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 811-21471
---------------------
Nuveen Tax-Advantaged Total Return Strategy Fund
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: December 31
------------------
Date of reporting period: June 30, 2004
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT June 30, 2004
Nuveen Investments
Closed-End
Exchange-Traded
Funds
NUVEEN
TAX-ADVANTAGED
TOTAL RETURN
STRATEGY FUND
JTA
Photo of: Man and woman sitting on porch.
Photo of: 2 children sitting in the grass.
OPPORTUNITIES FOR CAPITAL APPRECIATION AND TAX-ADVANTAGED DIVIDENDS FROM A
PORTFOLIO OF VALUE EQUITIES AND SENIOR LOANS
Logo: NUVEEN Investments
Photo of: Woman
Photo of: Man and child
Photo of: Woman
NOW YOU CAN RECEIVE YOUR NUVEEN FUND REPORTS FASTER.
NO MORE WAITING.
SIGN UP TODAY TO RECEIVE NUVEEN FUND INFORMATION BY E-MAIL.
It only takes a minute to sign up for E-Reports. Once enrolled, you'll receive
an e-mail as soon as your Nuveen Investments Fund information is ready -- no
more waiting for delivery by regular mail. Just click on the link within the
e-mail to see the report, and save it on your computer if you wish.
------------------
DELIVERY DIRECT TO
YOUR E-MAIL INBOX
------------------
IT'S FAST, EASY & FREE:
WWW.INVESTORDELIVERY.COM if you get your Nuveen Fund dividends and statements
from your financial advisor or brokerage account.
OR
WWW.NUVEEN.COM/CORPORATE/ENROLLMENT
if you get your Nuveen Fund dividends and statements directly from Nuveen.
(Be sure to have the address sheet that accompanied this report handy. You'll
need it to complete the enrollment process.)
Logo: NUVEEN Investments
Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
On behalf of all of us at Nuveen Investments, I'd like to use this first report
of the Nuveen Tax-Advantaged Total Return Strategy Fund to welcome each of you
to the growing family of Nuveen investors. For more than 100 years, Nuveen has
specialized in offering quality investments to those seeking to accumulate and
preserve wealth. Our mission continues to be to assist you and your financial
advisor by offering the investment services and products that can help you
secure your long-term financial objectives. We thank you for choosing Nuveen
Investments as a partner as you work toward that goal.
OUR MISSION CONTINUES TO BE TO ASSIST YOU AND YOUR FINANCIAL ADVISOR BY OFFERING
THE INVESTMENT SERVICES AND PRODUCTS THAT CAN HELP YOU SECURE YOUR LONG-TERM
FINANCIAL OBJECTIVES.
Because your Fund's fiscal year ends on December 31, this "semiannual" report
covers only the first five months of the Fund's operations. However, we believe
the Fund is off to a good start, and is already well positioned to meet its
objectives of tax-advantaged income and capital appreciation. For details on how
the Fund has performed so far, I encourage you to read the portfolio managers'
summary that immediately follows this letter.
I also urge you to consider receiving future Fund reports and other information
electronically via the Internet and e-mail rather than in hard copy. Not only
will you be able to receive the information faster, but this also may help lower
Fund expenses. Sign up is quick and easy - see the inside front cover of this
report for detailed instructions.
Again, thank you for the confidence you have shown in Nuveen Investments. We
look forward to reporting on the performance of your Fund in the months and
years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
August 16, 2004
Nuveen Tax-Advantaged Total Return Strategy Fund
(JTA)
Portfolio Managers'
PERSPECTIVE
The Fund features management by teams at two different subadvisors - NWQ
Investment Management Company, LLC, investing in dividend-paying common and
preferred stocks, and Symphony Asset Management, LLC, investing in senior
corporate loans and other debt instruments. Both NWQ and Symphony are affiliates
of Nuveen Investments. NWQ currently manages a portion of one other
Nuveen-sponsored closed-end exchange-traded fund and two Nuveen-sponsored mutual
funds. Symphony currently manages all or a portion of six other Nuveen-sponsored
closed-end exchange-traded funds.
Here Jon Bosse, Chief Investment Officer of NWQ, and Gunther Stein, Director of
Fixed-Income Strategies at Symphony, review economic conditions and the Fund's
performance during the period from its inception in January 2004 through June
30, 2004.
WHAT KIND OF MARKET ENVIRONMENT DID THE FUND ENCOUNTER DURING THIS INITIAL
REPORTING PERIOD?
The U.S. stock market started 2004 as strongly as it had finished in 2003.
However, the strength seen in January and February soon faded as increased
global tensions and mounting economic concerns caused general weakness in stocks
that lasted until mid-May. Of particular concern to investors was evidence of
rising inflation pressures brought on by a surge in raw material prices. These
pressures, combined with strong employment gains, prompted the Federal Reserve
to raise short-term interest rates by 25 basis points to 1.25% at its June 30th
meeting. Beginning in mid-March, long-term bond prices fell sharply as it became
clear the Fed would likely tighten short-term rates to curb inflation. This
dragged most fixed-income returns into negative territory for the first six
months of 2004. Many of the major equity indices posted modest gains for the
same period, with greater strength seen in small-to-mid capitalization stocks
versus large capitalization issues.
During the first six months of 2004, the leveraged loan market continued to
demonstrate the same characteristics that made 2003 one of the strongest for
this asset class in the past ten years. Record inflows into the leveraged loan
asset class, driven by the belief that the economy is entering a period of
rising interest rates, a decreasing default rate as the economy continued to
improve and a strong high yield market all benefited the leveraged loan market
during this period. The CSFB Leveraged Loan Index returned 3.12% in 1st half of
2004 and 11.01% for 2003. All industries that comprise the CSFB Leveraged Loan
Index had positive returns in the first half of 2004 except the
telecommunications segment. Strong investor appetite drove $124 billion of
leveraged loans to come to market during the first half of 2004, $38.5 billion
being loans to fund M&A activity.
4
IN THIS ENVIRONMENT, WHAT WAS YOUR STRATEGY IN MANAGING THE FUND?
