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 811-21157
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Nuveen Arizona Dividend Advantage Municipal Fund 3
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
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(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
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Date of fiscal year end: July 31
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Date of reporting period: July 31, 2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
ANNUAL REPORT July 31, 2004
Nuveen Investments
Municipal Closed-End
Exchange-Traded
Funds
Nuveen Arizona Premium Income Municipal Fund, Inc.
NAZ
Nuveen Arizona Dividend Advantage Municipal Fund
NFZ
Nuveen Arizona Dividend Advantage Municipal Fund 2
NKR
Nuveen Arizona Dividend Advantage Municipal Fund 3
NXE
Nuveen Texas Quality Income Municipal Fund
NTX
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DEPENDABLE,
TAX-FREE INCOME BECAUSE
IT'S NOT WHAT YOU EARN,
IT'S WHAT YOU KEEP.(R)
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Photo of: Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
Chairman's
LETTER TO SHAREHOLDERS
Once again, I am pleased to report that over the most recent reporting period
your Fund continued to provide you with tax-free monthly income and an
attractive total return. For more specific information about the performance of
your Fund, please see the Portfolio Managers' Perspectives and Performance
Overview sections of this report.
With interest rates at historically low levels, many have begun to wonder
whether interest rates will rise, and whether that possibility should cause them
to adjust their holdings of fixed-income investments. No one knows what the
future will bring, which is why we think a well-balanced portfolio that is
structured and carefully monitored with the help of an investment professional
is an important component in achieving your long-term financial goals. A
well-diversified portfolio
--------------------------------------------------------------------------------
NO ONE KNOWS WHAT THE FUTURE WILL BRING, WHICH IS WHY WE THINK A WELL-BALANCED
PORTFOLIO ..... IS AN IMPORTANT COMPONENT IN ACHIEVING YOUR LONG-TERM FINANCIAL
GOALS.
--------------------------------------------------------------------------------
may actually help to reduce your overall investment risk, and we believe that
municipal bond investments like your Nuveen Fund can be important building
blocks in a portfolio crafted to perform well through a variety of market
conditions.
I'd also like to direct your attention to the inside front cover of this report,
which explains the quick and easy process to begin receiving Fund reports like
this via e-mail and the internet. Thousands of Nuveen Fund shareholders already
have signed-up, and they are getting their Fund information faster and more
conveniently than ever. I urge you to consider joining them.
Since 1898, Nuveen Investments has offered financial products and solutions that
incorporate careful research, diversification, and the application of
conservative risk-management principles. We are grateful that you have chosen us
as a partner as you pursue your financial goals. We look forward to continuing
to earn your trust in the months and years ahead.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
September 15, 2004
Nuveen Arizona and Texas Municipal Closed-End Exchange-Traded Funds
(NAZ, NFZ, NKR, NXE, NTX)
Portfolio Managers'
PERSPECTIVE
Portfolio managers Scott Romans, Dan Solender, and Cathryn Steeves discuss the
market environment, key investment strategies and the performance of the five
Funds. Scott, who joined Nuveen in 2000, has managed the Arizona Funds (NAZ,
NFZ, NKR and NXE) since November 2003. With 12 years of investment experience,
Dan assumed portfolio management responsibility for NTX in November 2003. After
the end of this reporting period, in August 2004, he turned over responsibility
for NTX to Cathryn, who has been a research analyst and portfolio manager with
Nuveen since 1996.
WHAT FACTORS AFFECTED THE U.S. ECONOMY AND MUNICIPAL MARKET DURING THE FISCAL
YEAR ENDED JULY 31, 2004?
During much of this reporting period, the U.S. economy demonstrated signs of
improvement, as increased capital spending and a rise in consumer confidence
helped fuel strong growth in the overall gross domestic product. However, toward
the end of the 12-month period, higher energy costs and the improving employment
picture began to raise fears of a potential pick-up in inflation. This
combination of inflation concerns and general economic momentum--plus continued
geopolitical uncertainty--served as a catalyst for heightened volatility in the
fixed-income markets. Although interest rates remained at or near historical
lows through much of this 12-month period, yields in the long-term bond markets,
including the municipal market, were increasingly driven by expectations that
the Federal Reserve would raise short-term interest rates and by speculation
over the timing and extent of those rate hikes.
As an example of this interest rate volatility, the Bond Buyer 25 Revenue Bond
Index, a widely followed municipal market benchmark, began this 12-month
reporting period with a yield of 5.41%. After briefly touching 5.50%, the yield
fell steadily to 4.73% by mid-March 2004. From there, the Index's yield rose
back to 5.31% by July 31, 2004.
On June 30, 2004, the Fed moved to increase the fed funds rate by 25 basis
points to 1.25%, the first increase in four years, noting that it anticipated
taking a "measured" approach to further tightening to avoid potential derailment
of the economic recovery. (On August 10, 2004, following the close of this
reporting period, the Fed added another 25 basis points, bringing the target
rate to 1.50%.)
In general, municipal supply nationwide remained relatively strong over the
entire 12-month reporting period. About $366.5 billion in new bonds came to
market during this
4
period, down 7% from the preceding 12 months. The decrease in issuance was more
evident late in the period, with $214 billion in new municipal supply for the
first seven months of 2004 compared with $239 billion for January-July 2003.
HOW ABOUT ECONOMIC AND MARKET CONDITIONS IN ARIZONA AND TEXAS?
During this 12-month reporting period, Arizona's economy continued its rapid
recovery, benefiting from positive demographic trends and low business costs
which have attracted companies to the state. Construction, particularly in urban
areas, was booming, and the outlook for tourism steadily improved. In addition,
Arizona's five military bases brought more than $6 billion into the state. As of
July 2004, unemployment in Arizona was 4.4%, down from 5.8% in July 2003 and
below the national average of 5.5%. Partially offsetting this expansion were a
loss of jobs in the semiconductor sector and the trend toward outsourcing the
state's high-tech manufacturing and business services jobs to foreign countries.
In fiscal 2004, Arizona's revenue collection showed marked improvement, with
state tax collections up almost 9%. However, due to above-average population
growth and new policy initiatives, Arizona continues to face education,
healthcare, social services and corrections expenditures that could act as a
constraint on state finances over the next few years. The fiscal 2005 $7.2
billion budget was balanced through the use of recurring revenues and one-time
measures. During the 12-month reporting period ended July 2004, issuers in
Arizona sold $7.4 billion in new municipal bonds, an increase of 1% from the
previous 12-month period. Much of this increase was due to Arizona's population
growth, which translated to a need for new infrastructure, such as schools and
roads. As of July 31, 2004, Arizona debt was rated A1 with a stable outlook by
Moody's and AA- with a negative outlook by Standard & Poor's. This reflects
Moody's revised outlook as of February 2004, based on the state's improving
economy and operating fund liquidity.
The Texas economy continued to emerge from recession over the fiscal year, as
both jobs and payrolls showed modest gains. The services sector is now a major
driver of growth in Texas, and the state's industrial base has diversified
substantially from the volatile oil-driven days so much that increases in energy
prices had only a minor impact on the Texas recovery. High-tech capital Austin,
which boasts new research centers and upgraded production facilities, and San
Antonio and Fort Worth, the beneficiaries of new investments in auto plants,
were returning to healthy growth. Dallas stood to benefit from the recovery
5
of industrial activity along the U.S.-Mexico border following the NAFTA ruling
removing restrictions on Mexican trucks. The jobless rate in Texas, which
dropped over the 12 month period, to 5.7% in July 2004 from 6.8% in July 2003,
remained above the July 2004 national average of 5.5%. Like Arizona, Texas had
positive demographic trends, which exerted the usual budgetary pressures from
growing expenditures for essential services. With no rainy day reserves, the
$117 billion state budget for fiscal 2004/2005 closed a $10 billion gap--the
result of weaker state sales tax revenues--with cuts in children's healthcare,
teacher pension programs, Medicaid and other healthcare programs for low-income
families. During the 12 months ended July 31, 2004, issuers in Texas sold $27.7
billion in new municipal bonds, about equal to the issuance of the previous 12
months. As of July 31, 2004, Texas general obligation debt continued to be rated
Aa1/AA, with stable outlooks, by Moody's and Standard & Poor's, respectively.
IN THIS ENVIRONMENT, WHAT KEY STRATEGIES WERE USED TO MANAGE THE ARIZONA AND
TEXAS FUNDS DURING THE 12 MONTHS ENDED JULY 31, 2004?
As the market continued to anticipate rising interest rates, we remained focused
on efforts to mitigate some of the interest rate risk inherent in each Fund's
portfolio. Interest rate risk is the risk that the value of a Fund's portfolio
will decline if market interest rates rise (since bond prices move in the
opposite direction of interest rates). Because longer-term bonds often carry
more interest rate risk than those with short or intermediate terms, we tried to
focus our purchase activity on attractive securities with defensive structures
in the long-intermediate part of the yield curve (i.e., bonds that mature in 15
to 20 years). In many cases, bonds in this part of the curve offered yields
similar to those of longer-term bonds with less inherent interest rate risk and,
we believed, greater total return prospects. We also added some bonds in the
10-year maturity range when we found what we believed were attractive
opportunities. We think this yield curve positioning should also help the Funds
produce more consistent returns over time as interest rates rise and fall.
In keeping with this strategy, some of the bonds we purchased carried coupons
that were higher than current market rates. These "premium" bonds have the
potential to help cushion the impact on the value of the Funds' portfolios if
interest rates continue rise. Some of these additions were financed through the
sale of lower-coupon bonds with longer maturities (i.e., beyond 20 years).
6
Much of the issuance in Arizona during this period came from the limited tax
obligation sector, and we increased our allocations to this sector in all four
of the Arizona Funds. We also worked to reduce our positions in pre-refunded
bonds. In NAZ, for example, we cut our holdings of U.S. Guaranteed and escrowed
bonds to 12% from 17% over the 12 months.
In addition, we worked to moderate the credit risk in NAZ, NFZ and NKR by
reducing our positions in BBB rated holdings. Because lower-rated bonds were
relatively scarce, especially in Arizona, and because these bonds performed well
over the past 12 months, we believed it was a good time to take advantage of
opportunities to sell selected bonds at attractive prices. However, we were
careful to balance the desire for improved quality with the need to generate
income. We continued to add new BBB rated and sub-investment grade rated bonds
to some of the portfolios to better diversify their lower credit quality
holdings.
HOW DID THE FUNDS PERFORM?
Individual results for the Nuveen Arizona and Texas Funds, as well as for
relevant benchmarks, are presented in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE
For periods ended 7/31/04
(Annualized)
1-YEAR 5-YEAR 10-YEAR
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NAZ 9.66% 5.16% 6.37%
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NFZ 10.56% NA NA
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NKR 9.98% NA NA
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NXE 10.25% NA NA
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NTX 10.51% 6.62% 6.98%
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Lehman Brothers
Municipal
Bond Index1 5.79% 6.07% 6.38%
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Lipper Other States
Municipal Debt Funds
Average2 9.64% 7.01% 7.28%
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Past performance is not predictive of future results.
For additional information, see the individual Performance Overview for your
Fund in this report.
1 The Lehman Brothers Municipal Bond Index is an unleveraged, unmanaged
national index comprising a broad range of investment-grade municipal
bonds. Results for the Lehman indexes do not reflect any expenses.
2 The Lipper Other States Municipal Debt Funds category average is calculated
using the returns of all leveraged and unleveraged closed-end
exchange-traded funds in this category for each period as follows: 1 year,
44 funds; 5 years, 19 funds; and 10 years, 17 funds. Fund and Lipper
returns assume reinvestment of dividends. It should be noted that the
performance of the Lipper Other States category represents the overall
average of annual returns for funds from 10 different states with a wide
variety of economic and municipal market conditions and investment
guidelines, making direct comparisons less applicable.
7
For the 12 months ended July 31, 2004, the annual returns on net asset value
(NAV) for all five Funds in this report exceeded the return on the Lehman
Brothers index. The Funds also outperformed or were in line with the average
return for the Lipper Other States peer group over this period.
One of the primary factors benefiting the performance of each of these Funds
relative to that of the unleveraged Lehman index was the Funds' use of leverage.
While leveraging can add volatility to the Funds' NAVs and share prices,
especially when there are substantial shifts in interest rates, this strategy
can also provide opportunities for additional income and total returns for
common shareholders when short-term interest rates are low and long-term rates
are relatively steady or falling.
Another of our strategies that influenced the performance of the Funds,
especially when compared with each other, was their yield curve positioning. For
example, NFZ was more heavily weighted toward the longer end of the yield curve
during this period, while NAZ was more heavily weighted toward the intermediate
segment. This is one reason for the differences in their total returns over the
12 months.
All of these Funds also benefited from their allocations of lower quality bonds,
which tended to outperform higher quality securities as the economy improved.
This also was a reason for some of the differences between Funds' returns. As of
July 31, 2004, NTX and NFZ had the highest allocations (14% and 11%,
respectively) of bonds rated BBB, while NKR had the lowest (6%). In addition,
NTX's total return was boosted by the strong rebound in the performance of its
position in sub-investment grade American Airlines bonds. In NAZ and NFZ, B-
rated bonds issued by Coconino County for Nevada Power were among the best
performing credits.
Holdings in the healthcare sector, particularly those with lower ratings, also
were strong performers over the 12 month period. All of these Funds had sizeable
allocations to this sector, ranging from 15% in NTX to 11% in both NAZ and NXE,
9% in NKR and 6% in NFZ. The top performing holdings in NAZ, NKR and NXE were
Ba2 rated bonds issued for Phoenix Children's Hospital, which returned 26% for
the 12-month period, and non-rated Winslow Memorial Hospital bonds held by NAZ
which returned 23.5%.
8
The Arizona Funds also benefited from credit upgrades of two of their holdings
during this period, which enhanced the bonds' prices as well as the Funds'
credit quality. The first of these was Catholic Healthcare West, which was held
by all four of the Arizona Funds. In October 2003, Moody's upgraded these bonds
to Baa1 from Baa2, and S&P revised its rating to BBB+ from BBB in March 2004,
based on the system's continued positive operating results, improved cashflow,
and strategies that targeted investment in high-growth areas. The second upgrade
was for bonds issued by Glendale Industrial Development Authority for Midwestern
University, an osteopathic college, which were held by NAZ, NKR, and NXE. These
bonds were upgraded by S&P to A- from BBB+ in June 2004. In NTX, bonds issued by
the Houston Water and Sewer System (maturing in 2030) were pre-refunded during
this period, positively impacting the Fund's annual performance.
Also making a positive contribution to the total returns of NAZ, NXE and NTX
during this period were tobacco bonds issued by Puerto Rico and backed by
revenues from the 1998 master tobacco settlement agreement.
Among the Funds' holdings that did not perform as well during this period were
pre-refunded bonds, which underperformed the market as a whole as measured by
the Lehman index. Revenue bonds, insured bonds and general obligation bonds also
did not perform as well as some other sectors, and we worked to reduce our
positions in these bonds over the past 12 months, particularly in NAZ.
HOW ABOUT THE FUNDS' DIVIDENDS AND SHARE PRICES?
With short-term interest rates remaining at historically low levels during this
reporting period, the leveraged structures of these five Funds continued to
support their dividend-paying capabilities. The extent of this benefit is tied
in part to the short-term rates the Funds pay their MuniPreferred(R)
shareholders. During periods of low short-term rates, the Funds generally pay
relatively lower dividends to their MuniPreferred shareholders, which can leave
more earnings to support common share dividends. During this reporting period,
this strategy enabled us to increase the dividend of NFZ, while helping to
maintain the dividends of NAZ, NKR, NXE and NTX.
9
All of these Funds seek to pay stable dividends at rates that reflect each
Fund's past results and projected future performance. During certain periods,
each Fund may pay dividends at a rate that may be more or less than the amount
of net investment income actually earned by the Fund during the period. If a
Fund has cumulatively earned more than it has paid in dividends, it holds the
excess in reserve as undistributed net investment income (UNII) as part of the
Fund's NAV. Conversely, if a Fund has cumulatively paid dividends in excess of
its earnings, the excess constitutes negative UNII that is likewise reflected in
the Fund's NAV. Each Fund will, over time, pay all of its net investment income
as dividends to shareholders. As of July 31, 2004, all five of the Funds in this
report had positive UNII balances.
As of the end of this reporting period, NAZ was trading at a premium to its NAV,
but less than its average premium over the course of the entire 12 months. NFZ
was trading at a premium greater than its 12-month average. NKR was trading at a
discount to NAV that was smaller than its average discount for the period, while
NXE was trading at a greater discount than its 12-month average. NTX was trading
at a slightly smaller discount than its full-period average.
