UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21157
---------------------
Nuveen Arizona Dividend Advantage Municipal Fund 3
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: July 31
------------------
Date of reporting period: July 31, 2005
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT July 31, 2005
Nuveen Investments
Municipal Closed-End
Exchange-Traded
Funds
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
NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND
NTX
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DEPENDABLE,
TAX-FREE INCOME BECAUSE
IT'S NOT WHAT YOU EARN,
IT'S WHAT YOU KEEP.(R)
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Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
Once again, I am pleased to report that over the 12-month period covered by this
report your Fund continued to provide you with monthly tax-free income and an
attractive total return. For more details about the management strategy and
performance of your Fund, please see the Portfolio Managers' Comments and
Performance Overview sections of this report.
As I noted in my last letter to you, many market observers are wondering whether
longer-term interest rates will soon begin to rise substantially, mirroring the
rise that has taken place over the past year in shorter-term rates. If
longer-term rates do begin to rise significantly, some have suggested that this
would be a signal to begin adjusting your holdings of fixed-income investments.
Nobody knows what the market will do in the future. But from our experience, we
do know that a well-balanced portfolio, structured and carefully monitored with
the help of a trusted investment professional, can be an important component in
helping you achieve your long-term financial goals. In fact, a well-diversified
portfolio may actually help to reduce your overall investment risk over the long
term. That is one reason why we believe that a municipal bond investment like
your Nuveen Fund can be an important building block in a comprehensive
investment program designed to perform well in a variety of market conditions.
"IN FACT, A WELL-DIVERSIFIED PORTFOLIO MAY ACTUALLY HELP TO REDUCE YOUR OVERALL
INVESTMENT RISK OVER THE LONG TERM."
As in past reports, I urge you to consider receiving future Fund reports and
other Fund information by e-mail and the internet. Not only will you be able to
receive the information faster, but this also may help lower your Fund's
expenses. Sign up is quick and easy - see the inside front cover of this report
for instructions.
Earlier in 2005, The St. Paul Travelers Companies, Inc., which owned 79% of
Nuveen Investments, Inc. (the parent of your Fund's investment adviser), sold a
substantial portion of its stake in Nuveen. More recently, St. Paul sold the
balance of its Nuveen shares to Nuveen Investments or to others. Please be
assured that these transactions only affect Nuveen's corporate structure, and
they do not have any impact on the investment objectives or management of your
Fund.
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can help you
to secure your financial objectives. We are grateful that you have chosen us as
a partner as you pursue your financial goals, and we look forward to continuing
to earn your trust in the months and years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 15, 2005
Nuveen Arizona and Texas Municipal Closed-End Exchange-Traded Funds
(NAZ, NFZ, NKR, NXE, NTX)
Portfolio Managers'
COMMENTS
Portfolio managers Scott Romans and Cathryn Steeves discuss the economic and
municipal market environments, key investment strategies and the annual
performance of these five Nuveen Funds. Scott, who joined Nuveen in 2000, has
managed the Arizona Funds since November 2003. Cathryn, who has been with Nuveen
since 1996, assumed portfolio management responsibility for NTX in August 2004.
WHAT FACTORS AFFECTED THE U.S. ECONOMY AND MUNICIPAL MARKET DURING THE 12-MONTH
REPORTING PERIOD ENDED JULY 31, 2005?
Between August 1, 2004, and July 31, 2005, the Federal Reserve implemented eight
0.25% increases in the fed funds rate. These increases, which were aimed at
controlling economic growth and keeping the rate of inflation at acceptable
levels, raised this short-term target to 3.25% from 1.25%. (On August 9, 2005,
following the close of this reporting period, the fed funds rate was increased
by another 0.25% to 3.50%.) As the fed funds rate rose over the reporting
period, there was a corresponding increase in many shorter-term municipal market
rates. At the same time, longer-term yields declined and bond prices rose. The
yield on the benchmark 10-year U.S. Treasury note stood at 4.31% on July 31,
2005, compared with 4.45% one year earlier. Longer-term yields in the municipal
market followed a similar pattern. The yield of the Bond Buyer 25 Revenue Bond
Index, a widely-followed measure of longer-term municipal market rates, declined
by approximately 45 basis points during this 12-month reporting period.
This rise in shorter-term rates and decline in longer-term rates produced an
overall flattening of the yield curve, and generally helped the performance of
bonds with longer effective maturities while tending to hurt the performance of
securities with shorter maturities or short call dates.
Despite the increases in shorter-term rates and an upsurge in energy costs, the
economic expansion continued through the reporting period. The U.S. gross
domestic product (GDP) grew in every calendar quarter, expanding at an
annualized rate of 4.0% in the third
4
quarter of 2004, by 3.3% (annualized) in the fourth quarter of 2004, 3.8%
(annualized) in the first three months of 2005 and 3.4% (annualized) in the
second quarter of 2005.
As of July 31, 2005, the year-over-year increase in the Consumer Price Index
(CPI) was 3.2%, and the national unemployment rate stood at 5.0%, its lowest
level since September 2001. On the whole, job reports over the 12-month period
presented a picture of relatively solid growth.
Over this 12-month period, municipal bond new issue supply nationwide remained
strong, with $389.1 billion in new securities coming to market. One major factor
behind the large new issue supply was the flattening yield curve, which in many
situations made advance refundings economically more attractive for municipal
issuers. (Advance refunding means issuing new bonds at current lower rates and
using the proceeds to effectively pay off existing, higher yielding bonds.)
Between January and July 2005 refundings were 67% higher than during the same
period in 2004.
HOW ABOUT ECONOMIC AND MARKET CONDITIONS IN ARIZONA AND TEXAS?
During this reporting period, Arizona's economy continued its rapid expansion,
as the state benefited from job growth that outpaced the national rate as well
as from relatively low business costs. As of July 2005, Arizona's unemployment
rate was 4.9%, compared with 5.0% in July 2004 and the July 2005 national
average of 5.0%. Construction, particularly in urban areas, was thriving, and
continued population growth and strong demand provided support for
goods-producing and service industries, especially in the financial and business
sectors. The outlook for tourism also steadily improved. The state is home to
several major military bases, and it benefited from the growth in defense
spending and from expansion in the defense and aerospace industries. In August
2004, Standard and Poor's affirmed their AA- rating on Arizona's lease
appropriation debt and revised their outlook to stable from negative. In March
2005, Moody's initiated a Aa3
5
rating for the state. Both rating agencies cited an improved state economy that
was stabilizing more quickly than anticipated. For the 12 months ended July
2005, Arizona municipal bond issuers brought $7.6 billion in new securities to
market, a decrease of 3.5% from the previous 12 months.
The Texas economy continued its slow but steady recovery during this reporting
period, with good demographic trends, low business costs and job growth that
exceeded expectations. Although the state diversified away from its heavy
reliance on the energy sector in recent years, the current growth in this
industry also benefited the Texas economy over the 12-month period. Defense
spending in Texas remained high, although it played a smaller role than in the
past. In July 2005, unemployment in Texas fell to 5.0%, the lowest level in four
years, down from 6.1% in July 2004. In July 2005, both Moody's and S&P affirmed
their ratings of the state's general obligation debt at Aa1 and AA,
respectively, with stable outlooks. During this 12-month reporting period,
municipal issuance in Texas totaled $33 billion, a 16% increase over the
previous 12 months.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE ARIZONA AND TEXAS FUNDS DURING THE
12 MONTHS ENDED JULY 31, 2005?
With many market participants anticipating higher long-term interest rates, our
focus in the Arizona and Texas Funds throughout this period centered on finding
bonds that we believed would add immediate value to the Funds' portfolios and
that, in our judgment, also had the potential to perform well under a variety of
future market scenarios, regardless of economic or interest rate trends.
In general, our purchase activity emphasized bonds in the long-intermediate part
of the yield curve - specifically, bonds that mature in 15 to 25 years for the
Arizona Funds and in 15 to 20 years for NTX. In our opinion, bonds in the
intermediate part of the curve offered more attractive opportunities and the
best values during this period.
6
We also focused on purchasing bonds with premium coupons - those with prices
above par and coupons above current market rates. Historically, these bonds
often have held their value better than current coupon bonds when interest rates
rise. Since premium bonds are sometimes vulnerable to early calls, we sought to
balance some of these holdings by also purchasing bonds with eight to ten years
of call protection.
Although municipal new issue supply was slightly tighter in Arizona over this
period, the state's strong population growth meant that we saw an increase in
land-secured issues, residential or development-related bonds and offerings by
community facilities districts. All of these areas provided new opportunities at
the lower end of the credit range, which enabled us to selectively trim
concentrated positions while enhancing overall diversification and maintaining
or increasing the Funds' overall exposure to generally higher-yielding sectors.
Among the bonds we purchased for the Arizona Funds during this period were
several infrastructure-supporting community facilities district bonds that
provide examples of the new opportunities being created by Arizona's growing
population. These included bonds issued for Estrella Mountain Ranch, which was
added to all four Arizona Funds, and Vistancia and Centerra, which were added to
NFZ, NKR and NXE. Other higher-yielding, lower-rated bonds purchased during this
period included an A- rated Maricopa County Industrial Development Authority
issue for Catholic Healthcare West, which was added to all four Funds, and an A-
rated Arizona Health Facilities Authority issue for Blood Systems Inc., which
was purchased for NKR and NXE.
As noted earlier, Texas experienced a substantial increase in municipal issuance
during this period, especially in the first part of 2005. This increased our
opportunities to find the premium coupon bonds we sought. One purchase we made
for NTX during this period was $1.14 million of AAA rated Sunnyvale School
District general obligation bonds.
7
In addition to yield curve positioning and credit exposure, another priority
during this period was careful duration management. Duration is a measure of a
bond's price sensitivity to interest rate changes, with higher duration bonds
being more sensitive and thereby presenting greater interest rate risk. Duration
management became increasingly important in the first half of 2005, as the
flattening of the yield curve resulted in a dramatic rise in advance refundings.
In NAZ, for example, we sold some of the Fund's pre-refunded bonds and
reinvested the proceeds further out on the yield curve. This enabled us to
improve the Fund's overall call protection and diversification.
As another example of duration management, in late 2004 we began using forward
interest rate swaps, a type of derivative financial instrument, in an attempt to
reduce some of the interest rate risk in NFZ, NKR and NXE. It is important to
note that the hedges were not used in an attempt to profit from correctly
predicting the timing and direction of interest rate movements. Instead, our
sole objective was to reduce the durations of these Funds without having a
negative impact on the Funds' income streams or common share dividends over the
short term. The gain or loss from each Fund's hedging activity is reflected as
an addition or subtraction to the Fund's net asset value (NAV) as the market
value of each hedge fluctuates. The hedges were effective in achieving their
intended goal of helping to reduce the NAV volatility of these Funds.
8
HOW DID THE FUNDS PERFORM?
Individual results for these Funds, as well as for comparative indexes and
averages, are presented in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE*
For periods ended 7/31/05
ARIZONA FUNDS 1-YEAR 5-YEAR 10-YEAR
--------------------------------------------------------------------------------
NAZ 9.69% 6.78% 6.34%
--------------------------------------------------------------------------------
NFZ 9.04% NA NA
--------------------------------------------------------------------------------
NKR 9.74% NA NA
--------------------------------------------------------------------------------
NXE 10.21% NA NA
--------------------------------------------------------------------------------
TEXAS FUND
--------------------------------------------------------------------------------
NTX 8.61% 8.14% 6.85%
--------------------------------------------------------------------------------
Lehman Brothers Municipal
Bond Index1 6.35% 6.48% 6.23%
--------------------------------------------------------------------------------
Lipper Other States
Municipal Debt Funds
Average2 9.78% 8.51% 7.28%
--------------------------------------------------------------------------------
*Annualized
Past performance is not predictive of future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that shareholders may have to pay on Fund distributions or upon the sale
of Fund shares.
For additional information, see the individual Performance Overview for your
Fund in this report.
For the 12 months ended July 31, 2005, the total returns on NAV for all five
Funds exceeded the return on the Lehman Brothers Municipal Bond Index. NXE also
outperformed the average return for the Lipper Other States category. NAZ and
NKR performed roughly in line with this Lipper measure, while NFZ and NTX
trailed the group average. It should be noted that the performance of the Lipper
Other States category represents the average returns of funds from 10 different
states, representing a wide variety of economic and municipal market conditions.
We believe this makes direct comparisons between this group average and a
particular state fund less meaningful.
1 The Lehman Brothers Municipal Bond Index is an unleveraged, unmanaged national
index comprising a broad range of investment-grade municipal bonds. Results
for the Lehman index do not reflect any expenses.
2 The Lipper Other State Municipal Debt Funds category average is calculated
using the returns of all closed-end exchange-traded funds in this category for
each period as follows: 1 year, 44 funds; 5 years, 19 funds; and 10 years, 17
funds. Fund and Lipper returns assume reinvestment of dividends.
9
One of the primary factors benefiting the 12-month performance of these Funds
relative to that of the unleveraged Lehman Brothers index was the Funds' use of
financial leverage. While leveraging can add volatility to a Fund's NAV and
share price, especially during periods when interest rates rise, this strategy
can also provide opportunities for additional income and total return for common
shareholders when short-term interest rates remain relatively low and long-term
rates fall or remain constant.
As noted earlier, the municipal market yield curve flattened over the course of
this reporting period as longer-term interest rates fell while short-term rates
rose. Since falling bond yields mean rising bond prices, longer maturity bonds
with falling yields generally performed better than securities with shorter
maturities. Heavier exposure to the longer end of the yield curve helped the
performance of NXE and--to a lesser extent--NAZ and NKR during this period,
while the performance of NFZ and NTX was hampered by relatively greater exposure
to the shorter end of the curve. Part of the duration management strategy
discussed earlier included efforts to more closely align the yield curve
positioning of all these Funds.
All of the Funds in this report also benefited during this period from their
allocations of lower-quality bonds during this period. Bonds rated BBB and lower
and non-rated bonds generally outperformed other higher-credit quality sectors
as increased demand for lower-quality bonds offering higher yields drove up the
value of these securities. Among the lower-rated sectors making positive
contributions to the Funds' 12-month returns were industrial development revenue
bonds, pollution control revenue bonds, healthcare securities (including
hospitals) and issues for long-term care facilities. In addition, BBB rated
bonds issued by Puerto Rico and backed by the 1998 master tobacco settlement
agreement produced solid performance during this period as the litigation
environment improved and supply/demand dynamics drove tobacco bond prices
higher. NTX's small position of bonds backed by American Airlines posted a total
return of 38% during the period and contributed significantly to the Fund's
12-month performance.
10
In addition to leverage and credit and sector exposures, other factors that
impacted the Funds' performances during this period were advance refundings,
bond calls and upgrades/downgrades. In response to low and/or falling long-term
rates, refinancings rose sharply in a number of sectors. NKR and NXE, in
particular, benefited from advance refundings, having 10% and 5%, respectively,
of their portfolios pre-refunded as of July 31, 2005. NTX had 7% of its
portfolio pre-refunded as of the end of the reporting period. These advance
refundings generally resulted in price appreciation during the 12 months and
enhanced credit quality.
NAZ, NKR and NXE also had several of their holdings upgraded during this period,
including bonds issued by Arizona Health for Phoenix Children's Hospital. The
rating on these bonds was revised upward to Baa3 (investment grade) from Ba2
(sub-investment grade), a significant jump that helped them make a noticeable
contribution to NXE's total return for the reporting period. In contrast, NFZ
had a greater number of bonds called, fewer upgrades, and a lower incidence of
pre-refundings than the other Arizona Funds - all factors that hurt its relative
performance over the 12-month period.
While bonds that were pre-refunded during this period often enhanced the Funds'
performances, their holdings of older pre-refunded bonds tended to underperform
the general municipal market during this period, due primarily to the shorter
effective maturities of these bonds. This was especially true in NAZ, NFZ and
NTX. Housing was another sector that lagged the market during this period,
largely as the result of the increased risk of prepayments and bond calls in the
current interest rate environment. NAZ, NFZ and NXE all began this reporting
period with relatively heavy weightings in the multifamily housing sector.
Although calls reduced the Funds' exposure in this area over the 12 months,
these holdings restrained performance for the period.
11
In addition, in NTX, the value of bonds issued by Retama Development Corporation
for Retama Park Racetrack was negatively impacted by a proposed ruling on their
tax-exempt status by the Internal Revenue Service. Based on our analysis of the
situation, we have maintained our position in these bonds.
HOW WERE THE FUNDS POSITIONED IN TERMS OF CREDIT QUALITY AND BOND CALLS AS OF
JULY 31, 2005?
We continued to believe that maintaining strong credit quality was an important
requirement. As of July 31, 2005, all of these Funds continued to offer
excellent credit quality, with allocations of bonds rated AAA/U.S. Guaranteed
and AA ranging from 76% in NXE and NKR, 77% in NTX, 80% in NFZ and 81% in NAZ.
As of July 31, 2005, potential call exposure for the period from August 2005
through the end of 2006 ranged from 0% in NKR and NXE to 1% in NFZ, 4% in NAZ
and 5% in NTX. The number of actual bond calls in all of these Funds depends
largely on future market interest rates.
12
Dividend and Share Price
INFORMATION
Each of the Funds in this report uses leverage to enhance opportunities for
additional income for common shareholders. The extent of this benefit is tied in
part to the short-term rates the Funds pay their MuniPreferred(R) shareholders.
During periods of low short-term rates, leveraged Funds generally pay lower
dividends to their MuniPreferred shareholders, which can leave more earnings to
support common share dividends. However, when short-term interest rates rise, as
they did during this reporting period, the Funds' borrowing costs also rise.
While leveraging still provided benefits for common shareholders, the extent of
these benefits was reduced. In addition, older Funds such as NAZ and NTX had a
number of older, higher-yielding bonds that matured or were called during this
period. The proceeds from these bonds were reinvested in the current,
lower-yielding environment, thereby reducing their income streams. The decline
in interest rates at the longer end of the yield curve during this period also
had an impact on the newest Fund, NXE, which had fewer opportunities to build
reserves. All of these factors combined to produce one monthly dividend
reduction in NXE, two in NTX and four in NAZ over the 12-months ended July 31,
2005. The dividends of NFZ and NKR remained stable throughout this reporting
period.
In addition, due to capital gains generated by normal portfolio activity, common
shareholders of the following Funds received capital gains distributions at the
end of December 2004 as follows:
LONG-TERM CAPITAL GAINS
(PER SHARE)
--------------------------------------------------------------------------------
NFZ $0.0436
--------------------------------------------------------------------------------
NKR $0.1191
--------------------------------------------------------------------------------
All of the Funds in this report seek to pay stable dividends at rates that
reflect each Fund's past results and projected future performance. During
certain periods, each Fund may pay dividends at a rate that may be more or less
than the amount of net investment income actually earned by the Fund during the
period. If a Fund has cumulatively earned more than it has paid in dividends, it
holds the excess in reserve as undistributed net investment income (UNII) as
part of the Fund's NAV. Conversely, if a Fund has
13
cumulatively paid dividends in excess of its earnings, the excess constitutes
negative UNII that is likewise reflected in the Fund's NAV. Each Fund will, over
time, pay all of its net investment income as dividends to shareholders. As of
July 31, 2005, all of the Funds in this report had positive UNII balances for
both financial statement and tax purposes.