During the initial invest-up period, we employed an opportunistic, bottom-up
strategy toward common stock selection that focused on identifying attractively
valued companies which possessed favorable risk/reward characteristics and
emerging catalysts that we believed could unlock value or improve profitability.
These catalysts included management changes, restructuring efforts, recognition
of hidden assets/free options, or a turn in the underlying fundamentals. We also
focused on downside protection, and paid a great deal of attention to a
company's balance sheet and cash flow statements, not just the income statement.
We believe cash flow analysis offers a more objective and truer picture of a
company's financial position than an evaluation based on earnings alone.
For our preferred stock investments, given our view that interest rates would
begin to rise during the reporting period, we purchased securities with shorter
effective durations and kept our holdings toward the lower end of our normal
weighting of 5% to 20% of the portfolio.
As we invested the senior loan portion of the portfolio, we used the generally
positive environment to purchase loans and high yield bonds with attractive
coupons that were issued by companies that we judged to have improving prospects
and therefore offered strong asset protection.
IN THIS ENVIRONMENT, HOW DID THE FUND PERFORM?
The accompanying table compares the return of the Nuveen Tax-Advantaged Total
Return Strategy Fund from its inception on January 27, 2004, through June 30,
2004, with the return of a comparative benchmark comprised of four different
indexes weighted to reflect the asset class mix of the Fund.
TOTAL RETURN ON NET ASSET VALUE
(cumulative, January 27, 2004 - June 30, 2004)
Nuveen Tax-Advantaged Total Return Strategy Fund 2.98%
---------------------------------------------------------------------
Comparative Benchmark1 1.86%
---------------------------------------------------------------------
Past performance is not predictive of future results.
For more information, see the Performance Overview page.
1 The comparative benchmark designed to reflect the portfolio composition of
JTA is calculated by combining 1) 56% of the return of the Russell 300
Value Index, which measures the performance of those Russell 3000 Index
companies with lower price-to-book ratios and lower forecasted growth
values, 2) 16% of the return of the MSCI EAFE ex-Japan Value Index, a
capitalization-weighted index that selects the lower 50% of the
price-to-book ranked value stocks traded in the developed markets of
Europe, Asia and the Far East, excluding Japan, 3) 8% of the return of the
Merrill Lynch DRD Preferred Index, which consists of investment-grade,
DRD-eligible, exchange-traded preferred stocks with one year or more to
maturity, and 4) 20% of the return of the CSFB Leveraged Loan Index, which
consists of approximately $150 billion of tradable term loans with at least
one year to maturity and rated BBB or lower. Index returns to not include
the effects of any sales charges or management fees. It is not possible to
invest directly in an index.
5
For the period since the Fund's inception through June 30, 2004, the Fund
produced a total return on net asset value greater than the return of the
composite benchmark.
Although numerous holdings contributed to the portfolio's performance in the
five-month period, as a group the greatest strength came from our defense,
energy and insurance holdings. Defense stocks outperformed due to compelling
valuations and strong fundamentals. The Department of Defense is expected to
spend over $1 trillion over the next decade on domestic security programs and
the next generation of ships, submarines, and fighter aircraft. Strong cash flow
growth could also lead to higher share repurchase activity as the prospect for
large acquisitions is limited due to an already consolidated industry. Portfolio
holdings Lockheed Martin and Raytheon Co. gained 13% and 16%, respectively, over
this initial reporting period. Our energy stocks also appreciated as high oil
and gas prices are contributing to an increase in drilling activity, higher
refining margins, and improved cash flows for energy companies. Favorable
supply/demand conditions remained intact due to strong global economic growth,
particularly in China. Terrorism fears, a weak dollar, and recent oil worker
strikes in Norway and Venezuela have also contributed to higher energy prices.
Our five energy holdings returned between 4% and 16% during the period.
Meanwhile, improving fundamentals and a favorable pricing outlook for property
casualty insurance contributed to the rise in insurance stocks. Portfolio
holdings AON Corp. and Hartford Financial Services Group rose 12% and 8%,
respectively, during the five months.
Other holdings that posted strong results since the Fund's inception included
Albertson's, which gained 14% on the prospect of improving industry fundamentals
and continuing steps to divest itself of less profitable stores. This move
coincides with the company's restructuring efforts to improve margins, local
market share, and private label penetration. Kimberly-Clark appreciated 11% due
to a compelling valuation and signs of a turn in its diaper business. The
company also announced it would spin-off its pulp and paper business later this
year. Our other paper stocks, International Paper, Packaging Corp. of America,
and Weyerhaeuser, posted gains between 7% and 10%. Other positive performers
include Bank of America, Pitney Bowes and United Utilities plc.
In addition, the Fund's senior loan and other debt holdings generally performed
well over this initial period. Improving economic conditions, decreasing default
rates and the
6
possibility of rising interest rates made the adjustable-rate debt of many
companies more attractive.
Not all of our holdings appreciated during the period. Our tobacco investments
declined due to some adverse litigation rulings. Altria Group, the parent of
Phillip Morris, fell 10%, and Loews Corp - Carolina Group declined 6%. Our metal
stocks, Alumina Ltd and Rio Tinto PLC, dropped 4% and 3% percent, respectively,
due to a correction in commodity prices brought on by signs of a slowdown in
Chinese industrial production. Our telecommunication investments were weak due
to ongoing regulatory and competitive pressures, and our position in Korea
Electric Power Corp declined 8% on market volatility and news the company will
not divest its power distribution unit as expected due to government concerns.
Finally, our preferred investments that have the lowest dividend rates and
longest effective durations - such as FHLMC Series F and ABN AMRO Series G -
exhibited significant negative total returns due to a combination of rising
rates and wider spreads.
As of June 30, 2004, the Fund was paying a monthly distribution of $0.0735 per
share, and was trading at a -13.47% discount to its net asset value.
HAVE YOU FINISHED THE INITIAL INVESTING PROCESS?
As of the end of the reporting period, the initial investment phase of the
portfolio was completed. The investment phase of the portfolio progressed rather
smoothly as the assets were invested in a well-diversified portfolio of stocks,
preferred securities and senior loans. With respect to our common stock
investments, we were increasingly cautious in our investment choices given the
increased level of volatility in the market. Going forward, we will continue to
seek companies that we believe meet our investment criteria of attractive
valuation, downside protection potential, and a catalyst in place that will
unlock value or improve profitability.