HOW WERE THE FUNDS POSITIONED IN TERMS OF CREDIT QUALITY AND BOND CALLS AS OF
JULY 31, 2004?
Given the current geopolitical and economic climate, we continued to believe
that maintaining strong credit quality was an important requirement. As of the
end of July 2004, these five Funds continued to offer excellent credit quality,
with allocations of bonds rated AAA/U.S. guaranteed and AA ranging from 84% in
NKR to 83% in NXE, 82% in NAZ, 77% in NFZ and 76% in NTX.
As of the end of July 2004, potential call exposure for these Funds during
2004-2005 ranged from zero in NKR and NXE and 1% in NFZ to 8% in NAZ and NTX.
The number of actual bond calls in all of the Funds will depend largely on
market interest rates.
10
Nuveen Arizona Premium Income Municipal Fund, Inc.
NAZ
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 68%
AA 14%
A 5%
BBB 7%
NR 1%
BB or Lower 5%
Bar Chart:
2003-2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Aug 0.0765
Sep 0.0765
Oct 0.0765
Nov 0.0765
Dec 0.0765
Jan 0.0765
Feb 0.0765
Mar 0.0765
Apr 0.0765
May 0.0765
Jun 0.0765
Jul 0.0765
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.96
15.03
14.9
14.76
14.77
14.8
14.66
14.71
14.86
15.27
15.18
15.16
15.1
15.05
15.24
15.39
15.41
15.49
15.61
16.1
16.06
16.17
16.14
16.27
16.75
16.96
16.75
16.72
16.99
16.96
16.94
17.25
17.13
16.95
16.73
16
15.56
15.52
14.81
14.65
15
14.7
14.56
14.54
14.52
15.1
15.35
15.31
15.21
7/31/04 15.27
FUND SNAPSHOT
------------------------------------
Share Price $15.27
------------------------------------
Common Share
Net Asset Value $14.04
------------------------------------
Premium/(Discount) to NAV 8.76%
------------------------------------
Market Yield 6.01%
------------------------------------
Taxable-Equivalent Yield1 8.77%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $62,431
------------------------------------
Average Effective
Maturity (Years) 17.46
------------------------------------
Leverage-Adjusted Duration 9.56
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/19/92)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 7.97% 9.66%
------------------------------------
5-Year 3.63% 5.16%
------------------------------------
10-Year 7.39% 6.37%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 35%
------------------------------------
U.S. Guaranteed 12%
------------------------------------
Healthcare 11%
------------------------------------
Water and Sewer 11%
------------------------------------
Education and
Civic Organizations 10%
------------------------------------
Housing/Multifamily 8%
------------------------------------
Utilities 7%
------------------------------------
Other 6%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
For investments that generate qualified dividend income, the taxable-
equivalent yield is lower.
11
Nuveen Arizona Dividend Advantage Municipal Fund
NFZ
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 57%
AA 20%
A 11%
BBB 11%
BB or Lower 1%
Bar Chart:
2003-2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Aug 0.0755
Sep 0.0755
Oct 0.0755
Nov 0.0755
Dec 0.0765
Jan 0.0765
Feb 0.0765
Mar 0.0765
Apr 0.0765
May 0.0765
Jun 0.0765
Jul 0.0765
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 15.1
15.12
15.14
15.12
15.14
15.05
14.95
14.91
14.78
14.66
14.67
14.81
14.9
15.04
15.49
15.51
15.64
15.65
16.6
16.67
16.58
16.49
16.8
17.17
16.9
16.71
16.9
16.7
16.8
16.77
16.81
16.88
16.7
15.8
15.3
14.65
14.66
14.3
13.78
13.69
14.12
14.28
14.31
13.64
13.98
14.45
14.67
15.28
15.05
7/31/04 15.4
FUND SNAPSHOT
------------------------------------
Share Price $15.40
------------------------------------
Common Share
Net Asset Value $15.00
------------------------------------
Premium/(Discount) to NAV 2.67%
------------------------------------
Market Yield 5.96%
------------------------------------
Taxable-Equivalent Yield1 8.70%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $23,153
------------------------------------
Average Effective
Maturity (Years) 16.89
------------------------------------
Leverage-Adjusted Duration 10.42
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 1/30/01)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 7.05% 10.56%
------------------------------------
Since
Inception 6.66% 7.50%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 43%
------------------------------------
Utilities 15%
------------------------------------
Housing/Multifamily 10%
------------------------------------
U.S. Guaranteed 8%
------------------------------------
Education and
Civic Organizations 7%
------------------------------------
Water and Sewer 6%
------------------------------------
Healthcare 6%
------------------------------------
Other 5%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
For investments that generate qualified dividend income, the taxable-
equivalent yield is lower.
2 The Fund also paid shareholders a net ordinary income distribution in
December 2003 of $0.0418 per share.
12
Nuveen Arizona Dividend Advantage Municipal Fund 2
NKR
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 73%
AA 11%
A 9%
BBB 6%
BB or Lower 1%
Bar Chart:
2003-2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Aug 0.072
Sep 0.072
Oct 0.072
Nov 0.072
Dec 0.072
Jan 0.072
Feb 0.072
Mar 0.072
Apr 0.072
May 0.072
Jun 0.072
Jul 0.072
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.05
14.32
14.27
14.09
14.09
14.3
14.43
14.39
14.3
14.36
14.3
14.2
14.5
14.4
14.38
14.4
14.24
14.35
14.43
14.76
14.74
15.1
15.23
14.92
15.31
15.12
15.18
15.15
15.44
15.55
15.77
15.71
15.7
15.45
15.08
14.55
14.6
14.64
14.23
14.41
14.6
14.51
14.05
14.01
14.1
14.8
14.98
14.82
14.6
7/31/04 14.82
FUND SNAPSHOT
------------------------------------
Share Price $14.82
------------------------------------
Common Share
Net Asset Value $15.10
------------------------------------
Premium/(Discount) to NAV -1.85%
------------------------------------
Market Yield 5.83%
------------------------------------
Taxable-Equivalent Yield1 8.51%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $36,543
------------------------------------
Average Effective
Maturity (Years) 16.49
------------------------------------
Leverage-Adjusted Duration 10.60
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 9.46% 9.98%
------------------------------------
Since
Inception 5.25% 8.11%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/General 32%
------------------------------------
Tax Obligation/Limited 29%
------------------------------------
Healthcare 9%
------------------------------------
Education and
Civic Organizations 7%
------------------------------------
Utilities 7%
------------------------------------
Water and Sewer 7%
------------------------------------
Housing/Multifamily 5%
------------------------------------
Other 4%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
For investments that generate qualified dividend income, the taxable-
equivalent yield is lower.
2 The Fund also paid shareholders capital gains and net ordinary income
distributions in December 2003 of $0.0441 per share.
13
Nuveen Arizona Dividend Advantage Municipal Fund 3
NXE
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 68%
AA 15%
A 6%
BBB 9%
BB or Lower 2%
Bar Chart:
2003-2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Aug 0.067
Sep 0.067
Oct 0.067
Nov 0.067
Dec 0.067
Jan 0.067
Feb 0.067
Mar 0.067
Apr 0.067
May 0.067
Jun 0.067
Jul 0.067
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 13.96
13.5
13.57
13.13
13.26
13.25
13.05
13.1
13.19
13.2
13.03
13.14
13.21
13.09
13.1
13.34
13.21
13.3
13.4
13.45
13.65
14.19
14.2
14.1
14.15
14.05
14.28
14.23
14.46
14.3
14.55
14.77
14.7
14.58
13.71
13.76
13.3
12.89
12.39
12.43
12.78
12.7
13
12.55
12.75
13.25
13.38
13.49
13.35
7/31/04 13.3
FUND SNAPSHOT
------------------------------------
Share Price $13.30
------------------------------------
Common Share
Net Asset Value $14.01
------------------------------------
Premium/(Discount) to NAV -5.07%
------------------------------------
Market Yield 6.05%
------------------------------------
Taxable-Equivalent Yield1 8.83%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $42,983
------------------------------------
Average Effective
Maturity (Years) 18.56
------------------------------------
Leverage-Adjusted Duration 10.73
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 1.01% 10.25%
------------------------------------
Since
Inception -0.96% 4.25%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 26%
------------------------------------
Tax Obligation/General 18%
------------------------------------
Education and
Civic Organizations 11%
------------------------------------
Healthcare 11%
------------------------------------
Housing/Multifamily 9%
------------------------------------
Transportation 9%
------------------------------------
Water and Sewer 7%
------------------------------------
Utilities 5%
------------------------------------
Other 4%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a combined federal and state income tax rate of 31.5%.
For investments that generate qualified dividend income, the taxable-
equivalent yield is lower.
14
Nuveen Texas Quality Income Municipal Fund
NTX
Performance
OVERVIEW As of July 31, 2004
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 64%
AA 12%
A 9%
BBB 14%
BB or Lower 1%
Bar Chart:
2003-2004 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Aug 0.08
Sep 0.08
Oct 0.08
Nov 0.08
Dec 0.08
Jan 0.08
Feb 0.08
Mar 0.08
Apr 0.08
May 0.08
Jun 0.08
Jul 0.08
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
8/1/03 14.52
14.8
14.45
14.64
14.35
14.2
14.23
14.35
14.4
14.22
14.27
14.34
14.4
14.56
14.66
14.68
14.82
14.98
15.02
15.52
15.34
15.3
15.55
15.15
15.22
15.29
15.55
15.5
15.91
15.66
15.8
15.7
15.5
14.85
14.49
13.7
13.68
13.23
13.36
13.37
13.87
14.19
14.1
14.11
13.96
14.15
14.3
14.21
14.2
7/31/04 14.59
FUND SNAPSHOT
------------------------------------
Share Price $14.59
------------------------------------
Common Share
Net Asset Value $15.12
------------------------------------
Premium/(Discount) to NAV -3.51%
------------------------------------
Market Yield 6.58%
------------------------------------
Taxable-Equivalent Yield1 9.14%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $143,233
------------------------------------
Average Effective
Maturity (Years) 18.05
------------------------------------
Leverage-Adjusted Duration 8.92
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 10/17/91)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
1-Year 5.87% 10.51%
------------------------------------
5-Year 6.09% 6.62%
------------------------------------
10-Year 6.66% 6.98%
------------------------------------
SECTORS
(as a % of total investments)
------------------------------------
Tax Obligation/General 21%
------------------------------------
Healthcare 15%
------------------------------------
U.S. Guaranteed 10%
------------------------------------
Tax Obligation/Limited 10%
------------------------------------
Education and
Civic Organizations 9%
------------------------------------
Utilities 7%
------------------------------------
Water and Sewer 6%
------------------------------------
Housing/Multifamily 6%
------------------------------------
Long-Term Care 5%
------------------------------------
Housing/Single Family 4%
------------------------------------
Other 7%
------------------------------------
1 Taxable-equivalent yield represents the yield that must be earned on a fully
taxable investment in order to equal the yield of the Fund on an after-tax
basis. It is based on a federal income tax rate of 28%. For investments that
generate qualified dividend income, the taxable-equivalent yield is lower.
15
Report of
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
THE BOARDS OF DIRECTORS, TRUSTEES AND SHAREHOLDERS
NUVEEN ARIZONA PREMIUM INCOME MUNICIPAL FUND, INC.
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 2
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3
NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND
We have audited the accompanying statements of assets and liabilities, including
the portfolios of investments, of Nuveen Arizona Premium Income Municipal Fund,
Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend
Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3
and Nuveen Texas Quality Income Municipal Fund as of July 31, 2004, and the
related statements of operations, changes in net assets and the financial
highlights for the periods indicated therein. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and financial highlights. Our procedures
included confirmation of investments owned as of July 31, 2004, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of
Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend
Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2,
Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality
Income Municipal Fund at July 31, 2004, and the results of their operations,
changes in their net assets and the financial highlights for the periods
indicated therein in conformity with U.S. generally accepted accounting
principles.