At the end of the reporting period, the Funds' share prices were trading at
premiums or discounts to their NAVs as shown in the accompanying chart:
7/31/05 12-MONTH AVERAGE
FUND PREMIUM/DISCOUNT PREMIUM/DISCOUNT
--------------------------------------------------------------------------------
NAZ +4.75% +8.36%
--------------------------------------------------------------------------------
NFZ +4.62% +3.66%
--------------------------------------------------------------------------------
NKR +4.05% -0.37%
--------------------------------------------------------------------------------
NXE -0.96% -2.71%
--------------------------------------------------------------------------------
NTX +4.72% -0.26%
--------------------------------------------------------------------------------
14
Nuveen Arizona Premium Income Municipal Fund, Inc.
NAZ
Performance
OVERVIEW As of July 31, 2005
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 68%
AA 13%
A 7%
BBB 9%
BB or Lower 1%
NR 2%
Bar Chart:
2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Aug 0.0765
Sep 0.074
Oct 0.074
Nov 0.074
Dec 0.071
Jan 0.071
Feb 0.071
Mar 0.068
Apr 0.068
May 0.068
Jun 0.0645
Jul 0.0645
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/04 15.17
15.3
15.5
15.54
15.95
15.93
15.94
15.77
15.73
15.71
15.85
15.87
15.81
16
16.06
15.96
16.22
16.17
16.22
16.32
16.4
16.46
16.29
16.25
16.2
16.45
16.22
16.25
16.44
16.23
16.14
16.14
16.47
16.49
16.59
16.66
16.8
16.52
16.7
16.79
16.72
16.71
16.61
16.6
16.56
16.65
16.75
16.67
16.75
16.55
16.6
16.56
16.5
16.51
16.5
16.44
16.42
16.47
16.61
16.53
16.4
16.39
16.39
16.28
16.22
16.29
16.12
16.05
15.72
15.62
15.42
15.53
15.71
15.78
15.82
15.6
15.77
15.77
15.58
15.6
15.64
15.68
15.69
15.46
15.41
15.37
15.35
15.61
15.55
15.46
15.47
15.4
15.4
15.33
15.37
15.46
15.32
15.33
15.34
15.4
15.33
15.32
15.29
15.29
15.31
15.17
15.21
15.27
15.27
15.33
15.31
15.45
15.37
15.27
15.22
15.22
15.21
15.21
15.35
15.49
15.62
15.61
15.52
15.6
15.71
15.66
15.82
16.04
15.95
15.74
15.88
15.81
15.75
15.9
15.93
15.66
15.82
15.78
15.75
15.72
15.45
15.51
15.76
15.71
15.9
15.92
15.85
15.9
15.83
15.87
15.95
16.17
16.08
16
15.9
15.76
15.92
15.9
15.83
15.73
15.61
15.6
15.39
15.4
15.33
15.1
15.12
15.02
15.1
15.2
15.25
15.21
15.2
15.25
15.25
15.18
15.14
15.12
15.13
15.25
15.21
15.21
15.02
15.15
15.03
15.12
15.33
15.39
15.4
15.4
15.4
15.4
15.52
15.52
15.58
15.5
15.56
15.57
15.6
15.6
15.45
15.39
15.46
15.44
15.45
15.44
15.48
15.45
15.46
15.48
15.59
15.62
15.63
15.61
15.61
15.54
15.6
15.58
15.48
15.35
15.16
15.14
15.16
15.16
15.17
15.16
15.28
15.38
15.41
15.42
15.51
15.6
15.47
15.47
15.23
15.32
15.3
15.38
15.37
15.52
15.44
15.35
15.4
15.25
15.12
14.99
15
15.04
15.05
15.03
15.14
15.2
15.22
7/31/05 15.22
FUND SNAPSHOT
------------------------------------
Common Share Price $15.22
------------------------------------
Common Share
Net Asset Value $14.53
------------------------------------
Premium/(Discount) to NAV 4.75%
------------------------------------
Market Yield 5.09%
------------------------------------
Taxable-Equivalent Yield1 7.43%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $64,822
------------------------------------
Average Effective
Maturity on Securities (Years) 16.46
------------------------------------
Leverage-Adjusted Duration 8.66
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/19/92)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 5.17% 9.69%
------------------------------------
5-Year 6.62% 6.78%
------------------------------------
10-Year 6.88% 6.34%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 31.3%
------------------------------------
Water and Sewer 15.6%
------------------------------------
U.S. Guaranteed 12.5%
------------------------------------
Education and Civic
Organizations 10.9%
------------------------------------
Healthcare 10.1%
------------------------------------
Utilities 7.2%
------------------------------------
Tax Obligation/General 4.8%
------------------------------------
Housing/Multifamily 4.7%
------------------------------------
Other 2.9%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
When comparing this Fund to investments that generate qualified dividend
income, the taxable-equivalent yield is lower.
15
Nuveen Arizona Dividend Advantage Municipal Fund
NFZ
Performance
OVERVIEW As of July 31, 2005
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 60%
AA 20%
A 9%
BBB 8%
BB or Lower 1%
NR 2%
Bar Chart:
2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Aug 0.0765
Sep 0.0765
Oct 0.0765
Nov 0.0765
Dec 0.0765
Jan 0.0765
Feb 0.0765
Mar 0.0765
Apr 0.0765
May 0.0765
Jun 0.0765
Jul 0.0765
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/04 15.4
15.25
15.15
15.15
15.26
15.46
15.7
15.39
15.4
15.4
15.8
15.8
15.9
16.1
16.06
15.6
15.85
15.75
15.85
16
16
16.05
16.02
16
15.98
15.98
15.92
15.73
15.8
15.9
15.77
15.65
15.51
15.42
15.45
15.54
15.58
15.45
15.46
15.75
15.62
15.7
15.74
15.75
15.63
15.63
15.73
15.66
15.85
15.88
15.88
16.06
16.35
16.4
16.4
16.4
16.4
16.25
16.1
16.1
15.85
15.86
15.85
15.7
15.89
15.85
15.85
16
15.75
15.59
15.55
15.5
15.33
15.4
15.6
15.7
15.78
15.74
15.64
15.74
15.92
15.8
15.8
15.8
15.42
15.36
15.29
15.58
15.58
15.49
15.44
15.44
15.45
15.34
15.46
15.47
15.47
15.28
15.28
15.38
15.47
15.56
15.87
15.7
15.67
15.67
15.65
15.76
15.65
15.75
16.2
16.13
16.13
16.65
16.65
16.8
16.65
16.74
16.74
16.74
16.75
16.75
16.75
16.75
16.7
16.7
16.6
16.55
16.45
16.38
16.46
16.48
16.39
16.39
16.39
16.34
16.54
16.54
16.44
16.5
16.48
16.55
16.7
16.8
16.37
16.39
16.39
16.39
16.35
16.35
16.17
16.2
16.15
15.97
16
16.15
16.15
16.15
16.05
16.05
16.05
16.05
15.95
15.95
15.83
15.83
15.83
15.5
15.5
15.5
15.42
15.44
15.33
15.4
15.4
15.32
15.11
15.01
15.06
15.25
15.3
15.22
15.3
15.31
15.2
15.35
15.57
15.54
15.55
15.55
15.55
15.54
15.45
15.54
15.55
15.62
15.6
15.72
15.7
16.04
15.9
15.7
15.66
15.9
16.02
15.83
16.08
16.02
16.02
16.02
16.14
16.14
16.5
16.59
16.42
16.58
16.6
16.84
16.65
16.46
16.35
16.35
16.6
16.53
16.33
16.2
16.14
16.25
16.27
16.35
16.75
16.9
17.15
17.1
17.3
17.79
17.95
18
17.05
16.91
17.25
16.78
16.74
16.68
16.35
16.3
16.25
16.25
16.03
15.94
16.1
16.1
16.08
7/31/05 16.08
FUND SNAPSHOT
------------------------------------
Common Share Price $16.08
------------------------------------
Common Share
Net Asset Value $15.37
------------------------------------
Premium/(Discount) to NAV 4.62%
------------------------------------
Market Yield 5.71%
------------------------------------
Taxable-Equivalent Yield1 8.34%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $23,753
------------------------------------
Average Effective
Maturity on Securities (Years) 15.86
------------------------------------
Leverage-Adjusted Duration 7.71
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 1/30/01)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 10.88% 9.04%
------------------------------------
Since
Inception 7.58% 7.84%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 37.3%
------------------------------------
Utilities 21.1%
------------------------------------
Healthcare 8.3%
------------------------------------
U.S. Guaranteed 7.9%
------------------------------------
Housing/Multifamily 7.8%
------------------------------------
Water and Sewer 6.7%
------------------------------------
Tax Obligation/General 5.1%
------------------------------------
Other 5.8%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
When comparing this Fund to investments that generate qualified dividend
income, the taxable-equivalent yield is lower.
2 The Fund also paid shareholders a capital gains distribution in December 2004
of $0.0436 per share.
16
Nuveen Arizona Dividend Advantage Municipal Fund 2
NKR
Performance
OVERVIEW As of July 31, 2005
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 65%
AA 11%
A 12%
BBB 9%
NR 3%
Bar Chart:
2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Aug 0.0765
Sep 0.074
Oct 0.074
Nov 0.074
Dec 0.071
Jan 0.071
Feb 0.071
Mar 0.068
Apr 0.068
May 0.068
Jun 0.0645
Jul 0.0645
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/04 14.98
14.86
15.05
14.96
15.02
15.24
15.15
15.13
15.14
15.15
15.18
15.22
15.19
15.21
15.05
15.07
15.1
15.1
15.2
15.16
15.19
15.29
15.23
15.39
15.33
15.5
15.35
15.5
15.4
15.48
15.48
15.48
15.5
15.35
15.65
15.64
15.55
15.42
15.55
15.62
15.7
15.68
15.5
15.5
15.5
15.5
15.47
15.47
15.5
15.5
15.46
15.46
15.46
15.46
15.54
15.53
15.8
15.49
15.34
15.49
15.54
15.53
15.54
15.77
15.78
15.84
15.61
15.62
15.07
15.07
15.3
15.3
15.35
15.43
15.55
15.66
15.66
15.66
15.75
15.78
16
16.15
16.15
16.14
15.81
15.81
15.73
15.77
15.77
15.78
15.75
15.68
15.7
15.44
15.42
15.48
15.54
15.4
15.41
15.5
15.69
15.59
15.59
15.75
15.8
15.8
15.76
16
16
15.9
15.92
16.1
16.22
16.2
16.84
16.95
16.67
16.47
16.12
15.95
15.84
15.8
15.9
15.92
15.96
16.07
15.85
16.01
16.03
16.14
16.14
16.21
16.22
16.22
16.4
16.33
16.32
16.25
16.25
16.14
15.96
15.68
15.83
15.9
16.24
16.28
16.27
16.16
16.19
15.97
15.87
15.95
15.5
15.64
15.49
15.49
15.26
15.28
15
15
14.82
14.7
14.41
14.55
14.6
14.57
14.57
14.6
14.65
14.68
14.78
14.78
14.78
14.74
14.7
14.77
14.8
14.66
14.68
14.72
15
14.97
14.82
14.85
14.8
14.8
14.87
14.8
14.71
14.71
14.77
14.83
14.85
14.93
14.84
14.84
14.84
14.8
14.93
14.83
14.94
14.99
14.97
15.1
15.28
15.4
15.5
15.5
15.42
15.39
15.48
15.57
15.51
15.67
15.65
15.85
15.87
15.82
15.87
15.87
15.69
15.7
15.7
15.59
15.64
15.64
15.88
15.74
15.7
15.8
15.76
15.9
15.93
15.83
15.83
15.83
15.81
15.82
16
16.1
15.96
15.85
16.05
16.05
15.97
15.89
16.09
16.01
16.01
16.25
16.2
16.19
16.19
7/31/05 16.19
FUND SNAPSHOT
------------------------------------
Common Share Price $16.19
------------------------------------
Common Share
Net Asset Value $15.56
------------------------------------
Premium/(Discount) to NAV 4.05%
------------------------------------
Market Yield 5.34%
------------------------------------
Taxable-Equivalent Yield1 7.80%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $37,704
------------------------------------
Average Effective
Maturity on Securities (Years) 15.26
------------------------------------
Leverage-Adjusted Duration 8.02
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 16.30% 9.74%
------------------------------------
Since
Inception 8.43% 8.59%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 26.5%
------------------------------------
Tax Obligation/General 24.5%
------------------------------------
Healthcare 10.8%
------------------------------------
U.S. Guaranteed 10.0%
------------------------------------
Water and Sewer 7.3%
------------------------------------
Education and Civic
Organizations 5.5%
------------------------------------
Housing/Multifamily 5.3%
------------------------------------
Utilities 4.8%
------------------------------------
Other 5.3%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
When comparing this Fund to investments that generate qualified dividend
income, the taxable-equivalent yield is lower.
2 The Fund also paid shareholders a capital gains distribution in December 2004
of $0.1191 per share.
17
Nuveen Arizona Dividend Advantage Municipal Fund 3
NXE
Performance
OVERVIEW As of July 31, 2005
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 62%
AA 14%
A 10%
BBB 11%
NR 3%
Bar Chart:
2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Aug 0.072
Sep 0.072
Oct 0.072
Nov 0.072
Dec 0.072
Jan 0.072
Feb 0.072
Mar 0.072
Apr 0.072
May 0.072
Jun 0.072
Jul 0.072
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/04 13.18
13.36
13.7
13.74
13.79
13.78
13.79
13.76
13.6
13.65
13.65
13.65
13.67
13.56
13.6
13.6
13.65
13.61
13.71
13.72
13.9
13.9
13.85
13.66
13.68
13.65
13.65
13.65
13.72
13.64
13.98
14.15
14.05
13.9
13.92
14.21
14.28
14.23
14.16
14.29
14.2
14.1
14.08
14
14.01
14.01
14.09
13.85
14.11
14.11
14.21
14.15
14.21
14.41
14.47
14.42
14.49
14.54
14.55
14.6
14.5
14.5
14.47
14.4
14.45
14.45
14.61
14.66
14.66
14.35
14.18
14.05
14.2
14.23
14.04
14.18
14.16
14.04
13.89
14.07
14.04
14.25
14.26
14.07
13.99
14.02
14.05
14.15
14.15
14.03
14.2
14.14
14.15
14.08
14.01
14.15
13.97
13.95
13.9
13.97
14.04
14.06
14.06
13.98
14.04
14.08
14.14
14.14
14.18
14.2
14.22
14.29
14.35
14.33
14.49
14.35
14.4
14.55
14.6
14.65
14.5
14.5
14.54
14.59
14.66
14.71
14.68
14.8
14.77
14.76
14.75
15.1
14.96
15.12
15.1
15.08
15
14.98
14.82
14.57
14.33
14.2
14.24
14.47
14.63
14.76
14.75
14.65
14.4
14.4
14.29
14.4
13.92
13.91
13.97
14.04
14.2
13.93
13.79
13.96
13.81
13.78
13.61
13.45
13.33
13.3
13.37
13.35
13.45
13.5
13.73
13.73
13.78
13.75
13.72
13.76
13.6
13.6
13.76
13.74
13.82
13.63
13.69
13.65
13.54
13.77
13.78
13.68
13.8
13.8
13.81
13.88
13.93
13.94
13.88
13.95
14.03
13.95
13.96
14.1
14.09
14
14.09
14.01
13.97
14.2
14.3
14.29
14.24
14.22
14.32
14.39
14.33
14.39
14.4
14.4
14.5
14.35
14.28
14.34
14.37
14.39
14.39
14.35
14.43
14.36
14.62
14.63
14.63
14.62
14.55
14.62
14.56
14.68
14.82
14.84
14.7
14.79
14.83
14.72
14.75
14.82
14.72
14.32
14.38
14.51
14.5
14.59
14.72
14.68
14.45
14.59
14.48
7/31/05 14.48
FUND SNAPSHOT
------------------------------------
Common Share Price $14.48
------------------------------------
Common Share
Net Asset Value $14.62
------------------------------------
Premium/(Discount) to NAV -0.96%
------------------------------------
Market Yield 5.26%
------------------------------------
Taxable-Equivalent Yield1 7.68%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $44,829
------------------------------------
Average Effective
Maturity on Securities (Years) 17.04
------------------------------------
Leverage-Adjusted Duration 7.53
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 15.11% 10.21%
------------------------------------
Since
Inception 4.40% 6.30%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 27.7%
------------------------------------
Healthcare 14.7%
------------------------------------
Tax Obligation/General 13.0%
------------------------------------
Education and Civic
Organizations 9.0%
------------------------------------
Transportation 9.0%
------------------------------------
Water and Sewer 8.0%
------------------------------------
Utilities 6.7%
------------------------------------
U.S. Guaranteed 4.6%
------------------------------------
Other 7.3%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
When comparing this Fund to investments that generate qualified dividend
income, the taxable-equivalent yield is lower.
18
Nuveen Texas Quality Income Municipal Fund
NTX
Performance
OVERVIEW As of July 31, 2005
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 64%
AA 13%
A 9%
BBB 12%
BB or Lower 2%
Bar Chart:
2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Aug 0.08
Sep 0.08
Oct 0.08
Nov 0.08
Dec 0.08
Jan 0.08
Feb 0.08
Mar 0.077
Apr 0.077
May 0.077
Jun 0.073
Jul 0.073
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/04 14.4
14.5
14.56
14.51
14.76
14.85
14.85
14.5
14.48
14.61
14.58
14.65
14.6
14.65
14.65
14.75
14.77
14.97
14.96
15
15
15.05
15.07
15.1
15.12
15.11
15.17
15.3
15.13
15.1
15.12
15.13
15.2
15.1
15.07
14.97
15.12
15.05
15.15
15.26
15.38
15.14
14.99
14.99
14.98
15
15.01
15.09
15.24
15.25
15.31
15.47
15.7
15.49
15.5
15.55
15.47
15.46
15.46
15.31
15.52
15.52
15.52
15.56
15.6
15.67
15.7
15.71
15.4
15.2
15.3
15.36
15.25
15.44
15.62
15.75
15.78
15.81
15.52
15.56
15.52
15.53
15.63
15.63
15.54
15.6
15.5
15.59
15.58
15.43
15.45
15.4
15.39
15.31
15.2
15.15
15.13
15.05
14.99
14.98
14.86
14.91
14.8
14.87
14.93
14.92
15.01
15.06
15.08
15.15
15.19
15.11
15.15
15.19
15.02
15.08
15.02
15.09
15.14
15.14
15.25
15.27
15.22
15.19
15.26
15.21
15.27
15.4
15.43
15.36
15.48
15.48
15.52
15.57
15.9
15.84
15.96
15.99
15.71
15.77
15.71
15.44
15.45
15.62
15.77
15.94
16.15
16.11
15.92
15.87
16.06
15.94
15.96
15.96
16.08
15.85
15.76
15.76
15.52
15.43
15.25
14.82
14.75
14.58
14.62
14.71
14.8
15
15.2
15.3
15.5
15.8
15.55
15.46
15.26
15.16
15.14
15.13
15.1
15.11
15.11
15.16
15.2
15.15
15.2
15.26
15.44
15.44
15.47
15.47
15.8
15.88
15.89
15.71
15.45
15.58
15.78
15.85
15.81
15.71
15.78
15.75
15.94
15.92
15.83
15.87
15.9
15.9
15.85
15.87
15.87
15.94
15.98
15.95
15.9
15.88
15.86
15.85
15.74
15.65
15.69
15.6
15.51
15.52
15.52
15.64
15.79
15.87
15.96
16.09
16.3
16.2
16.12
16.2
16.09
16.01
16.03
16.02
16.13
16.44
16.31
16.28
16.4
16.29
16.26
16.2
16.15
16.15
16.08
16.06
16.07
16.14
16.19
7/31/05 16.19
FUND SNAPSHOT
------------------------------------
Common Share Price $16.19
------------------------------------
Common Share
Net Asset Value $15.46
------------------------------------
Premium/(Discount) to NAV 4.72%
------------------------------------
Market Yield 5.41%
------------------------------------
Taxable-Equivalent Yield1 7.51%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $146,718
------------------------------------
Average Effective
Maturity on Securities (Years) 17.85
------------------------------------
Leverage-Adjusted Duration 7.75
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 10/17/91)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 17.83% 8.61%
------------------------------------
5-Year 11.46% 8.14%
------------------------------------
10-Year 8.31% 6.85%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/General 28.1%
------------------------------------
Healthcare 16.7%
------------------------------------
Education and Civic
Organizations 8.7%
------------------------------------
U.S. Guaranteed 7.7%
------------------------------------
Water and Sewer 7.5%
------------------------------------
Long-Term Care 5.1%
------------------------------------
Tax Obligation/Limited 4.7%
------------------------------------
Utilities 4.1%
------------------------------------
Transportation 4.1%
------------------------------------
Other 13.3%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a federal income tax rate of 28%. When comparing this
Fund to investments that generate qualified dividend income, the
taxable-equivalent yield is lower.
