SEMIANNUAL REPORT January 31, 2003
Nuveen
Municipal Closed-End
Exchange-Traded
Funds
ARIZONA
NAZ
NFZ
NKR
NXE
TEXAS
NTX
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Dear
SHAREHOLDER
Once again, I am pleased to write that during the period covered by this report
your Nuveen Fund continued to meet its objective of providing attractive monthly
income free from federal income taxes and, where applicable, state income taxes.
Detailed information on your Fund's performance can be found in the Portfolio
Manager's Comments and on the Performance Overview pages within this report.
Please take the time to read them.
In addition to providing regular tax-free income, we believe that a municipal
bond investment like your Nuveen Fund also may offer opportunities to reduce the
risk of your overall investment portfolio. This is because the prices of
municipal bonds may move differently than the prices of the common stocks,
mutual funds or other investments you may own. Since one part of your portfolio
may be going up when another is going down, portfolio diversification may reduce
your overall risk. Your financial advisor can explain the advantages of
portfolio diversification in more detail. I urge you to contact him or her soon
for more information on this important investment strategy.
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For more than 100 years, Nuveen has specialized in offering quality investments
such as your Nuveen Fund to those seeking to accumulate and preserve wealth. Our
commitment to careful research, constant surveillance and judicious trading by a
seasoned portfolio management team has never been stronger. Our mission
continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you meet your financial
objectives. We thank you for choosing us as a partner as you work toward that
goal.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
March 17, 2003
1
Nuveen Municipal Closed-End Exchange-Traded Funds
(NAZ, NFZ, NKR, NXE, NTX)
Portfolio Manager's
COMMENTS
Portfolio manager Rick Huber reviews U.S. and state economic conditions, key
investment strategies, and the recent performance of the Arizona and Texas
Funds. Rick, who has eighteen years of investment management experience, assumed
portfolio management responsibility for the Nuveen Arizona and Texas Funds in
January 2003.
WHAT WERE THE MAJOR FACTORS AFFECTING THE U.S. ECONOMY AND THE MUNICIPAL MARKET
DURING THIS REPORTING PERIOD?
In a number of ways, economic and market conditions have not changed
significantly since our last shareholder report dated July 31, 2002. We believe
the most influential factors shaping the U.S. economy and the municipal market
over this reporting period continued to be the slow pace of economic growth and
the relatively low levels of interest rates. Geopolitical uncertainty and the
ongoing threat of terrorism also had an economic impact during this period.
In the municipal market, the sluggish economic recovery and lack of inflationary
pressures continued to help many bonds perform well during much of the period
ended January 31, 2003. In calendar year 2002, new municipal supply nationwide
topped $357 billion, increasing 25% over 2001 levels and eclipsing the previous
record of $292 billion set in 1993. This trend continued during January 2003,
with a record $23.4 billion in new supply issued during the month. Demand for
municipal bonds also remained strong, as many individual investors continued to
seek investments offering tax-free income and diversification for their
portfolios. Institutional investors, especially traditional municipal bond
purchasers such as property/casualty insurance companies, also were active
buyers in the municipal market.
HOW WERE ECONOMIC AND MARKET CONDITIONS IN THESE TWO STATES?
In 2002, both Arizona and Texas followed the general trend of increased
municipal issuance, with $7.7 billion and $26.6 billion in new supply,
respectively. This represented an increase of 58% over 2001 issuance for
Arizona, while Texas, the third largest state issuer behind New York and
California, saw an increase of 7%. During January 2003, Arizona ($934 million)
and Texas ($2.2 billion) continued to see strong new issue supply.
On the economic front, Arizona has shown some early indications of recovery,
largely as the result of increased defense-related spending and improved demand
in the high-tech sector, particularly for semiconductors. The recent upturn in
manufacturing output also provided some encouraging signs. Despite these
improvements in the Arizona economy, the state's financial position continued to
erode over most of 2002, reflecting a marked decline in sales and income tax
collections as well as increased expenditures for health and social services,
corrections, and education. Revenue adjustments were used to cover budget
shortfalls. Although the state alleviated its immediate fiscal difficulties by
using a number of one-time measures, reserves are now depleted and the governor
has indicated that increases in corporate and personal income taxes are under
consideration. Overall, the state's debt burden remains relatively low and, over
the longer term, healthy demographic trends, affordable housing, and
comparatively low business costs are expected to help the Arizona economy
perform well.
2
The Texas economy also remained weak, as the state experienced the loss of a
substantial number of high-paying jobs in technology and telecommunications as
well as problems related to accounting irregularities within the energy
industry. Cross- border trade and business activity with Mexico has been
affected by disagreements over water rights as the Southwest continued to suffer
from persistent drought. Going forward, Texas is expected to benefit from new
defense spending contracts since the state serves as home to more than 200,000
military personnel. For the 2002-2003 biennium, Texas is estimating a state
budget shortfall of about $1.8 billion, due primarily to weaker than expected
sales tax revenues. If no new revenue programs are added, this shortfall is
projected to rise to $9.9 billion for the 2004-2005 biennium. Despite its
continued reliance on the energy industry, Texas has robust research and
high-tech sectors, positive demographic trends, and relatively low business and
housing costs, which should help the state's long-term economic performance.
Despite their budgetary problems, the credit ratings of both states remained
intact over the reporting period, although the outlook for Arizona was rated
negative by both Moody's and Standard & Poor's. Both rating agencies maintained
a stable outlook for Texas. As of January 31, 2003, the Moody's/S&P credit
ratings, respectively, for Arizona were A1/AA- and Aa1/AA+ for Texas. Over
coming months, we will continue to closely monitor the budgetary situations in
both states for any potential impact on their credit ratings.
HOW DID THESE NUVEEN FUNDS PERFORM OVER THE TWELVE MONTHS ENDED JANUARY 31,
2003?
Individual results for the Arizona and Texas Funds, as well as certain
benchmarks, are presented in the accompanying table.
TOTAL RETURN LEHMAN LIPPER
MARKET YIELD ON NAV TOTAL RETURN1 AVERAGE2
--------------------------------------------------------------------------------
1 YEAR 1 YEAR 1 YEAR
TAXABLE- ENDED ENDED ENDED
1/31/03 EQUIVALENT3 1/31/03 1/31/03 1/31/03
--------------------------------------------------------------------------------
NAZ 5.88% 8.84% 5.53% 7.46% 10.12%
--------------------------------------------------------------------------------
NFZ 5.73% 8.62% 10.73% 7.46% 10.12%
--------------------------------------------------------------------------------
NKR 5.56% 8.36% NA - -
--------------------------------------------------------------------------------
NXE 5.95% 8.95% NA - -
--------------------------------------------------------------------------------
NTX 6.57% 9.39% 6.69% 7.46% 10.12%
--------------------------------------------------------------------------------
Past performance is not predictive of future results.
For additional information, see the individual Performance Overview for your
Fund in this report.
For the twelve months ended January 31, 2003, NFZ outperformed the unleveraged,
unmanaged Lehman Brothers Municipal Bond Index. We believe that much of this
outperformance can be attributed to the Fund's relatively long leverage-adjusted
duration4 when compared with the duration of the Lehman Index. A longer duration
generally will help a Fund to perform well during periods of declining interest
rates, as was the case over much of the twelve-month period. As of January 31,
2003, the duration of NFZ was 11.58, compared with 7.91 for the Lehman index.
Since there is no Lipper peer group for Arizona funds, we also have compared
NFZ's performance with the Lipper Other States peer group average. While NFZ
modestly outperformed this average, a direct comparison may have limited
usefulness because Funds from nine other states, each reflecting specific
conditions and market environments, are brought together to calculate the Other
States average.
1 The total annual returns on common share net asset value (NAV) for these
Nuveen Funds are compared with the total annual return of the Lehman
Brothers Municipal Bond Index, an unleveraged national index comprising a
broad range of investment-grade municipal bonds. Results for the Lehman
index do not reflect any expenses.
2 The total returns of the Arizona and Texas Funds are compared with the
average annualized return of the 31 funds in the Lipper Other States
Municipal Debt Funds category. Fund and Lipper returns account for Fund
leverage, Fund expenses and assume reinvestment of dividends.
3 The taxable-equivalent yield represents the yield that must be earned on a
taxable investment in order to equal the yield of the Nuveen Fund on an
after-tax basis. The taxable-equivalent yield is based on the Fund's market
yield on the indicated date and a federal income tax rate of 30% plus the
applicable state income tax rate. The combined federal and state tax rate
used in Arizona is 33.5%. Because Texas has no state income tax, NTX's
taxable-equivalent yield is based on the federal income tax rate of 30%.
4 Duration is a measure of a Fund's NAV volatility in reaction to interest
rate movements. Fund duration, also known as leverage-adjusted duration,
takes into account the leveraging process for a Fund and therefore is
generally longer than the duration of the actual portfolio of individual
bonds that make up the Fund. References to duration in this commentary are
intended to indicate Fund duration unless otherwise noted.
3
The other two Funds in this report with at least one year of operating history,
NAZ and NTX, each underperformed the Lehman index and Lipper Other States
average. Looking at NAZ, that Fund's leverage-adjusted duration as of January
31, 2003, was a comparatively short 8.36, reflecting relatively high call
exposure when compared with a Fund like NFZ. As noted, a Fund with a shorter
duration would not have been expected to perform as well as a longer duration
Fund over the twelve months ended January 31, 2003. In addition, NAZ's
performance during the period was affected by several credit issues. For
example, NAZ holds $2 million (par value) in revenue bonds issued by the Arizona
Health Facilities Authority for Phoenix Children's Hospital. The price of these
Baa2 rated hospital bonds depreciated 12% over the twelve months ended January
31, 2003, due to weak financial performance. The Fund also held approximately
$1.6 million (par value) of pollution control bonds issued on behalf of Nevada
Power that did traded at about 87 cents on the dollar as of January 31, 2003.
The performance of NTX was impacted by its holdings of bonds backed by American
Airlines (AMR). Over the past year, the market value of most airline-backed
bonds has fallen, due in part to a general decline in passenger volume and in
part due to the market's expectation of a bankruptcy filing by United Air Lines,
which took place in December 2002. As of January 31, 2002, NTX held $2.6 million
par value of its portfolio in AMR-backed bonds issued for facilities at
Dallas-Fort Worth International Airport. These bonds depreciated to 27 cents on
the dollar from $1.03 over the twelve-month period, costing the Fund
approximately 125 basis points in total return performance.
HOW DID THE MARKET ENVIRONMENT AFFECT THE FUNDS' DIVIDENDS AND SHARE PRICES?
As the Federal Reserve continued to keep short-term interest rates at
historically low levels, the dividend-payment capabilities of these Funds
benefited from their use of leverage, a strategy that can potentially enhance
the dividends paid to common shareholders. The amount of this benefit is tied in
part to the short-term rates the Funds pay their MuniPreferred(R) shareholders.
Low short-term rates, such as those currently in effect, can enable the Funds to
reduce the amount of income they pay preferred share holders, which can leave
more earnings to support common share dividends.
During the year ended January 31, 2003, the relatively low level of short-term
interest rates enabled us to implement two dividend increases in NAZ, NFZ and
NTX. The two Funds introduced in 2002 - NKR in March and NXE in September -
began paying their monthly dividends last year as anticipated.
Generally, the share prices of all five Funds remained essentially flat or fell
modestly over the twelve-month period, reflecting the general weakening of bond
prices during October and November 2002. This decline was especially pronounced
in NXE, which was introduced in September 2002. As of January 31, 2003, NAZ, NFZ
and NKR were trading at premiums to their common share net asset values; while
NXE and NTX were trading at discounts (see charts on the individual Performance
Overview pages).
WHAT KEY STRATEGIES WERE USED TO MANAGE THESE NUVEEN FUNDS DURING THE YEAR ENDED
JANUARY 31, 2003?
Over the twelve-month period, our strategic focus for all of the Funds continued
to be on diversifying the portfolios, enhancing call protection, and positioning
the Funds more defensively in anticipation
4
of potential changes in the interest rate environment. Given the recent slope of
the municipal yield curve, we sought bonds that mature about 20 years from now.
Many of these bonds offered yields similar to those of longer bonds, but we
believed they had less interest rate risk. The purchase of these
long-intermediate bonds helped to moderate the durations of most of the Funds,
making their portfolios less sensitive to interest rate changes while still
allowing them to provide competitive yields and returns. The lone exception was
NAZ, where the reinvestment of proceeds from called bonds into the 20-year part
of the yield curve actually led to a very modest lengthening of the Fund's
duration.
In the current geopolitical and economic climate, we believe that maintaining
strong credit quality is a key requirement. As of January 31, 2003, each of
these Funds continued to offer excellent credit quality, with allocations of
bonds rated AAA/U.S. Guaranteed and AA ranging from 74% to 90%. In general, our
weightings in higher quality bonds also tended to benefit the performance of
these Funds during the past year.
In September 2002, we introduced the Nuveen Arizona Dividend Advantage Municipal
Fund 3 (NXE). This Fund is now fully invested and paid its first dividend in
December 2002.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET IN GENERAL AND THESE NUVEEN FUNDS
IN PARTICULAR?
Our outlook for the fixed-income markets remains generally positive. We continue
to believe the U.S. economy is headed for an eventual recovery, but one that may
be less robust and slower to arrive than some are predicting. We expect
inflation and interest rates to remain relatively low over the near term, while
new municipal volume nationally should continue to be strong. Given the budget
deficits faced by these states, we expect to see significant issuance of new
municipal debt in Arizona and Texas as well. We think demand for tax-exempt
municipal bonds also should remain solid, as investors continue to look for ways
to generate tax-free income and diversify to reduce their overall investment
risk.
We are keeping a close eye on call exposure. For example, NAZ, which was
introduced in 1992, is now at a point in its life cycle that often is associated
with heightened call exposure. This Fund faces potential calls on almost 29% of
it portfolio over the rest of 2003 and 2004. NTX is a little further along in
working through its potential calls, although it too faces a heightened
potential for calls over the next two years. The number of actual calls
experienced in either of these Funds will depend largely on market interest
rates over the coming months and years. We plan to take advantage of what we
think will be an adequate supply of new issues in both Arizona and Texas to
continue helping these Funds to work through their call exposure. The other
three Funds are relatively new and do not face any significant call exposure
over the next few years.
