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
---------------------
Nuveen Arizona Dividend Advantage Municipal Fund 3
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Jessica R. Droeger
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (312) 917-7700
-------------------
Date of fiscal year end: July 31
------------------
Date of reporting period: January 31, 2007
------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
SEMIANNUAL REPORT January 31, 2007
Nuveen Investments
Municipal Closed-End 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
Photo of: Woman and man at the beach.
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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 six-month period covered
by this report your Fund continued to provide you with attractive monthly
tax-free income. For more details about the management strategy and
performance of your Fund, please read the Portfolio Managers' Comments, the
Dividend and Share Price Information, and the Performance Overview sections
of this report.
For some time, I've used these letters to remind you that municipal bonds
can be an important building block in a well balanced investment portfolio.
In addition to providing attractive tax-free monthly income, a municipal
bond investment like your Fund may help you achieve and benefit from
greater portfolio diversification. Portfolio diversification is a
recognized way to try to reduce some of the risk that comes with investing.
For more information about this important investment strategy, I encourage
you to contact your personal financial advisor.
"IN ADDITION TO PROVIDING ATTRACTIVE TAX-FREE MONTHLY INCOME, A MUNICIPAL BOND
INVESTMENT LIKE YOUR FUND MAY HELP YOU ACHIEVE AND BENEFIT FROM GREATER
PORTFOLIO DIVERSIFICATION."
We also are pleased to be able to offer you a choice concerning how you
receive your shareholder reports and other Fund information. As an
alternative to mailed copies, you can sign up to receive future Fund
reports and other Fund information by e-mail and the Internet. The inside
front cover of this report contains information on how you can sign up.
We are grateful that you have chosen us as a partner as you pursue your
financial goals, and we look forward to continuing to earn your trust in
the months and years ahead. At Nuveen Investments, our mission continues to
be to assist you and your financial advisor by offering investment services
and products that can help you to secure your financial objectives.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
March 15, 2007
Nuveen Investments Municipal Closed-End Funds
(NAZ, NFZ, NKR, NXE, NTX)
Portfolio Managers'
COMMENTS
Portfolio managers Scott Romans and Cathryn Steeves review key investment
strategies and the six-month performance of these five Nuveen Funds. Scott, who
joined Nuveen in 2000, has managed the Arizona Funds since 2003. Cathryn, who
has been with Nuveen since 1996, assumed portfolio management responsibility for
NTX in 2004.
WHAT KEY STRATEGIES WERE USED TO MANAGE THE ARIZONA AND TEXAS FUNDS DURING THIS
REPORTING PERIOD?
During this six-month period, we saw very little change in short-term interest
rates, while longer-term rates continued to decline, resulting in further
flattening of the yield curve. In this environment, we continued to emphasize a
disciplined approach to duration1 management and yield curve positioning. As
part of this approach, our purchases for the Funds' portfolios focused mainly on
attractively priced bonds in the 15-year to 20-year part of the yield curve for
the Arizona Funds and in the 25-year to 30-year range for NTX. We believed that,
in those states, bonds across these parts of the curve generally offered better
value and reward opportunities more commensurate with their risk levels. To help
us maintain the Funds' durations within our preferred strategic range, we also
selectively sold holdings with shorter durations, including pre-refunded bonds
and bonds priced to short call dates, in all of the Funds.
We also continued to emphasize maintaining the Funds' weightings of lower credit
quality bonds. As credit spreads continued to narrow during this period, we
generally saw fewer interesting lower-rated credit offerings in the Texas
market. However, Texas's status as the second largest state issuer of municipal
debt (behind California) meant that we were still able to find opportunities to
add lower-rated bonds, including a BBB rated long-term care credit, to NTX.
At the same time, Arizona's rapid population growth and resulting infrastructure
needs provided a number of value opportunities in the lower-rated and non-rated
sectors. During this period, we added four new positions in community
development district bonds to NFZ, NKR, and NXE. The relative newness of this
type of credit in the Arizona market, plus the state's continued growth, made
these bonds attractive value prospects. Among the other lower-rated credits we
purchased during this period were hospital bonds, increasing the exposure of all
four Funds to the lower credit quality categories.
1 Duration is a measure of a bond's price sensitivity as interest rates
change, with longer duration bonds displaying more sensitivity to these
changes than bonds with shorter durations.
4
Apart from credit, we also continued to find value in single family housing
bonds, which were added to all of the Arizona Funds.
During this period, we also purchased inverse floating rate trusts, a type of
derivative financial instrument, in all of the Funds. The inverse floaters had
the benefit of increasing the Funds' distributable income and bringing their
durations closer to our preferred strategic target. In past shareholder reports,
we have discussed the use of hedging as part of our duration management
strategies. Going into this reporting period, NXE used forward interest rate
swaps to reduce net asset value (NAV) volatility. We believed this strategy had
been effective, and we removed the hedge in August 2006.
HOW DID THE FUNDS PERFORM?
Individual results for these Arizona and Texas Funds, as well as relevant index
and peer group information, are presented in the accompanying table.
TOTAL RETURNS ON NET ASSET VALUE*
For periods ended 1/31/07
ARIZONA FUNDS 6-MONTH 1-YEAR 5-YEAR 10-YEAR
--------------------------------------------------------------------------------
NAZ 3.30% 4.00% 5.90% 5.57%
--------------------------------------------------------------------------------
NFZ 3.51% 4.48% 7.01% NA
--------------------------------------------------------------------------------
NKR 3.27% 4.34% NA NA
--------------------------------------------------------------------------------
NXE 3.48% 4.83% NA NA
--------------------------------------------------------------------------------
TEXAS FUND
--------------------------------------------------------------------------------
NTX 3.47% 4.67% 6.56% 6.24%
--------------------------------------------------------------------------------
Lehman Brothers
Municipal
Bond Index2 3.06% 4.29% 5.11% 5.71%
--------------------------------------------------------------------------------
Lipper Other States
Municipal Debt Funds
Average3 3.75% 4.98% 6.96% 6.57%
--------------------------------------------------------------------------------
*Six-month returns are cumulative; returns for one year, five years, and ten
years are annualized.
Past performance is not predictive of future results. Current performance may be
higher or lower than the data shown. Returns do not reflect the deduction of
taxes that shareholders may have to pay on Fund distributions or upon the sale
of Fund shares.
For additional information, see the individual Performance Overview for your
Fund in this report.
2 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 Brothers Municipal Bond Index do not reflect
any expenses.
3 The Lipper Other State Municipal Debt Funds category average is calculated
using the returns of all closed-end funds in this category for each period
as follows: 6 months, 46; 1 year, 46; 5 years, 27; and 10 years, 18. Fund
and Lipper returns assume reinvestment of dividends.
5
For the six months ended January 31, 2007, the cumulative returns on NAV for all
of the Funds outperformed the return on the Lehman Brothers Municipal Bond
Index. All five of these Funds lagged the average return for the Lipper Other
States peer group. Shareholders should note that the performance of the Lipper
Other States category represents the overall average of returns for funds from
10 different states with a wide variety of municipal market conditions, making
direct comparisons less meaningful.
Factors that influenced the Funds' returns during this period included duration
management, allocations to lower-rated credits (or credit risk), sector
weightings, advance refunding activity4 and the use of financial leverage.
As the yield curve continued to flatten over the course of this period, bonds
with shorter maturities generally underperformed longer bonds. Overall, NTX was
strategically well positioned in terms of duration, with limited exposure to the
shortest maturities and good exposure to those parts of the yield curve that
performed well during this period. However, the durations of all four of the
Arizona Funds, particularly those of NAZ and NKR, were shorter than our
preferred strategic target, which meant that these Funds were not able to
capture as much performance as funds with longer durations. As previously
mentioned, we worked to address this situation by purchasing inverse floaters in
all of these Funds during this period.
With bonds rated BBB or lower and non-rated bonds generally outperforming other
credit quality sectors during this period, all of the Funds benefited from their
weightings in lower-quality credits. The performance of this sector was largely
the result of investor demand for the higher yields typically associated with
lower-rated bonds, which drove up their value.
Among the lower-rated holdings making contributions to the Funds' returns for
this period were health care (including hospitals) credits and industrial
development revenue bonds, which ranked as the top performing revenue sectors in
the Lehman Brothers Municipal Bond Index. While lower-rated tobacco bonds also
performed well during
4 Advance refundings, also known as pre-refundings or refinancings, occur
when an issuer sells new bonds and uses the proceeds to fund principal and
interest payments of older existing bonds. This process often results in
lower borrowing costs for bond issuers.
6
this period, NAZ, NXE, and NTX held only small allocations (approximately 1% of
their portfolios) of these bonds, and NFZ and NKR did not hold any tobacco
bonds. In addition, NTX's exposure to the housing sector was a slightly negative
factor in its six-month performance.
In the Arizona Funds, especially in NAZ, we continued to see positive
contributions from advance refunding activity, which benefited these four Funds
through price appreciation and enhanced credit quality. All four of the Arizona
Funds also benefited from the credit quality upgrade of their holdings of
Catholic Healthcare West bonds to A2/A from A3/A-.
On the other hand, holdings of older, previously pre-refunded bonds in the Funds
tended to underperform the general municipal market, due primarily to their
shorter effective maturities and higher credit quality. Among these five Funds,
NAZ had the heaviest allocation of pre-refunded bonds going into this period.
Another factor in the six-month performance of these Funds, especially relative
to that of the unleveraged Lehman Brothers Municipal Bond Index, was the use of
financial leverage. While leverage can add volatility to a Fund's NAV and share
price, this strategy can also provide opportunities for additional income and
total return for common shareholders. The Funds' leveraging strategy positively
impacted their results over this period.
7
Dividend and Share Price
INFORMATION
As previously noted, all of the Funds in this report use leverage to potentially
enhance opportunities for additional income for common shareholders. While the
Funds' leveraging strategy continued to provide incremental income, the extent
of this benefit was reduced during this period due to higher short-term interest
rates, which increased the Funds' borrowing costs. The Funds' income streams
were also impacted as the proceeds from older, higher-yielding bonds that
matured or were called were reinvested into bonds currently available in the
market, which generally offered lower yields. These factors resulted in one
monthly dividend reduction in NKR and NTX and two in NFZ over the six-month
period ended January 31, 2007. The dividends of NAZ and NXE remained stable
during this period.
Due to normal portfolio activity, common shareholders of the following Funds
received capital gains and net ordinary income distributions at the end of
December 2006, as follows:
LONG-TERM CAPITAL GAINS ORDINARY INCOME
(PER SHARE) (PER SHARE)
--------------------------------------------------------------------------------
NFZ $0.0614 $0.0016
--------------------------------------------------------------------------------
NKR $0.0405 --
--------------------------------------------------------------------------------
NTX $0.0363 --
--------------------------------------------------------------------------------
These distributions, which were generated by bond calls and sales of appreciated
securities, had a slight negative impact on the earning power per common share
of these Funds and were a minor factor in the common share dividend reductions
noted above.
All of the Funds in this report 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 January 31, 2007, all of
the Arizona Funds had negative UNII balances for financial statement purposes
and positive UNII balances, based on our best estimates, for tax purposes, while
NTX had positive UNII balances for both financial statement and, based on our
best estimates, for tax purposes.
8
At the end of the reporting period, the Funds' share prices were trading at
premiums or discounts to their NAVs as shown in the accompanying chart:
1/31/07 6-MONTH AVERAGE
PREMIUM/DISCOUNT PREMIUM/DISCOUNT
--------------------------------------------------------------------------------
NAZ -2.31% -3.80%
--------------------------------------------------------------------------------
NFZ +1.48% +4.15%
--------------------------------------------------------------------------------
NKR +0.53% +1.76%
--------------------------------------------------------------------------------
NXE -1.59% -4.45%
--------------------------------------------------------------------------------
NTX -4.22% -3.45%
--------------------------------------------------------------------------------
9
Nuveen Arizona Premium Income Municipal Fund, Inc.
NAZ
Performance
OVERVIEW As of January 31, 2007
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 78%
AA 6%
A 5%
BBB 9%
N/R 2%
Bar Chart:
2006-2007 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Feb 0.058
Mar 0.055
Apr 0.055
May 0.055
Jun 0.051
Jul 0.051
Aug 0.051
Sep 0.051
Oct 0.051
Nov 0.051
Dec 0.051
Jan 0.051
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/01/06 14.24
14.18
14.19
14.3
14.25
14.13
14.26
14.23
14.19
14.14
14.2
14.22
14.1
14.18
13.75
13.46
13.64
13.63
13.62
13.64
13.29
13.44
13.2
13.32
13.3
13.35
13.44
13.46
13.82
13.68
13.767
13.75
13.72
13.69
13.85
13.8
13.69
13.8
13.7
13.7501
13.86
13.75
13.88
14.01
13.92
13.86
13.9212
14.2
13.97
13.75
13.81
13.81
13.88
13.94
13.88
13.85
1/31/07 13.93
FUND SNAPSHOT
------------------------------------
Common Share Price $13.93
------------------------------------
Common Share
Net Asset Value $14.26
------------------------------------
Premium/(Discount) to NAV -2.31%
------------------------------------
Market Yield 4.39%
------------------------------------
Taxable-Equivalent Yield1 6.37%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $63,713
------------------------------------
Average Effective
Maturity on Securities (Years) 14.18
------------------------------------
Leverage-Adjusted Duration 8.52
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 11/19/92)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) 4.02% 3.30%
------------------------------------
1-Year 2.30% 4.00%
------------------------------------
5-Year 2.43% 5.90%
------------------------------------
10-Year 5.39% 5.57%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 26.3%
------------------------------------
U.S. Guaranteed 23.4%
------------------------------------
Water and Sewer 16.0%
------------------------------------
Education and Civic
Organizations 9.9%
------------------------------------
Health Care 8.3%
------------------------------------
Utilities 8.1%
------------------------------------
Other 8.0%
------------------------------------
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 31.1%. When comparing this Fund to investments that generate
qualified dividend income, the Taxable-Equivalent Yield is lower.
10
Nuveen Arizona Dividend Advantage Municipal Fund
NFZ
Performance
OVERVIEW As of January 31, 2007
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 69%
AA 12%
A 5%
BBB 10%
N/R 4%
Bar Chart:
2006-2007 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Feb 0.069
Mar 0.069
Apr 0.069
May 0.069
Jun 0.0655
Jul 0.0655
Aug 0.0655
Sep 0.0615
Oct 0.0615
Nov 0.0615
Dec 0.0585
Jan 0.0585
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/01/06 16.36
16.35
16.55
16.74
16.04
15.78
15.76
16
16.03
15.91
15.19
15.1
15.49
15.8
16.5
16.05
16.1
15.9
16.08
15.66
15.48
15.35
15.35
15.57
15.67
16.02
15.7
15.9
16
16.45
16.13
16
16.18
15.97
16
16.1
15.9
16.22
15.79
15.54
15.66
15.7699
15.85
15.65
15.51
15.51
15.7
15.5
15.29
15.24
15.045
15.045
15.35
15.24
14.98
14.9
1/31/07 15.08
FUND SNAPSHOT
------------------------------------
Common Share Price $15.08
------------------------------------
Common Share
Net Asset Value $14.86
------------------------------------
Premium/(Discount) to NAV 1.48%
------------------------------------
Market Yield 4.66%
------------------------------------
Taxable-Equivalent Yield1 6.76%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $23,011
------------------------------------
Average Effective
Maturity on Securities (Years) 15.09
------------------------------------
Leverage-Adjusted Duration 9.13
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 1/30/01)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) -2.50% 3.51%
------------------------------------
1-Year -1.22% 4.48%
------------------------------------
5-Year 5.63% 7.01%
------------------------------------
Since
Inception 5.97% 6.81%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 34.3%
------------------------------------
Utilities 15.6%
------------------------------------
Tax Obligation/General 13.7%
------------------------------------
U.S. Guaranteed 11.7%
------------------------------------
Water and Sewer 7.2%
------------------------------------
Health Care 5.1%
------------------------------------
Other 12.4%
------------------------------------
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 31.1%. When comparing this Fund to investments that generate
qualified dividend income, the Taxable-Equivalent Yield is lower.
2 The Fund paid shareholders capital gains and net ordinary income
distributions in December 2006 of $0.0630 per share.
11
Nuveen Arizona Dividend Advantage Municipal Fund 2
NKR
Performance
OVERVIEW As of January 31, 2007
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 67%
AA 8%
A 10%
BBB 11%
N/R 4%
Bar Chart:
2006-2007 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Feb 0.0685
Mar 0.0685
Apr 0.0685
May 0.0685
Jun 0.0645
Jul 0.0645
Aug 0.0645
Sep 0.0615
Oct 0.0615
Nov 0.0615
Dec 0.0615
Jan 0.0615
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/01/06 15.55
15.55
15.67
15.74
15.65
15.41
15.53
15.21
15.2
15.15
14.99
15.4
15.06
15.3
14.96
14.96
15.5
15
15.38
15.15
14.91
15.1
14.82
14.75
14.9
15.17
15.23
15.27
15.95
15.9
15.75
15.9
15.66
15.55
15.35
15.55
15.71
16.28
15.73
15.55
15.47
15.7
15.82
15.24
15.35
15.35
15.27
15.23
15.2
15.19
15.0307
15.0307
15.21
14.94
14.89
15.0501
1/31/07 15.16
FUND SNAPSHOT
------------------------------------
Common Share Price $15.16
------------------------------------
Common Share
Net Asset Value $15.08
------------------------------------
Premium/(Discount) to NAV 0.53%
------------------------------------
Market Yield 4.87%
------------------------------------
Taxable-Equivalent Yield1 7.07%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $36,679
------------------------------------
Average Effective
Maturity on Securities (Years) 15.36
------------------------------------
Leverage-Adjusted Duration 9.04
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 3/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) 1.31% 3.27%
------------------------------------
1-Year 3.15% 4.34%
------------------------------------
Since
Inception 6.21% 7.10%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 32.9%
------------------------------------
Tax Obligation/General 18.3%
------------------------------------
Health Care 10.6%
------------------------------------
U.S. Guaranteed 9.4%
------------------------------------
Water and Sewer 7.8%
------------------------------------
Education and Civic
Organizations 7.2%
------------------------------------
Housing/Multifamily 5.4%
------------------------------------
Other 8.4%
------------------------------------
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 31.1%. When comparing this Fund to investments that generate
qualified dividend income, the Taxable-Equivalent Yield is lower.
