As filed with the U.S. Securities and Exchange Commission on April 11, 2012
1933 Act File No. 333-
1940 Act File No. 811-06240
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-2
(Check appropriate box or boxes)
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REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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x
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Pre-Effective Amendment No.
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Post-Effective Amendment No.
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and/or
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REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
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Amendment No. 11
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Nuveen Select
Quality Municipal Fund, Inc.
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices)
(Number, Street, City, State, Zip Code)
(Registrants Telephone Number, including Area Code): (800) 257-8787
Kevin J. McCarthy
Vice President and Secretary
333 West Wacker Drive
Chicago, Illinois 60606
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copies to:
Thomas
S. Harman
Morgan, Lewis & Bockius LLP
1111 Pennsylvania Avenue, NW
Washington, DC 20004
Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with
a dividend reinvestment plan, check the following box.
x
It is proposed that this
filing will become effective (check appropriate box)
x
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When declared effective pursuant to section 8(c)
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Immediately upon filing pursuant to no-action relief granted to Registrant on November 9, 2010.
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CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
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Title of Securities
Being Registered
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Amount Being
Registered
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Proposed
Maximum
Offering Price
Per Unit(1)
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Proposed
Maximum
Aggregate
Offering Price(1)
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Amount of
Registration
Fee(2)
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Shares of Common Stock, $0.01 par value
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1,000
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$
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15.33
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$
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15,330
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$
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1.76
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(1)
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Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 based on the average of the high
and low sales prices of the shares of beneficial interest on April 11, 2012, as reported on the NYSE.
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(2)
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Transmitted prior to filing.
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The Registrant
hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may
determine.
The information in this Prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
PROSPECTUS
3.4 Million Shares
Nuveen Select Quality Municipal Fund, Inc.
Common Stock
Nuveen Select Quality Municipal Fund, Inc. (the Fund) is a diversified, closed-end management investment company. The
Funds primary investment objective is to provide current income exempt from regular federal income tax. The Funds secondary investment objective is to enhance portfolio value relative to the municipal bond market by investing in
tax-exempt municipal securities that Nuveen Fund Advisors, Inc. (NFA), the Funds investment adviser, believes are underrated or undervalued or that represent municipal market sectors that are undervalued. The Fund seeks to achieve
its investment objectives by investing at least 80% of its Managed Assets (as defined below under
Portfolio Contents
) in investments the income from which is exempt from regular federal income tax. The Fund also seeks to achieve its
investment objectives by investing in municipal securities that NFA believes are underrated or undervalued or that represent municipal market sectors that are undervalued. Under normal circumstances, the Fund will invest at least 80% of its Managed
Assets in investment grade securities that, at the time of investment are rated within the four highest grades (Baa or BBB or better) by at least one nationally recognized statistical rating organization (an NRSRO) or are unrated but
judged to be of comparable quality by the Funds sub-adviser, Nuveen Asset Management, LLC (Nuveen Asset Management). The Fund may invest up to 20% of its Managed Assets in municipal securities that at the time of investment are
rated below investment grade or are unrated but judged to be of comparable quality by Nuveen Asset Management. No more than 10% of the Funds Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but
judged to be of comparable quality by Nuveen Asset Management. The Fund cannot assure you that it will achieve its investment objectives.
Investing in the Funds Common Stock involves certain risks that are described in the Risk Factors and How the
Fund Manages Risks sections of this Prospectus.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
You should read this
Prospectus, which contains important information about the Fund, before deciding whether to invest and retain it for future reference. A Statement of Additional Information (SAI), dated April 11, 2012, containing additional
information about the Fund, has been filed with the SEC and is incorporated by reference in its entirety into this Prospectus. You may request a free copy of the SAI, the table of contents of which is on the last page of this Prospectus, annual and
semi-annual reports to shareholders and other information about the Fund, and make shareholder inquiries by calling (800) 257-8787, by writing to the Fund or from the Funds website (http://www.nuveen.com). The information contained in, or
that can be accessed through, the Funds website is not part of this Prospectus. You also may obtain a copy of the SAI (and other information regarding the Fund) from the Securities and Exchange Commissions (SEC) web site
(http://www.sec.gov).
Shares of the Funds
common stock do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other governmental agency.
Portfolio
Contents
. Under normal circumstances, the Fund invests at least 80% of its Managed Assets (as defined below) in municipal securities and other related investments the income from which is exempt from regular federal income
tax. The Fund invests in tax-exempt municipal securities that NFA believes are underrated or undervalued or that represent municipal market sectors that are undervalued. The Fund has not established any limit on the percentage of its portfolio that
may be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be includable in alternative minimum taxable income. Under normal
circumstances, the Fund invests at least 80% of its Managed Assets in municipal securities that at the time of investment are investment grade quality. A security is considered investment grade quality if it is rated within the four highest grades
by all nationally recognized statistical rating organizations that rate such security, or if it is unrated but judged to be of comparable quality by Nuveen Asset Management. No more than 10% of the Funds Managed Assets may be invested in
municipal securities rated below B-/B3 or that are unrated but judged to be of comparable quality by Nuveen Asset Management. Municipal securities of below investment grade quality are regarded as having predominately speculative characteristics
with respect to capacity to pay interest and repay principal, and are commonly referred to as junk bonds. The Fund may invest up to approximately 15% of its Managed Assets in inverse floating rate securities. Managed Assets are net
assets of the Fund, including assets attributable to any preferred shares, including VRDP Shares, and the principal amount of any borrowings (including the issuance of commercial paper or notes).
Adviser and Sub-adviser.
Nuveen
Fund Advisors, Inc., the Funds investment adviser, is responsible for determining the Funds overall investment strategies and their implementation. Nuveen Asset Management, LLC is the Funds investment sub-adviser and oversees the
day-to-day operations of the Fund.
Shares of
common stock will not be sold at a price less than current net asset value. The Fund currently intends to distribute the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may also
distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such
transactions. For information on how common stock may be sold, see the Plan of Distribution section of this Prospectus.
Shares of common stock are listed on the New York Stock Exchange. The trading or ticker symbol of the Funds common stock
is NQS.
The date of this Prospectus is April 11, 2012
TABLE OF CONTENTS
You should rely only on the information contained or incorporated by reference into this Prospectus. The Fund has not authorized anyone
to provide you with different information. The Fund is not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information contained in this Prospectus is accurate as of any date other
than the date on the front of this Prospectus. The Fund will update this Prospectus to reflect any material changes to the disclosures herein.
PROSPECTUS SUMMARY
This is only a summary. You should review the more
detailed information contained elsewhere in this Prospectus and in the SAI.
The Fund
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Nuveen Select Quality Municipal Fund, Inc. (the Fund) is a diversified, closed-end investment management company. See The Fund. Shares of the Funds common stock,
$.01 par value (Common Stock), are traded on the New York Stock Exchange (NYSE) under the symbol NQS. See Description of Common Stock. As of February 29, 2012, the Fund had 34,407,059 shares of
Common Stock outstanding, 2,525 of variable rate demand preferred shares (referred to herein as VRDP Shares) and net assets applicable to Common Stock of $526,381,418.
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Investment Objectives and Policies
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The Funds primary investment objective is to provide current income exempt from regular federal income tax. The Funds secondary investment objective is to enhance portfolio value
relative to the municipal bond market by investing in tax-exempt municipal securities that NFA (defined below under Investment Adviser) believes are underrated or undervalued or that represent municipal market sectors that are
undervalued. The Fund cannot assure you that it will achieve its investment objectives.
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The Fund seeks to achieve its investment objectives by investing at least 80% of its Managed Assets (as defined below) in municipal securities and other related
investments the income from which is exempt from regular federal income tax. The Fund also seeks to achieve its investment objectives by investing in municipal securities that NFA believes are underrated or undervalued or that represent municipal
market sectors that are undervalued. Managed Assets are net assets of the Fund, including assets attributable to any preferred shares, including VRDP Shares, and the principal amount of any borrowings (including the issuance of
commercial paper or notes). The Fund seeks to achieve its investment objectives by investing in municipal securities that NFA believes are underrated and undervalued or that represent municipal market sectors that are undervalued. The Fund has not
established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be
includable in alternative minimum taxable income. For a discussion of how the federal alternative minimum tax may affect shareholders, see Tax Matters.
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Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in municipal securities that at the time of investment are investment grade quality.
A security is considered investment grade quality if it is rated within the four highest grades by all nationally recognized statistical rating organizations (NRSROs) that rate such security, or if it is unrated but judged to be of
comparable quality by Nuveen Asset Management (defined below under Sub-adviser). The Fund may invest up to 20% of its Managed Assets in municipal securities that at the time of investment are rated below investment grade or are unrated
but judged to be of comparable quality by Nuveen Asset Management.
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Below investment grade quality municipal securities include those municipal securities that are rated investment grade by one or more
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NRSROs but rated below investment grade by at least one NRSRO. No more than 10% of the Funds Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but
judged to be of comparable quality by Nuveen Asset Management. The Fund may invest up to 15% of its Managed Assets in inverse floating rate securities.
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As of October 31, 2011, the Fund invested approximately 92% of its total investments in municipal securities rated investment grade (using the higher of
S&Ps, Moodys, or Fitchs rating), approximately 5% of its total investments in municipal securities rated below investment grade, and approximately 3% of its total investments in municipal securities not rated by Moodys,
S&Ps, or Fitch. The relative percentages of the value of the investments attributable to investment grade municipal securities and to below investment grade municipal securities could change over time as a result of rebalancing the
Funds assets by Nuveen Asset Management, market value fluctuations, issuance of additional shares and other events.
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See The Funds Investments and Risk Factors.
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Investment Adviser
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Nuveen Fund Advisors, Inc. (NFA), the Funds investment adviser, is responsible for determining the Funds overall strategy and its implementation. See Management of
the FundInvestment Adviser, Sub-Adviser and Portfolio Manager.
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Sub-adviser
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Nuveen Asset Management, LLC (Nuveen Asset Management) serves as the Funds sub-adviser and is a wholly-owned subsidiary of NFA. Nuveen Asset Management is a registered
investment adviser. Nuveen Asset Management oversees the day-to-day operations of the Fund.
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Nuveen Securities, LLC (Nuveen Securities), a registered broker-dealer affiliate of NFA and Nuveen Asset Management, is involved in the offering of the
Funds Common Stock. See Plan of Distribution-Distribution Through At-the-Market Transactions.
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Use of Leverage
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The Fund currently employs financial leverage primarily through its outstanding VRDP Shares. For the period May 4, 2011 through October 31, 2011, the time period for which the VRDP Shares were
outstanding, the average daily balance outstanding on VRDP Shares and annual dividend rate was $252,500,000 and 0.32%, respectively. Preferred shares, including VRDP Shares, have seniority over the shares of Common Stock. Financial leverage is also
created as a result of the Funds investments in residual interest certificates of tender option bond trusts, also called inverse floating rate securities, because the Funds investment exposure to the underlying bonds held by the trust
have been effectively financed by the trusts issuance of floating rate certificates. The Fund may also use borrowings as a means of financial leverage. See The Funds InvestmentsMunicipal SecuritiesInverse Floating Rate
Securities and Risk FactorsInverse Floating Rate Securities Risk.
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Leverage involves special risks. See Risk FactorsLeverage Risks. There is no assurance that the Funds leveraging strategy will be successful.
The Fund will seek to invest the proceeds of any future offerings in a manner consistent with the Funds investment objectives and policies. See Use of Leverage.
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The Fund pays a management fee to Nuveen Fund Advisors (which in turn pays a portion of its fee to the Funds subadviser, Nuveen Asset
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Management) based on a percentage of Managed Assets. Managed Assets include the proceeds realized and managed from the Funds use of leverage as set forth in the Funds investment
management agreement. Nuveen Fund Advisors will be responsible for using leverage to pursue the Funds investment objective, and will base its decision regarding whether and how much leverage to use for the Fund based on its assessment of
whether such use of leverage will advance the Funds investment objective. However, the fact that a decision to increase the Funds leverage will have the effect, all other things being equal, of increasing Managed Assets and therefore
Nuveen Fund Advisors and Nuveen Asset Managements fees means that Nuveen Fund Advisors and Nuveen Asset Management may have a conflict of interest in determining whether to increase the Funds use of leverage. Nuveen Fund Advisors
will seek to manage that potential conflict by only increasing the Funds use of leverage when it determines that such increase is consistent with the Funds investment objective, and by periodically reviewing the Funds performance
and use of leverage with the Board.
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Offering Methods
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The Fund may offer shares using one or more of the following methods: (i) at-the-market transactions through one or more broker-dealers that have entered into a selected dealer agreement
with Nuveen Securities, one of the Funds underwriters; (ii) through an underwriting syndicate; and (iii) through privately negotiated transactions between the Fund and specific investors. See Plan of Distribution.
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Distribution Through At-the-Market Transactions.
The Fund from time to time may offer its shares of Common Stock through Nuveen
Securities, to certain broker-dealers that have entered into selected dealer agreements with Nuveen Securities. Currently, Nuveen Securities has entered into a selected dealer agreement with UBS Securities LLC (UBS) pursuant to which UBS
will be acting as Nuveen Securities sub-placement agent with respect to at-the-market offerings of Common Stock. Shares of Common Stock will only be sold on such days as shall be agreed to by the Fund and Nuveen Securities. Shares of Common
Stock will be sold at market prices, which shall be determined with reference to trades on the Exchange, subject to a minimum price to be established each day by the Fund. The minimum price on any day will not be less than the current net asset
value per share plus the per share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Stock if the per share price of the shares is less than the minimum price.
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The Fund will compensate Nuveen Securities with respect to sales of the Common Stock at a fixed commission rate of 1% of the gross proceeds of the sale of Common Stock.
Nuveen Securities will compensate broker-dealers participating in the offering at a fixed rate of 0.8% of the gross sales proceeds of the sale of Common Stock sold by that broker-dealer. Nuveen Securities may from time to time change the dealer
re-allowance. Settlements of Common Stock sales will occur on the third business day following the date of sale.
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In connection with the sale of the Common Stock on behalf of the Fund, Nuveen Securities may be deemed to be an underwriter within the meaning of the Securities Act of
1933 (the 1933 Act), and the compensation of Nuveen Securities may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a further Prospectus supplement, Nuveen Securities will act as underwriter on a
reasonable efforts basis.
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The offering of Common Stock pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all Shares subject thereto or
(ii) termination of the Distribution Agreement. The Fund and Nuveen Securities each have the right to terminate the Distribution Agreement in its discretion at any time. See Plan of DistributionDistribution Through Agents.
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The Fund currently intends to distribute the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may
also distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such
transactions.
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Distribution Through Underwriting Syndicates.
The Fund from time to time may issue additional shares of Common Stock through a syndicated
secondary offering. In order to limit the impact on the market price of the Funds Common Stock, Underwriters will market and price the offering on an expedited basis (
e.g.
, overnight or similarly abbreviated offering period). The Fund
will launch a syndicated offering on a day, and upon terms, mutually agreed upon between the Fund, Nuveen Securities and the underwriting syndicate.
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The Fund will offer its shares at a price equal to a specified discount of up to 5% from the closing market price of the Funds Common Stock on the day prior to
the offering date. The applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund will compensate the underwriting syndicate out of the
proceeds of the offering based upon a sales load of up to 4% of the gross proceeds of the sale of Common Stock. The minimum net proceeds per share to the Fund will not be less than the greater of (i) the Funds latest net asset value per
share of Common Stock or (ii) 91% of the closing market price of the Funds Common Stock on the day prior to the offering date. See Plan of DistributionDistribution Through Underwriting Syndicates.
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Distribution Through Privately Negotiated Transactions.
The Fund, through Nuveen Securities, from time to time may sell directly to, and
solicit offers from, institutional and other sophisticated investors, who may be deemed to be underwriters as defined in the 1933 Act for any resale of Common Stock.
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The terms of such privately negotiated transactions will be subject to the discretion of the management of the Fund. In determining whether to sell Common Stock through
a privately negotiated transaction, the Fund will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Stock, the purchase price to apply to any such sale of Common
Stock and the investor seeking to purchase the Common Stock.
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Common Stock issued by the Fund through privately negotiated transactions will be issued at a price equal to the greater of (i) the net asset value per share
of the Funds Common Stock or (ii) at a discount ranging from 0% to 5% of the average daily closing market price of the Funds shares of Common Stock at the close of business on the two business days
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preceding the date upon which shares of Common Stock are sold pursuant to the privately negotiated transaction. The applicable discount will be determined by the Fund on a
transaction-by-transaction basis. See Plan of DistributionDistribution Through Privately Negotiated Transactions.
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Special Risk Considerations
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Investment in the Fund involves special risk considerations, which are summarized below. The Fund is designed as a long-term investment and not as a trading vehicle. The Fund is not intended to
be a complete investment program. See Risk Factors for a more complete discussion of the special risk considerations of an investment in the Fund.
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Investment and Market Risk.
An investment in the Funds Common Stock is subject to investment risk, including the possible loss of
the entire principal amount that you invest. Your investment in Common Stock represents an indirect investment in the municipal securities owned by the Fund, which generally trade in the over-the-counter markets. Your Common Stock 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. See Risk FactorsInvestment and Market Risk
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Current Economic ConditionsCredit Crisis Liquidity and Volatility Risk
. The markets for credit instruments, including municipal
securities, have experienced periods of extreme illiquidity and volatility since the latter half of 2007. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in
significant valuation uncertainties in a variety of debt securities, including municipal securities, and significant and rapid value declines in certain instances. These conditions resulted, and in many cases continue to result in, greater price
volatility, less liquidity, widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. These market conditions may make valuation of some of the Funds municipal securities
uncertain and/or result in sudden and significant value declines in its holdings. In addition, illiquidity and volatility in the credit markets may directly and adversely affect the setting of dividend rates on the Common Stock.
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In response to the current national economic downturn, governmental cost burdens may be reallocated among federal, state and local governments. Also, as a result of the
downturn, many state and local governments are experiencing significant reductions in revenues and consequently difficulties meeting ongoing expenses. As a result, certain of those state and local governments may have difficulty paying principal or
interest on their outstanding debt and may experience ratings downgrades of their debt. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose
other constraints on enforcement of such obligations, or on the ability of municipalities to levy taxes. Issuers of municipal securities might seek protection under the bankruptcy laws.
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See Risk FactorsCurrent Economic ConditionsCredit Crisis Liquidity and Volatility Risk and Risk FactorsMunicipal Securities Market
Risk.
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Market Discount from Net Asset Value.
Shares of closed-end investment companies like the Fund have during some periods traded at
prices higher
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than net asset value and have during other periods traded at prices lower than net asset value. The Fund cannot predict whether shares of Common Stock will trade at, above or below net asset
value. This characteristic is a risk separate and distinct from the risk that the Funds net asset value could decrease as a result of investment activities. Investors bear a risk of loss to the extent that the price at which they sell their
shares is lower in relation to the Funds net asset value than at the time of purchase, assuming a stable net asset value. Proceeds from the sale of shares of Common Stock in this offering will be reduced by shareholder transaction costs (if
applicable, which vary depending on the offering method used). Depending on the premium of the shares of Common Stock at the time of any offering of Common Stock hereunder, the Funds net asset value may be reduced by an amount up to the
offering costs borne by the Fund (estimated to be an additional 0.26% of the offering price assuming a Common Stock share offering price of $15.83 (the Funds closing price on the Exchange on February 29, 2012)).
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The net asset value per share of Common Stock will be reduced by costs associated with any future issuances of Common or preferred shares, including VRDP Shares. Common
Stock is designed primarily for long-term investors, and you should not view the Fund as a vehicle for trading purposes. See Risk FactorsMarket Discount from Net Asset Value.
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Credit and Below Investment Grade Risk.
Credit risk is the risk that one or more municipal securities in the Funds portfolio
will decline in price, or the issuer thereof will fail to pay interest or principal when due, because the issuer experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived
creditworthiness of the issuer deteriorates. The Fund may invest up to 20% (measured at the time of investment) of its Managed Assets in municipal securities that are rated below investment grade or that are unrated but judged to be of comparable
quality by Nuveen Asset Management; provided, that no more than 10% of the Funds Managed Assets may be invested in municipal securities rated below B-/B3 or that are unrated but judged to be of comparable quality by Nuveen Asset Management. If
a municipal security satisfies the rating requirements described above at the time of investment and is subsequently downgraded below that rating, the Fund will not be required to dispose of the security. If a downgrade occurs, Nuveen Asset
Management will consider what action, including the sale of the security, is in the best interests of the Fund and its shareholders. This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency
proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities). Municipal securities of below investment grade quality are predominately speculative with
respect to the issuers capacity to pay interest and repay principal when due, and are susceptible to default or decline in market value due to adverse economic and business developments. Also, to the extent that the rating assigned to a
municipal security in the Funds portfolio is downgraded by any NRSRO, the market price and liquidity of such security may be adversely affected. The market values for municipal securities of below investment grade quality tend to be volatile,
and these securities are less liquid than investment grade municipal
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securities. For these reasons, an investment in the Fund compared with a portfolio consisting solely of investment grade securities, may experience the following:
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increased price sensitivity resulting from changing interest rates and/or a deteriorating economic environment;
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greater risk of loss due to default or declining credit quality;
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adverse issuer specific events that are more likely to render the issuer unable to make interest and/or principal payments; and
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the possibility that a negative perception of the below investment grade market develops, resulting in the price and liquidity of below investment
grade securities becoming depressed, and this negative perception could last for a significant period of time.
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See Risk FactorsCredit and Below Investment Grade Risk.
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Interest Rate Risk.
Generally, when market interest rates rise, bond prices fall, and vice versa. Interest rate risk is the risk that the
municipal securities in the Funds portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal securities may prepay principal earlier than scheduled, forcing the Fund to
reinvest in lower-yielding securities and potentially reducing the Funds 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 Funds value. In typical market interest rate environments, the prices of longer-term municipal securities generally fluctuate more than prices of shorter-term municipal securities as interest rates change. Because the Fund
will invest primarily in long-term municipal securities, the Common Stock net asset value and market price per share will fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term municipal
securities. Because the values of lower-rated and comparable unrated debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities in response to changes in interest rates typically have
not been highly correlated to the fluctuations of the prices of investment grade quality securities in response to changes in market interest rates. The Funds use of leverage, as described herein, will tend to increase Common Stock interest
rate risk. See Risk FactorsInterest Rate Risk.
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Municipal Securities Market Risk.
The amount of public information available about the municipal securities in the Funds portfolio
is generally less than that for corporate equities or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical abilities of Nuveen Asset Management than if the Fund were a stock fund or taxable bond fund.
The secondary market for municipal securities, particularly the below investment grade bonds in which the Fund may invest, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the Funds
ability to sell its bonds at attractive prices. See Risk FactorsMunicipal Securities Market Risk and RisksSpecial Risks Related to Certain Municipal Obligations.
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Reinvestment Risk.
Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund invests the
proceeds from matured, traded or called bonds at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the Common Shares market price or your overall returns. See
RisksReinvestment Risk.
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Tax Risk.
To qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other
things, the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification
requirements in any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements.
Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified period. If these relief provisions are not available to the Fund for any year in which it
fails to qualify as a RIC, all of its taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and such distributions would be taxable as ordinary
dividends to the extent of the Funds current and accumulated earnings and profits.
|
|
The value of the Funds investments and its net asset value may be adversely affected by changes in tax rates and policies. Because interest income from municipal
securities is normally not subject to regular federal income taxation, the attractiveness of municipal securities in relation to other investment alternatives is affected by changes in federal income tax rates or changes in the tax-exempt status of
interest income from municipal securities. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for and supply, liquidity and marketability of municipal securities. This could in turn affect
the Funds net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement accounts, for other tax-exempt or
tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences of their investments.
|
|
Leverage Risk.
The use of financial leverage created through borrowing, the Funds outstanding preferred shares, including VRDP
Shares, or the use of tender option bonds creates an opportunity for increased Common Stock net income and returns, but also creates special risks for holders of shares of Common Stock (Common Stockholders). There is no assurance that
the Funds leveraging strategy will be successful. The risk of loss attributable to the Funds use of leverage is borne by Common Stockholders. The Funds use of financial leverage can result in a greater decrease in net asset values
in declining markets. The Funds use of financial leverage similarly can magnify the impact of changing market conditions on Common Stock market prices. See Risk FactorsInverse Floating Rate Securities Risk. Because the
long-term municipal securities in which the Fund invests generally pay fixed rates of interest while the Funds costs of leverage
|
8
|
generally fluctuate with short- to intermediate-term yields, the incremental earnings from leverage will vary over time. However, the Fund may use derivatives, such as interest rate swaps, to fix
the effective rate paid on all or a portion of the Funds leverage, in an effort to lower leverage costs over an extended period. Accordingly, the Fund cannot assure you that the use of leverage will result in a higher yield or return to Common
Stockholders. The income benefit from leverage will be reduced to the extent that the difference narrows between the net earnings on the Funds portfolio securities and its cost of leverage. The income benefit from leverage will increase to the
extent that the difference widens between the net earnings on the Funds portfolio securities and its cost of leverage. If short- or intermediate-term rates rise, the Funds cost of leverage could exceed the fixed rate of return on
longer-term bonds held by the Fund that were acquired during periods of lower interest rates, reducing income and returns to Common Stockholders. This could occur even if short- or intermediate-term and long-term municipal rates rise. Because of the
costs of leverage, the Fund may incur losses even if the Fund has positive returns if they are not sufficient to cover the costs of leverage. The Funds cost of leverage includes interest on borrowing, dividends paid on VRDP Shares, or the
interest expense attributable to tender option bonds (See Inverse Floating Rate Securities Risk), as well as any one-time costs (e.g., issuance costs) and ongoing fees and expenses associated with such leverage.
|
|
The Fund is required to maintain certain regulatory and rating agency asset coverage requirements in connection with its use of leverage, in order to be able to
maintain the ability to declare and pay Common Share distributions and to maintain the VRDP Shares rating. An NRSRO could downgrade its ratings on the Funds outstanding preferred shares, including VRDP Shares. A ratings downgrade of the
Funds preferred shares may result in higher dividend rates and may also force the redemption of such preferred shares at what might be an inopportune time in the market. These factors may result in reduced net earnings or returns to Common
Stockholders.
|
|
In order to maintain required asset coverage levels, the Fund may be required to alter the composition of its investment portfolio or take other actions, such as
redeeming preferred shares or reducing leverage levels with the proceeds from portfolio transactions, at what might be an inopportune time in the market. Such actions could reduce the net earnings or returns to Common Stockholders over time.
|
|
Furthermore, the amount of fees paid to Nuveen Fund Advisors (which in turn pays a portion of its fees to Nuveen Asset Management) for investment advisory services will
be higher if the Fund uses leverage because the fees will be calculated based on the Funds Managed Assetsthis may create an incentive for Nuveen Fund Advisors and Nuveen Asset Management to leverage the Fund.
|
|
The Fund may invest in the securities of other investment companies, which may themselves be leveraged and therefore present similar risks to those described above.
|
|
The Fund seeks to manage the risks associated with its use of financial leverage as described below under How the Fund Manages RiskInvestment Portfolio and
Capital Structure Strategies to Manage Leverage Risk.
|
9
|
See Risk FactorsLeverage Risk and Use of Leverage.
|
|
Inverse Floating Rate Securities Risk.
The Fund may invest in inverse floating rate securities. Typically, inverse floating rate
securities represent beneficial interests in a special purpose trust (sometimes called a tender option bond trust) formed by a third party sponsor for the purpose of holding municipal bonds. See The Funds
InvestmentsMunicipal SecuritiesInverse Floating Rate Securities. In general, income on inverse floating rate securities will decrease when interest rates increase and increase when interest rates decrease. Thus, distributions paid
to the Fund on its inverse floaters will be reduced or even eliminated as short-term municipal interest rates rise and will increase when short-term municipal rates fall. Inverse floating rate securities generally will underperform the market for
fixed rate municipal bonds in a rising interest rate environment. Investments in inverse floating rate securities may subject the Fund to the risks of reduced or eliminated interest payments and losses of principal. In addition, because of the
leveraged nature of such investments, inverse floating rate securities will increase or decrease in value at a greater rate than the underlying fixed rate municipal bonds held by the tender option bond. As a result, the market value of such
securities generally is more volatile than that of fixed rate securities.
|
|
The Funds investment in inverse floating rate securities creates financial leverage that provides an opportunity for increased Common Stock net income and
returns, but also creates the risk that Common Stock long-term returns will be reduced if the cost of leverage exceeds the net return on the Funds investment portfolio.
|
|
Inverse floating rate securities have varying degrees of liquidity based upon the liquidity of the underlying securities deposited in a tender option bond trust. The
market price of inverse floating rate securities is more volatile than the underlying securities due to leverage. The leverage attributable to such inverse floating rate securities may be called away on relatively short notice and
therefore may be less permanent than more traditional forms of leverage. The Fund may be required to sell its inverse floating rate securities at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances,
including, but not limited to, the following:
|
|
|
|
If the Fund has a need for cash and the securities in a special purpose trust are not actively trading due to adverse market conditions;
|
|
|
|
If special purpose trust sponsors (as a collective group or individually) experience financial hardship and consequently seek to terminate their
respective outstanding special purpose trusts; and
|
|
|
|
If the value of an underlying security declines significantly (to a level below the notional value of the floating rate securities issued by the trust)
and if additional collateral has not been posted by the Fund.
|
|
See Risk FactorsInverse Floating Rate Securities Risk.
|
|
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
|
10
|
value of money. As inflation increases, the real value of the Common Stock and distributions can decline. See Risk FactorsInflation Risk.
|
|
Derivatives Risk, Including the Risk of Swaps.
The Funds use of derivatives involves risks different from, and possibly greater
than, the risks associated with investing directly in the investments underlying the derivatives. Whether the Funds use of derivatives is successful will depend on, among other things, if Nuveen Asset Management correctly forecasts market
values, interest rates and other applicable factors. If Nuveen Asset Management incorrectly forecasts these and other factors, the investment performance of the Fund will be unfavorably affected. In addition, the derivatives market is largely
unregulated. It is possible that developments in the derivatives market could adversely affect the Funds ability to successfully use derivative instruments.
|
|
The Fund may enter into various types of derivatives transactions, including futures, options, swaps (including credit default swaps, interest rate swaps and total
return swaps), among others. Like most derivative instruments, the use of derivatives 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 derivatives requires an understanding by Nuveen Asset Management not only of the referenced asset, rate or index, but also of the derivative contract itself and the markets in which they trade. Successful implementation of most
hedging strategies would generate taxable income. See Risk FactorsDerivatives Risk, Risk FactorsCounterparty Risk, Risk FactorsHedging Risk, Risk FactorsTax Risks and the
Statement of Additional Information.
|
|
Counterparty Risk.
Changes in the credit quality of the companies that serve as the Funds counterparties with respect to
derivatives, insured municipal securities or other transactions supported by another partys credit will affect the value of those instruments. Certain entities that have served as counterparties in the markets for these transactions have
recently incurred significant financial hardships including bankruptcy and losses as a result of exposure to sub-prime mortgages and other lower quality credit investments that have experienced recent defaults or otherwise suffered extreme credit
deterioration. 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. See Risk FactorsCounterparty Risk.
|
|
Hedging Risk.
The Funds use of derivatives or other transactions to reduce risks involves costs and will be subject to Nuveen Asset
Managements ability to predict correctly changes in the relationships of such hedge instruments to the Funds portfolio holdings or other factors. No assurance can be given that Nuveen Asset Managements judgment in this respect will
be correct. In addition, 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. See RisksHedging Risk.
|
|
Anti-Takeover Provisions.
The Funds Articles of Incorporation (the Articles) and the Funds By-laws (the
By-laws) include provisions that
|
11
|
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
Stockholders of opportunities to sell their shares of Common Stock at a premium over the then current market price of the Common Stock. See Certain Provisions in the Articles of IncorporationAnti-Takeover Provisions and
RisksAnti-Takeover Provisions.
|
|
In addition, an investment in the Funds Common Stock raises other risks, which are more fully disclosed in the Risk Factors section of this
Prospectus, including: reinvestment risk, sector and industry risk, special risks relating to certain municipal obligations, market disruption risk, impact of offering methods risk, risks relating to certain affiliations; and risks that provisions
in the Funds Articles could affect the opportunities of Common Stockholders to sell their Common Stock. See Risk Factors.
|
Distributions
|
The Fund pays monthly cash distributions to Common Stockholders at a level rate (stated in terms of a fixed cents per Common Stock dividend rate) based on the projected performance of the Fund.
The Funds ability to maintain a level Common Stock dividend rate will depend on a number of factors. As portfolio and market conditions change, the rate of dividends on the Common Stock and the Funds dividend policy could change. Over
time, the Fund will distribute all of its net investment income. In addition, the Fund intends to effectively distribute, at least annually, the net capital gain and taxable ordinary income, if any, to Common Stockholders so long as the net capital
gain and taxable ordinary income are not necessary to pay accrued dividends on, or redeem or liquidate, any preferred shares, including VRDP Shares, then outstanding or pay any interest and required principal payments on borrowings. You may elect to
reinvest automatically some or all of your distributions in additional shares of Common Stock under the Funds Dividend Reinvestment Plan.
|
|
As explained more fully below in Tax Matters, at least annually, the Fund may elect to retain rather than distribute all or a portion of any net capital
gain (which is the excess of net long-term capital gain over net short-term capital loss) otherwise allocable to Common Stockholders and pay federal income tax on the retained gain. As provided under federal tax law, Common Stockholders of record as
of the end of the Funds taxable year will include their attributable share of the retained gain in their income for the year as a long-term capital gain, and will be entitled to an income tax credit or refund for the tax deemed paid on their
behalf by the Fund. The Fund will treat the retained capital gain amount as a substitute for equivalent cash distributions. See Distributions and Dividend Reinvestment Plan.
|
|
The Fund reserves the right to change its distribution policy and the basis for establishing the rate of its monthly distributions at any time.
|
Custodian and Transfer Agent
|
State Street Bank and Trust Company serves as custodian and transfer agent of the Funds assets. See Custodian and Transfer Agent.
|
Special Tax Considerations
|
The Fund has not established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and
the Fund expects that a substantial portion of the income it produces will be includable in alternative minimum taxable income. If you are, or as a result of investment in the Fund would
|
12
|
become, subject to the federal alternative minimum tax, the Fund may not be a suitable investment for you. In addition, distributions of ordinary taxable income (including any net short-term
capital gain) will be taxable to shareholders as ordinary income (and not eligible for favorable taxation as qualified dividend income), and capital gain dividends will be subject to capital gains taxes. See Tax Matters.
|
Voting Rights
|
The holders of the Funds VRDP Shares, voting as a separate class, would have the right to elect at least two directors at all times and to elect a majority of the directors in the event
two full years dividends on the preferred shares, including VRDP Shares, are unpaid. In each case, the remaining directors will be elected by holders of shares of Common Stock and preferred shares, including VRDP Shares, voting together as a
single class. The holders of shares of preferred shares, including VRDP Shares, will vote as a separate class or classes on certain other matters as required under the Articles of Incorporation, the Investment Company Act of 1940, as amended (the
1940 Act) and Minnesota law. See Description of SharesVRDP SharesVoting Rights and Certain Provisions in the Articles of Incorporation.
|
13
SUMMARY OF FUND EXPENSES
The purpose of the table below is to help you understand all
fees and expenses that you, as a Common Stockholder, would bear directly or indirectly. The table shows the expenses of the Fund as a percentage of the average net assets applicable to Common Stock, and not as a percentage of total assets or Managed
Assets.
|
|
|
|
|
Stockholder Transaction Expenses
(as a percentage of offering price)
|
|
Maximum Sales Charge
|
|
|
4.00
|
%
|
Offering Costs Borne by the Fund(1)
|
|
|
0.26
|
%
|
|
|
|
|
As a Percentage of
Net
Assets
Attributable to
Common Stock(2)
|
|
Annual Expenses
|
|
|
|
|
Management Fees
|
|
|
0.97
|
%
|
Fees on VRDP Shares and Interest and Related Expenses from Inverse Floaters(3)
|
|
|
0.85
|
%
|
Other Expenses(4)
|
|
|
0.09
|
%
|
|
|
|
|
|
Annual Expenses
|
|
|
1.91
|
%
|
|
|
|
|
|
(1)
|
Assuming a Common Stock offering price of $15.83 (the Funds closing price on the Exchange on February 29, 2012).
|
(2)
|
Stated as percentage of average net assets attributable to shares of Common Stock for the fiscal year ended October 31, 2011.
|
(3)
|
Fees on VRDP Shares assumes an annual liquidity fee of 1.00%, an annual remarketing fee of 0.10% and an annual dividend rate of 0.39% on $252,500,000 of VRDP Shares,
respectively. Interest and Related Expenses from Inverse Floaters includes interest expense that arises because accounting rules require the Fund to treat interest paid by trusts issuing certain inverse floating rate investments held by the Fund as
having been paid (indirectly) by the Fund. Because the Fund also recognizes a corresponding amount of interest income (also indirectly), the Funds net asset value, net investment income, and total return are not affected by this accounting
treatment. The actual Fees on VRDP Shares and Interest and Related Expenses from Inverse Floaters incurred in the future may be higher or lower.
|
(4)
|
Other Expenses excludes expenses incurred during the 12-month period for auction fees and dividend disbursing fees associated with auction rate preferred shares that
are no longer outstanding.
|
The
purpose of the table above is to help you understand all fees and expenses that you, as a Common Stockholder, would bear directly or indirectly. See Management of the FundInvestment Adviser.
Examples
The following examples illustrate the expenses (including the applicable transaction fees, if any, and
estimated offering costs of $2.60) that a stockholder would pay on a $1,000 investment that is held for the time periods provided in the table. Each example assumes that all dividends and other distributions are reinvested in the Fund and that the
Funds Annual Expenses, as provided above, remain the same. The examples also assume a 5% annual return.(1)
Example # 1 (At-the-Market Transaction)
The following example assumes a transaction fee of 1.00%, as a percentage of the offering price.
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$32
|
|
$
|
72
|
|
|
$
|
114
|
|
|
$
|
233
|
|
14
Example # 2 (Underwriting Syndicate Transaction)
The following example assumes a transaction fee of 4.00%, as
a percentage of the offering price.
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$61
|
|
$
|
100
|
|
|
$
|
141
|
|
|
$
|
256
|
|
Example # 3 (Privately Negotiated
Transaction)
The following example assumes
there is no transaction fee.
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year
|
|
3 Years
|
|
|
5 Years
|
|
|
10 Years
|
|
$22
|
|
$
|
62
|
|
|
$
|
105
|
|
|
$
|
225
|
|
The examples should not be
considered a representation of future expenses. Actual expenses may be greater or less than those shown above.
(1)
|
The examples assume that all dividends and distributions are reinvested at Common Stock net asset value. Actual expenses may be greater or less than those assumed.
Moreover, the Funds actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
|
15
FINANCIAL HIGHLIGHTS
The following Financial Highlights table is intended to help
a prospective investor understand the Funds financial performance for the periods shown. Certain information reflects financial results for a single share of Common Stock of the Fund. The total returns in the table represent the rate an
investor would have earned or lost on an investment in shares of Common Stock of the Fund (assuming reinvestment of all dividends). The information with respect to the fiscal year ended October 31, 2011 has been audited by Ernst &
Young LLP, whose report for the fiscal year ended October 31, 2011, along with the financial statements of the Fund including the Financial Highlights for each of the periods indicated therein, are included in the Funds 2011 Annual
Report. A copy of the 2011 Annual Report may be obtained from www.sec.gov or by visiting www.nuveen.com. The information contained in, or that can be accessed through, the Funds website is not part of this prospectus. Past results are not
indicative of future performance.
The following
per share data and ratios have been derived from information provided in the financial statements.
Selected data for a share of Common stock outstanding throughout each period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
Per Share Operating Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Common Share Net Asset Value
|
|
$
|
14.82
|
|
|
$
|
14.14
|
|
|
$
|
12.01
|
|
|
$
|
15.05
|
|
|
$
|
15.62
|
|
|
$
|
15.46
|
|
|
$
|
15.69
|
|
|
$
|
15.33
|
|
|
$
|
15.00
|
|
|
$
|
15.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income (Loss)
|
|
|
1.03
|
|
|
|
1.12
|
|
|
|
1.12
|
|
|
|
1.08
|
|
|
|
1.07
|
|
|
|
1.07
|
|
|
|
1.06
|
|
|
|
1.09
|
|
|
|
1.08
|
|
|
|
1.12
|
|
Net Realized/ Unrealized Gain (Loss)
|
|
|
(0.40
|
)
|
|
|
0.61
|
|
|
|
1.92
|
|
|
|
(3.02
|
)
|
|
|
(0.52
|
)
|
|
|
0.23
|
|
|
|
(0.16
|
)
|
|
|
0.42
|
|
|
|
0.30
|
|
|
|
(0.38
|
)
|
Distributions from Net Investment Income to Auction Rate Preferred Shareholders(a)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
|
|
(0.06
|
)
|
|
|
(0.30
|
)
|
|
|
(0.29
|
)
|
|
|
(0.26
|
)
|
|
|
(0.16
|
)
|
|
|
(0.07
|
)
|
|
|
(0.07
|
)
|
|
|
(0.09
|
)
|
Distributions from Capital Gains to Auction Rate Preferred Shareholders(a)
|
|
|
0.00
|
*
|
|
|
0.00
|
*
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
0.61
|
|
|
|
1.70
|
|
|
|
2.98
|
|
|
|
(2.24
|
)
|
|
|
0.26
|
|
|
|
1.04
|
|
|
|
0.74
|
|
|
|
1.43
|
|
|
|
1.31
|
|
|
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Distributions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income to Common Shareholders
|
|
|
(1.04
|
)
|
|
|
(1.00
|
)
|
|
|
(0.85
|
)
|
|
|
(0.80
|
)
|
|
|
(0.83
|
)
|
|
|
(0.88
|
)
|
|
|
(0.97
|
)
|
|
|
(1.00
|
)
|
|
|
(0.98
|
)
|
|
|
(0.94
|
)
|
Capital Gains to Common Shareholders
|
|
|
(0.08
|
)
|
|
|
(0.02
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.07
|
)
|
|
|
0.00
|
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(1.12
|
)
|
|
|
(1.02
|
)
|
|
|
(0.85
|
)
|
|
|
(0.80
|
)
|
|
|
(0.83
|
)
|
|
|
(0.88
|
)
|
|
|
(0.97
|
)
|
|
|
(1.07
|
)
|
|
|
(0.98
|
)
|
|
|
(1.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount from Common Shares Repurchased and Retired
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
Ending Common Share Net Asset Value
|
|
$
|
14.31
|
|
|
$
|
14.82
|
|
|
$
|
14.14
|
|
|
$
|
12.01
|
|
|
$
|
15.05
|
|
|
$
|
15.62
|
|
|
$
|
15.46
|
|
|
$
|
15.69
|
|
|
$
|
15.33
|
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Market Value
|
|
$
|
14.62
|
|
|
$
|
15.35
|
|
|
$
|
13.77
|
|
|
$
|
10.99
|
|
|
$
|
15.00
|
|
|
$
|
15.47
|
|
|
$
|
14.83
|
|
|
$
|
15.19
|
|
|
$
|
14.81
|
|
|
$
|
14.40
|
|
Total Returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Based on Market Value(b)
|
|
|
3.35
|
%
|
|
|
19.50
|
%
|
|
|
34.19
|
%
|
|
|
(22.19
|
)%
|
|
|
2.31
|
%
|
|
|
10.47
|
%
|
|
|
4.14
|
%
|
|
|
10.19
|
%
|
|
|
9.91
|
%
|
|
|
5.24
|
%
|
Based on Common Share Net Asset Value(b)
|
|
|
4.82
|
%
|
|
|
12.38
|
%
|
|
|
25.67
|
%
|
|
|
(15.50
|
)%
|
|
|
1.70
|
%
|
|
|
6.94
|
%
|
|
|
4.77
|
%
|
|
|
9.64
|
%
|
|
|
8.96
|
%
|
|
|
4.22
|
%
|
Ratios/Supplemental Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Net Assets Applicable to Common Shares (000)
|
|
$
|
491,453
|
|
|
$
|
506,237
|
|
|
$
|
481,233
|
|
|
$
|
408,541
|
|
|
$
|
511,670
|
|
|
$
|
529,996
|
|
|
$
|
523,994
|
|
|
$
|
531,694
|
|
|
$
|
519,361
|
|
|
$
|
508,300
|
|
Ratios to Average Net Assets Applicable to Common Shares(c)(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses(e)
|
|
|
1.53
|
%
|
|
|
1.16
|
%
|
|
|
1.29
|
%
|
|
|
1.27
|
%
|
|
|
1.21
|
%
|
|
|
1.18
|
%
|
|
|
1.18
|
%
|
|
|
1.21
|
%
|
|
|
1.26
|
%
|
|
|
1.24
|
%
|
Net Investment Income (Loss)
|
|
|
7.61
|
%
|
|
|
7.77
|
%
|
|
|
8.66
|
%
|
|
|
7.54
|
%
|
|
|
6.95
|
%
|
|
|
6.91
|
%
|
|
|
6.76
|
%
|
|
|
6.96
|
%
|
|
|
7.06
|
%
|
|
|
7.46
|
%
|
Portfolio Turnover Rate
|
|
|
13
|
%
|
|
|
20
|
%
|
|
|
8
|
%
|
|
|
10
|
%
|
|
|
8
|
%
|
|
|
5
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
9
|
%
|
|
|
19
|
%
|
Auction Rate Preferred Shares at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Outstanding (000)
|
|
$
|
|
|
|
$
|
251,275
|
|
|
$
|
251,275
|
|
|
$
|
267,575
|
|
|
$
|
279,000
|
|
|
$
|
279,000
|
|
|
$
|
279,000
|
|
|
$
|
279,000
|
|
|
$
|
279,000
|
|
|
$
|
279,000
|
|
Liquidation Value Per Share
|
|
$
|
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Asset Coverage Per Share
|
|
$
|
|
|
|
$
|
75,367
|
|
|
$
|
72,879
|
|
|
$
|
63,171
|
|
|
$
|
70,849
|
|
|
$
|
72,491
|
|
|
$
|
71,953
|
|
|
$
|
72,643
|
|
|
$
|
71,538
|
|
|
$
|
70,547
|
|
Variable Rate Demand Preferred Shares at End of Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Amount Outstanding (000)
|
|
$
|
252,500
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liquidation Value Per Share
|
|
$
|
100,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Asset Coverage Per Share
|
|
$
|
294,635
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
16
(a)
|
The amounts shown are based on common share equivalents.