19
Special Shareholder
MEETING REPORT
The Special Shareholder Meeting was held at The Northern Trust Bank, 50 S.
LaSalle St., Chicago, IL on July 26, 2005.
NAZ NFZ NKR NXE NTX
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE NEW INVESTMENT MANAGEMENT AGREEMENT
WAS REACHED AS FOLLOWS:
Common and Common and Common and Common and Common and
MuniPreferred MuniPreferred MuniPreferred MuniPreferred MuniPreferred
shares shares shares shares shares
voting together voting together voting together voting together voting together
as a class as a class as a class as a class as a class
------------------------------------------------------------------------------------------------------------------------------------
For 4,201,909 1,515,623 2,371,411 3,010,060 8,564,290
Against 23,572 8,105 17,432 25,937 59,068
Abstain 35,502 15,483 19,036 22,478 87,104
------------------------------------------------------------------------------------------------------------------------------------
Total 4,260,983 1,539,211 2,407,879 3,058,475 8,710,462
====================================================================================================================================
20
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARDS OF DIRECTORS, TRUSTEES AND SHAREHOLDERS
NUVEEN ARIZONA PREMIUM INCOME MUNICIPAL FUND, INC.
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 2
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3
NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Arizona Premium Income Municipal Fund,
Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend
Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3
and Nuveen Texas Quality Income Municipal Fund as of July 31, 2005, and the
related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. We were
not engaged to perform an audit of the Funds' internal control over financial
reporting. Our audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of July 31, 2005, by correspondence with the custodian and
brokers. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend
Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2,
Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality
Income Municipal Fund at July 31, 2005, and the results of their operations for
the year then ended, changes in their net assets for each of the two years in
the period then ended, and their financial highlights for the periods indicated
therein, in conformity with U.S. generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
September 14, 2005
21
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ)
Portfolio of
INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.5% (1.0% OF TOTAL INVESTMENTS)
$ 915 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 945,927
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 15.9% (10.9% OF TOTAL INVESTMENTS)
1,000 Arizona State University, Certificates of Participation, 7/12 at 100.00 AAA 1,098,550
Series 2002, 5.375%, 7/01/19 - MBIA Insured
Arizona State University, System Revenue Bonds, Series 2005:
2,455 5.000%, 7/01/20 - AMBAC Insured 7/15 at 100.00 AAA 2,644,968
1,395 5.000%, 7/01/26 - AMBAC Insured 7/15 at 100.00 AAA 1,486,498
1,000 Arizona State University, System Revenue Bonds, 7/12 at 100.00 AAA 1,054,350
Series 2002, 5.000%, 7/01/25 - FGIC Insured
1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- 1,344,725
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
1,050 Northern Arizona University, System Revenue Bonds, 6/12 at 100.00 AAA 1,093,407
Series 2002, 5.000%, 6/01/34 - FGIC Insured
1,500 Tempe Industrial Development Authority, Arizona, Lease 7/13 at 100.00 AAA 1,573,410
Revenue Bonds, Arizona State University Foundation Project,
Series 2003, 5.000%, 7/01/34 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 14.7% (10.1% OF TOTAL INVESTMENTS)
2,000 Arizona Health Facilities Authority, Hospital System Revenue 11/09 at 100.00 Baa3 2,037,860
Bonds, Phoenix Children's Hospital, Series 1999A,
6.125%, 11/15/22
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,127,870
Bonds, John C. Lincoln Health Network, Series 2000,
7.000%, 12/01/25
800 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A- 901,448
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
2,150 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A- 2,269,927
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
515 Puerto Rico Industrial, Tourist, Educational, Medical and 11/10 at 101.00 AA 583,407
Environmental Control Facilities Financing Authority, Hospital
Revenue Bonds, Hospital de la Concepcion, Series 2000A,
6.375%, 11/15/15
1,500 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,611,615
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31
1,055 Winslow Industrial Development Authority, Arizona, 6/08 at 101.00 N/R 1,005,921
Hospital Revenue Bonds, Winslow Memorial Hospital,
Series 1998, 5.500%, 6/01/22
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 6.8% (4.7% OF TOTAL INVESTMENTS)
400 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 423,640
Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001, 5.700%, 6/20/31
(Alternative Minimum Tax)
530 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 537,362
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
3,215 Tucson Industrial Development Authority, Arizona, Senior 7/10 at 101.00 AA 3,474,933
Living Facilities Revenue Bonds, Christian Care Project,
Series 2000A, 5.625%, 7/01/20 - RAAI Insured
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.1% (1.4% OF TOTAL INVESTMENTS)
1,345 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 1,356,338
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 0.6% (0.5% OF TOTAL INVESTMENTS)
345 Mohave County Industrial Development Authority, Arizona, 5/06 at 103.00 AAA 360,404
GNMA Collateralized Healthcare Revenue Refunding Bonds,
Chris Ridge and Silver Village Projects, Series 1996,
6.375%, 11/01/31
22
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 7.0% (4.8% OF TOTAL INVESTMENTS)
$ 1,525 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA $ 1,633,123
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/21 - FSA Insured
465 Maricopa County Union High School District 210, Phoenix, 7/15 at 100.00 AAA 498,624
Arizona, General Obligation Bonds, Series 2005B,
5.000%, 7/01/23 - MBIA Insured
500 Puerto Rico, General Obligation and Public Improvement Bonds, No Opt. Call AAA 582,660
Series 2002A, 5.500%, 7/01/19 - FGIC Insured
330 Puerto Rico, General Obligation and Public Improvement 7/11 at 100.00 BBB 355,509
Bonds, Series 2001A, 5.375%, 7/01/28
1,340 Tucson, Arizona, General Obligation Bonds, Series 2005, No Opt. Call AAA 1,448,245
5.000%, 7/01/20 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 45.5% (31.3% OF TOTAL INVESTMENTS)
1,985 Arizona School Facilities Board, School Improvement Revenue 7/13 at 100.00 AAA 2,127,761
Bonds, Series 2003, 5.000%, 7/01/21
2,000 Arizona School Facilities Board, School Improvement Revenue 7/14 at 100.00 AAA 2,285,400
Bonds, Series 2004A, 5.750%, 7/01/18 - AMBAC Insured
2,000 Arizona State Transportation Board, Subordinate Highway 7/14 at 100.00 AA 2,137,160
Revenue Bonds, Series 2004B, 5.000%, 7/01/22
Arizona Tourism and Sports Authority, Tax Revenue Bonds,
Multipurpose Stadium Facility Project, Series 2003A:
3,000 5.375%, 7/01/20 - MBIA Insured 7/13 at 100.00 Aaa 3,316,200
1,000 5.375%, 7/01/21 - MBIA Insured 7/13 at 100.00 Aaa 1,103,970
Bullhead City, Arizona, Special Assessment Bonds, Parkway
District Improvements, Series 1993:
815 6.100%, 1/01/08 1/06 at 100.00 Baa2 824,544
875 6.100%, 1/01/09 1/06 at 100.00 Baa2 884,730
508 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 560,212
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
575 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 603,141
Bonds, Series 2003, 5.000%, 7/01/28 - AMBAC Insured
3,400 Maricopa County Stadium District, Arizona, Revenue 6/12 at 100.00 Aaa 3,740,068
Refunding Bonds, Series 2002, 5.375%, 6/01/18 -
AMBAC Insured
Phoenix Industrial Development Authority, Arizona,
Government Office Lease Revenue Bonds, Capitol
Mall LLC, Series 2000:
1,000 5.375%, 9/15/22 - AMBAC Insured 9/10 at 100.00 AAA 1,079,480
2,000 5.500%, 9/15/27 - AMBAC Insured 9/10 at 100.00 AAA 2,173,460
2,000 Phoenix Civic Improvement Corporation, Arizona, Subordinate 7/13 at 100.00 AAA 2,134,300
Lien Excise Tax Revenue Bonds, Series 2003A,
5.000%, 7/01/21 - MBIA Insured
1,200 Prescott Valley Municipal Property Corporation, Arizona, 1/13 at 100.00 AAA 1,257,900
Municipal Facilities Revenue Bonds, Series 2003,
5.000%, 1/01/27 - FGIC Insured
1,000 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 BBB 1,050,130
Government Facilities Revenue Refunding Bonds,
Series 2002D, 5.125%, 7/01/24
805 Scottsdale Preserve Authority, Arizona, Excise Tax Revenue No Opt. Call AAA 885,758
Bonds, Series 2004, 5.000%, 7/01/16 - FGIC Insured
1,350 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,480,316
5.250%, 7/01/20 - AMBAC Insured
500 Tucson, Arizona, Certificates of Participation, Series 2000, 7/08 at 100.00 AAA 531,860
5.700%, 7/01/20 - MBIA Insured
1,300 Virgin Islands Public Finance Authority, Gross Receipts Taxes 10/14 at 100.00 AA 1,363,271
Loan Note, Series 2003, 5.000%, 10/01/33 - RAAI Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** - 18.2% (12.5% OF TOTAL INVESTMENTS)
425 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA 452,489
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20
(Pre-refunded to 7/01/10)
2,250 Maricopa County Industrial Development Authority, Arizona, No Opt. Call AAA 2,821,883
Hospital Revenue Refunding Bonds, Samaritan Health
Services, Series 1990A, 7.000%, 12/01/16 - MBIA Insured
3,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 3,333,210
Bonds, Discovery Health System, Series 1999A,
5.750%, 1/01/25 (Pre-refunded to 1/01/10) - MBIA Insured
23
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** (continued)
$ 2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/10 at 101.00 AAA $ 2,266,780
Wastewater System Revenue Bonds, Series 2000,
6.000%, 7/01/24 (Pre-refunded to 7/01/10) - FGIC Insured
1,000 Puerto Rico Highway and Transportation Authority, Highway 7/10 at 101.00 A*** 1,154,990
Revenue Bonds, Series 2000B, 6.500%, 7/01/27
(Pre-refunded to 7/01/10)
500 Surprise Municipal Property Corporation, Arizona, Excise 7/09 at 101.00 AAA 551,790
Tax Revenue Bonds, Series 2000, 5.700%, 7/01/20
(Pre-refunded to 7/01/09) - FGIC Insured
1,100 Tucson, Arizona, Junior Lien Street and Highway User 7/10 at 100.00 AAA 1,187,659
Revenue Bonds, Series 2000E, 5.000%, 7/01/18 (Pre-refunded
to 7/01/10) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 10.5% (7.2% OF TOTAL INVESTMENTS)
1,000 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,116,420
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
1,000 Coconino County, Arizona, Pollution Control Revenue Bonds, 10/06 at 102.00 B- 1,027,460
Nevada Power Company Project, Series 1996,
6.375%, 10/01/36 (Alternative Minimum Tax)
905 Pima County Industrial Development Authority, Arizona, 1/06 at 101.00 AAA 935,317
Lease Obligation Revenue Refunding Bonds, Tucson Electric
Power Company, Series 1988A, 7.250%, 7/15/10 -
FSA Insured
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Refunding Bonds, Series 2002A:
2,000 5.125%, 1/01/27 1/12 at 101.00 AA 2,120,520
1,000 5.000%, 1/01/31 1/12 at 101.00 AA 1,047,610
530 Salt River Project Agricultural Improvement and Power District, 1/13 at 100.00 AA 563,099
Arizona, Electric System Revenue Bonds, Series 2002B,
5.000%, 1/01/22
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 22.6% (15.6% OF TOTAL INVESTMENTS)
Arizona Water Infrastructure Finance Authority, Water
Quality Revenue Bonds, Series 2004A:
1,825 5.000%, 10/01/19 10/14 at 100.00 AAA 1,971,876
1,815 5.000%, 10/01/22 10/14 at 100.00 AAA 1,945,190
1,005 Cottonwood, Arizona, Senior Lien Water System Revenue 7/14 at 100.00 AAA 1,060,838
Bonds, Municipal Property Corporation, Series 2004,
5.000%, 7/01/24 - XLCA Insured
3,500 Glendale, Arizona, Water and Sewer Revenue Bonds, 7/13 at 100.00 AAA 3,688,125
Subordinate Lien, Series 2003, 5.000%, 7/01/28 -
AMBAC Insured
600 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 636,696
Lien Water Revenue Bonds, Series 2003,
5.000%, 7/01/23 - MBIA Insured
875 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AAA 930,291
Wastewater System Revenue Bonds, Series 2004,
5.000%, 7/01/24 - MBIA Insured
1,250 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,455,513
Water System Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/21 - FGIC Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,576,440
Water System Revenue Bonds, Series 2002,
5.000%, 7/01/26 - FGIC Insured
1,325 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 1,408,593
Water System Revenue Bonds, Series 2005,
5.000%, 7/01/29 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 87,298 Total Long-Term Investments (cost $89,316,967) - 145.4% 94,243,171
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.9% 579,295
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (46.3)% (30,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 64,822,466
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): 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.
24
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ)
Portfolio of
INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 5.6% (3.8% OF TOTAL INVESTMENTS)
$ 1,000 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB $ 1,029,420
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Ana G. Mendez University System,
Series 1999, 5.375%, 2/01/29
300 Puerto Rico Industrial, Tourist, Educational, Medical 9/11 at 100.00 BBB 308,715
and Environmental Control Facilities Financing Authority,
Higher Education Revenue Bonds, University of the
Sacred Heart, Series 2001, 5.250%, 9/01/21
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 12.2% (8.3% OF TOTAL INVESTMENTS)
550 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 620,015
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
365 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A- 411,286
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
750 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A- 791,835
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,074,410
Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 11.4% (7.8% OF TOTAL INVESTMENTS)
1,000 Maricopa County Industrial Development Authority, Arizona, 7/09 at 102.00 Aaa 1,020,790
Multifamily Housing Revenue Bonds, Whispering Palms
Apartments, Series 1999A, 5.900%, 7/01/29 - MBIA Insured
1,125 Maricopa County Industrial Development Authority, Arizona, 10/11 at 103.00 Aaa 1,196,111
Multifamily Housing Revenue Bonds, Syl-Mar Apartments,
Series 2001, 5.650%, 4/20/21 (Alternative Minimum Tax)
275 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 291,253
Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001, 5.700%, 6/20/31
(Alternative Minimum Tax)
205 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 207,847
Collateralized Multifamily Housing Revenue Bonds, Park
Lee Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 0.7% (0.5% OF TOTAL INVESTMENTS)
170 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 176,428
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-4, 5.050%, 5/01/17
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2% (1.5% OF TOTAL INVESTMENTS)
510 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 514,299
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 7.5% (5.1% OF TOTAL INVESTMENTS)
180 Maricopa County Union High School District 210, Phoenix, 7/15 at 100.00 AAA 193,016
Arizona, General Obligation Bonds, Series 2005B,
5.000%, 7/01/23 - MBIA Insured
500 Tucson, Arizona, General Obligation Bonds, Series 2005, No Opt. Call AAA 540,390
5.000%, 7/01/20 - FGIC Insured
1,020 Tucson, Arizona, General Obligation Refunding Bonds, 7/07 at 100.00 AA 1,053,558
Series 1997, 5.000%, 7/01/19
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 55.0% (37.3% OF TOTAL INVESTMENTS)
700 Arizona School Facilities Board, School Improvement Revenue 7/11 at 100.00 AAA 774,081
Bonds, Series 2001, 5.500%, 7/01/18
2,750 Arizona School Facilities Board, School Improvement Revenue 7/14 at 100.00 AAA 3,142,425
Bonds, Series 2004A, 5.750%, 7/01/18 - AMBAC Insured
1,000 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 1,103,970
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/21 - MBIA Insured
25
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED (continued)
$ 100 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R $ 100,416
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
197 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 217,248
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
1,180 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 1,252,169
Bonds, Series 2003, 5.000%, 7/01/23 - AMBAC Insured
900 Phoenix Industrial Development Authority, Arizona, Government 3/12 at 100.00 AAA 982,116
Bonds, Capitol Mall LLC II, Series 2001, 5.250%, 9/15/16 -
AMBAC Insured
680 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 698,503
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
2,675 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,854,626
Series 2003, 5.000%, 7/01/21
1,000 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,096,530
5.250%, 7/01/20 - AMBAC Insured
305 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 311,152
School Revenue Bonds, Arizona Agribusiness and Equine
Center Charter School, Series 2004A, 6.125%, 9/01/34
500 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 N/R 507,750
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** - 11.7% (7.9% OF TOTAL INVESTMENTS)
2,000 Maricopa County Industrial Development Authority, Arizona, 6/07 at 102.00 A*** 2,161,360
Education Revenue Bonds, Horizon Community Learning
Center Project, Series 2000, 6.350%, 6/01/26 (Pre-refunded
to 6/01/07) - ACA Insured
Salt River Project Agricultural Improvement and Power
District, Arizona, Electric System Revenue Refunding Bonds,
Series 1997A:
140 5.000%, 1/01/20 (Pre-refunded to 1/01/08) 1/08 at 101.00 AA*** 148,047
430 5.000%, 1/01/20 (Pre-refunded to 1/01/11) 1/11 at 100.00 AA*** 465,011
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 31.0% (21.1% OF TOTAL INVESTMENTS)
1,500 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,686,150
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/17
500 Coconino County, Arizona, Pollution Control Revenue Bonds, 11/05 at 100.00 B- 500,015
Nevada Power Company Project, Series 1997B,
5.800%, 11/01/32 (Alternative Minimum Tax)
1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,128,220
Series 2002, 5.250%, 7/01/17 - FGIC Insured
350 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 375,092
Series 2002II, 5.125%, 7/01/26 - FSA Insured
Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series 2005RR:
1,000 5.000%, 7/01/26 - XLCA Insured 7/15 at 100.00 AAA 1,068,940
1,000 5.000%, 7/01/30 - XLCA Insured 7/15 at 100.00 AAA 1,061,420
1,000 Salt River Project Agricultural Improvement and Power 1/12 at 101.00 AA 1,095,450
District, Arizona, Electric System Revenue Refunding Bonds,
Series 2002A, 5.250%, 1/01/18
200 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 AA 212,490
District, Arizona, Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/22
235 Salt River Project Agricultural Improvement and Power 1/08 at 101.00 AA 244,659
District, Arizona, Electric System Revenue Refunding Bonds,
Series 1997A, 5.000%, 1/01/20
26
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 9.9% (6.7% OF TOTAL INVESTMENTS)
$ 225 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA $ 238,761
Lien Water Revenue Bonds, Series 2003,
5.000%, 7/01/23 - MBIA Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,576,440
Water System Revenue Bonds, Series 2002,
5.000%, 7/01/26 - FGIC Insured
510 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 542,174
Water System Revenue Bonds, Series 2005,
5.000%, 7/01/29 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 32,527 Total Long-Term Investments (cost $33,361,906) - 147.2% 34,974,588
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 3.3% 778,090
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (50.5)% (12,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 23,752,678
====================================================================================================================
FORWARD SWAPS OUTSTANDING AT JULY 31, 2005:
NOTIONAL EFFECTIVE TERMINATION UNREALIZED
AMOUNT DATE(2) DATE APPRECIATION
--------------------------------------------------------------------------------------------------------------------
Agreement with Morgan Stanley dated June 21, 2005, to pay
semi-annually the notional amount multiplied by 4.816%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). $700,000 2/15/06 2/15/36 $18,780
Agreement with Citigroup dated June 30, 2005, to pay
semi-annually the notional amount multiplied by 4.699%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). 200,000 2/27/06 2/27/26 6,565
--------------------------------------------------------------------------------------------------------------------
$25,345
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Effective date represents the date on which both the
Fund and counterparty commence interest payment
accruals on each forward swap contract.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): 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.
