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 811-21157
---------------------
Nuveen Arizona Dividend Advantage Municipal Fund 3
--------------------------------------------------------------------------------
(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 Arizona Dividend Advantage Municipal Fund 3
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 $ 9,229 $ 0 $ 0 $ 850
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2008 $ 9,182 $ 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
Scott R. Romans Nuveen Arizona Dividend Advantage Municipal Fund 3
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*
--------------------------------------------------------------------------------
Scott R. Romans Registered Investment Company 29 $5.412 billion
Other Pooled Investment Vehicles 0 $0
Other Accounts 3 $.213 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. 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
---------------------------------------------------------------------------------------------------------------
Scott R. Romans Nuveen Arizona Dividend Advantage Municipal Fund 3 $0 $10,001--$50,000
PORTFOLIO MANAGER BIO:
Scott R. Romans, PhD, joined Nuveen Investments in 2000 as a senior analyst
covering higher education, charter schools and private secondary schools. In
2003, he was assigned management responsibility for several closed- and
open-end municipal bond funds most of which are state funds covering
California and other western states. He has been Vice President of NAM since
2004. Currently, he manages investments for 30 Nuveen-sponsored investment
companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Period* (a) (b) (c) (d)*
TOTAL NUMBER OF AVERAGE TOTAL NUMBER OF SHARES MAXIMUM NUMBER (OR
SHARES (OR PRICE (OR UNITS) PURCHASED AS APPROXIMATE DOLLAR VALUE) OF
UNITS) PAID PER PART OF PUBLICLY SHARES (OR UNITS) THAT MAY YET
PURCHASED SHARE (OR ANNOUNCED PLANS OR BE PURCHASED UNDER THE PLANS OR
UNIT) PROGRAMS PROGRAMS
AUGUST 7-31, 2008 0 0 305,000
SEPTEMBER 1-30, 2008 0 0 305,000
OCTOBER 1-31, 2008 0 0 305,000
NOVEMBER 1-30, 2009 0 0 305,000
DECEMBER 1-31, 2008 0 0 305,000
JANUARY 1-31, 2009 0 0 305,000
FEBRUARY 1-28, 2009 300 9.95 300 304,700
MARCH 1-31, 2009 1,300 9.51 1,300 303,400
APRIL 1-30, 2009 0 0 303,400
MAY 1-31, 2009 0 0 303,400
JUNE 1-30, 2009 0 0 303,400
JULY 1-31, 2009 0 0 303,400
TOTAL 1,600
* The registrant's repurchase program, which authorized the repurchase of
305,000 shares, was announced August 7, 2008. Any repurchases made by the
registrant pursuant to the program were made through open-market
transactions.
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 Arizona Dividend Advantage Municipal Fund 3
-----------------------------------------------------------
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
-------------------------------------------------------------------