|
(b)
|
Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains
distributions, if any, at the average price paid per share at the time of reinvestment. 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.
|
|
Total Return Based on Common Share Net Asset Value is the combination of changes in common share net asset value, reinvested dividend income at net asset value and
reinvested capital gains distributions at net asset value, if any. 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 net asset value. The
actual reinvest price for the last dividend declared in the period may often be based on the Funds market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not
annualized.
|
(c)
|
Ratios do not reflect the effect of dividend payments to Auction Rate Preferred shareholders, where applicable; Net Investment Income (Loss) ratios reflect income
earned and expenses incurred on assets attributable to Auction Rate Preferred Shares and/or Variable Rate Demand Preferred Shares, where applicable.
|
(d)
|
Ratios do not reflect the effect of custodian fee credits earned on the Funds net cash on deposit with the custodian bank or legal fee refunds, where applicable.
|
(e)
|
The expense ratios reflect, among other things, all interest expense and other costs related to Variable Rate Demand Preferred Shares and/or the interest expense deemed
to have been paid by the Fund on the floating rate certificates issued by the special purpose trusts for the self-deposited inverse floaters held by the Fund, where applicable, both as described in Footnote 1General Information and Significant
Accounting Policies, Variable Rate Demand Preferred Shares and Inverse Floating Rate Securities, respectively, in the most recent shareholder report, as follows:
|
|
|
|
|
|
2011
|
|
|
0.42
|
%
|
2010
|
|
|
0.03
|
|
2009
|
|
|
0.04
|
|
2008
|
|
|
0.05
|
|
2007
|
|
|
0.03
|
|
2006
|
|
|
|
|
2005
|
|
|
|
|
2004
|
|
|
|
|
2003
|
|
|
|
|
2002
|
|
|
|
|
*
|
Rounds to less than $.01 per share
|
TRADING AND NET ASSET VALUE INFORMATION
The following table shows for the periods indicated: (i) the high and low sales prices for the shares of
Common Stock reported as of the end of the day on the NYSE, (ii) the high and low net asset values of the shares of Common Stock, and (iii) the high and low of the discount or premium to net asset value (expressed as a percentage) of the
shares of Common Stock.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
Net Asset Value
|
|
|
Premium/Discount
to Net Asset Value
|
|
Fiscal Quarter Ended
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
January 31, 2012
|
|
$
|
15.95
|
|
|
$
|
14.37
|
|
|
$
|
15.29
|
|
|
$
|
14.26
|
|
|
|
6.22
|
%
|
|
|
0.46
|
%
|
October 31, 2011
|
|
$
|
14.75
|
|
|
$
|
13.37
|
|
|
$
|
14.56
|
|
|
$
|
13.96
|
|
|
|
2.95
|
%
|
|
|
-6.37
|
%
|
July 31, 2011
|
|
$
|
14.45
|
|
|
$
|
13.42
|
|
|
$
|
13.95
|
|
|
$
|
13.25
|
|
|
|
3.81
|
%
|
|
|
-0.79
|
%
|
April 30, 2011
|
|
$
|
13.65
|
|
|
$
|
12.96
|
|
|
$
|
13.25
|
|
|
$
|
12.76
|
|
|
|
4.28
|
%
|
|
|
-0.69
|
%
|
January 31, 2011
|
|
$
|
15.58
|
|
|
$
|
12.41
|
|
|
$
|
14.82
|
|
|
$
|
12.51
|
|
|
|
7.61
|
%
|
|
|
-3.18
|
%
|
October 31, 2010
|
|
$
|
15.88
|
|
|
$
|
15.02
|
|
|
$
|
15.02
|
|
|
$
|
14.53
|
|
|
|
6.10
|
%
|
|
|
1.14
|
%
|
July 31, 2010
|
|
$
|
15.09
|
|
|
$
|
14.27
|
|
|
$
|
14.55
|
|
|
$
|
14.28
|
|
|
|
4.18
|
%
|
|
|
-1.59
|
%
|
April 30, 2010
|
|
$
|
14.95
|
|
|
$
|
14.07
|
|
|
$
|
14.46
|
|
|
$
|
14.22
|
|
|
|
3.89
|
%
|
|
|
-1.26
|
%
|
January 31, 2010
|
|
$
|
14.70
|
|
|
$
|
13.65
|
|
|
$
|
14.33
|
|
|
$
|
13.96
|
|
|
|
2.95
|
%
|
|
|
-3.12
|
%
|
October 31, 2009
|
|
$
|
14.92
|
|
|
$
|
13.29
|
|
|
$
|
14.84
|
|
|
$
|
13.15
|
|
|
|
2.66
|
%
|
|
|
-5.34
|
%
|
July 31, 2009
|
|
$
|
13.30
|
|
|
$
|
12.22
|
|
|
$
|
13.41
|
|
|
$
|
12.87
|
|
|
|
1.14
|
%
|
|
|
-5.67
|
%
|
April 30, 2009
|
|
$
|
12.41
|
|
|
$
|
10.56
|
|
|
$
|
12.86
|
|
|
$
|
12.23
|
|
|
|
-1.82
|
%
|
|
|
-15.72
|
%
|
January 31, 2009
|
|
$
|
12.10
|
|
|
$
|
8.95
|
|
|
$
|
12.68
|
|
|
$
|
10.96
|
|
|
|
-2.20
|
%
|
|
|
-22.01
|
%
|
17
THE FUND
The Fund is a diversified, closed-end management investment
company registered under the 1940 Act. The Fund was organized as a Minnesota corporation on January 23, 1991 pursuant to Articles of Incorporation (the Articles) governed by the laws of the State of Minnesota. The Fund issues common
stock and preferred stock. The Funds Common Stock is traded on the New York Stock Exchange under the symbol NQS. The Fund has previously offered MuniPreferred Shares, a type of preferred stock. As of October 31, 2011, all of
the Funds MuniPreferred Shares have been redeemed. The Fund has also issued variable rate demand preferred shares, another type of preferred stock, referred to herein as VRDP Shares.
The Funds principal office is located at 333 West Wacker Drive, Chicago, Illinois 60606, and its
telephone number is (800) 257-8787.
The
following provides information about the Funds outstanding shares as of February 29, 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Amount
Authorized
|
|
|
Amount Held
by the Fund or
for its Account
|
|
|
Amount
Redeemed
|
|
|
Amount
Outstanding
|
|
Common
|
|
|
200,000,000
|
|
|
|
0
|
|
|
|
|
|
|
|
34,407,059
|
|
Preferred(1)
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VRDP Shares
|
|
|
50,000
|
|
|
|
0
|
|
|
|
|
|
|
|
2,525
|
|
(1)
|
The Funds Articles authorize the issuance of 1,000,000 preferred shares, par value $.01 per share, in one or more classes or series, of which the Board of
Directors has designated 50,000 preferred shares as Variable Rate Demand Preferred Shares (referred to herein as VRDP Shares).
|
USE OF PROCEEDS
The net proceeds from the issuance of Common Stock hereunder will be used by the Fund to invest in municipal securities in accordance with
the Funds investment objectives and policies as stated below. To the extent the Fund uses the net proceeds of any offering to invest in municipal securities, it is presently anticipated that the Fund will be able to invest substantially all of
such proceeds in securities that meet the Funds investment objective and policies within one month from the date on which the proceeds from an offering are received by the Fund. Pending such investment, it is anticipated that the proceeds will
be invested in short-term or long-term securities issued by the U.S. Government and its agencies or instrumentalities or in high-quality, short-term money market instruments. See Risk FactorsLeverage Risk and Use of
Leverage.
THE
FUNDS INVESTMENTS
Investment Objectives
The Funds investment objectives are to
provide current income exempt from regular federal income tax and to enhance portfolio value relative to the municipal bond market by investing in tax-exempt municipal securities that NFA believes are underrated or undervalued or that represent
municipal market sectors that are undervalued. Any capital appreciation realized by the Fund will generally result in the distribution of taxable capital gains to Common Stockholders. The Fund has not established any limit on the percentage of its
portfolio that may be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be includable in alternative minimum taxable
income.
18
Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in
municipal securities and other related investments, the income from which is exempt from regular federal income tax. Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment grade securities that, at the time
of investment are rated within the four highest grades (Baa or BBB or better) by at least one NRSRO or are unrated but judged to be of comparable quality by Nuveen Asset Management. The Fund may invest up to 20% of its Managed Assets in municipal
securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by Nuveen Asset Management. No more than 10% of the Funds Managed Assets may be invested in municipal securities
rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Asset Management. There can be no assurance that the Fund will achieve its investment objectives. See The Funds InvestmentsInvestment
Policies.
Investment Philosophy
Nuveen Asset Management believes that the unique tax
treatment of municipal securities and the structural characteristics in the municipal securities market create attractive opportunities to enhance the after-tax total return and diversification of the investment portfolios of taxable investors.
Nuveen Asset Management believes that these unique characteristics also present unique risks that may be managed to realize the benefits of the asset class.
After-Tax Income Potential.
The primary source of total return from municipal securities comes from the
tax-exempt income derived therefrom. Nuveen Asset Management believes that, at acceptable levels of credit risk and maturity principal risk, the municipal securities market offers the potential for higher after-tax income when compared with other
fixed income markets.
Managing Multi-Faceted
Risks.
Risk in the municipal securities market is derived from multiple sources, including credit risk at the issuer and sector levels, structural risks such as call risk, yield curve risk, and legislative and tax-related
risks. Nuveen Asset Management believes that managing these risks at both the individual security and Fund portfolio levels is an important element of realizing the after-tax income and total return potential of the asset class.
Opportunities for
Diversification.
As of January 31, 2012, the municipal securities market aggregated approximately $3.7 trillion, with approximately 55,000 issuers, and a wide array of financing purposes, security terms, offering
structures and credit quality.
Market
Inefficiencies.
Nuveen Asset Management believes that the scale and intricacy of the municipal securities market often results in pricing anomalies and other inefficiencies that can be identified and capitalized on through
trading strategies.
Investment Process
Nuveen Asset Management believes that a bottom-up,
value-oriented investment strategy that seeks to identify underrated and undervalued securities and sectors is positioned to capture the opportunities inherent in the municipal securities market and potentially outperform the general municipal
securities market over time. The primary elements of Nuveen Asset Managements investment process are:
Credit Analysis and Surveillance.
Nuveen Asset Management focuses on bottom-up, fundamental analysis of
municipal securities issuers. Analysts screen each sector for issuers that meet the fundamental tests of creditworthiness and favor those securities with demonstrable growth potential, solid coverage of debt service and a priority lien on hard
assets, dedicated revenue streams or tax resources. As part of Nuveen Asset Managements overall risk management process, analysts actively monitor the credit quality of portfolio holdings.
19
Sector Analysis.
Organized by sector, analysts continually
assess the key issues and trends affecting each sector in order to maintain a sector outlook. Evaluating such factors as historical default rates and average credit spreads within each sector, analysts provide top-down analysis that supports
decisions to overweight or underweight a given sector in a portfolio.
Diversification.
Nuveen Asset Management seeks to invest in a large number of sectors, states and specific issuers in order to help insulate a portfolio from events that
affect any individual industry, geographic location or credit.
Portfolio managers normally seek to limit exposure to individual credits over the long-term. Portfolio managers also seek to diversify other portfolio level risks, including exposure to calls, and to
manage a portfolios interest rate sensitivity within tolerance bands relative to the relevant benchmark.
Trading Strategies.
Through its trading strategies, Nuveen Asset Management seeks to enhance portfolio value
by trading to take advantage of inefficiencies found in the municipal market. This may entail selling issues Nuveen Asset Management deems to be overvalued and purchasing issues Nuveen Asset Management considers to be undervalued.
Sell Discipline.
Nuveen Asset
Management generally sells securities when it (i) determines a security has become overvalued or over-rated, (ii) identifies credit deterioration, or (iii) modifies a portfolio strategy, such as sector allocation. Nuveen Asset
Management may also sell securities when such securities exceed the portfolios diversification targets.
Investment Policies
Under normal circumstances, the Fund will invest its Managed Assets in a portfolio of municipal securities that pay interest that is exempt from regular federal income tax. It is a fundamental policy
that, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in municipal securities and other related investments, the income from which is exempt from regular federal income tax. The Fund has not established any limit
on the percentage of its portfolio that may be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be includable in
alternative minimum taxable income. For a discussion of how the federal alternative minimum tax may affect shareholders, see Tax Matters.
As a non-fundamental policy, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment grade
securities that, at the time of investment, are rated within the four highest grades (Baa or BBB or better) by at least one NRSRO or are unrated but judged to be of comparable quality by Nuveen Asset Management. Also, as a non-fundamental policy,
the Fund may invest up to 20% of its Managed Assets in municipal securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by Nuveen Asset Management. Additionally, as a
non-fundamental policy, no more than 10% of the Funds Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Asset Management. The Fund may invest up to
approximately 15% of its Managed Assets in inverse floating rate securities (discussed below). The economic effect of leverage through the Funds purchase of inverse floating rate securities creates an opportunity for increased net income and
returns, but also creates the possibly that the Funds long-term returns will be diminished if the cost of leverage exceeds the return on the inverse floating rate securities purchased by the Fund.
Securities of below investment grade quality (Ba/BB or below)
are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or economic conditions which could
adversely affect such payment capacity. Municipal securities rated Baa or BBB are considered investment grade securities; municipal securities rated Baa are considered medium grade obligations which lack outstanding investment
20
characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal and interest. Municipal securities rated AAA
in which the Fund may invest may have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of all principal and interest. Municipal securities rated below investment grade quality are obligations of
issuers that are considered predominately speculative with respect to the issuers capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of
issuer default and bankruptcy and increased market price volatility. Municipal securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad. The market for unrated
municipal securities is even narrower. During periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund
will be more dependent on Nuveen Asset Managements research and analysis when investing in these securities.
The ratings of Fitch, Moodys and S&P represent their opinions as to the quality of the municipal securities they rate. It should
be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently, municipal securities with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with
different ratings may have the same yield.
The
foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a security in the event that an NRSRO downgrades its assessment of the credit characteristics of a particular issuer or that
valuation changes of various bonds cause the Funds portfolio to fail to satisfy those policies. In determining whether to retain or sell such a security, Nuveen Asset Management may consider such factors as Nuveen Asset Managements
assessment of the credit quality of the issuer of such security, the price at which such security could be sold and the rating, if any, assigned to such security by other rating agencies. See Municipal Securities. The Fund may also
invest in securities of other open- or closed-end investment companies (up to 10% of its Managed Assets) that invest primarily in municipal bonds of the types in which the Fund may invest directly. See Other Investment Companies.
The Fund will primarily invest in municipal
securities with long-term maturities in order to maintain a weighted average maturity of 15-30 years, but the average weighted maturity of obligations held by the Fund may be shortened, depending on market conditions. As a result, the Funds
portfolio at any given time may include both long-term and intermediate-term municipal securities. Moreover, during temporary defensive periods (e.g., times when, in NFAs opinion, temporary imbalances of supply and demand or other temporary
dislocations in the tax-exempt bond market adversely affect the price at which long-term or intermediate-term municipal securities are available), and in order to keep the Funds 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 (or in securities of other open- or closed-end investment companies that invest primarily in municipal securities of the
types in which the Fund may invest directly). The Fund will generally select obligations which may not be redeemed at the option of the issuer for approximately seven to nine years.
The Fund may purchase municipal securities that are additionally secured by insurance, bank credit agreements,
or escrow accounts. The credit quality of companies which provide such credit enhancements may affect the value of those securities. Although the insurance feature may reduce certain financial risks, the premiums for insurance and the higher market
price paid for insured obligations may reduce the Funds income. The insurance feature does not guarantee the market value of the insured obligations, and the effectiveness and value of the insurance itself is dependent on the continued
creditworthiness of the insurer.
Obligations of
issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition, the obligations of such issuers may become
subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon municipalities to
levy taxes. There is also the
21
possibility that, as a result of legislation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its municipal securities may be materially
affected.
The Fund cannot change its investment
objectives without the approval of the holders of a majority of the outstanding shares of Common Stock and VRDP Shares, voting together as a single class, and of the holders of a majority of the outstanding VRDP Shares,
voting as a separate class. When used with respect to particular shares of the Fund, a majority of the outstanding shares under the 1940 Act, 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. See Description of VRDP SharesVoting Rights for additional information with respect to the voting rights of Fund
shareholders.
As of October 31, 2011, the
Fund invested approximately 92% of its total investments in municipal securities rated investment grade (using the higher of S&Ps, Moodys, or Fitchs rating), approximately 5% of its total investments in municipal securities
rated below investment grade, and approximately 3% of its total investments in municipal securities not rated by Moodys, S&Ps, or Fitch. The relative percentages of the value of the investments attributable to investment grade
municipal securities and to below investment grade municipal securities could change over time as a result of rebalancing the Funds assets by Nuveen Asset Management, market value fluctuations, issuance of additional shares and other events.
The Fund is diversified for purposes of the 1940
Act. Consequently, as to 75% of its assets, the Fund may not invest more than 5% of its total assets in the securities of any single issuer.
Municipal Securities
General.
The Fund may invest in various municipal securities, including municipal bonds and notes, other
securities issued to finance and refinance public projects, and other related securities and derivative instruments creating exposure to municipal bonds, notes and securities that provide for the payment of interest income that is exempt from
regular federal income tax (as previously defined, municipal securities). Municipal securities are often issued by state and local governmental entities to finance or refinance public projects such as roads, schools, and water supply
systems. Municipal securities may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction, or for privately owned transportation, electric utility and pollution control
projects. Municipal securities may be issued on a long-term basis to provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or special tax, or
any other revenue source, including project revenues, which may include tolls, fees and other user charges, lease payments and mortgage payments. Municipal securities may also be issued to finance projects on a short-term interim basis, anticipating
repayment with the proceeds of the later issuance of long-term debt. The Fund may purchase municipal securities in the form of bonds, notes, leases or certificates of participation; structured as callable or non-callable; with payment forms
including fixed coupon, variable rate, zero coupon, capital appreciation bonds, tender option bonds, and residual interest bonds or inverse floating rate securities; or acquired through investments in pooled vehicles, partnerships or other
investment companies. Inverse floating rate securities are securities that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and represent a leveraged investment in an underlying municipal
security, which could have the economic effect of financial leverage.
Municipal securities are either general obligation or revenue bonds and typically are issued to finance public projects (such as roads or public buildings), to pay general operating expenses, or to
refinance outstanding debt.
Municipal securities
may also be issued on behalf of private entities or for private activities, such as housing, medical and educational facility construction, or for privately owned industrial development and pollution control projects. General obligation bonds are
backed by the full faith and credit, or taxing authority, of the issuer and may be repaid from any revenue source; revenue bonds may be repaid only from the revenues of a specific facility or source. The Fund may also purchase municipal securities
that represent lease obligations,
22
municipal notes, pre-refunded municipal securities, private activity bonds, tender option bonds and other related securities and derivative instruments that create exposure to municipal bonds,
notes and securities and that provide for the payment of interest income that is exempt from regular federal income tax.
The municipal securities in which the Fund will invest are generally issued by states, cities and local authorities and certain
possessions and territories of the United States (such as Puerto Rico and Guam), and pay interest that, in the opinion of bond counsel to the issuer (or on the basis of other authority believed by Nuveen Asset Management to be reliable), is exempt
from regular federal income tax, although the interest may be subject to the federal alternative minimum tax.
The yields on municipal securities depend on a variety of factors, including prevailing interest rates and the condition of the general
money market and the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The market value of municipal securities will vary with changes in interest rate levels and as a result of
changing evaluations of the ability of their issuers to meet interest and principal payments.
A municipal securitys market value generally will depend upon its form, maturity, call features, and interest rate, as well as the credit quality of the issuer, all such factors examined in the
context of the municipal securities market and interest rate levels and trends.
The Fund will primarily invest in municipal securities with long-term maturities in order to maintain a weighted average maturity of 15 to 30 years, but the weighted average maturity of obligations held
by the Fund may be shorter, depending on market conditions. In comparison to maturity (which is the date on which a debt instrument ceases and the issuer is obligated to repay the principal amount), duration is a measure of the price volatility of a
debt instrument as a result of changes in market rates of interest, based on the weighted average timing of the instruments expected principal and interest payments. Duration differs from maturity in that it considers a securitys yield,
coupon payments, principal payments and call features in addition to the amount of time until the security finally matures. As the value of a security changes over time, so will its duration. Prices of securities with longer durations tend to be
more sensitive to interest rate changes than securities with shorter durations. In general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a portfolio with a shorter duration.
Municipal Leases and Certificates of
Participation.
The Fund also may purchase municipal securities that represent lease obligations and certificates of participation in such leases. These carry special risks because the issuer of the securities may not be
obligated to appropriate money annually to make payments under the lease. A municipal lease is an obligation in the form of a lease or installment purchase which is issued by a state or local government to acquire equipment and facilities. Income
from such obligations is generally exempt from state and local taxes in the state of issuance. Leases and installment purchase or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental
issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of
the inclusion in many leases or contracts of non-appropriation clauses that relieve the governmental issuer of any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the temporary abatement of payments in the event the issuer is prevented from maintaining occupancy of the leased premises or
utilizing the leased equipment or facilities. Although the obligations may be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and
costly, and result in a delay in recovering, or the failure to recover fully, the Funds original investment. To the extent that the Fund invests in unrated municipal leases or participates in such leases, the credit quality rating and risk of
cancellation of such unrated leases will be monitored on an ongoing basis. In order to reduce this risk, the Fund will only purchase municipal securities representing lease obligations where Nuveen Asset Management believes the issuer has a strong
incentive to continue making appropriations until maturity.
23
A certificate of participation represents an undivided interest in an unmanaged pool of
municipal leases, an installment purchase agreement or other instruments. The certificates are typically issued by a municipal agency, a trust or other entity that has received an assignment of the payments to be made by the state or political
subdivision under such leases or installment purchase agreements. Such certificates provide the Fund with the right to a pro rata undivided interest in the underlying municipal securities. In addition, such participations generally provide the Fund
with the right to demand payment, on not more than seven days notice, of all or any part of the Funds participation interest in the underlying municipal securities, plus accrued interest.
Municipal Notes.
Municipal
securities in the form of notes generally are used to provide for short-term capital needs, in anticipation of an issuers receipt of other revenues or financing, and typically have maturities of up to three years. Such instruments may include
tax anticipation notes, revenue anticipation notes, bond anticipation notes, tax and revenue anticipation notes and construction loan notes. Tax anticipation notes are issued to finance the working capital needs of governments. Generally, they are
issued in anticipation of various tax revenues, such as income, sales, property, use and business taxes, and are payable from these specific future taxes. Revenue anticipation notes are issued in expectation of receipt of other kinds of revenue,
such as federal revenues available under federal revenue sharing programs. Bond anticipation notes are issued to provide interim financing until long- term bond financing can be arranged. In most cases, the long-term bonds then provide the funds
needed for repayment of the bond anticipation notes. Tax and revenue anticipation notes combine the funding sources of both tax anticipation notes and revenue anticipation notes. Construction loan notes are sold to provide construction financing.