In the months ahead, specific areas of concentration will include monitoring
credit quality, seeking to enhance dividend-paying capabilities, diversifying
holdings, and moderating durations through the purchase of suitable
long-intermediate bonds. In general, we plan to remain focused on strategies
that we believe will add value for the Funds' shareholders. We believe the
attractive tax-free income and opportunity for portfolio diversification offered
by these Funds will continue to make them valuable components of investors'
long-range financial plans.
5
Nuveen Arizona Premium Income Municipal Fund, Inc.
Performance
OVERVIEW As of January 31, 2003
NAZ
Pie Chart:
CREDIT QUALITY
AAA/U.S. GUARANTEED 62%
AA 16%
A 6%
BBB 13%
NR 1%
BB OR LOWER 2%
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $15.60
--------------------------------------------------
Common Share Net Asset Value $14.14
--------------------------------------------------
Market Yield 5.88%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal Income Tax Rate)1 8.40%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal and State Income Tax Rate)1 8.84%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $62,538
--------------------------------------------------
Average Effective Maturity (Years) 15.43
--------------------------------------------------
Leverage-Adjusted Duration 8.36
--------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 11/92)
--------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------
1-Year 2.22% 5.53%
--------------------------------------------------
5-Year 4.60% 4.02%
--------------------------------------------------
10-Year 6.08% 5.91%
--------------------------------------------------
TOP FIVE SECTORS (as a % of total investments)
--------------------------------------------------
U.S. Guaranteed 26%
--------------------------------------------------
Tax Obligation/Limited 19%
--------------------------------------------------
Healthcare 16%
--------------------------------------------------
Tax Obligation/General 12%
--------------------------------------------------
Utilities 9%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE
2/02 0.0725
3/02 0.0745
4/02 0.0745
5/02 0.0745
6/02 0.0765
7/02 0.0765
8/02 0.0765
9/02 0.0765
10/02 0.0765
11/02 0.0765
12/02 0.0765
1/03 0.0765
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/1/02 16.15
16.15
16.07
16.25
16.37
16.49
16.1
15.89
16.08
16.3
16.29
16.35
16.4
16.55
16.58
16.58
16.45
16.45
16.43
16.72
17
17.18
17.45
17.1
16.65
16.91
17
16.85
16.9
16.87
16.95
16.98
16.85
16.74
16.48
16.3
16.11
15.93
15.6
15.9
15.72
15.49
15.15
15.16
15.15
14.95
14.67
15.04
15.31
15.15
15.3
15.75
1/31/03 15.6
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. It
is calculated using the current market yield and a federal income tax rate
of 30%. The rate shown for federal and state highlights the added value of
owning shares that are also exempt from state income taxes. It is based on
a combined federal and state income tax rate of 33.5%.
6
Nuveen Arizona Dividend Advantage Municipal Fund
Performance
OVERVIEW As of January 31, 2003
NFZ
Pie Chart:
CREDIT QUALITY
AAA/U.S. GUARANTEED 55%
AA 19%
A 11%
BBB 14%
BB OR LOWER 1%
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $15.28
--------------------------------------------------
Common Share Net Asset Value $14.97
--------------------------------------------------
Market Yield 5.73%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal Income Tax Rate)1 8.19%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal and State Income Tax Rate)1 8.62%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $23,066
--------------------------------------------------
Average Effective Maturity (Years) 20.24
--------------------------------------------------
Leverage-Adjusted Duration 11.58
--------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 1/01)
--------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------
1-Year 5.52% 10.73%
--------------------------------------------------
Since Inception 6.60% 8.26%
--------------------------------------------------
TOP FIVE SECTORS (as a % of total investments)
--------------------------------------------------
Utilities 19%
--------------------------------------------------
Housing/Multifamily 16%
--------------------------------------------------
Tax Obligation/General 16%
--------------------------------------------------
Tax Obligation/Limited 16%
--------------------------------------------------
Healthcare 7%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
2/02 0.07
3/02 0.07
4/02 0.07
5/02 0.07
6/02 0.07
7/02 0.07
8/02 0.07
9/02 0.071
10/02 0.071
11/02 0.071
12/02 0.073
1/03 0.073
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/1/02 15.27
15.3
15.1
15.2
15.01
15.1
15.18
14.97
14.66
14.79
15.03
15.18
15.28
15.73
15.61
15.74
15.75
15.45
15.43
15.57
15.55
16
16.1
15.9
15.87
15.71
15.8
15.71
15.9
15.41
15.25
15.44
15.38
15.58
15.55
15.6
15.36
15.25
15.15
15.2
15.45
15
15.2
15.2
15.35
15.25
15.15
15.2
15.5
15.6
15.8
15.5
1/31/03 15.28
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. It
is calculated using the current market yield and a federal income tax rate
of 30%. The rate shown for federal and state highlights the added value of
owning shares that are also exempt from state income taxes. It is based on
a combined federal and state income tax rate of 33.5%.
2 The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2002 of $0.0438 per share.
7
Nuveen Arizona Dividend Advantage Municipal Fund 2
Performance
OVERVIEW As of January 31, 2003
NKR
Pie Chart:
CREDIT QUALITY
AAA/U.S. GUARANTEED 77%
AA 13%
A 3%
BBB 7%
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $15.55
--------------------------------------------------
Common Share Net Asset Value $15.04
--------------------------------------------------
Market Yield 5.56%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal Income Tax Rate)1 7.94%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal and State Income Tax Rate)1 8.36%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $36,356
--------------------------------------------------
Average Effective Maturity (Years) 18.63
--------------------------------------------------
Leverage-Adjusted Duration 11.57
--------------------------------------------------
CUMULATIVE TOTAL RETURN (Inception 3/02)
--------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------
Since Inception 8.21% 9.66%
--------------------------------------------------
TOP FIVE SECTORS (as a % of total investments)
--------------------------------------------------
Tax Obligation/General 30%
--------------------------------------------------
Tax Obligation/Limited 23%
--------------------------------------------------
Education and Civic Organizations 10%
--------------------------------------------------
Utilities 9%
--------------------------------------------------
Healthcare 7%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
5/02 0.072
6/02 0.072
7/02 0.072
8/02 0.072
9/02 0.072
10/02 0.072
11/02 0.072
12/02 0.072
1/03 0.072
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
3/28/02 15.55
15.3
15.17
15.14
15.26
15.22
15.27
15.15
15.02
15.29
15.27
15.31
15.01
15.9
15.6
15.8
15.8
15.51
15.7
15.5
15.85
15.65
15.2
15.25
15.31
15.34
15.5
15.68
15.2
14.76
14.78
14.89
14.75
14.7
15.2
15.22
15.29
15.1
15.4
15.49
15.59
15.59
15.5
15.53
1/31/03 15.55
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. It
is calculated using the current market yield and a federal income tax rate
of 30%. The rate shown for federal and state highlights the added value of
owning shares that are also exempt from state income taxes. It is based on
a combined federal and state income tax rate of 33.5%.
2 The Fund also paid shareholders a net ordinary income distribution in
December 2002 of $0.0122 per share.
8
Nuveen Arizona Dividend Advantage Municipal Fund 3
Performance
OVERVIEW As of January 31, 2003
NXE
Pie Chart:
CREDIT QUALITY
AAA/U.S. GUARANTEED 76%
AA 13%
A 5%
BBB 6%
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $13.52
--------------------------------------------------
Common Share Net Asset Value $13.91
--------------------------------------------------
Market Yield 5.95%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal Income Tax Rate)1 8.50%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal and State Income Tax Rate)1 8.95%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $42,653
--------------------------------------------------
Average Effective Maturity (Years) 19.69
--------------------------------------------------
Leverage-Adjusted Duration 13.26
--------------------------------------------------
CUMULATIVE TOTAL RETURN (Inception 9/02)
--------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------
Since Inception -8.54% -1.52%
--------------------------------------------------
TOP FIVE SECTORS (as a % of total investments)
--------------------------------------------------
Tax Obligation/General 20%
--------------------------------------------------
Tax Obligation/Limited 14%
--------------------------------------------------
Utilities 13%
--------------------------------------------------
Education and Civic Organizations 13%
--------------------------------------------------
Housing/Multifamily 11%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE
11/02 0.067
12/02 0.067
1/03 0.067
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
9/27/02 15
15.02
15
15
15
15
15
14.95
14.38
14.15
13.9
13.81
13.54
13.72
14.09
13.65
13.5
13.6
1/31/03 13.52
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. It
is calculated using the current market yield and a federal income tax rate
of 30%. The rate shown for federal and state highlights the added value of
owning shares that are also exempt from state income taxes. It is based on
a combined federal and state income tax rate of 33.5%.
9
Nuveen Texas Quality Income Municipal Fund
Performance
OVERVIEW As of January 31, 2003
NTX
Pie Chart:
CREDIT QUALITY
AAA/U.S. GUARANTEED 63%
AA 14%
A 12%
BBB 10%
BB OR LOWER 1%
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $14.43
--------------------------------------------------
Common Share Net Asset Value $14.90
--------------------------------------------------
Market Yield 6.57%
--------------------------------------------------
Taxable-Equivalent Yield
(Federal Income Tax Rate)1 9.39%
--------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $141,092
--------------------------------------------------
Average Effective Maturity (Years) 21.08
--------------------------------------------------
Leverage-Adjusted Duration 10.36
--------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (Inception 10/91)
--------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------
1-Year 3.65% 6.69%
--------------------------------------------------
5-Year 4.62% 4.92%
--------------------------------------------------
10-Year 6.44% 6.78%
--------------------------------------------------
TOP FIVE SECTORS (as a % of total investments)
--------------------------------------------------
Tax Obligation/General 22%
--------------------------------------------------
Healthcare 14%
--------------------------------------------------
Water and Sewer 9%
--------------------------------------------------
Education and Civic Organizations 8%
--------------------------------------------------
Tax Obligation/Limited 8%
--------------------------------------------------
Bar Chart:
2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
2/02 0.0765
3/02 0.078
4/02 0.078
5/02 0.078
6/02 0.079
7/02 0.079
8/02 0.079
9/02 0.079
10/02 0.079
11/02 0.079
12/02 0.079
1/03 0.079
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/1/02 14.84
15.1
15.04
15.08
15.2
14.82
14.86
14.85
14.55
14.76
14.6
14.75
14.74
15.09
15
15.05
15.05
15.1
15.2
15.2
15.35
15.4
15.56
15.42
15.34
15.06
15.17
15.41
15.51
15.24
15.1
15.39
15.38
15.54
15.66
15.56
15.37
14.31
14.09
14.56
14.48
14.23
14.11
14.35
14.39
14.19
14.08
14.39
14.63
14.25
14.19
14.35
1/31/03 14.43
1 Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. It
is calculated using the current market yield and a federal income tax rate
of 30%.
2 The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2002 of $0.0112 per share.
10
Shareholder
MEETING REPORT
The Shareholder Meeting was held in Chicago, Illinois on October 23, 2002.
