UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10491
Nuveen Real Estate Income Fund
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: December 31, 2006
-----------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT DECEMBER 31, 2006
NUVEEN INVESTMENTS
CLOSED-END
FUNDS
NUVEEN
REAL ESTATE
INCOME FUND
JRS
HIGH CURRENT INCOME FROM
A PORTFOLIO OF COMMERCIAL
REAL ESTATE INVESTMENTS
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NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
Dear Shareholder,
I am very pleased to report that over the twelve-month period covered by
this report, your Fund continued to provide you with attractive monthly
income from a diversified portfolio of quality real estate securities. For
more information on your Fund's performance, please read the Portfolio
Managers' Comments, the Distribution and Share Price Information, and the
Performance Overview sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, an investment like your Fund may help you achieve and
benefit from greater portfolio diversification. Your financial advisor can
explain these potential advantages in more detail. I urge you to contact
him or her soon for more information on this important investment
strategy.
"PORTFOLIO DIVERSIFICATION IS A RECOGNIZED WAY TO TRY TO REDUCE SOME OF THE RISK
THAT COMES WITH INVESTING."
As you look through this report, be sure to review the inside front cover.
This contains information on how you can receive future Fund reports and
other Fund information faster by using e-mails and the Internet. Sign up
is quick and easy - just follow the step-by-step instructions.
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,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2007
Nuveen Investments Closed-End Funds (JRS)
PORTFOLIO MANAGERS'
COMMENTS
The Nuveen Real Estate Income Fund is managed by a team of real estate
investment professionals at Security Capital Research & Management Incorporated
("SC-R&M"), a wholly-owned subsidiary of J. P. Morgan Chase & Co. Anthony R.
Manno Jr. and Kenneth D. Statz, who each have more than 23 years of experience
in managing real estate investments, lead the team. Here they review the
economic environment and performance of the Fund over the twelve-month period
ended December 31, 2006.
WHAT WERE THE GENERAL ECONOMIC CONDITIONS AND MARKET TRENDS OVER THE COURSE OF
2006?
2006 was another truly outstanding performance year for real estate investors,
spanning the entire spectrum from individual assets and portfolios to the public
market pricing of REIT stocks. Driving these gains in the U.S. and abroad was a
relatively straightforward supply and demand story as investors in a world
seemingly awash in liquidity competed to secure larger positions in real estate
investments. This interest was broad based - institutions, high net worth
individuals, domestic, international - but the underlying motivations were
fairly simple and consistent: quality real estate is unique in offering
investors predictable current cash flow with the ability to grow over time,
thereby retaining or increasing value under a broad range of economic scenarios,
including inflation.
Real estate stocks generated strong returns in the fourth quarter capping a
near-record performance year in the context of a healthy U.S. economy, strong
operating fundamentals, continued low interest rates and broadly based
investment demand for real estate assets. All sectors generated attractive
positive returns, with mall, self-storage and office stocks outperforming during
the quarter, and the lodging, industrial and diversified stocks lagging. For
2006 as a whole, the office, self-storage and multifamily stocks were the
performance leaders with lodging, malls and industrial companies showing smaller
gains.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE TWELVE MONTHS ENDED DECEMBER
31, 2006?
In managing the JRS portfolio, we sought to maintain significant property type
and geographic diversification while taking into account company credit quality,
sector, and security-type allocations. Investment decisions were based on a
multi-layered analysis of the company, the real estate it owned, its management,
and the relative price of the security, with a focus on securities that we
believed would be best positioned to generate sustainable income and potential
price appreciation over the long-run.
4
Throughout 2006, the portfolio continued to emphasize companies and property
types associated with shorter lease terms (e.g. multifamily, hotels, etc.) and
underweighted more defensive, bond-like companies and property types typically
reflecting longer lease terms (e.g. malls and shopping centers). Across all real
estate sectors, we favored companies with properties located in the strongest
infill markets. These "high barrier to entry" markets are defined by constraints
which limit new construction, a quality that we believe over the long-term has
the potential to provide superior value enhancement and a real inflation hedge.
The ability to shift allocations between preferred and common stock based on the
relative attractiveness of these two distinct security types was an important
tool in managing JRS for income and long-term capital appreciation. For the last
six months of 2006, we continued to tilt the portfolio toward common stocks,
which at the end of the fourth quarter represented 71.8% of the portfolio
compared to the Specialized Real Estate Securities Benchmark's(1) 60.1%
weighting to common. As of December 31, 2006, the portfolio allocations were
71.8% common stocks, 27.4% preferred stocks, and 0.8% cash equivalents.
HOW DID THE FUND PERFORM OVER THIS TWELVE-MONTH PERIOD?
The performance of JRS, as well as the performance of comparative indexes or
benchmarks, is shown in the chart below:
TOTAL RETURN ON NET ASSET VALUE
For the twelve-month period ended December 31, 2006
JRS 27.87%(1)
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Specialized Real Estate Securities
Benchmark(2) 23.06%
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Dow Jones Wilshire Real Estate Securities
Index(3) 35.67%
---------------------------------------------------------------------------------------------------
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1 The Fund elected to retain a portion of its realized long-term capital gains
for the tax year ended December 31, 2006, and pay required Federal corporate
income taxes on these gains. As reported on Form 2439, Common shareholders of
record on December 29, 2006, must include their pro-rata share of these gains
on their 2006 federal tax returns, and will receive a corresponding credit
toward their taxes, or a tax refund, for their pro-rata share of the taxes
paid by the Fund. The standardized total returns shown in the table do not
include the economic benefit to Common shareholders of record of this tax
credit/refund. The Fund's total return on NAV for the twelve months ended
December 31, 2006, when this benefit is included is 30.56%.
2 The Specialized Real Estate Securities Benchmark is based on the preferred
stock and highest 50% yielding (based on market capitalization) common stock
securities in the SNL Financial LC real estate database. Returns are computed
from this database by a third party service provider.
3 The Dow Jones Wilshire Real Estate Securities Index is an unmanaged index
comprised of common shares of publicly-traded REITs and other real estate
operating companies.
--------------------------------------------------------------------------------
It is important to note that investing in preferred stock is an important
component of the income and appreciation strategy of JRS, as well as the
Specialized Real Estate Securities Benchmark. However, preferred securities are
not included in broader real estate securities indices, like the Dow Jones
Wilshire Real Estate Securities Index ("WARESI"). JRS maintained its allocation
to preferred stocks during this period, and as a whole they underperformed
common stocks. While we believe preferred and convertible preferred stocks
continued to help the Fund's overall risk profile, and
5
contributed to the current income objective, over the past year the allocation
did create a drag on performance when compared to an all common stock index like
the WARESI.
Over the past year all JRS common stock investments in the multifamily and
health care sectors significantly outperformed the Specialized Real Estate
Benchmark. While the relative performance of multifamily stocks eased as 2006
progressed, their pricing and performance was buoyed by a strong rebound in rent
and occupancy levels. This occurred in the context of healthy U.S. job growth
and a decrease in the affordability of for-sale housing even as - or probably
because - for-sale conditions have weakened in many markets.
The strong performance of companies owning and operating real estate properties
in the healthcare sector reflected the culmination of a multi-year improvement
of operating fundamentals combined with limited new supply. While short-term
volatility in this sector was expected, we were encouraged by what we believed
was the long-term potential of health care, driven by favorable demographics and
a new class of companies led by high quality, professional management teams.
Office operating fundamentals showed steady quarter-to-quarter improvement
through the year, with pockets of more pronounced strength in key coastal
markets, including New York, Washington D.C., and Los Angeles. This
research-based theme was rewarded, as many of our specific selections within the
office sector substantially outperformed their respective sector components of
the Specialized Real Estate Benchmark, highlighted by Equity Office Properties
(NYSE: EOP), the target of a $36.0 billion takeover bid.
While still producing attractive positive returns, many investments in the
diversified, industrial, storage and historically defensive shopping center and
mall sectors underperformed the Benchmark as a whole in 2006 we maintained these
investments to enhance the income and sector diversification objectives of the
Fund.
6
DISTRIBUTION AND SHARE PRICE
INFORMATION
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called Taxable Auctioned Preferred(TM). This provides a degree of
financial leverage that can increase share price volatility, but also can
enhance Fund returns and supplement the income available to pay common
shareholder distributions. This leveraging strategy provided incremental income
and helped enhance shareholder distributions over the twelve-month period.
The Fund has a managed distribution policy designed to provide relatively stable
monthly cash flow to investors. Under this policy, the Fund's monthly
distributions will be paid from net investment income generated by its
underlying securities as well as from net realized capital gains and/or returns
of capital, generally representing unrealized capital gains. During the
twelve-month period the Fund declared four monthly distribution increases; most
recently in December to $0.1900 per share.
As of December 31, 2006, the Fund was trading at a 7.72% premium to its net
asset value, compared with an average discount of -5.89% for the entire
twelve-month period.
7
DISTRIBUTION AND SHARE PRICE
INFORMATION (continued)
We are providing you with information regarding your Fund's distributions. This
information is as of December 31, 2006, and likely will vary over time based on
the Fund's investment activities and portfolio investment value changes.
The Fund has a managed distribution program. The goal of a managed distribution
program is to provide shareholders relatively consistent and predictable cash
flow by systematically converting its expected long-term return potential into
regular monthly distributions. As a result, regular distributions throughout the
year will likely include a portion of expected long-term gains (both realized
and unrealized), along with net investment income.
