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 811-10491
---------------------
Nuveen Real Estate Income Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
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: December 31
------------------
Date of reporting period: December 31, 2004
------------------
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 December 31, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN
REAL ESTATE
INCOME FUND
JRS
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HIGH CURRENT INCOME FROM A PORTFOLIO OF COMMERCIAL REAL ESTATE INVESTMENTS
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Timothy R. Schwertfeger
Chairman of the Board
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Chairman's
LETTER TO SHAREHOLDERS
I am very pleased to report that for the year ended December 31, 2004, your Fund
continued to provide you with attractive monthly distributions and diversified
exposure to the real estate investment marketplace.
Portfolio diversification is a recognized way to try to reduce some of the risk
that comes with investing. Since one part of your portfolio may be going up when
another is going down, portfolio diversification may help smooth your investment
returns over time. In addition to providing regular monthly income, a real
estate oriented investment like your Fund may help you achieve and benefit from
greater portfolio diversification. Your financial advisor can explain these
advantages in more detail. I urge you to contact him or her soon for more
information on this important investment strategy.
"IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, A REAL ESTATE ORIENTED
INVESTMENT LIKE YOUR FUND MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER
PORTFOLIO DIVERSIFICATION."
I also urge you to consider receiving future Fund reports and other Fund
information faster by using e-mails and the Internet. Sign up is quick and easy
- see the inside front cover of this report for instructions.
For more than 100 years, Nuveen has specialized in offering quality investments
such as your Fund to those seeking to accumulate and preserve wealth. Our
mission continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you secure your long-term
financial goals. We thank you for choosing us as a partner as you work toward
that objective.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2005
Nuveen Real Estate Income Fund
(JRS)
Portfolio Managers'
PERSPECTIVE
The Nuveen Real Estate Income Fund is subadvised by a team of real estate
investment professionals at Security Capital Research & Management Incorporated,
a part of JPMorgan Fleming Asset Management, which is the asset management
business of JPMorgan Chase & Co. Tony Manno and Ken Statz, who each have more
than 21 years' experience in managing real estate investments, lead the team.
Here they review the economic environment, key investment strategies and
performance of the Fund for the 12-month period ended December 31, 2004.
WHAT WERE THE GENERAL ECONOMIC AND MARKET CONDITIONS DURING THE YEAR ENDED
DECEMBER 31, 2004?
Entering the year, a prolonged period of economic weakness had left many
commercial real estate operating markets and property sectors around the United
States under significant stress. Especially affected were those sectors for
which business investment and job creation play a key role in creating and
sustaining marginal demand, such as office buildings and hotels. In contrast,
malls and smaller shopping centers, which tend to be more influenced by consumer
behavior, continued to experience healthy operating fundamentals.
Throughout 2004, U.S. economic activity improved. New jobs began to emerge with
consistency, raising the possibility that, from an operating perspective, a new
cycle may be beginning for the hardest hit real estate property types. New
supply additions remained largely in balance during the recent downturn, leading
some to believe that any increases in demand as the economy improves may
ultimately lead to higher occupancy levels. This, in turn, could mean
potentially increased cash flow and dividend coverage for many real estate
operating companies.
Accompanying these developments was a shift toward higher interest rate
expectations by many market participants. In particular, we believe factors like
the Federal Reserve's five increases in the fed funds rate over the course of
2004 had a dramatic affect on the actions and expectations of
shorter-term-focused real estate securities investors. (On February 2, 2005,
after the close of this reporting period, the Federal Reserve raised the fed
funds rate by another 0.25% to 2.50%.) As a result, we saw unusually high
volatility and trading volumes for real estate securities at various times
throughout the year, and there was a significant dispersion of overall
performance among property and security types.
4
WITHIN THIS ENVIRONMENT, WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY AND WHAT WERE
SOME OF THE PRIMARY TACTICS?
During 2004, we continued to focus on identifying and owning securities that we
believed were best positioned to generate sustainable income and potential price
appreciation. In managing the Fund's portfolio, we sought to maintain
significant diversification while taking into account credit quality issues,
sector and geographic exposure, and allocations among various types of
securities. Every trading decision was based on a multi-layered analysis of the
company, the real estate it owned, its management, and the relative price of the
security.
The ability to shift allocations between preferred and common stocks based on
the relative attractiveness of these two distinct markets was an important
tactic in managing JRS for income and long-term capital appreciation. As
operating fundamentals began to turn the corner in 2004, our research indicated
a shift in the risk and reward characteristics of common stocks versus preferred
stocks. Acting on this analysis, especially in the latter half of the year, we
tilted the portfolio toward common stocks, especially those of companies that we
thought exhibited the greatest potential in an improving economy. From January
1, 2004 to December 31, 2004, the allocation toward common stocks increased from
65% of investments to 73%.
HOW DID THE FUND PERFORM?
Fund performance results, as well as the performance of a relevant index, are
shown in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For the 12-month period ended December 31, 2004
JRS 30.12%
--------------------------------------------------------------------------------
Dow Jones Wilshire
Real Estate Securities
Index1 34.81%
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Returns do not reflect the
deduction of taxes that a shareholder may have to pay on Fund distributions or
upon the sale of Fund shares.
The Fund provided a very attractive total return on net asset value over the
12-month period, although its performance trailed the Dow Jones Wilshire index.
Most of the gains
1 The Dow Jones Wilshire Real Estate Securities Index is an unmanaged index
comprised of publicly-traded REITs and other real estate operating
companies.
5
in the Fund and the index occurred in the last six months of the year as the
economy continued to improve.
Since 2003, we had been gradually and selectively shifting the portfolio's
property type weightings from a largely defensive posture to one that we think
better positions it with respect to a growing economy. From January 1 to
December 31, 2004, this resulted in an increase in our allocation toward more
cyclically sensitive mall and apartment companies (from 12.9% to 14.1% of the
portfolio, and from 17.3% to 19.3%, respectively), and a decrease in the
allocation to the more defensive office buildings and shopping center sectors
(from 37.7% to 30.4% of the portfolio, and from 12.2% to 7.2%, respectively).
