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
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Nuveen Tax-Advantaged Total Return Strategy Fund
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(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
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Date of fiscal year end: December 31
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Date of reporting period: December 31, 2006
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT DECEMBER 31, 2006
NUVEEN INVESTMENTS
CLOSED-END
FUNDS
NUVEEN
TAX-ADVANTAGED
TOTAL RETURN
STRATEGY FUND
JTA
OPPORTUNITIES FOR CAPITAL
APPRECIATION AND
TAX-ADVANTAGED DISTRIBUTIONS
FROM A PORTFOLIO OF VALUE
EQUITIES AND SENIOR LOANS
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NUVEEN LOGO
(TIMOTHY R. 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
tax-advantaged income and capital appreciation potential. 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 R. SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
February 15, 2007
Nuveen Investments Closed-End Funds (JTA)
PORTFOLIO MANAGERS'
COMMENTS
The Fund features management by two affiliates of Nuveen Investments. The Fund's
investments in dividend-paying common or preferred stocks are managed by NWQ
Investment Management Company, LLC (NWQ), while the Fund's investments in senior
corporate loans and other debt instruments are managed by Symphony Asset
Management, LLC (Symphony). Jon Bosse, Chief Investment Officer of NWQ, leads
the Fund's management team at that firm. He has more than 22 years of corporate
finance and investment management experience.
The Symphony team is led by Gunther Stein and Lenny Mason, who have more than 25
years of combined investment management experience, much of it in evaluating and
purchasing senior corporate loans and other high-yield debt.
Here Jon, Gunther and Lenny talk about general market conditions, their
management strategies and the performance of the Fund for the twelve-month
period ended December 31, 2006.
WHAT WERE THE GENERAL ECONOMIC AND MARKET CONDITIONS YOU FACED DURING THIS
ANNUAL REPORTING PERIOD ENDED DECEMBER 31, 2006?
Economic conditions throughout 2006 were generally favorable as a pronounced
slowdown in the housing market was more than offset by stabilization in interest
rates and energy prices, low unemployment and strong consumer confidence. During
the first half of last year, the Federal Reserve hiked short-term interest rates
four times, but as the second half of the year began, it became clearer that a
pause in the interest rate tightening cycle was at hand. Through mid year,
despite double-digit earnings gains, returns for the equity markets were
relatively modest and bond returns were negative. However, after mid year with
the Fed on hold, the U.S. stock market marched steadily to a series of
multi-year highs spurred by corporate earnings which continued to come in above
expectations. Equity markets shrugged off any concerns regarding housing, a
slowdown in global/domestic growth, and an extended consumer. The supply/demand
situation for common stocks stayed favorable as strong corporate balance sheets
and cash flows funded acquisitions and share buybacks as well as attracted
takeovers from private equity firms. Private equity firms initiated large
numbers of leveraged buyouts seemingly with no limit to the size of any
potential deal. Value stocks outperformed growth, and large and small
capitalization stocks outpaced mid caps, for the year.
The leverage loan market was also a beneficiary of these macroeconomic
conditions as it experienced a record year. The year was highlighted by record
new issuance, record leveraged merger financing and record inflows into the
leveraged loan asset class. Near historical low default rates contributed to
continued spread tightening. The loan market's ability to efficiently digest
record issuance surprised many skeptics. A flurry of
4
jumbo deals brought to market, including the largest LBO loan ever for HCA,
demonstrated significant liquidity and depth in the loan market. The CSFB
Leveraged Loan Index returned 2.01% during the fourth quarter and 7.33% for the
year. As of the end of December, the Index had registered 50 consecutive months
of positive returns.
As default rates remained low and performance remained consistent, investors
were drawn to the loan asset class. Total loan volume for 2006 stood at $408
billion, up 62% percent from 2005. Mergers and acquisitions and leveraged
buyouts were the key drivers of overall loan-volume growth -- increasingly,
large deals are being financed in the leveraged loan market, surpassing previous
estimates of the maximum deal size thought possible. In 2006, total LBO lending
topped $122 billion, up from $65 billion in 2005.
WHAT WAS YOUR STRATEGY IN MANAGING THE FUND DURING THE TWELVE-MONTH PERIOD ENDED
DECEMBER 31, 2006?
For the equity portion of the Fund's portfolio, we continued to employ an
opportunistic, bottom-up strategy that focused on identifying undervalued
companies that possessed favorable risk/reward characteristics as well as
emerging catalysts that we believed could unlock value or improve profitability.
These catalysts included management changes, restructuring efforts, recognition
of hidden assets, or a positive change 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 statement, not just the income statement.
We believed that cash flow analysis offers a more objective and truer picture of
a company's financial position than an evaluation based on earnings alone.
During the course of the year, we increased our telecommunications/media
exposure and also took new common stock positions in Caterpillar, General
Electric, Motorola, Pfizer, and Stora Enso Oyj. Our analysis indicated that
these companies possessed solid fundamentals, compelling valuations, and
attractive risk/reward relationships.
We eliminated Dominion Resources, J Sainsbury, Merck & Company, and Sprint
Nextel from the portfolio based on valuation concerns, and Albertsons Inc. and
Kerr McGee Corp. after these companies received takeover offers. The Kerr McGee
sell reduced our
5
overall energy exposure; however, we continue to have a favorable opinion of the
group based on our analysis of global supply conditions for crude oil and
natural gas and its impact on industry fundamentals, the outlook on company cash
flow growth, and valuations. We also opportunistically increased our financial
services stakes with additions to our positions of Aon, Citigroup, Fannie Mae,
Hartford Financial Services, and IndyMac Bancorp.
During the year we continued to manage the senior corporate loans and other debt
instruments portion of the portfolio using fundamental analysis to select loans
that we believed offer strong asset coverage and attractive risk adjusted
returns. Given the strength of the economy and the overall loan market we
focused on avoiding loans we believed had not been structured properly as well
as loans that we believed would have earnings volatility in a weakening economy.
Given these views we continued to position the portfolio in a more conservative
manner. We also tried to focus the portfolio on larger capitalization companies,
as we believed that these companies might perform better than smaller companies
over the course of a credit cycle.
During the year we avoided the loans of most automotive part suppliers as well
as smaller homebuilders and land developers, even though many loans in both
sectors traded at a discount throughout the year. We also avoided many smaller
loans that were done to finance leveraged buyouts. We did not believe that there
was sufficient incremental spread in many small loans to compensate for
potential illiquidity and volatility if earnings should become challenged.
Throughout the year we focused on adding high quality new-issue loans at par.
Given the elevated trading levels of the marketplace we focused on the new issue
market to buy loans.
We also continued to avoid the vast majority of second lien loans. Similar to
smaller loans, we did not believe that second lien loans offered sufficient
spread to compensate investors for potential volatility and lower recovery
rates.
6
HOW DID THE FUND PERFORM?
Fund performance results, as well as the performance of a comparative benchmark,
are shown in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For the twelve-months ended December 31, 2006
--------------------------------------------------------------------------------------------
JTA 24.19%(1)
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Comparative Benchmark(2) 20.14%
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Past performance does not guarantee future results. Current performance may be
higher or lower than the data shown.
Returns do not reflect the deduction of taxes that a shareholder may have to pay
on Fund distributions or upon the sale of Fund shares. See the Performance
Overview Page for additional information.
As indicated in the accompanying table, the Nuveen Tax-Advantaged Total Return
Strategy Fund posted positive results for the twelve-months ended December 31,
2006.
The equity portfolio had several positions that performed particularly well for
the year, including a strong gain in Korean steel manufacturer, POSCO. The
shares rose sharply on improving fundamentals in the steel industry brought on
by ongoing consolidation trends. In the defense sector, our investments of
Lockheed Martin and Raytheon outperformed due to benign political pressures and
a healthy outlook for defense spending given improving international demand. Our
equity investments in the energy sector also performed well - particularly in
the first half of the year - as high oil prices and increased production volumes
drove record earnings and cash flows.
--------------------------------------------------------------------------------
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 25.75%.
2 The comparative benchmark designed to reflect the portfolio composition of JTA
is calculated by combining: 1) 56% of the return of the Russell 3000 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 (dividends received
deduction) 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 are not leveraged, and do not
include the effects of any sales charges or management fees. It is not
possible to invest directly in an index.
--------------------------------------------------------------------------------
Our Utility investments benefited from a surge in demand for global utilities
given their attractive yields and ongoing consolidation in the sector. Our
tobacco stocks gained on an improving litigation environment and stronger
industry fundamentals, including favorable pricing and volumes. Finally, our
energy investments outperformed as high oil prices and increased production
volumes are driving strong earnings and cash flows.
In the senior loan component of the portfolio, one security that positively
impacted the fund's performance during the twelve-month period was the Federal
Mogul term loan position, which traded up during the period due to the
expectation that the company would emerge out of bankruptcy soon.
The Fund had several positions that constrained performance over this reporting
period. In the equity portion, rising cost pressures, lowered aluminum contract
pricing, and concerns regarding global economic growth contributed to a decline
in our shares of
7
Alumina Limited, while paper stocks lagged due to margin pressures and weak
demand characteristics in the forest product industry. After appreciating
strongly at the beginning of the year, our shares of insurance broker Aon gave
way and posted a modest decline for the year as the company lowered its earnings
guidance from previous lofty expectations. Our recent purchase of Motorola also
detracted from performance as the company reported that its revenues are being
pressured because of a higher mix of lower priced, low-end handsets and greater
price competition as the company expands its presence in emerging markets.
The Dividends-Received Deduction/Qualified Dividend Income, holdings of the fund
lagged the index slightly as our overweighting in floating rate securities, as
well as our underweighting in GSE-issued paper, caused a drag on relative
performance as yields dropped in the second half of the year and Federal Home
Loan Corporation and Federal National Mortgage Association preferred spreads
tightened.
One additional position that had a negative impact on the portfolio was D.R.
Horton, whose bonds traded down during the period due to the decrease in new
home orders, investor concern about a severe slowdown in homebuilding activity,
and increasing mortgage rates.
8
DISTRIBUTION AND SHARE PRICE
INFORMATION
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called FundPreferred(TM), and entered into a series of short-term
borrowing arrangements. This FundPreferred and borrowing provides a degree of
financial leverage that can enhance the Fund's returns and supplement the income
available to pay common shareholder distributions, but also can increase share
price volatility. This leveraging strategy provided incremental income and
helped enhance shareholder distributions over this reporting 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 investments as well as from net realized long-term capital gains
and/or returns of capital, generally representing net unrealized capital gains.
The Fund declared three monthly distribution increases during the twelve-month
period; most recently in December to $0.150 per share.
As of December 31, 2006, the Fund was trading at a 4.27% premium to its net
asset value. This compared well with the average -5.56% discount the Fund
exhibited over the course of the entire twelve-month reporting period.
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.
9
- 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.
- 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 JTA
-------------------------------------------------------------------------------
Inception date 1/27/04
Calendar Year:
Per share distribution:
From net investment income $0.88
From short-term capital gains $0.05
From long-term capital gains $0.65
From return of capital --
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Total per share distribution $1.58
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Distribution rate on NAV 6.08%
One-year total return on NAV 24.19%
Annualized since inception total return on NAV 18.13%
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10
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 Nuveen Real Estate Income Fund (AMEX: JRS), Nuveen
Diversified Dividend and Income Fund (NYSE: JDD), and Nuveen Tax-Advantaged
Total Return Strategy Fund (NYSE: JTA) announced that each Fund would retain a
portion of its realized long-term capital gains for the tax year ended December
31, 2006, and to pay required Federal corporate income taxes on these gains.
The Funds' Board of Trustees believes retaining realized long-term capital gains
may benefit shareholders by enabling the Funds to better preserve and grow their
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 Funds' investments.
Common shareholders of record on December 29, 2006 must include their pro-rata
share of their 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 their 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. Each Fund's net asset
value on December 27, 2006 was reduced to reflect the accrual of the Fund's
estimated tax liability as shown below.
Per share estimates of each Fund's retained long-term capital gains and
corresponding Federal corporate income taxes paid are as follows:
PER SHARE JTA
-----------------------------------------------------------------------
Long-Term Capital Gain Retained $ 0.9383
Less Federal Income Taxes Paid by Fund (0.3284)
NET LONG-TERM CAPITAL GAIN RETAINED $ 0.6099
-----------------------------------------------------------------------
Final amounts for 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.
11
Nuveen Tax-Advantaged Total Return Strategy Fund
JTA
PERFORMANCE
OVERVIEW As of December 31, 2006
(PORTFOLIO ALLOCATION PIE CHART)
(as a % of total investments)
--------------------------------------------------------------------------------------
Common Stocks 71.7%
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Variable Rate Senior Loan Interests 17.0%
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$25 Par (or similar) Securities 7.8%
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Short-Term Investments 1.6%
--------------------------------------------------------------------------------------
Corporate Bonds 1.2%
--------------------------------------------------------------------------------------
Capital Preferred Securities 0.7%
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(2006 MONTHLY DISTRIBUTIONS BAR CHART)
Jan 0.125
Feb 0.125
Mar 0.125
Apr 0.125
May 0.125
Jun 0.130
Jul 0.130
Aug 0.130
Sep 0.140
Oct 0.140
Nov 0.140
Dec 0.150
(SHARE PRICE PERFORMANCE CHART)
Past performance is not predictive of future results.
1/01/06 21.3
20.93
21.76
21.48
22.5
22.25
22.03
22.15
22.75
22.74
21.78
22.45
22.99
22.39
22.18
21.95
21.98
22
22.37
21.74
21.51
21.77
22.45
22.23
22.09
22.2
22.69
22.89
22.88
22.55
22.5
23.39
23.67
23.3
23.5
23.59
24.36
23.72
24.11
24.64
24.42
24.88
25
25.05
25
25.09
25.6
25.87
26.54
26.52
26.13
27
26.4
27.02
27.09
12/31/06 27.09
FUND SNAPSHOT
--------------------------------------------------------------------------------------
Common Share Price(1) $27.09
--------------------------------------------------------------------------------------
Common Share Net Asset Value(1) $25.98
--------------------------------------------------------------------------------------
Premium/(Discount) to NAV 4.27%
--------------------------------------------------------------------------------------
Current Distribution Rate(2) 6.64%
--------------------------------------------------------------------------------------
Net Assets Applicable to
Common Shares ($000) $360,740
--------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN(3)
(Inception 1/27/04)
--------------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
--------------------------------------------------------------------------------------
1-Year 35.52% 24.19%
--------------------------------------------------------------------------------------
Since
Inception 18.43% 18.13%
--------------------------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
--------------------------------------------------------------------------------------
Diversified Telecommunication Services 8.8%
--------------------------------------------------------------------------------------
Insurance 7.1%
--------------------------------------------------------------------------------------
Media 6.0%
--------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels 5.9%
--------------------------------------------------------------------------------------
Thrifts & Mortgage Finance 5.9%
--------------------------------------------------------------------------------------
Tobacco 5.9%
--------------------------------------------------------------------------------------
Electric Utilities 5.3%
--------------------------------------------------------------------------------------
Commercial Banks 5.1%
--------------------------------------------------------------------------------------
Aerospace & Defense 5.1%
--------------------------------------------------------------------------------------
Other 44.9%
--------------------------------------------------------------------------------------
COUNTRIES
(as a % of total investments)
--------------------------------------------------------------------------------------
United States 82.2%
--------------------------------------------------------------------------------------
South Korea 4.5%
--------------------------------------------------------------------------------------
United Kingdom 3.5%
--------------------------------------------------------------------------------------
Italy 2.9%
--------------------------------------------------------------------------------------
Portugal 1.8%
--------------------------------------------------------------------------------------
Other 5.1%
--------------------------------------------------------------------------------------
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. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a tax return of capital.
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 37.15% and 18.92%, for the one-year
and since inception periods, respectively. The Fund's corresponding average
annual total returns on NAV when this benefit is included are 25.75% and
18.64%, for the one-year and since inception periods, respectively.
12
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN TAX-ADVANTAGED TOTAL RETURN STRATEGY FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Nuveen Tax- Advantaged Total Return Strategy
Fund (the "Fund") as of December 31, 2006, and the related statements of
operations and cash flows 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,
selling or agent banks and brokers or by other appropriate auditing procedures
where replies from selling or agent banks or brokers were not received. 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
Tax-Advantaged Total Return Strategy Fund at December 31, 2006, the results of
its operations and cash flows 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
13
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA)
Portfolio of
INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 103.3% (71.7% OF TOTAL INVESTMENTS)
AEROSPACE & DEFENSE - 5.8%
94,000 Lockheed Martin Corporation $ 8,654,580
235,000 Raytheon Company 12,408,000
---------------------------------------------------------------------------------------------------------------------------------
Total Aerospace & Defense 21,062,580
--------------------------------------------------------------------------------------------------------------------
CAPITAL MARKETS - 2.7%
205,000 JPMorgan Chase & Co. 9,901,500
---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 4.8%
155,500 Wachovia Corporation 8,855,725
240,000 Wells Fargo & Company 8,534,400
---------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 17,390,125
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 3.8%
296,600 Pitney Bowes Inc. 13,699,954
---------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS EQUIPMENT - 2.2%
377,600 Motorola, Inc. 7,763,456
---------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 1.8%
300,000 Packaging Corp. of America 6,630,000
---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 5.0%
325,400 Citigroup Inc. 18,124,780
---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 11.0%
385,000 AT&T Inc. 13,763,750
343,000 KT Corporation, Sponsored ADR 8,695,050
235,000 Telecom Italia S.p.A., Sponsored ADR 5,922,000
301,500 Verizon Communications Inc. 11,227,860
---------------------------------------------------------------------------------------------------------------------------------
Total Diversified Telecommunication Services 39,608,660
--------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 4.7%
187,100 EDP - Energias de Portugal, S.A., Sponsored ADR 9,478,486
323,000 Korea Electric Power Corporation, Sponsored ADR 7,335,330
---------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 16,813,816
--------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 2.5%
307,000 Newell Rubbermaid Inc. 8,887,650
---------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 3.0%
160,000 Kimberly-Clark Corporation 10,872,000
---------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES - 2.1%
200,000 General Electric Company 7,442,000
---------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 7.7%
289,400 Aon Corporation 10,227,396
187,200 Hartford Financial Services Group, Inc. 17,467,632
---------------------------------------------------------------------------------------------------------------------------------
Total Insurance 27,695,028
--------------------------------------------------------------------------------------------------------------------
MACHINERY - 1.3%
75,000 Caterpillar Inc. 4,599,750
---------------------------------------------------------------------------------------------------------------------------------
MEDIA - 5.1%
200,000 CBS Corporation, Class B 6,236,000
339,000 Clear Channel Communications, Inc. 12,048,060
---------------------------------------------------------------------------------------------------------------------------------
Total Media 18,284,060
--------------------------------------------------------------------------------------------------------------------
14
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 4.6%
236,900 Alumina Limited, Sponsored ADR $ 4,714,310
90,000 POSCO, ADR 7,440,300
21,000 Rio Tinto PLC, Sponsored ADR 4,462,290
---------------------------------------------------------------------------------------------------------------------------------
Total Metals & Mining 16,616,900
--------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 1.5%
180,000 United Utilities PLC, Sponsored ADR 5,529,600
---------------------------------------------------------------------------------------------------------------------------------
OIL, GAS & CONSUMABLE FUELS - 8.6%
80,000 ChevronTexaco Corporation 5,882,400
113,400 ConocoPhillips 8,159,130
132,500 Eni S.p.A., Sponsored ADR 8,914,600
110,000 Total SA, Sponsored ADR 7,911,200
---------------------------------------------------------------------------------------------------------------------------------
Total Oil, Gas & Consumable Fuels 30,867,330
--------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 3.3%
220,000 International Paper Company 7,502,000
270,200 Stora Enso Oyj, Sponsored ADR 4,266,458
---------------------------------------------------------------------------------------------------------------------------------
Total Paper & Forest Products 11,768,458
--------------------------------------------------------------------------------------------------------------------
PHARMACEUTICALS - 1.4%
198,000 Pfizer Inc. 5,128,200
---------------------------------------------------------------------------------------------------------------------------------
ROAD & RAIL - 2.3%
90,000 Union Pacific Corporation 8,281,800
---------------------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 8.4%
260,000 Fannie Mae 15,441,400
330,000 IndyMac Bancorp, Inc. 14,902,800
---------------------------------------------------------------------------------------------------------------------------------
Total Thrifts & Mortgage Finance 30,344,200
--------------------------------------------------------------------------------------------------------------------
TOBACCO - 8.5%
235,000 Altria Group, Inc. 20,167,698
159,900 Loews Corp - Carolina Group 10,348,728
---------------------------------------------------------------------------------------------------------------------------------
Total Tobacco 30,516,426
--------------------------------------------------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES - 1.2%
159,500 Vodafone Group PLC 4,430,910
---------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (COST $284,029,578) 372,259,183
====================================================================================================================
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
$25 PAR (OR SIMILAR) PREFERRED SECURITIES - 11.2% (7.8% OF TOTAL INVESTMENTS)
CAPITAL MARKETS - 0.9%
25,000 Goldman Sachs Group Inc., Series D, (6) 6.045% A $ 651,563
20,000 Goldman Sachs Group Inc., (6) 6.200% A 522,400
77,700 Lehman Brothers Holdings Inc., Series F, (6) 6.500% A- 1,989,120
---------------------------------------------------------------------------------------------------------------------------------
Total Capital Markets 3,163,083
--------------------------------------------------------------------------------------------------------------------
COMMERCIAL BANKS - 2.5%
41,100 Abbey National PLC, Series C 7.375% A2 1,046,406
40,000 ABN AMRO Capital Trust Fund VII 6.080% A 1,000,000
25,000 Banco Santander, (6) 6.410% A2 634,000
50,000 Bank of America Corporation, Series D, (6) 6.204% A1 1,295,000
50,000 HSBC USA Inc., Series G 6.124% A2 1,297,000
50,000 HSBC USA Inc., (6) 6.500% A 1,330,000
40,000 Royal Bank of Scotland Group PLC, Series M 6.400% A1 1,020,000
40,000 Royal Bank of Scotland Group PLC, Series N 6.350% A1 1,020,400
20,000 SunTrust Bank Inc., (6) 5.895% A2 525,000
---------------------------------------------------------------------------------------------------------------------------------
Total Commercial Banks 9,167,806
--------------------------------------------------------------------------------------------------------------------
CONSUMER FINANCE - 0.5%
34,100 SLM Corporation, Series A, (6) 6.970% BBB+ 1,851,630
---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES - 1.6%
10,000 CIT Group Inc., Series A, (6) 6.350% BBB+ 260,700
19,500 Citigroup Inc., Series F, (6) 6.365% Aa3 982,800
28,900 Citigroup Inc., Series H, (6) 6.231% Aa3 1,460,895
50,000 Deutsche Bank Capital Funding Trust VIII 6.375% A 1,293,750
48,400 ING Group N.V. 7.200% A 1,237,588
15
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA) (continued)
Portfolio of INVESTMENTS December 31, 2006
SHARES DESCRIPTION (1) COUPON RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES (continued)
5,000 ING Group N.V. 7.050% A $ 126,950
15,000 ING Group N.V. 6.125% A 381,750
---------------------------------------------------------------------------------------------------------------------------------
Total Diversified Financial Services 5,744,433
--------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 1.7%
39,400 Alabama Power Company, Series A, (6) 5.300% BBB+ 975,938
50,000 Alabama Power Company 5.625% BBB+ 1,246,875
40,000 Georgia Power Company 6.125% Baa1 1,028,000
34,700 Interstate Power and Light Company, (6) 7.100% Baa2 890,402
40,000 Mississippi Power Company 5.250% A3 982,000
40,000 PPL Electric Utilities Corporation 6.250% BBB 1,046,252
---------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 6,169,467
--------------------------------------------------------------------------------------------------------------------
INSURANCE - 2.2%
50,300 Ace Ltd., Series C 7.800% Baa2 1,302,770
71,900 Aegon N.V., (6) 6.375% A- 1,867,243
20,000 Arch Capital Group Limited 8.000% Baa3 529,000
50,000 Endurance Specialty Holdings Limited 7.750% BBB- 1,298,000
30,000 Prudential PLC 6.750% A 769,200
30,000 Prudential PLC, (6) 6.500% A- 763,200
50,000 RenaissanceRe Holdings Ltd 6.600% BBB 1,246,500
---------------------------------------------------------------------------------------------------------------------------------
Total Insurance 7,775,913
--------------------------------------------------------------------------------------------------------------------
THRIFTS & MORTGAGE FINANCE - 0.1%
20,000 Washington Mutual Inc. 6.065% BBB 506,600
---------------------------------------------------------------------------------------------------------------------------------
U.S. AGENCY - 1.7%
20,000 Federal National Mortgage Association, (6) 5.500% AA- 948,000
19,800 Federal National Mortgage Association, (6) 5.125% AA- 884,268
25,000 Federal Home Loan Mortgage Corporation, (6) 6.420% AA- 1,318,750
18,400 Federal Home Loan Mortgage Corporation, (6) 6.000% AA- 926,440
20,000 Federal Home Loan Mortgage Corporation, (6) 5.700% AA- 950,000
27,100 Federal Home Loan Mortgage Corporation, (6) 5.000% AA- 1,228,308
---------------------------------------------------------------------------------------------------------------------------------
Total U.S. Agency 6,255,766
--------------------------------------------------------------------------------------------------------------------
TOTAL $25 PAR (OR SIMILAR) PREFERRED SECURITIES 40,634,698
(COST $40,494,632)
====================================================================================================================
PRINCIPAL WEIGHTED
AMOUNT AVERAGE
(000) DESCRIPTION (1) COUPON MATURITY (3) RATINGS (2) VALUE
-------------------------------------------------------------------------------------------------------------------------------
VARIABLE RATE SENIOR LOAN INTERESTS - 24.4% (17.0% OF TOTAL INVESTMENTS) (4)
AEROSPACE & DEFENSE - 1.5%
$ 1,632 Hexcel Corporation, Term Loan B 7.125% 3/01/12 BB- $ 1,636,066
1,633 K&F Industries, Inc., Term Loan C 7.350% 11/18/12 B+ 1,641,245
1,606 Vought Aircraft Industries, Inc., Term Loan 7.880% 12/22/11 B- 1,617,937
364 Vought Aircraft Industries, Inc., Tranche B, 7.822% 12/22/10 B- 366,136
Letter of Credit
-------------------------------------------------------------------------------------------------------------------------------
5,235 Total Aerospace & Defense 5,261,384
-------------------------------------------------------------------------------------------------------------------------------
AUTO COMPONENTS - 0.5%
2,000 Federal Mogul Corporation, Term Loan A, (5) 7.600% 2/24/04 N/R 1,975,625
-------------------------------------------------------------------------------------------------------------------------------
BUILDING PRODUCTS - 1.1%
2,000 Armstrong World Industries, Term Loan 7.100% 10/02/13 BB 2,006,375
1,769 PP Acquisition Corporation, Term Loan 8.350% 11/12/11 B 1,782,517
-------------------------------------------------------------------------------------------------------------------------------
3,769 Total Building Products 3,788,892
-------------------------------------------------------------------------------------------------------------------------------
CHEMICALS - 1.6%
1,621 Georgia Gulf Corporation, Term Loan B 7.350% 10/03/13 BB 1,631,068
1,995 Lyondell Citgo Refining LP, Term Loan 7.121% 8/16/13 BB 2,006,222
1,970 Rockwood Specialties Group, Inc., Term Loan E 7.376% 7/30/12 B+ 1,981,574
-------------------------------------------------------------------------------------------------------------------------------
5,586 Total Chemicals 5,618,864
-------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL SERVICES & SUPPLIES - 0.6%
689 Allied Waste North America, Inc., Letter of Credit 7.073% 1/15/12 Ba3 690,980
1,553 Allied Waste North America, Inc., Term Loan B 7.158% 1/15/12 Ba3 1,556,811
-------------------------------------------------------------------------------------------------------------------------------
2,242 Total Commercial Services & Supplies 2,247,791
-------------------------------------------------------------------------------------------------------------------------------
16
WEIGHTED
PRINCIPAL AVERAGE MATURITY
AMOUNT (000) DESCRIPTION (1) COUPON (3) RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
CONTAINERS & PACKAGING - 1.5%
$ 1,995 Berry Plastics Corporation, Term Loan 7.124% 8/31/13 B+ $ 2,001,858
1,995 Graham Packaging Company, L.P., Term Loan B 7.726% 10/07/11 B 2,009,161
175 Smurfit-Stone Container Corporation, 7.572% 11/01/11 B+ 175,950
Deposit-Funded Commitment
702 Smurfit-Stone Container Corporation, Term Loan B 7.625% 11/01/11 B+ 706,987
422 Smurfit-Stone Container Corporation, Term Loan C 7.625% 11/01/11 B+ 424,853
132 Smurfit-Stone Container Corporation, Tranche C-1 7.625% 11/01/11 B+ 133,323
---------------------------------------------------------------------------------------------------------------------------------
5,421 Total Containers & Packaging 5,452,132
---------------------------------------------------------------------------------------------------------------------------------
DIVERSIFIED TELECOMMUNICATION SERVICES - 1.7%
2,000 Cequel Communications LLC., Term Loan B 7.620% 11/05/13 B+ 2,004,063
1,981 Madison River Capital LLC, Term Loan 7.620% 7/29/12 B+ 1,986,834
1,995 MetroPCS Inc., Term Loan 7.875% 11/03/13 B 2,004,352
---------------------------------------------------------------------------------------------------------------------------------
5,976 Total Diversified Telecommunication Services 5,995,249
---------------------------------------------------------------------------------------------------------------------------------
ELECTRIC UTILITIES - 0.3%
990 Mirant Corporation, Term Loan 7.100% 1/03/13 BB- 990,088
---------------------------------------------------------------------------------------------------------------------------------
ELECTRICAL EQUIPMENT - 0.5%
1,583 Sensus Metering Systems Inc., Term Loan B-1 7.441% 12/17/10 B+ 1,578,652
210 Sensus Metering Systems Inc., Term Loan B-2 7.493% 12/17/10 B+ 209,692
---------------------------------------------------------------------------------------------------------------------------------
1,793 Total Electrical Equipment 1,788,344
---------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE PROVIDERS & SERVICES - 2.4%
1,719 Davita Inc., Term Loan B 7.422% 10/05/12 BB- 1,730,900
2,000 HCA, Inc., Term Loan 8.114% 11/17/13 Ba3 2,024,472
1,950 IASIS Healthcare LLC, Term Loan B 7.729% 6/22/11 B+ 1,963,894
2,000 LifePoint Hospitals Holdings, Inc., Term Loan B 6.975% 4/18/12 Ba3 1,994,875
993 Quintiles Transnational Corporation, Term Loan B 7.360% 3/31/13 B1 992,872
---------------------------------------------------------------------------------------------------------------------------------
8,662 Total Health Care Providers & Services 8,707,013
---------------------------------------------------------------------------------------------------------------------------------
HOTELS, RESTAURANTS & LEISURE - 2.4%
1,985 24 Hour Fitness Worldwide, Inc., Term Loan B 7.870% 7/17/12 B 2,002,369
122 CBRL Group, Inc., Delayed Draw, Term Loan B-2, (7) 0.075% 4/27/13 BB (305)
(8)
782 CBRL Group, Inc., Term Loan B-1 6.868% 4/27/13 BB 782,267
1,975 Penn National Gaming, Inc., Term Loan B 7.132% 10/03/12 BB 1,987,344
1,000 Pinnacle Entertainment Inc., Term Loan 7.350% 12/14/11 B1 1,004,375
909 TDS Investor Corp., Letter of Credit 8.364% 8/23/13 B+ 911,837
89 TDS Investor Corp., Term Loan 8.364% 8/23/13 B+ 89,550
342 Venetian Casino Resort, LLC, Delayed Draw, Term 7.120% 6/15/11 BB- 343,573
Loan
1,658 Venetian Casino Resort, LLC, Term Loan 7.120% 6/15/11 BB- 1,666,331
---------------------------------------------------------------------------------------------------------------------------------
8,862 Total Hotels, Restaurants & Leisure 8,787,341
---------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD PRODUCTS - 0.5%
1,923 Solo Cup Company, Term Loan 8.797% 2/27/11 CCC+ 1,938,086
---------------------------------------------------------------------------------------------------------------------------------
INSURANCE - 0.3%
1,183 Conseco, Inc., Term Loan 7.350% 10/10/13 BB- 1,188,075
---------------------------------------------------------------------------------------------------------------------------------
IT SERVICES - 1.0%
1,730 Fidelity National Information Services, Term Loan 7.100% 3/09/13 BB+ 1,732,012
B
1,975 SunGard Data Systems Inc., Term Loan B 7.875% 2/11/13 B+ 1,996,370
---------------------------------------------------------------------------------------------------------------------------------
3,705 Total IT Services 3,728,382
---------------------------------------------------------------------------------------------------------------------------------
MACHINERY - 0.1%
421 Dresser-Rand Group, Inc., Term Loan 7.355% 10/29/07 BB- 424,369
---------------------------------------------------------------------------------------------------------------------------------
MEDIA - 3.6%
1,990 Cablevision Systems Corporation, Incremental Term 7.123% 3/29/13 BB 1,992,861
Loan
2,000 Charter Communications Inc., Term Loan B 8.005% 4/28/13 B 2,015,375
2,000 Idearc Inc., Term Loan 7.350% 11/17/14 Ba2 2,012,438
988 Metro-Goldwyn-Mayer Studios, Inc., Term Loan B 8.614% 4/08/12 NA 979,489
2,000 Neilsen Finance LLC, Term Loan B 8.125% 8/01/13 B+ 2,016,389
1,886 Regal Cinemas Corporation, Term Loan 7.114% 11/10/10 BB- 1,883,551
2,180 WMG Acquisition Corp., Term Loan 7.373% 2/28/11 BB- 2,190,408
---------------------------------------------------------------------------------------------------------------------------------
13,044 Total Media 13,090,511
---------------------------------------------------------------------------------------------------------------------------------
17
Nuveen Tax-Advantaged Total Return Strategy Fund (JTA) (continued)
Portfolio of INVESTMENTS December 31, 2006
WEIGHTED
PRINCIPAL AVERAGE MATURITY
AMOUNT (000) DESCRIPTION (1) COUPON (3) RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
METALS & MINING - 0.4%
$ 1,032 Amsted Industries Incorporated, Delayed Draw, Term 0.500% 4/05/13 BB- $ (18,056)
Loan, (7) (8)
1,425 Amsted Industries Incorporated, Term Loan B 7.369% 4/05/13 BB- 1,425,814
---------------------------------------------------------------------------------------------------------------------------------
2,457 Total Metals & Mining 1,407,758
---------------------------------------------------------------------------------------------------------------------------------
MULTI-UTILITIES - 0.6%
591 NRG Energy Inc., Credit-Linked Deposit 7.364% 2/01/13 BB- 594,851
1,434 NRG Energy Inc., Term Loan 7.364% 2/01/13 BB- 1,443,400
---------------------------------------------------------------------------------------------------------------------------------
2,025 Total Multi-Utilities 2,038,251
---------------------------------------------------------------------------------------------------------------------------------
PAPER & FOREST PRODUCTS - 1.1%
3,975 Georgia-Pacific Corporation, Term Loan B 7.356% 2/13/12 BB- 3,998,148
---------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE MANAGEMENT & DEVELOPMENT - 0.4%
1,500 LNR Property Corporation, Term Loan B 8.120% 7/12/11 B2 1,507,813
---------------------------------------------------------------------------------------------------------------------------------
SEMICONDUCTORS & EQUIPMENT - 0.5%
1,777 Advanced Micro Devices, Term Loan B 7.620% 12/31/13 BB- 1,788,318
---------------------------------------------------------------------------------------------------------------------------------
SPECIALTY RETAIL - 0.4%
1,500 TRU 2005 RE Holding Co. 1, Term Loan, WI/DD TBD TBD B 1,507,500
---------------------------------------------------------------------------------------------------------------------------------
TEXTILES, APPAREL & LUXURY GOODS - 0.5%
1,852 HanesBrands Inc., Term Loan 7.681% 9/15/13 BB- 1,871,939
---------------------------------------------------------------------------------------------------------------------------------
TRADING COMPANIES & DISTRIBUTORS - 0.9%
1,000 Ashtead Group Public Limited Company, Term Loan B 7.188% 8/31/11 B3 1,000,000
196 Brenntag Holding GmbH and Company KG, Acquisition 8.080% 1/20/14 B 197,714
Facility Term Loan
804 Brenntag Holdings, Term Loan B2 8.080% 1/20/14 B 812,175
337 United Rentals Inc., Credit Linked Deposit 5.220% 2/13/11 BB- 338,842
744 United Rentals Inc., Term Loan B 7.350% 2/14/11 BB- 748,276
---------------------------------------------------------------------------------------------------------------------------------
3,081 Total Trading Companies & Distributors 3,097,007
---------------------------------------------------------------------------------------------------------------------------------
$ 88,979 TOTAL VARIABLE RATE SENIOR LOAN INTERESTS
(COST $87,750,019) 88,198,880
=================================================================================================================================
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 1.7% (1.2% OF TOTAL INVESTMENTS)
HOTELS, RESTAURANTS & LEISURE - 1.1%
$ 2,000 MGM Mirage, Inc. 6.750% 8/01/07 BB $ 2,017,500
2,000 Park Place Entertainment 8.875% 9/15/08 Ba1 2,090,000
---------------------------------------------------------------------------------------------------------------------------------
4,000 Total Hotels, Restaurants & Leisure 4,107,500
---------------------------------------------------------------------------------------------------------------------------------
HOUSEHOLD DURABLES - 0.6%
2,000 D.R. Horton, Inc. 7.500% 12/01/07 BBB- 2,035,456
---------------------------------------------------------------------------------------------------------------------------------
$ 6,000 TOTAL CORPORATE BONDS (COST $6,178,185) 6,142,956
=================================================================================================================================
SHARES DESCRIPTION (1) COUPON MATURITY RATINGS (2) VALUE
---------------------------------------------------------------------------------------------------------------------------------
CAPITAL PREFERRED SECURITIES - 1.0% (0.7% OF TOTAL INVESTMENTS)
ELECTRIC UTILITIES - 1.0%
12,400 Consolidated Edison Company of New York Inc. 5.000% 8/01/53 A3 $ 1,165,500
9,000 Southern California Edison Company, Series A 5.349% 4/27/35 Baa2 915,750
10,000 Southern California Edison Company, Series C 6.000% 4/30/56 Baa2 1,029,688
5,000 Southern California Edison Company 6.125% 12/31/55 Baa2 510,000
---------------------------------------------------------------------------------------------------------------------------------
Total Electric Utilities 3,620,938
------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL PREFERRED SECURITIES
(COST $3,478,855) 3,620,938
==================================================================================================================
18
PRINCIPAL
AMOUNT
(000) DESCRIPTION (1) COUPON MATURITY VALUE
---------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.3% (1.6% OF TOTAL INVESTMENTS)
$ 8,334 Repurchase Agreement with Fixed Income Clearing 4.580% 1/02/07 $ 8,334,229
Corporation, dated 12/29/06, repurchase price
$8,338,470, collateralized by $8,720,000 U.S.
Treasury Notes, 3.000%, due 2/15/09, value
$8,502,000
========== --------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $8,334,229) 8,334,229
====================================================================================================================
TOTAL INVESTMENTS (COST $430,265,498) - 143.9% 519,190,884
====================================================================================================================
BORROWINGS PAYABLE - (9.1)% (9) (33,000,000)
====================================================================================================================
FUNDNOTES - (21.6)% (78,000,000)
====================================================================================================================
OTHER ASSETS LESS LIABILITIES - (0.7)% (2,450,677)
====================================================================================================================
FUNDPREFERRED SHARES, AT LIQUIDATION VALUE - (12.5)% (45,000,000)
====================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 360,740,207
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Ratings (not covered by the report of independent registered public accounting firm):
Using the higher of Standard & Poor's or Moody's rating. Ratings below BBB by Standard &
Poor's Group or Baa by Moody's Investor Service, Inc. are considered to be below
investment grade.
(3) Senior Loans 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 may occur. As a result,
the actual remaining maturity of Senior Loans held may be substantially less than the
stated maturities shown.
(4) 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 an
assigned fixed rate. These floating lending rates are generally (i) the lending rate
referenced by the London Inter-Bank Offered Rate ('LIBOR'), or (ii) the prime rate offered
by one or more major United States banks.
Senior Loans may be considered 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.
(5) At or subsequent to December 31, 2006, this issue was under the protection of the Federal
Bankruptcy Court.
(6) Investment is eligible for the Dividends Received Deduction.
(7) Position represents an unfunded Senior Loan commitment outstanding at December 31, 2006.
(8) Negative value represents unrealized depreciation on Senior Loan commitment at December
31, 2006.
(9) Borrowings payable as a percentage of total investments is (6.4)%.
N/R Not rated.
WI/DD Purchased on a when-issued/delayed delivery basis.
ADR American Depositary Receipt.
TBD Senior Loan purchased on a when-issued/delayed-delivery basis. Certain details associated
with this purchase are not known prior to the settlement date of the transaction. In
addition, Senior Loans typically trade without accrued interest and therefore a weighted
average coupon rate is not available prior to settlement. At settlement, if still unknown,
the Borrower or counterparty will provide the Fund with the final weighted average coupon
rate and maturity date.
See accompanying notes to financial statements.
19
Statement of
ASSETS AND LIABILITIES December 31, 2006
---------------------------------------------------------------------------
ASSETS
Investments, at value (cost $430,265,498) $ 519,190,884
Receivables:
Dividends 1,021,122
Interest 1,003,261
Investments sold 523,637
Reclaims 48,921
Deferred FundNotes offering costs 1,679,189
Other assets 18,320
---------------------------------------------------------------------------
Total assets 523,485,334
---------------------------------------------------------------------------
LIABILITIES
Borrowings 33,000,000
Payables:
Investments purchased 1,496,250
Federal corporate income tax 4,560,679
FundNotes 78,000,000
Accrued expenses:
Management fees 248,064
Interest on borrowings 292,426
Other 97,678
FundNotes interest payable 28,574
FundPreferred shares dividends payable 21,456
---------------------------------------------------------------------------
Total liabilities 117,745,127
---------------------------------------------------------------------------
FundPreferred shares, at liquidation value 45,000,000
---------------------------------------------------------------------------
Net assets applicable to Common shares $ 360,740,207
---------------------------------------------------------------------------
Common shares outstanding 13,887,934
---------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to
Common shares, divided by Common shares outstanding) $ 25.98
---------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
---------------------------------------------------------------------------
Common shares, $.01 par value per share $ 138,879
Paid-in surplus(1) 272,078,433
Undistributed (Over-distribution of) net investment income (402,491)
Accumulated net realized gain (loss) from investments --
Net unrealized appreciation (depreciation) of investments 88,925,386
---------------------------------------------------------------------------
Net assets applicable to Common shares $ 360,740,207
---------------------------------------------------------------------------
Authorized shares:
Common Unlimited
FundPreferred Unlimited
---------------------------------------------------------------------------
(1) Includes retained realized long-term capital gains of $13,030,512, net of
Federal corporate income taxes of $4,560,679.
See accompanying notes to financial statements.
20
Statement of
OPERATIONS Year Ended December 31, 2006
-----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign tax withheld of $230,928) $13,784,299
Interest 6,351,217
Fees 33,354
-----------------------------------------------------------------------------
Total investment income 20,168,870
-----------------------------------------------------------------------------
EXPENSES
Management fees 4,157,269
FundNotes interest expense and amortization of offering
costs 3,692,413
FundNotes and FundPreferred shares - auction fees 307,502
FundNotes and FundPreferred shares - dividend disbursing
agent fees 18,292
Shareholders' servicing agent fees and expenses 1,171
Interest expense 767,333
Custodian's fees and expenses 102,368
Trustees' fees and expenses 14,635
Professional fees 58,678
Shareholders' reports - printing and mailing expenses 69,570
Stock exchange listing fees 9,823
Investor relations expense 48,735
Other expenses 29,149
-----------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 9,276,938
Custodian fee credit (4,006)
Expense reimbursement (1,499,504)
-----------------------------------------------------------------------------
Net expenses 7,773,428
-----------------------------------------------------------------------------
Net investment income 12,395,442
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments (net of Federal
corporate income taxes of $4,560,679 on long-term capital
gains retained) 19,797,397
Change in net unrealized appreciation (depreciation) of
investments 42,186,210
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 61,983,607
-----------------------------------------------------------------------------
DISTRIBUTIONS TO FUNDPREFERRED SHAREHOLDERS
From net investment income (684,168)
From accumulated net realized gains (1,265,973)
-----------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to FundPreferred shareholders (1,950,141)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $72,428,908
-----------------------------------------------------------------------------
See accompanying notes to financial statements.
21
Statement of
CHANGES IN NET ASSETS
YEAR ENDED YEAR ENDED
12/31/06 12/31/05
-------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 12,395,442 $ 11,442,855
Net realized gain (loss) from investments (net of Federal
corporate income taxes of $4,560,679 and $0, respectively,
on long-term capital gains retained) 19,797,397 12,944,299
Change in net unrealized appreciation (depreciation) of
investments 42,186,210 11,499,504
Distributions to FundPreferred shareholders:
From net investment income (684,168) (684,143)
From accumulated net realized gains (1,265,973) (688,954)
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares
from operations 72,428,908 34,513,561
-------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (12,216,747) (10,801,295)
From accumulated net realized gains (9,753,316) (12,626,529)
-------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (21,970,063) (23,427,824)
-------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Offering costs adjustments (4,264) --
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 817,373 --
FundPreferred shares offering costs adjustments 15,800 (82,512)
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from
capital share transactions 828,909 (82,512)
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares 51,287,754 11,003,225
Net assets applicable to Common shares at the beginning of
year 309,452,453 298,449,228
-------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of year $ 360,740,207 $ 309,452,453
-------------------------------------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of year $ (402,491) $ (50,778)
-------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
22
Statement of
CASH FLOWS Year Ended December 31, 2006
----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCREASE (DECREASE) IN NET ASSETS APPLICABLE TO COMMON
SHARES FROM OPERATIONS $ 72,428,908
Adjustments to reconcile the net increase (decrease) in net
assets applicable to Common shares from operations
to net cash provided by (used in) operating activities:
Purchases of investments (140,181,278)
Proceeds from sales of investments 113,720,783
Proceeds from (Purchases of) short-term investments, net 4,806,153
Amortization/(Accretion) of premiums and discounts, net 173,127
(Increase) Decrease in receivable for dividends 189,863
(Increase) Decrease in receivable for interest (302,481)
(Increase) Decrease in receivable for investments sold (491,216)
(Increase) Decrease in receivable for reclaims (18,259)
(Increase) Decrease in other assets (8,429)
Increase (Decrease) in payable for investments purchased (637,174)
Increase (Decrease) in payable for Federal corporate
income tax 4,560,679
Increase (Decrease) in accrued management fees 37,491
Increase (Decrease) in interest on borrowings 292,426
Increase (Decrease) in accrued other liabilities (16,710)
Increase (Decrease) in FundNotes interest payable 12,635
Increase (Decrease) in FundPreferred shares dividends
payable 4,808
Net realized (gain) loss from investments (19,797,397)
Net realized (gain) loss from paydowns 72,883
Change in net unrealized (appreciation) depreciation of
investments (42,186,210)
Federal corporate income taxes on retained capital gains (4,560,679)
----------------------------------------------------------------------------
Net cash provided by (used in) operating activities (11,900,077)
----------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions paid to Common shareholders (21,156,954)
Change in borrowings 33,000,000
FundNotes:
(Increase) Decrease in deferred FundNotes offering costs 41,231
FundPreferred shares offering costs adjustments 15,800
----------------------------------------------------------------------------
Net cash provided by (used in) financing activities 11,900,077
----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH --
Cash at the beginning of year --
----------------------------------------------------------------------------
CASH AT THE END OF YEAR $ --
----------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest on borrowings during the fiscal year ended December 31,
2006, was $474,907.
Cash paid for interest on FundNotes (excluding amortization of FundNotes
offering costs) during the fiscal year ended December 31, 2006, was $3,638,547.
Non-cash financing activities not included herein consist of reinvestments of
Common share distributions of $817,373.
See accompanying notes to financial statements.
23
Notes to
FINANCIAL STATEMENTS
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.
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. 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 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.
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 senior loans, 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. Trade date for senior loans purchased in
the "secondary market" is the date on which the transaction is entered into.
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
maintains liquid 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 outstanding when-issued/delayed delivery purchase commitments of
$1,496,250.
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. Fee income, if any, consists primarily of amendment fees. Amendment fees
are earned as compensation for evaluating and accepting changes to the original
loan agreement and are recognized when received.
24
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 $13,030,512 of realized long-term capital
gains, and accrued a provision for Federal corporate income taxes of $4,560,679,
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 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.
FundNotes
The Fund has issued and outstanding 3,120 Series F FundNotes, $25,000 stated
value per share, that mature on April 24, 2034. The interest rate paid by the
Fund 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.
For the fiscal year ended December 31, 2006, the average daily balance of
FundNotes was $78 million with an average annualized interest rate (including
amortization of the FundNotes offering costs) of 4.73%.
FundPreferred Shares
The Fund has issued and outstanding 1,800 Series W FundPreferred shares, $25,000
stated value per share, as a means of effecting financial leverage. The dividend
rate paid by the Fund 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.
Derivative Financial Instruments
The Fund is authorized to invest in 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 invest in any such
instruments during the fiscal year ended December 31, 2006.
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
Costs incurred by the Fund in connection with its offering of FundNotes are
recorded as a deferred charge which are being amortized over the 30 year life of
the FundNotes and included with "FundNotes interest expense and amortization of
offering costs" on the Statement of Operations.
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.
25
Notes to
FINANCIAL STATEMENTS (continued)
2. FUND SHARES
During the fiscal year ended December 31, 2006, 32,694 shares were issued to
shareholders due to reinvestment of distributions. The Fund did not engage in
transactions in its own shares during the fiscal year ended December 31, 2005.
3. INVESTMENT TRANSACTIONS
Purchases and sales (excluding short-term investments) during the fiscal year
ended December 31, 2006, aggregated $140,181,278 and $113,720,783, 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 the treatment of paydown gains and losses, recognition of
premium amortization, 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 Fund.
At December 31, 2006, the cost of investments was $430,647,633.
Gross unrealized appreciation and gross unrealized depreciation of investments
at December 31, 2006, were as follows:
-------------------------------------------------------------------------------
Gross unrealized:
Appreciation $93,443,663
Depreciation (4,900,412)
-------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments $88,543,251
-------------------------------------------------------------------------------
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 * $13,681,235
Distributions from net long-term capital gains ** 10,235,261
-------------------------------------------------------------------------------
2005
-------------------------------------------------------------------------------
Distributions from net ordinary income * $12,615,936
Distributions from net long-term capital gains 12,174,921
-------------------------------------------------------------------------------
*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.
26
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.
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 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 Depositary 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.
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.
27
Notes to
FINANCIAL STATEMENTS (continued)
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 December 31, 2006, the Fund had unfunded senior loan commitments
of $1,153,821.
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 December 31, 2006, there
were no such outstanding participation commitments.
8. BORROWINGS
On August 2, 2006, the Fund entered into a $33 million revolving credit
agreement with CITIBANK, N.A. On August 3, 2006, the Fund had borrowed the full
$33 million allowed under the revolving credit agreement. For the fiscal year
ended December 31, 2006, the average daily balance of borrowings under the
revolving credit agreement was $13,652,055. The average annualized interest rate
on such borrowings was 5.62%.
9. 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.
10. SUBSEQUENT EVENT
Distributions to Common Shareholders
The Fund declared a distribution of $.1500 per Common share which was paid on
February 1, 2007, to shareholders of record on January 15, 2007.
28
Financial
HIGHLIGHTS
29
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations
-----------------------------------------------------------------
Distributions
from Net Distributions
Beginning Net Investment from Capital
Common Realized/ Income to Gains to
Share Net Unrealized FundPreferred FundPreferred
Net Asset Investment Gain Share- Share-
Value Income(a) (Loss)(b) holders+ holders+ Total
-----------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 22.33 $ .89 $ 4.48 $ (.05) $ (.09) $ 5.23
2005 21.54 .83 1.76 (.05) (.05) 2.49
2004(c) 19.10 .67 2.69 (.03) -- 3.33
-----------------------------------------------------------------------------------------------------
Less Distributions
------------------------------
Net Offering
Investment Capital Costs and Ending
Income to Gains to FundPreferred Common
Common Common Share Share Ending
Share- Share- Underwriting Net Asset Market
holders holders Total Discounts Value Value
-------------------- -----------------------------------------------------------------------
Year Ended 12/31:
2006 $ (.88) $ (.70) $(1.58) $ -- $ 25.98 $ 27.09
2005 (.78) (.91) (1.69) (.01) 22.33 21.37
2004(c) (.67) (.10) (.77) (.12) 21.54 19.35
-------------------- ----------------------------------------------------------------------
FundNotes at End of Period
-------------------------------------------------
Aggregate Average Market Asset
Amount Value Per Coverage Per
Outstanding $25,000 of $1,000 of
(000) Principal Amount Principal Amount
---------------------------------------------------------------------------------------------
Year Ended 12/31:
2006 $ 78,000 $ 25,000 $ 6,202
2005 78,000 25,000 5,544
2004(c) 78,000 25,000 5,403
---------------------------------------------------------------------------------------------
FundPreferred Shares at End of Period Borrowings at End of Period
--------------------------------------- ---------------------------
Aggregate Liquidation Aggregate
Amount and Market Asset Amount Asset
Outstanding Value Coverage Outstanding Coverage
(000) Per Share Per Share (000) Per $1,000
----------------------------------------- ---------------------------------------------------------------------
Year Ended 12/31:
2006 $ 45,000 $ 25,000 $ 225,411 $ 33,000 $ 15,659
2005 45,000 25,000 196,918 -- --
2004(c) 45,000 25,000 190,805 -- --
----------------------------------------- ---------------------------------------------------------------------
* 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 37.15% and 25.75%, 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 FundPreferred
shareholders.
- Income ratios reflect income earned on assets attributable to
FundPreferred shares, FundNotes and borrowings.
- 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 and borrowings as follows:
Ratio of FundNotes Interest Expense and Ratio of Borrowings
Amortization of FundNotes Offering Costs Interest Expense to
to Average Net Assets Applicable to Average Net Assets
Common Shares Applicable to Common Shares
---------------------------------------- ---------------------------
2006 1.11% .23%
2005 .80 --
2004(c) .37* --
(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 $0.33 per share for the fiscal year ended December 31,
2006.
(c) For the period January 27, 2004 (commencement of operations) through
December 31, 2004.
30
Ratios/Supplemental Data
--------------------------------------------------------------------------------
Ratios to Average Ratios to Average
Net Assets Applicable to Net Assets Applicable to
Common Shares Before Common Shares After
Total Returns Credit/Reimbursement Credit/Reimbursement***
------------------- ------------------------- -------------------------
Based
on
Common Ending Net
Based Share Assets
on Net Applicable Net Net Portfolio
Market Asset to Common Investment Investment Turnover
Value** Value** Shares (000) Expenses++ Income++ Expenses++ Income++ Rate
-----------------------------------------------------------------------------------------------------------
35.52% 24.19% $ 360,740 2.79% 3.28% 2.34% 3.73% 25%
20.00 11.93 309,452 2.26 3.36 1.81 3.81 26
.91 17.18 298,449 1.80* 3.30* 1.37* 3.73* 16
-----------------------------------------------------------------------------------------------------------
---
---
31
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).
-------------------------------------------------------------------------------------------------------------------------------
David J. Kundert Board member 2005 Director, Northwestern Mutual 170
10/28/42 Wealth Management Company; Retired
333 W. Wacker Drive (since 2004) as Chairman, JPMorgan
Chicago, IL 60606 Fleming Asset Management, President
and CEO, Banc One Investment
Advisors Corporation, and
President, One Group Mutual Funds;
prior thereto, Executive Vice
President, Banc One Corporation and
Chairman and CEO, Banc One
Investment Management Group; Board
of Regents, Luther College; member
of the Wisconsin Bar Association;
member of Board of Directors,
Friends of Boerner Botanical
Gardens; member of Board of
Directors, Milwaukee Repertory
Theater.
32
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.
33
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).
34
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
35
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.
36
Reinvest Automatically
EASILY AND CONVENIENTLY
NUVEEN EXCHANGE-TRADED CLOSED-END FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Exchange-Traded 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, however, if shares begin trading at or above net
asset value during the purchase period, the Fund will issue new shares at the
greater of the net asset value of 95% of the then current market price.
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.
37
Notes
38
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 Tax-Advantaged Total Return Strategy Fund (JTA) designates 73.75% of
dividends declared from net investment income as dividends qualifying for the
70% dividends received deduction for corporations and 94.21% 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
David J. Kundert
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
39
(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-C-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 Tax-Advantage Total Return Strategy 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 $ 23,000 $0 $800 $1,550
-----------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0% 0%
pursuant to
pre-approval
exception
-----------------------------------------------------------------------------------------------------------------------------------
December 31, 2005 $ 21,600 $0 $822 $ 900
-----------------------------------------------------------------------------------------------------------------------------------
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 $2,350 $5,400 $0 $7,750
December 31, 2005 $1,722 $4,950 $0 $6,672
"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 NWQ Investment Management Company, LLC ("NWQ") and
Symphony Asset Management, LLC ("Symphony") (NWQ and Symphony are also
collectively referred to as "Sub-Advisers") as Sub-Advisers to provide
discretionary investment advisory services. As part of these services, the
Adviser has also delegated to each 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 each Sub-Adviser's voting to
ensure that they are carrying out their duties. The Sub-Advisers' proxy voting
policies and procedures are summarized as follows:
NWQ
NWQ's Proxy Voting Policies and Procedures apply to securities held in client
accounts over which NWQ Investment Management Company, LLC ("NWQ") has voting
authority. NWQ shall vote proxies in respect of securities owned by or on
behalf of a client in the client's best interests and without regard to the
interests of NWQ or any other client of NWQ. NWQ has a Proxy Voting Committee
to supervise the proxy voting process, including the identifying material
conflicts of interest. Unless the Proxy Voting Committee otherwise determines
(and documents the basis for its decision) or as otherwise provided below, the
Proxy Voting Committee shall cause proxies to be voted in a manner consistent
with the recommendations or guidelines of an independent third party proxy
service or other third party. In most cases, NWQ has adopted the guidelines of
and will generally vote in accordance with the recommendations of Institutional
Shareholder Services, Inc. As a general matter, unless otherwise restricted NWQ
reserves the right to override the applicable Recommendations or Guidelines in
any situation where it believes that following such Recommendations or
Guidelines is not in its clients' best interests.
Where any material conflict of interest has been identified and the matter is
covered by the applicable Recommendation or Guidelines, the Proxy Voting
Committee shall cause proxies to be voted in accordance with the applicable
Recommendation or Guidelines. Where any material conflict of interest has been
identified and the matter is not covered by the applicable Recommendation or
Guidelines, NWQ may (i) vote in accordance with the recommendation of an
alterative independent third party (who may be an proxy voting service) or (ii)
disclose the conflict to the client, obtain the client's consent to vote, and
make the proxy voting determination itself (and document the basis for the
decision).
NWQ may determine not to vote proxies in respect of securities of any issuer if
it determines it would be in its clients' overall best interests not to vote.
NWQ may decline to vote proxies where the voting would in NWQ's judgment result
in some other financial, administrative, legal or regulatory disability or
burden to NWQ or the client (such as blocking subsequent purchases or imputing
control with respect to the issuer). To the extent that NWQ receives proxies for
securities that are transferred into a client's portfolio that were not
recommended or selected by NWQ and are sold or expected to be sold promptly in
an orderly manner ("legacy securities"), NWQ will generally refrain from voting
such proxies.
NWQ shall retain required records relating to the voting of proxies and shall
provide a client with information on how NWQ voted proxies on behalf of the
client as requested.
SYMPHONY
Symphony uses the proxy voting services of Institutional Shareholder Services
("ISS"). The ISS Proxy Voting Services provide Symphony and its clients with an
independent source of proxy voting research and services. The use of ISS is
designed to offer client-centered proxy voting which minimizes conflicts of
interests between Symphony's interests and those of its clients.
In order to monitor how ISS votes client proxies, Symphony has established a
Proxy Voting Review Committee (the "Committee"). The Committee is composed of
Symphony's Chief Operating Officer and its Chief Investment Officer. Each year,
the Committee reviews ISS proxy voting policies and practices to determine
whether such policies and practices are consistent with Symphony's fiduciary
duty to the clients for whom Symphony is responsible for voting proxies. During
the year, the Committee review how ISS votes on specific issues. From time to
time, the Committee discusses the proxy voting process with representatives of
ISS in order to ensure that Symphony's client interests are being protected.
When Symphony disagrees with ISS' policies with respect to certain issues,
Symphony will direct the voting of its clients' proxies according to what
Symphony believes is the best interests of its clients.
Clients who have questions about how particular proxies are voted for their
account may request such information from Symphony by calling (415) 676-4000.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
The Adviser has engaged Symphony Asset Management, LLC ("Symphony") and NWQ
Investment Company, LLC ("NWQ") (Symphony and NWQ are also collectively referred
to as "Sub-Advisers") as Sub-Advisers to provide discretionary investment
advisory services with respect to the registrant's investments in senior loans
and other debt instruments and equity investments, respectively. The following
section provides information on the portfolio managers at each Sub-Adviser:
SYMPHONY
Item 8 (a)(1). PORTFOLIO MANAGER BIOGRAPHIES:
GUNTHER STEIN, Director of Fixed Income Strategies, Portfolio Manager
Gunther Stein is the lead portfolio manager for High Yield strategies at
Symphony and is the lead portfolio manager of Symphony's senior loan asset
management team. Prior to joining Symphony in 1999, Gunther was a high yield
portfolio manager at Wells Fargo Bank, where he was responsible for investing in
public high yield bonds and bank loans and also managed a team of credit
analysts. Gunther joined Wells Fargo in 1993 as an Associate in its Loan
Syndications/Leveraged Finance Group. Previously, Gunther worked for four years
as a euro-currency deposit trader with First Interstate Bank. He has also worked
for Standard Chartered Bank, Mexico City and Citibank Investment Bank, London.
He completed Wells Fargo's Credit Management Training program and holds an
M.B.A. from the University of Texas, Austin. He graduated from the University of
California at Berkeley with a B.A. in Economics.
LENNY MASON, Fixed-Income Portfolio Manager
Lenny Mason is a Fixed-Income Portfolio Manager for Symphony. His
responsibilities include portfolio management for Symphony's high yield and bank
loan strategies and credit research for its fixed income strategies. Prior to
joining Symphony in 2001, Lenny was a Managing Director in FleetBoston's
Technology & Communications Group where he headed its five-member Structuring
and Advisory Team. He joined FleetBoston in 1995 as an Assistant Vice President
in its Media & Communications Group. Before joining Fleet, Lenny worked for
Wells Fargo Bank's Corporate Banking Group dealing primarily with leveraged
transactions and for Coopers & Lybrand as an auditor. Lenny has an MBA in
Finance from the University of Chicago, a BS in Accounting from Babson College.
Lenny is a Certified Public Accountant.
Item 8 (a)(2). Other Accounts Managed
Gunther Stein Lenny Mason
(a) RICs
Number of accts 7 7
Assets ($000s) $1,420 $1,420
(b) Other pooled accts
Non-performance fee accts
Number of accts 3 3
Assets ($000s) $ 432 $ 432
Performance fee accts
Number of accts 8 2
Assets ($000s) $1,175 $ 66
(c) Other
Non-performance fee accts
Number of accts 2 1
Assets ($000s) $ 30 $ 37
Performance fee accts
Number of accts 2 -
Assets ($000s) $295.3 $ -
Dollar amounts are in millions
POTENTIAL MATERIAL CONFLICTS OF INTEREST
As described above, the portfolio manager may manage other accounts with
investment strategies similar to the Fund, including other investment companies
and separately managed accounts. Fees earned by the sub-advisers may vary among
these accounts and the portfolio managers may personally invest in some but not
all of these accounts. In addition, certain accounts may be subject to
performance-based fees. These factors could create conflicts of interest
because a portfolio manager may have incentives to favor certain accounts over
others, resulting in other accounts outperforming the Fund. A conflict may also
exist if a portfolio manager identified a limited investment opportunity that
may be appropriate for more than one account, but the Fund is not able to take
full advantage of that opportunity due to the need to allocate that opportunity
among multiple accounts. In addition, the portfolio manger may execute
transactions for another account that may adversely impact the value of
securities held by the Fund. However, the sub-advisers believe that these risks
are mitigated by the fact that accounts with like investment strategies managed
by a particular portfolio manager are generally managed in a similar fashion,
subject to exceptions to account for particular investment restrictions or
policies applicable only to certain accounts, differences in cash flows and
account sizes, and other factors. In addition, each sub-adviser has adopted
trade allocation procedures that require equitable allocation of trade orders
for a particular security among participating accounts.
ITEM 8 (a)(3). Fund Manager Compensation
Symphony investment professionals receive competitive base salaries and
participate in a bonus pool which is tied directly to the firm's operating
income with a disproportionate amount paid to the managers responsible for
generating the alpha. The bonus paid to investment personnel is based on acumen,
overall contribution and strategy performance. However, there is no fixed
formula which guides bonus allocations. Bonuses are paid on an annual basis. In
addition, investment professionals may participate in an equity-based
compensation pool.
ITEM 8 (a)(4). OWNERSHIP OF JTA SECURITIES AS OF DECEMBER 31, 2006.
--------------------------------------------------------------------------------------------
NAME OF PORTFOLIO $1- $10,001- $50,001- $100,001- $500,001- OVER
MANAGER NONE $10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
--------------------------------------------------------------------------------------------
Gunther Stein X
--------------------------------------------------------------------------------------------
Lenny Mason X
--------------------------------------------------------------------------------------------
NWQ
Item 8 (a)(1). PORTFOLIO MANAGER BIOGRAPHY:
JON D. BOSSE, CFA, Chief Investment Officer and Portfolio Manager
Jon Bosse is Chief Investment Officer of NWQ, co-president of NWQ (since June
2006) and has been a Managing Director of NWQ since 1996.
Item 8 (a)(2). Other Accounts Managed
Jon Bosse
(a) RICs
Number of accts 6
Assets ($000s) $ 1,685,520
(b) Other pooled accts
Non-performance fee accts
Number of accts 9
Assets ($000s) $ 1,305,694
(c) Other
Non-performance fee accts
Number of accts 49,880
Assets ($000s) $28,768,533
Performance fee accts
Number of accts 7
Assets ($000s) $ 376,290
POTENTIAL MATERIAL CONFLICTS OF INTEREST
Actual or apparent conflicts of interest may arise when a portfolio manager has
day-to-day management responsibilities with respect to more than one account.
More specifically, portfolio managers who manage multiple accounts are presented
with the following potential conflicts:
- The management of multiple accounts may result in a portfolio
manager devoting unequal time and attention to the management
of each account. NWQ seeks to manage such competing interests
for the time and attention of portfolio managers by having
portfolio managers focus on a particular investment
discipline. Most accounts managed by a portfolio manager in a
particular investment strategy are managed using the same
investment models.
- If a portfolio manager identifies a limited investment
opportunity which may be suitable for more than one account,
an account may not be able to take full advantage of that
opportunity due to an allocation of filled purchase or sale
orders across all eligible accounts. To deal with these
situations, NWQ has adopted procedures for allocating
portfolio transactions across multiple accounts.
- With respect to many of its clients' accounts, NWQ determines
which broker to use to execute transaction orders, consistent
with its duty to seek best execution of the transaction.
However, with respect to certain other accounts, NWQ may be
limited by the client with respect to the selection of brokers
or may be instructed to direct trades through a particular
broker. In these cases, NWQ may place separate,
non-simultaneous, transactions for a Fund and other accounts
which may temporarily affect the market price of the security
or the execution of the transactions, or both, to the
detriment of the Fund or the other accounts.
- The Fund is subject to different regulation than other pooled
investment vehicles and other accounts managed by the
portfolio managers. As a consequence of this difference in
regulatory requirements, the Fund may not be permitted to
engage in all the investment techniques or transactions or to
engage in these transactions to the same extent as the other
accounts managed by the portfolio managers. Finally, the
appearance of a conflict of interest may arise where NWQ has
an incentive, such as a performance-based management fee,
which relates to the management of some accounts, with respect
to which a portfolio manager has day-to-day management
responsibilities.
NWQ has adopted certain compliance procedures which are designed to address
these types of conflicts common among investment managers. However, there is no
guarantee that such procedures will detect each and every situation in which a
conflict arises.
ITEM 8 (a)(3). Fund Manager Compensation
NWQ's portfolio managers participate in a highly competitive compensation
structure with the purpose of attracting and retaining the most talented
investment professionals and rewarding them through a total compensation program
as determined by the firm's executive committee. The total compensation program
consists of both a base salary and an annual bonus that can be a multiple of the
base salary. The portfolio manager's performance is formally evaluated annually
and based on a variety of factors. Bonus compensation is primarily a function of
the firm's overall annual profitability and the individual portfolio manager's
contribution as measured by the overall investment performance of client
portfolios in the strategy they manage relative to the strategy's general
benchmark for one, three and five year periods (as applicable), as well as an
objective review of stock recommendations and the quality of primary research,
and subjective review of the professional's contributions to portfolio strategy,
teamwork, collaboration and work ethic.
The total compensation package includes availability of equity-like incentive
for purchase (whose value is determined by the increase in profitability of NWQ
over time) made to most investment professionals. Additionally, the portfolio
managers have been provided compensation in conjunction with signing long-term
employment agreements. NWQ is a subsidiary of Nuveen Investments, Inc., which
has augmented this incentive compensation annually through individual awards of
a stock option pool, as determined through a collaborative process between
Nuveen Investments and the NWQ executive committee.
ITEM 8 (a)(4). OWNERSHIP OF JTA SECURITIES AS OF DECEMBER 31, 2006.
--------------------------------------------------------------------------------------------
NAME OF PORTFOLIO $1- $10,001- $50,001- $100,001- $500,001- OVER
MANAGER NONE $10,000 $50,000 $100,000 $500,000 $1,000,000 $1,000,000
--------------------------------------------------------------------------------------------
Jon Bosse O
--------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------
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 Tax-Advantaged Total Return Strategy 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.