Important points to understand about the managed distribution program are:
- The Fund seeks to establish a relatively stable distribution rate that
roughly corresponds to the projected total return from its investment
strategy over an extended period of time. However, you should not draw any
conclusions about the Fund's past or future investment performance from its
current distribution rate.
- Actual returns will differ from projected long-term returns (and therefore
the Fund's distribution rate), at least over shorter time periods. Over a
specific timeframe, the difference between actual returns and total
distributions will be reflected in an increasing (returns exceed
distributions) or a decreasing (distributions exceed returns) fund net asset
value.
- Each month's distributions are expected to be paid from some or all of the
following sources:
- net investment income (regular interest and dividends),
- realized capital gains, and
- unrealized gains, or, in certain cases, a return of principal
(non-taxable distributions)
- A non-taxable distribution is a payment of a portion of the Fund's capital.
When the Fund's returns exceed distributions, it may represent portfolio
gains generated, but not realized as a taxable capital gain. In periods when
the Fund's returns fall short of distributions, it will represent a portion
of your original principal unless the shortfall is offset during other time
periods over the life of your investment (previous or subsequent) when the
fund's total return exceeds distributions.
8
- Because distribution source estimates are updated monthly during the year,
based on the Fund's performance and forecast for its current fiscal year
(which is the calendar year for the Fund), these estimates may differ from
both the tax information reported to you in your Fund's 1099 statement
provided at year end, as well as the ultimate economic sources of
distributions over the life of your investment.
The following table provides information regarding the Fund's distributions and
total return performance for the fiscal year ended December 31, 2006. The
distribution information is presented on a tax basis rather than on a generally
accepted accounting principles (GAAP) basis. This information is intended to
help you better understand whether the Fund's returns for the specified time
period was sufficient to meet the Fund's distributions.
------------------------------------------------------------------------------
AS OF 12/31/2006 JRS
------------------------------------------------------------------------------
Inception date 11/15/01
Calendar Year:
Per share distribution:
From net investment income $1.35
From short-term capital gains --
From long-term capital gains $0.62
From return of capital --
--------
Total per share distribution $1.97
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Distribution rate on NAV 7.45%
One year total return on NAV 27.87%
Annualized five year total return on NAV 22.05%
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9
RETENTION OF REALIZED LONG-TERM
CAPITAL GAINS
NOTICE CONCERNING RETENTION OF REALIZED LONG-TERM CAPITAL GAINS BY CERTAIN
NUVEEN CLOSED-END FUNDS
On December 15, 2006, the Fund announced that it would retain a portion of its
realized long-term capital gains for the tax year ended December 31, 2006, and
pay required Federal corporate income taxes on these gains.
The Fund's Board of Trustees believes retaining realized long-term capital gains
may benefit shareholders by enabling the Fund to better preserve and grow its
capital base, providing the opportunity over time for more stable and/or growing
distributions and share price, increased portfolio diversification and lower
operating expenses, as well as greater flexibility in structuring and managing
the Fund's investments.
Common shareholders of record on December 29, 2006 must include their pro-rata
share of the Fund's retained gains on their 2006 Federal income tax returns.
They will be entitled to a corresponding Federal income tax credit (or refund)
of their pro rata share of taxes the Fund paid on its retained gains. Common
shareholders also will be entitled to increase their Fund investments' cost
basis by the net amount of gains retained by the Fund. The Fund's net asset
value on December 27, 2006 was reduced to reflect the accrual of the Fund's
Federal corporate income tax liability as shown below.
The Fund's per share retained long-term capital gains and corresponding Federal
corporate income taxes paid are as follows:
PER SHARE JRS
-----------------------------------------------------------------------------
Long-Term Capital Gain Retained $ 1.5937
Less Federal Income Taxes Paid by Fund (0.5578)
NET LONG-TERM CAPITAL GAIN RETAINED $ 1.0359
-----------------------------------------------------------------------------
The retained gains and taxes paid were reported to shareholders of record on IRS
Form 2439 in early 2007. These gains will not be reported on Form 1099-DIV,
which only reflects realized capital gains actually distributed to shareholders
and taxable in 2006. More details about these funds, as well as additional
information on retained capital gains and related tax information are available
on www.nuveen.com/cef.
10
Nuveen Real Estate Income Fund
JRS
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as a % of total investments)
Real Estate Investment Trust Common Stocks 71.8%
--------------------------------------------------------------------------------------
Real Estate Investment Trust Preferred Stocks 27.4%
--------------------------------------------------------------------------------------
Short-Term Investments 0.8%
--------------------------------------------------------------------------------------
(2006 MONTHLY DISTRIBUTIONS BAR CHART)
Jan 0.15
Feb 0.15
Mar 0.16
Apr 0.16
May 0.16
Jun 0.17
Jul 0.17
Aug 0.17
Sep 0.18
Oct 0.18
Nov 0.18
Dec 0.19
(SHARE PRICE CHART)
Past performance is not predictive of future results.
7/1/2005 20.33
20.69
20.40
20.66
21.20
20.18
19.48
19.02
19.38
19.88
20.40
20.29
20.00
20.35
19.93
19.31
19.28
19.85
19.59
19.64
19.55
19.88
20.03
19.82
19.72
19.80
19.99
20.74
20.45
20.65
20.80
20.97
20.99
21.70
22.13
22.43
22.80
23.15
22.60
22.70
22.44
21.81
22.45
22.58
22.90
22.14
21.95
22.15
22.29
22.45
22.30
22.30
6/30/2006 23.09
FUND SNAPSHOT
--------------------------------------------------------------------------------------
Common Share Price(1) $28.48
--------------------------------------------------------------------------------------
Common Share Net Asset Value(1) $26.44
--------------------------------------------------------------------------------------
Premium/(Discount) to NAV 7.72%
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Current Distribution Rate(2) 8.01%
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Net Assets Applicable to
Common Shares ($000) $745,119
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INDUSTRIES
(as a % of total investments)
--------------------------------------------------------------------------------------
Specialized 28.4%
--------------------------------------------------------------------------------------
Office 26.5%
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Residential 18.2%
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Retail 13.9%
--------------------------------------------------------------------------------------
Short-Term Investments 0.8%
--------------------------------------------------------------------------------------
Other 12.2%
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TOP FIVE REAL ESTATE INVESTMENT TRUST COMMON STOCK ISSUERS
(as a % of total investments)
--------------------------------------------------------------------------------------
AvalonBay Communities, Inc. 5.8%
--------------------------------------------------------------------------------------
Macerich Company 5.7%
--------------------------------------------------------------------------------------
Mack-Cali Realty Corporation 5.3%
--------------------------------------------------------------------------------------
Reckson Associates Realty Corporation 4.9%
--------------------------------------------------------------------------------------
Nationwide Health Properties, Inc. 4.6%
--------------------------------------------------------------------------------------
TOP FIVE REAL ESTATE INVESTMENT TRUST PREFERRED STOCK ISSUERS
(as a % of total investments)
--------------------------------------------------------------------------------------
Crescent Real Estate Equities Company 4.3%
--------------------------------------------------------------------------------------
Public Storage Inc. 2.8%
--------------------------------------------------------------------------------------
Home Properties Inc. 2.3%
--------------------------------------------------------------------------------------
PS Business Parks, Inc. 2.2%
--------------------------------------------------------------------------------------
Maguire Properties, Inc. 2.1%
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AVERAGE ANNUAL TOTAL RETURN(3)
(Inception 11/15/01)
--------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------------------------------------------
1-Year 54.49% 27.87%
--------------------------------------------------------------------------------------
5-Year 23.59% 22.05%
--------------------------------------------------------------------------------------
Since Inception 22.99% 21.99%
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1 Common Share Net Asset Value (NAV) reflects a downward adjustment, made
subsequent to December 31, 2006, for the amount of the tax liability
associated with the Fund's retention of a portion of its long-term capital
gains and the Fund's payment of Federal corporate income tax thereon, and
therefore differs from the NAV published shortly after that date. The Common
Share Price is actual as of December 31, 2006, and did not reflect the
knowledge of the subsequent adjustment to NAV.
2 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. REIT distributions
received by the Fund are generally comprised of investment income, long-term
and short-term capital gains and a REIT return of capital. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a return of capital for tax purposes.
3 The Fund elected to retain a portion of its realized long-term capital gains
for the tax year ended December 31, 2006, and pay required Federal corporate
income taxes on these gains. As reported on Form 2439, Common shareholders of
record on December 29, 2006, must include their pro-rata share of these gains
on their 2006 federal tax returns, and will receive a corresponding credit
toward their taxes, or a tax refund, for their pro-rata share of the taxes
paid by the Fund. The standardized total returns shown above do not include
the economic benefit to Common shareholders of record of this tax
credit/refund. The Fund's corresponding average annual total returns on share
price when this benefit is included are 57.50%, 24.07% and 23.45%, for the
one-year, five-year and since inception periods, respectively. The Fund's
corresponding average annual total returns on NAV when this benefit is
included are 30.56%, 22.56% and 22.49%, for the one-year, five-year and since
inception periods, respectively.
11
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN REAL ESTATE INCOME FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Nuveen Real Estate Income Fund (the "Fund") as
of December 31, 2006, and the related statement 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 Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audit.
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 Fund's 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 Fund's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2006, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Real Estate Income Fund at December 31, 2006, the results of its operations for
the year then ended, changes in its 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.