Returns by property sector in 2004 began to reflect the value of this strategic
shift. According to the Dow Jones Wilshire Real Estate Securities Index, mall
companies outperformed substantially in 2004 relative to the wider real estate
securities universe, while office companies underperformed. Apartment companies
generally performed in line with the universe - however, the portfolio's
specific holdings in this area generally outperformed.
At the same time, the portfolio's selections among diversified companies (i.e.
those not specializing in any one property type) did not perform nearly as well
as the rest of the universe, and consequently negatively impacted the Fund's
total return performance over this period.
While much of our emphasis was on finding attractive REIT common stocks, REIT
preferred stock remained an important component of the income and appreciation
performance of JRS. REIT preferred stocks are not included in the Dow Jones
Wilshire index. While we believe REIT preferred stocks helped the Fund's overall
risk profile, they did create a small drag on performance when compared with an
all common stock REIT and real estate index.
Another factor benefiting Fund performance over the past year was the Fund's use
of financial leverage. Using this strategy, the Fund effectively borrowed money
by issuing Taxable Auctioned Preferred shares that paid shorter-term rates and
invested those proceeds in its portfolio of real estate company common stocks
and preferred stocks.
6
While this strategy had the potential to add volatility to the Fund's NAV and
share price, this leveraging substantially enhanced total returns during the
period by amplifying the already strong return performance of the Fund's
portfolio investments.
HOW ABOUT THE FUND'S MONTHLY DISTRIBUTIONS AND SHARE PRICE?
The Fund's financial leverage, described immediately above, can increase share
price volatility, but also can enhance Fund returns and supplement the income
available to pay common shareholder distributions. This leveraging strategy
provided incremental income and helped enhance shareholder distributions over
the 12-month period.
On September 1, 2004, the Fund announced that it had adopted a managed
distribution policy. Under this policy, the Fund's monthly distributions now are
determined based primarily on investment income generated by its underlying
securities as well as on realized capital gains and/or returns of capital
representing unrealized capital gains. The Fund had built a significant balance
of realized and unrealized capital gains since its inception in 2001, and we
believed it was in the best interests of our shareholders to distribute a
portion of the capital appreciation embedded in the Fund during the course of
the year, rather than in a lump-sum distribution at the end of the year.
As a result of these strategies and policies, the Fund was able to increase its
regular monthly distribution in September 2004 to $0.135 per share from $0.115
per share.
As of December 31, 2004, the Fund was trading at a -7.61% discount to its net
asset value, compared with an average discount of -6.37% for the entire 12-month
period.
7
Nuveen Real Estate Income Fund
JRS
Performance
OVERVIEW As of December 31, 2004
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
Common Stocks 72.7%
Preferred Stocks 26.8%
Repurchase Agreements 0.5%
Bar Chart:
2004 MONTHLY DISTRIBUTIONS PER SHARE
Jan 0.115
Feb 0.115
Mar 0.115
Apr 0.115
May 0.115
Jun 0.115
Jul 0.115
Aug 0.115
Sep 0.135
Oct 0.135
Nov 0.135
Dec 0.135
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/1/04 18.53
18.63
18.69
18.75
18.75
18.75
18.88
18.49
18.6
18.46
18.69
18.85
18.85
18.65
18.69
18.84
18.89
18.91
19
18.94
18.94
19.1
19.13
19
18.94
19.04
19.1
19.19
18.98
18.9
18.75
18.68
18.59
18.39
18.26
17.52
17.62
17.97
18.36
18.55
18.55
18.6
18.7
19
19.05
19.13
19.17
19.12
19.1
19.1
19.11
18.95
19.05
19.08
19.18
19.24
19.1
18.88
19.19
19.1
19.18
19.16
19.21
19.28
19.35
19.3
17.98
17.32
17.81
18
16.8
16.07
15.85
16.27
16.77
16.6
16.06
15.95
16.11
16.01
15.81
15.76
15.78
15.79
15.85
15.86
16.07
16.16
15.99
15.15
14.95
15.26
15.36
15.56
15.91
15.8
15.95
15.97
16
16.12
16.22
16.3
16.45
16.59
16.69
16.69
16.68
16.75
16.88
16.85
16.87
16.83
16.83
16.6
15.97
16.19
16.18
16.16
16.17
16.35
16.44
16.7
16.65
16.55
16.63
16.63
16.83
16.92
16.98
17
17.12
17.18
17.17
17.27
17.08
16.99
17.08
17.18
17.34
17.39
17.27
17.17
17.05
16.95
17.06
17.04
17.15
17.44
17.44
17.43
17.5
17.5
17.55
17.3
17.38
17.52
17.47
17.47
17.58
17.5
17.68
17.9
17.81
17.9
17.9
17.89
17.83
17.86
17.95
18.04
18.15
18.25
18.69
19.07
19.1
19.04
18.8
18.83
18.69
18.68
18.66
18.78
18.86
18.91
18.68
18.8
18.82
18.94
18.81
18.93
18.99
19.07
19.24
19.37
19.27
19.38
19.38
19.42
19.59
19.63
19.45
19.53
19.68
19.82
19.89
19.75
19.92
20
19.91
20
19.99
20.05
20.02
20.02
20.25
20.2
20.45
20.61
19.4
18.96
19.18
19.4
19.68
19.89
19.91
19.9
19.71
19.65
19.68
19.74
19.99
20.14
20.18
20.2
20.24
20.49
20.62
20.78
20.9
20.66
20.7
20.85
20.99
20.75
20.88
20.75
20.76
20.62
20.4
20.41
20.45
20.64
20.65
20.62
20.46
20.64
12/31/04 20.75
FUND SNAPSHOT
------------------------------------
Share Price $20.75
------------------------------------
Common Share Net Asset Value $22.46
------------------------------------
Premium/(Discount) to NAV -7.61%
------------------------------------
Market Yield1 7.81%
------------------------------------
Net Assets Attributable to
Common Shares ($000) $631,979
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Office 30.4%
------------------------------------
Apartments 19.3%
------------------------------------
Regional Malls 14.1%
------------------------------------
Healthcare 10.2%
------------------------------------
Diversified 8.4%
------------------------------------
Shopping Centers 7.2%
------------------------------------
Hotel 4.7%
------------------------------------
Repurchase Agreements 0.5%
------------------------------------
Other 5.2%
------------------------------------
TOP FIVE COMMON STOCK ISSUERS
(as a % of total investments)
------------------------------------
The Macerich Company 8.2%
------------------------------------
Mack-Cali Realty Corporation 7.7%
------------------------------------
Arden Realty, Inc. 6.5%
------------------------------------
HRPT Properties Trust 5.8%
------------------------------------
Nationwide Health
Properties, Inc. 5.7%
------------------------------------
TOP FIVE PREFERRED STOCK ISSUERS