27
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)
Portfolio of
INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 8.1% (5.5% OF TOTAL INVESTMENTS)
$ 1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- $ 1,344,725
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
320 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB 330,778
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Ana G. Mendez University System,
Series 1999, 5.375%, 2/01/19
University of Arizona, Certificates of Participation, Series 2002A:
750 5.500%, 6/01/18 - AMBAC Insured 6/12 at 100.00 AAA 830,160
500 5.125%, 6/01/22 - AMBAC Insured 6/12 at 100.00 AAA 533,555
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 15.8% (10.8% OF TOTAL INVESTMENTS)
735 Arizona Health Facilities Authority, Hospital System Revenue 2/12 at 101.00 Baa3 763,128
Bonds, Phoenix Children's Hospital, Series 2002A,
6.250%, 2/15/21
400 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A- 450,724
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
600 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A- 621,528
Systems Inc., Series 2004, 5.000%, 4/01/20
1,375 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A- 1,451,698
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
500 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 527,750
Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998,
5.250%, 11/15/37
1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,074,410
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,077,950
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 7.8% (5.3% OF TOTAL INVESTMENTS)
1,000 Maricopa County Industrial Development Authority, Arizona, 10/11 at 105.00 AAA 1,069,040
GNMA Collateralized Multifamily Housing Revenue
Refunding Bonds, Pine Ridge, Cambridge Court, Cove
on 44th and Fountain Place Apartments, Series 2001A-1,
6.000%, 10/20/31
1,425 Phoenix Industrial Development Authority, Arizona, 7/12 at 105.00 AAA 1,551,996
GNMA Collateralized Multifamily Housing Revenue Bonds,
Summit Apartments, Series 2002, 6.450%, 7/20/32
325 Phoenix Industrial Development Authority, Arizona, 4/15 at 100.00 Aaa 329,514
GNMA Collateralized Multifamily Housing Revenue Bonds,
Park Lee Apartments, Series 2004A, 5.050%, 10/20/44
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 0.2% (0.1% OF TOTAL INVESTMENTS)
80 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 82,879
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-1, 5.350%, 11/01/24 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2% (1.4% OF TOTAL INVESTMENTS)
810 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 816,828
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 36.1% (24.5% OF TOTAL INVESTMENTS)
1,725 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA+ 1,852,736
5.000%, 7/01/17
1,000 Gilbert, Arizona, General Obligation Bonds, Series 2002A, 7/11 at 100.00 AAA 1,071,230
5.000%, 7/01/18 - AMBAC Insured
Maricopa County School District 6, Arizona, General
Obligation Refunding Bonds, Washington Elementary School,
Series 2002A:
1,000 5.375%, 7/01/15 - FSA Insured No Opt. Call AAA 1,135,790
1,000 5.375%, 7/01/16 - FSA Insured No Opt. Call AAA 1,141,130
28
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,165 Maricopa County Unified School District 69, Paradise Valley, No Opt. Call AAA $ 1,302,528
Arizona, General Obligation Refunding Bonds, Series 2002A,
5.250%, 7/01/14 - FGIC Insured
285 Maricopa County Union High School District 210, Phoenix, 7/15 at 100.00 AAA 305,608
Arizona, General Obligation Bonds, Series 2005B,
5.000%, 7/01/23 - MBIA Insured
1,000 Mesa, Arizona, General Obligation Bonds, Series 2000, No Opt. Call AAA 1,161,790
6.500%, 7/01/11 - FGIC Insured
1,405 Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AAA 1,595,785
5.375%, 7/01/15 - FGIC Insured
Phoenix, Arizona, Various Purpose General Obligation Bonds,
Series 2002B:
1,700 5.000%, 7/01/22 7/12 at 100.00 AA+ 1,810,313
500 5.000%, 7/01/27 7/12 at 100.00 AA+ 524,560
1,000 Pinal County Unified School District 43, Apache Junction, No Opt. Call AAA 1,162,150
Arizona, General Obligation Refunding Bonds, Series 2001,
5.750%, 7/01/15 - FGIC Insured
510 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 N/R 540,779
5.000%, 7/01/24
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 39.0% (26.5% OF TOTAL INVESTMENTS)
Arizona State, Certificates of Participation, Series 2002A:
750 5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00 AAA 803,693
1,000 5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00 AAA 1,068,510
500 5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00 AAA 530,805
140 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 140,582
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
312 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 344,067
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
670 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 693,685
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
1,000 Maricopa County Public Finance Authority, Arizona, Lease 7/11 at 100.00 Aaa 1,101,900
Revenue Bonds, Series 2001, 5.500%, 7/01/15 -
AMBAC Insured
Maricopa County Stadium District, Arizona, Revenue Refunding
Bonds, Series 2002:
840 5.375%, 6/01/18 - AMBAC Insured 6/12 at 100.00 Aaa 924,017
2,645 5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00 Aaa 2,909,553
1,500 Phoenix Industrial Development Authority, Arizona, Government 3/12 at 100.00 AAA 1,636,860
Bonds, Capitol Mall LLC II, Series 2001, 5.250%, 9/15/16 -
AMBAC Insured
460 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 472,066
Charter School Revenue Bonds, Noah Webster Basic Schools
Inc., Series 2004, 6.000%, 12/15/24
1,070 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,099,115
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
1,000 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 BBB 1,050,130
Facilities Revenue Refunding Bonds, Series 2002D,
5.125%, 7/01/24
480 Tucson Industrial Development Authority, Arizona, 9/14 at 100.00 BBB- 489,682
Charter School Revenue Bonds, Arizona Agribusiness and
Equine Center Charter School, Series 2004A,
6.125%, 9/01/34
750 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 N/R 761,625
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
640 Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AAA 676,224
Facilities Tax Revenue Bonds, Series 2001, 5.000%, 7/01/21 -
AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.5% (3.8% OF TOTAL INVESTMENTS)
1,000 Phoenix Civic Improvement Corporation, Arizona, Senior 7/08 at 101.00 AAA 1,031,580
Lien Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25 -
FSA Insured
1,000 Phoenix, Arizona, Civic Improvement Corporation, Senior 7/12 at 100.00 AAA 1,050,820
Lien Airport Revenue Bonds, Series 2002B, 5.250%, 7/01/27
(Alternative Minimum Tax) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** - 14.7% (10.0% OF TOTAL INVESTMENTS)
1,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,106,400
Series 2002B, 5.250%, 7/01/21 (Pre-refunded to 7/01/12)
715 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 812,884
5.750%, 7/01/27 (Pre-refunded to 7/01/12) - FGIC Insured
29
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** (continued)
$ 300 Maricopa County Unified School District 89, Dysart, Arizona, 7/14 at 100.00 AAA $ 335,901
General Obligation Bonds, Series 2004B, 5.250%, 7/01/20
(Pre-refunded to 7/01/14) - FSA Insured
1,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 1,105,960
Bonds, Discovery Health System, Series 1999A,
5.625%, 1/01/29 (Pre-refunded to 1/01/10) - MBIA Insured
1,000 Mesa, Arizona, Street and Highway User Tax Revenue Bonds, 7/14 at 100.00 AAA 1,110,230
Series 2004, 5.125%, 7/01/23 (Pre-refunded to 7/01/14) -
FSA Insured
990 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 AAA 1,076,229
5.000%, 7/01/24 (Pre-refunded to 7/01/11)
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 7.0% (4.8% OF TOTAL INVESTMENTS)
1,115 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,244,808
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2002, 7/11 at 100.00 AAA 1,062,530
5.000%, 7/01/20 - FGIC Insured
320 Salt River Project Agricultural Improvement and Power District, 1/13 at 100.00 AA 339,984
Arizona, Electric System Revenue Bonds, Series 2002B,
5.000%, 1/01/22
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.8% (7.3% OF TOTAL INVESTMENTS)
500 Maricopa County Industrial Development Authority, Arizona, 12/07 at 102.00 AAA 528,900
Water System Improvement Revenue Bonds, Chaparral City
Water Company, Series 1997A, 5.400%, 12/01/22 (Alternative
Minimum Tax) - AMBAC Insured
360 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 382,018
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,167,600
Water System Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/22 - FGIC Insured
805 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 855,786
Water System Revenue Bonds, Series 2005,
5.000%, 7/01/29 - MBIA Insured
1,000 Tucson, Arizona, Water System Revenue Refunding Bonds, 7/12 at 102.00 AAA 1,124,920
Series 2002, 5.500%, 7/01/18 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 51,222 Total Long-Term Investments (cost $52,346,791) - 147.2% 55,500,126
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.9% 704,218
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (49.1)% (18,500,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 37,704,344
====================================================================================================================
FORWARD SWAPS OUTSTANDING AT JULY 31, 2005:
NOTIONAL EFFECTIVE TERMINATION UNREALIZED
AMOUNT DATE(2) DATE APPRECIATION
--------------------------------------------------------------------------------------------------------------------
Agreement with JPMorgan dated June 21, 2005, to pay
semi-annually the notional amount multiplied by 4.833%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). $500,000 2/09/06 2/09/36 $12,078
Agreement with Morgan Stanley dated June 21, 2005, to pay
semi-annually the notional amount multiplied by 4.816%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). 700,000 2/15/06 2/15/36 18,780
Agreement with Citigroup dated June 30, 2005, to pay
semi-annually the notional amount multiplied by 4.699%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). 600,000 2/27/06 2/27/26 19,698
--------------------------------------------------------------------------------------------------------------------
$50,556
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Effective date represents the date on which both the
Fund and counterparty commence interest payment
accruals on each forward swap contract.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): 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.
N/R Investment is not rated.
See accompanying notes to financial statements.
30
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)
Portfolio of
INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 4.2% (2.8% OF TOTAL INVESTMENTS)
$ 1,835 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 1,897,023
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 13.6% (9.0% OF TOTAL INVESTMENTS)
1,250 Arizona State University, System Revenue Bonds, Series 2005, 7/15 at 100.00 AAA 1,346,725
5.000%, 7/01/20 - AMBAC Insured
1,000 Arizona Student Loan Acquisition Authority, Student Loan 11/09 at 102.00 Aaa 1,078,140
Revenue Refunding Bonds, Senior Series 1999A-1,
5.750%, 5/01/15 (Alternative Minimum Tax)
1,130 Energy Management Services LLC, Arizona State University, 7/12 at 100.00 AAA 1,235,712
Energy Conservation Revenue Bonds, Main Campus Project,
Series 2002, 5.250%, 7/01/18 - MBIA Insured
270 Glendale Industrial Development Authority, Arizona, Revenue 5/08 at 101.00 A- 279,115
Bonds, Midwestern University, Series 1998A, 5.375%, 5/15/28
2,000 University of Arizona, Certificates of Participation, Series 2002B, 6/12 at 100.00 AAA 2,144,480
5.125%, 6/01/20 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 22.1% (14.7% OF TOTAL INVESTMENTS)
Arizona Health Facilities Authority, Hospital System Revenue
Bonds, Phoenix Children's Hospital, Series 1999A:
750 6.125%, 11/15/22 11/09 at 100.00 Baa3 764,198
520 6.250%, 11/15/29 11/09 at 100.00 Baa3 531,794
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,127,300
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
300 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A- 338,043
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
625 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A- 647,425
Systems Inc., Series 2004, 5.000%, 4/01/20
1,825 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A- 1,926,799
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
2,000 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 2,111,000
Hospital Revenue Bonds, Mayo Clinic Hospital,
Series 1998, 5.250%, 11/15/37
1,250 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,343,013
Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,077,950
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 4.5% (3.0% OF TOTAL INVESTMENTS)
1,545 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 1,638,117
Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001, 5.600%, 6/20/21
(Alternative Minimum Tax)
380 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 385,278
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.1% (1.5% OF TOTAL INVESTMENTS)
945 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 952,966
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 19.5% (13.0% OF TOTAL INVESTMENTS)
660 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA+ 707,124
5.000%, 7/01/18
2,250 DC Ranch Community Facilities District, Scottsdale, Arizona, 7/13 at 100.00 Aaa 2,373,030
General Obligation Bonds, Series 2002, 5.000%, 7/15/27 -
AMBAC Insured
31
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,930 Glendale, Arizona, General Obligation Refunding Bonds, 7/11 at 100.00 AA $ 2,062,610
Series 2002, 5.000%, 7/01/19
1,000 Maricopa County Unified School District 11, Peoria, Arizona, No Opt. Call AAA 1,100,570
General Obligation Refunding Bonds, Series 2002,
5.000%, 7/01/15 - FSA Insured
1,575 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,691,550
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/20 - FSA Insured
330 Maricopa County Union High School District 210, Phoenix, 7/15 at 100.00 AAA 353,862
Arizona, General Obligation Bonds, Series 2005B,
5.000%, 7/01/23 - MBIA Insured
440 Tucson, Arizona, General Obligation Bonds, Series 2001B, 7/11 at 100.00 AA 467,513
5.000%, 7/01/20
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 41.7% (27.7% OF TOTAL INVESTMENTS)
2,000 Arizona School Facilities Board, School Improvement Revenue 7/12 at 100.00 AAA 2,185,180
Bonds, Series 2002, 5.250%, 7/01/20
3,000 Arizona State Transportation Board, Highway Revenue 7/12 at 102.00 AAA 3,332,250
Refunding Bonds, Series 2002A, 5.250%, 7/01/18
2,660 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 2,940,364
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/20 - MBIA Insured
160 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 160,666
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
364 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 401,412
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
800 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 828,280
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
2,000 Mohave County, Arizona, Certificates of Participation, 7/14 at 100.00 AAA 2,186,760
Series 2004, 5.250%, 7/01/19 - AMBAC Insured
540 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 554,164
Charter School Revenue Bonds, Noah Webster Basic Schools
Inc., Series 2004, 6.000%, 12/15/24
1,250 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,284,013
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
2,770 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,946,726
Series 2003, 5.000%, 7/01/22
565 Tucson Industrial Development Authority, Arizona, 9/14 at 100.00 BBB- 576,396
Charter School Revenue Bonds, Arizona Agribusiness and
Equine Center Charter School, Series 2004A, 6.125%, 9/01/34
1,250 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 N/R 1,269,375
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 13.5% (9.0% OF TOTAL INVESTMENTS)
Phoenix, Arizona, Civic Improvement Corporation, Senior
Lien Airport Revenue Bonds, Series 2002B:
1,000 5.750%, 7/01/16 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 1,106,460
2,300 5.250%, 7/01/21 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 2,427,420
2,450 Tucson Airport Authority Inc., Arizona, Revenue Refunding 6/11 at 100.00 AAA 2,530,556
Bonds, Series 2001B, 5.000%, 6/01/20 (Alternative
Minimum Tax) - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** - 6.9% (4.6% OF TOTAL INVESTMENTS)
1,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,106,400
Series 2002B, 5.250%, 7/01/22 (Pre-refunded to 7/01/12)
1,760 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 2,000,944
5.750%, 7/01/27 (Pre-refunded to 7/01/12) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 10.1% (6.7% OF TOTAL INVESTMENTS)
1,250 Maricopa County Pollution Control Corporation, Arizona, 11/12 at 100.00 AAA 1,306,150
Revenue Bonds, Arizona Public Service Company -
Palo Verde Project, Series 2002A, 5.050%, 5/01/29 -
AMBAC Insured
1,660 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 AAA 1,774,440
Series 2005RR, 5.000%, 7/01/26 - XLCA Insured
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Bonds, Series 2002B:
360 5.000%, 1/01/22 1/13 at 100.00 AA 382,482
1,000 5.000%, 1/01/31 1/13 at 100.00 AA 1,047,610
32
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 11.9% (8.0% OF TOTAL INVESTMENTS)
$ 650 Arizona Water Infrastructure Finance Authority, Water Quality 10/14 at 100.00 AAA $ 696,625
Revenue Bonds, Series 2004A, 5.000%, 10/01/22
405 Oro Valley Municipal Property Corporation, Arizona, 7/13 at 100.00 AAA 429,770
Senior Lien Water Revenue Bonds, Series 2003,
5.000%, 7/01/23 - MBIA Insured
1,000 Phoenix Civic Improvement Corporation, Arizona, Junior 7/11 at 100.00 AAA 1,069,650
Lien Wastewater System Revenue Refunding Bonds,
Series 2001, 5.125%, 7/01/21 - FGIC Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 2,142,800
Lien Water System Revenue Bonds, Series 2002,
5.000%, 7/01/18 - FGIC Insured
955 Phoenix Civic Improvement Corporation, Arizona, Junior 7/15 at 100.00 AAA 1,015,249
Lien Water System Revenue Bonds, Series 2005,
5.000%, 7/01/29 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 62,959 Total Long-Term Investments (cost $64,921,181) - 150.1% 67,283,479
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (1.0)% (454,163)
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (49.1)% (22,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 44,829,316
====================================================================================================================
FORWARD SWAPS OUTSTANDING AT JULY 31, 2005:
NOTIONAL EFFECTIVE TERMINATION UNREALIZED
AMOUNT DATE(2) DATE APPRECIATION
--------------------------------------------------------------------------------------------------------------------
Agreement with JPMorgan dated June 21, 2005, to pay
semi-annually the notional amount multiplied by 4.833%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). $ 800,000 2/09/06 2/09/36 $19,325
Agreement with Morgan Stanley dated June 21, 2005, to pay
semi-annually the notional amount multiplied by 4.816%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). 1,600,000 2/15/06 2/15/36 42,925
Agreement with Citigroup dated June 30, 2005, to pay
semi-annually the notional amount multiplied by 4.699%
(annualized) and receive quarterly the notional amount
multiplied by the three-month USD-LIBOR (United States
Dollar-London Inter-Bank Offered Rates). 500,000 2/27/06 2/27/26 16,415
--------------------------------------------------------------------------------------------------------------------
$78,665
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Effective date represents the date on which both the
Fund and counterparty commence interest payment
accruals on each forward swap contract.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): 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.
N/R Investment is not rated.
See accompanying notes to financial statements.