(ERNST & YOUNG LLP LOGO)
Chicago, Illinois
February 20, 2007
12
Nuveen Real Estate Income Fund (JRS)
Portfolio of
INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) VALUE
--------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMON STOCKS - 101.0% (71.8% OF TOTAL INVESTMENTS)
INDUSTRIAL - 6.3%
1,487,000 DCT Industrial Trust Inc. $ 17,546,600
626,600 First Industrial Realty Trust, Inc. 29,381,274
--------------------------------------------------------------------------------------------------------------------------------
Total Industrial 46,927,874
-------------------------------------------------------------------------------------------------------------------
OFFICE - 30.3%
1,195,300 Brandywine Realty Trust 39,743,725
477,300 Equity Office Properties Trust 22,991,541
2,280,800 HRPT Properties Trust 28,167,880
1,090,500 Mack-Cali Realty Corporation 55,615,500
264,600 Maguire Properties, Inc. 10,584,000
1,120,600 Reckson Associates Realty Corporation 51,099,360
1,579,000 Republic Property Trust 18,221,660
--------------------------------------------------------------------------------------------------------------------------------
Total Office 226,423,666
-------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 20.0%
415,300 Apartment Investment & Management 23,265,106
Company, Class A
795,000 Archstone-Smith Trust 46,276,950
464,500 AvalonBay Communities, Inc. 60,408,225
590,000 United Dominion Realty Trust 18,756,100
--------------------------------------------------------------------------------------------------------------------------------
Total Residential 148,706,381
-------------------------------------------------------------------------------------------------------------------
RETAIL - 16.0%
413,800 Federal Realty Investment Trust 35,173,000
691,000 Macerich Company 59,819,870
880,300 New Plan Excel Realty Trust 24,190,644
--------------------------------------------------------------------------------------------------------------------------------
Total Retail 119,183,514
-------------------------------------------------------------------------------------------------------------------
SPECIALIZED - 28.4%
1,740,200 Ashford Hospitality Trust Inc. 21,665,490
493,400 Cogdell Spencer Inc. 10,608,100
1,152,000 Extra Space Storage Inc. 21,035,520
933,800 Health Care Property Investors Inc. 34,382,516
931,564 Hersha Hospitality Trust 10,563,936
1,587,300 Nationwide Health Properties, Inc. 47,968,206
1,241,100 Senior Housing Properties Trust 30,382,128
1,710,500 U-Store-It Trust 35,150,775
--------------------------------------------------------------------------------------------------------------------------------
Total Specialized 211,756,671
--------------------------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST COMMON STOCKS 752,998,106
(COST $440,358,554)
===================================================================================================================
SHARES DESCRIPTION (1) COUPON VALUE
--------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST PREFERRED STOCKS - 38.6% (27.4% OF TOTAL INVESTMENTS)
DIVERSIFIED - 10.9%
370,000 BRE Properties, Series D 6.750% $ 9,268,500
1,031,300 Crescent Real Estate Equities Company, 6.750% 22,564,844
Series A (Convertible)
850,000 Crescent Real Estate Equities Company, 9.500% 22,945,750
Series B
150,000 Lexington Corporate Properties Trust, 8.050% 3,834,000
Series B
497,623 PS Business Parks, Inc., Series F 8.750% 12,435,599
400,000 PS Business Parks, Inc., Series O 7.375% 10,212,520
--------------------------------------------------------------------------------------------------------------------------------
Total Diversified 81,261,213
-------------------------------------------------------------------------------------------------------------------
13
Nuveen Real Estate Income Fund (JRS) (continued)
Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON VALUE
--------------------------------------------------------------------------------------------------------------------------------
OFFICE - 7.0%
95,400 Alexandria Real Estate Equities Inc., 9.100% $ 2,393,586
Series B
160,000 Alexandria Real Estate Equities Inc., 8.375% 4,185,600
Series C
200,000 Corporate Office Properties Trust, 8.000% 5,200,000
Series G
12,141 Highwoods Properties, Inc., Series A 8.625% 13,043,987
101,500 Highwoods Properties, Inc., Series B 8.000% 2,566,935
81,000 HRPT Properties Trust, Series C 7.125% 2,117,340
901,700 Maguire Properties, Inc., Series A 7.625% 22,299,041
--------------------------------------------------------------------------------------------------------------------------------
Total Office 51,806,489
-------------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 5.6%
511,100 Apartment Investment & Management 7.750% 13,043,272
Company, Series U
183,000 Apartment Investment & Management 7.875% 4,666,500
Company, Series Y
945,000 Home Properties Inc., Series F 9.000% 24,012,450
--------------------------------------------------------------------------------------------------------------------------------
Total Residential 41,722,222
-------------------------------------------------------------------------------------------------------------------
RETAIL - 3.6%
160,000 Cedar Shopping Centers Inc., Series A 8.875% 4,260,800
113,000 Glimcher Realty Trust, Series F 8.750% 2,948,170
234,300 Glimcher Realty Trust, Series G 8.125% 5,939,505
125,000 Saul Centers, Inc., Series A 8.000% 3,227,500
400,000 Taubman Centers, Inc., Series H 7.625% 10,680,000
--------------------------------------------------------------------------------------------------------------------------------
Total Retail 27,055,975
-------------------------------------------------------------------------------------------------------------------
SPECIALIZED - 11.5%
130,000 Ashford Hospitality Trust, Series A 8.550% 3,364,400
546,900 FelCor Lodging Trust Inc., Series C (2) 8.000% 13,787,349
120,000 Hersha Hospitality Trust, Series A 8.000% 3,150,000
592,000 LaSalle Hotel Properties, Series A 10.250% 15,036,800
1,000,000 Public Storage Inc., Series I 7.250% 26,050,000
151,700 Public Storage Inc. 6.750% 3,835,173
175,000 Strategic Hotel Capital Inc., Series B 8.250% 4,528,125
320,000 Strategic Hotel Capital Inc., Series C 8.250% 8,240,000
300,000 Sunstone Hotel Investors Inc., Series A 8.000% 7,650,000
--------------------------------------------------------------------------------------------------------------------------------
Total Specialized 85,641,847
-------------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST 287,487,746
PREFERRED STOCKS (COST $275,736,243)
===================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
--------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 1.1%
(0.8% OF TOTAL INVESTMENTS)
$ 8,237 Repurchase Agreement with Fixed Income 4.580% 1/02/07 $ 8,236,642
Clearing Corporation, dated 12/29/06,
repurchase price $8,240,834,
collateralized by $7,175,000 U.S.
Treasury Bonds, 6.250% due 8/15/23,
value $8,404,644
=========== -----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,236,642) 8,236,642
=================================================================================================================
TOTAL INVESTMENTS (COST $724,331,439) - 140.7% 1,048,722,494
=================================================================================================================
BORROWINGS PAYABLE - (9.4)% (3) (70,000,000)
=================================================================================================================
OTHER ASSETS LESS LIABILITIES - (1.5)% (11,603,730)
=================================================================================================================
TAXABLE AUCTIONED PREFERRED SHARES, AT LIQUIDATION VALUE - (29.8)% (222,000,000)
=================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 745,118,764
=================================================================================================================
INTEREST RATE SWAPS OUTSTANDING AT DECEMBER 31, 2006:
FUND FIXED RATE UNREALIZED
NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $43,000,000 Receive 1-Month USD-LIBOR 4.800% Monthly 2/06/07 $ 38,828
Citigroup Inc. 43,000,000 Receive 1-Month USD-LIBOR 5.190% Monthly 2/06/09 (139,856)
--------------------------------------------------------------------------------------------------------------------------------
$ (101,028)
================================================================================================================================
USD-LIBOR (United States Dollar-London Interbank Offered Rate)
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Investment is eligible for the Dividends Received Deduction.
(3) Borrowings payable as a percentage of total investments is (6.7)%.
See accompanying notes to financial statements.
14
Statement of
ASSETS AND LIABILITIES December 31, 2006
----------------------------------------------------------------------------
ASSETS
Investments, at value (cost $724,331,439) $1,048,722,494
Receivables:
Dividends 5,462,097
Interest 3,144
Other assets 42,915
----------------------------------------------------------------------------
Total assets 1,054,230,650
----------------------------------------------------------------------------
LIABILITIES
Borrowings 70,000,000
Payable for Federal corporate income tax 15,719,306
Unrealized depreciation on interest rate swaps 101,028
Accrued expenses:
Management fees 553,742
Interest on borrowings 342,225
Taxable Auctioned Preferred share offering costs 54,764
Other 188,720
Taxable Auctioned Preferred shares dividends payable 152,101
----------------------------------------------------------------------------
Total liabilities 87,111,886
----------------------------------------------------------------------------
Taxable Auctioned Preferred shares, at liquidation value 222,000,000
----------------------------------------------------------------------------
Net assets applicable to Common shares $ 745,118,764
----------------------------------------------------------------------------
Common shares outstanding 28,180,907
----------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to Common shares, divided by Common shares
outstanding) $ 26.44
----------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
----------------------------------------------------------------------------
Common shares, $.01 par value per share $ 281,809
Paid-in surplus(1) 420,721,099
Undistributed (Over-distribution of) net investment income (174,171)
Accumulated net realized gain (loss) from investments and
derivative transactions --
Net unrealized appreciation (depreciation) of investments
and derivative transactions 324,290,027
----------------------------------------------------------------------------
Net assets applicable to Common shares $ 745,118,764
----------------------------------------------------------------------------
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
----------------------------------------------------------------------------
(1) Includes retained realized long-term capital gains of $44,912,302, net of Federal
corporate income taxes of $15,719,306.