(as a % of total investments)
------------------------------------
Crescent Real Estate Equities
Company 5.7%
------------------------------------
Apartment Investment &
Management Company 3.8%
------------------------------------
Home Properties, Inc. 3.2%
------------------------------------
LaSalle Hotel Properties 2.0%
------------------------------------
PS Business Parks, Inc. 1.7%
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/15/01)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 19.80% 30.12%
------------------------------------
Since Inception 20.36% 25.16%
------------------------------------
1 Market yield is based on the Fund's current annualized monthly distribution
divided by the Fund's current market price. REIT distributions received by
the Fund are generally comprised of investment income, long-term and
short-term capital gains and a REIT return of capital. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the
amount of the Fund's distributions, a tax return of capital.
8
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
NUVEEN REAL ESTATE INCOME FUND
We have audited the accompanying statement of assets and liabilities of Nuveen
Real Estate Income Fund (the "Fund"), including the portfolio of investments, as
of December 31, 2004, and the related statement of operations for the year then
ended, the statement of changes in net assets for the year then ended, for the
period from November 1, 2003 to December 31, 2003 and for the year ended October
31, 2003, and the financial highlights for the year then ended, for the period
from November 1, 2003 to December 31, 2003, for the year ended October 31, 2003
and for the period from November 15, 2001 (commencement of operations) to
October 31, 2002. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Fund's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
Our procedures included confirmation of securities owned as of December 31,
2004, by correspondence with the custodian and brokers. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Real Estate Income Fund at December 31, 2004, the results of its operations for
the year then ended, the changes in its net assets for the year then ended, for
the period from November 1, 2003 to December 31, 2003 and for the year ended
October 31, 2003, and the financial highlights for the year then ended, for the
period from November 1, 2003 to December 31, 2003, for the year ended October
31, 2003 and for the period from November 15, 2001 (commencement of operations)
to October 31, 2002, in conformity with U.S. generally accepted accounting
principles.
/s/Ernst & Young LLP
Chicago, Illinois
February 17, 2005
9
Nuveen Real Estate Income Fund (JRS)
Portfolio of
INVESTMENTS December 31, 2004
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 92.5% (72.7% OF TOTAL INVESTMENTS)
APARTMENTS - 15.4%
526,300 Amli Residential Properties Trust $ 16,841,600
215,300 Apartment Investment & Management Company, Series A 8,297,662
870,000 Archstone-Smith Trust 33,321,000
516,400 AvalonBay Communities, Inc. 38,884,920
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED - 0.7%
326,000 Spirit Finance Corporation 4,123,900
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 12.4%
1,912,300 Nationwide Health Properties, Inc. 45,417,125
1,740,300 Senior Housing Properties Trust 32,961,282
------------------------------------------------------------------------------------------------------------------------------------
HOTEL - 0.9%
492,564 Hersha Hospitality Trust 5,639,858
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 3.3%
517,100 First Industrial Realty Trust, Inc. 21,061,483
------------------------------------------------------------------------------------------------------------------------------------
OFFICE - 33.0%
1,388,800 Arden Realty, Inc. 52,385,536
3,642,100 HRPT Properties Trust 46,728,143
1,351,500 Mack-Cali Realty Corporation 62,209,545
298,100 Maguire Properties, Inc. 8,185,826
1,205,600 Reckson Associates Realty Corporation 39,555,736
------------------------------------------------------------------------------------------------------------------------------------
REGIONAL MALLS - 15.7%
1,205,600 Glimcher Realty Trust 33,407,176
1,044,100 The Macerich Company 65,569,480
------------------------------------------------------------------------------------------------------------------------------------
SHOPPING CENTERS - 8.0%
378,000 Cedar Shopping Centers Inc. 5,405,400
413,800 Federal Realty Investment Trust 21,372,770
880,300 New Plan Excel Realty Trust 23,838,524
------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 3.1%
76,900 Public Storage, Inc., Series A 2,207,799
984,200 U-Store It Trust 17,075,870
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $357,470,917) 584,490,635
------------------------------------------------------------------------------------------------------------------------------------
10
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 34.1% (26.8% OF TOTAL INVESTMENTS)
APARTMENTS - 9.3%
Apartment Investment & Management Company:
803,500 Series R, 10.000% $ 21,397,205
380,000 Series U, 7.750% 9,454,400
945,000 Home Properties, Inc., Series F, 9.000% 25,893,000
51,300 United Dominion Realty Trust, Series B, 8.600% 1,382,535
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED - 10.1%
Crescent Real Estate Equities Company:
1,031,300 Series A (Convertible), 6.750% 22,987,677
850,000 Series B, 9.500% 22,695,000
150,000 Lexington Corporate Properties Trust, Series B, 8.050% 3,987,000
497,623 PS Business Parks, Inc., Series F, 8.750% 13,373,618
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 0.5%
32,558 Nationwide Health Properties, Inc., Series A, 7.677% 3,459,288
------------------------------------------------------------------------------------------------------------------------------------
HOTEL - 5.0%
130,000 Ashford Hospitality Trust, Series A, 8.550% 3,367,000
360,000 Boykin Lodging Company, Series A, 10.500% 10,116,000
592,000 LaSalle Hotel Properties, Series A, 10.250% 16,220,800
82,000 WestCoast Hospitality Corporation, Series A, 9.500% 2,164,800
------------------------------------------------------------------------------------------------------------------------------------
OFFICE - 5.6%
Alexandria Real Estate Equities Inc:
95,400 Series B, 9.100% 2,575,800
160,000 Series C, 8.375% 4,255,008
200,000 Corporate Office Properties Trust, Series G, 8.000% 5,300,000