2 The Fund paid shareholders a capital gains distribution in December 2006 of
$0.0405 per share.
12
Nuveen Arizona Dividend Advantage Municipal Fund 3
NXE
Performance
OVERVIEW As of January 31, 2007
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 69%
AA 8%
A 8%
BBB 11%
N/R 4%
Bar Chart:
2006-2007 MONTHLY TAX-FREE DIVIDENDS PER SHARE
Feb 0.0605
Mar 0.0605
Apr 0.0605
May 0.0605
Jun 0.0565
Jul 0.0565
Aug 0.0565
Sep 0.0565
Oct 0.0565
Nov 0.0565
Dec 0.0565
Jan 0.0565
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/01/06 14.35
14.2
14.27
14.56
14.4
14.36
14.43
14.5
14.4
14.3
14.3
14.7
14.19
14.5
14.3
13.85
13.7
13.6
14
13.65
13.8
13.56
13.59
13.62
13.59
13.45
13.64
13.58
13.89
13.81
14
13.95
13.98
13.8201
13.78
13.8635
13.8
14.05
13.75
13.8
13.99
14.1
13.9
14.08
14
14
14.19
14.4
14.42
13.8
13.85
13.85
13.9
14.1
13.76
13.99
1/31/06 14.25
FUND SNAPSHOT
------------------------------------
Common Share Price $14.25
------------------------------------
Common Share
Net Asset Value $14.48
------------------------------------
Premium/(Discount) to NAV -1.59%
------------------------------------
Market Yield 4.76%
------------------------------------
Taxable-Equivalent Yield1 6.91%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $44,429
------------------------------------
Average Effective
Maturity on Securities (Years) 15.65
------------------------------------
Leverage-Adjusted Duration 8.52
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 9/25/02)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) 7.97% 3.48%
------------------------------------
1-Year 4.46% 4.83%
------------------------------------
Since
Inception 4.25% 5.62%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Tax Obligation/Limited 25.5%
------------------------------------
U.S. Guaranteed 15.4%
------------------------------------
Health Care 12.2%
------------------------------------
Education and Civic
Organizations 9.1%
------------------------------------
Transportation 9.0%
------------------------------------
Utilities 8.1%
------------------------------------
Water and Sewer 7.4%
------------------------------------
Tax Obligation/General 6.1%
------------------------------------
Other 7.2%
------------------------------------
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 31.1%. When comparing this Fund to investments that generate
qualified dividend income, the Taxable-Equivalent Yield is lower.
13
Nuveen Texas Quality Income Municipal Fund
NTX
Performance
OVERVIEW As of January 31, 2007
Pie Chart:
CREDIT QUALITY
(as a % of total investments)
AAA/U.S. Guaranteed 68%
AA 11%
A 7%
BBB 11%
BB or Lower 1%
N/R 2%
Bar Chart:
2006-2007 MONTHLY TAX-FREE DIVIDENDS PER SHARE2
Feb 0.0695
Mar 0.066
Apr 0.066
May 0.066
Jun 0.0635
Jul 0.0635
Aug 0.0635
Sep 0.0605
Oct 0.0605
Nov 0.0605
Dec 0.0605
Jan 0.0605
Line Chart:
SHARE PRICE PERFORMANCE
Weekly Closing Price
Past performance is not predictive of future results.
2/01/06 15.01
15.12
15.15
15.35
15.14
15.11
14.96
14.95
14.93
14.99
14.961
14.95
14.96
15.04
14.86
14.48
14.52
14.39
14.43
14.43
14.25
14.05
14.2
14.35
14.46
14.14
14.14
14.95
14.79
15
14.95
14.86
14.96
14.88
14.84
14.9
14.83
14.73
14.59
14.64
14.67
14.86
14.81
14.87
14.91
14.87
14.87
14.8
14.58
14.62
14.64
14.64
14.6
14.69
14.61
14.63
1/31/07 14.54
FUND SNAPSHOT
------------------------------------
Common Share Price $14.54
------------------------------------
Common Share
Net Asset Value $15.18
------------------------------------
Premium/(Discount) to NAV -4.22%
------------------------------------
Market Yield 4.99%
------------------------------------
Taxable-Equivalent Yield1 6.93%
------------------------------------
Net Assets Applicable to
Common Shares ($000) $144,142
------------------------------------
Average Effective
Maturity on Securities (Years) 16.35
------------------------------------
Leverage-Adjusted Duration 7.51
------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(Inception 10/17/91)
------------------------------------
ON SHARE PRICE ON NAV
------------------------------------
6-Month
(Cumulative) 1.57% 3.47%
------------------------------------
1-Year 2.35% 4.67%
------------------------------------
5-Year 5.82% 6.56%
------------------------------------
10-Year 6.16% 6.24%
------------------------------------
INDUSTRIES
(as a % of total investments)
------------------------------------
Tax Obligation/General 30.9%
------------------------------------
U.S. Guaranteed 13.0%
------------------------------------
Education and Civic
Organizations 12.5%
------------------------------------
Health Care 9.0%
------------------------------------
Water and Sewer 7.3%
------------------------------------
Utilities 6.5%
------------------------------------
Long-Term Care 4.8%
------------------------------------
Transportation 4.3%
------------------------------------
Other 11.7%
------------------------------------
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%. When
comparing this Fund to investments that generate qualified dividend income,
the Taxable-Equivalent Yield is lower.
2 The Fund paid shareholders a capital gains distribution in December 2006 of
$.0363 per share.
14
Shareholder
MEETING REPORT
The shareholder meeting was held in the offices of Nuveen
Investments on November 14, 2006.
NAZ NFZ NKR
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS
WAS REACHED AS FOLLOWS:
Common and Common and Common and
MuniPreferred MuniPreferred MuniPreferred MuniPreferred MuniPreferred MuniPreferred
shares voting shares voting shares voting shares voting shares voting shares voting
together together together together together together
as a class as a class as a class as a class as a class as a class
====================================================================================================================================
Robert P. Bremner
For 4,201,587 -- 1,524,703 -- 2,318,969 --
Withhold 65,555 -- 3,051 -- 41,694 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
Lawrence H. Brown
For 4,194,800 -- 1,524,703 -- 2,314,969 --
Withhold 72,342 -- 3,051 -- 45,694 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
Jack B. Evans
For 4,201,587 -- 1,521,103 -- 2,318,969 --
Withhold 65,555 -- 6,651 -- 41,694 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
William C. Hunter
For 4,204,087 -- 1,521,103 -- 2,315,681 --
Withhold 63,055 -- 6,651 -- 44,982 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
David J. Kundert
For 4,203,087 -- 1,524,703 -- 2,318,569 --
Withhold 64,055 -- 3,051 -- 42,094 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
William J. Schneider
For -- 1,068 -- 467 -- 721
Withhold -- 1 -- 1 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,069 -- 468 -- 721
====================================================================================================================================
Timothy R. Schwertfeger
For -- 1,068 -- 467 -- 721
Withhold -- 1 -- 1 -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 1,069 -- 468 -- 721
====================================================================================================================================
Judith M. Stockdale
For 4,178,759 -- 1,519,803 -- 2,313,511 --
Withhold 88,383 -- 7,951 -- 47,152 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
Eugene S. Sunshine
For 4,195,900 -- 1,524,703 -- 2,315,681 --
Withhold 71,242 -- 3,051 -- 44,982 --
------------------------------------------------------------------------------------------------------------------------------------
Total 4,267,142 -- 1,527,754 -- 2,360,663 --
====================================================================================================================================
15
Shareholder
MEETING REPORT (continued)
NXE NTX
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF THE BOARD MEMBERS
WAS REACHED AS FOLLOWS:
Common and Common and
MuniPreferred MuniPreferred MuniPreferred MuniPreferred
shares voting shares voting shares voting shares voting
together together together together
as a class as a class as a class as a class
====================================================================================================================================
Robert P. Bremner
For 2,979,003 -- 8,583,557 --
Withhold 25,690 -- 176,465 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
Lawrence H. Brown
For 2,960,435 -- 8,588,966 --
Withhold 44,258 -- 171,056 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
Jack B. Evans
For 2,958,809 -- 8,592,043 --
Withhold 45,884 -- 167,979 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
William C. Hunter
For 2,979,109 -- 8,592,712 --
Withhold 25,584 -- 167,310 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
David J. Kundert
For 2,975,303 -- 8,587,772 --
Withhold 29,390 -- 172,250 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
William J. Schneider
For -- 880 -- 2,392
Withhold -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 880 -- 2,392
====================================================================================================================================
Timothy R. Schwertfeger
For -- 880 -- 2,392
Withhold -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
Total -- 880 -- 2,392
====================================================================================================================================
Judith M. Stockdale
For 2,974,303 -- 8,593,633 --
Withhold 30,390 -- 166,389 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
Eugene S. Sunshine
For 2,976,335 -- 8,591,046 --
Withhold 28,358 -- 168,976 --
------------------------------------------------------------------------------------------------------------------------------------
Total 3,004,693 -- 8,760,022 --
====================================================================================================================================
16
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ)
Portfolio of
INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.5% (1.0% OF TOTAL INVESTMENTS)
$ 895 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 935,499
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 14.8% (9.9% OF TOTAL INVESTMENTS)
1,000 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 1,042,300
5.000%, 7/01/25 - FGIC Insured
Arizona State University, System Revenue Bonds, Series 2005:
2,455 5.000%, 7/01/20 - AMBAC Insured 7/15 at 100.00 AAA 2,611,752
1,500 5.000%, 7/01/21 - AMBAC Insured 7/15 at 100.00 AAA 1,594,680
1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- 1,337,950
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
1,180 Northern Arizona University, System Revenue Bonds, 6/17 at 100.00 AAA 1,266,093
Series 2006, 5.000%, 6/01/24 - FGIC Insured
1,500 Tempe Industrial Development Authority, Arizona, Lease 7/13 at 100.00 AAA 1,568,550
Revenue Bonds, Arizona State University Foundation Project,
Series 2003, 5.000%, 7/01/34 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
8,885 Total Education and Civic Organizations 9,421,325
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 12.4% (8.3% OF TOTAL INVESTMENTS)
800 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A 879,048
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
1,450 Arizona Health Facilities Authority, Hospital System Revenue 11/09 at 100.00 Baa3 1,512,539
Bonds, Phoenix Children's Hospital, Series 1999A,
6.125%, 11/15/22
675 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 686,043
Bonds, John C. Lincoln Health Network, Series 2005B,
5.000%, 12/01/37
550 Maricopa County Industrial Development Authority, Arizona, 5/16 at 100.00 AA 573,837
Health Facilities Revenue Bonds, Mayo Clinic, Series 2006,
5.000%, 11/15/36
2,150 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 2,265,348
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
385 Maricopa County, Arizona, Hospital Revenue Bonds, 4/15 at 100.00 Baa1 400,681
Sun Health Corporation, Series 2005, 5.000%, 4/01/16
515 Puerto Rico Industrial, Tourist, Educational, Medical and 11/10 at 101.00 AA 559,918
Environmental Control Facilities Financing Authority, Hospital
Revenue Bonds, Hospital de la Concepcion, Series 2000A,
6.375%, 11/15/15
1,055 Winslow Industrial Development Authority, Arizona, Hospital 6/08 at 101.00 N/R 1,030,366
Revenue Bonds, Winslow Memorial Hospital, Series 1998,
5.500%, 6/01/22
------------------------------------------------------------------------------------------------------------------------------------
7,580 Total Health Care 7,907,780
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 1.5% (1.0% OF TOTAL INVESTMENTS)
400 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 420,900
Collateralized Multifamily Housing Revenue Bonds, Campaigne
Place on Jackson, Series 2001, 5.700%, 6/20/31 (Alternative
Minimum Tax)
530 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 539,593
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
930 Total Housing/Multifamily 960,493
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 2.7% (1.8% OF TOTAL INVESTMENTS)
1,690 The Industrial Development Authority of The City of Tucson, 1/17 at 103.00 Aaa 1,744,773
Arizona, Tax-Exempt Single Family Mortgage Revenue Bonds,
Series 2007A-1, 5.100%, 7/01/38
------------------------------------------------------------------------------------------------------------------------------------
17
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.1% (1.4% OF TOTAL INVESTMENTS)
$ 1,345 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB $ 1,347,703
Solid Waste Disposal Revenue Bonds, Waste Management
Inc., Series 2003B, 4.450%, 3/01/28 (Mandatory put 3/01/08)
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 4.1% (2.8% OF TOTAL INVESTMENTS)
630 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AAA 671,624
Arizona, General Obligation Bonds, Series 2006C,
5.000%, 7/01/24 - MBIA Insured
1,525 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,615,463
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/21 - FSA Insured
330 Puerto Rico, General Obligation and Public Improvement 7/11 at 100.00 BBB 345,065
Bonds, Series 2001A, 5.375%, 7/01/28
------------------------------------------------------------------------------------------------------------------------------------
2,485 Total Tax Obligation/General 2,632,152
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 39.3% (26.3% OF TOTAL INVESTMENTS)
Bullhead City, Arizona, Special Assessment Bonds, Parkway
District Improvements, Series 1993:
720 6.100%, 1/01/08 7/07 at 100.00 Baa2 725,544
775 6.100%, 1/01/09 7/07 at 100.00 Baa2 780,805
474 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 523,348
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
Greater Arizona Development Authority, Infrastructure Revenue
Bonds, Series 2006A:
740 5.000%, 8/01/23 - MBIA Insured 8/16 at 100.00 AAA 786,879
875 5.000%, 8/01/25 - MBIA Insured 8/16 at 100.00 AAA 928,314
1,280 Greater Arizona Development Authority, Infrastructure Revenue 8/16 at 100.00 AAA 1,363,149
Bonds, Series 2006, 5.000%, 8/01/22 - MBIA Insured
575 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 599,144
Bonds, Series 2003, 5.000%, 7/01/28 - AMBAC Insured
1,110 Marana, Arizona, Tangerine Farms Road Improvement 7/16 at 100.00 Baa1 1,103,440
District Revenue Bonds, Series 2006, 4.600%, 1/01/26
3,400 Maricopa County Stadium District, Arizona, Revenue Refunding 6/12 at 100.00 Aaa 3,638,340
Bonds, Series 2002, 5.375%, 6/01/18 - AMBAC Insured
3,400 Mesa, Arizona, Street and Highway User Tax Revenue Bonds, 7/15 at 100.00 AAA 3,604,680
Series 2005, 5.000%, 7/01/24 - FSA Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Subordinate 7/13 at 100.00 AAA 2,116,200
Lien Excise Tax Revenue Bonds, Series 2003A,
5.000%, 7/01/21 - MBIA Insured
1,200 Prescott Valley Municipal Property Corporation, Arizona, 1/13 at 100.00 AAA 1,246,920
Municipal Facilities Revenue Bonds, Series 2003,
5.000%, 1/01/27 - FGIC Insured
Puerto Rico Infrastructure Financing Authority, Special Tax
Revenue Bonds, Series 2005A
11,970 0.000%, 7/01/42 - FGIC Insured (UB) No Opt. Call AAA 2,366,230
2,875 0.000%, 7/01/43 - AMBAC Insured (UB) No Opt. Call AAA 541,822
1,000 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 BBB 1,039,700
Government Facilities Revenue Refunding Bonds,
Series 2002D, 5.125%, 7/01/24
1,610 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 AAA 1,698,711
Facilities Excise Tax Revenue Bonds, Series 2005,
5.000%, 7/01/25 - XLCA Insured
1,350 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,456,434
5.250%, 7/01/20 - AMBAC Insured
500 Tucson, Arizona, Certificates of Participation, Series 2000, 7/08 at 100.00 AAA 512,235
5.700%, 7/01/20 - MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
35,854 Total Tax Obligation/Limited 25,031,895
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 35.1% (23.4% OF TOTAL INVESTMENTS) (4)
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB (4) 1,128,290
Bonds, John C. Lincoln Health Network, Series 2000,
7.000%, 12/01/25 (Pre-refunded 12/01/10)
1,000 Arizona State University, Certificates of Participation, 7/12 at 100.00 AAA 1,075,660
Series 2002, 5.375%, 7/01/19 (Pre-refunded 7/01/12) -
MBIA Insured
18
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED (4) (continued)
Arizona Tourism and Sports Authority, Tax Revenue Bonds,
Multipurpose Stadium Facility Project, Series 2003A:
$ 1,000 5.375%, 7/01/20 (Pre-refunded 7/01/13) - MBIA Insured 7/13 at 100.00 Aaa $ 1,087,420
1,000 5.375%, 7/01/21 (Pre-refunded 7/01/13) - MBIA Insured 7/13 at 100.00 Aaa 1,087,420
1,250 Maricopa County Industrial Development Authority, Arizona, No Opt. Call AAA 1,513,075
Hospital Revenue Refunding Bonds, Samaritan Health
Services, Series 1990A, 7.000%, 12/01/16 - MBIA
Insured (ETM)
3,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 3,190,710
Bonds, Discovery Health System, Series 1999A,
5.750%, 1/01/25 (Pre-refunded 1/01/10) - MBIA Insured
345 Mohave County Industrial Development Authority, Arizona, 2/07 at 100.00 AAA 345,000
GNMA Collateralized Healthcare Revenue Refunding Bonds,
Chris Ridge and Silver Village Projects, Series 1996, 6.375%,
11/01/31 (Pre-refunded 2/01/07)
1,050 Northern Arizona University, System Revenue Bonds, 6/12 at 100.00 AAA 1,111,562
Series 2002, 5.000%, 6/01/34 (Pre-refunded 6/01/12) -
FGIC Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/10 at 101.00 AAA 2,160,260
Wastewater System Revenue Bonds, Series 2000,
6.000%, 7/01/24 (Pre-refunded 7/01/10) - FGIC Insured
Phoenix Industrial Development Authority, Arizona, Government
Office Lease Revenue Bonds, Capitol Mall LLC, Series 2000:
700 5.375%, 9/15/22 (Pre-refunded 9/15/10) - AMBAC Insured 9/10 at 100.00 AAA 738,038
2,000 5.500%, 9/15/27 (Pre-refunded 9/15/10) - AMBAC Insured 9/10 at 100.00 AAA 2,117,080
1,000 Puerto Rico Highway and Transportation Authority, Highway 7/10 at 101.00 BBB+ (4) 1,095,010
Revenue Bonds, Series 2000B, 6.500%, 7/01/27
(Pre-refunded 7/01/10)
1,500 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 (4) 1,641,315
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31 (Pre-refunded 12/01/11)
3,215 Tucson Industrial Development Authority, Arizona, Senior 7/10 at 101.00 AA (4) 3,428,958
Living Facilities Revenue Bonds, Christian Care Project,
Series 2000A, 5.625%, 7/01/20 (Pre-refunded 7/01/10) -
RAAI Insured
600 Tucson, Arizona, Junior Lien Street and Highway User 7/10 at 100.00 AAA 623,724
Revenue Bonds, Series 2000E, 5.000%, 7/01/18
(Pre-refunded 7/01/10) - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
20,660 Total U.S. Guaranteed 22,343,522
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 12.1% (8.1% OF TOTAL INVESTMENTS)
1,000 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,093,800
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
620 Pima County Industrial Development Authority, Arizona, 7/07 at 100.50 AAA 637,112
Lease Obligation Revenue Refunding Bonds, Tucson Electric
Power Company, Series 1988A, 7.250%, 7/15/10 - FSA Insured
2,170 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 AAA 2,294,298
Series 2005RR, 5.000%, 7/01/27 - XLCA Insured
530 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 Aa1 555,954
District, Arizona, Electric System Revenue Bonds,
Series 2002B, 5.000%, 1/01/22
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 Aa1 2,097,020
1,000 5.000%, 1/01/31 1/12 at 101.00 Aa1 1,041,490
------------------------------------------------------------------------------------------------------------------------------------
7,320 Total Utilities 7,719,674
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 24.0% (16.0% OF TOTAL INVESTMENTS)
1,825 Arizona Water Infrastructure Finance Authority, Water 10/14 at 100.00 AAA 1,941,654
Quality Revenue Bonds, Series 2004A, 5.000%, 10/01/19
1,005 Cottonwood, Arizona, Senior Lien Water System Revenue 7/14 at 100.00 AAA 1,055,421
Bonds, Municipal Property Corporation, Series 2004,
5.000%, 7/01/24 - XLCA Insured
3,500 Glendale, Arizona, Water and Sewer Revenue Bonds, 7/13 at 100.00 AAA 3,659,948
Subordinate Lien, Series 2003, 5.000%, 7/01/28 -
AMBAC Insured
600 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 630,870
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
19
Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER (continued)
$ 1,415 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AAA $ 1,491,523
Wastewater System Revenue Bonds, Series 2004,
5.000%, 7/01/24 - MBIA Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,559,025
Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 -
FGIC Insured
3,295 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 3,495,731
Water System Revenue Bonds, Series 2005, 5.000%, 7/01/23 -
MBIA Insured
1,250 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,444,200
Water System Revenue Refunding Bonds, Series 2001,
5.500%, 7/01/21 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
14,390 Total Water and Sewer 15,278,372
------------------------------------------------------------------------------------------------------------------------------------
$ 102,034 Total Investments (cost $91,688,321) - 149.6% 95,323,188
=============-----------------------------------------------------------------------------------------------------------------------
Floating Rate Obligations - (3.2)% (2,054,352)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.7% 444,554
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (47.1)% (30,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 63,713,390
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: 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. Certain mortgage-backed securities may be
subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or
Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are
considered to be below investment grade.