NAZ NFZ
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS
WAS REACHED AS FOLLOWS:
Preferred Preferred
Common Shares Common Shares
Shares Series-TH Shares Series-TH
====================================================================================================================================
Robert P. Bremner
For 4,253,887 1,106 1,532,048 429
Withhold 46,142 2 3,351 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,300,029 1,108 1,535,399 429
====================================================================================================================================
Lawrence H. Brown
For 4,252,274 1,107 1,532,048 429
Withhold 47,755 1 3,351 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,300,029 1,108 1,535,399 429
====================================================================================================================================
Anne E. Impellizzeri
For 4,244,781 1,106 1,529,048 429
Withhold 55,248 2 6,351 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,300,029 1,108 1,535,399 429
====================================================================================================================================
Peter R. Sawers
For 4,252,274 1,107 1,532,048 429
Withhold 47,755 1 3,351 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,300,029 1,108 1,535,399 429
====================================================================================================================================
Judith M. Stockdale
For 4,253,887 1,107 1,532,314 429
Withhold 46,142 1 3,085 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,300,029 1,108 1,535,399 429
====================================================================================================================================
William J. Schneider
For -- 1,107 -- 429
Withhold -- 1 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,108 -- 429
====================================================================================================================================
Timothy R. Schwertfeger
For -- 1,106 -- 429
Withhold -- 2 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,108 -- 429
====================================================================================================================================
11
Shareholder
MEETING REPORT (continued)
NTX
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS
WAS REACHED AS FOLLOWS:
Preferred Preferred
Common Shares Shares
Shares Series-M Series-TH
====================================================================================================================================
Robert P. Bremner
For 8,555,573 729 1,910
Withhold 97,057 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total 8,652,630 729 1,910
====================================================================================================================================
Lawrence H. Brown
For 8,555,279 729 1,910
Withhold 97,351 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total 8,652,630 729 1,910
====================================================================================================================================
Anne E. Impellizzeri
For 8,555,279 729 1,910
Withhold 97,351 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total 8,652,630 729 1,910
====================================================================================================================================
Peter R. Sawers
For 8,556,279 729 1,910
Withhold 96,351 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total 8,652,630 729 1,910
====================================================================================================================================
Judith M. Stockdale
For 8,554,569 729 1,910
Withhold 98,061 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total 8,652,630 729 1,910
====================================================================================================================================
William J. Schneider
For -- 729 1,910
Withhold -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 729 1,910
====================================================================================================================================
Timothy R. Schwertfeger
For -- 729 1,910
Withhold -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 729 1,910
====================================================================================================================================
12
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.5%
$ 1,000 Children's Trust Fund, Puerto Rico, Tobacco Settlement 5/12 at 100.00 A1 $ 960,940
Asset-Backed Bonds, Series 2002 Refunding, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 9.1%
1,000 Arizona State University, Certificates of Participation, Series 2002, 7/12 at 100.00 AAA 1,074,070
5.375%, 7/01/19
1,750 Student Loan Acquisition Authority of Arizona, Student Loan Revenue 5/04 at 102.00 Aa1 1,880,568
Bonds, Series 1994B, Subordinated Fixed Rate Bonds,
6.600%, 5/01/10 (Alternative Minimum Tax)
1,250 Industrial Development Authority of the City of Glendale, Arizona, 5/11 at 101.00 BBB+ 1,293,263
Revenue Bonds, Midwestern University, Series 2001A,
5.875%, 5/15/31
1,400 Southern Arizona Capital Facilities Financing Corporation, 9/12 at 100.00 AAA 1,420,706
Student Housing Revenue Bonds, La Aldea Project at the
University of Arizona, Series 2002, 5.000%, 9/01/23
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 22.8%
2,000 Arizona Health Facilities Authority, Hospital Revenue Bonds, 11/09 at 100.00 Baa2 1,815,600
Phoenix Children's Hospital, Series 1999A, 6.125%, 11/15/22
2,125 Arizona Health Facilities Authority, Hospital System Revenue Bonds, 12/10 at 102.00 BBB 2,262,211
John C. Lincoln Health Network, Series 2000, 7.000%, 12/01/25
2,000 Arizona Health Facilities Authority, Revenue Bonds, Catholic 7/10 at 101.00 BBB 2,078,180
Healthcare West, 1999 Series A, 6.625%, 7/01/20
3,000 Industrial Development Authority of the City of Mesa, Arizona, 1/10 at 101.00 AAA 3,234,360
Revenue Bonds, Discovery Health System, Series 1999A,
5.750%, 1/01/25
515 Puerto Rico Industrial, Tourist, Educational, Medical and 11/10 at 101.00 AA 583,088
Environmental Control Facilities Financing Authority, Hospital
Revenue Bonds, 2000 Series A, Hospital de la Concepcion Project,
6.375%, 11/15/15
1,500 Industrial Development Authority of the City of Scottsdale, 12/11 at 101.00 A3 1,510,695
Arizona, Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
2,000 University Medical Center Corporation, Tucson, Arizona, 7/03 at 101.00 AAA 2,046,760
Hospital Revenue Refunding Bonds, Series 1992, 6.250%, 7/01/16
1,055 Industrial Development Authority of the City of Winslow, Arizona, 6/08 at 101.00 N/R 717,938
Hospital Revenue Bonds, Winslow Memorial Hospital Project,
Series 1998, 5.500%, 6/01/22
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 12.1%
2,011 Industrial Development Authority of the City of Glendale, Arizona, 10/10 at 105.00 Aaa 2,327,129
Multifamily Housing Revenue Bonds, GNMA Collateralized
Mortgage Loan - Maridale Apartments Project, Series 2000A,
7.500%, 10/20/35
1,275 Industrial Development Authority of the County of Maricopa, 10/10 at 105.00 Aaa 1,402,577
Arizona, Multifamily Housing Revenue Bonds, GNMA
Collateralized - Villas at Augusta Project, Series 2000,
6.400%, 10/20/20
400 Industrial Development Authority of the City of Phoenix, Arizona, 6/11 at 102.00 Aaa 422,512
Multifamily Housing Revenue Bonds, GNMA Collateralized -
Campaigne Place on Jackson Project, Series 2001, 5.700%, 6/20/31
(Alternative Minimum Tax)
3,215 Industrial Development Authority of the County of Tucson, 7/10 at 101.00 AA 3,410,633
Arizona, Senior Living Facilities Revenue Bonds, The Christian
Care Project, Series 2000A, 5.625%, 7/01/20
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 1.6%
160 Industrial Development Authority of the City of Phoenix, Arizona, 6/05 at 102.00 AAA 171,114
Statewide Single Family Mortgage Revenue Bonds, Series 1995,
6.150%, 6/01/08 (Alternative Minimum Tax)
500 Industrial Development Authority of the City of Phoenix, Arizona, 6/10 at 105.00 AAA 546,970
Single Family Mortgage Revenue Bonds, Series 2000-1B,
7.350%, 6/01/31 (Alternative Minimum Tax)
13
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY (continued)
$ 285 Industrial Development Authority of the County of Pima, Arizona, 5/07 at 102.00 AAA $ 294,778
Single Family Mortgage Revenue Bonds, Series 1997A,
6.250%, 11/01/30 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 1.7%
1,000 Industrial Development Authority of the County of Mohave, 5/06 at 103.00 AAA 1,060,940
Arizona, Healthcare Revenue Refunding Bonds, GNMA
Collateralized - Chris Ridge and Silver Ridge Village Projects,
Series 1996, 6.375%, 11/01/31
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 16.7%
City of Glendale, Arizona, General Obligation Bonds, Series 2002
Refunding:
1,875 5.000%, 7/01/15 7/11 at 100.00 AA 1,986,506
500 5.000%, 7/01/18 7/11 at 100.00 AA 521,070
1,000 Washington Elementary School District No. 6 of Maricopa County, No Opt. Call AAA 1,122,540
Arizona, General Obligation Bonds, Series 2002A Refunding,
5.375%, 7/01/15
1,400 Chandler Unified School District No. 80 of Maricopa County, 7/03 at 101.00 AAA 1,440,404
Arizona, General Obligation Refunding Bonds, Series 1993,
5.950%, 7/01/10
3,000 City of Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 3,108,900
5.000%, 7/01/18
Commonwealth of Puerto Rico, Public Improvement General
Obligation Bonds, Series 2002A:
1,000 5.500%, 7/01/19 No Opt. Call AAA 1,138,320
500 5.375%, 7/01/28 7/11 at 100.00 A- 512,905
585 Tempe Union High School District No. 213 of Maricopa County, 7/04 at 101.00 AAA 625,295
Arizona, General Obligation Bonds, Series 1994, 6.000%, 7/01/12
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 27.3%
City of Bullhead, Arizona, Bullhead Parkway Improvement
District Improvement Bonds:
910 6.100%, 1/01/08 7/03 at 103.00 Baa2 946,336
970 6.100%, 1/01/09 7/03 at 103.00 Baa2 1,007,733
1,500 Industrial Development Authority of the County of Maricopa, 7/10 at 102.00 Baa3 1,471,815
Arizona, Education Revenue Bonds (Arizona Charter Schools
Project I), Series 2000A, 6.750%, 7/01/29
3,400 Maricopa County, Arizona, Stadium District Revenue Refunding 6/12 at 100.00 Aaa 3,658,026
Bonds, Series 2002, 5.375%, 6/01/18
Industrial Development Authority of the City of Phoenix,
Arizona, Government Office Lease Revenue Bonds, Capitol Mall LLC
Project, Series 2000:
1,000 5.375%, 9/15/22 9/10 at 100.00 AAA 1,045,700
2,000 5.500%, 9/15/27 9/10 at 100.00 AAA 2,096,300
2,150 Phoenix Civic Plaza Building Corporation, Arizona, Senior Lien 7/05 at 101.00 AA+ 2,379,642
Excise Tax Revenue Bonds, Series 1994, 6.000%, 7/01/14
1,200 Prescott Valley Municipal Facilities Corporation, Arizona, 1/13 at 100.00 AAA 1,218,240
Municipal Facilities Revenue Bonds, Series 2003,
5.000%, 1/01/27
1,000 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 A- 1,005,300
Facilities Revenue Bonds, Series 2002D Refunding,
5.125%, 7/01/24
500 City of Surprise Municipal Property Corporation, Arizona, 7/09 at 101.00 AAA 544,875
Excise Tax Revenue Bonds, Series 2000, 5.700%, 7/01/20
500 City of Tucson, Arizona, Certificates of Participation, Series 2000, 7/08 at 100.00 AAA 547,760
5.700%, 7/01/20
1,100 City of Tucson, Arizona, Junior Lien Street and Highway User 7/10 at 100.00 AAA 1,140,282
Revenue Bonds, Series 1994-E (2000), 5.000%, 7/01/18
14
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 37.4%
$ 635 Children's Trust Fund, Puerto Rico, Tobacco Settlement Asset-Backed 7/10 at 100.00 AAA $ 708,228
Bonds, Series 2000, 5.750%, 7/01/20 (Pre-refunded to 7/01/10)
3,500 Industrial Development Authority of the County of Maricopa, No Opt. Call AAA 4,438,980
Arizona, Samaritan Health Services, Hospital System Revenue
Refunding Bonds, Series 1990A, 7.000%, 12/01/16
Industrial Development Authority of the County of Mohave, Arizona,
Hospital System Revenue Refunding Bonds (Medical Environments,
Inc. and Phoenix Baptist Hospital and Medical Center Inc.),
Series 1993:
5,000 6.750%, 7/01/08 (Pre-refunded to 7/01/03) 7/03 at 102.00 Aaa 5,217,800
1,000 7.000%, 7/01/16 (Pre-refunded to 7/01/03) 7/03 at 102.00 Aaa 1,044,590
2,700 City of Phoenix Civic Improvement Corporation, Arizona, 7/03 at 102.00 AAA 2,810,727
Wastewater System Lease Revenue Bonds, Series 1993,
6.125%, 7/01/23 (Pre-refunded to 7/01/03)
2,000 City of Phoenix Civic Improvement Corporation, Arizona, Junior 7/10 at 101.00 AAA 2,369,040
Lien Wastewater System Revenue Bonds, Series 2000,
6.000%, 7/01/24 (Pre-refunded to 7/01/10)
1,000 Puerto Rico Highway and Transportation Authority, Transportation 7/10 at 101.00 A*** 1,227,560
Revenue Bonds, Series B, 6.500%, 7/01/27 (Pre-refunded
to 7/01/10)
1,415 Tempe Union High School District No. 213 of Maricopa County, 7/04 at 101.00 AAA 1,524,535
Arizona, General Obligation Bonds, Series 1994, 6.000%, 7/01/12
(Pre-refunded to 7/01/04)
3,000 City of Tucson, Arizona, General Obligation Bonds, Series 1984-G 7/04 at 101.00 AAA 3,242,760
(1994), 6.250%, 7/01/18 (Pre-refunded to 7/01/04)
725 City of Tucson, Arizona, Certificates of Participation, Series 1994, 7/04 at 100.00 AA*** 777,802
6.375%, 7/01/09 (Pre-refunded to 7/01/04)
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 12.6%
1,000 Arizona Power Authority, Power Resource Revenue Bonds, Special No Opt. Call AA 1,104,860
Obligation Crossover Refunding, Series 2001, Hoover Uprating
Project, 5.250%, 10/01/15
1,615 Coconino County Pollution Control Corporation, Arizona, Pollution 10/06 at 102.00 B- 1,412,253
Control Revenue Bonds (Nevada Power Company Project),
Series 1996, 6.375%, 10/01/36 (Alternative Minimum Tax)
2,000 Industrial Development Authority of the County of Mohave, 11/03 at 101.00 BBB 1,899,620
Arizona, Industrial Development Revenue Bonds, 1994 Series
(Citizen Utilities Company Projects), 6.600%, 5/01/29 (Alternative
Minimum Tax)
500 Navajo County Pollution Control Corporation, Arizona, Pollution 8/03 at 102.00 AAA 518,105
Control Revenue Refunding Bonds, Arizona Public Service
Company, 1993 Series A, 5.875%, 8/15/28
1,200 Industrial Development Authority of the County of Pima, Arizona, 7/03 at 102.50 AAA 1,265,820
Industrial Development Lease Obligation Refunding Revenue
Bonds, 1988 Series A, Irvington Project, 7.250%, 7/15/10
500 Salt River Project Agricultural Improvement and Power District, 1/12 at 101.00 AA 504,065
Arizona, Salt River Project Electric System Refunding Revenue
Bonds, 2002 Series A, 5.000%, 1/01/31
1,450 Industrial Development Authority of the County of Yavapai, 6/07 at 101.00 BBB 1,198,265
Arizona, Industrial Development Revenue Bonds, 1998 Series,
Citizens Utilities Company Project, 5.450%, 6/01/33 (Alternative
Minimum Tax)
15
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 2.4%
$ 1,500 City of Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA $ 1,513,964
Lien Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26
------------------------------------------------------------------------------------------------------------------------------------
$ 86,271 Total Long-Term Investments (cost $86,474,489) - 145.2% 90,811,955
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.8% 1,725,940