/s/Ernst & Young LLP
Chicago, Illinois
September 15, 2004
16
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ)
Portfolio of
INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.3%
$ 945 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 825,476
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 14.7%
1,000 Arizona State University, Certificates of Participation, 7/12 at 100.00 AAA 1,078,710
Series 2002, 5.375%, 7/01/19 - MBIA Insured
1,000 Arizona State University, System Revenue Bonds, 7/12 at 100.00 AAA 1,012,680
Series 2002, 5.000%, 7/01/25 - FGIC Insured
1,750 Arizona Student Loan Acquisition Authority, Student Loan 11/04 at 102.00 Aa1 1,791,965
Revenue Bonds, Subordinated Fixed Rate, Series 1994B,
6.600%, 5/01/10 (Alternative Minimum Tax)
1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- 1,294,875
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
1,050 Northern Arizona University, System Revenue Bonds, 6/12 at 100.00 AAA 1,051,890
Series 2002, 5.000%, 6/01/34 - FGIC Insured
1,400 Southern Arizona Capital Facilities Financing Corporation, 9/12 at 100.00 AAA 1,426,516
Student Housing Revenue Bonds, La Aldea Project at the
University of Arizona, Series 2002, 5.000%, 9/01/23 -
MBIA Insured
1,500 Tempe Industrial Development Authority, Arizona, Lease 7/13 at 100.00 AAA 1,502,940
Revenue Bonds, Arizona State University Foundation Project,
Series 2003, 5.000%, 7/01/34 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 16.8%
2,000 Arizona Health Facilities Authority, Hospital System Revenue 11/09 at 100.00 Ba2 1,895,640
Bonds, Phoenix Children's Hospital, Series 1999A,
6.125%, 11/15/22
1,500 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,608,825
Bonds, John C. Lincoln Health Network, Series 2000,
7.000%, 12/01/25
800 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 BBB+ 873,768
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
3,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 3,212,790
Bonds, Discovery Health System, Series 1999A,
5.750%, 1/01/25 - MBIA Insured
515 Puerto Rico Industrial, Tourist, Educational, Medical, and 11/10 at 101.00 AA 575,451
Environmental Control Facilities Financing Authority, Hospital
Revenue Bonds, Hospital de la Concepcion, Series 2000A,
6.375%, 11/15/15
1,500 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,515,555
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31
1,055 Industrial Development Authority, Winslow, Arizona, 6/08 at 101.00 N/R 814,017
Hospital Revenue Bonds, Winslow Memorial Hospital Project,
Series 1998, 5.500%, 6/01/22
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 11.3%
2,011 Glendale Industrial Development Authority, Arizona, GNMA 10/10 at 105.00 Aaa 2,174,173
Collateralized Mortgage Loan Multifamily Housing Revenue
Bonds, Maridale Apartments Project, Series 2000A,
7.500%, 10/20/35
400 Phoenix Industrial Development Authority, Arizona, 6/11 at 102.00 Aaa 415,480
GNMA Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001, 5.700%, 6/20/31
(Alternative Minimum Tax)
1,000 Phoenix Industrial Development Authority, Arizona, GNMA 9/10 at 103.00 Aaa 1,071,160
Collateralized Mortgage Loan Multifamily Housing Revenue
Bonds, Camelback Crossings Apartments Project,
Series 2000, 6.350%, 9/20/35
3,215 Tucson Industrial Development Authority, Arizona, Senior 7/10 at 101.00 AA 3,405,232
Living Facilities Revenue Bonds, Christian Care Project,
Series 2000A, 5.625%, 7/01/20 - RAAI Insured
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 0.1%
45 Phoenix Industrial Development Authority, Arizona, Statewide 6/05 at 102.00 AAA 46,723
Single Family Mortgage Revenue Bonds, Series 1995,
6.150%, 6/01/08 (Alternative Minimum Tax)
17
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2%
$ 1,345 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB $ 1,366,520
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 0.6%
345 Mohave County Industrial Development Authority, Arizona, 5/06 at 103.00 AAA 361,877
GNMA Collateralized Healthcare Revenue Refunding Bonds,
Chris Ridge and Silver Village Projects, Series 1996,
6.375%, 11/01/31
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 4.0%
1,525 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,589,752
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/21 - FSA Insured
500 Puerto Rico, Public Improvement General Obligation Bonds, No Opt. Call AAA 570,605
Series 2002A, 5.500%, 7/01/19 - FGIC Insured
330 Puerto Rico, Public Improvement General Obligation Bonds, 7/11 at 100.00 A- 336,686
Series 2001A, 5.375%, 7/01/28
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 51.6%
1,985 Arizona School Facilities Board, State School Improvement 7/13 at 100.00 AAA 2,068,291
Revenue Bonds, Series 2003, 5.000%, 7/01/21
2,000 Arizona School Facilities Board, Certificates of Participation, 7/14 at 100.00 AAA 2,267,540
Series 2004A, 5.750%, 7/01/18 - AMBAC Insured
Arizona Tourism and Sports Authority, Tax Revenue Bonds,
Multipurpose Stadium Facility Project, Series 2003A:
3,000 5.375%, 7/01/20 - MBIA Insured 7/13 at 100.00 Aaa 3,247,110
1,000 5.375%, 7/01/21 - MBIA Insured 7/13 at 100.00 Aaa 1,075,450
Bullhead City, Arizona, Special Assessment Bonds, Parkway
District Improvements, Series 1993:
820 6.100%, 1/01/08 1/05 at 101.00 Baa2 838,532
880 6.100%, 1/01/09 1/05 at 101.00 Baa2 898,770
575 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 577,565
Bonds, Series 2003, 5.000%, 7/01/28 - AMBAC Insured
1,500 Maricopa County Industrial Development Authority, 7/10 at 102.00 Baa3 1,525,140
Education Revenue Bonds, Arizona Charter Schools Project I,
Series 2000A, 6.750%, 7/01/29
3,400 Maricopa County Stadium District, Arizona, Revenue Refunding 6/12 at 100.00 Aaa 3,690,190
Bonds, Series 2002, 5.375%, 6/01/18 - AMBAC Insured
Phoenix Industrial Development Authority, Arizona, Government
Office Lease Revenue Bonds, Capitol Mall LLC Project, Series 2000:
1,000 5.375%, 9/15/22 - AMBAC Insured 9/10 at 100.00 AAA 1,066,390
2,000 5.500%, 9/15/27 - AMBAC Insured 9/10 at 100.00 AAA 2,093,280
2,150 Phoenix Civic Plaza Building Corporation, Arizona, Senior 7/05 at 101.00 AAA 2,255,823
Lien Excise Tax Revenue Bonds, Series 1994,
6.000%, 7/01/14
2,000 Phoenix Civic Improvement Corporation, Arizona, Subordinate 7/13 at 100.00 AAA 2,073,480
Lien Excise Tax Revenue Bonds, Series 2003A,
5.000%, 7/01/21 - MBIA Insured
1,200 Prescott Valley Municipal Property Corp., Arizona, Municipal 1/13 at 100.00 AAA 1,211,040
Facilities Revenue Bonds, Series 2003, 5.000%, 1/01/27 -
FGIC Insured
1,000 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 A- 1,013,930
Facilities Revenue Refunding Bonds, Series 2002D,
5.125%, 7/01/24
805 Scottsdale Preserve Authority, Arizona, Excise Tax Revenue No Opt. Call AAA 868,410
Bonds, Series 2004, 5.000%, 7/01/16 - FGIC Insured
1,350 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,452,060
5.250%, 7/01/20 - AMBAC Insured
500 Tucson, Arizona, Certificates of Participation, Series 2000, 7/08 at 100.00 AAA 541,565
5.700%, 7/01/20 - MBIA Insured
1,100 Tucson, Arizona, Junior Lien Street and Highway User Revenue 7/10 at 100.00 AAA 1,148,587
Bonds, Series 2000E, 5.000%, 7/01/18 - FGIC Insured
2,300 Virgin Islands Public Finance Authority, Gross Receipts 10/14 at 100.00 AA 2,268,559
Taxes Loan Notes, Series 2003, 5.000%, 10/01/33 -
RAAI Insured
18
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 17.4%
$ 480 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA $ 520,109
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20
(Pre-refunded to 7/01/10)
2,250 Maricopa County Industrial Development Authority, Arizona, No Opt. Call AAA 2,806,560
Hospital Revenue Refunding Bonds, Samaritan Health
Services, Series 1990A, 7.000%, 12/01/16 - MBIA Insured
3,000 Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 3,277,470
5.000%, 7/01/18 (Pre-refunded to 7/01/09) - FGIC Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/10 at 101.00 AAA 2,315,740
Wastewater System Revenue Bonds, Series 2000,
6.000%, 7/01/24 (Pre-refunded to 7/01/10) - FGIC Insured
170 Puerto Rico, Public Improvement General Obligation Bonds, 7/11 at 100.00 Aaa 190,653
Series 2001A, 5.375%, 7/01/28 (Pre-refunded to 7/01/11) -
MBIA Insured
1,000 Puerto Rico Highway and Transportation Authority, Highway 7/10 at 101.00 A*** 1,184,040
Revenue Bonds, Series 2000B, 6.500%, 7/01/27
(Pre-refunded to 7/01/10)
500 Surprise Municipal Property Corporation, Arizona, Excise Tax 7/09 at 101.00 AAA 566,480
Revenue Bonds, Series 2000, 5.700%, 7/01/20 (Pre-refunded
to 7/01/09) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 10.8%
1,000 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,100,760
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
1,000 Coconino County, Arizona, Pollution Control Revenue Bonds, 10/06 at 102.00 B- 945,650
Nevada Power Company Project, Series 1996,
6.375%, 10/01/36 (Alternative Minimum Tax)
1,075 Pima County Industrial Development Authority, Arizona, 1/05 at 101.50 AAA 1,132,512
Lease Obligation Revenue Refunding Bonds, Tucson Electric
Power Company, Series 1988A, 7.250%, 7/15/10 -
FSA Insured
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Refunding Bonds, Series 2002A:
2,000 5.125%, 1/01/27 1/12 at 101.00 AA 2,041,440
1,000 5.000%, 1/01/31 1/12 at 101.00 AA 1,003,711
530 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 AA 546,696
District, Arizona, Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/22
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 15.9%
Arizona Water Infrastructure Finance Authority, Water Quality
Revenue Bonds, Series 2004A:
1,825 5.000%, 10/01/19 10/14 at 100.00 AAA 1,933,096
910 5.000%, 10/01/22 10/14 at 100.00 AAA 946,374
3,500 Glendale, Arizona, Water and Sewer Revenue Bonds, 7/13 at 100.00 AAA 3,520,616
Subordinate Lien, Series 2003, 5.000%, 7/01/28
600 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 615,391
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
1,250 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,416,821
Water System Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/21 - FGIC Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,516,061
Water System Revenue Bonds, Series 2002,
5.000%, 7/01/26 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 87,136 Total Long-Term Investments (cost $88,409,356) - 146.7% 91,581,198
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.4% 850,268
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.1)% (30,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 62,431,466
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency
securities which ensures the timely payment of
principal and interest. Such securities are normally
considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
19
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ)
Portfolio of
INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 10.0%
$ 1,020 Mesa Industrial Development Authority, Arizona, Student 7/11 at 101.00 BBB- $ 1,015,634
Housing Revenue Bonds, ASU East/Maricopa County
Community College District, Williams Campus Project,
Series 2001A, 6.000%, 7/01/26
1,000 Puerto Rico Industrial, Tourist, Educational, Medical, 2/09 at 101.00 BBB 991,930
and Environmental Control Facilities Financing Authority,
Higher Education Revenue Bonds, Ana G. Mendez University
System, Series 1999, 5.375%, 2/01/29
300 Puerto Rico Industrial, Tourist, Educational, Medical, 9/11 at 100.00 BBB 306,930
and Environmental Control Facilities Financing Authority,
Higher Education Revenue Bonds, University of the Sacred
Heart, Series 2001, 5.250%, 9/01/21
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 8.7%
550 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 596,513
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
365 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 BBB+ 398,657
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,010,370
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 15.4%
1,000 Maricopa County Industrial Development Authority, Arizona, 7/09 at 102.00 Aaa 1,025,830
Multifamily Housing Revenue Bonds, Whispering Palms
Apartments Project, Series 1999A, 5.900%, 7/01/29 -
MBIA Insured
1,125 Maricopa County Industrial Development Authority, Arizona, 10/11 at 103.00 Aaa 1,176,188
Multifamily Housing Revenue Bonds, Syl-Mar Apartments
Project, Series 2001, 5.650%, 4/20/21 (Alternative
Minimum Tax)
275 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 285,643
Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001, 5.700%, 6/20/31
(Alternative Minimum Tax)
1,000 Phoenix Industrial Development Authority, Arizona, GNMA 9/10 at 103.00 Aaa 1,071,160
Collateralized Mortgage Loan Multifamily Housing Revenue
Bonds, Camelback Crossings Apartments Project,
Series 2000, 6.350%, 9/20/35
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 1.2%
260 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 269,732
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-4, 5.050%, 5/01/17
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2%
510 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 518,160
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 4.6%
1,020 Tucson, Arizona, General Obligation Refunding Bonds, 7/07 at 100.00 AA 1,057,658
Series 1997, 5.000%, 7/01/19
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 63.9%
700 Arizona School Facilities Board, School Improvement Revenue 7/11 at 100.00 AAA 773,129
Bonds, Series 2001, 5.500%, 7/01/18
2,750 Arizona School Facilities Board, Certificates of Participation, 7/14 at 100.00 AAA 3,117,868
Series 2004A, 5.750%, 7/01/18 - AMBAC Insured
1,000 Arizona State Transportation Board, Highway Revenue 7/13 at 100.00 AAA 1,035,250
Bonds, Series 2003A, 5.000%, 7/01/22
1,000 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 1,075,450
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/21 - MBIA Insured
1,180 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 1,208,532
Bonds, Series 2003, 5.000%, 7/01/23 - AMBAC Insured
20
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED (continued)
$ 2,000 Maricopa County Industrial Development Authority, Arizona, 6/07 at 102.00 A $ 2,076,120
Education Revenue Bonds, Horizon Community Learning
Center Project, Series 2000, 6.350%, 6/01/26 - ACA Insured
900 Phoenix Industrial Development Arizona, Government Office 3/12 at 100.00 AAA 973,323
Lease Revenue Bonds, Capitol Mall LLC II Project, Series 2001,
5.250%, 9/15/16 - AMBAC Insured
680 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 673,152
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
2,675 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,773,280
Series 2003, 5.000%, 7/01/21
1,000 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,075,600
5.250%, 7/01/20 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 12.1%
1,000 Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 1,092,490
5.000%, 7/01/17 (Pre-refunded to 7/01/09) - FGIC Insured
1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2000, 7/09 at 100.00 AAA 1,098,170
5.125%, 7/01/19 (Pre-refunded to 7/01/09) - FGIC Insured
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Refunding Bonds, Series 1997A:
140 5.000%, 1/01/20 (Pre-refunded to 1/01/08) 1/08 at 101.00 AA*** 151,941
430 5.000%, 1/01/20 (Pre-refunded to 1/01/08) 1/08 at 101.00 AA*** 468,463
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 21.9%
1,500 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,650,795
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/17
500 Coconino County, Arizona, Pollution Control Revenue Bonds, 11/04 at 100.00 B- 438,090
Nevada Power Company Project, Series 1997B,
5.800%, 11/01/32 (Alternative Minimum Tax)
1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,108,580
Series 2002, 5.250%, 7/01/17 - FGIC Insured
350 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 360,412
Series 2002II, 5.125%, 7/01/26 - FSA Insured
1,000 Salt River Project Agricultural Improvement and Power 1/12 at 101.00 AA 1,075,310
District, Arizona, Electric System Revenue Refunding Bonds,
Series 2002A, 5.250%, 1/01/18
200 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 AA 206,300
District, Arizona, Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/22
235 Salt River Project Agricultural Improvement and Power 1/08 at 101.00 AA 242,029
District, Arizona, Electric System Revenue Refunding Bonds,
Series 1997A, 5.000%, 1/01/20
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 9.1%
350 Arizona Water Infrastructure Finance Authority, Water 10/14 at 100.00 AAA 363,990
Quality Revenue Bonds, Series 2004A, 5.000%, 10/01/22
225 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 230,771
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 1,516,065
Lien Water System Revenue Bonds, Series 2002,
5.000%, 7/01/26 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 32,740 Total Long-Term Investments (cost $33,517,076) - 149.1% 34,509,515
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.7% 643,260
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (51.8)% (12,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 23,152,775
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency
securities which ensures the timely payment of
principal and interest. Such securities are normally
considered to be equivalent to AAA rated securities.
See accompanying notes to financial statements.
21
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)
Portfolio of
INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 10.2%
$ 715 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA $ 773,265
5.750%, 7/01/27 - FGIC Insured
1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- 1,294,875
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
320 Puerto Rico Industrial, Tourist, Educational, Medical, and 2/09 at 101.00 BBB 327,037
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Ana G. Mendez University
System, Series 1999, 5.375%, 2/01/19
University of Arizona, Certificates of Participation, Series 2002A:
750 5.500%, 6/01/18 - AMBAC Insured 6/12 at 100.00 AAA 825,210
500 5.125%, 6/01/22 - AMBAC Insured 6/12 at 100.00 AAA 517,975
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 12.9%
735 Arizona Health Facilities Authority, Hospital System Revenue 2/12 at 101.00 Ba2 707,879
Bonds, Phoenix Children's Hospital, Series 2002A,
6.250%, 2/15/21
400 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 BBB+ 436,884
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
500 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 502,485
Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998,
5.250%, 11/15/37
1,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 1,045,300
Bonds, Discovery Health System, Series 1999A,
5.625%, 1/01/29 - MBIA Insured
1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,010,370
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,010,730
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 6.9%
1,000 Maricopa County Industrial Development Authority, Arizona, 10/11 at 105.00 AAA 1,033,170
GNMA Collateralized Multifamily Housing Revenue Refunding
Bonds, Pine Ridge, Cambridge Court, Cove on 44th and
Fountain Place Apartments Projects, Series 2001A-1,
6.000%, 10/20/31
1,425 Phoenix Industrial Development Authority, Arizona, GNMA 7/12 at 105.00 AAA 1,487,700
Collateralized Multifamily Housing Revenue Bonds, Summit
Apartments, Series 2002, 6.450%, 7/20/32
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 0.4%
125 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 128,140
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-1, 5.350%, 11/01/24 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.3%
810 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 822,960
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 46.9%
1,725 Chandler, Arizona, General Obligation Bonds, 7/12 at 100.00 AA+ 1,821,255
Series 2002, 5.000%, 7/01/17
1,000 Gilbert, Arizona, General Obligation Bonds, Series 2002A, 7/11 at 100.00 AAA 1,046,170
5.000%, 7/01/18 - AMBAC Insured
Maricopa County School District 6, Arizona, General Obligation
Refunding Bonds, Washington Elementary School, Series 2002A:
1,000 5.375%, 7/01/15 - FSA Insured No Opt. Call AAA 1,120,180
2,000 5.375%, 7/01/16 - FSA Insured No Opt. Call AAA 2,245,500
2,165 Maricopa County Unified School District District 69, No Opt. Call AAA 2,401,570
Paradise Valley, Arizona, General Obligation Refunding
Bonds, Series 2002A, 5.250%, 7/01/14 - FGIC Insured
22
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,000 Maricopa County Unified School District 89, Dysart, Arizona, 7/14 at 100.00 AAA $ 1,075,600
General Obligation Bonds, Series 2004B,
5.250%, 7/01/20 - FSA Insured
1,000 Mesa, Arizona, General Obligation Bonds, Series 2000, No Opt. Call AAA 1,181,230
6.500%, 7/01/11 - FGIC Insured
1,405 Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AAA 1,573,853
5.375%, 7/01/15 - FGIC Insured
Phoenix, Arizona, Various Purpose General Obligation Bonds,
Series 2002B:
1,700 5.000%, 7/01/22 7/12 at 100.00 AA+ 1,755,471
250 5.000%, 7/01/27 7/12 at 100.00 AA+ 252,563
1,000 Pinal County Unified School District 43, Apache Junction, No Opt. Call AAA 1,149,260
Arizona, General Obligation Refunding Bonds, Series 2001,
5.750%, 7/01/15 - FGIC Insured
1,500 Scottsdale, Arizona, General Obligation Bonds, 7/11 at 100.00 AAA 1,528,485
Series 2002, 5.000%, 7/01/24
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 43.3%
Arizona State, Certificates of Participation, Series 2002A:
750 5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00 AAA 787,028
1,000 5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00 AAA 1,043,990
500 5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00 AAA 517,335
1,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,059,370
Series 2002B, 5.250%, 7/01/21
670 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 649,491
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
1,000 Maricopa County Public Finance Authority, Arizona, Lease 7/11 at 100.00 Aaa 1,101,270
Revenue Bonds, Series 2001, 5.500%, 7/01/15 -
AMBAC Insured
Maricopa County Stadium District, Arizona, Revenue
Refunding Bonds, Series 2002:
840 5.375%, 6/01/18 - AMBAC Insured 6/12 at 100.00 Aaa 911,694
2,645 5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00 Aaa 2,858,240
1,000 Mesa, Arizona, Street and Highway User Tax Revenue Bonds, 7/14 at 100.00 AAA 1,041,970
Series 2004, 5.125%, 7/01/23 - FSA Insured
1,500 Phoenix Industrial Development, Arizona, Government Office 3/12 at 100.00 AAA 1,622,205
Lease Revenue Bonds, Capitol Mall LLC II Project,
Series 2001, 5.250%, 9/15/16 - AMBAC Insured
460 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 445,013
Charter School Revenue Bonds, Noah Webster Basic
Schools Inc., Series 2004, 6.000%, 12/15/24
1,070 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,059,225
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
1,000 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 A- 1,013,930
Government Facilities Revenue Refunding Bonds,
Series 2002D, 5.125%, 7/01/24
1,000 Tucson, Arizona, Junior Lien Street and Highway User 7/10 at 100.00 AAA 1,044,170
Revenue Bonds, Series 2000E, 5.000%, 7/01/18 -
FGIC Insured
640 Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AAA 656,845
Facilities Tax Revenue Bonds, Series 2001, 5.000%, 7/01/21 -
AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.5%
1,000 Phoenix Civic Improvement Corporation, Arizona, Senior 7/08 at 101.00 AAA 1,010,420
Lien Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25 -
FSA Insured
1,000 Phoenix, Arizona, Civic Improvement Corporation, Senior 7/12 at 100.00 AAA 1,010,800
Lien Airport Revenue Bonds, Series 2002B, 5.250%, 7/01/27
(Alternative Minimum Tax) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 10.1%
1,115 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,227,347
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2002, 7/11 at 100.00 AAA 1,033,010
5.000%, 7/01/20 - FGIC Insured
1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,108,580
Series 2002, 5.250%, 7/01/17 - FGIC Insured
320 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 AA 330,080
District, Arizona, Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/22
23
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.1%
$ 555 Arizona Water Infrastructure Finance Authority, Water Quality 10/14 at 100.00 AAA $ 577,183
Revenue Bonds, Series 2004A, 5.000%, 10/01/22
500 Maricopa County Industrial Development Authority, Arizona, 12/07 at 102.00 AAA 518,415
Water System Improvement Revenue Bonds, Chaparral
City Water Company Project, Series 1997A,
5.400%, 12/01/22 (Alternative Minimum Tax) -
AMBAC Insured
360 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 369,233
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
1,000 Phoenix Civic Improvement Corporation, Arizona, Junior No Opt. Call AAA 1,129,350
Lien Water System Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/22 - FGIC Insured
1,000 Tucson, Arizona, Water System Revenue Refunding Bonds, 7/12 at 102.00 AAA 1,103,670
Series 2002, 5.500%, 7/01/18 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 51,200 Total Long-Term Investments (cost $52,483,361) - 148.6% 54,304,981
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.0% 737,981
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (50.6)% (18,500,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 36,542,962
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating.