7
Nuveen Tax-Advantaged Total Return Strategy Fund
JTA
Performance
OVERVIEW As of June 30, 2004
FUND SNAPSHOT
Share Price $16.76
------------------------------------
Common Share
Net Asset Value $19.37
------------------------------------
Premium/(Discount) to NAV -13.47%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $268,426
------------------------------------
CUMULATIVE TOTAL RETURN
(Inception 1/27/04)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
Since
Inception -14.79% 2.98%
------------------------------------
TOP FIVE INDUSTRIES
(as a % of total investments)
------------------------------------
Oil &Gas 9.8%
------------------------------------
Diversified Financial Services 9.2%
------------------------------------
Commercial Banks 7.6%
------------------------------------
Electric Utilities 6.2%
------------------------------------
Insurance 6.2%
------------------------------------
Pie Chart:
PORTFOLIO ALLOCATION
(as a % of total investments)
Common Stocks 69.7%
Variable Rate Senior Load Interests 15.2%
Preferred Securities 7.1%
Corporate Bonds 4.0%
Short-Term Investments 4.0%
Bar Chart:
2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Mar 0.0735
Apr 0.0735
May 0.0735
Jun 0.0735
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
1/30/04 $20.01
20.01
20.05
20
20
20
20
19.3
19
19.36
18.95
18.41
17.74
17.28
17
16.41
16.7
17.3
17.73
17.51
17.11
6/30/04 17
8
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA)
Portfolio of
INVESTMENTS June 30, 2004 (Unaudited)
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 102.8% (69.7% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 5.8%
140,000 Lockheed Martin Corporation $ 7,291,200
235,000 Raytheon Company 8,405,950
------------------------------------------------------------------------------------------------------------------------------------
15,697,150
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 2.2%
555,000 Delphi Corporation 5,927,400
------------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 2.3%
492,000 DSM NV Sponsored ADR 6,100,800
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 5.7%
100,000 Bank of America Corporation 8,462,000
120,000 Wells Fargo & Company 6,867,600
------------------------------------------------------------------------------------------------------------------------------------
15,329,600
------------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 2.6%
155,000 Pitney Bowes Inc. 6,858,750
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.3%
343,000 KT Corporation Sponsored ADR 6,187,720
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 2.2%
250,000 Packaging Corp of America 5,975,000
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.6%
150,000 Citigroup Inc. 6,975,000
205,000 JPMorgan Chase & Co. 7,947,850
------------------------------------------------------------------------------------------------------------------------------------
14,922,850
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 8.8%
235,000 SBC Communications Inc. 5,698,750
330,000 Sprint Corporation 5,808,000
235,000 Telecom Italia S.p.A., Sponsored ADR 5,334,500
190,000 Verizon Communications Inc. 6,876,100
------------------------------------------------------------------------------------------------------------------------------------
23,717,350
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 7.2%
110,000 Dominion Resources, Inc. 6,938,800
175,000 FirstEnergy Corp. 6,546,750
652,000 Korea Electric Power Corporation Sponsored ADR 5,972,320
------------------------------------------------------------------------------------------------------------------------------------
19,457,870
------------------------------------------------------------------------------------------------------------------------------------
FOOD & STAPLES RETAILING - 5.8%
375,000 Albertson's, Inc. 9,952,500
275,000 J. Sainsbury plc Sponsored ADR 5,706,250
------------------------------------------------------------------------------------------------------------------------------------
15,658,750
------------------------------------------------------------------------------------------------------------------------------------
FOOD PRODUCTS - 1.3%
140,000 Tate & Lyle plc Sponsored ADR 3,430,000
------------------------------------------------------------------------------------------------------------------------------------
9
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA) (continued)
Portfolio of INVESTMENTS June 30, 2004 (Unaudited)
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 1.8%
207,000 Newell Rubbermaid Inc. $ 4,864,500
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 2.0%
80,000 Kimberly-Clark Corporation 5,270,400
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 6.2%
390,000 Aon Corporation 11,103,300
80,000 The Hartford Financial Services Group, Inc. 5,499,200
------------------------------------------------------------------------------------------------------------------------------------
16,602,500
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 5.5%
404,000 Alumina Limited Sponsored ADR 6,039,800
90,000 Rio Tinto plc Sponsored ADR 8,824,500
------------------------------------------------------------------------------------------------------------------------------------
14,864,300
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 12.8%
40,000 ChevronTexaco Corporation 3,764,400
110,000 ConocoPhillips 8,391,900
53,000 Eni S.p.A. Sponsored ADR 5,318,020
215,000 Kerr-McGee Corporation 11,560,550
55,000 Total SA Sponsored ADR 5,284,400
------------------------------------------------------------------------------------------------------------------------------------
34,319,270
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 4.7%
125,000 International Paper Company 5,587,500
110,000 Weyerhaeuser Company 6,943,200
------------------------------------------------------------------------------------------------------------------------------------
12,530,700
------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 2.0%
90,000 Union Pacific Corporation 5,350,500
------------------------------------------------------------------------------------------------------------------------------------
TOBACCO - 6.5%
185,000 Altria Group, Inc. 9,259,250
330,000 Loews Corp - Carolina Group 8,101,500
------------------------------------------------------------------------------------------------------------------------------------
17,360,750
------------------------------------------------------------------------------------------------------------------------------------
TRIFT & MORTGAGE FINANCE - 8.2%
192,000 Fannie Mae 13,701,120
265,000 IndyMae Bancorp, Inc. 8,374,000
------------------------------------------------------------------------------------------------------------------------------------
22,075,120
------------------------------------------------------------------------------------------------------------------------------------
WATER UTILITIES - 1.3%
180,000 United Utilities plc Sponsored ADR 3,441,600