See accompanying notes to financial statements.
15
Statement of
OPERATIONS Year Ended December 31, 2006
-----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 35,651,772
Interest 690,682
-----------------------------------------------------------------------------
Total investment income 36,342,454
-----------------------------------------------------------------------------
EXPENSES
Management fees 8,025,811
Taxable Auctioned Preferred shares - auction fees 502,945
Taxable Auctioned Preferred shares - dividend disbursing
agent fees 26,651
Shareholders' servicing agent fees and expenses 6,336
Interest expense 1,448,760
Liquidity and program fees 82,920
Custodian's fees and expenses 161,776
Trustees' fees and expenses 21,520
Professional fees 60,758
Shareholders' reports - printing and mailing expenses 107,347
Stock exchange listing fees 2,393
Investor relations expense 102,650
Other expenses 73,916
-----------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 10,623,783
Custodian fee credit (3,730)
Expense reimbursement (2,705,110)
-----------------------------------------------------------------------------
Net expenses 7,914,943
-----------------------------------------------------------------------------
Net investment income 28,427,511
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments (net of Federal
corporate income taxes of $15,719,306 on long-term capital
gains retained) 52,460,690
Net realized gain (loss) from interest rate swaps (17,122)
Change in net unrealized appreciation (depreciation) of
investments 98,615,287
Change in net unrealized appreciation (depreciation) of
interest rate swaps 551,230
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 151,610,085
-----------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From net investment income (3,850,141)
From accumulated net realized gains (5,800,915)
-----------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Taxable Auctioned Preferred shareholders (9,651,056)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $170,386,540
-----------------------------------------------------------------------------
See accompanying notes to financial statements.
16
Statement of
CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
12/31/06 12/31/05
------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 28,427,511 $ 23,684,837
Net realized gain (loss) from investments (net of Federal
corporate income taxes of $15,719,306 and $0,
respectively, on long-term capital gains retained) 52,460,690 43,150,661
Net realized gain (loss) from interest rate swaps (17,122) (1,739,276)
Change in net unrealized appreciation (depreciation) of
investments 98,615,287 (18,591,745)
Change in net unrealized appreciation (depreciation) of
interest rate swaps 551,230 3,221,965
Distributions to Taxable Auctioned Preferred shareholders:
From net investment income (3,850,141) (976,242)
From accumulated net realized gains (5,800,915) (4,466,723)
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 170,386,540 44,283,477
------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (37,860,356) (8,022,508)
From accumulated net realized gains (17,451,897) (38,683,938)
------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (55,312,253) (46,706,446)
------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Offering costs adjustments -- 67,319
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 1,140,553 --
Taxable Auctioned Preferred shares offering costs and
adjustments (745,000) 25,537
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions 395,553 92,856
------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares 115,469,840 (2,330,113)
Net assets applicable to Common shares at the beginning of
year 629,648,924 631,979,037
------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $745,118,764 $629,648,924
------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of year $ (174,171) $ 13,125,937
------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
17
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Real Estate Income Fund (the "Fund") is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's Common shares are listed on the American Stock
Exchange and trade under the ticker symbol "JRS." The Fund was organized as a
Massachusetts business trust on August 27, 2001.
The Fund seeks to provide high current income by investing primarily in a
portfolio of income-producing common stocks, preferred stocks, convertible
preferred stocks and debt securities issued by real estate companies, such as
Real Estate Investment Trusts ("REITs").
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. The prices of fixed-income securities and
derivative instruments are generally provided by an independent pricing service
approved by the Fund's Board of Trustees. When price quotes are not readily
available, the pricing service or, in the absence of a pricing service for a
particular investment, the Board of Trustees of the Fund, or its designee, may
establish fair value using a wide variety of market data including yields or
prices of investments of comparable quality, type of issue, coupon, maturity and
rating, market quotes or indications of value from security dealers, evaluations
of anticipated cash flows or collateral, general market conditions and other
information and analysis, including the obligor's credit characteristics
considered relevant by the pricing service or the Board of Trustee's designee.
If the pricing service is unable to supply a price for a derivative investment
the Fund may use a market quote provided by a major broker/dealer in such
investments. If it is determined that the market price for an investment is
unavailable or inappropriate, the Board of Trustees of the Fund, or its
designee, may establish fair value in accordance with procedures established in
good faith by the Board of Trustees. Short-term investments are valued at
amortized cost, which approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued/delayed delivery
basis may have extended settlement periods. Any investments so purchased are
subject to market fluctuation during this period. The Fund has instructed the
custodian to segregate assets with a current value at least equal to the amount
of the when-issued/delayed delivery purchase commitments. At December 31, 2006,
the Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis.
Federal Income Taxes
The Fund intends to comply with the requirements of Subchapter M of the Internal
Revenue Code applicable to regulated investment companies. The Fund intends to
distribute substantially all of its investment company taxable income to
shareholders. In any year when the Fund realizes net capital gains, the Fund may
choose to distribute all or a portion of its net capital gains to shareholders,
or alternatively, to retain all or a portion of its net capital gains and pay
Federal corporate income taxes on such retained gains. During the tax year ended
December 31, 2006, the Fund retained $44,912,302 of realized long-term capital
gains and accrued a provision for Federal corporate income taxes of $15,719,306,
the net of which has been reclassified to Paid-in surplus.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with Federal
corporate income tax regulations, which may differ from U.S. generally accepted
accounting principles.
The Fund makes monthly cash distributions to Common shareholders of a stated
dollar amount per share. Subject to approval and oversight by the Fund's Board
of Trustees, the Fund seeks to maintain a stable distribution level designed to
deliver the long-term return potential of the Fund's investment strategy through
regular monthly distributions (a "Managed Distribution Policy"). Total
distributions during a calendar year generally will be made from the Fund's net
investment income, net realized capital gains and net unrealized capital gains
in the Fund's portfolio, if any. The portion of distributions paid from net
unrealized gains, if any, would be distributed from the Fund's assets and would
be treated by shareholders as a non-taxable distribution for tax purposes. If
the
18
Fund's total return on net asset value exceeds total distributions during a
calendar year, the excess will be reflected as an increase in net asset value
per share. In the event that total distributions during a calendar year exceed
the Fund's total return on net asset value, the difference will be treated as a
return of capital for tax purposes and will reduce net asset value per share.
The final determination of the source and character of all distributions for the
fiscal year are made after the end of the fiscal year and are reflected in the
accompanying financial statements.
Real Estate Investment Trust ("REIT") distributions received by the Fund are
generally comprised of ordinary income, long-term and short-term capital gains,
and a return of REIT capital. The actual character of amounts received during
the period are not known until after the fiscal year-end. For the fiscal year
ended December 31, 2006, the character of distributions to the Fund from the
REITs was 64.23% ordinary income, 26.69% long-term and short-term capital gains,
and 9.08% return of REIT capital. For the fiscal year ended December 31, 2005,
the character of distributions to the Fund from the REITs was 55.38% ordinary
income, 32.12% long-term and short-term capital gains, and 12.50% return of REIT
capital.
For the fiscal years ended December 31, 2006 and December 31, 2005, the Fund
applied the actual character of distributions reported by the REITs in which the
Fund invests to its receipts from the REITS. If a REIT held in the portfolio of
investments did not report the actual character of its distributions during the
period, the Fund treated the distributions as ordinary income.
The actual character of distributions made by the Fund during the fiscal years
ended December 31, 2006 and December 31, 2005, are reflected in the accompanying
financial statements.
Taxable Auctioned Preferred Shares
The Fund has issued and outstanding 1,720 Series M, 1,720 Series T, 1,720 Series
W, 2,000 Series Th and 1,720 Series F, Taxable Auctioned Preferred shares,
$25,000 stated value per share, as a means of effecting financial leverage. The
dividend rate paid by the Fund on each Series is determined every seven days,
pursuant to a dutch auction process overseen by the auction agent, and is
payable at the end of each rate period.
Interest Rate Swap Transactions
The Fund is authorized to invest in certain derivative financial instruments.
The Fund's use of interest rate swap transactions is intended to mitigate the
negative impact that an increase in short-term interest rates could have on
Common share net earnings as a result of leverage. Interest rate swap
transactions involve the Fund's agreement with the counterparty to pay or
receive a fixed rate payment in exchange for the counterparty paying or
receiving a variable rate payment that is intended to approximate the Fund's
variable rate payment obligation on Taxable Auctioned Preferred shares or any
variable rate borrowing. The payment obligation is based on the notional amount
of the interest rate swap contract. Interest rate swaps do not involve the
delivery of securities or other underlying assets or principal. Accordingly, the
risk of loss with respect to the swap counterparty on such transactions is
limited to the net amount of interest payments that the Fund is to receive.
Interest rate swap positions are valued daily. Although there are economic
advantages of entering into interest rate swap transactions, there are also
additional risks. The Fund helps manage the credit risks associated with
interest rate swap transactions by entering into agreements only with
counterparties the Adviser believes have the financial resources to honor their
obligations and by having the Adviser continually monitor the financial
stability of the swap counterparties.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
19
Notes to
FINANCIAL STATEMENTS (continued)
2. FUND SHARES
During the fiscal year ended December 31, 2006, 44,494 shares were issued to
shareholders due to reinvestment of distributions.
