------------------------------------------------------------------------------------------------ $ 29,012 Total Long-Term Investments (cost $29,050,291) - 139.9% 27,432,241 =================------------------------------------------------------------------------------------------------------------------- Nuveen Investments 29 NFZ | Nuveen Arizona Dividend Advantage Municipal Fund (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ SHORT-TERM INVESTMENTS - 7.7% ( 5.2% OF TOTAL INVESTMENTS) CONSUMER DISCRETION - 5.1% (3.5% OF TOTAL INVESTMENTS) $ 1,000 Ak-Chin Indian Community, Arizona, Revenue Bonds, Variable 10/09 at 100.00 A-1 $ 1,000,000 Rate Demand Obligations, 0.400%, 4/01/23 (6) ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 2.6% (1.7% OF TOTAL INVESTMENTS) 500 The Industrial Development Authority of the County of 10/09 at 100.00 VMIG-1 500,000 Apache, Arizona, Industrial Development Revenue Bonds, 1985 Series A, Tucson Electric Power Company Springville Project, Variable Rate Demand Obligations, 0.420%, 12/01/20 (6) ------------------------------------------------------------------------------------------------------------------------------------ $ 1,500 Total Short-Term Investments (cost $1,500,000) 1,500,000 =================------------------------------------------------------------------------------------------------------------------- Total Investments (cost $30,550,291) - 147.6% 28,932,241 ---------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 6.5% 1,272,549 ---------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (54.1)% (7) (10,600,000) ---------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 19,604,790 ================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (4) Investment valued at fair value using methods determined in good faith by, or at the discretion of, the Board of Trustees. For SFAS No. 157 disclosure purposes, investment categorized as Level 3. See Notes to Financial Statements, Footnote 2 - Fair Value Measurements for more information. (5) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (6) Investment has a maturity of more than one year, but has variable rate and demand features which qualify it as a short-term investment. The rate disclosed is that in effect at the end of the reporting period. This rate changes periodically based on market conditions or a specified market index. (7) Preferred Shares, at Liquidation Value as a percentage of Total Investments is 36.6%. N/R Not rated. (IF) Inverse floating rate investment. See accompanying notes to financial statements. 30 Nuveen Investments NKR | Nuveen Arizona Dividend Advantage Municipal Fund 2 | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 6.1% (4.3% OF TOTAL INVESTMENTS) $ 1,130 Arizona Higher Education Loan Authority, Student Loan 9/09 at 100.00 AAA $ 894,192 Revenue Bonds, Series 2007B, Adjustable Rate, 0.735%, 11/01/41 (4) 460 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 368,823 Charter School Revenue Bonds, Noah Webster Basic Schools Inc., Series 2004, 6.000%, 12/15/24 320 Puerto Rico Industrial, Tourist, Educational, Medical and 8/09 at 101.00 BBB- 287,952 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, Ana G. Mendez University System, Series 1999, 5.375%, 2/01/19 480 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 354,859 School Revenue Bonds, Arizona Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34 University of Arizona, Certificates of Participation, Series 2002A: 65 5.500%, 6/01/18 - AMBAC Insured 6/12 at 100.00 AA- 69,132 40 5.125%, 6/01/22 - AMBAC Insured 6/12 at 100.00 AAA 40,170 ------------------------------------------------------------------------------------------------------------------------------------ 2,495 Total Education and Civic Organizations 2,015,128 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 24.3% (16.9% OF TOTAL INVESTMENTS) 845 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 825,438 Bonds, Banner Health Systems, Series 2007A, 5.000%, 1/01/25 520 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 288,860 Bonds, Banner Health Systems, Series 2007B, 1.210%, 1/02/37 1,150 Arizona Health Facilities Authority, Hospital Revenue 1/18 at 100.00 A+ 1,128,863 Bonds, Banner Health Systems, Series 2008D, 5.500%, 1/01/38 600 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A 602,934 Systems Inc., Series 2004, 5.000%, 4/01/20 400 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 330,300 Bonds, John C. Lincoln Health Network, Series 2005B, 5.000%, 12/01/37 655 Glendale Industrial Development Authority, Arizona, Revenue 12/17 at 100.00 BBB 525,441 Bonds, John C. Lincoln Health Network, Series 2007, 5.000%, 12/01/42 1,375 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 1,354,430 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23 1,650 Maricopa County Industrial Development Authority, Arizona, 7/17 at 100.00 A 1,489,290 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32 500 Maricopa County Industrial Development Authority, Arizona, 11/09 at 100.50 Aa2 500,225 Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998, 5.250%, 11/15/37 1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 936,200 Hospital Revenue Bonds, Yavapai Regional Medical Center, Series 2003A, 6.000%, 8/01/33 ------------------------------------------------------------------------------------------------------------------------------------ 8,695 Total Health Care 7,981,981 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 3.2% (2.2% OF TOTAL INVESTMENTS) 1,000 Maricopa County Industrial Development Authority, Arizona, 10/11 at 105.00 AAA 1,033,570 GNMA Collateralized Multifamily Housing Revenue Refunding Bonds, Pine Ridge, Cambridge Court, Cove on 44th and Fountain Place Apartments, Series 2001A-1, 6.000%, 10/20/31 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 3.8% (2.7% OF TOTAL INVESTMENTS) 1,245 Tucson and Pima County Industrial Development Authority, 6/17 at 101.00 Aaa 1,252,395 Arizona, Joint Single Family Mortgage Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax) Nuveen Investments 31 NKR | Nuveen Arizona Dividend Advantage Municipal Fund 2 (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 21.1% (14.6% OF TOTAL INVESTMENTS) $ 1,000 Maricopa County School District 6, Arizona, General No Opt. Call AAA $ 1,158,830 Obligation Refunding Bonds, Washington Elementary School, Series 2002A, 5.375%, 7/01/16 - FSA Insured 1,165 Maricopa County Unified School District 69, Paradise No Opt. Call Aa3 1,327,378 Valley, Arizona, General Obligation Refunding Bonds, Series 2002A, 5.250%, 7/01/14 - FGIC Insured 1,405 Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AA 1,603,850 5.375%, 7/01/15 - FGIC Insured Phoenix, Arizona, Various Purpose General Obligation Bonds, Series 2002B: 1,700 5.000%, 7/01/22 7/12 at 100.00 AAA 1,798,141 500 5.000%, 7/01/27 7/12 at 100.00 AAA 512,375 510 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 AAA 522,903 5.000%, 7/01/24 ------------------------------------------------------------------------------------------------------------------------------------ 6,280 Total Tax Obligation/General 6,923,477 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 43.5% (30.2% OF TOTAL INVESTMENTS) Arizona State, Certificates of Participation, Series 2002A: 750 5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00 AA- 774,240 1,000 5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00 AA- 1,025,420 500 5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00 AA- 508,215 128 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 79,725 General Obligation Bonds, Series 2005, 5.500%, 7/15/29 340 Estrella Mountain Ranch Community Facilities District, 1/17 at 100.00 N/R 204,408 Arizona, Special Assessment Bonds, Montecito Assessment District, Series 2007, 5.800%, 7/01/32 236 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 212,601 Goodyear, Arizona, Special Assessment Lien Bonds, Series 2001A, 7.875%, 7/01/25 921 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 742,740 Revenue Bonds, Series 2006, 4.600%, 1/01/26 Maricopa County Stadium District, Arizona, Revenue Refunding Bonds, Series 2002: 840 5.375%, 6/01/18 - AMBAC Insured 6/12 at 100.00 N/R 884,738 2,645 5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00 N/R 2,785,872 240 Marley Park Community Facilities District, City of 7/17 at 100.00 N/R 156,427 Surprise, Arizona, Limited Tax General Obligation Bonds, Series 2007, 6.100%, 7/15/32 415 Merrill Ranch Community Facilities District 1, Florence, 7/18 at 100.00 N/R 316,558 Arizona, General Obligation Bonds, Series 2008A, 7.400%, 7/15/33 530 Palm Valley Community Facility District 3, Goodyear, 7/16 at 100.00 N/R 305,375 Arizona, General Obligation Bonds, Series 2006, 5.300%, 7/15/31 350 Palm Valley Community Facility District 3, Goodyear, 7/17 at 100.00 N/R 214,491 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.800%, 7/15/32 140 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 82,083 Arizona, General Obligation Bonds, Series 2006, 5.350%, 7/15/31 1,500 Phoenix Industrial Development Authority, Arizona, 3/12 at 100.00 A1 1,572,645 Government Bonds, Capitol Mall LLC II, Series 2001, 5.250%, 9/15/16 - AMBAC Insured 1,070 Pinal County Industrial Development Authority, Arizona, No Opt. Call BBB- 980,441 Correctional Facilities Contract Revenue Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured 270 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 BBB- 241,758 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 960 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 A- 950,611 Facilities Excise Tax Revenue Bonds, Series 2005, 5.000%, 7/01/25 - SYNCORA GTY Insured 555 Tartesso West Community Facility District, Buckeye, 7/17 at 100.00 N/R 345,005 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.900%, 7/15/32 750 Vistancia Community Facilities District, Arizona, 7/15 at 100.00 Baa1 687,953 Restricted General Obligation Bonds, Series 2005, 5.750%, 7/15/24 32 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 559 Watson Road Community Facilities District, Arizona, Special 7/16 at 100.00 N/R $ 353,959 Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30 350 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 204,162 General Obligation Tax Increment Bonds Series 2006, 5.250%, 7/15/31 640 Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AA- 653,344 Facilities Tax Revenue Bonds, Series 2001, 5.000%, 7/01/21 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 15,689 Total Tax Obligation/Limited 14,282,771 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 4.3% (3.0% OF TOTAL INVESTMENTS) 470 Phoenix Civic Improvement Corporation, Arizona, Senior Lien 1/10 at 100.50 AAA 471,401 Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25 - FSA Insured 1,000 Phoenix, Arizona, Civic Improvement Corporation, Senior 7/12 at 100.00 AA- 948,770 Lien Airport Revenue Bonds, Series 2002B, 5.250%, 7/01/27 - FGIC Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 1,470 Total Transportation 1,420,171 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 21.8% (15.2% OF TOTAL INVESTMENTS) (5) 400 Arizona Health Facilities Authority, Hospital Revenue 7/10 at 101.00 N/R (5) 422,572 Bonds, Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10) 735 Arizona Health Facilities Authority, Hospital System 2/12 at 101.00 N/R (5) 830,006 Revenue Bonds, Phoenix Children's Hospital, Series 2002A, 6.250%, 2/15/21 (Pre-refunded 2/15/12) 715 Arizona State University, System Revenue Bonds, Series 7/12 at 100.00 AAA 811,825 2002, 5.750%, 7/01/27 (Pre-refunded 7/01/12) - FGIC Insured 100 Maricopa County Unified School District 89, Dysart, 7/14 at 100.00 AAA 116,752 Arizona, General Obligation Bonds, Series 2004B, 5.250%, 7/01/20 (Pre-refunded 7/01/14) - FSA Insured 375 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AA (5) 442,680 Arizona, General Obligation Bonds, Series 2006C, 5.000%, 7/01/24 (Pre-refunded 7/01/16) - MBIA Insured 225 Maricopa County, Arizona, Hospital Revenue Bonds, Sun 4/15 at 100.00 N/R (5) 259,358 Health Corporation, Series 2005, 5.000%, 4/01/16 (Pre-refunded 4/01/15) 730 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 Baa3 (5) 806,446 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 (Pre-refunded 7/01/12) 1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 N/R (5) 1,120,380 Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11) 990 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 AAA 1,072,586 5.000%, 7/01/24 (Pre-refunded 7/01/11) University of Arizona, Certificates of Participation, Series 2002A: 685 5.500%, 6/01/18 (Pre-refunded 6/01/12) - AMBAC Insured 6/12 at 100.00 AA- (5) 769,618 460 5.125%, 6/01/22 (Pre-refunded 6/01/12) - AMBAC Insured 6/12 at 100.00 A1 (5) 512,021 ------------------------------------------------------------------------------------------------------------------------------------ 6,415 Total U.S. Guaranteed 7,164,244 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 3.7% (2.6% OF TOTAL INVESTMENTS) 450 Salt River Project Agricultural Improvement and Power 1/18 at 100.00 Aa1 449,667 District, Arizona, Electric System Revenue Bonds, Tender Option Bond Trust 09-9W, 16.926%, 1/01/38 (IF) 1,000 Salt Verde Financial Corporation, Arizona, Senior Gas No Opt. Call A 764,830 Revenue Bonds, Series 2007, 5.000%, 12/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 1,450 Total Utilities 1,214,497 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 12.0% (8.3% OF TOTAL INVESTMENTS) 500 Maricopa County Industrial Development Authority, Arizona, 12/09 at 100.00 N/R 486,625 Water System Improvement Revenue Bonds, Chaparral City Water Company, Series 1997A, 5.400%, 12/01/22 - AMBAC Insured (Alternative Minimum Tax) 360 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AA- 366,127 Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 - MBIA Insured Nuveen Investments 33 NKR | Nuveen Arizona Dividend Advantage Municipal Fund 2 (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA $ 1,149,040 Water System Revenue Refunding Bonds, Series 2001, 5.500%, 7/01/22 - FGIC Insured Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007: 350 4.700%, 4/01/22 4/14 at 100.00 N/R 294,063 410 4.900%, 4/01/32 4/17 at 100.00 N/R 312,059 1,000 Tucson, Arizona, Water System Revenue Refunding Bonds, 7/12 at 102.00 AA- 1,114,650 Series 2002, 5.500%, 7/01/18 - FGIC Insured 275 Yuma County Industrial Development Authority, Arizona, 12/17 at 100.00 N/R 201,696 Exempt Revenue Bonds, Far West Water & Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 3,895 Total Water and Sewer 3,924,260 ------------------------------------------------------------------------------------------------------------------------------------ $ 48,634 Total Investments (cost $48,467,496) - 143.8% 47,212,494 =================------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 6.8% 2,241,860 ---------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (50.6)% (6) (16,625,000) ---------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 32,829,354 ================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (4) Investment valued at fair value using methods determined in good faith by, or at the discretion of, the Board of Trustees. For SFAS No. 157 disclosure purposes, investment categorized as Level 3. See Notes to Financial Statements, Footnote 2 - Fair Value Measurements for more information. (5) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (6) Preferred Shares, at Liquidation Value as a percentage of Total Investments is 35.2%. N/R Not rated. (IF) Inverse floating rate investment. See accompanying notes to financial statements. 34 Nuveen Investments NXE | Nuveen Arizona Dividend Advantage Municipal Fund 3 | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 1.1% (0.8% OF TOTAL INVESTMENTS) $ 500 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 440,305 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 15.3% (10.6% OF TOTAL INVESTMENTS) 690 Arizona Higher Education Loan Authority, Student Loan 9/09 at 100.00 AAA 546,011 Revenue Bonds, Series 2007B, Adjustable Rate, 0.735%, 11/01/41 (4) 1,250 Arizona State University, System Revenue Bonds, Series 7/15 at 100.00 N/R 1,299,213 2005, 5.000%, 7/01/20 - AMBAC Insured 1,130 Energy Management Services LLC, Arizona State University, 7/12 at 100.00 AA 1,195,766 Energy Conservation Revenue Bonds, Main Campus Project, Series 2002, 5.250%, 7/01/18 - MBIA Insured 540 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 432,967 Charter School Revenue Bonds, Noah Webster Basic Schools Inc., Series 2004, 6.000%, 12/15/24 565 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 417,699 School Revenue Bonds, Arizona Agribusiness and Equine Center Charter School, Series 2004A, 6.125%, 9/01/34 2,000 University of Arizona, Certificates of Participation, 6/12 at 100.00 AA- 2,095,540 Series 2002B, 5.125%, 6/01/20 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 6,175 Total Education and Civic Organizations 5,987,196 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 30.3% (21.0% OF TOTAL INVESTMENTS) 1,015 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 991,503 Bonds, Banner Health Systems, Series 2007A, 5.000%, 1/01/25 620 Arizona Health Facilities Authority, Hospital Revenue 1/17 at 100.00 A+ 344,410 Bonds, Banner Health Systems, Series 2007B, 1.210%, 1/02/37 2,390 Arizona Health Facilities Authority, Hospital Revenue 1/18 at 100.00 A+ 2,346,071 Bonds, Banner Health Systems, Series 2008D, 5.500%, 1/01/38 625 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A 628,056 Systems Inc., Series 2004, 5.000%, 4/01/20 475 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 392,231 Bonds, John C. Lincoln Health Network, Series 2005B, 5.000%, 12/01/37 785 Glendale Industrial Development Authority, Arizona, Revenue 12/17 at 100.00 BBB 629,727 Bonds, John C. Lincoln Health Network, Series 2007, 5.000%, 12/01/42 1,825 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 1,797,698 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2004A, 5.375%, 7/01/23 1,985 Maricopa County Industrial Development Authority, Arizona, 7/17 at 100.00 A 1,791,661 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2007A, 5.250%, 7/01/32 2,000 Maricopa County Industrial Development Authority, Arizona, 11/09 at 100.50 Aa2 2,000,900 Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998, 5.250%, 11/15/37 1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 936,200 Hospital Revenue Bonds, Yavapai Regional Medical Center, Series 2003A, 6.000%, 8/01/33 ------------------------------------------------------------------------------------------------------------------------------------ 12,720 Total Health Care 11,858,457 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 3.8% (2.6% OF TOTAL INVESTMENTS) 1,495 Tucson and Pima County Industrial Development Authority, 6/17 at 101.00 Aaa 1,503,880 Arizona, Joint Single Family Mortgage Revenue Bonds, Series 2007B, 5.350%, 6/01/47 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ Nuveen Investments 35 NXE | Nuveen Arizona Dividend Advantage Municipal Fund 3 (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 2.6% (1.8% OF TOTAL INVESTMENTS) $ 1,000 Pinal County Unified School District 1, Florence, Arizona, 7/18 at 100.00 A $ 1,021,370 General Obligation Bonds, Series 2008C, 5.250%, 7/01/28 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 30.3% (21.0% OF TOTAL INVESTMENTS) 146 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 90,936 General Obligation Bonds, Series 2005, 5.500%, 7/15/29 2,250 DC Ranch Community Facilities District, Scottsdale, 7/13 at 100.00 Baa1 2,006,933 Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/15/27 - AMBAC Insured Estrella Mountain Ranch Community Facilities District, Arizona, Special Assessment Bonds, Montecito Assessment District, Series 2007: 252 5.700%, 7/01/27 1/17 at 100.00 N/R 161,650 155 5.800%, 7/01/32 1/17 at 100.00 N/R 93,186 277 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 249,535 Goodyear, Arizona, Special Assessment Lien Bonds, Series 2001A, 7.875%, 7/01/25 525 Greater Arizona Development Authority, Infrastructure 8/16 at 100.00 AA- 529,006 Revenue Bonds, Series 2006A, 5.000%, 8/01/23 - MBIA Insured 1,076 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 867,740 Revenue Bonds, Series 2006, 4.600%, 1/01/26 290 Marley Park Community Facilities District, City of 7/17 at 100.00 N/R 189,016 Surprise, Arizona, Limited Tax General Obligation Bonds, Series 2007, 6.100%, 7/15/32 490 Merrill Ranch Community Facilities District 1, Florence, 7/18 at 100.00 N/R 373,767 Arizona, General Obligation Bonds, Series 2008A, 7.400%, 7/15/33 2,000 Mohave County, Arizona, Certificates of Participation, 7/14 