33
Nuveen Texas Quality Income Municipal Fund (NTX)
Portfolio of
INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.9% (1.4% OF TOTAL INVESTMENTS)
$ 2,750 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 2,842,950
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 12.5% (8.7% OF TOTAL INVESTMENTS)
1,000 Raven Hills Higher Education Corporation, Texas, Student 8/11 at 100.00 Aaa 1,074,980
Housing Revenue Bonds, Lamar University - Cardinal Village
LLC, Series 2001A, 5.250%, 8/01/24 - MBIA Insured
Texas Public Finance Authority, Revenue Bonds, Texas Southern
University Financing System, Series 2003:
1,710 5.000%, 5/01/18 - FGIC Insured 5/13 at 100.00 Aaa 1,834,026
1,795 5.000%, 5/01/19 - FGIC Insured 5/13 at 100.00 Aaa 1,915,301
1,885 5.000%, 5/01/20 - FGIC Insured 5/13 at 100.00 Aaa 2,007,186
2,000 Texas State University System, Financing Revenue Refunding 3/12 at 100.00 AAA 2,121,800
Bonds, Series 2002, 5.000%, 3/15/20 - FSA Insured
1,665 Texas State University System, Financing Revenue Bonds, 9/14 at 100.00 AAA 1,759,222
Series 2004, 5.000%, 3/15/24 - FSA Insured
2,330 Universal City Education Facilities Corporation, Texas, Revenue 3/11 at 102.00 A- 2,458,313
Bonds, Wayland Baptist University Project, Series 2001,
5.625%, 3/01/26
5,000 University of North Texas, Financing System Revenue Bonds, 4/12 at 100.00 AAA 5,241,950
Series 2001, 5.000%, 4/15/24 - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 2.1% (1.4% OF TOTAL INVESTMENTS)
3,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/08 at 102.00 BBB- 3,046,110
Revenue Bonds, Valero Energy Corporation Project,
Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 24.2% (16.7% OF TOTAL INVESTMENTS)
3,500 Abilene Health Facilities Development Corporation, Texas, 9/05 at 102.00 AAA 3,579,135
Hospital Revenue Refunding and Improvement Bonds,
Hendrick Medical Center Project, Series 1995C,
6.150%, 9/01/25 - MBIA Insured
Brazoria County Health Facilities Development Corporation,
Texas, Revenue Bonds, Brazosport
Memorial Hospital, Series 2004:
1,745 5.250%, 7/01/20 - RAAI Insured 7/14 at 100.00 AA 1,848,130
1,835 5.250%, 7/01/21 - RAAI Insured 7/14 at 100.00 AA 1,939,301
Gregg County Health Facilities Development Corporation, Texas,
Hospital Revenue Bonds, Good Shepherd Medical Center Project,
Series 2000:
2,000 6.875%, 10/01/20 - RAAI Insured 10/10 at 101.00 AA 2,297,060
3,250 6.375%, 10/01/25 - RAAI Insured at 101.00 AA 3,657,193
1,500 Harris County Health Facilities Development Corporation, 8/11 at 100.00 AA- 1,592,835
Texas, Revenue Bonds, St. Luke's Episcopal Hospital,
Series 2001A, 5.500%, 2/15/21
2,000 Harris County Health Facilities Development Corporation, 6/11 at 101.00 A 2,204,340
Texas, Hospital Revenue Bonds, Memorial Hermann
Healthcare System, Series 2001A, 6.375%, 6/01/29
5,750 Midland County Hospital District, Texas, Hospital Revenue No Opt. Call BBB 4,119,875
Bonds, Series 1992, 0.000%, 6/01/11
2,000 North Central Texas Health Facilities Development 5/11 at 100.00 AA- 2,061,980
Corporation, Hospital Revenue Bonds, Baylor Healthcare
System, Series 2001A, 5.125%, 5/15/29
1,760 Parker County Hospital District, Texas, Hospital Revenue 8/09 at 102.00 BB 1,865,178
Bonds, Campbell Health System, Series 1999,
6.250%, 8/15/19
2,000 Richardson Hospital Authority, Texas, Revenue Bonds, 12/13 at 100.00 BBB 2,142,620
Richardson Regional Medical Center, Series 2004,
5.875%, 12/01/24
1,050 Tarrant County Health Facilities Development Corporation, 11/08 at 101.00 A+ 1,085,364
Texas, Hospital Revenue Bonds, Adventist Health System -
Sunbelt Obligated Group, Series 1998, 5.375%, 11/15/20
34
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE (continued)
$ 3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 A+ $ 3,885,630
Texas, Hospital Revenue Bonds, Adventist Health System -
Sunbelt Obligated Group, Series 2000, 6.625%, 11/15/20
2,000 Tom Green County Health Facilities Development Corporation, 5/11 at 101.00 Baa3 2,168,140
Texas, Hospital Revenue Bonds, Shannon Health System
Project, Series 2001, 6.750%, 5/15/21
1,000 Tyler Health Facilities Development Corporation, Texas, 7/12 at 100.00 Baa1 1,063,870
Hospital Revenue Bonds, Mother Frances Hospital Regional
Healthcare Center, Series 2001, 6.000%, 7/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 5.7% (3.9% OF TOTAL INVESTMENTS)
Bexar County Housing Finance Corporation, Texas, Insured
Multifamily Housing Revenue Bonds, Waters at Northern Hills
Apartments Project, Series 2001A:
2,000 6.000%, 8/01/31 - MBIA Insured 8/11 at 102.00 Aaa 2,054,340
750 6.050%, 8/01/36 - MBIA Insured 8/11 at 102.00 Aaa 770,378
Grand Prairie Housing Finance Corporation, Texas, GNMA
Multifamily Housing Revenue Bonds, Landings of Carrier Project,
Series 2000A:
1,000 6.650%, 9/20/22 9/10 at 105.00 AAA 1,103,870
2,030 6.750%, 9/20/28 9/10 at 105.00 AAA 2,240,308
2,064 Houston Housing Finance Corporation, Texas, GNMA 9/11 at 105.00 Aaa 2,198,593
Collateralized Mortgage Multifamily Housing Revenue Bonds,
RRG Apartments Project, Series 2001, 6.250%, 9/20/35
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 5.3% (3.6% OF TOTAL INVESTMENTS)
2,800 El Paso Housing Finance Corporation, Texas, GNMA 4/11 at 106.75 AAA 2,967,916
Collateralized Single Family Mortgage Revenue Bonds,
Series 2001A-3, 6.180%, 4/01/33
175 Galveston Property Finance Authority Inc., Texas, Single 9/05 at 100.00 A3 175,558
Family Mortgage Revenue Bonds, Series 1991A,
8.500%, 9/01/11
90 Houston Housing Finance Corporation, Texas, Single Family 12/05 at 100.00 AAA 91,504
Mortgage Revenue Refunding Bonds, Series 1993A,
5.950%, 12/01/10 - FSA Insured
1,305 Texas Department of Housing, Single Family Mortgage 9/06 at 102.00 AAA 1,354,995
Revenue Bonds, Series 1996E, 6.000%, 9/01/17 -
MBIA Insured
2,905 Texas Department of Housing and Community Affairs, 3/12 at 100.00 AAA 3,021,868
Single Family Mortgage Bonds, Series 2002B,
5.550%, 9/01/33 (Alternative Minimum Tax) - MBIA Insured
110 Victoria Housing Finance Corporation, Texas, FNMA Single No Opt. Call Aaa 110,493
Family Mortgage Revenue Refunding Bonds, Series 1995,
8.125%, 1/01/11
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 7.4% (5.1% OF TOTAL INVESTMENTS)
Bell County Health Facilities Development Corporation, Texas,
Retirement Facility Revenue Bonds, Buckner Retirement
Services Inc. Obligated Group, Series 1998:
3,400 5.250%, 11/15/19 11/08 at 101.00 A- 3,491,256
5,000 5.250%, 11/15/28 11/08 at 101.00 A- 5,081,550
2,000 Tarrant County Health Facilities Development Corporation, 1/08 at 105.00 AAA 2,213,280
Texas, Tax-Exempt Mortgage Revenue Bonds, South
Central Nursing Homes Inc., Series 1997A,
6.000%, 1/01/37 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
MATERIALS - 4.4% (3.0% OF TOTAL INVESTMENTS)
3,000 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB 3,277,560
Environmental Improvement Revenue Bonds, International
Paper Company, Series 2000A, 6.600%, 3/15/24 (Alternative
Minimum Tax)
3,000 Guadalupe-Blanco River Authority, Texas, Sewage and 4/06 at 102.00 AA- 3,114,510
Solid Waste Disposal Facility Bonds, E.I. DuPont de Nemours
and Company Project, Series 1996, 6.400%, 4/01/26
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 40.7% (28.1% OF TOTAL INVESTMENTS)
Bexar County, Texas, Combined Tax and Revenue Certificates
of Obligation, Series 2004:
1,235 5.000%, 6/15/17 6/14 at 100.00 AA 1,325,995
1,295 5.000%, 6/15/18 6/14 at 100.00 AA 1,384,420
1,260 5.000%, 6/15/19 6/14 at 100.00 AA 1,343,135
4,130 Coppell Independent School District, Dallas County, Texas, 8/09 at 75.34 AAA 2,680,866
Unlimited Tax School Building and Refunding Bonds,
Series 1992, 0.000%, 8/15/14 - MBIA Insured
35
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,275 Copperas Cove, Texas, Certificates of Obligation, Series 2003, 8/12 at 100.00 AAA $ 1,340,267
5.000%, 8/15/23 - MBIA Insured
2,305 Corpus Christi, Texas, Combination Tax and Municipal Hotel 9/12 at 100.00 AAA 2,544,927
Occupancy Tax Revenue Certificates of Obligation,
Series 2002, 5.500%, 9/01/21 - FSA Insured
2,595 Denton County, Texas, Permanent Improvement General 7/12 at 100.00 AA 2,722,337
Obligation Bonds, Series 2005, 5.000%, 7/15/25
5,000 Dickinson Independent School District, Galveston County, 2/15 at 100.00 AAA 5,249,550
Texas, General Obligation Bonds, Series 2005, 5.000%, 2/15/30
1,750 El Paso County, Texas, Certificates of Obligation, 2/12 at 100.00 AAA 1,849,138
Series 2001, 5.000%, 2/15/21 - FSA Insured
Fort Bend County Municipal Utility District 25, Texas, General
Obligation Bonds, Series 2005:
1,330 5.000%, 10/01/26 - FGIC Insured 10/12 at 100.00 AAA 1,383,945
1,320 5.000%, 10/01/27 - FGIC Insured 10/12 at 100.00 AAA 1,372,708
Houston Community College, Texas, Limited Tax General
Obligation Bonds, Series 2003:
2,500 5.000%, 2/15/20 - AMBAC Insured 2/13 at 100.00 AAA 2,660,375
2,235 5.000%, 2/15/21 - AMBAC Insured 2/13 at 100.00 AAA 2,369,703
1,500 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 1,605,600
General Obligation Refunding Bonds, Series 2002,
5.250%, 2/01/21
2,600 Klein Independent School District, Harris County, Texas, 8/09 at 100.00 AAA 2,746,068
Unlimited Tax Schoolhouse Bonds, Series 1999A,
5.000%, 8/01/18
5,220 Leander Independent School District, Williamson and 8/09 at 46.74 AAA 2,045,875
Travis Counties, Texas, Unlimited Tax School Building and
Refunding Bonds, Series 2000, 0.000%, 8/15/21
1,000 Mansfield Independent School District, Tarrant County, Texas, 2/14 at 100.00 AAA 1,061,710
General Obligation Bonds, Series 2004, 5.000%, 2/15/20
Mercedes Independent School District, Hidalgo County, Texas,
General Obligation Bonds, Series 2005:
2,020 5.000%, 8/15/22 8/15 at 100.00 AAA 2,152,128
1,010 5.000%, 8/15/23 8/15 at 100.00 AAA 1,073,509
1,545 Montgomery County, Texas, General Obligation Refunding 9/07 at 72.39 AAA 1,039,383
Bonds, Series 1997, 0.000%, 3/01/14 - MBIA Insured
925 Northside Independent School District, Bexar County, 8/10 at 100.00 AAA 1,022,162
Texas, Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25
1,255 Pasadena, Texas, Certificates of Obligation, Series 2002, 4/11 at 100.00 AAA 1,334,918
5.125%, 4/01/24 - FGIC Insured
500 Puerto Rico, General Obligation and Public Improvement No Opt. Call BBB 573,975
Bonds, Series 2001A, 5.500%, 7/01/29
Roma Independent School District, Texas, General Obligation
Bonds, Series 2005:
1,110 5.000%, 8/15/22 8/15 at 100.00 AAA 1,182,605
1,165 5.000%, 8/15/23 - FSA Insured 8/15 at 100.00 AAA 1,238,255
1,440 South Texas Community College District, General Obligation 8/12 at 100.00 AAA 1,598,947
Bonds, Series 2002, 5.500%, 8/15/17 - AMBAC Insured
1,250 Southside Independent School District, Bexar County, Texas, 8/14 at 100.00 Aaa 1,325,063
General Obligation Bonds, Series 2004A, 5.000%, 8/15/22
1,140 Sunnyvale School District, Texas, General Obligation Bonds, 2/14 at 100.00 AAA 1,228,145
Series 2004, 5.250%, 2/15/25
2,000 Texas, General Obligation Bonds, Water Financial Assistance 8/11 at 100.00 Aa1 2,152,180
Program, Series 2001, 5.250%, 8/01/23
1,500 Texas, General Obligation Refunding Bonds, Public Finance 10/12 at 100.00 Aa1 1,598,910
Authority, Series 2002, 5.000%, 10/01/18
5,290 Weslaco Independent School District, Hidalgo County, Texas, 2/10 at 100.00 Aaa 5,687,120
General Obligation School Building Bonds, Series 2000,
5.500%, 2/15/25
West Texas Independent School District, McLennan and
Hill Counties, General Obligation Refunding Bonds, Series 1998:
1,000 0.000%, 8/15/22 8/13 at 61.20 AAA 416,910
1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 371,480
36
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 6.9% (4.7% OF TOTAL INVESTMENTS)
$ 4,500 Austin, Texas, Subordinate Lien Hotel Occupancy Tax Revenue 11/09 at 100.00 AAA $ 4,903,470
Refunding Bonds, Series 1999, 5.800%, 11/15/29 -
AMBAC Insured
2,250 Harris County-Houston Sports Authority, Texas, Senior Lien 11/11 at 100.00 AAA 2,376,788
Revenue Bonds, Series 2001G, 5.250%, 11/15/22 -
MBIA Insured
2,685 San Antonio, Texas, Hotel Occupancy Tax Revenue Bonds, 8/06 at 102.00 AAA 2,805,395
Henry B. Gonzalez Convention Center Project, Series 1996,
5.700%, 8/15/26 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.9% (4.1% OF TOTAL INVESTMENTS)
1,000 Austin, Texas, Airport System Prior Lien Revenue Bonds, 11/13 at 100.00 AAA 1,088,540
Series 2003, 5.250%, 11/15/16 - MBIA Insured
3,260 Central Texas Regional Mobility Authority, Travis and 1/15 at 100.00 AAA 3,449,406
Williamson Counties, Toll Road Revenue Bonds, Series 2005,
5.000%, 1/01/22 - FGIC Insured
2,600 Dallas-Ft. Worth International Airport Facility Improvement 11/09 at 101.00 Caa2 2,007,798
Corporation, Texas, Revenue Bonds, American Airlines Inc.,
Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax)
2,000 Houston, Texas, Subordinate Lien Airport System Revenue 7/10 at 100.00 AAA 2,149,840
Bonds, Series 2000A, 5.625%, 7/01/30 (Alternative
Minimum Tax) - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED *** - 11.1% (7.7% OF TOTAL INVESTMENTS)
130 Abilene Housing Development Corporation, Texas, No Opt. Call N/R*** 138,441
Section 8 First Lien Revenue Bonds, Abilene East Apartments,
Series 1978, 7.000%, 7/01/08
460 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA 489,753
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20
(Pre-refunded to 7/01/10)
2,000 Harlingen Independent School District, Cameron County, Texas, 8/09 at 100.00 AAA 2,186,940
Unlimited Tax School Building Bonds, Series 1999,
5.650%, 8/15/29 (Pre-refunded to 8/15/09)
1,000 Laredo, Texas, Sports Venue Sales Tax Revenue Bonds, 3/09 at 100.00 AAA 1,074,150
Series 2001, 5.300%, 3/15/26 (Pre-refunded to 3/15/09) -
FGIC Insured
1,000 North Central Texas Health Facilities Development Corporation, No Opt. Call AAA 1,174,560
Hospital Revenue Bonds, Presbyterian Healthcare System,
Series 1996B, 5.750%, 6/01/26 - MBIA Insured
1,075 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 1,205,301
Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25 (Pre-refunded to 8/15/10)
2,500 Retama Development Corporation, Texas, Special Facilities 12/17 at 100.00 AAA 3,366,150
Revenue Bonds, Retama Park Racetrack, Series 1993,
8.750%, 12/15/18 (Pre-refunded to 12/15/17)
1,750 San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AAA 1,923,618
Refunding Bonds, Series 2002, 5.375%, 2/01/20
(Pre-refunded to 2/01/12)
665 San Antonio, Texas, Water System Revenue Refunding Bonds, No Opt. Call AAA 741,276
Series 1992, 6.500%, 5/15/10 - MBIA Insured
1,795 United Independent School District, Webb County, Texas, 8/12 at 100.00 AAA 1,999,935
Unlimited Tax School Building Bonds, Series 2000,
5.375%, 8/15/18 (Pre-refunded to 8/15/12)
1,800 Williamson County, Texas, General Obligation Bonds, 2/12 at 100.00 AAA 2,007,792
Series 2002, 5.500%, 2/15/16 (Pre-refunded to 2/15/12) -
FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 5.9% (4.1% OF TOTAL INVESTMENTS)
2,560 Brazos River Authority, Texas, Pollution Control Revenue 4/13 at 101.00 Baa2 3,039,718
Refunding Bonds, TXU Electric Company, Series 1999C,
7.700%, 3/01/32 (Alternative Minimum Tax) (a)
2,400 Brazos River Authority, Texas, Revenue Bonds, Reliant 4/09 at 101.00 BBB- 2,497,608
Energy Inc., Series 1999A, 5.375%, 4/01/19
2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 AAA 2,150,520
Texas, Thermal Utility Revenue Bonds, TECO Project,
Series 2000, 5.750%, 2/15/15 (Alternative Minimum Tax) -
AMBAC Insured
1,000 Matagorda County Navigation District 1, Texas, Revenue 5/09 at 101.00 BBB- 1,017,650
Bonds, Reliant Energy Inc., Series 1999B, 5.950%, 5/01/30
(Alternative Minimum Tax)
37
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS July 31, 2005
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.8% (7.5% OF TOTAL INVESTMENTS)
Coastal Water Authority, Texas, Contract Revenue Bonds,
Houston Water Projects, Series 2004:
$ 1,005 5.000%, 12/15/20 - FGIC Insured 12/14 at 100.00 AAA $ 1,071,963
1,030 5.000%, 12/15/21 - FGIC Insured 12/14 at 100.00 AAA 1,096,157
3,000 Houston, Texas, First Lien Combined Utility System Revenue 5/14 at 100.00 AAA 3,246,630
Bonds, Series 2004A, 5.250%, 5/15/23 - FGIC Insured
3,500 Houston, Texas, Junior Lien Water and Sewerage System 12/11 at 100.00 AAA 3,870,580
Revenue Refunding Bonds, Series 2001A, 5.500%, 12/01/17 -
FSA Insured
Irving, Texas, Subordinate Lien Waterworks and Sewerage
Revenue Bonds, Series 2004:
1,680 5.000%, 8/15/22 - AMBAC Insured 8/14 at 100.00 AAA 1,780,884
1,760 5.000%, 8/15/23 - AMBAC Insured 8/14 at 100.00 AAA 1,861,620
1,260 Rowlett, Rockwall and Dallas Counties, Texas, Waterworks 3/14 at 100.00 AAA 1,332,475
and Sewerage System Revenue Bonds, Series 2004A,
5.000%, 3/01/22 - MBIA Insured
1,500 Texas Water Development Board, Senior Lien State Revolving 7/09 at 100.00 AAA 1,604,310
Fund Revenue Bonds, Series 1999A, 5.500%, 7/15/21
------------------------------------------------------------------------------------------------------------------------------------
$ 207,519 Total Long-Term Investments (cost $200,074,850) - 144.8% 212,422,045
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.2% 3,295,786
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (47.0)% (69,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 146,717,831
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): 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.