Mortgage notes insured by the Federal Housing Authority secure these notes; however, the proceeds from the insurance may be less than the economic equivalent of the payment of principal and interest on the mortgage note if there has been a default.
The anticipated revenues from taxes, grants or bond financing generally secure the obligations of an issuer of municipal notes. An investment in such instruments, however, presents a risk that the anticipated revenues will not be received or that
such revenues will be insufficient to satisfy the issuers payment obligations under the notes or that refinancing will be otherwise unavailable.
Pre-Refunded Municipal Securities.
The principal of and interest on pre-refunded municipal securities are no
longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. government securities. The assets in the escrow fund are derived from the proceeds of refunding
bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable terms with respect to securities that are not yet subject to call or redemption
by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or eliminate restrictive covenants in the indenture or other governing instrument for the
pre-refunded municipal securities. However, except for a change in the revenue source from which principal and interest payments are made, the pre-refunded municipal securities remain outstanding on their original terms until they mature or are
redeemed by the issuer.
Private Activity
Bonds.
Private activity bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit
or port facilities, sewage disposal, solid waste disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used
for the construction, equipment, repair or improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the current federal tax laws place substantial limitations on the size of such issues.
The Funds distributions of its interest income from private activity bonds may subject certain investors to the federal alternative minimum tax.
Inverse Floating Rate Securities.
The Fund may invest up to approximately 15% of its Managed Assets in
inverse floating rate securities. Inverse floating rate securities (sometimes referred to as inverse floaters or residual interests of a tender option bond) are securities whose interest rates bear an inverse relationship to the interest
rate on another security or the value of an index. Generally, inverse floating rate securities represent
24
beneficial interests in a special purpose trust formed by a third party sponsor for the purpose of holding municipal bonds. The special purpose trust typically sells two classes of beneficial
interests or securities: short-term floating rate municipal securities (sometimes referred to as short-term floaters or tender option bonds), which are sold to third party investors, and inverse floating rate municipal securities, which the Fund
would purchase. The short-term floating rate securities have first priority on the cash flow from the municipal bonds held by the special purpose trust. Typically, a third party, such as a bank, broker-dealer or other financial institution, grants
the floating rate security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees. The
holder of the short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, an institution will not be obligated to accept tendered short-term floaters in the event of certain
defaults or a significant downgrade in the credit rating assigned to the bond issuer. For its inverse floating rate investment, the Fund receives the residual cash flow from the special purpose trust. Because the holder of the short-term floater is
generally assured liquidity at the face value of the security, the Fund as the holder of the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal security deposited into the special purpose
trust. The volatility of the interest cash flow and the residual market value will vary with the degree to which the trust is leveraged. This is expressed in the ratio of the face value of the short-term floaters in relation to the residual inverse
floaters that are issued by the special purpose trust. The higher the percentage of the special purpose trusts total value represented by the short-term floaters, the greater the effective leverage. For example, if municipal bonds worth $100
are deposited in a special purpose trust and the trust issues short-term floaters worth $75 and inverse floaters worth $25, the trust will have a leverage ratio of 3:1 and the inverse floaters will exhibit price movements at a rate that is four
times that of the underlying bonds deposited into the trust. If that same trust were to issue only $50 of floaters, the leverage ratio would be 1:1 and the inverse floaters would exhibit price movements at a rate that is only two times that of the
underlying bonds. The Fund expects to make limited investments in inverse floaters, with leverage ratios that may vary between one and three times. In addition, all voting rights and decisions to be made with respect to any other rights relating to
the municipal bonds held in the special purpose trust are passed through to the Fund, as the holder of the residual inverse floating rate securities.
Because increases in the interest rate on the short-term floaters reduce the residual interest paid on inverse floaters, and because
fluctuations in the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the value of the short-term floater issued by the trust, inverse floaters value are more volatile than
that of fixed rate bonds. The market price of inverse floating rate securities is generally more volatile than the underlying bonds due to the leveraging effect of this ownership structure. These securities generally will underperform the market of
fixed rate bonds in a rising interest rate environment (
i.e.,
when bond values are falling), but tend to out-perform the market of fixed rate bonds when interest rates decline or remain relatively stable. Although volatile, inverse floaters
typically offer the potential for yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity based upon the liquidity of the underlying bonds
deposited in a special purpose trust.
The Fund
may invest in inverse floating rate securities issued by special purpose trusts that have recourse to the Fund. In NFAs discretion, the Fund may enter into a separate shortfall and forbearance agreement with the third party sponsor of a
special purpose trust. The Fund may enter into such recourse agreements (i) when the liquidity provider to the special purpose trust requires such an agreement because the level of leverage in the trust exceeds the level that the liquidity
provider is willing to support absent such an agreement; and/or (ii) to seek to prevent the liquidity provider from collapsing the trust in the event that the municipal obligation held in the trust has declined in value. Such an agreement would
require the Fund to reimburse the third party sponsor of such inverse floater, upon termination of the trust issuing the inverse floater, the difference between the liquidation value of the bonds held in the trust and the principal amount due to the
holders of floating rate interests. Such agreements may expose the Fund to a risk of loss that exceeds its investment in the inverse floating rate securities. Absent a shortfall and forbearance agreement, the Fund would not be required to make such
a reimbursement. If the Fund chooses not to enter into such an agreement, the special purpose trust could be liquidated and the Fund could incur a loss.
25
The Funds investments in inverse floating rate securities issued by special purpose
trusts that have recourse to the Fund may be highly leveraged. The structure and degree to which the Funds inverse floating rate securities are highly leveraged will vary based upon a number of factors, including the size of the trust itself
and the terms of the underlying municipal security held in a special purpose trust. An inverse floating rate security generally is considered highly leveraged if the principal amount of the short-term floating rate interests issued by the related
special purpose trust is in excess of three times the principal amount of the inverse floating rate securities owned by the trust (the ratio of the principal amount of such short-term floating rate interests to the principal amount of the inverse
floating rate securities is referred to as the gearing). In the event of a significant decline in the value of an underlying security, the Fund may suffer losses in excess of the amount of its investment (up to an amount equal to the
value of the municipal securities underlying the inverse floating rate securities) as a result of liquidating special purpose trusts or other collateral required to maintain the Funds anticipated effective leverage ratio.
Investments in inverse floating rate securities create
effective leverage. The use of leverage creates special risks for Common Stockholders. See Leverage and Risk FactorsInverse Floating Rate Securities Risk. The Fund will segregate or earmark liquid assets with its
custodian in accordance with the 1940 Act to cover its obligations with respect to its investments in special purpose trusts. See also Segregation of Assets in the Statement of Additional Information.
Tender Option Bonds.
A tender
option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically
issued with the agreement of a third party, such as a bank, broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the bonds fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the
commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears
interest at the prevailing short-term, tax-exempt rate. However, an institution will not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrade in the credit rating assigned to the issuer of the bond. The
Fund intends to invest in tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by Nuveen Asset Management, be exempt from regular federal income tax. However,
because there can be no assurance that the Internal Revenue Service (the IRS) will agree with such counsels opinion in any particular case, there is a risk that the Fund will not be considered the owner of such tender option bonds
and thus will not be entitled to treat such interest as exempt from such tax. Additionally, the federal income tax treatment of certain other aspects of these investments, including the proper tax treatment of tender option bonds and the associated
fees in relation to various regulated investment company tax provisions, is unclear. The Fund intends to manage its portfolio in a manner designed to eliminate or minimize any adverse impact from the tax rules applicable to these investments.
Special Taxing
Districts.
Special taxing districts are organized to plan and finance infrastructure developments to induce residential, commercial and industrial growth and redevelopment. The bond financing methods such as tax increment
finance, tax assessment, special services district and Mello-Roos bonds, are generally payable solely from taxes or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related
or overlapping municipalities. They often are exposed to real estate development-related risks and can have more taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax
allocations and other revenues that are established to secure such financings are generally limited as to the rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate
guarantees. The bonds could default if development failed to progress as anticipated or if larger taxpayers failed to pay the assessments, fees and taxes as provided in the financing plans of the districts.
26
When-Issued and Delayed Delivery Transactions.
The Fund may
buy and sell municipal 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. This type of transaction may involve an element of risk because no
interest accrues on the bonds prior to settlement and, because bonds are subject to market fluctuations, the value of the bonds at time of delivery may be less (or more) than cost. A separate account of the Fund will be established with its
custodian consisting of cash, cash equivalents, or liquid securities having a market value at all times at least equal to the amount of the commitment. Income generated by any such assets which provide taxable income for federal income tax purposes
is includable in the taxable income of the Fund and, to the extent distributed, will be taxable distributions to shareholders. The Fund may enter into contracts to purchase municipal bonds on a forward basis (i.e., where settlement will occur more
than 60 days from the date of the transaction) only to the extent that the Fund specifically collateralizes such obligations with a security that is expected to be called or mature within sixty days before or after the settlement date of the forward
transaction. The commitment to purchase securities on a when-issued, delayed delivery or forward basis may involve an element of risk because no interest accrues on the bonds prior to settlement and at the time of delivery the market value may be
less than cost.
Zero Coupon
Bonds.
A zero coupon bond is a bond that does not pay interest either for the entire life of the obligation or for an initial period after the issuance of the obligation. When held to its maturity, its return comes from
the difference between the purchase price and its maturity value. A zero coupon bond is normally issued and traded at a deep discount from face value. Zero coupon bonds allow an issuer to avoid or delay the need to generate cash to meet current
interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. The Fund would be required to distribute the income on any of these instruments as it accrues, even though the Fund will not
receive all of the income on a current basis or in cash. Thus, the Fund may have to sell other investments, including when it may not be advisable to do so, to make income distributions to its shareholders.
Structured Notes.
The Fund may
utilize structured notes and similar instruments for investment purposes and also for hedging purposes. Structured notes are privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a
benchmark asset, market or interest rate (an embedded index), such as selected securities, an index of securities or specified interest rates, or the differential performance of two assets or markets. The terms of such structured
instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but not ordinarily below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a
result, the interest and/or principal payments that may be made on a structured product may vary widely, depending upon a variety of factors, including the volatility of the embedded index and the effect of changes in the embedded index on principal
and/or interest payments. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of the referenced index or indices or other assets. Application of a multiplier involves
leverage that will serve to magnify the potential for gain and the risk of loss. These types of investments may generate taxable income.
Derivatives and Hedging Strategies.
The Fund may periodically engage in hedging transactions, and otherwise use various types of derivative instruments, described below, to
reduce risk, to effectively gain particular market exposures, to seek to enhance returns, and to reduce transaction costs, among other reasons. In addition to inverse floating rate securities and structured notes, the Fund may invest in certain
other derivative instruments in pursuit of its investment objectives. Such instruments include financial futures contracts, swap contracts (including interest rate and credit default swaps), options on financial futures, options on swap contracts or
other derivative instruments whose prices, in Nuveen Asset Managements opinion, correlate with the prices of the Funds investments. Nuveen Asset Management uses derivatives to shorten or lengthen the effective duration of its portfolio
securities, and therefore the interest rate risk, of the Funds portfolio, and to adjust other aspects of the portfolios risk/return profile. The Fund may use these instruments if the Fund deems it more efficient from a transaction cost,
total return or income standpoint than investing in cash securities.
27
Hedging is a term used for various methods of seeking to preserve portfolio
capital value by offsetting price changes in one investment through making another investment whose price should tend to move in the opposite direction.
A derivative is a financial contract whose value is based on (or derived from) a traditional security (such as a
stock or a bond), an asset (such as a commodity like gold), or a market index (such as the Barclays Capital Municipal Bond Index). Some forms of derivatives may trade on exchanges, while non-standardized derivatives, which tend to be more
specialized and complex, trade in over-the-counter or a one-on-one basis. It may be desirable and possible in various market environments to partially hedge the portfolio against fluctuations in market value due to market interest rate
or credit quality fluctuations, or instead to gain a desired investment exposure, by entering into various types of derivative transactions, including financial futures and index futures as well as related put and call options on such instruments,
structured notes, or interest rate swaps on taxable or tax-exempt securities or indexes (which may be forward-starting), credit default swaps, and options on interest rate swaps, among others.
These transactions present certain risks. In particular, the
imperfect correlation between price movements in the futures contract and price movements in the securities being hedged creates the possibility that losses on the hedge by the Fund may be greater than gains in the value of the securities in the
Funds portfolio. In addition, futures and options markets may not be liquid in all circumstances. As a result, in volatile markets, the Fund may not be able to close out the transaction without incurring losses substantially greater than the
initial deposit. Losses due to hedging transactions will reduce the Funds net asset value which in turn could reduce yield. Net gains, if any, from hedging and other portfolio transactions will be distributed as taxable distributions to
shareholders. Successful implementation of most hedging strategies would generate taxable income.
Both parties entering into an index or financial futures contract are required to post an initial deposit, typically equal to from 1% to 5% of the total contract price. Typically, option holders enter
into offsetting closing transactions to enable settlement in cash rather than take delivery of the position in the future of the underlying security. Interest rate swap and credit default swap transactions are typically entered on a net basis,
meaning that the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund will only sell covered futures contracts, which means that the Fund segregates assets equal
to the amount of the obligations.
There is no
assurance that these derivative strategies will be available at any time or that Nuveen Asset Management will determine to use them for the Fund or, if used, that the strategies will be successful.
Interest Rate and Total Return
Swaps.
The Fund may invest in interest rate swaps, total return swaps and other debt-related derivative instruments. The Fund will enter into swap agreements only with counterparties that meet certain standards of
creditworthiness. In an interest rate swap, the Fund and another party exchange their respective commitments to pay each other floating for fixed rates of interest at a floating rate referenced to local short-term interest rates and a fixed rate
referenced to the interest rate in the international (non-U.S.) local government securities market denominated in that non-U.S. market currency. In a total return swap, the Fund exchanges with another party their respective commitments to pay or
receive the total return of an underlying asset and a floating local short-term interest rate.
The Fund usually will enter into interest rate swaps and total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net
amount of the two payments). The net amount of the excess, if any, of the Funds obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis, and an amount of cash or liquid securities having an
aggregate net asset value at least equal to the accrued excess will be segregated by the Fund. If the interest rate swap transaction is entered into on other than a net basis, the full amount of the Funds obligations will be accrued on a daily
basis, and the full amount of the Funds obligations will be segregated by the Fund.
28
The use of swaps is a highly specialized activity that involves investment techniques and
risks different from those associated with ordinary portfolio securities transactions, including the risk that the counterparty may be unable to fulfill the transaction. If there is a default by the other party to such a transaction, the Fund will
have contractual remedies pursuant to the agreements related to the transaction. If Nuveen Asset Management is incorrect in its forecasts of market values, interest rates and other applicable factors, the investment performance of the Fund would be
unfavorably affected.
Credit Default
Swaps.
A credit default swap is an agreement between two counterparties, in which one party makes a periodic payment to the other party in exchange for a potential payoff if a third party (the reference credit)
defaults in the payment of its debt obligations. The Fund may enter into a credit default swap as the first party (or buyer) seeking to receive credit protection to hedge a specific portfolio holding. In this example, a counterparty is
the provider (or seller) of credit protection. Generally, credit default swaps may reference a specific entity or a pool of entities. The settlement of a credit default swap, upon the occurrence of a trigger event, may be accomplished by
means of physical delivery of the securities of the reference entity, or a cash payment. Entering into credit default swap agreements involves counterparty risks.
Bond Futures and Forward
Contracts.
Bond futures contracts are agreements in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount times the difference between the value of a specific bond at the close
of the last trading day of the contract and the price at which the agreement is made. No physical delivery of securities is made. Forward contracts are agreements to purchase or sell a specified security or currency at a specified future date (or
within a specified time period) and price set at the time of the contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers and are usually for less than one year, but may be renewed. Forward
contracts are generally purchased or sold in over-the-counter transactions.
Under regulations of the Commodity Futures Trading Commission (CFTC) currently in effect, which may change from time to time, with respect to futures contracts purchased by the Fund, the Fund
will set aside in a segregated account liquid securities with a value at least equal to the value of instruments underlying such futures contracts less the amount of initial margin on deposit for such contracts. The current view of the staff of the
Securities and Exchange Commission is that the Funds long and short positions in futures contracts must be collateralized with cash or certain liquid assets held in a segregated account or covered in order to counter the impact of
any potential leveraging.
Parties to a futures
contract must make initial margin deposits to secure performance of the contract. There are also requirements to make variation margin deposits from time to time as the value of the futures contract fluctuates.
Options on Currency Futures
Contracts.
Currency futures contracts are standardized agreements between two parties to buy and sell a specific amount of a currency at a set price on a future date. While similar to currency forward contracts, currency
futures contracts are traded on commodities exchanges and are standardized as to contract size and delivery date. An option on a currency futures contract gives the holder of the option the right to buy or sell a position in a currency futures
contract, at a set price and on or before a specified expiration date. Trading options on international (non-U.S.) currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the
maintenance of a liquid secondary market.
The
Fund and Nuveen Asset Management have claimed, respectively, an exclusion from registration as a commodity pool operator and as a commodity trading advisor under the Commodity Exchange Act (the CEA) and, therefore, neither the Fund,
Nuveen Asset Management, nor their officers and directors, are subject to the registration requirements of the CEA or regulation as a commodity pool operator or a commodity trading advisor under the CEA. The Fund reserves the right to engage in
transactions involving futures and options thereon to the extent allowed by CFTC regulations in effect from time to time and in accordance with the Funds policies. In addition, certain provisions of the Code may limit the extent to which the
Fund may enter into futures contracts or engage in options transactions. See Certain U.S. Federal Income Tax Considerations.
29
Index Futures.
A tax-exempt bond index which assigns relative
values to the tax-exempt bonds included in the index is traded on the Chicago Board of Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of cashrather than any securityequal to a specified dollar amount times the difference between the index value at the close of the last trading day of the contract
and the price at which the index future was originally written. Thus, an index future is similar to traditional financial futures except that settlement is made in cash.
Index Options.
The Fund may
also purchase put or call options on U.S. government or tax-exempt bond index futures and enter into closing transactions with respect to such options to terminate an existing position. Options on index futures are similar to options on debt
instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a position in an index contract rather than an underlying security at a specified exercise price at any time during the
period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance of the writers futures margin account
which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of the option on the index future.
Bond index futures and options transactions would be subject
to risks similar to transactions in financial futures and options thereon as described above.
Interest Rate Transactions
. In order to seek to hedge the value of the Funds portfolio or to seek to increase the Funds return, the Fund may enter into various
interest rate transactions such as interest rate swaps and the purchase or sale of interest rate caps and floors. The Fund may enter into these transactions to seek to increase its return, to preserve a return or spread on a particular investment or
portion of its portfolio, or to seek to protect against any increase in the price of securities the Fund anticipates purchasing at a later date.
Interest rate swaps involve the Funds agreement with the swap counterparty to pay a fixed rate payment in exchange for the
counterparty agreeing to pay the Fund a payment at a variable rate that is expected to approximate the rate on the Funds variable rate payment obligations. The payment obligations would be based on the notional amount of the swap. The Fund may
use an interest rate cap, 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 would use interest rate swaps or caps only with the intent to reduce or eliminate the risk that an increase in short-term interest rates could have on Common Stock net earnings as a result of
leverage.
The Fund will usually enter into swaps
or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net amount of the two
payments. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value at least equal to the Funds net payment obligations under any swap transaction, marked-to-market daily.
The use of interest rate transactions, such as interest rate
swaps and caps, is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Funds use of
interest rate swaps or caps could enhance or harm the overall performance of the Funds Common Stock. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in
the net asset value of the Common Stock. In addition, if short-term interest rates are lower than the Funds fixed rate of payment on the interest rate swap, the swap will reduce Common Stock net earnings. If, on the other hand, short-term
interest rates are higher than the fixed rate of payment on the interest rate swap, the swap will enhance Common Stock net earnings. Buying interest rate caps could enhance the performance of the Common Stock by providing a maximum leverage expense.
Buying interest rate caps could also decrease the net earnings of the
30
shares of Common Stock in the event that the premium paid by the Fund to the counterparty exceeds the additional amount the Fund would have been required to pay had it not entered into the cap
agreement.
Interest rate swaps and caps do not
involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the
counterparty defaults, the Fund would not be able to use the anticipated net receipts under the swap or cap to offset interest payments. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or
cap, which in turn would depend on the general state of short-term interest rates at that point in time, such a default could negatively impact the performance of the Common Stock.
Although this will not guarantee that the counterparty does
not default, the Fund will not enter into an interest rate swap or cap transaction with any counterparty that Nuveen Asset Management believes does not have the financial resources to honor its obligation under the interest rate swap or cap
transaction. Further, Nuveen Asset Management will continually monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the Funds investments.
In addition, at the time the interest rate swap or cap
transaction reaches its scheduled termination date, there is a risk that the Fund would not be able to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction. If this occurs, it
could have a negative impact on the performance of the Funds Common Stock.
Nuveen Asset Management will take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal security investments. In addition,
the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in the section entitled Risk Factors, the net asset value and market value of
leveraged shares will be more volatile and the yield to Common Stockholders will tend to fluctuate more than the yield generated by unleveraged shares.
Other Investment Companies
The Fund may invest up to 10% of its Managed Assets in securities of other open- or closed-end investment companies (including
exchange-traded funds (ETFs)) that invest primarily in municipal 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 municipal securities of the types in which the Fund may invest directly. The Fund generally expects that it may invest in other investment companies and/or other pooled investment vehicles either during
periods when it has large amounts of uninvested cash, such as the period shortly after the Fund receives the proceeds of the offering of its Common Stock or borrowings, or during periods when there is a shortage of attractive, high-yielding
municipal securities available in the market. The Fund may invest in investment companies that are advised by the NFA, Nuveen Asset Management or their respective affiliates to the extent permitted by applicable law and/or pursuant to exemptive
relief from the Securities and Exchange Commission. As a stockholder in an investment company, the Fund will bear its ratable share of that investment companys expenses, and would remain subject to payment of the Funds advisory and
administrative fees with respect to assets so invested. Common shareholders would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies.
Nuveen Asset Management will take expenses into account when evaluating the investment merits of an investment
in an investment company relative to available municipal security investments. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to the same leverage risks described herein. As described in
the section entitled Risk Factors, the net asset value and market value of leveraged shares will be more volatile and the yield to Common Stockholders will tend to fluctuate more than the yield generated by unleveraged shares.
31
Portfolio Turnover
Portfolio Turnover.