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.0)% (30,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $62,537,895
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency
securities which ensures the timely payment of
principal and interest. Such securities are normally
considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
16
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 10.1%
$ 1,020 Industrial Development Authority of the City of Mesa, Arizona, 7/11 at 101.00 BBB- $ 1,021,030
Student Housing Revenue Bonds, ASU East/Maricopa County
Community College District - Williams Campus Project,
Series 2001A, 6.000%, 7/01/26
1,000 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB 998,610
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Series 1999, Ana G. Mendez
University System Project, 5.375%, 2/01/29
300 Puerto Rico Industrial, Tourist, Educational, Medical and 9/11 at 100.00 BBB 304,647
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Series 2001, University of the Sacred
Heart Project, 5.250%, 9/01/21
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 11.1%
550 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 587,912
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
920 Arizona Health Facilities Authority, Revenue Bonds, Catholic 7/10 at 101.00 BBB 955,963
Healthcare West, 1999 Series A, 6.625%, 7/01/20
1,000 Industrial Development Authority of the City of Scottsdale, 12/11 at 101.00 A3 1,007,130
Arizona, Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 24.5%
1,000 Industrial Development Authority of the County of Maricopa, 7/09 at 102.00 Aaa 1,061,380
Arizona, Multifamily Housing Revenue Bonds, Whispering
Palms Apartments Project, Series 1999A, 5.900%, 7/01/29
1,000 Industrial Development Authority of the County of Maricopa, 5/10 at 102.00 Baa2 1,037,440
Arizona, Multifamily Housing Revenue Bonds, Sun King
Apartments Project, Series 2000A, 6.750%, 5/01/31
1,125 Industrial Development Authority of the County of Maricopa, 10/11 at 103.00 Aaa 1,176,356
Arizona, Multifamily Housing Revenue Bonds, Syl-Mar
Apartments Project, Series 2001, 5.650%, 4/20/21
(Alternative Minimum Tax)
275 Industrial Development Authority of the City of Phoenix, Arizona, 6/11 at 102.00 Aaa 290,477
Multifamily Housing Revenue Bonds, Series 2001, GNMA
Collateralized - Campaigne Place on Jackson Project,
5.700%, 6/20/31 (Alternative Minimum Tax)
1,000 Industrial Development Authority of the City of Phoenix, Arizona, 11/11 at 105.00 AAA 1,099,690
Multifamily Housing Revenue Bonds, Series 2001, GNMA
Collateralized - Bay Club Apartments Project, 5.900%, 11/20/31
1,000 Industrial Development Authority of the City of Phoenix, Arizona, 10/12 at 102.00 Aaa 978,240
Multifamily Housing Revenue Bonds, Series 2002A, GNMA
Collateralized - Liberty Cove Apartments, 5.050%, 10/20/32
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 4.5%
995 Industrial Development Authority of the County of Pima, 11/10 at 101.00 AAA 1,031,676
Arizona, Single Family Mortgage Revenue Bonds,
Series 2001-A4, 5.050%, 5/01/17
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 4.4%
1,000 Mesa County, Colorado, Residential Care Facilities Mortgage 12/11 at 101.00 AA 1,013,720
Revenue Bonds, Series 2001A, Hilltop Community Resources
Inc. Obligated Group Projects, 5.375%, 12/01/28
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 23.1%
1,500 Washington Elementary School District No. 6 of Maricopa No Opt. Call AAA 1,683,810
County, Arizona, General Obligation Bonds, Series 2002A
Refunding, 5.375%, 7/01/15
1,000 City of Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 1,040,280
5.000%, 7/01/17
1,000 City of Phoenix, Arizona, General Obligation Refunding Bonds, 7/05 at 101.00 AA+ 1,018,960
Series 1995A, 5.000%, 7/01/19
17
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 500 Commonwealth of Puerto Rico, Public Improvement General No Opt. Call A- $ 540,655
Obligation Bonds of 2002, Series A, 5.500%, 7/01/29
1,020 City of Tucson, Arizona, General Obligation Refunding Bonds, 7/07 at 100.00 AA 1,046,143
Series 1997, 5.000%, 7/01/19
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 23.1%
700 Arizona School Facilities Board, State School Improvement 7/11 at 100.00 AAA 766,269
Revenue Bonds, Series 2001, 5.500%, 7/01/18
1,415 State of Arizona, Certificates of Participation, Series 2002A, 5/12 at 100.00 AAA 1,479,991
4.800%, 11/01/15
2,000 Industrial Development Authority of the County of Maricopa, 6/07 at 102.00 A 2,108,360
Arizona, Education Revenue Bonds, Horizon Community
Learning Center Project, Series 2000, 6.350%, 6/01/26
900 Industrial Development Authority of the City of Phoenix, Arizona, 3/12 at 100.00 AAA 967,779
Government Office Lease Revenue Bonds, Capitol Mall LLC II
Project, Series 2001, 5.250%, 9/15/16
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 8.7%
500 Industrial Development Authority of the County of Maricopa, 9/05 at 101.00 AAA 555,445
Arizona, Baptist Hospital System Revenue Refunding Bonds,
Series 1995, 5.500%, 9/01/16 (Pre-refunded to 9/01/05)
1,350 Puerto Rico Infrastructure Financing Authority, Special Obligation 10/10 at 101.00 AAA 1,443,407
Bonds, 2000 Series A, 5.500%, 10/01/40
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 27.9%
1,500 Arizona Power Authority, Power Resource Revenue Bonds, Special No Opt. Call AA 1,652,880
Obligation Crossover Refunding, Series 2001, Hoover Uprating
Project, 5.250%, 10/01/17
500 Coconino County Pollution Control Corporation, Arizona, Pollution 5/03 at 102.00 B- 414,620
Control Revenue Bonds, Nevada Power Company Project,
Series 1997B, 5.800%, 11/01/32 (Alternative Minimum Tax)
1,000 City of Mesa, Arizona, Utility Systems Revenue Bonds, 7/09 at 100.00 AAA 1,034,850
Series 2000, 5.125%, 7/01/19
1,000 City of Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,106,360
Series 2002, 5.250%, 7/01/17
350 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 363,209
2002 Series II, 5.125%, 7/01/26
805 Salt River Project Agricultural Improvement and Power District, 1/08 at 101.00 AA 825,061
Arizona, Salt River Project Electric System Refunding
Revenue Bonds, 1997 Series A, 5.000%, 1/01/20
1,000 Salt River Project Agricultural Improvement and Power District, 1/12 at 101.00 AA 1,072,250
Arizona, Salt River Project Electric System Refunding Revenue
Bonds, 2002 Series A, 5.250%, 1/01/18
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 11.0%
1,025 City of Chandler, Arizona, Water and Sewer Revenue Bonds, 7/10 at 101.00 AAA 1,027,459
Series 2001, 4.500%, 7/01/18
1,500 City of Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,513,964
Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26
------------------------------------------------------------------------------------------------------------------------------------
$ 32,750 Total Long-Term Investments (cost $33,156,423) - 148.4% 34,226,023
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 3.6% 840,314
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (52.0)% (12,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $23,066,337
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
See accompanying notes to financial statements.
18
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 14.5%
$ 510 Arizona State University, Certificates of Participation, Series 2002, 7/12 at 100.00 AAA $ 519,593
5.125%, 7/01/26
Arizona Board of Regents, Arizona State University, System Revenue
Bonds, Series 2002:
1,000 5.000%, 7/01/25 7/12 at 100.00 AAA 1,011,570
715 5.750%, 7/01/27 7/12 at 100.00 AAA 782,096
1,250 Industrial Development Authority of the City of Glendale, Arizona, 5/11 at 101.00 BBB+ 1,293,263
Revenue Bonds, Midwestern University, Series 2001A,
5.875%, 5/15/31
320 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB 325,827
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Series 1999, Ana G. Mendez University
System Project, 5.375%, 2/01/19
Arizona Board of Regents, Certificates of Participation, University
of Arizona Project, Series 2002A:
750 5.500%, 6/01/18 6/12 at 100.00 AAA 819,450
500 5.125%, 6/01/22 6/12 at 100.00 AAA 513,855
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 10.2%
735 Arizona Health Facilities Authority, Hospital System Revenue 2/12 at 101.00 Baa2 684,381
Bonds, Phoenix Children's Hospital, Series 2002A,
6.250%, 2/15/21
1,000 Arizona Health Facilities Authority, Revenue Bonds, Catholic 7/10 at 101.00 BBB 1,039,090
Healthcare West, 1999 Series A, 6.625%, 7/01/20
500 Industrial Development Authority of the County of Maricopa, 7/08 at 101.00 BBB 425,600
Arizona, Health Facility Revenue Bonds, Catholic Healthcare
West Project, 1998 Series A, 5.000%, 7/01/21
500 Industrial Development Authority of the County of Maricopa, 5/08 at 101.00 AA 501,640
Arizona, Hospital Revenue Bonds, Series 1998, Mayo Clinic
Hospital, 5.250%, 11/15/37
1,000 Industrial Development Authority of the City of Mesa, Arizona, 1/10 at 101.00 AAA 1,058,150
Revenue Bonds, Discovery Health System, Series 1999A,
5.625%, 1/01/29
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 7.5%
1,000 Industrial Development Authority of the County of Maricopa, 10/11 at 105.00 AAA 1,114,200
Arizona, Multifamily Housing Revenue Bonds, GNMA
Collateralized - Pine Ridge, Cambridge Court, Cove on 44th
and Fountain Place Apartments Projects, Series 2001-A1
Refunding, 6.000%, 10/20/31
1,425 Industrial Development Authority of the City of Phoenix, Arizona, 7/12 at 105.00 AAA 1,622,676
Multifamily Housing Revenue Bonds, Series 2002, GNMA
Collateralized - Summit Apartments Project, 6.450%, 7/20/32
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 1.3%
465 Industrial Development Authority of the County of Pima, Arizona, 11/10 at 101.00 AAA 473,714
Single Family Mortgage Revenue Bonds, Series 2001-A1,
5.350%, 11/01/24 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 44.3%
1,725 City of Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA 1,818,323
5.000%, 7/01/17
1,000 Town of Gilbert, Arizona, General Obligation Bonds, Series 2002A, 7/11 at 100.00 AAA 1,043,580
5.000%, 7/01/18
Washington Elementary School District No. 6 of Maricopa County,
Arizona, General Obligation Bonds, Series 2002A Refunding:
1,000 5.375%, 7/01/15 No Opt. Call AAA 1,122,540
2,000 5.375%, 7/01/16 No Opt. Call AAA 2,246,760
2,165 Paradise Valley Unified School District No. 69 of Maricopa No Opt. Call AAA 2,408,909
County, Arizona, General Obligation Bonds, Series 2002A
Refunding, 5.250%, 7/01/14
19
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,000 City of Mesa, Arizona, General Obligation Bonds, Series 2000, No Opt. Call AAA $ 1,208,520
6.500%, 7/01/11
1,405 City of Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AAA 1,577,169
5.375%, 7/01/15
City of Phoenix, Arizona, General Obligation Bonds, Various
Purpose, Series 2002B:
1,700 5.000%, 7/01/22 7/12 at 100.00 AA+ 1,739,032
250 5.000%, 7/01/27 7/12 at 100.00 AA+ 253,875
1,000 Apache Junction Unified School District No. 43 of Pinal County, No Opt. Call AAA 1,155,570
Arizona, General Obligation Refunding Bonds, Series 2001,
5.750%, 7/01/15
1,500 City of Scottsdale, Arizona, General Obligation Bonds, 7/11 at 100.00 AAA 1,528,320
Series 2002, 5.000%, 7/01/24
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 34.4%
State of Arizona, Certificates of Participation, Series 2002A:
750 5.000%, 11/01/17 5/12 at 100.00 AAA 785,880
1,000 5.000%, 11/01/18 5/12 at 100.00 AAA 1,042,420
500 5.000%, 11/01/20 5/12 at 100.00 AAA 515,085
1,000 Maricopa County Public Finance Authority, Arizona, Lease Revenue 7/11 at 100.00 Aaa 1,099,890
Bonds, Series 2001, 5.500%, 7/01/15
Maricopa County Stadium District, Arizona, Revenue Refunding
Bonds, Series 2002:
840 5.375%, 6/01/18 6/12 at 100.00 Aaa 903,748
2,645 5.375%, 6/01/19 6/12 at 100.00 Aaa 2,835,255
1,500 Industrial Development Authority of the City of Phoenix, Arizona, 3/12 at 100.00 AAA 1,612,965
Government Office Lease Revenue Bonds, Capitol Mall LLC II
Project, Series 2001, 5.250%, 9/15/16
500 Puerto Rico Highway and Transportation Authority, Highway 7/16 at 100.00 A 521,910
Revenue Bonds, Series 1996Y, 5.500%, 7/01/36
500 Puerto Rico Highway and Transportation Authority, Transportation 7/12 at 100.00 AAA 509,380
Revenue Bonds, Series D, 5.000%, 7/01/32
1,000 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 A- 1,005,300
Facilities Revenue Bonds, Series 2002D Refunding,
5.125%, 7/01/24
1,000 City of Tucson, Arizona, Junior Lien Street and Highway User 7/10 at 100.00 AAA 1,036,620
Revenue Bonds, Series 1994-E (2000), 5.000%, 7/01/18
640 City of Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AAA 652,883
Facilities Revenue Bonds, Series 2001, 5.000%, 7/01/21
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.6%
1,000 City of Phoenix Civic Improvement Corporation, Arizona, Senior 7/08 at 101.00 AAA 1,012,630
Lien Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25
1,000 City of Phoenix Civic Improvement Corporation, Arizona, Airport 7/12 at 100.00 AAA 1,014,420
Revenue Bonds, Series 2002B Senior Lien, 5.250%, 7/01/27
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 8.3%
1,215 Children's Trust Fund, Puerto Rico, Tobacco Settlement 7/10 at 100.00 AAA 1,414,163
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/12
(Pre-refunded to 7/01/10)
1,500 Puerto Rico Infrastructure Financing Authority, Special Obligation 10/10 at 101.00 AAA 1,603,785
Bonds, 2000 Series A, 5.500%, 10/01/40
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 13.4%
1,115 Arizona Power Authority, Power Resource Revenue Bonds, No Opt. Call AA 1,231,919
Special Obligation Crossover Refunding, Series 2001,
Hoover Uprating Project, 5.250%, 10/01/15
1,000 City of Mesa, Arizona, Utility System Revenue Bonds, 7/11 at 100.00 AAA 1,027,970
Series 2002, 5.000%, 7/01/20
1,000 City of Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,106,360
Series 2002, 5.250%, 7/01/17
1,500 Salt River Project Agricultural Improvement and Power District, 1/12 at 101.00 AA 1,512,195
Arizona, Salt River Project Electric System Refunding Revenue
Bonds, 2002 Series A, 5.000%, 1/01/31
20
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 7.5%
$ 500 Industrial Development Authority of the County of Maricopa, 12/07 at 102.00 AAA $ 512,090
Arizona, Water System Improvement Revenue Bonds, Chaparral
City Water Company Project, Series 1997A, 5.400%, 12/01/22
(Alternative Minimum Tax)
1,000 City of Phoenix Civic Improvement Corporation, Arizona, No Opt. Call AAA 1,108,559
Water System Junior Lien Revenue Refunding Bonds,
Series 2001, 5.500%, 7/01/22
1,000 City of Tucson, Arizona, Water System Revenue Refunding Bonds,
Series 2001, 5.500%, 7/01/18 7/12 at 102.00 AAA 1,106,709
------------------------------------------------------------------------------------------------------------------------------------
$ 50,120 Total Long-Term Investments (cost $51,384,766) - 147.0% 53,459,839
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 3.9% 1,396,547
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (50.9)% (18,500,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $36,356,386
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
See accompanying notes to financial statements.