12,141 Highwoods Properties, Inc., Series A, 8.625% 13,078,140
406,000 Maguire Properties, Inc., Series A, 7.625% 10,393,600
------------------------------------------------------------------------------------------------------------------------------------
REGIONAL MALLS - 2.2%
Glimcher Realty Trust:
113,000 Series F, 8.750% 2,943,650
50,000 Series G, 8.125% 1,289,500
The Mills Corp.:
115,200 Series C, 9.000% 3,202,560
213,000 Series E, 8.750% 6,040,680
24,500 Taubman Centers, Inc., Series A, 8.300% 624,995
------------------------------------------------------------------------------------------------------------------------------------
SHOPPING CENTERS - 1.2%
160,000 Cedar Shopping Centers Inc., 8.875% 4,270,000
125,000 Saul Centers, Inc., Series A, 8.000% 3,343,750
------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 0.2%
Shurgard Storage Centers, Inc:
30,000 Series C, 8.700% 775,500
24,600 Series D, 8.750% 651,653
------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (cost $197,895,365) 215,243,159
--------------------------------------------------------------------------------------------------------------------
11
Nuveen Real Estate Income Fund (JRS) (continued)
Portfolio of INVESTMENTS December 31, 2004
PRINCIPAL MARKET
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (COST $3,942,248) - 0.6% (0.5% OF TOTAL INVESTMENTS)
State Street Bank, 1.000%, dated 12/31/04, due 1/03/05, repurchase price $3,942,577,
$ 3,942 collateralized by $2,555,000 U.S. Treasury Bonds, 10.625%, due 8/15/15, value $4,022,130 $ 3,942,248
=============-----------------------------------------------------------------------------------------------------------------------
Total Investments (cost $559,308,530) - 127.2% 803,676,042
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.0% 302,995
--------------------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, at Liquidation Value - (27.2%) (172,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $631,979,037
====================================================================================================================
INTEREST RATE SWAP CONTRACTS OUTSTANDING AT DECEMBER 31, 2004:
UNREALIZED
NOTIONAL TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FIXED RATE FLOATING RATE* DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------
Citigroup N.A. $43,000,000 4.0225% 1.3600% 2/07/05 $ (124,390)
Citigroup N.A. 43,000,000 4.8000 1.3600 2/06/07 (1,322,116)
Citigroup N.A. 43,000,000 5.1900 1.3600 2/06/09 (2,427,716)
--------------------------------------------------------------------------------------------------------------------
$(3,874,222)
====================================================================================================================
* Based on LIBOR (London Inter-Bank Offered Rates).
(1) All percentages shown in the Portfolio of Investments are
based on net assets applicable to Common shares unless
otherwise noted.
See accompanying notes to financial statements.
12
Statement of
ASSETS AND LIABILITIES December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $559,308,530) $803,676,042
Dividends and interest receivable 4,751,037
Other assets 23,057
------------------------------------------------------------------------------------------------------------------------------------
Total assets 808,450,136
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Interest rate swaps, at value 3,874,222
Accrued expenses:
Management fees 394,456
Other 163,598
Taxable Auctioned Preferred share dividends payable 38,823
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,471,099
------------------------------------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred shares, at liquidation value 172,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $631,979,037
====================================================================================================================================
Common shares outstanding 28,136,413
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 22.46
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 281,364
Paid-in surplus 391,025,257
Undistributed net investment income 179,126
Accumulated net realized gain from investments and interest rate swaps --
Net unrealized appreciation (depreciation) of investments and interest rate swaps 240,493,290
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $631,979,037
====================================================================================================================================
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
13
Statement of
OPERATIONS Year Ended December 31, 2004
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 29,969,669
Interest 111,705
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 30,081,374
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 6,419,524
Taxable Auctioned Preferred shares - auction fees 431,177
Taxable Auctioned Preferred shares - dividend disbursing agent fees 23,448
Shareholders' servicing agent fees and expenses 3,446
Custodian's fees and expenses 144,652
Trustees' fees and expenses 34,865
Professional fees 24,499
Shareholders' reports - printing and mailing expenses 126,035
Stock exchange listing fees 2,424
Investor relations expense 112,110
Other expenses 28,837
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 7,351,017
Custodian fee credit (519)
Expense reimbursement (2,164,436)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 5,186,062
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 24,895,312
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain from investments 18,980,955
Net realized gain (loss) from interest rate swaps (4,017,763)
Change in net unrealized appreciation (depreciation) of investments 109,849,162
Change in net unrealized appreciation (depreciation) of interest rate swaps 3,346,462
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain 128,158,816
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From net investment income (1,353,325)
From accumulated net realized gains from investments (1,218,577)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to Taxable Auctioned Preferred shareholders (2,571,902)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $150,482,226
====================================================================================================================================
See accompanying notes to financial statements.