at 100.00 N/R 2,095,960 Series 2004, 5.250%, 7/01/19 - AMBAC Insured 640 Palm Valley Community Facility District 3, Goodyear, 7/16 at 100.00 N/R 368,755 Arizona, General Obligation Bonds, Series 2006, 5.300%, 7/15/31 425 Palm Valley Community Facility District 3, Goodyear, 7/17 at 100.00 N/R 260,453 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.800%, 7/15/32 160 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 93,810 Arizona, General Obligation Bonds, Series 2006, 5.350%, 7/15/31 1,250 Pinal County Industrial Development Authority, Arizona, No Opt. Call BBB- 1,145,375 Correctional Facilities Contract Revenue Bonds, Florence West Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured 1,130 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 A- 1,118,949 Facilities Excise Tax Revenue Bonds, Series 2005, 5.000%, 7/01/25 - SYNCORA GTY Insured 665 Tartesso West Community Facility District, Buckeye, 7/17 at 100.00 N/R 413,384 Arizona, Limited Tax General Obligation Bonds, Series 2007, 5.900%, 7/15/32 1,250 Vistancia Community Facilities District, Arizona, 7/15 at 100.00 Baa1 1,146,588 Restricted General Obligation Bonds, Series 2005, 5.750%, 7/15/24 663 Watson Road Community Facilities District, Arizona, Special 7/16 at 100.00 N/R 419,812 Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30 425 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 247,911 General Obligation Tax Increment Bonds Series 2006, 5.250%, 7/15/31 ------------------------------------------------------------------------------------------------------------------------------------ 14,069 Total Tax Obligation/Limited 11,872,766 ------------------------------------------------------------------------------------------------------------------------------------ 36 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 14.6% (10.1% OF TOTAL INVESTMENTS) Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series 2002B: $ 1,000 5.750%, 7/01/16 - FGIC Insured (Alternative Minimum Tax) 7/12 at 100.00 AA- $ 1,033,630 2,300 5.250%, 7/01/21 - FGIC Insured (Alternative Minimum Tax) 7/12 at 100.00 AA- 2,297,883 2,450 Tucson Airport Authority Inc., Arizona, Revenue Refunding 6/11 at 100.00 A1 2,367,900 Bonds, Series 2001B, 5.000%, 6/01/20 - AMBAC Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 5,750 Total Transportation 5,699,413 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 23.0% (15.9% OF TOTAL INVESTMENTS) (5) 300 Arizona Health Facilities Authority, Hospital Revenue 7/10 at 101.00 N/R (5) 316,929 Bonds, Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 (Pre-refunded 7/01/10) 1,000 Arizona Health Facilities Authority, Hospital System 12/10 at 102.00 BBB (5) 1,095,070 Revenue Bonds, John C. Lincoln Health Network, Series 2000, 6.875%, 12/01/20 (Pre-refunded 12/01/10) Arizona Health Facilities Authority, Hospital System Revenue Bonds, Phoenix Children's Hospital, Series 1999A: 350 6.125%, 11/15/22 (Pre-refunded 11/15/09) 11/09 at 100.00 Baa3 (5) 355,264 520 6.250%, 11/15/29 (Pre-refunded 11/15/09) 11/09 at 100.00 Baa3 (5) 528,008 1,575 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,820,354 Arizona, General Obligation Bonds, Series 2004A, 5.000%, 7/01/20 (Pre-refunded 7/01/14) - FSA Insured 270 Maricopa County, Arizona, Hospital Revenue Bonds, Sun 4/15 at 100.00 N/R (5) 311,229 Health Corporation, Series 2005, 5.000%, 4/01/16 (Pre-refunded 4/01/15) 1,250 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 N/R (5) 1,400,475 Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 (Pre-refunded 12/01/11) 2,770 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, Series 7/13 at 100.00 AAA 3,161,815 2003, 5.000%, 7/01/22 (Pre-refunded 7/01/13) ------------------------------------------------------------------------------------------------------------------------------------ 8,035 Total U.S. Guaranteed 8,989,144 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 11.7% (8.1% OF TOTAL INVESTMENTS) 1,250 Maricopa County Pollution Control Corporation, Arizona, 11/12 at 100.00 Baa2 1,053,538 Revenue Bonds, Arizona Public Service Company - Palo Verde Project, Series 2002A, 5.050%, 5/01/29 - AMBAC Insured 1,660 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 A3 1,560,583 Series 2005RR, 5.000%, 7/01/26 - SYNCORA GTY Insured 270 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 Aa1 282,928 District, Arizona, Electric System Revenue Bonds, Series 2002B, 5.000%, 1/01/22 775 Salt River Project Agricultural Improvement and Power 1/18 at 100.00 Aa1 774,427 District, Arizona, Electric System Revenue Bonds, Tender Option Bond Trust 09-9W, 16.926%, 1/01/38 (IF) 1,165 Salt Verde Financial Corporation, Arizona, Senior Gas No Opt. Call A 891,027 Revenue Bonds, Series 2007, 5.000%, 12/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 5,120 Total Utilities 4,562,503 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 11.7% (8.1% OF TOTAL INVESTMENTS) 405 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AA- 411,893 Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 - MBIA Insured 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/11 at 100.00 AA+ 1,036,200 Wastewater System Revenue Refunding Bonds, Series 2001, 5.125%, 7/01/21 - FGIC Insured Nuveen Investments 37 NXE | Nuveen Arizona Dividend Advantage Municipal Fund 3 (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA $ 2,140,059 Water System Revenue Bonds, Series 2002, 5.000%, 7/01/18 - FGIC Insured Surprise Municipal Property Corporation, Arizona, Wastewater System Revenue Bonds, Series 2007: 425 4.700%, 4/01/22 4/14 at 100.00 N/R 357,077 490 4.900%, 4/01/32 4/17 at 100.00 N/R 372,949 330 Yuma County Industrial Development Authority, Arizona, 12/17 at 100.00 N/R 242,035 Exempt Revenue Bonds, Far West Water & Sewer Inc. Refunding, Series 2007A, 6.375%, 12/01/37 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 4,650 Total Water and Sewer 4,560,213 ------------------------------------------------------------------------------------------------------------------------------------ $ 59,514 Total Investments (cost $59,413,492) - 144.4% 56,495,247 =================------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.6% 1,033,573 ---------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (47.0)% (6) (18,400,000) ---------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 39,128,820 ================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (4) Investment valued at fair value using methods determined in good faith by, or at the discretion of, the Board of Trustees. For SFAS No. 157 disclosure purposes, investment categorized as Level 3. See Notes to Financial Statements, Footnote 2 - Fair Value Measurements for more information. (5) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (6) Preferred Shares, at Liquidation Value as a percentage of Total Investments is 32.6%. N/R Not rated. (IF) Inverse floating rate investment. See accompanying notes to financial statements. 38 Nuveen Investments NTX | Nuveen Texas Quality Income Municipal Fund | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 1.6% (1.1% OF TOTAL INVESTMENTS) $ 2,360 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 2,078,240 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 15.7% (10.6% OF TOTAL INVESTMENTS) 1,000 Central Texas Higher Education Authority Inc., Texas, 9/09 at 100.00 A2 950,615 Student Loan Revenue Bonds, Auction Rate Coupon, 0.858%, 12/01/37 - (Alternative Minimum Tax) (4) Red River Education Finance Corporation, Texas, Revenue Bonds, Hockaday School, Series 2005: 1,170 5.000%, 5/15/27 5/15 at 100.00 AA 1,182,800 1,230 5.000%, 5/15/28 5/15 at 100.00 AA 1,237,282 1,290 5.000%, 5/15/29 5/15 at 100.00 AA 1,291,832 Texas Public Finance Authority, Revenue Bonds, Texas Southern University Financing System, Series 2003: 1,710 5.000%, 5/01/18 - FGIC Insured 5/13 at 100.00 Ba3 1,551,312 1,795 5.000%, 5/01/19 - FGIC Insured 5/13 at 100.00 Ba3 1,606,202 1,885 5.000%, 5/01/20 - FGIC Insured 5/13 at 100.00 Ba3 1,664,512 1,665 Texas State University System, Financing Revenue Bonds, 9/14 at 100.00 AAA 1,736,345 Series 2004, 5.000%, 3/15/24 - FSA Insured 2,000 Texas State University System, Financing Revenue Refunding 3/12 at 100.00 AAA 2,072,120 Bonds, Series 2002, 5.000%, 3/15/20 - FSA Insured 2,330 Universal City Education Facilities Corporation, Texas, 3/11 at 102.00 A- 2,333,728 Revenue Bonds, Wayland Baptist University Project, Series 2001, 5.625%, 3/01/26 5,000 University of North Texas, Financing System Revenue Bonds, 4/12 at 100.00 AAA 5,057,600 Series 2001, 5.000%, 4/15/24 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 21,075 Total Education and Civic Organizations 20,684,348 ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 1.9% (1.3% OF TOTAL INVESTMENTS) 3,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 10/09 at 101.00 BBB 2,477,280 Revenue Bonds, Valero Energy Corporation Project, Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 14.8% (10.0% OF TOTAL INVESTMENTS) 3,270 Abilene Health Facilities Development Corporation, Texas, 9/09 at 100.00 A 3,171,508 Hospital Revenue Refunding and Improvement Bonds, Hendrick Medical Center Project, Series 1995C, 6.150%, 9/01/25 - MBIA Insured Brazoria County Health Facilities Development Corporation, Texas, Revenue Bonds, Brazosport Memorial Hospital, Series 2004: 1,745 5.250%, 7/01/20 - RAAI Insured 7/14 at 100.00 BBB- 1,535,757 1,835 5.250%, 7/01/21 - RAAI Insured 7/14 at 100.00 BBB- 1,593,624 2,650 Midland County Hospital District, Texas, Hospital Revenue No Opt. Call BBB- 2,423,478 Bonds, Series 1992, 0.000%, 6/01/11 2,000 North Central Texas Health Facilities Development 5/11 at 100.00 Aa2 1,969,300 Corporation, Hospital Revenue Bonds, Baylor Healthcare System, Series 2001A, 5.125%, 5/15/29 Richardson Hospital Authority, Texas, Revenue Bonds, Richardson Regional Medical Center, Series 2004: 2,000 5.875%, 12/01/24 12/13 at 100.00 Baa2 1,692,860 1,000 6.000%, 12/01/34 12/13 at 100.00 Baa2 778,370 2,500 Tarrant County Cultural & Educational Facilities Financing 11/17 at 100.00 AA- 2,320,625 Corporation, Texas, Revenue Bonds, Tarrant County Health Resources, Series 2007B, 5.000%, 11/15/42 Nuveen Investments 39 NTX | Nuveen Texas Quality Income Municipal Fund (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (continued) $ 2,000 Tarrant County Cultural Education Facilities Finance 1/19 at 100.00 AAA $ 2,119,720 Corporation, Texas, Revenue Refunding Bonds, Christus Health, Series 2008, 6.500%, 7/01/37 700 Tyler Health Facilities Development Corporation, Texas, 7/17 at 100.00 Baa1 473,977 Hospital Revenue Bonds, Mother Frances Hospital Regional Healthcare Center, Series 2007B, 5.000%, 7/01/37 2,000 Tyler Health Facilities Development Corporation, Texas, 7/17 at 100.00 Baa1 1,399,560 Hospital Revenue Bonds, Mother Frances Hospital Regional Healthcare Center, Series 2007, 5.000%, 7/01/33 ------------------------------------------------------------------------------------------------------------------------------------ 21,700 Total Health Care 19,478,779 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 1.3% (0.9% OF TOTAL INVESTMENTS) Bexar County Housing Finance Corporation, Texas, Insured Multifamily Housing Revenue Bonds, Waters at Northern Hills Apartments Project, Series 2001A: 2,000 6.000%, 8/01/31 - MBIA Insured 8/11 at 102.00 Baa1 1,268,760 750 6.050%, 8/01/36 - MBIA Insured 8/11 at 102.00 Baa1 462,450 ------------------------------------------------------------------------------------------------------------------------------------ 2,750 Total Housing/Multifamily 1,731,210 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 3.5% (2.3% OF TOTAL INVESTMENTS) 1,684 El Paso Housing Finance Corporation, Texas, GNMA 4/11 at 106.75 AAA 1,756,432 Collateralized Single Family Mortgage Revenue Bonds, Series 2001A-3, 6.180%, 4/01/33 20 Galveston Property Finance Authority Inc., Texas, Single 9/09 at 100.00 Caa1 19,697 Family Mortgage Revenue Bonds, Series 1991A, 8.500%, 9/01/11 2,780 Texas Department of Housing and Community Affairs, Single 3/12 at 100.00 AAA 2,772,522 Family Mortgage Bonds, Series 2002B, 5.550%, 9/01/33 - MBIA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 4,484 Total Housing/Single Family 4,548,651 ------------------------------------------------------------------------------------------------------------------------------------ LONG TERM CARE - 0.9% (0.6% OF TOTAL INVESTMENTS) Bexar County, Texas, Health Facilities Development Corporation Revenue Bonds, Army Retirement Residence, Series 2007: 1,000 5.000%, 7/01/27 7/17 at 100.00 BBB 763,430 600 5.000%, 7/01/37 7/17 at 100.00 BBB 408,762 ------------------------------------------------------------------------------------------------------------------------------------ 1,600 Total Long Term Care 1,172,192 ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 4.4% (3.0% OF TOTAL INVESTMENTS) 3,000 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB 2,804,400 Environmental Improvement Revenue Bonds, International Paper Company, Series 2000A, 6.600%, 3/15/24 (Alternative Minimum Tax) 3,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid 10/09 at 100.00 A 3,000,180 Waste Disposal Facility Bonds, E.I. DuPont de Nemours and Company Project, Series 1996, 6.400%, 4/01/26 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 6,000 Total Materials 5,804,580 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 47.2% (31.8% OF TOTAL INVESTMENTS) 1,260 Bexar County, Texas, Combined Tax and Revenue Certificates 6/14 at 100.00 AA+ 1,353,580 of Obligation, Series 2004, 5.000%, 6/15/19 2,000 Borger Independent School District, Hutchison County, 2/16 at 100.00 AAA 2,014,360 Texas, General Obligation Bonds, Series 2006, 5.000%, 2/15/36 1,190 Canutillo Independent School District, El Paso County, 8/15 at 100.00 AAA 1,272,550 Texas, General Obligation Bonds, Series 2006A, 5.000%, 8/15/22 325 Copperas Cove, Texas, Certificates of Obligation, Series 8/12 at 100.00 AA 331,523 2003, 5.000%, 8/15/23 - MBIA Insured 2,305 Corpus Christi, Texas, Combination Tax and Municipal Hotel 9/12 at 100.00 AAA 2,452,428 Occupancy Tax Revenue Certificates of Obligation, Series 2002, 5.500%, 9/01/21 - FSA Insured 2,595 Denton County, Texas, Permanent Improvement General 7/12 at 100.00 AAA 2,710,633 Obligation Bonds, Series 2005, 5.000%, 7/15/25 1,750 El Paso County, Texas, Certificates of Obligation, Series No Opt. Call AAA 1,957,008 2001, 5.000%, 2/15/21 - FSA Insured 40 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) Fort Bend County Municipal Utility District 25, Texas, General Obligation Bonds, Series 2005: $ 1,330 5.000%, 10/01/26 - FGIC Insured 10/12 at 100.00 A $ 1,338,419 1,320 5.000%, 10/01/27 - FGIC Insured 10/12 at 100.00 A 1,325,280 3,615 Frisco, Texas, General Obligation Bonds, Series 2006, 2/16 at 100.00 AA 3,766,215 5.000%, 2/15/26 - FGIC Insured 8,500 Grand Prairie Independent School District, Dallas County, 8/18 at 22.64 AA- 1,077,545 Texas, General Obligation Bonds, Capital Appreciation Refunding Series 2009, 0.000%, 8/15/39 Houston Community College, Texas, Limited Tax General Obligation Bonds, Series 2003: 2,500 5.000%, 2/15/20 - AMBAC Insured 2/13 at 100.00 AA 2,632,200 2,235 5.000%, 2/15/21 - AMBAC Insured 2/13 at 100.00 AA 2,332,848 5,000 Houston, Texas, General Obligation Bonds, Series 2005E, 3/15 at 100.00 AA 5,244,000 5.000%, 3/01/23 - AMBAC Insured 100 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 103,979 General Obligation Refunding Bonds, Series 2002, 5.250%, 2/01/21 4,900 Leander Independent School District, Williamson and Travis 8/14 at 17.78 AAA 639,254 Counties, Texas, General Obligation Bonds, Series 2006, 0.000%, 8/15/45 5,220 Leander Independent School District, Williamson and Travis 8/09 at 46.74 AAA 2,442,647 Counties, Texas, Unlimited Tax School Building and Refunding Bonds, Series 2000, 0.000%, 8/15/21 1,000 Mansfield Independent School District, Tarrant County, 2/14 at 100.00 AAA 1,088,430 Texas, General Obligation Bonds, Series 2004, 5.000%, 2/15/20 1,010 Mercedes Independent School District, Hidalgo County, Texas, 8/15 at 100.00 AAA 1,074,893 General Obligation Bonds, Series 2005, 5.000%, 8/15/23 5,515 Midlothian Independent School District, Ellis County, Texas, 2/15 at 100.00 Aaa 5,565,297 General Obligation Bonds, Series 2005, 5.000%, 2/15/34 925 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 943,352 Unlimited Tax School Building and Refunding Bonds, Series 2000, 5.875%, 8/15/25 2,000 Plano Independent School District, Collin County, Texas, 2/18 at 100.00 Aa1 2,066,640 General Obligation Bonds, Series 2008, 5.250%, 2/15/34 Roma Independent School District, Texas, General Obligation Bonds, Series 2005: 1,110 5.000%, 8/15/22 8/15 at 100.00 AAA 1,187,001 1,165 5.000%, 8/15/23 - FSA Insured 8/15 at 100.00 AAA 1,239,851 1,250 Southside Independent School District, Bexar County, Texas, 8/14 at 100.00 Aaa 1,337,100 General Obligation Bonds, Series 2004A, 5.000%, 8/15/22 1,140 Sunnyvale School District, Texas, General Obligation Bonds, 2/14 at 100.00 AAA 1,199,998 Series 2004, 5.250%, 2/15/25 5,000 Texas State, General Obligation Bonds, Transportation 4/17 at 100.00 Aa1 5,066,400 Commission Mobility Fund, Series 2006-A, 5.000%, 4/01/33 (UB) 1,000 Texas State, General Obligation Bonds, Transportation 4/18 at 100.00 Aa1 1,032,600 Commission Mobility Fund, Series 2008-A, 5.000%, 4/01/30 (UB) 1,110 Texas State, General Obligation Bonds, Water Utility, Series 8/11 at 100.00 Aa1 1,162,980 2001, 5.250%, 8/01/23 1,500 Texas, General Obligation Refunding Bonds, Public Finance 10/12 at 100.00 Aa1 1,610,025 Authority, Series 2002, 5.000%, 10/01/18 3,025 Victoria Independent School District, Victoria County, 2/17 at 100.00 AAA 3,087,769 Texas, General Obligation Bonds, Series 2007, 5.000%, 2/15/32 West Texas Independent School District, McLennan and Hill Counties, General Obligation Refunding Bonds, Series 1998: 1,000 0.000%, 8/15/22 8/13 at 61.20 AAA 508,090 1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 451,210 White Settlement Independent School District, Tarrant County, Texas, General Obligation Bonds, Series 2006: 1,500 0.000%, 8/15/43 8/15 at 23.11 AAA 209,460 1,500 0.000%, 8/15/44 8/15 at 21.88 AAA 197,160 425 0.000%, 8/15/45 8/15 at 20.76 AAA 52,496 ------------------------------------------------------------------------------------------------------------------------------------ 78,320 Total Tax Obligation/General 62,075,221 ------------------------------------------------------------------------------------------------------------------------------------ Nuveen Investments 41 NTX | Nuveen Texas Quality Income Municipal Fund (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 8.5% (5.8% OF TOTAL INVESTMENTS) $ 7,940 Dallas Area Rapid Transit, Texas, Senior Lien Sales Tax 12/16 at 100.00 AAA $ 7,939,441 Revenue Bonds, Series 2007, 5.000%, 12/01/36 - AMBAC Insured Harris County-Houston Sports Authority, Texas, Junior Lien Revenue Bonds, Series 2001H: 1,720 0.000%, 11/15/34 - MBIA Insured 11/31 at 83.17 A 254,526 930 0.000%, 11/15/36 - MBIA Insured 11/31 at 73.51 A 112,260 3,265 0.000%, 11/15/38 - MBIA Insured 11/31 at 64.91 A 331,887 Harris County-Houston Sports Authority, Texas, Senior Lien Revenue Bonds, Series 2001G: 2,250 5.250%, 11/15/22 - MBIA Insured 11/11 at 100.00 A 2,089,935 2,475 0.000%, 11/15/41 - MBIA Insured 11/31 at 53.78 A 205,351 1,470 Houston, Texas, Hotel Occupancy Tax and Special Revenue No Opt. Call A- 319,181 Bonds, Convention and Entertainment Project, Series 2001B, 0.000%, 9/01/32 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 20,050 Total Tax Obligation/Limited 11,252,581 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 6.1% (4.1% OF TOTAL INVESTMENTS) 1,000 Austin, Texas, Airport System Prior Lien Revenue Bonds, 11/13 at 100.00 A 1,048,960 Series 2003, 5.250%, 11/15/16 - MBIA Insured 3,260 Central Texas Regional Mobility Authority, Travis and 1/15 at 100.00 A 2,956,038 Williamson Counties, Toll Road Revenue Bonds, Series 2005, 5.000%, 1/01/22 - FGIC Insured 2,600 Dallas-Ft. Worth International Airport Facility Improvement 11/09 at 101.00 CCC+ 966,966 Corporation, Texas, Revenue Bonds, American Airlines Inc., Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax) 2,000 Houston, Texas, Subordinate Lien Airport System Revenue 7/10 at 100.00 AAA 1,948,340 Bonds, Series 2000A, 5.625%, 7/01/30 - FSA Insured (Alternative Minimum Tax) 2,500 North Texas Thruway Authority, First Tier System Revenue No Opt. Call AAA 475,800 Refunding Bonds, Capital Appreciation Series 2008, 0.000%, 1/01/36 - AGC Insured 600 North Texas Thruway Authority, Second Tier System Revenue 1/18 at 100.00 A3 574,896 Refunding Bonds, Series 2008, 5.750%, 1/01/38 ------------------------------------------------------------------------------------------------------------------------------------ 11,960 Total Transportation 7,971,000 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 18.8% (12.6% OF TOTAL INVESTMENTS) (5) Coppell Independent School District, Dallas County, Texas, Unlimited Tax School Building and Refunding Bonds, Series 1992: 2,585 0.000%, 8/15/14 (Pre-refunded 8/15/09) - MBIA Insured 8/09 at 75.34 Aa3 (5) 1,950,512 295 0.000%, 8/15/14 (Pre-refunded 8/15/09) - MBIA Insured 8/09 at 75.34 Aa3 (5) 209,881 950 Copperas Cove, Texas, Certificates of Obligation, Series 8/12 at 100.00 A3 (5) 1,064,219 2003, 5.000%, 8/15/23 (Pre-refunded 8/15/12) - MBIA Insured Gregg County Health Facilities Development Corporation, Texas, Hospital Revenue Bonds, Good Shepherd Medical Center Project, Series 2000: 2,000 6.875%, 10/01/20 (Pre-refunded 10/01/10) - RAAI Insured 10/10 at 101.00 BBB- (5) 2,148,100 3,250 6.375%, 10/01/25 (Pre-refunded 10/01/10) - RAAI Insured 10/10 at 101.00 BBB- (5) 3,472,105 500 Harris County Health Facilities Development Corporation, 8/11 at 100.00 AAA 547,600 Texas, Revenue Bonds, St. Luke's Episcopal Hospital, Series 2001A, 5.500%, 2/15/21 (Pre-refunded 8/15/11) 1,000 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 1,069,050 General Obligation Refunding Bonds, Series 2002, 5.250%, 2/01/21 (Pre-refunded 2/01/11) 1,000 North Central Texas Health Facilities Development No Opt. Call Aaa 1,170,920 Corporation, Hospital Revenue Bonds, Presbyterian Healthcare System, Series 1996B, 5.750%, 6/01/26 - MBIA Insured (ETM) 1,075 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 1,135,673 Unlimited Tax School Building and Refunding Bonds, Series 2000, 5.875%, 8/15/25 (Pre-refunded 8/15/10) 42 Nuveen Investments PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED (5) (continued) $ 2,500 Retama Development Corporation, Texas, Special Facilities 12/17 at 100.00 AAA $ 3,463,700 Revenue Bonds, Retama Park Racetrack, Series 1993, 8.750%, 12/15/18 (Pre-refunded 12/15/17) (6) 1,750 San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AAA 1,916,460 Refunding Bonds, Series 2002, 5.375%, 2/01/20 (Pre-refunded 2/01/12) 1,440 South Texas Community College District, General Obligation 8/12 at 100.00 A+ (5) 1,636,027 Bonds, Series 2002, 5.500%, 8/15/17 (Pre-refunded 8/15/12) - AMBAC Insured 3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 N/R (5) 3,796,450 Texas, Hospital Revenue Bonds, Adventist Health System - Sunbelt Obligated Group, Series 2000, 6.625%, 11/15/20 (Pre-refunded 11/15/10) 1,000 Tyler Health Facilities Development Corporation, Texas, 7/12 at 100.00 Baa1 (5) 1,127,780 Hospital Revenue Bonds, Mother Frances Hospital Regional Healthcare Center, Series 2001, 6.000%, 7/01/31 (Pre-refunded 7/01/12) ------------------------------------------------------------------------------------------------------------------------------------ 22,845 Total U.S. Guaranteed 24,708,477 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 11.2% (7.5% OF TOTAL INVESTMENTS) 2,560 Brazos River Authority, Texas, Pollution Control Revenue 4/13 at 101.00 Caa3 1,208,909 Refunding Bonds, TXU Electric Company, Series 1999C, 7.700%, 3/01/32 (Alternative Minimum Tax) 2,400 Brazos River Authority, Texas, Revenue Bonds, Reliant Energy 10/09 at 101.00 BBB- 2,361,312 Inc., Series 1999A, 5.375%, 4/01/19 200 Brazos River Authority, Texas, Revenue Refunding Bonds, 11/09 at 101.00 BBB+ 192,978 Houston Industries Inc., Series 1998C, 5.125%, 5/01/19 - AMBAC Insured 5,000 Brownsville, Texas, Utility System Priority Revenue Bonds, 9/15 at 100.00 A 5,036,300 Series 2005A, 5.000%, 9/01/27 - AMBAC Insured 2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 Aa3 2,014,540 Texas, Thermal Utility Revenue Bonds, TECO Project, Series 2000, 5.750%, 2/15/15 - AMBAC Insured (Alternative Minimum Tax) 2,000 Lower Colorado River Authority, Texas, Revenue Bonds, Series 5/15 at 100.00 A1 2,026,300 2008, 5.750%, 5/15/37 1,000 Matagorda County Navigation District 1, Texas, Revenue 11/09 at 101.00 BBB- 839,430 Bonds, Reliant Energy Inc., Series 1999B, 5.950%, 5/01/30 (Alternative Minimum Tax) 1,000 Matagorda County Navigation District Number One, Texas, 7/19 at 102.00 BBB 1,042,530 Pollution Control Revenue Refunding Bonds, Central Power and Light Company Project, Series 2009A, 6.300%, 11/01/29 ------------------------------------------------------------------------------------------------------------------------------------ 16,160 Total Utilities 14,722,299 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 12.5% (8.4% OF TOTAL INVESTMENTS) Coastal Water Authority, Texas, Contract Revenue Bonds, Houston Water Projects, Series 2004: 1,005 5.000%, 12/15/20 - FGIC Insured 12/14 at 100.00 A 1,035,170 1,030 5.000%, 12/15/21 - FGIC Insured 12/14 at 100.00 A 1,053,937 1,000 El Paso, Texas, Water and Sewer Revenue Bonds, Refunding 3/18 at 100.00 AA 1,044,310 Series 2008C, 5.375%, 3/01/29 3,000 Houston, Texas, First Lien Combined Utility System Revenue 5/14 at 100.00 AA 3,120,660 Bonds, Series 2004A, 5.250%, 5/15/23 - FGIC Insured 3,500 Houston, Texas, Junior Lien Water and Sewerage System 12/11 at 100.00 AAA 3,794,770 Revenue Refunding Bonds, Series 2001A, 5.500%, 12/01/17 - FSA Insured Irving, Texas, Subordinate Lien Waterworks and Sewerage Revenue Bonds, Series 2004: 1,680 5.000%, 8/15/22 - AMBAC Insured 8/14 at 100.00 AA 1,759,313 1,760 5.000%, 8/15/23 - AMBAC Insured 8/14 at 100.00 AA 1,837,211 1,260 Rowlett, Rockwall and Dallas Counties, Texas, Waterworks and 3/14 at 100.00 AA- 1,296,931 Sewerage System Revenue Bonds, Series 2004A, 5.000%, 3/01/22 - MBIA Insured Nuveen Investments 43 NTX | Nuveen Texas Quality Income Municipal Fund (continued) | Portfolio of INVESTMENTS July 31, 2009 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 1,500 Texas Water Development Board, Senior Lien State Revolving 1/10 at 100.00 AAA $ 1,505,160 Fund Revenue Bonds, Series 1999A, 5.500%, 7/15/21 ------------------------------------------------------------------------------------------------------------------------------------ 15,735 Total Water and Sewer 16,447,462 ------------------------------------------------------------------------------------------------------------------------------------ $ 228,039 Total Investments (cost $198,560,908) - 148.4% 195,152,320 =================------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (3.0)% (3,960,000) ---------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 4.1% 5,371,040 ---------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (49.5)% (7) (65,050,000) ---------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 131,513,360 ================================================================================================================ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. (4) Investment valued at fair value using methods determined in good faith by, or at the discretion of, the Board of Trustees. For SFAS No. 157 disclosure purposes, investment categorized as Level 3. See Notes to Financial Statements, Footnote 2 - Fair Value Measurements for more information. (5) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (6) The issuer has received a formal adverse determination from the Internal Revenue Service (the "IRS") regarding the tax-exempt status of the bond's coupon payments. The Fund will continue to treat coupon payments as tax-exempt income until such time that it is formally determined that the interest on the bonds should be treated as taxable. (7) Preferred Shares, at Liquidation Value as a percentage of Total Investments is 33.3%. N/R Not rated. (ETM) Escrowed to maturity. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See Notes to Financial Statements, Footnote 1 - Inverse Floating Rate Securities for more information. See accompanying notes to financial statements. 44 Nuveen Investments | Statement of | ASSETS & LIABILITIES July 31, 2009 ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND UALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value (cost $84,429,473, $30,550,291, $48,467,496, $59, 413,492 and $198,560,908, respectively) $ 84,856,846 $ 28,932,241 $ 47,212,494 $ 56,495,247 $ 195,152,320 Cash 442,954 1,124,167 2,008,183 -- 88,768 Receivables: Interest 577,074 249,211 404,049 423,464 3,138,398 Investments sold 40,000 -- -- 1,000,044 2,800,581 Other assets 18,391 9,383 12,996 9,090 36,383 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 85,935,265 30,315,002 49,637,722 57,927,845 201,216,450 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Cash overdraft -- -- -- 182,680 -- Floating Rate Obligations -- -- -- -- 3,960,000 Payables: Common share dividends 223,538 78,862 138,770 165,335 518,551 Preferred share dividends 442 505 528 1,217 1,673 Accrued expenses: Management fees 47,942 13,945 21,315 24,506 109,052 Other 33,612 16,900 22,755 25,287 63,814 ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 305,534 110,212 183,368 399,025 4,653,090 ------------------------------------------------------------------------------------------------------------------------------------ Preferred shares, at liquidation value 27,875,000 10,600,000 16,625,000 18,400,000 65,050,000 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 57,754,731 $ 19,604,790 $ 32,829,354 $ 39,128,820 $ 131,513,360 ==================================================================================================================================== Common shares outstanding 4,469,154 1,548,020 2,439,551 3,066,030 9,500,196 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 12.92 $ 12.66 $ 13.46 $ 12.76 $ 13.84 =================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ----------------------------------------------------------------------------------------------------------------------------------- Common shares, $.01 par value per share $ 44,692 $ 15,480 $ 24,396 $ 30,660 $ 95,002 Paid-in surplus 62,155,941 21,910,007 34,577,972 43,233,092 134,691,361 Undistributed (Over-distribution of) net investment income 492,363 75,318 154,645 157,033 1,103,875 Accumulated net realized gain (loss) from investments and derivative transactions (5,365,638) (777,965) (672,657) (1,373,720) (968,290) Net unrealized appreciation (depreciation) of investments 427,373 (1,618,050) (1,255,002) (2,918,245) (3,408,588) ----------------------------------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares $ 57,754,731 $ 19,604,790 $ 32,829,354 $ 39,128,820 $ 131,513,360 =================================================================================================================================== Authorized shares: Common 200,000,000 Unlimited Unlimited Unlimited Unlimited Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited =================================================================================================================================== See accompanying notes to financial statements. Nuveen Investments 45 | Statement of | OPERATIONS Year Ended July 31, 2009 ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $ 4,534,969 $ 1,542,804 $ 2,601,919 $ 3,086,074 $ 10,542,261 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 545,915 194,796 320,230 377,509 1,256,291 Preferred shares - auction fees 67,677 25,708 41,194 48,344 154,767 Preferred shares - dividend disbursing agent fees 10,000 10,000 10,000 10,000 20,000 Shareholders' servicing agent fees and expenses 3,394 469 452 367 9,299 Interest expense on floating rate obligations -- -- -- -- 6,286 Custodian's fees and expenses 22,026 11,790 16,388 18,034 41,304 Directors'/Trustees' fees and expenses 2,253 684 1,172 1,487 5,359 Professional fees 16,523 9,911 11,141 11,805 21,090 Shareholders' reports - printing and mailing expenses 24,314 12,100 16,188 17,728 42,497 Stock exchange listing fees 9,211 219 344 433 9,209 Investor relations expense 6,770 2,552 4,015 4,706 16,498 Other expenses 17,544 15,264 15,974 16,176 19,767 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 725,627 283,493 437,098 506,589 1,602,367 Custodian fee credit (3,330) (2,805) (3,631) (4,154) (3,036) Expense reimbursement -- (37,826) (90,613) (101,667) -- ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 722,297 242,862 342,854 400,768 1,599,331 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 3,812,672 1,299,942 2,259,065 2,685,306 8,942,930 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (2,710,445) (429,021) (349,393) (323,361) (260,097) Futures contracts -- -- -- -- 279,232 Change in net unrealized appreciation (depreciation) of: Investments 1,955,974 (604,752) (337,136) (880,027) (1,592,328) Futures contracts -- -- -- -- (80,805) ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (754,471) (1,033,773) (686,529) (1,203,388) (1,653,998) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS From net investment income (565,487) (220,718) (349,919) (412,423) (1,209,638) From accumulated net realized gains -- -- -- -- (148,005) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Preferred Shareholders (565,487) (220,718) (349,919) (412,423) (1,357,643) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations $ 2,492,714 $ 45,451 $ 1,222,617 $ 1,069,495 $ 5,931,289 ==================================================================================================================================== See accompanying notes to financial statements. 46 Nuveen Investments | Statement of | CHANGES in NET ASSETS ARIZONA ARIZONA ARIZONA PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR) ---------------------------- -------------------------- -------------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 7/31/09 7/31/08 7/31/09 7/31/08 7/31/09 7/31/08 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 3,812,672 $ 3,939,586 $ 1,299,942 $ 1,404,791 $ 2,259,065 $ 2,352,606 Net realized gain (loss) from: Investments (2,710,445) (695,247) (429,021) (246,231) (349,393) (210,967) Futures contracts -- (46,730) -- (144,540) -- -- Change in net unrealized appreciation (depreciation) of: Investments 1,955,974 (3,907,909) (604,752) (1,551,069) (337,136) (2,351,438) Futures contracts -- -- -- 42,042 -- -- Distributions to Preferred Shareholders: From net investment income (565,487) (992,215) (220,718) (381,010) (349,919) (574,591) From accumulated net realized gains -- -- -- (6,331) -- (47,034) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 2,492,714 (1,702,515) 45,451 (882,348) 1,222,617 (831,424) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (2,846,851) (2,734,545) (976,248) (985,763) (1,712,859) (1,726,396) From accumulated net realized gains -- -- -- (18,444) -- (142,165) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common Shareholders 2,846,851) (2,734,545) (976,248) (1,004,207) (1,712,859) (1,868,561) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from shares issued to shareholders due to reinvestment of distributions 12,298 -- 7,371 -- 16,440 35,757 Repurchased -- -- (24,038) -- (8,296) -- ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 12,298 -- (16,667) -- 8,144 35,757 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares (341,839) (4,437,060) (947,464) (1,886,555) (482,098) (2,664,228) Net assets applicable to Common shares at the beginning of year 58,096,570 62,533,630 20,552,254 22,438,809 33,311,452 35,975,680 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $ 57,754,731 $ 58,096,570 $ 19,604,790 $20,552,254 $32,829,354 $33,311,452 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 492,363 $ 92,116 $ 75,318 $ (27,658) $ 154,645 $ (41,642) ==================================================================================================================================== See accompanying notes to financial statements. Nuveen Investments 47 | Statement of | CHANGES in NET ASSETS (continued) ARIZONA TEXAS DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX) ------------------------------- -------------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 7/31/09 7/31/08 7/31/09 7/31/08 ------------------------------------------------------------------------------------------------------- OPERATIONS Net investment income $ 2,685,306 $ 2,785,211 $ 8,942,930 $ 8,965,057 Net realized gain (loss) from: Investments (323,361) (469,351) (260,097) (359,565) Futures contracts -- -- 279,232 (19,596) Change in net unrealized appreciation (depreciation) of: Investments (880,027) (3,032,163) (1,592,328) (7,706,392) Futures contracts -- -- (80,805) 80,805 Distributions to Preferred Shareholders: From net investment income (412,423) (748,495) (1,209,638) (2,207,108) From accumulated net realized gains -- -- (148,005) (186,315) ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares from operations 1,069,495 (1,464,798) 5,931,289 (1,433,114) ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (2,005,865) (2,006,230) (6,752,824) (6,561,144) From accumulated net realized gains -- -- (446,272) (530,779) ------------------------------------------------------------------------------------------------------- Decrease in net assets applicable to Common shares from distributions to Common Shareholders (2,005,865) (2,006,230) (7,199,096) (7,091,923) ------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from shares issued to shareholders due to reinvestment of distributions -- -- 67,966 -- Repurchased (15,380) -- -- -- ------------------------------------------------------------------------------------------------------- Net increase in net assets applicable to Common shares from capital share transactions (15,380) -- 67,966 -- ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets applicable to Common shares (951,750) (3,471,028) (1,199,841) (8,525,037) Net assets applicable to Common shares at the beginning of year 40,080,570 43,551,598 132,713,201 141,238,238 ------------------------------------------------------------------------------------------------------- Net assets applicable to Common shares at the end of year $ 39,128,820 $ 40,080,570 $131,513,360 $132,713,201 ======================================================================================================= Undistributed (Over-distribution of) net investment income at the end of year $ 157,033 $ (109,985) $ 1,103,875 $ 126,138 ======================================================================================================= See accompanying notes to financial statements. 48 Nuveen Investments | Notes to | FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The funds covered in this report and their corresponding Common share stock exchange symbols are Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ), Nuveen Arizona Dividend Advantage Municipal Fund (NFZ), Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR), Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) and Nuveen Texas Quality Income Municipal Fund (NTX) (collectively, the "Funds"). Common shares of Arizona Premium Income (NAZ) and Texas Quality Income (NTX) are traded on the New York Stock Exchange while Common shares of Arizona Dividend Advantage (NFZ), Arizona Dividend Advantage 2 (NKR) and Arizona Dividend Advantage 3 (NXE) are traded on the NYSE Amex (formerly, American Stock Exchange). The Funds are registered under the Investment Company Act of 1940, as amended, as closed-end management investment companies. Each Fund seeks to provide current income exempt from both regular federal and designated state income taxes by investing primarily in a portfolio of municipal obligations issued by state and local government authorities within a single state or certain U.S. territories. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with US generally accepted accounting principles. Investment Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Directors/Trustees. Futures contracts are valued using the closing settlement price, or, in the absence of such a price, at the mean of the bid and asked prices. When market price quotes are not readily available (which is usually the case for municipal securities), the pricing service or, in the absence of a pricing service for a particular investment or derivative instrument, the Board of Directors/Trustees of the Fund, or its designee, may establish fair value using a wide variety of market data including yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor's credit characteristics considered relevant. Temporary investments in securities that have variable rate and demand features qualifying them as short-term investments are valued at amortized cost, which approximates value. Investment Transactions Investment transactions are recorded on a trade date basis. Realized gains and losses from transactions are determined on the specific identification method. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments. At July 31, 2009, there were no such outstanding purchase commitments in any of the Funds. Investment Income Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Investment income also includes paydown gains and losses, if any. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Furthermore, each Fund intends to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, to retain such tax-exempt status when distributed to shareholders of the Funds. Net realized capital gains and ordinary income distributions paid by the Funds are subject to federal taxation. Nuveen Investments 49 | Notes to | FINANCIAL STATEMENTS (continued) For all open tax years and all major taxing jurisdictions, management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year ends and the interim tax period since then). Furthermore, management of the Funds is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. Dividends and Distributions to Common Shareholders Dividends from tax-exempt net investment income are declared monthly. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders at least annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to Common shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from US generally accepted accounting principles. Preferred Shares The Funds have issued and outstanding Preferred shares, $25,000 stated value per share, as a means of effecting financial leverage. Each Fund's Preferred shares are issued in one or more Series. The dividend rate paid by the Funds on each Series 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. As of July 31, 2009, the number of Preferred shares outstanding, by Series and in total, for each Fund is as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ---------------------------------------------------------------------------------------------------- Number of shares: Series M -- -- -- 736 716 Series T -- 424 -- -- -- Series W -- -- 665 -- -- Series TH 1,115 -- -- -- 1,886 ---------------------------------------------------------------------------------------------------- Total 1,115 424 665 736 2,602 ==================================================================================================== Beginning in February 2008, more shares for sale were submitted in the regularly scheduled auctions for the Preferred shares issued by the Funds than there were offers to buy. This meant that these auctions "failed to clear," and that many Preferred shareholders who wanted to sell their shares in these auctions were unable to do so. Preferred shareholders unable to sell their shares received distributions at the "maximum rate" applicable to failed auctions as calculated in accordance with the pre-established terms of the Preferred shares. These developments have generally not affected the portfolio management or investment policies of the Funds. However, one continuing implication of these auction failures for Common shareholders is that the Funds' cost of leverage likely has been incrementally higher at times, than it otherwise might have been had the auctions continued to be successful. As a result, the 50 Nuveen Investments Funds' future Common share earnings may likely have been incrementally lower than they otherwise might have been. As of July 31, 2009, the aggregate amount of outstanding Preferred shares redeemed by each Fund is as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------- Preferred shares redeemed, at liquidation value $ 2,125,000 $ 1,400,000 $ 1,875,000 $ 3,600,000 $ 3,950,000 =============================================================================================================================== Effective May 1, 2009, auction participation fees with respect to auctions that have failed have been reduced from 25 bps (annualized) to 15 bps (annualized). All auction participants have signed new agreements incorporating this change. Inverse Floating Rate Securities Each Fund is authorized to invest in inverse floating rate securities. An inverse floating rate security is created by depositing a municipal bond, typically with a fixed interest rate, into a special purpose trust created by a broker-dealer. In turn, this trust (a) issues floating rate certificates, in face amounts equal to some fraction of the deposited bond's par amount or market value, that typically pay short-term tax-exempt interest rates to third parties, and (b) issues to a long-term investor (such as one of the Funds) an inverse floating rate certificate (sometimes referred to as an "inverse floater") that represents all remaining or residual interest in the trust. The income received by the inverse floater holder varies inversely with the short-term rate paid to the floating rate certificates' holders, and in most circumstances the inverse floater holder bears substantially all of the underlying bond's downside investment risk and also benefits disproportionately from any potential appreciation of the underlying bond's value. The price of an inverse floating rate security will be more volatile than that of the underlying bond because the interest rate is dependent on not only the fixed coupon rate of the underlying bond but also on the short-term interest paid on the floating rate certificates, and because the inverse floating rate security essentially bears the risk of loss of the greater face value of the underlying bond. A Fund may purchase an inverse floating rate security in a secondary market transaction without first owning the underlying bond (referred to as an "externally-deposited inverse floater"), or instead by first selling a fixed-rate bond to a broker-dealer for deposit into the special purpose trust and receiving in turn the residual interest in the trust (referred to as a "self-deposited inverse floater"). The inverse floater held by a Fund gives the Fund the right (a) to cause the holders of the floating rate certificates to tender their notes at par, and (b) to have the broker transfer the fixed-rate bond held by the trust to the Fund, thereby collapsing the trust. An investment in an externally-deposited inverse floater is identified in the Portfolio of Investments as "(IF) - Inverse floating rate investment." An investment in a self-deposited inverse floater is accounted for as a financing transaction in accordance with Statement of Financial Accounting Standards No. 140 (SFAS No. 140) "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." In such instances, a fixed-rate bond deposited into a special purpose trust is identified in the Portfolio of Investments as "(UB) - Underlying bond of an inverse floating rate trust," with the Fund accounting for the short-term floating rate certificates issued by the trust as "Floating rate obligations" on the Statement of Assets and Liabilities. In addition, the Fund reflects in "Investment Income" the entire earnings of the underlying bond and the related interest paid to the holders of the short-term floating rate certificates is recognized as "Interest expense on floating rate obligations" on the Statement of Operations. During the fiscal year ended July 31, 2009, each Fund invested in externally deposited inverse floaters and/or self-deposited inverse floaters. Each Fund may also enter into shortfall and forbearance agreements (sometimes referred to as a "recourse trust" or "credit recovery swap") (such agreements referred to herein as "Recourse Trusts") with a broker-dealer by which a Fund agrees to reimburse the broker-dealer, in certain circumstances, for the difference between the liquidation value of the fixed-rate bond held by the trust and the liquidation value of the floating rate certificates issued by the trust plus any shortfalls in interest cash flows. Under these agreements, a Fund's potential exposure to losses related to or on inverse floaters may increase beyond the value of a Fund's inverse floater investments as a Fund may potentially be liable to fulfill all amounts owed to holders of the floating rate certificates. At period end, any such shortfall is recognized as "Unrealized depreciation on Recourse Trusts" on the Statement of Assets and Liabilities. At July 31, 2009, the Funds were not invested in externally-deposited Recourse Trusts. ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ----------------------------------------------------------------------------------------------------------------------------- Maximum exposure to Recourse Trusts $ -- $ -- $ -- $ -- $ -- ============================================================================================================================= Nuveen Investments 51 | Notes to | FINANCIAL STATEMENTS (continued) The average floating rate obligations outstanding and average annual interest rate and fees related to self-deposited inverse floaters during the fiscal year ended July 31, 2009, were as follows: TEXAS QUALITY INCOME (NTX) -------------------------------------------------------------------------------- Average floating rate obligations $ 1,008,986 Average annual interest rate and fees 0.62% ================================================================================ Futures Contracts Each Fund is subject to interest rate risk in the normal course of pursuing its investment objectives and is authorized to invest in futures contracts in order to gain exposure to, or hedge against changes in interest rates. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized as "Deposits with brokers for open futures contracts" on the Statement of Assets and Liabilities. Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. Variation margin is recognized as a receivable or payable for "Variation Margin on futures contracts" on the Statement of Assets and Liabilities, when applicable. During the period the futures contract is open, changes in the value of the contract are recorded as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect the changes in market value of the contract and is recognized as "Change in net unrealized appreciation (depreciation) of futures contracts" on the Statement of Operations. When the contract is closed or expired, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and value of the contract when originally entered into and is recognized as "Net realized gain (loss) from futures contracts" on the Statement of Operations. Texas Quality Income (NTX) was the only Fund to invest in futures contracts during the fiscal year ended July 31, 2009. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices. The average number of futures contracts outstanding for Texas Quality Income (NTX) during the fiscal year ended July 31, 2009, was as follows: TEXAS QUALITY INCOME (NTX) -------------------------------------------------------------------------------- Average number of futures contracts outstanding 8 ================================================================================ Refer to Footnote 3 - Derivative Instruments and Hedging Activities for further details on futures contract activity. 52 Nuveen Investments Market and Counterparty Credit Risk In the normal course of business each Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to the transaction to perform (counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which potentially expose each Fund to counterparty credit risk, consist principally of cash due from counterparties on forward, option and swap transactions. The extent of each Fund's exposure to counterparty credit risk in respect to these financial assets approximates their carrying value as recorded on the Statement of Assets and Liabilities. Futures contracts expose a Fund to minimal counterparty credit risk as they are exchange traded and the exchange's clearinghouse, which is counterparty to all exchange traded futures, guarantees the futures contracts against default. Each Fund helps manage counterparty credit risk by entering into agreements only with counterparties Nuveen Asset Management (the "Adviser"), a wholly-owned subsidiary of Nuveen Investments, Inc. ("Nuveen"), believes have the financial resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be required to pledge collateral daily (based on the daily valuation of the financial asset) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when each Fund has an unrealized loss, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the valuations fluctuate, either up or down, by at least the predetermined threshold amount. Zero Coupon Securities Each Fund is authorized to invest in zero coupon securities. A zero coupon security does not pay a regular interest coupon to its holders during the life of the security. Tax-exempt income to the holder of the security comes from accretion of the difference between the original purchase price of the security at issuance and the par value of the security at maturity and is effectively paid at maturity. Such securities are included in the Portfolios of Investments with a 0.000% coupon rate in their description. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by net credits earned on each 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 a Fund overdraws its account at the custodian bank. Indemnifications Under the Funds' organizational documents, their Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with US 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. FAIR VALUE MEASUREMENTS During the current fiscal period, the Funds adopted the provisions of Statement of Financial Accounting Standards No. 157 (SFAS No. 157) "Fair Value Measurements." SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements. In determining the value of each Fund's investments various inputs are used. These inputs are summarized in the three broad levels listed below: Level 1 - Quoted prices in active markets for identical securities. Level 2 - Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). Level 3 - Significant unobservable inputs (including management's assumptions in determining the fair value of investments). Nuveen Investments 53 | Notes to | FINANCIAL STATEMENTS (continued) The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of each Fund's fair value measurements as of July 31, 2009: ARIZONA PREMIUM INCOME (NAZ) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------- Investments: Municipal Bonds* $ -- $ 82,878,546 $ 1,978,300 $ 84,856,846 ======================================================================================================= ARIZONA DIVIDEND ADVANTAGE (NFZ) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------- Investments: Municipal Bonds* $ -- $ 27,210,671 $ 221,570 $ 27,432,241 Short-Term Investments -- 1,500,000 -- 1,500,000 ------------------------------------------------------------------------------------------------------- Total $ -- $ 28,710,671 $ 221,570 $ 28,932,241 ======================================================================================================= ARIZONA DIVIDEND ADVANTAGE 2 (NKR) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------- Investments: Municipal Bonds* $ -- $ 46,318,302 $ 894,192 $ 47,212,494 ======================================================================================================= ARIZONA DIVIDEND ADVANTAGE 3 (NXE) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------- Investments: Municipal Bonds* $ -- $ 55,949,236 $ 546,011 $ 56,495,247 ======================================================================================================= TEXAS QUALITY INCOME (NTX) LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ------------------------------------------------------------------------------------------------------- Investments: Municipal Bonds* $ -- $ 194,201,705 $ 950,615 $ 195,152,320 ======================================================================================================= * Refer to the Fund's Portfolio of Investments for industry breakdown of Municipal Bonds classified as Level 3. The following is a reconciliation of each Fund's Level 3 investments held at the beginning and end of the measurement period: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) LEVEL 3 LEVEL 3 LEVEL 3 LEVEL 3 LEVEL 3 INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS INVESTMENTS --------------------------------------------------------------------------------------------------------------------------------- Balance at beginning of year $ 1,278,800 $ 143,226 $ 578,017 $ 352,949 $ 544,376 Gains (losses): Net realized gains (losses) -- -- -- -- -- Net change in unrealized appreciation 699,500 78,344 316,175 193,062 406,239 (depreciation) Net purchases at cost (sales at proceeds) -- -- -- -- -- Net discounts (premiums) -- -- -- -- -- Net transfers in to (out of) at end of period fair value -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- Balance at end of year $ 1,978,300 $ 221,570 $ 894,192 $ 546,011 $ 950,615 ================================================================================================================================= "Change in net unrealized appreciation (depreciation) of investments" presented on the Statement of Operations includes net appreciation (depreciation) related to securities classified as Level 3 at period end as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) --------------------------------------------------------------------------------------------------------------------------- Level 3 net appreciation (depreciation) $ 699,500 $ 78,344 $ 316,175 $ 193,062 $ 406,239 =========================================================================================================================== 54 Nuveen Investments 3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES During the current fiscal period, the Funds adopted the provisions of Statement of Financial Accounting Standards No. 161 (SFAS No. 161) "Disclosures about Derivative Instruments and Hedging Activities." This standard is intended to enhance financial statement disclosures for derivative instruments and hedging activities and enable investors to better understand: a) how and why a fund uses derivative instruments; b) how derivative instruments are accounted for; and c) how derivative instruments affect a fund's financial position, results of operations and cash flows, if any. The Funds record derivative instruments at fair value with changes in fair value recognized on the Statement of Operations, when applicable. Even though the Funds' investments in derivatives may represent economic hedges, they are considered to be non-hedge transactions for SFAS No. 161 disclosure purposes. For additional information on the derivative instruments in which each Fund was invested during and at the end of the reporting period, refer to the Portfolio of Investments, Financial Statements and Footnote 1 - General Information and Significant Accounting Policies. The following tables present the amount of net realized gain (loss) and net change in unrealized appreciation (depreciation) recognized for the fiscal year ended July 31, 2009, on derivative instruments, as well as the primary risk exposure associated with each. Texas Quality Income (NTX) held derivative instruments during the fiscal year ended July 31, 2009. The Funds had no derivative contracts outstanding at July 31, 2009. TEXAS QUALITY INCOME NET REALIZED GAIN (LOSS) FROM FUTURES CONTRACTS (NTX) -------------------------------------------------------------------------------- RISK EXPOSURE Interest Rate $ 279,232 ================================================================================ TEXAS QUALITY CHANGE IN NET UNREALIZED APPRECIATION INCOME (DEPRECIATION) OF FUTURES CONTRACTS (NTX) -------------------------------------------------------------------------------- RISK EXPOSURE Interest Rate $ (80,805) ================================================================================ 4. FUND SHARES Common Shares On July 30, 2008, the Funds' Board of Directors/Trustees approved an open-market share repurchase program under which each Fund may repurchase an aggregate of up to approximately 10% of its outstanding Common shares. Transactions in Common shares were as follows: ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR) ----------------------- ---------------------- ------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 7/31/09 7/31/08 7/31/09 7/31/08 7/31/09 7/31/08 ---------------------------------------------------------------------------------------------------------------------------- Common shares: Issued to shareholders due to reinvestment of distributions 944 -- 581 -- 1,193 2,471 Repurchased -- -- (2,500) -- (800) -- ---------------------------------------------------------------------------------------------------------------------------- Weighted average Common