(4) Backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which
ensure the timely payment of principal and interest.
Such investments are normally considered to be
equivalent to AAA rated securities.
N/R Not rated.
(ETM) Escrowed to maturity.
(UB) Underlying bond of an inverse floating rate trust
reflected as a financing transaction pursuant to the
provisions of SFAS No. 140.
See accompanying notes to financial statements.
20
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ)
Portfolio of
INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 7.2% (4.7% OF TOTAL INVESTMENTS)
$ 1,000 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB- $ 1,024,450
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 and 9/11 at 100.00 BBB 310,533
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, University of the Sacred Heart,
Series 2001, 5.250%, 9/01/21
305 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 318,691
School Revenue Bonds, Arizona Agribusiness and Equine
Center Charter School, Series 2004A, 6.125%, 9/01/34
------------------------------------------------------------------------------------------------------------------------------------
1,605 Total Education and Civic Organizations 1,653,674
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 7.9% (5.1% OF TOTAL INVESTMENTS)
365 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A 401,066
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
10 California Health Facilities Financing Authority, Health Facility 3/13 at 100.00 A 10,250
Revenue Bonds, Adventist Health System/West,
Series 2003A, 5.000%, 3/01/28
250 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 254,090
Bonds, John C. Lincoln Health Network, Series 2005B,
5.000%, 12/01/37
200 Maricopa County Industrial Development Authority, Arizona, 5/16 at 100.00 AA 208,668
Health Facilities Revenue Bonds, Mayo Clinic, Series 2006,
5.000%, 11/15/36
750 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 790,238
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
140 Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health 4/15 at 100.00 Baa1 145,702
Corporation, Series 2005, 5.000%, 4/01/16
------------------------------------------------------------------------------------------------------------------------------------
1,715 Total Health Care 1,810,014
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 6.7% (4.3% OF TOTAL INVESTMENTS)
1,000 Maricopa County Industrial Development Authority, Arizona, 7/09 at 102.00 Aaa 1,034,900
Multifamily Housing Revenue Bonds, Whispering Palms
Apartments, Series 1999A, 5.900%, 7/01/29 - MBIA Insured
275 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa 289,369
Collateralized Multifamily Housing Revenue Bonds, Campaigne
Place on Jackson, Series 2001, 5.700%, 6/20/31 (Alternative
Minimum Tax)
205 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 208,711
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
1,480 Total Housing/Multifamily 1,532,980
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 3.0% (1.9% OF TOTAL INVESTMENTS)
25 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 25,849
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-4, 5.050%, 5/01/17
635 The Industrial Development Authority of The City of Tucson, 1/17 at 103.00 Aaa 655,580
Arizona, Tax-Exempt Single Family Mortgage Revenue Bonds,
Series 2007A-1, 5.100%, 7/01/38
------------------------------------------------------------------------------------------------------------------------------------
660 Total Housing/Single Family 681,429
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.2% (1.5% OF TOTAL INVESTMENTS)
510 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 511,025
Solid Waste Disposal Revenue Bonds, Waste Management
Inc., Series 2003B, 4.450%, 3/01/28 (Mandatory put 3/01/08)
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 21.1% (13.7% OF TOTAL INVESTMENTS)
1,000 Maricopa County Unified School District 11, Peoria, Arizona, 7/15 at 100.00 AAA 1,067,520
General Obligation Bonds, Second Series 2005,
5.000%, 7/01/20 - FGIC Insured
21
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 240 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AAA $ 255,857
Arizona, General Obligation Bonds, Series 2006C,
5.000%, 7/01/24 - MBIA Insured
1,020 Tucson, Arizona, General Obligation Refunding Bonds, 7/07 at 100.00 AA 1,024,763
Series 1997, 5.000%, 7/01/19
2,340 Yuma & La Paz Counties Community College District, Arizona, 7/16 at 100.00 AAA 2,505,907
General Obligation Bonds, Series 2006, 5.000%, 7/01/21 -
MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
4,600 Total Tax Obligation/General 4,854,047
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 52.8% (34.3% OF TOTAL INVESTMENTS)
1,500 Arizona School Facilities Board, School Improvement Revenue 7/14 at 100.00 AAA 1,674,105
Bonds, Series 2004A, 5.750%, 7/01/18 - AMBAC Insured
1,220 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 1,269,142
Multipurpose Stadium Facility Project, Series 2003A,
5.000%, 7/01/31 - MBIA Insured
98 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 100,493
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
184 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 203,156
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
275 Greater Arizona Development Authority, Infrastructure Revenue 8/16 at 100.00 AAA 292,421
Bonds, Series 2006A, 5.000%, 8/01/23 - MBIA Insured
1,000 Greater Arizona Development Authority, Infrastructure Revenue 8/16 at 100.00 AAA 1,064,960
Bonds, Series 2006, 5.000%, 8/01/22 - MBIA Insured
1,180 Marana Municipal Property Corporation, Arizona, Revenue 7/13 at 100.00 AAA 1,240,711
Bonds, Series 2003, 5.000%, 7/01/23 - AMBAC Insured
415 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 412,547
Revenue Bonds, Series 2006, 4.600%, 1/01/26
330 Palm Valley Community Facility District 3, Goodyear, Arizona, 7/16 at 100.00 N/R 334,673
General Obligation Bonds, Series 2006, 5.300%, 7/15/31
100 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 101,442
Arizona, General Obligation Bonds, Series 2006,
5.350%, 7/15/31
900 Phoenix Industrial Development Authority, Arizona, 3/12 at 100.00 AAA 956,223
Government Bonds, Capitol Mall LLC II, Series 2001,
5.250%, 9/15/16 - AMBAC Insured
680 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 702,467
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
75 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA 62,384
Bonds, Residual Series 1534, 5.655%, 7/01/42 -
AMBAC Insured (IF)
4,495 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA 888,572
Revenue Bonds, Series 2005A, 0.000%, 7/01/42 -
FGIC Insured (UB)
600 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 AAA 633,060
Facilities Excise Tax Revenue Bonds, Series 2005,
5.000%, 7/01/25 - XLCA Insured
1,000 Tempe, Arizona, Excise Tax Revenue Bonds, Series 2004, 7/14 at 100.00 AAA 1,078,840
5.250%, 7/01/20 - AMBAC Insured
500 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 Baa1 544,460
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
355 Watson Road Community Facilities District, Arizona, Special 7/16 at 100.00 N/R 375,508
Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30
225 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 226,577
General Obligation Tax Increment Bonds Series 2006,
5.250%, 7/15/31
------------------------------------------------------------------------------------------------------------------------------------
15,132 Total Tax Obligation/Limited 12,161,741
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 18.0% (11.7% OF TOTAL INVESTMENTS) (4)
550 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB (4) 618,233
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20 (Pre-refunded 12/01/10)
1,000 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 1,087,420
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/21 (Pre-refunded 7/01/13) - MBIA Insured
22
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED (4) (continued)
$ 1,300 Maricopa County Industrial Development Authority, Arizona, 6/07 at 102.00 A (4) $ 1,337,102
Education Revenue Bonds, Horizon Community Learning
Center Project, Series 2000, 6.350%, 6/01/26 (Pre-refunded
6/01/07) - ACA Insured
1,000 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 (4) 1,094,210
Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31 (Pre-refunded 12/01/11)
------------------------------------------------------------------------------------------------------------------------------------
3,850 Total U.S. Guaranteed 4,136,965
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 24.0% (15.6% OF TOTAL INVESTMENTS)
1,500 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,661,430
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/17
1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,113,270
Series 2002, 5.250%, 7/01/17 - FGIC Insured
Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series 2005RR:
1,000 5.000%, 7/01/26 - XLCA Insured 7/15 at 100.00 AAA 1,059,470
170 5.000%, 7/01/27 - XLCA Insured 7/15 at 100.00 AAA 179,738
200 Salt River Project Agricultural Improvement and Power 1/13 at 100.00 Aa1 209,794
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 Aa1 239,599
District, Arizona, Electric System Revenue Refunding Bonds,
Series 1997A, 5.000%, 1/01/20
1,000 Salt River Project Agricultural Improvement and Power 1/12 at 101.00 Aa1 1,066,950
District, Arizona, Electric System Revenue Refunding Bonds,
Series 2002A, 5.250%, 1/01/18
------------------------------------------------------------------------------------------------------------------------------------
5,105 Total Utilities 5,530,251
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 11.1% (7.2% OF TOTAL INVESTMENTS)
225 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 236,576
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
200 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AAA 210,816
Wastewater System Revenue Bonds, Series 2004,
5.000%, 7/01/24 - MBIA Insured
1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,559,025
Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 -
FGIC Insured
520 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 551,678
Water System Revenue Bonds, Series 2005, 5.000%, 7/01/23 -
MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
2,445 Total Water and Sewer 2,558,095
------------------------------------------------------------------------------------------------------------------------------------
$ 37,102 Total Investments (cost $34,306,399) - 154.0% 35,430,221
=============-----------------------------------------------------------------------------------------------------------------------
Floating Rate Obligations - (2.7)% (622,856)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.8% 203,660
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (52.1)% (12,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 23,011,025
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: 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. Certain mortgage-backed securities may be
subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or
Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are
considered to be below investment grade.
(4) Backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which
ensure the timely payment of principal and interest.
Such investments are normally considered to be
equivalent to AAA rated securities.
N/R Not rated.
(IF) Inverse floating rate investment.
(UB) Underlying bond of an inverse floating rate trust
reflected as a financing transaction pursuant to the
provisions of SFAS No. 140.
See accompanying notes to financial statements.