The Fund
may buy and sell municipal securities to accomplish its investment objectives in relation to actual and anticipated changes in interest rates. The Fund also may sell one municipal security and buy another of comparable quality at about the same time
to take advantage of what Nuveen Asset Management believes to be a temporary price disparity between the two bonds that may result from imbalanced supply and demand. The Fund also may engage in a limited amount of short-term trading, consistent with
its investment objectives. The Fund may sell securities in anticipation of a market decline (a rise in interest rates) or buy securities in anticipation of a market rise (a decline in interest rates) and later sell them, but the Fund will not engage
in trading solely to recognize a gain. The Fund will attempt to achieve its investment objectives by prudently selecting municipal securities with a view to holding them for investment. Although the Fund cannot accurately predict its annual
portfolio turnover rate, the Fund expects, though it cannot guarantee, that its annual portfolio turnover rate generally will not exceed 100% under normal circumstances. For the fiscal year ended October 31, 2011, the Funds portfolio
turnover rate was 13%. There are no limits on the rate of portfolio turnover, and investments may be sold without regard to length of time held when investment considerations warrant such action. A higher portfolio turnover rate results in
correspondingly greater brokerage commissions and other transactional expenses that are borne by the Fund. In addition, high portfolio turnover may result in the realization of net short term capital gains by the Fund which, when distributed to
shareholders, will be taxable as ordinary income. See Tax Matters.
USE OF LEVERAGE
The Fund currently employs financial leverage primarily through its outstanding VRDP Shares. For the period May 4, 2011 through October 31, 2011, the time period for which the VRDP Shares were
outstanding, the average daily balance outstanding on VRDP Shares and annual dividend rate was $252,500,000 and 0.32%, respectively. The leverage used by the Fund may vary with prevailing market or economic conditions. The timing and terms of any
leverage transactions is determined by the Funds Board of Directors. Preferred shares, including VRDP Shares, have seniority over the shares of Common Stock. Following an offering of additional shares of Common Stock from time to time, the
Funds leverage ratio may decrease as a result of the increase in net assets attributable to Common Stock. A lower leverage ratio may result in lower (higher) returns to Common Stockholders over a period of time to the extent that net returns
on the Funds investment portfolio exceed (fall below) its cost of leverage over that period, which lower (higher) returns may impact the level of the Funds distributions. See Risk FactorsLeverage Risk. Financial
leverage is also created through the Funds use of borrowings or through investments in residual interest certificates of tender option bond trusts, also called inverse floating rate securities, because the Funds investment exposure to
the underlying bonds held by the trust have been effectively financed by the trusts issuance of floating rate certificates. See The Funds InvestmentsMunicipal SecuritiesInverse Floating Rate Securities and
Risk FactorsInverse Floating Rate Securities.
Preferred shares, including VRDP Shares, and borrowings, if any, will have seniority over the shares of Common Stock. Leverage involves special risks. There is no assurance that the Funds leveraging
strategy will be successful. The Fund will seek to invest the proceeds from financial leverage in a manner consistent with the Funds objectives and policies.
The Funds investments in inverse floating rate
securities pay dividends at rates based on short-term periods which are reset periodically. So long as the Funds portfolio is invested in securities that provide a higher rate of return than the Funds cost of leverage (after taking
expenses into consideration), the leverage will cause you to receive a higher current rate of return than if the Fund were not leveraged.
Changes in the value of the Funds bond portfolio, including costs attributable to borrowings or preferred shares, will be borne
entirely by the Common Stockholders. If there is a net decrease (or increase) in the value of the Funds investment portfolio, the leverage will decrease (or increase) the net asset value per share of Common Stock to a greater extent than if
the Fund were not leveraged.
32
Given the current economic and debt market environment with historically low short-term to
intermediate-term interest rates, the Fund may use derivatives such as interest rate swaps, with terms that may range from one to seven years, to fix the effective rate paid on a significant portion of the Funds leverage. The interest rate
swap program, if implemented, will seek to achieve potentially lower leverage costs over an extended period. This strategy would enhance Common Stockholder returns if short-term interest rates were to rise over time to exceed on average the
effective fixed interest rate for that time period. This strategy, however, would add to effective leverage costs immediately (because the effective swap costs would likely be higher than current benchmark adjustable short term rates) and would
increase overall leverage costs over the entirety of any such time period, in the event that short-term interest rates do not rise sufficiently during the period to exceed on average the effective fixed interest rate for that time period.
The Fund pays NFA a management fee based on a
percentage of net assets. Net assets for this purpose includes the proceeds realized from the Funds use of financial leverage. See Management of the FundInvestment Management Agreement. NFA will base its decision whether and
how much to leverage the Fund based solely on its assessment of whether such use of leverage will advance the Funds investment objective. NFA will be responsible for using leverage to achieve the Funds investment objective. However, the
fact that a decision to increase the Funds leverage will have the effect of increasing net assets and therefore NFAs management fee means that NFA may have an incentive to increase the Funds use of leverage. NFA will seek to manage
that incentive by only increasing the Funds use of leverage when it determines that such increase is consistent with the Funds investment objective, and by periodically reviewing the Funds performance and use of leverage with the
Funds Board of Directors.
For tax purposes,
the Fund is currently required to allocate net capital gain and other taxable income, if any, between the Common Stock and preferred shares, including VRDP Shares, in proportion to total dividends paid to each class for the year in which the net
capital gain or other taxable income is realized. If net capital gain or other taxable income is allocated to preferred shares (instead of solely tax-exempt income), the Fund will likely have to pay higher total dividends to preferred shareholders
or make special payments to preferred shareholders to compensate them for the increased tax liability. This would reduce the total amount of dividends paid to the Common Stockholders, but would increase the portion of the dividend that is
tax-exempt.
Under the 1940 Act, the Fund
generally is not permitted to issue commercial paper or notes or borrow unless immediately after the borrowing or commercial paper or note issuance the value of the Funds total assets less liabilities other than the principal amount
represented by commercial paper, notes or borrowings, is at least 300% of such principal amount. If the Fund borrows, the Fund intends, to the extent possible, to prepay all or a portion of the principal amount of any outstanding commercial paper,
notes or borrowing to the extent necessary in order to maintain the required asset coverage. Failure to maintain certain asset coverage requirements could result in an event of default and entitle the debt holders to elect a majority of the Board of
Directors.
Under the 1940 Act, the Fund is not
permitted to issue preferred shares unless immediately after such issuance, the value of the Funds asset coverage is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation value may not exceed 50% of
the Funds asset coverage). In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Stock unless, at the time of such declaration, the value of the Funds asset coverage less liabilities
other than borrowings is at least 200% of such liquidation value. The Fund intends, to the extent possible, to purchase or redeem preferred shares, including VRDP Shares, from time to time to the extent necessary in order to maintain coverage of any
preferred shares of at least 200%. When the Fund has preferred shares outstanding, two of the Funds directors will be elected by the holders of preferred shares, voting separately as a class. The remaining directors of the Fund are elected by
holders of Common Stock and preferred shares voting together as a single class. In the event the Fund fails to pay dividends on preferred shares for two years, preferred shareholders would be entitled to elect a majority of the directors of the
Fund.
33
The Fund may be subject to certain restrictions imposed by either guidelines of one or more
rating agencies that may issue ratings for commercial paper or notes, preferred shares, or, if the Fund borrows from a lender, by the lender. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent
than those imposed on the Fund by the 1940 Act. It is not anticipated that these covenants or guidelines will impede NFA and Nuveen Asset Management from managing the Funds portfolio in accordance with the Funds investment objective and
policies. In addition to other considerations, to the extent that the Fund believes that the covenants and guidelines required by the rating agencies or lenders would impede its ability to meet its investment objective, or if the Fund is unable to
obtain the rating on borrowings (expected to be at least AA/Aa or the equivalent short-term ratings) or preferred shares, the Fund will not incur borrowings or issue preferred shares, including additional VRDP Shares.
Assuming the utilization of leverage through borrowings in
the aggregate amount of approximately % of the Funds Managed Assets, at a combined interest or payment rate of
% payable on such leverage, the income generated by the Funds portfolio (net of non-leverage expenses) must exceed
% in order to cover such interest or payment rates and other expenses specifically related to borrowing. Of course, these numbers are merely estimates, used for illustration.
Actual interest or payment rates may vary frequently and may be significantly higher or lower than the rate estimated above.
The Fund may also borrow money for repurchase of its shares or as a temporary measure for extraordinary or emergency purposes, including
the payment of dividends and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities.
The following table is furnished in response to requirements of the SEC. It is designed to illustrate the effect of leverage on Common
Stock total return, assuming investment portfolio total returns (comprised of income and changes in the value of bonds held in the Funds portfolio net of expenses) at the assumed portfolio total return rates provided in the table. These
assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns expected to be experienced by the Fund. The table further reflects the use of VRDP ratio representing
% of the Funds total capital as well as an estimated % on the Funds VRDP Shares outstanding. See Risk FactorsLeverage Risk
and Use of Leverage.
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Assumed Portfolio Total Return
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-10.00%
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-5.00%
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0.00%
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5.00%
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10.00%
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Common Stock Total Return
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Common Stock total return is
composed of two elementsthe Common Stock dividends paid by the Fund (the amount of which is largely determined by the net investment income of the Fund after paying dividends on VRDP Shares or interest on any borrowings) and gains or losses on
the value of the securities the Fund owns. As required by SEC rules, the table assumes that the Fund is more likely to suffer capital losses than capital appreciation. For example, to assume a total return of 0%, the Fund must assume that the
tax-exempt interest it receives on its municipal securities investments is entirely offset by losses in the value of those securities.
RISK FACTORS
Risk is inherent in all investing. Investing in any investment company security involves risk, including the risk that you may receive
little or no return on your investment or even that you may lose part or all of your investment. Therefore, before investing you should consider carefully the following risks that you assume when you invest in Common Stock.
Investment and Market Risk
An investment in the Funds Common Stock is subject to
investment risk, including the possible loss of the entire principal amount that you invest. Your investment in Common Stock represents an indirect investment in
34
the municipal securities owned by the Fund, which generally trade in the over-the-counter markets. Your Common Stock 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. In addition, if the current national economic downturn deteriorates into a prolonged recession, the ability of municipalities to collect revenue and service their
obligations could be materially and adversely affected.
Current Economic ConditionsCredit Crisis Liquidity and Volatility Risk
The markets for credit instruments, including municipal
securities, have experienced periods of extreme illiquidity and volatility since the latter half of 2007. General market uncertainty and consequent repricing risk have led to market imbalances of sellers and buyers, which in turn have resulted in
significant valuation uncertainties in a variety of debt securities, including municipal securities, and significant and rapid value decline in certain instances. These conditions resulted, and in many cases continue to result in, greater price
volatility, less liquidity, widening credit spreads and a lack of price transparency, with many debt securities remaining illiquid and of uncertain value. These market conditions may make valuation of some of the Funds municipal securities
uncertain and/or result in sudden and significant value declines in its holdings. A significant decline in the value of the Funds portfolio would likely result in a significant decline in the value of your investment in Common Stock. In
addition, illiquidity and volatility in the credit markets may directly and adversely affect the setting of dividend rates on the Common Stock. This volatility may also impact the liquidity of inverse floating rate securities in the Funds
portfolio. See Risk FactorsInverse Floating Rate Securities Risk.
In response to the current national economic condition, governmental cost burdens may be reallocated among federal, state and local governments. Also, as a result of the downturn, many state and local
governments are experiencing significant reductions in revenues and consequently difficulties meeting ongoing expenses. As a result, certain of these state and local governments may have difficulty paying principal or interest on their outstanding
debt and may experience ratings downgrades of their debt. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose other constraints on
enforcement of such obligations, or on the ability of municipalities to levy taxes. Issuers of municipal securities might seek protection under the bankruptcy laws. See Risk FactorsMunicipal Securities Market Risk.
Market Discount from Net Asset Value
Shares of closed-end investment companies like the Fund have
during some periods traded at prices higher than net asset value and have during other periods traded at prices lower than net asset value. The Fund cannot predict whether shares of Common Stock will trade at, above or below net asset value. This
characteristic is a risk separate and distinct from the risk that the Funds net asset value could decrease as a result of investment activities. Investors bear a risk of loss to the extent that the price at which they sell their shares is
lower in relation to the Funds net asset value than at the time of purchase, assuming a stable net asset value. Proceeds from the sale of Common Stock in this offering will be reduced by transaction costs (if applicable, which vary depending
on the offering method used). Depending on the premium of the shares of Common Stock at the time of any offering of Common Stock hereunder, the Funds net asset value may be reduced by an amount up to the offering costs borne by the Fund
(estimated to be an additional 0.26% of the offering price assuming a Common Stock share offering price of $15.83 (the Funds closing price on the Exchange on February 29, 2012)). The shares of Common Stock are designed primarily for
long-term investors, and you should not view the Fund as a vehicle for trading purposes.
Credit and Below Investment Grade Risk
Credit risk is the risk that one or more municipal securities in the Funds portfolio will decline in price, or the issuer thereof will fail to pay interest or principal when due, because the issuer
of the security experiences a decline in its financial status. In general, lower-rated municipal securities carry a greater degree of risk that the
35
issuer will lose its ability to make interest and principal payments, which could have a negative impact on the Funds net asset value or dividends. Credit risk is increased when a portfolio
security is downgraded or the perceived creditworthiness of the issuer deteriorates. The Fund may invest up to 20% of its Managed Assets in municipal securities that are rated below investment grade at the time of investment or that are unrated but
judged to be of comparable quality by Nuveen Asset Management. No more than 10% of the Funds Managed Assets may be invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Asset
Management. If a municipal security satisfies the rating requirements described above at the time of investment and is subsequently downgraded below that rating, the Fund will not be required to dispose of the security. If a downgrade occurs, Nuveen
Asset Management will consider what action, including the sale of the security, is in the best interests of the Fund and its shareholders. This means that the Fund may invest in municipal securities that are involved in bankruptcy or insolvency
proceedings or are experiencing other financial difficulties at the time of acquisition (such securities are commonly referred to as distressed securities). Municipal securities of below investment grade quality, commonly referred to as junk bonds,
are regarded as having predominately speculative characteristics with respect to capacity to pay interest and repay principal when due, and are susceptible to default or decline in market value due to adverse economic and business developments.
Also, to the extent that the rating assigned to a municipal security in the Funds portfolio is downgraded by any NRSRO, the market price and liquidity of such security may be adversely affected. The market values for municipal securities of
below investment grade quality tend to be volatile, and these securities are less liquid than investment grade municipal securities. For these reasons, an investment in the Fund, compared with a portfolio consisting solely of investment grade
securities, may experience the following:
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increased price sensitivity resulting from changing interest rates and/or a deteriorating economic environment;
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greater risk of loss due to default or declining credit quality;
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adverse issuer specific events that are more likely to render the issuer unable to make interest and/or principal payments; and
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the possibility that a negative perception of the below investment grade market develops, resulting in the price and liquidity of below investment
grade securities becoming depressed, and this negative perception could last for a significant period of time.
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Adverse changes in economic conditions are more likely to lead to a weakened capacity of a below investment grade issuer to make principal
payments and interest payments compared to an investment grade issuer. The principal amount of below investment grade securities outstanding has proliferated in the past decade as an increasing number of issuers have used below investment grade
securities for financing. The current downturn may severely affect the ability of highly leveraged issuers to service their debt obligations or to repay their obligations upon maturity. As the national economy experiences the current economic
downturn, resulting in decreased tax and other revenue streams of municipal issuers, or in the event interest rates rise sharply, increasing the interest cost on variable rate instruments and negatively impacting economic activity, the number of
defaults by below investment grade municipal issuers is likely to increase. Similarly, downturns in profitability in specific industries could adversely affect private activity bonds. The market values of lower quality debt securities tend to
reflect individual developments of the issuer to a greater extent than do higher quality securities, which react primarily to fluctuations in the general level of interest rates. Factors having an adverse impact on the market value of lower quality
securities may have an adverse impact on the Funds net asset value and the market value of its Common Stock. In addition, the Fund may incur additional expenses to the extent it is required to seek recovery upon a default in payment of
principal or interest on its portfolio holdings. In certain circumstances, the Fund may be required to foreclose on an issuers assets and take possession of its property or operations. In such circumstances, the Fund would incur additional
costs in disposing of such assets and potential liabilities from operating any business acquired.
The secondary market for below investment grade securities may not be as liquid as the secondary market for more highly rated securities, a factor that may have an adverse effect on the Funds
ability to dispose of a
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particular security. There are fewer dealers in the market for below investment grade municipal securities than the market for investment grade municipal securities. The prices quoted by
different dealers for below investment grade municipal securities may vary significantly, and the spread between the bid and ask price is generally much larger for below investment grade municipal securities than for higher quality instruments.
Under adverse market or economic conditions, the secondary market for below investment grade securities could contract further, independent of any specific adverse changes in the condition of a particular issuer, and these instruments may become
illiquid. As a result, the Fund could find it more difficult to sell these securities or may be able to sell the securities only at prices lower than if such securities were widely traded. Prices realized upon the sale of such lower rated or unrated
securities, under these circumstances, may be less than the prices used in calculating the Funds net asset value.
Issuers of such below investment grade securities are highly leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates,
highly leveraged issuers of below investment grade securities may experience financial stress. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuers ability to service its
debt obligations also may be adversely affected by specific developments, the issuers inability to meet specific projected forecasts or the unavailability of additional financing. The risk of loss from default by the issuer is significantly
greater for the holders of below investment grade securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. Prices and yields of below investment grade securities will fluctuate over time
and, during periods of economic uncertainty, volatility of below investment grade securities may adversely affect the Funds net asset value. In addition, investments in below investment grade zero coupon bonds rather than income- bearing below
investment grade securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates.
The Fund may invest in distressed securities, which are securities issued by companies that are involved in bankruptcy or insolvency
proceedings or are experiencing other financial difficulties at the time of acquisition by the Fund. The issuers of such securities may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have
recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. These characteristics of these companies can cause their securities to be particularly risky, although they also may offer the potential
for high returns. These companies securities may be considered speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic
factors affecting a particular industry or specific developments within the companies. Distressed securities frequently do not produce income while they are outstanding and may require the Fund to bear certain extraordinary expenses in order to
protect and recover its investment.
Investments
in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities default on their obligations pertaining thereto, and the federal income tax consequences to the Fund as a holder of
such distressed securities may not be clear.
Interest Rate
Risk
Generally, when market interest rates
rise, bond prices fall, and vice versa. Interest rate risk is the risk that the municipal securities in the Funds portfolio will decline in value because of increases in market interest rates. As interest rates decline, issuers of municipal
securities may prepay principal earlier than scheduled, forcing the Fund to reinvest in lower-yielding securities and potentially reducing the Funds 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 Funds value. In typical market interest rate environments, the prices of longer-term municipal securities generally fluctuate more than prices of
shorter-term municipal securities as interest rates change. Because the Fund will invest primarily in longer-term municipal securities, the
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Common Stock net asset value and market price per share will fluctuate more in response to changes in market interest rates than if the Fund invested primarily in shorter-term municipal
securities. Because the values of lower-rated and comparable unrated debt securities are affected both by credit risk and interest rate risk, the price movements of such lower grade securities typically have not been highly correlated to the
fluctuations of the prices of investment grade quality securities in response to changes in market interest rates. The Funds use of leverage, as described herein, will tend to increase Common Stock interest rate risk.
Municipal Securities Market Risk
Investing in the municipal securities market involves
certain risks. The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital, and during the recent market turmoil these firms capital was severely constrained. As a result, some
firms were unwilling to commit their capital to purchase and to serve as a dealer for municipal bonds. The amount of public information available about the municipal securities in the Funds portfolio is generally less than that for corporate
equities or bonds, and the investment performance of the Fund may therefore be more dependent on the analytical abilities of Nuveen Asset Management than if the Fund were a stock fund or taxable bond fund. The secondary market for municipal
securities, particularly the below investment grade bonds in which the Fund may invest, also tends to be less well-developed or liquid than many other securities markets, which may adversely affect the Funds ability to sell its municipal
securities at attractive prices or at prices approximating those at which the Fund currently values them.
The ability of municipal issuers to make timely payments of interest and principal may be diminished during general economic downturns and
as governmental cost burdens are reallocated among federal, state and local governments. In addition, laws enacted in the future by Congress or state legislatures or referenda could extend the time for payment of principal and/or interest, or impose
other constraints on enforcement of such obligations, or on the ability of municipalities to levy taxes. Issuers of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, the Fund could
experience delays in collecting principal and interest and the Fund may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in the event of a default in the payment of interest or
repayment of principal, or both, the Fund may take possession of and manage the assets securing the issuers obligations on such securities, which may increase the Funds operating expenses. Any income derived from the Funds
ownership or operation of such assets may not be tax-exempt.
Reinvestment Risk
Reinvestment risk is the risk that income from the Funds portfolio will decline if and when the Fund invests the proceeds from
matured, traded or called bonds at market interest rates that are below the portfolios current earnings rate. A decline in income could affect the market price of the shares of Common Stock or their overall returns.
Leverage Risk
Leverage risk is the risk associated with the use of the
Funds outstanding preferred shares, including VRDP Shares, use of tender option bonds to leverage the Common Stock or borrowings (if any). There can be no assurance that the Funds leveraging strategy will be successful. Because the
long-term municipal securities in which the Fund invests generally pay fixed rates of interest while the Funds costs of leverage generally fluctuate with short- to intermediate-term yields, the incremental earnings from leverage will vary over
time. However, the Fund may use derivatives, such as interest rate swaps, to fix the effective rate paid on all or a portion of the Funds leverage, in an effort to lower leverage costs over an extended period. Accordingly, the Fund cannot
assure you that the use of leverage will result in a higher yield or return to Common Stockholders. The income benefit from leverage will be reduced to the extent that the difference narrows between the net earnings on the Funds portfolio
securities and its cost of leverage. The income benefit from leverage will increase to the extent
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that the difference widens between the net earnings on the Funds portfolio securities and its cost of leverage. If short-term rates rise, the Funds cost of leverage could exceed the
fixed rate of return on longer-term bonds held by the Fund that were acquired during periods of lower interest rates, reducing returns to Common Stockholders. This could occur even if short-to intermediate-term and long-term municipal rates rise.
Because of the costs of leverage, the Fund may incur losses even if the Fund has positive returns, if they are not sufficient to cover the costs of leverage. The Funds cost of leverage includes the dividends paid on VRDP Shares, the expenses
relating to the issuance and ongoing maintenance of any borrowings, and/or the interest attributable to tender option bonds as well as any one-time costs (e.g., issuance costs) and ongoing fees and expenses associated with such leverage.
The risk of loss attributable to the Funds use of
leverage is borne by Common Stockholders. The Funds use of financial leverage can result in a greater decrease in net asset values in declining markets. The Funds use of financial leverage similarly can magnify the impact of changing
market conditions on Common Stock market prices. See Inverse Floating Rate Securities Risk. Furthermore, the amount of fees paid to Nuveen Fund Advisors (which in turn pays a portion of its fees to Nuveen Asset Management) for
investment advisory services will be higher if the Fund uses leverage because the fees will be calculated based on the Funds Managed Assets this may create an incentive for Nuveen Fund Advisors and Nuveen Asset Management to leverage the
Fund. The Fund is required to maintain certain regulatory and rating agency asset coverage requirements in connection with its use of leverage, in order to be able to maintain the ability to declare and pay Common Stock distributions and to maintain
the VRDP Shares rating. An NRSRO could downgrade its ratings on the Funds outstanding preferred shares, including VRDP Shares. A ratings downgrade of the Funds preferred shares may result in higher dividend rates and may also force
the redemption of such preferred shares at what might be an inopportune time in the market. These factors may result in reduced net earnings or returns to Common Stockholders.