21
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 4.5%
$ 2,000 Children's Trust Fund, Puerto Rico, Tobacco Settlement Asset-Backed 5/12 at 100.00 A1 $ 1,921,880
Bonds, Series 2002 Refunding, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 18.9%
2,000 Arizona Board of Regents, Arizona State University, System 7/12 at 100.00 AAA 2,187,680
Revenue Bonds, Series 2002, 5.750%, 7/01/27
1,000 Student Loan Acquisition Authority of Arizona, Student Loan 11/09 at 102.00 Aaa 1,077,080
Revenue Refunding Bonds, Senior Series 1999A-1,
5.750%, 5/01/15 (Alternative Minimum Tax)
1,130 Arizona State University, Main Campus Project Energy Conservation 7/12 at 100.00 AAA 1,205,597
Revenue Bonds, Energy Management Services LLC, Series 2002,
5.250%, 7/01/18
500 Industrial Development Authority of the City of Glendale, Arizona, 5/08 at 101.00 BBB+ 504,455
Revenue Bonds, Midwestern University, Series 1998A,
5.375%, 5/15/28
1,000 Tucson Industrial Development Authority, Arizona, Lease Revenue 7/12 at 100.00 AAA 1,005,220
Bonds, University of Arizona - Marshall Foundation Project,
Series 2002A, 5.000%, 7/15/32
2,000 Arizona Board of Regents, Certificates of Participation, University 6/12 at 100.00 AAA 2,084,520
of Arizona Projects, Series 2002B, 5.125%, 6/01/20
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 14.5%
Arizona Health Facilities Authority, Hospital Revenue Bonds,
Phoenix Children's Hospital, Series 1999A:
750 6.125%, 11/15/22 11/09 at 100.00 Baa2 680,850
520 6.250%, 11/15/29 11/09 at 100.00 Baa2 465,182
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,068,930
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
250 Arizona Health Facilities Authority, Revenue Bonds, Catholic 7/10 at 101.00 BBB 259,773
Healthcare West, 1999 Series A, 6.625%, 7/01/20
500 Industrial Development Authority of the County of Maricopa, 7/08 at 101.00 BBB 425,600
Arizona, Health Facility Revenue Bonds, Catholic Healthcare
West Project, 1998 Series A, 5.000%, 7/01/21
2,000 Industrial Development Authority of the County of Maricopa, 5/08 at 101.00 AA 2,006,560
Arizona, Hospital Revenue Bonds, Mayo Clinic Hospital,
Series 1998, 5.250%, 11/15/37
1,250 Industrial Development Authority of the City of Scottsdale, 12/11 at 101.00 A3 1,258,912
Arizona, Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 16.0%
1,750 Maricopa County Industrial Development Authority, Arizona, 1/18 at 100.00 AAA 1,782,393
Multifamily Housing Senior Revenue Bonds, National Voluntary
Health Facilities II Project, Series 1998A, 5.100%, 1/01/33
1,545 Industrial Development Authority of the City of Phoenix, Arizona, 6/11 at 102.00 Aaa 1,622,621
Multifamily Housing Revenue Bonds, GNMA Collateralized -
Campaigne Place on Jackson Project, Series 2001,
5.600%, 6/20/21 (Alternative Minimum Tax)
Industrial Development Authority of the City of Phoenix,
Arizona, Multifamily Housing Revenue Bonds, GNMA Collateralized
- Liberty Cove Apartments, Series 2002A:
2,480 4.950%, 10/20/22 (Alternative Minimum Tax) 10/12 at 102.00 Aaa 2,447,859
1,000 5.050%, 10/20/32 (Alternative Minimum Tax) 10/12 at 102.00 Aaa 978,240
22
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 29.6%
$ 660 City of Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA $ 692,056
5.000%, 7/01/18
2,250 DC Ranch Community Facilities District of Scottsdale, Arizona, 7/13 at 100.00 Aaa 2,276,258
General Obligation Bonds, Series 2002, 5.000%, 7/15/27
1,930 City of Glendale, Arizona, General Obligation Bonds, Series 2002 7/11 at 100.00 AA 2,000,349
Refunding, 5.000%, 7/01/19
1,000 Peoria Unified School District No. 11 of Maricopa County, Arizona, No Opt. Call AAA 1,083,310
General Obligation Bonds, Series 2002 Refunding,
5.000%, 7/01/15
765 Paradise Valley Unified School District No. 69 of Maricopa County, No Opt. Call AAA 830,285
Arizona, General Obligation Bonds, Series 2002 Refunding,
5.000%, 7/01/15
1,000 Queen Creek Unified School District No. 95 of Maricopa County, No Opt. Call Aaa 1,086,600
Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/14
2,000 Commonwealth of Puerto Rico, Public Improvement Refunding No Opt. Call AAA 2,473,280
Bonds, General Obligation Bonds, Series 1997, 6.500%, 7/01/15
1,500 Commonwealth of Puerto Rico, Public Improvement Refunding No Opt. Call AAA 1,700,205
Bonds, General Obligation Bonds, 2002 Series A,
5.500%, 7/01/20
440 City of Tucson, Arizona, General Obligation Bonds, Series 2001B, 7/11 at 100.00 AA 451,994
5.000%, 7/01/20
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 20.9%
2,000 Arizona School Facilities Board, State School Improvement Revenue 7/12 at 100.00 AAA 2,125,860
Bonds, Series 2002, 5.250%, 7/01/20
1,000 Arizona Municipal Financing Program, Certificates of No Opt. Call AAA 1,235,720
Participation, City of Goodyear Loan, Series 31, 7.250%, 8/01/09
2,000 Arizona Transportation Board, Highway Revenue Bonds, 7/11 at 100.00 AAA 2,103,340
Series 2001, 5.250%, 7/01/20
1,000 Arizona Department of Transportation, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,045,680
Series 2002B, 5.250%, 7/01/22
680 Avondale Municipal Development Corporation, Arizona, Excise 7/12 at 100.00 AAA 718,406
Tax Revenue Bonds, Series 2002, 5.000%, 7/01/16
Cochise County, Arizona, Certificates of Participation, Series 2002:
805 4.500%, 8/01/16 8/13 at 100.00 AAA 831,211
840 4.500%, 8/01/17 8/13 at 100.00 AAA 860,857
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 13.8%
Phoenix Civic Improvement Corporation, Arizona, Airport Revenue
Bonds, Series 2002B Senior Lien:
1,000 5.750%, 7/01/16 (Alternative Minimum Tax) 7/12 at 100.00 AAA 1,105,970
2,300 5.250%, 7/01/21 (Alternative Minimum Tax) 7/12 at 100.00 AAA 2,345,264
2,450 Tucson Airport Authority Inc., Arizona, Revenue Bonds, 6/11 at 100.00 AAA 2,448,432
Series 2001B Refunding, 5.000%, 6/01/20 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 20.0%
1,750 Maricopa County Pollution Control Corporation, Arizona, Revenue 11/12 at 100.00 AAA 1,766,642
Bonds, Arizona Public Service Company - Palo Verde Project,
Series 2002A, 5.050%, 5/01/29
3,000 City of Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 3,319,080
Series 2002, 5.250%, 7/01/17
2,000 Salt River Project Agricultural Improvement and Power District, 1/12 at 101.00 AA 2,044,080
Arizona, Salt River Project Electric System Refunding Revenue
Bonds, Series 2002A, 5.125%, 1/01/27
1,000 Salt River Project Agricultural Improvement and Power District, 1/13 at 100.00 AA 1,008,130
Arizona, Salt River Project Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/31
500 Industrial Development Authority of the County of Yavapai, 6/07 at 101.00 BBB 413,195
Arizona, Industrial Development Revenue Bonds, 1998 Series,
Citizens Utilities Company Project, 5.450%, 6/01/33 (Alternative
Minimum Tax)
23
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.6%
$ 1,000 City of Phoenix Civic Improvement Corporation, Arizona, Junior 7/11 at 100.00 AAA $ 1,032,450
Lien Wastewater System Revenue Refunding Bonds, Series 2001,
5.125%, 7/01/21
1,250 City of Phoenix Civic Improvement Corporation, Arizona, Water No Opt. Call AAA 1,392,812
System Junior Lien Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/21
2,000 City of Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 2,086,140
Lien Water System Revenue Bonds, Series 2002, 5.000%, 7/01/18
------------------------------------------------------------------------------------------------------------------------------------
$ 60,795 Total Long-Term Investments (cost $64,104,317) - 148.8% 63,460,958
=============-----------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.9%
400 Industrial Development Authority of the City of Phoenix, Arizona, A-1+ 400,000
Revenue Bonds, Series 2001, Valley of the Sun YMCA Project,
Variable Rate Demand Bonds, 1.350%, 1/01/31+
------------------------------------------------------------------------------------------------------------------------------------
$ 400 Total Short-Term Investments (cost $400,000) 400,000
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.9% 792,167
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (51.6)% (22,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $42,653,125
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
+ Security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that
currently in effect. This rate changes periodically
based on market conditions or a specified market index.
See accompanying notes to financial statements.
24
Nuveen Texas Quality Income Municipal Fund (NTX)
Portfolio of
INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
BASIC MATERIALS - 5.6%
$ 4,500 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB $ 4,733,145
Environmental Improvement Revenue Bonds, 2000 Series A,
International Paper Company Project, 6.600%, 3/15/24
(Alternative Minimum Tax)
3,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid 4/06 at 102.00 AA- 3,193,140
Waste Disposal Facility Bonds, E.I. du Pont de Nemours and
Company Project), Series 1996, 6.400%, 4/01/26
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 2.0%
3,000 Children's Trust Fund, Puerto Rico, Tobacco Settlement Asset-Backed 5/12 at 100.00 A1 2,882,820
Bonds, Series 2002 Refunding, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 11.7%
205 Brazos Higher Education Authority, Inc., Texas, Student Loan No Opt. Call Aa2 218,997
Revenue Refunding Bonds, Subordinate Series 1993A-2,
6.800%, 12/01/04 (Alternative Minimum Tax)
1,000 City of Georgetown, Texas, Higher Education Finance Corporation, 2/04 at 100.00 Aa3 1,019,500
Higher Education Revenue Bonds, Series 1994, Southwestern
University Project, 6.300%, 2/15/14
1,000 Raven Hills Higher Education Corporation, Texas, Student Housing 8/11 at 100.00 Aaa 1,027,240
Revenue Bonds, Cardinal Village LLC - Lamar University Project,
Series 2001A, 5.250%, 8/01/24
3,000 Texas State University System, Financing Revenue Bonds, No Opt. Call AAA 3,078,300
Series 2002 Refunding, 5.000%, 3/15/20
1,445 Tyler Junior College District, Smith and Van Zanlt Counties, Texas, 8/04 at 100.00 AAA 1,539,864
Combined Fee Improvement Revenue and Refunding Bonds,
Series 1994, 5.900%, 8/15/13
2,330 Universal City Education Facilities Corporation, Texas, Revenue 3/11 at 102.00 A- 2,397,873
Bonds, Wayland Baptist University Project, Series 2001,
5.625%, 3/01/26
2,000 Board of Regents of the University of Houston System, Texas, 2/05 at 100.00 AAA 2,155,060
Consolidated Revenue Bonds, Series 1995, 6.000%, 2/15/17
5,000 University of North Texas Board of Regents, Financing System 4/12 at 100.00 AAA 5,030,800
Revenue Bonds, Series 2001, 5.000%, 4/15/24
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 4.3%
5,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/08 at 102.00 BBB 4,429,150
Revenue Bonds, Valero Refining and Marketing Company
Project, Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax)
1,800 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/09 at 101.00 BBB 1,607,202
Revenue Bonds, Valero Energy Corporation Project, Series 1999,
5.700%, 4/01/32 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 20.2%
3,500 Abilene Health Facilities Development Corporation, Texas, 9/05 at 102.00 AAA 3,825,290
Hospital Revenue Refunding and Improvement Bonds, Hendrick
Medical Center Project, Series 1995C, 6.150%, 9/01/25
Gregg County Health Facilities Development Corporation, Texas,
Hospital Revenue Bonds, Good Shepherd Medical Center Project,
Series 2000:
2,000 6.875%, 10/01/20 10/10 at 101.00 AA 2,315,640
3,250 6.375%, 10/01/25 10/10 at 101.00 AA 3,587,545
1,500 Harris County Health Facilities Development Corporation, Texas, 8/11 at 100.00 AA- 1,535,340
Revenue Bonds, St. Luke's Episcopal Hospital, Series 2001A,
5.500%, 2/15/21
2,000 Harris County Health Facilities Development Corporation, Texas, 6/11 at 101.00 A 2,119,500
Hospital Revenue Bonds, Memorial Hermann Healthcare System,
Series 2001A, 6.375%, 6/01/29
5,750 Midland County Hospital District, Texas, Hospital Revenue Bonds, No Opt. Call A- 3,623,075
Series 1992, 0.000%, 6/01/11
2,000 North Central Health Facilities Development Corporation, Texas, 5/11 at 100.00 AA- 1,965,820
Hospital Revenue Bonds, Baylor Health Care System Project,
Series 2001A, 5.125%, 5/15/29
25
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE (continued)
$ 1,760 Parker County Hospital District, Texas, Hospital Revenue Bonds, 8/09 at 102.00 BBB- $ 1,763,520
Campbell Health System, Series 1999, 6.250%, 8/15/19
1,050 Tarrant County Health Facilities Development Corporation, Texas, 11/08 at 101.00 A- 1,017,083
Hospital Revenue Bonds, Series 1998, Adventist Health
System/Sunbelt Obligated Group, 5.375%, 11/15/20
3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 A- 3,751,825
Texas, Hospital Revenue Bonds, Series 2000, Adventist
Health System/Sunbelt Obligated Group, 6.625%, 11/15/20
2,000 Tom Green County Health Facilities Development Corporation, 5/11 at 101.00 Baa3 2,062,260
Texas, Hospital Revenue Bonds, Shannon Health System
Project, Series 2001, 6.750%, 5/15/21
1,000 Tyler Health Facilities Development Corporation, Texas, Hospital 7/12 at 100.00 Baa1 996,560
Revenue Bonds, Mother Frances Hospital Regional Health
Center, Series 2001, 6.000%, 7/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 8.9%
Bexar County Housing Finance Corporation, Texas, Multifamily
Housing Revenue Bonds, Waters at Northern Hills Apartments
Project, Series 2001A:
2,000 6.000%, 8/01/31 8/11 at 102.00 Aaa 2,149,160
750 6.050%, 8/01/36 8/11 at 102.00 Aaa 806,678
Grand Prairie Housing Finance Corporation, Texas, Multifamily
Housing Revenue Bonds, Landings at Carrier Project, GNMA Series
2000A:
1,000 6.650%, 9/20/22 9/10 at 105.00 AAA 1,110,780
2,030 6.750%, 9/20/28 9/10 at 105.00 AAA 2,262,252
5,668 Houston Housing Finance Corporation, Texas, Multifamily 9/11 at 105.00 Aaa 6,234,970
Housing Revenue Bonds, RRG Apartments Project, GNMA
Collateralized Mortgage, Series 2001, 6.250%, 9/20/35
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 6.8%
2,800 El Paso Housing Finance Corporation, Texas, Single Family 4/11 at 106.75 AAA 3,075,324
Mortgage Revenue Bonds, Series 2001A-3, 6.180%, 4/01/33
360 City of Galveston Property Finance Authority, Inc., Texas, Single 3/03 at 102.00 A3 368,071
Family Mortgage Revenue Bonds, Series 1991A, 8.500%, 9/01/11
650 Houston Housing Finance Corporation, Texas, Single Family 6/03 at 102.00 AAA 660,101
Mortgage Revenue Refunding Bonds, Series 1993A,
5.950%, 12/01/10