On May 25, 2006, the Fund issued 2,000 Series Th Taxable Auctioned Preferred
shares, $25,000 stated value per share, with a total liquidation value of
$50,000,000.
The Fund did not engage in transactions in its own Common shares during the
fiscal year ended December 31, 2005.
3. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short-term investments and derivative
transactions) during the fiscal year ended December 31, 2006, aggregated
$337,488,419 and $231,781,857, respectively.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and Federal income tax purposes are
primarily due to timing differences in recording income and timing differences
in recognizing certain gains and losses on investment transactions. To the
extent that differences arise that are permanent in nature, such amounts are
reclassified within the capital accounts on the Statement of Assets and
Liabilities presented in the annual report, based on their Federal tax basis
treatment; temporary differences do not require reclassification. Temporary and
permanent differences do not impact the net asset values of the Funds.
At December 31, 2006, the cost of investments was $724,331,439.
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2006, were as follows:
-----------------------------------------------------------------------------------
Gross unrealized:
Appreciation $326,557,013
Depreciation (2,165,958)
-----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $324,391,055
-----------------------------------------------------------------------------------
The tax components of undistributed net ordinary income and net long-term
capital gains at December 31, 2006, the Fund's tax year end, were as follows:
----------------------------------------------------------------------------
Undistributed net ordinary income * $ --
Undistributed net long-term capital gains --
----------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
The tax character of distributions paid during the tax years ended December 31,
2006 and December 31, 2005, was designated for purposes of the dividends paid
deduction as follows:
2006
----------------------------------------------------------------------------
Distributions from net ordinary income * $41,681,126
Distributions from net long-term capital gains** 23,218,809
----------------------------------------------------------------------------
2005
----------------------------------------------------------------------------
Distributions from net ordinary income * $ 9,490,892
Distributions from net long-term capital gains 42,608,613
----------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
** The Fund designated as a long-term capital gain dividend, pursuant to the
Internal Revenue Code Section 852(b)(3), the amount necessary to reduce the
earnings and profits of the Fund related to net capital gain to zero for the
tax year ended December 31, 2006.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on
the amount of assets within the 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.
20
The annual fund-level fee, payable monthly, is based upon the average daily
Managed Assets of the Fund as follows:
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
------------------------------------------------------------------------------------------------------------
For the first $500 million .7000%
For the next $500 million .6750
For the next $500 million .6500
For the next $500 million .6250
For Managed Assets over $2 billion .6000
------------------------------------------------------------------------------------------------------------
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 stated in the table below. As
of December 31, 2006, the complex-level fee rate was .1845%.
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
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Security Capital Research & Management
Incorporated ("Security Capital"), under which Security Capital manages the
investment portfolio of the Fund. Security Capital is compensated for its
services to the Fund from the management fee paid to the Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first ten years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
NOVEMBER 30, NOVEMBER 30,
------------------------------------------------------------------------------------------------------------
2001 * .30% 2007 .25%
2002 .30 2008 .20
2003 .30 2009 .15
2004 .30 2010 .10
2005 .30 2011 .05
2006 .30
------------------------------------------------------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond November 30, 2011.
6. BORROWINGS
On August 15, 2006, the Fund entered into a commercial paper program ($70
million maximum) with CITIBANK, N.A.'s conduit financing agency, CHARTA, LLC
("CHARTA"). CHARTA issues high grade commercial paper and uses the proceeds to
makes advances to the Fund. For the fiscal year ended December 31, 2006, the
average daily balance of borrowings under the commercial paper program agreement
was $26,657,534. The average annualized interest rate on such borrowings was
5.43%. In addition to the interest expense, the Fund also pays a .21% per annum
program fee and a .10% per annum liquidity fee.
21
Notes to
FINANCIAL STATEMENTS (continued)
7. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Recent SEC guidance allows funds
to delay implementing FIN 48 into NAV calculations until the fund's last NAV
calculation in the first required financial statement reporting period. As a
result, the Fund must begin to incorporate FIN 48 into its NAV calculation on
June 29, 2007. At this time, management is continuing to evaluate the
implications of FIN 48 and does not expect the adoption of FIN 48 will have a
significant impact on the net assets or results of operations of the Fund.
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of December 31, 2006, the Fund does not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
8. SUBSEQUENT EVENT
Distributions to Common Shareholders
The Fund declared a distribution of $.1900 per Common share which was paid on
February 1, 2007, to shareholders of record on January 15, 2007.
22
Financial
HIGHLIGHTS
23
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations
----------------------------------------------------------------
Distributions
from Net Distributions
Investment from Capital
Income to Gains to
Beginning Net Taxable Taxable
Common Realized/ Auctioned Auctioned
Share Net Unrealized Preferred Preferred
Net Asset Investment Gain Share- Share-
Value Income(a) (Loss)(b) holders+ holders+ Total
--------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 22.38 $ 1.01 $ 5.40 $ (.14) $ (.21) $6.06
2005 22.46 .84 .93 (.03) (.16) 1.58
2004(c) 18.57 .88 4.56 (.05) (.04) 5.35
2003(d) 17.30 .12 1.38 (.01) -- 1.49
Year Ended 10/31:
2003 13.56 .85 4.38 (.05) (.02) 5.16
2002(e) 14.33 1.02 (.46) (.07) (.02) .47
--------------------------------------------------------------------------------------------------------
Less Distributions
----------------------------------------
Offering
Costs and
Net Taxable
Investment Capital Auctioned Ending
Income to Gains to Tax Preferred Common
Common Common Return Share Share Ending
Share- Share- of Underwriting Net Asset Market
holders holders Capital Total Discounts Value Value
--------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ (1.35) $ (.62) $ -- $(1.97) $ (.03) $ 26.44 $28.48
2005 (.29) (1.37) -- (1.66) -- 22.38 19.99
2004(c) (.69) (.63) (.14) (1.46) -- 22.46 20.75
2003(d) (.01) (.08) (.13) (.22) -- 18.57 18.73
Year Ended 10/31:
2003 (.97) (.41) (.04) (1.42) -- 17.30 17.81
2002(e) (.89) (.25) -- (1.14) (.10) 13.56 14.40
--------------------------------------------------------------------------------------------------------
Cumulative Taxable Auctioned Preferred
at End of Period Borrowings at End of Period
---------------------------------------- ---------------------------
Aggregate Liquidation Asset Aggregate
Amount and Market Coverage Amount Asset
Outstanding Value Per Per Outstanding Coverage
(000) Share Share (000) Per $1,000
-----------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 222,000 $ 25,000 $108,910 $ 70,000 $ 14,816
2005 172,000 25,000 116,519 -- --
2004(c) 172,000 25,000 116,857 -- --
2003(d) 172,000 25,000 100,956 -- --
Year Ended 10/31:
2003 172,000 25,000 95,758 -- --
2002(e) 172,000 25,000 80,420 -- --
-----------------------------------------------------------------------------------------------
* Annualized.
** - Total 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.
- The Fund elected to retain a portion of its realized long-term capital
gains for the tax year ended December 31, 2006, and pay required Federal
corporate income taxes on these gains. As reported on Form 2439, Common
shareholders of record on December 29, 2006, must include their pro-rata
share of these gains on their 2006 Federal tax returns, and will receive
a corresponding credit toward their taxes, or a tax refund, for their
pro-rata share of the taxes paid by the Fund. The standardized total
returns shown above do not include the economic benefit to Common
shareholders of record of this tax credit/refund. The Fund's
corresponding 2006 total return on market value and net asset value when
this benefit is included are 57.50% and 30.56%, respectively.
*** 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 Taxable
Auctioned Preferred shareholders.
- Income ratios reflect income earned on assets attributable to Taxable
Auctioned Preferred shares and borrowings, where applicable.
- For periods ended prior to December 31, 2004, each ratio included the
effect of the net interest expense incurred on interest rate swap
transactions as follows:
Year Ended 12/31:
2003(d) .91*
Year Ended 10/31:
2003 1.03
2002(e) .68*
- Each ratio includes the effect of the interest expense paid on borrowings
as follows:
Ratio of Borrowing Interest
Expense to Average Net
Assets Applicable to
Common Shares
---------------------------------
Year Ended 12/31:
2006 .21%
2005 --
2004(c) --
2003(d) --
Year Ended 10/31:
2003 --
2002(e) --
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) Net of Federal corporate income taxes on long-term capital gains retained
by the Fund of $0.56 per share for the fiscal year ended December 31,
2006.
(c) For the fiscal year ended December 31, 2004, the Fund changed its method
of presentation for net interest expense on interest rate swap
transactions. The effect of this reclassification was to increase Net
Investment Income by $0.15 per share with a corresponding decrease in Net
Realized/Unrealized Gain (Loss), a decrease in each of the Ratios of
Expenses to Average Net Assets Applicable to Common Shares by 0.77% with a
corresponding increase in each of the Ratios of Net Investment Income to
Average Net Assets Applicable to Common Shares.
(d) For the period November 1, 2003 through December 31, 2003.
(e) For the period November 15, 2001 (commencement of operations) through
October 31, 2002.