23
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR)
Portfolio of
INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 10.9% (7.2% OF TOTAL INVESTMENTS)
$ 1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 A- $ 1,337,950
Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31
460 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 484,858
Charter School Revenue Bonds, Noah Webster Basic
Schools Inc., Series 2004, 6.000%, 12/15/24
320 Puerto Rico Industrial, Tourist, Educational, Medical and 2/09 at 101.00 BBB- 328,992
Environmental Control Facilities Financing Authority, Higher
Education Revenue Bonds, Ana G. Mendez University System,
Series 1999, 5.375%, 2/01/19
480 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 501,547
School Revenue Bonds, Arizona Agribusiness and Equine
Center Charter School, Series 2004A, 6.125%, 9/01/34
University of Arizona, Certificates of Participation, Series 2002A:
750 5.500%, 6/01/18 - AMBAC Insured 6/12 at 100.00 AAA 805,928
500 5.125%, 6/01/22 - AMBAC Insured 6/12 at 100.00 AAA 523,810
------------------------------------------------------------------------------------------------------------------------------------
3,760 Total Education and Civic Organizations 3,983,085
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 16.0% (10.6% OF TOTAL INVESTMENTS)
400 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A 439,524
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
735 Arizona Health Facilities Authority, Hospital System Revenue 2/12 at 101.00 Baa3 799,834
Bonds, Phoenix Children's Hospital, Series 2002A,
6.250%, 2/15/21
600 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A- 617,424
Systems Inc., Series 2004, 5.000%,4/01/20
400 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 406,544
Bonds, John C. Lincoln Health Network, Series 2005B,
5.000%, 12/01/37
320 Maricopa County Industrial Development Authority, Arizona, 5/16 at 100.00 AA 333,869
Health Facilities Revenue Bonds, Mayo Clinic, Series 2006,
5.000%, 11/15/36
1,375 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 1,448,769
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
500 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 512,115
Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998,
5.250%, 11/15/37
225 Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health 4/15 at 100.00 Baa1 234,164
Corporation, Series 2005, 5.000%, 4/01/16
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,077,600
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
5,555 Total Health Care 5,869,843
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 8.1% (5.4% OF TOTAL INVESTMENTS)
1,000 Maricopa County Industrial Development Authority, Arizona, 10/11 at 105.00 AAA 1,071,780
GNMA Collateralized Multifamily Housing Revenue Refunding
Bonds, Pine Ridge, Cambridge Court, Cove on 44th and
Fountain Place Apartments, Series 2001A-1, 6.000%, 10/20/31
325 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 330,883
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative
Minimum Tax)
1,425 Phoenix Industrial Development Authority, Arizona, GNMA 7/12 at 105.00 AAA 1,551,412
Collateralized Multifamily Housing Revenue Bonds, Summit
Apartments, Series 2002, 6.450%, 7/20/32
------------------------------------------------------------------------------------------------------------------------------------
2,750 Total Housing/Multifamily 2,954,075
------------------------------------------------------------------------------------------------------------------------------------
24
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 2.9% (2.0% OF TOTAL INVESTMENTS)
$ 15 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA $ 15,071
FNMA/GNMA Single Family Mortgage Revenue Bonds,
Series 2001A-1, 5.350%, 11/01/24 (Alternative Minimum Tax)
1,000 The Industrial Development Authority of The City of Tucson, 1/17 at 103.00 Aaa 1,032,410
Arizona, Tax-Exempt Single Family Mortgage Revenue Bonds,
Series 2007A-1, 5.100%, 7/01/38
------------------------------------------------------------------------------------------------------------------------------------
1,015 Total Housing/Single Family 1,047,481
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 27.6% (18.3% OF TOTAL INVESTMENTS)
1,725 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AAA 1,811,198
5.000%, 7/01/17
1,000 Maricopa County School District 6, Arizona, General Obligation No Opt. Call AAA 1,116,540
Refunding Bonds, Washington Elementary School,
Series 2002A, 5.375%, 7/01/16 - FSA Insured
1,165 Maricopa County Unified School District 69, Paradise Valley, No Opt. Call AAA 1,271,283
Arizona, General Obligation Refunding Bonds, Series 2002A,
5.250%, 7/01/14 - FGIC Insured
375 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AAA 399,776
Arizona, General Obligation Bonds, Series 2006C,
5.000%, 7/01/24 - MBIA Insured
1,405 Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AAA 1,554,014
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+ 1,780,308
500 5.000%, 7/01/27 7/12 at 100.00 AA+ 519,180
1,000 Pinal County Unified School District 43, Apache Junction, No Opt. Call AAA 1,135,070
Arizona, General Obligation Refunding Bonds, Series 2001,
5.750%, 7/01/15 - FGIC Insured
510 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 AAA 529,186
5.000%, 7/01/24
------------------------------------------------------------------------------------------------------------------------------------
9,380 Total Tax Obligation/General 10,116,555
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 49.4% (32.9% OF TOTAL INVESTMENTS)
Arizona State, Certificates of Participation, Series 2002A:
750 5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00 AAA 786,495
1,000 5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00 AAA 1,047,110
500 5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00 AAA 523,315
138 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 141,511
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
291 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 321,296
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
670 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 702,462
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
650 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 646,159
Revenue Bonds, Series 2006, 4.600%, 1/01/26
870 Maricopa County Public Finance Corporation, Arizona, Lease 7/11 at 100.00 Aaa 928,490
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 898,884
2,645 5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00 Aaa 2,830,412
530 Palm Valley Community Facility District 3, Goodyear, Arizona, 7/16 at 100.00 N/R 537,505
General Obligation Bonds, Series 2006, 5.300%, 7/15/31
140 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 142,019
Arizona, General Obligation Bonds, Series 2006,
5.350%, 7/15/31
1,500 Phoenix Industrial Development Authority, Arizona, 3/12 at 100.00 AAA 1,593,705
Government Bonds, Capitol Mall LLC II, Series 2001,
5.250%, 9/15/16 - AMBAC Insured
1,070 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,105,353
Correctional Facilities Contract Revenue Bonds, Florence
West Prison LLC, Series 2002A, 5.000%, 10/01/18 -
ACA Insured
111 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA 91,531
Bonds, Residual Series 1534, 5.655%, 7/01/42 -
AMBAC Insured (IF)
25
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED (continued)
$ 7,065 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA $ 1,396,609
Revenue Bonds, Series 2005A, 0.000%, 7/01/42 -
FGIC Insured (UB)
1,000 Puerto Rico Public Buildings Authority, Guaranteed Government 7/12 at 100.00 BBB 1,039,700
Facilities Revenue Refunding Bonds, Series 2002D,
5.125%, 7/01/24
960 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 AAA 1,012,896
Facilities Excise Tax Revenue Bonds, Series 2005,
5.000%, 7/01/25 - XLCA Insured
750 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 Baa1 816,690
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
560 Watson Road Community Facilities District, Arizona, Special 7/16 at 100.00 N/R 592,351
Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30
350 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 352,454
General Obligation Tax Increment Bonds Series 2006,
5.250%, 7/15/31
640 Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AAA 661,363
Facilities Tax Revenue Bonds, Series 2001, 5.000%, 7/01/21 -
AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
23,030 Total Tax Obligation/Limited 18,168,310
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 5.6% (3.7% OF TOTAL INVESTMENTS)
1,000 Phoenix Civic Improvement Corporation, Arizona, Senior Lien 7/08 at 101.00 AAA 1,020,770
Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25 -
FSA Insured
1,000 Phoenix, Arizona, Civic Improvement Corporation, Senior Lien 7/12 at 100.00 AAA 1,041,760
Airport Revenue Bonds, Series 2002B, 5.250%, 7/01/27 -
FGIC Insured (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
2,000 Total Transportation 2,062,530
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 14.1% (9.4% OF TOTAL INVESTMENTS) (4)
715 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 783,569
5.750%, 7/01/27 (Pre-refunded 7/01/12) - FGIC Insured
100 Maricopa County Unified School District 89, Dysart, Arizona, 7/14 at 100.00 AAA 109,123
General Obligation Bonds, Series 2004B, 5.250%, 7/01/20
(Pre-refunded 7/01/14) - FSA Insured
1,000 Mesa, Arizona, Street and Highway User Tax Revenue Bonds, 7/14 at 100.00 AAA 1,083,230
Series 2004, 5.125%, 7/01/23 (Pre-refunded 7/01/14) -
FSA Insured
1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2002, 7/11 at 100.00 AAA 1,049,370
5.000%, 7/01/20 (Pre-refunded 7/01/11) - FGIC Insured
1,000 Scottsdale Industrial Development Authority, Arizona, Hospital 12/11 at 101.00 A3 (4) 1,094,210
Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31 (Pre-refunded 12/01/11)
990 Scottsdale, Arizona, General Obligation Bonds, Series 2002, 7/11 at 100.00 AAA 1,039,708
5.000%, 7/01/24 (Pre-refunded 7/01/11)
------------------------------------------------------------------------------------------------------------------------------------
4,805 Total U.S. Guaranteed 5,159,210
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 4.1% (2.7% OF TOTAL INVESTMENTS)
1,115 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,219,587
Revenue Refunding Crossover Bonds, Hoover Project,
Series 2001, 5.250%, 10/01/15
270 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/15 at 100.00 AAA 285,466
Series 2005RR, 5.000%, 7/01/27 - XLCA Insured
------------------------------------------------------------------------------------------------------------------------------------
1,385 Total Utilities 1,505,053
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 11.7% (7.8% OF TOTAL INVESTMENTS)
500 Maricopa County Industrial Development Authority, Arizona, 12/07 at 102.00 AAA 514,845
Water System Improvement Revenue Bonds, Chaparral City
Water Company, Series 1997A, 5.400%, 12/01/22 -
AMBAC Insured (Alternative Minimum Tax)
360 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA 378,522
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
26
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER (continued)
$ 320 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AAA $ 337,306
Wastewater System Revenue Bonds, Series 2004,
5.000%, 7/01/24 - MBIA Insured
765 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 811,604
Water System Revenue Bonds, Series 2005, 5.000%, 7/01/23 -
MBIA Insured
1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,159,400
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 1,093,890
Series 2002, 5.500%, 7/01/18 - FGIC Insured
------------------------------------------------------------------------------------------------------------------------------------
3,945 Total Water and Sewer 4,295,567
------------------------------------------------------------------------------------------------------------------------------------
$ 57,625 Total Investments (cost $52,824,958) - 150.4% 55,161,709
=============-----------------------------------------------------------------------------------------------------------------------
Floating Rate Obligations - (2.7)% (994,488)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.7% 1,011,386
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (50.4)% (18,500,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 36,678,607
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: 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. Certain mortgage-backed securities may be
subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or
Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are
considered to be below investment grade.
(4) Backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which
ensure the timely payment of principal and interest.
Such investments are normally considered to be
equivalent to AAA rated securities.
N/R Not rated.
(IF) Inverse floating rate investment.
(UB) Underlying bond of an inverse floating rate trust
reflected as a financing transaction pursuant to the
provisions of SFAS No. 140.
See accompanying notes to financial statements.
27
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE)
Portfolio of
INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.3% (1.0% OF TOTAL INVESTMENTS)
$ 570 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 595,793
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 13.7% (9.1% OF TOTAL INVESTMENTS)
1,250 Arizona State University, System Revenue Bonds, 7/15 at 100.00 AAA 1,329,813
Series 2005, 5.000%, 7/01/20 - AMBAC Insured
1,130 Energy Management Services LLC, Arizona State University, 7/12 at 100.00 AAA 1,202,388
Energy Conservation Revenue Bonds, Main Campus Project,
Series 2002, 5.250%, 7/01/18 - MBIA Insured
270 Glendale Industrial Development Authority, Arizona, Revenue 5/08 at 101.00 A- 276,259
Bonds, Midwestern University, Series 1998A, 5.375%, 5/15/28
540 Pima County Industrial Development Authority, Arizona, 12/14 at 100.00 BBB- 569,182
Charter School Revenue Bonds, Noah Webster Basic Schools
Inc., Series 2004, 6.000%, 12/15/24
565 Tucson Industrial Development Authority, Arizona, Charter 9/14 at 100.00 BBB- 590,363
School Revenue Bonds, Arizona Agribusiness and Equine
Center Charter School, Series 2004A, 6.125%, 9/01/34
2,000 University of Arizona, Certificates of Participation, 6/12 at 100.00 AAA 2,108,460
Series 2002B, 5.125%, 6/01/20 - AMBAC Insured
------------------------------------------------------------------------------------------------------------------------------------
5,755 Total Education and Civic Organizations 6,076,465
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 18.2% (12.2% OF TOTAL INVESTMENTS)
300 Arizona Health Facilities Authority, Hospital Revenue Bonds, 7/10 at 101.00 A 329,643
Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20
Arizona Health Facilities Authority, Hospital System Revenue
Bonds, Phoenix Children's Hospital, Series 1999A:
350 6.125%, 11/15/22 11/09 at 100.00 Baa3 365,096
520 6.250%, 11/15/29 11/09 at 100.00 Baa3 543,837
625 Arizona Health Facilities Authority, Revenue Bonds, Blood 4/14 at 100.00 A- 643,150
Systems Inc., Series 2004, 5.000%, 4/01/20
475 Glendale Industrial Development Authority, Arizona, Revenue 12/15 at 100.00 BBB 482,771
Bonds, John C. Lincoln Health Network, Series 2005B,
5.000%, 12/01/37
390 Maricopa County Industrial Development Authority, Arizona, 5/16 at 100.00 AA 406,903
Health Facilities Revenue Bonds, Mayo Clinic, Series 2006,
5.000%, 11/15/36
1,825 Maricopa County Industrial Development Authority, Arizona, 7/14 at 100.00 A 1,922,911
Health Facility Revenue Bonds, Catholic Healthcare West,
Series 2004A, 5.375%, 7/01/23
2,000 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 2,048,460
Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998,
5.250%, 11/15/37
270 Maricopa County, Arizona, Hospital Revenue Bonds, Sun Health 4/15 at 100.00 Baa1 280,997
Corporation, Series 2005, 5.000%, 4/01/16
1,000 Yavapai County Industrial Development Authority, Arizona, 8/13 at 100.00 Baa2 1,077,600
Hospital Revenue Bonds, Yavapai Regional Medical Center,
Series 2003A, 6.000%, 8/01/33
------------------------------------------------------------------------------------------------------------------------------------
7,755 Total Health Care 8,101,368
------------------------------------------------------------------------------------------------------------------------------------
28
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 4.5% (3.0% OF TOTAL INVESTMENTS)
$ 1,545 Phoenix Industrial Development Authority, Arizona, GNMA 6/11 at 102.00 Aaa $ 1,625,479
Collateralized Multifamily Housing Revenue Bonds, Campaigne
Place on Jackson, Series 2001, 5.600%, 6/20/21 (Alternative
Minimum Tax)
380 Phoenix Industrial Development Authority, Arizona, GNMA 4/15 at 100.00 Aaa 386,878
Collateralized Multifamily Housing Revenue Bonds, Park Lee
Apartments, Series 2004A, 5.050%, 10/20/44 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
1,925 Total Housing/Multifamily 2,012,357
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 2.7% (1.8% OF TOTAL INVESTMENTS)
1,175 The Industrial Development Authority of The City of Tucson, 1/17 at 103.00 Aaa 1,213,082
Arizona, Tax-Exempt Single Family Mortgage Revenue Bonds,
Series 2007A-1, 5.100%, 7/01/38
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIALS - 2.1% (1.4% OF TOTAL INVESTMENTS)
945 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 946,899
Solid Waste Disposal Revenue Bonds, Waste Management Inc.,
Series 2003B, 4.450%, 3/01/28 (Mandatory put 3/01/08)
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 9.1% (6.1% OF TOTAL INVESTMENTS)
660 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AAA 693,310
5.000%, 7/01/18
730 Glendale, Arizona, General Obligation Refunding Bonds, 7/11 at 100.00 AA 760,616
Series 2002, 5.000%, 7/01/19
445 Maricopa County Union High School District 210 Phoenix, 7/16 at 100.00 AAA 474,401
Arizona, General Obligation Bonds, Series 2006C,
5.000%, 7/01/24 - MBIA Insured
1,575 Maricopa County Union High School District 210, Phoenix, 7/14 at 100.00 AAA 1,670,492
Arizona, General Obligation Bonds, Series 2004A,
5.000%, 7/01/20 - FSA Insured
440 Tucson, Arizona, General Obligation Bonds, Series 2001B, 7/11 at 100.00 AA 458,454
5.000%, 7/01/20
------------------------------------------------------------------------------------------------------------------------------------
3,850 Total Tax Obligation/General 4,057,273
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 38.3% (25.5% OF TOTAL INVESTMENTS)
2,000 Arizona State Transportation Board, Highway Revenue 7/12 at 102.00 AAA 2,164,600
Refunding Bonds, Series 2002A, 5.250%, 7/01/18
158 Centerra Community Facilities District, Goodyear, Arizona, 7/15 at 100.00 N/R 162,020
General Obligation Bonds, Series 2005, 5.500%, 7/15/29
2,250 DC Ranch Community Facilities District, Scottsdale, Arizona, 7/13 at 100.00 Aaa 2,353,410
General Obligation Bonds, Series 2002, 5.000%, 7/15/27 -
AMBAC Insured
341 Estrella Mountain Ranch Community Facilities District, 7/10 at 102.00 N/R 376,502
Goodyear, Arizona, Special Assessment Lien Bonds,
Series 2001A, 7.875%, 7/01/25
800 Goodyear Community Facilities Utility District 1, Arizona, 7/13 at 100.00 A 838,760
General Obligation Bonds, Series 2003, 5.350%, 7/15/28 -
ACA Insured
525 Greater Arizona Development Authority, Infrastructure Revenue 8/16 at 100.00 AAA 558,259
Bonds, Series 2006A, 5.000%, 8/01/23 - MBIA Insured
785 Marana, Arizona, Tangerine Farms Road Improvement District 7/16 at 100.00 Baa1 780,361
Revenue Bonds, Series 2006, 4.600%, 1/01/26
2,000 Mohave County, Arizona, Certificates of Participation, 7/14 at 100.00 AAA 2,163,000
Series 2004, 5.250%, 7/01/19 - AMBAC Insured
640 Palm Valley Community Facility District 3, Goodyear, Arizona, 7/16 at 100.00 N/R 649,062
General Obligation Bonds, Series 2006, 5.300%, 7/15/31
160 Parkway Community Facilities District 1, Prescott Valley, 7/16 at 100.00 N/R 162,307
Arizona, General Obligation Bonds, Series 2006, 5.350%, 7/15/31
1,250 Pinal County Industrial Development Authority, Arizona, No Opt. Call A 1,291,300
Correctional Facilities Contract Revenue Bonds, Florence West
Prison LLC, Series 2002A, 5.000%, 10/01/18 - ACA Insured
29
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED (continued)
$ 136 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA $ 112,318
Bonds, Residual Series 1534, 5.655%, 7/01/42 -
AMBAC Insured (IF)
8,470 Puerto Rico Infrastructure Financing Authority, Special Tax No Opt. Call AAA 1,674,350
Revenue Bonds, Series 2005A, 0.000%, 7/01/42 -
FGIC Insured (UB)
1,130 San Luis Civic Improvement Corporation, Arizona, Municipal 7/15 at 100.00 AAA 1,192,263
Facilities Excise Tax Revenue Bonds, Series 2005,
5.000%, 7/01/25 - XLCA Insured
1,250 Vistancia Community Facilities District, Arizona, Restricted 7/15 at 100.00 Baa1 1,361,150
General Obligation Bonds, Series 2005, 5.750%, 7/15/24
665 Watson Road Community Facilities District, Arizona, Special 7/16 at 100.00 N/R 703,417
Assessment Revenue Bonds, Series 2005, 6.000%, 7/01/30
425 Westpark Community Facilities District, Buckeye, Arizona, 7/16 at 100.00 N/R 427,979
General Obligation Tax Increment Bonds Series 2006,
5.250%, 7/15/31
------------------------------------------------------------------------------------------------------------------------------------
22,985 Total Tax Obligation/Limited 16,971,058
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 13.5% (9.0% OF TOTAL INVESTMENTS)
Phoenix, Arizona, Civic Improvement Corporation, Senior Lien
Airport Revenue Bonds, Series 2002B:
1,000 5.750%, 7/01/16 - FGIC Insured (Alternative Minimum Tax) 7/12 at 100.00 AAA 1,082,160
2,300 5.250%, 7/01/21 - FGIC Insured (Alternative Minimum Tax) 7/12 at 100.00 AAA 2,399,981
2,450 Tucson Airport Authority Inc., Arizona, Revenue Refunding 6/11 at 100.00 AAA 2,513,112
Bonds, Series 2001B, 5.000%, 6/01/20 - AMBAC Insured
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
5,750 Total Transportation 5,995,253
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 23.2% (15.4% OF TOTAL INVESTMENTS) (4)
1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB (4) 1,124,060
Bonds, John C. Lincoln Health Network, Series 2000,
6.875%, 12/01/20 (Pre-refunded 12/01/10)
1,760 Arizona State University, System Revenue Bonds, Series 2002, 7/12 at 100.00 AAA 1,928,784
5.750%, 7/01/27 (Pre-refunded 7/01/12) - FGIC Insured
2,660 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa 2,892,537
Multipurpose Stadium Facility Project, Series 2003A,
5.375%, 7/01/20 (Pre-refunded 7/01/13) - MBIA Insured
1,250 Scottsdale Industrial Development Authority, Arizona, Hospital 12/11 at 101.00 A3 (4) 1,367,763
Revenue Bonds, Scottsdale Healthcare, Series 2001,
5.800%, 12/01/31 (Pre-refunded 12/01/11)
2,770 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AAA 2,960,047
Series 2003, 5.000%, 7/01/22 (Pre-refunded 7/01/13)
------------------------------------------------------------------------------------------------------------------------------------
9,440 Total U.S. Guaranteed 10,273,191
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 12.1% (8.1% OF TOTAL INVESTMENTS)
1,250 Maricopa County Pollution Control Corporation, Arizona, 11/12 at 100.00 AAA 1,301,238
Revenue Bonds, Arizona Public Service Company - Palo Verde
Project, Series 2002A, 5.050%, 5/01/29 - AMBAC Insured
Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series 2005RR:
1,660 5.000%, 7/01/26 - XLCA Insured 7/15 at 100.00 AAA 1,758,720
935 5.000%, 7/01/27 - XLCA Insured 7/15 at 100.00 AAA 988,557
Salt River Project Agricultural Improvement and Power District,
Arizona, Electric System Revenue Bonds, Series 2002B:
270 5.000%, 1/01/22 1/13 at 100.00 Aa1 283,222
1,000 5.000%, 1/01/31 1/13 at 100.00 Aa1 1,041,490
------------------------------------------------------------------------------------------------------------------------------------
5,115 Total Utilities 5,373,227
------------------------------------------------------------------------------------------------------------------------------------
30
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 11.1% (7.4% OF TOTAL INVESTMENTS)
$ 405 Oro Valley Municipal Property Corporation, Arizona, Senior 7/13 at 100.00 AAA $ 425,837
Lien Water Revenue Bonds, Series 2003, 5.000%, 7/01/23 -
MBIA Insured
380 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/14 at 100.00 AAA 400,550
Wastewater System Revenue Bonds, Series 2004,
5.000%, 7/01/24 - MBIA Insured
1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/11 at 100.00 AAA 1,047,780
Wastewater System Revenue Refunding Bonds, Series 2001,
5.125%, 7/01/21 - FGIC Insured
2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 2,100,940
Water System Revenue Bonds, Series 2002, 5.000%, 7/01/18 -
FGIC Insured
920 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/15 at 100.00 AAA 976,046
Water System Revenue Bonds, Series 2005, 5.000%, 7/01/23 -
MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
4,705 Total Water and Sewer 4,951,153
------------------------------------------------------------------------------------------------------------------------------------
$ 69,970 Total Investments (cost $64,637,108) - 149.8% 66,567,119
=============-----------------------------------------------------------------------------------------------------------------------
Floating Rate Obligations - (2.7)% (1,185,379)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.4% 1,046,856
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (49.5)% (22,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 44,428,596
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: 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. Certain mortgage-backed securities may be
subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or
Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are
considered to be below investment grade.