1,945 Texas Department of Housing and Community Affairs, Single 9/06 at 102.00 AAA 2,055,379
Family Mortgage Revenue Bonds, 1996 Series E,
6.000%, 9/01/17
3,000 Texas Department of Housing and Community Affairs, Single 3/12 at 100.00 AAA 3,061,620
Family Mortgage Revenue Bonds, 2002 Series B,
5.550%, 9/01/33 (Alternative Minimum Tax)
385 Victoria Housing Finance Corporation, Texas, Single Family No Opt. Call Aaa 393,747
Mortgage Revenue Refunding Bonds, Series 1995,
8.125%, 1/01/11
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 7.2%
Bell County Health Facilities Development Corporation, Texas,
Retirement Facility Revenue Bonds, Buckner Retirement Services,
Inc. Obligated Group Project, Series 1998:
3,400 5.250%, 11/15/19 11/08 at 101.00 A- 3,274,846
5,000 5.250%, 11/15/28 11/08 at 101.00 A- 4,624,500
2,000 Tarrant County Health Facilities Development Corporation, 1/08 at 105.00 AAA 2,197,140
Texas, Tax-Exempt Mortgage Revenue Bonds, South Central
Nursing Homes Inc. Project, Series 1997A, 6.000%, 1/01/37
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 32.3%
4,130 Coppell Independent School District, Dallas County, Texas, 8/09 at 75.34 AAA 2,347,657
Unlimited Tax School Building and Refunding Bonds,
Series 1992, 0.000%, 8/15/14
1,450 Donna Independent School District, Hidalgo County, Texas, 2/11 at 100.00 AAA 1,629,104
Unlimited Tax School Building Bonds, Series 2000, 6.000%, 2/15/17
1,750 El Paso County, Texas, Certificates of Obligation, Series 2001, 2/12 at 100.00 AAA 1,785,035
5.000%, 2/15/21
2,000 Harlingen Consolidated Independent School District, Cameron 8/09 at 100.00 AAA 2,132,380
County, Texas, Unlimited Tax School Building Bonds,
Series 1999, 5.650%, 8/15/29
2,000 Harris County, Texas, Tax and Revenue Certificates of Obligation, 8/11 at 100.00 AA+ 2,010,040
Series 2001, 5.000%, 8/15/27
26
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,500 Judson Independent School District, Bexar County, Texas, General 2/11 at 100.00 Aaa $ 1,553,985
Obligation Bonds, Series 2002 Refunding, 5.250%, 2/01/21
1,250 Katy Independent School District, Counties of Harris, Fort Bend and 2/12 at 100.00 AAA 1,243,150
Waller, Texas, General Obligation Bonds, Series 2002A,
5.000%, 2/15/32
2,600 Klein Independent School District, Harris County, Texas, Unlimited 8/09 at 100.00 AAA 2,667,418
Tax Schoolhouse Bonds, Series 1999A, 5.000%, 8/01/18
1,500 Lake Dallas Independent School District, Denton County, Texas, 8/11 at 100.00 Aaa 1,500,480
General Obligation Building Bonds, Series 2001, 5.000%, 8/15/30
5,220 Leander Independent School District, Williamson and Travis 8/09 at 46.74 AAA 1,810,348
Counties, Texas, Unlimited Tax School Building and Refunding
Bonds, Series 2000, 0.000%, 8/15/21
1,545 Montgomery County, Texas, General Obligation Bonds, 9/07 at 72.39 AAA 898,278
Series 1997 Refunding, 0.000%, 3/01/14
2,000 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 2,161,520
Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25
500 Commonwealth of Puerto Rico, Public Improvement General No Opt. Call A- 540,655
Obligation Bonds of 2002, Series A, 5.500%, 7/01/29
1,825 Socorro Independent School District, El Paso County, Texas, 2/06 at 100.00 Aaa 1,958,444
General Obligation Bonds, Series 1996, 5.750%, 2/15/21
1,440 South Texas Community College District, General Obligation 8/12 at 100.00 AAA 1,575,792
Bonds, Series 2002, 5.500%, 8/15/17
2,000 State of Texas, General Obligation Bonds, Veterans Land Board, 12/04 at 100.00 Aa1 2,130,820
Series 1994, 6.400%, 12/01/24 (Alternative Minimum Tax)
3,490 State of Texas, General Obligation Bonds, Veterans Housing 12/03 at 102.00 Aa1 3,627,471
Assistance Program Fund, Series 1993, 6.800%, 12/01/23
(Alternative Minimum Tax)
2,000 State of Texas, General Obligation Bonds, Water Financial 8/11 at 100.00 Aa1 2,067,140
Assistance Program, Series 2001, 5.250%, 8/01/23
1,500 State of Texas, General Obligation Bonds, Public Finance Authority, 10/12 at 100.00 Aa1 1,559,970
Series 2002 Refunding, 5.000%, 10/01/18
1,795 United Independent School District, Webb County, Texas, 8/12 at 100.00 AAA 1,925,048
Unlimited Tax School Building Bonds, Series 2000,
5.375%, 8/15/18
5,290 Weslaco Independent School District, Hidlago County, Texas, 2/10 at 100.00 Aaa 5,516,888
General School Building Obligation Bonds, Series 2000,
5.500%, 2/15/25
West Independent School District, McLennan and Hill Counties,
Texas, Unlimited Tax School Building and Refunding Bonds, Series
1998:
1,000 0.000%, 8/15/22 8/13 at 61.20 AAA 338,600
1,000 0.000%, 8/15/23 8/13 at 57.95 AAA 315,890
1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 296,170
1,800 Williamson County, Texas, General Obligation Road Bonds, 2/12 at 100.00 AAA 1,969,506
Series 2002, 5.500%, 2/15/16
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 11.0%
4,500 City of Austin, Texas, Hotel Occupancy Tax Subordinate Lien 11/09 at 100.00 AAA 4,890,960
Revenue Refunding Bonds, Series 1999, 5.800%, 11/15/29
2,305 Corpus Christi, Texas, Certificates of Obligation, Limited Tax 9/12 at 100.00 AAA 2,461,463
and Hotel Occupancy Tax Revenue Bonds, Series 2002,
5.500%, 9/01/21
2,250 Harris County-Houston Sports Authority, Texas, Senior Lien Revenue 11/11 at 100.00 AAA 2,329,088
Bonds, Series 2001G, 5.250%, 11/15/22
1,000 City of Laredo, Texas, Sports Venue Sales Tax Revenue Bonds, 3/09 at 100.00 AAA 1,020,300
Series 2001, 5.300%, 3/15/26
4,580 City of San Antonio, Texas, Hotel Occupancy Tax Revenue Bonds, 8/06 at 102.00 AAA 4,882,555
Henry B. Gonzalez Convention Center Project, 5.700%, 8/15/26
27
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS January 31, 2003 (Unaudited)
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.5%
$ 3,005 Alliance Airport Authority, Inc., Texas, Special Facilities Revenue 6/03 at 100.00 BB- $ 811,350
Bonds, Series 1990, American Airlines, Inc. Project,
7.500%, 12/01/29 (Alternative Minimum Tax)
2,600 Dallas - Fort Worth International Airport Facility Improvement 11/09 at 101.00 BB- 714,974
Corporation, Texas, American Airlines, Inc. Revenue Bonds,
Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax)
1,000 Harris County, Texas, Toll Road Senior Lien Revenue Refunding 8/04 at 102.00 AAA 1,025,840
Bonds, Series 1994, 5.375%, 8/15/20
2,000 City of Houston, Texas, Airport System Subordinate Lien Revenue 7/10 at 100.00 AAA 2,058,480
Bonds, Series 2000A, 5.625%, 7/01/30 (Alternative Minimum Tax)
3,000 Texas Turnpike Authority, Central Texas Turnpike System First Tier 8/12 at 100.00 AAA 3,133,920
Revenue Bonds, Series 2002A, 5.500%, 8/15/39
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 9.3%
230 Abilene Housing Development Corporation, Texas, First Lien No Opt. Call N/R*** 260,604
Revenue Bonds, Series 1978, 7.000%, 7/01/08
1,000 Caddo Mills Independent School District, Hunt County, Texas, 2/05 at 100.00 N/R*** 1,099,760
Unlimited Tax School Building and Refunding Bonds,
Series 1995, 6.375%, 8/15/25 (Pre-refunded to 2/15/05)
690 Children's Trust Fund, Puerto Rico, Tobacco Settlement 7/10 at 100.00 AAA 769,571
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20
(Pre-refunded to 7/01/10)
1,185 Fort Bend County Levee Improvement District No. 11, A Political 9/04 at 100.00 AAA 1,290,572
Subdivision of the State of Texas, Unlimited Tax Levee
Improvement Bonds, Series 1994, 6.900%, 9/01/17
(Pre-refunded to 9/01/04)
1,450 Industrial Development Corporation of the City of Galveston, 9/05 at 100.00 AAA 1,605,208
Texas, Sales Tax Revenue Bonds, Series 1995,
5.750%, 9/01/15 (Pre-refunded to 9/01/05)
800 City of Laredo, Webb County, Texas, Combination Tax and 8/04 at 100.00 AAA 853,624
Waterworks System Revenue Certificates of Obligation,
Series 1994, 5.625%, 8/15/11 (Pre-refunded to 8/15/04)
1,000 North Central Health Facilities Development Corporation, No Opt. Call AAA 1,128,910
Texas, Hospital Revenue Bonds, Presbyterian Healthcare System
Project, Series 1996B, 5.750%, 6/01/26
2,500 Retama Development Corporation, Texas, Special Facilities No Opt. Call AAA 3,713,525
Revenue Bonds, Retama Park Racetrack Project,
Series 1993, 8.750%, 12/15/17
665 City of San Antonio, Texas, Water System Revenue Refunding No Opt. Call AAA 787,254
Bonds, Series 1992, 6.500%, 5/15/10
1,500 Texas Health Facilities Development Corporation, Hospital 8/03 at 102.00 AAA 1,571,835
Revenue Bonds, All Saints Episcopal Hospitals of Fort Worth
Project, Series 1993B, 6.250%, 8/15/22 (Pre-refunded to 8/15/03)
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 8.1%
2,500 Brazos River Authority, Texas, Revenue Refunding Bonds, 4/09 at 101.00 BBB- 2,016,850
Reliant Energy Incorporated Project, Series 1999A,
5.375%, 4/01/19
2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 AAA 2,167,540
Texas, Thermal Utility Revenue Bonds, TECO Project,
Series 2000, 5.750%, 2/15/15 (Alternative Minimum Tax)
1,500 Matagorda County Navigation District Number One, Texas, 7/03 at 102.00 AAA 1,555,095
Pollution Control Revenue Refunding Bonds, Central Power
and Light Company Project, Series 1993, 6.000%, 7/01/28
1,000 Matagorda County Navigation District Number One, Texas, 5/09 at 101.00 BBB- 819,210
Revenue Refunding Bonds, Reliant Energy Project, Series B,
5.950%, 5/01/30 (Alternative Minimum Tax)
2,000 Sabine River Authority of Texas, Pollution Control Revenue No Opt. Call BBB 1,935,520
Refunding Bonds, TXU Electric Company Project, Series 2001A,
5.500%, 5/01/22 (Mandatory put 11/01/11)
2,750 City of San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AA+ 2,917,063
Bonds, Series 2002 Refunding, 5.375%, 2/01/20
28
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 12.7%
$ 3,500 City of Houston, Texas, Water and Sewer System Junior Lien 12/12 at 100.00 AAA $ 3,501,120
Revenue Refunding Bonds, Series 2002A, 5.000%, 12/01/30
7,000 City of Houston, Texas, Water and Sewer System Junior Lien No Opt. Call AAA 1,785,420
Revenue Refunding Bonds, Series 1998A, 0.000%, 12/01/27
5,275 City of Houston, Texas, Water and Sewer System Junior Lien 12/10 at 100.00 AAA 5,371,216
Revenue Refunding Bonds, Series 2000B, 5.250%, 12/01/30
800 City of Houston, Texas, Water and Sewer System Junior Lien 12/07 at 101.00 AAA 825,760
Revenue Bonds, Series 1997A Refunding, 5.375%, 12/01/27
3,500 City of Houston, Texas, Water and Sewer System Junior Lien 12/11 at 100.00 AAA 3,804,395
Revenue Bonds, Series 2001A Refunding, 5.500%, 12/01/17
1,000 City of San Antonio, Texas, Water System Senior Lien Refunding 5/12 at 100.00 AAA 1,000,509
Bonds, Refunding Series 2002, 5.000%, 5/15/28
1,500 Texas Water Development Board, State Revolving Fund, Senior 7/09 at 100.00 AAA 1,573,349
Lien Revenue Bonds, Series 1999A, 5.500%, 7/15/21
------------------------------------------------------------------------------------------------------------------------------------
$ 216,748 Total Long-Term Investments (cost $198,960,337) - 145.6% 205,395,746
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 3.3% 4,696,539
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.9)% (69,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $141,092,285
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions: Dates (month and year) and
prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
** Ratings: Using the higher of Standard & Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency
securities which ensures the timely payment of
principal and interest. Such securities are normally
considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
29
Statement of
ASSETS AND LIABILITIES January 31, 2003 (Unaudited)
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
-----------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments in municipal securities,
at market value $90,811,955 $34,226,023 $53,459,839 $63,460,958 $205,395,746
Temporary investments in short-term
securities, at amortized cost, which
approximates market value -- -- -- 400,000 --
Cash 1,070,745 549,051 1,058,003 351,321 1,143,452
Receivables:
Interest 763,767 325,247 374,029 509,090 3,581,554
Investments sold 10,103 -- -- -- 190,000
Other assets 456 1,107 4,097 8,261 1,292
-----------------------------------------------------------------------------------------------------------------------------------
Total assets 92,657,026 35,101,428 54,895,968 64,729,630 210,312,044
-----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 51,131 10,424 16,333 18,125 115,552
Organization and offering costs -- 7,713 4,673 4,692 --
Other 67,179 15,919 17,967 51,038 100,874
Preferred share dividends payable 821 1,035 609 2,650 3,333
-----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 119,131 35,091 39,582 76,505 219,759
-----------------------------------------------------------------------------------------------------------------------------------
Preferred shares, at liquidation value 30,000,000 12,000,000 18,500,000 22,000,000 69,000,000
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to
Common shares $62,537,895 $23,066,337 $36,356,386 $42,653,125 $141,092,285
===================================================================================================================================
Common shares outstanding 4,421,760 1,541,057 2,416,665 3,067,000 9,466,888
===================================================================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common
shares, divided by
Common shares outstanding) $ 14.14 $ 14.97 $ 15.04 $ 13.91 $ 14.90
===================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
-----------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 44,218 $ 15,411 $ 24,167 $ 30,670 $ 94,669
Paid-in surplus 61,405,810 21,783,407 34,223,343 43,257,805 134,164,032
Undistributed net investment income 627,302 191,586 10,398 8,009 1,512,080
Accumulated net realized gain (loss)
from investments (3,876,901) 6,333 23,405 -- (1,113,905)
Net unrealized appreciation
(depreciation) of investments 4,337,466 1,069,600 2,075,073 (643,359) 6,435,409
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $62,537,895 $23,066,337 $36,356,386 $42,653,125 $141,092,285
===================================================================================================================================
Authorized shares:
Common 200,000,000 Unlimited Unlimited Unlimited Unlimited
Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited
===================================================================================================================================
See accompanying notes to financial statements.