14
Statement of
CHANGES IN NET ASSETS
FOR THE PERIOD
11/01/03
YEAR ENDED THROUGH YEAR ENDED
12/31/04 12/31/03 10/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 24,895,312 $ 3,420,799 $ 24,030,692
Net realized gain from investments 18,980,955 2,731,047 14,955,847
Net realized gain (loss) from interest rate swaps (4,017,763) -- --
Change in net unrealized appreciation (depreciation) of investments 109,849,162 36,408,836 106,540,733
Change in net unrealized appreciation (depreciation) of interest rate swaps 3,346,462 (30,461) 1,684,638
Distributions to Taxable Auctioned Preferred shareholders:
From net investment income (1,353,325) (205,848) (1,534,591)
From accumulated net realized gains from investments (1,218,577) (137,777) (666,002)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations 150,482,226 42,186,596 145,011,317
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (19,333,368) (400,409) (27,213,445)
From accumulated net realized gains from investments (17,762,374) (2,353,670) (11,530,158)
Tax return of capital (3,983,421) (3,717,296) (1,129,210)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to
Common shareholders (41,079,163) (6,471,375) (39,872,813)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares issued to shareholders due to reinvestment
of distributions -- 46,398 382,555
Taxable Auctioned Preferred shares offering costs -- -- 3,544
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from capital share transactions -- 46,398 386,099
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 109,403,063 35,761,619 105,524,603
Net assets applicable to Common shares at the beginning of year 522,575,974 486,814,355 381,289,752
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $631,979,037 $522,575,974 $486,814,355
====================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end of year $ 179,126 $ (11,730) $ (2,826,809)
====================================================================================================================================
See accompanying notes to financial statements.
15
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Real Estate Income Fund (the "Fund") is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's Common shares are listed on the American Stock
Exchange and trade under the ticker symbol "JRS." The Fund was organized as a
Massachusetts business trust on August 27, 2001.
The Fund seeks to provide high current income by investing primarily in a
portfolio of income-producing common stocks, preferred stocks, convertible
preferred stocks and debt securities issued by real estate companies, such as
Real Estate Investment Trusts ("REITs").
The Board of Trustees of the Fund approved a change in the Fund's fiscal year
end from October 31 to December 31 upon completion of the Fund's October 31,
2003 fiscal year.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. Prices of interest rate swaps are also provided
by an independent pricing service approved by the Fund's Board of Trustees. If
the pricing service is unable to supply a price for an interest rate swap the
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 Trustees of the Fund, or its
designee, may establish a fair value for the investment. In establishing a fair
value, the Board of Trustees, or its designee, will use a wide variety of market
data including yields or prices of comparable securities, indications of value
from security dealers, general market conditions and other information and
analysis. 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.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis.
Income Taxes
The 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.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
Commencing with the Fund's September 1, 2004 dividend declaration, payable
October 1, 2004, the Fund intends to make monthly cash distributions to Common
Shareholders of a stated dollar amount based primarily on the Fund's net
investment income but also secondarily on net realized capital gains and /or on
net unrealized capital gains in the Fund's portfolio (stated in terms of a fixed
cents per Common Share dividend rate) ("Managed Distribution Policy"). The Fund
seeks to maintain a stable dividend level, subject to approval and oversight by
the Fund's Board of Trustees. Distributions will be made only after paying any
accrued dividends or making any redemption or liquidation payments to Taxable
Auctioned Preferred shares, if any, and interest and required principal payments
on borrowings, if any. Under the Managed Distribution Policy, if, for any
monthly distribution, net investment income and net realized capital gain were
less than the amount of the distribution, the difference would be distributed
from the Fund's assets and would be treated by shareholders as a return of
capital for tax purposes. The final determination of the source of all
distributions for the year will be made after the end of the year.
REIT distributions received by the Fund are generally comprised of investment
income, long-term and short-term capital gains, and a return of REIT capital.
The actual character of amounts received during a period are not known until
after the fiscal year-end of the Fund. For the twelve months ended December 31,
2004, the character of distributions to the Fund from the REITs was 58.07%
16
ordinary income, 25.75% long-term and short-term capital gains, and 16.18%
return of REIT capital. For the twelve months ended December 31, 2003, the
character of distributions to the Fund from the REITs was 69.69% ordinary
income, 12.66% long-term and short-term capital gains, and 17.65% return of REIT
capital.
For the fiscal year ended October 31, 2003, the Fund applied a percentage
estimate for the breakdown of income type, to its receipts from the REITs and
treated as income in the Statement of Operations only the amount of ordinary
income so calculated. The Fund adjusted that estimated breakdown of income type
(and consequently its net investment income) as necessary early in the following
calendar year when the REITs informed their shareholders of the actual breakdown
of income type. For the fiscal periods ended December 31, 2003 and December 31,
2004, the Fund applied the actual character of distributions reported by the
REITs in which the Fund invests to its receipts from the REITS. If a REIT held
in the portfolio of investments did not report the actual character of its
distributions during the period, the Fund treated the distributions as ordinary
income.
During the fiscal year ended October 31, 2003, the Fund treated each
distribution to its shareholders from the portfolio REITs as being entirely from
net investment income. The Fund recharacterized those distributions as being
from ordinary income, long-term and short-term capital gains, and return of
capital, if necessary, at the beginning of the subsequent calendar year, based
upon the income type breakdown information conveyed at that time by the REITs
whose securities were held in the Fund's portfolio. Recharacterizations are
reflected in the accompanying financial statements. For the fiscal periods ended
December 31, 2003 and December 31, 2004, the Fund applied the actual character
of distributions reported by the REITs in which the Fund invests to the
distributions paid to the Fund shareholders.
Taxable Auctioned Preferred Shares
The Fund has issued and outstanding 1,720 Series M, 1,720 Series T, 1,720 Series
W and 1,720 Series F, Taxable Auctioned Preferred shares, $25,000 stated value
per share, as a means of effecting financial leverage. 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.