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stock (cost $268,988,697) 275,942,880
--------------------------------------------------------------------------------------------------------------------
PREFERRED SECURITIES - 10.5% (7.1% OF TOTAL INVESTMENTS)
COMMERCIAL BANKS - 2.4%
23,500 Abbey National plc, Series B, 7.375% 614,525
40,000 Abbey National plc, 7.375% 1,025,600
80,000 ABN AMRO Capital Trust Fund VII, Series G, 6.080% 1,782,400
26,000 Citigroup Inc., Series H, 6.231% 1,336,660
40,000 Fannie Mae, Series L, 5.125% 1,775,000
------------------------------------------------------------------------------------------------------------------------------------
6,534,185
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.7%
36,100 SLM Corporation, Series A, 6.970% 1,920,340
------------------------------------------------------------------------------------------------------------------------------------
10
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 3.0%
17,500 Bear Stearns Companies Inc. Series E, 6.150% $ 877,625
20,000 Citigroup Inc., Series F, 6.365% 1,031,600
19,000 Federal Home Loan Mortgage Corporation, 5.700% 912,950
23,000 Federal Home Loan Mortgage Corporation, Series F, 5.000% 987,850
12,000 Fannie Mae, Series N, 5.500% 559,200
27,100 Fannie Mae, Series H, 5.810% 1,338,469
77,700 Lehman Brothers Holdings Inc., Series F, 6.500% 1,982,904
------------------------------------------------------------------------------------------------------------------------------------
7,690,598
------------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.9%
60,000 Alabama Power Company, Series P, 5.300% 1,393,128
8,500 Consolidated Edison Company of New York Inc., Series A, 5.000% 713,150
41,700 Interstate Power and Light Company, 7.100% 1,076,694
40,000 Mississippi Power Company, Series D, 5.250% 976,252
40,000 Savannah Electric and Power Company, 6.000% 1,017,500
------------------------------------------------------------------------------------------------------------------------------------
5,176,724
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.1%
40,000 Genworth Financial Inc., 5.250% 2,048,752
48,400 ING Groep NV, 7.200% 1,233,716
25,600 ING Groep NV, 6.200% 592,384
70,000 Ace Ltd., Series C, 7.800% 1,848,000
------------------------------------------------------------------------------------------------------------------------------------
5,722,852
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 0.4%
11,000 Devon Energy Corporation, Series A, 6.490% 1,142,969
------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Securities (cost $29,311,623) 28,187,668
--------------------------------------------------------------------------------------------------------------------
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 6.0% (4.0% OF TOTAL INVESTMENTS)
CONSTRUCTION MATERIALS - 1.2%
$ 2,800 Texas Industries Inc., 10.250% B1 BB- 6/15/11 3,136,000
------------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 0.8%
2,000 Park Place Entertainment, 8.875% Ba2 BB- 9/15/08 2,175,000
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 2.0%
2,000 D.R. Horton, Inc., 7.500% Ba1 BB+ 12/01/07 2,170,000
1,000 Standard Pacific Corporation, 9.500% Ba2 BB 9/15/10 1,102,500
2,000 Standard Pacific Corporation, 6.500% Ba2 BB 10/01/08 2,010,000
------------------------------------------------------------------------------------------------------------------------------------
5,282,500
------------------------------------------------------------------------------------------------------------------------------------
OIL & GAS - 1.2%
3,000 Chesapeake Energy Corporation, 8.375% Ba3 BB- 11/01/08 3,255,000
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 0.8%
2,000 Georgia Pacific Corporation, Senior Note, 7.735% Ba2 BB+ 7/15/08 2,140,000
------------------------------------------------------------------------------------------------------------------------------------
Total Corporate Bonds (cost $16,128,078) 15,988,500
--------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS(2) - 22.5% (15.2% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 0.6%
1,359 Vought Aircraft Industries, Inc., Term Loan C Ba3 B+ 6/30/08 1,371,816
215 Vought Aircraft Industries, Inc., Term Loan B Ba3 B+ 6/30/07 217,597
------------------------------------------------------------------------------------------------------------------------------------
1,589,413
------------------------------------------------------------------------------------------------------------------------------------
11
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA) (continued)
Portfolio of INVESTMENTS June 30, 2004 (Unaudited)
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 3.0%
$ 2,000 Federal-Mogul Corporation, Term Loan A (a) NR NR 2/24/04 $ 1,850,000
2,000 Mark IV Industries, Inc., Term Loan B B2 BB- 6/23/11 2,031,250
2,260 Metaldyne Company LLC, Term Loan D B2 BB- 12/31/09 2,262,609
2,000 PPHolding Corporation, Term Loan B1 B+ 11/12/11 2,036,250
------------------------------------------------------------------------------------------------------------------------------------
8,180,109
------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 0.7%
1,990 Nextel Finance Company, Term Loan E Ba2 BBB 12/15/10 2,007,057
------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION & ENGINEERING - 0.6%
2,000 Anthony Crane Rental, L.P., Term Loan (a) NR NR 7/23/04 1,510,000
------------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 2.6%
3,000 Owens Illinois Group, Inc., Term Loan B NR NR 4/01/08 3,036,965
1,700 Stone Container Corporation, Term Loan B B2 NR 6/30/09 1,718,675
221 Stone Container Corporation, Term Loan C B2 NR 6/30/09 223,710
1,995 United States Can Company, Term Loan B B2 B 1/15/10 2,018,691
------------------------------------------------------------------------------------------------------------------------------------
6,998,041
------------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.7%
260 Sensus Metering Systems Inc., Term Loan B-2 B2 B+ 12/17/10 262,323
1,730 Sensus Metering Systems Inc., Term Loan B-1 B2 B+ 12/17/10 1,748,821
------------------------------------------------------------------------------------------------------------------------------------
2,011,144
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 0.8%
2,000 IASIS Healthcare LLC, Term Loan (DD, settling 7/09/04) B1 B+ 6/22/11 2,032,916
------------------------------------------------------------------------------------------------------------------------------------
HOTELS RESTAURANTS & LEISURE - 4.0%
1,995 24 Hour Fitness Worldwide, Inc., Term Loan B B1 B 7/01/09 2,007,456
1,995 Jack in the Box Inc., Term Loan B Ba2 BB 1/09/10 2,014,327
2,000 MGM Mirage, Term Loan NR NR 11/25/08 2,004,063
2,000 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B NR NR 4/26/11 2,010,000
2,454 Wyndham International, Inc., Term Loan II NR NR 4/01/06 2,448,219
------------------------------------------------------------------------------------------------------------------------------------