(a) The issuer has received a preliminary adverse
determination from the Internal Revenue Service (the
"IRS") regarding the tax-exempt status of the bonds'
coupon payments. The Fund will continue to treat coupon
payments as tax-exempt income until such time that it
is formally determined that the interest on the bonds
should be treated as taxable.
See accompanying notes to financial statements.
38
Statement of
ASSETS AND LIABILITIES July 31, 2005
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $89,316,967,
$33,361,906, $52,346,791, $64,921,181,
and $200,074,850, respectively) $94,243,171 $34,974,588 $55,500,126 $67,283,479 $212,422,045
Cash 7,386 467,381 235,135 -- 200,794
Forward swaps, at value -- 25,345 50,556 78,665 --
Interest receivable 653,382 301,256 441,827 487,008 3,265,655
Other assets 10,199 5,869 7,576 2,642 6,867
------------------------------------------------------------------------------------------------------------------------------------
Total assets 94,914,138 35,774,439 56,235,220 67,851,794 215,895,361
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Cash overdraft -- -- -- 982,511 --
Accrued expenses:
Management fees 51,705 10,369 16,306 18,234 116,633
Other 36,270 8,680 11,225 15,767 44,561
Preferred share dividends payable 3,697 2,712 3,345 5,966 16,336
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 91,672 21,761 30,876 1,022,478 177,530
------------------------------------------------------------------------------------------------------------------------------------
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 $64,822,466 $23,752,678 $37,704,344 $44,829,316 $146,717,831
====================================================================================================================================
Common shares outstanding 4,461,449 1,545,509 2,423,648 3,067,243 9,489,621
====================================================================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares,
divided by Common shares outstanding) $ 14.53 $ 15.37 $ 15.56 $ 14.62 $ 15.46
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 44,614 $ 15,455 $ 24,236 $ 30,672 $ 94,896
Paid-in surplus 62,043,303 21,856,337 34,331,642 43,242,755 134,536,773
Undistributed net investment income 31,548 166,611 110,277 37,547 942,985
Accumulated net realized gain (loss)
from investments and forward swaps (2,223,203) 76,248 34,298 (922,621) (1,204,018)
Net unrealized appreciation (depreciation)
of investments and forward swaps 4,926,204 1,638,027 3,203,891 2,440,963 12,347,195
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $64,822,466 $23,752,678 $37,704,344 $44,829,316 $146,717,831
====================================================================================================================================
Authorized shares:
Common 200,000,000 Unlimited Unlimited Unlimited Unlimited
Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
39
Statement of
OPERATIONS Year Ended July 31, 2005
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME $4,588,500 $1,705,167 $2,655,831 $3,074,840 $11,153,197
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 606,979 230,066 361,313 428,215 1,374,209
Preferred shares - auction fees 75,000 30,000 46,250 55,000 172,500
Preferred shares - dividend disbursing agent fees 10,000 10,000 10,000 10,000 20,000
Shareholders' servicing agent fees and expenses 5,654 440 419 254 14,303
Custodian's fees and expenses 25,633 15,237 22,115 21,332 55,694
Directors'/Trustees' fees and expenses 2,161 769 1,248 1,581 4,869
Professional fees 11,968 10,017 11,011 11,283 16,713
Shareholders' reports - printing and mailing expenses 7,303 6,893 8,181 10,866 22,115
Stock exchange listing fees 10,657 131 206 261 10,619
Investor relations expense 9,484 5,193 8,157 9,482 24,180
Other expenses 11,152 11,066 11,968 12,201 12,513
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 775,991 319,812 480,868 560,475 1,727,715
Custodian fee credit (8,975) (4,317) (3,196) (7,457) (22,232)
Expense reimbursement -- (107,456) (168,757) (213,339) --
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 767,016 208,039 308,915 339,679 1,705,483
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 3,821,484 1,497,128 2,346,916 2,735,161 9,447,714
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 769,058 205,471 357,503 (44,805) 1,544,028
Net realized gain (loss) from forward swaps -- (129,087) (323,226) (530,167) --
Change in net unrealized appreciation (depreciation)
of investments 1,754,362 620,243 1,331,714 2,365,824 2,354,555
Change in net unrealized appreciation (depreciation)
of forward swaps -- 25,345 50,556 78,665 --
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 2,523,420 721,972 1,416,547 1,869,517 3,898,583
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income (405,070) (157,504) (262,016) (313,291) (1,225,414)
From accumulated net realized gains from investments -- (4,003) (19,342) -- --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Preferred shareholders (405,070) (161,507) (281,358) (313,291) (1,225,414)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common
shares from operations $5,939,834 $2,057,593 $3,482,105 $4,291,387 $12,120,883
====================================================================================================================================
See accompanying notes to financial statements.
40
Statement of
CHANGES IN NET ASSETS
ARIZONA ARIZONA ARIZONA
PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR)
---------------------------- ----------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/05 7/31/04 7/31/05 7/31/04 7/31/05 7/31/04
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 3,821,484 $ 4,078,915 $ 1,497,128 $ 1,530,494 $ 2,346,916 $ 2,320,417
Net realized gain (loss)
from investments 769,058 713,547 205,471 108,890 357,503 307,836
Net realized gain (loss) from
forward swaps -- -- (129,087) -- (323,226) --
Change in net unrealized appreciation
(depreciation) of investments 1,754,362 1,137,949 620,243 760,107 1,331,714 1,008,021
Change in net unrealized
appreciation (depreciation)
of forward swaps -- -- 25,345 -- 50,556 --
Distributions to Preferred shareholders:
From net investment income (405,070) (230,103) (157,504) (85,893) (262,016) (146,950)
From accumulated net realized gains
from investments -- -- (4,003) (4,168) (19,342) (9,227)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares from operations 5,939,834 5,700,308 2,057,593 2,309,430 3,482,105 3,480,097
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (3,762,499) (4,076,294) (1,418,195) (1,410,436) (2,092,582) (2,091,535)
From accumulated net realized gains
from investments -- -- (67,355) (64,486) (288,186) (105,537)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (3,762,499) (4,076,294) (1,485,550) (1,474,922) (2,380,768) (2,197,072)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares
issued to shareholders due to
reinvestment of distributions 213,665 260,642 27,860 27,858 60,045 23,870
Preferred shares offering costs -- -- -- -- -- (1,409)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from capital share transactions 213,665 260,642 27,860 27,858 60,045 22,461
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares 2,391,000 1,884,656 599,903 862,366 1,161,382 1,305,486
Net assets applicable to Common
shares at the beginning of year 62,431,466 60,546,810 23,152,775 22,290,409 36,542,962 35,237,476
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of year $64,822,466 $62,431,466 $23,752,678 $23,152,775 $37,704,344 $36,542,962
====================================================================================================================================
Undistributed net investment income
at the end of year $ 31,548 $ 377,650 $ 166,611 $ 245,182 $ 110,277 $ 117,979
====================================================================================================================================
See accompanying notes to financial statements.
41
Statement of
CHANGES IN NET ASSETS (continued)
ARIZONA TEXAS
DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX)
------------------------------ ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/05 7/31/04 7/31/05 7/31/04
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 2,735,161 $ 2,721,867 $ 9,447,714 $ 9,753,219
Net realized gain (loss) from investments (44,805) (276,088) 1,544,028 1,077,835
Net realized gain (loss) from
forward swaps (530,167) -- -- --
Change in net unrealized appreciation
(depreciation) of investments 2,365,824 1,955,972 2,354,555 4,038,575
Change in net unrealized appreciation
(depreciation) of forward swaps 78,665 -- -- --
Distributions to Preferred shareholders:
From net investment income (313,291) (185,513) (1,225,414) (628,703)
From accumulated net realized gains
from investments -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable
to Common shares from operations 4,291,387 4,216,238 12,120,883 14,240,926
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (2,444,592) (2,465,996) ( 8,881,918) (9,093,044)
From accumulated net realized gains
from investments -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (2,444,592) (2,465,996) ( 8,881,918) (9,093,044)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares
issued to shareholders due to
reinvestment of distributions -- 3,508 245,790 110,085
Preferred shares offering costs -- (18,271) -- --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from capital share transactions -- (14,763) 245,790 110,085
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares 1,846,795 1,735,479 3,484,755 5,257,967
Net assets applicable to Common
shares at the beginning of year 42,982,521 41,247,042 143,233,076 137,975,109
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of year $44,829,316 $42,982,521 $146,717,831 $143,233,076
====================================================================================================================================
Undistributed net investment income
at the end of year $ 37,547 $ 61,700 $ 942,985 $ 1,624,342
====================================================================================================================================
See accompanying notes to financial statements.
42
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The state funds (the "Funds") covered in this report and their corresponding
Common share stock exchange symbols are Nuveen Arizona Premium Income Municipal
Fund, Inc. (NAZ), Nuveen Arizona Dividend Advantage Municipal Fund (NFZ), Nuveen
Arizona Dividend Advantage Municipal Fund 2 (NKR), Nuveen Arizona Dividend
Advantage Municipal Fund 3 (NXE) and Nuveen Texas Quality Income Municipal Fund
(NTX). 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 amended, as
closed-end management investment companies.
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.
Effective January 1, 2005, Nuveen Advisory Corp. ("NAC"), the Funds' previous
Adviser, and its affiliate, Nuveen Institutional Advisory Corp. ("NIAC"), were
merged into Nuveen Asset Management ("NAM"), each wholly owned subsidiaries of
Nuveen Investments, Inc. ("Nuveen"). As a result of the merger, NAM is now the
Adviser to all funds previously advised by either NAC or NIAC.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Directors/Trustees. 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, evaluations
of anticipated cash flows or collateral and general market conditions. Prices of
derivative investments are also provided by an independent pricing service
approved by each Fund's Board of Directors/Trustees. If the pricing service is
unable to supply a price for a derivative investment each Fund may use a market
quote provided by a major broker/dealer in such investments. If it is determined
that market prices for an investment are unavailable or inappropriate, the Board
of Directors/Trustees of the Funds, or its designee, may establish a fair value
for the investment. 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 transactions are determined on the specific identification method.
Securities purchased on a when-issued or delayed delivery basis may have
extended settlement periods. Any securities so purchased are subject to market
fluctuation during this period. The Funds have instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At July 31, 2005, there
were no such outstanding purchase commitments in any of the Funds.
Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.
Investment income also includes paydown gains and losses, if any.
43
Notes to
FINANCIAL STATEMENTS (continued)
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required. Furthermore,
each Fund intends to satisfy conditions which will enable interest from
municipal securities, which is exempt from regular federal and designated state
income taxes, if any, to retain such tax-exempt status when distributed to
shareholders of the Funds. All monthly tax-exempt income dividends paid during
the fiscal year ended July 31, 2005, have been designated Exempt Interest
Dividends. Net realized capital gains and ordinary income distributions paid by
the Funds are subject to federal taxation.
Dividends and Distributions to Common Shareholders
Dividends from tax-exempt net investment income are declared monthly. Net
realized capital gains and/or market discount from investment transactions, if
any, are distributed to shareholders 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 U.S.
generally accepted accounting principles.
Preferred Shares
The Funds have issued and outstanding Preferred shares, $25,000 stated value per
share, as a means of effecting financial leverage. Each Fund's Preferred shares
are issued in one or more Series. The dividend rate on each Series is determined
every seven days, pursuant to a dutch auction process overseen by the auction
agent, and is payable weekly at the end of each rate period. The number of
Preferred shares outstanding, by Series and in total, for each Fund is as
follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Number of shares:
Series M -- -- -- 880 760
Series T -- 480 -- -- --
Series W -- -- 740 -- --
Series TH 1,200 -- -- -- 2,000
----------------------------------------------------------------------------------------------------------
Total 1,200 480 740 880 2,760
==========================================================================================================
Forward Swap Transactions
The Funds may invest in certain derivative financial instruments. The Funds' use
of forward interest rate swap transactions is intended to mitigate the negative
impact that an increase in long-term interest rates could have on Common share
net asset value. Forward interest rate swap transactions involve each Fund's
agreement with the counterparty to pay, in the future, a fixed rate payment in
exchange for the counterparty paying the Fund a variable rate payment. The
amount of the payment obligation is based on the notional amount of the forward
swap contract, and would increase or decrease in value based primarily on the
extent to which long-term interest rates for bonds having a maturity of the
swaps' termination date were to increase or decrease. The Funds may close out a
contract prior to the effective date at which point a realized gain or loss
would be recognized. When a forward swap is terminated, it does not involve the
delivery of securities or other underlying assets or principal, but rather is
settled in cash on a net basis. Each Fund intends, but is not obligated to,
terminate its forward swaps before the effective date. Accordingly, the risk of
loss with respect to the swap counterparty on such transactions is limited to
the credit risk associated with a counterparty failing to honor its commitment
to pay any realized gain to the Fund upon termination. To minimize such credit
risk, all counterparties are required to pledge collateral daily (based on the
daily valuation of each swap) on behalf of each Fund with a value approximately
equal to the amount of any unrealized gain above a pre-determined threshold.
Reciprocally, when any of the Funds have an unrealized loss on a swap contract,
the Funds have instructed the custodian to pledge assets of the Funds as
collateral with a value approximately equal to the amount of the unrealized loss
above a pre-determined threshold. Collateral pledges are monitored and
subsequently adjusted if and when the swap valuations fluctuate, either up or
down, by at least the predetermined threshold amount.
44
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.
Indemnifications
Under the Funds' organizational documents, its Officers and Directors/Trustees
are indemnified against certain liabilities arising out of the performance of
their duties to the Funds. In addition, in the normal course of business, the
Funds enter into contracts that provide general indemnifications to other
parties. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
Transactions in Common shares were as follows:
ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND
INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR)
------------------------ ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/05 7/31/04 7/31/05 7/31/04 7/31/05 7/31/04
---------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due
to reinvestment
of distributions 13,619 16,782 1,750 1,617 3,770 1,607
=========================================================================================================
ARIZONA DIVIDEND TEXAS QUALITY
ADVANTAGE 3 (NXE) INCOME (NTX)
------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/05 7/31/04 7/31/05 7/31/04
---------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of distributions -- 243 15,430 7,303
=========================================================================================================
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term municipal
securities during the fiscal year ended July 31, 2005, 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 $15,882,746 $6,523,645 $6,383,356 $10,763,843 $31,125,160
Sales and maturities 15,569,849 6,804,833 6,764,140 9,652,348 29,589,554
==========================================================================================================
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to the treatment of paydown gains and losses on investments,
timing differences in recognizing income on taxable market discount securities
and timing differences in recognizing certain gains and losses on investment
transactions.
At July 31, 2005, the cost of investments was as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Cost of investments $89,298,414 $33,413,280 $52,529,476 $65,125,193 $199,989,052
==========================================================================================================
45
Notes to
FINANCIAL STATEMENTS (continued)
Gross unrealized appreciation and gross unrealized depreciation of investments
at July 31, 2005, 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 $5,030,115 $1,638,463 $3,174,145 $2,375,971 $13,079,538
Depreciation (85,358) (77,155) (203,495) (217,685) (646,545)
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation
of investments $4,944,757 $1,561,308 $2,970,650 $2,158,286 $12,432,993
==========================================================================================================
The tax components of undistributed net investment income and net realized gains
at July 31, 2005, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Undistributed net tax-exempt income * $304,454 $282,284 $287,112 $236,832 $1,544,239
Undistributed net ordinary income ** -- -- -- -- 22,028
Undistributed net long-term capital gains -- 132,895 217,992 -- --
==========================================================================================================
* Undistributed net tax-exempt income (on a tax basis) has not been reduced
for the dividend declared on July 1, 2005, paid on August 1, 2005.
** Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
The tax character of distributions paid during the fiscal years ended July 31,
2005, and July 31, 2004, was designated for purposes of the dividends paid
deduction as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
2005 (NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Distributions from net tax-exempt
income $4,217,354 $1,573,643 $2,351,896 $2,764,463 $10,161,664
Distributions from net
ordinary income ** -- -- -- -- --
Distributions from net long-term
capital gains -- 71,358 307,825 -- --
==========================================================================================================
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
2004 (NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Distributions from net tax-exempt
income $4,307,222 $1,494,232 $2,236,394 $2,650,674 $9,723,403
Distributions from net
ordinary income ** -- 68,654 110,761 -- --
Distributions from net long-term
capital gains -- -- 5,257 -- --
==========================================================================================================
** Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
46
At July 31, 2005, the following Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND QUALITY
INCOME ADVANTAGE 3 INCOME
(NAZ) (NXE) (NTX)
--------------------------------------------------------------------------------
Expiration year:
2011 $ 669,574 $ -- $ --
2012 1,553,629 205,820 1,204,018
2013 -- 134,877 --
--------------------------------------------------------------------------------
Total $2,223,203 $340,697 $1,204,018
================================================================================
Arizona Dividend Advantage 3 (NXE) elected to defer net realized losses from
investments incurred from November 1, 2004 through July 31, 2005 ("post-October
losses"), in accordance with federal income tax regulations. The following
post-October losses of $376,462 were treated as having arisen on the first day
of the following fiscal year.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Funds' management fees are separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by the
Adviser, and a specific fund-level component, based only on the amount of assets
within each Fund. This pricing structure enables Nuveen fund shareholders to
benefit from growth in the assets within each individual fund as well as from
growth in the amount of complex-wide assets managed by the Adviser. As of August
31, 2005, the complex-level fee rate was .1896%.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily net assets (including net assets attributable to Preferred shares)
of each Fund as follows:
AVERAGE DAILY NET ASSETS ARIZONA PREMIUM INCOME (NAZ)
(INCLUDING NET ASSETS TEXAS QUALITY INCOME (NTX)
ATTRIBUTABLE TOPREFERRED SHARES) FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $125 million .4500%
For the next $125 million .4375
For the next $250 million .4250
For the next $500 million .4125
For the next $1 billion .4000
For the next $3 billion .3875
For net assets over $5 billion .3750
================================================================================
ARIZONA DIVIDEND ADVANTAGE (NFZ)
AVERAGE DAILY NET ASSETS ARIZONA DIVIDEND ADVANTAGE 2 (NKR)
(INCLUDING NET ASSETS ARIZONA DIVIDEND ADVANTAGE 3 (NXE)
ATTRIBUTABLE TOPREFERRED SHARES) FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $125 million .4500%
For the next $125 million .4375
For the next $250 million .4250
For the next $500 million .4125
For the next $1 billion .4000
For net assets over $2 billion .3750
================================================================================
47
Notes to
FINANCIAL STATEMENTS (continued)
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as follows:
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in
the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
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 or its affiliates. The Board of
Directors/Trustees has adopted a deferred compensation plan for independent
Directors/Trustees that enables Directors/Trustees to elect to defer receipt of
all or a portion of the annual compensation they are entitled to receive from
certain Nuveen advised Funds. Under the plan, deferred amounts are treated as
though equal dollar amounts had been invested in shares of select Nuveen advised
Funds.