17
Notes to
FINANCIAL STATEMENTS (continued)
Interest Rate Swap Transactions
The Fund is authorized to enter into hedging transactions, including interest
rate swap transactions. The Fund's use of interest rate swap transactions is
intended to mitigate the negative impact that an increase in short-term interest
rates could have on Common share net earnings as a result of leverage. Interest
rate swap transactions involve the Fund's agreement with the counterparty to pay
a fixed rate payment in exchange for the counterparty paying the Fund a variable
rate payment that is intended to approximate the Fund's variable rate payment
obligation on Taxable Auctioned Preferred shares or any variable rate borrowing.
The payment obligation is based on the notional amount of the interest rate swap
contract. Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
the swap counterparty on such transactions is limited to the net amount of
interest payments that the Fund is to receive. Interest rate swap positions are
valued daily. Although there are economic advantages of entering into interest
rate swap transactions, there are also additional risks. The Fund helps manage
the credit risks associated with interest rate swap transactions by entering
into agreements only with counterparties the Adviser believes have the financial
resources to honor their obligations and by having the Adviser continually
monitor the financial stability of the swap counterparties.
Due to recent clarification provided by the SEC to regulated investment
companies, effective with the current reporting period, the Fund changed the way
it presents net interest expense on interest rate swap transactions in the
financial statements. In the December 31, 2004, financial statements net
interest expense amounts paid are included in "Net realized gain (loss) from
interest rate swaps". Net interest expense amounts accrued, but not yet paid, at
December 31, 2004, are included in "Change in net unrealized appreciation
(depreciation) of interest rate swaps". Previously, net interest expense was
presented in "Expenses" and reported as "Net interest expense on interest rate
swaps". This reclassification does not alter the tax treatment of interest rate
payments on swap transactions which is to include such payments as operating
expenses for tax purposes. For the fiscal year ended December 31, 2004, this
reclassification, for financial reporting purposes only, resulted in a
$4,235,732 increase to net investment income, a $4,017,763 decrease to net
realized gain (loss) from interest rate swaps and a $217,969 decrease to change
in net unrealized appreciation (depreciation) of interest rate swaps.
18
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund had not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
The Fund did not engage in transactions in its own shares during the fiscal year
ended December 31, 2004.
During the two months ended December 31, 2003, 2,658 Common shares were issued
to shareholders due to reinvestment of distributions.
During the fiscal year ended October 31, 2003, 24,199 Common shares were issued
to shareholders due to reinvestment of distributions.
3. SECURITIES TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
fiscal year ended December 31, 2004, aggregated $97,657,912 and $97,701,129,
respectively.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to timing differences in recording income and in recognizing
certain gains and losses on security transactions.
At December 31, 2004, the cost of investments owned was $559,308,530.
The net unrealized appreciation of investments at December 31, 2004, aggregated
$244,367,512, of which $244,413,112 related to appreciated securities and
$45,600 related to depreciated securities.
19
Notes to
FINANCIAL STATEMENTS (continued)
The tax components of undistributed net ordinary income and net realized gains
at December 31, 2004, were as follows:
--------------------------------------------------------------------------------
Undistributed net ordinary income * $--
Undistributed net long-term capital gains --
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
The tax character of distributions paid during the fiscal periods ended December
31, 2004, December 31, 2003 and October 31, 2003, was designated for purposes of
the dividends paid deduction as follows:
FISCAL YEAR ENDED DECEMBER 31, 2004
--------------------------------------------------------------------------------
Distributions from net ordinary income * $20,708,231
Distributions from net long-term capital gains 18,932,319
Tax return of capital 3,983,421
================================================================================
FOR THE TWO MONTHS ENDED
DECEMBER 31, 2003
--------------------------------------------------------------------------------
Distributions from net ordinary income * $3,904,970
Distributions from net long-term capital gains 2,435,010
Tax return of capital 3,717,296
================================================================================
FISCAL YEAR ENDED OCTOBER 31, 2003
--------------------------------------------------------------------------------
Distributions from net ordinary income * $33,787,266
Distributions from net long-term capital gains 7,156,788
Tax return of capital 1,129,210
================================================================================
* Net ordinary income consists of net taxable income derived from dividends,
interest and net short-term capital gains, if any.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
As approved by the Board of Trustees, effective August 1, 2004, a complex-wide
management fee structure was adopted for all funds sponsored by Nuveen
Institutional Advisory Corp. (the "Adviser"), a wholly owned subsidiary of
Nuveen Investments, Inc. ("Nuveen") and its affiliates. This fee structure
separates each fund's management fee into two components - a complex-level
component, based on the aggregate amount of all funds assets managed by the
Adviser and its affiliates, and a specific fund-level component, based only on
the amount of assets within each individual fund. This pricing structure enables
Nuveen fund shareholders to benefit from growth in the assets within each
individual fund as well as from growth in the amount of complex-wide assets
managed by the Adviser and its affiliates. Under no circumstances will this
pricing structure result in a fund paying management fees at a rate higher than
would otherwise have been applicable had the complex-wide management fee
structure not been implemented. As a consequence of this new management fee
structure, the funds' effective management fees were reduced by approximately
.009% as of January 31, 2005.
Effective August 1, 2004, the annual fund-level fee, payable monthly, for the
Fund is based upon the average daily Managed Assets of the Fund as follows:
FUND-LEVEL
AVERAGE DAILY MANAGED ASSETS FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
================================================================================
20
Effective August 1, 2004, 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 Fund paid through July 31, 2004, an annual management fee, payable monthly,
at the rates set forth below, which were based upon the average daily Managed
Assets of the Fund as follows:
MANAGEMENT
AVERAGE DAILY MANAGED ASSETS FEE RATE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Security Capital Research & Management
Incorporated ("Security Capital"), under which Security Capital manages the
investment portfolio of the Fund. Security Capital is compensated for its
services to the Fund from the management fee paid to the Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first ten years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
NOVEMBER 30, NOVEMBER 30,
--------------------------------------------------------------------------------
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 the Fund for any portion of its fees and
expenses beyond November 30, 2011.