10,484,065
------------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.8%
2,000 Sealy Mattress Company, Term Loan B2 B+ 4/06/12 2,034,375
------------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.8%
2,000 Conseco, Inc., Term Loan B3 BB- 6/22/10 2,038,750
------------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.8%
2,000 Charter Communications Operating, LLC, Term Loan B B2 B 4/07/11 1,994,091
2,000 Freedom Communications, Inc., Term Loan B Ba3 BB 5/18/12 2,034,375
1,934 Regal Cinemas Corporation, Term Loan B Ba3 BB- 11/10/10 1,959,783
998 TransWestern Publishing Company LLC, Second Lien, Term Loan B2 B 2/25/12 1,011,216
985 TransWestern Publishing Company LLC, First Lien, Term Loan B1 BB- 2/25/11 998,954
2,243 WMG Acquisition Corp., Term Loan (DD, settling 7/07/04) B1 NR 2/27/11 2,278,941
------------------------------------------------------------------------------------------------------------------------------------
10,277,360
------------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 1.1%
3,000 Amsted Industries Incorporated, Term Loan B (DD, settling 8/13/04) B1 BB- 10/15/10 3,058,125
------------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.1%
2,993 Solo Cup Company, Term Loan B1 B+ 2/27/11 3,030,219
------------------------------------------------------------------------------------------------------------------------------------
12
RATINGS*
-------------------
PRINCIPAL STATED
AMOUNT (000) DESCRIPTION(1) MOODY'S S&P MATURITY** VALUE
------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE - 0.8%
$ 2,138 Crescent Real Estate Funding XII, L.P., Term Loan NR NR 3/20/06 $ 2,158,151
------------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 1.1%
2,850 Laidlaw Inc., Term Loan B-1 Ba3 BB+ 6/19/09 2,903,435
------------------------------------------------------------------------------------------------------------------------------------
Total Variable Rate Senior Loan Interests (cost $60,043,519) 60,313,160
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 5.8% (4.0% OF TOTAL INVESTMENTS)
$ 15,852 State Street Bank Repurchase Agreement, 1.170%, dated 6/30/04, due 7/01/04, 15,851,824
repurchase price $15,852,339, collateralized by U.S. Treasury Bonds
------------------------------------------------------------------------------------------------------------------------------------
$ 15,852 Total Short-Term Investments (cost $15,851,824) 15,851,824
============= --------------------------------------------------------------------------------------------------------------------
Total Investments (cost $390,323,741) - 147.6% 396,284,032
--------------------------------------------------------------------------------------------------------------------
FundNotes (29.1)% (78,000,000)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (1.7)% (4,857,649)
--------------------------------------------------------------------------------------------------------------------
FundPreferred Shares, at Liquidation Value (16.8)% (45,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $268,426,383
====================================================================================================================
(1) All percentages shown in the Portfolio of
Investments are based on net assets applicable to
Common shares unless otherwise noted.
(2) Senior Loans in which the Fund invests generally pay
interest at rates which are periodically adjusted by
reference to a base short-term, floating lending
rate plus a premium. These base lending rates are
generally (i) the lending rate offered by one or
more major European banks, such as the London
Inter-Bank Offered Rate ("LIBOR"), (ii) the prime
rate offered by one or more major United States
banks, or (iii) the certificate of deposit rate.
Senior Loans are generally considered to be
restricted in that the Fund ordinarily is
contractually obligated to receive approval from the
Agent Bank and/or Borrower prior to the disposition
of a Senior Loan.
* Ratings below Baa by Moody's Investor Service, Inc.
or BBB by Standard & Poor's Group are considered to
be below investment grade.
** Senior Loans in the Fund's portfolio generally are
subject to mandatory and/or optional prepayment.
Because of these mandatory prepayment conditions and
because there may be significant economic incentives
for a Borrower to prepay, prepayments of Senior
Loans in the Fund's portfolio may occur. As a
result, the actual remaining maturity of Senior
Loans held in the Fund's portfolio may be
substantially less than the stated maturities shown.
The Fund estimates that the actual average maturity
of the Senior Loans held in its portfolio will be
approximately 18-24 months.
(a) At or subsequent to June 30, 2004, this issue was
under the protection of the federal bankruptcy
court.
(DD) Security purchased on a delayed delivery basis.
NR Not rated.
See accompanying notes to financial statements.
13
Statement of
ASSETS AND LIABILITIES June 30, 2004 (Unaudited)
--------------------------------------------------------------------------------
ASSETS
Investments, at value (cost $390,323,741) $ 396,284,032
Receivables:
Dividends 1,226,210
Interest 425,333
Investments sold 299,491
Reclaims 44,167
Deferred FundNote offering costs 1,828,413
Other Assets 8,183
--------------------------------------------------------------------------------
Total assets 400,115,829
--------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 7,564,559
FundNotes 78,000,000
Accrued expenses:
Management fees 184,049
Organization and offering costs 726,362
Other 180,415
FundNote interest payable 21,983
FundPreferred share dividends payable 12,078
--------------------------------------------------------------------------------
Total liabilities 86,689,446
--------------------------------------------------------------------------------
FundPreferred shares, at liquidation value 45,000,000
--------------------------------------------------------------------------------
Net assets applicable to Common shares $ 268,426,383
================================================================================
Common shares outstanding 13,855,240
================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares,
divided by Common shares outstanding) $ 19.37
================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
--------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 138,552
Paid-in surplus 262,862,532
Undistributed (Over-distribution of) net investment income (219,579)
Accumulated net realized gain (loss) from investments (315,413)
Net unrealized appreciation of investments 5,960,291
--------------------------------------------------------------------------------
Net assets applicable to Common shares $ 268,426,383
================================================================================
Authorized shares:
Common Unlimited
FundPreferred shares Unlimited
================================================================================
See accompanying notes to financial statements.
