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 811-21152 --------------------- Nuveen Georgia Dividend Advantage Municipal Fund 2 ------------------------------------------------------------------------------ (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: May 31 ------------------ Date of reporting period: May 31, 2005 ------------------ 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 May 31, 2005 Nuveen Investments Municipal Closed-End Exchange-Traded Funds NUVEEN GEORGIA PREMIUM INCOME MUNICIPAL FUND NPG NUVEEN GEORGIA DIVIDEND ADVANTAGE MUNICIPAL FUND NZX NUVEEN GEORGIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NKG NUVEEN NORTH CAROLINA PREMIUM INCOME MUNICIPAL FUND NNC NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND NRB NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NNO NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 NII Photo of: Man, woman and child at the beach. Photo of: A child. DEPENDABLE, TAX-FREE INCOME BECAUSE IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) Logo: NUVEEN Investments Photo of: Woman Photo of: Man and child Photo of: Woman NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER. NO MORE WAITING. SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL. It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready -- no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report, and save it on your computer if you wish. ------------------ DELIVERY DIRECT TO YOUR E-MAIL INBOX ------------------ IT'S FAST, EASY & FREE: WWW.INVESTORDELIVERY.COM if you get your Nuveen Fund dividends and statements from your financial advisor or brokerage account. OR WWW.NUVEEN.COM/ACCOUNTACCESS if you get your Nuveen Fund dividends and statements directly from Nuveen. (Be sure to have the address sheet that accompanied this report handy. You'll need it to complete the enrollment process.) Logo: NUVEEN Investments Photo of: Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board Chairman's LETTER TO SHAREHOLDERS Once again, I am pleased to report that over the 12-month period covered by this report your Fund continued to provide you with monthly tax-free income and an attractive total return. For more details about the management strategy and performance of your Fund, please see the Portfolio Manager's Comments and Performance Overview sections of this report. As I noted in my last letter to you, many market observers are wondering whether longer-term interest rates will soon begin to rise substantially, mirroring the rise that has taken place over the past year in shorter-term rates. If longer-term rates do begin to rise significantly, some have suggested that this would be a signal to begin adjusting your holdings of fixed-income investments. Nobody knows what the market will do in the future. But from our experience, we do know that a well-balanced portfolio, structured and carefully monitored with the help of a trusted investment professional, can be an important component in helping you achieve your long-term financial goals. In fact, a well-diversified portfolio may actually help to reduce your overall "IN FACT, A WELL-DIVERSIFIED PORTFOLIO MAY ACTUALLY HELP TO REDUCE YOUR OVERALL INVESTMENT RISK OVER THE LONG TERM." investment risk over the long term. That is one reason why we believe that a municipal bond investment like your Nuveen Fund can be an important building block in a comprehensive investment program designed to perform well in a variety of market conditions. As in past reports, I urge you to consider receiving future Fund reports and other Fund information by e-mail and the Internet. Not only will you be able to receive the information faster, but this also may help lower your Fund's expenses. Sign up is quick and easy - see the inside front cover of this report for instructions. You may have heard that in April, 2005, The St. Paul Travelers Companies, Inc., which owned 79% of Nuveen Investments, Inc. (the parent of your Fund's investment adviser) completed a public offering of a substantial portion of its equity stake in Nuveen. At the same time, St. Paul Travelers also entered into agreements to sell the balance of its shares in Nuveen to us or to others at a future date. These transactions had, and will have, no impact on the investment objectives or management of your Fund. However, taken as a whole they are considered to be an "assignment" of your Fund's investment management agreement. This means that you and your fellow Fund shareholders will be asked to formally approve the continuation of your Fund's management contract with Nuveen. We recently sent you more information about this process. Be sure to read the information carefully and return your completed proxy form by the date indicated. At Nuveen Investments, our mission continues to be to assist you and your financial advisor by offering investment services and products that can help you to secure your financial objectives. We are grateful that you have chosen us as a partner as you pursue your financial goals, and we look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board July 15, 2005 Nuveen Investments Georgia and North Carolina Municipal Closed-End Exchange-Traded Funds (NPG, NZX, NKG, NNC, NRB, NNO, NII) Portfolio Manager's COMMENTS Portfolio manager Cathryn Steeves reviews the economic and municipal market environments, key investment strategies and the annual performance of these Funds. Cathryn, who joined Nuveen in 1996, has managed the North Carolina Funds since February 2004 and the Georgia Funds since August 2004. WHAT FACTORS AFFECTED THE U.S. ECONOMY AND MUNICIPAL MARKET DURING THE 12-MONTH PERIOD ENDED MAY 31, 2005? During this 12-month reporting period, the Federal Reserve implemented eight separate one-quarter-point increases in the fed funds rate. These increases, which were intended to help control economic growth and head off an increase in the rate of inflation, raised this short-term target rate to 3.00% from 1.00%. (On June 30, 2005, after the close of this reporting period, the fed funds rate was raised another quarter point to 3.25%.) As the Fed raised short-term rates, many market observers expected to see longer-term interest rates increase as well. However, yields on longer-term municipal bonds (as measured by the widely-followed Bond Buyer 25 Revenue Bond Index) actually declined by 61 basis points during this reporting period. This resulted in a flattening of the municipal market yield curve over the 12-month period. The Fed's actions during this period seem to have helped the U.S. maintain a fairly steady economic expansion. After growing at an annualized rate of 3.3% in the second quarter of 2004, the U.S. gross domestic product (GDP) grew by 4.0% in the third quarter of 2004 and by 3.8% in both the fourth quarter of 2004 and the first quarter of 2005. The year-over-year increase in the Consumer Price Index (CPI) as of May 31, 2005, was a modest 2.8%, while unemployment in May 2005 dropped to 5.1% nationally, down from 5.6% in May 2004. HOW ABOUT ECONOMIC AND MARKET CONDITIONS IN GEORGIA AND NORTH CAROLINA? Although Georgia's economy has become more diversified and less dependent on manufacturing, the state experienced relatively weak job creation over this reporting period following a manufacturing-led decline in recent years. In contrast to the national unemployment numbers, Georgia's jobless rate has trended upward over the 12-month period, reaching 5.2% in May 2005 compared with 4.6% in May 2004. Longer-term, we believe that Georgia's location, mild climate and business-friendly environment should help to support future economic growth in the state. As of May 31, 2005, Georgia's 4 general obligation debt carried AAA ratings from Moody's, Standard & Poor's and Fitch. For the 12-month period ended May 31, 2005, Georgia issuers offered $8.7 billion in new municipal debt, an increase of 32.5% over the previous 12-month period. Following a slowdown in the fourth quarter of 2004, North Carolina's economy began to pick up steam in 2005, with financial services, professional and business activities, and residential and commercial construction serving as major growth drivers. Manufacturing remained the primary drag on the state's economy, as production continued to shift overseas. North Carolina's sizable tobacco industry also was under pressure with the ending of a decades-old subsidy program. However, we believe that future economic growth will be fueled by the state's expanding high-tech manufacturing and life sciences activity centers, with both expected to attract research investment over the long term. As of May 2005, the state's unemployment rate had declined to 5.1% from 5.6% in May 2004. As of May 31, 2005, North Carolina's debt was rated Aa1/AAA/AAA by Moody's, S&P, and Fitch, respectively. In September 2004, Moody's revised its outlook for the state to positive from stable, reflecting North Carolina's strong executive management and stabilizing economy. For the 12-month reporting period ended May 31, 2005, North Carolina issuers offered $7.5 billion in new municipal debt, up 7% over the previous 12-month period. WHAT KEY STRATEGIES WERE USED TO MANAGE THE GEORGIA AND NORTH CAROLINA FUNDS DURING THE 12 MONTHS ENDED MAY 31, 2005? With many market participants anticipating higher interest rates throughout this reporting period, our focus continued to be on finding bonds that we believed would add immediate value to the Funds' portfolios while also offering the potential to perform well under a variety of future market scenarios. Overall, our purchase activity emphasized bonds in the intermediate part of the yield curve - bonds that mature in 15 to 25 years. In these two states, we believed that this part of the yield curve generally offered more attractive opportunities and the best values during this period. We also placed an emphasis on purchasing premium bonds, which are bonds that at the time of purchase were trading above their par values because their coupons were higher than current interest rate levels. These bonds have been in great demand recently, since historically they have held their value better than current coupon bonds when interest rates rise. 5 Among the additions to all three of the Georgia Funds during this period were bonds issued for Coffee County Regional Medical Center. These provide an example of the type of hospital bonds we believed had the potential to add value to the Funds. These bonds, which were issued for the construction of a replacement facility for a sole community provider with an established patient base, were advance refunded and secured with U.S. Treasury bonds following our purchase, resulting in price appreciation. As another example, we added non-rated bonds issued for a continuing care retirement facility to the portfolios of NRB, NNO and NII during this period. These bonds offered very attractive yields and contributed to the overall diversification of these Funds. Some of the additions to the Georgia and North Carolina Funds during this 12-month period were financed with the proceeds from sales of older pre-refunded bonds and bonds with shorter maturities. For example, in NPG and NZX we reduced our exposure to housing bonds by selling some higher-coupon issues which were due to be called. As discussed in our last shareholder report, in late 2004 we began using forward interest rate swaps, a type of derivative financial instrument, in an attempt to reduce some of the interest rate risk in NZX, NKG, NRB, NNO and NII. It is important to note that we did not use these hedges in an attempt to profit from correctly predicting the timing and direction of interest rate movements. Instead, our sole objective was to reduce these Funds' durations (and therefore their price sensitivity to interest rate changes) without having a negative impact on their income streams or common share dividends over the short term. The gain or loss from each Fund's hedging activity is reflected as an addition or subtraction to the Fund's net asset value (NAV) as the market value of each hedge fluctuates. The hedges were effective in helping to reduce the NAV volatility of these Funds over the course of this reporting period. However, they did have negative impacts on each Fund's total return for the period because declining long-term interest rates caused the value of the hedges to decline as the value of each Fund's portfolio rose. 6 HOW DID THE FUNDS PERFORM? Individual results for these Funds, as well as for comparative indexes and averages, are presented in the accompanying table. TOTAL RETURNS ON NET ASSET VALUE* For periods ended 5/31/05 GEORGIA FUNDS 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- NPG 11.88% 9.78% 7.31% -------------------------------------------------------------------------------- NZX 12.10% NA NA -------------------------------------------------------------------------------- NKG 12.61% NA NA -------------------------------------------------------------------------------- NORTH CAROLINA FUNDS -------------------------------------------------------------------------------- NNC 10.52% 9.86% 7.35% -------------------------------------------------------------------------------- NRB 11.53% NA NA -------------------------------------------------------------------------------- NNO 11.56% NA NA -------------------------------------------------------------------------------- NII 12.39% NA NA -------------------------------------------------------------------------------- Lehman Brothers Municipal Bond Index1 7.96% 7.30% 6.22% -------------------------------------------------------------------------------- Lipper Other States Municipal Debt Funds Average2 12.61% 9.88% 7.10% -------------------------------------------------------------------------------- * Annualized Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. For additional information, see the individual Performance Overview for your Fund in this report. For the 12 months ended May 31, 2005, the total returns on NAV for all seven of these Funds outperformed the return on the Lehman Brothers Municipal Bond Index. NKG matched the average return for the Lipper Other States peer group, while the other Funds trailed this measure. Please keep in mind that the Lipper Other States average represents the overall average of returns for funds from 10 different states displaying a variety of economic and municipal market conditions. We believe that makes direct comparisons between the returns of specific state funds with a multi-state group average less meaningful. One of the primary factors benefiting the 12-month performance of these Funds relative to that of the unleveraged, unmanaged Lehman Brothers index was the Funds' use of financial leverage. While leveraging can add volatility to a Fund's NAV and share price, especially during periods when interest rates rise, this strategy also can provide 1 The Lehman Brothers Municipal Bond Index is an unleveraged, unmanaged national index comprising a broad range of investment-grade municipal bonds. Results for the Lehman index do not reflect any expenses. 2 The Lipper Other States Municipal Debt Funds category average is calculated using the returns of all closed-end exchange-traded funds in this category for each period as follows: 1 year, 44 funds; 5 years, 19 funds; and 10 years, 17 funds. Fund and Lipper returns assume reinvestment of dividends. 7 opportunities for additional income and total return for common shareholders when short-term interest rates remain relatively low and long-term rates fall. As noted earlier, over most of this reporting period, longer-term rates tended to fall while shorter-term interest rates rose. As a result, the prices of bonds with longer maturities generally performed better than those of securities with shorter maturities. This benefited the total returns of NKG and NII in particular, since these Funds had more exposure to the longer end of the yield curve than the other Funds included in this report. Conversely, this market trend constrained the performance of NNC, which had relatively more exposure to the short end of the curve. Much of the performance differential between these seven Funds over this period was the result of this relative yield curve positioning. All of the Funds in this report benefited during this 12-month period from their allocations to non-rated bonds, or to bonds rated BBB or lower. These bonds generally outperformed higher rated securities as the economy improved. However, the municipal markets in Georgia and North Carolina did not provide many opportunities to add to our lower-rated holdings over this period. As a result, the weightings of BBB rated bonds in the Georgia Funds remained stable or rose modestly. Among the North Carolina Funds, the BBB allocations remained relatively stable or declined slightly during this period. Among the sectors making positive contributions to the Funds' 12-month returns were healthcare, airlines and industrial development revenue bonds. In addition, bonds backed by the 1998 master tobacco settlement agreement also produced solid performance during this reporting period, as the litigation environment improved and the supply/demand situation drove prices higher. Housing was a sector of the market that tended to underperform relative to the rest of the market during this period, due largely to the increased risk of prepayments and bond calls in the current interest rate environment. NNC held a number of these issues, and although these holdings produced good income for the Fund, their overall performance hurt NNC's total return during this period. NRB and NNO were negatively impacted by their positions in bonds issued by Mecklenburg County for Sycamore Green Apartments, which were called at par after being priced at premiums for much of the period prior to their call. 8 NZX and NKG held small positions in DeKalb County bonds issued for General Motors projects, which were downgraded to sub-investment grade in early May 2005 by S&P. This downgrade had a slight negative impact on the performance of these two Funds. HOW WERE THE FUNDS POSITIONED IN TERMS OF CREDIT QUALITY AND BOND CALLS AS OF MAY 31, 2005? We continued to believe that, given the current geopolitical and economic climate, maintaining strong credit quality was an important requirement. As of May 31, 2005, all seven of these Funds continued to offer excellent credit quality, with allocations of bonds rated AAA/U.S. guaranteed and AA ranging from 79% in NNC to 82% in NZX, 83% in NPG, 84% in NRB, 87% NNO, 89% in NKG and 93% in NII. As of May 31, 2005, potential call exposure for the period June 2005 through the end of 2007 ranged from 3% in NZX and NKG to 5% in NNO, 11% in NII, 12% in NRB, 14% in NPG and 15% in NNC. The number of actual bond calls in all of these Funds depends largely on future market interest rates. 9 Dividend and Share Price INFORMATION Each of these Funds use leverage to enhance opportunities for additional income for common shareholders. The extent of this benefit is tied in part to the short-term rates the Funds pay their MuniPreferred(R) shareholders. During periods of low short-term rates, leveraged Funds generally pay lower dividends to their MuniPreferred shareholders, which can leave more earnings to support common share dividends. However, when short-term interest rates rise, as they did during this reporting period, the Funds' borrowing costs also rise. While leveraging still provided benefits for common shareholders, the extent of the benefit was reduced. In addition, the decline in interest rates at the longer end of the yield curve during this period impacted the income streams of Funds such as NPG and NNC, which had to reinvest proceeds from called or maturing securities that had been issued when interest rates were higher. The decline in longer-term yields also had an impact on the relatively newer NKG and NII, which had fewer opportunities to build reserves. As a result, NPG, NNC and NII experienced a single dividend cut over the 12-month period ended May 31, 2005, while NKG's dividend was reduced twice. The dividends of NZX, NRB and NNO remained stable during this period. In addition, due to capital gains generated by normal portfolio activity, common shareholders of the following Funds received capital gains or net ordinary income distributions at the end of December 2004 as follows: LONG-TERM CAPITAL GAINS ORDINARY INCOME (PER SHARE) (PER SHARE) -------------------------------------------------------------------------------- NPG -- $0.0049 -------------------------------------------------------------------------------- NZX $0.0083 -- -------------------------------------------------------------------------------- NNO $0.0698 -- -------------------------------------------------------------------------------- All of the Funds in this report seek to pay stable monthly dividends at rates that reflect each Fund's past results and projected future performance. During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund's NAV. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of May 31, 2005, all of the Funds in this report except NKG and NII had positive UNII balances for both financial statement and tax purposes. Both NKG and NII had negative UNII balances for financial statement purposes and positive UNII balances for tax purposes. At the end of the reporting period, the Funds' share prices were trading at premiums or discounts to their NAVs as shown in the accompanying chart: 5/31/05 12-MONTH AVERAGE PREMIUM/DISCOUNT PREMIUM/DISCOUNT -------------------------------------------------------------------------------- NPG +9.94% +7.10% -------------------------------------------------------------------------------- NZX +3.86% +0.04% -------------------------------------------------------------------------------- NKG -3.60% -4.06% -------------------------------------------------------------------------------- NNC +13.46% +9.52% -------------------------------------------------------------------------------- NRB +11.58% +7.04% -------------------------------------------------------------------------------- NNO +4.50% +2.67% -------------------------------------------------------------------------------- NII +4.19% +1.68% -------------------------------------------------------------------------------- 10 Nuveen Georgia Premium Income Municipal Fund NPG Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 70% AA 13% A 10% BBB 6% BB or Lower 1% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Jun 0.0755 Jul 0.0755 Aug 0.0755 Sep 0.0755 Oct 0.0755 Nov 0.0755 Dec 0.0755 Jan 0.0755 Feb 0.0755 Mar 0.0725 Apr 0.0725 May 0.0725 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 15.3 15.44 15.4 15.15 15.12 15.12 15.16 15.26 15 14.99 14.91 14.72 14.55 14.46 14.44 14.5 14.59 14.59 14.5 14.47 14.6 14.65 14.76 14.9 14.87 14.9 14.97 15.03 14.89 14.9 15 15.04 14.9 14.82 14.93 14.95 14.97 14.97 14.9 15.05 15.04 15.13 15.13 15.18 15.4 15.39 15.36 15.6 15.42 15.42 15.49 15.5 15.5 15.5 15.43 15.5 15.5 15.51 15.5 15.4 15.38 15.45 15.55 15.6 15.7 15.9 15.9 15.9 15.85 15.86 15.85 16.1 16.1 16.1 16.1 15.85 15.95 15.85 15.85 16.11 16.11 16.11 16.12 16.15 16.32 16.29 16.04 16 16.25 16.1 16.1 16.15 16.14 16.15 16 16.01 15.88 16.12 16.25 16.3 16.42 16.16 16.06 16.06 16.19 16.11 16.2 16.19 16.2 16.3 16.4 16.23 16.23 16.6 16.42 16.42 16.36 16.35 16.35 16.3 16.4 16.09 16.1 16.38 16.38 16.45 16.45 16.47 16.4 16.65 16.44 16.65 16.98 17.02 16.91 16.61 16.52 16.51 16.57 16.43 16.38 16.15 16.16 16.17 16.24 16.19 16.29 16.28 16.25 16.38 16.47 16.47 17.15 17.2 17.09 17.28 16.51 16.43 16.45 16.44 16.56 16.69 16.66 16.68 16.56 16.85 16.8 16.79 16.82 16.81 16.97 17.1 17.35 17.28 17 17.65 17.53 17.42 17.16 17.1 17.1 17.18 17.18 17.18 17.6 17.7 17.54 17.43 17.35 17.15 17.2 16.9 17.2 17.1 16.95 16.7 16.38 16.15 16.08 16.02 15.76 15.76 15.65 15.6 15.6 15.01 15.25 15.19 15.12 15.12 15.3 15.36 15.54 15.53 15.45 15.45 15.45 15.38 15.64 15.35 15.4 15.51 15.51 15.62 15.65 15.55 15.5 15.54 15.55 15.55 15.65 15.78 15.78 15.66 15.52 15.71 15.72 15.77 15.64 15.94 15.82 15.76 15.76 15.69 15.94 16.17 16.47 16.41 16.23 16.5 16.5 16.5 16.52 5/31/05 16.7 FUND SNAPSHOT ------------------------------------ Common Share Price $16.70 ------------------------------------ Common Share Net Asset Value $15.19 ------------------------------------ Premium/(Discount) to NAV 9.94% ------------------------------------ Market Yield 5.21% ------------------------------------ Taxable-Equivalent Yield1 7.72% ------------------------------------ Net Assets Applicable to Common Shares ($000) $57,687 ------------------------------------ Average Effective Maturity on Securities (Years) 17.93 ------------------------------------ Leverage-Adjusted Duration 8.02 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 5/20/93) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 15.46% 11.88% ------------------------------------ 5-Year 12.08% 9.78% ------------------------------------ 10-Year 9.71% 7.31% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Healthcare 23.8% ------------------------------------ Water and Sewer 16.5% ------------------------------------ Tax Obligation/Limited 11.8% ------------------------------------ Education and Civic Organizations 10.0% ------------------------------------ Utilities 7.3% ------------------------------------ Tax Obligation/General 6.7% ------------------------------------ Housing/Multifamily 5.5% ------------------------------------ Housing/Single Family 4.8% ------------------------------------ U.S. Guaranteed 4.2% ------------------------------------ Other 9.4% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 32.5%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 2 The Fund also paid shareholders a net ordinary income distribution in December 2004 of $0.0049 per share. 