48
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.
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.
49
Notes to
FINANCIAL STATEMENTS (continued)
6. ANNOUNCEMENT REGARDING PARENT COMPANY OF ADVISER
In early April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul
Travelers"), which owned 79% of Nuveen, (A) completed a public offering of a
substantial portion of its equity stake in Nuveen, (B) sold Nuveen $200 million
of its Nuveen shares, (C) entered into an agreement with Nuveen to sell an
additional $400 million of its Nuveen shares on a "forward" basis with payment
for and settlement of these shares delayed for several months, and (D) entered
into agreements with two unaffiliated investment banking firms to sell an amount
equal to most or all of its remaining Nuveen shares for current payment but for
future settlement. Transactions (C) and (D) above were settled in late July,
which effectively reduced St. Paul Travelers' controlling stake in Nuveen and
was deemed an "assignment" (as defined in the 1940 Act) of the investment
management agreements between the Funds and the Adviser, which resulted in the
automatic termination of each agreement under the 1940 Act. In anticipation of
such deemed assignment, the Board of Directors/Trustees had approved new ongoing
investment management agreements for each Fund and the submission of those
agreements for approval by each respective Fund's shareholders, which
shareholder approval was received prior to the settlement of transactions (C)
and (D). The new ongoing management agreements took effect upon such settlement.
7. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid on September 1, 2005, to shareholders of
record on August 15, 2005, 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 $.0645 $.0765 $.0720 $.0635 $.0730
================================================================================
50
Financial
HIGHLIGHTS
51
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
----------------------------------------------------------------- ---------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ Preferred Preferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 $14.04 $ .86 $ .56 $(.09) $ -- $1.33 $(.84) $ -- $(.84)
2004 13.66 .92 .43 (.05) -- 1.30 (.92) -- (.92)
2003 14.25 .97 (.57) (.07) -- .33 (.92) -- (.92)
2002 14.77 1.07 (.57) (.09) (.01) .40 (.88) (.04) (.92)
2001 14.25 1.09 .50 (.23) -- 1.36 (.83) (.01) (.84)
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 15.00 .97 .46 (.10) -- 1.33 (.92) (.04) (.96)
2004 14.45 .99 .57 (.06) -- 1.50 (.91) (.04) (.95)
2003 14.81 1.00 (.38) (.07) (.01) .54 (.88) (.04) (.92)
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:
2005 15.10 .97 .59 (.11) (.01) 1.44 (.86) (.12) (.98)
2004 14.57 .96 .53 (.06) -- 1.43 (.86) (.04) (.90)
2003 14.88 .96 (.31) (.08) -- .57 (.86) (.01) (.87)
2002(b) 14.33 .24 .71 (.02) -- .93 (.22) -- (.22)
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 14.01 .89 .62 (.10) -- 1.41 (.80) -- (.80)
2004 13.45 .89 .54 (.06) -- 1.37 (.80) -- (.80)
2003(c) 14.33 .66 (.67) (.05) -- (.06) (.61) -- (.61)
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 15.12 1.00 .41 (.13) -- 1.28 (.94) -- (.94)
2004 14.57 1.03 .55 (.07) -- 1.51 (.96) -- (.96)
2003 15.14 1.05 (.58) (.08) -- .39 (.95) (.01) (.96)
2002 15.16 1.11 (.02) (.10) (.02) .97 (.92) (.07) (.99)
2001 14.26 1.16 .88 (.27) -- 1.77 (.87) -- (.87)
====================================================================================================================================
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:
2005 $ -- $14.53 $15.22 5.17% 9.69%
2004 -- 14.04 15.27 7.97 9.66
2003 -- 13.66 15.00 (5.98) 2.21
2002 -- 14.25 16.90 9.63 2.88
2001 -- 14.77 16.32 17.77 9.74
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 -- 15.37 16.08 10.88 9.04
2004 -- 15.00 15.40 7.05 10.56
2003 .02 14.45 15.30 3.06 3.67
2002 -- 14.81 15.75 6.38 9.32
2001(a) (.20) 14.37 15.65 6.76 2.81
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 -- 15.56 16.19 16.30 9.74
2004 -- 15.10 14.82 9.46 9.98
2003 (.01) 14.57 14.40 (3.53) 3.67
2002(b) (.16) 14.88 15.80 6.81 5.38
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 -- 14.62 14.48 15.11 10.21
2004 (.01) 14.01 13.30 1.01 10.25
2003(c) (.21) 13.45 13.97 (2.76) (2.05)
TEXAS QUALITY
INCOME (NTX)
---------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 -- 15.46 16.19 17.83 8.61
2004 -- 15.12 14.59 5.87 10.51
2003 -- 14.57 14.71 4.14 2.54
2002 -- 15.14 15.07 9.29 6.61
2001 -- 15.16 14.73 21.16 12.74
=============================================================================================
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:
2005 $ 64,822 1.20% 5.91% 1.19% 5.92% 17%
2004 62,431 1.22 6.49 1.21 6.50 26
2003 60,547 1.25 6.81 1.24 6.82 17
2002 62,876 1.28 7.45 1.26 7.47 19
2001 64,859 1.28 7.47 1.27 7.48 18
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 23,753 1.34 5.82 .87 6.28 18
2004 23,153 1.30 6.10 .83 6.57 24
2003 22,290 1.35 6.11 .91 6.55 20
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:
2005 37,704 1.27 5.76 .82 6.22 11
2004 36,543 1.27 5.83 .80 6.30 14
2003 35,237 1.27 5.78 .82 6.23 4
2002(b) 35,913 1.19* 4.43* .77* 4.85* 1
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 44,829 1.25 5.63 .76 6.12 15
2004 42,983 1.25 5.80 .76 6.29 22
2003(c) 41,247 1.19* 5.05* .73* 5.52* 16
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2005 146,718 1.18 6.42 1.16 6.44 14
2004 143,233 1.18 6.77 1.18 6.77 16
2003 137,975 1.20 6.93 1.19 6.94 12
2002 143,305 1.23 7.40 1.22 7.42 22
2001 143,127 1.21 7.87 1.19 7.88 24
====================================================================================================================================
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:
2005 $30,000 $25,000 $79,019
2004 30,000 25,000 77,026
2003 30,000 25,000 75,456
2002 30,000 25,000 77,397
2001 30,000 25,000 79,049
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
--------------------------------------------------------------------------
Year Ended 7/31:
2005 12,000 25,000 74,485
2004 12,000 25,000 73,235
2003 12,000 25,000 71,438
2002 12,000 25,000 72,480
2001(a) 12,000 25,000 70,984
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
--------------------------------------------------------------------------
Year Ended 7/31:
2005 18,500 25,000 75,952
2004 18,500 25,000 74,382
2003 18,500 25,000 72,618
2002(b) 18,500 25,000 73,531
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
--------------------------------------------------------------------------
Year Ended 7/31:
2005 22,000 25,000 75,942
2004 22,000 25,000 73,844
2003(c) 22,000 25,000 71,872
TEXAS QUALITY
INCOME (NTX)
--------------------------------------------------------------------------
Year Ended 7/31:
2005 69,000 25,000 78,159
2004 69,000 25,000 76,896
2003 69,000 25,000 74,991
2002 69,000 25,000 76,922
2001 69,000 25,000 76,858
==========================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of changes in
the market price per share and the effect of reinvested dividend income and
reinvested capital gains distributions, if any, at the average price paid
per share at the time of reinvestment. Total Return on Common Share Net
Asset Value is the combination of changes in Common Share net asset value,
reinvested dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. 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 30, 2001 (commencement of operations) through July
31, 2001.
(b) For the period March 25, 2002 (commencement of operations) through July 31,
2002.
(c) For the period September 25, 2002 (commencement of operations) through July
31, 2003.
See accompanying notes to financial statements.
52-53 SPREAD
Board Members
AND OFFICERS
The management of the Fund, including general supervision of the duties
performed for the Fund by the Adviser, is the responsibility of the Board
Members of the Fund. The number of board members of the Fund is currently set at
nine. None of the board members who are not "interested" persons of the Fund has
ever been a director or employee of, or consultant to, Nuveen or its affiliates.
The names and business addresses of the board members and officers of the Fund,
their principal occupations and other affiliations during the past five years,
the number of portfolios each oversees and other directorships they hold are set
forth below.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUND APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUND:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger(1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 155
3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and
333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.(3); Chairman and Director (since
1997) of Nuveen Asset Management; Director (since 1996)
of Institutional Capital Corporation; Chairman and Director
(since 1999) of Rittenhouse Asset Management, Inc.;
Chairman of Nuveen Investments Advisers Inc. (since 2002).
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUND:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 155
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 155
7/29/34 Trust Company; Director, Community Advisory Board for
333 W. Wacker Drive Highland Park and Highwood, United Way of the North
Chicago, IL 60606 Shore (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 155
10/22/48 corporation (since 1996); Director and Vice Chairman, United
333 W. Wacker Drive Fire Group, a publicly held company; Adjunct Faculty Member,
Chicago, IL 60606 University of Iowa; Director, Gazette Companies; Life Trustee
of Coe College; Director, Iowa College Foundation; formerly,
Director, Alliant Energy; formerly, Director, Federal Reserve
Bank of Chicago; formerly, President and Chief Operating Officer,
SCI Financial Group, Inc., a regional financial services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 155
3/6/48 Business at the University of Connecticut (since 2003);
333 W. Wacker Drive previously, Senior Vice President and Director of Research
Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003); Director
(since 1997), Credit Research Center at Georgetown University;
Director of Xerox Corporation (since 2004).
------------------------------------------------------------------------------------------------------------------------------------
David J. Kundert Board member 2005 Retired (2004) as Chairman, JPMorgan Asset Management, 153
10/28/42 President and CEO, Banc One Investment Advisors Corporation,
333 W. Wacker Drive and President, One Group Mutual Funds; prior thereto,
Chicago, IL 60606 Executive Vice President, Banc One Corporation and Chairman
and CEO, Banc One Investment Management Group; Board of
Regents, Luther College; currently a member of the American
and Wisconsin Bar Associations.
54
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUND APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUND (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and Chief Operating 155
9/24/44 Officer, Miller-Valentine Partners Ltd., a real estate
333 W. Wacker Drive investment company; formerly, Vice President, Miller-Valentine
Chicago, IL 60606 Realty, a construction company; Board Member and Chair of the
Finance Committee, member of the Audit Committee of Premier
Health Partners, the not-for-profit company of Miami
Valley Hospital; Board Member, formerly Chair, Dayton
Development Coalition; President, Dayton Philharmonic
Orchestra Association; formerly, Member, Community Advisory
Board, National City Bank, Dayton, Ohio and Business
Advisory Council, Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 155
12/29/47 Foundation (since 1994); prior thereto, Executive Director,
333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994).
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business and Finance (since 1997), 155
1/22/50 Northwestern University; Director (since 2003), Chicago
333 W. Wacker Drive Board of Options Exchange; Director (since 2003), National
Chicago, IL 60606 Mentor Holdings, a privately-held, national provider of home
and community-based services; Chairman (since 1997), Board
of Directors, Rubicon, an insurance company owned by
Northwestern University; Director (since 1997), Evanston of
Commerce and Evanston Inventure, a business development
organization.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 155
9/9/56 Administrative Associate General Counsel, formerly, Vice President and
333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (since 2002), General Counsel and
Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.(3);
Managing Director (since 2002), Assistant Secretary and
Associate General Counsel, formerly, Vice President (since
2000), of Nuveen Asset Management; Managing Director (since
2004) and Assistant Secretary (since 1994) of Nuveen
Investments, Inc.; Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002); Vice President and
Assistant Secretary of Nuveen Investments Advisers Inc.
(since 2002); Managing Director, Associate General Counsel
and Assistant Secretary of Rittenhouse Asset Management,
Inc. (since 2003); Chartered Financial Analyst.
55
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), previously, Vice President 155
9/22/63 (since 2002), formerly, Assistant Vice President (since 1999)
333 W. Wacker Drive of Nuveen Investments, LLC; Chartered Financial Analyst.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 155
2/3/66 and Assistant President (since 2000) of Nuveen Investments, LLC.
333 W. Wacker Drive Secretary
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999); 155
11/28/67 and Treasurer Vice President and Treasurer of Nuveen Investments, Inc.
333 W. Wacker Drive (since 1999); Vice President and Treasurer of Nuveen Advisory
Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp (since 1999)(3);
Vice President and Treasurer of Nuveen Asset Management
(since 2002) and of Nuveen Investments Advisers Inc.;
Assistant Treasurer of NWQ Investment Management
Company, LLC (since 2002); Vice President and Treasurer of
Nuveen Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002) and Assistant General Counsel 155
9/24/64 and Secretary (since 1998), formerly, Assistant Vice President (since 1998) of
333 W. Wacker Drive Nuveen Investments, LLC; Vice President (since 2002)
Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant
Vice President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3); and (since 2005) Nuveen
Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 155
10/24/45 Nuveen Investments, LLC; Managing Director (since 2004)
333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory Corp.
Chicago, IL 60606 and Nuveen Institutional Advisory Corp.(3); Managing Director
(since 2005) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 155
3/2/64 LLC; Managing Director (since 2001), formerly, Vice President
333 W. Wacker Drive (since 1995) of Nuveen Advisory Corp. and Nuveen Institutional
Chicago, IL 60606 Advisory Corp.(3); Managing Director (since 2001) of Nuveen
Asset Management; Vice President (since 2002) of Nuveen
Investment Advisers Inc.; Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 155
5/31/54 and Controller of Nuveen Investments, LLC; formerly, Vice President and
333 W. Wacker Drive Funds Controller (1998-2004) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
James D. Grassi Vice President 2004 Vice President and Deputy Director of Compliance (since 2004) 155
4/13/56 and Chief of Nuveen Investments, LLC, Nuveen Investments Advisers Inc.,
333 W. Wacker Drive Compliance Nuveen Asset Management and Rittenhouse Asset Management,
Chicago, IL 60606 Officer Inc.; previously, Vice President and Deputy Director of Compliance
(2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Corp.(3); formerly, Senior Attorney (1994 to 2004), The Northern
Trust Company.
56
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 155
3/22/63 LLC; Certified Public Accountant.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999) of Nuveen Investments, LLC. 155
8/27/61
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 155
7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and
333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.(3); Vice President (since 2005) and
Assistant Secretary of Nuveen Investments, Inc. and of Nuveen
Asset Management; Vice President (since 2000), Assistant
Secretary and Assistant General Counsel (since 1998) of
Rittenhouse Asset Management; Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc. (since 2002);
Assistant Secretary of NWQ Investment Management
Company, LLC (since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940, because he is an officer and board member of
the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were
reorganized into Nuveen Asset Management, effective January 1, 2005.
(4) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
57
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT
APPROVAL PROCESS
At a meeting held on May 10-12, 2005, the Board of Trustees of the Funds,
including the independent Trustees, unanimously approved the Investment
Management Agreement between each Fund and NAM.
THE APPROVAL PROCESS
To assist the Board in its evaluation of an advisory contract with NAM, the
independent Trustees received a report in adequate time in advance of their
meeting which outlined, among other things, the services provided by NAM; the
organization of NAM, including the responsibilities of various departments and
key personnel; the Fund's past performance as well as the Fund's performance
compared to funds of similar investment objectives compiled by an independent
third party (a "Peer Group") and if available, with recognized or, in certain
cases, customized benchmarks; the profitability of NAM and certain industry
profitability analyses for advisers to unaffiliated investment companies; the
expenses of NAM in providing the various services; the advisory fees of NAM,
including comparisons of such fees with the management fees of comparable funds
in its Peer Group as well as comparisons of NAM's management fees with the fees
NAM assesses to other types of investment products or accounts, if any; the soft
dollar practices of NAM; and the expenses of each Fund, including comparisons of
the Fund's expense ratios (after any fee waivers) with the expense ratios of its
Peer Group. This information supplements that received by the Board throughout
the year regarding Fund performance, expense ratios, portfolio composition,
trade execution and sales activity.
In addition to the foregoing materials, independent legal counsel to the
independent Trustees provided, in advance of the meeting, a legal memorandum
outlining, among other things, the duties of the Trustees under the 1940 Act as
well as the general principles of relevant state law in reviewing and approving
advisory contracts; the requirements of the 1940 Act in such matters; an
adviser's fiduciary duty with respect to advisory agreements and compensation;
the standards used by courts in determining whether investment company boards of
directors have fulfilled their duties and factors to be considered by the board
in voting on advisory agreements.
At the Board meeting, NAM made a presentation to and responded to questions from
the Board. After the presentations and after reviewing the written materials,
the independent Trustees met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and consider the renewal of the
advisory contract. It is with this background that the Trustees considered each
Investment Management Agreement with NAM. The independent Trustees, in
consultation with independent counsel, reviewed the factors set out in judicial
decisions and SEC directives relating to the renewal of advisory contracts. As
outlined in more detail below, the Trustees considered all factors they believed
relevant with respect to each Fund, including the following: (a) the nature,
extent and quality of the services to be provided by NAM; (b) the investment
performance of the Fund and NAM; (c) the costs of the services to be provided
and profits to be realized by NAM and its affiliates from the relationship with
the Fund; (d) the extent to which economies of scale would be realized as the
Fund grows; and (e) whether fee levels reflect these economies of scale for the
benefit of Fund investors.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In evaluating the nature, extent and quality of NAM's services, the Trustees
reviewed information concerning the types of services that NAM or its affiliates
provide and are expected to provide to the Nuveen Funds; narrative and
statistical information concerning the Fund's performance record and how such
performance compares to the Fund's Peer Group and, if available, recognized
benchmarks or, in certain cases, customized benchmarks (as described in further
detail in Section B below); information describing NAM's organization and its
various departments, the experience and responsibilities of key personnel, and
available resources. In the discussion of key personnel, the Trustees received
materials regarding the changes or additions in personnel of NAM. The Trustees
further noted the willingness of the personnel of NAM to engage in open, candid
discussions with the Board. The Trustees further considered the quality of NAM's
investment process in making portfolio management decisions, including any
refinements or improvements to the portfolio management processes, enhancements
to technology and systems that are available to portfolio managers, and any
additions of new personnel which may strengthen or expand the research and
investment capabilities of NAM. In their review of advisory contracts for the
fixed income funds, the Trustees also noted that Nuveen won the Lipper Award for
Best Fund Family: Fixed Income-Large Asset Class, for 2004. Given the Trustees'
experience with the Funds, other Nuveen funds and NAM, the Trustees noted that
they were familiar with and continue to have a good understanding of the
organization, operations and personnel of NAM.