14
Statement of
OPERATIONS For the Period January 27, 2004
(commencement of operations) through June 30, 2004
(Unaudited)
--------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld of $211,132) $4,058,229
Interest 991,435
Fees 35,609
--------------------------------------------------------------------------------
Total investment income 5,085,273
--------------------------------------------------------------------------------
EXPENSES
Management fees 1,178,275
FundNote interest expenses 213,594
FundPreferred shares - auction fees 52,521
FundPreferred shares - dividend disbursing agent fees 3,095
Shareholders' servicing agent fees and expenses 1,715
Custodian's fees and expenses 38,884
Trustees' fees and expenses 5,705
Professional fees 20,008
Shareholders' reports - printing and mailing expenses 23,879
Investor relations expense 17,645
Other expenses 12,007
--------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,567,328
Custodian fee credit (7,748)
Expense reimbursement (418,942)
--------------------------------------------------------------------------------
Net expenses 1,140,638
--------------------------------------------------------------------------------
Net investment income 3,944,635
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments (315,413)
Net unrealized appreciation of investments 5,960,291
--------------------------------------------------------------------------------
Net gain from investments 5,644,878
--------------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (90,774)
From accumulated net realized gains from investments --
--------------------------------------------------------------------------------
Decrease in net assets applicable to Common shareholders
from distributions to FundPreferred shareholders (90,774)
--------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares
from operations $9,498,739
================================================================================
See accompanying notes to financial statements.
15
Statement of
CHANGES IN NET ASSETS For the Period
January 27, 2004 (commencement of operations)
through June 30, 2004 (Unaudited)
--------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 3,944,635
Net realized gain (loss) from investments (315,413)
Net unrealized appreciation of investments 5,960,291
Distributions to FundPreferred shareholders:
From net investment income (90,774)
From accumulated net realized gains from investments --
--------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares
from operations 9,498,739
--------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (4,073,440)
From accumulated net realized gains from investments --
--------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (4,073,440)
--------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares 263,981,000
Net proceeds from shares issued to shareholders due to
reinvestment of distributions --
FundPreferred shares offering costs (1,080,000)
--------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from
capital share transactions 262,901,000
--------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 268,326,299
Net assets applicable to Common shares at the beginning of period 100,084
--------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $268,426,383
================================================================================
Undistributed (Over-distribution of) net investment income
at the end of period $ (219,579)
================================================================================
See accompanying notes to financial statements.
16
Statement of
CASH FLOWS For the Period January 27, 2004
(commencement of operations) through June 30, 2004
(Unaudited)
--------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS APPLICABLE TO COMMON SHARES
FROM OPERATIONS $ 9,498,739
Adjustments to Reconcile the Net Increase in
Net Assets Applicable to Common Shares from Operations
to Net Cash Used in Operating Activities:
Purchase of investment securities (390,639,698)
Short-term investment securities, net (15,851,824)
Proceeds from disposition of investment securities 15,720,623
Accretion/Amortization of discounts and premiums, net 70,643
Increase in dividends receivable (1,226,210)
Increase in interest receivable (425,333)
Increase in receivable from investments sold (299,491)
Increase in reclaim receivable (44,167)
Increase in other assets (8,183)
Increase in payable for investments purchased 7,564,559
Increase in management fees payable 184,049
Increase in FundPreferred share dividends payable 12,078
Increase in other liabilities 180,415
Increase in FundNote interest payable* 21,983
Net unrealized appreciation of investments (5,960,291)
Net realized loss from investments 315,413
Net realized loss from paydowns 61,102
--------------------------------------------------------------------------------
Net cash used in operating activities (380,825,593)
--------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common shares:
Net proceeds from sale of shares 263,981,000
Cash distributions paid to Common shareholders (4,073,440)
Organization and offering costs payable 726,362
FundNotes:
Liquidation value 78,000,000
Deferred offering costs (1,828,413)
Net proceeds from sale of FundPreferred shares 43,920,000
--------------------------------------------------------------------------------
Net cash provided by financing activities 380,725,509
--------------------------------------------------------------------------------
NET DECREASE IN CASH (100,084)
Cash at the beginning of period (100,084)
--------------------------------------------------------------------------------
CASH AT THE END OF PERIOD $ --
================================================================================
* Cash paid for interest on FundNotes during the period April 23, 2004
through June 30, 2004, was $191,611.
See accompanying notes to financial statements.
17
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Tax-Advantaged Total Return Strategy Fund (the "Fund") is a 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 New York
Stock Exchange and trade under the ticker symbol "JTA." The Fund was organized
as a Massachusetts business trust on October 1, 2003.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,084 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of Nuveen Investments, Inc. ("Nuveen"), and the recording of the
organization expenses ($11,500) and their reimbursement by Nuveen Investments,
LLC, also a wholly owned subsidiary of Nuveen.
The Fund seeks to provide a high level of after-tax total return consisting
primarily of tax-advantaged dividend income and capital appreciation by
investing primarily in a portfolio of dividend-paying common stocks that the
Fund believes at the time of investment are eligible to pay dividends that
qualify for favorable federal income taxation at rates applicable to long-term
capital gains ("tax-advantaged dividends"). The Fund will also invest to a more
limited extent in preferred securities that are eligible to pay tax-advantaged
dividends, as well as senior loans (both secured and unsecured), domestic
corporate bonds, notes and debentures, convertible debt securities, and other
similar types of corporate instruments, including high yield debt securities,
that are not eligible to pay tax-advantaged dividends.
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 senior
loans are generally provided by an independent pricing service approved by the
Fund's Board of Trustees and based on the mean between the bid and asked prices.
When price quotes are not readily available for fixed-income securities and
senior loans, the pricing service establishes fair market value using a wide
range of market data including yields or prices of securities and senior loans
of comparable quality, type of issue, coupon, maturity and rating, 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. If it is determined that market prices for an investment are
unavailable or inappropriate, the Board of Trustees of the Fund, or its
designee, may establish a fair value for the investment. Short-term securities
are valued at amortized cost, which approximates market value.