(4) Backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which
ensure the timely payment of principal and interest.
Such investments are normally considered to be
equivalent to AAA rated securities.
N/R Not rated.
(IF) Inverse floating rate investment.
(UB) Underlying bond of an inverse floating rate trust
reflected as a financing transaction pursuant to the
provisions of SFAS No. 140.
See accompanying notes to financial statements.
31
Nuveen Texas Quality Income Municipal Fund (NTX)
Portfolio of
INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
CONSUMER STAPLES - 1.9% (1.3% OF TOTAL INVESTMENTS)
$ 2,680 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 BBB $ 2,801,270
Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33
------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 18.6% (12.5% OF TOTAL INVESTMENTS)
6,000 Board of Regents, University of Texas System, Financing 2/17 at 100.00 AAA 5,746,680
System Revenue Bonds, Series 2006F, 4.250%, 8/15/36 (UB)
Red River Education Finance Corporation, Texas, Revenue Bonds,
Hockaday School, Series 2005:
1,170 5.000%, 5/15/27 5/15 at 100.00 AA 1,216,999
1,230 5.000%, 5/15/28 5/15 at 100.00 AA 1,279,409
1,290 5.000%, 5/15/29 5/15 at 100.00 AA 1,342,735
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 1,806,051
1,795 5.000%, 5/01/19 - FGIC Insured 5/13 at 100.00 Aaa 1,891,768
1,885 5.000%, 5/01/20 - FGIC Insured 5/13 at 100.00 Aaa 1,985,546
1,665 Texas State University System, Financing Revenue Bonds, 9/14 at 100.00 AAA 1,747,151
Series 2004, 5.000%, 3/15/24 - FSA Insured
2,000 Texas State University System, Financing Revenue Refunding 3/12 at 100.00 AAA 2,091,240
Bonds, Series 2002, 5.000%, 3/15/20 - FSA Insured
2,330 Universal City Education Facilities Corporation, Texas, 3/11 at 102.00 A- 2,448,131
Revenue 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 5,208,700
Series 2001, 5.000%, 4/15/24 - FSA Insured
------------------------------------------------------------------------------------------------------------------------------------
26,075 Total Education and Civic Organizations 26,764,410
------------------------------------------------------------------------------------------------------------------------------------
ENERGY - 2.1% (1.4% OF TOTAL INVESTMENTS)
3,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/08 at 102.00 BBB 3,064,650
Revenue Bonds, Valero Energy Corporation Project,
Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 13.3% (9.0% OF TOTAL INVESTMENTS)
3,500 Abilene Health Facilities Development Corporation, Texas, 3/07 at 101.00 AAA 3,541,160
Hospital Revenue Refunding and Improvement Bonds, Hendrick
Medical Center Project, Series 1995C, 6.150%, 9/01/25 -
MBIA Insured
Brazoria County Health Facilities Development Corporation,
Texas, Revenue Bonds, Brazosport Memorial Hospital, Series 2004:
1,745 5.250%, 7/01/20 - RAAI Insured 7/14 at 100.00 AA 1,845,285
1,835 5.250%, 7/01/21 - RAAI Insured 7/14 at 100.00 AA 1,938,072
5,750 Midland County Hospital District, Texas, Hospital Revenue No Opt. Call N/R 4,416,403
Bonds, Series 1992, 0.000%, 6/01/11
2,000 North Central Texas Health Facilities Development Corporation, 5/11 at 100.00 AA- 2,044,600
Hospital Revenue Bonds, Baylor Healthcare System,
Series 2001A, 5.125%, 5/15/29
2,000 Richardson Hospital Authority, Texas, Revenue Bonds, 12/13 at 100.00 BBB 2,169,880
Richardson Regional Medical Center, Series 2004,
5.875%, 12/01/24
2,000 Tom Green County Health Facilities Development Corporation, 5/11 at 101.00 Baa3 2,168,520
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 1,064,190
Hospital Revenue Bonds, Mother Frances Hospital Regional
Healthcare Center, Series 2001, 6.000%, 7/01/31
------------------------------------------------------------------------------------------------------------------------------------
19,830 Total Health Care 19,188,110
------------------------------------------------------------------------------------------------------------------------------------
32
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 3.5% (2.3% OF TOTAL INVESTMENTS)
Bexar County Housing Finance Corporation, Texas, Insured
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 $ 2,040,140
750 6.050%, 8/01/36 - MBIA Insured 8/11 at 102.00 Aaa 765,435
2,064 Houston Housing Finance Corporation, Texas, GNMA 9/11 at 105.00 Aaa 2,199,894
Collateralized Mortgage Multifamily Housing Revenue
Bonds, RRG Apartments Project, Series 2001, 6.250%, 9/20/35
------------------------------------------------------------------------------------------------------------------------------------
4,814 Total Housing/Multifamily 5,005,469
------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 3.9% (2.7% OF TOTAL INVESTMENTS)
2,416 El Paso Housing Finance Corporation, Texas, GNMA 4/11 at 106.75 AAA 2,553,984
Collateralized Single Family Mortgage Revenue Bonds,
Series 2001A-3, 6.180%, 4/01/33
110 Galveston Property Finance Authority Inc., Texas, Single 3/07 at 100.00 A3 111,973
Family Mortgage Revenue Bonds, Series 1991A,
8.500%, 9/01/11
2,900 Texas Department of Housing and Community Affairs, 3/12 at 100.00 AAA 3,002,370
Single Family Mortgage Bonds, Series 2002B,
5.550%, 9/01/33 - MBIA Insured (Alternative Minimum Tax)
20 Victoria Housing Finance Corporation, Texas, FNMA Single No Opt. Call Aaa 20,727
Family Mortgage Revenue Refunding Bonds, Series 1995,
8.125%, 1/01/11
------------------------------------------------------------------------------------------------------------------------------------
5,446 Total Housing/Single Family 5,689,054
------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM CARE - 7.1% (4.8% OF TOTAL INVESTMENTS)
Bell County Health Facilities Development Corporation, Texas,
Retirement Facility Revenue Bonds, Buckner Retirement
Services Inc. Obligated Group, Series 1998:
3,400 5.250%, 11/15/19 11/08 at 101.00 A- 3,471,876
5,000 5.250%, 11/15/28 11/08 at 101.00 A- 5,098,750
Bexar County, Texas, Health Facilities Development Corporation
Revenue Bonds, Army Retirement Residence, Series 2007:
1,000 5.000%, 7/01/27 7/17 at 100.00 BBB 1,026,940
600 5.000%, 7/01/37 7/17 at 100.00 BBB 611,202
------------------------------------------------------------------------------------------------------------------------------------
10,000 Total Long-Term Care 10,208,768
------------------------------------------------------------------------------------------------------------------------------------
MATERIALS - 4.3% (2.9% OF TOTAL INVESTMENTS)
3,000 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB 3,204,360
Environmental Improvement Revenue Bonds, International
Paper Company, Series 2000A, 6.600%, 3/15/24
(Alternative Minimum Tax)
3,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid 4/07 at 101.00 A 3,064,470
Waste Disposal Facility Bonds, E.I. DuPont de Nemours and
Company Project, Series 1996, 6.400%, 4/01/26
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
6,000 Total Materials 6,268,830
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 45.9% (30.9% OF TOTAL INVESTMENTS)
1,260 Bexar County, Texas, Combined Tax and Revenue Certificates 6/14 at 100.00 AA 1,327,360
of Obligation, Series 2004, 5.000%, 6/15/19
2,500 Borger Independent School District, Hutchison County, Texas, 2/16 at 100.00 AAA 2,623,200
General Obligation Bonds, Series 2006, 5.000%, 2/15/36
1,190 Canutillo Independent School District, El Paso County, Texas, 8/15 at 100.00 AAA 1,257,259
General Obligation Bonds, Series 2006A, 5.000%, 8/15/22
4,130 Coppell Independent School District, Dallas County, Texas, 8/09 at 75.34 AAA 2,795,101
Unlimited Tax School Building and Refunding Bonds,
Series 1992, 0.000%, 8/15/14 - MBIA Insured
1,275 Copperas Cove, Texas, Certificates of Obligation, Series 2003, 8/12 at 100.00 AAA 1,332,605
5.000%, 8/15/23 - MBIA Insured
2,305 Corpus Christi, Texas, Combination Tax and Municipal Hotel 9/12 at 100.00 AAA 2,479,973
Occupancy Tax Revenue Certificates of Obligation,
Series 2002, 5.500%, 9/01/21 - FSA Insured
2,595 Denton County, Texas, Permanent Improvement General 7/12 at 100.00 AA 2,705,521
Obligation Bonds, Series 2005, 5.000%, 7/15/25
2,110 Duncanville Independent School District, Dallas County, 2/15 at 100.00 AAA 2,216,049
Texas, General Obligation Bonds, Series 2005,
5.000%, 2/15/26
33
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL (continued)
$ 1,750 El Paso County, Texas, Certificates of Obligation, Series 2001, No Opt. Call AAA $ 1,909,968
5.000%, 2/15/21 - FSA Insured
Fort Bend County Municipal Utility District 25, Texas, General
Obligation Bonds, Series 2005:
1,330 5.000%, 10/01/26 - FGIC Insured 10/12 at 100.00 AAA 1,373,943
1,320 5.000%, 10/01/27 - FGIC Insured 10/12 at 100.00 AAA 1,362,266
3,615 Frisco, Texas, General Obligation Bonds, Series 2006, 2/16 at 100.00 AAA 3,812,487
5.000%, 2/15/26 - FGIC Insured
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 2,632,225
2,235 5.000%, 2/15/21 - AMBAC Insured 2/13 at 100.00 AAA 2,353,209
5,000 Houston, Texas, General Obligation Bonds, Series 2005E, 3/15 at 100.00 AAA 5,273,350
5.000%, 3/01/23 - AMBAC Insured
1,500 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 1,567,545
General Obligation Refunding Bonds, Series 2002,
5.250%, 2/01/21
5,220 Leander Independent School District, Williamson and Travis 8/09 at 46.74 AAA 2,186,867
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 1,052,340
General Obligation Bonds, Series 2004, 5.000%, 2/15/20
1,010 Mercedes Independent School District, Hidalgo County, 8/15 at 100.00 AAA 1,066,348
Texas, General Obligation Bonds, Series 2005,
5.000%, 8/15/23
5,515 Midlothian Independent School District, Ellis County, Texas, 2/15 at 100.00 Aaa 5,761,574
General Obligation Bonds, Series 2005, 5.000%, 2/15/34
1,545 Montgomery County, Texas, General Obligation Refunding 9/07 at 72.39 AAA 1,091,373
Bonds, Series 1997, 0.000%, 3/01/14 - MBIA Insured
925 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 983,571
Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25
500 Puerto Rico, General Obligation and Public Improvement Bonds, No Opt. Call BBB 579,035
Series 2001A, 5.500%, 7/01/29
Roma Independent School District, Texas, General Obligation
Bonds, Series 2005:
1,110 5.000%, 8/15/22 8/15 at 100.00 AAA 1,173,559
1,165 5.000%, 8/15/23 - FSA Insured 8/15 at 100.00 AAA 1,229,995
1,440 South Texas Community College District, General Obligation 8/12 at 100.00 AAA 1,551,082
Bonds, Series 2002, 5.500%, 8/15/17 - AMBAC Insured
1,250 Southside Independent School District, Bexar County, Texas, 8/14 at 100.00 Aaa 1,314,438
General Obligation Bonds, Series 2004A, 5.000%, 8/15/22
1,140 Sunnyvale School District, Texas, General Obligation Bonds, 2/14 at 100.00 AAA 1,222,319
Series 2004, 5.250%, 2/15/25
5,000 Texas, General Obligation Bonds, Transportation Commission 4/17 at 100.00 Aa1 5,287,650
Mobility Fund, Series 2006A, 5.000%, 4/01/33
2,000 Texas, General Obligation Bonds, Water Financial Assistance 8/11 at 100.00 Aa1 2,100,340
Program, Series 2001, 5.250%, 8/01/23
1,500 Texas, General Obligation Refunding Bonds, Public Finance 10/12 at 100.00 Aa1 1,578,795
Authority, Series 2002, 5.000%, 10/01/18
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 458,980
1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 409,180
------------------------------------------------------------------------------------------------------------------------------------
68,935 Total Tax Obligation/General 66,069,507
------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 1.6% (1.1% OF TOTAL INVESTMENTS)
2,250 Harris County-Houston Sports Authority, Texas, Senior Lien 11/11 at 100.00 AAA 2,357,348
Revenue Bonds, Series 2001G, 5.250%, 11/15/22 -
MBIA Insured
------------------------------------------------------------------------------------------------------------------------------------
34
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.4% (4.3% OF TOTAL INVESTMENTS)
$ 1,000 Austin, Texas, Airport System Prior Lien Revenue Bonds, 11/13 at 100.00 AAA $ 1,069,200
Series 2003, 5.250%, 11/15/16 - MBIA Insured
3,260 Central Texas Regional Mobility Authority, Travis and 1/15 at 100.00 AAA 3,417,197
Williamson Counties, Toll Road Revenue Bonds, Series 2005,
5.000%, 1/01/22 - FGIC Insured
2,600 Dallas-Ft. Worth International Airport Facility Improvement 11/09 at 101.00 CCC+ 2,686,840
Corporation, Texas, Revenue Bonds, American Airlines Inc.,
Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax)
2,000 Houston, Texas, Subordinate Lien Airport System Revenue 7/10 at 100.00 AAA 2,095,260
Bonds, Series 2000A, 5.625%, 7/01/30 - FSA Insured
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
8,860 Total Transportation 9,268,497
------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 19.4% (13.0% OF TOTAL INVESTMENTS) (4)
Gregg County Health Facilities Development Corporation, Texas,
Hospital Revenue Bonds, Good Shepherd Medical Center Project,
Series 2000:
2,000 6.875%, 10/01/20 (Pre-refunded 10/01/10) - RAAI Insured 10/10 at 101.00 AA (4) 2,223,760
3,250 6.375%, 10/01/25 (Pre-refunded 10/01/10) - RAAI Insured 10/10 at 101.00 AA (4) 3,559,693
2,000 Harris County Health Facilities Development Corporation, 6/11 at 101.00 A+ (4) 2,218,300
Texas, Hospital Revenue Bonds, Memorial Hermann
Healthcare System, Series 2001A, 6.375%, 6/01/29
(Pre-refunded 6/01/11)
1,500 Harris County Health Facilities Development Corporation, 8/11 at 100.00 AAA 1,604,070
Texas, Revenue Bonds, St. Luke's Episcopal Hospital,
Series 2001A, 5.500%, 2/15/21 (Pre-refunded 8/15/11)
1,000 North Central Texas Health Facilities Development No Opt. Call AAA 1,168,460
Corporation, Hospital Revenue Bonds, Presbyterian
Healthcare System, Series 1996B, 5.750%, 6/01/26 -
MBIA Insured (ETM)
1,075 Northside Independent School District, Bexar County, Texas, 8/10 at 100.00 AAA 1,150,583
Unlimited Tax School Building and Refunding Bonds,
Series 2000, 5.875%, 8/15/25 (Pre-refunded 8/15/10)
1,760 Parker County Hospital District, Texas, Hospital Revenue 8/09 at 102.00 BB- (4) 1,896,506
Bonds, Campbell Health System, Series 1999,
6.250%, 8/15/19 (Pre-refunded 8/15/09)
2,500 Retama Development Corporation, Texas, Special Facilities 12/17 at 100.00 AAA 3,166,500
Revenue Bonds, Retama Park Racetrack, Series 1993,
8.750%, 12/15/18 (Pre-refunded 12/15/17) (5)
1,750 San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AAA 1,868,283
Refunding Bonds, Series 2002, 5.375%, 2/01/20
(Pre-refunded 2/01/12)
1,050 Tarrant County Health Facilities Development Corporation, 11/08 at 101.00 Aaa 1,090,593
Texas, Hospital Revenue Bonds, Adventist Health System -
Sunbelt Obligated Group, Series 1998, 5.375%, 11/15/20
(Pre-refunded 11/15/08)
3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 A+ (4) 3,870,055
Texas, Hospital Revenue Bonds, Adventist Health System -
Sunbelt Obligated Group, Series 2000, 6.625%, 11/15/20
(Pre-refunded 11/15/10)
2,000 Tarrant County Health Facilities Development Corporation, 1/08 at 105.00 AAA 2,138,380
Texas, Tax-Exempt Mortgage Revenue Bonds, South Central
Nursing Homes Inc., Series 1997A, 6.000%, 1/01/37
(Pre-refunded 1/01/08) - MBIA Insured
1,790 Weslaco Independent School District, Hidalgo County, Texas, 2/10 at 100.00 Aaa 1,878,891
General Obligation School Building Bonds, Series 2000,
5.500%, 2/15/25 (Pre-refunded 2/15/10)
------------------------------------------------------------------------------------------------------------------------------------
25,175 Total U.S. Guaranteed 27,834,074
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 9.6% (6.5% OF TOTAL INVESTMENTS)
2,560 Brazos River Authority, Texas, Pollution Control Revenue 4/13 at 101.00 Baa2 2,974,822
Refunding Bonds, TXU Electric Company, Series 1999C,
7.700%, 3/01/32 (Alternative Minimum Tax)
2,400 Brazos River Authority, Texas, Revenue Bonds, Reliant 4/09 at 101.00 BBB- 2,463,336
Energy Inc., Series 1999A, 5.375%, 4/01/19
5,000 Brownsville, Texas, Utility System Priority Revenue Bonds, 9/15 at 100.00 AAA 5,258,000
Series 2005A, 5.000%, 9/01/27 - AMBAC Insured
35
Nuveen Texas Quality Income Municipal Fund (NTX) (continued)
Portfolio of INVESTMENTS January 31, 2007 (Unaudited)
PRINCIPAL OPTIONAL CALL
AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE
------------------------------------------------------------------------------------------------------------------------------------
UTILITIES (continued)
$ 2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 AAA $ 2,094,800
Texas, Thermal Utility Revenue Bonds, TECO Project,
Series 2000, 5.750%, 2/15/15 - AMBAC Insured
(Alternative Minimum Tax)
1,000 Matagorda County Navigation District 1, Texas, Revenue 5/09 at 101.00 BBB- 1,028,990
Bonds, Reliant Energy Inc., Series 1999B, 5.950%, 5/01/30
(Alternative Minimum Tax)
------------------------------------------------------------------------------------------------------------------------------------
12,960 Total Utilities 13,819,948
------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 10.8% (7.3% OF TOTAL INVESTMENTS)
Coastal Water Authority, Texas, Contract Revenue Bonds,
Houston Water Projects, Series 2004:
1,005 5.000%, 12/15/20 - FGIC Insured 12/14 at 100.00 AAA 1,062,164
1,030 5.000%, 12/15/21 - FGIC Insured 12/14 at 100.00 AAA 1,087,175
3,000 Houston, Texas, First Lien Combined Utility System Revenue 5/14 at 100.00 AAA 3,223,110
Bonds, Series 2004A, 5.250%, 5/15/23 - FGIC Insured
3,500 Houston, Texas, Junior Lien Water and Sewerage System 12/11 at 100.00 AAA 3,749,095
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 1,765,495
1,760 5.000%, 8/15/23 - AMBAC Insured 8/14 at 100.00 AAA 1,847,243
1,260 Rowlett, Rockwall and Dallas Counties, Texas, Waterworks 3/14 at 100.00 AAA 1,316,839
and Sewerage System Revenue Bonds, Series 2004A,
5.000%, 3/01/22 - MBIA Insured
1,500 Texas Water Development Board, Senior Lien State Revolving 7/09 at 100.00 AAA 1,553,865
Fund Revenue Bonds, Series 1999A, 5.500%, 7/15/21
------------------------------------------------------------------------------------------------------------------------------------
14,735 Total Water and Sewer 15,604,986
------------------------------------------------------------------------------------------------------------------------------------
$ 210,760 Total Investments (cost $204,934,890) - 148.4% 213,944,921
=============-----------------------------------------------------------------------------------------------------------------------
Floating Rate Obligations - (2.6)% (3,775,000)
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.1% 2,972,199
--------------------------------------------------------------------------------------------------------------------
Preferred Shares, at Liquidation Value - (47.9)% (69,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 144,142,120
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
(2) Optional Call Provisions: 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. Certain mortgage-backed securities may be
subject to periodic principal paydowns.
(3) Ratings: Using the higher of Standard & Poor's or
Moody's rating. Ratings below BBB by Standard & Poor's
Group or Baa by Moody's Investor Service, Inc. are
considered to be below investment grade.
(4) Backed by an escrow or trust containing sufficient U.S.
Government or U.S. Government agency securities which
ensure the timely payment of principal and interest.
Such investments are normally considered to be
equivalent to AAA rated securities.
(5) The issuer has received a formal adverse determination
from the Internal Revenue Service (the "IRS") regarding
the tax-exempt status of the bonds' coupon payments.
The Fund will continue to treat coupon payments as
tax-exempt income until such time that it is formally
determined that the interest on the bonds should be
treated as taxable.
N/R Not rated.
(ETM) Escrowed to maturity.
(UB) Underlying bond of an inverse floating rate trust
reflected as a financing transaction pursuant to the
provisions of SFAS No. 140.
See accompanying notes to financial statements.
36
Statement of
ASSETS AND LIABILITIES January 31, 2007 (Unaudited)
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 value (cost $91,688,321,
$34,306,399, $52,824,958, $64,637,108 and
$204,934,890, respectively) $95,323,188 $35,430,221 $55,161,709 $66,567,119 $213,944,921
Cash -- -- -- 650,102 64,726
Receivables:
Interest 666,070 286,404 415,193 425,591 3,229,580
Investments sold -- -- 1,113,599 -- 14,558
Other assets 1,398 1,190 2,951 8,011 3,379
------------------------------------------------------------------------------------------------------------------------------------
Total assets 95,990,656 35,717,815 56,693,452 67,650,823 217,257,164
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Cash overdraft 126,716 51,037 485,808 -- --
Floating rate obligations 2,054,352 622,856 994,488 1,185,379 3,775,000
Accrued expenses:
Management fees 50,724 11,483 15,741 17,804 114,260
Other 29,202 20,379 7,456 14,976 193,086
Preferred share dividends payable 16,272 1,035 11,352 4,068 32,698
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,277,266 706,790 1,514,845 1,222,227 4,115,044
------------------------------------------------------------------------------------------------------------------------------------
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 $63,713,390 $23,011,025 $36,678,607 $44,428,596 $144,142,120
====================================================================================================================================
Common shares outstanding 4,468,210 1,548,711 2,433,004 3,067,531 9,495,144
====================================================================================================================================
Net asset value per Common share outstanding
(net assets applicable to Common shares,
divided by Common shares outstanding) $ 14.26 $ 14.86 $ 15.08 $ 14.48 $ 15.18
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 44,682 $ 15,487 $ 24,330 $ 30,675 $ 94,951
Paid-in surplus 62,143,653 21,908,212 34,477,587 43,247,056 134,624,791
Undistributed (Over-distribution of) net
investment income (116,585) (38,104) (55,747) (145,516) 128,011
Accumulated net realized gain (loss)
from investments and
derivative transactions (1,993,227) 1,608 (104,314) (633,630) 284,336
Net unrealized appreciation
(depreciation) of investments
and derivative transactions 3,634,867 1,123,822 2,336,751 1,930,011 9,010,031
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $63,713,390 $23,011,025 $36,678,607 $44,428,596 $144,142,120
====================================================================================================================================
Authorized shares:
Common 200,000,000 Unlimited Unlimited Unlimited Unlimited
Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
37
Statement of
OPERATIONS Six Months Ended January 31, 2007 (Unaudited)
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS
PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY
INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME
(NAZ) (NFZ) (NKR) (NXE) (NTX)
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME $2,262,239 $826,734 $1,335,947 $1,548,803 $ 5,377,612
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 301,947 113,011 178,142 213,782 680,755
Preferred shares - auction fees 37,808 15,123 23,315 27,725 86,958
Preferred shares - dividend disbursing agent fees 5,041 5,041 5,041 5,041 10,082
Shareholders' servicing agent fees and expenses 2,144 172 163 100 5,533
Floating rate obligations interest expense and fees 15,474 4,691 7,488 8,927 11,030
Custodian's fees and expenses 16,502 10,366 10,693 14,621 27,622
Directors'/Trustees' fees and expenses 1,244 394 814 968 3,008
Professional fees 6,698 5,388 5,826 6,080 9,410
Shareholders' reports - printing and mailing expenses 7,614 4,032 5,363 6,304 14,770
Stock exchange listing fees 4,974 66 104 131 4,983
Investor relations expense 6,116 2,260 3,519 4,169 13,182
Other expenses 8,103 6,231 6,821 6,854 10,276
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit
and expense reimbursement 413,665 166,775 247,289 294,702 877,609
Custodian fee credit (6,956) (4,367) (3,657) (5,086) (14,473)
Expense reimbursement -- (44,466) (84,112) (107,668) --
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 406,709 117,942 159,520 181,948 863,136
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 1,855,530 708,792 1,176,427 1,366,855 4,514,476
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) from investments 111,296 1,665 61,460 23,544 502,967
Net realized gain (loss) from forward swaps -- -- -- 10,344 --
Change in net unrealized appreciation
(depreciation) of investments 579,343 292,793 246,863 581,385 1,180,748
Change in net unrealized appreciation
(depreciation) of forward swaps -- -- -- (48,098) --
------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) 690,639 294,458 308,323 567,175 1,683,715
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS
From net investment income (489,202) (180,715) (282,079) (379,010) (1,147,823)
From accumulated net realized gains -- (24,096) (24,790) -- (97,712)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares
from distributions to Preferred shareholders (489,202) (204,811) (306,869) (379,010) (1,245,535)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets applicable to
Common shares from operations $2,056,967 $798,439 $1,177,881 $1,555,020 $ 4,952,656
====================================================================================================================================
See accompanying notes to financial statements.
38
Statement of
CHANGES IN NET ASSETS (Unaudited)
ARIZONA ARIZONA ARIZONA
PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR)
---------------------------- ---------------------------- -----------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
1/31/07 7/31/06 1/31/07 7/31/06 1/31/07 7/31/06
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 1,855,530 $ 3,721,825 $ 708,792 $ 1,443,824 $ 1,176,427 $ 2,339,566
Net realized gain (loss)
from investments 111,296 118,668 1,665 129,877 61,460 124,725
Net realized gain (loss) from
forward swaps -- -- -- 45,960 -- 89,291
Change in net unrealized
appreciation (depreciation)
of investments 579,343 (1,870,680) 292,793 (781,653) 246,863 (1,063,447)
Change in net unrealized appreciation
(depreciation) of forward swaps -- -- -- (25,345) -- (50,556)
Distributions to Preferred shareholders:
From net investment income (489,202) (787,320) (180,715) (305,984) (282,079) (485,176)
From accumulated net
realized gains -- -- (24,096) (14,818) (24,790) (34,003)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 2,056,967 1,182,493 798,439 491,861 1,177,881 920,400
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (1,367,272) (3,081,682) (570,721) (1,299,911) (904,843) (2,009,891)
From accumulated net
realized gains -- -- (95,091) (118,137) (98,537) (256,786)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (1,367,272) (3,081,682) (665,812) (1,418,048) (1,003,380) (2,266,677)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares
issued to shareholders due to
reinvestment of distributions -- 100,418 16,893 35,014 39,041 106,998
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares
from capital share transactions -- 100,418 16,893 35,014 39,041 106,998
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares 689,695 (1,798,771) 149,520 (891,173) 213,542 (1,239,279)
Net assets applicable to Common
shares at the beginning
of period 63,023,695 64,822,466 22,861,505 23,752,678 36,465,065 37,704,344
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $63,713,390 $63,023,695 $23,011,025 $22,861,505 $36,678,607 $36,465,065
====================================================================================================================================
Undistributed (Over-distribution of)
net investment income
at the end of period $ (116,585) $ (115,641) $ (38,104) $ 4,540 $ (55,747) $ (45,252)
====================================================================================================================================
See accompanying notes to financial statements.
39
Statement of
CHANGES IN NET ASSETS (Unaudited) (continued)
ARIZONA TEXAS
DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX)
----------------------------- ----------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
1/31/07 7/31/06 1/31/07 7/31/06
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 1,366,855 $ 2,706,006 $ 4,514,476 $ 9,149,206
Net realized gain (loss) from investments 23,544 111,246 502,967 1,401,122
Net realized gain (loss) from
forward swaps 10,344 143,857 -- --
Change in net unrealized appreciation
(depreciation) of investments 581,385 (1,013,672) 1,180,748 (4,517,912)
Change in net unrealized appreciation
(depreciation) of forward swaps (48,098) (30,567) -- --
Distributions to Preferred shareholders:
From net investment income (379,010) (597,775) (1,147,823) (2,071,629)
From accumulated net realized gains -- -- (97,712) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares
from operations 1,555,020 1,319,095 4,952,656 3,960,787
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From net investment income (1,039,894) (2,239,245) (3,475,223) (7,757,330)
From accumulated net realized gains -- -- (344,674) --
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to
Common shares from distributions
to Common shareholders (1,039,894) (2,239,245) (3,819,897) (7,757,330)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from Common shares
issued to shareholders due to
reinvestment of distributions -- 4,304 -- 88,073
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets
applicable to Common shares
from capital share transactions -- 4,304 -- 88,073
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
applicable to Common shares 515,126 (915,846) 1,132,759 (3,708,470)
Net assets applicable to Common
shares at the beginning of period 43,913,470 44,829,316 143,009,361 146,717,831
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common
shares at the end of period $44,428,596 $43,913,470 $144,142,120 $143,009,361
====================================================================================================================================
Undistributed (Over-distribution of)
net investment income
at the end of period $ (145,516) $ (93,467) $ 128,011 $ 236,581
====================================================================================================================================
See accompanying notes to financial statements.
40
Notes to
FINANCIAL STATEMENTS (Unaudited)
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.
Each Fund seeks to provide current income exempt from both regular federal and
designated state income taxes by investing primarily in a diversified portfolio
of municipal obligations issued by state and local government authorities within
a single state or certain U.S. territories.
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.
Investment Valuation
The prices of municipal bonds in each Fund's investment portfolio are provided
by a pricing service approved by the Fund's Board of Directors/Trustees. When
market price quotes are not readily available (which is usually the case for
municipal securities), the pricing service may establish fair 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. Prices of forward swap contracts are also provided by an independent
pricing service approved by each Fund's Board of Directors/Trustees. If the
pricing service is unable to supply a price for a municipal bond or a forward
swap contract, each Fund may use a market price or fair market value quote
provided by a major broker/dealer in such investments. If it is determined that
the market price or fair market value for an investment is unavailable or
inappropriate, the Board of Directors/Trustees of the Funds, or its designee,
may establish a fair value for the investment. Temporary investments in
securities that have variable rate and demand features qualifying them as
short-term investments are valued at amortized cost, which approximates market
value.
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and
losses from transactions are determined on the specific identification method.
Investments purchased on a when-issued/delayed delivery basis may have extended
settlement periods. Any investments so purchased are subject to market
fluctuation during this period. The Funds have instructed the custodian to
segregate assets with a current value at least equal to the amount of the
when-issued/delayed delivery purchase commitments. At January 31, 2007, there
were no such outstanding purchase commitments in any of the Funds.