21
Notes to
FINANCIAL STATEMENTS (continued)
Subadvisor Acquisition
On November 24, 2003, Banc One Investment Advisors Corporation, an indirect,
wholly-owned subsidiary of Bank One Corporation acquired Security Capital.
Pursuant to the Investment Company Act of 1940, the change in ownership of
Security Capital caused the existing sub-advisory agreement to terminate, and
shareholders of the Fund were required to approve a new subadvisory agreement
with Security Capital. At the Fund's annual shareholder meeting on January 20,
2004, shareholders approved the new sub-advisory agreement.
On July 1, 2004, Bank One Corporation was merged with JPMorgan Chase & Co. As a
result of the merger, Security Capital became part of JPMorgan Fleming Asset
Management. JPMorgan Fleming Asset Management is the marketing name for the
asset management business of JPMorgan Chase & Co. Those businesses include
JPMorgan Investment Management Inc. and its affiliates, including, without
limitation, Banc One Investment Advisors Corporation, Banc One High Yield
Partners, LLC, Security Capital Research & Management Incorporated, and JPMorgan
Alternative Asset Management, Inc. As the merger was not deemed to cause a
change in control of the Fund's Sub-Adviser, shareholder approval of a new
sub-advisory agreement was not necessary.
6. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Fund declared a distribution of $.1350 per Common share which was paid on
February 1, 2005, to shareholders of record on January 15, 2005.
Adviser Merger
Effective January 1, 2005, the Adviser and its affiliate, Nuveen Advisory Corp.
("NAC"), were merged into Nuveen Asset Management ("NAM"), also a wholly owned
subsidiary of Nuveen. As a result of the merger, NAM is now the adviser to all
funds previously advised by either NAC or the Adviser.
Announcement Regarding Parent Company of Adviser
After the close of trading on the New York Stock Exchange on January 31, 2005,
The St. Paul Travelers Companies, Inc. announced that it intended to explore
strategic alternatives to divest its equity stake in Nuveen.
22
Financial
HIGHLIGHTS
23
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations
----------------------------------------------------------------------
Distributions Distributions
from Net from
Investment Capital
Income to Gains to
Beginning Taxable Taxable
Common Net Auctioned Auctioned
Share Net Realized/ Preferred Preferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
=======================================================================================================
Year Ended 12/31:
2004(b) $18.57 $ .88 $4.56 $(.05) $(.04) $5.35
2003(c) 17.30 .12 1.38 (.01) -- 1.49
Year Ended 10/31:
2003 13.56 .85 4.38 (.05) (.02) 5.16
2002(d) 14.33 1.02 (.46) (.07) (.02) .47
=======================================================================================================
Less Distributions Total Returns
------------------------------------------ ----------------------
Offering
Costs and
Net Taxable Based
Investment Capital Auctioned Ending on
Income to Gains to Tax Preferred Common Based Common
Common Common Return Share Share Ending on Share Net
Share- Share- of Underwriting Net Asset Market Market Asset
holders holders Capital Total Discounts Value Value Value** Value**
================================================================================================================================
Year Ended 12/31:
2004(b) $(.69) $(.63) $(.14) $(1.46) $ -- $22.46 $20.75 19.80% 30.12%
2003(c) (.01) (.08) (.13) (.22) -- 18.57 18.73 6.49 8.69
Year Ended 10/31:
2003 (.97) (.41) (.04) (1.42) -- 17.30 17.81 35.40 39.80
2002(d) (.89) (.25) -- (1.14) (.10) 13.56 14.40 3.30 2.09
================================================================================================================================
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
=====================================================================================================================
Year Ended 12/31:
2004(b) $631,979 1.34% 4.13% .94% 4.52% 14%
2003(c) 522,576 2.31* 4.07* 1.91* 4.47* 2
Year Ended 10/31:
2003 486,814 2.51 5.17 2.09 5.59 26
2002(d) 381,290 2.12* 6.71* 1.72* 7.11* 37
=====================================================================================================================
Cumulative Taxable Auctioned
Preferred at End of Period
--------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
============================================================
Year Ended 12/31:
2004(b) $172,000 $25,000 $116,857
2003(c) 172,000 25,000 100,956
Year Ended 10/31:
2003 172,000 25,000 95,758
2002(d) 172,000 25,000 80,420
============================================================
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) As discussed in the accompanying notes to financial statements, the Fund
changed its method of presentation for net interest expense on interest
rate swap transactions. The effect of this reclassification was to increase
Net Investment Income by $0.15 per share with a corresponding decrease in
Net Realized/Unrealized Investment Gain (Loss), a decrease in each of the
Ratios of Expenses to Average Net Assets Applicable to Common Shares by
0.77% with a corresponding increase in each of the Ratios of Net Investment
Income to Average Net Assets Applicable to Common Shares.
(c) For the period November 1, 2003 through December 31, 2003.
(d) For the period November 15, 2001 (commencement of operations) through
October 31, 2002.
* 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.
++ o Ratios do not reflect the effect of dividend payments to Taxable
Auctioned Preferred shareholders.
o Income ratios reflect income earned on assets attributable to Taxable
Auctioned Preferred shares.
o For periods ended prior to December 31, 2004, each Ratio of Expenses
to Average Net Assets Applicable to Common Shares and each Ratio of
Net Investment Income to Average Net Assets Applicable to Common
Shares included the effect of the net interest expense incurred on
interest rate swap transactions as follows:
Year Ended 12/31:
2003(c) .91*
Year Ended 10/31:
2003 1.03
2002(d) .68*
See accompanying notes to financial statements.
24-25 SPREAD
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Funds is currently set
at eight. None of the board members who are not "interested" persons of the
Funds has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
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 FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 153
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 FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 153
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 153
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 153
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, 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 153
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, Credit Research Center at Georgetown University;
Director of Xerox Corporation (since 2004).