The senior loans in which the Fund invests are not listed on an organized
exchange and the secondary market for such investments may be less liquid
relative to markets for other fixed income securities. Consequently, the value
of a senior loan, determined as described above, may differ significantly from
the value that would have been determined had there been an active market for
that senior loan.
Investment Transactions
Investment transactions are recorded on a trade date basis. Trade date for
senior loans purchased in the primary market is considered the date on which the
loan allocations are determined. Realized gains and losses from such
transactions are determined on the specific identification method. Investments
purchased on a when-issued or delayed delivery basis may have extended
settlement periods. Any investments so purchased are subject to market
fluctuation during this period. The Fund maintains liquid assets with a current
value at least equal to the amount of the when-issued and delayed delivery
purchase commitments. At June 30, 2004, the Fund had outstanding delayed
delivery purchase commitments of $7,350,191.
18
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities,
when information is available. Interest income, which includes the amortization
of premiums and accretion of discounts for financial reporting purposes, is
recorded on an accrual basis. Interest income also includes paydown gains and
losses on senior loans. Fees consist primarily of senior loan amendment fees.
Amendment fees are earned as compensation for evaluating and accepting changes
to the original senior loan agreement.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute substantially all
of its net investment income to its shareholders. Therefore, no federal income
tax provision is required. Net realized capital gains and ordinary income
distributions made by the Fund are subject to federal taxation.
Dividends and Distributions to Common Shareholders
The Fund intends to declare monthly income distributions to Common shareholders.
Net realized capital gains from investment transactions, if any, are distributed
to shareholders not less frequently than annually. Furthermore, capital gains
are distributed only to the extent they exceed available capital loss
carryforwards.
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
In the future, the Fund will consider making monthly cash distributions to
Common Shareholders of a stated dollar amount (stated in terms of a fixed cents
per Common Share dividend rate) ("Managed Distribution Policy"). If a Managed
Distribution Policy is adopted the Fund will seek to maintain a stable dividend
level, subject to approval and oversight by the Fund's Board of Trustees.
Distributions will be made only after paying any accrued dividends or making any
redemption or liquidation payments to FundPreferred shares, if any, and interest
and required principal payments on Borrowings, if any. Under a Managed
Distribution Policy, if, for any monthly distribution, net investment income and
net realized capital gain were less than the amount of the distribution, the
difference would be distributed from the Fund's assets.
FundNotes
Effective April 23, 2004, the Fund issued 3,120 Series F, $25,000 stated value
FundNotes that mature on April 24, 2034. The interest rate may change every
seven days, as set pursuant to a dutch auction process by the auction agent, and
is payable at or near the end of each rate period. For the period April 23, 2004
through June 30, 2004, the average daily balance of FundNotes was $78 million
with an average annual interest rate of 1.45%.
FundPreferred Shares
Effective May 6, 2004, the Fund issued 1,800 Series W, $25,000 stated value
FundPreferred shares. The dividend rate may change every seven days, as set
pursuant to a dutch auction process by the auction agent, and is payable at or
near the end of each rate period.
19
A
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Derivative Financial Instruments
The Fund may use derivatives or other transactions for the purpose of hedging
the portfolio's exposure to common stock risk, high yield credit risk, foreign
currency exchange risk and the risk of increases in interest rates. Although the
Fund is authorized to invest in such financial instruments, and may do so in the
future, it did not make any such investment during the period January 27, 2004
(commencement of operations) through June 30, 2004.
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.
Organization and Offering Costs
Nuveen Investments, LLC has agreed to reimburse all organization expenses
(approximately $11,500) and pay all Common share offering costs (other than the
sales load) that exceed $.04 per Common share. The Fund's share of Common share
offering costs of $554,000 was recorded as a reduction of the proceeds from the
sale of Common shares.
Costs incurred by the Fund in connection with its offering of FundNotes
($1,840,000) were recorded as a deferred charge which will be amortized over the
30 year life of the FundNotes and included with FundNote Interest Expense on the
Statement of Operations.
Costs incurred by the Fund in connection with its offering of FundPreferred
shares ($1,080,000) were recorded as a reduction to paid-in surplus.
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.
2. FUND SHARES
During the period January 27, 2004 (commencement of operations) through June 30,
2004, the Fund sold 13,850,000 Common shares, 3,120 FundNotes and 1,800
FundPreferred shares.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) for the
period January 27, 2004 (commencement of operations) through June 30, 2004,
aggregated $390,639,698 and $15,720,623, respectively.
20
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to the treatment of paydown gains and losses on senior loans,
recognition of premium amortization on debt securities and timing differences in
recognizing certain gains and losses on security transactions.
At June 30, 2004, the cost of investments were as follows:
--------------------------------------------------------------------------------
Cost of investments $390,408,790
================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments
at June 30, 2004, were as follows:
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $12,482,301
Depreciation (6,607,059)
--------------------------------------------------------------------------------
Net unrealized appreciation of investments $ 5,875,242
================================================================================
21
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, at the rates set forth below, which
are based upon the average daily managed assets of the Fund. "Managed Assets"
means the average daily net assets of the Fund including assets attributable to
FundPreferred shares and the principal amount of borrowings, if any.
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into Sub-Advisory Agreements with NWQ Investment Management Company, LLC ("NWQ")
and Symphony Asset Management, LLC ("Symphony"). Nuveen owns a controlling
interest in NWQ while key management of NWQ owns a non-controlling minority
interest. Symphony is an indirect wholly owned subsidiary of Nuveen. NWQ manages
the portion of the Fund's investment portfolio allocated to dividend-paying
common stocks including American Depository Receipts ("ADRs"). Symphony manages
the portion of the Fund's investment portfolio allocated to senior loans and
other debt instruments. NWQ and Symphony are compensated for their 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.
As approved by the Board of Trustees, a complex-wide fee schedule for all Funds
managed by the Adviser and its affiliates went into effect on August 1, 2004.
The implementation of this complex-wide fee schedule is expected to result in a
marginal immediate decrease in the rates (approximately .004%) at which
management fees are to be paid by the Funds. As assets in the Nuveen Fund
complex grow, the management fee rates to be paid by the Funds will decrease
further. Under no circumstances will the complex-wide fee schedule result in an
increase in the rates at which management fees would be paid by the Funds if the
complex-wide fee schedule were not implemented.