30
Statement of
OPERATIONS Six Months Ended January 31, 2003 (Unaudited)
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE)* (NTX)
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME $ 2,552,664 $878,296 $1,314,616 $ 779,611 $ 5,878,321
-----------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 305,278 115,227 180,533 125,957 688,222
Preferred shares - auction fees 37,808 15,123 23,315 11,753 86,959
Preferred shares - dividend
disbursing agent fees 5,041 5,041 5,041 2,137 10,082
Shareholders' servicing agent
fees and expenses 3,620 314 614 856 9,408
Custodian's fees and expenses 18,467 11,184 15,260 7,243 31,107
Directors'/Trustees' fees and expenses 528 101 374 315 1,257
Professional fees 5,143 3,982 4,242 5,338 5,363
Shareholders' reports - printing
and mailing expenses 6,281 2,974 4,763 4,433 13,545
Stock exchange listing fees 6,098 114 -- -- 6,098
Investor relations expense 5,018 2,420 3,432 1,336 10,967
Other expenses 4,937 3,699 991 523 7,918
-----------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee
credit and expense reimbursement 398,219 160,179 238,565 159,891 870,926
Custodian fee credit (3,000) (2,613) (3,458) (3,662) (10,320)
Expense reimbursement -- (53,182) (83,323) (62,010) --
-----------------------------------------------------------------------------------------------------------------------------------
Net expenses 395,219 104,384 151,784 94,219 860,606
-----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2,157,445 773,912 1,162,832 685,392 5,017,715
-----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
(LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments (3,414,735) 21,377 41,801 -- (487,850)
Change in net unrealized appreciation
(depreciation) of investments 2,953,199 213,271 381,210 (643,359) (1,775,146)
-----------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (461,536) 234,648 423,011 (643,359) (2,262,996)
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income (170,915) (54,929) (108,197) (60,915) (432,218)
From accumulated net realized
gains from investments -- (8,316) (3,802) -- (8,765)
-----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable
to Common shares from distributions
to Preferred shareholders (170,915) (63,245) (111,999) (60,915) (440,983)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets applicable to Common
shares from operations $ 1,524,994 $945,315 $1,473,844 $ (18,882) $ 2,313,736
===================================================================================================================================
* For the period September 26, 2002 (commencement of operations) through
January 31, 2003.
See accompanying notes to financial statements.
31
Statement of
CHANGES IN NET ASSETS (Unaudited)
ARIZONA ARIZONA ARIZONA
PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR)
------------------------------ ------------------------------ ------------------------------
FOR THE
PERIOD 3/26/02
(COMMENCEMENT
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS OF OPERATIONS)
ENDED 1/31/03 7/31/02 ENDED 1/31/03 7/31/02 ENDED 1/31/03 THROUGH 7/31/02
-----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 2,157,445 $ 4,726,364 $ 773,912 $ 1,597,001 $ 1,162,832 $ 572,359
Net realized gain (loss)
from investments (3,414,735) (462,165) 21,377 148,987 41,801 13,996
Change in net unrealized
appreciation (depreciation)
of investments 2,953,199 (2,058,272) 213,271 425,309 381,210 1,693,697
Distributions to Preferred
Shareholders:
From net investment income (170,915) (414,197) (54,929) (175,122) (108,197) (51,112)
From accumulated net realized
gains from investments -- (51,989) (8,316) (4,730) (3,802) --
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 1,524,994 1,739,741 945,315 1,991,445 1,473,844 2,228,940
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (2,027,618) (3,884,716) (662,565) (1,291,796) (1,044,240) (521,078)
From accumulated net realized gains
from investments -- (182,992) (65,547) (21,217) (28,590) --
-----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (2,027,618) (4,067,708) (728,112) (1,313,013) (1,072,830) (521,078)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- -- -- -- -- 34,379,475
Net proceeds from shares
issued to shareholders due to
reinvestment of distributions 164,595 344,887 28,521 39,766 55,056 16,872
Preferred shares offering costs -- -- 29,976 -- (12,866) (291,302)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares from capital
share transactions 164,595 344,887 58,497 39,766 42,190 34,105,045
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares (338,029) (1,983,080) 275,700 718,198 443,204 35,812,907
Net assets applicable to Common
shares at the beginning
of period 62,875,924 64,859,004 22,790,637 22,072,439 35,913,182 100,275
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $62,537,895 $62,875,924 $23,066,337 $22,790,637 $36,356,386 $35,913,182
===================================================================================================================================
Undistributed net investment
income at the end of period $ 627,302 $ 656,041 $ 191,586 $ 135,959 $ 10,398 $ 169
===================================================================================================================================
See accompanying notes to financial statements.
32
ARIZONA TEXAS
DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX)
-------------------------- -----------------------------
FOR THE
PERIOD 9/26/02
(COMMENCEMENT
OF OPERATIONS) SIX MONTHS YEAR ENDED
THROUGH 1/31/03 ENDED 1/31/03 7/31/02
-----------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 685,392 $ 5,017,715 $ 10,521,496
Net realized gain (loss) from investments -- (487,850) (267,356)
Change in net unrealized appreciation
(depreciation) of investments (643,359) (1,775,146) 1,647
Distributions to Preferred Shareholders:
From net investment income (60,915) (432,218) (919,736)
From accumulated net realized gains
from investments -- (8,765) (197,372)
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations (18,882) 2,313,736 9,138,679
-----------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (616,468) (4,492,519) (8,653,941)
From accumulated net realized gains
from investments -- (100,152) (634,401)
-----------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (616,468) (4,592,671) (9,288,342)
-----------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares 43,742,700 -- --
Net proceeds from shares
issued to shareholders due to
reinvestment of distributions -- 66,550 327,339
Preferred shares offering costs (554,500) -- --
-----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares from capital
share transactions 43,188,200 66,550 327,339
-----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares 42,552,850 (2,212,385) 177,676
Net assets applicable to Common
shares at the beginning of period 100,275 143,304,670 143,126,994
-----------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $42,653,125 $141,092,285 $143,304,670
===================================================================================================================================
Undistributed net investment
income at the end of period $ 8,009 $ 1,512,080 $ 1,424,229
===================================================================================================================================
See accompanying notes to financial statements.
33
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The state funds (the "Funds") covered in this report and their corresponding
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). 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 American Stock Exchange. The Funds are registered under the
Investment Company Act of 1940 as closed-end management investment companies.
Prior to the commencement of operations of Arizona Dividend Advantage 2 (NKR)
and Arizona Dividend Advantage 3 (NXE), each Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,275 per Fund by Nuveen Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc. (formerly, The John Nuveen Company), and
the recording of the organization expenses ($11,500 per Fund) and their
reimbursement by Nuveen Investments, LLC (formerly, Nuveen Investments), also a
wholly owned subsidiary of Nuveen Investments, Inc.
Each Fund seeks to provide current income exempt from both regular federal and
designated state income taxes, where applicable, by investing primarily in a
diversified portfolio of municipal obligations issued by state and local
government authorities within a single state.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
accounting principles generally accepted in the United States.
Securities 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. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers and general
market conditions. If it is determined that market prices for a security are
unavailable or inappropriate, the Board of Directors/Trustees of the Funds or
its designee may establish a fair value for the security. Temporary investments
in securities that have variable rate and demand features qualifying them as
short-term securities are valued at amortized cost, which approximates market
value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets in a separate account with a current value at least equal to
the amount of the when-issued and delayed delivery purchase commitments. At
January 31, 2003, 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.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its net investment
income to its share holders. Therefore, no federal income tax provision is
required. Furthermore, each Fund intends to satisfy conditions which will enable
inter-
34
est from municipal securities, which is exempt from regular federal and
designated state income taxes, where applicable, to retain such tax-exempt
status when distributed to shareholders of the Funds.
Dividends and Distributions to Common Shareholders
Dividends from tax-exempt net investment income are declared and paid monthly.
Net realized capital gains and/or market discount from investment transactions,
if any, are distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryforwards.
Distributions to Common shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount, if any, are recorded on the
ex-dividend date. The amount and timing of distributions are determined in
accordance with federal income tax regulations, which may differ from accounting
principles generally accepted in the United States. Accordingly, temporary
over-distributions as a result of these differences may occur and will be
classified as either distributions in excess of net investment income,
distributions in excess of net realized gains and/or distributions in excess of
net ordinary taxable income from investment transactions, where applicable.
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares.
Each Fund's Preferred shares are issued in one or more Series. The dividend rate
on each Series may change every seven days, as set pursuant to a dutch auction
process by the auction agent, and is payable at or near the end of each rate
period. The number of Preferred shares outstanding, 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 -- -- -- 880 760
Series T -- 480 -- -- --
Series W -- -- 740 -- --
Series TH 1,200 -- -- -- 2,000
---------------------------------------------------------------------------------------------------------
Total 1,200 480 740 880 2,760
=========================================================================================================
Effective November 15, 2002, Arizona Dividend Advantage 3 (NXE) issued 880
Series M, $25,000 stated value Preferred shares.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the period ended January 31, 2003.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Offering Costs
Nuveen Investments, LLC has agreed to pay all offering costs (other than the
sales load) that exceed $.03 per Common share for Arizona Dividend Advantage 2
(NKR) and Arizona Dividend Advantage 3 (NXE). Arizona Dividend Advantage 2's
(NKR) and Arizona Dividend Advantage 3's (NXE) share of offering costs ($72,150
and $91,800, respectively) were recorded as a reduction of the proceeds from the
sale of the Common shares.
Costs incurred by Arizona Dividend Advantage 2 (NKR) and Arizona Dividend
Advantage 3 (NXE) in connection with their offering of Preferred shares
($304,168 and $554,500, respectively) were recorded as a reduction to paid-in
surplus.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
35
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
2. FUND SHARES
Transactions in Common and Preferred shares were as follows:
ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND
INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR)
------------------------- -------------------------- --------------------------
FOR THE
PERIOD 3/26/02
(COMMENCE-
MENT OF
OPERATIONS)
SIX MONTHS YEAR ENDED SIX MONTHS YEAR ENDED SIX MONTHS THROUGH
ENDED 1/31/03 7/31/02 ENDED 1/31/03 7/31/02 ENDED 1/31/03 7/31/02
---------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- -- -- -- -- 2,405,000
Shares issued to
shareholders due to
reinvestment of
distributions 10,235 21,407 1,862 2,811 3,565 1,100
---------------------------------------------------------------------------------------------------------
10,235 21,407 1,862 2,811 3,565 2,406,100
=========================================================================================================
Preferred shares sold -- -- -- -- -- 740
=========================================================================================================
ARIZONA
DIVIDEND
ADVANTAGE 3 TEXAS QUALITY
(NXE) INCOME (NTX)
-------------- ------------------------
FOR THE
PERIOD 9/26/02
(COMMENCE-
MENT OF
OPERATIONS)
THROUGH SIX MONTHS YEAR ENDED
1/31/03 ENDED 1/31/03 7/31/02
---------------------------------------------------------------------------------------------------------
Common shares:
Shares sold 3,060,000 -- --
Shares issued to shareholders
due to reinvestment of
distributions -- 4,266 21,816
---------------------------------------------------------------------------------------------------------
3,060,000 4,266 21,816
=========================================================================================================
Preferred shares sold 880 -- --
=========================================================================================================
36
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term securities during the six months ended January 31,
2003, 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:
Long-term municipal securities $3,441,102 $1,000,000 $ -- $64,183,326 $18,017,508
Short-term securities -- -- -- 5,100,000 3,000,000
Sales and maturities:
Long-term municipal securities 4,416,350 1,227,445 967,425 -- 16,584,480
Short-term securities -- -- -- 4,700,000 3,000,000
=========================================================================================================
* For the period September 26, 2002 (commencement of operations) through
January 31, 2003.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to timing differences in recognizing income on taxable market
discount securities and timing differences in recognizing certain gains and
losses on security transactions.