11 Nuveen Georgia Dividend Advantage Municipal Fund NZX Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 74% AA 8% A 6% BBB 12% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Jun 0.073 Jul 0.073 Aug 0.073 Sep 0.073 Oct 0.073 Nov 0.073 Dec 0.073 Jan 0.073 Feb 0.073 Mar 0.073 Apr 0.073 May 0.073 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 14.15 14.06 14.06 14.12 14.24 14.17 14.17 14 13.85 13.64 13.77 13.65 13.53 13.57 13.55 13.71 13.71 13.7 13.49 13.55 13.81 13.84 13.97 13.95 14.02 14.02 14.16 14.25 14.19 14.2 14.35 14.35 14.3 14.35 14.3 14.34 14.05 14.1 14.02 14.04 14.14 14.12 14.12 14.16 14.22 14.32 14.44 14.41 14.3 14.34 14.3 14.36 14.32 14.36 14.41 14.5 14.57 14.78 14.82 14.78 14.96 14.86 14.95 14.96 14.98 14.98 14.99 14.87 14.94 14.98 14.86 14.7 14.7 14.69 14.7 14.9 14.9 14.95 14.96 14.98 14.9 14.84 14.88 14.99 14.98 14.98 14.89 14.98 14.98 15.04 14.92 14.98 14.97 15.26 15 15.15 15.3 15.59 15.6 15.55 15.47 15.41 15.25 15.3 15.2 15 15.32 15.51 15.41 15.39 15.45 15.26 14.85 14.77 15.2 15.11 15.33 15.34 15.36 15.36 15.37 15.25 15.35 15.58 15.58 15.55 15.39 15.29 15.1 15.1 15.14 15.4 15.6 15.36 15.33 15.35 15.37 15.38 15.45 15.41 15.4 15.66 15.78 15.84 15.84 15.84 15.55 15.41 15.43 15.47 15.53 15.57 15.64 15.85 15.85 15.6 15.75 15.71 15.79 15.91 15.93 16.35 16.5 16.45 16.4 16.5 16.8 16.62 16.53 16.42 16.14 16.13 16.3 16.35 16.35 16.95 16.75 16.94 16.68 16.68 16.52 16.19 16.07 15.86 15.81 15.84 15.83 15.8 15.8 15.85 15.81 15.7 15.48 15.47 15.37 15.22 15.04 14.75 14.55 14.59 14.66 14.74 14.65 14.66 14.69 14.63 14.66 14.5 14.5 14.52 14.57 14.78 14.78 14.75 14.63 14.63 14.64 14.84 14.85 14.7 14.64 14.68 14.99 14.89 14.98 14.95 14.99 15.08 15.18 15.36 15.26 15.36 15.36 15.45 15.5 15.39 15.32 15.3 15.24 15.3 15.5 15.55 15.4 15.4 15.47 15.64 15.6 15.89 16 15.98 15.82 16 15.72 5/31/05 15.89 FUND SNAPSHOT ------------------------------------ Common Share Price $15.89 ------------------------------------ Common Share Net Asset Value $15.30 ------------------------------------ Premium/(Discount) to NAV 3.86% ------------------------------------ Market Yield 5.51% ------------------------------------ Taxable-Equivalent Yield1 8.16% ------------------------------------ Net Assets Applicable to Common Shares ($000) $30,007 ------------------------------------ Average Effective Maturity on Securities (Years) 16.58 ------------------------------------ Leverage-Adjusted Duration 7.50 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/01) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 20.74% 12.10% ------------------------------------ Since Inception 7.55% 7.88% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Education and Civic Organizations 20.8% ------------------------------------ Healthcare 19.2% ------------------------------------ Water and Sewer 12.6% ------------------------------------ Utilities 11.0% ------------------------------------ Tax Obligation/General 6.4% ------------------------------------ Housing/Single Family 6.3% ------------------------------------ Housing/Multifamily 5.7% ------------------------------------ Tax Obligation/Limited 3.8% ------------------------------------ U.S. Guaranteed 3.8% ------------------------------------ Other 10.4% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 32.5%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 2 The Fund also paid shareholders a capital gains distribution in December 2004 of $0.0083 per share. 12 Nuveen Georgia Dividend Advantage Municipal Fund 2 NKG Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 75% AA 14% A 2% BBB 9% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE Jun 0.067 Jul 0.067 Aug 0.067 Sep 0.067 Oct 0.067 Nov 0.067 Dec 0.065 Jan 0.065 Feb 0.065 Mar 0.062 Apr 0.062 May 0.062 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 13.2 13.14 13.12 13.07 13.04 13.02 12.93 12.81 12.8 12.9 12.67 12.61 12.58 12.65 12.65 12.65 12.8 12.85 12.9 12.88 13.05 13.2 13.29 13.2 13.2 13.24 13.35 13.46 13.45 13.35 13.35 13.41 13.46 13.49 13.48 13.42 13.4 13.42 13.4 13.27 13.21 13.22 13.22 13.45 13.49 13.5 13.5 13.6 13.48 13.55 13.58 13.5 13.6 13.6 13.6 13.67 13.78 13.84 13.99 13.97 14.1 14.16 14.15 14.15 14.1 13.96 13.96 13.96 14.3 14.5 14.61 14.5 14.45 14.5 14.43 14.34 14.33 14.12 14.12 14.21 14.33 14.28 14.2 14.2 14.26 14.18 14.06 14.16 14.21 14.19 14.17 14.18 14.33 14.2 14.2 14.2 14.15 14.51 14.45 14.46 14.42 14.42 14.68 14.7 14.45 14.39 14.39 14.29 14.29 14.33 14.37 14 13.48 13.5 13.45 13.46 13.59 13.78 13.82 13.7 13.75 13.65 13.71 13.71 13.72 13.75 13.6 13.59 13.57 13.34 13.62 13.67 13.5 13.47 13.55 13.67 13.56 13.38 13.59 13.45 13.3 13.54 13.45 13.29 13.44 13.44 13.33 13.38 13.31 13.37 13.5 13.86 13.97 13.97 14.03 14.08 14.07 14.01 14.1 14.3 14.19 14.4 14.5 14.35 14.15 14.27 14.28 14.28 14.29 14.31 14.38 14.5 14.53 14.5 14.51 14.79 14.9 14.5 14.42 14.5 14.97 14.64 14.57 14.48 14.33 14.12 14.29 14.34 14.3 14.6 14.5 14.37 14.35 14.17 13.99 13.85 13.81 13.69 13.72 13.76 13.69 13.62 13.54 13.57 13.69 13.54 13.56 13.72 13.85 13.85 14 14.28 14.11 13.5 13.75 13.8 13.9 14 14 13.69 13.68 13.8 13.81 13.8 13.73 13.52 13.41 13.58 13.58 13.76 13.68 13.75 13.75 13.79 13.75 13.78 13.62 13.67 13.7 13.58 13.64 13.68 13.94 13.92 13.99 13.99 13.7 13.76 13.85 14 14.06 13.94 13.91 5/31/05 14.18 FUND SNAPSHOT ------------------------------------ Common Share Price $14.18 ------------------------------------ Common Share Net Asset Value $14.71 ------------------------------------ Premium/(Discount) to NAV -3.60% ------------------------------------ Market Yield 5.25% ------------------------------------ Taxable-Equivalent Yield1 7.78% ------------------------------------ Net Assets Applicable to Common Shares ($000) $66,974 ------------------------------------ Average Effective Maturity on Securities (Years) 19.44 ------------------------------------ Leverage-Adjusted Duration 7.28 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 13.61% 12.61% ------------------------------------ Since Inception 3.45% 6.57% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Tax Obligation/Limited 21.6% ------------------------------------ Healthcare 18.5% ------------------------------------ Water and Sewer 15.3% ------------------------------------ Education and Civic Organizations 13.8% ------------------------------------ Utilities 6.7% ------------------------------------ Tax Obligation/General 6.4% ------------------------------------ Transportation 4.0% ------------------------------------ Housing/Single Family 3.8% ------------------------------------ Other 9.9% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 32.5%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 13 Nuveen North Carolina Premium Income Municipal Fund NNC Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 46% AA 33% A 17% BBB 4% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE Jun 0.0745 Jul 0.0745 Aug 0.0745 Sep 0.0745 Oct 0.0745 Nov 0.0745 Dec 0.0745 Jan 0.0745 Feb 0.0745 Mar 0.0715 Apr 0.0715 May 0.0715 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 15.32 15.26 15.18 15.2 15.19 15.19 15.18 15 14.93 14.93 14.86 14.88 14.68 14.59 14.42 14.53 14.56 14.58 14.56 14.6 14.99 15.04 15.08 15.05 15.35 15.42 15.38 15.27 15.11 15.17 15.08 15.24 15.23 15.25 15.3 15.32 15.62 15.35 15.49 15.63 15.7 15.85 15.85 16.37 16.05 16 16.04 16.3 16.15 16.19 16.24 15.98 16.17 16.08 16.01 16.3 16.27 16.5 16.3 16.14 16.1 16.24 16.25 16.15 16.19 16.4 16.44 16.4 16.33 16.35 16.4 16.5 16.28 16.4 16.34 16.31 16.45 16.64 16.35 16.48 16.38 16.23 16.25 16.27 16.28 16.3 16.29 16.22 16.4 16.27 16.37 16.46 16.62 16.67 16.67 16.72 16.77 16.65 16.45 16.35 16.43 16.4 16.48 16.39 16.48 16.48 16.48 16.45 16.49 16.57 16.72 16.51 16.5 16.5 16.5 16.27 16.33 16.56 16.58 16.8 16.78 16.51 16.45 16.47 16.47 16.51 16.43 16.38 16.31 16.3 16.37 16.35 16.33 16.49 16.47 16.43 16.9 16.75 16.71 16.98 16.95 16.84 17.15 17.06 17.4 17.49 17.28 17.39 17.52 17.45 17.36 17.39 17.28 16.94 16.85 16.81 16.67 16.95 16.9 16.64 16.71 16.86 16.95 16.72 16.64 16.68 16.85 16.85 16.91 17.17 17.2 17.31 17.18 17.2 17.45 17.49 17.4 17.03 16.97 16.95 17.29 17.2 17.4 17.4 17.3 17.3 17.2 17.45 17.28 17.4 17.5 17.1 17.2 17.18 17.2 17.09 16.95 16.89 17.05 17.3 17.3 17.15 16.78 16.4 16.69 16.35 16.1 16 16.2 16.2 16.4 16.57 16.55 16.3 16.15 16.25 15.9 16 16.25 16.17 16 16.2 16.13 16.27 16.34 16.3 16.31 16.35 16.42 16.33 16.4 16.55 16.55 16.75 16.9 16.81 16.91 16.9 16.9 17 16.98 16.98 16.95 17 17 17.13 17.3 17.21 17.03 16.97 17.23 17.33 17.29 5/31/05 17.2 FUND SNAPSHOT ------------------------------------ Common Share Price $17.20 ------------------------------------ Common Share Net Asset Value $15.16 ------------------------------------ Premium/(Discount) to NAV 13.46% ------------------------------------ Market Yield 4.99% ------------------------------------ Taxable-Equivalent Yield1 7.56% ------------------------------------ Net Assets Applicable to Common Shares ($000) $96,008 ------------------------------------ Average Effective Maturity on Securities (Years) 15.67 ------------------------------------ Leverage-Adjusted Duration 7.93 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 5/20/93) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 17.79% 10.52% ------------------------------------ 5-Year 10.39% 9.86% ------------------------------------ 10-Year 9.27% 7.35% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Education and Civic Organizations 20.8% ------------------------------------ Tax Obligation/Limited 19.7% ------------------------------------ Healthcare 14.1% ------------------------------------ U.S. Guaranteed 12.0% ------------------------------------ Housing/Single Family 6.1% ------------------------------------ Water and Sewer 6.0% ------------------------------------ Tax Obligation/General 5.9% ------------------------------------ Utilities 5.5% ------------------------------------ Other 9.9% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 14 Nuveen North Carolina Dividend Advantage Municipal Fund NRB Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 49% AA 35% A 9% BBB 6% NR 1% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE Jun 0.0765 Jul 0.0765 Aug 0.0765 Sep 0.0765 Oct 0.0765 Nov 0.0765 Dec 0.0765 Jan 0.0765 Feb 0.0765 Mar 0.0765 Apr 0.0765 May 0.0765 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 14.84 14.91 14.85 14.76 14.8 14.8 14.8 14.73 14.7 14.87 15 15.15 14.92 14.76 14.59 14.65 14.7 14.72 14.73 14.73 14.88 14.99 14.9 15.25 15.25 15.15 15.2 15.22 15.19 15.06 15.2 15.55 15.4 15.36 15.37 15.4 15.34 15.2 15.2 15.33 15.45 15.55 15.55 15.42 15.5 15.65 15.8 15.81 15.9 15.9 15.86 15.86 15.85 15.85 15.85 15.9 15.92 15.96 16.14 16.14 16.05 16.1 16.12 16.15 16.12 16.15 16.1 16.1 16.13 16.11 16.25 16.3 16.3 16.07 16.07 16.4 16.25 16.2 16.2 16.23 16.23 16.25 16.25 16.35 16.35 16.39 16.43 16.5 16.35 16.45 16.56 16.56 16.55 16.56 16.55 16.85 16.85 16.75 16.85 16.75 16.9 16.62 16.92 16.95 16.9 16.67 16.69 16.67 16.62 16.75 16.75 16.75 16.75 16.75 16.84 16.84 16.84 16.63 16.63 16.8 17 17 16.85 16.76 16.69 16.54 16.57 16.45 16.31 16.44 16.45 16.54 16.54 16.58 16.41 16.5 16.5 16.46 16.43 16.4 16.6 16.6 16.7 16.7 16.76 16.76 16.67 16.75 16.68 16.65 16.7 16.84 16.69 16.8 16.76 16.7 17 17 17.05 16.83 16.83 16.83 16.83 16.8 16.8 16.8 16.9 16.83 16.88 16.8 16.9 16.86 16.73 16.65 16.88 17.05 17.05 17.05 17.05 17.02 17.12 16.92 16.84 16.77 16.72 16.75 16.63 17 17.1 17 16.92 16.86 16.86 16.86 16.86 17.05 17.05 17.05 17 16.96 16.86 16.62 16.86 16.75 16.55 16.55 16.7 16.7 16.44 16.44 16.45 16.31 16.55 16.65 16.5 16.43 16.43 16.55 16.55 16.5 16.49 16.49 16.62 16.62 16.53 16.5 16.5 16.5 16.95 16.74 16.75 17.03 17.03 17.22 17.22 17.23 17.23 16.8 16.8 16.95 16.8 16.73 16.56 16.73 16.88 16.7 17.2 17.08 16.82 17.05 16.84 16.86 16.85 5/31/05 17.25 FUND SNAPSHOT ------------------------------------ Common Share Price $17.25 ------------------------------------ Common Share Net Asset Value $15.46 ------------------------------------ Premium/(Discount) to NAV 11.58% ------------------------------------ Market Yield 5.32% ------------------------------------ Taxable-Equivalent Yield1 8.06% ------------------------------------ Net Assets Applicable to Common Shares ($000) $34,820 ------------------------------------ Average Effective Maturity on Securities (Years) 16.52 ------------------------------------ Leverage-Adjusted Duration 7.56 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 1/25/01) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 21.19% 11.53% ------------------------------------ Since Inception 9.33% 8.07% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Water and Sewer 18.5% ------------------------------------ Education and Civic Organizations 18.3% ------------------------------------ Tax Obligation/Limited 16.6% ------------------------------------ Utilities 14.0% ------------------------------------ Healthcare 13.2% ------------------------------------ Housing/Multifamily 4.6% ------------------------------------ Tax Obligation/General 4.3% ------------------------------------ Other 10.5% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 15 Nuveen North Carolina Dividend Advantage Municipal Fund 2 NNO Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 59% AA 28% A 10% BBB 2% NR 1% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Jun 0.072 Jul 0.072 Aug 0.072 Sep 0.072 Oct 0.072 Nov 0.072 Dec 0.072 Jan 0.072 Feb 0.072 Mar 0.072 Apr 0.072 May 0.072 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 14.8 14.7 14.92 14.8 15 14.9 14.86 14.8 14.72 14.69 14.64 14.61 14.66 14.68 14.7 14.66 14.66 15.85 15.19 15.05 14.9 14.85 14.95 14.99 15.02 15.02 14.9 15.13 15.13 15.13 15.05 15.02 15.02 15.07 14.98 15.02 14.98 14.97 14.94 14.97 14.97 15.05 15.05 15.2 15.18 15.2 15.15 15.42 15.41 15.32 15.25 15.15 15.28 15.36 15.28 15.31 15.49 15.49 15.51 15.48 15.55 15.61 15.54 15.65 15.69 15.7 15.63 15.6 15.58 15.58 15.56 15.73 15.8 15.58 15.58 15.5 15.47 15.52 15.5 15.58 15.65 15.7 15.67 15.72 15.68 15.65 15.6 15.64 15.65 15.73 15.85 15.85 15.82 15.9 15.8 15.8 15.76 15.85 15.9 15.8 15.8 15.74 15.73 15.82 16.04 16 16.11 16.1 16 16.2 16.07 16.03 15.94 15.94 15.8 15.8 15.72 16.04 15.9 15.99 15.93 15.95 15.95 15.95 16 16.1 16.1 16.13 16.22 16.26 16.33 16.4 16.28 16.33 16.29 16.29 16.1 16 16.09 15.95 16 16.24 16.15 16.06 15.9 15.85 15.85 15.78 15.87 15.78 15.8 15.92 15.84 15.82 15.81 15.82 15.93 15.78 15.85 15.85 15.9 16.25 16.34 16.26 16.52 16.57 16.52 16.55 16.4 16.3 16.38 16.47 16.44 16.28 16.33 16.22 16.27 16.27 16.27 16.24 16.27 16.25 16.16 15.92 15.78 15.77 15.85 15.89 15.9 15.93 15.93 16.25 16.14 16.35 16.29 16.35 16.35 16.4 16.49 16.49 16.35 16.22 16.25 16.1 16.05 16 15.8 15.9 15.69 15.69 15.75 15.97 15.75 15.74 15.96 15.98 15.9 16.2 16.3 16.15 16.15 16.2 16.2 16.11 15.6 15.67 15.65 15.71 15.62 15.74 15.66 15.56 15.56 15.6 15.65 15.66 15.65 15.65 15.87 16 15.95 16.04 16.04 16.15 16.25 16.44 16.4 16.31 16.32 16.33 16.33 16.13 16.08 5/31/05 16.25 FUND SNAPSHOT ------------------------------------ Common Share Price $16.25 ------------------------------------ Common Share Net Asset Value $15.55 ------------------------------------ Premium/(Discount) to NAV 4.50% ------------------------------------ Market Yield 5.32% ------------------------------------ Taxable-Equivalent Yield1 8.06% ------------------------------------ Net Assets Applicable to Common Shares ($000) $58,155 ------------------------------------ Average Effective Maturity on Securities (Years) 15.29 ------------------------------------ Leverage-Adjusted Duration 7.59 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 11/15/01) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 16.46% 11.56% ------------------------------------ Since Inception 8.26% 8.43% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Education and Civic Organizations 21.0% ------------------------------------ Tax Obligation/Limited 20.2% ------------------------------------ Healthcare 14.8% ------------------------------------ Transportation 10.8% ------------------------------------ Water and Sewer 9.9% ------------------------------------ Utilities 8.7% ------------------------------------ U.S. Guaranteed 7.2% ------------------------------------ Other 7.4% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 2 The Fund also paid shareholders a capital gains distribution in December 2004 of $0.0698 per share. 16 Nuveen North Carolina Dividend Advantage Municipal Fund 3 NII Performance OVERVIEW As of May 31, 2005 Pie Chart: CREDIT QUALITY (as a % of total investments) AAA/U.S. Guaranteed 69% AA 24% A 2% BBB 5% Bar Chart: 2004-2005 MONTHLY TAX-FREE DIVIDENDS PER SHARE Jun 0.067 Jul 0.067 Aug 0.067 Sep 0.067 Oct 0.067 Nov 0.067 Dec 0.067 Jan 0.067 Feb 0.067 Mar 0.064 Apr 0.064 May 0.064 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 6/1/04 13.79 14 14.07 14.1 13.88 14 14 14.16 13.8 14.1 14.06 13.75 13.79 13.85 13.62 13.69 13.68 13.62 13.64 13.57 13.69 13.76 13.85 13.9 14.04 14.12 14.04 14.15 14.13 14.05 14.06 14.2 14.29 14.23 14.15 14.12 14.03 13.97 13.85 13.9 14.15 14.32 14.32 14.29 14.28 14.23 14.21 14.4 14.49 14.53 14.43 14.3 14.34 14.31 14.38 14.65 14.55 14.67 14.74 14.65 14.57 14.55 14.57 14.57 14.64 14.64 14.64 14.64 14.58 14.55 14.65 14.78 14.66 14.55 14.47 14.62 14.48 14.53 14.56 14.56 14.8 14.78 14.8 14.82 14.75 14.72 14.65 14.65 14.72 14.63 14.92 14.89 15.02 15.03 14.9 14.9 14.85 14.8 14.9 14.77 15 14.94 14.74 14.95 15 14.9 15.12 15.05 15.05 15.28 15.2 15 14.8 14.75 14.55 14.46 14.65 14.86 15.15 14.98 15.2 15.15 15.15 15.16 15.05 15.13 15.03 14.85 14.82 14.7 15 15.19 14.98 15 15.03 14.9 14.66 14.7 15.15 15.04 15.15 15.07 15.07 15.22 15.15 15.06 14.87 14.96 14.95 14.95 14.97 15.1 15.4 15.3 14.81 14.85 14.9 14.82 14.85 14.83 15.02 15.1 15.35 15.51 15.4 15.3 15.18 15.1 15.35 15.37 15.3 15.29 15.2 15.29 15.28 15.05 15.03 15.03 15.03 15.01 15.07 14.97 14.64 14.56 14.79 14.67 14.71 14.82 14.97 14.91 15.1 15.15 15.24 15.33 15.4 15.17 15.1 15.01 15.02 14.92 14.74 14.8 14.64 14.35 14.29 14.17 14.1 13.75 13.8 13.91 14.21 14.51 14.54 14.51 14.59 15 14.94 15.08 15.01 15.03 15 14.92 15.15 15.2 15.2 15.05 14.95 15 14.95 14.96 15.05 14.98 14.98 14.97 14.89 14.85 14.84 14.75 14.9 14.9 14.9 14.75 14.88 14.85 14.8 14.98 14.9 15.07 15.1 15.07 15.3 15.25 15.35 5/31/05 15.4 FUND SNAPSHOT ------------------------------------ Common Share Price $15.40 ------------------------------------ Common Share Net Asset Value $14.78 ------------------------------------ Premium/(Discount) to NAV 4.19% ------------------------------------ Market Yield 4.99% ------------------------------------ Taxable-Equivalent Yield1 7.56% ------------------------------------ Net Assets Applicable to Common Shares ($000) $58,035 ------------------------------------ Average Effective Maturity on Securities (Years) 16.91 ------------------------------------ Leverage-Adjusted Duration 6.36 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 18.78% 12.39% ------------------------------------ Since Inception 6.39% 6.74% ------------------------------------ SECTORS (as a % of total investments) ------------------------------------ Tax Obligation/Limited 25.0% ------------------------------------ Water and Sewer 17.9% ------------------------------------ Education and Civic Organizations 10.1% ------------------------------------ Utilities 10.0% ------------------------------------ Healthcare 7.8% ------------------------------------ Tax Obligation/General 7.7% ------------------------------------ U.S. Guaranteed 7.0% ------------------------------------ Transportation 6.2% ------------------------------------ Other 8.3% ------------------------------------ 1 Taxable-equivalent yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34%. When comparing this Fund to investments that generate qualified dividend income, the taxable-equivalent yield is lower. 17 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARD OF TRUSTEES AND SHAREHOLDERS NUVEEN GEORGIA PREMIUM INCOME MUNICIPAL FUND NUVEEN GEORGIA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN GEORGIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NUVEEN NORTH CAROLINA PREMIUM INCOME MUNICIPAL FUND NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NUVEEN NORTH CAROLINA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Georgia Premium Income Municipal Fund, Nuveen Georgia Dividend Advantage Municipal Fund, Nuveen Georgia Dividend Advantage Municipal Fund 2, Nuveen North Carolina Premium Income Municipal Fund, Nuveen North Carolina Dividend Advantage Municipal Fund, Nuveen North Carolina Dividend Advantage Municipal Fund 2 and Nuveen North Carolina Dividend Advantage Municipal Fund 3 as of May 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of May 31, 2005, by correspondence with the custodian. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Nuveen Georgia Premium Income Municipal Fund, Nuveen Georgia Dividend Advantage Municipal Fund, Nuveen Georgia Dividend Advantage Municipal Fund 2, Nuveen North Carolina Premium Income Municipal Fund, Nuveen North Carolina Dividend Advantage Municipal Fund, Nuveen North Carolina Dividend Advantage Municipal Fund 2 and Nuveen North Carolina Dividend Advantage Municipal Fund 3 at May 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for the periods indicated therein, in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP CHICAGO, ILLINOIS JULY 14, 2005 18 Nuveen Georgia Premium Income Municipal Fund (NPG) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 5.4% (3.7% OF TOTAL INVESTMENTS) $ 2,000 Cartersville Development Authority, Georgia, Water and 5/07 at 101.00 A+ $ 2,086,120 Wastewater Facilities Revenue Refunding Bonds, Anheuser Busch Companies Inc., Series 1997, 6.125%, 5/01/27 (Alternative Minimum Tax) 1,000 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB 1,011,190 Asset-Backed Refunding Bonds, Series 2002, 5.500%, 5/15/39 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 14.4% (10.0% OF TOTAL INVESTMENTS) 1,000 Athens-Clarke County Unified Government Development 12/12 at 100.00 AAA 1,089,290 Authority, Georgia, Educational Facilities Revenue Bonds, UGAREF CCRC Building LLC Project, Series 2002, 5.000%, 12/15/16 - AMBAC Insured Atlanta Urban Residential Finance Authority, Georgia, Dormitory Facility Revenue Refunding Bonds, Morehouse College Project, Series 1995: 1,210 5.750%, 12/01/20 - MBIA Insured 12/05 at 102.00 AAA 1,250,353 1,375 5.750%, 12/01/25 - MBIA Insured 12/05 at 102.00 AAA 1,419,467 1,550 Bulloch County Development Authority, Georgia, Student 8/14 at 100.00 Aaa 1,699,250 Housing and Athletic Facility Lease Revenue Bonds, Georgia Southern University, Series 2004, 5.250%, 8/01/21 - XLCA Insured 700 Carrollton Payroll Development Authority, Georgia, Student 9/14 at 100.00 Aaa 747,775 Housing Revenue Bonds, University of West Georgia, Series 2004A, 5.000%, 9/01/21 - XLCA Insured 395 DeKalb County Development Authority, Georgia, Revenue 10/05 at 101.00 AA 403,919 Bonds, Emory University, Series 1994A, 6.000%, 10/01/14 1,535 Fulton County Development Authority, Georgia, Revenue 5/14 at 100.00 AAA 1,723,176 Bonds, Georgia Tech Molecular Science Building, Series 2004, 5.250%, 5/01/15 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 34.6% (23.8% OF TOTAL INVESTMENTS) 2,300 Chatham County Hospital Authority, Savannah, Georgia, 7/11 at 101.00 A- 2,527,930 Hospital Revenue Improvement Bonds, Memorial Health University Medical Center Inc., Series 2001A, 6.125%, 1/01/24 2,000 Clarke County Hospital Authority, Georgia, Hospital Revenue 1/12 at 101.00 AAA 2,116,340 Certificates, Athens Regional Medical Center, Series 2002, 5.125%, 1/01/32 - MBIA Insured 900 Coffee County Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 BBB+ 951,858 Coffee County Regional Medical Center, Series 2004, 5.250%, 12/01/22 3,000 Floyd County Hospital Authority, Georgia, Revenue 7/12 at 101.00 Aaa 3,208,770 Anticipation Certificates, Floyd Medical Center Project, Series 2002, 5.200%, 7/01/32 - MBIA Insured 1,090 Floyd County Hospital Authority, Georgia, Revenue 7/13 at 101.00 Aaa 1,177,625 Anticipation Certificates, Floyd Medical Center, Series 2003, 5.000%, 7/01/19 - MBIA Insured 1,765 Gainesville and Hall County Hospital Authority, Georgia, 10/05 at 102.00 AAA 1,815,920 Revenue Anticipation Certificates, Northeast Georgia Health Services Inc., Series 1995, 6.000%, 10/01/25 - MBIA Insured 1,750 Gainesville and Hall County Hospital Authority, Georgia, 5/11 at 100.00 A- 1,827,578 Revenue Anticipation Certificates, Northeast Georgia Health Services Inc., Series 2001, 5.500%, 5/15/31 3,750 Gwinnett County Hospital Authority, Georgia, Revenue 2/12 at 102.00 AAA 4,072,913 Anticipation Certificates, Gwinnett Hospital System Inc. Project, Series 1997B, 5.300%, 9/01/27 - MBIA Insured 1,060 Henry County Hospital Authority, Georgia, Revenue 7/14 at 101.00 Aaa 1,149,538 Certificates, Henry Medical Center, Series 2004, 5.000%, 7/01/20 - MBIA Insured 1,000 Savannah Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 AA 1,074,980 St. Joseph's/Candler Health System, Series 2003, 5.250%, 7/01/23 - RAAI Insured ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 8.0% (5.5% OF TOTAL INVESTMENTS) 3,000 Macon-Bibb County Urban Development Authority, Georgia, 7/05 at 102.50 AAA 3,076,830 Multifamily Housing Revenue Refunding Bonds, Series 1997A, 5.550%, 1/01/24 - MBIA Insured 1,500 Marietta Housing Authority, Georgia, GNMA Collateralized 10/06 at 102.00 AA 1,543,200 Multifamily Housing Revenue Bonds, Country Oaks Apartments, Series 1996, 6.150%, 10/20/26 (Alternative Minimum Tax) 19 Nuveen Georgia Premium Income Municipal Fund (NPG) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 6.9% (4.8% OF TOTAL INVESTMENTS) $ 2,950 Georgia Housing and Finance Authority, Single Family Mortgage 12/10 at 100.00 AAA $ 3,061,009 Resolution 1 Bonds, Series 2001A-2, 5.700%, 12/01/31 (Alternative Minimum Tax) 900 Georgia Housing and Finance Authority, Single Family 12/11 at 100.00 AAA 937,602 Mortgage Bonds, Series 2002B-2, 5.350%, 12/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 0.9% (0.6% OF TOTAL INVESTMENTS) 500 Savannah Economic Development Authority, Georgia, 7/12 at 100.00 AAA 531,830 Revenue Bonds, GTREP Project, Series 2002, 5.000%, 7/01/22 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 