For the first eight 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
JANUARY 31, JANUARY 31,
--------------------------------------------------------------------------------
2004* .32% 2009 .32%
2005 .32 2010 .24
2006 .32 2011 .16
2007 .32 2012 .08
2008 .32
================================================================================
*From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond January 31, 2012.
22
6. COMMITMENTS
Pursuant to the terms of certain of the variable rate senior loan agreements,
the Fund may have unfunded senior loan commitments. The Fund will maintain with
its custodian, cash, liquid securities and/or liquid senior loans having an
aggregate value at least equal to the amount of unfunded senior loan
commitments. At June 30, 2004, there were no such unfunded senior loan
commitments.
7. SENIOR LOAN PARTICIPATION COMMITMENTS
With respect to the senior loans held in the Fund's portfolio, the Fund may: 1)
invest in assignments; 2) act as a participant in primary lending syndicates; or
3) invest in participations. If the Fund purchases a participation of a senior
loan interest, the Fund would typically enter into a contractual agreement with
the lender or other third party selling the participation, rather than directly
with the Borrower. As such, the Fund not only assumes the credit risk of the
Borrower, but also that of the Selling Participant or other persons
interpositioned between the Fund and the Borrower. At June 30, 2004, there were
no such outstanding participation commitments.
8. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.0735 per Common share which was
paid on August 2, 2004, to shareholders of record on July 15, 2004.
23
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout the period:
Investment Operations
-----------------------------------------------------------------------
Distributions Distributions
from Net from
Beginning Net Investment Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Investment Share- Share-
Value Income(a) Gain (Loss)(a) holders+ holders+ Total
=========================================================================================================
Period Ended 6/30:
2004(b) $19.10 $.29 $.40 $(.01) $-- $.68
=========================================================================================================
Less Distributions Total Returns
------------------------------- --------------------
Based
Net Offering on
Investment Capital Costs and Ending Common
Income to Gains to Preferred Common Based Share
Common Common Share Share Ending on Net
Share- Share- Underwriting Net Asset Market Market Asset
holders holders Total Discounts Value Value Value** Value**
===================================================================================================================
Period Ended 6/30:
2004(b) $(.29) $-- $(.29) $(.12) $19.37 $16.76 (14.79)% 2.98%
===================================================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
---------------------------- -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
===============================================================================================================
Period Ended 6/30:
2004(b) $268,426 1.43%* 3.21%* 1.04%* 3.60%* 6%
===============================================================================================================
FundNotes at End of Period FundPreferred Shares at End of Period
-------------------------------------------------- ---------------------------------------
Aggregate Average Market Asset Aggregate Liquidation
Amount Value Per Coverage Per Amount and Market Asset
Outstanding $25,000 of $1,000 of Outstanding Value Coverage
(000) Principal Amount Principal Amount (000) Per Share Per Share
-----------------------------------------------------------------------------------------------------------------
Period Ended 6/30:
2004(b) $78,000 $25,000 $5,018 $45,000 $25,000 $217,459
=================================================================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income at net asset value,
reinvested capital gains distributions at net asset value, if any, and
changes in Common share net asset value per share. Total returns are not
annualized.
*** After custodian fee credit and expense reimbursement.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to FundPreferred
shareholders; income ratios reflect income earned on assets attributable to
FundPreferred shares. Each Ratio of Expenses to Average Net Assets
Applicable to Common shares and each Ratio of Net Investment Income to
Average Net Assets Applicable to Common Shares includes the effect of the
interest expense paid on FundNotes as follows:
Ratio of
FundNotes
Interest
Expense
to Average
Net Assets
Applicable to
Common Shares
-------------
2004(b) .19%*
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the period January 27, 2004 (commencement of operations) through June
30, 2004.
24-25 SPREAD
See accompanying notes to financial statements.
Reinvest Automatically
EASILY AND CONVENIENTLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
greater of the net asset value or 95% of the then-current market price. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of the shares may increase before
purchases are completed, the average purchase price per share may exceed the
market price at the time of valuation, resulting in the acquisition of fewer
shares than if the dividend or distribution had been paid in shares issued by
the Fund. A pro rata portion of any applicable brokerage commissions on open
market purchases will be paid by Plan participants. These commissions usually
will be lower than those charged on individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
26
Other Useful
INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available (i) without
charge, upon request, by calling Nuveen Investments at (800) 257-8787; and (ii)
on the Commission's website at http://www.sec.gov.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
NET ASSET VALUE (NAV): A Fund's NAV is calculated by subtracting the liabilities
of the fund from its total assets and then dividing the remainder by the number
of shares outstanding. Fund NAVs are calculated at the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
The Fund intends to repurchase shares of its own common or
preferred stock in the future at such times and in such amounts as is deemed
advisable. No shares were repurchased during the six months ended June 30, 2004.
Any future repurchases will be reported to shareholders in the next annual or
semiannual report.
27
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing $100 billion in assets, Nuveen Investments offers access to a number of
different asset classes and investing solutions through a variety of products.
Nuveen Investments markets its capabilities under four distinct brands: Nuveen,
a leader in tax-free investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; and Symphony, a leading
institutional manager of market-neutral alternative investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers and for
a prospectus, where applicable, talk to your financial advisor, or call us at
(800) 257-8787. Please read the information carefully before you invest.
Learn more
about Nuveen Funds at
WWW.NUVEEN.COM/ETF
o Share prices
o Fund details
o Daily financial news
o Investor education
o Interactive planning tools
Logo: NUVEEN Investments
ESA-C-0604D
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors and reserves the
right to interview all candidates and to make the final selection of any new
directors.
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 registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual 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.
(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 to
this filing.
(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 Tax-Advantaged Total Return Strategy Fund
-----------------------------------------------------------
By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: September 9, 2004
-------------------------------------------------------------------
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: September 9, 2004
-------------------------------------------------------------------
By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: September 9, 2004
-------------------------------------------------------------------
* Print the name and title of each signing officer under his or her signature.