26
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 FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and Chief Operating 153
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; Director, Chair of the Finance
Committee and Member of the Audit Committee of Premier
Health Partners, the not-for-profit parent company of Miami
Valley Hospital; President of the Dayton Philharmonic Orchestra
Association; Director and Immediate Past Chair, Dayton
Development Coalition; 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 153
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), 153
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 FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 153
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.
27
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(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), previously, Vice President 153
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 153
2/3/66 and Assistant President (since 2000), previously, Associate of Nuveen
333 W. Wacker Drive Secretary Investments, LLC.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 153
11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice
333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory 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. (since
2002); 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 2000 Vice President (since 2002) and Assistant General Counsel 153
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); Vice President and Assistant
Secretary (since 2002) of Nuveen Asset Management.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 153
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, 153
3/2/64 LLC; Managing Director (since 2001), formerly Vice President
333 W. Wacker Drive of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since 1995) (3); Managing Director of Nuveen Asset
Management (3) (since 2001); Vice President of Nuveen
Investment Advisers Inc. (since 2002); Chartered Financial
Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 153
5/31/54 and Controller of Nuveen Investments, LLC and, formerly, Vice President and
333 W. Wacker Drive Funds Controller (since 1998) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
28
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(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 153
3/22/63 LLC, previously Assistant Vice President (since 1999);
333 W. Wacker Drive prior thereto, Associate of Nuveen Investments, LLC;
Chicago, IL 60606 Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 153
8/27/61 President (since 1993) of Nuveen Investments, LLC.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 153
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); Assistant Secretary of Nuveen
Investments, Inc. and (since 1997) Nuveen Asset Management,
Vice President (since 2000), Assistant Secretary and Assistant
General Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant
Secretary of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary of NWQ Investment
Management Company, LLC (since 2002).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve 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.
29
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 compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. 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.
30
Other Useful
INFORMATION
Effective Jan. 1, 2005, the asset management services and operations of Nuveen
Advisory Corp. (NAC) and Nuveen Institutional Advisory Corp (NIAC) became part
of Nuveen Asset Management (NAM). This internal consolidation is intended to
simplify the delivery of services to the investment management clients of Nuveen
Investments. It does not affect the investment objectives or portfolio
management of any Fund.
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2004, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD (ALSO KNOWN AS DISTRIBUTION YIELD OR CURRENT YIELD): Market yield
is based on the Fund's current annualized monthly distribution divided by the
Fund's current market price. REIT distributions received by the Fund are
generally comprised of investment income, long-term and short-term capital gains
and a REIT return of capital. The Fund's monthly distributions to its
shareholders may be comprised of ordinary income, net realized capital gains
and, if at the end of the calendar year the Fund's cumulative net ordinary
income and net realized gains are less than the amount of the Fund's
distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any 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.
BOARD OF 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
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
31
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 $115 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.
o Share prices
Learn more o Fund details
about Nuveen Funds at o Daily financial news
WWW.NUVEEN.COM/ETF o Investor education
o Interactive planning tools
Logo: NUVEEN Investments
EAN-A-1204D
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 has served as the
registrant's audit committee financial expert from July 26, 2004 to the end of
the reporting period on December 31, 2004.
Prior to July 26, 2004, William E. Bennett, who was "independent" for purposes
of Item 3 of Form N-CSR, served as the audit committee financial expert. Mr.
Bennett unexpectedly resigned from the Board effective April 30, 2004.
Accordingly for this reporting period, the registrant did not have a designated
"audit committee financial expert" from July 1, 2004 to July 26, 2004.
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.
Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of
First Chicago Corporation and its principal subsidiary, The First National Bank
of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy
as to accrual of assets/loans; designated performing/non-performing assets; set
the level of reserves against the credit portfolio; and determined the carrying
value of credit related assets and exposure. Among other things, Mr. Bennett was
also responsible for the oversight of the internal analysis function including
setting ground rules for the review and preparation of financial analysis and
financial statements for use in making credit and risk decisions for clients.
Mr. Bennett has significant experience reviewing, analyzing and evaluating
financial statements of domestic and international companies in a variety of
industries with complex accounting issues.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Nuveen Real Estate Income Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP 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
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 18,000 $ 0 $ 3,800 $ 3,550
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 * $ 6,300 $ 0 $ 0 $ 850
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
October 31, 2003 $ 15,677 $ 0 $ 10,170 $ 3,250
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
*Nuveen Real Estate Income Fund changed its fiscal year end from October 31 to
December 31, therefore, these numbers represent the period 11/1/03 - 12/31/03.
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 Institutional Advisory Corp. ("NIAC" or the "Adviser"), and any entity
controlling, controlled by or under common control with NIAC ("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 table also shows 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
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2003 * $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
October 31, 2003 $ 0 $ 0 $ 0
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
*Nuveen Real Estate Income Fund changed its fiscal year end from October 31 to
December 31, therefore, these numbers represent the period 11/1/03 - 12/31/03.
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
------------------------------------------------------------------------------------------------------------------------------------
December 31, 2004 $ 7,350 $ 0 $ 0 $ 7,350
December 31, 2003 * $ 850 $ 0 $ 0 $ 850
October 31, 2003 $ 13,420 $ 0 $ 0 $ 13,420
*Nuveen Real Estate Income Fund changed its fiscal year end from October 31 to
December 31, therefore, these numbers represent the period 11/1/03 - 12/31/03.
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 (the "Exchange Act") (15 U.S.C.
78c(a)(58)(A)). The members of the audit committee are Robert P. Bremner,
Lawrence H. Brown, Jack B. Evans and William J. Schneider.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Schedule I 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.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors or trustees and
reserves the right to interview all candidates and to make the final selection
of any new directors or trustees.
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 Real Estate Income Fund
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By (Signature and Title)* /s/ Jessica R. Droeger
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Jessica R. Droeger
Vice President and Secretary
Date: March 9, 2005
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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: March 9, 2005
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By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 9, 2005
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* Print the name and title of each signing officer under his or her signature.