Total Return Based on Common Share Price 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. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be
reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be
different from the price used in the calculation. Total returns are not annualized.
A description of the valuation techniques applied to the Funds’ major classifications of assets and liabilities measured at fair
value follows:
Equity securities and exchange-traded funds listed or traded on a national market or exchange are valued based on their sale price at the official
close of business of such market or exchange on the valuation date. Foreign equity securities and registered investment companies that trade on a foreign exchange are valued at the last sale price or official closing price reported on the exchange
where traded and converted to U.S. dollars at the prevailing rates of exchange on the date of valuation. To the extent these securities are actively traded and that valuation adjustments are not applied, they are generally classified as Level 1. If
there is no official close of business, then the latest available sale price is utilized. If no sales are reported, then the mean of the latest available bid and ask prices is utilized and these securities are generally classified as Level 2.
Prices of fixed-income securities are generally provided by an independent pricing service (“pricing service”) approved by the Board. The pricing service
establishes a security’s fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from
security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. In pricing certain securities, particularly
less liquid and lower quality securities, the pricing service may consider information about a security, its issuer or market activity provided by the Adviser. These securities are generally classified as Level 2.
Prices of certain American Depositary Receipts (“ADR”) held by the Funds that trade in the United States are valued based on the last traded price, official
closing price, or an evaluated price provided by the pricing service and are generally classified as Level 1 or 2.
For events affecting the value of foreign
securities between the time when the exchange on which they are traded closes and the time when the Funds’ net assets are calculated, such securities will be valued at fair value in accordance with procedures adopted by the Board. These foreign
securities are generally classified as Level 2.
Investments in investment companies are valued at their respective NAVs on the valuation date and are generally
classified as Level 1.
Futures contracts are valued using the closing settlement price or, in the absence of such a price, the last traded price and are generally
classified as Level 1.
Swap contracts are marked-to-market daily based upon a price supplied by a pricing service. Swaps are generally classified as
Level 2.
Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified
as Level 2.
Any portfolio security or derivative for which market quotations are not readily available or for which the above valuation procedures are deemed
not to reflect fair value are valued at fair value, as determined in good faith using procedures approved by the Board. As a general principle, the fair value of a security would appear to be the amount that the owner might reasonably expect to
receive for it in a current sale. A variety of factors may be considered in determining the fair value of such securities, which may include consideration of the following: yields or prices of investments of comparable quality,
type of issue, coupon, maturity and rating, market quotes or indications of value from security
dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. To the extent the inputs are observable and timely,
the values would be classified as Level 2 of the fair value hierarchy; otherwise they would be classified as Level 3.
The following table summarizes the market value
of the Funds’ investments as of the end of the reporting period, based on the inputs used to value them:
Pursuant to the terms of certain of the variable rate senior loan agreements, JRI may have unfunded senior loan commitments. The Fund will maintain with its custodian,
cash, liquid securities and/or liquid senior loans having an aggregate value at least equal to the amount of unfunded senior loan commitments. As of the end of the reporting period, the Fund had no such outstanding unfunded senior loan commitments.
With respect to the senior loans held in
JRI’s portfolio, the Fund may: 1) invest in assignments; 2) act as a participant in primary lending syndicates; or 3) invest in participations. If the Fund purchases a participation of a senior loan interest, the Fund would typically enter into
a contractual agreement with the lender or other third party selling the participation, rather than directly with the borrower. As such, the Fund not only assumes the credit risk of the borrower, but also that of the selling participant or other
persons interpositioned between the Fund and the borrower. As of the end of the reporting period, the Fund had no such outstanding participation commitments.
Whole loans and participating mortgages may bear a greater risk of
loss arising from a default on the part of the borrower of the underlying loans than do traditional mortgage-backed securities. This is because whole loans and participating mortgages, unlike most mortgage-backed securities, generally are not backed
by any government guarantee or private credit enhancement. Such risk may be greater during a period of declining or stagnant real estate values.
JRI may invest in single family, multi-family and
commercial loans. A participating loan is a whole loan that contains provisions for the lender to participate in the income stream provided by the property, including net cash flow and capital proceeds. An outstanding participating loan agreement
may provide excess cash flows and certain appreciation rights after the mortgage obligation has been fully paid and before the sale of the property to a third party.
On occasion real estate property may be acquired through foreclosure or deed in lieu of foreclosure on whole loans or similar obligations. The Fund may incur costs and
delays or loss in the collection of principal and/or interest to which it is entitled in the event of such foreclosure. Also there is no assurance that the subsequent sale of the foreclosed property will produce an amount equal to the sum of the
unpaid principal balance of the loan as of the date the borrower went into default, the accrued unpaid interest, and all of the foreclosure expenses. In such case, the Fund may suffer a loss.
The Fund may also receive rental or other income as a result of holding real estate. This income would generally fail to meet the test for “qualifying income”
set forth in Section 851 of the Internal Revenue Code and could result in adverse tax consequences to the Fund. In addition, the Fund may incur expenses associated with maintaining or improving any real estate owned. When such events occur,
real estate income is recognized on a net basis on the
Statement of Operations and capital improvements are recorded as an addition to the cost basis of the
property, which will increase any loss at sale.
As of the end of the reporting period, the Fund did not own any real estate property.
As of the end of the reporting period, the Fund did not invest in whole loans.
In connection with transactions in repurchase
agreements, it is each Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If
the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.
The following table presents the
repurchase agreements for the Funds that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.
A zero coupon security
does not pay a regular interest coupon to its holders during the life of the security. Income to the holder of the security comes from accretion of the difference between the original purchase price of the security at issuance and the par value of
the security at maturity and is effectively paid at maturity. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically.
The Funds may purchase securities on a when-issued or delayed-delivery basis. Securities purchased on a when-issued or delayed-delivery
basis may have extended settlement periods; interest income is not accrued until settlement date. Any securities so purchased are subject to market fluctuation during this period. The Funds have earmarked securities in its portfolio with a current
value at least equal to the amount of the when-issued/delayed-delivery purchase commitments. If a Fund has outstanding when-issued/delayed-delivery purchases commitments as of the end of the reporting period, such amounts are recognized on the
Statement of Assets and Liabilities.
Each Fund
is authorized to invest in certain derivative instruments, such as futures, options and swap contracts. Each Fund limits its investments in futures, options on futures and swap contracts to the extent necessary for the Adviser to claim the exclusion
from registration by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Fund. The Funds record derivative instruments at fair value, with changes in fair value recognized on the Statement of Operations, when
applicable. Even though the Funds’ investments in derivatives may represent economic hedges, they are not considered to be hedge transactions for financial reporting purposes.
Upon execution of a futures contract, a Fund is obligated to deposit cash or eligible securities, also known as “initial margin,” into an account at its
clearing broker equal to a specified percentage of the contract amount. Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized as “Cash collateral at brokers for investments in futures
contracts” on the Statement of Assets and Liabilities. Investments in futures contracts obligate a Fund and the clearing broker to settle monies on a daily basis representing changes in the prior days “mark-to-market” of the open contracts. If a Fund has unrealized appreciation the clearing broker would credit the Fund’s account with an amount equal to appreciation and conversely if a Fund
has unrealized depreciation the clearing broker would debit the Fund’s account with an amount equal to depreciation. These daily cash settlements are also known as “variation margin.” Variation margin is recognized as a receivable
and/or payable for “Variation margin on futures contracts” on the Statement of Assets and Liabilities.
During the period the futures contract is open,
changes in the value of the contract are recognized as an unrealized gain or loss by “marking-to-market” on a daily basis to reflect the changes in market
value of the contract, which is recognized as a component of “Change in net unrealized appreciation (depreciation) of futures contracts” on the Statement of Operations. When the contract is closed or expired, a Fund records a realized gain
or loss equal to the difference between the value of the contract on the closing date and value of the contract when originally entered into, which is recognized as a component of “Net realized gain (loss) from futures contracts” on the
Statement of Operations.
Risks of investments in futures contracts include the possible adverse movement in the price of the securities or indices underlying the
contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices.
During the current fiscal period, JRI continued using interest rate futures contracts to partially hedge the portfolio against movements in interest rates.
The average notional amount of futures contracts outstanding during the current fiscal period was as follows:
The following table presents the fair value
of all futures contracts held by the Fund as of the end of the reporting period, the location of these instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Location on the Statement Assets and
Liabilities |
|
Underlying Risk
Exposure |
|
Derivative
Instrument |
|
Asset Derivatives |
|
|
|
|
|
(Liability) Derivatives |
|
| |
Location |
|
Value |
|
|
|
|
|
Location |
|
Value |
|
| JRI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate |
|
Futures contracts |
|
— |
|
$ |
— |
|
|
|
|
|
|
Payable for variation margin on future contracts* |
|
$ |
(170,384 |
) |
| * |
Value represents the cumulative unrealized appreciation (depreciation) of futures contracts as reported in the Fund’s
Portfolio of Investments and not the daily asset and/or liability derivatives location as described in the table above. |
The following table
presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on futures contracts on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Net Realized
Gain (Loss) from
Futures Contracts |
|
|
Change in Net
Unrealized
Appreciation
(Depreciation) of
Futures Contracts |
|
| JRI |
|
Interest rate |
|
Futures contracts |
|
$ |
536,537 |
|
|
$ |
(233,519 |
) |
Interest Rate Swap Contracts
Interest rate
swap contracts involve a Fund’s agreement with the counterparty to pay or receive a fixed rate payment in exchange for the counterparty receiving or paying a variable rate payment. Forward interest rate swap contracts involve a 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 for an interest rate swap is based on the notional amount and the termination date of the contract.
Interest rate swap contracts do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest
payments that the Fund is to receive.
50
Interest rate swap contracts are valued daily. Upon
entering into an interest rate swap contract (and beginning on the effective date for a forward interest rate swap contract), the Fund accrues the fixed rate payment expected to be paid or received and the variable rate payment expected to be
received or paid on the interest rate swap contracts on a daily basis, and recognizes the daily change in the fair value of the Fund’s contractual rights and obligations under the contracts. For an over-the-counter (“OTC”) swap that
is not cleared through a clearing house (“OTC Uncleared”), the amount recorded on these transactions is recognized on the Statement of Assets and Liabilities as a component of “Unrealized appreciation or depreciation on interest rate
swaps.”
Upon the execution of an OTC swap cleared through a clearing house (“OTC Cleared”), the Fund is obligated to deposit cash or eligible
securities, also known as “initial margin,” into an account at its clearing broker equal to a specified percentage of the contract amount. Cash deposited by the Fund to cover initial margin requirements on open swap contracts, if any, is
recognized as a component of “Cash collateral at brokers for investments in swaps” on the Statement of Assets and Liabilities. Investments in OTC Cleared swaps obligate the Fund and the clearing broker to settle monies on a daily basis
representing changes in the prior day’s “mark-to-market” of the swap contract. If the Fund has unrealized appreciation, the clearing broker will credit the Fund’s account with an amount equal to the appreciation. Conversely, if
the Fund has unrealized depreciation, the clearing broker will debit the Fund’s account with an amount equal to the depreciation. These daily cash settlements are also known as “variation margin.” Variation margin for OTC Cleared
swaps is recognized as a receivable and/or payable for “Variation margin on swap contracts” on the Statement of Assets and Liabilities. Upon the execution of an OTC Uncleared swap, neither the Fund nor the counterparty is required to
deposit initial margin as the trades are recorded bilaterally between both parties to the swap contract, and the terms of the variation margin are subject to a predetermined threshold negotiated by the Fund and the counterparty. Variation margin for
OTC Uncleared swaps is recognized as a component of “Unrealized appreciation or depreciation on interest rate swaps” as described in the preceding paragraph.
The net amount of periodic payments settled in cash are recognized as a component of “Net realized gain (loss) from swaps” on the Statement of Operations, in
addition to the net realized gain or loss recorded upon the termination of the swap contract. For tax purposes, payments expected to be received or paid on the swap contracts are treated as ordinary income or expense, respectively. Changes in the
value of the swap contracts during the fiscal period are recognized as a component of “Change in net unrealized appreciation (depreciation) of swaps” on the Statement of Operations. In certain instances, payments are made or received upon
entering into the swap contract to compensate for differences between the stated terms of the swap agreements and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Payments received
or made at the beginning of the measurement period, if any, are recognized as “Interest rate swaps premiums received and/or paid” on the Statement of Assets and Liabilities.
During the current fiscal period, the Funds continued to use interest rate swap contracts to partially hedge their future interest cost of leverage, which is through the
use of bank borrowings.
The average notional amount of interest rate swap contracts outstanding during the current fiscal period was as follows:
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Average notional amount of interest rate swap contracts
outstanding* |
|
|
$72,400,000 |
|
|
|
$112,400,000 |
|
| * |
The average notional amount is calculated based on the outstanding notional at the beginning of the current fiscal period
and at the end of each fiscal quarter within the current fiscal period. |
The following table presents the fair value of all swap contracts held by
the Funds as of the end of the reporting period, the location of these instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Location on the Statement of Assets and
Liabilities |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Asset Derivatives |
|
|
|
|
|
(Liability) Derivatives |
|
| |
Location |
|
Value |
|
|
|
|
|
Location |
|
Value |
|
| JRS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate |
|
Swaps (OTC Uncleared) |
|
— |
|
$ |
— |
|
|
|
|
|
|
Unrealized depreciation on interest rate swaps |
|
$ |
(3,509,484 |
) |
| JRI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate |
|
Swaps (OTC Uncleared) |
|
— |
|
$ |
— |
|
|
|
|
|
|
Unrealized depreciation on interest rate swaps |
|
$ |
(5,448,425 |
) |
51
Notes to Financial Statements (continued)
The following table presents the swap contracts subject to netting agreements and the collateral
delivered related to those swap contracts as of the end of the reporting period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Counterparty |
|
Gross
Unrealized
Appreciation
on Interest
Rate Swaps** |
|
|
Gross
Unrealized
(Depreciation)
on Interest
Rate Swaps** |
|
|
Net Unrealized
Appreciation
(Depreciation)
on Interest
Rate Swaps |
|
|
Collateral
Pledged
to (from)
Counterparty |
|
|
Net
Exposure |
|
| JRS |
|
Morgan Stanley Capital Services LLC |
|
$ |
— |
|
|
$ |
(3,509,484 |
) |
|
$ |
(3,509,484 |
) |
|
$ |
3,658,362 |
|
|
$ |
148,878 |
|
| JRI |
|
Morgan Stanley Capital Services LLC |
|
|
— |
|
|
|
(5,448,425 |
) |
|
|
(5,448,425 |
) |
|
|
5,478,337 |
|
|
|
29,912 |
|
| ** |
Represents gross unrealized appreciation (depreciation) for the counterparty as reported in the Fund’s Portfolio of
Investments. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation)
recognized on swap contracts on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fund |
|
Underlying
Risk Exposure |
|
Derivative
Instrument |
|
Net Realized
Gain (Loss)
from Swaps |
|
|
Change in Net
Unrealized
Appreciation
(Depreciation)
of Swaps |
|
| JRS |
|
Interest rate |
|
Swaps |
|
$ |
(1,367,759 |
) |
|
$ |
3,774,327 |
|
| JRI |
|
Interest rate |
|
Swaps |
|
|
(2,121,143 |
) |
|
|
5,859,591 |
|
Market and Counterparty Credit Risk
In the
normal course of business each Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to the transaction to perform
(counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which potentially expose each Fund to counterparty credit risk, consist principally of cash due
from counterparties on forward, option and swap transactions, when applicable. The extent of each Fund’s exposure to counterparty credit risk in respect to these financial assets approximates its carrying value as recorded on the Statement of
Assets and Liabilities.