At January 31, 2003, the cost of investments 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)
---------------------------------------------------------------------------------------------------------
Cost of investments $86,460,356 $33,159,598 $51,383,304 $64,503,640 $198,884,848
=========================================================================================================
Gross unrealized appreciation and gross unrealized depreciation on investments
at January 31, 2003, 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 $5,327,078 $1,137,711 $2,161,949 $ 235,846 $12,011,783
Depreciation (975,479) (71,286) (85,414) (878,528) (5,500,885)
---------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
on investments $4,351,599 $1,066,425 $2,076,535 $(642,682) $ 6,510,898
=========================================================================================================
37
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
The tax components of undistributed net investment income and net realized gains
at July 31, 2002, the Funds' last fiscal year end, were as follows:
ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 INCOME
(NAZ) (NFZ) (NKR) (NTX)
----------------------------------------------------------------------------------------------------------
Undistributed tax-exempt income $984,047 $237,288 $177,136 $1,971,279
Undistributed ordinary income * -- 2,154 13,996 21,034
Undistributed net long-term capital gains -- 63,997 -- 93,585
==========================================================================================================
The tax character of distributions paid during the period ended July 31, 2002,
the Funds' last fiscal year end, were designated for purposes of the dividends
paid deduction as follows:
ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 INCOME
(NAZ) (NFZ) (NKR) (NTX)
----------------------------------------------------------------------------------------------------------
Distributions from tax-exempt income $4,276,629 $1,469,871 $393,659 $9,516,981
Distributions from ordinary income * -- 25,947 -- --
Distributions from net long-term capital gains 234,981 -- -- 831,773
==========================================================================================================
* Ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
At July 31, 2002, the Funds' last fiscal year end, Arizona Premium Income (NAZ)
had an unused capital loss carryforward of $2,164 available for federal income
tax purposes to be applied against future capital gains, if any. If not applied,
the carryforward will expire in the year 2010.
The following Funds have elected to defer net realized losses from investments
incurred from November 1, 2001 through July 31, 2002 ("post-October losses") in
accordance with Federal income tax regulations. The following post-October
losses are treated as having arisen in the following year:
ARIZONA TEXAS
PREMIUM QUALITY
INCOME INCOME
(NAZ) (NTX)
---------------------------------------------------------------------------------------------------------
$460,002 $625,349
=========================================================================================================
38
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under Arizona Premium Income's (NAZ) and Texas Quality Income's (NTX) investment
management agreements with the Adviser, each Fund pays an annual management fee,
payable monthly, at the rates set forth below, which are based upon the average
daily net assets (including net assets attributable to Preferred shares) of each
Fund as follows:
AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS
ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE
--------------------------------------------------------------------------------
For the first $125 million .6500%
For the next $125 million .6375
For the next $250 million .6250
For the next $500 million .6125
For the next $1 billion .6000
For the next $3 billion .5875
For net assets over $5 billion .5750
================================================================================
Under Arizona Dividend Advantage's (NFZ), Arizona Dividend Advantage 2's (NKR)
and Arizona Dividend Advantage 3's (NXE) investment management agreements with
the Adviser, each Fund pays an annual management fee, payable monthly, at the
rates set forth below, which are based upon the average daily net assets
(including net assets attributable to Preferred shares) of each Fund as follows:
AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS
ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE
--------------------------------------------------------------------------------
For the first $125 million .6500%
For the next $125 million .6375
For the next $250 million .6250
For the next $500 million .6125
For the next $1 billion .6000
For net assets over $2 billion .5750
================================================================================
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 (including net assets attributable to Preferred shares), for fees and
expenses in the amounts, and for the time periods set forth below:
YEAR ENDING YEAR ENDING
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.
39
Notes to
FINANCIAL STATEMENTS (Unaudited) (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 (including net assets attributable to Preferred shares), for fees and
expenses in the amounts, and for the time periods set forth below:
YEAR ENDING YEAR ENDING
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 (including net assets attributable to Preferred shares), for fees and
expenses in the amounts, and for the time periods set forth below:
YEAR ENDING YEAR ENDING
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.
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 their officers, all of whom receive remuneration for their
services to the Funds from the Adviser.
6. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid March 3, 2003, to shareholders of record on
February 15, 2003, 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 $.0765 $.0730 $.0720 $.0670 $.0790
=========================================================================================================
40
Financial
HIGHLIGHTS (Unaudited)
41
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
--------------------------------------------------------------- --------------------------------
Distributions Distributions
from Net from Net
Beginning Net Investment Capital Investment Capital
Common Realized/ Income to Gains to Income to Gains to
Share Net Unrealized Preferred Preferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) $14.25 $ .49 $(.10) $(.04) $ -- $ .35 $(.46) $ -- $ (.46)
2002 14.77 1.07 (.57) (.09) (.01) .40 (.88) (.04) (.92)
2001 14.25 1.09 .50 (.23) -- 1.36 (.83) (.01) (.84)
2000 14.90 1.06 (.61) (.25) -- .20 (.85) -- (.85)
1999 15.43 1.07 (.55) (.21) -- .31 (.84) -- (.84)
1998 15.34 1.05 .10 (.23) -- .92 (.83) -- (.83)
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 14.81 .50 .16 (.04) (.01) .61 (.43) (.04) (.47)
2002 14.37 1.04 .36 (.11) -- 1.29 (.84) (.01) (.85)
2001(a) 14.33 .44 .23 (.08) -- .59 (.35) -- (.35)
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 14.88 .48 .17 (.04) -- .61 (.43) (.01) (.44)
2002(b) 14.33 .24 .71 (.02) -- .93 (.22) -- (.22)
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(c) 14.33 .22 (.21) (.02) -- (.01) (.20) -- (.20)
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 15.14 .53 (.24) (.05) -- .24 (.47) (.01) (.48)
2002 15.16 1.11 (.02) (.10) (.02) .97 (.92) (.07) (.99)
2001 14.26 1.16 .88 (.27) -- 1.77 (.87) -- (.87)
2000 15.13 1.16 (.74) (.27) (.02) .13 (.91) (.09) (1.00)
1999 15.90 1.16 (.72) (.22) (.02) .20 (.90) (.07) (.97)
1998 15.86 1.17 .07 (.27) -- .97 (.93) -- (.93)
====================================================================================================================================
Total Returns
--------------------
Based
Offering on
Costs and Ending Common
Preferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
=======================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
---------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) $-- $14.14 $15.6000 (4.99)% 2.46%
2002 -- 14.25 16.9000 9.63 2.88
2001 -- 14.77 16.3200 17.77 9.74
2000 -- 14.25 14.6250 (8.80) 1.61
1999 -- 14.90 17.0000 8.67 1.92
1998 -- 15.43 16.4375 12.18 6.14
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
---------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) .02 14.97 15.2800 .05 4.29
2002 -- 14.81 15.7500 6.38 9.32
2001(a) (.20) 14.37 15.6500 6.76 2.81
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
---------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) (.01) 15.04 15.5500 1.30 4.07
2002(b) (.16) 14.88 15.8000 6.81 5.38
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
---------------------------------------------------------------------------------------
Year Ended 7/31:
2003(c) (.21) 13.91 13.5200 (8.54) (1.52)
TEXAS QUALITY
INCOME (NTX)
---------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) -- 14.90 14.4300 (1.06) 1.63
2002 -- 15.14 15.0700 9.29 6.61
2001 -- 15.16 14.7300 21.16 12.74
2000 -- 14.26 12.9375 (7.93) 1.15
1999 -- 15.13 15.1875 2.97 1.21
1998 -- 15.90 15.6875 6.45 6.27
=======================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
---------------------------- -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
====================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
--------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) $ 62,538 1.25%* 6.76%* 1.24%* 6.77%* 4%
2002 62,876 1.28 7.45 1.26 7.47 19
2001 64,859 1.28 7.47 1.27 7.48 18
2000 62,287 1.26 7.58 1.25 7.59 33
1999 64,775 1.29 6.88 1.29 6.88 6
1998 66,546 1.28 6.85 1.28 6.85 17
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
--------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 23,066 1.37* 6.15* .89* 6.62* 3
2002 22,791 1.41 6.72 .93 7.20 40
2001(a) 22,072 1.43* 5.80* .95* 6.28* 21
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
--------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 36,356 1.29* 5.83* .82* 6.30* --
2002(b) 35,913 1.19* 4.43* .77* 4.85* 1
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
--------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(c) 42,653 1.08* 4.19* .64* 4.63* --
TEXAS QUALITY
INCOME (NTX)
--------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2003(d) 141,092 1.21* 6.96* 1.20* 6.97* 8
2002 143,305 1.23 7.40 1.22 7.42 22
2001 143,127 1.21 7.87 1.19 7.88 24
2000 134,637 1.27 8.18 1.26 8.19 32
1999 142,784 1.23 7.31 1.23 7.32 19
1998 149,669 1.22 7.40 1.22 7.40 17
====================================================================================================================
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:
2003(d) $30,000 $25,000 $77,115
2002 30,000 25,000 77,397
2001 30,000 25,000 79,049
2000 30,000 25,000 76,906
1999 30,000 25,000 78,979
1998 30,000 25,000 80,455
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
----------------------------------------------------------------
Year Ended 7/31:
2003(d) 12,000 25,000 73,055
2002 12,000 25,000 72,480
2001(a) 12,000 25,000 70,984
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
----------------------------------------------------------------
Year Ended 7/31:
2003(d) 18,500 25,000 74,130
2002(b) 18,500 25,000 73,531
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
----------------------------------------------------------------
Year Ended 7/31:
2003(c) 22,000 25,000 73,469
TEXAS QUALITY
INCOME (NTX)
----------------------------------------------------------------
Year Ended 7/31:
2003(d) 69,000 25,000 76,120
2002 69,000 25,000 76,922
2001 69,000 25,000 76,858
2000 69,000 25,000 73,782
1999 69,000 25,000 76,733
1998 69,000 25,000 79,228
================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income, reinvested capital
gains distributions, if any, and changes in Common share net asset value
per share. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the period January 31, 2001 (commencement of operations) through July
31, 2001.
(b) For the period March 26, 2002 (commencement of operations) through July 31,
2002.
(c) For the period September 26, 2002 (commencement of operations) through
January 31, 2003.
(d) For the six months ended January 31, 2003.
See accompanying notes to financial statements.
42-43 SPREAD
Build Your Wealth
AUTOMATICALLY
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NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
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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
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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
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. 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
shares may increase before purchases are completed, the average purchase price
per share may exceed the market price at the time of valuation, resulting in the
acquisition of fewer shares than if the dividend or distribution had been paid
in shares issued by the Fund. A pro rata portion of any applicable brokerage
commissions on open market purchases will be paid by Plan participants. These
commissions usually will be lower than those charged on individual transactions.
FLEXIBILITY
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.
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
44
Fund
INFORMATION
BOARD OF DIRECTORS/TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Morgan, Lewis &
Bockius LLP
Washington, D.C.
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, IL
POLICY CHANGE
On November 14, 2002, the Board adopted a policy that allows these Funds, in
addition to investments in municipal bonds, to invest up to 5% of its net assets
(including assets attributable to preferred shares, if any) in tax-exempt or
taxable fixed-income securities or equity securities for the purpose of
acquiring control of an issuer whose municipal bonds (a) the Fund already owns
and (b) have deteriorated or are expected shortly to deteriorate significantly
in credit quality, provided Nuveen Advisory determines that such investment
should enable the Fund to better maximize the value of its existing investment
in such issuer. This policy is a non-fundamental policy of each Fund which means
that it can be changed at any time by the Board of Trustees without vote of the
shareholders.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
AVERAGE EFFECTIVE MATURITY: The average of all the maturities of the bonds in a
fund's portfolio, computed by weighting each maturity date (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.
LEVERAGE-ADJUSTED DURATION: Duration is a measure of a bond or bond fund's
sensitivity to changes in interest rates. Generally, the longer a bond 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 generally longer than the duration of the actual
portfolio of individual bonds that make up the Fund.
MARKET YIELD (ALSO KNOWN AS DIVIDEND YIELD OR CURRENT YIELD): An investment's
current annualized dividend divided by its current market price.
NET ASSET VALUE (NAV): A fund's NAV is calculated by subtracting the liabilities
of the fund from its total assets and then dividing the remainder by the number
of shares outstanding. Fund NAVs are calculated at the end of each business day.
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.
---------
Each Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the six-month period ended January 31, 2003. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
45
Serving Investors
FOR GENERATIONS
PHOTO OF: John Nuveen, Sr.
For over a century, generations of Americans have relied on Nuveen Investments
to help them grow and keep the money they've earned. Financial advisors,
investors and their families have associated Nuveen Investments with quality,
expertise and dependability since 1898. That is why financial advisors have
entrusted the assets of more than 1.3 million investors to Nuveen.
With the know-how that comes from a century of experience, Nuveen continues to
build upon its reputation for quality. Now, financial advisors and investors can
count on Nuveen Investments to help them design customized solutions that meet
the far-reaching financial goals unique to family wealth strategies - solutions
that can translate into legacies.
To find out more about how Nuveen Investments' products and services can help
you preserve your financial security, talk with your financial advisor, or call
us at (800) 257-8787 for more information, including a prospectus where
applicable. Please read that information carefully before you invest.
Logo: NUVEEN Investments
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333 West Wacker Drive o Chicago o Illinois 60606
WWW.NUVEEN.COM
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