3.2% (2.2% OF TOTAL INVESTMENTS) 750 Effingham County Industrial Development Authority, Georgia, 6/11 at 101.00 BB+ 795,240 Pollution Control Revenue Refunding Bonds, Georgia-Pacific Project, Series 2001, 6.500%, 6/01/31 1,000 Richmond County Development Authority, Georgia, 2/11 at 101.00 BBB 1,070,800 Environmental Improvement Revenue Bonds, International Paper Company, Series 2001A, 6.250%, 2/01/25 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 9.7% (6.7% OF TOTAL INVESTMENTS) 1,805 Forsyth County, Georgia, General Obligation Bonds, No Opt. Call AA 2,027,069 Series 2004, 5.250%, 3/01/13 2,500 Georgia, General Obligation Bonds, Series 2002D, 8/12 at 100.00 AAA 2,726,650 5.000%, 8/01/16 800 Puerto Rico, General Obligation and Public Improvement Bonds, 7/14 at 100.00 BBB 868,528 Series 2004A, 5.250%, 7/01/22 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 17.2% (11.8% OF TOTAL INVESTMENTS) 3,000 Cobb-Marietta Coliseum and Exhibit Hall Authority, Georgia, 10/19 at 100.00 AAA 3,614,970 Revenue Refunding Bonds, Series 1993, 5.625%, 10/01/26 - MBIA Insured 2,000 Cobb-Marietta Coliseum and Exhibit Hall Authority, Cobb 1/14 at 100.00 AAA 2,156,840 County, Georgia, Revenue Bonds, Performing Arts Center, Series 2004, 5.000%, 1/01/22 2,600 Macon-Bibb County Urban Development Authority, Georgia, 8/12 at 101.00 AA 2,917,122 Revenue Refunding Bonds, Public Facilities Projects, Series 2002A, 5.375%, 8/01/17 1,000 Metropolitan Atlanta Rapid Transit Authority, Georgia, No Opt. Call AAA 1,223,130 Sales Tax Revenue Refunding Bonds, Series 1992P, 6.250%, 7/01/20 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 4.2% (2.9% OF TOTAL INVESTMENTS) 2,290 Atlanta, Georgia, Airport General Revenue Bonds, 1/15 at 100.00 AAA 2,436,010 Series 2004G, 5.000%, 1/01/26 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 6.1% (4.2% OF TOTAL INVESTMENTS) 500 Atlanta, Georgia, Airport Facilities Revenue Refunding Bonds, No Opt. Call AAA 559,650 Series 1994A, 6.500%, 1/01/09 - AMBAC Insured 2,500 Forsyth County School District, Georgia, General Obligation 2/10 at 102.00 AA*** 2,835,075 Bonds, Series 1999, 5.750%, 2/01/19 (Pre-refunded to 2/01/10) Georgia Municipal Electric Authority, Project One Special Obligation Bonds, Fifth Crossover Series 1998Y: 85 6.400%, 1/01/09 No Opt. Call A+*** 94,701 10 6.400%, 1/01/09 No Opt. Call A+*** 11,141 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 10.6% (7.3% OF TOTAL INVESTMENTS) 885 Coweta County Development Authority, Georgia, Revenue 1/13 at 100.00 Aaa 973,730 Bonds, Newnan Water and Sewer, and Light Commission Project, Series 2002, 5.250%, 1/01/18 - FGIC Insured 1,000 Fairburn, Georgia, Combined Utility Revenue Bonds, 10/10 at 101.00 BBB 1,071,660 Series 2000, 5.750%, 10/01/20 1,655 Georgia Municipal Electric Authority, Project One Special No Opt. Call A+ 1,834,088 Obligation Bonds, Fifth Crossover Series 1998Y, 6.400%, 1/01/09 1,000 Georgia Municipal Electric Authority, General Power Revenue No Opt. Call AAA 1,150,230 Bonds, Series 1993Z, 5.500%, 1/01/20 - FGIC Insured 1,000 Municipal Electric Authority of Georgia, Project One 1/13 at 100.00 AAA 1,080,030 Subordinated Lien Revenue Bonds, Series 2003A, 5.000%, 1/01/22 - MBIA Insured 20 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 24.0% (16.5% OF TOTAL INVESTMENTS) $ 1,225 Atlanta, Georgia, Water and Wastewater Revenue Bonds, 11/14 at 100.00 AAA $ 1,310,860 Series 2004, 5.000%, 11/01/24 - FSA Insured Augusta, Georgia, Water and Sewerage Revenue Bonds, Series 2002: 500 5.000%, 10/01/16 - FSA Insured 10/12 at 100.00 AAA 543,565 1,990 5.000%, 10/01/17 - FSA Insured 10/12 at 100.00 AAA 2,160,722 3,500 Coweta County Water and Sewer Authority, Georgia, Revenue 6/11 at 102.00 Aaa 3,815,980 Bonds, Series 2001, 5.250%, 6/01/26 - AMBAC Insured 2,500 DeKalb County, Georgia, Water and Sewerage Revenue 10/10 at 101.00 AA 2,635,525 Bonds, Series 2000, 5.125%, 10/01/31 1,950 Fulton County, Georgia, Water and Sewerage Revenue Bonds, 1/14 at 100.00 AAA 2,097,030 Series 2004, 5.000%, 1/01/22 - FGIC Insured 1,000 Midgeville, Georgia, Water and Sewerage Revenue Refunding No Opt. Call AAA 1,225,520 Bonds, Series 1996, 6.000%, 12/01/21 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ $ 77,275 Total Long-Term Investments (cost $78,446,822) - 145.2% 83,740,329 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.0% 1,746,866 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.2)% (27,800,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 57,687,195 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. See accompanying notes to financial statements. 21 Nuveen Georgia Dividend Advantage Municipal Fund (NZX) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY - 2.4% (1.7% OF TOTAL INVESTMENTS) $ 750 DeKalb County Development Authority, Georgia, Pollution 12/12 at 101.00 Baa3 $ 734,213 Control Revenue Refunding Bonds, General Motors Corporation Projects, Series 2002, 6.000%, 3/15/21 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 3.6% (2.4% OF TOTAL INVESTMENTS) 1,000 Cartersville Development Authority, Georgia, Waste and 2/12 at 100.00 A+ 1,076,030 Wastewater Facilities Revenue Refunding Bonds, Anheuser Busch Cos. Inc. Project, Series 2002, 5.950%, 2/01/32 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 30.4% (20.8% OF TOTAL INVESTMENTS) 1,000 Athens Housing Authority, Georgia, Student Housing Lease 12/12 at 100.00 Aaa 1,084,690 Revenue Bonds, UGAREF East Campus Housing LLC Project, Series 2002, 5.250%, 12/01/21 - AMBAC Insured 1,200 Atlanta Development Authority, Georgia, Revenue Bonds, 1/12 at 100.00 AAA 1,266,612 Yamacraw Design Center Project, Series 2001A, 5.125%, 1/01/27 - MBIA Insured 1,475 Bulloch County Development Authority, Georgia, Student 8/14 at 100.00 Aaa 1,621,777 Housing and Athletic Facility Lease Revenue Bonds, Georgia Southern University, Series 2004, 5.250%, 8/01/20 - XLCA Insured 1,620 Bulloch County Development Authority, Georgia, Student 8/12 at 100.00 Aaa 1,728,313 Housing Lease Revenue Bonds, Georgia Southern University, Series 2002, 5.000%, 8/01/20 - AMBAC Insured 500 Carrollton Payroll Development Authority, Georgia, 9/14 at 100.00 Aaa 534,125 Student Housing Revenue Bonds, University of West Georgia, Series 2004A, 5.000%, 9/01/21 - XLCA Insured 1,485 Fulton County Development Authority, Georgia, Revenue 4/12 at 100.00 AAA 1,580,248 Bonds, Georgia Tech Athletic Association, Series 2001, 5.000%, 10/01/20 - AMBAC Insured 1,250 Private Colleges and Universities Authority, Georgia, 10/11 at 102.00 Baa1 1,344,350 Revenue Bonds, Mercer University, Series 2001, 5.750%, 10/01/31 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 28.2% (19.2% OF TOTAL INVESTMENTS) 210 Chatham County Hospital Authority, Savannah, Georgia, 7/11 at 101.00 A- 230,811 Hospital Revenue Improvement Bonds, Memorial Health University Medical Center Inc., Series 2001A, 6.125%, 1/01/24 1,000 Clarke County Hospital Authority, Georgia, Hospital Revenue 1/12 at 101.00 AAA 1,095,690 Certificates, Athens Regional Medical Center, Series 2002, 5.375%, 1/01/19 - MBIA Insured 500 Coffee County Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 BBB+ 528,810 Coffee County Regional Medical Center, Series 2004, 5.250%, 12/01/22 1,250 Gainesville and Hall County Hospital Authority, Georgia, 5/11 at 100.00 A- 1,305,413 Revenue Anticipation Certificates, Northeast Georgia Health Services Inc., Series 2001, 5.500%, 5/15/31 1,900 Gwinnett County Hospital Authority, Georgia, Revenue 2/12 at 102.00 AAA 2,063,609 Anticipation Certificates, Gwinnett Hospital System Inc. Project, Series 1997B, 5.300%, 9/01/27 - MBIA Insured 500 Henry County Hospital Authority, Georgia, Revenue 7/14 at 101.00 Aaa 542,235 Certificates, Henry Medical Center, Series 2004, 5.000%, 7/01/20 - MBIA Insured 500 Savannah Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 AA 537,490 St. Joseph's/Candler Health System, Series 2003, 5.250%, 7/01/23 - RAAI Insured 2,000 Valdosta and Lowndes County Hospital Authority, 10/12 at 101.00 AAA 2,164,420 Georgia, Revenue Certificates, South Georgia Medical Center, Series 2002, 5.250%, 10/01/27 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 8.4% (5.7% OF TOTAL INVESTMENTS) 990 DeKalb County Housing Authority, Georgia, GNMA 8/11 at 103.00 Aaa 1,040,688 Collateralized Multifamily Housing Revenue Bonds, Castaways Apartments, Series 2001A, 5.400%, 2/20/29 1,400 Savannah Housing Authority, Georgia, FNMA Multifamily 8/16 at 100.00 Aaa 1,485,400 Housing Revenue Refunding Bonds, Chatham Gardens, Series 2001, 5.625%, 8/01/31 (Alternative Minimum Tax) (Mandatory put 2/01/19) 22 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 9.3% (6.3% OF TOTAL INVESTMENTS) $ 2,000 Georgia Housing and Finance Authority, Single Family 12/11 at 100.00 AAA $ 2,099,960 Mortgage Resolution 1 Bonds, Series 2002A-2, 5.450%, 12/01/22 (Alternative Minimum Tax) 650 Georgia Housing and Finance Authority, Single Family 12/11 at 100.00 AAA 677,157 Mortgage Bonds, Series 2002B-2, 5.350%, 12/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 2.7% (1.8% OF TOTAL INVESTMENTS) 750 Savannah Economic Development Authority, Georgia, 7/12 at 100.00 AAA 811,455 Revenue Bonds, GTREP Project, Series 2002, 5.000%, 7/01/19 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 3.0% (2.0% OF TOTAL INVESTMENTS) 850 Richmond County Development Authority, Georgia, 2/12 at 101.00 BBB 897,864 Environmental Improvement Revenue Refunding Bonds, International Paper Company, Series 2002A, 6.000%, 2/01/25 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 9.4% (6.4% OF TOTAL INVESTMENTS) 2,000 Georgia, General Obligation Bonds, Series 2002D, 8/12 at 100.00 AAA 2,176,040 5.000%, 8/01/18 595 Puerto Rico, General Obligation and Public Improvement 7/14 at 100.00 BBB 645,968 Bonds, Series 2004A, 5.250%, 7/01/22 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 5.6% (3.8% OF TOTAL INVESTMENTS) 1,525 Macon-Bibb County Urban Development Authority, Georgia, 8/12 at 101.00 AA 1,680,916 Revenue Refunding Bonds, Public Facilities Projects, Series 2002A, 5.000%, 8/01/14 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 3.7% (2.5% OF TOTAL INVESTMENTS) 1,000 Atlanta, Georgia, Airport General Revenue Refunding Bonds, 1/10 at 101.00 AAA 1,095,660 Series 2000A, 5.400%, 1/01/15 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 5.6% (3.8% OF TOTAL INVESTMENTS) 500 Atlanta, Georgia, Airport Facilities Revenue Refunding Bonds, No Opt. Call AAA 559,650 Series 1994A, 6.500%, 1/01/09 - AMBAC Insured 1,000 Rockdale County Water and Sewerage Authority, Georgia, 1/10 at 101.00 AAA 1,107,650 Revenue Bonds, Series 1999A, 5.375%, 7/01/29 (Pre-refunded to 1/01/10) - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 16.2% (11.0% OF TOTAL INVESTMENTS) 1,500 Coweta County Development Authority, Georgia, Revenue 1/13 at 100.00 Aaa 1,650,390 Bonds, Newnan Water and Sewer, and Light Commission Project, Series 2002, 5.250%, 1/01/18 - FGIC Insured 1,250 Municipal Electric Authority of Georgia, Combustion Turbine 11/07 at 100.00 AAA 1,369,538 Revenue Bonds, Series 2002A, 5.250%, 11/01/20 - MBIA Insured 500 Municipal Electric Authority of Georgia, Combustion Turbine 11/13 at 100.00 AAA 560,590 Revenue Bonds, Series 2003A, 5.250%, 11/01/15 - MBIA Insured 1,200 Summerville, Georgia, Combined Public Utility System 1/12 at 101.00 Baa3 1,272,084 Revenue Refunding and Improvement Bonds, Series 2002, 5.750%, 1/01/26 23 Nuveen Georgia Dividend Advantage Municipal Fund (NZX) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 18.5% (12.6% OF TOTAL INVESTMENTS) $ 1,200 Atlanta, Georgia, Water and Wastewater Revenue Bonds, 11/14 at 100.00 AAA $ 1,284,108 Series 2004, 5.000%, 11/01/24 - FSA Insured 2,065 Augusta, Georgia, Water and Sewerage Revenue Bonds, 10/12 at 100.00 AAA 2,244,923 Series 2002, 5.000%, 10/01/16 - FSA Insured 500 Fulton County, Georgia, Water and Sewerage Revenue Bonds, 1/14 at 100.00 AAA 537,700 Series 2004, 5.000%, 1/01/22 - FGIC Insured 1,395 Macon Water Authority, Georgia, Water and Sewer Revenue 10/11 at 101.00 AA- 1,486,371 Bonds, Series 2001B, 5.000%, 10/01/21 ------------------------------------------------------------------------------------------------------------------------------------ $ 41,010 Total Long-Term Investments (cost $41,845,038) - 147.0% 44,122,948 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.0% 884,526 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (50.0)% (15,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 30,007,474 ==================================================================================================================== FORWARD SWAPS OUTSTANDING AT MAY 31, 2005: UNREALIZED NOTIONAL EFFECTIVE TERMINATION APPRECIATION AMOUNT DATE(2) DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------------------ Agreement with Morgan Stanley dated December 8, 2004, to pay semi-annually the notional amount multiplied by 5.313% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). $ 200,000 7/18/05 7/18/35 $(17,461) Agreement with Morgan Stanley dated January 31, 2005, to pay semi-annually the notional amount multiplied by 5.058% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). 1,100,000 8/16/05 8/16/35 (49,949) ------------------------------------------------------------------------------------------------------------------------------------ $(67,410) ------------------------------------------------------------------------------------------------------------------------------------ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each forward swap contract. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. See accompanying notes to financial statements. 24 Nuveen Georgia Dividend Advantage Municipal Fund 2 (NKG) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER DISCRETIONARY - 2.6% (1.7% OF TOTAL INVESTMENTS) $ 1,750 DeKalb County Development Authority, Georgia, Pollution 12/12 at 101.00 Baa3 $ 1,713,163 Control Revenue Refunding Bonds, General Motors Corporation Projects, Series 2002, 6.000%, 3/15/21 ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 3.0% (2.1% OF TOTAL INVESTMENTS) 2,000 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB 2,022,380 Asset-Backed Refunding Bonds, Series 2002, 5.500%, 5/15/39 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 20.3% (13.8% OF TOTAL INVESTMENTS) 1,225 Athens-Clarke County Unified Government Development 12/12 at 100.00 AAA 1,331,012 Authority, Georgia, Educational Facilities Revenue Bonds, UGAREF CCRC Building LLC Project, Series 2002, 5.000%, 12/15/18 - AMBAC Insured Athens Housing Authority, Georgia, Student Housing Lease Revenue Bonds, UGAREF East Campus Housing LLC Project, Series 2002: 3,500 5.000%, 12/01/27 - AMBAC Insured 12/12 at 100.00 Aaa 3,688,895 2,500 5.000%, 12/01/33 - AMBAC Insured 12/12 at 100.00 Aaa 2,618,525 1,050 Fulton County Development Authority, Georgia, Revenue 2/12 at 100.00 AAA 1,098,038 Bonds, TUFF Morehouse Project, Series 2002A, 5.000%, 2/01/34 - AMBAC Insured 2,000 Fulton County Development Authority, Georgia, Revenue 11/13 at 100.00 AAA 2,161,120 Bonds, Georgia Tech - Klaus Parking and Family Housing, Series 2003, 5.000%, 11/01/23 - MBIA Insured 1,315 Private Colleges and Universities Authority, Georgia, Revenue 9/11 at 100.00 AA 1,383,972 Bonds, Emory University, Series 2001A, 5.125%, 9/01/33 1,250 Private Colleges and Universities Authority, Georgia, Revenue 10/11 at 102.00 Baa1 1,344,350 Bonds, Mercer University, Series 2001, 5.750%, 10/01/31 ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 27.2% (18.5% OF TOTAL INVESTMENTS) 1,000 Chatham County Hospital Authority, Savannah, Georgia, 1/14 at 100.00 A- 1,060,960 Hospital Revenue Bonds, Memorial Health University Medical Center Inc., Series 2004A, 5.375%, 1/01/26 1,000 Coffee County Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 BBB+ 1,057,620 Coffee County Regional Medical Center, Series 2004, 5.250%, 12/01/22 Floyd County Hospital Authority, Georgia, Revenue Anticipation Certificates, Floyd Medical Center Project, Series 2002: 1,480 5.000%, 7/01/22 - MBIA Insured 7/12 at 101.00 Aaa 1,576,925 1,000 5.200%, 7/01/32 - MBIA Insured 7/12 at 101.00 Aaa 1,069,590 1,145 Floyd County Hospital Authority, Georgia, Revenue Anticipation 7/13 at 101.00 Aaa 1,233,749 Certificates, Floyd Medical Center, Series 2003, 5.000%, 7/01/20 - MBIA Insured 1,250 Gainesville and Hall County Hospital Authority, Georgia, 5/11 at 100.00 A- 1,305,413 Revenue Anticipation Certificates, Northeast Georgia Health Services Inc., Series 2001, 5.500%, 5/15/31 750 Glynn-Brunswick Memorial Hospital Authority, Georgia, 8/06 at 102.00 AAA 783,083 Revenue Bonds, Southeast Georgia Health Systems, Series 1996, 5.250%, 8/01/13 - MBIA Insured Newnan Hospital Authority, Georgia, Revenue Anticipation Certificates, Newnan Hospital Inc., Series 2002: 2,260 5.500%, 1/01/19 - MBIA Insured 1/13 at 100.00 Aaa 2,494,543 3,020 5.500%, 1/01/20 - MBIA Insured 1/13 at 100.00 Aaa 3,335,499 2,000 Savannah Hospital Authority, Georgia, Revenue Bonds, 1/14 at 100.00 AA 2,149,960 St. Joseph's/Candler Health System, Series 2003, 5.250%, 7/01/23 - RAAI Insured 1,945 Tift County Hospital Authority, Georgia, Revenue Anticipation 12/12 at 101.00 Aaa 2,120,925 Bonds, Tift Regional Medical Center, Series 2002, 5.250%, 12/01/19 - AMBAC Insured 25 Nuveen Georgia Dividend Advantage Municipal Fund 2 (NKG) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 4.5% (3.0% OF TOTAL INVESTMENTS) Savannah Economic Development Authority, Georgia, GNMA Collateralized Multifamily Housing Revenue Bonds, Snap I-II-III Apartments, Series 2002A: $ 500 5.150%, 11/20/22 (Alternative Minimum Tax) 11/12 at 102.00 AAA $ 521,260 980 5.200%, 11/20/27 (Alternative Minimum Tax) 11/12 at 102.00 AAA 1,013,075 1,465 5.250%, 11/20/32 (Alternative Minimum Tax) 11/12 at 102.00 AAA 1,510,737 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 5.6% (3.8% OF TOTAL INVESTMENTS) 1,900 Georgia Housing and Finance Authority, Single Family 6/11 at 100.00 AAA 1,960,724 Mortgage Resolution 1 Bonds, Series 2001B-2, 5.400%, 12/01/31 (Alternative Minimum Tax) 1,700 Georgia Housing and Finance Authority, Single Family 12/12 at 100.00 AAA 1,769,921 Mortgage Bonds, Series 2002C-2, 5.100%, 12/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 1.6% (1.1% OF TOTAL INVESTMENTS) 1,000 Richmond County Development Authority, Georgia, 2/11 at 101.00 BBB 1,070,800 Environmental Improvement Revenue Bonds, International Paper Company, Series 2001A, 6.250%, 2/01/25 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 9.3% (6.4% OF TOTAL INVESTMENTS) 1,000 Cherokee County School System, Georgia, General Obligation 8/13 at 100.00 AAA 1,094,550 Bonds, Series 2003, 5.000%, 8/01/16 - MBIA Insured 1,000 Forsyth County, Georgia, General Obligation Bonds, 3/14 at 101.00 AA 1,110,660 Series 2004, 5.250%, 3/01/19 750 Georgia, General Obligation Bonds, Series 1998D, No Opt. Call AAA 861,195 5.250%, 10/01/15 Oconee County, Georgia, General Obligation Bonds, Recreation Project, Series 2003: 1,410 5.500%, 1/01/23 - AMBAC Insured 1/13 at 101.00 Aaa 1,588,111 1,470 5.250%, 1/01/26 - AMBAC Insured 1/13 at 101.00 Aaa 1,597,493 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 31.8% (21.6% OF TOTAL INVESTMENTS) 1,405 Clayton County Development Authority, Georgia, Revenue 7/12 at 100.00 AAA 1,534,077 Bonds, TUFF Archives LLC Project, Series 2001A, 5.250%, 7/01/21 - MBIA Insured 4,000 Forsyth County Water and Sewerage Authority, Georgia, 4/13 at 100.00 AA 4,218,320 Revenue Bonds, Series 2002, 5.000%, 4/01/32 750 Georgia Municipal Association Inc., Certificates of 6/12 at 101.00 AAA 816,338 Participation, Atlanta Court Project, Series 2002, 5.125%, 12/01/21 - AMBAC Insured 2,500 Metropolitan Atlanta Rapid Transit Authority, Georgia, No Opt. Call AAA 3,057,825 Sales Tax Revenue Refunding Bonds, Series 1992P, 6.250%, 7/01/20 - AMBAC Insured 2,000 Puerto Rico, Highway Revenue Bonds, Highway and 7/16 at 100.00 AAA 2,289,940 Transportation Authority, Series 1996Y, 5.500%, 7/01/36 - FSA Insured 5,000 Puerto Rico Public Buildings Authority, Guaranteed No Opt. Call AAA 5,797,400 Government Facilities Revenue Refunding Bonds, Series 2002F, 5.250%, 7/01/21 - CIFG Insured Puerto Rico Municipal Finance Agency, Series 2002A: 800 5.250%, 8/01/21 - FSA Insured 8/12 at 100.00 AAA 879,504 2,500 5.000%, 8/01/27 - FSA Insured 8/12 at 100.00 AAA 2,651,900 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 5.9% (4.0% OF TOTAL INVESTMENTS) 3,650 Atlanta, Georgia, Airport General Revenue Refunding Bonds, 1/10 at 101.00 AAA 3,971,492 Series 2000A, 5.500%, 1/01/21 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 2.9% (2.0% OF TOTAL INVESTMENTS) 1,865 Glynn-Brunswick Memorial Hospital Authority, Georgia, 8/06 at 102.00 AAA 1,950,212 Revenue Bonds, Southeast Georgia Health Systems, Series 1996, 5.250%, 8/01/13 (Pre-refunded to 8/01/06) - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 9.8% (6.7% OF TOTAL INVESTMENTS) 1,000 Elberton, Georgia, Combined Utility System Revenue 1/12 at 100.00 Aaa 1,059,720 Refunding and Improvement Bonds, Series 2001, 5.000%, 1/01/22 - AMBAC Insured 1,300 Fairburn, Georgia, Combined Utility Revenue Bonds, 10/10 at 101.00 BBB 1,393,158 Series 2000, 5.750%, 10/01/20 1,000 Monroe County Development Authority, Georgia, Pollution No Opt. Call AAA 1,030,450 Control Revenue Bonds, Georgia Power Company - Scherer Plant, Series 2001, 4.200%, 1/01/12 (Mandatory put 12/01/08) - AMBAC Insured 26 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES (continued) $ 1,000 Municipal Electric Authority of Georgia, Project One 1/13 at 100.00 AAA $ 1,080,030 Subordinated Lien Revenue Bonds, Series 2003A, 5.000%, 1/01/22 - MBIA Insured 1,775 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 1,999,005 Series 2002II, 5.375%, 7/01/19 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 22.4% (15.3% OF TOTAL INVESTMENTS) 500 Atlanta, Georgia, Water and Wastewater Revenue Bonds, 11/14 at 100.00 AAA 561,220 Series 2004, 5.250%, 11/01/15 - FSA Insured Augusta, Georgia, Water and Sewerage Revenue Bonds, Series 2002: 1,000 5.250%, 10/01/22 - FSA Insured 10/12 at 100.00 AAA 1,094,670 3,500 5.000%, 10/01/27 - FSA Insured 10/12 at 100.00 AAA 3,696,455 DeKalb County, Georgia, Water and Sewerage Revenue Bonds, Series 2000: 2,500 5.125%, 10/01/31 10/10 at 101.00 AA 2,635,525 2,500 5.375%, 10/01/35 10/10 at 101.00 AA 2,713,450 950 Fulton County, Georgia, Water and Sewerage Revenue Bonds, 7/08 at 101.00 AAA 1,005,395 Series 1998, 5.000%, 1/01/16 - FGIC Insured 3,100 Harris County, Georgia, Water System Revenue Bonds, Series 2002, 5.000%, 12/01/22 - AMBAC Insured 12/12 at 100.00 Aaa 3,307,450 ------------------------------------------------------------------------------------------------------------------------------------ $ 91,210 Total Long-Term Investments (cost $94,368,112) - 146.9% 98,391,784 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.4% 1,581,764 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (49.3)% (33,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 66,973,548 ==================================================================================================================== FORWARD SWAPS OUTSTANDING AT MAY 31, 2005: UNREALIZED NOTIONAL EFFECTIVE TERMINATION APPRECIATION AMOUNT DATE(2) DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------------------ Agreement with JPMorgan dated January 11, 2005, to pay semi-annually the notional amount multiplied by 5.235% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). $1,400,000 8/17/05 8/17/25 $ (93,466) Agreement with Morgan Stanley dated January 31, 2005, to pay semi-annually the notional amount multiplied by 5.058% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). 3,200,000 8/16/05 8/16/35 (145,308) ------------------------------------------------------------------------------------------------------------------------------------ $(238,774) ------------------------------------------------------------------------------------------------------------------------------------ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each forward swap contract. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. See accompanying notes to financial statements. 