Each Fund helps manage counterparty credit risk by entering into agreements only with counterparties the Adviser believes have the financial
resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be required to pledge collateral daily (based on the daily valuation of the financial asset) on
behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when each Fund has an unrealized loss, 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 valuations fluctuate, either up or down, by at least the
pre-determined threshold amount.
5. Fund Shares
Common Share
Transactions
Transactions in common shares during the Funds’ current and prior fiscal period, where applicable, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
JRI |
|
| |
|
|
|
|
Year Ended
12/31/21 |
|
|
Year Ended
12/31/20 |
|
| Common shares repurchased and retired |
|
|
|
|
|
|
— |
|
|
|
(15,500 |
) |
| Weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
| Price per share repurchased and retired |
|
|
|
|
|
$ |
— |
|
|
$ |
11.65 |
|
| Discount per share repurchased and retired |
|
|
|
|
|
|
— |
% |
|
|
15.72 |
% |
6. Income Tax Information
Each Fund is a
separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment company taxable income to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. In any year when the Funds realize net capital gains, each Fund may choose to distribute all or a portion of its net capital gains to shareholders, or alternatively, to retain all or a portion of
its net capital gains and pay federal corporate income taxes on such retained gains.
52
For all open tax years and all major taxing
jurisdictions, management of the Funds has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities
(i.e., generally the last four tax year ends and the interim tax period since then). Furthermore, management of the Funds is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits
will significantly change in the next twelve months.
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 recognition of premium amortization and timing differences in recognizing certain gains and losses on investment transactions. To the extent that differences arise that are permanent
in nature, such amounts are reclassified within the capital accounts as detailed below. Temporary differences do not require reclassification. Temporary and permanent differences do not impact the NAVs of the Funds.
The table below presents the cost and unrealized appreciation (depreciation) of each Fund’s investment portfolio, as determined on a federal income tax basis, as of
December 31, 2021.
For purposes of this disclosure, derivative tax cost is generally the sum of any upfront fees or premiums exchanged and any amounts unrealized for
income statement reporting but realized in income and/or capital gains for tax reporting. If a particular derivative category does not disclose any tax unrealized appreciation or depreciation, the change in value of those derivatives have generally
been fully realized for tax purposes.
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Tax cost of investments |
|
$ |
404,140,441 |
|
|
$ |
631,084,416 |
|
| Gross unrealized: |
|
|
|
|
|
|
|
|
| Appreciation |
|
$ |
132,437,479 |
|
|
$ |
60,816,061 |
|
| Depreciation |
|
|
(12,047,779 |
) |
|
|
(21,073,594 |
) |
| Net unrealized appreciation (depreciation) of investments |
|
$ |
120,389,700 |
|
|
$ |
39,742,467 |
|
Permanent differences, primarily due to distribution reallocations, paydowns, bond premium amortization adjustments, treatment of notional
principal contracts, complex securities character adjustments, foreign currency transactions, investments in partnerships, and investments in passive foreign investment companies, resulted in reclassifications among the Funds’ components of
common share net assets as of December 31, 2021, the Funds’ tax year end.
|
|
|
|
|
|
|
|
|
| The tax components of undistributed net ordinary income and net long-term capital gains as of December 31, 2021, the Funds’ tax year end, were as follows: |
|
| |
|
JRS |
|
|
JRI |
|
| Undistributed net ordinary income1 |
|
$ |
8,707,342 |
|
|
$ |
— |
|
| Undistributed net long-term capital gains |
|
|
— |
|
|
|
— |
|
|
| 1 Net ordinary income consists
of net taxable income derived from dividends, interest, and net short-term capital gains, if any. |
|
|
| The tax character of distributions paid during the Funds’ tax years ended December 31, 2021 and December 31, 2020 was designated for purposes of the dividends paid deduction as follows: |
|
| 2021 |
|
JRS |
|
|
JRI |
|
| Distributions from net ordinary income1 |
|
$ |
10,462,508 |
|
|
$ |
29,893,095 |
|
| Distributions from net long-term capital gains |
|
|
11,495,770 |
|
|
|
— |
|
| Return of capital |
|
|
— |
|
|
|
1,898,266 |
|
| 2020 |
|
JRS |
|
|
JRI |
|
| Distributions from net ordinary income1 |
|
$ |
6,628,285 |
|
|
$ |
27,263,356 |
|
| Distributions from net long-term capital gains |
|
|
13,339,678 |
|
|
|
— |
|
| Return of capital |
|
|
1,990,315 |
|
|
|
6,226,479 |
|
|
| 1 Net ordinary income consists
of net taxable income derived from dividends, interest, and net short term capital gains, if any. |
|
As of December 31, 2021, the Funds’ tax year end, the following Fund had unused capital losses carrying forward available for federal
income tax purposes to be applied against future capital gains, if any. The capital losses are not subject to expiration.
|
|
|
|
|
| |
|
JRI2 |
|
| Not subject to expiration: |
|
|
|
|
| Short-term |
|
$ |
48,481,595 |
|
| Longt-term |
|
|
113,184,795 |
|
| Total |
|
$ |
161,666,390 |
|
|
| 2 A portion of JRI’s
capital loss carryforwards are subject to an annual limitation under the Internal Revenue Code and related regulations |
|
53
Notes to Financial Statements (continued)
During the Funds’ tax year ended December 31, 2021, the Funds utilized capital loss
carryforwards as follows:
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Utilized capital loss carryforwards |
|
$ |
14,022,815 |
|
|
$ |
12,595,184 |
|
7. Management Fees
Each Fund’s
management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. Security Capital and NAM are compensated for their services to the Funds from the management fees paid to the Adviser.
Each Fund’s management fee consists of two components – a fund-level fee, based only on the amount of assets within each individual Fund, and a
complex-level fee, based on the aggregate amount of all eligible fund assets managed by the Adviser. This pricing structure enables Fund shareholders to benefit from growth in the assets within their respective 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 calculated according to the following schedule:
|
|
|
|
|
|
|
|
|
| Average Daily Managed Assets* |
|
JRS |
|
|
JRI |
|
| For the first $500 million |
|
|
0.7000 |
% |
|
|
0.8000 |
% |
| For the next $500 million |
|
|
0.6750 |
|
|
|
0.7750 |
|
| For the next $500 million |
|
|
0.6500 |
|
|
|
0.7500 |
|
| For the next $500 million |
|
|
0.6250 |
|
|
|
0.7250 |
|
| For managed assets over $2 billion |
|
|
0.6000 |
|
|
|
0.7000 |
|
The annual complex-level fee, payable monthly, for each Fund is calculated by multiplying the current complex-wide fee rate, determined
according to the following schedule by each Fund’s daily managed assets:
|
|
|
|
|
| Complex-Level Eligible Asset Breakpoint Level* |
|
Effective Complex-Level Fee Rate at Breakpoint Level |
|
| $55 billion |
|
|
0.2000 |
% |
| $56 billion |
|
|
0.1996 |
|
| $57 billion |
|
|
0.1989 |
|
| $60 billion |
|
|
0.1961 |
|
| $63 billion |
|
|
0.1931 |
|
| $66 billion |
|
|
0.1900 |
|
| $71 billion |
|
|
0.1851 |
|
| $76 billion |
|
|
0.1806 |
|
| $80 billion |
|
|
0.1773 |
|
| $91 billion |
|
|
0.1691 |
|
| $125 billion |
|
|
0.1599 |
|
| $200 billion |
|
|
0.1505 |
|
| $250 billion |
|
|
0.1469 |
|
| $300 billion |
|
|
0.1445 |
|
| * |
For the complex-level fees, managed assets include closed-end fund assets managed by the Adviser that are attributable to
certain types of leverage. For these purposes, leverage includes the funds’ use of preferred stock and borrowings and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond
(TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trust’s issuance of floating rate securities, subject to an agreement by the Adviser as to certain funds to limit the amount of such
assets for determining managed assets in certain circumstances. The complex-level fee is calculated based upon the aggregate daily managed assets of all Nuveen open-end and closed-end funds that constitute “eligible assets.” Eligible
assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Adviser’s assumption of the management of
the former First American Funds effective January 1, 2011, but do not include certain assets of certain Nuveen funds that were reorganized into funds advised by an affiliate of the Adviser during the 2019 calendar year. As of December 31, 2021,
the complex-level fee for each Fund was 0.1531%. |
8. Borrowing Arrangements
Borrowings
Each Fund entered into a borrowing arrangement
(“Borrowings”) as a means of leverage. As of the end of the reporting period, each Fund’s maximum commitment amount under these Borrowings is as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Maximum commitment amount |
|
$ |
150,000,000 |
|
|
$ |
215,500,000 |
|
54
As of the end of the reporting period, each
Fund’s outstanding balance on its Borrowings was as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Outstanding balance on Borrowings |
|
$ |
144,000,000 |
|
|
$ |
197,935,000 |
|
During July 2021, JRI renewed its Borrowings through July 20, 2022 and decreased its interest on Borrowings to 1-Month LIBOR (London
Inter-Bank Offered Rate) plus 0.700% per annum on the amount borrrowed. All other terms remained unchanged.
For JRS interest is charged on these Borrowings at 1-Month LIBOR plus 0.610% per annum on the amounts borrowed. For JRI interest is charged on these Borrowings at 1-Month LIBOR plus 0.700% (0.775% prior to July 20, 2021) per
annum on the amounts borrowed and 0.125% per annum on the undrawn balance.
During the current fiscal period, the average daily balance outstanding (which was for the
entire reporting period) and average annual interest rate on each Fund’s Borrowings were as follows:
|
|
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Average daily balance outstanding |
|
$ |
126,190,411 |
|
|
$ |
182,092,260 |
|
| Average annual interest rate |
|
|
0.72 |
% |
|
|
0.87 |
% |
In order to maintain these Borrowings, the Funds must meet certain collateral, asset coverage and other requirements. Borrowings
outstanding are fully secured by eligible securities held in each Fund’s portfolio of investments.
Borrowings outstanding are recognized as
“Borrowings” on the Statement of Assets and Liabilities. Interest expense and other fees incurred on the drawn amount and undrawn balance are recognized as a component of “Interest expense” on the Statement of Operations.
Inter-Fund Borrowing and Lending
The SEC has granted an exemptive order
permitting registered open-end and closed-end Nuveen funds to participate in an inter-fund lending facility whereby the Nuveen funds may directly lend to and borrow money from each other for temporary purposes (e.g., to satisfy redemption requests
or when a sale of securities “fails,” resulting in an unanticipated cash shortfall) (the “Inter-Fund Program”). The closed-end Nuveen funds, including the Funds covered by this shareholder report, will participate only as
lenders, and not as borrowers, in the Inter-Fund Program because such closed-end funds rarely, if ever, need to borrow cash to meet redemptions. The Inter-Fund Program is subject to a number of conditions, including, among other things, the
requirements that (1) no fund may borrow or lend money through the Inter-Fund Program unless it receives a more favorable interest rate than is typically available from a bank or other financial institution for a comparable transaction; (2) no fund
may borrow on an unsecured basis through the Inter-Fund Program unless the fund’s outstanding borrowings from all sources immediately after the inter-fund borrowing total 10% or less of its total assets; provided that if the borrowing fund has
a secured borrowing outstanding from any other lender, including but not limited to another fund, the inter-fund loan must be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value; (3) if a
fund’s total outstanding borrowings immediately after an inter-fund borrowing would be greater than 10% of its total assets, the fund may borrow through the inter-fund loan on a secured basis only; (4) no fund may lend money if the loan would
cause its aggregate outstanding loans through the Inter-Fund Program to exceed 15% of its net assets at the time of the loan; (5) a fund’s inter-fund loans to any one fund shall not exceed 5% of the lending fund’s net assets; (6) the
duration of inter-fund loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days; and (7) each interfund loan may be called on one business day’s notice by a lending fund and may be
repaid on any day by a borrowing fund. In addition, a Nuveen fund may participate in the Inter-Fund Program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The Board
is responsible for overseeing the Inter-Fund Program.
The limitations detailed above and the other conditions of the SEC exemptive order permitting the Inter-Fund
Program are designed to minimize the risks associated with Inter-Fund Program for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. When a fund borrows money from another fund, there is a risk
that the loan could be called on one day’s notice or not renewed, in which case the fund may have to borrow from a bank at a higher rate or take other actions to payoff such loan if an inter-fund loan is not available from another fund. Any
delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
During the current reporting period, none of the
Funds covered by this shareholder report have entered into any inter-fund loan activity.
55
Shareholder Update
(Unaudited)
CURRENT INVESTMENT OBJECTIVES, INVESTMENT POLICIES AND PRINCIPAL RISKS OF THE FUNDS
NUVEEN REAL ESTATE INCOME FUND (JRS)
Investment Objectives
The Fund’s primary investment objective is to provide high current income. The Fund’s secondary investment objective is capital appreciation.
Investment Policies
Under normal market conditions, the Fund will invest at
least 90% of its total assets in income-producing common stocks, preferred stocks, convertible securities and debt securities issued by real estate companies. The Fund has a fundamental policy of concentrating its investments in the U.S. real estate
industry and not in any other industry.
“Managed Assets” mean the total assets of the Fund, minus the sum of its accrued liabilities (other than Fund
liabilities incurred for the express purpose of creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those assets are reflected in the Fund’s financial statements
for purposes of generally accepted accounting principles), and derivatives will be valued at their market value.