In order to maintain required asset coverage levels, the Fund
may be required to alter the composition of its investment portfolio or take other actions, such as redeeming preferred shares, including VRDP shares, or prepaying borrowings with the proceeds from portfolio transactions, at what might be an
inopportune time in the market. Such actions could reduce the net earnings or returns to Common Stockholders over time.
The Fund may invest in the securities of other investment companies, which may themselves be leveraged and therefore present similar risks
to those described above.
The Fund seeks to
manage the risks associated with its use of financial leverage as described below under How the Fund Manages RiskInvestment Portfolio and Capital Structure Strategies to Manage Leverage Risk.
Inverse Floating Rate Securities Risk
The Fund may invest in inverse floating rate securities.
Typically, inverse floating rate securities represent beneficial interests in a special purpose trust (sometimes called a tender option bond trust) formed by a third party sponsor for the purpose of holding municipal bonds. See
The Funds InvestmentsMunicipal SecuritiesInverse Floating Rate Securities. In general, income on inverse floating rate securities will decrease when interest rates increase and increase when interest rates decrease.
Thus, distributions paid to the Fund on its inverse floaters will be reduced or even eliminated as short-term municipal interest rates rise and will increase when short-term municipal rates fall. Inverse floating rate securities generally will
underperform the market for fixed rate municipal bonds in a rising interest rate environment. Investments in inverse floating rate securities subject the Fund to the risks of reduced or eliminated interest payments and losses of principal.
Because of the leveraged nature of such
investments inverse floating rate securities will increase or decrease in value at a greater rate than the underlying fixed rate municipal bonds held by the interest rate, which effectively leverages the Funds investment. As a result, the
market value of such securities generally is more volatile than that of fixed rate securities.
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The Funds investment in inverse floating rate securities will create effective
leverage. Any effective leverage achieved through the Funds purchase of inverse floating rate securities will create an opportunity for increased Common Stock net income and returns, but will also create the possibility that Common Stock
long-term returns will be diminished if the cost of leverage exceeds the return on the inverse floating rate securities purchased by the Fund. See Leverage Risk.
There is no assurance that the Funds strategy of
investing in inverse floating rate securities will be successful.
Inverse floating rate securities have varying degrees of liquidity based, among other things, upon the liquidity of the underlying securities deposited in a tender option bond trust. The market price of
inverse floating rate securities is more volatile than the underlying securities due to leverage. The leverage attributable to such inverse floating rate securities may be called away on relatively short notice and therefore may be less
permanent than more traditional forms of leverage. The Fund may be required to sell its inverse floating rate securities at less than favorable prices, or liquidate other Fund portfolio holdings in certain circumstances, including, but not limited
to, the following:
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If the Fund has a need for cash and the securities in a special purpose trust are not actively trading due to adverse market conditions;
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If special purpose trust sponsors (as a collective group or individually) experience financial hardship and consequently seek to terminate their
respective outstanding special purpose trusts; and
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If the value of an underlying security declines significantly (to a level below the notional value of the floating rate securities issued by the trust)
and if additional collateral has not been posted by the Fund.
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Insurance Risk
The Fund may purchase municipal securities that are secured by insurance, bank credit agreements or escrow accounts. The credit quality of the companies that provide such credit enhancements will
affect the value of those securities. Certain significant providers of insurance for municipal securities have recently incurred significant losses as a result of exposure to sub-prime mortgages and other lower credit quality investments that
have experienced recent defaults or otherwise suffered extreme credit deterioration. As a result, such losses have reduced the insurers capital and called into question their continued ability to perform their obligations under such
insurance if they are called upon to do so in the future. While an insured municipal security will typically be deemed to have the rating of its insurer, if the insurer of a municipal security suffers a downgrade in its credit rating or the
market discounts the value of the insurance provided by the insurer, the rating of the underlying municipal security will be more relevant and the value of the municipal security would more closely, if not entirely, reflect such rating. In such
a case, the value of insurance associated with a municipal security would decline and may not add any value. The insurance feature of a municipal security does not guarantee the full payment of principal and interest through the life of an
insured obligation, the market value of the insured obligation or the net asset value of the Common Stock represented by such insured obligation.
Tax Risk
To qualify for the favorable U.S. federal income tax treatment generally accorded to regulated investment companies, among other things,
the Fund must derive in each taxable year at least 90% of its gross income from certain prescribed sources and satisfy a diversification test on a quarterly basis. If the Fund fails to satisfy the qualifying income or diversification requirements in
any taxable year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally,
relief is provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified period. If these relief provisions are not available to the Fund for any year in which it fails to qualify
as a RIC, all of its
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taxable income (including its net capital gain) would be subject to tax at regular corporate rates without any deduction for distributions to stockholders, and such distributions would be taxable
as ordinary dividends to the extent of the Funds current and accumulated earnings and profits.
The value of the Funds investments and its net asset value may be adversely affected by changes in tax rates and policies. Because
interest income from municipal securities is normally not subject to regular federal income taxation, the attractiveness of municipal securities in relation to other investment alternatives is affected by changes in federal income tax rates or
changes in the tax-exempt status of interest income from municipal securities. Any proposed or actual changes in such rates or exempt status, therefore, can significantly affect the demand for and supply, liquidity and marketability of municipal
securities. This could in turn affect the Funds net asset value and ability to acquire and dispose of municipal securities at desirable yield and price levels. Additionally, the Fund is not a suitable investment for individual retirement
accounts, for other tax-exempt or tax-deferred accounts or for investors who are not sensitive to the federal income tax consequences of their investments.
Taxability Risk
The Fund will invest in municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the
interest paid on those securities will be excludable from gross income for federal income tax purposes, and Nuveen Asset Management will not independently verify that opinion. Subsequent to the Funds acquisition of such a municipal security,
however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by the Fund as exempt-interest dividends could be adversely affected, subjecting the
Funds shareholders to increased federal income tax liabilities.
The IRS may determine that a municipal bond issued as tax-exempt should in fact be taxable. If the Fund held such a bond, it might have to distribute taxable ordinary income dividends or reclassify as
taxable income previously distributed as exempt-interest dividends.
Distributions of ordinary taxable income (including any net short-term capital gain) will be taxable to shareholders as ordinary income (and not eligible for favorable taxation as qualified dividend
income), and capital gain dividends will be subject to capital gains taxes. See Tax Matters.
Borrowing Risks
In addition to borrowing for leverage (See Use of Leverage), the Fund may borrow for temporary or emergency purposes, including to meet redemption requests, pay dividends, repurchase its
shares, or clear portfolio transactions. Borrowing may exaggerate changes in the net asset value of the Funds shares and may affect the Funds net income. When the Fund borrows money, it must pay interest and other fees, which will reduce
the funds 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 conditions, including periods of low
demand or decreased liquidity in the municipal bond market such borrowings might be outstanding for longer periods of time.
Inflation Risk
Inflation risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the
value of money. As inflation increases, the real value of the dividends paid to VRDP Shareholders can decline, and the real value of shares of Common Stock and the distributions can decline. In addition, during any period of rising inflation,
interest rates on borrowings would likely increase, which would tend to further reduce returns to Common Stockholders.
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Economic Sector Risk
The Fund may invest 25% or more of its total assets in
municipal securities in the same economic sector. This may make the Fund more susceptible to adverse economic, political or regulatory occurrences affecting an economic sector. As concentration increases, so does the potential for fluctuation in the
value of the Funds assets.
Special Risks Related to
Certain Municipal Obligations
The Fund may
invest in municipal leases and certificates of participation in such leases. Municipal leases and certificates of participation involve special risks not normally associated with general obligations or revenue bonds. Leases and installment purchase
or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting the constitutional
and statutory requirements for the issuance of debt. The debt issuance limitations are deemed to be inapplicable because of the inclusion in many leases or contracts of non-appropriation clauses that relieve the governmental issuer of
any obligation to make future payments under the lease or contract unless money is appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. In addition, such leases or contracts may be subject to the
temporary abatement of payments in the event the governmental issuer is prevented from maintaining occupancy of the leased premises or utilizing the leased equipment. Although the obligations may be secured by the leased equipment or facilities, the
disposition of the property in the event of non-appropriation or foreclosure might prove difficult, time consuming and costly, and may result in a delay in recovering or the failure to fully recover the Funds original investment. In the event
of non-appropriation, the issuer would be in default and taking ownership of the assets may be a remedy available to the Fund, although the Fund does not anticipate that such a remedy would normally be pursued. To the extent that the Fund invests in
unrated municipal leases or participates in such leases, the credit quality rating and risk of cancellation of such unrated leases will be monitored on an ongoing basis. Certificates of participation, which represent interests in unmanaged pools of
municipal leases or installment contracts, involve the same risks as the underlying municipal leases. In addition, the Fund may be dependent upon the municipal authority issuing the certificates of participation to exercise remedies with respect to
the underlying securities. Certificates of participation also entail a risk of default or bankruptcy, both of the issuer of the municipal lease and also the municipal agency issuing the certificate of participation.
Derivatives Risk
The Funds use of derivatives involves risks different
from, and possibly greater than, the risks associated with investing directly in the investments underlying the derivatives. Whether the Funds use of derivatives is successful will depend on, among other things, if Nuveen Asset Management
correctly forecasts market values, interest rates and other applicable factors. If Nuveen Asset Management incorrectly forecasts these and other factors, the investment performance of the Fund will be unfavorably affected. In addition, the
derivatives market is largely unregulated. It is possible that developments in the derivatives market could adversely affect the Funds ability to successfully use derivative instruments.
The Fund may enter into debt-related derivatives instruments including credit swap default 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 Nuveen Asset Management not only of the referenced asset, rate or index, but also of the swap itself. Because they are two-party contracts and because they may have terms of greater than seven days, swap
agreements may be considered to be illiquid. Moreover, the Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. It is possible that
developments in the swaps market, including potential government regulation, could adversely affect the Funds ability to terminate existing swap agreements or to realize amounts to be received under such agreements. See also,
Counterparty Risk, Hedging Risk and the Statement of Additional Information.
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Counterparty Risk
Changes in the credit quality of the companies that serve as
the Funds counterparties with respect to derivatives, insured municipal securities or other transactions supported by another partys credit will affect the value of those instruments. Certain entities that have served as counterparties
in the markets for these transactions have recently incurred significant financial hardships including bankruptcy and losses as a result of exposure to sub-prime mortgages and other lower quality credit investments that have experienced recent
defaults or otherwise suffered extreme credit deterioration. 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.
Hedging Risk
The Funds use of derivatives or other transactions to reduce risk involves costs and will be subject to Nuveen Asset
Managements ability to predict correctly changes in the relationships of such hedge instruments to the Funds portfolio holdings or other factors. No assurance can be given that Nuveen Asset Managements judgment in this respect will
be correct. In addition, 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.
Deflation Risk
Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation
of companies, their assets and revenues. In addition, 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 Funds portfolio.
Illiquid Securities Risk
The Fund may invest in municipal securities and other
instruments that, at the time of investment, are illiquid. Illiquid securities are securities that are not readily marketable and may include some restricted securities, which are securities that may not be resold to the public without an effective
registration statement under the 1933 Act, if they are unregistered, may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. Illiquid securities involve the risk that the securities 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 securities on its books.
Market Disruption Risk
Certain events have a disruptive effect on the securities markets, such as terrorist attacks (including the terrorist attacks in the U.S.
on September 11, 2001), war and other geopolitical events. The Fund cannot predict the effects of similar events in the future on the U.S. economy. Below investment grade securities tend to be more volatile than higher rated securities so that
these events and any actions resulting from them may have a greater impact on the prices and volatility of below investment grade securities than on higher rated securities.
Impact of Offering Methods Risk
The issuance of Common Stock through the various methods
described in the Prospectus may have an adverse effect on prices in the secondary market for the Funds Common Stock by increasing the number of shares of Common Stock available for sale. In addition, the shares of Common Stock may be issued at
a discount to the market price for such shares, which may put downward pressure on the market price for shares of Common Stock of the Fund.
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Certain Affiliations
Certain broker-dealers may be considered to be affiliated
persons of the Fund, NFA and/or, Nuveen Investments. Absent an exemption from the SEC or other regulatory relief, the Fund is generally precluded from effecting certain principal transactions with affiliated brokers, and its ability to purchase
securities being underwritten by an affiliated broker or a syndicate including an affiliated broker, or to utilize affiliated brokers for agency transactions, is subject to restrictions. This could limit the Funds ability to engage in
securities transactions, purchase certain adjustable rate senior loans, if applicable, and take advantage of market opportunities. In addition, unless and until the underwriting syndicate is broken in connection with the initial public offering of
the Common Stock, the Fund will be precluded from effecting principal transactions with brokers who are members of the syndicate.
Anti-Takeover Provisions
The Funds Articles 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 Stockholders of opportunities to sell their shares of Common Stock at a premium over the then current market price of the shares of Common Stock. See
Certain Provisions in the Articles of Incorporation.
HOW THE FUND MANAGES RISK
Investment Limitations
The Fund has adopted certain investment limitations designed to limit investment risk and maintain portfolio diversification. These limitations are fundamental and may not be changed without the approval
of the holders of a majority of the outstanding shares of Common Stock and VRDP Shares, voting together as a single class, and, the approval of the holders of a majority of the outstanding VRDP Shares voting as a separate
class. When used with respect to particular shares of the Fund, 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.
The Fund may become subject to guidelines which are more limiting than the investment limitations referred to above in order to obtain and maintain ratings from Moodys, S&P or Fitch on the VRDP
Shares, including with respect to the Funds hedging strategies described below. The Fund does not anticipate that such guidelines would have a material adverse effect on the Funds Common Stockholders or the Funds ability to achieve
its investment objectives.
Among other
restrictions, the Fund may not invest more than 25% of total Fund assets in securities of issuers in any one industry, except that this limitation does not apply to municipal bonds backed by the assets and revenues of governments or political
subdivisions of governments, or invest more than 5% of its total assets in securities of any one issuer, except that this limitation does not apply to bonds issued by the United States government, its agencies and instrumentalities or to the
investment of 25% of its total assets. See Investment Objectives in the SAI for information about these guidelines and a complete list of the fundamental and non-fundamental investment policies of the Fund.
Limited Issuance of VRDP Shares
Under the 1940 Act, the Fund could issue VRDP Shares having
a total liquidation value (original purchase price of the shares being liquidated plus any accrued and unpaid dividends) of up to one-half of the value of the asset coverage of the Fund. If the total liquidation value of the VRDP Shares was ever
more than one-half of the value of the Funds asset coverage, the Fund would not be able to declare dividends on the Common Stock until the liquidation value, as a percentage of the Funds assets, was reduced. Currently, the Fund has 2,525
VRDP
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Shares outstanding with a liquidation value of $252,500,000 as of February 29, 2012. This higher than required margin of net asset value provides a cushion against later fluctuations in the
value of the Funds portfolio and will subject Common Stockholders to less income and net asset value volatility than if the Fund were more leveraged. The Fund intends to purchase or redeem VRDP Shares, if necessary, to keep the liquidation
value of the VRDP Shares below one-half of the value of the Funds asset coverage.
Investment Portfolio and Capital Structure Strategies to Manage Leverage Risk
Common Stockholders are subject to the risks of leverage primarily in the form of additional Common Stock earnings and net asset value
risk, associated with the Funds use of financial leverage in the form of VRDP Shares, borrowings, or tender option bonds. See Risk FactorsLeverage Risk and Risk FactorsInverse Floating Rate Securities Risk.
In an effort to mitigate these risks, the Fund
and its Adviser seek to maintain the Funds financial leverage within an established range, and to rebalance leverage levels if the Funds leverage ratio moves outside this range to a meaningful degree for a persistent period of time. The
Fund may rebalance leverage levels in one or more ways, including by increasing/reducing the amount of leverage outstanding and issuing/repurchasing shares of Common Stock. The Fund currently expects that it would increase leverage levels through
the use of tender option bonds. Reducing leverage may require the Fund to raise cash through the sale of portfolio securities at times and/or at prices that would otherwise be unattractive for the Fund. The Fund may also seek to diversify its
capital structure and the risks associated with leverage by employing multiple forms of leverage. The Fund and its Adviser will weigh the relative potential benefits and risks as well as the costs associated with a particular action, and will take
such action only if it determines that on balance the likely potential long-term benefits outweigh the associated risks and costs.
Because the long-term municipal securities in which the Fund invests generally pay fixed rates of interest while the Funds costs of
leverage generally fluctuate with short-term yields, Common Stockholders bear incremental earnings risk from leverage.
Common Stockholders also bear incremental net asset value risk from leverage because they bear the full impact of price changes in the
Funds investment portfolio, including assets attributable to leverage. In seeking to manage the net asset value risk from leverage, the Fund may alter the composition of its investment portfolio in one or more ways, including increasing
portfolio credit quality, reducing portfolio duration and increasing the level of short-term cash equivalents. Depending on subsequent market conditions, any such action may increase or reduce Common Stock net earnings and/or returns compared to if
the Fund had taken no action.
Quality Investments
Under normal circumstances, the Fund will
invest at least 80% of its Managed Assets in investment grade securities that, at the time of investment are rated within the four highest grades (Baa or BBB or better) by at least one NRSRO or are unrated but judged to be of comparable quality by
Nuveen Asset Management.
Hedging Strategies
The Fund may use various investment strategies designed to limit the risk of bond price fluctuations and to preserve capital. These
hedging strategies include using credit default swaps, interest-rate swaps on taxable and tax-exempt indices, forward starting rate swaps and options on interest rate swaps, financial futures contracts, options on financial futures or options based
on either an index of long-term municipal securities or on taxable debt securities whose prices, in the opinion of Nuveen Asset Management, correlate with the prices of the Funds investments. These hedging strategies may generate taxable
income.
45
MANAGEMENT OF THE FUND
Directors and Officers
The Board of Directors is responsible for the management of
the Fund, including supervision of the duties performed by NFA. The names and business addresses of the directors and officers of the Fund and their principal occupations and other affiliations during the past five years are set forth under
Management of the Fund in the SAI.
Investment
Adviser, Sub-Adviser and Portfolio Manager
NFA, the Funds investment adviser, offers advisory and investment management services to a broad range of mutual fund and closed-end
fund clients. NFA is responsible for the Funds overall investment strategy and its implementation. NFA also is responsible for managing the Funds business affairs and providing certain clerical, bookkeeping and other administrative
services.
NFA, 333 West Wacker Drive, Chicago,
Illinois 60606, a registered investment adviser, is a wholly owned subsidiary of Nuveen Investments, Inc. (Nuveen Investments). Founded in 1898, Nuveen Investments and its affiliates had approximately $220 billion of assets under
management as of December 31, 2011.
Nuveen
Asset Management, 333 West Wacker Drive, Chicago, Illinois 60606, serves as the Funds sub-adviser, pursuant to a sub-advisory agreement between NFA and Nuveen Asset Management. Nuveen Asset Management is a registered investment adviser, and a
wholly-owned subsidiary of NFA. Nuveen Asset Management oversees day-to-day operations and provides portfolio management services to the Fund. Pursuant to the sub-advisory agreement, Nuveen Asset Management will be compensated for the services it
provides to the fund with a portion of the management fee NFA receives from the Fund. NFA and Nuveen Asset Management retain the right to reallocate investment advisory responsibilities and fees between themselves in the future.
Nuveen Asset Management is responsible for the execution of
specific investment strategies and day-to-day investment operations. Nuveen Asset Management manages the funds using a team of analysts and portfolio managers that focuses on a specific group of funds. The day-to-day operation of the Fund and the
execution of its specific investment strategies is the primary responsibility of Paul Brennan, the designated portfolio manager of the Fund.
Paul Brennan, CFA, CPA, is a Vice President of Nuveen Asset Management. Mr. Brennan became a portfolio manager of Flagship Financial
Inc. in 1994, and subsequently became an Assistant Vice President of Nuveen Asset Management upon the acquisition of Flagship Resources Inc. by Nuveen in 1997. He became Vice President of Nuveen Asset Management in 2002. He currently manages
investments for 15 Nuveen sponsored investment companies.
Additional information about the portfolio managers compensation, other accounts managed by the portfolio managers and the portfolio managers ownership of securities in the Fund is provided in
the SAI. The SAI is available free of charge by calling (800) 257-8787 or by visiting the Funds website at www.nuveen.com. The information contained in, or that can be accessed through, the Funds website is not part of this
prospectus of the SAI.
46
Investment Management and Sub-Advisory Agreements
Pursuant to an investment management agreement between NFA
and the Fund, the Fund has agreed to pay an annual management fee for the services and facilities provided by NFA, payable on a monthly basis, based on the sum of a fund-level fee and a complex-level fee, as described below.
Fund-Level Fee.
The annual fund-level fee for the
Fund, payable monthly, is calculated according to the following schedule:
|
|
|
|
|
Average Daily Managed Assets*
|
|
Fund-Level
Fee Rate
|
|
For the first $125 million
|
|
|
0.4500
|
%
|
For the next $125 million
|
|
|
0.4375
|
%
|
For the next $250 million
|
|
|
0.4250
|
%
|
For the next $500 million
|
|
|
0.4125
|
%
|
For the next $1 billion
|
|
|
0.4000
|
%
|
For the next $3 billion
|
|
|
0.3875
|
%
|
For managed assets over $5 billion
|
|
|
0.3750
|
%
|
Complex-Level
Fee.
The annual complex-level fee for the Fund, payable monthly, is calculated according to the following schedule:
|
|
|
|
|
Complex-Level Managed Asset Breakpoint
Level*
|
|
Effective 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 fund-level and complex-level fees, managed assets include closed-end fund assets managed by NFA that are attributable to financial leverage. For these purposes,
financial 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 trusts issuance of floating rate securities, subject to an agreement by NFA 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 funds that constitute eligible assets. Eligible assets do not include assets attributable to investments in other
Nuveen funds or assets in excess of $2 billion added to the Nuveen fund complex in connection with NFAs assumption of the management of the former First American Funds effective January 1, 2011. As of December 31, 2011, the
complex-level fee rate for the Fund was 0.1767%.
|
Pursuant to an investment sub-advisory agreement between NFA and Nuveen Asset Management, Nuveen Asset Management will receive from NFA a management fee equal to 46.6667% of NFAs net management fee
from the Fund.
47
The management fee compensates NFA for overall investment advisory and administrative
services and general office facilities. The Fund pays all other costs and expenses of its operations, including compensation of its directors (other than those affiliated with NFA or Nuveen Asset Management), custodian, transfer agency and dividend
disbursing expenses, legal fees, expenses of independent auditors, expenses of repurchasing shares, expenses associated with any borrowings, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports
to governmental agencies, and taxes, if any.
A
discussion regarding the basis for the Board of Directors decision to renew the Investment Management Agreement for the Fund is available in the Funds annual report to shareholders dated October 31 of each year. A discussion
regarding the basis for the Board of Directors decision to approve the Investment Sub-Advisory Agreement may be found in the Funds annual report to shareholders for the year ending October 31, 2011.
NET ASSET VALUE
The Funds net asset value per share is determined as of
the close of regular session trading (normally 4:00 p.m. eastern time) on each day the New York Stock Exchange is open for business. Net asset value is calculated by taking the market value of the Funds total assets, including interest or
dividends accrued but not yet collected, less all liabilities, and dividing by the total number of shares outstanding. The result, rounded to the nearest cent, is the net asset value per share. All valuations are subject to review by the Funds
Board of Directors or its delegate.