27 Nuveen North Carolina Premium Income Municipal Fund (NNC) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 30.3% (20.8% OF TOTAL INVESTMENTS) $ 970 North Carolina Capital Facilities Financing Agency, Revenue 4/13 at 100.00 AAA $ 1,049,104 Bonds, Johnson and Wales University, Series 2003A, 5.250%, 4/01/23 - XLCA Insured 1,000 North Carolina Capital Facilities Financing Agency, Housing 6/13 at 100.00 AAA 1,059,110 Revenue Bonds, Elizabeth City State University, Series 2003A, 5.000%, 6/01/28 - AMBAC Insured North Carolina Education Assistance Authority, Subordinate Lien Guaranteed Student Loan Revenue Bonds, Series 1995A: 1,000 6.050%, 7/01/10 (Alternative Minimum Tax) 7/05 at 102.00 A2 1,021,690 2,400 6.300%, 7/01/15 (Alternative Minimum Tax) 7/05 at 102.00 A2 2,451,768 5,875 North Carolina Education Assistance Authority, Subordinate 7/06 at 102.00 A2 6,117,579 Lien Guaranteed Student Loan Revenue Bonds, Series 1996C, 6.350%, 7/01/16 (Alternative Minimum Tax) 3,285 North Carolina State University at Raleigh, General Revenue 10/13 at 100.00 AA 3,628,348 Bonds, Series 2003A, 5.000%, 10/01/15 1,200 University of North Carolina, Charlotte, Certificates of 3/15 at 100.00 AAA 1,272,624 Participation, Student Housing Project, Series 2005, 5.000%, 3/01/31 - AMBAC Insured University of North Carolina, Chapel Hill, System Net Revenue Bonds, Series 2003: 2,380 5.000%, 12/01/19 12/13 at 100.00 AA+ 2,602,078 2,725 5.000%, 12/01/21 12/13 at 100.00 AA+ 2,969,732 1,500 5.000%, 12/01/23 12/13 at 100.00 AA+ 1,627,320 1,000 University of North Carolina System, Pooled Revenue 10/12 at 100.00 AAA 1,109,380 Refunding Bonds, Series 2002A, 5.375%, 4/01/22 - AMBAC Insured 750 University of North Carolina System, Pooled Revenue Bonds, 4/14 at 100.00 Aaa 808,493 Series 2004C, 5.000%, 4/01/21 - AMBAC Insured 1,530 University of North Carolina System, Pooled Revenue Bonds, No Opt. Call AAA 1,703,976 Series 2005A, 5.000%, 4/01/15 - AMBAC Insured 1,675 University of North Carolina, Wilmington, General Revenue 1/12 at 101.00 Aaa 1,811,965 Bonds, Series 2002A, 5.000%, 1/01/23 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 1.7% (1.2% OF TOTAL INVESTMENTS) 1,500 Virgin Islands Public Finance Authority, Refinery Revenue 1/14 at 100.00 BBB 1,652,265 Bonds, Hovensa LLC, Series 2003, 6.125%, 7/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 20.7% (14.1% OF TOTAL INVESTMENTS) North Carolina Medical Care Commission, Healthcare Facilities Revenue Bonds, Union Regional Medical Center, Series 2002A: 1,000 5.500%, 1/01/19 1/12 at 100.00 A 1,073,760 550 5.500%, 1/01/20 1/12 at 100.00 A 588,286 1,750 5.375%, 1/01/32 1/12 at 100.00 A 1,824,200 2,000 North Carolina Medical Care Commission, Healthcare 11/13 at 100.00 AA- 2,129,900 Facilities Revenue Bonds, Novant Health Obligated Group, Series 2003A, 5.000%, 11/01/19 North Carolina Medical Care Commission, Revenue Bonds, Cleveland County Healthcare System, Series 2004A: 600 5.250%, 7/01/20 - AMBAC Insured 7/14 at 100.00 AAA 660,474 500 5.250%, 7/01/22 - AMBAC Insured 7/14 at 100.00 AAA 547,190 2,000 North Carolina Medical Care Commission, Healthcare 10/09 at 101.00 A- 2,157,400 Facilities Revenue Bonds, Stanly Memorial Hospital, Series 1999, 6.375%, 10/01/29 1,615 North Carolina Medical Care Commission, Hospital Revenue 10/08 at 101.00 AA 1,635,397 Bonds, FirstHealth of the Carolinas Inc., Series 1998, 4.750%, 10/01/26 28 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE (continued) $ 3,000 North Carolina Medical Care Commission, Hospital Revenue 6/12 at 101.00 A $ 3,131,700 Bonds, Southeastern Regional Medical Center, Series 2002, 5.375%, 6/01/32 735 North Carolina Medical Care Commission, Revenue Bonds, 11/14 at 100.00 AA- 776,799 Northeast Medical Center, Series 2004, 5.000%, 11/01/24 5,000 North Carolina Medical Care Commission, Health System 10/11 at 101.00 AA 5,302,200 Revenue Bonds, Mission St. Joseph's Health System, Series 2001, 5.250%, 10/01/31 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 5.4% (3.7% OF TOTAL INVESTMENTS) 1,000 Asheville Housing Authority, North Carolina, 11/07 at 102.00 AA 1,030,220 GNMA-Collateralized Multifamily Housing Revenue Bonds, Woodridge Apartments, Series 1997, 5.800%, 11/20/39 (Alternative Minimum Tax) 1,000 Charlotte, North Carolina, FHA-Insured Mortgage Revenue 7/05 at 103.00 AAA 1,055,250 Refunding Bonds, Tryon Hills Apartments, Series 1993A, 5.875%, 1/01/25 - MBIA Insured 2,290 Mecklenburg County, North Carolina, FNMA Multifamily 7/13 at 105.00 AAA 2,407,637 Housing Revenue Bonds, Little Rock Apartments, Series 2003, 5.375%, 1/01/36 (Alternative Minimum Tax) North Carolina Housing Finance Agency, FHA-Insured Multifamily Revenue Bonds, Series 1993: 250 5.800%, 7/01/14 7/05 at 100.00 Aa2 250,328 435 5.900%, 7/01/26 7/05 at 100.00 Aa2 435,405 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 9.0% (6.1% OF TOTAL INVESTMENTS) 5,095 North Carolina Housing Finance Agency, Home Ownership 7/09 at 100.00 AA 5,333,905 Revenue Bonds, 1998 Trust Agreement, Series 6A, 6.200%, 1/01/29 (Alternative Minimum Tax) 1,985 North Carolina Housing Finance Agency, Single Family Revenue 3/06 at 102.00 AA 2,040,620 Bonds, Series 1996HH, 6.300%, 3/01/26 (Alternative Minimum Tax) 1,215 North Carolina Housing Finance Agency, Home Ownership 7/10 at 100.00 AAA 1,247,987 Revenue Bonds, 1998 Trust Agreement, Series 10A, 5.400%, 7/01/32 (Alternative Minimum Tax) - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.5% (1.0% OF TOTAL INVESTMENTS) 1,400 North Carolina Capital Facilities Financing Agency, No Opt. Call BBB 1,393,756 Exempt Facilities Revenue Bonds, Waste Management Inc., Series 2001, 3.750%, 8/01/14 (Alternative Minimum Tax) (Mandatory put 8/01/07) ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 0.3% (0.2% OF TOTAL INVESTMENTS) 250 North Carolina Medical Care Commission, Revenue Bonds, 9/15 at 100.00 A 258,555 United Church Homes and Services, Series 2005A, 5.250%, 9/01/21 ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 2.2% (1.6% OF TOTAL INVESTMENTS) 2,000 Haywood County Industrial Facilities and Pollution Control 3/06 at 102.00 Baa2 2,076,240 Financing Authority, North Carolina, Pollution Control Revenue Refunding Bonds, Champion International Corporation, Series 1995, 6.000%, 3/01/20 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 8.7% (5.9% OF TOTAL INVESTMENTS) 1,890 Craven County, North Carolina, General Obligation Bonds, 5/12 at 101.00 AAA 2,052,143 Series 2002, 5.000%, 5/01/21 - AMBAC Insured 4,285 Durham County, North Carolina, General Obligation Public 4/12 at 100.00 AAA 4,657,495 Improvement Bonds, Series 2002B, 5.000%, 4/01/16 1,000 Johnston County, North Carolina, General Obligation Bonds, 6/11 at 102.00 AAA 1,091,550 Series 2001, 5.000%, 6/01/16 - FGIC Insured 500 North Carolina, General Obligation Bonds, Series 2004A, 3/14 at 100.00 AAA 541,765 5.000%, 3/01/22 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 28.7% (19.7% OF TOTAL INVESTMENTS) 1,330 Cabarrus County, North Carolina, Certificates of Participation, 2/13 at 100.00 AA- 1,457,614 Series 2002, 5.250%, 2/01/17 1,800 Catawba County, North Carolina, Certificates of Participation, 6/14 at 100.00 Aaa 1,979,370 Series 2004, 5.250%, 6/01/21 - MBIA Insured 29 Nuveen North Carolina Premium Income Municipal Fund (NNC) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) Charlotte, North Carolina, Certificates of Participation, Governmental Facilities Projects, Series 2003G: $ 1,145 5.000%, 6/01/18 6/13 at 100.00 AA+ $ 1,231,253 1,700 5.375%, 6/01/26 6/13 at 100.00 AA+ 1,859,290 Charlotte, North Carolina, Storm Water Fee Revenue Bonds, Series 2002: 1,050 5.250%, 6/01/20 6/12 at 101.00 AA+ 1,147,965 1,750 5.000%, 6/01/25 6/12 at 101.00 AA+ 1,869,420 2,180 Concord, North Carolina, Certificates of Participation, 6/06 at 102.00 AAA 2,291,398 Series 1996A, 6.125%, 6/01/21 - MBIA Insured 1,000 Davidson County, North Carolina, Certificates of Participation, No Opt. Call AAA 1,126,540 Series 2004, 5.250%, 6/01/14 - AMBAC Insured 750 Johnston County Finance Corporation, North Carolina, 8/09 at 101.00 AAA 806,325 Installment Payment Revenue Bonds, School and Museum Projects, Series 1999, 5.250%, 8/01/21 - FSA Insured Lee County, North Carolina, Certificates of Participation, Public Schools and Community College, Series 2004: 1,715 5.250%, 4/01/18 - FSA Insured 4/14 at 100.00 AAA 1,896,636 500 5.250%, 4/01/20 - FSA Insured 4/14 at 100.00 AAA 550,590 1,000 5.250%, 4/01/22 - FSA Insured 4/14 at 100.00 AAA 1,094,920 North Carolina Infrastructure Finance Corporation, Certificates of Participation, Correctional Facilities, Series 2004A: 2,500 5.000%, 2/01/19 2/14 at 100.00 AA+ 2,686,175 1,500 5.000%, 2/01/23 2/14 at 100.00 AA+ 1,593,615 North Carolina, Certificates of Participation, Series 2003: 1,130 5.250%, 6/01/21 6/13 at 100.00 AA+ 1,219,869 1,000 5.250%, 6/01/23 6/13 at 100.00 AA+ 1,076,000 1,500 North Carolina, Certificates of Participation, Repair and 6/14 at 100.00 AA+ 1,616,550 Renovation Project, Series 2004B, 5.000%, 6/01/20 2,000 Puerto Rico Highway and Transportation Authority, Grant 3/14 at 100.00 AAA 2,173,900 Anticipation Revenue Bonds, Series 2004, 5.000%, 9/15/21 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 3.3% (2.2% OF TOTAL INVESTMENTS) 600 Charlotte, North Carolina, Airport Revenue Bonds, 7/14 at 100.00 AAA 655,434 Series 2004A, 5.250%, 7/01/24 - MBIA Insured 2,250 Raleigh Durham Airport Authority, North Carolina, Airport 5/11 at 101.00 Aaa 2,469,713 Revenue Bonds, Series 2001A, 5.250%, 11/01/16 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 17.6% (12.0% OF TOTAL INVESTMENTS) 2,000 Charlotte, North Carolina, Storm Water Fee Revenue Bonds, 6/10 at 101.00 AA+*** 2,287,680 Series 2000, 6.000%, 6/01/25 (Pre-refunded to 6/01/10) 2,500 Fayetteville Public Works Commission, North Carolina, 3/07 at 101.00 AAA 2,619,450 Revenue Bonds, Series 1997, 5.125%, 3/01/24 (Pre-refunded to 3/01/07) - FSA Insured 1,775 North Carolina Municipal Power Agency 1, Catawba Electric No Opt. Call AAA 2,107,582 Revenue Bonds, Series 1980, 10.500%, 1/01/10 4,260 North Carolina Municipal Power Agency 1, Catawba Electric No Opt. Call AAA 4,821,511 Revenue Bonds, Series 1986, 5.000%, 1/01/20 4,500 North Carolina, General Obligation Bonds, Series 2000A, 9/10 at 102.00 AAA 5,015,160 5.100%, 9/01/16 (Pre-refunded to 9/01/10) ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 8.1% (5.5% OF TOTAL INVESTMENTS) 4,000 North Carolina Municipal Power Agency 1, Catawba Electric 1/10 at 101.00 A3 4,493,760 Revenue Bonds, Series 1999B, 6.500%, 1/01/20 2,000 North Carolina Municipal Power Agency 1, Catawba Electric 1/13 at 100.00 AAA 2,211,640 Revenue Bonds, Series 2003A, 5.250%, 1/01/15 - AMBAC Insured 1,000 Wake County Industrial Facilities and Pollution Control 2/12 at 101.00 A3 1,080,980 Financing Authority, North Carolina, Revenue Refunding Bonds, Carolina Power and Light Company, Series 2002, 5.375%, 2/01/17 30 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 8.8% (6.0% OF TOTAL INVESTMENTS) $ 2,825 Charlotte, North Carolina, Water and Sewerage System 12/14 at 102.00 AAA $ 3,117,190 Revenue Bonds, Series 2005A, 5.000%, 12/01/21 1,295 Greensboro, North Carolina, Combined Enterprise System 6/15 at 100.00 AA+ 1,384,899 Revenue Bonds, Series 2005A, 5.000%, 6/01/26 500 Onslow County, North Carolina, Combined Enterprise System 6/14 at 100.00 AAA 536,115 Revenue Bonds, Series 2004B, 5.000%, 6/01/23 - XLCA Insured 2,000 Winston-Salem, North Carolina, Water and Sewerage System 6/12 at 100.00 AAA 2,162,260 Revenue Bonds, Series 2002A, 5.000%, 6/01/18 1,170 Winston-Salem, North Carolina, Water and Sewerage System 6/15 at 100.00 AAA 1,280,292 Revenue Bonds, Series 2005, 5.000%, 6/01/20 ------------------------------------------------------------------------------------------------------------------------------------ $ 130,360 Total Long-Term Investments (cost $133,296,350) - 146.3% 140,506,690 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.4% 2,301,174 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.7)% (46,800,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 96,007,864 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 31 Nuveen North Carolina Dividend Advantage Municipal Fund (NRB) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 26.6% (18.3% OF TOTAL INVESTMENTS) $ 500 North Carolina Capital Facilities Financing Agency, Revenue 9/11 at 101.00 Baa2 $ 528,025 Bonds, High Point University, Series 2001, 5.125%, 9/01/18 2,000 North Carolina Capital Facilities Financing Agency, Revenue 10/11 at 100.00 AA+ 2,109,560 Bonds, Duke University, Series 2001A, 5.125%, 10/01/26 1,750 University of North Carolina, Chapel Hill, System Net Revenue 6/11 at 100.00 AA+ 1,848,262 Bonds, Series 2001A, 5.000%, 12/01/25 1,845 University of North Carolina, Chapel Hill, System Net Revenue No Opt. Call AA+ 2,037,600 Bonds, Series 2002B, 5.000%, 12/01/11 2,450 University of North Carolina System, Pooled Revenue Refunding 10/12 at 100.00 AAA 2,735,499 Bonds, Series 2002A, 5.375%, 4/01/17 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 19.2% (13.2% OF TOTAL INVESTMENTS) 1,110 North Carolina Medical Care Commission, Healthcare 1/12 at 100.00 A 1,187,256 Facilities Revenue Bonds, Union Regional Medical Center, Series 2002A, 5.250%, 1/01/15 2,500 North Carolina Medical Care Commission, Healthcare Revenue 5/07 at 100.00 AA- 2,548,225 Bonds, Carolina Medicorp, Series 1996, 5.250%, 5/01/26 1,500 North Carolina Medical Care Commission, Hospital Revenue 6/12 at 101.00 A 1,579,515 Bonds, Southeastern Regional Medical Center, Series 2002, 5.250%, 6/01/22 300 North Carolina Medical Care Commission, Revenue Bonds, 11/14 at 100.00 AA- 317,061 Northeast Medical Center, Series 2004, 5.000%, 11/01/24 1,000 North Carolina Medical Care Commission, Health System 10/11 at 101.00 AA 1,060,440 Revenue Bonds, Mission St. Joseph's Health System, Series 2001, 5.250%, 10/01/31 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 6.6% (4.6% OF TOTAL INVESTMENTS) 2,230 Durham Housing Authority, North Carolina, FNMA Guaranteed 6/11 at 100.00 AAA 2,313,447 Multifamily Housing Revenue Bonds, Naples Terrace Apartments, Series 2001A, 5.700%, 6/01/33 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 5.2% (3.6% OF TOTAL INVESTMENTS) 1,270 North Carolina Housing Finance Agency, Home Ownership 7/09 at 100.00 AA 1,310,043 Revenue Bonds, 1998 Trust Agreement, Series 5A, 5.625%, 7/01/30 (Alternative Minimum Tax) 485 North Carolina Housing Finance Agency, Home Ownership 7/10 at 100.00 AAA 498,168 Revenue Bonds, 1998 Trust Agreement, Series 10A, 5.400%, 7/01/32 (Alternative Minimum Tax) - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.4% (1.0% OF TOTAL INVESTMENTS) 500 North Carolina Capital Facilities Financing Agency, Exempt No Opt. Call BBB 497,770 Facilities Revenue Bonds, Waste Management Inc., Series 2001, 3.750%, 8/01/14 (Alternative Minimum Tax) (Mandatory put 8/01/07) ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 1.6% (1.1% OF TOTAL INVESTMENTS) 300 North Carolina Medical Care Commission, Revenue Bonds, 10/14 at 100.00 N/R 306,810 United Methodist Retirement Homes Inc., Series 2005A, 5.500%, 10/01/35 250 North Carolina Medical Care Commission, Revenue Bonds, 9/15 at 100.00 N/R 258,555 United Church Homes and Services, Series 2005A, 5.250%, 9/01/21 32 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 2.2% (1.5% OF TOTAL INVESTMENTS) $ 750 Columbus County Industrial Facilities and Pollution Control 4/07 at 102.00 BBB $ 780,720 Financing Authority, North Carolina, Environmental Improvement Revenue Bonds, International Paper Company Project, Series 1997A, 6.150%, 4/01/21 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 6.3% (4.3% OF TOTAL INVESTMENTS) North Carolina, General Obligation Bonds, Series 2004A: 1,000 5.000%, 3/01/18 3/14 at 100.00 AAA 1,097,540 1,000 5.000%, 3/01/22 3/14 at 100.00 AAA 1,083,530 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 24.2% (16.6% OF TOTAL INVESTMENTS) 1,330 Cabarrus County, North Carolina, Certificates of Participation, 2/13 at 100.00 AA- 1,468,506 Series 2002, 5.250%, 2/01/15 1,400 Charlotte, North Carolina, Certificates of Participation, 6/13 at 100.00 AA+ 1,531,180 Governmental Facilities Projects, Series 2003G, 5.375%, 6/01/26 1,870 Dare County, North Carolina, Certificates of Participation, 12/12 at 100.00 AAA 2,074,466 Series 2002, 5.250%, 6/01/15 - AMBAC Insured 1,250 Davidson County, North Carolina, Certificates of Participation, 6/14 at 100.00 AAA 1,374,563 Series 2004, 5.250%, 6/01/21 - AMBAC Insured 1,390 Durham, North Carolina, Certificates of Participation, 6/15 at 100.00 AA+ 1,479,460 Series 2005B, 5.000%, 6/01/25 470 Raleigh, North Carolina, Certificates of Participation, 6/14 at 100.00 AA+ 505,415 Downtown Improvement Project, Series 2004B, 5.000%, 6/01/20 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 4.8% (3.3% OF TOTAL INVESTMENTS) 1,530 Raleigh Durham Airport Authority, North Carolina, Airport 5/11 at 101.00 Aaa 1,675,625 Revenue Bonds, Series 2001A, 5.250%, 11/01/18 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 20.4% (14.0% OF TOTAL INVESTMENTS) Greenville, North Carolina, Combined Enterprise System Revenue Bonds, Series 2001: 1,000 5.250%, 9/01/20 - FSA Insured 9/11 at 101.00 AAA 1,090,930 500 5.250%, 9/01/21 - FSA Insured 9/11 at 101.00 AAA 545,465 2,500 North Carolina Eastern Municipal Power Agency, Power 7/05 at 100.00 AAA 2,504,825 System Revenue Refunding Bonds, Series 1993B, 5.500%, 1/01/17 - FGIC Insured 1,000 North Carolina Eastern Municipal Power Agency, Power 1/09 at 102.00 BBB 1,066,930 System Revenue Refunding Bonds, Series 1999B, 5.650%, 1/01/16 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 AAA 271,978 Series 2005RR, 5.000%, 7/01/24 - FGIC Insured 1,500 Wake County Industrial Facilities and Pollution Control 2/12 at 101.00 A3 1,621,470 Financing Authority, North Carolina, Revenue Refunding Bonds, Carolina Power and Light Company, Series 2002, 5.375%, 2/01/17 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 27.1% (18.5% OF TOTAL INVESTMENTS) 2,290 Broad River Water Authority, North Carolina, Water System 6/10 at 101.00 Aaa 2,483,780 Revenue Bonds, Series 2000, 5.375%, 6/01/26 - MBIA Insured 2,250 Charlotte, North Carolina, Water and Sewerage System 6/11 at 101.00 AAA 2,398,725 Revenue Bonds, Series 2001, 5.125%, 6/01/26 Greensboro, North Carolina, Combined Enterprise System Revenue Bonds, Series 2001A: 500 5.125%, 6/01/20 6/11 at 101.00 AA+ 538,400 500 5.125%, 6/01/21 6/11 at 101.00 AA+ 538,400 33 Nuveen North Carolina Dividend Advantage Municipal Fund (NRB) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 500 Greensboro, North Carolina, Combined Enterprise System 6/15 at 100.00 AA+ $ 535,555 Revenue Bonds, Series 2005A, 5.000%, 6/01/25 400 Onslow County, North Carolina, Combined Enterprise System 6/14 at 100.00 AAA 428,892 Revenue Bonds, Series 2004B, 5.000%, 6/01/23 - XLCA Insured 2,275 Winston-Salem, North Carolina, Water and Sewerage System 6/12 at 100.00 AAA 2,462,481 Revenue Bonds, Series 2002A, 5.000%, 6/01/17 ------------------------------------------------------------------------------------------------------------------------------------ $ 47,445 Total Long-Term Investments (cost $48,066,192) - 145.6% 50,695,072 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.2% 1,124,446 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.8)% (17,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 34,819,518 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. N/R Investment is not rated. See accompanying notes to financial statements. 34 Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NNO) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 30.3% (21.0% OF TOTAL INVESTMENTS) Appalachian State University, North Carolina, Housing and Student Center System Revenue Refunding Bonds, Series 2001: $ 600 5.125%, 7/15/24 - MBIA Insured 1/11 at 101.00 Aaa $ 643,854 200 5.125%, 7/15/27 - MBIA Insured 1/11 at 101.00 Aaa 211,970 Appalachian State University, North Carolina, Housing and Student Center System Revenue Refunding Bonds, Series 2002: 1,040 5.000%, 7/15/14 - MBIA Insured 7/12 at 100.00 Aaa 1,145,331 1,000 5.000%, 7/15/15 - MBIA Insured 7/12 at 100.00 Aaa 1,080,900 500 East Carolina University, General Revenue Bonds, 5/13 at 100.00 Aaa 542,455 Series 2003A, 5.000%, 5/01/19 - AMBAC Insured North Carolina Capital Facilities Financing Agency, Revenue Bonds, Duke University, Series 2001A: 3,750 5.125%, 10/01/26 10/11 at 100.00 AA+ 3,955,425 2,000 5.125%, 10/01/41 10/11 at 100.00 AA+ 2,088,140 1,000 University of North Carolina, Charlotte, Certificates of 3/15 at 100.00 AAA 1,060,520 Participation, Student Housing Project, Series 2005, 5.000%, 3/01/31 - AMBAC Insured 1,840 University of North Carolina, Chapel Hill, System Net Revenue No Opt. Call AA+ 2,032,078 Bonds, Series 2002B, 5.000%, 12/01/11 400 University of North Carolina, Greensboro, General Revenue 4/11 at 101.00 AAA 443,068 Refunding Bonds, Series 2002B, 5.375%, 4/01/17 - FSA Insured University of North Carolina System, Pooled Revenue Refunding Bonds, Series 2002A: 1,155 5.375%, 4/01/16 - AMBAC Insured 10/12 at 100.00 AAA 1,291,175 1,100 5.375%, 4/01/19 - AMBAC Insured 10/12 at 100.00 AAA 1,226,676 University of North Carolina System, Pooled Revenue Bonds, Series 2004C: 250 5.000%, 4/01/21 - AMBAC Insured 4/14 at 100.00 Aaa 269,498 500 5.000%, 4/01/24 - AMBAC Insured 4/14 at 100.00 Aaa 535,525 1,000 University of North Carolina System, Pooled Revenue Bonds, 4/15 at 100.00 AAA 1,081,860 Series 2005A, 5.000%, 4/01/22 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 21.4% (14.8% OF TOTAL INVESTMENTS) 2,130 Charlotte-Mecklenburg Hospital Authority, North Carolina, 1/11 at 101.00 AA 2,211,302 Healthcare System Revenue Bonds, Carolinas Healthcare System, Series 2001A, 5.000%, 1/15/31 1,000 New Hanover County, North Carolina, Hospital Revenue 10/05 at 100.00 AAA 1,003,230 Bonds, New Hanover Regional Medical Center, Series 1993, 4.750%, 10/01/23 - AMBAC Insured 1,005 North Carolina Medical Care Commission, Healthcare 1/12 at 100.00 A 1,085,802 Facilities Revenue Bonds, Union Regional Medical Center, Series 2002A, 5.250%, 1/01/13 2,000 North Carolina Medical Care Commission, Healthcare 11/13 at 100.00 AA- 2,125,500 Facilities Revenue Bonds, Novant Health Obligated Group, Series 2003A, 5.000%, 11/01/20 North Carolina Medical Care Commission, Revenue Bonds, Cleveland County Healthcare System, Series 2004A: 595 5.250%, 7/01/20 - AMBAC Insured 7/14 at 100.00 AAA 654,970 500 5.250%, 7/01/22 - AMBAC Insured 7/14 at 100.00 AAA 547,190 North Carolina Medical Care Commission, Hospital Revenue Bonds, Southeastern Regional Medical Center, Series 2002: 1,000 5.500%, 6/01/15 6/12 at 101.00 A 1,096,000 2,000 5.250%, 6/01/22 6/12 at 101.00 A 2,106,020 500 North Carolina Medical Care Commission, Revenue Bonds, 11/14 at 100.00 AA- 528,435 Northeast Medical Center, Series 2004, 5.000%, 11/01/24 1,000 North Carolina Medical Care Commission, Health System 10/11 at 101.00 AA 1,060,440 Revenue Bonds, Mission St. Joseph's Health System, Series 2001, 5.250%, 10/01/31 35 Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NNO) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 3.9% (2.7% OF TOTAL INVESTMENTS) $ 410 North Carolina Housing Finance Agency, Home Ownership 7/10 at 100.00 AAA $ 421,132 Revenue Bonds, 1998 Trust Agreement, Series 10A, 5.400%, 7/01/32 (Alternative Minimum Tax) - AMBAC Insured North Carolina Housing Finance Agency, Home Ownership Revenue Bonds, Series 13A: 885 4.700%, 7/01/12 (Alternative Minimum Tax) 7/11 at 100.00 AA 917,789 885 4.850%, 7/01/13 (Alternative Minimum Tax) 7/11 at 100.00 AA 917,400 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.4% (0.9% OF TOTAL INVESTMENTS) 800 North Carolina Capital Facilities Financing Agency, Exempt No Opt. Call BBB 796,432 Facilities Revenue Bonds, Waste Management Inc., Series 2001, 3.750%, 8/01/14 (Alternative Minimum Tax) (Mandatory put 8/01/07) ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 1.1% (0.8% OF TOTAL INVESTMENTS) 400 North Carolina Medical Care Commission, Revenue Bonds, 10/14 at 100.00 N/R 409,080 United Methodist Retirement Homes Inc., Series 2005A, 5.500%, 10/01/35 250 North Carolina Medical Care Commission, Revenue Bonds, 9/15 at 100.00 N/R 258,555 United Church Homes and Services, Series 2005A, 5.250%, 9/01/21 ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 2.0% (1.4% OF TOTAL INVESTMENTS) 1,100 Northampton County Industrial Facilities and Pollution 2/11 at 101.00 BBB 1,175,185 Control Financing Authority, North Carolina, Environmental Improvement Revenue Bonds, International Paper Company, Series 2001A, 6.200%, 2/01/25 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 2.3% (1.6% OF TOTAL INVESTMENTS) 250 Durham County, North Carolina, General Obligation Bonds, 5/10 at 102.00 AAA 281,918 Series 2000, 5.600%, 5/01/15 1,000 North Carolina, General Obligation Bonds, Series 2004A, 3/14 at 100.00 AAA 1,083,530 5.000%, 3/01/22 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 29.1% (20.2% OF TOTAL INVESTMENTS) 30 Cabarrus County, North Carolina, Certificates of Participation, 2/13 at 100.00 AA- 32,983 Series 2002, 5.250%, 2/01/16 1,650 Charlotte, North Carolina, Certificates of Participation, 6/13 at 100.00 AA+ 1,739,480 Governmental Facilities Projects, Series 2003G, 5.000%, 6/01/28 Charlotte, North Carolina, Storm Water Fee Revenue Bonds, Series 2002: 1,850 5.250%, 6/01/18 6/12 at 101.00 AA+ 2,054,850 400 5.250%, 6/01/19 6/12 at 101.00 AA+ 444,292 1,325 Dare County, North Carolina, Certificates of Participation, 12/12 at 100.00 AAA 1,468,047 Series 2002, 5.250%, 6/01/17 - AMBAC Insured Hartnett County, North Carolina, Certificates of Participation, Series 2002: 1,000 5.250%, 12/01/15 - FSA Insured 12/12 at 101.00 AAA 1,110,800 2,025 5.375%, 12/01/16 - FSA Insured 12/12 at 101.00 AAA 2,269,944 715 Lee County, North Carolina, Certificates of Participation, 4/14 at 100.00 AAA 787,344 Public Schools and Community College, Series 2004, 5.250%, 4/01/20 - FSA Insured 1,380 Pasquotank County, North Carolina, Certificates of 6/14 at 100.00 AAA 1,470,017 Participation, Series 2004, 5.000%, 6/01/25 - MBIA Insured 2,070 Pitt County, North Carolina, Certificates of Participation, 4/14 at 100.00 AAA 2,199,686 School Facilities Project, Series 2004B, 5.000%, 4/01/29 - AMBAC Insured Raleigh, North Carolina, Certificates of Participation, Downtown Improvement Project, Series 2004B: 805 5.000%, 6/01/20 6/14 at 100.00 AA+ 865,657 1,310 5.000%, 6/01/21 6/14 at 100.00 AA+ 1,403,600 1,000 Randolph County, North Carolina, Certificates of Participation, 6/14 at 102.00 AAA 1,091,550 Series 2004, 5.000%, 6/01/20 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 15.6% (10.8% OF TOTAL INVESTMENTS) 2,035 Charlotte, North Carolina, Airport Revenue Bonds, 7/14 at 100.00 AAA 2,145,032 Series 2004A, 5.000%, 7/01/34 - MBIA Insured Raleigh Durham Airport Authority, North Carolina, Airport Revenue Bonds, Series 2001A: 1,000 5.250%, 11/01/15 - FGIC Insured 5/11 at 101.00 Aaa 1,097,650 2,320 5.250%, 11/01/16 - FGIC Insured 5/11 at 101.00 Aaa 2,546,548 2,230 5.250%, 11/01/17 - FGIC Insured 5/11 at 101.00 Aaa 2,445,128 36 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION (continued) University of North Carolina, Charlotte, Parking System Revenue Bonds, Series 2002: $ 270 5.000%, 1/01/20 - MBIA Insured 1/12 at 101.00 Aaa $ 291,632 500 5.125%, 1/01/27 - MBIA Insured 1/12 at 101.00 Aaa 533,655 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 10.4% (7.2% OF TOTAL INVESTMENTS) 800 Fayetteville Public Works Commission, North Carolina, 3/07 at 101.00 AAA 838,224 Revenue Bonds, Series 1997, 5.125%, 3/01/24 (Pre-refunded to 3/01/07) - FSA Insured 1,465 Orange Water and Sewerage Authority, North Carolina, 7/11 at 101.00 AA+*** 1,622,195 Water and Sewerage System Revenue Bonds, Series 2001, 5.000%, 7/01/20 (Pre-refunded to 7/01/11) 3,200 Wake County, North Carolina, General Obligation School 2/10 at 101.50 AAA 3,572,576 Bonds, Series 2000, 5.400%, 2/01/13 (Pre-refunded to 2/01/10) ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 12.5% (8.7% OF TOTAL INVESTMENTS) 2,500 North Carolina Eastern Municipal Power Agency, Power 7/05 at 100.00 AAA 2,504,825 System Revenue Refunding Bonds, Series 1993B, 5.500%, 1/01/17 - FGIC Insured 1,500 North Carolina Municipal Power Agency 1, Catawba Electric 1/10 at 101.00 A3 1,685,160 Revenue Bonds, Series 1999B, 6.500%, 1/01/20 250 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 AAA 271,978 Series 2005RR, 5.000%, 7/01/24 - FGIC Insured 2,600 Wake County Industrial Facilities and Pollution Control 2/12 at 101.00 A3 2,810,548 Financing Authority, North Carolina, Revenue Refunding Bonds, Carolina Power and Light Company, Series 2002, 5.375%, 2/01/17 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 14.3% (9.9% OF TOTAL INVESTMENTS) 2,520 Charlotte, North Carolina, Water and Sewerage System No Opt. Call AAA 2,849,868 Revenue Bonds, Series 2002, 5.250%, 7/01/13 1,000 Durham County, North Carolina, Enterprise System Revenue 6/13 at 100.00 AAA 1,078,110 Bonds, Series 2002, 5.000%, 6/01/23 - MBIA Insured 1,085 Greensboro, North Carolina, Combined Enterprise System 6/15 at 100.00 AA+ 1,165,833 Revenue Bonds, Series 2005A, 5.000%, 6/01/24 Raleigh, North Carolina, Combined Enterprise System Revenue Bonds, Series 2004: 1,000 5.000%, 3/01/21 3/14 at 100.00 AAA 1,082,750 2,000 5.000%, 3/01/22 3/14 at 100.00 AAA 2,159,337 ------------------------------------------------------------------------------------------------------------------------------------ $ 77,880 Total Long-Term Investments (cost $79,376,942) - 144.3% 83,927,684 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.8% 2,227,531 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.1)% (28,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 58,155,215 ==================================================================================================================== FORWARD SWAP OUTSTANDING AT MAY 31, 2005: UNREALIZED NOTIONAL EFFECTIVE TERMINATION APPRECIATION AMOUNT DATE(2) DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------------------ Agreement with Morgan Stanley dated December 2, 2004, to pay semi-annually the notional amount multiplied by 5.465% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). $1,750,000 7/11/05 7/11/25 $(172,011) ==================================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each forward swap contract. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 37 Nuveen North Carolina Dividend Advantage Municipal Fund 3 (NII) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 3.5% (2.4% OF TOTAL INVESTMENTS) $ 2,000 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 2,022,380 Asset-Backed Refunding Bonds, Series 2002, 5.500%, 5/15/39 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 14.8% (10.1% OF TOTAL INVESTMENTS) 500 East Carolina University, General Revenue Bonds, Series 2003A, 5/13 at 100.00 Aaa 542,455 5.000%, 5/01/19 - AMBAC Insured North Carolina Capital Facilities Financing Agency, Revenue Bonds, Duke University, Series 2001A: 1,750 5.125%, 10/01/26 10/11 at 100.00 AA+ 1,845,865 500 5.125%, 10/01/41 10/11 at 100.00 AA+ 522,035 3,000 North Carolina Capital Facilities Financing Agency, Revenue 10/12 at 100.00 AA+ 3,150,030 Bonds, Duke University, Series 2002A, 5.125%, 7/01/42 1,900 University of North Carolina System, Pooled Revenue Refunding 10/12 at 100.00 AAA 2,012,803 Bonds, Series 2002A, 5.000%, 4/01/27 - AMBAC Insured 500 University of North Carolina System, Pooled Revenue Bonds, 4/14 at 100.00 Aaa 535,525 Series 2004C, 5.000%, 4/01/24 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 11.4% (7.8% OF TOTAL INVESTMENTS) 2,000 Charlotte-Mecklenburg Hospital Authority, North Carolina, 1/07 at 102.00 AA 2,086,600 Healthcare System Revenue Bonds, DBA Carolina Healthcare System, Series 1997A, 5.125%, 1/15/22 750 Charlotte-Mecklenburg Hospital Authority, North Carolina, 1/11 at 101.00 AA 778,627 Healthcare System Revenue Bonds, Carolinas Healthcare System, Series 2001A, 5.000%, 1/15/31 2,000 North Carolina Medical Care Commission, Healthcare Facilities 11/13 at 100.00 AA- 2,138,720 Revenue Bonds, Novant Health Obligated Group, Series 2003A, 5.000%, 11/01/18 500 North Carolina Medical Care Commission, Revenue Bonds, 11/14 at 100.00 AA- 528,435 Northeast Medical Center, Series 2004, 5.000%, 11/01/24 1,000 North Carolina Medical Care Commission, Health System 10/11 at 101.00 AA 1,060,440 Revenue Bonds, Mission St. Joseph's Health System, Series 2001, 5.250%, 10/01/31 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 1.8% (1.2% OF TOTAL INVESTMENTS) 1,000 Mecklenburg County, North Carolina, FNMA Multifamily 7/13 at 105.00 AAA 1,055,490 Housing Revenue Bonds, Little Rock Apartments, Series 2003, 5.150%, 1/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 2.3% (1.6% OF TOTAL INVESTMENTS) 1,285 North Carolina Housing Finance Agency, Home Ownership 7/09 at 100.00 AA 1,325,516 Revenue Bonds, 1998 Trust Agreement, Series 5A, 5.625%, 7/01/30 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.4% (0.9% OF TOTAL INVESTMENTS) 800 North Carolina Capital Facilities Financing Agency, Exempt No Opt. Call BBB 796,432 Facilities Revenue Bonds, Waste Management Inc., Series 2001, 3.750%, 8/01/14 (Alternative Minimum Tax) (Mandatory put 8/01/07) ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 0.7% (0.5% OF TOTAL INVESTMENTS) 400 North Carolina Medical Care Commission, Revenue Bonds, 10/14 at 100.00 A 409,080 United Methodist Retirement Homes Inc., Series 2005A, 5.500%, 10/01/35 ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 2.4% (1.7% OF TOTAL INVESTMENTS) 1,400 Haywood County Industrial Facilities and Pollution Control 12/05 at 102.00 BBB 1,421,308 Financing Authority, North Carolina, Environmental Improvement Revenue Bonds, Champion International Corporation, Series 1995A, 5.750%, 12/01/25 (Alternative Minimum Tax) 38 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 11.2% (7.7% OF TOTAL INVESTMENTS) Lincoln County, North Carolina, General Obligation Bonds, Series 2002A: $ 850 5.000%, 6/01/19 - FGIC Insured 6/12 at 101.00 AAA $ 931,056 900 5.000%, 6/01/20 - FGIC Insured 6/12 at 101.00 AAA 977,958 1,050 5.000%, 6/01/21 - FGIC Insured 6/12 at 101.00 AAA 1,140,951 500 North Carolina, General Obligation Bonds, Series 2004A, 3/14 at 100.00 AAA 541,765 5.000%, 3/01/22 2,000 Puerto Rico, General Obligation and Public Improvement No Opt. Call AAA 2,503,100 Refunding Bonds, Series 1997, 6.500%, 7/01/15 - MBIA Insured 400 Raleigh, North Carolina, General Obligation Bonds, 6/12 at 100.00 AAA 427,740 Series 2002, 5.000%, 6/01/21 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 36.5% (25.0% OF TOTAL INVESTMENTS) 3,900 Cary, North Carolina, General Obligation Water and Sewer 3/11 at 102.00 AAA 4,210,713 Bonds, Series 2001, 5.000%, 3/01/20 1,550 Cary, North Carolina, Certificates of Participation, Public 12/12 at 100.00 AA+ 1,681,455 Improvement Projects, Series 2002A, 5.000%, 12/01/17 1,800 Catawba County, North Carolina, Certificates of Participation, 6/14 at 100.00 Aaa 1,973,646 Series 2004, 5.250%, 6/01/22 - MBIA Insured 1,500 Centennial Authority, North Carolina, Hotel Tax Revenue 9/07 at 102.00 AAA 1,589,220 Bonds, Arena Project, Series 1997, 5.125%, 9/01/19 - FSA Insured 2,750 Charlotte, North Carolina, Certificates of Participation, 6/13 at 100.00 AA+ 2,885,795 Governmental Facilities Projects, Series 2003G, 5.000%, 6/01/33 3,000 Dare County, North Carolina, Certificates of Participation, 12/12 at 100.00 AAA 3,188,730 Series 2002, 5.000%, 6/01/23 - AMBAC Insured 500 Lee County, North Carolina, Certificates of Participation, 4/14 at 100.00 AAA 550,590 Public Schools and Community College, Series 2004, 5.250%, 4/01/20 - FSA Insured 1,000 North Carolina, Certificates of Participation, Repair and 6/14 at 100.00 AA+ 1,077,700 Renovation Project, Series 2004B, 5.000%, 6/01/20 2,000 Rutherford County, North Carolina, Certificates of 9/12 at 101.00 AAA 2,137,060 Participation, Series 2002, 5.000%, 9/01/21 - AMBAC Insured 1,785 Union County, North Carolina, Certificates of Participation, 6/13 at 101.00 AAA 1,932,834 Series 2003, 5.000%, 6/01/20 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 9.1% (6.2% OF TOTAL INVESTMENTS) Raleigh Durham Airport Authority, North Carolina, Airport Revenue Bonds, Series 2001A: 1,780 5.250%, 11/01/15 - FGIC Insured 5/11 at 101.00 Aaa 1,953,817 3,100 5.000%, 11/01/20 - FGIC Insured 5/11 at 101.00 Aaa 3,299,795 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED *** - 10.3% (7.0% OF TOTAL INVESTMENTS) Forsyth County, North Carolina, Certificates of Participation, Public Facilities and Equipment Project, Series 2002: 1,325 5.125%, 1/01/16 (Pre-refunded to 1/01/13) 1/13 at 101.00 AA+*** 1,493,991 770 5.250%, 1/01/19 (Pre-refunded to 1/01/13) 1/13 at 101.00 AA+*** 874,604 1,235 5.250%, 1/01/23 (Pre-refunded to 1/01/13) 1/13 at 101.00 AA+*** 1,402,775 1,000 Mecklenburg County, North Carolina, General Obligation 4/10 at 101.50 AAA 1,101,600 Public Improvement Bonds, Series 2000D, 5.000%, 4/01/13 (Pre-refunded to 4/01/10) 1,000 North Carolina, General Obligation Bonds, Series 2000A, 9/10 at 102.00 AAA 1,114,480 5.100%, 9/01/16 (Pre-refunded to 9/01/10) ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 14.6% (10.0% OF TOTAL INVESTMENTS) 4,000 North Carolina Eastern Municipal Power Agency, Power 7/05 at 100.00 AAA 4,007,720 System Revenue Refunding Bonds, Series 1993B, 5.500%, 1/01/17 - FGIC Insured (PLG) 2,665 North Carolina Municipal Power Agency 1, Catawba Electric 1/13 at 100.00 AAA 2,947,010 Revenue Bonds, Series 2003A, 5.250%, 1/01/15 - AMBAC Insured 1,400 Wake County Industrial Facilities and Pollution Control 2/12 at 101.00 A3 1,513,372 Financing Authority, North Carolina, Revenue Refunding Bonds, Carolina Power and Light Company, Series 2002, 5.375%, 2/01/17 39 Nuveen North Carolina Dividend Advantage Municipal Fund 3 (NII) (continued) Portfolio of INVESTMENTS May 31, 2005 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 26.3% (17.9% OF TOTAL INVESTMENTS) $ 750 Broad River Water Authority, North Carolina, Water System 6/10 at 101.00 Aaa $ 813,465 Revenue Bonds, Series 2000, 5.375%, 6/01/26 - MBIA Insured Charlotte, North Carolina, Water and Sewerage System Revenue Bonds, Series 2001: 750 5.125%, 6/01/26 6/11 at 101.00 AAA 799,575 1,780 5.125%, 6/01/26 - FGIC Insured 6/11 at 101.00 AAA 1,897,658 Durham County, North Carolina, Enterprise System Revenue Bonds, Series 2002: 680 5.000%, 6/01/16 - MBIA Insured 6/13 at 100.00 AAA 743,192 710 5.000%, 6/01/17 - MBIA Insured 6/13 at 100.00 AAA 772,388 300 5.000%, 6/01/18 - MBIA Insured 6/13 at 100.00 AAA 326,145 2,500 Kannapolis, North Carolina, Water and Sewerage System 2/12 at 101.00 AAA 2,659,450 Revenue Bonds, Series 2001B, 5.250%, 2/01/26 (Alternative Minimum Tax) - FSA Insured 500 Onslow County, North Carolina, Combined Enterprise System 6/14 at 100.00 AAA 536,115 Revenue Bonds, Series 2004B, 5.000%, 6/01/23 - XLCA Insured 1,000 Orange Water and Sewerage Authority, North Carolina, 7/11 at 101.00 AA+ 1,051,980 Water and Sewerage System Revenue Bonds, Series 2001, 5.000%, 7/01/26 Winston-Salem, North Carolina, Water and Sewerage System Revenue Bonds, Series 2002A: 500 5.000%, 6/01/17 6/12 at 100.00 AAA 541,205 4,715 5.000%, 6/01/19 6/12 at 100.00 AAA 5,097,529 ------------------------------------------------------------------------------------------------------------------------------------ $ 79,230 Total Long-Term Investments (cost $81,247,960) - 146.3% 84,929,920 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.9% 1,104,638 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (48.2)% (28,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 58,034,558 ==================================================================================================================== FORWARD SWAPS OUTSTANDING AT MAY 31, 2005: UNREALIZED NOTIONAL EFFECTIVE TERMINATION APPRECIATION AMOUNT DATE(2) DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------------------ Agreement with Morgan Stanley dated December 8, 2004, to pay semi-annually the notional amount multiplied by 5.313% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). $2,700,000 7/18/05 7/18/35 $(235,721) Agreement with Morgan Stanley dated January 31, 2005, to pay semi-annually the notional amount multiplied by 5.058% (annualized) and receive quarterly the notional amount multiplied by the three-month USD-LIBOR (United States Dollar-London Inter-Bank Offered Rates). 500,000 8/16/05 8/16/35 (22,704) ------------------------------------------------------------------------------------------------------------------------------------ $(258,425) ------------------------------------------------------------------------------------------------------------------------------------ (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each forward swap contract. * Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. (PLG) Portion of security, with an aggregate market value of $250,483, has been pledged to collateralize the net payment obligations under forward swap contracts. See accompanying notes to financial statements. See accompanying notes to financial statements. 40 Statement of ASSETS AND LIABILITIES May 31, 2005 GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at market value (cost $78,446,822, $41,845,038 and $94,368,112, respectively) $83,740,329 $44,122,948 $ 98,391,784 Cash 393,307 296,168 224,238 Receivables: Interest 1,395,907 677,210 1,640,727 Investments sold 31,168 -- -- Other assets 2,753 4,379 4,549 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 85,563,464 45,100,705 100,261,298 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Forward swaps, at value -- 67,410 238,774 Accrued expenses: Management fees 46,368 12,998 27,193 Other 22,283 12,001 19,332 Preferred share dividends payable 7,618 822 2,451 ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 76,269 93,231 287,750 ------------------------------------------------------------------------------------------------------------------------------------ Preferred shares, at liquidation value 27,800,000 15,000,000 33,000,000 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $57,687,195 $30,007,474 $ 66,973,548 ==================================================================================================================================== Common shares outstanding 3,796,767 1,961,483 4,553,660 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 15.19 $ 15.30 $ 14.71 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 37,968 $ 19,615 $ 45,537 Paid-in surplus 52,237,655 27,776,193 64,257,862 Undistributed (Over-distribution of) net investment income 371,927 331,184 (211,238) Accumulated net realized gain (loss) from investments and forward swaps (253,862) (330,018) (903,511) Net unrealized appreciation (depreciation) of investments and forward swaps 5,293,507 2,210,500 3,784,898 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $57,687,195 $30,007,474 $ 66,973,548 ==================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited Preferred Unlimited Unlimited Unlimited ==================================================================================================================================== See accompanying notes to financial statements. 41 Statement of ASSETS AND LIABILITIES May 31, 2005 (continued) NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at market value (cost $133,296,350, $48,066,192, $79,376,942 and $81,247,960, respectively) $140,506,690 $50,695,072 $83,927,684 $84,929,920 Cash 12,383 274,886 1,163,154 1,141 Receivables: Interest 2,406,873 875,743 1,274,915 1,410,183 Investments sold -- -- -- -- Other assets 8,796 7,693 6,174 4,511 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 142,934,742 51,853,394 86,371,927 86,345,755 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Forward swaps, at value -- -- 172,011 258,425 Accrued expenses: Management fees 77,287 14,962 24,861 23,394 Other 33,559 12,393 18,306 19,711 Preferred share dividends payable 16,032 6,521 1,534 9,667 Total liabilities 126,878 33,876 216,712 311,197 ------------------------------------------------------------------------------------------------------------------------------------ Preferred shares, at liquidation value 46,800,000 17,000,000 28,000,000 28,000,000 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 96,007,864 $34,819,518 $58,155,215 $58,034,558 ==================================================================================================================================== Common shares outstanding 6,334,245 2,252,723 3,740,045 3,925,825 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 15.16 $ 15.46 $ 15.55 $ 14.78 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 63,342 $ 22,527 $ 37,400 $ 39,258 Paid-in surplus 87,554,145 31,924,053 53,032,744 55,393,080 Undistributed (Over-distribution of) net investment income 461,694 352,079 182,568 (60,839) Accumulated net realized gain (loss) from investments and forward swaps 718,343 (108,021) 523,772 (760,476) Net unrealized appreciation (depreciation) of investments and forward swaps 7,210,340 2,628,880 4,378,731 3,423,535 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 96,007,864 $34,819,518 $58,155,215 $58,034,558 ==================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited Unlimited Preferred Unlimited Unlimited Unlimited Unlimited ==================================================================================================================================== See accompanying notes to financial statements. 42 Statement of OPERATIONS Year Ended May 31, 2005 GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $4,182,288 $2,125,114 $4,469,400 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 543,124 286,669 634,598 Preferred shares - auction fees 69,500 37,500 82,500 Preferred shares - dividend disbursing agent fees 10,000 10,000 10,000 Shareholders' servicing agent fees and expenses 7,137 522 880 Custodian's fees and expenses 23,776 11,301 25,221 Trustees' fees and expenses 1,859 1,009 2,026 Professional fees 12,144 10,830 13,191 Shareholders' reports - printing and mailing expenses 13,638 5,211 13,504 Stock exchange listing fees 403 167 387 Investor relations expense 12,180 3,037 12,129 Other expenses 12,691 8,784 13,044 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 706,452 375,030 807,480 Custodian fee credit (11,429) (4,478) (4,593) Expense reimbursement -- (133,555) (315,362) ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 695,023 236,997 487,525 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 3,487,265 1,888,117 3,981,875 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain from investments 334,583 55,245 63,329 Net realized gain (loss) from forward swaps -- (333,601) (811,165) Change in net unrealized appreciation (depreciation) of investments 2,888,311 2,011,284 5,230,264 Change in net unrealized appreciation (depreciation) of forward swaps -- (67,410) (238,774) ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain 3,222,894 1,665,518 4,243,654 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS From net investment income (347,395) (200,088) (496,382) From accumulated net realized gains from investments -- (976) -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Preferred shareholders (347,395) (201,064) (496,382) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $6,362,764 $3,352,571 $7,729,147 ==================================================================================================================================== See accompanying notes to financial statements. 43 Statement of OPERATIONS Year Ended May 31, 2005 (continued) NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $6,939,138 $2,456,940 $3,944,008 $3,913,304 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 909,176 330,246 549,472 545,726 Preferred shares - auction fees 117,000 42,500 70,000 70,000 Preferred shares - dividend disbursing agent fees 10,000 10,000 10,000 10,000 Shareholders' servicing agent fees and expenses 12,592 397 695 839 Custodian's fees and expenses 35,939 14,159 24,806 22,856 Trustees' fees and expenses 3,380 870 1,838 1,972 Professional fees 14,182 10,997 12,252 12,262 Shareholders' reports - printing and mailing expenses 20,718 6,015 13,298 14,543 Stock exchange listing fees 10,730 191 318 334 Investor relations expense 20,616 6,771 12,010 12,410 Other expenses 14,847 12,039 12,779 12,754 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 1,169,180 434,185 707,468 703,696 Custodian fee credit (10,195) (2,652) (7,248) (3,148) Expense reimbursement -- (153,856) (255,988) (271,196) ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 1,158,985 277,677 444,232 429,352 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 5,780,153 2,179,263 3,499,776 3,483,952 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain from investments 1,595,461 117,198 748,290 39,251 Net realized gain (loss) from forward swaps -- (105,324) 20,984 (444,372) Change in net unrealized appreciation (depreciation) of investments 2,755,786 1,727,315 2,568,886 4,217,563 Change in net unrealized appreciation (depreciation) of forward swaps -- -- (172,011) (258,425) ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain 4,351,247 1,739,189 3,166,149 3,554,017 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS From net investment income (680,330) (201,792) (384,082) (419,248) From accumulated net realized gains from investments -- -- (18,106) -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Preferred shareholders (680,330) (201,792) (402,188) (419,248) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from operations $9,451,070 $3,716,660 $6,263,737 $6,618,721 ==================================================================================================================================== See accompanying notes to financial statements. 44 Statement of CHANGES IN NET ASSETS GEORGIA GEORGIA GEORGIA DIVIDEND PREMIUM INCOME (NPG) DIVIDEND ADVANTAGE (NZX) ADVANTAGE 2 (NKG) ---------------------------- ---------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 5/31/05 5/31/04 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 3,487,265 $ 3,686,825 $ 1,888,117 $ 1,906,221 $ 3,981,875 $ 3,994,165 Net realized gain (loss) from investments 334,583 (142,352) 55,245 (34,604) 63,329 (155,715) Net realized gain (loss) from forward swaps -- -- (333,601) -- (811,165) -- Change in net unrealized appreciation (depreciation) of investments 2,888,311 (3,536,134) 2,011,284 (2,293,885) 5,230,264 (5,355,917) Change in net unrealized appreciation (depreciation) of forward swaps -- -- (67,410) -- (238,774) -- Distributions to Preferred Shareholders: From net investment income (347,395) (189,236) (200,088) (108,936) (496,382) (250,342) From accumulated net realized gains from investments -- -- (976) (1,918) -- (10,400) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 6,362,764 (180,897) 3,352,571 (533,122) 7,729,147 (1,778,209) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (3,420,792) (3,423,438) (1,717,243) (1,704,122) (3,565,514) (3,660,472) From accumulated net realized gains from investments -- -- (16,271) (26,640) -- (99,254) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (3,420,792) (3,423,438) (1,733,514) (1,730,762) (3,565,514) (3,759,726) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares -- -- -- 3,771 -- -- Net proceeds from shares issued to shareholders due to reinvestment of distributions 138,628 160,945 26,856 33,434 -- 32,954 Preferred shares offering costs -- -- 13,620 (1,870) 100 (10,285) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 138,628 160,945 40,476 35,335 100 22,669 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares 3,080,600 (3,443,390) 1,659,533 (2,228,549) 4,163,733 (5,515,266) Net assets applicable to Common shares at the beginning of year 54,606,595 58,049,985 28,347,941 30,576,490 62,809,815 68,325,081 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $57,687,195 $54,606,595 $30,007,474 $28,347,941 $66,973,548 $ 62,809,815 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 371,927 $ 652,523 $ 331,184 $ 360,398 $ (211,238) $ (131,217) ==================================================================================================================================== See accompanying notes to financial statements. 45 Statement of CHANGES IN NET ASSETS (continued) NORTH CAROLINA NORTH CAROLINA PREMIUM INCOME (NNC) DIVIDEND ADVANTAGE (NRB) --------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 5,780,153 $ 6,036,869 $ 2,179,263 $ 2,198,462 Net realized gain (loss) from investments 1,595,461 1,150,011 117,198 (112,796) Net realized gain (loss) from forward swaps -- -- (105,324) -- Change in net unrealized appreciation (depreciation) of investments 2,755,786 (7,239,557) 1,727,315 (2,363,263) Change in net unrealized appreciation (depreciation) of forward swaps -- -- -- -- Distributions to Preferred Shareholders: From net investment income (680,330) (386,028) (201,792) (107,525) From accumulated net realized gains from investments -- -- -- (9,400) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 9,451,070 (438,705) 3,716,660 (394,522) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (5,600,573) (5,617,376) (2,066,665) (2,041,238) From accumulated net realized gains from investments -- -- -- (160,089) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (5,600,573) (5,617,376) (2,066,665) (2,201,327) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares -- -- -- 1,664 Net proceeds from shares issued to shareholders due to reinvestment of distributions 216,479 211,834 59,033 113,571 Preferred shares offering costs -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 216,479 211,834 59,033 115,235 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares 4,066,976 (5,844,247) 1,709,028 (2,480,614) Net assets applicable to Common shares at the beginning of year 91,940,888 97,785,135 33,110,490 35,591,104 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $96,007,864 $91,940,888 $34,819,518 $33,110,490 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 461,694 $ 996,809 $ 352,079 $ 441,273 ==================================================================================================================================== See accompanying notes to financial statements. 