Investment Income
Interest income, which includes the amortization of premiums and accretion of
discounts for financial reporting purposes, is recorded on an accrual basis.
Investment income also includes paydown gains and losses, if any.
41
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to distribute substantially all net investment income and net capital
gains to shareholders and to otherwise comply with the requirements of
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies. Therefore, no federal income tax provision is required. 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, to retain such tax-exempt status when distributed to shareholders
of the Funds. Net realized capital gains and ordinary income distributions paid
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 Preferred shares, $25,000 stated value per
share, as a means of effecting financial leverage. Each Fund's Preferred shares
are issued in one or more Series. The dividend rate paid by the Funds on each
Series is determined every seven days, pursuant to a dutch auction process
overseen by the auction agent, and is payable at the end of each rate period.
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
==============================================================================================================
Inverse Floating Rate Securities
Each Fund may invest in inverse floating rate securities. An inverse floating
rate security is created by depositing a municipal bond, typically with a fixed
interest rate, into a special purpose trust created by a broker-dealer. In turn,
this trust (a) issues floating rate certificates, in face amounts equal to some
fraction of the deposited bond's par amount or market value, that typically pay
short-term tax-exempt interest rates to third parties, and (b) issues to a
long-term investor (such as one of the Funds) an inverse floating rate
certificate (sometimes referred to as an "inverse floater") that represents all
remaining or residual interest in the trust. The income received by the inverse
floater holder varies inversely with the short-term rate paid to the floating
rate certificates' holders, and in most circumstances the inverse floater holder
bears substantially all of the underlying bond's downside investment risk and
also benefits disproportionately from any potential appreciation of the
underlying bond's value. The price of an inverse floating rate security will be
more volatile than that of the underlying bond because the interest rate is
dependent on not only the fixed coupon rate of the underlying bond but also on
the short-term interest paid on the floating rate certificates, and because the
inverse floating rate security essentially bears the risk of loss of the greater
face value of the underlying bond.
42
A Fund may purchase an inverse floating rate security in a secondary market
transaction without first owning the underlying bond (referred to as an
"externally-deposited inverse floater"), or instead by first selling a
fixed-rate bond to a broker-dealer for deposit into the special purpose trust
and receiving in turn the residual interest in the trust (referred to as a
"self-deposited inverse floater"). An investment in an externally-deposited
inverse floater is identified in the Portfolio of Investments as an "Inverse
floating rate investment". An investment in a self-deposited inverse floater is
accounted for as a financing transaction in accordance with Statement of
Financial Accounting Standards (SFAS) No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities". In such
instances, a fixed-rate bond deposited into a special purpose trust is
identified in the Portfolio of Investments as an "Underlying bond of an inverse
floating rate trust", with the Fund accounting for the short-term floating rate
certificates issued by the trust as "Floating rate obligations" on the Statement
of Assets and Liabilities. In addition, the Fund reflects in Investment Income
the entire earnings of the underlying bond and accounts for the related interest
paid to the holders of the short-term floating rate certificates as "Floating
rate obligations interest expense and fees" in the Statement of Operations.
During the six months ended January 31, 2007, each Fund invested in externally
deposited inverse floaters and/or self-deposited inverse floaters.
The average floating rate obligations outstanding and average annual interest
rate related to self-deposited inverse floaters during the six months ended
January 31, 2007, 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)
---------------------------------------------------------------------------------------------------------------
Average floating rate obligations $790,628 $239,705 $382,743 $456,203 $574,457
Average annual interest rate 3.88% 3.88% 3.88% 3.88% 3.81%
===============================================================================================================
Forward Swap Transactions
The Funds are authorized to invest in certain derivative financial instruments.
The Funds' use of forward interest rate swap transactions is intended to help
the Fund manage its overall interest rate sensitivity, either shorter or longer,
generally to more closely align the Fund's interest rate sensitivity with that
of the broader municipal market. Forward interest rate swap transactions involve
each Fund's agreement with a counterparty to pay, in the future, a fixed or
variable rate payment in exchange for the counterparty paying the Fund a
variable or fixed rate payment, the accruals for which would begin at a
specified date in the future (the "effective date"). The amount of the payment
obligation is based on the notional amount of the forward swap contract and the
termination date of the swap (which is akin to a bond's maturity). The value of
the Fund's swap commitment would increase or decrease based primarily on the
extent to which long-term interest rates for bonds having a maturity of the
swap's termination date increases or decreases. The Funds may terminate a swap
contract prior to the effective date, at which point a realized gain or loss is
recognized. When a forward swap is terminated, it ordinarily does not involve
the delivery of securities or other underlying assets or principal, but rather
is settled in cash on a net basis. Each Fund intends, but is not obligated, to
terminate its forward swaps before the effective date. Accordingly, the risk of
loss with respect to the swap counterparty on such transactions is limited to
the credit risk associated with a counterparty failing to honor its commitment
to pay any realized gain to the Fund upon termination. To reduce such credit
risk, all counterparties are required to pledge collateral daily (based on the
daily valuation of each swap) on behalf of each Fund with a value approximately
equal to the amount of any unrealized gain above a pre-determined threshold.
Reciprocally, when any of the Funds have an unrealized loss on a swap contract,
the Funds have instructed the custodian to pledge assets of the Funds as
collateral with a value approximately equal to the amount of the unrealized loss
above a pre-determined threshold. Collateral pledges are monitored and
subsequently adjusted if and when the swap valuations fluctuate, either up or
down, by at least the predetermined threshold amount.
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, their 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.
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.
43
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
2. FUND SHARES
Transactions in Common shares were as follows:
ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND
INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR)
------------------------ ------------------------ ------------------------
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
1/31/07 7/31/06 1/31/07 7/31/06 1/31/07 7/31/06
---------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of distributions -- 6,761 1,067 2,135 2,508 6,848
===============================================================================================================
ARIZONA DIVIDEND TEXAS QUALITY
ADVANTAGE 3 (NXE) INCOME (NTX)
------------------------ ------------------------
SIX MONTHS SIX MONTHS
ENDED YEAR ENDED ENDED YEAR ENDED
1/31/07 7/31/06 1/31/07 7/31/06
---------------------------------------------------------------------------------------------------------------
Common shares issued to
shareholders due to
reinvestment of distributions -- 288 -- 5,523
===============================================================================================================
3. INVESTMENT TRANSACTIONS
Purchases and sales (including maturities but excluding short-term investments
and derivative transactions) during the six months ended January 31, 2007, 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 $7,608,870 $4,400,459 $4,904,775 $6,997,732 $15,325,212
Sales and maturities 5,998,571 1,672,813 4,208,100 6,361,859 11,156,152
==============================================================================================================
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis. Differences
between amounts for financial statement and federal income tax purposes are
primarily due to the treatment of paydown gains and losses, timing differences
in recognizing taxable market discount, timing differences in recognizing
certain gains and losses on investment transactions and the treatment of
investments in inverse floating rate transactions subject to SFAS No.140. To the
extent that differences arise that are permanent in nature, such amounts are
reclassified within the capital accounts on the Statement of Assets and
Liabilities presented in the annual report, based on their federal tax basis
treatment; temporary differences do not require reclassification. Temporary and
permanent differences do not impact the net asset values of the Funds.
At January 31, 2007, the cost of investments was 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 $89,609,894 $33,672,049 $51,950,749 $63,510,713 $200,926,131
==============================================================================================================
44
Gross unrealized appreciation and gross unrealized depreciation of investments
at January 31, 2007, 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 $3,873,457 $1,201,738 $2,455,281 $2,071,975 $9,369,407
Depreciation (215,447) (74,212) (229,121) (199,058) (276,112)
--------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) of investments $3,658,010 $1,127,526 $2,226,160 $1,872,917 $9,093,295
==============================================================================================================
The tax components of undistributed net tax-exempt income, net ordinary income
and net long-term capital gains at July 31, 2006, the Funds' last tax year end,
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 * $98,264 $106,365 $118,647 $91,940 $795,438
Undistributed net ordinary income ** -- 3,027 -- -- --
Undistributed net long-term capital gains -- 119,130 69,876 -- 223,755
==============================================================================================================
* Undistributed net tax-exempt income (on a tax basis) has not been reduced
for the dividend declared on July 3, 2006, paid on August 1, 2006.
** 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 Funds' last tax year ended
July 31, 2006, 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
(NAZ) (NFZ) (NKR) (NXE) (NTX)
--------------------------------------------------------------------------------------------------------------
Distributions from net tax-exempt income $3,923,547 $1,618,663 $2,507,532 $2,850,308 $9,881,946
Distributions from net ordinary income ** -- -- -- -- 22,028
Distributions from net long-term capital gains -- 132,955 290,789 -- --
==============================================================================================================
** Net ordinary income consists of taxable market discount income and net
short-term capital gains, if any.
At July 31, 2006, the Funds' last tax year end, 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
PREMIUM DIVIDEND
INCOME ADVANTAGE 3
(NAZ) (NXE)
--------------------------------------------------------------------------------
Expiration year:
2011 $ 477,877 $ --
2012 1,553,627 205,820
2013 -- 160,902
2014 -- 218,127
--------------------------------------------------------------------------------
Total $2,031,504 $584,849
================================================================================
The following Funds elected to defer net realized losses from investments
incurred from November 1, 2005 through July 31, 2006 ("post-October losses"), in
accordance with Federal income tax regulations. Post-October losses are treated
as having arisen on the first day of the current fiscal year:
ARIZONA ARIZONA
PREMIUM DIVIDEND
INCOME ADVANTAGE 3
(NAZ) (NXE)
--------------------------------------------------------------------------------
$73,017 $23,223
================================================================================
45
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Each Fund's management fee is separated into two components - a complex-level
component, based on the aggregate amount of all fund assets managed by Nuveen
Asset Management (the "Adviser"), a wholly owned subsidiary of Nuveen
Investments, Inc. ("Nuveen"), and a specific fund-level component, based only on
the amount of assets within 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.
The annual fund-level fee, payable monthly, for each Fund is based upon the
average daily net assets (including net assets attributable to Preferred shares)
of each Fund as follows:
AVERAGE DAILY NET ASSETS ARIZONA PREMIUM INCOME (NAZ)
(INCLUDING NET ASSETS TEXAS QUALITY INCOME (NTX)
ATTRIBUTABLE TOPREFERRED SHARES) 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 net assets over $5 billion .3750
================================================================================
ARIZONA DIVIDEND ADVANTAGE (NFZ)
AVERAGE DAILY NET ASSETS ARIZONA DIVIDEND ADVANTAGE 2 (NKR)
(INCLUDING NET ASSETS ARIZONA DIVIDEND ADVANTAGE 3 (NXE)
ATTRIBUTABLE TOPREFERRED SHARES) 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 net assets over $2 billion .3750
================================================================================
The annual complex-level fee, payable monthly, which is additive to the
fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the
aggregate amount of total fund assets managed as stated in the table below. As
of January 31, 2007, the complex-level fee rate was .1844%.
COMPLEX-LEVEL ASSETS(1) COMPLEX-LEVEL FEE RATE
--------------------------------------------------------------------------------
For the first $55 billion .2000%
For the next $1 billion .1800
For the next $1 billion .1600
For the next $3 billion .1425
For the next $3 billion .1325
For the next $3 billion .1250
For the next $5 billion .1200
For the next $5 billion .1175
For the next $15 billion .1150
For Managed Assets over $91 billion (2) .1400
================================================================================
(1) The complex-level fee component of the management fee for the funds is
calculated based upon the aggregate Managed Assets ("Managed Assets" means
the average daily net assets of each fund including assets attributable to
preferred stock issued by or borrowings by the Nuveen funds) of
Nuveen-sponsored funds in the U.S.
(2) With respect to the complex-wide Managed Assets over $91 billion, the fee
rate or rates that will apply to such assets will be determined at a later
date. In the unlikely event that complex-wide Managed Assets reach $91
billion prior to a determination of the complex-level fee rate or rates to
be applied to Managed Assets in excess of $91 billion, the complex-level
fee rate for such complex-wide Managed Assets shall be .1400% until such
time as a different rate or rates is determined.
46
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 its 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.
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.
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.
47
Notes to
FINANCIAL STATEMENTS (Unaudited) (continued)
6. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board Interpretation No. 48
On July 13, 2006, the Financial Accounting Standards Board (FASB) released FASB
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48). FIN
48 provides guidance for how uncertain tax positions should be recognized,
measured, presented and disclosed in the financial statements. FIN 48 requires
the evaluation of tax positions taken or expected to be taken in the course of
preparing the Fund's tax returns to determine whether the tax positions are
"more-likely-than-not" of being sustained by the applicable tax authority. Tax
positions not deemed to meet the more-likely-than-not threshold would be
recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is
required for fiscal years beginning after December 15, 2006 and is to be applied
to all open tax years as of the effective date. Recent SEC guidance allows funds
to delay implementing FIN 48 into NAV calculations until the fund's last NAV
calculation in the first required financial statement reporting period. As a
result, the Funds must begin to incorporate FIN 48 into their NAV calculations
by July 31, 2007. At this time, management is continuing to evaluate the
implications of FIN 48 and does not expect the adoption of FIN 48 will have a
significant impact on the net assets or results of operations of the Funds.
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 157
In September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157, "Fair Value
Measurements." This standard establishes a single authoritative definition of
fair value, sets out a framework for measuring fair value and requires
additional disclosures about fair value measurements. SFAS No. 157 applies to
fair value measurements already required or permitted by existing standards.
SFAS No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The changes to current generally accepted accounting principles from the
application of this standard relate to the definition of fair value, the methods
used to measure fair value, and the expanded disclosures about fair value
measurements. As of January 31, 2007, the Funds do not believe the adoption of
SFAS No. 157 will impact the financial statement amounts; however, additional
disclosures may be required about the inputs used to develop the measurements
and the effect of certain of the measurements included within the Statement of
Operations for the period.
7. SUBSEQUENT EVENTS
Distributions to Common Shareholders
The Funds declared Common share dividend distributions from their tax-exempt net
investment income which were paid on March 1, 2007, to shareholders of record on
February 15, 2007, 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 $.0510 $.0585 $.0615 $.0565 $.0605
==============================================================================================================
48
Financial
HIGHLIGHTS (Unaudited)
49
Financial
HIGHLIGHTS (Unaudited)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
------------------------------------------------------------------- ---------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ Preferred Preferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $14.10 $ .42 $.16 $(.11) $ -- $ .47 $(.31) $ -- $(.31)
2006 14.53 .83 (.39) (.18) -- .26 (.69) -- (.69)
2005 14.04 .86 .56 (.09) -- 1.33 (.84) -- (.84)
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)
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) 14.77 .46 .20 (.12) (.02) .52 (.37) (.06) (.43)
2006 15.37 .93 (.40) (.20) (.01) .32 (.84) (.08) (.92)
2005 15.00 .97 .46 (.10) -- 1.33 (.92) (.04) (.96)
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)
====================================================================================================================================
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:
2007(a) $ -- $14.26 $13.93 4.02% 3.30%
2006 -- 14.10 13.69 (5.62) 1.84
2005 -- 14.53 15.22 5.17 9.69
2004 -- 14.04 15.27 7.97 9.66
2003 -- 13.66 15.00 (5.98) 2.21
2002 -- 14.25 16.90 9.63 2.88
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
----------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) -- 14.86 15.08 (2.50) 3.51
2006 -- 14.77 15.90 4.54 2.14
2005 -- 15.37 16.08 10.88 9.04
2004 -- 15.00 15.40 7.05 10.56
2003 .02 14.45 15.30 3.06 3.67
2002 -- 14.81 15.75 6.38 9.32
========================================================================================
Ratios/Supplemental Data
-------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets Ratios to Average Net Assets
Applicable to Common Shares Applicable to Common Shares
Before Credit/Reimbursement After Credit/Reimbursement***
-------------------------------------------- -------------------------------------------
Ending
Net
Assets
Applicable Expenses Expenses Net Expenses Expenses Net Portfolio
to Common Including Excluding Investment Including Excluding Investment Turnover
Shares (000) Interest++(b) Interest++(b) Income++ Interest++(b) Interest++(b) Income++ Rate
====================================================================================================================================
ARIZONA PREMIUM
INCOME (NAZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $63,713 1.28%* 1.23%* 5.71%* 1.26%* 1.21%* 5.73%* 6%
2006 63,024 1.21 1.21 5.83 1.19 1.19 5.84 22
2005 64,822 1.20 1.20 5.91 1.19 1.19 5.92 17
2004 62,431 1.22 1.22 6.49 1.21 1.21 6.50 26
2003 60,547 1.25 1.25 6.81 1.24 1.24 6.82 17
2002 62,876 1.28 1.28 7.45 1.26 1.26 7.47 19
ARIZONA DIVIDEND
ADVANTAGE (NFZ)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) 23,011 1.42* 1.38* 5.62* 1.00* .96* 6.04* 5
2006 22,862 1.36 1.36 5.79 .92 .92 6.23 24
2005 23,753 1.34 1.34 5.82 .87 .87 6.28 18
2004 23,153 1.30 1.30 6.10 .83 .83 6.57 24
2003 22,290 1.35 1.35 6.11 .91 .91 6.55 20
2002 22,791 1.41 1.41 6.72 .93 .93 7.20 40
====================================================================================================================================
Floating Rate Obligations
Preferred Shares at End of Period at End of Period
-------------------------------------- -------------------------
Aggregate Liquidation Aggregate
Amount and Market Asset Amount Asset
Outstanding Value Coverage Outstanding Coverage
(000) Per Share Per Share (000) Per $1,000
================================================================================
ARIZONA PREMIUM INCOME (NAZ)
--------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $30,000 $25,000 $78,094 $2,054 $46,617
2006 30,000 25,000 77,520 -- --
2005 30,000 25,000 79,019 -- --
2004 30,000 25,000 77,026 -- --
2003 30,000 25,000 75,456 -- --
2002 30,000 25,000 77,397 -- --
ARIZONA DIVIDEND ADVANTAGE (NFZ)
--------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) 12,000 25,000 72,940 623 57,210
2006 12,000 25,000 72,628 -- --
2005 12,000 25,000 74,485 -- --
2004 12,000 25,000 73,235 -- --
2003 12,000 25,000 71,438 -- --
2002 12,000 25,000 72,480 -- --
================================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the six months ended January 31, 2007.