In addition to advisory services, the independent Trustees considered the
quality of the administrative or non-advisory services provided. In this regard,
NAM provides the Fund with such administrative and other services (exclusive of,
and in addition to, any such services provided by others for the Funds) and
officers and other personnel as are necessary for the operations of the
respective Fund. In addition to investment management services, NAM and its
affiliates provide each Fund with a wide range of services, including: preparing
shareholder reports; providing daily accounting; providing quarterly financial
statements; overseeing and coordinating the
58
activities of other service providers; administering and organizing Board
meetings and preparing the Board materials for such meetings; providing legal
support (such as helping to prepare registration statements, amendments thereto
and proxy statements and responding to regulatory inquiries); and performing
other Fund administrative tasks necessary for the operation of the respective
Fund (such as tax reporting and fulfilling regulatory filing requirements). In
addition, in evaluating the administrative services, the Trustees considered, in
particular, NAM's policies and procedures for assuring compliance with
applicable laws and regulations in light of the new SEC regulations governing
compliance. The Trustees noted NAM's focus on compliance and its compliance
systems. In their review, the Trustees considered, among other things, the
additions of experienced personnel to NAM's compliance group and modifications
and other enhancements to NAM's computer systems. In addition to the foregoing,
the Trustees also noted that NAM outsources certain services that cannot be
replicated without significant costs or at the same level of expertise. Such
outsourcing has been a beneficial and efficient use of resources by keeping
expenses low while obtaining quality services.
In addition to the above, in reviewing the variety of additional services that
NAM or its affiliates must provide to closed-end funds, such as the Funds, the
independent Trustees determined that Nuveen's commitment to supporting the
secondary market for the common shares of its closed-end funds is particularly
noteworthy. In this regard, the Trustees noted Nuveen's efforts to sponsor
numerous forums for analysts and specialists regarding the various Nuveen
closed-end funds, its creation of a new senior position dedicated to providing
secondary market support services and enhancing communications with investors
and analysts, and its advertising and media relations efforts designed to raise
investor and analyst awareness of the closed-end funds.
With respect to services provided to municipal funds, such as the Funds, the
Trustees also noted, among other things, the enhancements NAM implemented to its
municipal portfolio management processes (e.g., the increased use of benchmarks
to guide and assess the performance of its portfolio managers); the
implementation of a risk management program; and the various initiatives being
undertaken to enhance or modify NAM's computer systems as necessary to support
the innovations of the municipal investment team (such as, the ability to assess
certain historical data in order to create customized benchmarks, perform
attribution analysis and facilitate the use of derivatives as hedging
instruments). With respect to certain of the Funds with a less seasoned
portfolio, the Trustees also noted the hedging program implemented for such
Funds and the team responsible for developing, implementing and monitoring the
hedging procedures. The hedging program was designed to help maintain the
applicable Fund's duration within certain benchmarks.
Based on their review, the Trustees found that, overall, the nature, extent and
quality of services provided (and expected to be provided) to the Funds under
the Investment Management Agreements were of a high level and were quite
satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND ADVISER
As previously noted, the Board received a myriad of performance information
regarding each Fund and its Peer Group, if available. Among other things, the
Board received materials reflecting a Fund's historic performance, the Fund's
performance compared to its Peer Group and, if available, its performance
compared to recognized and, in certain cases, customized benchmarks. Further, in
evaluating the performance information, in certain limited instances, the
Trustees noted that the closest Peer Group for a Fund still would not adequately
reflect such Fund's investment objectives and strategies, thereby limiting the
usefulness of the comparisons of such Fund's performance with that of the Peer
Group.
For state municipal funds, such as the Funds, the performance data included,
among other things, the respective Fund's performance relative to its peers.
More specifically, a Fund's one-, three- and five-year total returns (as
available) for the periods ending December 31, 2004 were evaluated relative to
the unaffiliated funds in its respective Peer Group (including the returns of
individual peers as well as the Peer Group average) as well as additional
performance information with respect to all the funds in the Peer Group, subject
to the following. Certain state municipal Funds do not have a corresponding Peer
Group in which case their performance is measured against a state-specific
municipal index compiled by an independent third party. Such indices measure
bond performance rather than fund performance. The closed-end Funds that utilize
such indices are from Connecticut, Georgia, Maryland, Missouri, North Carolina,
Texas and Virginia. Based on their review, the Trustees determined that each
Fund's absolute and relative investment performance over time had been
satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
In evaluating the management fees and expenses that a Fund is expected to
bear, the Trustees considered the Fund's current management fee structure
and the Fund's expected expense ratios in absolute terms as well as
compared with the fees and expense ratios of the unaffiliated funds in its
Peer Group. The Trustees reviewed the financial information of NAM,
including its respective revenues, expenses and profitability. In reviewing
fees, the Trustees, among other things, reviewed comparisons of the Fund's
gross management fees (fees after fund-level and complex-wide level
breakpoints but before reimbursements and fee waivers), net management fees
(after breakpoints and reimbursements and fee waivers) and total expense
ratios (before and after waivers) with those of the unaffiliated funds in
the Peer Group and peer averages. In this regard, the Trustees noted that
the relative ranking of the Nuveen Funds on fees and expenses was aided by
the significant level of fee reductions provided by the fund-level and
complex-wide breakpoint schedules, and the fee waivers and reimbursements
provided by Nuveen for certain Funds launched since 1999. The complex-wide
breakpoint schedule was instituted in 2004 and is described in further
detail below in Section D entitled "Economies of Scale and Whether Fee
Levels Reflect these Economies of Scale." In their review of the fee and
expense information provided, including, in particular, the expense ratios
of the unaffiliated funds in the respective Peer Group, the Trustees
determined that each Fund's net total expense ratio was within an
acceptable range compared to such peers.
59
ANNUAL INVESTMENT MANAGEMENT
AGREEMENT APPROVAL PROCESS (continued)
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
The Trustees further compared the fees of NAM to the fees NAM assessed for
other types of clients investing in municipal funds (such as municipal
managed accounts). With respect to such separately managed accounts, the
advisory fees for such accounts are generally lower than those charged to
the comparable Fund. The Trustees noted, however, the additional services
that are provided and the costs incurred by Nuveen in managing and
operating registered investment companies, such as the Funds, compared to
individually managed separate accounts. For instance, as described above,
NAM and its affiliates provide numerous services to the Funds including,
but not limited to, preparing shareholder reports; providing daily
accounting; preparing quarterly financial statements; overseeing and
coordinating the activities of other service providers; administering and
organizing Board meetings and preparing the Board materials for such
meetings; providing legal support; and administering all other aspects of
the Fund's operations. Further, the Trustees noted the increased compliance
requirements for funds in light of new SEC regulations and other
legislation. These services are generally not required to the same extent,
if at all, for separate accounts. In addition to the differences in
services, the Trustees also considered, among other things, the differences
in product distribution, investment policies, investor profiles and account
sizes. Accordingly, the Trustees believe that the nature and number of
services provided to operate a Fund merit the higher fees than those to
separate managed accounts.
3. PROFITABILITY OF ADVISER
In conjunction with its review of fees, the Trustees also considered NAM's
profitability. The Trustees reviewed NAM's revenues, expenses and
profitability margins (on both a pre-tax and after-tax basis). In reviewing
profitability, the Trustees recognized that one of the most difficult
issues in determining profitability is establishing a method of allocating
expenses. Accordingly, the Trustees reviewed NAM's assumptions and
methodology of allocating expenses. In this regard, the methods of
allocation used appeared reasonable but the Board noted the inherent
limitations in allocating costs among various advisory products. The
Trustees also recognized that individual fund or product line profitability
of other advisers is generally not publicly available. Further,
profitability may be affected by numerous factors including the types of
funds managed, expense allocations, business mix, etc. and therefore
comparability of profitability is somewhat limited. Nevertheless, to the
extent available, the Trustees considered NAM's profit margin compared to
the profitability of various publicly-traded investment management
companies and/or investment management companies that publicly disclose
some or all of their financial results compiled by three independent
third-party service providers. The Trustees also reviewed the revenues,
expenses and profit margins of various unaffiliated advisory firms with
similar amounts of assets under management for the last year prepared by
NAM. Based on their review, the Trustees were satisfied that NAM's level of
profitability from its relationship with each Fund was reasonable in light
of the services provided.
In evaluating the reasonableness of the compensation, the Trustees also
considered any other revenues paid to NAM as well as any indirect benefits
(such as soft dollar arrangements, if any) NAM and its affiliates are
expected to receive that are directly attributable to their management of
the Funds, if any. See Section E below for additional information. Based on
their review of the overall fee arrangements of the applicable Fund, the
Trustees determined that the advisory fees and expenses of the respective
Fund were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
In reviewing the compensation, the Trustees have long understood the benefits of
economies of scale as the assets of a fund grow and have sought to ensure that
shareholders share in these benefits. One method for shareholders to share in
economies of scale is to include breakpoints in the advisory fee schedules that
reduce fees as fund assets grow. Accordingly, the Trustees received and reviewed
the schedules of advisory fees for each Fund, including fund-level breakpoints
thereto. In addition, after lengthy negotiations with management, the Board in
May 2004 approved a complex-wide fee arrangement pursuant to which fees of the
funds in the Nuveen complex, including the Funds, are reduced as the assets in
the fund complex reach certain levels. The complex-wide fee arrangement was
introduced on August 1, 2004 and the Trustees reviewed data regarding the
reductions of fees for the Funds for the period of August 1, 2004 to December
31, 2004. In evaluating the complex-wide fee arrangement, the Trustees
considered, among other things, the historic and expected fee savings to
shareholders as assets grow, the amount of fee reductions at various asset
levels, and that the arrangement would extend to all Funds in the Nuveen
complex. The Trustees also considered the impact, if any, the complex-wide fee
arrangement may have on the level of services provided. Based on their review,
the Trustees concluded that the breakpoint schedule and complex-wide fee
arrangement currently was acceptable and desirable in providing benefits from
economies of scale to shareholders.
60
E. INDIRECT BENEFITS
In evaluating fees, the Trustees also considered any indirect benefits or
profits NAM or its affiliates may receive as a result of its relationship with
each Fund. In this regard, the Trustees considered any benefits from soft dollar
arrangements. The Trustees noted that although NAM manages a large amount of
assets, it has very little, if any, brokerage to allocate. This is due to the
fact that NAM typically manages the portfolios of the municipal funds in the
Nuveen complex and municipal bonds generally trade on a principal basis.
Accordingly, NAM does not currently have any soft dollar arrangements and does
not pay excess brokerage commissions (or spreads on principal transactions) in
order to receive research services. In addition to soft dollar arrangements, the
Trustees also considered any other revenues, if any, received by NAM or its
affiliates. With respect to Funds with outstanding preferred shares and new
Funds, the Trustees considered revenues received by Nuveen for serving as agent
for broker-dealers at its preferred trading desk and for acting as co-manager in
the initial public offering of new closed-end exchange-traded funds.
F. OTHER CONSIDERATIONS
Nuveen, until recently, was a majority-owned subsidiary of St. Paul Travelers
Companies, Inc. ("St. Paul"). As noted, St. Paul earlier this year announced its
intention to divest its equity stake in Nuveen. Nuveen is the parent of NAM.
Pursuant to a series of transactions, St. Paul had begun to reduce its interest
in Nuveen which would ultimately result in a change of control of Nuveen and
therefore NAM. As mandated by the 1940 Act, such a change in control would
result in an assignment of the advisory agreement with NAM and the automatic
termination of such agreement. Accordingly, the Board also considered for each
Fund the approval of a New Investment Management Agreement with each Fund in
light of, and which would take effect upon, the anticipated change of control.
More specifically, the Board considered for each Fund a New Investment
Management Agreement on substantially identical terms to the existing Investment
Management Agreement, to take effect after the change of control has occurred
and the contract has been approved by Fund shareholders. In its review, the
Board considered whether the various transactions necessary to divest St. Paul's
interest will have an impact on the various factors they considered in approving
NAM, such as the scope and quality of services to be provided following the
change of control. In reviewing the St. Paul transactions, the Board considered,
among other things, the impact, if any, on the operations and organizational
structure of NAM; the possible benefits and costs of the transactions to the
respective Fund; the potential implications of any arrangements used by Nuveen
to finance certain of the transactions; the ability of NAM to perform its duties
after the transactions; whether a Fund's fee structure or expense ratio would
change; any changes to the current practices of the respective Fund; any changes
to the terms of the advisory agreement; and any anticipated changes to the
operations of NAM. Based on its review, the Board determined that St. Paul's
divestiture would not affect the nature and quality of services provided by NAM,
the terms of the Investment Management Agreement, including the fees thereunder,
and would not materially affect the organization or operations of NAM.
Accordingly, the Board determined that their analysis of the various factors
regarding their approval of NAM would continue to apply after the change of
control.
G. APPROVAL
The Trustees did not identify any single factor discussed previously as
all-important or controlling. The Trustees, including a majority of independent
Trustees, concluded that the terms of the Investment Management Agreements were
fair and reasonable, that the respective Fund Adviser's fees are reasonable in
light of the services provided to each Fund, that the renewal of the NAM
Investment Management Agreements should be approved, and that the new,
post-change of control NAM Investment Management Agreements be approved and
recommended to shareholders.
61
Reinvest Automatically
EASILY AND CONVENIENTLY
Sidebar text: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or distributions
that are reinvested.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
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
the shares may increase before purchases are completed, the average purchase
price per share may exceed the market price at the time of valuation, resulting
in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund. A pro rata portion of any applicable
brokerage commissions on open market purchases will be paid by Plan
participants. These commissions usually will be lower than those charged on
individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
62
Other Useful
INFORMATION
In April, 2005, The St. Paul Travelers Companies, Inc. ("St. Paul Travelers")
sold the majority of its controlling equity interest in Nuveen Investments, Inc.
("Nuveen") to the general public. Nuveen is the parent of Nuveen Asset
Management ("NAM"), which is each Fund's investment manager. This sale was
deemed to be an "assignment" of the investment management agreement between each
Fund and NAM and, if applicable, of the sub-advisory agreement between NAM and
the Fund's sub-adviser. As required by law, the shareholders of each Fund were
asked to approve a new investment management agreement and, if applicable, a new
subadvisory agreement that reflected this change in ownership. The shareholders
of each Fund voted this approval at a Shareholders' Meeting on July 26, 2005.
There were no changes to the investment objectives or management of any Fund as
a result of these actions.
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
Each Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
12-month period ended June 30, 2005, and (iii) a description of the policies and
procedures that the Funds used to determine how to vote proxies relating to
portfolio securities are available without charge, upon request, by calling
Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
References Section at 450 Fifth Street NW, Washington, D.C. 20549.
CEO CERTIFICATION DISCLOSURE
Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual. Each Fund has filed with the Securities and Exchange
Commission the certification of its Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
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 the expected period over
which a bond's principal and interest will be paid, and consequently is a
measure of the sensitivity of a bond's or bond Fund's value to changes when
market interest rates change. Generally, the longer a bond's or Fund's duration,
the more the price of the bond or Fund will change as interest rates change.
Leverage-adjusted duration takes into account the leveraging process for a Fund
and therefore is longer than the duration of the Fund's portfolio of bonds.
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 common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
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.
BOARD OF DIRECTORS/TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
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
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
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 period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
63
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing more than $120 billion in assets, Nuveen Investments offers access to a
number of different asset classes and investing solutions through a variety of
products. Nuveen Investments markets its capabilities under four distinct
brands: Nuveen, a leader in fixed-income investments; NWQ, a leader in
value-style equities; Rittenhouse, a leader in growth-style equities; and
Symphony, a leading institutional manager of market-neutral alternative
investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
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o Fund details
Learn more o Daily financial news
about Nuveen Funds at o Investor education
WWW.NUVEEN.COM/ETF o Interactive planning tools
Logo: NUVEEN Investments
EAN-A-0705D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted a
code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. There were no amendments to or waivers
from the Code during the period covered by this report. The registrant has
posted the code of ethics on its website at www.nuveen.com/etf. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Directors or Trustees determined that the registrant
has at least one "audit committee financial expert" (as defined in Item 3 of
Form N-CSR) serving on its Audit Committee. The registrant's audit committee
financial expert is Jack B. Evans, Chairman of the Audit Committee, who is
"independent" for purposes of Item 3 of Form N-CSR.
Mr. Evans was formerly President and Chief Operating Officer of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Arizona Dividend Advantage Municipal Fund 3
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that Ernst & Young LLP provided to the Fund, except for those non-audit services
that were subject to the pre-approval exception under Rule 2-01 of Regulation
S-X (the "pre-approval exception"). The pre-approval exception for services
provided directly to the Fund waives the pre-approval requirement for services
other than audit, review or attest services if: (A) the aggregate amount of all
such services provided constitutes no more than 5% of the total amount of
revenues paid by the Fund to its accountant during the fiscal year in which the
services are provided; (B) the Fund did not recognize the services as non-audit
services at the time of the engagement; and (C) the services are promptly
brought to the Audit Committee's attention, and the Committee (or its delegate)
approves the services before the audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
Audit Fees Billed Audit-Related Fees Tax Fees All Other Fees
Fiscal Year Ended to Fund Billed to Fund Billed to Fund Billed to Fund
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2005 $ 7,234 $ 0 $ 597 $ 2,700
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 6,868 $ 0 $ 743 $ 2,500
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
The above "All Other Fees" are fees paid to audit firms to perform agreed upon
procedures required by the rating agencies to rate fund preferred shares. The
above "Tax Fees" were billed for professional services for tax advice, tax
compliance, and tax planning.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
Fiscal Year Ended Audit-Related Fees Tax Fees Billed to All Other Fees
Billed to Adviser and Adviser and Billed to Adviser
Affiliated Fund Affiliated Fund and Affiliated Fund
Service Providers Service Providers Service Providers
---------------------------------------------------------------------------------------------------------------------
July 31, 2005 $ 0 $ 282,575 $ 0
---------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
---------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 0 $ 0 $ 0
---------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
---------------------------------------------------------------------------------------------------------------------
The above "Tax Fees" are primarily fees billed to the Adviser for Fund tax
return preparation.
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP's independence.
Fiscal Year Ended Total Non-Audit Fees
billed to Adviser and
Affiliated Fund Service Total Non-Audit Fees
Providers (engagements billed to Adviser and
related directly to the Affiliated Fund Service
Total Non-Audit Fees operations and financial Providers (all other
Billed to Fund reporting of the Fund) engagements) Total
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2005 $ 3,297 $ 282,575 $ 0 $ 285,872
July 31, 2004 $ 3,243 $ 0 $ 0 $ 3,243
The above "Non-Audit Fees billed to Adviser" for 2005 include "Tax-Fees" billed
to Adviser in the amount of $282,575 from previous table.
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit
committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the audit committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the audit committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the audit committee at
the next audit committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
audit committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B.
Evans, William J. Schneider and Eugene S. Sunshine.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
In the rare event that a municipal issuer held by the Fund were to issue a proxy
or that the Fund were to receive a proxy issued by a cash management security,
the Adviser would either engage an independent third party to determine how the
proxy should be voted or vote the proxy with the consent, or based on the
instructions, of the Fund's Board of Directors or Trustees or its
representative. In the case of a conflict of interest, the proxy would be
submitted to the applicable Fund's Board to determine how the proxy should be
voted. A member of the Adviser's legal department would oversee the
administration of the voting, and ensure that records were maintained in
accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17
CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the
results were provided to the Board of Directors or Trustees and made available
to shareholders as required by applicable rules.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")
(17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because the code is posted on registrant's website at www.nuveen.com/etf and
there were no amendments during the period covered by this report. (To view the
code, click on the Investor Resources drop down menu box, click on Fund
Governance and then Code of Conduct.)
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
Attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons. Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Arizona Dividend Advantage Municipal Fund 3
-----------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: October 7, 2005
-------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
----------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: October 7, 2005
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: October 7, 2005
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.