46 NORTH CAROLINA NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) DIVIDEND ADVANTAGE 3 (NII) ---------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 3,499,776 $ 3,524,512 $ 3,483,952 $ 3,516,284 Net realized gain (loss) from investments 748,290 29,594 39,251 (355,355) Net realized gain (loss) from forward swaps 20,984 -- (444,372) -- Change in net unrealized appreciation (depreciation) of investments 2,568,886 (4,418,430) 4,217,563 (3,908,003) Change in net unrealized appreciation (depreciation) of forward swaps (172,011) -- (258,425) -- Distributions to Preferred Shareholders: From net investment income (384,082) (219,210) (419,248) (258,138) From accumulated net realized gains from investments (18,106) (6,486) -- (3,015) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 6,263,737 (1,090,020) 6,618,721 (1,008,227) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (3,229,318) (3,186,908) (3,119,389) (3,152,705) From accumulated net realized gains from investments (260,889) (106,264) -- (27,839) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (3,490,207) (3,293,172) (3,119,389) (3,180,544) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares -- 2,456 -- -- Net proceeds from shares issued to shareholders due to reinvestment of distributions 70,466 50,055 53,721 30,033 Preferred shares offering costs -- -- -- (13,175) ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 70,466 52,511 53,721 16,858 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares 2,843,996 (4,330,681) 3,553,053 (4,171,913) Net assets applicable to Common shares at the beginning of year 55,311,219 59,641,900 54,481,505 58,653,418 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $58,155,215 $55,311,219 $58,034,558 $54,481,505 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 182,568 $ 300,170 $ (60,839) $ (6,154) ==================================================================================================================================== See accompanying notes to financial statements. 47 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The funds (the "Funds") covered in this report and their corresponding Common share stock exchange symbols are Nuveen Georgia Premium Income Municipal Fund (NPG), Nuveen Georgia Dividend Advantage Municipal Fund (NZX), Nuveen Georgia Dividend Advantage Municipal Fund 2 (NKG), Nuveen North Carolina Premium Income Municipal Fund (NNC), Nuveen North Carolina Dividend Advantage Municipal Fund (NRB), Nuveen North Carolina Dividend Advantage Municipal Fund 2 (NNO) and Nuveen North Carolina Dividend Advantage Municipal Fund 3 (NII). Common shares of Georgia Premium Income (NPG), Georgia Dividend Advantage (NZX), Georgia Dividend Advantage 2 (NKG), North Carolina Dividend Advantage (NRB), North Carolina Dividend Advantage 2 (NNO) and North Carolina Dividend Advantage 3 (NII) are traded on the American Stock Exchange while Common shares of North Carolina Premium Income (NNC) are traded on the New York Stock Exchange. The Funds are registered under the Investment Company Act of 1940, as amended, as closed-end management investment companies. Each Fund seeks to provide current income exempt from both regular federal and designated state income taxes by investing primarily in a diversified portfolio of municipal obligations issued by state and local government authorities within a single state. Effective January 1, 2005, Nuveen Advisory Corp. ("NAC"), the Funds' previous Adviser, and its affiliate, Nuveen Institutional Advisory Corp. ("NIAC"), were merged into Nuveen Asset Management ("NAM"), each wholly owned subsidiaries of Nuveen Investments, Inc. ("Nuveen"). As a result of the merger, NAM is now the Adviser to all funds previously advised by either NAC or NIAC. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Investment Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Trustees. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers, evaluations of anticipated cash flows or collateral and general market conditions. Prices of derivative investments are also provided by an independent pricing service approved by each Fund's Board of Trustees. If the pricing service is unable to supply a price for a derivative investment each Fund may use a market quote provided by a major broker/dealer in such investments. If it is determined that market prices for an investment are unavailable or inappropriate, the Board of Trustees of the Funds, or its designee, may establish a fair value for the investment. Temporary investments in securities that have variable rate and demand features qualifying them as short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from transactions are determined on the specific identification method. Securities purchased on a when-issued or delayed delivery basis may have extended settlement periods. Any securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At May 31, 2005, there were no such outstanding purchase commitments in any of the Funds. Investment Income Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Investment income also includes paydown gains and losses, if any. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Furthermore, each Fund intends to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, to retain such tax-exempt status when distributed to shareholders of the Funds. All monthly tax-exempt income dividends paid during the fiscal year ended May 31, 2005, have been designated Exempt Interest Dividends. Net realized capital gains and ordinary income distributions paid by the Funds are subject to federal taxation. 48 Dividends and Distributions to Common Shareholders Dividends from tax-exempt net investment income are declared monthly. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to Common shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Preferred Shares The Funds have issued and outstanding Preferred shares, $25,000 stated value per share, as a means of effecting financial leverage. Each Fund's Preferred shares are issued in one Series. The dividend rate on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, and is payable weekly at the end of each rate period. The number of Preferred shares outstanding for each Fund is as follows: NORTH NORTH NORTH NORTH GEORGIA GEORGIA GEORGIA CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NPG) (NZX) (NKG) (NNC) (NRB) (NNO) (NII) ---------------------------------------------------------------------------------------------------------------- Number of shares: Series M -- 600 -- -- -- -- -- Series T -- -- -- -- 680 -- -- Series W -- -- -- -- -- -- 1,120 Series TH 1,112 -- -- 1,872 -- -- -- Series F -- -- 1,320 -- -- 1,120 -- ================================================================================================================ Forward Swap Transactions The Funds may invest in certain derivative financial instruments. The Funds' use of forward interest rate swap transactions is intended to mitigate the negative impact that an increase in long-term interest rates could have on Common share net asset value. Forward interest rate swap transactions involve each Fund's agreement with the counterparty to pay, in the future, a fixed rate payment in exchange for the counterparty paying the Fund a variable rate payment. The amount of the payment obligation is based on the notional amount of the forward swap contract. The Funds may close out a contract prior to the effective date at which point a realized gain or loss would be recognized. When a forward swap is terminated, it does not involve the delivery of securities or other underlying assets or principal, but rather is settled in cash. Each Fund intends, but is not obligated to, terminate its forward swaps before the effective date. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the credit risk associated with a counterparty failing to honor its commitment to pay any realized gain to the Fund upon termination. To minimize such credit risk, all counterparties are required to pledge collateral daily (based on the daily valuation of each swap) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when any of the Funds have an unrealized loss on a swap contract, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate, either up or down, by at least the pre-determined threshold amount. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Indemnifications Under the Funds' organizational documents, their Officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 49 Notes to FINANCIAL STATEMENTS (continued) 2. FUND SHARES Transactions in Common shares were as follows: GEORGIA GEORGIA DIVIDEND GEORGIA DIVIDEND PREMIUM INCOME (NPG) ADVANTAGE (NZX) ADVANTAGE 2 (NKG) ----------------------- ---------------------- ----------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 5/31/05 5/31/04 --------------------------------------------------------------------------------------------------------- Common shares issued to shareholders due to reinvestment of distributions 8,727 9,866 1,724 2,157 -- 2,243 ========================================================================================================= NORTH CAROLINA NORTH CAROLINA PREMIUM INCOME (NNC) DIVIDEND ADVANTAGE (NRB) --------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 --------------------------------------------------------------------------------------------------------- Common shares issued to shareholders due to reinvestment of distributions 13,171 12,801 3,678 6,918 ========================================================================================================= NORTH CAROLINA NORTH CAROLINA DIVIDEND DIVIDEND ADVANTAGE 2 (NNO) ADVANTAGE 3 (NII) --------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 5/31/05 5/31/04 5/31/05 5/31/04 --------------------------------------------------------------------------------------------------------- Common shares issued to shareholders due to reinvestment of distributions 4,454 3,167 3,600 1,990 ========================================================================================================= 50 3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investments in long-term municipal securities for the fiscal year ended May 31, 2005, were as follows: GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Purchases $15,163,886 $5,293,971 $4,962,669 Sales and maturities 15,166,858 5,377,673 5,552,198 ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Purchases $26,338,456 $5,546,422 $22,004,110 $6,404,023 Sales and maturities 26,374,158 5,529,796 23,805,043 6,812,981 ================================================================================ 4. INCOME TAX INFORMATION The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to the treatment of paydown gains and losses on investments, timing differences in recognizing income on taxable market discount securities and timing differences in recognizing certain gains and losses on investment transactions. At May 31, 2005, the cost of investments was as follows: GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Cost of investments $78,433,510 $42,071,676 $94,953,455 ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Cost of investments $133,264,705 $48,120,510 $79,372,610 $81,365,299 ================================================================================ 51 Notes to FINANCIAL STATEMENTS (continued) Gross unrealized appreciation and gross unrealized depreciation of investments at May 31, 2005, were as follows: GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Gross unrealized: Appreciation $5,319,764 $2,293,873 $4,104,153 Depreciation (12,945) (242,601) (665,824) -------------------------------------------------------------------------------- Net unrealized appreciation of investments $5,306,819 $2,051,272 $3,438,329 ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Gross unrealized: Appreciation $7,261,604 $2,632,355 $4,558,642 $3,687,846 Depreciation (19,619) (57,793) (3,568) (123,225) -------------------------------------------------------------------------------- Net unrealized appreciation of investments $7,241,985 $2,574,562 $4,555,074 $3,564,621 ================================================================================ The tax components of undistributed net investment income and net realized gains at May 31, 2005, were as follows: GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Undistributed net tax-exempt income * $641,497 $475,192 $73,268 Undistributed net ordinary income ** -- -- -- Undistributed net long-term capital gains -- -- -- ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Undistributed net tax-exempt income * $895,718 $529,690 $449,054 $200,083 Undistributed net ordinary income ** 3,258 -- 123,149 -- Undistributed net long-term capital gains 718,343 -- 400,623 -- ================================================================================ * Undistributed net tax-exempt income (on a tax basis) has not been reduced for the dividend declared on May 2, 2005, paid on June 1, 2005. ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. 52 The tax character of distributions paid during the fiscal years ended May 31, 2005 and May 31, 2004, was designated for purposes of the dividends paid deduction as follows: GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 2005 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Distributions from net tax-exempt income $3,753,153 $1,919,401 $4,087,495 Distributions from net ordinary income ** 19,521 -- -- Distributions from net long-term capital gains -- 17,247 -- ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 2005 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Distributions from net tax-exempt income $6,287,760 $2,264,563 $3,616,451 $3,544,530 Distributions from net ordinary income ** -- -- -- -- Distributions from net long-term capital gains -- -- 278,995 -- ================================================================================ ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. GEORGIA GEORGIA GEORGIA PREMIUM DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 2004 (NPG) (NZX) (NKG) -------------------------------------------------------------------------------- Distributions from net tax-exempt income $3,576,247 $1,804,473 $3,908,774 Distributions from net ordinary income ** 25,456 -- 109,478 Distributions from net long-term capital gains -- 28,503 -- ================================================================================ NORTH NORTH NORTH NORTH CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 2004 (NNC) (NRB) (NNO) (NII) -------------------------------------------------------------------------------- Distributions from net tax-exempt income $5,990,683 $2,139,529 $3,390,258 $3,408,983 Distributions from net ordinary income ** -- 66,536 76,010 30,673 Distributions from net long-term capital gains -- 102,835 36,895 -- ================================================================================ ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. At May 31, 2005, the following Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows: NORTH NORTH GEORGIA GEORGIA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE 2 ADVANTAGE ADVANTAGE 3 (NPG) (NKG) (NRB) (NII) -------------------------------------------------------------------------------- Expiration year: 2005 $ -- $ -- $ -- $ -- 2006 -- -- -- 2007 -- -- -- -- 2008 129,908 -- -- -- 2009 -- -- -- -- 2010 -- -- -- -- 2011 -- -- -- -- 2012 123,954 138,103 -- 339,128 2013 -- -- 52,458 28,043 -------------------------------------------------------------------------------- Total $253,862 $138,103 $52,458 $367,171 ================================================================================ 53 Notes to FINANCIAL STATEMENTS (continued) The following Funds elected to defer net realized losses from investments incurred from November 1, 2004 through May 31, 2005 ("post-October losses") in accordance with Federal income tax regulations. The following post-October losses were treated as having arisen on the first day of the following fiscal year: NORTH GEORGIA GEORGIA CAROLINA DIVIDEND DIVIDEND DIVIDEND ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NZX) (NKG) (NII) -------------------------------------------------------------------------------- $103,434 $179,798 $275,967 ================================================================================ 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 the Adviser, or its predecessor 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 fund assets managed by the Adviser, and a specific fund-level component, based only on the amount of assets within each individual fund. This pricing structure enables Nuveen fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by the Adviser. 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 of June 30, 2005, the complex-level fee rate was .1900%; that is, the funds' effective management fees were reduced by approximately .0100%. Effective August 1, 2004, the annual fund-level fee, payable monthly, for each of the Funds is based upon the average daily net assets (including net assets attributable to Preferred shares) of each Fund as follows: AVERAGE DAILY NET ASSETS GEORGIA PREMIUM INCOME (NPG) (INCLUDING NET ASSETS NORTH CAROLINA PREMIUM INCOME (NNC) ATTRIBUTABLE TO PREFERRED SHARES) FUND-LEVEL FEE RATE -------------------------------------------------------------------------------- For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For the next $3 billion .3875 For net assets over $5 billion .3750 ================================================================================ GEORGIA DIVIDEND ADVANTAGE (NZX) GEORGIA DIVIDEND ADVANTAGE 2 (NKG) NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) AVERAGE DAILY NET ASSETS NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) (INCLUDING NET ASSETS NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) ATTRIBUTABLE TO PREFERRED SHARES) FUND-LEVEL FEE RATE -------------------------------------------------------------------------------- For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For net assets over $2 billion .3750 ================================================================================ 54 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. Each 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 net assets (including net assets attributable to Preferred shares) of each Fund as follows: AVERAGE DAILY NET ASSETS GEORGIA PREMIUM INCOME (NPG) (INCLUDING NET ASSETS NORTH CAROLINA PREMIUM INCOME (NNC) ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE RATE -------------------------------------------------------------------------------- For the first $125 million .6500% For the next $125 million .6375 For the next $250 million .6250 For the next $500 million .6125 For the next $1 billion .6000 For the next $3 billion .5875 For net assets over $5 billion .5750 ================================================================================ GEORGIA DIVIDEND ADVANTAGE (NZX) GEORGIA DIVIDEND ADVANTAGE 2 (NKG) NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) AVERAGE DAILY NET ASSETS NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) (INCLUDING NET ASSETS NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE RATE -------------------------------------------------------------------------------- For the first $125 million .6500% For the next $125 million .6375 For the next $250 million .6250 For the next $500 million .6125 For the next $1 billion .6000 For net assets over $2 billion .5750 ================================================================================ The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Funds pay no compensation directly to those of its Trustees who are affiliated with the Adviser or to their officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of 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. 55 Notes to FINANCIAL STATEMENTS (continued) For the first ten years of Georgia Dividend Advantage's (NZX) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------------------------------- 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 Georgia Dividend Advantage (NZX) for any portion of its fees and expenses beyond September 30, 2011. For the first eight years of Georgia Dividend Advantage 2's (NKG) and North Carolina Dividend Advantage 3's (NII) operations, the Adviser has agreed to reimburse the Funds, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING SEPTEMBER 30, SEPTEMBER 30, -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Georgia Dividend Advantage 2 (NKG) and North Carolina Dividend Advantage 3 (NII) for any portion of its fees and expenses beyond September 30, 2010. For the first ten years of North Carolina Dividend Advantage's (NRB) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING JANUARY 31, JANUARY 31, -------------------------------------------------------------------------------- 2001* .30% 2007 .25% 2002 .30 2008 .20 2003 .30 2009 .15 2004 .30 2010 .10 2005 .30 2011 .05 2006 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse North Carolina Dividend Advantage (NRB) for any portion of its fees and expenses beyond January 31, 2011. 56 For the first ten years of North Carolina Dividend Advantage 2's (NNO) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING 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 North Carolina Dividend Advantage 2 (NNO) for any portion of its fees and expenses beyond November 30, 2011. 6. ANNOUNCEMENT REGARDING PARENT COMPANY OF ADVISER In early April 2005, The St. Paul Travelers Companies, Inc. ("St. Paul Travelers"), which owned 79% of Nuveen, (A) completed a public offering of a substantial portion of its equity stake in Nuveen, (B) sold Nuveen $200 million of its Nuveen shares, (C) entered into an agreement with Nuveen to sell an additional $400 million of its Nuveen shares on a "forward" basis with payment for and settlement of these shares delayed for several months, and (D) entered into agreements with two unaffiliated investment banking firms to sell an amount equal to most or all of its remaining Nuveen shares for current payment but for future settlement. The settlement of transactions (C) and (D) above would likely be deemed an "assignment" (as defined in the 1940 Act) of the investment management agreements between the Funds and the Adviser, which would result in the automatic termination of each agreement under the 1940 Act. The Board of Trustees will consider approval of new ongoing investment management agreements for each Fund and the submission of those agreements for approval by each respective Fund's shareholders. Those agreements, if approved by a Fund's shareholders, would take effect upon such approval. There can be no assurance that these approvals will be obtained. 7. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS The Funds declared Common share dividend distributions from their tax-exempt net investment income which were paid on July 1, 2005, to shareholders of record on June 15, 2005, as follows: NORTH NORTH NORTH NORTH GEORGIA GEORGIA GEORGIA CAROLINA CAROLINA CAROLINA CAROLINA PREMIUM DIVIDEND DIVIDEND PREMIUM DIVIDEND DIVIDEND DIVIDEND INCOME ADVANTAGE ADVANTAGE 2 INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 (NPG) (NZX) (NKG) (NNC) (NRB) (NNO) (NII) ---------------------------------------------------------------------------------------------------------------- Dividend per share $.0690 $.0730 $.0590 $.0680 $.0765 $.0720 $.0610 ================================================================================================================ 57 Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period: Investment Operations Less Distributions ---------------------------------------------------------------- ------------------------------ Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Preferred Preferred Common Common Net Asset Investment Unrealized Share- Share- Share- Share- Value Income Gain (Loss) holders+ holders+ Total holders holders Total ==================================================================================================================================== GEORGIA PREMIUM INCOME (NPG) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 $14.42 $ .92 $ .84 $(.09) $ -- $1.67 $(.90) $ -- $(.90) 2004 15.36 .97 (.96) (.05) -- (.04) (.90) -- (.90) 2003 14.31 .96 1.02 (.07) -- 1.91 (.86) -- (.86) 2002 14.15 1.02 .11 (.12) -- 1.01 (.85) -- (.85) 2001 12.80 1.06 1.35 (.26) -- 2.15 (.80) -- (.80) GEORGIA DIVIDEND ADVANTAGE (NZX) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 14.47 .96 .85 (.10) -- 1.71 (.88) (.01) (.89) 2004 15.62 .97 (1.18) (.06) -- (.27) (.87) (.01) (.88) 2003 14.00 .96 1.65 (.06) (.02) 2.53 (.81) (.13) (.94) 2002(a) 14.33 .58 (.19) (.06) -- .33 (.47) -- (.47) GEORGIA DIVIDEND ADVANTAGE 2 (NKG) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 13.79 .87 .94 (.11) -- 1.70 (.78) -- (.78) 2004 15.01 .88 (1.23) (.05) -- (.40) (.80) (.02) (.82) 2003(b) 14.33 .47 .92 (.04) -- 1.35 (.47) -- (.47) ==================================================================================================================================== Total Returns -------------------- Based Offering on Costs and Ending Common Preferred Common Based Share Share Share Ending on Net Underwriting Net Asset Market Market Asset Discounts Value Value Value** Value** ========================================================================================= GEORGIA PREMIUM INCOME (NPG) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 $ -- $15.19 $16.70 15.46% 11.88% 2004 -- 14.42 15.30 (4.56) (.23) 2003 -- 15.36 16.95 12.92 13.78 2002 -- 14.31 15.83 8.98 7.32 2001 -- 14.15 15.35 30.41 16.98 GEORGIA DIVIDEND ADVANTAGE (NZX) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 .01 15.30 15.89 20.74 12.10 2004 -- 14.47 13.95 (5.15) (1.73) 2003 .03 15.62 15.59 12.56 18.82 2002(a) (.19) 14.00 14.74 1.42 1.02 GEORGIA DIVIDEND ADVANTAGE 2 (NKG) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 -- 14.71 14.18 13.61 12.61 2004 -- 13.79 13.20 (6.57) (2.67) 2003(b) (.20) 15.01 14.98 3.16 8.22 ========================================================================================= 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 ========================================================================================================================= GEORGIA PREMIUM INCOME (NPG) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 $57,687 1.25% 6.15% 1.23% 6.17% 18% 2004 54,607 1.23 6.54 1.22 6.55 12 2003 58,050 1.29 6.53 1.26 6.55 22 2002 53,909 1.37 7.12 1.35 7.13 37 2001 53,168 1.41 7.67 1.40 7.68 15 GEORGIA DIVIDEND ADVANTAGE (NZX) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 30,007 1.27 5.93 .80 6.39 12 2004 28,348 1.27 6.03 .81 6.49 5 2003 30,576 1.31 6.00 .83 6.49 48 2002(a) 27,381 1.37* 5.70* .92* 6.16* 60 GEORGIA DIVIDEND ADVANTAGE 2 (NKG) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 66,974 1.23 5.58 .74 6.07 5 2004 62,810 1.22 5.63 .73 6.12 12 2003(b) 68,325 1.16* 4.36* .69* 4.84* 17 ========================================================================================================================= Preferred Shares at End of Period ------------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share ==================================================================== GEORGIA PREMIUM INCOME (NPG) -------------------------------------------------------------------- Year Ended 5/31: 2005 $27,800 $25,000 $76,877 2004 27,800 25,000 74,107 2003 27,800 25,000 77,203 2002 27,800 25,000 73,480 2001 27,800 25,000 72,813 GEORGIA DIVIDEND ADVANTAGE (NZX) -------------------------------------------------------------------- Year Ended 5/31: 2005 15,000 25,000 75,012 2004 15,000 25,000 72,247 2003 15,000 25,000 75,961 2002(a) 15,000 25,000 70,636 GEORGIA DIVIDEND ADVANTAGE 2 (NKG) -------------------------------------------------------------------- Year Ended 5/31: 2005 33,000 25,000 75,738 2004 33,000 25,000 72,583 2003(b) 33,000 25,000 76,761 ==================================================================== * Annualized. ** Total Investment Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. Total Return on Common Share Net Asset Value is the combination of changes in Common Share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; income ratios reflect income earned on assets attributable to Preferred shares. (a) For the period September 25, 2001 (commencement of operations) through May 31, 2002. (b) For the period September 25, 2002 (commencement of operations) through May 31, 2003. See accompanying notes to financial statements. 58-59 SPREAD Financial Highlights (continued) Selected data for a Common share outstanding throughout each period: Investment Operations Less Distributions ---------------------------------------------------------------- ------------------------------ Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Preferred Preferred Common Common Net Asset Investment Unrealized Share- Share- Share- Share- Value Income Gain (Loss) holders+ holders+ Total holders holders Total ==================================================================================================================================== NORTH CAROLINA PREMIUM INCOME (NNC) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 $14.55 $ .91 $ .70 $(.11) $ -- $1.50 $(.89) $ -- $(.89) 2004 15.50 .95 (.95) (.06) -- (.06) (.89) -- (.89) 2003 14.18 .98 1.27 (.07) -- 2.18 (.86) -- (.86) 2002 13.94 1.02 .15 (.13) -- 1.04 (.80) -- (.80) 2001 12.62 1.03 1.31 (.27) -- 2.07 (.75) -- (.75) NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 14.72 .97 .78 (.09) -- 1.66 (.92) -- (.92) 2004 15.87 .98 (1.10) (.05) -- (.17) (.91) (.07) (.98) 2003 14.39 1.00 1.54 (.06) (.02) 2.46 (.86) (.13) (.99) 2002 13.90 1.06 .38 (.13) -- 1.31 (.82) -- (.82) 2001(a) 14.33 .25 (.26) (.05) -- (.06) (.20) -- (.20) NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 14.81 .94 .83 (.10) -- 1.67 (.86) (.07) (.93) 2004 15.98 .94 (1.17) (.06) -- (.29) (.85) (.03) (.88) 2003 14.30 .94 1.78 (.07) (.02) 2.63 (.82) (.13) (.95) 2002(b) 14.33 .38 .11 (.04) -- .45 (.34) -- (.34) NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 5/31: 2005 13.89 .89 .91 (.11) -- 1.69 (.80) -- (.80) 2004 14.96 .90 (1.09) (.07) -- (.26) (.80) (.01) (.81) 2003(c) 14.33 .49 .87 (.05) -- 1.31 (.47) -- (.47) ==================================================================================================================================== Total Returns -------------------- Based Offering on Costs and Ending Common Preferred Common Based Share Share Share Ending on Net Underwriting Net Asset Market Market Asset Discounts Value Value Value** Value** ========================================================================================= NORTH CAROLINA PREMIUM INCOME (NNC) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 $ -- $15.16 $17.20 17.79% 10.52% 2004 -- 14.55 15.40 (4.08) (.40) 2003 -- 15.50 16.95 10.27 15.80 2002 -- 14.18 16.21 15.44 7.62 2001 -- 13.94 14.80 14.03 16.65 NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 -- 15.46 17.25 21.19 11.53 2004 -- 14.72 15.05 (2.76) (1.08) 2003 .01 15.87 16.45 13.52 17.75 2002 -- 14.39 15.44 7.54 9.58 2001(a) (.17) 13.90 15.15 2.42 (1.57) NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 -- 15.55 16.25 16.46 11.56 2004 -- 14.81 14.80 (1.94) (1.83) 2003 -- 15.98 15.97 14.10 18.98 2002(b) (.14) 14.30 14.90 1.64 2.22 NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) ----------------------------------------------------------------------------------------- Year Ended 5/31: 2005 -- 14.78 15.40 18.78 12.39 2004 -- 13.89 13.68 (4.93) (1.75) 2003(c) (.21) 14.96 15.20 4.56 7.86 ========================================================================================= 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 ========================================================================================================================= NORTH CAROLINA PREMIUM INCOME (NNC) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 $96,008 1.23% 6.09% 1.22% 6.10% 19% 2004 91,941 1.23 6.35 1.22 6.36 20 2003 97,785 1.27 6.60 1.25 6.62 16 2002 89,286 1.33 7.17 1.32 7.18 22 2001 87,614 1.34 7.47 1.30 7.51 19 NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 34,820 1.27 5.90 .81 6.35 11 2004 33,110 1.24 5.96 .78 6.42 15 2003 35,591 1.30 6.16 .83 6.62 39 2002 32,148 1.44 6.86 .90 7.40 37 2001(a) 31,015 1.31* 5.02* .85* 5.48* 29 NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 58,155 1.23 5.64 .77 6.10 26 2004 55,311 1.22 5.71 .77 6.16 13 2003 59,642 1.24 5.80 .76 6.27 22 2002(b) 53,383 1.19* 4.70* .74* 5.15* 43 NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) ------------------------------------------------------------------------------------------------------------------------- Year Ended 5/31: 2005 58,035 1.24 5.65 .76 6.14 8 2004 54,482 1.22 5.75 .73 6.23 14 2003(c) 58,653 1.18* 4.61* .71* 5.08* 3 ========================================================================================================================= Preferred Shares at End of Period ------------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share ==================================================================== NORTH CAROLINA PREMIUM INCOME (NNC) -------------------------------------------------------------------- Year Ended 5/31: 2005 $46,800 $25,000 $76,286 2004 46,800 25,000 74,114 2003 46,800 25,000 77,236 2002 46,800 25,000 72,695 2001 46,800 25,000 71,802 NORTH CAROLINA DIVIDEND ADVANTAGE (NRB) -------------------------------------------------------------------- Year Ended 5/31: 2005 17,000 25,000 76,205 2004 17,000 25,000 73,692 2003 17,000 25,000 77,340 2002 17,000 25,000 72,277 2001(a) 17,000 25,000 70,610 NORTH CAROLINA DIVIDEND ADVANTAGE 2 (NNO) -------------------------------------------------------------------- Year Ended 5/31: 2005 28,000 25,000 76,924 2004 28,000 25,000 74,385 2003 28,000 25,000 78,252 2002(b) 28,000 25,000 72,664 NORTH CAROLINA DIVIDEND ADVANTAGE 3 (NII) -------------------------------------------------------------------- Year Ended 5/31: 2005 28,000 25,000 76,817 2004 28,000 25,000 73,644 2003(c) 28,000 25,000 77,369 ==================================================================== * Annualized. ** Total Investment Return on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. Total Return on Common Share Net Asset Value is the combination of changes in Common Share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; income ratios reflect income earned on assets attributable to Preferred shares. (a) For the period January 25, 2001 (commencement of operations) through May 31, 2001. (b) For the period November 15, 2001 (commencement of operations) through May 31, 2002. (c) For the period September 25, 2002 (commencement of operations) through May 31, 2003. See accompanying notes to financial statements. 60-61 SPREAD Board Members AND OFFICERS The management of the Fund, including general supervision of the duties performed for the Fund by the Adviser, is the responsibility of the Board Members of the Fund. The number of board members of the Fund is currently set at nine. None of the board members who are not "interested" persons of the Fund has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Fund, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below. NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS THE FUND APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------------ BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUND: ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger(1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 155 3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and 333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp.(3); Chairman and Director (since 1997) of Nuveen Asset Management; Director (since 1996) of Institutional Capital Corporation; Chairman and Director (since 1999) of Rittenhouse Asset Management, Inc.; Chairman of Nuveen Investments Advisers Inc. (since 2002). BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUND: ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 155 8/22/40 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 155 7/29/34 Trust Company; Director, Community Advisory Board for 333 W. Wacker Drive Highland Park and Highwood, United Way of the North Chicago, IL 60606 Shore (since 2002). ------------------------------------------------------------------------------------------------------------------------------------ Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private philanthropic 155 10/22/48 corporation (since 1996); Director and Vice Chairman, United 333 W. Wacker Drive Fire Group, a publicly held company; Adjunct Faculty Member, Chicago, IL 60606 University of Iowa; Director, Gazette Companies; Life Trustee of Coe College; Director, Iowa College Foundation; formerly, Director, Alliant Energy; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. ------------------------------------------------------------------------------------------------------------------------------------ William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 155 3/6/48 Business at the University of Connecticut (since 2003); 333 W. Wacker Drive previously, Senior Vice President and Director of Research Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003); Director (since 1997), Credit Research Center at Georgetown University; Director of Xerox Corporation (since 2004). ------------------------------------------------------------------------------------------------------------------------------------ David J. Kundert Board member 2005 Retired (2004) as Chairman, JPMorgan Fleming Asset 153 10/28/42 Management, President and CEO, Banc One Investment 333 W. Wacker Drive Advisors Corporation, and President, One Group Mutual Chicago, IL 60606 Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Board of Regents, Luther College; currently a member of the American and Wisconsin Bar Associations. 62 NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY AND ADDRESS THE FUND APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER ------------------------------------------------------------------------------------------------------------------------------------ BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUND (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ William J. Schneider Board member 1997 Chairman, formerly, Senior Partner and Chief Operating 155 9/24/44 Officer, Miller-Valentine Partners Ltd., a real estate 333 W. Wacker Drive investment company; formerly, Vice President, Miller-Valentine Chicago, IL 60606 Realty, a construction company; Board Member and Chair of the Finance Committee, member of the Audit Committee of Premier Health Partners, the not-for-profit company of Miami Valley Hospital; Board Member, formerly Chair, Dayton Development Coalition; President, Dayton Philharmonic Orchestra Association; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. ------------------------------------------------------------------------------------------------------------------------------------ Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 155 12/29/47 Foundation (since 1994); prior thereto, Executive Director, 333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994). Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Eugene S. Sunshine Board member 2005 Senior Vice President for Business and Finance (since 1997), 155 1/22/50 Northwestern University; Director (since 2003), Chicago 333 W. Wacker Drive Board of Options Exchange; Director (since 2003), National Chicago, IL 60606 Mentor Holdings, a privately-held, national provider of home and community-based services; Chairman (since 1997), Board of Directors, Rubicon, an insurance company owned by Northwestern University; Director (since 1997), Evanston of Commerce and Evanston Inventure, a business development organization. NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUND: ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 155 9/9/56 Administrative Associate General Counsel, formerly, Vice President and 333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC; Chicago, IL 60606 Managing Director (since 2002), General Counsel and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2002), Assistant Secretary and Associate General Counsel, formerly, Vice President (since 2000), of Nuveen Asset Management; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. 63 Board Members AND OFFICERS (CONTINUED) NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUND (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ Julia L. Antonatos Vice President 2004 Managing Director (since 2005), previously, Vice President 155 9/22/63 (since 2002), formerly, Assistant Vice President (since 1999) 333 W. Wacker Drive of Nuveen Investments, LLC; Chartered Financial Analyst. Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 155 2/3/66 and Assistant President (since 2000) of Nuveen Investments, LLC. 333 W. Wacker Drive Secretary Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999); 155 11/28/67 and Treasurer Vice President and Treasurer of Nuveen Investments, Inc. 333 W. Wacker Drive (since 1999); Vice President and Treasurer of Nuveen Advisory Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp (since 1999)(3); Vice President and Treasurer of Nuveen Asset Management (since 2002) and of Nuveen Investments Advisers Inc.; Assistant Treasurer of NWQ Investment Management Company, LLC (since 2002); Vice President and Treasurer of Nuveen Rittenhouse Asset Management, Inc. (since 2003); Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 1998 Vice President (since 2002) and Assistant General Counsel 155 9/24/64 and Secretary (since 1998), formerly, Assistant Vice President (since 1998) of 333 W. Wacker Drive Nuveen Investments, LLC; Vice President (since 2002) Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(3); and (since 2005) Nuveen Asset Management. ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 155 10/24/45 Nuveen Investments, LLC; Managing Director (since 2004) 333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory Corp. Chicago, IL 60606 and Nuveen Institutional Advisory Corp.(3); Managing Director (since 2005) of Nuveen Asset Management. ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 155 3/2/64 LLC; Managing Director (since 2001), formerly, Vice President 333 W. Wacker Drive (since 1995) of Nuveen Advisory Corp. and Nuveen Institutional Chicago, IL 60606 Advisory Corp.(3); Managing Director (since 2001) of Nuveen Asset Management; Vice President (since 2002) of Nuveen Investment Advisers Inc.; Chartered Financial Analyst. ------------------------------------------------------------------------------------------------------------------------------------ Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 155 5/31/54 and Controller of Nuveen Investments, LLC; formerly, Vice President and 333 W. Wacker Drive Funds Controller (1998-2004) of Nuveen Investments, Inc.; Chicago, IL 60606 Certified Public Accountant. ------------------------------------------------------------------------------------------------------------------------------------ James D. Grassi Vice President 2004 Vice President and Deputy Director of Compliance (since 2004) 155 4/13/56 and Chief of Nuveen Investments, LLC, Nuveen Investments Advisers Inc., 333 W. Wacker Drive Compliance Nuveen Asset Management and Rittenhouse Asset Management, Chicago, IL 60606 Officer Inc.; previously, Vice President and Deputy Director of Complliance (2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (3); formerly, Senior Attorney (1994 to 2004), The Northern Trust Company. 64 NUMBER OF PORTFOLIOS IN POSITION(S) YEAR FIRST FUND COMPLEX NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY AND ADDRESS THE FUNDS APPOINTED(4) DURING PAST 5 YEARS OFFICER ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUND (CONTINUED): ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 155 3/22/63 LLC; Certified Public Accountant. 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Tina M. Lazar Vice President 2002 Vice President (since 1999) of Nuveen Investments, LLC. 155 8/27/61 333 W. Wacker Drive Chicago, IL 60606 ------------------------------------------------------------------------------------------------------------------------------------ Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 155 7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and 333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp.(3); Vice President (since 2005) and Assistant Secretary of Nuveen Investments, Inc. and of Nuveen Asset Management; Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002). (1) Mr. Schwertfeger is an "interested person" of the Fund, as defined in the Investment Company Act of 1940, because he is an officer and board member of the Adviser. (2) Board members serve an indefinite term until his/her successor is elected. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (3) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were reorganized into Nuveen Asset Management, effective January 1, 2005. (4) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 65 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS At a meeting held on May 10-12, 2005, the Board of Trustees of each Fund, including the independent Trustees, unanimously approved the Investment Management Agreement between each Fund and NAM. THE APPROVAL PROCESS To assist the Board in its evaluation of an advisory contract with NAM, the independent Trustees received a report in adequate time in advance of their meeting which outlined, among other things, the services provided by NAM; the organization of NAM, including the responsibilities of various departments and key personnel; the Fund's past performance as well as the Fund's performance compared to funds of similar investment objectives compiled by an independent third party (a "Peer Group") and if available, with recognized or, in certain cases, customized benchmarks; the profitability of NAM and certain industry profitability analyses for advisers to unaffiliated investment companies; the expenses of NAM in providing the various services; the advisory fees of NAM, including comparisons of such fees with the management fees of comparable funds in its Peer Group as well as comparisons of NAM's management fees with the fees NAM assesses to other types of investment products or accounts, if any; the soft dollar practices of NAM; and the expenses of each Fund, including comparisons of the Fund's expense ratios (after any fee waivers) with the expense ratios of its Peer Group. This information supplements that received by the Board throughout the year regarding Fund performance, expense ratios, portfolio composition, trade execution and sales activity. In addition to the foregoing materials, independent legal counsel to the independent Trustees provided, in advance of the meeting, a legal memorandum outlining, among other things, the duties of the Trustees under the 1940 Act as well as the general principles of relevant state law in reviewing and approving advisory contracts; the requirements of the 1940 Act in such matters; an adviser's fiduciary duty with respect to advisory agreements and compensation; the standards used by courts in determining whether investment company boards of directors have fulfilled their duties and factors to be considered by the board in voting on advisory agreements. At the Board meeting, NAM made a presentation to and responded to questions from the Board. After the presentations and after reviewing the written materials, the independent Trustees met privately with their legal counsel to review the Board's duties in reviewing advisory contracts and consider the renewal of the advisory contract. It is with this background that the Trustees considered each Investment Management Agreement with NAM. The independent Trustees, in consultation with independent counsel, reviewed the factors set out in judicial decisions and SEC directives relating to the renewal of advisory contracts. As outlined in more detail below, the Trustees considered all factors they believed relevant with respect to each Fund, including the following: (a) the nature, extent and quality of the services to be provided by NAM; (b) the investment performance of the Fund and NAM; (c) the costs of the services to be provided and profits to be realized by NAM and its affiliates from the relationship with the Fund; (d) the extent to which economies of scale would be realized as the Fund grows; and (e) whether fee levels reflect these economies of scale for the benefit of Fund investors. A. NATURE, EXTENT AND QUALITY OF SERVICES In evaluating the nature, extent and quality of NAM's services, the Trustees reviewed information concerning the types of services that NAM or its affiliates provide and are expected to provide to the Nuveen Funds; narrative and statistical information concerning the Fund's performance record and how such performance compares to the Fund's Peer Group and, if available, recognized benchmarks or, in certain cases, customized benchmarks (as described in further detail in Section B below); information describing NAM's organization and its various departments, the experience and responsibilities of key personnel, and available resources. In the discussion of key personnel, the Trustees received materials regarding the changes or additions in personnel of NAM. The Trustees further noted the willingness of the personnel of NAM to engage in open, candid discussions with the Board. The Trustees further considered the quality of NAM's investment process in making portfolio management decisions, including any refinements or improvements to the portfolio management processes, enhancements to technology and systems that are available to portfolio managers, and any additions of new personnel which may strengthen or expand the research and investment capabilities of NAM. In their review of advisory contracts for the fixed income funds, the Trustees also noted that Nuveen won the Lipper Award for Best Fund Family: Fixed Income-Large Asset Class, for 2004. Given the Trustees' experience with the Funds, other Nuveen funds and NAM, the Trustees noted that they were familiar with and continue to have a good understanding of the organization, operations and personnel of NAM. In addition to advisory services, the independent Trustees considered the quality of the administrative or non-advisory services provided. In this regard, NAM provides the Fund with such administrative and other services (exclusive of, and in addition to, any such services provided by others for the Funds) and officers and other personnel as are necessary for the operations of the respective Fund. In addition to investment management services, NAM and its affiliates provide each Fund with a wide range of services, including: preparing shareholder reports; providing daily accounting; providing quarterly financial statements; overseeing and coordinating the 66 activities of other service providers; administering and organizing Board meetings and preparing the Board materials for such meetings; providing legal support (such as helping to prepare registration statements, amendments thereto and proxy statements and responding to regulatory inquiries); and performing other Fund administrative tasks necessary for the operation of the respective Fund (such as tax reporting and fulfilling regulatory filing requirements). In addition, in evaluating the administrative services, the Trustees considered, in particular, NAM's