Under normal market conditions:
| |
• |
|
The Fund will invest at least 80% of its total assets in income producing equity securities issued by Real Estate Investment
Trusts (“REITs”), excluding convertible securities. |
| |
• |
|
The Fund will not invest more than 25% of its total assets in non-investment grade
preferred stocks, convertible preferred stocks and debt securities. Investment grade quality preferred stocks, convertible preferred stocks and debt securities are those that, at the time of investment, are rated within the four highest letter
grades (BBB or Baa or better) by at least one nationally recognized statistical rating organization (“NRSRO”) that rates such instrument (even if it is rated lower by another), or if it is unrated by any NRSRO but judged to be of
comparable quality by the portfolio managers. |
| |
• |
|
The Fund may invest up to 20% of its total assets in debt securities, including convertible debt securities, issued or
guaranteed by real estate companies. |
| |
• |
|
The Fund will invest at least 25% of its Managed Assets in securities of companies in the financial services sector.
|
| |
• |
|
The Fund will not invest more than 10% of its total assets in the securities of any one issuer. |
| |
• |
|
The Fund will not enter into short sales or invest in derivatives, except as described below in connection with the interest
rate swap or interest rate cap transactions. |
The foregoing policies apply only at the time of any new investment.
Approving Changes in Investment Policies
The Board of Trustees of the Fund may
change the policies described above without a shareholder vote. However, with respect to the Fund’s policy of investing at least 90% of its total assets in income-producing securities issued by real estate companies, such policy may not be
changed without 60 days’ prior written notice to shareholders.
The Fund has a fundamental policy of concentrating its investments in the U.S. real estate
industry and not in any other industry. This policy may not be changed without the approval of the holders of a majority of the outstanding common shares and preferred shares voting together as a single class, and the approval of the holders of a
majority of the outstanding preferred shares, voting separately as a single class. A “majority of the outstanding” shares means (i) 67% or more of the shares present at a meeting, if the holders of more than 50% of the shares are present
or represented by proxy or (ii) more than 50% of the shares, whichever is less.
Portfolio Contents
The Fund’s investments are concentrated in the U.S. real estate industry. A real estate company generally derives at least 50% of its revenue from the ownership,
construction, financing, management or sale of commercial, industrial or residential real estate (or that has at least 50% of its assets invested in such real estate). A common type of real estate company, a REIT, is a company that pools
investors’ funds for investment primarily in income-producing real estate or in real estate related loans (such as mortgages) or other interests. Therefore, a REIT normally derives its income from rents or from interest payments, and may
realize capital gains by selling properties that have appreciated in value. REITs generally pay relatively high dividends (as compared to other types of companies) and the Fund intends to use these REIT dividends in an effort to meet its primary
objective of high current income.
The Fund may invest in common stocks. Common stock generally represents an equity ownership interest in an issuer, without
preference over and with a lower priority than any other class of securities, including such issuer’s debt securities, preferred stock and other senior equity securities. Common stocks
56
usually carry voting rights and earn dividends.
Common stocks fluctuate in price in response to many factors including historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity, as such the
company may or may not pay dividends. Dividends on common stocks are declared at the discretion of the company’s board. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases
in earnings are usually reflected in a company’s stock price.
The Fund may invest in preferred stocks. Preferred stock, which generally pays fixed or adjustable
rate dividends or interest to investors, has preference over common stock in the payment of dividends or interest and the liquidation of a company’s assets, which means that a company typically must pay dividends or interest on its preferred
stock before paying any dividends on its common stock. On the other hand, preferred stock is junior to all forms of the company’s debt, including both senior and subordinated debt. Because of its subordinated position in the capital structure
of an issuer, the ability to defer dividend or interest payments for extended periods of time without adverse consequences to the issuer, and certain other features, preferred stock is often treated as an equity-like instrument by both issuers and
investors, as its quality and value is heavily dependent on the profitability and cash flows of the issuer rather than on any legal claims to specific assets.
The
Fund may invest in convertible securities, which may include convertible debt, convertible preferred stock, synthetic convertible securities and may also include secured and unsecured debt, based upon the judgment of the Fund’s sub-adviser. Convertible securities may pay interest or dividends that are based on a fixed or floating rate. A convertible security is a preferred stock, warrant or other security that may be converted into or
exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a particular period of time at a specified price or formula.
The Fund may invest in debt securities, including convertible debt securities, issued or guaranteed by real estate companies.
The Fund’s may invest in below investment grade preferred stocks, convertible preferred stocks and debt securities. Below investment grade preferred stocks,
convertible preferred stocks and debt securities (such securities are commonly referred to as “high yield” or “junk”) generally provide high income in an effort to compensate investors for their higher risk of default, which is
the failure to make required interest or principal payments.
The Fund will invest in securities of companies in the financial services sector. For purposes of
identifying companies in the financial services sector, the Fund will use sector and industry classifications such as those provided by MSCI and Standard & Poor’s (The Global Industry Classification Standard (GICS)), Bloomberg,
Barclays or similar sources commonly used in the financial industry. As a result, if one or more of these classifications include a company “in” the financial services sector, the Fund will consider such company as “in” the
financial services sector.
The Fund may invest directly or indirectly in foreign securities, including securities denominated in foreign currencies or in
multinational currency units. Since foreign securities often are purchased with and payable in currencies of foreign countries, the value of these assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations.
The Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to,
restricted securities (securities the disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under the Securities Act of 1933, as amended (the “1933 Act”), and
repurchase agreements with maturities in excess of seven days.
The Fund may enter into interest rate swap transactions that are intended to hedge the Fund’s
payment obligations. Interest rate swaps involve the Fund’s agreement with the swap counterparty to pay a fixed rate payment in exchange for the counterparty paying the Fund a variable rate payment that is intended to approximate the
Fund’s variable rate payment obligation on Borrowings or any preferred shares. The payment obligation is based on the notional amount of the swap.
The Fund may
also enter into interest rate cap transactions, which would require it to pay a premium to the cap counterparty and would entitle it, to the extent that a specified variable rate index exceeds a predetermined fixed rate, to receive from the
counterparty payment of the difference based on the notional amount.
The Fund may also invest in securities of other open-
or closed-end investment companies (including exchange-traded funds (“ETFs”)) that invest primarily in securities of the types in which the Fund may invest directly, to the extent permitted
by the Investment Company Act of 1940, as amended (the “1940 Act”), the rules and regulations issued thereunder and applicable exemptive orders issued by the Securities and Exchange Commission (“SEC”). In addition, the Fund
may invest a portion of its Managed Assets in pooled investment vehicles (other than investment companies) that invest primarily in securities of the types in which the Fund may invest directly.
Use of Leverage
The Fund uses leverage to pursue its investment objectives.
The Fund may use leverage to the extent permitted by the 1940 Act. The Fund may source leverage through a number of methods including borrowings and the issuance of preferred shares of beneficial interest. In addition, the Fund may also use
certain derivatives, such as interest rate swaps, that have the economic effect of leverage by creating additional investment exposure. The amount and sources of leverage will vary depending on market conditions.
57
Shareholder Update (continued)
(Unaudited)
Temporary Defensive Periods
During temporary defensive periods the Fund may
deviate from investment objectives and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest any percentage of its net assets in short-term investments including high quality, short-term debt securities that may be either tax-exempt or taxable. The Fund may not achieve its investment objectives during such periods.
58
NUVEEN REAL ASSET INCOME AND
GROWTH FUND (JRI)
Investment Objective
The Fund’s investment
objective is to provide a high level of current income and long-term capital appreciation.
Investment Policies
Under normal circumstances, the Fund will invest at least 80% of its Managed Assets (as defined below) in equity and debt securities issued by real asset related
companies located anywhere in the world.
Real asset related companies are defined as: (i) companies that are in the energy, telecommunications, utilities or
materials sectors; (ii) companies in the real estate or transportation industry groups; (iii) companies that, if not in one of these sectors or industry groups (a) derive at least 50% of their revenues or profits from the ownership,
management, operation, development, construction, financing or sale of real assets or (b) have at least 50% of the fair market value of their assets invested in real assets; or (iv) pooled investment vehicles that primarily invest in the
foregoing companies or that are otherwise designed primarily to provide investment exposure to real assets.
The Fund also employs an option strategy focused on
securities issued by real asset related companies that seeks to generate option premiums for the purpose of enhancing the Fund’s risk-adjusted total returns over time.
“Managed Assets” mean the total assets of the Fund, minus the sum of its accrued liabilities (other than Fund liabilities incurred for the express purpose of
creating leverage). Total assets for this purpose shall include assets attributable to the Fund’s use of leverage (whether or not those assets are reflected in the Fund’s financial statements for purposes of generally accepted accounting
principles), and derivatives will be valued at their market value.
Under normal market conditions:
| |
• |
|
The Fund’s investments will be concentrated in the infrastructure and real estate sectors. |
| |
• |
|
The Fund will not have more than 40% of its Managed Assets, at the time of purchase, in debt securities. All of the
Fund’s debt securities may be rated lower than investment grade quality (BB+/Ba1 or lower); however, no more than 10% of its Managed Assets may be invested in debt securities rated CCC+/Caa1 or lower at any time. |
| |
• |
|
The Fund may invest up to 5% of its Managed Assets in senior loans. |
| |
• |
|
The Fund will invest at least 25% and no more than 75% of its Managed Assets in securities of
non-U.S. issuers through the direct investment in securities of non-U.S. companies and depository receipts. |
| |
• |
|
The Fund may invest up to 50% of its Managed Assets in securities of emerging markets issuers. |
| |
• |
|
The Fund may write (sell) options with a notional value of options ranging from 0% to 25% of its Managed Assets.
|
| |
• |
|
The Fund may invest up to 10% of is Managed Assets in securities of other open- or
closed-end investment companies (including ETFs) that invest primarily in securities of the types in which the Fund may invest directly. In addition, the Fund may invest a portion of its Managed Assets in
pooled investment vehicles (other than investment companies) that invest primarily in securities of the types in which the Fund may invest directly. |
The foregoing policies apply only at the time of any new investment.
Approving
Changes in Investment Policies
The Board of Trustees of the Fund may change the policies described above without a shareholder vote. However, with respect to the
Fund’s policy of investing at least 80% of its Managed Assets in equity and debt securities issued by real asset related companies located anywhere in the world, such policy may not be changed without 60 days’ prior written notice to
shareholders.
Portfolio Contents
The Fund generally invests in equity and
debt securities issued by real asset related companies located anywhere in the world in the infrastructure and real estate sectors. The infrastructure sector includes investments related to the energy, telecommunications, utilities and materials
sectors. The real estate sector includes investments in real estate companies.
Debt securities in which the Fund may invest include: corporate debt, high yield
debt, mortgage-backed securities (“MBS”), commercial mortgage-backed securities (“CMBS”), debt securities issued by master-limited partnerships (“MLPs”) and REITs, exchange-traded notes (“ETNs”), commercial
paper & repurchase agreements, asset-backed securities (“ABS”) and senior loans.
The Fund may invest in common stocks issued by real asset related
companies. Common stock generally represents an equity ownership interest in an issuer, without preference over and with a lower priority than any other class of securities, including such issuer’s debt securities, preferred stock and
other
59
Shareholder Update (continued)
(Unaudited)
senior equity securities. Common stocks usually carry voting rights and earn dividends. Common stocks fluctuate in price in response to many factors including historical
and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor perceptions and market liquidity, as such the company may or may not pay dividends. Dividends on common stocks are declared at the
discretion of the company’s board. In addition, common stock generally has the greatest appreciation and depreciation potential because increases and decreases in earnings are usually reflected in a company’s stock price.
The Fund may invest in rights and warrants of common stock. Rights and warrants are pure speculation in that they have no voting rights, pay no dividends and have no
rights with respect to the assets of the entity issuing them. They do not represent ownership of the securities, but only the right to buy them. The prices of rights (if traded independently) and warrants do not necessarily move parallel to the
prices of the underlying securities.
The Fund may invest in preferred stocks issued by real asset related companies. Preferred stock, which generally pays fixed or
adjustable rate dividends or interest to investors, has preference over common stock in the payment of dividends or interest and the liquidation of a company’s assets, which means that a company typically must pay dividends or interest on its
preferred stock before paying any dividends on its common stock. On the other hand, preferred stock is junior to all forms of the company’s debt, including both senior and subordinated debt. Because of its subordinated position in the capital
structure of an issuer, the ability to defer dividend or interest payments for extended periods of time without adverse consequences to the issuer, and certain other features, preferred stock is often treated as an equity-like instrument by both
issuers and investors, as its quality and value is heavily dependent on the profitability and cash flows of the issuer rather than on any legal claims to specific assets.
The Fund may invest in convertible securities issued by real asset related companies, which may include convertible debt, convertible preferred stock, synthetic
convertible securities and may also include secured and unsecured debt, based upon the judgment of the Fund’s sub-adviser. Convertible securities may pay interest or dividends that are based on a fixed or
floating rate. A convertible security is a preferred stock, warrant or other security that may be converted into or exchanged for a prescribed amount of common stock or other security of the same or a different issuer or into cash within a
particular period of time at a specified price or formula.
The Fund may invest in securities of non-U.S. issuers, including
emerging market issuers. The Fund will classify an issuer of a security as being a U.S. or non-U.S. issuer based on the determination of an unaffiliated, recognized financial data provider. Such determinations
are based on a number of criteria, such as the issuer’s country of domicile, the primary exchange on which the security predominately trades, the location from which the majority of the issuer’s revenue comes, and the issuer’s
reporting currency. Furthermore, a country is considered to be an “emerging market” if it has a relatively low gross national product per capita compared to the world’s major economies and the potential for rapid economic growth. The
Fund considers a country an emerging market country based on the determination of an international organization, such as the IMF, or an unaffiliated, recognized financial data provider.
The Fund may invest in debt securities issued or guaranteed by real asset related companies.
The Fund’s investments in debt securities may include investment grade and below investment grade securities. Below investment grade securities (such securities are
commonly referred to as “high yield” or “junk”) generally provide high income in an effort to compensate investors for their higher risk of default, which is the failure to make required interest or principal payments.
The Fund may invest in corporate debt securities, including corporate bonds. Corporate debt securities are fully taxable debt obligations issued by corporations. These
securities fund capital improvements, expansions, debt refinancing or acquisitions that require more capital than would ordinarily be available from a single lender. Investors in corporate debt securities lend money to the issuing corporation in
exchange for interest payments and repayment of the principal at a set maturity date. Rates on corporate debt securities are set according to prevailing interest rates at the time of the issue, the credit rating of the issuer, the length of the
maturity and other terms of the security, such as a call feature. Corporate debt securities are subject to the risk of an issuer’s inability to meet principal and interest payments on the obligations and may also be subject to price volatility
due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. In addition, corporate restructurings, such as mergers, leveraged buyouts, takeovers or similar corporate
transactions are often financed by an increase in a corporate issuer’s debt securities. As a result of the added debt burden, the credit quality and market value of an issuer’s existing debt securities may decline significantly.
The Fund may invest in senior loans. Senior loans typically hold the most senior position in the capital structure of a business entity, are typically secured with
specific collateral and have a claim on the assets and/or stock of the issuer that is senior to that held by subordinated debt holders and stockholders of the issuer.
Senior loans generally include: (i) senior loans made by banks or other financial institutions to U.S. and non-U.S.
corporations, partnerships and other business entities (each a “Borrower” and, collectively, “Borrowers”), (ii) assignments of such interests in senior loans, or (iii) participation interests in senior loans. Generally,
an assignment is the actual sale of the loan, in whole or in part. A participation, on the other hand, means that the original lender maintains ownership over the loan and the participant has only a contract right against the original lender, not a
credit relationship with the Borrower. Senior loans typically hold the most senior position in the capital structure of a Borrower, are typically secured with specific collateral and have a claim on the assets and/or stock of the Borrower that is
senior to that held by subordinated debt holders and stockholders of the Borrower. The capital structure of
60
a Borrower may include senior loans, senior and
junior subordinated debt, preferred stock and common stock issued by the Borrower, typically in descending order of seniority with respect to claims on the Borrower’s assets. The proceeds of senior loans primarily are used by Borrowers to
finance leveraged buyouts, recapitalizations, mergers, acquisitions, stock repurchases, refinancings, internal growth and for other corporate purposes. A senior loan is typically originated, negotiated and structured by a U.S. or non-U.S. commercial bank, insurance company, finance company or other financial institution (“Agent”) for a lending syndicate of financial institutions which typically includes the Agent
(“Lenders”). The Agent typically administers and enforces the senior loan on behalf of the other Lenders in the syndicate. In addition, an institution, typically but not always the Agent, holds any collateral on behalf of the Lenders. The
Fund normally will rely primarily on the Agent to collect principal of and interest on a senior loan. Also, the Fund usually will rely on the Agent to monitor compliance by the Borrower with the restrictive covenants in a loan agreement.
Senior loans typically have rates of interest that are redetermined either daily, monthly, quarterly or semi-annually by reference to a base lending rate plus a premium
or credit spread. These base lending rates are primarily the London Inter-Bank Offered Rate (“LIBOR”), and secondarily the prime rate offered by one or more major U.S. banks and the certificate of deposit rate or other base lending rates
used by commercial lenders. The base rate for senior loans has not yet been determined with the upcoming discontinuation of LIBOR. As adjustable rate loans, the frequency of how often a senior loan resets its interest rate will impact how closely
such senior loans track current market interest rates.
The Fund may invest in MBS. MBS are structured debt obligations collateralized by pools of commercial or
residential mortgages. Pools of mortgage loans and mortgage-related loans, such as mezzanine loans, are assembled into pools of assets that secure or back securities sold to investors by various governmental, government-related and private
organizations. MBS in which the Fund may invest include those with fixed, floating or variable interest rates, those with interest rates that change based on a specified index of interest rates and those with interest rates that change inversely to
changes in interest rates, as well as those that do not bear interest.
The Fund may invest in CMBS. CMBS generally are multi-class debt or pass-through certificates
secured or backed by mortgage loans on commercial properties. CMBS generally are structured to provide protection to the senior class investors against potential losses on the underlying mortgage loans. This protection generally is provided by
having the holders of subordinated classes of securities take the first loss if there are defaults on the underlying commercial mortgage loans. Other protection, which may benefit all of the classes or particular classes, may include issuer
guarantees, reserve funds, cross-collateralization and over-collateralization. The Fund may invest in CMBS issued or sponsored by commercial banks, savings and loan institutions, mortgage bankers, private mortgage insurance companies and other non-governmental issuers. CMBS have no governmental guarantee.
The Fund may also invest in ABS. ABS are securities
that are primarily serviced by the cash flows of a discrete pool of receivables or other financial assets, either fixed or revolving, that by their terms convert into cash within a finite time period. Asset-backed securitization is a financing
technique in which financial assets, in many cases themselves less liquid, are pooled and converted into instruments that may be offered and sold in the capital markets. While residential mortgages were the first financial assets to be securitized
in the form of MBS, non-mortgage related securitizations have grown to include many other types of financial assets, such as credit card receivables, auto loans and student loans.
The Fund may invest in ETNs. ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions that combine aspects of both bonds and
ETFs. An ETN’s returns are based on the performance of a market index minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN can be held until the ETN’s
maturity, at which time the issuer will pay a return linked to the performance of the market index to which the ETN is linked minus certain fees.
The Fund may invest
in REITs. A common type of real estate company, a REIT is a company that pools investors’ funds for investment primarily in income-producing real estate or in real estate related loans (such as mortgages) or other interests. Therefore, a REIT
normally derives its income from rents or from interest payments, and may realize capital gains by selling properties that have appreciated in value. REITs generally pay relatively high dividends (as compared to other types of companies) and the
Fund intends to use these REIT dividends in an effort to meet its primary objective of high current income. REITs generally can be classified as Equity REITs, Mortgage REITs and Hybrid REITs. An Equity REIT invests the majority of its assets
directly in real property and derives its income primarily from rents and from capital gains on real estate appreciation which are realized through property sales. A Mortgage REIT invests the majority of its assets in real estate mortgage loans and
derives its income primarily from interest payments. A Hybrid REIT combines the characteristics of an Equity REIT and a Mortgage REIT. Although each Fund can invest in all three kinds of REITs, the emphasis of each Fund is expected to be on
investments in the common stock and preferred stock of Equity REITs.
The Fund may invest in MLPs. MLPs are publicly traded limited partnerships. The partnership
units are registered with the SEC and are freely exchanged on a securities exchange or in the over-the-counter (“OTC”) market. MLPs that are taxed as
partnerships for federal income tax purposes are limited by the Code to enterprises that engage in certain businesses, mostly pertaining to the use of natural resources, such as petroleum and natural gas extraction and transportation. Some real
estate enterprises also may qualify as MLPs taxed as partnerships.
The Fund may enter into repurchase agreements (the purchase of a security coupled with an
agreement to resell that security at a higher price) with respect to its permitted investments. The Fund’s repurchase agreements will provide that the value of the collateral underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the agreement, and will be marked-to-market daily.
61
Shareholder Update (continued)
(Unaudited)
The Fund may invest in commercial paper. Commercial paper represents short-term unsecured promissory notes issued in bearer form by corporations such as banks or bank
holding companies and finance companies. The rate of return on commercial paper may be linked or indexed to the level of exchange rates between the U.S. dollar and a foreign currency or currencies.
The Fund may invest in illiquid securities (i.e., securities that are not readily marketable), including, but not limited to, restricted securities (securities the
disposition of which is restricted under the federal securities laws), securities that may be resold only pursuant to Rule 144A under the 1933 Act, and repurchase agreements with maturities in excess of seven days.
The Fund may buy and sell securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15 to 45 days of the
trade date.
The Fund may opportunistically employ an option strategy by writing (selling) call options on custom baskets of real estate securities not owned by the
Fund. The Fund may also write (sell) covered call options on individual real estate and/or infrastructure securities owned by the Fund. The Fund also may write (sell) covered call options on individual securities issued by real asset related
companies.
An option contract is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to
(in the case of a put) the writer of the option the reference instrument underlying the option (or the cash value of the index) at a specified exercise price at any time during the term of the option. The writer of an option on a security has the
obligation upon exercise of the option to deliver the reference instrument (or the cash) upon payment of the exercise price or to pay the exercise price upon delivery of the reference instrument (or the cash). Upon exercise of an index option, the
writer of an option on an index is obligated to pay the difference between the cash value of the index and the exercise price multiplied by the specified multiplier for the index option. Options may be “covered,” meaning that the party
required to deliver the reference instrument if the option is exercised owns that instrument (or has set aside sufficient assets to meet its obligation to deliver the instrument). Options may be listed on an exchange or traded in the OTC
market. In general, exchange-traded options have standardized exercise prices and expiration dates and may require the parties to post margin against their obligations, and the performance of the parties’ obligations in connection with
such options is guaranteed by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller, but generally are subject to counterparty risk. The ability of the Fund to transact
business with any one or any number of counterparties, the lack of any independent evaluation of the counterparties or their financial capabilities, and the absence of a regulated market to facilitate settlement, may increase the potential for
losses to the Fund. OTC options also involve greater liquidity risk. This risk may be increased in times of financial stress, if the trading market for OTC derivative contracts becomes limited. The staff of the SEC takes the position that
certain purchased OTC options, and assets used as cover for certain written OTC options, are illiquid.
The Fund may also write call options on custom baskets of real
estate securities. A custom basket call option is an OTC option with a counterparty whose value is linked to the market value of a portfolio of underlying securities and is collateralized by a portion of the Fund’s portfolio. In order to
minimize the difference between the returns of the underlying securities in the custom basket (commonly referred to as a tracking error), the sub-adviser will use optimization calculations when selecting the
individual securities for inclusion in the custom basket.
In selecting real estate securities for each custom basket, the Fund seeks to minimize the difference
between the returns of the underlying stocks of the custom basket and an index of real estate securities (commonly referred to as tracking error) and, at the same time, maximize exposure to securities that the portfolio managers believe are less
likely to outperform the relevant market benchmarks over time. Securities selected for each custom basket will primarily consist of underweighted positions relative to the relevant market benchmarks, and may include securities held and not held in
the Fund’s portfolio. The objective in structuring these custom baskets is to produce option premiums without limiting the upside potential for specific securities that the portfolio managers believe may outperform over time.
In addition to the use of call options as described above, the Fund may enter into certain derivative instruments in pursuit of its investment objective, including to
seek to enhance return, to hedge certain risks of its investments in fixed-income securities or as a substitute for a position in the underlying asset. Such instruments include financial futures contracts, swap contracts (including interest rate,
credit default swaps and credit default swap indices), options on financial futures, options on swap contracts or other derivative instruments.
Use of Leverage
The Fund uses leverage to pursue its investment objective. The Fund may use leverage to the extent permitted by the 1940 Act. The Fund may source leverage
through a number of methods including borrowings, entering into reverse repurchase agreements (effectively a secured borrowing) and the issuance of preferred shares of beneficial interest. In addition, the Fund may also use certain derivatives
that have the economic effect of leverage by creating additional investment exposure. The amount and sources of leverage will vary depending on market conditions.
Temporary Defensive Periods
During temporary defensive periods the Fund may
deviate from its investment objective and policies, and in order to keep the Fund’s cash fully invested, the Fund may invest up to 100% of its Managed Assets in short-term investments, including high quality, short-term securities or may invest
in short-, intermediate-, or long-term U.S. Treasury Bonds. The Fund may not achieve its investment objective during such periods.
62
PRINCIPAL RISKS OF THE FUNDS
The factors that are most likely to have a material effect on a particular Fund’s portfolio as a whole are called “principal risks.” Each Fund is subject
to the principal risks indicated below, whether through direct investment or derivative positions. Each Fund may be subject to additional risks other than those identified and described below because the types of investments made by a Fund can
change over time.
|
|
|
|
|
| Risk |
|
Nuveen Real Estate
Income Fund
(JRS) |
|
Nuveen Real Asset
Income and Growth Fund
(JRI) |
|
|
|
| Portfolio Level Risks |
|
|
|
|
|
|
|
| Below Investment Grade Risk |
|
X |
|
X |
| Bond Market Liquidity Risk |
|
— |
|
X |
| Call Option Risk |
|
— |
|
X |
| Call Risk |
|
X |
|
X |
| Common Stock Risk |
|
X |
|
X |
| Concentration Risk |
|
X |
|
X |
| Convertible Securities Risk |
|
X |
|
X |
| Credit Risk |
|
X |
|
X |
| Credit Spread Risk |
|
X |
|
X |
| Debt Securities Risk |
|
X |
|
X |
| Deflation Risk |
|
X |
|
X |
| Derivatives Risk |
|
X |
|
X |
| Dividend-Paying Securities Risk |
|
— |
|
X |
| Duration Risk |
|
X |
|
X |
| Emerging Markets Risk |
|
— |
|
X |
| Exchange-Traded Notes (“ETNs”) Risk |
|
— |
|
X |
| Financial Futures and Options Transactions Risk |
|
— |
|
X |
| Financial Services Sector Risk |
|
X |
|
— |
| Foreign Currency Risk |
|
X |
|
X |
| Frequent Trading Risk |
|
— |
|
X |
| Hedging Risk |
|
X |
|
X |
| Illiquid Investments Risk |
|
X |
|
X |
| Income Risk |
|
X |
|
X |
| Inflation Risk |
|
X |
|
X |
| Infrastructure and Real Estate Concentration Risk |
|
— |
|
X |
| Infrastructure Related Securities Risk |
|
— |
|
X |
| Interest Rate Risk |
|
X |
|
X |
| Large-Cap Company
Risk |
|
— |
|
X |
| London Inter-Bank Offered Rate (“LIBOR”) Replacement
Risk |
|
X |
|
X |
| Master Limited Partnerships (“MLPs”) Risk |
|
— |
|
X |
| Natural Resource Related Securities Risk |
|
— |
|
X |
| Non-U.S. Securities
Risk |
|
X |
|
X |
| Options Strategy Risk |
|
— |
|
X |
| Other Investment Companies Risk |
|
X |
|
X |
| Preferred Securities Risk |
|
X |
|
X |
| Real Estate Industry Concentration Risk |
|
X |
|
— |
| Real Estate Related Securities Risk |
|
X |
|
X |
63
Shareholder Update (continued)
(Unaudited)
|
|
|
|
|
| Risk |
|
Nuveen Real Estate
Income Fund
(JRS) |
|
Nuveen Real Asset
Income and Growth Fund
(JRI) |
| Reinvestment Risk |
|
X |
|
X |
| Rights and Warrants Risk |
|
— |
|
X |
| Small and Mid-Cap Company
Risk |
|
— |
|
X |
| Swap Transactions Risk |
|
X |
|
X |
| Unrated Securities Risk |
|
X |
|
X |
| Unseasoned Company Risk |
|
— |
|
X |
| Valuation Risk |
|
X |
|
X |
| When-Issued and Delayed Delivery Transactions Risk |
|
— |
|
X |
| Whole Loans, Loan Participations and Other Mortgage-Related Interests
Risk |
|
— |
|
X |
|
|
|
| Fund Level and Other Risks |
|
|
|
|
|
|
|
| Anti-Takeover Provisions |
|
X |
|
X |
| Borrowing Risk |
|
X |
|
X |
| Counterparty Risk |
|
X |
|
X |
| Cybersecurity Risk |
|
X |
|
X |
| Global Economic Risk |
|
X |
|
X |
| Investment and Market Risk |
|
X |
|
X |
| Legislation and Regulatory Risk |
|
X |
|
X |
| Leverage Risk |
|
X |
|
X |
| Market Discount from Net Asset Value |
|
X |
|
X |
| Recent Market Conditions |
|
X |
|
X |
| Reverse Repurchase Agreement Risk |
|
X |
|
X |
| Tax Risk |
|
X |
|
X |
Portfolio Level Risks:
Below Investment Grade Risk. Securities of below investment grade quality are regarded as having speculative characteristics with respect to the issuer’s capacity to pay
interest and repay principal, and may be subject to higher price volatility and default risk than investment grade securities of comparable terms and duration. Issuers of lower grade securities may be highly leveraged and may not have available to
them more traditional methods of financing. The prices of these lower grade securities are typically more sensitive to negative developments, such as a decline in the issuer’s revenues or a general economic downturn. The secondary market for
lower rated securities may not be as liquid as the secondary market for more highly rated securities, a factor which may have an adverse effect on the Fund’s ability to dispose of a particular security. If a below investment grade security goes
into default, or its issuer enters bankruptcy, it might be difficult to sell that security in a timely manner at a reasonable price.
Bond Market Liquidity Risk. Dealer inventories of bonds, which provide an indication of the ability of financial intermediaries to “make markets” in those bonds, are
at or near historic lows in relation to market size. This reduction in market making capacity has the potential to decrease liquidity and increase price volatility in the fixed income markets in which the Fund invests, particularly during periods of
economic or market stress. In addition, recent federal banking regulations may cause certain dealers to reduce their inventories of bonds, which may further decrease the Fund’s ability to buy or sell bonds. As a result of this decreased
liquidity, the Fund may have to accept a lower price to sell a security, sell other securities to raise cash, or give up an investment opportunity, any of which could have a negative effect on performance. If the Fund needed to sell large blocks of
bonds to raise cash, those sales could further reduce the bonds’ prices and hurt performance.
Call Option
Risk. As the writer of a call option, the Fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the instrument underlying the call option above the
sum of the premium and the strike price of the option, but will retain the risk of loss should the market value of the instrument underlying the call option decline. The purchaser of the call option has the right to any appreciation in the value of
the underlying instrument over the exercise price upon the exercise of the call option or the expiration date. As the Fund increases the option overlay percentage, its ability to benefit from capital appreciation becomes more limited and the risk of
NAV erosion increases. If the Fund experiences NAV erosion, which itself
64
may have a negative effect on the market price of the
Fund’s shares, the Fund will have a reduced asset base over which to write call options, which may eventually lead to reduced distributions to shareholders.
In
addition, because the exercise of index options is settled in cash, sellers of index call options, such as the Fund, cannot provide in advance for their potential settlement obligations by acquiring and holding the underlying securities. The Fund
bears a risk that the value of the securities held by the Fund will vary from the value of the underlying index and relative to the written index call option positions. Accordingly, the Fund may incur losses on the index call options that it has
sold that exceed gains on the Fund’s equity portfolio. The value of index options written by the Fund, which will be priced daily, will be affected by changes in the value of and dividend rates of the underlying common stocks in the index,
changes in the actual or perceived volatility of the stock market and the remaining time to the options’ expiration. The value of the index options also may be adversely affected if the market for the index options becomes less liquid or
smaller.
Call Risk. The Fund may invest in securities that are subject to call risk.
Such securities may be redeemed at the option of the issuer, or “called,” before their stated maturity or redemption date. In general, an issuer will call its instruments if they can be refinanced by issuing new instruments that bear a
lower interest rate. The Fund is subject to the possibility that during periods of falling interest rates, an issuer will call its high yielding securities. The Fund would then be forced to invest the unanticipated proceeds at lower interest rates,
resulting in a decline in the Fund’s income.
Common Stock Risk. Common
stocks have experienced significantly more volatility in returns and may significantly underperform relative to fixed-income securities during certain periods. An adverse event, such as an unfavorable earnings report, may depress the value of a
particular common stock held by the Fund. Also, the price of common stocks is sensitive to general movements in the stock market, and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common stock
prices fluctuate for several reasons, including changes in investors’ perceptions of the financial condition of an issuer, the general condition of the relevant stock market or the current and expected future conditions of the broader economy,
or when political or economic events affecting the issuer in particular or the stock market in general occur. In addition, common stock prices may be particularly sensitive to rising interest rates, as the cost of capital rises and borrowing costs
increase.
Concentration Risk. The Fund’s investments are concentrated in
issuers of one or a few specific economic sectors, so the Fund may be subject to more risks than if it were broadly diversified across the economy.
Convertible Securities Risk. Convertible securities have characteristics of both equity and debt securities and, as a result, are exposed to certain additional risks that are
typically associated with debt, including but not limited to Interest Rate Risk, Credit Risk, Below Investment Grade Risk and Unrated Securities Risk. The value of a convertible security is influenced by both the yield of non-convertible securities of comparable issuers and by the value of the underlying common stock. Convertible securities generally offer lower interest or dividend yields than
non-convertible securities of similar credit quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, the
convertible security’s market value tends to reflect the market price of the common stock of the issuing company when that stock price is greater than the convertible security’s “conversion price.” The conversion price is defined
as the predetermined price at which the convertible security could be exchanged for the associated common stock. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the
yield of the convertible security. Thus, the convertible security may not decline in price to the same extent as the underlying common stock. Convertible securities fall below debt obligations of the same issuer in order of preference or priority in
the event of a liquidation and are typically unrated or rated lower than such debt obligations.
Credit Risk. Issuers of securities in which the Fund may invest may default on their obligations to pay principal or interest when due. This non-payment would result in a reduction of income to
the Fund, a reduction in the value of a security experiencing non-payment and potentially a decrease in the net asset value (“NAV”) of the Fund. To the extent that the credit rating assigned to a
security in the Fund’s portfolio is downgraded, the market price and liquidity of such security may be adversely affected.
Credit Spread Risk. Credit spread risk is the risk that credit spreads (i.e., the difference
in yield between securities that is due to differences in their credit quality) may increase when the market believes that securities generally have a greater risk of default. Increasing credit spreads may reduce the market values of the Fund’s
securities. Credit spreads often increase more for lower rated and unrated securities than for investment grade securities. In addition, when credit spreads increase, reductions in market value will generally be greater for longer-maturity
securities.
Debt Securities Risk. Issuers of debt instruments in which the Fund
may invest may default on their obligations to pay principal or interest when due. This non-payment would result in a reduction of income to the Fund, a reduction in the value of a debt instrument experiencing
non-payment and, potentially, a decrease in the NAV of the Fund. There can be no assurance that liquidation of collateral would satisfy the issuer’s obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. In the event of bankruptcy of an issuer, the Fund could experience delays or limitations with respect to its
ability to realize the benefits of any collateral securing a security. To the extent that the credit rating assigned to a security in the Fund’s portfolio is downgraded, the market price and liquidity of such security may be adversely affected.
Deflation Risk. Deflation risk is the risk that prices throughout the economy
decline over time. Deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s portfolio.
65
Shareholder Update (continued)
(Unaudited)
Derivatives Risk. The use of derivatives involves additional risks and transaction costs
which could leave the Fund in a worse position than if it had not used these instruments. Derivative instruments can be used to acquire or to transfer the risk and returns of a security or other asset without buying or selling the security or asset.
These instruments may entail investment exposures that are greater than their cost would suggest. As a result, a small investment in derivatives can result in losses that greatly exceed the original investment. Derivatives can be highly volatile,
illiquid and difficult to value. An over-the-counter derivative transaction between the Fund and a counterparty that is not cleared through a central counterparty also
involves the risk that a loss may be sustained as a result of the failure of the counterparty to the contract to make required payments. The payment obligation for a cleared derivative transaction is guaranteed by a central counterparty, which
exposes the Fund to the creditworthiness of the central counterparty.
It is possible that developments in the derivatives market, including changes in
government regulation, could adversely impact the Fund’s ability to invest in certain derivatives.
Dividend-Paying Securities
Risk. The Fund’s investment in dividend-paying stocks could cause the Fund to underperform similar funds that invest without consideration of a company’s track record of paying dividends. Stocks
of companies with a history of paying dividends may not participate in a broad market advance to the same degree as most other stocks, and a sharp rise in interest rates or economic downturn could cause a company to unexpectedly reduce or eliminate
its dividend. There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future or that, if declared, they will remain at their current levels or increase over time. The Fund may also be harmed by changes to
the favorable federal income tax treatment generally afforded to dividends.
Duration Risk. Duration is the sensitivity, expressed in years, of the price of a fixed-income security to changes in the general level of interest rates (or yields). Securities with longer durations tend to be more sensitive to interest
rate (or yield) changes, which typically corresponds to increased volatility and risk, than securities with shorter durations. For example, if a security or portfolio has a duration of three years and interest rates increase by 1%, then the security
or portfolio would decline in value by approximately 3%. Duration differs from maturity in that it considers potential changes to interest rates, and a security’s coupon payments, yield, price and par value and call features, in addition to the
amount of time until the security matures. The duration of a security will be expected to change over time with changes in market factors and time to maturity.
Emerging Markets Risk. Risks of investing in securities of emerging markets issuers include:
smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible restrictions on repatriation of investment income and capital. In
addition, foreign investors may be required to register the proceeds of sales; and future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of
government monopolies. Certain emerging markets also may face other significant internal or external risks, including a heightened risk of war, and ethnic, religious and racial conflicts. In addition, governments in many emerging market countries
participate to a significant degree in their economies and securities markets, which may impair investment and economic growth, and which may in turn diminish the value of the securities in those markets. The considerations noted below in “Non-U.S. Securities Risk” are generally intensified for investments in emerging market countries.
Exchange-Traded Notes (“ETNs”) Risk. Like other index-tracking instruments, ETNs are subject to the risk that the value of the index may decline, at times sharply and
unpredictably. In addition, ETNs — which are debt instruments — are subject to risk of default by the issuer. ETNs differ from ETFs. While ETFs are subject to market risk, ETNs are subject to both market risk and the risk of default by the
issuer. ETNs are also subject to the risk that a liquid secondary market for any particular ETN might not be established or maintained.
Financial Futures and Options Transactions Risk. The Fund may use certain transactions for hedging the portfolio’s exposure to credit risk and the risk of increases in
interest rates, which could result in poorer overall performance for the Fund. There may be an imperfect correlation between price movements of the futures and options and price movements of the portfolio securities being hedged.
If the Fund engages in futures transactions or in the writing of options on futures, it will be required to maintain initial margin and maintenance margin and may be
required to make daily variation margin payments in accordance with applicable rules of the exchanges and the Commodity Futures Trading Commission (“CFTC”). If the Fund purchases a financial futures contract or a call option or writes a
put option in order to hedge the anticipated purchase of securities, and if the Fund fails to complete the anticipated purchase transaction, the Fund may have a loss or a gain on the futures or options transaction that will not be offset by price
movements in the securities that were the subject of the anticipatory hedge. There can be no assurance that a liquid market will exist at a time when the Fund seeks to close out a derivatives or futures or a futures option position, and the Fund
would remain obligated to meet margin requirements until the position is closed.
Financial Services Sector Risk. The Fund’s investment in securities issued by financial services companies makes the Fund more susceptible to adverse economic or regulatory occurrences affecting those companies. Investments in financial services
companies includes the following risks:
| |
• |
|
financial services companies may suffer a setback if regulators change the rules under which they operate;
|
| |
• |
|
unstable interest rates can have a disproportionate effect on the financial services sector; |
| |
• |
|
financial services companies whose securities the Fund may purchase may themselves have concentrated portfolios, such as a
high level of loans to real estate developers, which makes them vulnerable to economic conditions that affect that sector; |
66
| |
• |
|
financial services companies have been affected by increased competition, which could adversely affect the profitability or
viability of such companies; and |
| |
• |
|
financial services companies have been significantly and negatively affected by the downturn in the subprime mortgage
lending market and the resulting impact on the world’s economies. |
Foreign Currency Risk. Because the Fund may invest in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates may affect the value of securities held by the Fund and the unrealized
appreciation or depreciation of investments. Currencies of certain countries may be volatile and therefore may affect the value of securities denominated in such currencies, which means that the Fund’s NAV could decline as a result of changes
in the exchange rates between foreign currencies and the U.S. dollar. In addition, certain countries, particularly emerging market countries, may impose foreign currency exchange controls or other restrictions on the transferability, repatriation or
convertibility of currency.
Frequent trading risk. The Fund’s portfolio
turnover rate may exceed 100%. Frequent trading of portfolio securities may produce capital gains, which are taxable to shareholders when distributed. Frequent trading may also increase the amount of commissions or
mark-ups to broker-dealers that a fund pays when it buys and sells securities, which may detract from the fund’s performance.
Hedging Risk. The Fund’s use of derivatives or other transactions to reduce risk
involves costs and will be subject to the investment adviser’s and/or the sub-adviser’s ability to predict correctly changes in the relationships of such hedge instruments to the Fund’s
portfolio holdings or other factors. No assurance can be given that the investment adviser’s and/or the sub-adviser’s judgment in this respect will be correct, and no assurance can be given that the
Fund will enter into hedging or other transactions at times or under circumstances in which it may be advisable to do so. Hedging activities may reduce the Fund’s opportunities for gain by offsetting the positive effects of favorable price
movements and may result in net losses.
Illiquid Investments Risk. Illiquid
investments are investments that are not readily marketable and may include restricted securities, which are securities that may not be resold unless they have been registered under the 1933 Act or that can be sold in a private transaction pursuant
to an available exemption from such registration. Illiquid investments involve the risk that the investments will not be able to be sold at the time desired by the Fund or at prices approximating the value at which the Fund is carrying the
investments on its books from time to time.
Income Risk. The Fund’s income
could decline due to falling market interest rates. This is because, in a falling interest rate environment, the Fund generally will have to invest the proceeds from maturing portfolio securities in lower-yielding securities.
Inflation Risk. Inflation risk is the risk that the value of assets or income from
investments will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the common shares and distributions can decline.
Infrastructure and Real Estate Concentration Risk. The Fund’s investments are
concentrated in the infrastructure and real estate sectors. Because the Fund is concentrated in such sectors, it may be subject to more risks than if it were broadly diversified across the economy. General changes in market sentiment towards
infrastructure and real estate companies may adversely affect the Fund, and the performance of infrastructure and real estate companies may lag behind the broader market as a whole. Also, the Fund’s concentration in the infrastructure and real
estate sectors may subject the Fund to risks associated with companies in those sectors.
Infrastructure Related Securities Risk.
General. The Fund invests significantly in infrastructure related securities, which will expose the Fund to the consequences of any adverse
economic, regulatory, political, legal and other changes affecting the issuers of such securities. Infrastructure related businesses are subject to a variety of factors that may adversely affect their business or operations, including high interest
costs in connection with capital construction programs, high leverage, costs associated with environmental and other regulations, the effects of economic slowdown and surplus capacity, increased competition from other providers of services,
uncertainties concerning the availability of fuel at reasonable prices, the effects of energy conservation policies and other factors. Additionally, infrastructure related businesses may be subject to regulation by various governmental authorities
and may also be affected by governmental regulation of rates charged to customers, service interruption and/or legal challenges due to environmental, operational or other mishaps and the imposition of special tariffs and changes in tax laws,
regulatory policies and accounting standards. There is also the risk that corruption may negatively affect publicly funded infrastructure projects, especially in emerging markets, resulting in delays and cost overruns.
Technological Risk. Technological changes in the way a service or product is delivered may render existing technologies obsolete. Infrastructure
assets have very few alternative uses should they become obsolete. Communications utilities may be particularly sensitive to these risks, as telecommunications products and services also may be subject to rapid obsolescence resulting from changes in
consumer tastes, intense competition and strong market reactions to technological development.
Developing Industries Risk. Some infrastructure
companies are focused on developing new technologies and are strongly influenced by technological changes. Product development efforts by infrastructure companies may not result in viable commercial products. Infrastructure
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Shareholder Update (continued)
(Unaudited)
companies may bear high research and development costs, which can limit their ability to maintain operations during periods of organizational growth or
instability. Some infrastructure companies may be in the early stages of operations and may have limited operating histories and smaller market capitalizations on average than companies in other sectors. As a result of these and other factors, the
value of investments in such infrastructure issuers may be considerably more volatile than those in more established segments of the economy.
Regional Risk. Should an event that impairs assets occur in a region where an infrastructure company operates, the performance of such
infrastructure company may be adversely affected. As many infrastructure assets are not moveable, such an event may have enduring effects on the infrastructure company that are difficult to mitigate.
Strategic Asset Risk. Infrastructure companies may control significant strategic assets. Strategic assets are assets that have a national or
regional profile, and may have monopolistic characteristics. Given the national or regional profile and/or their irreplaceable nature, strategic assets may constitute a higher risk target for terrorist acts or adverse political actions.
Environmental Risk. Infrastructure companies, in particular those in the electrical utility industry, can have substantial environmental impacts.
Ordinary operations or operational accidents may cause major environmental damage, which could cause infrastructure companies significant financial distress. Community and environmental groups may protest the development or operation of assets or
facilities of infrastructure companies, and these protests may induce government action to the detriment of infrastructure companies.
Political
and Expropriation Risk. Governments may attempt to influence the operations, revenue, profitability or contractual relationships of infrastructure companies or expropriate infrastructure companies’ assets. The public interest aspect of the
products and services provided by infrastructure companies means political oversight will remain pervasive.
Operational Risk. The long-term
profitability of infrastructure companies is partly dependent on the efficient operation and maintenance of their assets. Infrastructure companies may be subject to service interruptions due to environmental disasters, operational accidents or
terrorist activities, which may impair their ability to maintain payments of dividends or interest to investors. The destruction or loss of an asset or facility may have a major adverse impact on an infrastructure company. Failure by the
infrastructure company to operate and maintain its assets or facilities appropriately or to carry appropriate, enforceable insurance could lead to significant losses.
Regulatory Risk. Many infrastructure companies are subject to significant national, regional and local government regulation, which may include how
facilities are constructed, maintained and operated, environmental and safety controls and the prices they may charge for the products and services they provide. Various governmental authorities have the power to enforce compliance with these
regulations and the permits issued under them, and violators are subject to administrative, civil and criminal penalties, including civil fines, injunctions or both. Stricter laws, regulations or enforcement policies could be enacted in the future
which would likely increase compliance costs and may adversely affect the operations and financial performance of infrastructure issuers. Regulators that have the power to set or modify the prices infrastructure issuers can charge for their products
or services can have a significant impact on the profitability of such infrastructure issuers. The returns on regulated assets or services are usually stable during regulated periods, but may be volatile during any period that rates are reset by the
regulator.
Infrastructure companies may be adversely affected by additional regulatory requirements enacted in response to environmental disasters or
to address ongoing environment concerns, which may impose additional costs or limit certain operations by such companies operating in various sectors. Non-U.S. infrastructure companies are also subject to
regulation, although such regulations may or may not be comparable to those in the United States. Non-U.S. infrastructure companies may be more heavily regulated by their respective governments than companies
in the United States and, as in the United States, may be required to seek government approval for rate increases. In addition, non-U.S. infrastructure companies in the electrical utility industry may use
fuels that may cause more pollution than those used in the United States, which may require such companies to invest in pollution control equipment to meet any proposed pollution restrictions. Non-U.S.
regulatory systems vary from country to country and may evolve in ways different from regulation in the United States.
Interest Rate Risk. Due
to the high costs of developing, constructing, operating and distributing assets and facilities, many infrastructure companies are highly leveraged. As such, movements in the level of interest rates may affect the returns from these assets. The
structure and nature of the debt is therefore an important element to consider in assessing the interest rate risk posed by infrastructure companies. In particular, the type of facilities, maturity profile, rates being paid, fixed versus variable
components and covenants in place (including how they impact returns to equity holders) are crucial factors in assessing the degree of interest rate risk.
Inflation Risk. Many infrastructure companies may have fixed income streams and, therefore, may be unable to increase their dividends during
inflationary periods. The market value of infrastructure companies may decline in value in times of higher inflation rates. The prices that an infrastructure company is able to charge users of its assets may not always be linked to inflation. In
this case, changes in the rate of inflation may affect the forecast profitability of the infrastructure company.
Interest Rate
Risk. Interest rate risk is the risk that securities in the Fund’s portfolio will decline in value because of changes in market interest rates. Generally, when market interest rates rise, the market
value of such securities will fall, and vice versa. As interest rates decline, issuers of securities may
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prepay principal earlier than scheduled, forcing the
Fund to reinvest in lower-yielding securities and potentially reducing the Fund’s income. As interest rates increase, slower than expected principal payments may extend the average life of securities, potentially locking in a below-market
interest rate and reducing the Fund’s value. In typical market interest rate environments, the prices of longer-term securities generally fluctuate more than prices of shorter-term securities as interest rates change.
Large-Cap Company Risk. While large-cap companies may be less volatile than those of mid-and small-cap companies, they still involve risk. To the extent the Fund
invests in large-capitalization securities, the Fund may underperform funds that invest primarily in securities of smaller capitalization companies during periods when the securities of such companies are in favor. Large-capitalization companies may
be unable to respond as quickly as smaller capitalization companies to competitive challenges or to changes in business, product, financial or other market conditions.
London Inter-Bank Offered Rate (“LIBOR”) Replacement Risk. The use of LIBOR will
begin to be phased out in the near future, which may adversely affect the Fund’s investments whose value is tied to LIBOR. There remains uncertainty regarding the future use of LIBOR and the nature of any replacement reference rate. Actions by
regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies and markets are slowly developing in response to these new rates. The transition process away from LIBOR may involve, among other things,
increased volatility in markets for instruments that currently rely on LIBOR. The potential effect of a discontinuation of LIBOR on the Fund’s investments will vary depending on, among other things: (1) existing fallback provisions that
provide a replacement reference rate if LIBOR is no longer available; (2) termination provisions in individual contracts; and (3) whether, how, and when industry participants develop and adopt new reference rates and fallbacks for both
legacy and new products and instruments held by the Fund. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR until it is clearer how the Fund’s products and instruments will be impacted by this transition.
Master Limited Partnerships (“MLPs”) Risk. An MLP is an investment
that combines the tax benefits of a limited partnership with the liquidity of publicly-traded securities. Entities commonly referred to as MLPs are generally organized under state law as limited partnerships or limited liability companies. An
investment in MLP units involves risks that differ from a similar investment in equity securities, such as common stock, of a corporation. Holders of MLP units have the rights typically afforded to limited partners in a limited partnership. As
compared to common stockholders of a corporation, holders of MLP units have significantly more limited rights to exercise control over the partnership and to vote on matters affecting the partnership. In addition, state law governing partnerships is
often less restrictive than state law governing corporations. Accordingly, there may be fewer protections afforded investors in an MLP than investors in a corporation. Investments held by MLPs may be relatively illiquid, limiting the MLPs’
ability to vary their portfolios promptly in response to changes in economic or other conditions. MLPs may have limited financial resources and their securities may trade infrequently and in limited volumes and be subject to more abrupt or erratic
price movements than securities of larger or more broadly-based companies. The Fund’s investment in MLPs also subjects the Fund to the risks associated with the specific industry or industries in which the MLPs invest. Currently, most MLPs
operate in the energy, natural resources or real estate sectors. Additionally, since MLPs generally conduct business in multiple states, the Fund may be subject to income or franchise tax in each of the states in which the partnership does business.
The additional cost of preparing and filing the tax returns and paying the related taxes may adversely impact the Fund’s return on its investment in MLPs. The value of any investment by the Fund in MLP units will depend on the MLP’s
ability to qualify as a partnership for U.S. federal income tax purposes. If an MLP fails to meet the requirements for partnership status under the Code, or if the MLP is unable to do so because of changes in tax law or regulation, the MLP could be
taxed as a corporation. In that case, the MLP would be obligated to pay U.S. federal income tax at the entity level, and distributions received by the Fund would be taxed as dividend income. The Fund may also invest in debt securities issued by
MLPs.
Natural Resource Related Securities Risk. During periods of financial or
economic instability, the securities of companies engaged in the ownership, development, exploration, production, distribution or processing of natural resources, as well as the securities of companies that are suppliers to firms producing natural
resources, instruments with economic characteristics similar to natural resources securities or direct holdings of natural resources, may be subject to extreme price fluctuations, reflecting the high volatility of natural resources’ prices. In
addition, the instability of the prices of particular natural resources may result in volatile earnings of natural resource companies, which could lead to volatility in their financial condition and in the value of their securities. Additionally,
due to the close connection between natural resources and where they are located, securities of natural resource companies may be particularly affected by events occurring in the countries or regions where such natural resources are found. This is
heightened with respect to natural resources that are scarce or that are predominantly located in particular areas.
Non-U.S. Securities Risk. Investments in securities of non-U.S. issuers involve special risks, including: less publicly available
information about non-U.S. issuers or markets due to less rigorous disclosure or accounting standards or regulatory practices; many non-U.S. markets are smaller, less
liquid and more volatile; the economies of non-U.S. countries may grow at slower rates than expected or may experience a downturn or recession; the impact of economic, political, social or diplomatic events;
and withholding and other non-U.S. taxes may decrease the Fund’s return. These risks are more pronounced to the extent that the Fund invests a significant amount of its assets in issuers located in one
region.
Options Strategy Risk. The value of call options sold (written) by the
Fund will fluctuate. The Fund may not participate in any appreciation of its portfolio as fully as it would if the Fund did not sell call options. In addition, the Fund will continue to bear the risk of declines in the value of its portfolio.
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Shareholder Update (continued)
(Unaudited)
Other Investment Companies Risk. The Fund may invest in the securities of other investment
companies, including ETFs. Investing in an investment company exposes the Fund to all of the risks of that investment company’s investments. The Fund, as a holder of the securities of other investment companies, will bear its pro rata
portion of the other investment companies’ expenses, including advisory fees. These expenses are in addition to the direct expenses of the Fund’s own operations. As a result, the cost of investing in investment company shares may exceed
the costs of investing directly in its underlying investments. In addition, securities of other investment companies may be leveraged. As a result, the Fund may be indirectly exposed to leverage through an investment in such securities and therefore
magnify the Fund’s leverage risk.
With respect to ETF’s, an ETF that is based on a specific index may not be able to replicate and maintain exactly
the composition and relative weighting of securities in the index. The value of an ETF based on a specific index is subject to change as the values of its respective component assets fluctuate according to market volatility. ETFs typically rely on a
limited pool of authorized participants to create and redeem shares, and an active trading market for ETF shares may not develop or be maintained. The market value of shares of ETFs and closed-end funds may
differ from their NAV.
Preferred Securities Risk. Preferred securities are subordinated
to bonds and other debt instruments in a company’s capital structure, and therefore are subject to greater credit risk. In addition, preferred stockholders (such as the Fund, to the extent it invests in preferred stocks of other issuers)
generally have no voting rights with respect to the issuing company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred stockholders may elect a number of directors to the issuer’s
board. Generally, once all the arrearages have been paid, the preferred stockholders no longer have voting rights. In the case of certain taxable preferred stocks, holders generally have no voting rights, except (i) if the issuer fails to pay
dividends for a specified period of time or (ii) if a declaration of default occurs and is continuing. In such an event, rights of preferred stockholders generally would include the right to appoint and authorize a trustee to enforce the trust
or special purpose entity’s rights as a creditor under the agreement with its operating company. In certain varying circumstances, an issuer of preferred stock may redeem the securities prior to a specified date. For instance, for certain types
of preferred stock, a redemption may be triggered by a change in U.S. federal income tax or securities laws. As with call provisions, a redemption by the issuer may negatively impact the return of the security held by the Fund.
Real Estate Industry Concentration Risk. The Fund’s investments are concentrated in the
U.S. real estate industry. Because the Fund is concentrated in such securities, it may be subject to more risks than if it were broadly diversified across the economy. General changes in market sentiment towards the U.S. real estate industry may
adversely affect the Fund, and the performance of the U.S. real estate industry may lag behind the broader market as a whole. Also, the Fund’s concentration in the U.S. real estate industry may subject the Fund to a variety of risks associated
with such companies.
Real Estate Related Securities Risk. Real estate companies
have been subject to substantial fluctuations and declines on a local, regional and national basis in the past and may continue to be in the future. Real property values and incomes from real property may decline due to general and local economic
conditions, overbuilding and increased competition for tenants, increases in property taxes and operating expenses, changes in zoning laws, casualty or condemnation losses, regulatory limitations on rents, changes in neighborhoods and in
demographics, increases in market interest rates, or other factors. Factors such as these may adversely affect companies that own and operate real estate directly, companies that lend to them, and companies that service the real estate industry.
Equity REITs may be affected by changes in the values of and incomes from the properties they own, while mortgage REITs may be affected by the credit quality of the mortgage loans they hold. REITs are subject to other risks as well, including the
fact that REITs are dependent on specialized management skills, which may affect their ability to generate cash flow for operating purposes and to make distributions to shareholders or unitholders. REITs may have limited diversification and are
subject to the risks associated with obtaining financing for real property. A U.S. domestic REIT can pass its income through to shareholders or unitholders without any U.S. federal income tax at the entity level if it complies with various
requirements under the Code. There is the risk that a REIT held by the Fund will fail to qualify for this tax-free pass-through treatment of its income, in which case the REIT would become subject to U.S.
federal income tax. Similarly, REITs formed under the laws of non-U.S. countries may fail to qualify for corporate tax benefits made available by the governments of such countries. The Fund, as a holder of a
REIT, will bear its pro rata portion of the REIT’s expenses.
Reinvestment Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the
portfolio’s current earnings rate. A decline in income could affect the common shares’ market price, NAV and/or a common shareholder’s overall returns.
Rights and Warrants Risk. Rights and warrants are subject to the same market risks as common
stocks, but are more volatile in price. Rights and warrants do not carry the right to dividends or voting rights with respect to their underlying securities, and they do not represent any rights in the assets of the issuer. An investment in rights
or warrants may be considered speculative. In addition, the value of a right or warrant does not necessarily change with the value of the underlying security and a right or warrant ceases to have value if it is not exercised prior to its expiration
date. The purchase of warrants or rights involves the risk that the Fund could lose the purchase value of a right or warrant if the right to subscribe for additional shares is not exercised prior to the rights’ or warrants’ expiration.
Also, the purchase of rights and warrants involves the risk that the effective price paid for the right or warrant added to the subscription price of the related security may exceed the value of the subscribed security’s market price such as
when there is no movement in the price of the underlying security.
Small and
Mid-Cap Company Risk. The Fund may invest in companies with small, medium and large capitalizations. Smaller and medium-sized
company stocks can be more volatile than, and perform differently from, larger company stocks. There may be less trading in the stock of a smaller or medium-sized
70
company, which means that buy and sell transactions
in that stock could have a larger impact on the stock’s price than is typically the case with larger company stocks. Smaller and medium-sized companies may have fewer business lines; changes in any one
line of business, therefore, may have a greater impact on a smaller or medium-sized company’s stock price than is the case for a larger company. As a result, the purchase or sale of more than a limited
number of shares of a small or medium-sized company may affect its market price. The Fund may need a considerable amount of time to purchase or sell its positions in these securities. In addition, smaller or medium-sized company stocks may not be well known to the investing public.
Swap Transactions
Risk. The Fund may enter into derivative instruments such as credit default swap contracts and interest rate swaps. Like most derivative instruments, the use of swaps is a highly specialized activity that
involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. In addition, the use of swaps requires an understanding by the adviser and/or the
sub-adviser of not only the referenced asset, rate or index, but also of the swap itself. If the investment adviser and/or the sub-adviser is incorrect in its forecasts
of default risks, market spreads or other applicable factors or events, the investment performance of the Fund would diminish compared with what it would have been if these techniques were not used.
Unrated Securities Risk. The Fund may purchase securities that are not rated by any rating
organization. The investment adviser may, after assessing such securities’ credit quality, internally assign ratings to certain of those securities in categories similar to those of rating organizations. Some unrated securities may not have an
active trading market or may be difficult to value, which means the Fund might have difficulty selling them promptly at an acceptable price. To the extent that the Fund invests in unrated securities, the Fund’s ability to achieve its investment
objectives will be more dependent on the investment adviser’s credit analysis than would be the case when the Fund invests in rated securities.
Unseasoned Company Risk. The Fund may invest in the securities of less seasoned companies. These investments may involve greater risks than customarily are associated with
investments in securities of more established companies. Some of the companies in which the Fund may invest will be start-up companies, which may have insubstantial operational or earnings histories or may
have limited products, markets, financial resources or management depth. Some may also be emerging companies at the research and development stage with no products or technologies to market or approved for marketing. Securities of emerging companies
may lack an active secondary market and may be subject to more abrupt or erratic price movements than securities of larger, more established companies or stock market averages in general. Less seasoned companies may seek to compete in markets and
industries in which there are more established companies with substantially greater financial resources than they have, which could place such less seasoned companies at a significant competitive disadvantage and make it difficult for them to gain
market share.
Valuation Risk. The securities in which the Fund invests typically
are valued by a pricing service utilizing a range of market-based inputs and assumptions, including readily available market quotations obtained from broker-dealers making markets in such instruments, cash flows and transactions for comparable
instruments. There is no assurance that the Fund will be able to sell a portfolio security at the price established by the pricing service, which could result in a loss to the Fund. Pricing services generally price securities assuming orderly
transactions of an institutional “round lot” size, but some trades may occur in smaller, “odd lot” sizes, often at lower prices than institutional round lot trades. Different pricing services may incorporate different assumptions
and inputs into their valuation methodologies, potentially resulting in different values for the same securities. As a result, if the Fund were to change pricing services, or if the Fund’s pricing service were to change its valuation
methodology, there could be a material impact, either positive or negative, on the Fund’s NAV.
When-Issued and
Delayed-Delivery Transactions Risk. The Fund may invest in securities on a “when-issued” or “delayed-delivery” basis. When-issued and delayed-delivery transactions may involve an element
of risk because no interest accrues on the securities prior to settlement and, because securities are subject to market fluctuations, the value of the securities at time of delivery may be less (or more) than their cost. To the extent the Fund
invests in securities on a “when-issued” or “delayed-delivery” basis, a separate account of the Fund will be established with its custodian consisting of cash equivalents or liquid securities having a market value at all times at
least equal to the amount of any delayed payment commitment.
Whole Loans, Loan Participations and Other Mortgage-Related
Interests Risk. Whole loans and loan participations represent undivided (in the case of the whole loans) and fractional (in the case of loan participations) interests in individual loans secured by
residential real estate, including multi-family and/or single family residences, or commercial real estate, including shopping malls, retail space, office buildings and/or industrial or warehouse properties. The market values of and cash flows to
these instruments are highly dependent on creditworthiness and economic situation of the particular borrowers under each loan, and therefore the performance of individual whole loans and loan participations may suffer even when general economic
conditions are favorable. Whole loans and loan participations also may subject the Fund to a greater risk of loss arising from defaults by borrowers under the related loans than do mortgage-backed securities because whole loans and loan
participations, unlike most mortgage-backed securities, generally are not backed by any government guarantee or private credit enhancement. Such risks may be greater during a period of declining or stagnant real estate values. The individual loans
underlying whole loans and loan participations may be larger than those underlying mortgage-backed securities. There may be certain costs and delays in the event of a foreclosure, and there is no assurance that the subsequent sale of the property
will produce an amount equal to the sum of the unpaid principal balance of the loan as of the date the borrower went into default, accrued but unpaid interest and all foreclosure expenses, in which case the Fund may suffer a loss. In addition to the
foregoing, with respect to loan participations, the Fund generally will not be able to unilaterally enforce its rights in the event of a default, but rather will be dependent upon the cooperation of the other participation holders.
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Shareholder Update (continued)
(Unaudited)
Investment in whole loans and loan participations relating to multi-family residential properties may subject the Fund to a higher level of risk than investment in whole
loans and loan participations relating to other residential properties. Multi-family lending is generally viewed as involving a greater risk of loss than one- to four-family residential lending. Multi-family
lending typically involves larger loans to single borrowers or groups of related borrowers than residential one- to four-family mortgage loans. Furthermore, the repayment of loans secured by income-producing
multifamily properties is typically dependent upon the successful operation of the underlying real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower’s ability to
repay the multi-family loan may be impaired. The market values of and cash flow to multi-family real estate can be affected significantly by supply and demand in the local market for the residential rental property and, therefore, the value to the
Fund of any whole loans or loan participations relating to multi-family properties will be highly sensitive to changes in the local economic conditions where such multi-family properties are located. In addition, market values may vary as a result
of economic events or governmental regulations outside the control of the borrower or lender, such as rent control laws, which impact the future cash flow to the property.
Investment in whole loans and loan participations relating to commercial properties may subject the Fund to certain risks that do not typically apply to investment in
whole loans and loan participations relating to residential properties. Market values of and cash flows to commercial real estate may be adversely affected by declines in rental or occupancy rates and extended vacancies, the management skills of the
borrower or third-party manager operating a business at the commercial property, overbuilding and changes in zoning laws and other environmental and land use regulations. Mortgage loans relating to commercial properties are also generally not fully
amortizing, meaning they may have a significant “balloon” payment due at maturity. Loans with a balloon payment may be riskier than fully amortizing loans because the ability of a borrower to make a balloon payment will typically depend on
its ability to either refinance the loan or sell the property, which the borrower may not be able to accomplish on commercially acceptable terms, if at all. In addition, mortgage loans relating to commercial properties are typically non-recourse to the borrowers, resulting in a higher risk of loss in the event of a foreclosure.
Certain loan participations held
by the Fund may continue to have the mortgage servicers reflected as record owners of the underlying mortgages. Accordingly, if the mortgage servicer under a particular loan participation were to become insolvent, to have a receiver, conservator or
similar official appointed for it by an appropriate regulatory authority or to become a debtor in a bankruptcy proceeding, there is a risk that the Fund’s rights to payments under the loan participation could become subject to the claims of the
mortgage servicer’s creditors, which would adversely affect the value of the loan participation to the Fund. The Fund could also incur costs and delays in enforcing its rights to such payments.
Whole loans and loan participations are illiquid and may be difficult to sell when the sub-adviser deems it advisable to do so.
See “Illiquid Securities Risk” above. Whole loans and loan participations, like mortgage-backed securities, are also subject to pre-payment risk, which is the risk that the borrowers under the
mortgage loans might pay off their mortgage loans sooner than expected, which could happened when interest rates fall or for other reasons, which could cause the value of the Fund’s whole loans and loan participations to fall. Moreover, if the
mortgage loans are paid off sooner than expected, the Fund may have to reinvest the proceeds in other securities that have lower yields.
Fund Level and Other
Risks:
Anti-Takeover Provisions. The Fund’s organizational documents
include provisions that could limit the ability of other entities or persons to acquire control of the Fund or convert the Fund to open-end status. These provisions could have the effect of depriving the
common shareholders of opportunities to sell their common shares at a premium over the then-current market price of the common shares.
Borrowing Risk. In addition to borrowing for leverage, the Fund may borrow for temporary or emergency purposes, to pay dividends, repurchase its shares, or clear portfolio
transactions. Borrowing may exaggerate changes in the NAV of the Fund’s shares and may affect the Fund’s net income. When the Fund borrows money, it must pay interest and other fees, which will reduce the Fund’s returns if such costs
exceed the returns on the portfolio securities purchased or retained with such borrowings. Any such borrowings are intended to be temporary. However, under certain market circumstances, such borrowings might be outstanding for longer periods of
time.
Counterparty Risk. Changes in the credit quality of the companies that
serve as the Fund’s counterparties with respect to derivatives or other transactions supported by another party’s credit will affect the value of those instruments. Certain entities that have served as counterparties in the markets for
these transactions have incurred or may incur in the future significant financial hardships including bankruptcy and losses as a result of exposure to sub-prime mortgages and other lower-quality credit
investments. As a result, such hardships have reduced these entities’ capital and called into question their continued ability to perform their obligations under such transactions. By using such derivatives or other transactions, the Fund
assumes the risk that its counterparties could experience similar financial hardships. In the event of the insolvency of a counterparty, the Fund may sustain losses or be unable to liquidate a derivatives position.
Cybersecurity Risk. The Fund and its service providers are susceptible to operational and
information security risk resulting from cyber incidents. Cyber incidents refer to both intentional attacks and unintentional events including: processing errors, human errors, technical errors including computer glitches and system malfunctions,
inadequate or failed internal or external processes, market-wide technical-related disruptions, unauthorized access to digital systems (through “hacking” or malicious software coding), computer viruses, and cyber-attacks which shut down,
disable, slow or otherwise disrupt
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operations, business processes or website access or
functionality (including denial of service attacks). Cyber incidents could adversely impact the Fund and cause the Fund to incur financial loss and expense, as well as face exposure to regulatory penalties, reputational damage, and additional
compliance costs associated with corrective measures. In addition, substantial costs may be incurred in order to prevent any cyber incidents in the future. Furthermore, the Fund cannot control the cybersecurity plans and systems put in place by its
service providers or any other third parties whose operations may affect the Fund.
Global Economic Risk. National and regional economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country, region or market might adversely impact issuers in a
different country, region or market. Changes in legal, political, regulatory, tax and economic conditions may cause fluctuations in markets and securities prices around the world, which could negatively impact the value of the Fund’s
investments. Major economic or political disruptions, particularly in large economies like China’s, may have global negative economic and market repercussions. Additionally, events such as war, terrorism, natural and environmental disasters and
the spread of infectious illnesses or other public health emergencies may adversely affect the global economy and the markets and issuers in which the Fund invests. Recent examples of such events include the outbreak of a novel coronavirus known as COVID-19 that was first detected in China in December 2019 and heightened concerns regarding North Korea’s nuclear weapons and long-range ballistic missile programs. These events could reduce consumer demand or
economic output, result in market closure, travel restrictions or quarantines, and generally have a significant impact on the economy. These events could also impair the information technology and other operational systems upon which the Fund’s
service providers, including the investment adviser and sub-adviser, rely, and could otherwise disrupt the ability of employees of the Fund’s service providers to perform essential tasks on behalf of the
Fund. Governmental and quasi-governmental authorities and regulators throughout the world have in the past responded to major economic disruptions with a variety of significant fiscal and monetary policy changes, including but not limited to, direct
capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or quick reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could
adversely affect the Fund’s investments.
Investment and Market Risk. An
investment in the Fund’s common shares is subject to investment risk, including the possible loss of the entire principal amount that you invest. Common shares frequently trade at a discount to their NAV. An investment in common shares
represents an indirect investment in the securities owned by the Fund. Common shares at any point in time may be worth less than your original investment, even after taking into account the reinvestment of Fund dividends and distributions.
Legislation and Regulatory Risk. At any time after the date of this report,
legislation or additional regulations may be enacted that could negatively affect the assets of the Fund, securities held by the Fund or the issuers of such securities. Fund shareholders may incur increased costs resulting from such legislation or
additional regulation. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objectives.
The SEC recently adopted rules governing the use of derivatives by registered investment companies, which could affect the nature and extent of derivatives used by the
Fund. The full impact of such rules is uncertain at this time. It is possible that such rules, as interpreted, applied and enforced by the SEC, could limit the implementation of the Fund’s use of derivatives, which could have an adverse impact
on the Fund.
Leverage Risk. The use of leverage creates special risks for common
shareholders, including potential interest rate risks and the likelihood of greater volatility of NAV and market price of, and distributions on, the common shares. The use of leverage in a declining market will likely cause a greater decline in the
Fund’s NAV, which may result at a greater decline of the common share price, than if the Fund were not to have used leverage.
The Fund will pay (and
common shareholders will bear) any costs and expenses relating to the Fund’s use of leverage, which will result in a reduction in the Fund’s NAV. The investment adviser may, based on its assessment of market conditions and composition of
the Fund’s holdings, increase or decrease the amount of leverage. Such changes may impact the Fund’s distributions and the price of the common shares in the secondary market.
The Fund may seek to refinance its leverage over time, in the ordinary course, as current forms of leverage mature or it is otherwise desirable to refinance; however, the
form that such leverage will take cannot be predicted at this time. If the Fund is unable to replace existing leverage on comparable terms, its costs of leverage will increase. Accordingly, there is no assurance that the use of leverage may result
in a higher yield or return to common shareholders.
The amount of fees paid to the investment adviser and the sub-advisor for
investment advisory services will be higher if the Fund uses leverage because the fees will be calculated based on the Fund’s Managed Assets — this may create an incentive for the investment adviser and the
sub-advisor to leverage the Fund or increase the Fund’s leverage.
Market Discount
from Net Asset Value. Shares of closed-end investment companies like the Fund frequently trade at prices lower than their NAV. This characteristic is a risk separate
and distinct from the risk that the Fund’s NAV could decrease as a result of investment activities. Whether investors will realize gains or losses upon the sale of the common shares will depend not upon the Fund’s NAV but entirely upon
whether the market price of the common shares at the time of sale is above or below the investor’s purchase price for the common shares. Furthermore, management may have difficulty meeting the Fund’s investment objectives and managing its
portfolio when the underlying securities are redeemed or sold during periods of market turmoil and as investors’ perceptions regarding closed-end funds or their underlying investments change. Because the
market price of the common shares
73
Shareholder Update (continued)
(Unaudited)
will be determined by factors such as relative supply of and demand for the common shares in the market, general market and economic circumstances, and other factors
beyond the control of the Fund, the Fund cannot predict whether the common shares will trade at, below or above NAV. The common shares are designed primarily for long-term investors, and you should not view the Fund as a vehicle for short-term
trading purposes.
Recent Market Conditions. In response to the financial crisis and
recent market events, policy and legislative changes by the United States government and the Federal Reserve to assist in the ongoing support of financial markets, both domestically and in other countries, are changing many aspects of financial
regulation. The impact of these changes on the markets, and the practical implications for market participants, may not be fully known for some time. Withdrawal of government support, failure of efforts in response to the crisis, or investor
perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or
quasi-governmental organizations, including changes in tax laws and the imposition of trade barriers. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for
some time. Changes to the Federal Reserve policy may affect the value, volatility and liquidity of dividend and interest paying securities. In addition, the contentious domestic political environment, as well as political and diplomatic events
within the United States and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal
government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree.
Interest rates have been unusually low in recent years in the United States and abroad but there is consensus that interest rates will increase during the life of the
Fund, which could negatively impact the price of debt securities. Because there is little precedent for this situation, it is difficult to predict the impact of a significant rate increase on various markets.
The current political climate has intensified concerns about a potential trade war between China and the United States, as each country has recently imposed tariffs on
the other country’s products. These actions may trigger a significant reduction in international trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual companies and/or
large segments of China’s export industry, which could have a negative impact on the Fund’s performance.
The impact of these developments in the near- and
long-term is unknown and could have additional adverse effects on economies, financial markets and asset valuations around the world.
Reverse Repurchase Agreement Risk. A reverse repurchase agreement, in economic essence,
constitutes a securitized borrowing by the Fund from the security purchaser. The Fund may enter into reverse repurchase agreements for the purpose of creating a leveraged investment exposure and, as such, their usage involves essentially the same
risks associated with a leveraging strategy generally since the proceeds from these agreements may be invested in additional portfolio securities. Reverse repurchase agreements tend to be short-term in tenor, and there can be no assurances that the
purchaser (lender) will commit to extend or “roll” a given agreement upon its agreed-upon repurchase date or an alternative purchaser can be identified on similar terms. Reverse repurchase agreements also involve the risk that the
purchaser fails to return the securities as agreed upon, files for bankruptcy or becomes insolvent. The Fund may be restricted from taking normal portfolio actions during such time, could be subject to loss to the extent that the proceeds of the
agreement are less than the value of securities subject to the agreement and may experience adverse tax consequences.
Tax
Risk. The Fund has elected to be treated and intends to qualify each year as a Regulated Investment Company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). As a
RIC, the Fund is not expected to be subject to U.S. federal income tax to the extent that it distributes its investment company taxable income and net capital gains. To qualify for the special tax treatment available to a RIC, the Fund must comply
with certain investment, distribution, and diversification requirements. Under certain circumstances, the Fund may be forced to sell certain assets when it is not advantageous in order to meet these requirements, which may reduce the Fund’s
overall return. If the Fund fails to meet any of these requirements, subject to the opportunity to cure such failures under applicable provisions of the Code, the Fund’s income would be subject to a double level of U.S. federal income tax. The
Fund’s income, including its net capital gain, would first be subject to U.S. federal income tax at regular corporate rates, even if such income were distributed to shareholders and, second, all distributions by the Fund from earnings and
profits, including distributions of net capital gain (if any), would be taxable to shareholders as dividends.
74
EFFECTS OF LEVERAGE
The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effects of leverage through the use of senior securities, as
that term is defined under Section 18 of the 1940 Act, as well as certain other forms of leverage, such as reverse repurchase agreements, on common share total return, assuming investment portfolio total returns (consisting of income and
changes in the value of investments held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table below reflects each Fund’s (i) continued use of
leverage as of December 31, 2021 as a percentage of Managed Assets (including assets attributable to such leverage), (ii) the estimated annual effective interest expense rate payable by the Funds on such instruments (based on actual leverage
costs incurred during the fiscal year ended December 31, 2021) as set forth in the table, and (iii) the annual return that the Fund’s portfolio must experience (net of expenses) in order to cover such costs of leverage based on such
estimated annual effective interest expense rate. The information below does not reflect any Fund’s use of certain other forms of economic leverage achieved through the use of certain derivative instruments.
The numbers are merely estimates, used for illustration. The costs of leverage may vary frequently and may be significantly higher or lower than the estimated rate. The
assumed investment portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Funds. Your actual returns may be greater or
less than those appearing below.
|
|
|
|
|
|
|
|
|
| |
|
Nuveen Real Estate
Income Fund
(JRS) |
|
|
Nuveen Real Asset
Income and Growth Fund
(JRI) |
|
| Estimated Leverage as a Percentage of Managed Assets (Including
Assets Attributable to Leverage) |
|
|
27.39% |
|
|
|
29.29% |
|
| Estimated Annual Effective Leverage Expense Rate Payable by Fund on
Leverage |
|
|
0.72% |
|
|
|
0.87% |
|
| Annual Return Fund Portfolio Must Experience (net of expenses) to
Cover Estimated Annual Effective Interest Expense Rate on Leverage |
|
|
0.20% |
|
|
|
0.25% |
|
| Common Share Total Return for (10.00)% Assumed Portfolio Total
Return |
|
|
(14.04)% |
|
|
|
(14.50)% |
|
| Common Share Total Return for (5.00)% Assumed Portfolio Total
Return |
|
|
(7.16)% |
|
|
|
(7.43)% |
|
| Common Share Total Return for 0.00% Assumed Portfolio Total
Return |
|
|
(0.27)% |
|
|
|
(0.36)% |
|
| Common Share Total Return for 5.00% Assumed Portfolio Total
Return |
|
|
6.62% |
|
|
|
6.71% |
|
| Common Share Total Return for 10.00% Assumed Portfolio Total
Return |
|
|
13.50% |
|
|
|
13.78% |
|
Common Share total return is composed of two elements — the distributions paid by the Fund to holders of common shares (the amount of
which is largely determined by the net investment income of the Fund after paying dividend payments on any preferred shares issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and
other instruments the Fund owns. As required by SEC rules, the table assumes that the Funds are more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume that the
income it receives on its investments is entirely offset by losses in the value of those investments. This table reflects hypothetical performance of a Fund’s portfolio and not the actual performance of the Fund’s common shares, the value
of which is determined by market forces and other factors. Should the Fund elect to add additional leverage to its portfolio, any benefits of such additional leverage cannot be fully achieved until the proceeds resulting from the use of such
leverage have been received by the Fund and invested in accordance with the Fund’s investment objectives and policies. As noted above, the Fund’s willingness to use additional leverage, and the extent to which leverage is used at any time,
will depend on many factors.
75
Shareholder Update (continued)
(Unaudited)
DIVIDEND REINVESTMENT PLAN
Nuveen
Closed-End Funds Automatic Reinvestment Plan
Your Nuveen Closed-End Fund allows
you to conveniently reinvest distributions in additional Fund shares. By choosing to reinvest, you’ll be able to invest money regularly and automatically, and watch your investment grow through the power of compounding. Just like distributions
in cash, there may be times when income or capital gains taxes may be payable on 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 quarter you’ll receive a statement showing your total 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 NAV at the time of valuation, the Fund will issue new shares at the greater of the NAV or 95% of the then-current market price. If the shares are trading
at less than NAV, shares for your account will be purchased on the open market. If Computershare Trust Company, N.A. (the “Plan Agent”) begins purchasing Fund shares on the open market while shares are trading below NAV, but the
Fund’s shares subsequently trade at or above their NAV 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’ NAV or 95% of the shares’ market value on the last business day immediately prior to the purchase date. Distributions received to purchase shares in the open market will normally be invested
shortly after the distribution payment date. No interest will be paid on 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 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 Dividend Reinvestment Plan (the “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. 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 distributions
For more information on the
Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial professional or call us at (800) 257-8787.
76
CHANGES OCCURRING DURING THE FISCAL YEAR
The following information in this annual report is a summary of certain changes during the most recent fiscal year. This information may not reflect all of the changes
that have occurred since you purchased shares of the Fund.
During the most recent fiscal year, there have been no changes to: (i) the Fund’s investment
objectives and principal investment policies that have not been approved by shareholders, (ii) the principal risks of the Fund, (iii) the portfolio managers of the Fund; (iv) the Fund’s charter or
by-laws that would delay or prevent a change of control of the Fund that have not been approved by shareholders, except as follows:
Principal Risks
The following principal risk has been
added for the Nuveen Real Estate Income Fund (JRS):
Concentration Risk.
The Fund’s investments are concentrated in issuers of one or a few specific economic sectors, so the Fund may be subject to more risks than if it were broadly diversified across the economy.
The following principal risk has been added for each of JRS and Nuveen Real Asset Income and Growth Fund (JRI):
London Inter-Bank Offered Rate (“LIBOR”) Replacement Risk. The use
of LIBOR will begin to be phased out in the near future, which may adversely affect the Fund’s investments whose value is tied to LIBOR. There remains uncertainty regarding the future use of LIBOR and the nature of any replacement reference
rate. Actions by regulators have resulted in the establishment of alternative reference rates to LIBOR in most major currencies and markets are slowly developing in response to these new rates. The transition process away from LIBOR may involve,
among other things, increased volatility in markets for instruments that currently rely on LIBOR. The potential effect of a discontinuation of LIBOR on the Fund’s investments will vary depending on, among other things: (1) existing
fallback provisions that provide a replacement reference rate if LIBOR is no longer available; (2) termination provisions in individual contracts; and (3) whether, how, and when industry participants develop and adopt new reference rates
and fallbacks for both legacy and new products and instruments held by the Fund. Accordingly, it is difficult to predict the full impact of the transition away from LIBOR until it is clearer how the Fund’s products and instruments will be
impacted by this transition.
77
Additional Fund Information (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
| Board of Trustees |
|
|
|
|
|
|
|
|
| Jack B. Evans |
|
William C. Hunter |
|
Amy B.R. Lancellotta |
|
Albin F. Moschner |
|
Joanne T. Medero |
|
John K. Nelson |
| Judith M. Stockdale |
|
Carole E. Stone |
|
Matthew Thornton III |
|
Terence J. Toth |
|
Margaret L. Wolff |
|
Robert L. Young |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
| Investment Adviser Nuveen Fund Advisors, LLC
333 West Wacker Drive Chicago, IL 60606 |
|
Custodian State Street Bank
&
Trust Company One Lincoln Street Boston, MA 02111 |
|
Legal Counsel Chapman and Cutler LLP
Chicago, IL 60603 |
|
Independent Registered
Public Accounting Firm KPMG
LLP 200 East Randolph Street Chicago, IL 60601 |
|
Transfer Agent and
Shareholder Services Computershare
Trust
Company, N.A. 150 Royall Street Canton, MA 02021
(800) 257-8787 |
Section 1250 and Long-Term Capital Gain Distributions
The
Funds hereby designate as Section 1250 gain dividends and long-term capital gain dividends, pursuant to Internal Revenue Code Section 852(b)(3), the amount shown in the accompanying table or, if greater, the amount necessary to reduce earnings and
profits of the Funds related to net capital gain to zero for the tax year ended December 31, 2021:
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| Section 1250 gain dividends |
|
$ |
1,084,483 |
|
|
$ |
— |
|
| Long-term capital gain dividends |
|
|
10,411,287 |
|
|
|
— |
|
| Total |
|
$ |
11,495,770 |
|
|
$ |
— |
|
Distribution Information
The
Funds hereby designate their percentages of dividends paid from net ordinary income as dividends qualifying for the dividends received deduction (“DRD”) for corporations and their percentages of qualified dividend income (“QDI”)
for individuals under Section 1(h)(11) of the Internal Revenue Code, and their percentages of qualified business income (“QBI”) for individuals under Section 199A of the Internal Revenue Code as shown in the accompanying table. The actual
qualified dividend income distributions will be reported to shareholders on Form 1099-DIV which will be sent to shareholders shortly after calendar year end.
|
|
|
|
|
|
|
|
|
| Fund |
|
JRS |
|
|
JRI |
|
| % of DRD |
|
|
2.7% |
|
|
|
16.5% |
|
| % of QDI |
|
|
3.6% |
|
|
|
47.3% |
|
| % of QBI |
|
|
83.4% |
|
|
|
13.1% |
|
The Funds hereby designate their percentages of dividends paid from net ordinary income as dividends qualifying as
Interest-Related Dividends and/or short-term capital gain dividends as defined in Internal Revenue Code Section 871 (k) for the taxable year ended December 31, 2021.
|
|
|
|
|
|
|
|
|
| |
|
JRS |
|
|
JRI |
|
| % of Interest-Related Dividends |
|
|
1.9% |
|
|
|
15.3% |
|
JRI had the following percentage, or maximum amount allowable, of ordinary dividends treated as Section 163(j) interest
dividends pursuant to Section 163(j) of the Internal Revenue Code for the taxable year ended December 31, 2021:
|
|
|
|
|
| |
|
JRI |
|
| % of Section 163(j) Interest Dividends |
|
|
18.8% |
|
Portfolio of Investments Information
Each Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third
quarters of each fiscal year as an exhibit to its report on Form N-PORT. You may obtain this information on the SEC’s website at http://www.sec.gov.
Nuveen Funds’ Proxy Voting Information
You may obtain (i) information regarding how each fund voted proxies relating to portfolio securities held during the most recent twelve-month period
ended June 30, without charge, upon request, by calling Nuveen toll-free at (800) 257-8787 or on Nuveen’s website at www.nuveen.com and (ii) a description of the policies and procedures that each
fund used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC on-line at
http://www.sec.gov.