(b) Interest expense arises from the application of SFAS No. 140 to certain
inverse floating rate transactions entered into by the Fund as more fully
described in Footnote 1 - Inverse Floating Rate Securities.
See accompanying notes to financial statements.
50-51 spread
FINANCIAL HIGHLIGHTS (Unaudited) (continued)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
------------------------------------------------------------------- ---------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ Preferred Preferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) $15.00 $.48 $.14 $(.12) $(.01) $ .49 $(.37) $(.04) $(.41)
2006 15.56 .96 (.37) (.20) (.01) .38 (.83) (.11) (.94)
2005 15.10 .97 .59 (.11) (.01) 1.44 (.86) (.12) (.98)
2004 14.57 .96 .53 (.06) -- 1.43 (.86) (.04) (.90)
2003 14.88 .96 (.31) (.08) -- .57 (.86) (.01) (.87)
2002(a) 14.33 .24 .71 (.02) -- .93 (.22) -- (.22)
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) 14.32 .45 .17 (.12) -- .50 (.34) -- (.34)
2006 14.62 .88 (.26) (.19) -- .43 (.73) -- (.73)
2005 14.01 .89 .62 (.10) -- 1.41 (.80) -- (.80)
2004 13.45 .89 .54 (.06) -- 1.37 (.80) -- (.80)
2003(b) 14.33 .66 (.67) (.05) -- (.06) (.61) -- (.61)
====================================================================================================================================
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 DIVIDEND
ADVANTAGE 2 (NKR)
-----------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) $ -- $15.08 $15.16 1.31% 3.27%
2006 -- 15.00 15.37 .82 2.49
2005 -- 15.56 16.19 16.30 9.74
2004 -- 15.10 14.82 9.46 9.98
2003 (.01) 14.57 14.40 (3.53) 3.67
2002(a) (.16) 14.88 15.80 6.81 5.38
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
-----------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) -- 14.48 14.25 7.97 3.48
2006 -- 14.32 13.52 (1.80) 3.03
2005 -- 14.62 14.48 15.11 10.21
2004 (.01) 14.01 13.30 1.01 10.25
2003(b) (.21) 13.45 13.97 (2.76) (2.05)
=========================================================================================
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets Ratios to Average Net Assets
Applicable to Common Shares Applicable to Common Shares
Before Credit/Reimbursement After Credit/Reimbursement***
-------------------------------------------- -------------------------------------------
Ending
Net
Assets
Applicable Expenses Expenses Net Expenses Expenses Net Portfolio
to Common Including Excluding Investment Including Excluding Investment Turnover
Shares (000) Interest++(d) Interest++(d) Income++ Interest++(d) Interest++(d) Income++ Rate
====================================================================================================================================
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) 36,679 1.32%* 1.28%* 5.82%* .85%* .81%* 6.29%* 7%
2006 36,465 1.28 1.28 5.88 .82 .82 6.34 11
2005 37,704 1.27 1.27 5.76 .82 .82 6.22 11
2004 36,543 1.27 1.27 5.83 .80 .80 6.30 14
2003 35,237 1.27 1.27 5.78 .82 .82 6.23 4
2002(a) 35,913 1.19* 1.19* 4.43* .77* .77* 4.85* 1
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) 44,429 1.31* 1.27* 5.56* .81* .77* 6.06* 9
2006 43,913 1.26 1.26 5.63 .78 .78 6.12 12
2005 44,829 1.25 1.25 5.63 .76 .76 6.12 15
2004 42,983 1.25 1.25 5.80 .76 .76 6.29 22
2003(b) 41,247 1.19* 1.19* 5.05* .73* .73* 5.52* 16
===================================================================================================================================
Floating Rate Obligations
Preferred Shares at End of Period at End of Period
-------------------------------------- -------------------------
Aggregate Liquidation Aggregate
Amount and Market Asset Amount Asset
Outstanding Value Coverage Outstanding Coverage
(000) Per Share Per Share (000) Per $1,000
================================================================================
ARIZONA DIVIDEND
ADVANTAGE 2 (NKR)
--------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) $18,500 $25,000 $74,566 $ 994 $56,484
2006 18,500 25,000 74,277 -- --
2005 18,500 25,000 75,952 -- --
2004 18,500 25,000 74,382 -- --
2003 18,500 25,000 72,618 -- --
2002(a) 18,500 25,000 73,531 -- --
ARIZONA DIVIDEND
ADVANTAGE 3 (NXE)
--------------------------------------------------------------------------------
Year Ended 7/31:
2007(c) 22,000 25,000 75,487 1,185 57,040
2006 22,000 25,000 74,902 -- --
2005 22,000 25,000 75,942 -- --
2004 22,000 25,000 73,844 -- --
2003(b) 22,000 25,000 71,872 -- --
================================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the period March 25, 2002 (commencement of operations) through July 31,
2002.
(b) For the period September 25, 2002 (commencement of operations) through July
31, 2003.
(c) For the six months ended January 31, 2007.
(d) Interest expense arises from the application of SFAS No. 140 to certain
inverse floating rate transactions entered into by the Fund as more fully
described in Footnote 1 - Inverse Floating Rate Securities.
See accompanying notes to financial statements.
52-53 spread
FINANCIAL HIGHLIGHTS (Unaudited) (continued)
Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions
------------------------------------------------------------------- ---------------------------------
Distributions Distributions
from Net from Net
Beginning Investment Capital Investment Capital
Common Net Income to Gains to Income to Gains to
Share Net Realized/ Preferred Preferred Common Common
Net Asset Investment Unrealized Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $15.06 $ .48 $.18 $(.12) $(.01) $ .53 $(.37) $(.04) $(.41)
2006 15.46 .96 (.32) (.22) -- .42 (.82) -- (.82)
2005 15.12 1.00 .41 (.13) -- 1.28 (.94) -- (.94)
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)
====================================================================================================================================
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**
==================================================================================
TEXAS QUALITY
INCOME (NTX)
----------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $ -- $15.18 $14.54 1.57% 3.47%
2006 -- 15.06 14.71 (4.03) 2.77
2005 -- 15.46 16.19 17.83 8.61
2004 -- 15.12 14.59 5.87 10.51
2003 -- 14.57 14.71 4.14 2.54
2002 -- 15.14 15.07 9.29 6.61
==================================================================================
Ratios/Supplemental Data
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets Ratios to Average Net Assets
Applicable to Common Shares Applicable to Common Shares
Before Credit/Reimbursement After Credit/Reimbursement***
-------------------------------------------- -------------------------------------------
Ending
Net
Assets
Applicable Expenses Expenses Net Expenses Expenses Net Portfolio
to Common Including Excluding Investment Including Excluding Investment Turnover
Shares (000) Interest++(b) Interest++(b) Income++ Interest++(b) Interest++(b) Income++ Rate
====================================================================================================================================
TEXAS QUALITY
INCOME (NTX)
------------------------------------------------------------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) 144,142 1.20%* 1.18%* 6.14%* 1.18%* 1.16%* 6.16%* 5%
2006 143,009 1.19 1.19 6.31 1.18 1.18 6.33 13
2005 146,718 1.18 1.18 6.42 1.16 1.16 6.44 14
2004 143,233 1.18 1.18 6.77 1.18 1.18 6.77 16
2003 137,975 1.20 1.20 6.93 1.19 1.19 6.94 12
2002 143,305 1.23 1.23 7.40 1.22 1.22 7.42 22
====================================================================================================================================
Floating Rate Obligations
Preferred Shares at End of Period at End of Period
-------------------------------------- -------------------------
Aggregate Liquidation Aggregate
Amount and Market Asset Amount Asset
Outstanding Value Coverage Outstanding Coverage
(000) Per Share Per Share (000) Per $1,000
================================================================================
TEXAS QUALITY INCOME (NTX)
--------------------------------------------------------------------------------
Year Ended 7/31:
2007(a) $69,000 $25,000 $77,225 $3,775 $57,461
2006 69,000 25,000 76,815 -- --
2005 69,000 25,000 78,159 -- --
2004 69,000 25,000 76,896 -- --
2003 69,000 25,000 74,991 -- --
2002 69,000 25,000 76,922 -- --
================================================================================
* Annualized.
** Total Return on Market Value is the combination of changes in the market
price per share and the effect of reinvested dividend income and reinvested
capital gains distributions, if any, at the average price paid per share at
the time of reinvestment. Total Return on Common Share Net Asset Value is
the combination of changes in Common Share net asset value, reinvested
dividend income at net asset value and reinvested capital gains
distributions at net asset value, if any. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Preferred
shareholders; income ratios reflect income earned on assets attributable to
Preferred shares.
(a) For the six months ended January 31, 2007.
(b) Interest expense arises from the application of SFAS No. 140 to certain
inverse floating rate transactions entered into by the Fund as more fully
described in Footnote 1 - Inverse Floating Rate Securities.
See accompanying notes to financial statements.
54-55 spread
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 FUNDS
DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or
capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of 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.
56
Automatic Dividend
REINVESTMENT PLAN
NOTICE OF AMENDMENT TO THE TERMS AND CONDITIONS
These Funds are amending the terms and conditions of their Automatic Dividend
Reinvestment Plan (the "Plan") as further described below effective with the
close of business on May 1, 2007. THESE CHANGES ARE INTENDED TO ENABLE PLAN
PARTICIPANTS UNDER CERTAIN CIRCUMSTANCES TO REINVEST FUND DISTRIBUTIONS AT A
LOWER AGGREGATE COST THAN IS POSSIBLE UNDER THE EXISTING PLAN. Shareholders who
do not wish to continue as participants under the amended Plan may withdraw from
the Plan by notifying the Plan Agent prior to the effective date of the
amendments. Participants should refer to their Plan document for notification
instructions, or may simply call Nuveen at (800) 257-8787.
Fund shareholders who elect to participate in the Plan are able to have Fund
distributions consisting of income dividends, realized capital gains and returns
of capital automatically reinvested in additional Fund shares. Under the Plan's
existing terms, the Plan Agent purchases Fund shares in the open market if the
Fund's shares are trading at a discount to their net asset value on the payable
date for the distribution. If the Fund's shares are trading at or above their
net asset value on the payable date for the distribution, the Plan Agent
purchases newly-issued Fund shares directly from the Fund at a price equal to
the greater of the shares' net asset value or 95% of the shares' market value.
Under the Plan's amended terms, if the Plan Agent begins purchasing Fund shares
on the open market while shares are trading below net asset value, but the
Fund's shares subsequently trade at or above their net asset value before the
Plan Agent is able to complete its purchases, the Plan Agent may cease
open-market purchases and may invest the uninvested portion of the distribution
in newly-issued Fund shares at a price equal to the greater of the shares' net
asset value or 95% of the shares' market value. This change will permit Plan
participants under these circumstances to reinvest Fund distributions at a lower
aggregate cost than is possible under the existing Plan.
57
Notes
58
Other Useful
INFORMATION
QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION
Each Fund's (i) quarterly portfolio of investments, (ii) information regarding
how the Funds voted proxies relating to portfolio securities held during the
12-month period ended June 30, 2006, and (iii) a description of the policies and
procedures that the Funds used to determine how to vote proxies relating to
portfolio securities are available without charge, upon request, by calling
Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at
www.nuveen.com.
You may also obtain this and other Fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at 1-202-942-8090
for room hours and operation. You may also request Fund information by sending
an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public
References Section at 450 Fifth Street NW, Washington, D.C. 20549.
CEO CERTIFICATION DISCLOSURE
Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange
the annual CEO certification as required by Section 303A.12(a) of the NYSE
Listed Company Manual.
Each Fund has filed with the Securities and Exchange Commission the
certification of its Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act.
GLOSSARY OF TERMS USED IN THIS REPORT
AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an
investment's performance over a particular, usually multi-year time period. It
expresses the return that would have been necessary each year to equal the
investment's actual cumulative performance (including change in NAV or market
price and reinvested dividends and capital gains distributions, if any) over the
time period being considered.
AVERAGE EFFECTIVE MATURITY: The average of the number of years to maturity of
the bonds in a Fund's portfolio, computed by weighting each bond's time to
maturity (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 unless an escrow account has been established to redeem the
bond before maturity. The market value weighting for an investment in an inverse
floating rate security is the value of the portfolio's residual interest in the
inverse floating rate trust, and does not include the value of the floating rate
securities issued by the trust.
INVERSE FLOATERS: Inverse floating rate securities are created by depositing a
municipal bond, typically with a fixed interest rate, into a special purpose
trust created by a broker-dealer. This trust, in turn, (a) issues floating rate
certificates typically paying short-term tax-exempt interest rates to third
parties in amounts equal to some fraction of the deposited bond's par amount or
market value, and (b) issues an inverse floating rate certificate (sometimes
referred to as an "inverse floater") to an investor (such as a Fund) interested
in gaining investment exposure to a long-term municipal bond. The income
received by the holder of the inverse floater varies inversely with the
short-term rate paid to the floating rate certificates' holders, and in most
circumstances the holder of the inverse floater bears substantially all of the
underlying bond's downside investment risk. The holder of the inverse floater
typically also benefits disproportionately from any potential appreciation of
the underlying bond's value. Hence, an inverse floater essentially represents an
investment in the underlying bond on a leveraged basis.
LEVERAGE-ADJUSTED DURATION: Duration is a measure of the expected period over
which a bond's principal and interest will be paid, and consequently is a
measure of the sensitivity of a bond's or bond Fund's value to changes when
market interest rates change. Generally, the longer a bond's 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 longer than the duration of the Fund's portfolio of bonds.
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 common share NAV per share is calculated by
subtracting the liabilities of the Fund (including any MuniPreferred shares
issued in order to leverage the Fund) from its total assets and then dividing
the remainder by the number of shares outstanding. Fund NAVs are calculated at
the end of each business day.
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
David J. Kundert
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Carol E. Stone
Eugene S. Sunshine
FUND MANAGER
Nuveen Asset Management
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust Company
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank & Trust Company
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler LLP
Chicago, IL
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Ernst & Young LLP
Chicago, IL
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 period covered by this report.
Any future repurchases will be reported to shareholders in the next annual or
semiannual report.
59
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 approximately $162 billion in assets, as of December 31, 2006, Nuveen
Investments offers access to a number of different asset classes and investing
solutions through a variety of products. Nuveen Investments markets its
capabilities under six distinct brands: NWQ, specializing in value-style
equities; Nuveen, managing fixed-income investments; Santa Barbara, committed to
growth equities; Tradewinds, specializing in global value equities; Rittenhouse,
focused on "blue-chip" growth equities; and Symphony, with expertise in
alternative investments as well as equity and income 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 provided carefully before you invest.
Be sure to obtain a prospectus, where applicable. Investors should consider the
investment objective and policies, risk considerations, charges and expenses of
the Fund carefully before investing. The prospectus contains this and other
information relevant to an investment in the Fund. For a prospectus, please
contact your securities representative or Nuveen Investments, 333 W. Wacker Dr.,
Chicago, IL 60606. Please read the prospectus carefully before you invest or
send money.
o Share prices
Learn more o Fund details
about Nuveen Funds at o Daily financial news
WWW.NUVEEN.COM/CEF o Investor education
o Interactive planning tools
Logo: NUVEEN Investments
ESA-A-0107D
ITEM 2. CODE OF ETHICS.
Not applicable to this filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to this filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
See Portfolio of Investments in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's Board implemented after the registrant
last provided disclosure in response to this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive and principal financial officers,
or persons performing similar functions, have concluded that the
registrant's disclosure controls and procedures (as defined in Rule
30a-3(c) under the Investment Company Act of 1940, as amended (the
"1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within
90 days of the filing date of this report that includes the disclosure
required by this paragraph, based on their evaluation of the controls
and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR
270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")(17 CFR
240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that has materially affected, or
is reasonably likely to materially affect, the registrant's internal
control over financial reporting.
ITEM 12. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable to
this filing.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2(a) under
the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT
attached hereto.
(a)(3) Any written solicitation to purchase securities under Rule 23c-1 under
the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the
report by or on behalf of the registrant to 10 or more persons: Not applicable.
(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act,
provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR
270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR
240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of
the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished
pursuant to this paragraph will not be deemed "filed" for purposes of Section 18
of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by
reference into any filing under the Securities Act of 1933 or the Exchange Act,
except to the extent that the registrant specifically incorporates it by
reference. Ex-99.906 CERT attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Nuveen Arizona Dividend Advantage Municipal Fund 3
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By (Signature and Title)* /s/ Jessica R. Droeger
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Jessica R. Droeger
Vice President and Secretary
Date: April 9, 2007
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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
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Gifford R. Zimmerman
Chief Administrative Officer
(principal executive officer)
Date: April 9, 2007
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By (Signature and Title)* /s/ Stephen D. Foy
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Stephen D. Foy
Vice President and Controller
(principal financial officer)
Date: April 9, 2007
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* Print the name and title of each signing officer under his or her signature.