policies and procedures for assuring compliance with applicable laws and regulations in light of the new SEC regulations governing compliance. The Trustees noted NAM's focus on compliance and its compliance systems. In their review, the Trustees considered, among other things, the additions of experienced personnel to NAM's compliance group and modifications and other enhancements to NAM's computer systems. In addition to the foregoing, the Trustees also noted that NAM outsources certain services that cannot be replicated without significant costs or at the same level of expertise. Such outsourcing has been a beneficial and efficient use of resources by keeping expenses low while obtaining quality services. In addition to the above, in reviewing the variety of additional services that NAM or its affiliates must provide to closed-end funds, such as the Funds, the independent Trustees determined that Nuveen's commitment to supporting the secondary market for the common shares of its closed-end funds is particularly noteworthy. In this regard, the Trustees noted Nuveen's efforts to sponsor numerous forums for analysts and specialists regarding the various Nuveen closed-end funds, its creation of a new senior position dedicated to providing secondary market support services and enhancing communications with investors and analysts, and its advertising and media relations efforts designed to raise investor and analyst awareness of the closed-end funds. With respect to services provided to municipal funds, such as the Funds, the Trustees also noted, among other things, the enhancements NAM implemented to its municipal portfolio management processes (e.g., the increased use of benchmarks to guide and assess the performance of its portfolio managers); the implementation of a risk management program; and the various initiatives being undertaken to enhance or modify NAM's computer systems as necessary to support the innovations of the municipal investment team (such as, the ability to assess certain historical data in order to create customized benchmarks, perform attribution analysis and facilitate the use of derivatives as hedging instruments). With respect to certain of the Funds with a less seasoned portfolio, the Trustees also noted the hedging program implemented for such Funds and the team responsible for developing, implementing and monitoring the hedging procedures. The hedging program was designed to help maintain the applicable Fund's duration within certain benchmarks. Based on their review, the Trustees found that, overall, the nature, extent and quality of services provided (and expected to be provided) to the Funds under the Investment Management Agreements were of a high level and were quite satisfactory. B. THE INVESTMENT PERFORMANCE OF THE FUND AND ADVISER As previously noted, the Board received a myriad of performance information regarding each Fund and its Peer Group, if available. Among other things, the Board received materials reflecting a Fund's historic performance, the Fund's performance compared to its Peer Group and, if available, its performance compared to recognized and, in certain cases, customized benchmarks. Further, in evaluating the performance information, in certain limited instances, the Trustees noted that the closest Peer Group for a Fund still would not adequately reflect such Fund's investment objectives and strategies, thereby limiting the usefulness of the comparisons of such Fund's performance with that of the Peer Group. For state municipal funds, such as the Funds, the performance data included, among other things, the respective Fund's performance relative to its peers. More specifically, a Fund's one, three and five year total returns (as available) for the periods ending December 31, 2004 were evaluated relative to the unaffiliated funds in its respective Peer Group (including the returns of individual peers as well as the Peer Group average) as well as additional performance information with respect to all the funds in the Peer Group, subject to the following. Certain state municipal Funds do not have a corresponding Peer Group in which case their performance is measured against a state-specific municipal index compiled by an independent third party. Such indices measure bond performance rather than fund performance. The closed-end Funds that utilize such indices are from Connecticut, Georgia, Maryland, Missouri, North Carolina, Texas and Virginia. Based on their review, the Trustees determined that each Fund's absolute and relative investment performance over time had been satisfactory. C. FEES, EXPENSES AND PROFITABILITY 1. FEES AND EXPENSES In evaluating the management fees and expenses that a Fund is expected to bear, the Trustees considered the Fund's current management fee structure and the Fund's expected expense ratios in absolute terms as well as compared with the fees and expense ratios of the unaffiliated funds in its Peer Group. The Trustees reviewed the financial information of NAM, including its respective revenues, expenses and profitability. In reviewing fees, the Trustees, among other things, reviewed comparisons of the Fund's gross management fees (fees after fund-level and complex-wide level breakpoints but before reimbursement and fee waivers), net management fees (after breakpoints and reimbursements and fee waivers) and total expense ratios (before and after waivers) with those of the unaffiliated funds in the Peer Group and peer averages. In this regard, the Trustees noted that the relative ranking of the Nuveen Funds on fees and expenses was aided by the significant level of fee reductions provided by the fund-level and complex-wide breakpoint schedules, and the fee waivers and reimbursements provided by Nuveen for certain Funds launched since 1999. The complex-wide breakpoint schedule was instituted in 2004 and is described in further detail below in Section D entitled "Economies of Scale." In their review of the fee and expense information provided, including, in particular, the expense ratios of the unaffiliated funds in the respective Peer Group, the Trustees determined that each Fund's net total expense ratio was within an acceptable range compared to such peers. 2. COMPARISONS WITH THE FEES OF OTHER CLIENTS The Trustees further compared the fees of NAM to the fees NAM assessed for other types of clients investing in municipal funds (such as municipal managed accounts). With respect to such separately managed accounts, the advisory fees for such accounts 67 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS (continued) are generally lower than those charged to the comparable Fund. The Trustees noted, however, the additional services that are provided and the costs incurred by Nuveen in managing and operating registered investment companies, such as the Funds, compared to individually managed separate accounts. For instance, as described above, NAM and its affiliates provide numerous services to the Funds including, but not limited to, preparing shareholder reports; providing daily accounting; preparing quarterly financial statements; overseeing and coordinating the activities of other service providers; administering and organizing Board meetings and preparing the Board materials for such meetings; providing legal support; and administering all other aspects of the Fund's operations. Further, the Trustees noted the increased compliance requirements for funds in light of new SEC regulations and other legislation. These services are generally not required to the same extent, if at all, for separate accounts. In addition to the differences in services, the Trustees also considered, among other things, the differences in product distribution, investment policies, investor profiles and account sizes. Accordingly, the Trustees believe that the nature and number of services provided to operate a Fund merit the higher fees than those to separate managed accounts. 3. PROFITABILITY OF ADVISER In conjunction with its review of fees, the Trustees also considered NAM's profitability. The Trustees reviewed NAM's revenues, expenses and profitability margins (on both a pre-tax and after-tax basis). In reviewing profitability, the Trustees recognized that one of the most difficult issues in determining profitability is establishing a method of allocating expenses. Accordingly, the Trustees reviewed NAM's assumptions and methodology of allocating expenses. In this regard, the methods of allocation used appeared reasonable but the Board noted the inherent limitations in allocating costs among various advisory products. The Trustees also recognized that individual fund or product line profitability of other advisers is generally not publicly available. Further, profitability may be affected by numerous factors including the types of funds managed, expense allocations, business mix, etc. and therefore comparability of profitability is somewhat limited. Nevertheless, to the extent available, the Trustees considered NAM's profit margin compared to the profitability of various publicly-traded investment management companies and/or investment management companies that publicly disclose some or all of their financial results compiled by three independent third-party service providers. The Trustees also reviewed the revenues, expenses and profit margins of various unaffiliated advisory firms with similar amounts of assets under management for the last year prepared by NAM. Based on their review, the Trustees were satisfied that NAM's level of profitability from its relationship with each Fund was reasonable in light of the services provided. In evaluating the reasonableness of the compensation, the Trustees also considered any other revenues paid to NAM as well as any indirect benefits (such as soft dollar arrangements, if any) NAM and its affiliates are expected to receive that are directly attributable to their management of the Funds, if any. See Section E below for additional information. Based on their review of the overall fee arrangements of the applicable Fund, the Trustees determined that the advisory fees and expenses of the respective Fund were reasonable. D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE In reviewing the compensation, the Trustees have long understood the benefits of economies of scale as the assets of a fund grows and have sought to ensure that shareholders share in these benefits. One method for shareholders to share in economies of scale is to include breakpoints in the advisory fee schedules that reduce fees as fund assets grow. Accordingly, the Trustees received and reviewed the schedules of advisory fees for each Fund, including fund-level breakpoints thereto. In addition, after lengthy negotiations with management, the Board in May, 2004 approved a complex-wide fee arrangement pursuant to which fees of the funds in the Nuveen complex, including the Funds, are reduced as the assets in the fund complex reach certain levels. The complex-wide fee arrangement was introduced on August 1, 2004 and the Trustees reviewed data regarding the reductions of fees for the Funds for the period of August 1, 2004 to December 31, 2004. In evaluating the complex-wide fee arrangement, the Trustees considered, among other things, the historic and expected fee savings to shareholders as assets grow, the amount of fee reductions at various asset levels, and that the arrangement would extend to all Funds in the Nuveen complex. The Trustees also considered the impact, if any, the complex-wide fee arrangement may have on the level of services provided. Based on their review, the Trustees concluded that the breakpoint schedule and complex-wide fee arrangement currently was acceptable and desirable in providing benefits from economies of scale to shareholders. E. INDIRECT BENEFITS In evaluating fees, the Trustees also considered any indirect benefits or profits NAM or its affiliates may receive as a result of its relationship with each Fund. In this regard, the Trustees considered any benefits from soft dollar arrangements. The Trustees noted that although NAM manages a large amount of assets, it has very little, if any, brokerage to allocate. This is due to the fact that NAM 68 typically manages the portfolios of the municipal funds in the Nuveen complex and municipal bonds generally trade on a principal basis. Accordingly, NAM does not currently have any soft dollar arrangements and does not pay excess brokerage commissions (or spreads on principal transactions) in order to receive research services. In addition to soft dollar arrangements, the Trustees also considered any other revenues, if any, received by NAM or its affiliates. With respect to Funds with outstanding preferred shares and new Funds, the Trustees considered revenues received by Nuveen for serving as agent for broker-dealers at its preferred trading desk and for acting as co-manager in the initial public offering of new closed-end exchange-traded funds. F. OTHER CONSIDERATIONS Nuveen, until recently, was a majority-owned subsidiary of St. Paul Travelers. As noted, St. Paul earlier this year announced its intention to divest its equity stake in Nuveen. Nuveen is the parent of NAM. Pursuant to a series of transactions, St. Paul has begun to reduce its interest in Nuveen which will ultimately result in a change of control of Nuveen and therefore NAM. As mandated by the 1940 Act, such a change in control would result in an assignment of the advisory agreement with NAM and the automatic termination of such agreement. Accordingly, the Board also considered for each Fund the approval of a New Investment Management Agreement with each Fund in light of, and which would take effect upon, the anticipated change of control. More specifically, the Board considered for each Fund a New Investment Management Agreement on substantially identical terms to the existing Investment Management Agreement, to take effect after the change of control has occurred and the contract has been approved by Fund shareholders. In its review, the Board considered whether the various transactions necessary to divest St. Paul's interest will have an impact on the various factors they considered in approving NAM, such as the scope and quality of services to be provided following the change of control. In reviewing the St. Paul transactions, the Board considered, among other things, the impact, if any, on the operations and organizational structure of NAM; the possible benefits and costs of the transactions to the respective Fund; the potential implications of any arrangements used by Nuveen to finance certain of the transactions; the ability of NAM to perform its duties after the transactions; whether a Fund's fee structure or expense ratio would change; any changes to the current practices of the respective Fund; any changes to the terms of the advisory agreement; and any anticipated changes to the operations of NAM. Based on its review, the Board determined that St. Paul's divestiture would not affect the nature and quality of services provided by NAM, the terms of the Investment Management Agreement, including the fees thereunder, and would not materially affect the organization or operations of NAM. Accordingly, the Board determined that their analysis of the various factors regarding their approval of NAM would continue to apply after the change of control. G. APPROVAL The Trustees did not identify any single factor discussed previously as all-important or controlling. The Trustees, including a majority of independent Trustees, concluded that the terms of the Investment Management Agreements were fair and reasonable, that the respective Fund Adviser's fees are reasonable in light of the services provided to each Fund, that the renewal of the NAM Investment Management Agreements should be approved, and that the new, post-change of control NAM Investment Management Agreements be approved and recommended to shareholders. 69 Reinvest Automatically EASILY AND CONVENIENTLY Sidebar text: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. FLEXIBLE You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 70 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 Each Fund's (i) quarterly portfolio of investments, (ii) information regarding how the Funds voted proxies relating to portfolio securities held during the 12-month period ended June 30, 2004, and (iii) a description of the policies and procedures that the Funds used to determine how to vote proxies relating to portfolio securities are available without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com. You may also obtain this and other Fund information directly from the Securities and Exchange Commission ("SEC"). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090 for room hours and operation. You may also request Fund information by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public References Section at 450 Fifth Street NW, Washington, D.C. 20549. CEO CERTIFICATION DISCLOSURE Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the Securities and Exchange Commission the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. GLOSSARY OF TERMS USED IN THIS REPORT AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment's actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. AVERAGE EFFECTIVE MATURITY: The average of all the maturities of the bonds in a Fund's portfolio, computed by weighting each maturity date (the date the security comes due) by the market value of the security. This figure does not account for the likelihood of prepayments or the exercise of call provisions. LEVERAGE-ADJUSTED DURATION: Duration is a measure of the expected period over which a bond's principal and interest will be paid, and consequently is a measure of the sensitivity of a bond's or bond Fund's value to changes when market interest rates change. Generally, the longer a bond's or Fund's duration, the more the price of the bond or Fund will change as interest rates change. Leverage-adjusted duration takes into account the leveraging process for a Fund and therefore is longer than the duration of the Fund's portfolio of bonds. MARKET YIELD (ALSO KNOWN AS DIVIDEND YIELD OR CURRENT YIELD): An investment's current annualized dividend divided by its current market price. NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by subtracting the liabilities of the Fund (including any MuniPreferred shares issued in order to leverage the Fund) from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. TAXABLE-EQUIVALENT YIELD: The yield necessary from a fully taxable investment to equal, on an after-tax basis, the yield of a municipal bond investment. BOARD OF DIRECTORS/TRUSTEES Robert P. Bremner Lawrence H. Brown Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale Eugene S. Sunshine FUND MANAGER Nuveen Asset Management 333 West Wacker Drive Chicago, IL 60606 CUSTODIAN State Street Bank & Trust Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Chapman and Cutler LLP Chicago, IL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Chicago, IL Each Fund intends to repurchase shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the period covered by this report. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 71 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 o Fund details Learn more o Daily financial news about Nuveen Funds at o Investor education WWW.NUVEEN.COM/ETF o Interactive planning tools Logo: NUVEEN Investments EAN-C-0505D ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. There were no amendments to or waivers from the Code during the period covered by this report. The registrant has posted the code of ethics on its website at www.nuveen.com/etf. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then click on Code of Conduct.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors or Trustees determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its Audit Committee. The registrant's audit committee financial expert is Jack B. Evans, Chairman of the Audit Committee, who is "independent" for purposes of Item 3 of Form N-CSR. Mr. Evans was formerly President and Chief Operating Officer of SCI Financial Group, Inc., a full service registered broker-dealer and registered investment adviser ("SCI"). As part of his role as President and Chief Operating Officer, Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and actively supervised the CFO's preparation of financial statements and other filings with various regulatory authorities. In such capacity, Mr. Evans was actively involved in the preparation of SCI's financial statements and the resolution of issues raised in connection therewith. Mr. Evans has also served on the audit committee of various reporting companies. At such companies, Mr. Evans was involved in the oversight of audits, audit plans, and the preparation of financial statements. Mr. Evans also formerly chaired the audit committee of the Federal Reserve Bank of Chicago. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Nuveen Georgia Dividend Advantage Municipal Fund 2 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 ------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------ May 31, 2005 $ 7,991 $ 0 $ 581 $ 2,650 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ May 31, 2004 $ 7,599 $ 0 $ 931 $ 2,450 ------------------------------------------------------------------------------------------------------------------------------------ Percentage approved N/A 0% 0% 0% pursuant to pre-approval exception ------------------------------------------------------------------------------------------------------------------------------------ The above "All Other Fees" are fees paid to audit firms to perform agreed upon procedures required by the rating agencies to rate fund preferred shares. The above "Tax Fees" were billed for professional services for tax advice, tax compliance, and tax planning. SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling, controlled by or under common control with NAM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The 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 --------------------------------------------------------------------------------------------------------------------- May 31, 2005 $ 0 $ 282,575 $ 0 --------------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% pursuant to pre-approval exception --------------------------------------------------------------------------------------------------------------------- May 31, 2004 $ 0 $ 0 $ 0 --------------------------------------------------------------------------------------------------------------------- Percentage approved N/A N/A N/A pursuant to pre-approval exception --------------------------------------------------------------------------------------------------------------------- The above "Tax Fees" are primarily fees billed to the Adviser for Fund tax return preparation. NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. For engagements entered into on or after May 6, 2003, the Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP's independence. FISCAL YEAR ENDED TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL ------------------------------------------------------------------------------------------------------------------------------------ May 31, 2005 $ 3,231 $ 282,575 $ 0 $ 285,806 May 31, 2004 $ 3,381 $ 0 $ 0 $ 3,381 The above "Non-Audit Fees billed to Adviser" for 2005 include "Tax-Fees" billed to Adviser in the amount of $282,575 from previous table. Audit Committee Pre-Approval Policies and Procedures. Generally, the audit committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the audit committee if they are expected to be for amounts greater than $10,000; (ii) reported to the audit committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the audit committee at the next audit committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant's Board of Directors or Trustees has a separately designated audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (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 Portfolio of Investments in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. In the rare event that a municipal issuer held by the Fund were to issue a proxy or that the Fund were to receive a proxy issued by a cash management security, the Adviser would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Fund's Board of Directors or Trustees or its representative. In the case of a conflict of interest, the proxy would be submitted to the applicable Fund's Board to determine how the proxy should be voted. A member of the Adviser's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17 CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the results were provided to the Board of Directors or Trustees and made available to shareholders as required by applicable rules. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable at this time. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this Item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant's website at www.nuveen.com/etf and there were no amendments during the period covered by this report. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then Code of Conduct.) (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Georgia Dividend Advantage Municipal Fund 2 ----------------------------------------------------------- By (Signature and Title)* /s/ Jessica R. Droeger ---------------------------------------------- Jessica R. Droeger Vice President and Secretary Date: August 8, 2005 ------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Gifford R. Zimmerman ---------------------------------------------- Gifford R. Zimmerman Chief Administrative Officer (principal executive officer) Date: August 8, 2005 ------------------------------------------------------------------- By (Signature and Title)* /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) Date: August 8, 2005 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature.