UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-10491
-----------------------
NUVEEN REAL ESTATE INCOME FUND
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
---------------------
Date of fiscal year end: December 31
-------------------
Date of reporting period: June 30, 2006
---------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. SS. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT JUNE 30, 2006
NUVEEN INVESTMENTS
EXCHANGE-TRADED
CLOSED-END
FUNDS
NUVEEN
REAL ESTATE
INCOME FUND
JRS
HIGH CURRENT INCOME FROM
A PORTFOLIO OF COMMERCIAL
REAL ESTATE INVESTMENTS
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dividends and statements from dividends and statements directly
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brokerage account.
(Be sure to have the address
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NUVEEN LOGO
(TIMOTHY SCHWERTFEGER PHOTO)
Timothy R. Schwertfeger
Chairman of the Board
CHAIRMAN'S
LETTER TO SHAREHOLDERS
I am very pleased to report that over the six-month period covered by this
report, your Fund continued to provide you with attractive monthly income
from a diversified portfolio of quality real estate securities. For more
information on your Fund's performance, please read the Portfolio
Managers' Comments, the Distribution and Share Price Information, and the
Performance Overview sections of this report.
Portfolio diversification is a recognized way to try to reduce some of the
risk that comes with investing. Since one part of your portfolio may be
going up when another is going down, portfolio diversification may help
smooth your investment returns over time. In addition to providing regular
monthly income, an investment like your Fund may help you achieve and
benefit from greater portfolio diversification. Your financial advisor can
explain these potential advantages in more detail. I urge you to contact
him or her soon for more information on this important investment
strategy.
"IN ADDITION TO PROVIDING REGULAR MONTHLY INCOME, AN INVESTMENT LIKE YOUR FUND
MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER PORTFOLIO DIVERSIFICATION."
At Nuveen Investments, our mission continues to be to assist you and your
financial advisor by offering investment services and products that can
help you to secure your financial objectives. We are grateful that you
have chosen us as a partner as you pursue your financial goals, and we
look forward to continuing to earn your trust in the months and years
ahead.
Sincerely,
(TIMOTHY SCHWERTFEGER SIG)
Timothy R. Schwertfeger
Chairman of the Board
August 11, 2006
Nuveen Investments Exchange-Traded Closed-End Funds
PORTFOLIO MANAGERS'
COMMENTS
The Nuveen Real Estate Income Fund is managed by a team of real estate
investment professionals at Security Capital Research & Management Incorporated
(Security Capital), a wholly-owned subsidiary of J. P. Morgan Chase & Co.
Anthony R. Manno Jr. and Kenneth D. Statz, who each have more than 23 years of
experience in managing real estate investments, lead the team. Here they review
the economic environment and performance of the Fund.
WHAT WAS YOUR OVERALL MANAGEMENT STRATEGY FOR THE SIX-MONTH PERIOD ENDED JUNE
30, 2006?
During the six months ended June 30, 2006, we continued to focus on those
securities that we believed were best positioned to generate sustainable income
and potential price appreciation over the long-run. In managing the JRS
portfolio, we sought to maintain significant diversification while taking into
account company credit quality, sector, geographic exposure, and security-type
allocations. Every investment decision was based on a multi-layered analysis of
the company, the real estate it owns, its management, and the relative price of
the security.
The ability to shift allocations between preferred and common stock based on the
relative attractiveness of these two distinct markets is an important tool in
managing JRS for income and long-term capital appreciation. In 2005, an
environment characterized by rising interest rates indicated a shift in the risk
and reward characteristics of common stocks versus preferred stocks, and as a
result, Security Capital significantly tilted the portfolio toward common
stocks, especially those of companies exhibiting the greatest potential in an
improving economy. In the first six months of 2006, we maintained the
portfolio's tilt toward common stocks. The portfolio continues to emphasize
companies and property types associated with shorter lease terms and favor the
strongest infill markets and locations where we feel there is value enhancement
potential and a real inflation hedge over the long term.
--------------------------------------------------------------------------------
1 The Specialized Real Estate Securities Benchmark is based on the preferred
stock and highest 50% yielding (based on market capitalization) common stock
securities in the SNL Financial LC real estate database. Returns are computed
from this database by a third party service provider.
--------------------------------------------------------------------------------
During the period the Fund issued an additional $50 million of Taxable Auctioned
Preferred shares. The additional funds were invested according to our existing
management strategy. As of June 30, 2006, the portfolio allocations were 67.9%
common stocks, 31.6% preferred stocks and 0.5% short-term investments.
4
HOW DID THE FUND PERFORM OVER THE SIX-MONTHS ENDED JUNE 30, 2006?
Fund performance results, as well as the performance of two real estate indexes,
are shown in the accompanying table.
TOTAL RETURN ON NET ASSET VALUE
For the six months ended June 30, 2006
-------------------------------------------------------------------------------------------
JRS 9.59%
-------------------------------------------------------------------------------------------
Specialized Real Estate Securities
Benchmark(1) 7.96%
-------------------------------------------------------------------------------------------
Dow Jones Wilshire Real Estate Securities
Index(2) 14.08%
-------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2 The Dow Jones Wilshire Real Estate Securities Index is an unmanaged index
comprised of common shares of publicly-traded REITs and other real estate
operating companies.
--------------------------------------------------------------------------------
Past performance does not guarantee future results. Returns do not reflect the
deduction of taxes that a shareholder may have to pay on Fund distributions or
upon the sale of Fund shares. Current performance may be higher or lower than
the data shown.
For the six months ended June 30, 2006, the Fund outperformed the Specialized
Real Estate Securities Benchmark and underperformed the Dow Jones Wilshire Real
Estate Securities Index.
Since 2003, we have been gradually and selectively shifting the portfolio's
property type weightings from a largely defensive posture to one better
positioned with respect to a growing economy, while at all times remaining
highly focused on the current income objectives of the fund. For the past six
months we have pursued this strategy by increasing the portfolio's allocation
toward multifamily and lodging companies, securities characterized by
short-duration leases. We have also underweighted companies in the more
defensive, bond-like retail industry (both shopping centers and malls). Both
tilts benefited the portfolio, as multifamily and lodging companies continue to
experience a very robust operating environment with little new supply and
rapidly increasing rents, and retail companies languish as investors anticipate
a decline in consumer spending from mounting energy costs and rising short-term
interest rates.
Over the past six months we have also identified intriguing values in the Office
industry. Office operating fundamentals continue to show steady
quarter-to-quarter improvement with pockets of more pronounced strength in key
coastal markets, including New York, Washington D.C., and Los Angeles. This
research-based theme was also rewarded, as many of our specific selections
within the office sector substantially outperformed their respective sector
components of the Specialized Real Estate Securities Benchmark.
5
On the other hand, in seeking to maintain the income and sector diversification
objectives of the Fund, our investments in the higher yielding but historically
defensive Health Care securities underperformed the Benchmark as a whole.
It is important to note that investing in preferred stock remains an important
component of the income and appreciation strategy of JRS as well as the
Specialized Real Estate Securities Benchmark. However, preferred securities are
not included in broader real estate securities indices, like the Dow Jones
Wilshire Real Estate Securities Index (WARESI). JRS's allocation to preferred
stocks remained a significant allocation in the Fund's portfolio and we believe
it helped the Fund's overall risk profile, over the past six-months, however, it
did create a drag on performance when compared to an all common stock index like
the WARESI.
6
DISTRIBUTION AND SHARE PRICE
INFORMATION
In addition to owning preferred stocks, the Fund has issued its own preferred
shares, called Taxable Auctioned Preferred. This provides a degree of financial
leverage that can increase share price volatility, but also can enhance Fund
returns and supplement the income available to pay common shareholder
distributions. This leveraging strategy provided incremental income and helped
enhance shareholder distributions over the six-month period.
The Fund has a managed distribution policy designed to provide relatively stable
monthly cash flow to investors. Under this policy, the Fund's monthly
distributions will be paid from net investment income generated by its
underlying securities as well as from net realized capital gains and/or returns
of capital, generally representing unrealized capital gains. The Fund declared a
monthly distribution increase in June to $0.1650 per share.
As of June 30, 2006, the Fund was trading at a -2.12% discount to its net asset
value, compared with an average discount of -6.15% for the entire six-month
period.
We are providing shareholders with an estimate of the source of the Fund's
monthly distribution as of June 30, 2006. These estimates may, and likely will,
vary over time based on the investment activities of the Fund and changes in the
value of portfolio investments. The final determination of the source and tax
characteristics of all distributions will be made after December 31, 2006 and
reported to you on Form 1099-DIV early in 2007. More details about the Fund's
distributions are available monthly on www.nuveen.com/cef.
The Fund estimates that its monthly distribution is comprised of 72% net cash
flow from real estate investment trusts (REITs) and, pursuant to the Fund's
managed distribution policy, 28% capital appreciation consisting of either net
realized capital gains and/or a return of capital (generally representing net
unrealized capital gains). The components of the Fund's net REIT cash flow are
estimated to be 55% ordinary income, 32% capital gains, and 13% return of
capital. The Fund's net REIT cash flow represents distribution payments received
from securities of REITs which may be re-characterized by the REITs for tax
purposes after calendar year-end.
The foregoing presents information about the expected tax characteristics of the
Fund's distributions, to conform to a federal securities law requirement that
any fund paying
7
distributions from any sources other than net income disclose to shareholders
the distribution portions attributable to such other sources. The Fund provides
this type of information on a tax basis, instead of on a generally accepted
accounting principles (GAAP) basis, because experience has shown that Fund
shareholders are most concerned about the tax character of their distributions
(and might well be confused by information about distribution characteristics
that differed from the tax-based characteristics), and because the Fund also
believes that the distributions' tax characteristics fairly represent the
economic basis of the Fund's distributions and returns. The breakdown of
distribution characteristics according to GAAP likely would differ from the
expected tax characteristics shown above.
8
Nuveen Real Estate Income Fund
JRS
PERFORMANCE
OVERVIEW As of June 30, 2006
PORTFOLIO ALLOCATION
(as a % of total investments)
-------------------------------------------------------------------------------------
Real Estate Investment Trust Common Stocks 67.9%
-------------------------------------------------------------------------------------
Real Estate Investment Trust Preferred 31.6%
-------------------------------------------------------------------------------------
Short-Term Investments 0.5%
-------------------------------------------------------------------------------------
Bar Chart:
2005-2006 MONTHLY DISTRIBUTIONS PER SHARE
Jul 0.135
Aug 0.135
Sep 0.145
Oct 0.145
Nov 0.145
Dec 0.145
Jan 0.145
Feb 0.145
Mar 0.155
Apr 0.155
May 0.155
Jun 0.165
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
7/01/05 20.33
20.69
20.40
20.66
21.20
20.18
19.48
19.02
19.38
19.88
20.40
20.29
20.00
20.35
19.93
19.31
19.28
19.85
19.59
19.64
19.55
19.88
20.03
19.82
19.72
19.80
19.99
20.74
20.45
20.65
20.80
20.97
20.99
21.70
22.13
22.43
22.80
23.15
22.60
22.70
22.44
21.81
22.45
22.58
22.90
22.14
21.95
22.15
22.29
22.45
22.30
22.30
6/30/06 23.09
FUND SNAPSHOT
----------------------------------------------------------------------
Common Share Price $23.09
----------------------------------------------------------------------
Common Share Net Asset Value $23.59
----------------------------------------------------------------------
Premium/(Discount) to NAV -2.12%
----------------------------------------------------------------------
Current Distribution Rate(1) 8.58%
----------------------------------------------------------------------
Net Assets Attributable to
Common Shares ($000) $663,698
----------------------------------------------------------------------
INDUSTRIES
(as a % of total investments)
----------------------------------------------------------------------
Office 27.2%
----------------------------------------------------------------------
Specialized 23.4%
----------------------------------------------------------------------
Residential 17.9%
----------------------------------------------------------------------
Retail 16.6%
----------------------------------------------------------------------
Diversified 11.7%
----------------------------------------------------------------------
Industrial 2.7%
----------------------------------------------------------------------
Short-Term Investments 0.5%
----------------------------------------------------------------------
TOP FIVE REAL ESTATE INVESTMENT TRUST COMMON STOCK ISSUERS
(as a % of total investments)
----------------------------------------------------------------------
AvalonBay Communities, Inc. 5.8%
----------------------------------------------------------------------
Mack-Cali Realty Corporation 5.7%
----------------------------------------------------------------------
Macerich Company 5.7%
----------------------------------------------------------------------
Reckson Associates Realty Corporation 5.3%
----------------------------------------------------------------------
Archstone-Smith Trust 4.6%
----------------------------------------------------------------------
TOP FIVE REAL ESTATE INVESTMENT TRUST PREFERRED STOCK ISSUERS
(as a % of total investments)
----------------------------------------------------------------------
Crescent Real Estate Equities Company 5.0%
----------------------------------------------------------------------
Apartment Investment & Management Company 3.7%
----------------------------------------------------------------------
Public Storage Inc. 2.8%
----------------------------------------------------------------------
Home Properties Inc. 2.7%
----------------------------------------------------------------------
PS Business Parks, Inc. 2.6%
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/15/01)
-----------------------------------------------------------------------------------
ON SHARE PRICE ON NAV
-----------------------------------------------------------------------------------
6-Month
(Cumulative) 20.36% 9.59%
-----------------------------------------------------------------------------------
1-Year 23.93% 13.04%
-----------------------------------------------------------------------------------
Since Inception 19.18% 20.58%
-----------------------------------------------------------------------------------
1 Current Distribution Rate is based on the Fund's current annualized monthly
distribution divided by the Fund's current market price. REIT distributions
received by the Fund are generally comprised of investment income, long-term
and short-term capital gains and a REIT return of capital. The Fund's monthly
distributions to its shareholders may be comprised of ordinary income, net
realized capital gains and, if at the end of the calendar year the Fund's
cumulative net ordinary income and net realized gains are less than the amount
of the Fund's distributions, a return of capital for tax purposes.
9
Shareholder
MEETING REPORT
The shareholder meeting was held in the offices of Nuveen Investments on March
29, 2006.
-------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS WAS REACHED AS FOLLOWS:
Common and
Preferred Preferred
shares voting shares voting
together together
as a class as a class
-------------------------------------------------------------------------------------------
Robert P. Bremner
For 26,264,537 --
Withhold 233,240 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
Lawrence H. Brown
For 26,261,960 --
Withhold 235,817 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
Jack B. Evans
For 26,268,675 --
Withhold 229,102 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
William C. Hunter
For 26,266,783 --
Withhold 230,994 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
William J. Schneider
For -- 5,963
Withhold -- 27
-------------------------------------------------------------------------------------------
Total -- 5,990
-------------------------------------------------------------------------------------------
Timothy R. Schwertfeger
For -- 5,963
Withhold -- 27
-------------------------------------------------------------------------------------------
Total -- 5,990
-------------------------------------------------------------------------------------------
Judith M. Stockdale
For 26,266,688 --
Withhold 231,089 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
Eugene S. Sunshine
For 26,265,634 --
Withhold 232,143 --
-------------------------------------------------------------------------------------------
Total 26,497,777 --
-------------------------------------------------------------------------------------------
10
Nuveen Real Estate Income Fund (JRS)
Portfolio of
INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) VALUE
---------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST COMMONS STOCKS - 90.2% (67.9% OF TOTAL INVESTMENTS)
DIVERSIFIED - 4.9%
1,890,000 Newkirk Realty Trust Inc. $ 32,810,400
---------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 3.7%
626,600 First Industrial Realty Trust, Inc. 23,773,204
---------------------------------------------------------------------------------------------------------------
OFFICE - 30.0%
1,045,300 Brandywine Realty Trust 33,627,301
477,300 Equity Office Properties Trust 17,426,223
2,280,800 HRPT Properties Trust 26,366,048
1,090,500 Mack-Cali Realty Corporation 50,075,760
264,600 Maguire Properties, Inc. 9,305,982
1,120,600 Reckson Associates Realty Corporation 46,370,428
1,579,000 Republic Property Trust 15,600,520
---------------------------------------------------------------------------------------------------------------
Total Office 198,772,262
--------------------------------------------------------------------------------------------------
RESIDENTIAL - 15.2%
215,300 Apartment Investment & Management 9,354,785
Company, Class A
795,000 Archstone-Smith Trust 40,441,650
464,500 AvalonBay Communities, Inc. 51,382,989
---------------------------------------------------------------------------------------------------------------
Total Residential 101,179,424
--------------------------------------------------------------------------------------------------
RETAIL - 18.1%
413,800 Federal Realty Investment Trust 28,966,000
775,400 Glimcher Realty Trust 19,237,674
711,000 Macerich Company 49,912,200
880,300 New Plan Excel Realty Trust 21,734,607
---------------------------------------------------------------------------------------------------------------
Total Retail 119,850,481
--------------------------------------------------------------------------------------------------
SPECIALIZED - 18.3%
2,013,000 Ashford Hospitality Trust Inc. 25,404,060
493,400 Cogdell Spencer Inc. 9,626,234
931,564 Hersha Hospitality Trust 8,654,230
1,587,300 Nationwide Health Properties, Inc. 35,730,123
1,133,100 Senior Housing Properties Trust 20,293,821
1,159,600 U-Store-It Trust 21,870,056
---------------------------------------------------------------------------------------------------------------
Total Specialized 121,578,524
---------------------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST COMMON STOCKS 597,964,295
(COST $386,631,973)
--------------------------------------------------------------------------------------------------
SHARES DESCRIPTION (1) COUPON VALUE
---------------------------------------------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST PREFERRED STOCKS - 41.9% (31.6% OF TOTAL INVESTMENTS)
DIVERSIFIED - 10.6%
1,031,300 Crescent Real Estate Equities Company, 6.750% $ 21,739,804
Series A (Convertible)
850,000 Crescent Real Estate Equities Company, 9.500% 22,185,000
Series B
150,000 Lexington Corporate Properties Trust, 8.050% 3,839,250
Series B
497,623 PS Business Parks, Inc., Series F 8.750% 12,614,743
400,000 PS Business Parks, Inc., Series O 7.375% 10,062,520
---------------------------------------------------------------------------------------------------------------
Total Diversified 70,441,317
--------------------------------------------------------------------------------------------------
OFFICE - 6.1%
95,400 Alexandria Real Estate Equities Inc., 9.100% 2,414,574
Series B
160,000 Alexandria Real Estate Equities Inc., 8.375% 4,185,600
Series C
200,000 Corporate Office Properties Trust, 8.000% 5,052,000
Series G
12,141 Highwoods Properties, Inc., Series A 8.625% 12,509,024
81,000 HRPT Properties Trust, Series C 7.125% 1,988,550
586,700 Maguire Properties, Inc., Series A 7.625% 14,491,490
---------------------------------------------------------------------------------------------------------------
Total Office 40,641,238
--------------------------------------------------------------------------------------------------
11
Nuveen Real Estate Income Fund (JRS) (continued)
Portfolio of INVESTMENTS June 30, 2006 (Unaudited)
SHARES DESCRIPTION (1) COUPON VALUE
---------------------------------------------------------------------------------------------------------------
RESIDENTIAL - 8.5%
603,500 Apartment Investment & Management 10.000% $ 15,193,113
Company, Series R
511,100 Apartment Investment & Management 7.750% 12,573,060
Company, Series U
183,000 Apartment Investment & Management 7.875% 4,552,125
Company, Series Y
945,000 Home Properties Inc., Series F 9.000% 24,097,500
---------------------------------------------------------------------------------------------------------------
Total Residential 56,415,798
--------------------------------------------------------------------------------------------------
RETAIL - 3.9%
160,000 Cedar Shopping Centers Inc., Series A 8.875% 4,195,200
113,000 Glimcher Realty Trust, Series F 8.750% 2,902,970
234,300 Glimcher Realty Trust, Series G 8.125% 5,857,500
125,000 Saul Centers, Inc., Series A 8.000% 3,281,250
400,000 Taubman Centers, Inc., Series H 7.625% 9,960,000
---------------------------------------------------------------------------------------------------------------
Total Retail 26,196,920
--------------------------------------------------------------------------------------------------
SPECIALIZED - 12.8%
130,000 Ashford Hospitality Trust, Series A 8.550% 3,270,800
339,000 Boykin Lodging Company, Series A 10.500% 8,508,900
407,900 FelCor Lodging Trust Inc., Series C, (2) 8.000% 9,993,550
120,000 Hersha Hospitality Trust, Series A 8.000% 2,977,200
592,000 LaSalle Hotel Properties, Series A 10.250% 15,214,400
1,000,000 Public Storage Inc., Series I 7.250% 24,800,000
175,000 Strategic Hotel Capital Inc., Series B 8.250% 4,345,250
320,000 Strategic Hotel Capital Inc., Series C 8.250% 7,968,000
300,000 Sunstone Hotel Investors Inc., Series A 8.000% 7,560,000
---------------------------------------------------------------------------------------------------------------
Total Specialized 84,638,100
--------------------------------------------------------------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUST 278,333,373
PREFERRED STOCKS (COST $273,130,007)
--------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION (1) COUPON MATURITY VALUE
-----------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 0.6% (0.5% OF TOTAL INVESTMENTS)
$ 4,287 Repurchase Agreement with State Street 4.130% 7/03/06 $ 4,287,302
Bank, dated 6/30/06, repurchase price
$4,288,778, collateralized by
$4,645,000 U.S. Treasury Notes, 4.250%
due 11/15/14, value $4,375,734
-----------
-----------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS (COST $4,287,302) 4,287,302
--------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $664,049,282) - 132.7% 880,584,970
--------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES - 0.7% 5,112,881
--------------------------------------------------------------------------------------------------
PREFERRED SHARES, AT LIQUIDATION VALUE - (33.4)% (222,000,000)
--------------------------------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES - 100% $ 663,697,851
--------------------------------------------------------------------------------------------------
INTEREST RATE SWAPS OUTSTANDING AT JUNE 30, 2006:
FIXED RATE
PAID FIXED RATE FLOATING RATE FLOATING RATE UNREALIZED
NOTIONAL BY THE FUND PAYMENT RECEIVED PAYMENT TERMINATION APPRECIATION
COUNTERPARTY AMOUNT (ANNUALIZED) FREQUENCY BY THE FUND (3) FREQUENCY DATE (DEPRECIATION)
------------------------------------------------------------------------------------------------------------------
Citigroup Inc. $43,000,000 4.800% Monthly 5.138% Monthly 2/06/07 $ 295,613
Citigroup Inc. 43,000,000 5.190 Monthly 5.138 Monthly 2/06/09 194,915
------------------------------------------------------------------------------------------------------------------
$ 490,528
------------------------------------------------------------------------------------------------------------------
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable
to Common shares unless otherwise noted.
(2) Investment is eligible for the Dividends Received Deduction.
(3) Based on USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate).
See accompanying notes to financial statements.
12
Statement of
ASSETS AND LIABILITIES June 30, 2006 (Unaudited)
--------------------------------------------------------------------------
ASSETS
Investments, at value (cost $664,049,282) $880,584,970
Unrealized appreciation on interest rate swaps 490,528
Receivables:
Dividends 5,420,548
Interest 492
Other assets 42,439
--------------------------------------------------------------------------
Total assets 886,538,977
--------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 412,298
Offering costs 207,150
Other 136,653
Taxable Auctioned Preferred share dividends payable 85,025
--------------------------------------------------------------------------
Total liabilities 841,126
--------------------------------------------------------------------------
Taxable Auctioned Preferred shares, at liquidation value 222,000,000
--------------------------------------------------------------------------
Net assets applicable to Common shares $663,697,851
--------------------------------------------------------------------------
Common shares outstanding 28,136,413
--------------------------------------------------------------------------
Net asset value per Common share outstanding (net assets
applicable to Common shares, divided by Common shares
outstanding) $ 23.59
--------------------------------------------------------------------------
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
--------------------------------------------------------------------------
Common shares, $.01 par value per share $ 281,364
Paid-in surplus 390,373,113
Undistributed (Over-distribution of) net investment income (5,307,961)
Accumulated net realized gain (loss) from investments and
derivative transactions 61,325,119
Net unrealized appreciation (depreciation) of investments
and derivative transactions 217,026,216
--------------------------------------------------------------------------
Net assets applicable to Common shares $663,697,851
--------------------------------------------------------------------------
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
--------------------------------------------------------------------------
See accompanying notes to financial statements.
13
Statement of
OPERATIONS Six Months Ended June 30, 2006 (Unaudited)
----------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $14,048,131
Interest 313,410
----------------------------------------------------------------------------
Total investment income 14,361,541
----------------------------------------------------------------------------
EXPENSES
Management fees 3,660,886
Taxable Auctioned Preferred shares - auction fees 223,164
Taxable Auctioned Preferred shares - dividend disbursing
agent fees 18,095
Shareholders' servicing agent fees and expenses 3,559
Custodian's fees and expenses 82,456
Trustees' fees and expenses 9,558
Professional fees 12,038
Shareholders' reports - printing and mailing expenses 52,775
Stock exchange listing fees 1,187
Investor relations expense 41,574
Other expenses 33,869
----------------------------------------------------------------------------
Total expenses before custodian fee credit and expense
reimbursement 4,139,161
Custodian fee credit (386)
Expense reimbursement (1,249,875)
----------------------------------------------------------------------------
Net expenses 2,888,900
----------------------------------------------------------------------------
Net investment income 11,472,641
----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 61,479,238
Net realized gain (loss) from interest rate swaps (154,119)
Change in net unrealized appreciation (depreciation) of
investments (9,240,079)
Change in net unrealized appreciation (depreciation) of
interest rate swaps 1,142,785
----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 53,227,825
----------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From and in excess of net investment income (4,021,039)
From accumulated net realized gains --
----------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Taxable Auctioned Preferred shareholders (4,021,039)
----------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations $60,679,427
----------------------------------------------------------------------------
See accompanying notes to financial statements.
14
Statement of
CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
6/30/06 12/31/05
--------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 11,472,641 $ 23,684,837
Net realized gain (loss) from investments 61,479,238 43,150,661
Net realized gain (loss) from interest rate swaps (154,119) (1,739,276)
Change in net unrealized appreciation (depreciation) of
investments (9,240,079) (18,591,745)
Change in net unrealized appreciation (depreciation) of
interest rate swaps 1,142,785 3,221,965
Distributions to Taxable Auctioned Preferred shareholders:
From and in excess of net investment income (4,021,039) --
From net investment income -- (976,242)
From accumulated net realized gains -- (4,466,723)
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from operations 60,679,427 44,283,477
--------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (25,885,500) --
From net investment income -- (8,022,508)
From accumulated net realized gains -- (38,683,938)
--------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from
distributions to Common shareholders (25,885,500) (46,706,446)
--------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares offering costs adjustments -- 67,319
Taxable Auctioned Preferred shares offering costs and
adjustments (745,000) 25,537
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares from capital share transactions (745,000) 92,856
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to Common
shares 34,048,927 (2,330,113)
Net assets applicable to Common shares at the beginning of
period 629,648,924 631,979,037
--------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $663,697,851 $629,648,924
--------------------------------------------------------------------------------------------
Undistributed (Over-distribution of) net investment income
at the end of period $ (5,307,961) $ 13,125,937
--------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
15
Notes to
FINANCIAL STATEMENTS (Unaudited)
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Real Estate Income Fund (the "Fund") is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's Common shares are listed on the American Stock
Exchange and trade under the ticker symbol "JRS." The Fund was organized as a
Massachusetts business trust on August 27, 2001.
The Fund seeks to provide high current income by investing primarily in a
portfolio of income-producing common stocks, preferred stocks, convertible
preferred stocks and debt securities issued by real estate companies, such as
Real Estate Investment Trusts ("REITs").
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with U.S.
generally accepted accounting principles.
Investment Valuation
Exchange-listed securities are generally valued at the last sales price on the
securities exchange on which such securities are primarily traded. Securities
traded on a securities exchange for which there are no transactions on a given
day or securities not listed on a securities exchange are valued at the mean of
the closing bid and asked prices. Securities traded on Nasdaq are valued at the
Nasdaq Official Closing Price. Prices of derivative instruments are also
provided by an independent pricing service approved by the Fund's Board of
Trustees. If the pricing service is unable to supply a price for a derivative
investment the Fund may use a market quote provided by a major broker/dealer in
such investments. If it is determined that market prices for an investment are
unavailable or inappropriate, the Board of Trustees of the Fund, or its
designee, may establish fair value in accordance with procedures established in
good faith by the Board of Trustees. In establishing fair value, the Board of
Trustees, or its designee, will use a wide variety of market data including
prices of comparable securities, indications of value from security dealers,
general market conditions and other information and analysis. Short-term
investments are valued at amortized cost, which approximates market value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from investment transactions are determined on the specific
identification method. Investments purchased on a when-issued or delayed
delivery basis may have extended settlement periods. Any investments so
purchased are subject to market fluctuation during this period. The Fund has
instructed the custodian to segregate assets with a current value at least equal
to the amount of the when-issued/delayed delivery purchase commitments. At June
30, 2006, the Fund had no such outstanding purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income is recorded
on an accrual basis.
Federal Income Taxes
The Fund intends to distribute substantially all net investment income and net
capital gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required.
Dividends and Distributions to Common Shareholders
Distributions to Common shareholders are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from U.S. generally accepted accounting
principles.
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 reflected in the
financial statements contained in the annual report as of December 31 each year.
16
Real Estate Investment Trust ("REIT") distributions received by the Fund are
generally comprised of ordinary income, long-term and short-term capital gains,
and a return of REIT capital. The actual character of amounts received during
the period are not known until after the fiscal year-end. For the fiscal year
ended December 31, 2005, the character of distributions to the Fund from the
REITs was 55.38% ordinary income, 32.12% long-term and short-term capital gains,
and 12.50% return of REIT capital.
For the fiscal year ended December 31, 2005, the Fund applied the actual
character of distributions reported by the REITs in which the Fund invests to
its receipts from the REITS. If a REIT held in the portfolio of investments did
not report the actual character of its distributions during the period, the Fund
treated the distributions as ordinary income.
For the six months ended June 30, 2006, the Fund applied the actual percentages
for the twelve months ended December 31, 2005, described above, to its receipts
from the REITs and treated as income in the Statement of Operations only the
amount of ordinary income so calculated. The Fund adjusts that estimated
breakdown of income type (and consequently its net investment income) as
necessary early in the following calendar year when the REITs inform their
shareholders of the actual breakdown of income type.
The actual character of distributions made by the Fund during the fiscal year
ended December 31, 2005, are reflected in the accompanying financial statements.
The distributions made by the Fund to its shareholders during the six months
ended June 30, 2006, are provisionally classified as being "From and in excess
of net investment income", and those distributions will be classified as being
from net investment income, net realized capital gains and/or a return of
capital for tax purposes after the fiscal year end, based upon the income type
breakdown information conveyed at the time by the REITs whose securities are
held in the Fund's portfolio. For purposes of calculating "Undistributed
(Over-distribution of) net investment income as of June 30, 2006, the
distribution amounts provisionally classified as "From and in excess of net
investment income" were treated as being entirely from net investment income.
Consequently, the financial statements at June 30, 2006, reflect an
over-distribution of net investment income.
Taxable Auctioned Preferred Shares
The Fund has issued and outstanding 1,720 Series M, 1,720 Series T, 1,720 Series
W, 2,000 Series Th and 1,720 Series F, Taxable Auctioned Preferred shares,
$25,000 stated value per share, as a means of effecting financial leverage. The
dividend rate paid by the Fund on each Series is determined every seven days,
pursuant to a dutch auction process overseen by the auction agent, and is
payable at the end of each rate period.
Interest Rate Swap Transactions
The Fund is authorized to invest in certain derivative financial instruments.
The Fund's use of interest rate swap transactions is intended to mitigate the
negative impact that an increase in short-term interest rates could have on
Common share net earnings as a result of leverage. Interest rate swap
transactions involve the Fund's agreement with the counterparty to pay a fixed
rate payment in exchange for the counterparty paying the Fund a variable rate
payment that is intended to approximate the Fund's variable rate payment
obligation on Taxable Auctioned Preferred shares or any variable rate borrowing.
The payment obligation is based on the notional amount of the interest rate swap
contract. Interest rate swaps do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss with respect to
the swap counterparty on such transactions is limited to the net amount of
interest payments that the Fund is to receive. Interest rate swap positions are
valued daily. Although there are economic advantages of entering into interest
rate swap transactions, there are also additional risks. The Fund helps manage
the credit risks associated with interest rate swap transactions by entering
into agreements only with counterparties the Adviser believes have the financial
resources to honor their obligations and by having the Adviser continually
monitor the financial stability of the swap counterparties.
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund's
policy that its custodian take possession of the underlying collateral
securities, the fair value of which exceeds the principal amount of the
repurchase transaction, including accrued interest, at all times. If the seller
defaults, and the fair value of the collateral declines, realization of the
collateral may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Fund's organizational documents, its Officers and Trustees are
indemnified against certain liabilities arising out of the performance of their
duties to the Fund. In addition, in the normal course of business, the Fund
enters into contracts that provide general indemnifications to other parties.
The Fund's maximum exposure under these arrangements is unknown as this would
involve future claims that may be made against the Fund that have not yet
occurred. However, the Fund has not had prior claims or losses pursuant to these
contracts and expects the risk of loss to be remote.
17
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
2. FUND SHARES
The Fund did not engage in transactions in its own Common shares during the six
months ended June 30, 2006, nor during the fiscal year ended December 31, 2005.
On May 25, 2006, the Fund issued 2,000 Series Th Taxable Auctioned Preferred
shares, $25,000 stated value per share, with a total liquidation value of
$50,000,000.
3. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term investments and
derivative transactions) during the six months ended June 30, 2006, aggregated
$171,711,103 and $131,605,148, respectively.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to timing differences in recording income and timing differences
in recognizing certain gains and losses on investment transactions.
At June 30, 2006, the cost of investments was $664,049,282.
The net unrealized appreciation of investments at June 30, 2006, aggregated
$216,535,688, of which $223,630,836 related to appreciated securities and
$7,095,148 related to depreciated securities.
The tax components of undistributed net ordinary income and net long-term
capital gains at December 31, 2005, the Funds' last tax year end, were as
follows:
----------------------------------------------------------------------------
Undistributed net ordinary income * $13,172,759
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 Funds' last tax year ended
December 31, 2005, was designated for purposes of the dividends paid deduction
as follows:
----------------------------------------------------------------------------
Distributions from net ordinary income * $ 9,490,892
Distributions from net long-term capital gains 42,608,613
----------------------------------------------------------------------------
* Net ordinary income consists of net taxable income derived from dividends,
interest, and net short-term capital gains, if any.
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, for the Fund 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
------------------------------------------------------------------------
18
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 June 30, 2006, the complex-level fee rate was .1887%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
---------------------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
---------------------------------------------------------------------------------------------
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
all types of leverage used by the Nuveen funds) of Nuveen-sponsored funds in
the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level fee
rate for such complex-wide Managed Assets shall be .1400% until such time as
a different rate or rates is determined.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Security Capital Research & Management
Incorporated ("Security Capital"), under which Security Capital manages the
investment portfolio of the Fund. Security Capital is compensated for its
services to the Fund from the management fee paid to the Adviser.
The Fund pays no compensation directly to those of its Trustees who are
affiliated with the Adviser or to its Officers, all of whom receive remuneration
for their services to the Fund from the Adviser or its affiliates. The Board of
Trustees has adopted a deferred compensation plan for independent Trustees that
enables Trustees to elect to defer receipt of all or a portion of the annual
compensation they are entitled to receive from certain Nuveen advised Funds.
Under the plan, deferred amounts are treated as though equal dollar amounts had
been invested in shares of select Nuveen advised Funds.
For the first ten years of the Fund's operations, the Adviser has agreed to
reimburse the Fund, as a percentage of average daily Managed Assets, for fees
and expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
NOVEMBER 30, NOVEMBER 30,
-----------------------------------------------------------------------------------
2001 * .30% 2007 .25%
2002 .30 2008 .20
2003 .30 2009 .15
2004 .30 2010 .10
2005 .30 2011 .05
2006 .30
-----------------------------------------------------------------------------------
* From the commencement of operations.
The Adviser has not agreed to reimburse the Fund for any portion of its fees and
expenses beyond November 30, 2011.
6. NEW ACCOUNTING PRONOUNCEMENT
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. At this time, management is
evaluating 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
Funds.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Fund declared a distribution of $.1650 per Common share which was paid on
August 1, 2006, to shareholders of record on July 15, 2006.
19
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Borrowings
On August 15, 2006, the Fund entered into a commercial paper program ($70
million maximum) with Citibank's N.A.'s conduit financing agency, CHARTA, LLC
("CHARTA"), whose sole purpose is the issuance of high grade commercial paper.
CHARTA uses the proceeds to make advances to the Fund and to many other
borrowers who comprise CHARTA's total borrowing base. As of August 15, 2006, the
Fund had borrowed the full $70 million maximum allowed under the commercial
paper program.
20
Financial
HIGHLIGHTS (Unaudited)
21
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations
-----------------------------------------------------------------
Distributions
from Net Distributions
Investment from Capital
Income to Gains to
Beginning Taxable Taxable
Common Net Auctioned Auctioned
Share Net Realized/ Preferred Preferred
Net Asset Investment Unrealized Share- Share-
Value Income(a) Gain (Loss) holders+ holders+ Total
---------------------------------------------------------------------------------------------------------
Year Ended 12/31:
2006(e) $ 22.38 $ .41 $ 1.89 $ (.14)* $ -- $ 2.16
2005 22.46 .84 .93 (.03) (.16) 1.58
2004(b) 18.57 .88 4.56 (.05) (.04) 5.35
2003(c) 17.30 .12 1.38 (.01) -- 1.49
Year Ended 10/31:
2003 13.56 .85 4.38 (.05) (.02) 5.16
2002(d) 14.33 1.02 (.46) (.07) (.02) .47
---------------------------------------------------------------------------------------------------------
Less Distributions
----------------------------------------
Offering
Costs and
Net Taxable
Investment Capital Auctioned Ending
Income to Gains to Tax Preferred Common
Common Common Return Share Share Ending
Share- Share- of Underwriting Net Asset Market
holders holders Capital Total Discounts Value Value
-------------------------- ----------------------------------------------------------------------------
Year Ended 12/31:
2006(e) $ (.92)* $ -- $ -- $ (.92) $ (.03) $ 23.59 $23.09
2005 (.29) (1.37) -- (1.66) -- 22.38 19.99
2004(b) (.69) (.63) (.14) (1.46) -- 22.46 20.75
2003(c) (.01) (.08) (.13) (.22) -- 18.57 18.73
Year Ended 10/31:
2003 (.97) (.41) (.04) (1.42) -- 17.30 17.81
2002(d) (.89) (.25) -- (1.14) (.10) 13.56 14.40
--------------------------
* Represents distributions paid "From and in excess of net investment income"
for the six months ended June 30, 2006.
** 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.
**** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ - Ratios do not reflect the effect of dividend payments to Taxable
Auctioned Preferred shareholders.
- Income ratios reflect income earned on assets attributable to Taxable
Auctioned Preferred shares.
- For periods ended prior to December 31, 2004, each Ratio of Expenses to
Average Net Assets Applicable to Common Shares and each Ratio of Net
Investment Income to Average Net Assets Applicable to Common Shares
included the effect of the net interest expense incurred on interest rate
swap transactions as follows:
Year Ended 12/31:
2003(c) .91**
Year Ended 10/31:
2003 1.03
2002(d) .68**
(a) Per share Net Investment Income is calculated using the average daily
shares method.
(b) For the fiscal year ended December 31, 2004, the Fund changed its method
of presentation for net interest expense on interest rate swap
transactions. The effect of this reclassification was to increase Net
Investment Income by $0.15 per share with a corresponding decrease in Net
Realized/Unrealized Gain (Loss), a decrease in each of the Ratios of
Expenses to Average Net Assets Applicable to Common Shares by 0.77% with a
corresponding increase in each of the Ratios of Net Investment Income to
Average Net Assets Applicable to Common Shares.
(c) For the period November 1, 2003 through December 31, 2003.
(d) For the period November 15, 2001 (commencement of operations) through
October 31, 2002.
(e) For the six months ended June 30, 2006.
22
Ratios/Supplemental Data
----------------------------------------------------------------------------------------
Total Returns Before Credit/Reimbursement After Credit/Reimbursement****
------------------- ---------------------------- ------------------------------
Ratio of Net Ratio of Net
Based Ratio of Investment Ratio of Investment
on Expenses Income Expenses Income to
Common Ending Net to Average to Average to Average Average
Based Share Assets Net Assets Net Assets Net Assets Net Assets
on Net Applicable Applicable Applicable Applicable Applicable Portfolio
Market Asset to Common to Common to Common to Common to Common Turnover
Value*** Value*** Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
-------------------------------------------------------------------------------------------------------------------
20.36% 9.59% $ 663,698 1.27%** 3.13%** .88%** 3.51%** 16%
4.75 7.42 629,649 1.28 3.46 .90 3.85 13
19.80 30.12 631,979 1.34 4.13 .94 4.52 14
6.49 8.69 522,576 2.31** 4.07** 1.91** 4.47** 2
35.40 39.80 486,814 2.51 5.17 2.09 5.59 26
3.30 2.09 381,290 2.12** 6.71** 1.72** 7.11** 37
-------------------------------------------------------------------------------------------------------------------
Cumulative Taxable Auctioned Preferred
at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Per Coverage
(000) Share Per Share
--- ---------------------------------------
$ 222,000 $ 25,000 $ 99,741
172,000 25,000 116,519
172,000 25,000 116,857
172,000 25,000 100,956
172,000 25,000 95,758
172,000 25,000 80,420
---
See accompanying notes to financial statements
23
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT
APPROVAL PROCESS
The Board of Trustees is responsible for overseeing the performance of the
investment adviser to the Fund and determining whether to continue the advisory
arrangements. At a meeting held on May 23-25, 2006 (the "May Meeting"), the
Board of Trustees of the Fund, including the independent Trustees, unanimously
approved the continuance of the Investment Management Agreement between the Fund
and NAM and the Sub-Advisory Agreement between NAM and Security Capital (the
"Sub-Adviser"). NAM and the Sub-Adviser are each a "Fund Adviser."
THE APPROVAL PROCESS
During the course of the year, the Board received a wide variety of materials
relating to the services provided by the Fund Advisers and the performance of
the Fund. To assist the Board in its evaluation of the advisory contract with a
Fund Adviser at the May Meeting, the independent Trustees received extensive
materials in advance of their meeting which outlined, among other things:
- the nature, extent and quality of services provided by the Fund Adviser;
- the organization and business operations of the Fund Adviser, including
the responsibilities of various departments and key personnel;
- the Fund's past performance, the Fund's performance compared to funds of
similar investment objectives compiled by an independent third party and
with recognized and/or customized benchmarks (as appropriate);
- the profitability of the Fund Adviser and certain industry profitability
analyses for unaffiliated advisers;
- the expenses of the Fund Adviser in providing the various services;
- the advisory fees (gross and net management fees) and total expense ratios
of the Fund, including comparisons of such fees and expenses with those of
comparable, unaffiliated funds based on information and data provided by
Lipper (the "Peer Universe") as well as compared to a subset of funds
within the Peer Universe (the "Peer Group") to the Fund (as applicable);
- the advisory fees the Fund Adviser assesses to other types of investment
products or clients;
- the soft dollar practices of the Fund Adviser, if any; and
- from independent legal counsel, a legal memorandum describing, among other
things, the duties of the Trustees under the Investment Company Act of
1940 (the "1940 Act") as well as the general principles of relevant state
law in reviewing and approving advisory contracts; the requirements of the
1940 Act in such matters; an adviser's fiduciary duty with respect to
advisory agreements and compensation; the standards used by courts in
determining whether investment company board of directors have fulfilled
their duties and factors to be considered by the board in voting on
advisory agreements.
At the May Meeting, NAM made a presentation to and responded to questions from
the Board. After the presentation and after reviewing the written materials, the
independent Trustees met privately with their legal counsel to review the
Board's duties in reviewing advisory contracts and consider the renewal of the
advisory contracts. It is with this background that the Trustees considered each
advisory contract (which includes the Sub-Advisory Agreement) with the
respective Fund Adviser. The independent Trustees, in consultation with
independent counsel, reviewed the factors set out in judicial decisions and SEC
directives relating to the renewal of advisory contracts. As outlined in more
detail below, the Trustees considered all factors they believed relevant with
respect to the Fund, including the following: (a) the nature, extent and quality
of the services to be provided by the Fund Adviser; (b) the investment
performance of the Fund and the Fund Adviser; (c) the costs of the services to
be provided and profitability of the Fund Adviser and its affiliates; (d) the
extent to which economies of scale would be realized as the Fund grows; and (e)
whether fee levels reflect these economies of scale for the benefit of Fund
investors.
A. NATURE, EXTENT AND QUALITY OF SERVICES
In reviewing the Fund Advisers, the Trustees considered the nature, extent and
quality of the respective Fund Adviser's services. The Trustees reviewed
materials outlining, among other things, the Fund Adviser's organization and
business; the types of services that the Fund Adviser or its affiliates provide
and are expected to provide to the Fund; the performance record of the Fund (as
described in further detail below); and any initiatives Nuveen has taken for its
fund product line. In connection with their continued service as Trustees, the
Trustees also have a good understanding of each Fund Adviser's organization,
operations and personnel. In this regard, the Trustees are familiar with and
have evaluated the professional experience, qualifications and credentials of
the Fund Adviser's personnel. With respect to the Sub-Adviser, the Trustees also
received and reviewed an evaluation of the Sub-Adviser from NAM. Such evaluation
outlined, among other things, the Sub-Adviser's organizational history, client
base, product mix, investment team and any changes thereto, investment process
and any changes to its investment strategy, the Fund's investment objectives and
performance (as applicable). The Trustees noted that NAM recommended the renewal
of the Sub-Advisory
24
Agreement and considered the basis for such recommendation and any
qualifications in connection therewith. Given the Trustees' experience with the
Fund (including any other Nuveen funds advised by a Fund Adviser) and each Fund
Adviser, the Trustees recognized and considered the quality of their investment
processes in making portfolio management decisions as well as any refinements or
improvements thereto. In this regard, the Trustees considered the continued
quality of the Fund Adviser's investment process in making portfolio management
decisions as well as any additional refinements and improvements adopted to the
portfolio management processes.
In addition to advisory services, the independent Trustees considered the
quality of any administrative or non-advisory services provided. With respect to
the Sub-Adviser, the independent Trustees noted that the Sub-Advisory Agreement
was essentially an agreement for the portfolio management services only and the
Sub-Adviser was not expected to supply other significant administrative services
to the Fund.
With respect to NAM, NAM provides the Fund with such administrative and other
services (exclusive of, and in addition to, any such services provided by others
for the Fund) and officers and other personnel as are necessary for the
operations of the Fund. In connection with the review of the Investment
Management Agreement, the Trustees considered in the extent and quality of these
other services which include, among other things, providing: product management
(e.g., product positioning, performance benchmarking, risk management); fund
administration (e.g., daily net asset value pricing and reconciliation, tax
reporting, fulfilling regulatory filing requirements); oversight of third party
service providers; administration of board relations (e.g., organizing board
meetings and preparing related materials); compliance (e.g., monitoring
compliance with investment policies and guidelines and regulatory requirements);
and legal support (e.g., helping prepare and file registration statements,
amendments thereto, proxy statements and responding to regulatory requests
and/or inquiries). As the Fund operates in a highly regulated industry and given
the importance of compliance, the Trustees considered, in particular, the
additions of experienced personnel to the compliance teams and the enhancements
to technology and related systems to support the compliance activities for the
Fund (including a new reporting system for quarterly portfolio holdings). In
addition to the above, because the Fund utilizes a Sub-Adviser, the Trustees
also considered NAM's ability and procedures to monitor the Sub-Adviser's
performance, business practices and compliance policies and procedures. In this
regard, the Trustees noted the enhancements in the investment oversight process,
including increased site visits and departments participating in investment
oversight.
In addition to the foregoing, the Trustees also noted the additional services
that the Fund Adviser or its affiliates provide to closed-end funds, including,
in particular, secondary market support activities. The Trustees recognized
Nuveen's continued commitment to supporting the secondary market for the common
shares of its closed-end funds through a variety of initiatives designed to
raise investor and analyst awareness and understanding of closed-end funds.
These efforts include providing advertising and other media relations programs,
continued contact with analysts, maintaining and enhancing its website for
closed-end funds, and targeted advisor communication programs. With respect to
Funds that utilize leverage through the issuance of preferred shares, the
Trustees noted Nuveen's continued support for the preferred shares by
maintaining, among other things, an in-house preferred trading desk; designating
a product manager those responsibilities include creating and disseminating
product information and managing relations in connection with the preferred
share auction; and maintaining systems necessary to test compliance with rating
agency requirements.
Based on their review, the Trustees found that, overall, the nature, extent and
quality of services provided (and expected to be provided) to the Fund under the
Investment Management Agreement or Sub-Advisory Agreement, as applicable, were
of a high level and were satisfactory.
B. THE INVESTMENT PERFORMANCE OF THE FUND AND FUND ADVISERS
The Board considered the investment performance for the Fund, including the
Fund's historic performance as well as its performance compared to funds with
similar investment objectives identified by an independent third party (the
"Performance Peer Group") and recognized and/or customized benchmarks (as
applicable). In evaluating the performance information, in certain instances,
the Trustees noted that the closest Performance Peer Group for the Fund still
may not adequately reflect the Fund's investment objectives, strategies and
portfolio duration, thereby limiting the usefulness of the comparisons of the
Fund's performance with that of the Performance Peer Group (such as, the Nuveen
Diversified Dividend and Income Fund, Nuveen Preferred and Convertible Income
Fund, Nuveen Preferred and Convertible Income Fund 2, Nuveen Tax-Advantage
Floating Rate Fund, and the Nuveen Real Estate Income Fund.)
In reviewing performance, the Trustees reviewed performance information
including, among other things, total return information compared with the Fund's
Performance Peer Group as well as recognized and/or customized benchmarks (as
appropriate) for the one-, three- and five-year periods (as applicable) ending
December 31, 2005. This information supplements the Fund performance information
provided to the Board at each of their quarterly meetings. Based on their
review, the Trustees determined that the Fund's absolute and relative investment
performance over time had been satisfactory.
C. FEES, EXPENSES AND PROFITABILITY
1. FEES AND EXPENSES
In evaluating the management fees and expenses of the Fund, the Board
reviewed, among other things, the Fund's advisory fees (net and gross
management fees) and total expense ratios (before and after expense
reimbursements and/or waivers) in absolute terms as well as comparisons to
the gross managements fees (before waivers), net management fees (after
waivers) and total expense ratios (before and after waivers) of comparable
funds in the Peer Universe and the Peer Group. The Trustees reviewed data
regarding the construction of Peer Groups as well as the methods of
measurement for the fee and expense analysis and the performance analysis. In
certain cases, due to the small number of peers in the Peer Universe, the
Peer Universe and the Peer Group may be the same. Further, the Trustees
recognized that in certain cases the closest Peer Universe
25
ANNUAL INVESTMENT
MANAGEMENT AGREEMENT APPROVAL PROCESS (continued)
and/or Peer Group may not adequately reflect the Fund's investment objectives
and strategies limiting the usefulness of comparisons. In reviewing
comparisons, the Trustees also considered the size of the Peer Universe
and/or Peer Group, the composition of the Peer Group (including differences
in the use of leverage) as well as differing levels of fee waivers and/or
expense reimbursements. In this regard, the Trustees considered the
fund-level and complex-wide breakpoint schedules (described in further detail
below) and any fee waivers and reimbursements provided by Nuveen (applicable,
in particular, for certain funds launched since 1999). Based on their review
of the fee and expense information provided, the Trustees determined that the
Fund's net total expense ratio was within an acceptable range compared to
peers.
2. COMPARISONS WITH THE FEES OF OTHER CLIENTS
The Trustees further reviewed data comparing the advisory fees of NAM with
fees NAM charges to other clients (such as separate managed accounts and
funds that are not offered by Nuveen Investments but are sub-advised by one
of Nuveen's investment management teams). In general, the advisory fees
charged for separate accounts are somewhat lower than the advisory fees
assessed to the Fund. The Trustees recognized that the differences in fees
are attributable to a variety of factors, including the differences in
services provided, product distribution, portfolio investment policies,
investor profiles, account sizes and regulatory requirements. The Trustees
noted, in particular, that the range of services provided to the Fund is more
extensive than that provided to managed separate accounts. As described in
further detail above, such additional services include, but are not limited
to, providing: product management, fund administration, oversight of third
party service providers, administration of board relations, and legal
support. Funds further operate in a highly regulated industry requiring
extensive compliance functions compared to the other investment products. In
addition to the costs of the additional services, administrative costs may
also be greater for funds as the average account size for separate accounts
is notably larger than the retail accounts of funds. Given the differences in
the product structures, particularly the extensive services provided to
closed-end funds, the Trustees believe such facts justify the different
levels of fees.
In considering the advisory fees of the Sub-Adviser, the Trustees also
considered the pricing schedule that the Sub-Adviser charges for similar
investment management services for other sponsors or clients.
3. PROFITABILITY OF FUND ADVISERS
In conjunction with its review of fees, the Trustees also considered the
profitability of Nuveen Investments for advisory activities (which
incorporated Nuveen's wholly-owned affiliated sub-advisers). The Trustees
reviewed data comparing Nuveen's profitability with other fund sponsors
prepared by three independent third party service providers as well as
comparisons of the revenues, expenses and profits margins of various
unaffiliated management firms with similar amounts of assets under management
prepared by Nuveen. The Trustees further reviewed the 2005 Annual Report for
Nuveen Investments. In considering profitability, the Trustees recognized the
inherent limitations in determining profitability as well as the difficulties
in comparing the profitability of other unaffiliated advisers. Profitability
may be affected by numerous factors, including the methodology for allocating
expenses, the adviser's business mix, the types of funds managed, the
adviser's capital structure and cost of capital. Further, individual fund or
product line profitability of other sponsors is generally not publicly
available. Accordingly, the profitability information that is publicly
available from various investment advisory or management firms may not be
representative of the industry.
Notwithstanding the foregoing, in reviewing profitability, the Trustees reviewed
Nuveen's methodology and assumptions for allocating expenses across product
lines to determine profitability. In this regard, the methods of allocation used
appeared reasonable. The Trustees also, to the extent available, compared
Nuveen's profitability margins (including pre- and post-marketing profit
margins) with the profitability of various unaffiliated management firms. The
Trustees noted that Nuveen's profitability is enhanced due to its efficient
internal business model. The Trustees also recognized that while a number of
factors affect profitability, Nuveen's profitability may change as fee waivers
and/or expense reimbursement commitments of Nuveen to various funds in the
Nuveen complex expire. To keep apprised of profitability and developments that
may affect profitability, the Trustees have requested profitability analysis be
provided periodically during the year. The Trustees also considered the
Sub-Adviser's revenues from serving as a Sub-Adviser to the Fund, expenses
(including the basis for allocating expenses) and profitability margins (pre-
and post-tax). Based on their review, the Trustees were satisfied that the
respective Fund Adviser's level of profitability was reasonable in light of the
services provided.
In evaluating the reasonableness of the compensation, the Trustees also
considered any other revenues paid to a Fund Adviser as well as any indirect
benefits (such as soft dollar arrangements, if any) the Fund Adviser and its
affiliates are expected to receive that are directly attributable to their
management of the Fund, if any. See Section E below for additional information.
Based on their review of the overall fee arrangements of the Fund, the Trustees
determined that the advisory fees and expenses of the Fund were reasonable.
D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE
With respect to economies of scale, the Trustees recognized the potential
benefits resulting from the costs of a fund being spread over a larger asset
base as a fund grows. To help ensure the shareholders share in these benefits,
the Trustees have reviewed and
26
considered the breakpoints in the advisory fee schedules that reduce advisory
fees as the Fund's assets grow. In addition to advisory fee breakpoints as
assets in the Fund rise, after lengthy discussions with management, the Board
also approved a complex-wide fee arrangement that was introduced on August 1,
2004. Pursuant to the complex-wide fee arrangement, the fees of the funds in the
Nuveen complex, including the Fund, are reduced as the assets in the fund
complex reach certain levels. In evaluating the complex-wide fee arrangement,
the Trustees considered, among other things, the historic and expected fee
savings to shareholders as assets grow, the amount of fee reductions at various
asset levels, and that the arrangement would extend to all funds in the Nuveen
complex. The Trustees noted that 2005 was the first full year to reflect the fee
reductions from the complex wide fee arrangement. The Trustees also considered
the impact, if any, the complex-wide fee arrangement may have on the level of
services provided. Based on their review, the Trustees concluded that the
breakpoint schedule and complex-wide fee arrangement currently was acceptable
and desirable in providing benefits from economies of scale to shareholders.
E. INDIRECT BENEFITS
In evaluating fees, the Trustees also considered any indirect benefits or
profits the Fund Adviser or its affiliates may receive as a result of its
relationship with the Fund. In this regard, the Trustees considered revenues
received by affiliates of the Fund Adviser for serving as agent at Nuveen's
preferred trading desk and for serving as a co-manager in the initial public
offering of new closed-end exchange traded funds.
In addition to the above, the Trustees considered whether the Fund Adviser
received any benefits from soft dollar arrangements. With respect to NAM, the
Trustees noted that NAM does not currently have any soft dollar arrangements and
does not pay excess brokerage commissions (or spreads on principal transactions)
in order to receive research services; however, NAM may from time to time
receive and have access to research generally provided to institutional clients.
The Trustees also considered the soft dollar arrangements, if any, of the
Sub-Adviser. With respect to Security Capital, such Sub-Adviser does not enter
into soft dollar arrangements; however, such Sub-Adviser may receive or have
access to research generally provided to institutional clients.
The Trustees did not identify any single factor discussed previously as
all-important or controlling. The Trustees, including a majority of Independent
Trustees, concluded that the terms of the Investment Management Agreement and
Sub-Advisory Agreement were fair and reasonable, that the respective Fund
Adviser's fees are reasonable in light of the services provided to the Fund, and
that the renewal of the Investment Management Agreement and Sub-Advisory
Agreement should be approved.
27
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. 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.
28
AUTOMATIC DIVIDEND
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
The Fund is amending the terms and conditions of its Automatic Dividend
Reinvestment Plan (the "Plan") as further described below effective with the
close of business on December 1, 2006. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who
do not wish to continue as participants under the amended Plan may withdraw from
the Plan by notifying the Plan Agent prior to the effective date of the
amendments. Participants should refer to their Plan document for notification
instructions, or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
29
Notes
30
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.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
MARKET YIELD (ALSO KNOWN AS DISTRIBUTION YIELD OR CURRENT YIELD): Market yield
is based on the Fund's current annualized monthly distribution divided by the
Fund's current market price. REIT distributions received by the Fund are
generally comprised of investment income, long-term and short-term capital gains
and a REIT return of capital. The Fund's monthly distributions to its
shareholders may be comprised of ordinary income, net realized capital gains
and, if at the end of the calendar year the 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 MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
BOARD OF TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust 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
The Fund intends to repurchase shares of its own common or preferred stock in
the future at such times and in such amounts as is deemed advisable. No shares
were repurchased during the period covered by this report. Any future
repurchases will be reported to shareholders in the next annual or semiannual
report.
31
(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 more than $149 billion in assets, Nuveen Investments offers
access to a number of different asset classes and investing solutions
through a variety of products. Nuveen Investments markets its
capabilities under 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.
- Share prices
- Fund details
- Daily financial news
- Investor education
- Interactive planning tools
LEARN MORE
ABOUT NUVEEN FUNDS AT
WWW.NUVEEN.COM/CEF
ESA-A-0606D
NUVEEN LOGO
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
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.
During this reporting period, the registrant's Board of Trustees implemented a
change to the procedures by which shareholders may recommend nominees to the
registrant's board of trustees by amending the registrant's by-laws to include a
provision specifying the date by which shareholder nominations for election as
trustee at a subsequent meeting must be submitted to the registrant.
Shareholders must deliver or mail notice to the registrant not less than
forty-five days nor more than sixty days prior to the first anniversary date of
the date on which the registrant first mailed its proxy materials for the prior
year's annual meeting; provided, however, if and only if the annual meeting is
not scheduled to be held within a period that commences thirty days before the
first anniversary date of the annual meeting for the preceding year and ends
thirty days after such anniversary date (an annual meeting date outside such
period being referred to as an "Other Annual Meeting Date" hereafter), the
shareholder notice must be given no later than the close of business on the date
forty-five days prior to such Other Annual Meeting Date or the tenth business
day following the date such Other Annual Meeting Date is first publicly
announced or disclosed. The shareholder's notice must be in writing and set
forth the name, age, date of birth, business address, residence address and
nationality of the person(s) being nominated and the class or series, number of
all shares of the registrant owned of record or beneficially be each such
person(s), any other information regarding such person required by Item 401 of
Regulation S-K or Item 22 of Rule 14a-101 (Schedule 14A) under the Securities
Exchange Act of 1934, as amended, any other information regarding the person(s)
to be nominated that would be required to be disclosed in a proxy statement or
other filings required to be made in connection with solicitation of proxies for
election of trustees, and whether such shareholder believes any nominee is or
will be an "interested person" (as that term is defined in the Investment
Company Act of 1940, as amended) of the registrant or sufficient information to
enable the registrant to make that determination and the written and signed
consent of the person(s) to be nominated.
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.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Real Estate Income Fund
By (Signature and Title)* /s/ Jessica R. Droeger
---------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: September 8, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Gifford R. Zimmerman
---------------------------------------
Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: September 8, 2006
By (Signature and Title)* /s/ Stephen D. Foy
---------------------------------------
Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: September 8, 2006
* Print the name and title of each signing officer under his or her signature.