See accompanying notes to financial statements.
24
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)
Portfolio of
INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 3.8%
$ 1,890 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 1,650,953
Asset-Backed Refunding Bonds, Series 2002,
5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 16.4%
2,000 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 2,162,980
5.750%, 7/01/27 - FGIC Insured
1,000 Arizona Student Loan Acquisition Authority, Student Loan 11/09 at 102.00 Aaa 1,074,630
Revenue Refunding Bonds, Senior Series 1999A-1,
5.750%, 5/01/15 (Alternative Minimum Tax)
1,130 Energy Management Services LLC, Arizona State University, 7/12 at 100.00 AAA 1,213,688
Energy Conservation Revenue Bonds, Main Campus Project,
Series 2002, 5.250%, 7/01/18 - MBIA Insured
500 Glendale Industrial Development Authority, Arizona, Revenue 5/08 at 101.00 A- 506,655
Bonds, Midwestern University, Series 1998A,
5.375%, 5/15/28
2,000 University of Arizona, Certificates of Participation, 6/12 at 100.00 AAA 2,096,060
Series 2002B, 5.125%, 6/01/20 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 16.1%
Arizona Health Facilities Authority, Hospital System Revenue
Bonds, Phoenix Children's Hospital, Series 1999A:
750 6.125%, 11/15/22 11/09 at 100.00 Ba2 710,865
520 6.250%, 11/15/29 11/09 at 100.00 Ba2 496,470
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,084,570
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20
300 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 BBB+ 327,663
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
2,000 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 2,009,940
Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998,
5.250%, 11/15/37
1,250 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,262,963
Hospital Revenue Bonds, Scottsdale Healthcare,
Series 2001, 5.800%, 12/01/31
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,010,730
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 13.9%
1,750 Maricopa County Industrial Development Authority, Arizona, 1/18 at 100.00 AAA 1,753,640
Multifamily Housing Senior Revenue Bonds, National
Voluntary Health Facilities II Project, Series 1998A,
5.100%, 1/01/33 - FSA Insured
2,500 Maricopa County Industrial Development Authority, 10/10 at 105.00 Aaa 2,584,225
Arizona, GNMA Collateralized Multifamily Housing
Revenue Bonds, Villas at Augusta Project, Series 2000,
6.500%, 10/20/33
1,545 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 1,622,435
Collateralized Multifamily Housing Revenue Bonds,
Campaigne Place on Jackson, Series 2001,
5.600%, 6/20/21 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2%
945 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 960,120
Solid Waste Disposal Revenue Bonds, Waste Management
Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative
Minimum Tax) (Mandatory put 3/01/08)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 26.4%
660 Chandler, Arizona, General Obligation Bonds, 7/12 at 100.00 AA+ 693,198
Series 2002, 5.000%, 7/01/18
2,250 DC Ranch Community Facilities District, Scottsdale, Arizona, 7/13 at 100.00 Aaa 2,268,698
General Obligation Bonds, Series 2002, 5.000%, 7/15/27 -
AMBAC Insured
1,930 Glendale, Arizona, General Obligation Refunding Bonds, 7/11 at 100.00 AA 2,006,428
Series 2002, 5.000%, 7/01/19
25
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,000 Maricopa County School District 11, Peoria Unified, Arizona, No Opt. Call AAA $ 1,083,590
General Obligation Refunding Bonds, Series 2002,
5.000%, 7/01/15 - FSA Insured
765 Maricopa County Unified School District 69, Paradise Valley, No Opt. Call AAA 831,065
Arizona, General Obligation Refunding Bonds, Series 2002,
5.000%, 7/01/15 - FSA Insured
1,000 Maricopa County Unified School District 95, Queen Creek, No Opt. Call Aaa 1,088,020
Arizona, General Obligation Bonds, Series 2002,
5.000%, 7/01/14 - FGIC Insured
1,575 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,652,175
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/20 - FSA Insured
1,150 Scottsdale, Arizona, General Obligation Refunding Bonds, No Opt. Call AAA 1,255,294
Series 2002, 5.000%, 7/01/16
440 Tucson, Arizona, General Obligation Bonds, Series 2001B, 7/11 at 100.00 AA 454,524
5.000%, 7/01/20
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 39.3%
2,000 Arizona School Facilities Board, School Improvement Revenue 7/12 at 100.00 AAA 2,141,280
Bonds, Series 2002, 5.250%, 7/01/20
3,000 Arizona State Transportation Board, Highway Revenue 7/12 at 102.00 AAA 3,265,110
Refunding Bonds, Series 2002A, 5.250%, 7/01/18
1,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,053,890
Series 2002B, 5.250%, 7/01/22
2,660 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 2,879,104
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/20 - MBIA Insured
800 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 775,512
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
2,000 Mohave County, Arizona, Certificates of Participation, 7/14 at 100.00 AAA 2,152,880
Series 2004, 5.250%, 7/01/19 - AMBAC Insured
540 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 522,407
Charter School Revenue Bonds, Noah Webster Basic
Schools Inc., Series 2004, 6.000%, 12/15/24
1,250 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,237,413
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
2,770 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,855,316
Series 2003, 5.000%, 7/01/22
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 13.9%
Phoenix, Arizona, Civic Improvement Corporation, Senior
Lien Airport Revenue Bonds, Series 2002B:
1,000 5.750%, 7/01/16 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 1,104,390
2,300 5.250%, 7/01/21 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 2,371,254
2,450 Tucson Airport Authority Inc., Arizona, Revenue Refunding 6/11 at 100.00 AAA 2,483,100
Bonds, Series 2001B, 5.000%, 6/01/20 (Alternative
Minimum Tax) - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 7.3%
1,750 Maricopa County, Arizona, Pollution Control Corporation 11/12 at 100.00 AAA 1,765,383
Revenue Bonds, Arizona Public Service Company Palo Verde
Project, Series 2002A, 5.050%, 5/01/29 - AMBAC Insured
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Bonds, Series 2002B:
360 5.000%, 1/01/22 1/13 at 100.00 AA 371,340
1,000 5.000%, 1/01/31 1/13 at 100.00 AA 1,003,710
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 9.8%
650 Arizona Water Infrastructure Finance Authority, Water Quality 10/14 at 100.00 AAA 675,981
Revenue Bonds, Series 2004A, 5.000%, 10/01/22
405 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 415,388
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
26
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER (continued)
$ 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior 7/11 at 100.00 AAA $ 1,042,079
Lien Wastewater System Revenue Refunding Bonds,
Series 2001, 5.125%, 7/01/21 - FGIC Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 2,093,059
Lien Water System Revenue Bonds, Series 2002,
5.000%, 7/01/18 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
$ 61,785 Total Long-Term Investments (cost $64,073,701) - 149.1% 64,070,175
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.1% 912,346
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (51.2)% (22,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 42,982,521
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating.
See accompanying notes to financial statements.
27
Nuveen Texas Quality Income Municipal Fund (NTX)
Portfolio of
INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.7%
$ 2,835 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 2,476,429
Asset-Backed Refunding Bonds, Series 2002,
5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 12.4%
205 Brazos Higher Education Authority Inc., Texas, Student No Opt. Call Aa2 208,192
Loan Revenue Refunding Bonds, Subordinate Series 1993A-2,
6.800%, 12/01/04 (Alternative Minimum Tax)
1,000 Raven Hills Higher Education Corporation, Texas, Student 8/11 at 100.00 Aaa 1,032,800
Housing Revenue Bonds, Lamar University - Cardinal Village
LLC, Series 2001A, 5.250%, 8/01/24 - MBIA Insured
Texas Public Finance Authority, Revenue Bonds, Texas Southern
University Financing System, Series 2003:
1,710 5.000%, 5/01/18 - FGIC Insured 5/13 at 100.00 Aaa 1,789,447
1,795 5.000%, 5/01/19 - FGIC Insured 5/13 at 100.00 Aaa 1,869,116
1,885 5.000%, 5/01/20 - FGIC Insured 5/13 at 100.00 Aaa 1,953,124
2,000 Texas State University System, Financing Revenue Refunding 3/12 at 100.00 AAA 2,064,500
Bonds, Series 2002, 5.000%, 3/15/20 - FSA Insured
1,445 Tyler Junior College District, Smith and Van Zanlt Counties, 8/04 at 100.00 AAA 1,450,260
Texas, Combined Fee Improvement Revenue Refunding
Bonds, Series 1994, 5.900%, 8/15/13 - MBIA Insured
2,330 Universal City Education Facilities Corporation, Texas, Revenue 3/11 at 102.00 A- 2,372,662
Bonds, Wayland Baptist University Project, Series 2001,
5.625%, 3/01/26
5,000 University of North Texas, Financing System Revenue Bonds, 4/12 at 100.00 AAA 5,058,600
Series 2001, 5.000%, 4/15/24 - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 2.1%
3,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/08 at 102.00 BBB 2,952,060
Revenue Bonds, Valero Energy Corporation Project,
Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 21.7%
3,500 Abilene Health Facilities Development Corporation, Texas, 9/05 at 102.00 AAA 3,709,755
Hospital Revenue Refunding and Improvement Bonds,
Hendrick Medical Center Project, Series 1995C,
6.150%, 9/01/25 - MBIA Insured
Gregg County Health Facilities Development Corporation, Texas,
Hospital Revenue Bonds, Good Shepherd Medical Center Project,
Series 2000:
2,000 6.875%, 10/01/20 - RAAI Insured 10/10 at 101.00 AA 2,317,260
3,250 6.375%, 10/01/25 - RAAI Insured 10/10 at 101.00 AA 3,629,308
1,500 Harris County Health Facilities Development Corporation, 8/11 at 100.00 AA- 1,556,175
Texas, Revenue Bonds, St. Luke's Episcopal Hospital,
Series 2001A, 5.500%, 2/15/21
2,000 Harris County Health Facilities Development Corporation, 6/11 at 101.00 A 2,172,900
Texas, Hospital Revenue Bonds, Memorial Hermann
Healthcare System, Series 2001A, 6.375%, 6/01/29
5,750 Midland County Hospital District, Texas, Hospital Revenue No Opt. Call BBB 3,935,760
Bonds, Series 1992, 0.000%, 6/01/11
2,000 North Central Texas Health Facilities Development 5/11 at 100.00 AA- 1,970,860
Corporation, Hospital Revenue Bonds, Baylor Healthcare
System, Series 2001A, 5.125%, 5/15/29
1,760 Parker County Hospital District, Texas, Hospital Revenue 8/09 at 102.00 BBB- 1,794,109
Bonds, Campbell Health System, Series 1999, 6.250%, 8/15/19
2,000 Richardson Hospital Authority, Texas, Revenue Bonds, 12/13 at 100.00 BBB 2,028,500
Richardson Regional Medical Center, Series 2004,
5.875%, 12/01/24
1,050 Tarrant County Health Facilities Development Corporation, 11/08 at 101.00 A 1,065,572
Texas, Hospital Revenue Bonds, Adventist Health
System/Sunbelt Obligated Group, Series 1998,
5.375%, 11/15/20
3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 A 3,834,075
Texas, Hospital Revenue Bonds, Adventist Health
System/Sunbelt Obligated Group, Series 2000,
6.625%, 11/15/20
28
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE (continued)
$ 2,000 Tom Green County Health Facilities Development Corporation, 5/11 at 101.00 Baa3 $ 2,117,700
Texas, Hospital Revenue Bonds, Shannon Health System
Project, Series 2001, 6.750%, 5/15/21
1,000 Tyler Health Facilities Development Corporation, Texas, 7/12 at 100.00 Baa1 1,013,450
Hospital Revenue Bonds, Mother Frances Hospital Regional
Health Center, Series 2001, 6.000%, 7/01/31
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 8.4%
Bexar County Housing Finance Corporation, Texas, Multifamily
Housing Revenue Bonds, Waters at Northern Hills Apartments
Project, Series 2001A:
2,000 6.000%, 8/01/31 - MBIA Insured 8/11 at 102.00 Aaa 2,055,960
750 6.050%, 8/01/36 - MBIA Insured 8/11 at 102.00 Aaa 771,473
Grand Prairie Housing Finance Corporation, Texas, GNMA
Multifamily Housing Revenue Bonds, Landings of Carrier Project,
Series 2000A:
1,000 6.650%, 9/20/22 9/10 at 105.00 AAA 1,096,530
2,030 6.750%, 9/20/28 9/10 at 105.00 AAA 2,210,792
5,668 Houston Housing Finance Corporation, Texas, GNMA 9/11 at 105.00 Aaa 5,882,534
Collateralized Mortgage Multifamily Housing Revenue
Bonds, RRG Apartments Project, Series 2001,
6.250%, 9/20/35
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 5.8%
2,800 El Paso Housing Finance Corporation, Texas, GNMA 4/11 at 106.75 AAA 2,932,608
Collateralized Single Family Mortgage Revenue Bonds,
Series 2001A-3, 6.180%, 4/01/33
205 Galveston Property Finance Authority Inc., Texas, Single 9/04 at 100.00 A3 205,621
Family Mortgage Revenue Bonds, Series 1991A,
8.500%, 9/01/11
325 Houston Housing Finance Corporation, Texas, Single 12/04 at 101.00 AAA 328,689
Family Mortgage Revenue Refunding Bonds, Series 1993A,
5.950%, 12/01/10 - FSA Insured
1,575 Texas Department of Housing, Single Family Mortgage 9/06 at 102.00 AAA 1,645,670
Revenue Bonds, Series 1996E, 6.000%, 9/01/17 -
MBIA Insured
2,970 Texas Department of Housing and Community Affairs, 3/12 at 100.00 AAA 3,027,054
Single Family Mortgage Bonds, Series 2002B,
5.550%, 9/01/33 (Alternative Minimum Tax) - MBIA Insured
160 Victoria Housing Finance Corporation, Texas, FNMA Single No Opt. Call Aaa 160,869
Family Mortgage Revenue Refunding Bonds, Series 1995,
8.125%, 1/01/11
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 7.2%
Bell County Health Facilities Development Corporation, Texas,
Retirement Facility Revenue Bonds, Buckner Retirement
Services Inc. Obligated Group Project, Series 1998:
3,400 5.250%, 11/15/19 11/08 at 101.00 A- 3,394,764
5,000 5.250%, 11/15/28 11/08 at 101.00 A- 4,708,750
2,000 Tarrant County Health Facilities Development Corporation, 1/08 at 105.00 AAA 2,174,580
Texas, Tax-Exempt Mortgage Revenue Bonds, South Central
Nursing Homes Inc. Project, Series 1997A,
6.000%, 1/01/37 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
MATERIALS - 4.5%
3,000 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB 3,199,890
Environmental Improvement Revenue Bonds, International
Paper Company Project, Series 2000A, 6.600%, 3/15/24
(Alternative Minimum Tax)
3,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid 4/06 at 102.00 AA- 3,198,360
Waste Disposal Facility Bonds, E.I. DuPont de Nemours and
Company Project, Series 1996, 6.400%, 4/01/26 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 30.3%
4,130 Coppell Independent School District, Dallas County, Texas, 8/09 at 75.34 AAA 2,581,498
Unlimited Tax School Building and Refunding Bonds,
Series 1992, 0.000%, 8/15/14 - MBIA Insured
1,450 Donna Independent School District, Hidalgo County, Texas, 2/11 at 100.00 AAA 1,637,688
Unlimited Tax School Building Bonds, Series 2000,
6.000%, 2/15/17
1,750 El Paso County, Texas, Certificates of Obligation, Series 2001, 2/12 at 100.00 AAA 1,796,953
5.000%, 2/15/21 - FSA Insured
2,000 Harlingen Independent School District, Cameron County, 8/09 at 100.00 AAA 2,120,060
Texas, Unlimited Tax School Building Bonds, Series 1999,
5.650%, 8/15/29
29
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
Houston Community College, Texas, Limited Tax General
Obligation Bonds, Series 2003:
$ 2,500 5.000%, 2/15/20 - AMBAC Insured 2/13 at 100.00 AAA $ 2,588,675
2,235 5.000%, 2/15/21 - AMBAC Insured 2/13 at 100.00 AAA 2,301,491
1,500 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 1,581,570
General Obligation Refunding Bonds, Series 2002,
5.250%, 2/01/21
2,600 Klein Independent School District, Harris County, Texas, 8/09 at 100.00 AAA 2,709,538
Unlimited Tax Schoolhouse Bonds, Series 1999A,
5.000%, 8/01/18
5,220 Leander Independent School District Williamson & Travis 8/09 at 46.74 AAA 1,989,238
Counties, Texas, Unlimited Tax School Building and
Refunding Bonds, Series 2000, 0.000%, 8/15/21
1,000 Mansfield Independent School District, Tarrant County, Texas, 2/14 at 100.00 AAA 1,038,810
General Obligation Bonds, Series 2004, 5.000%, 2/15/20
1,545 Montgomery County, Texas, General Obligation Refunding 9/07 at 72.39 AAA 973,427
Bonds, Series 1997, 0.000%, 3/01/14 - MBIA Insured
2,000 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 2,200,820
Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25
500 Puerto Rico, Public Improvement General Obligation Bonds, No Opt. Call A- 529,105
Series 2001A, 5.500%, 7/01/29
1,825 Socorro Independent School District, El Paso County, Texas, 2/06 at 100.00 Aaa 1,906,158
General Obligation Bonds, Series 1996, 5.750%, 2/15/21
1,440 South Texas Community College District, General Obligation 8/12 at 100.00 AAA 1,591,949
Bonds, Series 2002, 5.500%, 8/15/17 - AMBAC Insured
2,000 Texas State, General Obligation Bonds, Veterans Land Board, 12/04 at 100.00 Aa1 2,026,360
Series 1994, 6.400%, 12/01/24 (Alternative Minimum Tax)
2,000 Texas State, General Obligation Bonds, Water Financial 8/11 at 100.00 Aa1 2,074,040
Assistance Program, Series 2001, 5.250%, 8/01/23
1,500 Texas State Public Finance Authority, General Obligation 10/12 at 100.00 Aa1 1,572,135
Refunding Bonds, Series 2002, 5.000%, 10/01/18
1,795 United Independent School District, Webb County, Texas, 8/12 at 100.00 AAA 1,944,129
Unlimited Tax School Building Bonds, Series 2000,
5.375%, 8/15/18
5,290 Weslaco Independent School District, Hidalgo County, Texas, 2/10 at 100.00 Aaa 5,597,296
General School Building Obligation Bonds, Series 2000,
5.500%, 2/15/25
West Texas Independent School District, McLennan and Hill
Counties, General Obligation Refunding Bonds, Series 1998:
1,000 0.000%, 8/15/22 8/13 at 61.20 AAA 376,060
1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 329,290
1,800 Williamson County, Texas, General Obligation Bonds, 2/12 at 100.00 AAA 1,981,890
Series 2002, 5.500%, 2/15/16 - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 14.0%
4,500 Austin, Texas, Hotel Occupancy Tax Subordinate Lien 11/09 at 100.00 AAA 4,852,305
Revenue Refunding Bonds, Series 1999, 5.800%, 11/15/29 -
AMBAC Insured
Bexar County, Texas, Combined Tax and Revenue Certificates
of Obligation, Series 2004:
1,235 5.000%, 6/15/17 6/14 at 100.00 AA 1,301,357
1,295 5.000%, 6/15/18 6/14 at 100.00 AA 1,356,098
1,260 5.000%, 6/15/19 6/14 at 100.00 AA 1,312,265
1,275 Copperas Cove, Texas, Certificates of Obligation, Series 2003, 8/12 at 100.00 AAA 1,298,205
5.000%, 8/15/23 - MBIA Insured
2,305 Corpus Christi, Texas, Certificates of Obligation, Limited Tax 9/12 at 100.00 AAA 2,497,721
and Hotel Occupancy Tax Revenue Bonds, Series 2002,
5.500%, 9/01/21 - FSA Insured
2,250 Harris County-Houston Sports Authority, Texas, Senior Lien 11/11 at 100.00 AAA 2,319,885
Revenue Bonds, Series 2001G, 5.250%, 11/15/22 -
MBIA Insured
1,000 Laredo, Texas, Sports Venue Sales Tax Revenue Bonds, 3/09 at 100.00 AAA 1,030,240
Series 2001, 5.300%, 3/15/26 - FGIC Insured
1,255 Pasadena, Texas, Certificates of Obligation, Series 2002, 4/11 at 100.00 AAA 1,282,121
5.125%, 4/01/24 - FGIC Insured
2,685 San Antonio, Texas, Hotel Occupancy Tax Revenue Bonds, 8/06 at 102.00 AAA 2,869,594
Henry B. Gonzalez Convention Center Project, Series 1996,
5.700%, 8/15/26 - FGIC Insured
30
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 3.3%
$ 1,000 Austin, Texas, Airport System Prior Lien Revenue Bonds, 11/13 at 100.00 AAA $ 1,076,440
Series 2003, 5.250%, 11/15/16 - MBIA Insured
2,600 Dallas-Ft. Worth International Airport Facility Improvement 11/09 at 101.00 CCC 1,564,446
Corporation, Texas, Revenue Bonds, American Airlines Inc.,
Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax)
2,000 Houston, Texas, Airport System Subordinate Lien Revenue 7/10 at 100.00 AAA 2,053,600
Bonds, Series 2000A, 5.625%, 7/01/30 (Alternative
Minimum Tax) - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 14.5%
160 Abilene Housing Development Corporation, Texas, No Opt. Call N/R*** 174,934
Section 8 First Lien Revenue Bonds, Abilene East
Apartments, Series 1978, 7.000%, 7/01/08
1,000 Caddo Mills Independent School District, Hunt County, 2/05 at 100.00 N/R*** 1,026,830
Texas, General Obligation Unlimited Tax School Building
and Refunding Bonds, Series 1995, 6.375%, 8/15/25
(Pre-refunded to 2/15/05)
520 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA 563,451
Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20
(Pre-refunded to 7/01/10)
1,185 Fort Bend County Levee Improvement District 11, Texas, 9/04 at 100.00 AAA 1,190,735
Unlimited Tax Levee Improvement Bonds, Series 1994,
6.900%, 9/01/17 (Pre-refunded to 9/01/04) - MBIA Insured
1,450 Galveston Industrial Development Corporation, Texas, 9/05 at 100.00 AAA 1,514,685
Sales Tax Revenue Bonds, Series 1995, 5.750%, 9/01/15
(Pre-refunded to 9/01/05) - AMBAC Insured
5,275 Houston, Texas, Water and Sewer System Junior Lien 12/10 at 100.00 AAA 5,852,507
Revenue Refunding Bonds, Series 2000B, 5.250%, 12/01/30
(Pre-refunded to 12/01/10) - FGIC Insured
800 Laredo, Webb County, Texas, Waterworks System Combined 8/04 at 100.00 AAA 801,448
Tax and Revenue Certificates of Obligation, Series 1994,
5.625%, 8/15/11 (Pre-refunded to 8/15/04) - MBIA Insured
1,000 North Central Texas Health Facilities Development No Opt. Call AAA 1,135,810
Corporation, Hospital Revenue Bonds, Presbyterian
Healthcare System, Series 1996B, 5.750%, 6/01/26 -
MBIA Insured
2,500 Retama Development Corporation, Texas, Special Facilities No Opt. Call AAA 3,635,975
Revenue Bonds, Retama Park Racetrack Project,
Series 1993, 8.750%, 12/15/18
1,895 San Antonio, Texas, Hotel Occupancy Tax Revenue Bonds, 8/06 at 102.00 AAA 2,072,201
Henry B. Gonzalez Convention Center Project, Series 1996,
5.700%, 8/15/26 (Pre-refunded to 8/15/06) - FGIC Insured
665 San Antonio, Texas, Water System Revenue Refunding Bonds, No Opt. Call AAA 760,067
Series 1992, 6.500%, 5/15/10 - MBIA Insured
2,000 University of Houston, Texas, Consolidated Revenue Bonds, 2/05 at 100.00 AAA 2,049,400
Series 1995, 6.000%, 2/15/17 (Pre-refunded to 2/15/05) -
FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 9.8%
2,560 Brazos River Authority, Texas, Pollution Control Revenue 4/13 at 101.00 BBB 2,944,640
Refunding Bonds, TXU Electric Company Project,
Series 1999C, 7.700%, 3/01/32 (Alternative
Minimum Tax)
2,500 Brazos River Authority, Texas, Revenue Bonds, Reliant 4/09 at 101.00 BBB- 2,438,400
Energy Inc., Series 1999A, 5.375%, 4/01/19
2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 AAA 2,172,280
Texas, Thermal Utility Revenue Bonds, TECO Project,
Series 2000, 5.750%, 2/15/15 (Alternative Minimum
Tax) - AMBAC Insured
1,500 Matagorda County Navigation District 1, Texas, Pollution 1/05 at 101.00 AAA 1,519,470
Control Revenue Refunding Bonds, Central Power and
Light Company Project, Series 1993, 6.000%, 7/01/28 -
MBIA Insured
1,000 Matagorda County Navigation District 1, Texas, Revenue 5/09 at 101.00 BBB- 984,360
Bonds, Reliant Energy Inc., Series 1999B, 5.950%, 5/01/30
(Alternative Minimum Tax)
2,000 Sabine River Authority, Texas, Pollution Control Revenue No Opt. Call BBB 2,108,520
Refunding Bonds, TXU Electric Company, Series 2001A,
5.500%, 5/01/22 (Mandatory put 11/01/11)
1,750 San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AA+ 1,865,517
Refunding Bonds, Series 2002, 5.375%, 2/01/20
31
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS July 31, 2004
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 8.5%
$ 3,000 Houston, Texas, First Lien Combined Utility System Revenue 5/14 at 100.00 AAA $ 3,153,330
Bonds, Series 2004A, 5.250%, 5/15/23 - FGIC Insured
3,500 Houston, Texas, Water and Sewer System Junior Lien 12/11 at 100.00 AAA 3,854,094
Revenue Refunding Bonds, Series 2001A, 5.500%, 12/01/17 -
FSA Insured
Irving, Texas, Subordinate Lien Waterworks and Sewerage
Revenue Bonds, Series 2004:
1,680 5.000%, 8/15/22 - AMBAC Insured 8/14 at 100.00 AAA 1,726,031
1,760 5.000%, 8/15/23 - AMBAC Insured 8/14 at 100.00 AAA 1,798,297
1,500 Texas Water Development Board, Senior Lien State Revolving 7/09 at 100.00 AAA 1,622,250
Fund Revenue Bonds, Series 1999A, 5.500%, 7/15/21
------------------------------------------------------------------------------------------------------------------------------------
$ 206,338 Total Long-Term Investments (cost $196,601,806) - 144.2% 206,594,447
=============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 4.0% 5,638,629
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (48.2)% (69,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 143,233,076
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares.
* Optional Call Provisions (not covered by the report of
independent registered public accounting firm): Dates
(month and year) and prices of the earliest optional
call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent
registered public accounting firm): Using the higher of
Standard & Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency
securities which ensures the timely payment of
principal and interest. Such securities are normally
considered to be equivalent to AAA rated securities.
N/R Investment is not rated.
See accompanying notes to financial statements.
32
Statement of
ASSETS AND LIABILITIES July 31, 2004
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $88,409,356,
$33,517,076, $52,483,361, $64,073,701
and $196,601,806, respectively) $91,581,198 $34,509,515 $54,304,981 $64,070,175 $206,594,447
Cash 187,194 379,554 336,310 476,622 256,550
Receivables:
Interest 752,627 279,024 424,720 469,629 3,504,416
Investments sold 5,051 -- -- -- 2,045,000
Other assets 9,092 5,789 7,221 2,153 13,801
------------------------------------------------------------------------------------------------------------------------------------
Total assets 92,535,162 35,173,882 55,073,232 65,018,579 212,414,214
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Accrued expenses:
Management fees 50,795 10,405 16,304 18,132 115,740
Other 51,914 9,912 13,053 16,116 59,924
Preferred share dividends payable 987 790 913 1,810 5,474
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 103,696 21,107 30,270 36,058 181,138
------------------------------------------------------------------------------------------------------------------------------------
Preferred shares, at liquidation value 30,000,000 12,000,000 18,500,000 22,000,000 69,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $62,431,466 $23,152,775 $36,542,962 $42,982,521 $143,233,076
====================================================================================================================================
Common shares outstanding 4,447,830 1,543,759 2,419,878 3,067,243 9,474,191
====================================================================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares,
divided by Common shares outstanding) $ 14.04 $ 15.00 $ 15.10 $ 14.01 $ 15.12
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 44,478 $ 15,438 $ 24,199 $ 30,672 $ 94,742
Paid-in surplus 61,829,774 21,828,494 34,271,339 43,241,539 134,278,605
Undistributed net investment income 377,650 245,182 117,979 61,700 1,624,342
Accumulated net realized gain (loss)
from investments (2,992,278) 71,222 307,825 (347,864) (2,757,254)
Net unrealized appreciation (depreciation)
of investments 3,171,842 992,439 1,821,620 (3,526) 9,992,641
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $62,431,466 $23,152,775 $36,542,962 $42,982,521 $143,233,076
====================================================================================================================================
Authorized shares:
Common 200,000,000 Unlimited Unlimited Unlimited Unlimited
Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
33
Statement of
OPERATIONS Year Ended July 31, 2004
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME $4,838,928 $1,723,218 $2,616,482 $3,050,618 $11,446,604
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 602,609 229,298 359,709 424,150 1,373,508
Preferred shares - auction fees 75,242 30,101 46,507 55,176 173,055
Preferred shares - dividend disbursing
agent fees 10,028 10,028 10,028 10,028 20,053
Shareholders' servicing agent
fees and expenses 5,052 275 297 429 15,905
Custodian's fees and expenses 24,959 7,334 13,513 18,190 49,902
Directors'/Trustees' fees and expenses 2,269 912 1,280 1,706 5,383
Professional fees 11,613 9,768 10,150 10,948 8,646
Shareholders' reports - printing
and mailing expenses 10,603 3,360 10,774 7,045 20,813
Stock exchange listing fees 11,067 136 212 270 11,048
Investor relations expense 4,556 1,590 3,287 5,822 10,950
Other expenses 10,195 9,741 11,124 8,097 12,556
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian
fee credit and expense
reimbursement 768,193 302,543 466,881 541,861 1,701,819
Custodian fee credit (8,180) (3,989) (4,797) (4,298) (8,434)
Expense reimbursement -- (105,830) (166,019) (208,812) --
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 760,013 192,724 296,065 328,751 1,693,385
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 4,078,915 1,530,494 2,320,417 2,721,867 9,753,219
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investments 713,547 108,890 307,836 (276,088) 1,077,835
Change in net unrealized appreciation
(depreciation) of investments 1,137,949 760,107 1,008,021 1,955,972 4,038,575
------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 1,851,496 868,997 1,315,857 1,679,884 5,116,410
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income (230,103) (85,893) (146,950) (185,513) (628,703)
From accumulated net realized gains
from investments -- (4,168) (9,227) -- --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Preferred shareholders (230,103) (90,061) (156,177) (185,513) (628,703)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common
shares from operations $5,700,308 $2,309,430 $3,480,097 $4,216,238 $14,240,926
====================================================================================================================================
See accompanying notes to financial statements.
34
Statement of
CHANGES IN NET ASSETS
ARIZONA ARIZONA ARIZONA
PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR)
--------------------------- ---------------------------- ----------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/04 7/31/03 7/31/04 7/31/03 7/31/04 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $4,078,915 $ 4,313,339 1,530,494 $ 1,536,065 $ 2,320,417 $ 2,310,487
Net realized gain (loss)
from investments 713,547 (3,250,460) 108,890 43,532 307,836 132,780
Change in net unrealized
appreciation (depreciation)
of investments 1,137,949 649,626 760,107 (623,996) 1,008,021 (880,264)
Distributions to Preferred Shareholders:
From net investment income (230,103) (295,481) (85,893) (100,618) (146,950) (185,421)
From accumulated net realized gains
from investments -- -- (4,168) (8,316) (9,227) (3,802)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 5,700,308 1,417,024 2,309,430 846,667 3,480,097 1,373,780
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (4,076,294) (4,059,731) (1,410,436) (1,357,099) (2,091,535) (2,088,653)
From accumulated net realized gains
from investments -- -- (64,486) (65,547) (105,537) (28,590)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (4,076,294) (4,059,731) (1,474,922) (1,422,646) (2,197,072) (2,117,243)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- -- -- -- -- --
Net proceeds from shares
issued to shareholders due to
reinvestment of distributions 260,642 313,593 27,858 45,775 23,870 80,623
Preferred shares offering costs -- -- -- 29,976 (1,409) (12,866)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from capital share transactions 260,642 313,593 27,858 75,751 22,461 67,757
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
applicable to Common shares 1,884,656 (2,329,114) 862,366 (500,228) 1,305,486 (675,706)
Net assets applicable to
Common shares at the
beginning of period 60,546,810 62,875,924 22,290,409 22,790,637 35,237,476 35,913,182
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $62,431,466 $60,546,810 $23,152,775 $22,290,409 $36,542,962 $35,237,476
====================================================================================================================================
Undistributed (Over-distribution of)
net investment income at the
end of period $ 377,650 $ 612,114 $ 245,182 $ 211,017 $ 117,979 $ 36,173
====================================================================================================================================
See accompanying notes to financial statements.
35
Statement of
CHANGES IN NET ASSETS (continued)
ARIZONA TEXAS
DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX)
---------------------------- --------------------------
FOR THE
PERIOD 9/25/02
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) YEAR ENDED YEAR ENDED
7/31/04 THROUGH 7/31/03 7/31/04 7/31/03
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 2,721,867 $ 2,008,218 $ 9,753,219 $ 9,977,143
Net realized gain (loss) from investments (276,088) (72,291) 1,077,835 (3,211,937)
Change in net unrealized appreciation
(depreciation) of investments 1,955,972 (1,959,498) 4,038,575 (2,256,490)
Distributions to Preferred Shareholders:
From net investment income (185,513) (166,960) (628,703) (768,750)
From accumulated net realized gains
from investments -- -- -- (8,765)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 4,216,238 (190,531) 14,240,926 3,731,201
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (2,465,996) (1,849,401) (9,093,044) (9,027,160)
From accumulated net realized gains
from investments -- -- -- (100,152)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (2,465,996) (1,849,401) (9,093,044) (9,127,312)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares -- 43,742,700 -- --
Net proceeds from shares
issued to shareholders due to
reinvestment of distributions 3,508 -- 110,085 66,550
Preferred shares offering costs (18,271) (556,001) -- --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from capital share transactions (14,763) 43,186,699 110,085 66,550
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares 1,735,479 41,146,767 5,257,967 (5,329,561)
Net assets applicable to Common
shares at the beginning of period 41,247,042 100,275 137,975,109 143,304,670
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $42,982,521 $41,247,042 $143,233,076 $137,975,109
====================================================================================================================================
Undistributed (Over-distribution of)
net investment income at the
end of period $ 61,700 $ (8,658) $ 1,624,342 $ 1,595,053
====================================================================================================================================
See accompanying notes to financial statements.
36
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The state Funds (the "Funds") covered in this report and their corresponding
common share stock exchange symbols are Nuveen Arizona Premium Income Municipal
Fund, Inc. (NAZ), Nuveen Arizona Dividend Advantage Municipal Fund (NFZ), Nuveen
Arizona Dividend Advantage Municipal Fund 2 (NKR), Nuveen Arizona Dividend
Advantage Municipal Fund 3 (NXE) and Nuveen Texas Quality Income Municipal Fund
(NTX). Common shares of Arizona Premium Income (NAZ) and Texas Quality Income
(NTX) are traded on the New York Stock Exchange while Common shares of Arizona
Dividend Advantage (NFZ), Arizona Dividend Advantage 2 (NKR) and Arizona
Dividend Advantage 3 (NXE) are traded on the American Stock Exchange. The Funds
are registered under the Investment Company Act of 1940, as amended, as
closed-end management investment companies.
Prior to the commencement of operations of Arizona Dividend Advantage 3 (NXE),
the Fund had no operations other than those related to organizational matters,
the initial capital contribution of $100,275 by Nuveen Advisory Corp. (the
"Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc., and the
recording of the organization expenses ($11,500) and its reimbursement by Nuveen
Investments, LLC, also a wholly owned subsidiary of Nuveen Investments, Inc.
Each Fund seeks to provide current income exempt from both regular federal and
designated state income taxes, where applicable, by investing primarily in a
diversified portfolio of municipal obligations issued by state and local
government authorities within a single state.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with U.S.
generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Funds' Board of Directors/Trustees. When
price quotes are not readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value based on yields
or prices of municipal bonds of comparable quality, type of issue, coupon,
maturity and rating, indications of value from securities dealers, evaluations
of anticipated cash flows or collateral and general market conditions. If it is
determined that market prices for a security are unavailable or inappropriate,
the Board of Directors/Trustees of the Funds, or its designee, may establish a
fair value for the security. Temporary investments in securities that have
variable rate and demand features qualifying them as short-term securities are
valued at amortized cost, which approximates market value.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may have extended settlement periods. The securities so purchased are subject to
market fluctuation during this period. The Funds have instructed the custodian
to segregate assets with a current value at least equal to the amount of the
when-issued and delayed delivery purchase commitments. At July 31, 2004, there
were no such outstanding purchase commitments in any of the Funds.
37
Notes to
FINANCIAL STATEMENTS (continued)
Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute all income and capital gains to shareholders and to
otherwise comply with the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. Therefore, no federal income
tax provision is required. Furthermore, each Fund intends to satisfy conditions
which will enable interest from municipal securities, which is exempt from
regular federal and designated state income taxes, where applicable, to retain
such tax-exempt status when distributed to shareholders of the Funds. All
monthly tax-exempt income dividends paid during the fiscal year ended July 31,
2004, have been designated Exempt Interest Dividends. Net realized capital gains
and ordinary income distributions made by the Funds are subject to federal
taxation.
Dividends and Distributions to Common Shareholders
Dividends from tax-exempt net investment income are declared monthly. Net
realized capital gains and/or market discount from investment transactions, if
any, are distributed to shareholders not less frequently than annually.
Furthermore, capital gains are distributed only to the extent they exceed
available capital loss carryforwards.
Distributions to Common shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount, if any, are recorded on the
ex-dividend date. The amount and timing of distributions are determined in
accordance with federal income tax regulations, which may differ from U.S.
generally accepted accounting principles.
Preferred Shares
The Funds have issued and outstanding $25,000 stated value Preferred shares as a
means of effecting financial leverage. Each Fund's Preferred shares are issued
in one or more Series. The dividend rate on each Series may change every seven
days, as set pursuant to a dutch auction process by the auction agent, and is
payable at or near the end of each rate period. The number of Preferred shares
outstanding, by Series and in total, for each Fund is as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
---------------------------------------------------------------------------------------------------------
Number of shares:
Series M -- -- -- 880 760
Series T -- 480 -- -- --
Series W -- -- 740 -- --
Series TH 1,200 -- -- -- 2,000
---------------------------------------------------------------------------------------------------------
Total 1,200 480 740 880 2,760
=========================================================================================================
Arizona Dividend Advantage 3 (NXE) issued the Preferred shares listed above on
November 15, 2002.
38
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on each Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Indemnifications
Under the Funds' organizational documents, its Officers and Directors/Trustees
are indemnified against certain liabilities arising out of the performance of
their duties to the Funds. In addition, in the normal course of business, the
Funds enter into contracts that provide general indemnifications to other
parties. The Funds' maximum exposure under these arrangements is unknown as this
would involve future claims that may be made against the Funds that have not yet
occurred. However, the Funds have not had prior claims or losses pursuant to
these contracts and expect the risk of loss to be remote.
Offering Costs
Nuveen Investments, LLC has agreed to pay all common share offering costs (other
than the sales load) that exceed $.03 per Common share for Arizona Dividend
Advantage 2 (NKR) and Arizona Dividend Advantage 3 (NXE). Arizona Dividend
Advantage 2's (NKR) and Arizona Dividend Advantage 3's (NXE) share of common
share offering costs ($72,150 and $91,800, respectively) were recorded as a
reduction of the proceeds from the sale of common shares.
Costs incurred by Arizona Dividend Advantage 2 (NKR) and Arizona Dividend
Advantage 3 (NXE) in connection with their offering of Preferred shares
($305,577 and $574,272, respectively) were recorded as a reduction to paid-in
surplus.
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
Transactions in Common and Preferred shares were as follows:
ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND
INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR)
------------------------ ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
7/31/04 7/31/03 7/31/04 7/31/03 7/31/04 7/31/03
------------------------------------------------- ------------------------ ------------------------
Common shares:
Shares sold -- -- -- -- -- --
Shares issued to
shareholders due to
reinvestment of
distributions 16,782 19,523 1,617 2,947 1,607 5,171
---------------------------------------------------------------------------------------------------------
16,782 19,523 1,617 2,947 1,607 5,171
=========================================================================================================
Preferred shares sold -- -- -- -- -- --
=========================================================================================================
39
Notes to
FINANCIAL STATEMENTS (continued)
ARIZONA DIVIDEND TEXAS QUALITY
ADVANTAGE 3 (NXE) INCOME (NTX)
-------------------------- ------------------------
FOR THE
PERIOD 9/25/02
(COMMENCE-
MENT OF
OPERATIONS)
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED
7/31/04 7/31/03 7/31/04 7/31/03
---------------------------------------------------------------------------------------------------------
Common shares:
Shares sold -- 3,060,000 -- --
Shares issued to shareholders
due to reinvestment of
distributions 243 -- 7,303 4,266
---------------------------------------------------------------------------------------------------------
243 3,060,000 7,303 4,266
=========================================================================================================
Preferred shares sold -- 880 -- --
=========================================================================================================
3. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in long-term municipal
securities for the fiscal year ended July 31, 2004, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Purchases $30,330,083 $8,910,317 $8,726,226 $14,839,263 $33,000,152
Sales and maturities 23,284,747 8,336,214 7,624,928 14,002,182 34,035,312
==========================================================================================================
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 recognizing income on taxable market
discount securities and timing differences in recognizing certain gains and
losses on security transactions.
At July 31, 2004, the cost of investments were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Cost of investments $88,394,997 $33,513,172 $52,482,737 $64,072,810 $196,505,923
==========================================================================================================
40
Gross unrealized appreciation and gross unrealized depreciation of investments
at July 31, 2004, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------
Gross unrealized:
Appreciation $3,859,132 $1,048,816 $2,060,113 $ 545,612 $11,965,886
Depreciation (672,931) (52,473) (237,869) (548,247) (1,877,362)
------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments $3,186,201 $ 996,343 $1,822,244 $ (2,635) $10,088,524
============================================================================================================
The tax components of undistributed net investment income and net realized gains
at July 31, 2004, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Undistributed net tax-exempt income $704,535 $360,168 $292,499 $266,693 $2,277,128
Undistributed net ordinary income * -- -- -- 1,432 14,741
Undistributed net long-term capital gains -- 71,222 307,825 -- --
==========================================================================================================
* Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
The tax character of distributions paid during the fiscal years ended July 31,
2004 and July 31, 2003, was designated for purposes of the dividends paid
deduction as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
2004 (NAZ) (NFZ) (NKR) (NXE) (NTX)
--------------------------------------------------------------------------------------------------------------
Distributions from net tax-exempt income $4,307,222 $1,494,232 $2,236,394 $2,650,674 $9,723,403
Distributions from net ordinary income * -- 68,654 110,761 -- --
Distributions from net long-term capital gains -- -- 5,257 -- --
==============================================================================================================
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
2003 (NAZ) (NFZ) (NKR) (NXE) (NTX)
--------------------------------------------------------------------------------------------------------------
Distributions from net tax-exempt income $4,355,548 $1,446,815 $2,277,296 $1,809,880 $9,784,102
Distributions from net ordinary income * -- 2,222 33,393 -- 21,034
Distributions from net long-term capital gains -- 73,795 -- -- 93,585
==============================================================================================================
* Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
41
Notes to
FINANCIAL STATEMENTS (continued)
At July 31, 2004, the following Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND QUALITY
INCOME ADVANTAGE 3 INCOME
(NAZ) (NXE) (NTX)
----------------------------------------------------------------------------------------------------------
Expiration year:
2010 $ 2,164 $ -- $ --
2011 1,436,486 -- 855,431
2012 1,553,628 205,820 1,901,823
----------------------------------------------------------------------------------------------------------
Total $2,992,278 $205,820 $2,757,254
==========================================================================================================
Arizona Dividend Advantage 3 (NXE) elected to defer $142,044 of net realized
losses from investments incurred from November 1, 2003 through July 31, 2004
("post-October losses") in accordance with Federal income tax regulations.
Post-October losses are treated as having arisen on the first day of the
following fiscal year.
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Funds' investment management agreements with the Adviser, each Fund
paid through July 31, 2004, an annual management fee, payable monthly, at the
rates set forth below, which were based upon the average daily net assets
(including net assets attributable to Preferred shares) of each Fund as follows:
ARIZONA PREMIUM INCOME (NAZ)
AVERAGE DAILY NET ASSETS TEXAS QUALITY INCOME (NTX)
(INCLUDING NET ASSETS ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE RATE
----------------------------------------------------------------------------------------------------------
For the first $125 million .6500%
For the next $125 million .6375
For the next $250 million .6250
For the next $500 million .6125
For the next $1 billion .6000
For the next $3 billion .5875
For net assets over $5 billion .5750
==========================================================================================================
ARIZONA DIVIDEND ADVANTAGE (NFZ)
ARIZONA DIVIDEND ADVANTAGE 2 (NKR)
AVERAGE DAILY NET ASSETS ARIZONA DIVIDEND ADVANTAGE 3 (NXE)
(INCLUDING NET ASSETS ATTRIBUTABLE TOPREFERRED SHARES) MANAGEMENT FEE RATE
----------------------------------------------------------------------------------------------------------
For the first $125 million .6500%
For the next $125 million .6375
For the next $250 million .6250
For the next $500 million .6125
For the next $1 billion .6000
For net assets over $2 billion .5750
==========================================================================================================
42
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Funds pay no
compensation directly to those of its Directors/Trustees who are affiliated with
the Adviser or to their officers, all of whom receive remuneration for their
services to the Funds from the Adviser or its affiliates. The Board of
Directors/Trustees has adopted a deferred compensation plan for independent
Directors/Trustees that enables Directors/Trustees to elect to defer receipt of
all or a portion of the annual compensation they are entitled to receive from
certain Nuveen advised Funds. Under the plan, deferred amounts are treated as
though equal dollar amounts had been invested in shares of select Nuveen advised
Funds.
As approved by the Board of Directors/Trustees, a complex-wide management fee
structure has been adopted by all funds sponsored by the Adviser and its
affiliates effective August 1, 2004. This structure separates each fund's
management fee into two components - a complex-level component, based on the
aggregate amount of all fund assets managed by the Adviser and its affiliates,
and a specific fund-level component, based only on the amount of assets managed
within each individual fund. This pricing structure enables Nuveen fund
shareholders to benefit from growth in the assets within each individual fund as
well as from growth in the amount of complex-wide assets managed by the Adviser
and its affiliates. Under no circumstances will this pricing structure result in
a fund paying management fees at a rate higher than would otherwise have been
applicable had the complex-wide management fee structure not been implemented.
As a consequence of this new management fee structure, the funds' effective
management fees were reduced by approximately .004% starting August 1, 2004.
The complex-level fee schedule for all funds in the Nuveen fund complex is as
follows:
COMPLEX-LEVEL
COMPLEX-LEVEL ASSETS(1) 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 (which includes assets
attributable to leverage used in the Nuveen fund complex) of all funds
sponsored by the Adviser or by its affiliates.
(2) With respect to the complex-wide Managed Assets over $91 billion, the funds
(via their Board of Directors/Trustees) and the Adviser intend that the
parties will meet, prior to the time when complex-wide Managed Assets reach
that level, to consider and negotiate the fee rate or rates that will apply
to such assets. The parties agree that, in the unlikely event that
complex-wide Managed Assets reach $91 billion prior to the parties reaching
an agreement as to 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 the
parties agree to a different rate or rates.
43
Notes to
FINANCIAL STATEMENTS (continued)
For each of the Funds, the fund-level fee, which is additive to the
complex-level fee, is based upon the average daily Managed Assets of each Fund
as follows:
ARIZONA PREMIUM INCOME (NAZ)
TEXAS QUALITY INCOME (NTX)
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $125 million .4500%
For the next $125 million .4375
For the next $250 million .4250
For the next $500 million .4125
For the next $1 billion .4000
For the next $3 billion .3875
For Managed Assets over $5 billion .3750
================================================================================
ARIZONA DIVIDEND ADVANTAGE (NFZ)
ARIZONA DIVIDEND ADVANTAGE 2 (NKR)
ARIZONA DIVIDEND ADVANTAGE 3 (NXE)
AVERAGE DAILY MANAGED ASSETS FUND-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $125 million .4500%
For the next $125 million .4375
For the next $250 million .4250
For the next $500 million .4125
For the next $1 billion .4000
For Managed Assets over $2 billion .3750
================================================================================
For the first ten years of Arizona Dividend Advantage's (NFZ) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily net
assets (including net assets attributable to Preferred shares), for fees and
expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
JANUARY 31, JANUARY 31,
--------------------------------------------------------------------------------
2001* .30% 2007 .25%
2002 .30 2008 .20
2003 .30 2009 .15
2004 .30 2010 .10
2005 .30 2011 .05
2006 .30
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Arizona Dividend Advantage (NFZ) for any
portion of its fees and expenses beyond January 31, 2011.
44
For the first ten years of Arizona Dividend Advantage 2's (NKR) operations, the
Adviser has agreed to reimburse the Fund, as a percentage of average daily net
assets (including net assets attributable to Preferred shares), for fees and
expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
MARCH 31, MARCH 31,
--------------------------------------------------------------------------------
2002* .30% 2008 .25%
2003 .30 2009 .20
2004 .30 2010 .15
2005 .30 2011 .10
2006 .30 2012 .05
2007 .30
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Arizona Dividend Advantage 2 (NKR) for
any portion of its fees and expenses beyond March 31, 2012.
For the first eight years of Arizona Dividend Advantage 3's (NXE) operations,
the Adviser has agreed to reimburse the Fund, as a percentage of average daily
net assets (including net assets attributable to Preferred shares), for fees and
expenses in the amounts and for the time periods set forth below:
YEAR ENDING YEAR ENDING
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------------------------------------------------------
2002* .32% 2007 .32%
2003 .32 2008 .24
2004 .32 2009 .16
2005 .32 2010 .08
2006 .32
================================================================================
* From the commencement of operations.
The Adviser has not agreed to reimburse Arizona Dividend Advantage 3 (NXE) for
any portion of its fees and expenses beyond September 30, 2010.
6. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid on September 1, 2004, to shareholders of
record on August 15, 2004, as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
----------------------------------------------------------------------------------------------------
Dividend per share $.0765 $.0765 $.0720 $.0670 $.0800
====================================================================================================
45
Notes to
FINANCIAL STATEMENTS (continued)
Swap Transactions
The following Funds entered into forward interest rate swap transactions with
the intent to mitigate the negative impact that an increase in long-term
interest rates could have on Common share net earnings. The Funds entered into
forward interest rate swap transactions on the dates and in the notional amounts
as follows:
ARIZONA DIVIDEND ADVANTAGE ARIZONA DIVIDEND ADVANTAGE 2
(NFZ) (NKR)
-------------------------------- ---------------------------------------------------
TRADE DATE AUGUST 4, 2004 AUGUST 5, 2004 AUGUST 4, 2004 AUGUST 5, 2004 AUGUST 10, 2004
-----------------------------------------------------------------------------------------------------------
NOTIONAL AMOUNT $600,000 $700,000 $1,100,000 $1,300,000 $300,000
===========================================================================================================
ARIZONA DIVIDEND ADVANTAGE 3
(NXE)
--------------------------------------------------
TRADE DATE AUGUST 4, 2004 AUGUST 5, 2004 AUGUST 10, 2004
-----------------------------------------------------------------------
NOTIONAL AMOUNT $2,000,000 $2,400,000 $500,000
=======================================================================
46
Financial
HIGHLIGHTS
47
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
--------------------------------------------------------------- -------------------------------
Distributions Distributions
from Net from Net
Beginning Net Investment Capital Investment Capital
Common Realized/ Income to Gains to Income to Gains to
Share Net Unrealized Preferred Preferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 $13.66 $ .92 $ .43 $(.05) $ -- $1.30 $(.92) $ -- $ (.92)
2003 14.25 .97 (.57) (.07) -- .33 (.92) -- (.92)
2002 14.77 1.07 (.57) (.09) (.01) .40 (.88) (.04) (.92)
2001 14.25 1.09 .50 (.23) -- 1.36 (.83) (.01) (.84)
2000 14.90 1.06 (.61) (.25) -- .20 (.85) -- (.85)
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 14.45 .99 .57 (.06) -- 1.50 (.91) (.04) (.95)
2003 14.81 1.00 (.38) (.07) (.01) .54 (.88) (.04) (.92)
2002 14.37 1.04 .36 (.11) -- 1.29 (.84) (.01) (.85)
2001(a) 14.33 .44 .23 (.08) -- .59 (.35) -- (.35)
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 14.57 .96 .53 (.06) -- 1.43 (.86) (.04) (.90)
2003 14.88 .96 (.31) (.08) -- .57 (.86) (.01) (.87)
2002(b) 14.33 .24 .71 (.02) -- .93 (.22) -- (.22)
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 13.45 .89 .54 (.06) -- 1.37 (.80) -- (.80)
2003(c) 14.33 .66 (.67) (.05) -- (.06) (.61) -- (.61)
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 14.57 1.03 .55 (.07) -- 1.51 (.96) -- (.96)
2003 15.14 1.05 (.58) (.08) -- .39 (.95) (.01) (.96)
2002 15.16 1.11 (.02) (.10) (.02) .97 (.92) (.07) (.99)
2001 14.26 1.16 .88 (.27) -- 1.77 (.87) -- (.87)
2000 15.13 1.16 (.74) (.27) (.02) .13 (.91) (.09) (1.00)
====================================================================================================================================
Total Returns
--------------------
Based
Offering on
Costs and Ending Common
Preferred Common Based Share
Share Share Ending on Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
======================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
--------------------------------------------------------------------------------------
Year Ended 7/31:
2004 $ -- $14.04 $15.2700 7.97% 9.66%
2003 -- 13.66 15.0000 (5.98) 2.21
2002 -- 14.25 16.9000 9.63 2.88
2001 -- 14.77 16.3200 17.77 9.74
2000 -- 14.25 14.6250 (8.80) 1.61
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
--------------------------------------------------------------------------------------
Year Ended 7/31:
2004 -- 15.00 15.4000 7.05 10.56
2003 .02 14.45 15.3000 3.06 3.67
2002 -- 14.81 15.7500 6.38 9.32
2001(a) (.20) 14.37 15.6500 6.76 2.81
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
--------------------------------------------------------------------------------------
Year Ended 7/31:
2004 -- 15.10 14.8200 9.46 9.98
2003 (.01) 14.57 14.4000 (3.53) 3.67
2002(b) (.16) 14.88 15.8000 6.81 5.38
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
--------------------------------------------------------------------------------------
Year Ended 7/31:
2004 (.01) 14.01 13.3000 1.01 10.25
2003(c) (.21) 13.45 13.9700 (2.76) (2.05)
TEXAS QUALITY
INCOME (NTX)
--------------------------------------------------------------------------------------
Year Ended 7/31:
2004 -- 15.12 14.5900 5.87 10.51
2003 -- 14.57 14.7100 4.14 2.54
2002 -- 15.14 15.0700 9.29 6.61
2001 -- 15.16 14.7300 21.16 12.74
2000 -- 14.26 12.9375 (7.93) 1.15
======================================================================================
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
------------------------------ -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
==========================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
--------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 $ 62,431 1.22% 6.49% 1.21% 6.50% 26%
2003 60,547 1.25 6.81 1.24 6.82 17
2002 62,876 1.28 7.45 1.26 7.47 19
2001 64,859 1.28 7.47 1.27 7.48 18
2000 62,287 1.26 7.58 1.25 7.59 33
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
--------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 23,153 1.30 6.10 .83 6.57 24
2003 22,290 1.35 6.11 .91 6.55 20
2002 22,791 1.41 6.72 .93 7.20 40
2001(a) 22,072 1.43* 5.80* .95* 6.28* 21
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
--------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 36,543 1.27 5.83 .80 6.30 14
2003 35,237 1.27 5.78 .82 6.23 4
2002(b) 35,913 1.19* 4.43* .77* 4.85* 1
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
--------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 42,983 1.25 5.80 .76 6.29 22
2003(c) 41,247 1.19* 5.05* .73* 5.52* 16
TEXAS QUALITY
INCOME (NTX)
--------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2004 143,233 1.18 6.77 1.18 6.77 16
2003 137,975 1.20 6.93 1.19 6.94 12
2002 143,305 1.23 7.40 1.22 7.42 22
2001 143,127 1.21 7.87 1.19 7.88 24
2000 134,637 1.27 8.18 1.26 8.19 32
==========================================================================================================================
-
Preferred Shares at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
=================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------
Year Ended 7/31:
2004 $30,000 $25,000 $77,026
2003 30,000 25,000 75,456
2002 30,000 25,000 77,397
2001 30,000 25,000 79,049
2000 30,000 25,000 76,906
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------
Year Ended 7/31:
2004 12,000 25,000 73,235
2003 12,000 25,000 71,438
2002 12,000 25,000 72,480
2001(a) 12,000 25,000 70,984
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
-----------------------------------------------------------------
Year Ended 7/31:
2004 18,500 25,000 74,382
2003 18,500 25,000 72,618
2002(b) 18,500 25,000 73,531
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
-----------------------------------------------------------------
Year Ended 7/31:
2004 22,000 25,000 73,844
2003(c) 22,000 25,000 71,872
TEXAS QUALITY
INCOME (NTX)
-----------------------------------------------------------------
Year Ended 7/31:
2004 69,000 25,000 76,896
2003 69,000 25,000 74,991
2002 69,000 25,000 76,922
2001 69,000 25,000 76,858
2000 69,000 25,000 73,782
================================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income at net asset value,
reinvested capital gains distributions at net asset value, if any, and
changes in Common share net asset value per share. Total returns are not
annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the period January 30, 2001 (commencement of operations) through July
31, 2001.
(b) For the period March 25, 2002 (commencement of operations) through July 31,
2002.
(c) For the period September 25, 2002 (commencement of operations) through July
31, 2003.
See accompanying notes to financial statements.
48-49 SPREAD
Board Members
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds by the Adviser, is the responsibility of the Board
Members of the Funds. The number of board members of the Funds is currently set
at seven. None of the board members who are not "interested" persons of the
Funds has ever been a director or employee of, or consultant to, Nuveen or its
affiliates. The names and business addresses of the board members and officers
of the Funds, their principal occupations and other affiliations during the past
five years, the number of portfolios each oversees and other directorships they
hold are set forth below.
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBER WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Timothy R. Schwertfeger (1) Chairman of 1994 Chairman and Director (since 1996) of Nuveen Investments, 145
3/28/49 the Board Inc. and Nuveen Investments, LLC; Director (since 1992) and
333 W. Wacker Drive and Trustee Chairman (since 1996) of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; Chairman and Director (since
1997) of Nuveen Asset Management, Inc.; Director (since
1996) of Institutional Capital Corporation; Chairman and
Director (since 1999) of Rittenhouse Asset Management, Inc.;
Chairman of Nuveen Investments Advisers Inc. (since 2002).
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Robert P. Bremner Board member 1997 Private Investor and Management Consultant. 145
8/22/40
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Lawrence H. Brown Board member 1993 Retired (1989) as Senior Vice President of The Northern 145
7/29/34 Trust Company; Director, Community Advisory Board for
333 W. Wacker Drive Highland Park and Highwood, United Way of the North
Chicago, IL 60606 Shore (since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Jack B. Evans Board member 1999 President, The Hall-Perrine Foundation, a private 145
10/22/48 philanthropic corporation (since 1996); Director and Vice
333 W. Wacker Drive Chairman, United Fire & Casualty Company; formerly Director,
Chicago, IL 60606 Federal Reserve Bank of Chicago; formerly, President and
Chief Operating Officer, SCI Financial Group, Inc., a
regional financial services firm.
------------------------------------------------------------------------------------------------------------------------------------
William C. Hunter Board member 2004 Dean and Distinguished Professor of Finance, School of 145
3/16/48 Business at the University of Connecticut (since 2003);
333 W. Wacker Drive previously Senior Vice President and Director of Research
Chicago, IL 60606 at the Federal Reserve Bank of Chicago (1995-2003);
Director, Credit Research Center at Georgetown University;
Director of Xerox Corporation (since 2004).
50
NUMBER OF
PORTFOLIOS IN
POSITION(S) YEAR FIRST PRINCIPAL OCCUPATION(S) FUND COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(2) DURING PAST 5 YEARS BOARD MEMBER
------------------------------------------------------------------------------------------------------------------------------------
BOARD MEMBERS WHO ARE NOT INTERESTED PERSONS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
William J. Schneider Board member 1997 Senior Partner and Chief Operating Officer, Miller-Valentine 145
9/24/44 Group, Vice President, Miller-Valentine Realty, a construction
333 W. Wacker Drive company; Chair, Miami Valley Hospital; Chair, Dayton
Chicago, IL 60606 Development Coalition; formerly, Member, Community
Advisory Board, National City Bank, Dayton, Ohio and
Business Advisory Council, Cleveland Federal Reserve Bank.
------------------------------------------------------------------------------------------------------------------------------------
Judith M. Stockdale Board member 1997 Executive Director, Gaylord and Dorothy Donnelley 145
12/29/47 Foundation (since 1994); prior thereto, Executive Director,
333 W. Wacker Drive Great Lakes Protection Fund (from 1990 to 1994)
Chicago, IL 60606
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary and 145
9/9/56 Administrative Associate General Counsel, formerly, Vice President and
333 W. Wacker Drive Officer Assistant General Counsel of Nuveen Investments, LLC;
Chicago, IL 60606 Managing Director (since 2002), General Counsel and
Assistant Secretary, formerly, Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory Corp.;
Managing Director (since 2002), Assistant Secretary and
Associate General Counsel, formerly, Vice President (since
2000), of Nuveen Asset Management, Inc. Assistant
Secretary of Nuveen Investments, Inc. (since 1994); Assistant
Secretary of NWQ Investment Management Company, LLC
(since 2002); Vice President and Assistant Secretary of
Nuveen Investments Advisers Inc. (since 2002); Managing
Director, Associate General Counsel and Assistant Secretary
of Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant Vice 145
2/3/66 and Assistant President (since 2000), previously, Associate of Nuveen
333 W. Wacker Drive Secretary Investments, LLC.
Chicago, IL 60606
51
Board Members
AND OFFICERS (CONTINUED)
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 1999), 145
11/28/67 and Treasurer prior thereto, Assistant Vice President (since 1997); Vice
333 W. Wacker Drive President and Treasurer of Nuveen Investments, Inc. (since
Chicago, IL 60606 1999); Vice President and Treasurer of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp (since 1999); Vice
President and Treasurer of Nuveen Asset Management, Inc.
(since 2002) and of Nuveen Investments Advisers Inc. (since
2002); Assistant Treasurer of NWQ Investment Management
Company, LLC (since 2002); Vice President and Treasurer of
Nuveen Rittenhouse Asset Management, Inc. (since 2003);
Chartered Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General Counsel 145
9/24/64 and Secretary (since 1998); formerly, Assistant Vice President (since 1998)
333 W. Wacker Drive of Nuveen Investments, LLC; Vice President (since 2002)
Chicago, IL 60606 and Assistant Secretary (since 1998), formerly Assistant
Vice President of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
Lorna C. Ferguson Vice President 1998 Managing Director (since 2004) formerly, Vice President of 145
10/24/45 Nuveen Investments, LLC; Managing Director (since 2004)
333 W. Wacker Drive formerly, Vice President (since 1998) of Nuveen Advisory
Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 145
3/2/64 LLC; Managing Director (since 2001), formerly Vice President
333 W. Wacker Drive of Nuveen Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since 1995); Managing Director of Nuveen Asset
Management, Inc. (since 2001); Vice President of Nuveen
Investment Advisers Inc. (since 2002); Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller (since 1998) 145
5/31/54 and Controller of Nuveen Investments, LLC and Vice President and Funds
333 W. Wacker Drive Controller (since 1998) of Nuveen Investments, Inc.;
Chicago, IL 60606 Certified Public Accountant.
52
NUMBER OF
PORTFOLIOS
IN FUND
POSITION(S) YEAR FIRST COMPLEX
NAME, BIRTHDATE HELD WITH ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND ADDRESS THE FUNDS APPOINTED(3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 145
3/22/63 LLC, previously Assistant Vice President (since 1999);
333 W. Wacker Drive prior thereto, Associate of Nuveen Investments, LLC;
Chicago, IL 60606 Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant Vice 145
8/27/61 President (since 1993) of Nuveen Investments, LLC.
333 W. Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant General 145
7/27/51 and Assistant Counsel of Nuveen Investments, LLC; Vice President and
333 W. Wacker Drive Secretary Assistant Secretary of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; Assistant Secretary of Nuveen
Investments, Inc. and (since 1997) Nuveen Asset Management,
Inc.; Vice President (since 2000), Assistant Secretary and
Assistant General Counsel (since 1998) of Rittenhouse Asset
Management, Inc.; Vice President and Assistant Secretary of
Nuveen Investments Advisers Inc. (since 2002); Assistant
Secretary of NWQ Investment Management Company, LLC
(since 2002).
------------------------------------------------------------------------------------------------------------------------------------
Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, LLC; 145
7/7/65 Managing Director (since 1997), formerly Vice President
333 W. Wacker Drive (since 1996) of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.; Managing Director of Nuveen
Asset Management, Inc. (since 1999). Chartered
Financial Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the
Investment Company Act of 1940, because he is an officer and board member
of the Adviser.
(2) Board members serve an indefinite term until his/her successor is elected.
The year first elected or appointed represents the year in which the board
member was first elected or appointed to any fund in the Nuveen Complex.
(3) Officers serve one year terms through July of each year. The year first
elected or appointed represents the year in which the Officer was first
elected or appointed to any fund in the Nuveen Complex.
53
Reinvest Automatically
EASILY AND CONVENIENTLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of tax-free
compounding. Just like dividends or distributions in cash, there may be times
when income or capital gains taxes may be payable on dividends or distributions
that are reinvested.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at the
then-current market price. If the shares are trading at less than net asset
value, shares for your account will be purchased on the open market. Dividends
and distributions received to purchase shares in the open market will normally
be invested shortly after the dividend payment date. No interest will be paid on
dividends and distributions awaiting reinvestment. Because the market price of
the shares may increase before purchases are completed, the average purchase
price per share may exceed the market price at the time of valuation, resulting
in the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Fund. A pro rata portion of any applicable
brokerage commissions on open market purchases will be paid by Plan
participants. These commissions usually will be lower than those charged on
individual transactions.
FLEXIBLE
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
54
Other Useful
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING
Each Fund's quarterly portfolio of investments and information regarding how the
Funds voted proxies relating to portfolio securities held during the most recent
12-month period ended June 30, 2004, 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 (including change in NAV and reinvested dividends) that
would have been necessary on an annual basis to equal the investment's actual
performance over the time period being considered.
AVERAGE EFFECTIVE MATURITY: The average of all the maturities of the bonds in a
fund's portfolio, computed by weighting each maturity date (the date the
security comes due) by the market value of the security. This figure does not
account for the likelihood of prepayments or the exercise of call provisions.
LEVERAGE-ADJUSTED DURATION: Duration is a measure of a bond or bond fund's
sensitivity to changes in interest rates. Generally, the longer a bond or fund's
duration, the more the price of the bond or fund will change as interest rates
change. Leverage-adjusted duration takes into account the leveraging process for
a Fund and therefore is generally longer than the duration of the actual
portfolio of individual bonds that make up the Fund.
MARKET YIELD (ALSO KNOWN AS DIVIDEND YIELD OR CURRENT YIELD): An investment's
current annualized dividend divided by its current market price.
NET ASSET VALUE (NAV): A fund's NAV is calculated by subtracting the liabilities
of the fund from its total assets and then dividing the remainder by the number
of shares outstanding. Fund NAVs are calculated at the end of each business day.
TAXABLE-EQUIVALENT YIELD: The yield necessary from a fully taxable investment to
equal, on an after-tax basis, the yield of a municipal bond investment.
BOARD OF DIRECTORS/
TRUSTEES
Robert P. Bremner
Lawrence H. Brown
Jack B. Evans
William C. Hunter
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
Each Fund intends to repurchase shares of its own common or
preferred stock in the future at such times and in such amounts as is deemed
advisable. No shares were repurchased during the fiscal year ended July 31,
2004. Any future repurchases will be reported to shareholders in the next annual
or semiannual report.
55
Nuveen Investments:
SERVING Investors
For GENERATIONS
Photo of: 2 women looking at a photo album.
Since 1898, financial advisors and their clients have relied on Nuveen
Investments to provide dependable investment solutions. For the past century,
Nuveen Investments has adhered to the belief that the best approach to investing
is to apply conservative risk-management principles to help minimize volatility.
Building on this tradition, we today offer a range of high quality equity and
fixed-income solutions that are integral to a well-diversified core portfolio.
Our clients have come to appreciate this diversity, as well as our continued
adherence to proven, long-term investing principles.
WE OFFER MANY DIFFERENT INVESTING SOLUTIONS FOR OUR CLIENTS' DIFFERENT NEEDS.
Managing $100 billion in assets, Nuveen Investments offers access to a number of
different asset classes and investing solutions through a variety of products.
Nuveen Investments markets its capabilities under four distinct brands: Nuveen,
a leader in tax-free investments; NWQ, a leader in value-style equities;
Rittenhouse, a leader in growth-style equities; and Symphony, a leading
institutional manager of market-neutral alternative investment portfolios.
FIND OUT HOW WE CAN HELP YOU REACH YOUR FINANCIAL GOALS.
To learn more about the products and services Nuveen Investments offers, talk to
your financial advisor, or call us at (800) 257-8787. Please read the
information 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.
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EAN-A-0704D
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the registrant has adopted
a code of ethics that applies to the registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The registrant has posted such code of
ethics on its website at www.nuveen.com/etf.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's board of directors determined that the registrant had at least
one "audit committee financial expert" (as defined in Item 3 of Form N-CSR)
serving on its Audit Committee. The registrant's audit committee financial
expert was William E. Bennett, who was "independent" for purposes of Item 3 of
Form N-CSR.
Although Mr. Bennett served as the audit committee financial expert during the
reporting period, he unexpectedly resigned from the Board effective April 30,
2004. Since that time, the Audit Committee determined that Jack B. Evans, the
Chairman of the Audit Committee, qualifies as an audit committee financial
expert and recommended to the full Board that he be designated as such. On July
26, 2004, the full Board voted to so designate Mr. Evans. Accordingly for this
reporting period, the registrant did not have a designated "audit committee
financial expert" from April 30, 2004 to July 26, 2004. Mr. Evans, who is
independent for purposes of Item 3 of Form N-CSR, served as the registrant's
audit committee financial expert from July 26, 2004 to the end of the reporting
period on July 31, 2004.
Mr. Bennett was formerly Executive Vice President and Chief Credit Officer of
First Chicago Corporation and its principal subsidiary, The First National Bank
of Chicago. As part of his role as Chief Credit Officer, Mr. Bennett set policy
as to accrual of assets/loans; designated performing/non-performing assets; set
the level of reserves against the credit portfolo; and determined the carrying
value of credit related assets and exposure. Among other things, Mr. Bennett was
also responsible for the oversight of the internal analysis function including
setting ground rules for the review and preparation of financial analysis and
financial statements for use in making credit and risk decisions for clients.
Mr. Bennett has significant experience reviewing, analyzing and evaluating
financial statements of domestic and international companies in a variety of
industries with complex accounting issues.
Mr. Evans was formerly President and Chief Operating Office of SCI Financial
Group, Inc., a full service registered broker-dealer and registered investment
adviser ("SCI"). As part of his role as President and Chief Operating Officer,
Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and
actively supervised the CFO's preparation of financial statements and other
filings with various regulatory authorities. In such capacity, Mr. Evans was
actively involved in the preparation of SCI's financial statements and the
resolution of issues raised in connection therewith. Mr. Evans has also served
on the audit committee of various reporting companies. At such companies, Mr.
Evans was involved in the oversight of audits, audit plans, and the preparation
of financial statements. Mr. Evans also formerly chaired the audit committee of
the Federal Reserve Bank of Chicago.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3
The following tables show the amount of fees that Ernst & Young LLP, the Fund's
auditor, billed to the Fund during the Fund's last two full fiscal years. For
engagements with Ernst & Young LLP entered into on or after May 6, 2003, the
Audit Committee approved in advance all audit services and non-audit services
that Ernst & Young LLP provided to the Fund, except for those non-audit services
that were subject to the pre-approval exception under Rule 2-01 of Regulation
S-X (the "pre-approval exception"). The pre-approval exception for services
provided directly to the Fund waives the pre-approval requirement for services
other than audit, review or attest services if: (A) the aggregate amount of all
such services provided constitutes no more than 5% of the total amount of
revenues paid by the Fund during the fiscal year in which the services are
provided; (B) the Fund did not recognize the services as non-audit services at
the time of the engagement; and (C) the services are promptly brought to the
Audit Committee's attention, and the Committee (or its delegate) approves the
services before the audit is completed.
The Audit Committee has delegated certain pre-approval responsibilities to its
Chairman (or, in his absence, any other member of the Audit Committee).
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES
FISCAL YEAR ENDED TO FUND BILLED TO FUND BILLED TO FUND BILLED TO FUND
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 6,868 $ 0 $ 743 $ 2,500
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 11,550 $ 0 $ 352 $ 1,475
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
The above "Tax Fees" were billed for professional services for tax advice, tax
compliance and tax planning.
SERVICES THAT THE FUND'S AUDITOR BILLED TO THE
ADVISER AND AFFILIATED FUND SERVICE PROVIDERS
The following tables show the amount of fees billed by Ernst & Young LLP to
Nuveen Advisory Corp. ("NAC" or the "Adviser"), and any entity controlling,
controlled by or under common control with NAC ("Control Affiliate") that
provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for
engagements directly related to the Fund's operations and financial reporting,
during the Fund's last two full fiscal years.
The table also shows the percentage of fees subject to the pre-approval
exception. The pre-approval exception for services provided to the Adviser and
any Affiliated Fund Service Provider (other than audit, review or attest
services) waives the pre-approval requirement if: (A) the aggregate amount of
all such services provided constitutes no more than 5% of the total amount of
revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund
Service Providers during the fiscal year in which the services are provided that
would have to be pre-approved by the Audit Committee; (B) the Fund did not
recognize the services as non-audit services at the time of the engagement; and
(C) the services are promptly brought to the Audit Committee's attention, and
the Committee (or its delegate) approves the services before the Fund's audit is
completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES
BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER
AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND
SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved 0% 0% 0%
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2003 $ 0 $ 0 $ 0
------------------------------------------------------------------------------------------------------------------------------------
Percentage approved N/A N/A N/A
pursuant to
pre-approval
exception
------------------------------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES
The following table shows the amount of fees that Ernst & Young LLP billed
during the Fund's last two full fiscal years for non-audit services. For
engagements entered into on or after May 6, 2003, the Audit Committee is
required to pre-approve non-audit services that Ernst & Young LLP provides to
the Adviser and any Affiliated Fund Services Provider, if the engagement related
directly to the Fund's operations and financial reporting (except for those
subject to the de minimis exception described above). The Audit Committee
requested and received information from Ernst & Young LLP about any non-audit
services that Ernst & Young LLP rendered during the Fund's last fiscal year to
the Adviser and any Affiliated Fund Service Provider. The Committee considered
this information in evaluating Ernst & Young LLP independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES
BILLED TO ADVISER AND
AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES
PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND
RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE
TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER
BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL
------------------------------------------------------------------------------------------------------------------------------------
July 31, 2004 $ 3,243 $ 0 $ 0 $ 3,243
July 31, 2003 $ 1,827 $ 0 $ 0 $ 1,827
Audit Committee Pre-Approval Policies and Procedures. Generally, the audit
committee must approve (i) all non-audit services to be performed for the Fund
by the Fund's independent accountants and (ii) all audit and non-audit services
to be performed by the Fund's independent accountants for the Affiliated Fund
Service Providers with respect to operations and financial reporting of the
Fund. Regarding tax and research projects conducted by the independent
accountants for the Fund and Affiliated Fund Service Providers (with respect to
operations and financial reports of the Fund) such engagements will be (i)
pre-approved by the audit committee if they are expected to be for amounts
greater than $10,000; (ii) reported to the audit committee chairman for his
verbal approval prior to engagement if they are expected to be for amounts under
$10,000 but greater than $5,000; and (iii) reported to the audit committee at
the next audit committee meeting if they are expected to be for an amount under
$5,000.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
In the rare event that a municipal issuer held by the Fund were to issue a proxy
or that the Fund were to receive a proxy issued by a cash management security,
the Adviser would either engage an independent third party to determine how the
proxy should be voted or vote the proxy with the consent, or based on the
instructions, of the Fund's Board of Directors or Trustees or its
representative. In the case of a conflict of interest, the proxy would be
submitted to the applicable Fund's Board to determine how the proxy should be
voted. A member of the Adviser's legal department would oversee the
administration of the voting, and ensure that records were maintained in
accordance with Rule 204-2(c)(2) under the Investment Advisers Act of 1940 (17
CFR 275.204-2(c)(2)), reports were filed with the SEC on Form N-PX, and the
results were provided to the Board of Directors or Trustees and made available
to shareholders as required by applicable rules.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In the event of a vacancy on the Board, the nominating and governance committee
receives suggestions from various sources, including shareholders, as to
suitable candidates. Suggestions should be sent in writing to Lorna Ferguson,
Vice President for Board Relations, Nuveen Investments, 333 West Wacker Drive,
Chicago, IL 60606. The nominating and governance committee sets appropriate
standards and requirements for nominations for new directors and reserves the
right to interview all candidates and to make the final selection of any new
directors.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the registrant's last
fiscal half-year (the registrant's second fiscal half-year in the case
of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
because posted on registrant's website at www.nuveen.com/etf.
(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 Arizona Dividend Advantage Municipal Fund 3
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By (Signature and Title)* /s/ Jessica R. Droeger
----------------------------------------------
Jessica R. Droeger
Vice President and Secretary
Date: October 12, 2004
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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: October 12, 2004
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By (Signature and Title)* /s/ Stephen D. Foy
----------------------------------------------
Stephen D. Foy
Vice President and Controller
(Principal Financial Officer)
Date: October 12, 2004
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* Print the name and title of each signing officer under his or her signature.