24
Total Returns Ratios/Supplemental Data
---------------------------- --------------------------------------------------------------------
Ratios to Average Net Assets Applicable
Based to Common Shares Before
on Credit/Reimbursement
Common Ending Net ---------------------------------------
Based Share Assets
on Net Applicable Net
Market Asset to Common Investment
Value** Value** Shares (000) Expenses++ Income++
-------------------------------------------------------------------------------------------------------
54.49% 27.87% $ 745,119 1.54% 3.74%
4.75 7.42 629,649 1.28 3.46
19.80 30.12 631,979 1.34 4.13
6.49 8.69 522,576 2.31* 4.07*
35.40 39.80 486,814 2.51 5.17
3.30 2.09 381,290 2.12* 6.71*
-------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data
----------------------------------------------------
Ratios to Average Net Assets Applicable
to Common Shares After
Credit/Reimbursement***
---------------------------------------
Net Portfolio
Investment Turnover
Expenses++ Income++ Rate
---------------------------------------------------------
1.15% 4.13% 25%
.90 3.85 13
.94 4.52 14
1.91* 4.47* 2
2.09 5.59 26
1.72* 7.11* 37
---------------------------------------------------------
See accompanying notes to financial statements.
25
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Fund is currently set
at ten. None of the board members who are not "interested" persons of the Funds
has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
-------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
-------------------------------------------------------------------------------------------------------------------------------
Timothy R. Chairman of the 1994 Chairman (since 1996) and Director 172
Schwertfeger(1) Board and Board of Nuveen Investments, Inc., Nuveen
3/28/49 Member Investments, LLC; Chairman and
333 W. Wacker Drive Director (since 1997) of Nuveen
Chicago, IL 60606 Asset Management; Chairman and
Director of Rittenhouse Asset
Management, Inc. (since 1999);
Chairman of Nuveen Investments
Advisers Inc. (since 2002);
formerly, Chairman and Director
(1996-2004) Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); formerly, Director
(1996-2006) of Institutional
Capital Corporation.
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
-------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Lead Independent 1997 Private Investor and Management 172
8/22/40 Board member Consultant.
333 W. Wacker Drive
Chicago, IL 60606
-------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (since 1989) as Senior Vice 172
7/29/34 President of The Northern Trust
333 W. Wacker Drive Company; Director (since 2002)
Chicago, IL 60606 Community Advisory Board for
Highland Park and Highwood, United
Way of the North Shore; Director
(since 2006) of the Michael Rolfe
Pancreatic Cancer Foundation.
-------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine 172
10/22/48 Foundation, a private philanthropic
333 W. Wacker Drive corporation (since 1996); Director
Chicago, IL 60606 and Vice Chairman, United Fire
Group, a publicly held company;
Adjunct Faculty Member, University
of Iowa; Director, Gazette
Companies; Life Trustee of Coe
College and 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, Tippie College of Business, 172
3/6/48 University of Iowa (since July
333 W. Wacker Drive 2006); formerly, Dean and
Chicago, IL 60606 Distinguished Professor of Finance,
School of Business at the
University of Connecticut
(2003-2006); previously, Senior
Vice President and Director of
Research at the Federal Reserve
Bank of Chicago (1995-2003);
Director (since 1997), Credit
Research Center at Georgetown
University; Director (since 2004)
of Xerox Corporation; Director,
SS&C Technologies, Inc. (May 2005-
October 2005).
-------------------------------------------------------------------------------------------------------------------------------
26
NUMBER OF PORTFOLIOS
PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUNDS OR APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
-------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
-------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Chairman of Miller-Valentine 172
9/24/44 Partners Ltd., a real estate
333 W. Wacker Drive investment company; formerly,
Chicago, IL 60606 Senior Partner and Chief Operating
Officer (retired, 2004) of
Miller-Valentine Group; formerly,
Vice President, Miller-Valentine
Realty; Board Member, Chair of the
Finance Committee and member of the
Audit Committee of Premier Health
Partners, the not-for-profit
company of Miami Valley Hospital;
Vice President, Dayton Philharmonic
Orchestra Association; Board
Member, Regional Leaders Forum,
which promotes cooperation on
economic development issues;
Director, Dayton Development
Coalition; formerly, Member,
Community Advisory Board, National
City Bank, Dayton, Ohio and
Business Advisory Council,
Cleveland Federal Reserve Bank.
-------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and 172
12/29/47 Dorothy Donnelley Foundation (since
333 W. Wacker Drive 1994); prior thereto, Executive
Chicago, IL 60606 Director, Great Lakes Protection
Fund (from 1990 to 1994).
-------------------------------------------------------------------------------------------------------------------------------
Carole E. Stone Board Member 2007 Director, Chicago Board Options 172
6/28/47 Exchange (since 2006); Chair New
333 West Wacker Drive York Racing Association Oversight
Chicago, IL 60606 Board (since 2005); Commissioner,
New York State Commission on Public
Authority Reform (since 2005);
formerly Director, New York State
Division of the Budget (2000-2004),
Chair, Public Authorities Control
Board (2000-2004) and Director,
Local Government Assistance
Corporation (2000-2004).
-------------------------------------------------------------------------------------------------------------------------------
Eugene S. Sunshine Board member 2005 Senior Vice President for Business 172
1/22/50 and Finance, Northwestern
333 W. Wacker Drive University (since 1997); Director
Chicago, IL 60606 (since 2003), Chicago Board Options
Exchange; Chairman (since 1997),
Board of Directors, Rubicon, a pure
captive insurance company owned by
Northwestern University; Director
(since 1997), Evanston Chamber of
Commerce and Evanston Inventure, a
business development organization;
Director (since 2006), Pathways, a
provider of therapy and related
information for physically disabled
infants and young children;
formerly, Director (2003-2006),
National Mentor Holdings, a
privately-held, national provider
of home and community-based
services.
27
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
-------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUND:
-------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), 172
9/9/56 Administrative Assistant Secretary and Associate
333 W. Wacker Drive Officer General Counsel, formerly, Vice
Chicago, IL 60606 President and Assistant General
Counsel, of Nuveen Investments,
LLC; Managing Director (2002-2004),
General Counsel (1998-2004) and
Assistant Secretary, formerly, Vice
President of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); Managing Director (since
2002) and Assistant Secretary and
Associate General Counsel,
formerly, Vice President (since
1997), 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.; Assistant
Secretary of Symphony Asset
Management LLC (since 2003),
Tradewinds NWQ Global Investors,
LLC and Santa Barbara Asset
Management, LLC; (since 2006);
Chartered Financial Analyst.
-------------------------------------------------------------------------------------------------------------------------------
Julia L. Antonatos Vice President 2004 Managing Director (since 2005), 172
9/22/63 formerly, Vice President (since
333 W. Wacker Drive 2002); formerly, Assistant Vice
Chicago, IL 60606 President (since 2000) of Nuveen
Investments, LLC; Chartered
Financial Analyst.
-------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), 172
2/3/66 and Assistant formerly, Assistant Vice President
333 W. Wacker Drive Secretary (since 2000) of Nuveen Investments,
Chicago, IL 60606 LLC.
-------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President and Treasurer of 172
11/28/67 Nuveen Investments, LLC and of
333 W. Wacker Drive Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer
of Nuveen Asset Management (since
2002) and of Nuveen Investments
Advisers Inc. (since 2002);
Assistant Treasurer of NWQ
Investment Management Company, LLC.
(since 2002); Vice President and
Treasurer of Nuveen Rittenhouse
Asset Management, Inc. (since
2003); Treasurer of Symphony Asset
Management LLC (since 2003) and
Santa Barbara Asset Management, LLC
(since 2006); Assistant Treasurer,
Tradewinds NWQ Global Investors,
LLC (since 2006); formerly, Vice
President and Treasurer (1999-2004)
of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3);
Chartered Financial Analyst.
-------------------------------------------------------------------------------------------------------------------------------
John N. Desmond Vice President 2005 Vice President, Director of 172
8/24/61 Investment Operations, Nuveen
333 W. Wacker Drive Investments, LLC (since January
Chicago, IL 60606 2005); formerly, Director, Business
Manager, Deutsche Asset Management
(2003- 2004), Director, Business
Development and Transformation,
Deutsche Trust Bank Japan
(2002-2003); previously, Senior
Vice President, Head of Investment
Operations and Systems, Scudder
Investments Japan, (2000-2002),
Senior Vice President, Head of Plan
Administration and Participant
Services, Scudder Investments
(1995-2002).
28
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
-------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 1998 Vice President (since 2002), 172
9/24/64 and Secretary Assistant Secretary and Assistant
333 W. Wacker Drive General Counsel (since 1998)
Chicago, IL 60606 formerly, Assistant Vice President
(since 1998) of Nuveen Investments,
LLC; Vice President (2002-2004) and
Assistant Secretary (1998-2004)
formerly, Assistant Vice President
of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.(3);
Vice President and Assistant
Secretary (since 2005) of Nuveen
Asset Management.
-------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004), 172
10/24/45 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC, Managing Director
Chicago, IL 60606 (2004) formerly, Vice President
(1998-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2005) of Nuveen
Asset Management.
-------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002), 172
3/2/64 formerly, Vice President of Nuveen
333 W. Wacker Drive Investments, LLC; Managing Director
Chicago, IL 60606 (1997-2004) of Nuveen Advisory
Corp. and Nuveen Institutional
Advisory Corp.(3); Managing
Director (since 2001) of Nuveen
Asset Management; Vice President
(since 2002) of Nuveen Investments
Advisers Inc.; Chartered Financial
Analyst.
-------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and 172
5/31/54 and Controller Funds Controller (since 1998) of
333 W. Wacker Drive Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Funds Controller
(1998-2004) of Nuveen Investments,
Inc.; Certified Public Accountant.
-------------------------------------------------------------------------------------------------------------------------------
Walter M. Kelly Chief Compliance 2003 Vice President and Assistant 172
2/24/70 Officer and Vice Secretary (since 2006) formerly,
333 West Wacker Drive President Assistant Vice President and
Chicago, IL 60606 Assistant General Counsel (since
2003) of Nuveen Investments, LLC;
Vice President (since 2006) and
Assistant Secretary (since 2003)
formerly, Assistant Vice President
of Nuveen Asset Management;
previously, Associate (2001-2003)
at the law firm of Vedder, Price,
Kaufman & Kammholz.
-------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of 172
3/22/63 Nuveen Investments, LLC; Certified
333 W. Wacker Drive Public Accountant.
Chicago, IL 60606
-------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President of Nuveen 172
8/27/61 Investments, LLC (since 1999).
333 W. Wacker Drive
Chicago, IL 60606
29
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF PORTFOLIOS
NAME, BIRTHDATE POSITION(S) HELD YEAR FIRST ELECTED PRINCIPAL OCCUPATION(S) IN FUND COMPLEX
AND ADDRESS WITH THE FUNDS OR APPOINTED(4) DURING PAST 5 YEARS OVERSEEN BY OFFICER
-------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED)
-------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary 172
7/27/51 and Assistant and Assistant General Counsel of
333 W. Wacker Drive Secretary Nuveen Investments, LLC; formerly,
Chicago, IL 60606 Vice President and Assistant
Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory
Corp.(3); Vice President (since
2005) and Assistant Secretary of
Nuveen Investments, Inc.; Vice
President (since 2005) and
Assistant Secretary (since 1997) of
Nuveen Asset Management; Vice
President (since 2000), Assistant
Secretary and Assistant General
Counsel (since 1998) of Rittenhouse
Asset Management, Inc.; Vice
President and Assistant Secretary
of Nuveen Investments Advisers Inc.
(since 2002); Assistant Secretary
of NWQ Investment Management
Company, LLC (since 2002), Symphony
Asset Management LLC (since 2003)
and Tradewinds NWQ Global
Investors, LLC and Santa Barbara
Asset Management, LLC (since 2006).
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member of
the Adviser.
(2) Board members serve a three year 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.
30
REINVEST AUTOMATICALLY
EASILY AND CONVENIENTLY
NUVEEN CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO
SET UP YOUR REINVESTMENT ACCOUNT.
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
31
Automatic Dividend
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
The Fund amended the terms and conditions of its Automatic Dividend Reinvestment
Plan (the "Plan") as further described below effective the close of business on
December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN PARTICIPANTS UNDER
CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A LOWER AGGREGATE COST
THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who do not wish to
continue as participants under the amended Plan may withdraw from the Plan by
notifying the Plan Agent prior to the effective date of the amendments.
Participants should refer to their Plan document for notification instructions,
or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
32
Notes
33
Notes
34
OTHER USEFUL
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
The Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
most recent 12-month period ended June 30, 2006, and (iii) a description of the
policies and procedures that the Fund used to determine how to vote proxies
relating to portfolio securities are available without charge, upon request, by
calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
Reference Section at 450 Fifth Street NW, Washington, D.C. 20549.
DISTRIBUTION INFORMATION
Nuveen Real Estate Income Fund (JRS) designates 0.00% of dividends declared from
net investment income as dividends qualifying for the 70% dividends received
deduction for corporations and 3.20% as qualified dividend income for
individuals under the Jobs and Growth Tax Relief Reconciliation Act of 2003.
CEO CERTIFICATION DISCLOSURE
The 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.
The 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.
MARKET YIELD: Market yield is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Funds'
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any Preferred shares issued
in order to leverage the Fund) from its total assets and then dividing the
remainder by the number of shares outstanding. Fund NAVs are calculated at the
end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Carole E. Stone
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
35
(BACK COVER PHOTO)
NUVEEN INVESTMENTS:
SERVING INVESTORS
FOR GENERATIONS
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past
century, Nuveen Investments has adhered to the belief that the best
approach to investing is to apply conservative risk-management principles
to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity
and fixed-income solutions that are integral to a well-diversified core
portfolio. Our clients have come to appreciate this diversity, as well as
our continued adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT
NEEDS.
Managing $162 billion in assets, as of December 31, 2006, 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 six distinct brands: Nuveen, a leader in
fixed-income investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; Symphony, a leading
institutional manager of market-neutral alternative investment
portfolios; Santa Barbara, a leader in growth equities; and Tradewinds
NWQ, a leader in global equities.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers,
talk to your financial advisor, or call us at (800) 257-8787. Please read
the information provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should
consider the investment objective and policies, risk considerations,
charges and expenses of the Fund carefully before investing. The
prospectus contains this and other information relevant to an investment
in the Fund. For a prospectus, please contact your securities
representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL
60606. Please read the prospectus carefully before you invest or send
money.
LEARN MORE
ABOUT NUVEEN FUNDS AT
WWW.NUVEEN.COM/CEF
- Share prices
- Fund details
- Daily financial news
- Investor education
- Interactive planning tools
EAN-A-1206D
NUVEEN LOGO
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 Real Estate Income Fund
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP the Audit Committee approved in advance all
audit services and non-audit services that Ernst & Young LLP provided to the
Fund, except for those non-audit services that were subject to the pre-approval
exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The
pre-approval exception for services provided directly to the Fund waives the
pre-approval requirement for services other than audit, review or attest
services if: (A) the aggregate amount of all such services provided constitutes
no more than 5% of the total amount of revenues paid by the Fund to its
accountant during the fiscal year in which the services are provided; (B) the
Fund did not recognize the services as non-audit services at the time of the
engagement; and (C) the services are promptly brought to the Audit Committee's
attention, and the Committee (or its delegate) approves the services before the
audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4)
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $21,000 $0 $800 $3,950
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $19,000 $0 $1,014 $3,750
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for the
audit of the Fund's annual financial statements and services provided in
connection with statutory and regulatory filings or engagements.
(2) "Audit Related Fees" are the aggregate fees billed for assurance and related
services reasonably related to the performance of the audit or review of
financial statements and are not reported under "Audit Fees".
(3) "Tax Fees" are the aggregate fees billed for professional services for tax
advice, tax compliance, and tax planning.
(4) "All Other Fees" are the aggregate fees billed for products and services
other than "Audit Fees", "Audit Related Fees", and "Tax Fees".
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAM ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The tables also show the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS (1) SERVICE PROVIDERS
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $0 $5,400 $0
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $0 $4,950 $0
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
(1) The amounts reported for the Fund under the column heading "Tax Fees"
represents amounts billed to the Adviser exclusively for the preparation for the
Fund's tax return, the cost of which is borne by the Adviser. In the aggregate,
for all Nuveen funds for which Ernst & Young LLP serves as independent
registered public accounting firm, these fees amounted to $288,000 in 2006 and
$282,575 in 2005.
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 FEE OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2006 $4,750 $5,400 $0 $10,150
December 31, 2005 $4,764 $4,950 $0 $9,714
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax
Fees" billed to Adviser in their respective amounts from the previous table.
Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit
Committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the Audit Committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the Audit Committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the Audit Committee at
the next Audit Committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant's Board of Directors or Trustees has a separately designated
Audit Committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). The
members of the audit committee are Robert P. Bremner, Lawrence H. Brown, Jack B.
Evans, William J. Schneider and Eugene S. Sunshine.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Security Capital Research & Management Incorporated
("SC-R&M") as Sub-Adviser to provide discretionary investment advisory services.
As part of these services, the Adviser has also delegated to the Sub-Adviser the
full responsibility for proxy voting and related duties in accordance with the
Sub-Adviser's policy and procedures. The Adviser periodically will monitor the
Sub-Adviser's voting to ensure that they are carrying out their duties. The
Sub-Adviser's proxy voting policies and procedures are summarized as follows:
SC-R&M may be granted by its clients the authority to vote the proxies of the
securities held in client portfolios. To ensure that the proxies are voted in
the best interests of its clients, SC-R&M has adopted detailed proxy voting
procedures ("Procedures") that incorporate detailed proxy guidelines
("Guidelines") for voting proxies on specific types of issues.
Pursuant to the Procedures, most routine proxy matters will be voted in
accordance with the Guidelines, which have been developed with the objective of
encouraging corporate action that enhances shareholder value. For proxy matters
that are not covered by the Guidelines (including matters that require a
case-by-case determination) or where a vote contrary to the Guidelines is
considered appropriate, the Procedures require a certification and review
process to be completed before the vote is cast. That process is designed to
identify actual or potential material conflicts of interest and ensure that the
proxy is cast in the best interest of clients.
To oversee and monitor the proxy-voting process, SC-R&M will establish a proxy
committee and appoint a proxy administrator. The proxy committee will meet
periodically to review general proxy-voting matters, review and approve the
Guidelines annually, and provide advice and recommendations on general
proxy-voting matters as well as on specific voting issues.