In
determining net asset value, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. The prices of municipal bonds are provided by a pricing service approved by the
Funds Board of Directors. When market price quotes are not readily available (which is usually the case for municipal securities), the pricing service, or, in the absence of a pricing service for a particular security, the Board of Directors
of the Funds, or its designee, may establish fair market value using a wide variety of market data including yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value
from securities dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligors credit characteristics considered relevant by the pricing service or the Board
of Directors designee. Exchange-listed securities are generally valued at the last sales price on the securities exchange on which such securities are primarily traded. Securities traded on a securities exchange for which there are no
transactions on a given day or securities not listed on a securities exchange are valued at the mean of the closing bid and asked prices. Securities traded on Nasdaq are valued at the Nasdaq Official Closing Price. Temporary investments in
securities that have variable rate and demand features qualifying them as short-term investments are valued at amortized cost, which approximates market value. See Net Asset Value in the SAI for more information.
DISTRIBUTIONS
The Fund pays regular monthly cash distributions to Common
Stockholders at a level rate (stated in terms of a fixed cents per Common Stock dividend rate) that reflects the past and projected performance of the Fund. Distributions can only be made from net investment income after paying any accrued dividends
to VRDP Shareholders or interest and required principal payments on borrowings.
The Funds ability to maintain a level dividend rate will depend on a number of factors, including the rate at which dividends are payable on the VRDP Shares. The net income of the Fund consists of
all interest income accrued on portfolio assets less all expenses of the Fund. Expenses of the Fund are accrued each day. Over time, all the net investment income of the Fund will be distributed. At least annually, the Fund also intends to
effectively distribute substantially all of its net capital gain and ordinary taxable income, if any, after paying any accrued dividends or making any liquidation payments to VRDP Shareholders and any interest and required
48
principal payment on borrowings. Although it does not now intend to do so, the Board of Directors may change the Funds dividend policy and the amount or timing of the distributions, based
on a number of factors, including the amount of the Funds undistributed net investment income and historical and projected investment income and the amount of the expenses and dividend rates on outstanding preferred shares, including VRDP
Shares, and expenses interest on borrowings.
As
explained more fully below in Tax Matters, at least annually, the Fund may elect to retain rather than distribute all or a portion of any net capital gain (which is the excess of net long-term capital gain over net short-term capital
loss) otherwise allocable to Common Stockholders and pay federal income tax on the retained gain. As provided under federal tax law, Common Stockholders of record as of the end of the Funds taxable year will include their attributable share of
the retained net capital gain in their income for the year as a long-term capital gain (regardless of their holding period in the Common Stock), and will be entitled to an income tax credit or refund for the tax deemed paid on their behalf by the
Fund.
The Fund reserves the right to change its
distribution policy and the basis for establishing the rate of its monthly distributions at any time.
DIVIDEND REINVESTMENT PLAN
If your shares of Common Stock are registered directly with
the Fund or if you hold your shares of Common Stock with a brokerage firm that participates in the Funds Dividend Reinvestment Plan (the Plan), you may elect to have all dividends, including any capital gain dividends, on your
Common Stock automatically reinvested by the Plan Agent (defined below) in additional Common Stock under the Plan. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you
will receive all distributions in cash paid by check mailed directly to you or your brokerage firm by State Street Bank and Trust Company as dividend paying agent (the Plan Agent).
If you decide to participate in the Plan, the number of shares of Common Stock you will receive will be
determined as follows:
(1) If
shares of Common Stock are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then current market price;
(2) If shares of Common Stock are trading below net asset value at the time of valuation, the Plan Agent will receive the
dividend or distribution in cash and will purchase shares of Common Stock in the open market, on the NYSE or elsewhere, for the participants accounts. It is possible that the market price for the shares of Common Stock may increase before the
Plan Agent has completed its purchases. Therefore, the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had
been paid in shares of Common Stock issued by the Fund. The Plan Agent will use all dividends and distributions received in cash to purchase shares of Common Stock in the open market within 30 days of the valuation date. Interest will not be paid on
any uninvested cash payments; or
(3) If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but
the Funds shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in
newly-issued Fund shares at a price equal to the greater of the shares net asset value or 95% of the shares market value.
You may withdraw from the Plan at any time by giving written notice to the Plan Agent. If you withdraw or the Plan is terminated, you will
receive whole shares in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions and a $2.50
service fee.
49
The Plan Agent maintains all shareholders accounts in the Plan and gives written
confirmation of all transactions in the accounts, including information you may need for tax records. Shares of Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all shares of
Common Stock you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in shares of Common Stock. However, all participants will
pay a pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
Automatically reinvesting dividends and distributions does not mean that you do not have to pay income taxes due upon receiving dividends
and distributions.
If you hold your Common Stock
with a brokerage firm that does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more
information.
The Fund reserves the right to amend
or terminate the Plan if in the judgment of the Board of Directors the change is warranted. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by
the participants. Additional information about the Plan may be obtained by writing to State Street Bank and Trust Company, Attn: ComputerShare Nuveen Investments, P.O. Box 43071, Providence, Rhode Island 02940-3071 or by calling (800) 257-8787.
PLAN OF DISTRIBUTION
The Fund may sell the Common Stock offered
under this Prospectus through
|
|
|
at-the-market transactions;
|
|
|
|
underwriting syndicates; and
|
|
|
|
privately negotiated transactions.
|
The Fund will bear the expenses of the Offering, including but not limited to, the expenses of preparation of the Prospectus and SAI for
the Offering and the expense of counsel and auditors in connection with the Offering.
Distribution Through At-the-Market Transactions
The Fund has entered into a Distribution Agreement with Nuveen Securities, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The summary of the Distribution Agreement contained herein is qualified by reference to the Distribution Agreement. Subject to the terms and conditions of the Distribution Agreement, the
Fund may from time to time offer its Common Stock through Nuveen Securities to certain broker-dealers which have entered into selected dealer agreements with Nuveen Securities. Currently, Nuveen Securities has entered into a selected dealer
agreement with UBS Securities LLC (UBS) pursuant to which UBS will be acting as Nuveen Securities sub-placement agent with respect to at-the-market offerings of Common Stock.
Common Stock will only be sold on such days as shall be agreed to by the Fund and Nuveen Securities. Shares of
Common Stock will be sold at market prices, which shall be determined with reference to trades on the Exchange, subject to a minimum price to be established each day by the Fund. The minimum price on any day will not be less than the current net
asset value per share of Common Stock plus the per share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Stock if the per share price of the shares is less than the minimum
price.
50
The Fund will compensate Nuveen Securities with respect to sales of the Common Stock at a
fixed commission rate of 1% of the gross proceeds of the sale of Common Stock. Nuveen Securities will compensate broker-dealers participating in the offering at a rate of 0.8% of the gross proceeds of the sale of Common Stock sold by that
broker-dealer. Nuveen Securities may from time to time change the dealer re-allowance. Settlements of sales of Common Stock will occur on the third business day following the date on which any such sales are made.
In connection with the sale of the Common Stock on behalf of
the Fund, Nuveen Securities may be deemed to be an underwriter within the meaning of the 1933 Act, and the compensation of Nuveen Securities may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a further
Prospectus supplement, Nuveen Securities will act as underwriter on a reasonable efforts basis.
The offering of Common Stock pursuant to the Distribution Agreement will terminate upon the earlier of (i) the sale of all Shares subject thereto or (ii) termination of the Distribution
Agreement. The Fund and Nuveen Securities each have the right to terminate the Distribution Agreement in its discretion at any time. The Fund currently intends to distribute the shares offered pursuant to this Prospectus primarily through
at-the-market transactions, although from time to time it may also distribute shares through an underwriting syndicate or a privately negotiated transaction. To the extent shares are distributed other than through at-the-market transactions, the
Fund will file a supplement to this Prospectus describing such transactions.
Distribution Through Underwriting Syndicates
The Fund from time to time may issue additional Common Stock through a syndicated secondary offering. In order to limit the impact on the market price of the Funds shares of Common Stock,
underwriters will market and price the offering on an expedited basis (e.g., overnight or similarly abbreviated offering period). The Fund will launch a syndicated offering on a day, and upon terms, mutually agreed upon between the Fund, Nuveen
Securities, one of the Funds underwriters, and the underwriting syndicate.
The Fund will offer its shares at price equal to a specified discount of up to 5% from the closing market price of the Funds shares of Common Stock on the day prior to the offering date. The
applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund will compensate the underwriting syndicate out of the proceeds of the offering
based upon a sales load of up to 4% of the gross proceeds of the sale of Common Stock. The minimum net proceeds per share to the Fund will not be less than the greater of (i) the Funds latest net asset value per share of Common Stock or
(ii) 91% of the closing market price of the shares of the Funds Common Stock on the day prior to the offering date.
Distribution Through Privately Negotiated Transactions
The Fund, through Nuveen Securities, from time to time may sell directly to, and solicit offers from, institutional and other
sophisticated investors, who may be deemed to be underwriters as defined in the 1933 Act for any resale of Common Stock.
The terms of such privately negotiated transactions will be subject to the discretion of the management of the Fund. In determining
whether to sell Common Stock through a privately negotiated transaction, the Fund will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds through the sale of Common Stock, the purchase price to
apply to any such sale of Common Stock and the person seeking to purchase the Common Stock.
Shares of Common Stock issued by the Fund through privately negotiated transactions will be issued at a price equal to the greater of (i) the net asset value per share of the Funds Common Stock
or (ii) at a discount ranging from 0% to 5% of the average daily closing market price of the Funds Common Stock at the close of
51
business on the two business days preceding the date upon which shares of Common Stock are sold pursuant to the privately negotiated transaction. The applicable discount will be determined by the
Fund on a transaction-by-transaction basis.
DESCRIPTION OF SHARES
Common Stock
The Funds Articles of Incorporation authorize the issuance of 200,000,000 shares of common stock. All
shares of common stock have equal rights to the payment of dividends and the distribution of assets upon liquidation. Shares of common stock are, when issued, fully paid and non-assessable, and have no pre-emptive or conversion rights except as the
directors may determine or rights to cumulative voting. At any time when Preferred Stock is outstanding, common stockholders will not be entitled to receive any cash distributions from the Fund unless all accrued dividends on Preferred Stock have
been paid, and unless Asset Coverage with respect to Preferred Stock would be at least 200% after giving effect to the distributions. The Fund pays monthly dividends, typically on the first business day of the following month.
The Funds common stock is listed on the New York Stock
Exchange. The Fund intends to hold annual meetings of stockholders so long as the Funds shares are listed on a national securities exchange and such meetings are required as a condition to such listing.
Unlike open-end funds, closed-end funds like the Fund do not
provide daily redemptions. Rather, if a shareholder determines to buy additional Common Stock or sell shares already held, the shareholder may conveniently do so by trading on the exchange through a broker or otherwise. Shares of closed-end
investment companies may frequently trade on an exchange at prices lower than net asset value. Shares of closed-end investment companies like the Fund have during some periods traded at prices higher than net asset value and have during other
periods traded at prices lower than net asset value.
Because the market value of the Common Stock may be influenced by such factors as distribution levels (which are in turn affected by expenses), call protection, dividend stability, portfolio credit
quality, net asset value, relative demand for and supply of such shares in the market, general market and economic conditions, and other factors beyond the control of the Fund, the Fund cannot assure you that Common Stock will trade at a price equal
to or higher than net asset value in the future. The Common Stock are designed primarily for long-term investors, and investors in the Common Stock should not view the Fund as a vehicle for trading purposes. See Repurchase of Fund Shares;
Conversion to Open-End Fund.
The Articles
authorize the Fund, without approval of the Common Stockholders, to borrow money. In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings or commercial paper) and may secure any such borrowings by
mortgaging, pledging or otherwise subjecting as security the Funds assets. Under the requirements of the 1940 Act, the Fund, immediately after any such Borrowings, must have an asset coverage of at least 300%. With respect to any
such borrowings, asset coverage means the ratio that the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowings
represented by senior securities issued by the Fund. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements relating to asset coverage or portfolio coverage or otherwise. In addition, as with the issuance
of VRDP Shares, certain types of borrowings may result in the Fund being subject to certain restrictions imposed by guidelines of one or more rating agencies that may issue ratings for commercial paper or notes issued by the Fund. Such restrictions
may be more stringent than those imposed by the 1940 Act.
The rights of lenders to the Fund to receive interest on and repayment of principal of any such borrowings will be senior to those of the Common Stockholders, and the terms of any such borrowings may
contain provisions which limit certain activities of the Fund, including the payment of dividends to Common
52
Stockholders in certain circumstances. Further, the 1940 Act does (in certain circumstances) grant to the lenders to the Fund certain voting rights in the event of default in the payment of
interest on or repayment of principal. In the event that such provisions would impair the Funds status as a regulated investment company under the Code, the Fund would repay the borrowings. Any borrowings will likely be ranked senior or equal
to all other existing and future borrowings of the Fund. The Fund may also borrow money for repurchase of its shares or as a temporary measure for extraordinary or emergency situations. See Investment Restrictions in the Statement of
Additional Information.
Preferred Shares
The Funds Articles authorize the issuance of 1,000,000
preferred shares, par value $.01 per share, in one or more classes or series, with rights as determined by the Board of Directors without the approval of holders of Common Stock, out of which the Executive Committee of the Board of Directors, acting
pursuant to authority delegated to it by the full Board of Directors, has designated 50,000 preferred shares as Variable Rate Demand Preferred (VRDP) Shares. The Fund currently has 2,525 VRDP Shares outstanding as of February 29, 2012.
The Funds Board of Directors has authorized the offering of MuniPreferred Shares in the past. As of October 31, 2011, all of the Funds MuniPreferred shares have been redeemed.
Limited Issuance of Preferred Shares.
Under the 1940 Act, the Fund could issue
preferred shares with an aggregate liquidation value of up to one-half of the value of the Funds total net assets, including any liabilities associated with borrowings, measured immediately after issuance of the preferred shares.
Liquidation value means the original purchase price of the shares being liquidated plus any accrued and unpaid dividends. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Stock
unless the liquidation value of the preferred shares is less than one-half of the value of the Funds total net assets (determined after deducting the amount of such dividend or distribution) immediately after the distribution.
Distribution
Preference.
Preferred shares, including VRDP Shares, have complete priority over the Common Stock as to distribution of assets.
Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Fund, holders of preferred shares, including VRDP Shares would be entitled to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid dividends
thereon, whether or not earned or declared) before any distribution of assets is made to Common Stockholders.
Voting Rights.
Preferred shares, including VRDP Shares, are required to be voting shares and to have equal
voting rights with Common Stock. Except as otherwise indicated in this Prospectus or the SAI and except as otherwise required by applicable law, preferred shares would vote together with Common Stockholders as a single class.
Holders of preferred shares, including VRDP Shares, voting as
a separate class, will be entitled to elect two of the Funds directors (following the establishment of the Fund by an initial director, the Articles provide for a total of no less than two and no more than 12 directors). The remaining
directors will be elected by Common Stockholders and holders of preferred shares, voting together as a single class. In the unlikely event that two full years of accrued dividends are unpaid on the preferred shares, including VRDP Shares, the
holders of all outstanding preferred shares, including VRDP Shares, voting as a separate class, will be entitled to elect a majority of the Funds directors until all dividends in arrears have been paid or declared and set apart for payment. In
order for the Fund to take certain actions or enter into certain transactions, a separate class vote of holders of preferred shares would be required, in addition to the single class vote of the holders of preferred shares, and Common Stock. See
Certain Provisions in the Articles of Incorporation and the SAI under Description of SharesPreferred SharesVoting Rights.
53
Redemption, Purchase and Sale of Preferred Shares.
The terms
of any preffered share offering, including VRDP Shares, provides that they may be redeemed by the issuer at certain times, in whole or in part, at the original purchase price per share plus accumulated dividends. Any redemption or purchase of
preferred shares, including VRDP Shares, by the Fund will reduce the leverage applicable to Common Stock, while any issuance of shares by the Fund would increase such leverage.
The Fund applied for and obtained ratings for its VRDP Shares
from two NRSROs. As long as VRDP Shares are outstanding, the composition of the Funds portfolio would reflect guidelines established by such NRSROs. Based on previous guidelines established by such NRSROs for the securities of other issuers,
the Fund anticipates that the guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. However, at this time, no assurance can be given as to the nature or
extent of the guidelines that may be imposed in connection with obtaining a rating of any VRDP Shares. See Investment Objectives in the SAI.
CERTAIN PROVISIONS IN THE ARTICLES OF INCORPORATION
Stockholder and Director Liability
. Under the
Minnesota Business Corporation Act, a subscriber for shares or a shareholder of a corporation is under no obligation to the corporation or its creditors with respect to the shares subscribed for or owned, except to pay the corporation the full
agreed-upon consideration for the shares. However, a shareholder who receives a distribution which is made in violation of the Minnesota Business Corporation Acts limitations on distributions is liable to the corporation to the extent that the
distribution exceeded the amount that properly could have been paid.
The Articles of Incorporation provide that the Funds obligations are not binding upon the Funds directors individually, but only upon the Funds assets and property and provide for the
indemnification of directors individually by the Fund for certain liabilities arising out of the performance of their duties to the Fund to the maximum extent permitted under Minnesota law. Nothing in the Articles of Incorporation, however, protects
a director against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Anti Takeover Provisions.
The
Funds Articles of Incorporation include provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund. Specifically, the Articles require the affirmative vote of the holders of at
least 66
2
/
3
% of the Funds outstanding shares
of Common Stock and outstanding preferred shares, including VRDP Shares, voting together as a single class, except as described below, to approve, adopt or authorize any of the following transactions:
(1)
|
conversion of the Fund from a closed-end investment company to an open-end investment company,
|
(2)
|
a merger or consolidation of the Fund with any other corporation or a reorganization or recapitalization,
|
(3)
|
a sale, lease or transfer of all or substantially all of the Funds assets (other than in the regular course of the Funds investment activities), or
|
(4)
|
a liquidation or dissolution of the Fund,
|
unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of
directors fixed in accordance with the By-Laws, in which case the affirmative vote of the holders of at least a majority of the Funds outstanding shares of Common Stock and outstanding preferred shares, including VRDP Shares, voting together
as a single class, is required. Except as may otherwise be required by law, in the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of reorganization (as
such term is used in the 1940 Act) which adversely affects the holders of shares of preferred stock, the action in question will also require the approval, adoption or authorization of the holders of 66
2
/
3
% of the Funds preferred Shares voting as a separate
54
class; provided, however, that such separate class vote shall be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of
two-thirds of the total number of directors fixed in accordance with the By-Laws. The 66
2
/
3
% vote required under certain circumstances to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve the other transactions described above are higher than
those required by the 1940 Act. See the SAI under Certain Provisions in the Articles of Incorporation.
The provisions of the Articles of Incorporation described above could have the effect of depriving the Common Stockholders of
opportunities to sell their shares of Common Stock at a premium over the then current market price of the shares of Common Stock by discouraging a third party from seeking to obtain control of the Fund in a tender offer or similar transaction. The
overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third party. They provide, however, the advantage of potentially requiring persons seeking control of the Fund to
negotiate with its management regarding the price to be paid and facilitating the continuity of the Funds investment objectives and policies. The Board of Directors of the Fund has considered the foregoing anti-takeover provisions and
concluded that they are in the best interests of the Fund and its Common Stockholders.
Reference should be made to the Articles on file with the SEC for the full text of these provisions.
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its
stockholders will not have the right to cause the Fund to redeem their shares. Instead, the shares of Common Stock will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn
affected by expenses), net asset value, call protection, dividend stability, portfolio credit quality, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of
closed-end investment companies may frequently trade at prices lower than net asset value, the Funds Board of Directors has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any
material discount from net asset value in respect of shares of Common Stock, which may include the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at net asset value, or the
conversion of the Fund to an open-end investment company. The Fund cannot assure you that its Board of Directors will decide to take any of these actions, or that share repurchases or tender offers will actually reduce market discount.
If the Fund converted to an open-end investment company, it
would be required to redeem all preferred shares, including VRDP Shares then outstanding (requiring in turn that it liquidate a portion of its investment portfolio), and the shares of Common Stock would no longer be listed on the NYSE. In contrast
to a closed-end investment company, shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less any
redemption charge that is in effect at the time of redemption. See the SAI under Certain Provisions in the Articles of Incorporation for a discussion of the voting requirements applicable to the conversion of the Fund to an open-end
investment company.
Before deciding whether to
take any action if the shares of Common Stock trade below net asset value, the Board would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Funds portfolio, the impact of any action that
might be taken on the Fund or its shareholders, and market considerations. Based on these considerations, even if the Funds shares should trade at a discount, the Board of Directors may determine that, in the interest of the Fund and its
shareholders, no action should be taken. See the SAI under Repurchase of Fund Shares; Conversion to Open-End Fund for a further discussion of possible action to reduce or eliminate such discount to net asset value. On November 16, 2011,
the Funds Board of Trustees approved an open market share repurchase program under which the Fund may repurchase up to 10% of its Common Shares. To date, the Fund has not repurchased any Common Shares under the program.
55
TAX MATTERS
The following information is meant as a general summary for
U.S. shareholders. Please see the SAI for additional information. Investors should rely on their own tax adviser for advice about the particular federal, state and local tax consequences to them of investing in the Fund.
The Fund intends to elect to be treated and to qualify each
year as a regulated investment company (RIC) under Subchapter M of the Code. In order to qualify as a RIC, the Fund must satisfy certain requirements regarding the sources of its income, the diversification of its assets and the
distribution of its income. As a RIC, the Fund is not expected to be subject to federal income tax. The Fund primarily invests in municipal securities issued by states, cities and local authorities and certain possessions and territories of the
United States (such as Puerto Rico or Guam) or municipal securities whose income is otherwise exempt from regular federal income taxes. Thus, substantially all of the Funds dividends paid to you should qualify as exempt-interest
dividends. A shareholder treats an exempt-interest dividend as interest on state and local bonds exempt from regular federal income tax. Federal income tax law imposes an alternative minimum tax with respect to corporations, individuals, trust
and estates. Interest on certain municipal obligations, such as certain private activity bonds is included as an item of tax preference in determining the amount of a taxpayers alternative minimum taxable income. To the extent that the Fund
receives income from such municipal obligations, a portion of the dividends paid by the Fund, although exempt from regular federal income tax, will be taxable to shareholders to the extent that their tax liability is determined under the federal
alternative minimum tax. The Fund will annually provide a report indicating the percentage of the Funds income attributable to municipal obligations subject to the federal alternative minimum tax. Corporations are subject to special rules in
calculating their federal alternative minimum taxable income with respect to interest from such municipal obligations.
In addition to exempt-interest dividends, the Fund may also distribute to its shareholders amounts that are treated as long-term capital
gain or ordinary income (which may include short-term capital gains). These distributions may be subject to federal, state and local taxation, depending on a shareholders situation. If so, they are taxable whether or not such distributions are
reinvested. Capital gain distributions are generally taxable at rates applicable to long-term capital gains regardless of how long a shareholder has held its shares. Long-term capital gains are currently taxable at a maximum rate of 15%. Absent
further legislation, the maximum 15% rate on long-term capital gains will cease to apply to taxable years beginning after December 31, 2012. The Fund does not expect that any part of its distributions to shareholders from its investments will
qualify for the dividends-received deduction available to corporate shareholders or as qualified dividend income available to noncorporate shareholders.