share: Price per share repurchased -- -- $ 9.60 -- $ 10.35 -- Discount per share repurchased -- -- 19.20% -- 17.60% -- ============================================================================================================================ ARIZONA DIVIDEND TEXAS QUALITY ADVANTAGE 3 (NXE) INCOME (NTX) ---------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 7/31/09 7/31/08 7/31/09 7/31/08 -------------------------------------------------------------------------------------------------------------------------- Common shares: Issued to shareholders due to reinvestment of distributions -- -- 5,052 -- Repurchased (1,600) -- -- -- -------------------------------------------------------------------------------------------------------------------------- Weighted average Common share: Price per share repurchased $ 9.59 -- -- -- Discount per share repurchased 18.61% -- -- -- ========================================================================================================================== Nuveen Investments 55 | Notes to | FINANCIAL STATEMENTS (continued) Preferred Shares Transactions in Preferred shares were as follows: ARIZONA PREMIUM ARIZONA DIVIDEND INCOME (NAZ) ADVANTAGE (NFZ) ------------------------------------------- ----------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 7/31/09 7/31/08 7/31/09 7/31/08 ------------------- ------------------- -------------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Preferred shares redeemed: Series T -- $ -- -- $ -- 56 $ 1,400,000 -- $ -- Series TH 85 2,125,000 -- -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total 85 $ 2,125,000 -- $ -- 56 $ 1,400,000 -- $ -- ========================================================================================================================== ARIZONA DIVIDEND ARIZONADIVIDEND ADVANTAGE 2 (NKR) ADVANTAGE (3NXE) ------------------------------------------- ----------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 7/31/09 7/31/08 7/31/09 7/31/08 ------------------- ------------------- -------------------- ----------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------------------------------------------------------------- Preferred shares redeemed: Series M -- $ -- -- $ -- 144 $ 3,600,000 -- $ -- Series W 75 1,875,000 -- -- -- -- -- -- -------------------------------------------------------------------------------------------------------------------------- Total 75 $ 1,875,000 -- $ -- 144 $ 3,600,000 -- $ -- ========================================================================================================================== TEXAS QUALITY INCOME (NTX) ------------------------------------- YEAR ENDED YEAR ENDED 7/31/09 7/31/08 ------------------- --------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------ Preferred shares redeemed: Series M 44 $ 1,100,000 -- $ -- Series TH 114 2,850,000 -- -- ------------------------------------------------------------------------------ Total 158 $ 3,950,000 -- $ -- ============================================================================== 5. INVESTMENT TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments and derivative transactions) during the fiscal year ended July 31, 2009, were as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------ Purchases $ 20,787,765 $ 1,814,850 $ 2,519,026 $ 5,199,017 $ 19,573,989 Sales and maturities 21,738,574 4,922,805 4,895,816 7,833,218 21,125,209 ================================================================================================================== 56 Nuveen Investments 6. 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 timing differences in recognizing taxable market discount, timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments in inverse floating rate transactions subject to SFAS No.140, if any. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset values of the Funds. At July 31, 2009, the cost of investments was as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) --------------------------------------------------------------------------------------------------------------------------------- Cost of investments $ 84,365,490 $ 30,540,646 $ 48,458,019 $ 59,401,274 $ 194,644,077 ================================================================================================================================= Gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2009, were as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------------ Gross unrealized: Appreciation $ 3,238,928 $ 669,430 $ 1,828,491 $ 1,273,971 $ 5,880,993 Depreciation (2,747,572) (2,277,835) (3,074,016) (4,179,998) (9,332,796) ------------------------------------------------------------------------------------------------------------------------------------ Net unrealized appreciation (depreciation) of investments $ 491,356 $ (1,608,405) $ (1,245,525) $ (2,906,027) $ (3,451,803) ==================================================================================================================================== The tax components of undistributed net tax-exempt income, net ordinary income and net long-term capital gains at July 31, 2009, the Funds' tax year end, were as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------ Undistributed net tax-exempt income * $ 670,156 $ 147,439 $ 288,408 $ 313,130 $ 1,652,176 Undistributed net ordinary income ** -- 11 -- -- 690 Undistributed net long-term capital gains -- -- -- -- 348 ============================================================================================================================== * Undistributed net tax-exempt income (on a tax basis) has not been reduced for the dividend declared on July 1, 2009, paid on August 3, 2009. ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. The tax character of distributions paid during the Funds' tax years ended July 31, 2009 and July 31, 2008, was designated for purposes of the dividends paid deduction as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME 2009 (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income*** $ 3,419,031 $ 1,198,865 $ 2,063,963 $ 2,423,629 $ 7,900,976 Distributions from net ordinary income** -- -- -- -- 378,151 Distributions from net long-term capital gains**** -- -- -- -- 268,060 ============================================================================================================================== ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME 2008 (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income $ 3,718,906 $ 1,375,879 $ 2,317,202 $ 2,750,182 $ 8,786,039 Distributions from net ordinary income** -- -- -- -- 439 Distributions from net long-term capital gains -- 24,687 189,057 -- 716,654 ============================================================================================================================== ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. *** The Funds hereby designate these amounts paid during the fiscal year ended July 31, 2009, as Exempt Interest Dividends. **** The Funds designated as a long-term capital gain dividend, pursuant to the Internal Revenue Code Section 852(b)(3), the amount necessary to reduce earnings and profits of the Funds related to net capital gain to zero for the tax year ended July 31, 2009. Nuveen Investments 57 | Notes to | FINANCIAL STATEMENTS (continued) At July 31, 2009, the Funds' tax year end, the following Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows: ARIZONA ARIZONA ARIZONA ARIZONA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NAZ) (NFZ) (NKR) (NXE) -------------------------------------------------------------------------------- Expiration: July 31, 2011 $ 359,724 $ -- $ -- $ -- July 31, 2012 1,553,627 -- -- 158,487 July 31, 2013 -- -- -- 160,902 July 31, 2014 -- -- -- 218,127 July 31, 2016 562,384 246,571 212,903 363,937 July 31, 2017 323,876 210,308 220,271 258,905 -------------------------------------------------------------------------------- Total $ 2,799,611 $ 456,879 $ 433,174 $ 1,160,358 ================================================================================ The Funds have elected to defer net realized losses from investments incurred from November 1, 2008 through July 31, 2009, the Funds' tax year end, ("post-October losses") in accordance with federal income tax regulations. Post-October losses are treated as having arisen on the first day of the following fiscal year: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) --------------------------------------------------------------------------------------------------------------------------- Post-October capital losses $ 2,566,026 $ 321,087 $ 239,484 $ 213,362 $ 883,729 =========================================================================================================================== 7. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Each 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 each individual 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, for each Fund is based upon the average daily net assets of each Fund as follows: ARIZONA PREMIUM INCOME (NAZ) TEXAS QUALITY INCOME (NTX) AVERAGE DAILY NET ASSETS (1) FUND-LEVEL FEE RATE -------------------------------------------------------------------------------- For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For the next $3 billion .3875 For net assets over $5 billion .3750 ================================================================================ 58 Nuveen Investments ARIZONA DIVIDEND ADVANTAGE (NFZ) ARIZONA DIVIDEND ADVANTAGE 2 (NKR) ARIZONA DIVIDEND ADVANTAGE 3 (NXE) AVERAGE DAILY NET ASSETS (1) FUND-LEVEL FEE RATE -------------------------------------------------------------------------------- For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For net assets over $2 billion .3750 ================================================================================ 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 net assets managed as stated in the following table. As of July 31, 2009, the complex-level fee rate was .1957%. The complex-level fee schedule is as follows: COMPLEX-LEVEL NET 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 ================================================================================ (1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate daily managed net assets of all Nuveen funds, with such daily managed net assets defined separately for each fund in its management agreement, but excluding assets attributable to investments in other Nuveen funds. For the complex-level and fund-level fee components, daily managed net assets include assets managed by the Adviser that are attributable to financial leverage. For these purposes, financial leverage includes the funds use of preferred stock and borrowings and investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by the TOB trust that has been effectively financed by the trust's issuance of floating rate securities, subject to an agreement by the Adviser to limit the amount of such assets for determining managed net assets in certain circumstances. The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Funds pay no compensation directly to those of its Directors/Trustees who are affiliated with the Adviser or to its Officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Directors/Trustees has adopted a deferred compensation plan for independent Directors/Trustees that enables Directors/Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised funds. For the first ten years of Arizona Dividend Advantage's (NFZ) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING JANUARY 31, JANUARY 31, -------------------------------------------------------------------------------- 2001* .30% 2007 .25% 2002 .30 2008 .20 2003 .30 2009 .15 2004 .30 2010 .10 2005 .30 2011 .05 2006 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage (NFZ) for any portion of its fees and expenses beyond January 31, 2011. Nuveen Investments 59 | Notes to | FINANCIAL STATEMENTS (continued) For the first ten years of Arizona Dividend Advantage 2's (NKR) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING MARCH 31, MARCH 31, -------------------------------------------------------------------------------- 2002* .30% 2008 .25% 2003 .30 2009 .20 2004 .30 2010 .15 2005 .30 2011 .10 2006 .30 2012 .05 2007 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage 2 (NKR) for any portion of its fees and expenses beyond March 31, 2012. For the first eight years of Arizona Dividend Advantage 3's (NXE) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets, for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage 3 (NXE) for any portion of its fees and expenses beyond September 30, 2010. 8. NEW ACCOUNTING PRONOUNCEMENTS Financial Accounting Standards Board Statement of Financial Accounting Standards No. 166 (SFAS No. 166) During June 2009, the Financial Accounting Standards Board issued SFAS No. 166, "Accounting for Transfers of Financial Assets -an amendment of SFAS No. 140." The objective of SFAS No. 166 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. SFAS No. 166 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The recognition and measurement provisions of SFAS No. 166 must be applied to transfers occurring on or after the effective date. Additionally, the disclosure provisions of SFAS No. 166 should be applied to transfers that occurred both before and after the effective date of SFAS No. 166. At this time, management is evaluating the implications of SFAS No. 166 and the impact it will have on the financial statement amounts and disclosures, if any. 60 Nuveen Investments 9. SUBSEQUENT EVENTS Distributions to Common Shareholders The Funds declared Common share dividend distributions from their tax-exempt net investment income which were paid on September 1, 2009, to shareholders of record on August 15, 2009, as follows: ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) ------------------------------------------------------------------------------------------------------------------------- Dividend per share $ .0540 $ .0525 $ .0585 $ .0545 $ .0620 ========================================================================================================================= Financial Accounting Standards Board Statement of Financial Accounting Standards No. 165 (SFAS No. 165) In May 2009, the Financial Accounting Standards Board issued SFAS No. 165 "Subsequent Events." SFAS No. 165 requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. SFAS No. 165 is intended to establish general standards of accounting and for disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. SFAS No. 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date - that is, whether that date represents the date the financial statements were issued or were available to be issued. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The Funds have performed an evaluation of subsequent events through September 25, 2009, which is the date the financial statements were issued. Nuveen Investments 61 | Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period: Investment Operations ------------------------------------------------------------------------ Distributions Distributions from Net from Beginning Investment Capital Common Net Income to Gains to Share Net Realized/ Preferred Preferred Net Asset Investment Unrealized Share- Share- Value Income Gain (Loss) holders+ holders+ Total ----------------------------------------------------------------------------------------------------------------------- ARIZONA PREMIUM INCOME (NAZ) ----------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ 13.00 $ .85 $ (.16) $ (.13) $ -- $ .56 2008 14.00 .88 (1.05) (.22) -- (.39) 2007 14.10 .83 (.10) (.22) -- .51 2006 14.53 .83 (.39) (.18) -- .26 2005 14.04 .86 .56 (.09) -- 1.33 ARIZONA DIVIDEND ADVANTAGE (NFZ) ----------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 13.26 .84 (.67) (.14) -- .03 2008 14.48 .91 (1.23) (.25) --*** (.57) 2007 14.77 .91 (.17) (.24) (.02) .48 2006 15.37 .93 (.40) (.20) (.01) .32 2005 15.00 .97 .46 (.10) -- 1.33 ======================================================================================================================= Less Distributions -------------------------------------- Net Investment Capital Ending Income to Gains to Common Common Common Share Ending Share- Share- Net Asset Market holders holders Total Value Value ------------------------------------------------------------------------------------------------------- ARIZONA PREMIUM INCOME (NAZ) ------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ (.64) $ -- $ (.64) $ 12.92 $ 12.29 2008 (.61) -- (.61) 13.00 13.35 2007 (.61) -- (.61) 14.00 13.07 2006 (.69) -- (.69) 14.10 13.69 2005 (.84) -- (.84) 14.53 15.22 ARIZONA DIVIDEND ADVANTAGE (NFZ) ------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 (.63) -- (.63) 12.66 12.14 2008 (.64) (.01) (.65) 13.26 13.70 2007 (.71) (.06) (.77) 14.48 13.35 2006 (.84) (.08) (.92) 14.77 15.90 2005 (.92) (.04) (.96) 15.37 16.08 ======================================================================================================= Preferred Shares at End of Period --------------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share -------------------------------------------------------------------------------- ARIZONA PREMIUM INCOME (NAZ) -------------------------------------------------------------------------------- Year Ended 7/31: 2009 $27,875 $25,000 $76,798 2008 30,000 25,000 73,414 2007 30,000 25,000 77,111 2006 30,000 25,000 77,520 2005 30,000 25,000 79,019 ARIZONA DIVIDEND ADVANTAGE (NFZ) -------------------------------------------------------------------------------- Year Ended 7/31: 2009 10,600 25,000 71,238 2008 12,000 25,000 67,817 2007 12,000 25,000 71,748 2006 12,000 25,000 72,628 2005 12,000 25,000 74,485 ================================================================================ 62 Nuveen Investments Ratios/Supplemental Data ---------------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares Total Returns Before Credit/Reimbursement ---------------------------- --------------------------------------------- Based Ending on Net Based Common Assets on Share Net Applicable Expenses Expenses Net Market Asset to Common Including Excluding Investment Value* Value* Shares (000) Interest++(a) Interest++(a) Income++ ---------------------------------------------------------------------------------------------------------------------------------- ARIZONA PREMIUM INCOME (NAZ) ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 (2.61)% 4.73% $ 57,755 1.33% 1.33% 7.01% 2008 7.10 (2.87) 58,097 1.40 1.26 6.42 2007 (.22) 3.62 62,534 1.32 1.24 5.81 2006 (5.62) 1.84 63,024 1.21 1.21 5.83 2005 5.17 9.69 64,822 1.20 1.20 5.91 ARIZONA DIVIDEND ADVANTAGE (NFZ) ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 (6.12) .58 19,605 1.51 1.51 6.70 2008 7.72 (4.09) 20,552 1.58 1.44 6.14 2007 (11.63) 3.24 22,439 1.48 1.38 5.74 2006 4.54 2.14 22,862 1.36 1.36 5.79 2005 10.88 9.04 23,753 1.34 1.34 5.82 ================================================================================================================================== Ratios/Supplemental Data ------------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares After Credit/Reimbursement** ----------------------------------------------- Expenses Expenses Net Portfolio Including Excluding Investment Turnover Interest++(a) Interest++(a) Income++ Rate ------------------------------------------------------------------------------------------------- ARIZONA PREMIUM INCOME (NAZ) ------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 1.33% 1.33% 7.01% 25% 2008 1.38 1.24 6.44 21 2007 1.30 1.21 5.84 13 2006 1.19 1.19 5.84 22 2005 1.19 1.19 5.92 17 ARIZONA DIVIDEND ADVANTAGE (NFZ) ------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 1.29 1.29 6.92 6 2008 1.29 1.14 6.44 10 2007 1.10 1.00 6.12 19 2006 .92 .92 6.23 24 2005 .87 .87 6.28 18 ================================================================================================= * Total Return Based 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 may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based 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, where applicable. *** Rounds to less than $.01 per share. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; net investment income ratios reflect income earned and expenses incurred on assets attributable to Preferred shares. (a) Interest expense arises from the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities. See accompanying notes to financial statements. Nuveen Investments 63 | Financial HIGHLIGHTS (continued) Selected data for a Common share outstanding throughout each period: Investment Operations ----------------------------------------------------------------------- Distributions Distributions from Net from Beginning Investment Capital Common Net Income to Gains to Share Net Realized/ Preferred Preferred Net Asset Investment Unrealized Share- Share- Value Income Gain (Loss) holders+ holders+ Total -------------------------------------------------------------------------------------------------------------------------- ARIZONA DIVIDEND ADVANTAGE 2 (NKR) -------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ 13.66 $ .93 $ (.29) $ (.14) $ -- $ .50 2008 14.76 .96 (1.03) (.24) (.02) (.33) 2007 15.00 .97 (.18) (.24) (.01) .54 2006 15.56 .96 (.37) (.20) (.01) .38 2005 15.10 .97 .59 (.11) (.01) 1.44 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) -------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 13.07 .88 (.41) (.13) -- .34 2008 14.20 .91 (1.15) (.24) -- (.48) 2007 14.32 .90 (.10) (.25) -- .55 2006 14.62 .88 (.26) (.19) -- .43 2005 14.01 .89 .62 (.10) -- 1.41 ========================================================================================================================== Less Distributions ------------------------------------- Net Investment Capital Ending Income to Gains to Common Common Common Share Ending Share- Share- Net Asset Market holders holders Total Value Value -------------------------------------------------------------------------------------------------------- ARIZONA DIVIDEND ADVANTAGE 2 (NKR) -------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ (.70) $ -- $ (.70) $ 13.46 $ 12.52 2008 (.71) (.06) (.77) 13.66 14.00 2007 (.74) (.04) (.78) 14.76 15.27 2006 (.83) (.11) (.94) 15.00 15.37 2005 (.86) (.12) (.98) 15.56 16.19 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) -------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 (.65) -- (.65) 12.76 11.73 2008 (.65) -- (.65) 13.07 13.30 2007 (.67) -- (.67) 14.20 13.44 2006 (.73) -- (.73) 14.32 13.52 2005 (.80) -- (.80) 14.62 14.48 ======================================================================================================== Preferred Shares at End of Period ---------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share -------------------------------------------------------------------------------- ARIZONA DIVIDEND ADVANTAGE 2 (NKR) -------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ 16,625 $ 25,000 $ 74,367 2008 18,500 25,000 70,015 2007 18,500 25,000 73,616 2006 18,500 25,000 74,277 2005 18,500 25,000 75,952 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) -------------------------------------------------------------------------------- Year Ended 7/31: 2009 18,400 25,000 78,164 2008 22,000 25,000 70,546 2007 22,000 25,000 74,490 2006 22,000 25,000 74,902 2005 22,000 25,000 75,942 ================================================================================ 64 Nuveen Investments Ratios/Supplemental Data -------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares Total Returns Before Credit/Reimbursement ---------------------- ----------------------------------------- Based Ending on Net Based Common Assets on Share Net Applicable Expenses Expenses Net Market Asset to Common Including Excluding Investment Value* Value* Shares (000) Interest++(a) Interest++(a) Income++ ------------------------------------------------------------------------------------------------------------------------ ARIZONA DIVIDEND ADVANTAGE 2 (NKR) ------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2009 (4.99)% 4.09% $ 32,829 1.40% 1.40% 6.93% 2008 (3.16) (2.38) 33,311 1.49 1.34 6.32 2007 4.52 3.59 35,976 1.39 1.29 5.92 2006 .82 2.49 36,465 1.28 1.28 5.88 2005 16.30 9.74 37,704 1.27 1.27 5.76 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) ------------------------------------------------------------------------------------------------------------------------ Year Ended 7/31: 2009 (6.18) 3.08 39,129 1.37 1.37 6.97 2008 3.96 (3.48) 40,081 1.46 1.30 6.17 2007 4.21 3.81 43,552 1.36 1.26 5.69 2006 (1.80) 3.03 43,913 1.26 1.26 5.63 2005 15.11 10.21 44,829 1.25 1.25 5.63 ======================================================================================================================== Ratios/Supplemental Data --------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares After Credit/Reimbursement** ------------------------------------------- Expenses Expenses Net Portfolio Including Excluding Investment Turnover Interest++(a) Interest++(a) Income++ Rate ----------------------------------------------------------------------------------------------- ARIZONA DIVIDEND ADVANTAGE 2 (NKR) ----------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 1.10% 1.10% 7.23% 5% 2008 1.11 .96 6.70 15 2007 .93 .83 6.38 14 2006 .82 .82 6.34 11 2005 .82 .82 6.22 11 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) ----------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 1.08 1.08 7.26 9 2008 1.07 .91 6.56 16 2007 .85 .75 6.19 15 2006 .78 .78 6.12 12 2005 .76 .76 6.12 15 =============================================================================================== * Total Return Based 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 may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based 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, where applicable. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; net investment income ratios reflect income earned and expenses incurred on assets attributable to Preferred shares. (a) Interest expense arises from the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities. See accompanying notes to financial statements. Nuveen Investments 65 | Financial HIGHLIGHTS (continued) Selected data for a Common share outstanding throughout each period: Investment Operations --------------------------------------------------------- Distributions Distributions from Net from Beginning Investment Capital Common Net Income to Gains to Share Net Realized/ Preferred Preferred Net Asset Investment Unrealized Share- Share- Value Income Gain (Loss) holders+ holders+ Total ----------------------------------------------------------------------------------------------------------------- TEXAS QUALITY INCOME (NTX) ----------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ 13.98 $ .94 $ (.17) $ (.13) $ (.02) $ .62 2008 14.87 .94 (.83) (.23) (.02) (.14) 2007 15.06 .95 (.11) (.25) (.01) .58 2006 15.46 .96 (.32) (.22) -- .42 2005 15.12 1.00 .41 (.13) -- 1.28 ================================================================================================================= Less Distributions -------------------------------------- Net Investment Capital Ending Income to Gains to Common Common Common Share Ending Share- Share- Net Asset Market holders holders Total Value Value --------------------------------------------------------------------------------------------------- TEXAS QUALITY INCOME (NTX) --------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ (.71) $ (.05) $ (.76) $ 13.84 $ 14.78 2008 (.69) (.06) (.75) 13.98 12.46 2007 (.73) (.04) (.77) 14.87 13.89 2006 (.82) -- (.82) 15.06 14.71 2005 (.94) -- (.94) 15.46 16.19 =================================================================================================== Preferred Shares at End of Period ------------------------------------------ Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share -------------------------------------------------------------------------------- TEXAS QUALITY INCOME (NTX) -------------------------------------------------------------------------------- Year Ended 7/31: 2009 $ 65,050 $ 25,000 $ 75,543 2008 69,000 25,000 73,084 2007 69,000 25,000 76,173 2006 69,000 25,000 76,815 2005 69,000 25,000 78,159 ================================================================================ 66 Nuveen Investments Ratios/Supplemental Data --------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares Total Returns Before Credit/Reimbursement ---------------------- ------------------------------------------- Based Ending on Net Based Common Assets on Share Net Applicable Expenses Expenses Net Market Asset to Common Including Excluding Investment Value* Value* Shares (000) Interest++(a) Interest++(a) Income++ ----------------------------------------------------------------------------------------------------------------- TEXAS QUALITY INCOME (NTX) ----------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2009 25.98% 4.80% $ 131,513 1.27% 1.26% 7.06% 2008 (5.16) (1.04) 132,713 1.26 1.21 6.46 2007 (.52) 3.82 141,238 1.24 1.18 6.24 2006 (4.03) 2.77 143,009 1.19 1.19 6.31 2005 17.83 8.61 146,718 1.18 1.18 6.42 ================================================================================================================= Ratios/Supplemental Data ------------------------------------------------------- Ratios to Average Net Assets Applicable to Common Shares After Credit/Reimbursement** ------------------------------------------ Expenses Expenses Net Portfolio Including Excluding Investment Turnover Interest++(a) Interest++(a) Income++ Rate ------------------------------------------------------------------------------------- TEXAS QUALITY INCOME (NTX) ------------------------------------------------------------------------------------- Year Ended 7/31: 2009 1.26% 1.26% 7.07% 10% 2008 1.25 1.20 6.47 8 2007 1.22 1.16 6.26 9 2006 1.18 1.18 6.33 13 2005 1.16 1.16 6.44 14 ===================================================================================== * Total Return Based 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 may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based 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, where applicable. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; net investment income ratios reflect income earned and expenses incurred on assets attributable to Preferred shares. (a) Interest expense arises from the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities. See accompanying notes to financial statements. Nuveen Investments 67 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 nine. None of the board members who are not "interested" persons of the Funds (referred to herein as "independent board members") 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. NUMBER PRINCIPAL YEAR FIRST OF PORTFOLIOS OCCUPATION(S) NAME, ELECTED OR IN FUND COMPLEX INCLUDING OTHER BIRTHDATE POSITION(S) HELD APPOINTED OVERSEEN BY BOARD DIRECTORSHIPS & ADDRESS WITH THE FUNDS AND TERM(1) MEMBER DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT BOARD MEMBERS: o ROBERT P. BREMNER Chairman of the 1997 200 Private Investor and Management Consultant; 8/22/40 Board and Board Treasurer and Director, Humanities Council of 333 W. Wacker Drive Member Washington D.C. Chicago, IL 60606 o JACK B. EVANS Board Member 1999 200 President, The Hall-Perrine Foundation, a 10/22/48 private philanthropic corporation (since 333 W. Wacker Drive 1996); Director and Vice Chairman, United Fire Chicago, IL 60606 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; Director, Iowa College Foundation; 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. o WILLIAM C. HUNTER Board Member 2004 200 Dean, Tippie College of Business, University 3/6/48 of Iowa (since 2006); Director (since 2004) of 333 W. Wacker Drive Xerox Corporation; Director (since 2005), Beta Chicago, IL 60606 Gamma Sigma International Honor Society; formerly, Dean and Distinguished Professor of Finance, School of Business at the University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003); Director, SS&C Technologies, Inc. (May 2005-October 2005); formerly, Director (1997-2007), Credit Research Center at Georgetown University. o DAVID J. KUNDERT Board Member 2005 200 Director, Northwestern Mutual Wealth 10/28/42 Management Company; retired (since 2004) as 333 W. Wacker Drive Chairman, JPMorgan Fleming Asset Management, Chicago, IL 60606 President and CEO, Banc One Investment Advisors Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Member, Board of Regents, Luther College; member of the Wisconsin Bar Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Investment Committee, Greater Milwaukee Foundation. o WILLIAM J. SCHNEIDER Board Member 1997 200 Chairman of Miller-Valentine Partners Ltd., a 9/24/44 real estate investment company; formerly, 333 W. Wacker Drive Senior Partner and Chief Operating Officer Chicago, IL 60606 (retired, 2004) of Miller-Valentine Group; member, University of Dayton Business School Advisory Council; member, Dayton Philharmonic Orchestra Association; formerly, member, Business Advisory Council, Cleveland Federal Reserve Bank; formerly, Director, Dayton Development Coalition. 68 Nuveen Investments NUMBER PRINCIPAL YEAR FIRST OF PORTFOLIOS OCCUPATION(S) NAME, ELECTED OR IN FUND COMPLEX INCLUDING OTHER BIRTHDATE POSITION(S) HELD APPOINTED OVERSEEN BY BOARD DIRECTORSHIPS & ADDRESS WITH THE FUNDS AND TERM(1) MEMBER DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT BOARD MEMBERS: o JUDITH M. STOCKDALE Board Member 1997 200 Executive Director, Gaylord and Dorothy Donnelley 12/29/47 Foundation (since 1994); prior thereto, Executive 333 W. Wacker Drive Director, Great Lakes Protection Fund (from 1990 Chicago, IL 60606 to 1994). o CAROLE E. STONE Board Member 2007 200 Director, Chicago Board Options Exchange (since 6/28/47 2006); Director, C2 Options Exchange, 333 W. Wacker Drive Incorporated (since 2009); Commissioner, New York Chicago, IL 60606 State Commission on Public Authority Reform (since 2005); formerly, Chair, New York Racing Association Oversight Board (2005-2007). o TERENCE J. TOTH Board Member 2008 200 Director, Legal & General Investment Management 9/29/59 America, Inc. (since 2008); Managing Partner, 333 W. Wacker Drive Musso Capital Management (since 2008); CEO and Chicago, IL 60606 President, Northern Trust Investments (2004-2007); Executive Vice President, Quantitative Management & Securities Lending (2004-2007); prior thereto, various positions with Northern Trust Company (since 1994); Member: Goodman Theatre Board (since 2004), Chicago Fellowship Boards (since 2005), University of Illinois Leadership Council Board (since 2007) and Catalyst Schools of Chicago Board (since 2008); formerly, Member: Northern Trust Mutual Funds Board (2005-2007), Northern Trust Investments Board (2004-2007), Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004). INTERESTED BOARD MEMBER: o JOHN P. AMBOIAN(2) Board Member 2008 200 Chief Executive Officer (since July 2007) and 6/14/61 Director (since 1999) of Nuveen Investments, 333 W. Wacker Drive Inc.; Chief Executive Officer (since 2007) of Chicago, IL 60606 Nuveen Asset Management, Nuveen Investments Advisors, Inc. formerly, President (1999-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3) Nuveen Investments 69 NUMBER OF PORTFOLIOS NAME, YEAR FIRST IN FUND COMPLEX PRINCIPAL BIRTHDATE POSITION(S) HELD ELECTED OR OVERSEEN OCCUPATION(S) AND ADDRESS WITH THE FUNDS APPOINTED(4) BY OFFICER DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: o GIFFORD R. ZIMMERMAN Chief 1988 200 Managing Director (since 2002), Assistant 9/9/56 Administrative Secretary and Associate General Counsel of Nuveen 333 W. Wacker Drive Officer Investments, LLC; Managing Director, Associate Chicago, IL 60606 General Counsel and Assistant Secretary, of Nuveen Asset Management (since 2002) and of Symphony Asset Management LLC, (since 2003); Vice President and Assistant Secretary of NWQ Investment Management Company, LLC. (since 2002), Nuveen Investments Advisers Inc. (since 2002), Tradewinds Global Investors, LLC, and Santa Barbara Asset Management, LLC (since 2006), Nuveen HydePark Group LLC and Nuveen Investment Solutions, Inc. (since 2007); Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; formerly, Managing Director (2002-2004), General Counsel (1998-2004) and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Chartered Financial Analyst. o WILLIAM ADAMS IV Vice President 2007 125 Executive Vice President of Nuveen Investments, 6/9/55 Inc.; Executive Vice President, U.S. Structured 333 W. Wacker Drive Products of Nuveen Investments, LLC, (since Chicago, IL 60606 1999), prior thereto, Managing Director of Structured Investments. o MARK J.P. ANSON Vice President 2009 200 President and Executive Director of Nuveen 6/10/59 Investments, Inc. (since 2007); President of 333 W. Wacker Drive Nuveen Investments Institutional Services Group Chicago, IL 60606 LLC (since 2007); previously, Chief Executive Officer of the British Telecom Pension Scheme (2006-2007) and Chief Investment Officer of Calpers (1999-2006); PhD, Chartered Financial Analyst, Chartered Alternative Investment Analyst, Certified Public Accountant, Certified Management Accountant and Certified Internal Auditor. o CEDRIC H. ANTOSIEWICZ Vice President 2007 125 Managing Director, (since 2004), previously, Vice 1/11/62 President (1993-2004) of Nuveen Investments, LLC. 333 W. Wacker Drive Chicago, IL 60606 o NIZIDA ARRIAGA Vice President 2009 200 Vice President (since 2007) of Nuveen 6/1/68 Investments, LLC; previously, Portfolio Manager, 333 W. Wacker Drive Allstate Investments, LLC (1996-2006); Chartered Chicago, IL 60606 Financial Analyst. o MICHAEL T. ATKINSON Vice President 2000 200 Vice President (since 2002) of Nuveen 2/3/66 and Assistant Investments, LLC.; Vice President of Nuveen Asset 333 W. Wacker Drive Secretary Management (since 2005). Chicago, IL 60606 o MARGO L. COOK Vice President 2009 200 Executive Vice President (since Oct 2008) of 4/11/64 Nuveen Investments, Inc.; previously, Head of 333 W. Wacker Drive Institutional Asset Management (2007-2008) of Chicago, IL 60606 Bear Stearns Asset Management; Head of Institutional Asset Mgt (1986-2007) of Bank of NY Mellon; Chartered Financial Analyst. o LORNA C. FERGUSON Vice President 1998 200 Managing Director (since 2004) of Nuveen 10/24/45 Investments, LLC; Managing Director (since 2005) 333 W. Wacker Drive of Nuveen Asset Management; Managing Director Chicago, IL 60606 (2004-2005), of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3) 70 Nuveen Investments NUMBER OF PORTFOLIOS NAME, YEAR FIRST IN FUND COMPLEX PRINCIPAL BIRTHDATE POSITION(S) HELD ELECTED OR OVERSEEN OCCUPATION(S) AND ADDRESS WITH THE FUNDS APPOINTED(4) BY OFFICER DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: o STEPHEN D. FOY Vice President 1998 200 Vice President (since 1993) and Funds Controller 5/31/54 and Controller (since 1998) of Nuveen Investments, LLC; Vice 333 W. Wacker Drive President (since 2005) of Nuveen Asset Chicago, IL 60606 Management; Certified Public Accountant. o WILLIAM T. HUFFMAN Vice President 2009 136 Chief Operating Officer, Municipal Fixed Income 5/7/69 (since 2008) of Nuveen Asset Management; 333 W. Wacker Drive previously, Chairman, President and Chief Chicago, IL 60606 Executive Officer (2002 - 2007) of Northern Trust Global Advisors, Inc. and Chief Executive Officer (2007) of Northern Trust Global Investments Limited; Certified Public Accountant. o WALTER M. KELLY Chief Compliance 2003 200 Senior Vice President (since 2008), Vice 2/24/70 Officer and President (2006-2008) formerly, Assistant Vice 333 W. Wacker Drive Vice President President and Assistant General Counsel Chicago, IL 60606 (2003-2006) of Nuveen Investments, LLC; Vice President (since 2006) and Assistant Secretary (since 2008) of Nuveen Asset Management. o DAVID J. LAMB Vice President 2000 200 Senior Vice President (since 2009), formerly, 3/22/63 Vice President (2000-2009) of Nuveen Investments, 333 W. Wacker Drive LLC; Vice President (since 2005) of Nuveen Asset Chicago, IL 60606 Management; Certified Public Accountant. o TINA M. LAZAR Vice President 2002 200 Senior Vice President (since 2009), formerly, 8/27/61 Vice President of Nuveen Investments, LLC 333 W. Wacker Drive (1999-2009); Vice President of Nuveen Asset Chicago, IL 60606 Management (since 2005). o LARRY W. MARTIN Vice President 1988 200 Vice President, Assistant Secretary and Assistant 7/27/51 and Assistant General Counsel of Nuveen Investments, LLC; Vice 333 W. Wacker Drive Secretary President (since 2005) and Assistant Secretary of Chicago, IL 60606 Nuveen Investments, Inc.; Vice President (since 2005) and Assistant Secretary (since 1997) of Nuveen Asset Management; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); NWQ Investment Management Company, LLC (since 2002), Symphony Asset Management LLC (since 2003), Tradewinds Global Investors, LLC, Santa Barbara Asset Management LLC (since 2006) and of Nuveen HydePark Group, LLC and Nuveen Investment Solutions, Inc. (since 2007); formerly, Vice President and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3) o KEVIN J. MCCARTHY Vice President 2007 200 Managing Director (since 2008), formerly, Vice 3/26/66 and Secretary President (2007-2008), Nuveen Investments, LLC; 333 W. Wacker Drive Managing Director (since 2008), formerly, Vice Chicago, IL 60606 President, and Assistant Secretary, Nuveen Asset Management, and Nuveen Investments Holdings, Inc.; Vice President (since 2007) and Assistant Secretary, Nuveen Investment Advisers Inc., Nuveen Investment Institutional Services Group LLC, NWQ Investment Management Company, LLC, Tradewinds Global Investors LLC, NWQ Holdings, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management LLC, Nuveen HydePark Group, LLC and Nuveen Investment Solutions, Inc. (since 2007); prior thereto, Partner, Bell, Boyd & Lloyd LLP (1997-2007). Nuveen Investments 71 NUMBER OF PORTFOLIOS NAME, YEAR FIRST IN FUND COMPLEX PRINCIPAL BIRTHDATE POSITION(S) HELD ELECTED OR OVERSEEN OCCUPATION(S) AND ADDRESS WITH THE FUNDS APPOINTED(4) BY OFFICER DURING PAST 5 YEARS ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: o JOHN V. MILLER Vice President 2007 136 Chief Investment Officer and Managing Director 4/10/67 (since 2007), formerly, Vice President 333 W. Wacker Drive (2002-2007) of Nuveen Asset Management and Chicago, IL 60606 Managing Director (since 2007), formerly Vice President (2002-2007) Nuveen Investments, LLC; Chartered Financial Analyst. o GREGORY MINO Vice President 2009 200 Vice President of Nuveen Investments, LLC (since 1/4/71 2008); previously, Director (2004-2007) and 333 W. Wacker Drive Executive Director (2007-2008) of UBS Global Chicago, IL 60606 Asset Management; previously, Vice President (2000-2003) and Director (2003-2004) of Merrill Lynch Investment Managers; Chartered Financial Analyst. o CHRISTOPHER M. ROHRBACHER 8/1/71 Vice President 2008 200 Vice President, Nuveen Investments, LLC (since 333 W. Wacker Drive and Assistant 2008); Vice President and Assistant Secretary, Chicago, IL 60606 Secretary Nuveen Asset Management (since 2008); prior thereto, Associate, Skadden, Arps, Slate Meagher & Flom LLP (2002-2008). o JAMES F. RUANE 7/3/62 Vice President 2007 200 Vice President, Nuveen Investments, LLC (since 333 W. Wacker Drive and Assistant 2007); prior thereto, Partner, Deloitte & Touche Chicago, IL 60606 Secretary USA LLP (2005-2007), formerly, senior tax manager (2002-2005); Certified Public Accountant. o MARK L. WINGET 12/21/68 Vice President 2008 200 Vice President, Nuveen Investments, LLC (since 333 W. Wacker Drive and Assistant 2008); Vice President and Assistant Secretary, Chicago, IL 60606 Secretary Nuveen Asset Management (since 2008); prior thereto, Counsel, Vedder Price P.C. (1997-2007). (1) 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. (2) Mr. Amboian is an interested trustee because of his position with Nuveen Investments, Inc. and certain of its subsidiaries, which are affiliates of the Nuveen Funds. (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. 72 Nuveen Investments Annual Investment Management Agreement Approval Process The Investment Company Act of 1940, as amended (the "1940 Act"), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuance is approved at least annually by the fund's board members, including by a vote of a majority of the board members who are not parties to the advisory agreement or "interested persons" of any parties (the "Independent Board Members"), cast in person at a meeting called for the purpose of considering such approval. In connection with such approvals, the fund's board members must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the advisory agreement. Accordingly, at a meeting held on May 27-29, 2009 (the "May Meeting"), the Boards of Trustees or Directors (as the case may be) (each a "Board" and each Trustee or Director, a "Board Member") of the Funds, including a majority of the Independent Board Members, considered and approved the continuation of the advisory agreements (each an "Advisory Agreement") between each Fund and Nuveen Asset Management ("NAM") for an additional one-year period. In preparation for their considerations at the May Meeting, the Board also held a separate meeting on April 21-22, 2009 (the "April Meeting"). Accordingly, the factors considered and determinations made regarding the renewals by the Independent Board Members include those made at the April Meeting. In addition, in evaluating the Advisory Agreements, the Independent Board Members reviewed a broad range of information relating to the Funds and NAM, including absolute performance, fee and expense information for the Funds as well as comparative performance, fee and expense information for a comparable peer group of funds, the performance information of recognized and/or customized benchmarks (as applicable) of the Funds, the profitability of Nuveen for its advisory activities (which includes its wholly owned subsidiaries other than Winslow Capital Management, Inc. ("Winslow Capital"), which was recently acquired in December 2008), and other information regarding the organization, personnel, and services provided by NAM. The Independent Board Members also met quarterly as well as at other times as the need arose during the year and took into account the information provided at such meetings and the knowledge gained therefrom. Prior to approving the renewal of the Advisory Agreements, the Independent Board Members reviewed the foregoing information with their independent legal counsel and with management, reviewed materials from independent legal counsel describing applicable law and their duties in reviewing advisory contracts, and met with independent legal counsel in private sessions without management present. The Independent Board Members considered the legal advice provided by Nuveen Investments 73 Annual Investment Management Agreement Approval Process (continued) independent legal counsel and relied upon their knowledge of NAM, its services and the Funds resulting from their meetings and other interactions throughout the year and their own business judgment in determining the factors to be considered in evaluating the Advisory Agreements. Each Board Member may have accorded different weight to the various factors in reaching his or her conclusions with respect to a Fund's Advisory Agreement. The Independent Board Members did not identify any single factor as all-important or controlling. The Independent Board Members' considerations were instead based on a comprehensive consideration of all the information presented. The principal factors considered by the Board and its conclusions are described below. A. NATURE, EXTENT AND QUALITY OF SERVICES In considering renewal of the Advisory Agreements, the Independent Board Members considered the nature, extent and quality of NAM's services, including advisory services and administrative services. The Independent Board Members reviewed materials outlining, among other things, NAM's organization and business; the types of services that NAM or its affiliates provide and are expected to provide to the Funds; the performance record of the applicable Fund (as described in further detail below); and any initiatives Nuveen had taken for the applicable fund product line. In reviewing the services provided and the initiatives undertaken during the past year, the Independent Board Members recognized the severe market turmoil experienced in the capital markets during recent periods, including sustained periods of high volatility, credit disruption and government intervention. The Independent Board Members considered NAM's efforts, expertise and other actions taken to address matters as they arose that impacted the Funds. The Independent Board Members recognized the role of the Investment Services group which, among other things, monitors the various positions throughout the Nuveen fund complex to identify and address any systematic risks. In addition, the Capital Markets Committee of NAM provides a multi-departmental venue for developing new policies to mitigate any risks. The Independent Board Members further recognized NAM's continuous review of the Nuveen funds' investment strategies and mandates in seeking to continue to refine and improve the investment process for the funds, particularly in light of market conditions. With respect to closed-end funds that issued auction rate preferred shares ("ARPs") or that otherwise utilize leverage, the Independent Board Members noted, in particular, NAM's efforts in refi-nancing the preferred shares of such funds frozen by the collapse of the auction rate market and managing leverage during a period of rapid market declines, particularly for the non-equity funds. Such efforts included negotiating and maintaining the availability of bank loan facilities and other sources of credit used for investment purposes or to satisfy liquidity needs, liquidating portfolio securities during difficult times to meet leverage ratios, and seeking alternative forms of debt and other leverage that may over time reduce financing costs associated with ARPs and enable the funds that have issued ARPs to restore liquidity to ARPs holders. The Independent Board Members also noted Nuveen's continued commitment and efforts to keep investors and financial advisers 74 Nuveen Investments informed as to its progress with the ARPs through, among other things, conference calls, emails, press releases, information posted on its website, and telephone calls and in-person meetings with financial advisers. In addition to the foregoing, the Independent Board Members also noted the additional services that NAM or its affiliates provide to closed-end funds, including, in particular, 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 an investor relations program to provide timely information and education to financial advisers and investors; providing advertising and marketing for the closed-end funds; maintaining websites; and providing educational seminars. As part of their review, the Independent Board Members also evaluated the background, experience and track record of NAM's investment personnel. In this regard, the Independent Board Members considered any changes in the personnel, and the impact on the level of services provided to the Funds, if any. The Independent Board Members also reviewed information regarding portfolio manager compensation arrangements to evaluate NAM's ability to attract and retain high quality investment personnel, preserve stability, and reward performance but not provide an incentive for taking undue risks. In addition to advisory services, the Independent Board Members considered the quality of administrative services provided by NAM and its affiliates including product management, fund administration, oversight of service providers, shareholder services, administration of Board relations, regulatory and portfolio compliance and legal support. Given the importance of compliance, the Independent Board Members considered NAM's compliance program, including the report of the chief compliance officer regarding the Funds' compliance policies and procedures. Based on their review, the Independent Board Members found that, overall, the nature, extent and quality of services provided (and expected to be provided) to the respective Funds under the Advisory Agreements were satisfactory. B. THE INVESTMENT PERFORMANCE OF THE FUNDS AND NAM The Board considered the investment performance of each 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 provider of mutual fund data as well as recognized and/or customized benchmarks (as applicable). The Independent Board Members reviewed performance information including, among other things, total return information compared with the Fund's Performance Peer Group and recognized and/or customized benchmarks (as applicable) for the quarter-, one-, three- and five-year periods (as applicable) ending December 31, 2008 and for the same periods (as applicable) ending March 31, 2009. The Independent Board Members also reviewed performance information of the Nuveen municipal funds managed by NAM in the aggregate ranked by peer group and Nuveen Investments 75 Annual Investment Management Agreement Approval Process (continued) the performance of such funds, in the aggregate, relative to their benchmark. This information supplemented the Fund performance information provided to the Board at each of its quarterly meetings. In comparing a fund's performance with that of its Performance Peer Group, the Independent Board Members took into account that the closest Performance Peer Group in certain instances may not adequately reflect the respective fund's investment objectives and strategies thereby hindering a meaningful comparison of the fund's performance with that of the Performance Peer Group. The Independent Board Members further considered the performance of the Funds in the context of the volatile market conditions during the past year, and their impact on various asset classes and the portfolio management of the Funds. Based on their review and factoring in the severity of market turmoil in 2008, the Independent Board Members determined that each Fund's investment performance over time had been satisfactory. C. FEES, EXPENSES AND PROFITABILITY 1. FEES AND EXPENSES The Board evaluated the management fees and expenses of each Fund reviewing, among other things, such Fund's gross management fees, net management fees and total expense ratios (before and after expense reimbursements and/or waivers) in absolute terms as well as compared to the fee and expenses of a comparable universe of unaffiliated funds based on data provided by an independent fund data provider (the "Peer Universe") and in certain cases, to a more focused subset of funds in the Peer Universe (the "Peer Group"). The Independent Board Members further reviewed data regarding the construction of the applicable Peer Universe and Peer Group. In reviewing the comparisons of fee and expense information, the Independent Board Members took into account that in certain instances various factors such as the asset level of a fund relative to peers, the size and particular composition of the Peer Universe or Peer Group, the investment objectives of the peers, expense anomalies, changes in the funds comprising the Peer Universe or Peer Group from year to year, levels of reimbursement and the timing of information used may impact the comparative data, thereby limiting the ability to make a meaningful comparison. In addition, the Independent Board Members also considered, among other things, the differences in the use and type of leverage compared to the peers. The Independent Board Members also considered the differences in the states reflected in the respective Peer Group. In reviewing the fee schedule for a Fund, the Independent Board Members also considered the fund-level and complex-wide breakpoint schedules (described in further detail below) and any fee waivers and reimbursements provided by Nuveen (applicable, in particular, for certain closed-end funds launched since 1999). 76 Nuveen Investments Based on their review of the fee and expense information provided, the Independent Board Members determined that each Fund's management fees and net total expense ratio were reasonable in light of the nature, extent and quality of services provided to the Fund. 2. COMPARISONS WITH THE FEES OF OTHER CLIENTS The Independent Board Members further reviewed information regarding the nature of services and fee rates offered by NAM to other clients. Such other clients include NAM's municipal separately managed accounts. In evaluating the comparisons of fees, the Independent Board Members noted that the fee rates charged to the Funds and other clients vary, among other things, because of the different services involved and the additional regulatory and compliance requirements associated with registered investment companies, such as the Funds. Accordingly, the Independent 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 Independent Board Members noted, in particular, that the range of services provided to the Funds (as discussed above) is much more extensive than that provided to separately managed accounts. Given the inherent differences in the products, particularly the extensive services provided to the Funds, the Independent Board Members believe such facts justify the different levels of fees. 3. PROFITABILITY OF NUVEEN In conjunction with its review of fees, the Independent Board Members also considered the profitability of Nuveen for its advisory activities (which incorporated Nuveen's wholly-owned affiliated sub-advisers other than Winslow Capital) and its financial condition. The Independent Board Members reviewed the revenues and expenses of Nuveen's advisory activities for the last two years, the allocation methodology used in preparing the profitability data and an analysis of the key drivers behind the changes in revenues and expenses that impacted profitability in 2008. In addition, the Independent Board Members reviewed information regarding the financial results of Nuveen for 2008 based on its Form 8-K filed on March 31, 2009. The Independent 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 Independent Board Members noted that they had also appointed an Independent Board Member as a point person to review and keep them apprised of changes to the profitability analysis and/or methodologies during the year. The Independent Board Members also considered Nuveen's revenues for advisory activities, expenses, and profit margin compared to that of various unaffiliated management firms with similar amounts of Nuveen Investments 77 Annual Investment Management Agreement Approval Process (continued) assets under management and relatively comparable asset composition prepared by Nuveen. In reviewing profitability, the Independent Board Members recognized the subjective nature of determining profitability which may be affected by numerous factors including the allocation of expenses. Further, the Independent 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 Independent Board Members reviewed Nuveen's methodology and assumptions for allocating expenses across product lines to determine profitability. In reviewing profitability, the Independent Board Members recognized Nuveen's investment in its fund business. Based on their review, the Independent Board Members concluded that Nuveen's level of profitability for its advisory activities was reasonable in light of the services provided. In evaluating the reasonableness of the compensation, the Independent Board Members also considered other amounts paid to NAM by the Funds as well as any indirect benefits (such as soft dollar arrangements, if any) NAM and its affiliates receive, or are expected to receive, that are directly attributable to the management of the Funds, if any. See Section E below for additional information on indirect benefits NAM may receive as a result of its relationship with the Funds. Based on their review of the overall fee arrangements of each Fund, the Independent Board Members determined that the advisory fees and expenses of the respective Fund were reasonable. D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE With respect to economies of scale, the Independent Board Members have recognized the potential benefits resulting from the costs of a fund being spread over a larger asset base, although economies of scale are difficult to measure and predict with precision, particularly on a fund-by-fund basis. One method to help ensure the shareholders share in these benefits is to include breakpoints in the advisory fee schedule. Generally, management fees for funds in the Nuveen complex are comprised of a fund-level component and a complex-level component, subject to certain exceptions. Accordingly, the Independent Board Members reviewed and considered the applicable fund-level breakpoints in the advisory fee schedules that reduce advisory fees as asset levels increase. In this regard, the Independent Board Members noted that although closed-end funds may from time-to-time make additional share offerings, the growth of their assets will occur primarily through the appreciation of such funds' investment portfolio. 78 Nuveen Investments While economies of scale result when costs can be spread over a larger asset base, the Independent Board Members also recognized that the asset levels generally declined in 2008 due to, among other things, the market downturn. Accordingly, for funds with a reduction in assets under management, advisory fee levels may have increased as breakpoints in the fee schedule were no longer surpassed. In addition to fund-level advisory fee breakpoints, the Board also considered the Funds' complex-wide fee arrangement. Pursuant to the complex-wide fee arrangement, the fees of the funds in the Nuveen complex generally are reduced as the assets in the fund complex reach certain levels. The complex-wide fee arrangement seeks to provide the benefits of economies of scale to fund shareholders when total fund complex assets increase, even if assets of a particular fund are unchanged or have decreased. The approach reflects the notion that some of Nuveen's costs are attributable to services provided to all its funds in the complex and therefore all funds benefit if these costs are spread over a larger asset base. Generally, the complex-wide pricing reduces Nuveen's revenue because total complex fund assets have consistently grown in prior years. As noted, however, total fund assets declined in 2008 resulting in a smaller downward adjustment of revenues due to complex-wide pricing compared to the prior year. Based on their review, the Independent Board Members concluded that the breakpoint schedules and complex-wide fee arrangement were acceptable and reflect economies of scale to be shared with shareholders when assets under management increase. E. INDIRECT BENEFITS In evaluating fees, the Independent Board Members received and considered information regarding potential "fall out" or ancillary benefits NAM or its affiliates may receive as a result of its relationship with each Fund. In this regard, the Independent Board Members considered revenues received by affiliates of NAM for serving as agent at Nuveen's trading desk. In addition to the above, the Independent Board Members considered whether NAM received any benefits from soft dollar arrangements whereby a portion of the commissions paid by a Fund for brokerage may be used to acquire research that may be useful to NAM in managing the assets of the Funds and other clients. The Independent 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. Based on their review, the Independent Board Members concluded that any indirect benefits received by NAM as a result of its relationship with the Funds were reasonable and within acceptable parameters. Nuveen Investments 79 Annual Investment Management Agreement Approval Process (continued) F. OTHER CONSIDERATIONS The Independent Board Members did not identify any single factor discussed previously as all-important or controlling. The Board Members, including the Independent Board Members, unanimously concluded that the terms of the Advisory Agreements are fair and reasonable, that NAM's fees are reasonable in light of the services provided to each Fund and that the Advisory Agreements be renewed. 80 Nuveen Investments Reinvest Automatically Easily and Conveniently Nuveen makes reinvesting easy. A phone call is all it takes to set up your reinvestment account. NUVEEN CLOSED-END FUNDS 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 Nuveen Investments 81 Reinvest Automatically Easily and Conveniently (continued) 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. 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. 82 Nuveen Investments Glossary of Terms Used in this Report o AUCTION RATE BOND: An auction rate bond is a security whose interest payments are adjusted periodically through an auction process, which process typically also serves as a means for buying and selling the bond. Auctions that fail to attract enough buyers for all the shares offered for sale are deemed to have "failed," with current holders receiving a formula-based interest rate until the next scheduled auction. o 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. o AVERAGE EFFECTIVE MATURITY: The average of the number of years to maturity of the bonds in a Fund's portfolio, computed by weighting each bond's time to maturity (the date the security comes due) by the market value of the security. This figure does not account for the likelihood of prepayments or the exercise of call provisions unless an escrow account has been established to redeem the bond before maturity. The market value weighting for an investment in an inverse floating rate security is the value of the portfolio's residual interest in the inverse floating rate trust, and does not include the value of the floating rate securities issued by the trust. o INVERSE FLOATERS: Inverse floating rate securities, also known as inverse floaters, are created by depositing a municipal bond, typically with a fixed interest rate, into a special purpose trust created by a broker-dealer. This trust, in turn, (a) issues floating rate certificates typically paying short-term tax-exempt interest rates to third parties in amounts equal to some fraction of the deposited bond's par amount or market value, and (b) issues an inverse floating rate certificate (sometimes referred to as an "inverse floater") to an investor (such as a Fund) interested in gaining investment exposure to a long-term municipal bond. The income received by the holder of the inverse floater varies inversely with the short-term rate paid to the floating rate certificates' holders, and in most circumstances the holder of the inverse floater bears substantially all of the underlying bond's downside investment risk. The holder of the inverse floater typically also benefits disproportionately from any potential appreciation of the underlying bond's value. Hence, an inverse floater essentially represents an investment in the underlying bond on a leveraged basis. Nuveen Investments 83 Glossary of Terms Used in this Report (continued) o LEVERAGE-ADJUSTED DURATION: Duration is a measure of the expected period over which a bond's principal and interest will be paid, and consequently is a measure of the sensitivity of a bond's or bond Fund's value to changes when market interest rates change. Generally, the longer a bond's or Fund's duration, the more the price of the bond or Fund will change as interest rates change. Leverage-adjusted duration takes into account the leveraging process for a Fund and therefore is longer than the duration of the Fund's portfolio of bonds. o MARKET YIELD (ALSO KNOWN AS DIVIDEND YIELD OR CURRENT YIELD): An investment's current annualized dividend divided by its current market price. o NET ASSET VALUE (NAV): A Fund's NAV per common 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 common shares outstanding. Fund NAVs are calculated at the end of each business day. o TAXABLE-EQUIVALENT YIELD: The yield necessary from a fully taxable investment to equal, on an after-tax basis, the yield of a municipal bond investment. o ZERO COUPON BOND: A zero coupon bond does not pay a regular interest coupon to its holders during the life of the bond. Tax-exempt income to the holder of the bond comes from accretion of the difference between the original purchase price of the bond at issuance and the par value of the bond at maturity and is effectively paid at maturity. The market prices of zero coupon bonds generally are more volatile than the market prices of bonds that pay interest periodically. 84 Nuveen Investments Notes Nuveen Investments 85 Notes 86 Nuveen Investments Other Useful Information BOARD OF DIRECTORS/TRUSTEES John P. Amboian Robert P. Bremner Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Judith M. Stockdale Carole E. Stone Terence J. Toth 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 QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION You may obtain (i) each Fund's quarterly portfolio of investments, (ii) information regarding how the Funds voted proxies relating to portfolio securities held during the twelve-month period ended June 30, 2009, and (iii) a description of the policies and procedures that the Funds used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 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 (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 References Section at 100 F Street NE, Washington, D.C. 20549. CEO CERTIFICATION DISCLOSURE Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange (NYSE) the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the SEC the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. COMMON AND PREFERRED SHARE INFORMATION Each Fund intends to repurchase and/or redeem shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. During the period covered by this report, the Funds repurchased and/or redeemed shares of their common and/or preferred stock as shown in the accompanying table. Common Shares Preferred Shares Fund Repurchased Redeemed NAZ -- 85 NFZ 2,500 56 NKR 800 75 NXE 1,600 144 NTX -- 158 Any future repurchases and/or redemptions will be reported to shareholders in the next annual or semi-annual report. Nuveen Investments 87 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. Nuveen Investments is a global investment management firm that seeks to help secure the long-term goals of institutions and high net worth investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets its growing range of specialized investment solutions under the high-quality brands of HydePark, NWQ, Nuveen, Santa Barbara, Symphony, Tradewinds and Winslow Capital. In total, the Company managed $128 billion of assets on June 30, 2009. 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. Learn more about Nuveen Funds at: WWW.NUVEEN.COM/CEF o Share prices o Fund details o Daily financial news o Investor education o Interactive planning tools Distributed by Nuveen Investments, LLC 333 West Wacker Drive Chicago, IL 60606 It's not what you earn, www.nuveen.com it's what you keep.(R) EAN-A-0709D 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/CEF/Info/Shareholder. (To view the code, 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 ("Board") 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, 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 Texas Quality Income Municipal 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) ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2009 $ 14,008 $ 0 $ 0 $ 850 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2008 $ 13,557 $ 0 $ 500 $ 800 ------------------------------------------------------------------------------------------------------------------------------------ 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 for agreed upon procedures engagements performed for leveraged funds. 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 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. 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 SERVICE PROVIDERS ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2009 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2008 $ 0 $ 0 $ 0 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ 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. 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 pre-approval 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 ------------------------------------------------------------------------------------------------------------------------------------ July 31, 2009 $ 850 $ 0 $ 0 $ 850 July 31, 2008 $ 1,300 $ 0 $ 0 $ 1,300 "Non-Audit Fees billed to Fund" for both fiscal year ends represent "Tax Fees" and "All Other Fees" billed to Fund in their respective amounts from the previous table. 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 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, Terence J. Toth, William J. Schneider and David J. Kundert. ITEM 6. SCHEDULE OF INVESTMENTS. a) See Portfolio of Investments in Item 1. b) Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The registrant invests its assets primarily in municipal bonds and cash management securities. On rare occasions the registrant may acquire, directly or through a special purpose vehicle, equity securities of a municipal bond issuer whose bonds the registrant already owns when such bonds have deteriorated or are expected shortly to deteriorate significantly in credit quality. The purpose of acquiring equity securities generally will be to acquire control of the municipal bond issuer and to seek to prevent the credit deterioration or facilitate the liquidation or other workout of the distressed issuer's credit problem. In the course of exercising control of a distressed municipal issuer, NAM may pursue the registrant's interests in a variety of ways, which may entail negotiating and executing consents, agreements and other arrangements, and otherwise influencing the management of the issuer. NAM does not consider such activities proxy voting for purposes of Rule 206(4)-6 under the 1940 Act, but nevertheless provides reports to the registrant's Board on its control activities on a quarterly basis. In the rare event that a municipal issuer were to issue a proxy or that the registrant were to receive a proxy issued by a cash management security, NAM would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the registrant's Board or its representative. A member of NAM's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 206(4)-6, reports were filed with the SEC on Form N-PX, and the results provided to the registrant's Board and made available to shareholders as required by applicable rules. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. THE PORTFOLIO MANAGER The following individual has primary responsibility for the day-to-day implementation of the registrant's investment strategies: NAME FUND Daniel J. Close Nuveen Texas Quality Income Municipal Fund Other Accounts Managed. In addition to managing the registrant, the portfolio manager is also primarily responsible for the day-to-day portfolio management of the following accounts: TYPE OF ACCOUNT NUMBER OF PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS* -------------------------------------------------------------------------------- Daniel J. Close Registered Investment Company 25 $4.644 billion Other Pooled Investment Vehicles 0 $0 Other Accounts 5 $.20 million * Assets are as of July 31, 2009. None of the assets in these accounts are subject to an advisory fee based on performance. Compensation. Each portfolio manager's compensation consists of three basic elements--base salary, cash bonus and long-term incentive compensation. The compensation strategy is to annually compare overall compensation to the market in order to create a compensation structure that is competitive and consistent with similar financial services companies. As discussed below, several factors are considered in determining each portfolio manager's total compensation. In any year these factors may include, among others, the effectiveness of the investment strategies recommended by the portfolio manager's investment team, the investment performance of the accounts managed by the portfolio manager, and the overall performance of Nuveen Investments, Inc. (the parent company of NAM). Although investment performance is a factor in determining the portfolio manager's compensation, it is not necessarily a decisive factor. The portfolio manager's performance is evaluated in part by comparing manager's performance against a specified investment benchmark. This fund-specific benchmark is a customized subset (limited to bonds in each Fund's specific state and with certain maturity parameters) of the S&P/Investortools Municipal Bond index, an index comprised of bonds held by managed municipal bond fund customers of Standard & Poor's Securities Pricing, Inc. that are priced daily and whose fund holdings aggregate at least $2 million. As of September 30, 2009, the S&P/Investortools Municipal Bond index was comprised of 54,220 securities with an aggregate current market value of $1,130 billion. Base salary. Each portfolio manager is paid a base salary that is set at a level determined by NAM in accordance with its overall compensation strategy discussed above. NAM is not under any current contractual obligation to increase a portfolio manager's base salary. Cash bonus. Each portfolio manager is also eligible to receive an annual cash bonus. The level of this bonus is based upon evaluations and determinations made by each portfolio manager's supervisors, along with reviews submitted by his peers. These reviews and evaluations often take into account a number of factors, including the effectiveness of the investment strategies recommended to the NAM's investment team, the performance of the accounts for which he serves as portfolio manager relative to any benchmarks established for those accounts, his effectiveness in communicating investment performance to stockholders and their representatives, and his contribution to the NAM's investment process and to the execution of investment strategies. The cash bonus component is also impacted by the overall performance of Nuveen Investments, Inc. in achieving its business objectives. Long-term incentive compensation. In connection with the acquisition of Nuveen Investments, Inc., by a group of investors led by Madison Dearborn Partners in November 2007, certain employees, including portfolio managers, received profit interests in Nuveen's parent. These profit interests entitle the holders to participate in the appreciation in the value of Nuveen beyond the issue date and vest over five to seven years, or earlier in the case of a liquidity event. In addition, in July 2009, Nuveen Investments created and funded a trust, as part of a newly-established incentive program, which purchased shares of certain Nuveen Mutual Funds and awarded such shares, subject to vesting, to certain employees, including portfolio managers. Material Conflicts of Interest. Each portfolio manager's simultaneous management of the registrant and the other accounts noted above may present actual or apparent conflicts of interest with respect to the allocation and aggregation of securities orders placed on behalf of the registrant and the other account. NAM, however, believes that such potential conflicts are mitigated by the fact that the NAM has adopted several policies that address potential conflicts of interest, including best execution and trade allocation policies that are designed to ensure (1) that portfolio management is seeking the best price for portfolio securities under the circumstances, (2) fair and equitable allocation of investment opportunities among accounts over time and (3) compliance with applicable regulatory requirements. All accounts are to be treated in a non-preferential manner, such that allocations are not based upon account performance, fee structure or preference of the portfolio manager, although the allocation procedures may provide allocation preferences to funds with special characteristics (such as favoring state funds versus national funds for allocations of in-state bonds). In addition, NAM has adopted a Code of Conduct that sets forth policies regarding conflicts of interest. Beneficial Ownership of Securities. As of July 31, 2009, the portfolio manager beneficially owned the following dollar range of equity securities issued by the registrant and other Nuveen Funds managed by NAM's municipal investment team. DOLLAR RANGE OF DOLLAR EQUITY RANGE OF SECURITIES EQUITY BENEFICIALLY SECURITIES OWNED IN BENEFICIALLY THE OWNED IN REMAINDER FUND OF NUVEEN FUNDS MANAGED BY NAM'S MUNICIPAL NAME OF PORTFOLIO INVESTMENT MANAGER FUND TEAM --------------------------------------------------------------------------------------------------------------- Daniel J. Close Nuveen Texas Quality Income Municipal Fund $0 $10,001-$50,000 PORTFOLIO MANAGER BIO: Daniel J. Close, CFA, Vice President, Nuveen Asset Management. Mr. Close joined Nuveen Investments in 2000 as a member of Nuveen's product management and development team, where he was responsible for the oversight and development of Nuveen's mutual fund product line. He then served as an analyst for NAM, covering corporate-backed, energy, transportation and utility credits, and assumed certain portfolio management responsibilities in 2007. He manages investments for 26 Nuveen-sponsored investment companies. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant's website at www.nuveen.com/CEF/Info/ Shareholder and there were no amendments during the period covered by this report. (To view the code, 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 Texas Quality Income Municipal Fund ----------------------------------------------------------- By (Signature and Title) /s/ Kevin J. McCarthy ---------------------------------------------- Kevin J. McCarthy Vice President and Secretary Date: October 8, 2009 ------------------------------------------------------------------- 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: October 8, 2009 ------------------------------------------------------------------- By (Signature and Title) /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) Date: October 8, 2009 -------------------------------------------------------------------