A copy of the SC-R&M's proxy voting procedures and guidelines are available upon
request by contacting your client service representative.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Security Capital Research & Management Incorporated
("SC-R&M") for a portion of the registrant's investments. (SC-R&M is also
referred to as "Sub-Adviser".) SC-R&M, as Sub-Adviser, provides discretionary
investment advisory services. The following section provides information on the
portfolio managers at the Sub-Adviser:
ITEM 8 (a)(1). PORTFOLIO MANAGEMENT TEAM FROM SECURITY CAPITAL RESEARCH &
MANAGEMENT INCORPORATED
ANTHONY R. MANNO JR. is CEO, President and Chief Investment Officer of Security
Capital Research & Management Incorporated. He is Chairman, President and
Managing Director of SC-Preferred Growth Incorporated. Prior to joining Security
Capital in 1994, Mr. Manno spent 14 years with LaSalle Partners Limited as a
Managing Director, responsible for real estate investment banking activities.
Mr. Manno began his career in real estate finance at The First National Bank of
Chicago and has 31 years of experience in the real estate investment business.
He received an MBA in Finance with honors (Beta Gamma Sigma) from the University
of Chicago and graduated Phi Beta Kappa from Northwestern University with a BA
and MA in Economics. Mr. Manno is also a Certified Public Accountant and was
awarded an Elijah Watt Sells award.
KENNETH D. STATZ is a Managing Director and Senior Market Strategist of Security
Capital Research & Management Incorporated where he is responsible for the
development and implementation of portfolio investment strategy. Prior to
joining Security Capital in 1995, Mr. Statz was a Vice President in the
Investment Research Department of Goldman, Sachs & Co., concentrating on
research and underwriting for the REIT industry. Previously, he was a REIT
Portfolio Manager and a Managing Director of Chancellor Capital Management. Mr.
Statz has 23 years of experience in the real estate securities industry and
received an MBA and a BBA in Finance from the University of Wisconsin.
KEVIN W. BEDELL is a Managing Director of Security Capital Research & Management
Incorporated where he directs the Investment Analysis Team, which provides
in-depth proprietary research on publicly listed companies. Prior to joining
Security Capital in 1996, Mr. Bedell spent nine years with LaSalle Partners
Limited where he was Equity Vice President and Portfolio Manager, with
responsibility for strategic, operational and financial management of a private
real estate investment trust with commercial real estate investments in excess
of $1 billion. Mr. Bedell has 18 years of experience in the real estate
securities industry and received an MBA in Finance from the University of
Chicago and a BA from Kenyon College.
DAVID E. ROSENBAUM is a Managing Director of Security Capital Research &
Management Incorporated where he leads the Investment Structuring Team. He is
also Managing Director of SC-Preferred Growth Incorporated. Prior to joining
Security Capital in 1997, Mr. Rosenbaum was a Vice President at Lazard Freres &
Co., LLC, where he structured investments in real estate operating companies.
Previously, he was an Associate in the New York and Chicago offices of Lazard
Freres & Co. LLC, where he executed merger and acquisition transactions for real
estate and hotel companies. Mr. Rosenbaum has 14 years of experience in the real
estate securities industry and holds a BA from Yale University.
ITEM 8 (a)(2). OTHER ACCOUNTS MANAGED BY SECURITY CAPITAL RESEARCH & MANAGEMENT
INCORPORATED
-----------------------------------------------------------------------------------------
Nuveen Real Estate Income Fund and Nuveen Diversified Dividend and Income Fund ("Funds")
Security Capital Research & Management Incorporated ("Adviser")
-----------------------------------------------------------------------------------------
(a)(1) Identify
portfolio manager(s) (a)(2) For each person identified in column (a)(1), provide
of the Adviser to be number of accounts other than the Funds managed by the
named in the Fund person within each category below and the total assets in
prospectus the accounts managed within each category below
-----------------------------------------------------------------------------------------
Registered Other Pooled
Investment Investment Other
Companies Vehicles Accounts
------------------------------------------------------------------------------------------
Number Total Number Total Number Total
of Assets of Assets of Assets
Accounts ($billions) Accounts ($billions) Accounts ($billions)
------------------------------------------------------------------------------------------
Anthony R. Manno Jr. 4 $1.2 1 $1.5 534 $2.3
------------------------------------------------------------------------------------------
Kenneth D. Statz 4 $1.2 1 $1.5 534 $2.3
------------------------------------------------------------------------------------------
Kevin W. Bedell 4 $1.2 1 $1.5 534 $2.3
------------------------------------------------------------------------------------------
David E. Rosenbaum 4 $1.2 1 $1.5 534 $2.3
------------------------------------------------------------------------------------------
(a)(3) PERFORMANCE FEE ACCOUNTS. For each of the
categories in column (a)(2), provide number of
accounts and the total assets in the accounts with
respect to which the ADVISORY FEE IS BASED ON THE
PERFORMANCE OF THE ACCOUNT
-----------------------------------------------------------------------------------------------
Other
Registered Pooled Other
Investment Investment Accounts
Companies Vehicles
-----------------------------------------------------------------------------------------------
Number Number Number
of Total of Total of Total Assets
Accounts Assets Accounts Assets Accounts ($billions)
-----------------------------------------------------------------------------------------------
Anthony R. Manno Jr. - - - - 3 $0.3
----------------------------------------------------------------------
Kenneth D. Statz - - - - 3 $0.3
----------------------------------------------------------------------
Kevin W. Bedell - - - - 3 $0.3
----------------------------------------------------------------------
David E. Rosenbaum - - - - 3 $0.3
----------------------------------------------------------------------
POTENTIAL MATERIAL CONFLICTS OF INTEREST
As shown in the above tables, the portfolio managers may manage accounts in
addition to the Nuveen Funds (the "Funds"). The potential for conflicts of
interest exists when portfolio managers manage other accounts with similar
investment objectives and strategies as the Funds ("Similar Accounts").
Potential conflicts may include, for example, conflicts between investment
strategies and conflicts in the allocation of investment opportunities.
Responsibility for managing SC-R&M's clients' portfolios is organized according
to investment strategies within asset classes. Generally, client portfolios with
similar strategies are managed using the same objectives, approach and
philosophy. Therefore, portfolio holdings, relative position sizes and sector
exposures tend to be similar across similar portfolios, which minimizes the
potential for conflicts of interest.
SC-R&M may receive more compensation with respect to certain Similar Accounts
than that received with respect to the Nuveen Funds or may receive compensation
based in part on the performance of certain Similar Accounts. This may create a
potential conflict of interest for SC-R&M or its portfolio managers by providing
an incentive to favor these Similar Accounts when, for example, placing
securities transactions. Potential conflicts of interest may arise with both the
aggregation and allocation of securities transactions and allocation of limited
investment opportunities. Allocations of aggregated trades, particularly trade
orders that were only partially completed due to limited availability, and
allocation of investment opportunities generally, could raise a potential
conflict of interest, as SC-R&M may have an incentive to allocate securities
that are expected to increase in value to favored accounts. Initial public
offerings, in particular, are frequently of very limited availability. SC-R&M
may be perceived as causing accounts it manages to participate in an offering to
increase SC-R&M's overall allocation of securities in that offering. A potential
conflict of interest also may be perceived to arise if transactions in one
account closely follow related transactions in a different account, such as when
a purchase increases the value of securities previously purchased by another
account, or when a sale in one account lowers the sale price received in a sale
by a second account. If SC-R&M manages accounts that engage in short sales of
securities of the type in which the Funds invests, SC-R&M could be seen as
harming the performance of the Funds for the benefit of the accounts engaging in
short sales if the short sales cause the market value of the securities to fall.
SC-R&M has policies and procedures designed to manage these conflicts described
above such as allocation of investment opportunities to achieve fair and
equitable allocation of investment opportunities among its clients over time.
For example:
Orders for the same equity security are aggregated on a continual basis
throughout each trading day consistent with SC-R&M's duty of best execution for
its clients. If aggregated trades are fully executed, accounts participating in
the trade will be allocated their pro rata share on an average price basis.
Partially completed orders will be allocated among the participating accounts on
a pro-rata average price basis as well.
ITEM 8 (a)(3). FUND MANAGER COMPENSATION
The Portfolio Managers participate in a highly competitive compensation program
that is designed to attract and retain outstanding people. The total
compensation program includes base salary and cash incentives. These elements
reflect individual performance and the performance of the business as a whole.
Base salaries are fixed for each Portfolio Manager. Cash bonuses are variable
and are focused extensively on the profitability of the business as a whole as
well as portfolio investment performance. Base salaries are not based on the
performance of any account. Cash bonuses are based on the profitability of the
business as a whole as well as the investment performance of all accounts
managed by the Portfolio Manager. Portfolio Manager compensation is not based on
the value of assets held in the Funds portfolio.
ITEM 8 (a)(4).
D. OWNERSHIP OF JRS SECURITIES AS DECEMBER 31, 2006.
-----------------------------------------------------------------------------------------------------------------------------------
Portfolio Manager None $1-$10,000 $10,001-$50,000 $50,001- $100,001-$500,000 $500,001 - over
$100,000 $1,000,000 $1,000,000
-----------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
Anthony R. Manno Jr. X
-----------------------------------------------------------------------------------------------------------------------------------
Kenneth D. Statz X
-----------------------------------------------------------------------------------------------------------------------------------
Kevin W. Bedell X
-----------------------------------------------------------------------------------------------------------------------------------
David E. Rosenbaum X
-----------------------------------------------------------------------------------------------------------------------------------
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 Real Estate Income Fund
By (Signature and Title)* /s/ Jessica R. Droeger
------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: March 9, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
------------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: March 9, 2007
By (Signature and Title)* /s/ Stephen D. Foy
------------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: March 9, 2007
* Print the name and title of each signing officer under his or her signature.