Recent legislation effective beginning in 2013 provides that
U.S. individuals with income exceeding $200,000 ($250,000 if married and filing jointly) will be subject to a new 3.8% Medicare contribution tax on their net investment income, including interest, dividends, and capital gains (including
capital gains realized on the sale or exchange of shares of the Fund), but net investment income for this purpose does not include exempt-interest dividends.
As a regulated investment company, the Fund will not be
subject to federal income tax in any taxable year provided that it meets certain distribution requirements. As described in Distributions above, the Fund may retain for investment some (or all) of its net capital gain. If the Fund
retains any net capital gain or investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. If the Fund retains any net capital gain, it may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on long-term capital gains, (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their share of such undistributed
amount; (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if any; and (iii) to claim refunds to the extent the credit exceeds
such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference between the amount of undistributed capital gains included in the shareholders
gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
56
Dividends declared by the Fund in October, November or December and paid during the
following January may be treated as having been received by shareholders in the year the distributions were declared.
Each shareholder will receive an annual statement summarizing the shareholders dividend and capital gains distributions.
The redemption, sale or exchange of shares of Common Stock
normally will result in capital gain or loss to holders of Common Stock who hold their shares as capital assets. Generally a shareholders gain or loss will be long-term capital gain or loss if the shares have been held for more than one year
even though the increase in value in such shares of Common Stock is attributable to tax-exempt interest income. Present law taxes both long-term and short-term capital gains of corporations at the same rates applicable to ordinary income. For
non-corporate taxpayers, however, long-term capital gains are currently taxed at a maximum rate of 15%, while short-term capital gains and other ordinary income are currently taxes at ordinary income rates. As noted above, absent further
legislation, the maximum rates applicable to long-term capital gains will cease to apply to taxable years beginning after December 31, 2012 and the maximum rate on long-term capital gains will return under current law to 20%. Any loss on the
sale of shares of Common Stock that have been held for six months or less will be disallowed to the extent of any distribution of exempt-interest dividends received with respect to such shares of Common Stock. If a shareholder sells or otherwise
disposes of shares of Common Stock before holding them for six months, any loss on the sale or disposition will be treated as a long-term capital loss to the extent of any capital gain dividends received by the Common Stockholder. Any loss realized
on a sale or exchange of shares of the Fund will be disallowed to the extent those shares of the Fund are replaced by other substantially identical shares of the Fund within a period of 61 days beginning 30 days before and ending 30 days after the
date of disposition of the original shares. In that event, the basis of the replacement shares of the Fund will be adjusted to reflect the disallowed loss.
Any interest on indebtedness incurred or continued to purchase or carry the Funds shares to which exempt-interest dividends are
allocated is not deductible. Under certain applicable rules, the purchase or ownership of shares may be considered to have been made with borrowed funds even though such funds are not directly used for the purchase or ownership of the shares. In
addition, if you receive social security or certain railroad retirement benefits, you may be subject to U.S. federal income tax on a portion of such benefits as a result of receiving investment income, including exempt-interest dividends and other
distributions paid by the Fund.
As with all
investment companies, the Fund may be required to withhold U.S. federal income tax at the current rate of 28% of all taxable distributions payable to a shareholder if the shareholder fails to provide the Fund with his or her correct taxpayer
identification number or to make required certifications, or if the shareholder has been notified by the IRS that he or she is subject to backup withholding. Backup withholding is not an additional tax; rather, it is a way in which the IRS ensures
it will collect taxes otherwise due. Any amounts withheld may be credited against a shareholders U.S. federal income tax liability.
CUSTODIAN AND TRANSFER AGENT
The custodian of the assets of the Fund is State Street Bank
and Trust Company, One Lincoln Street, Boston, Massachusetts 02110. The Custodian performs custodial, fund accounting and portfolio accounting services. The Funds transfer, shareholder services and dividend paying agent is also State Street
(Transfer Agent). The Transfer Agent is located at 250 Royall Street, Canton, Massachusetts 02021.
LEGAL OPINION
Certain legal matters in connection with the Common Stock will be passed upon for the Fund by Morgan, Lewis & Bockius LLP,
Washington, DC. Morgan, Lewis & Bockius LLP will rely as to certain matters under Minnesota law on the opinion of Dorsey & Whitney LLP, Minneapolis, MN.
57
AVAILABLE INFORMATION
The Fund is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange Act) and the 1940 Act and is required to file reports, proxy statements and other information with the SEC. These documents can be inspected and copied for a fee at the SECs
public reference room, 100 F Street, NE, Washington, DC 20549, and Northeast Regional Office, Woolworth Building, 233 Broadway, New York, NY 10013-2409. Reports, proxy statements, and other information about the Fund can be inspected
at the offices of the NYSE.
This Prospectus does
not contain all of the information in the Funds Registration Statement, including amendments, exhibits, and schedules. Statements in this Prospectus about the contents of any contract or other document are not necessarily complete and in each
instance reference is made to the copy of the contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by this reference.
Additional information about the Fund and Common Stock can be
found in the Funds Registration Statement (including amendments, exhibits, and schedules) on Form N-2 filed with the SEC. The SEC maintains a web site (http://www.sec.gov) that contains the Funds Registration Statement, other documents
incorporated by reference, and other information the Fund has filed electronically with the SEC, including proxy statements and reports file under the Exchange Act.
58
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
59
3.4 Million Shares
Nuveen Select Quality Municipal Fund, Inc.
Common Stock
PROSPECTUS
April 11, 2012
EPR-NQS-
The information in this Prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the
offer or sale is not permitted.
NUVEEN
SELECT QUALITY MUNICIPAL FUND, INC.
333 West Wacker Drive
Chicago, Illinois 60606
STATEMENT OF ADDITIONAL INFORMATION
DATED April 11, 2012
Nuveen Select Quality Municipal Fund, Inc. (the Fund) is a diversified, closed-end management investment company registered
under the Investment Company Act of 1940, as amended (1940 Act). The Fund was incorporated under the laws of the State of Minnesota on September 13, 2007. Prior to October 4, 2007, the Fund was named Nuveen Municipal High
Income Strategy Fund.
This Statement of Additional Information relating to common stock of the Fund (Common
Stock) does not constitute a Prospectus, but should be read in conjunction with the Funds Prospectus relating thereto dated April 11, 2012 (the Prospectus). This Statement of Additional Information does not include all
information that a prospective investor should consider before purchasing Common Stock. Investors should obtain and read the Funds Prospectus prior to purchasing such shares. In addition, the Funds financial statements and the
independent registered public accounting firms report therein included in the Funds annual report dated October 31, 2011, are incorporated herein by reference. A copy of the Funds Prospectus may be obtained without charge by
calling (800) 257-8787. You may also obtain a copy of the Funds Prospectus on the U.S. Securities and Exchange Commissions SEC web site (http://www.sec.gov). Capitalized terms used but not defined in this Statement of
Additional Information have the meanings ascribed to them in the Prospectus.
TABLE OF CONTENTS
-i-
USE OF PROCEEDS
The net proceeds from the issuance of Common Stock hereunder will be used by the Fund to invest in municipal securities in accordance
with the Funds investment objectives and policies as stated below. To the extent the Fund uses the net proceeds of any offering to invest in municipal securities, it is presently anticipated that the Fund will be able to invest substantially
all of such proceeds in securities that meet the Funds investment objective and policies within one month from the date on which the proceeds from an offering are received by the Fund. Pending such investment, it is anticipated that the
proceeds will be invested in short-term or long-term securities issued by the U.S. Government and its agencies or instrumentalities or in high quality, short-term money market instruments. See Risk FactorsLeverage Risk and
Use of Leverage in the Prospectus.
INVESTMENT OBJECTIVES
The Funds investment objectives are to provide current income exempt from regular federal income tax and to enhance portfolio value
relative to the municipal bond market by investing in tax-exempt municipal securities that Nuveen Fund Advisors, Inc. (NFA) the Funds investment adviser, believes are underrated or undervalued or that represent municipal market
sectors that are undervalued. Any capital appreciation realized by the Fund will generally result in the distribution of taxable capital gains to Common Stockholders. The Fund has not established any limit on the percentage of its portfolio that may
be invested in municipal bonds subject to the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be includable in alternative minimum taxable income.
Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in municipal securities and other related
investments, the income from which is exempt from regular federal income tax. Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment grade securities that, at the time of investment are rated within the
four highest grades (Baa or BBB or better) by at least one NRSRO or are unrated but judged to be of comparable quality by the Funds sub-adviser, Nuveen Asset Management, LLC (Nuveen Asset Management). The Fund may invest up to 20%
of its Managed Assets in municipal securities that at the time of investment are rated below investment grade or are unrated but judged to be of comparable quality by Nuveen Asset Management. No more than 10% of the Funds Managed Assets may be
invested in municipal securities rated below B3/B- or that are unrated but judged to be of comparable quality by Nuveen Asset Management. There can be no assurance that the Fund will achieve its investment objectives.
INVESTMENT RESTRICTIONS
Except as described below, the Fund, as a fundamental policy, may not, without the approval of the holders of a majority of the
outstanding Common Stock and VRDP Shares, voting together as a single class, and of the holders of a majority of the Outstanding VRDP Shares voting as a separate class:
(1) Issue senior securities, as defined in the 1940 Act, other than Preferred Shares, except to the extent such issuance
might be involved with respect to borrowings described under subparagraph (2) below;
(2) Borrow money,
except from banks for temporary or emergency purposes or for repurchase of its shares, and then only in an amount not exceeding one-third of the value of the Funds total assets including the amount borrowed. While any such borrowings exceed 5%
of the Funds total assets, no additional purchases of investment securities will be made;
(3) Underwrite
any issue of securities, except to the extent that the purchase of municipal securities in accordance with its investment objectives, policies and limitations may be deemed to be an underwriting;
(4) Invest more than 25% of its total assets in securities of issuers in any one industry;
provided
,
however
, that such limitation shall not be applicable to municipal securities other than those municipal
1
securities backed only by the assets and revenues of non-governmental users, nor shall it apply to municipal securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
(5) Purchase or sell real estate, but this shall not prevent the Fund from investing in
municipal securities secured by real estate or interests therein;
(6) Purchase or sell physical commodities
unless acquired as a result of ownership of securities or other instruments (but this shall not prevent the Fund from purchasing or selling options, futures contracts or derivative instruments or from investing in securities or other instruments
backed by physical commodities);
(7) Make loans, except as permitted by the 1940 Act and exemptive orders
granted under the 1940 Act;
(8) Invest more than 5% of its total assets in securities of any one issuer,
except that this limitation shall not apply to securities of the U.S. government, its agencies and instrumentalities or to the investment of 25% of its total assets;
(9) Pledge, mortgage or hypothecate its assets, except that, to secure borrowings permitted by subparagraph (2)
above, it may pledge securities having a market value at the time of pledge not exceeding 20% of the value of the Funds total assets;
(10) Invest more than 10% of its total assets in repurchase agreements maturing in more than seven days; and
(11) Purchase or retain the securities of any issuer other than the securities of the Fund if, to the
Funds knowledge, those directors of the Fund, or those officers and directors of Nuveen Asset Management, who individually own beneficially more than
1
/
2
of 1% of the outstanding securities of such
issuer, together own beneficially more than 5% of such outstanding securities.
For purposes of the foregoing,
majority of the outstanding, when used with respect to particular shares of the Fund, 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.
For the purpose of applying the limitation set forth in
subparagraph (1) above, the Fund may not issue senior securities not permitted by the 1940 Act simply by describing such securities in the Prospectus.
For the purpose of applying the limitation set forth in subparagraph (2) above, under the 1940 Act, the Fund generally is not permitted to issue commercial paper or notes or borrow unless immediately
after the borrowing or commercial paper or note issuance the value of the Funds total assets less liabilities other than the principal amount represented by commercial paper, notes or borrowings, is at least 300% of such principal amount. The
Fund does not currently have or have pending any exemptive relief with the Securities and Exchange Commission that would allow it to borrow outside of the limits of the 1940 Act.
For the purpose of applying the limitation set forth in subparagraph (8) above, an issuer shall be deemed the sole issuer of a
security when its assets and revenues are separate from other governmental entities and its securities are backed only by its assets and revenues. Similarly, in the case of a non-governmental issuer, such as an industrial corporation or a privately
owned or operated hospital, if the security is backed only by the assets and revenues of the non-governmental issuer, then such non-governmental issuer would be deemed to be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental or other entity (other than a bond insurer), it shall also be included in the computation of securities owned that are issued by such governmental or other entity. Where a security is guaranteed by
a governmental entity or some other facility, such as a bank guarantee or letter of credit, such a guarantee or letter of credit would be considered a separate security and would be treated as an issue of such government, other entity or bank. When
a municipal bond is insured by bond insurance, it shall not be considered a security that is issued or guaranteed by the insurer; instead, the issuer of such municipal bond will be determined in accordance with the principles set forth above. The
foregoing restrictions do not limit the percentage of the Funds assets that may be invested in municipal securities insured by any given insurer.
2
Under the 1940 Act, the Fund may invest only up to 10% of its total assets in the aggregate
in shares of other investment companies and only up to 5% of its total assets in any one investment company, provided the investment does not represent more than 3% of the voting stock of the acquired investment company at the time such shares are
purchased. The Fund will bear its ratable share of that investment companys expenses, and will remain subject to payment of the Funds management, advisory and administrative fees with respect to assets so invested. Holders of Common
Stock would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies. In addition, the securities of other investment companies may also be leveraged and will therefore be subject to leverage risks.
In addition to the foregoing fundamental investment policies, the Fund is also subject to the following non-fundamental
restrictions and policies, which may be changed by the Board of Directors. The Fund may not:
(1) Sell
securities short, unless the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold, at no added cost, and provided that transactions in options, futures contracts, options on futures contracts, or other
derivative instruments are not deemed to constitute selling securities short.
(2) Invest more than 10% of its
Managed Assets in securities of other open- or closed- end investment companies (including ETFs) that invest primarily in municipal securities of the types in which the Fund may invest directly.
(3) Enter into futures contracts or related options or forward contracts, if more than 30% of the Funds net assets
would be represented by futures contracts or more than 5% of the Funds net assets would be committed to initial margin deposits and premiums on futures contracts and related options.
(4) Purchase securities when borrowings exceed 5% of its total assets if and so long as Preferred Shares are outstanding.
(5) Purchase securities of companies for the purpose of exercising control, except that the Fund may invest up
to 5% of its net assets in tax-exempt or taxable fixed-income securities or equity securities for the purpose of acquiring control of an issuer whose municipal bonds (a) the Fund already owns and (b) have deteriorated or are expected
shortly to deteriorate significantly in credit quality, provided Nuveen Asset Management determines that such investment should enable the Fund to better maximize the value of its existing investment in such issuer.
The restrictions and other limitations set forth above will apply only at the time of purchase of securities and will not be considered
violated unless an excess or deficiency occurs or exists immediately after and as a result of an acquisition of securities.
At least six months prior to the scheduled redemption of all outstanding VRDP Shares in 2041, the Fund will maintain segregated assets
rated at least investment grade (and including Deposit Securities in an amount equal to 20% of segregated assets, with 135 days remaining to the redemption date, increasing to 100% with 15 days remaining) with a market value equal to at least 110%
of the liquidation preference of all outstanding VRDP Shares until the redemption of all such outstanding VRDP Shares.
IN
VESTMENT POLICIES AND TECHNIQUES
The following information supplements the discussion of the Funds investment
objectives, policies, and techniques that are described in the Funds Prospectus.
INVESTMENT PHILOSOPHY AND PROCESS
INVESTMENT PHILOSOPHY. Nuveen Asset Management believes that the unique tax treatment of municipal securities and the structural
characteristics in the municipal securities market create attractive
3
opportunities to enhance the after-tax total return and diversification of the investment portfolios of taxable investors. Nuveen Asset Management believes that these unique characteristics also
present unique risks that may be managed to realize the benefits of the asset class.
After-Tax Income Potential:
The
primary source of total return from municipal securities comes from the tax-exempt income derived therefrom. Nuveen Asset Management believes that, at acceptable levels of credit risk and maturity principal risk, the municipal securities market
offers the potential for higher after-tax income when compared with other fixed income markets.
Managing Multi-Faceted
Risks:
Risk in the municipal securities market is derived from multiple sources, including credit risk at the issuer and sector levels, structural risks such as call risk, yield curve risk, and legislative and tax-related risks. Nuveen Asset
Management believes that managing these risks at both the individual security and Fund portfolio levels is an important element of realizing the after-tax income and total return potential of the asset class.
Opportunities for Diversification.
As of January 31, 2012, the municipal securities market aggregated approximately $3.7
trillion, with approximately 55,000 issuers, and a wide array of financing purposes, security terms, offering structures and credit quality.
Market Inefficiencies:
Nuveen Asset Management believes that the scale and intricacy of the municipal securities market often results in pricing anomalies and other inefficiencies that can be
identified and capitalized on through trading strategies.
INVESTMENT PROCESS. Nuveen Asset Management believes that a
bottom-up, value-oriented investment strategy that seeks to identify underrated and undervalued securities and sectors is positioned to capture the opportunities inherent in the municipal securities market and potentially outperform the general
municipal securities market over time. The primary elements of Nuveen Asset Managements investment process are:
Credit Analysis and Surveillance:
Nuveen Asset Management focuses on bottom-up, fundamental analysis of municipal securities
issuers. Analysts screen each sector for issuers that meet the fundamental tests of creditworthiness and favor those securities with demonstrable growth potential, solid coverage of debt service and a priority lien on hard assets, dedicated revenue
streams or tax resources. As part of Nuveen Asset Managements overall risk management process, analysts actively monitor the credit quality of portfolio holdings.
Sector Analysis:
Organized by sector, analysts continually assess the key issues and trends affecting each sector in order to maintain a sector outlook. Evaluating such factors as historical
default rates and average credit spreads within each sector, analysts provide top-down analysis that supports decisions to overweight or underweight a given sector in a portfolio.
Diversification:
Nuveen Asset Management seeks to invest in a large number of sectors, states and specific issuers in order to
help insulate a portfolio from events that affect any individual industry, geographic location or credit. Portfolio managers normally seek to limit exposure to individual credits over the long-term. Portfolio managers also seek to diversify other
portfolio level risks, including exposure to calls, and to manage a portfolios interest rate sensitivity within tolerance bands relative to the relevant benchmark.
Trading Strategies:
Through its trading strategies, Nuveen Asset Management seeks to enhance portfolio value by trading to take advantage of inefficiencies found in the municipal market. This may
entail selling issues Nuveen Asset Management deems to be overvalued and purchasing issues Nuveen Asset Management considers to be undervalued.
Sell Discipline:
Nuveen Asset Management generally sells securities when it (i) determines a security has become overvalued or over-rated, (ii) identifies credit deterioration, or
(iii) modifies a portfolio strategy, such as sector allocation. Nuveen Asset Management may also sell securities when such securities exceed the portfolios diversification targets.
4
INVESTMENT POLICIES
The Funds investment objectives are:
|
|
|
to provide current income exempt from regular federal income tax; and
|
|
|
|
to enhance portfolio value relative to the municipal bond market by investing in tax-exempt municipal securities that NFA believes are underrated or
undervalued or that represent municipal market sectors that are undervalued.
|
Underrated municipal
securities are those whose ratings do not, in NFAs opinion, reflect their true value. Municipal securities may be underrated because of the time that has elapsed since their rating was assigned or reviewed, or because of positive factors that
may not have been fully taken into account by rating agencies, or for other similar reasons. Municipal securities that are undervalued or that represent undervalued municipal market sectors are municipal securities that, in NFAs opinion, are
worth more than the value assigned to them in the marketplace. Municipal securities of particular types or purposes (e.g., hospital bonds, industrial revenue bonds or bonds issued by a particular municipal issuer) may be undervalued because there is
a temporary excess of supply in that market sector, or because of a general decline in the market price of municipal securities of the market sector for reasons that do not apply to the particular municipal securities that are considered
undervalued. The Funds investment in underrated or undervalued municipal securities will be based on NFAs belief that the prices of such municipal securities should ultimately reflect their true value. Accordingly, enhancement of
portfolio value relative to the municipal bond market refers to the Funds objective of attempting to realize above-average capital appreciation in a rising market, and to experience less than average capital losses in a declining market.
Thus, the Funds secondary investment objective is not intended to suggest that capital appreciation is itself an objective of the Fund. Instead, the Fund seeks enhancement of portfolio value relative to the municipal bond market by prudent
selection of municipal securities, regardless of which direction the market may move. Any capital appreciation realized by the Fund will generally result in the distribution of taxable capital gains to Common Stockholders and VRDP Shareholders. The
Fund is currently required to allocate net capital gains and other income taxable for federal income tax purposes, if any, proportionately between Common Stock and preferred shares, including VRDP Shares, and dividends paid on VRDP Shares during
specified rate periods will include an allocated portion of any such net capital gains and other taxable income. See Tax Matters and Description SharesVRDP Shares
It is a fundamental policy that, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in municipal
securities and other related investments, the income from which is exempt from regular federal income tax.
As a
non-fundamental policy, under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment grade securities that, at the time of investment, are rated within the four highest grades (Baa or BBB or better) by at least
one NRSRO or are unrated but judged to be of comparable quality by Nuveen Asset Management. Also, as a non-fundamental policy, the Fund may invest up to 20% of its Managed Assets in municipal securities that at the time of investment are rated below
investment grade or are unrated but judged to be of comparable quality by Nuveen Asset Management. Additionally, as a non-fundamental policy, no more than 10% of the Funds Managed Assets may be invested in municipal securities rated below
B3/B- or that are unrated but judged to be of comparable quality by Nuveen Asset Management.
Securities of below investment
grade quality (Ba/BB or below) are commonly referred to as junk bonds. Issuers of securities rated Ba/BB or B are regarded as having current capacity to make principal and interest payments but are subject to business, financial or
economic conditions which could adversely affect such payment capacity. Municipal securities rated Baa or BBB are considered investment grade securities; municipal securities rated Baa are considered medium grade obligations which lack
outstanding investment characteristics and have speculative characteristics, while municipal securities rated BBB are regarded as having adequate capacity to pay principal and interest. Municipal securities rated AAA in which the Fund may invest may
have been so rated on the basis of the existence of insurance guaranteeing the timely payment, when due, of
5
all principal and interest. Municipal securities rated below investment grade quality are obligations of issuers that are considered predominately speculative with respect to the issuers
capacity to pay interest and repay principal according to the terms of the obligation and, therefore, carry greater investment risk, including the possibility of issuer default and bankruptcy and increased market price volatility. Municipal
securities rated below investment grade tend to be less marketable than higher-quality securities because the market for them is less broad. The market for unrated municipal securities is even narrower. During periods of thin trading in these
markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have greater difficulty selling its portfolio securities. The Fund will be more dependent on Nuveen Asset Managements research and analysis
when investing in these securities.The ratings of Fitch, Moodys and S&P represent their opinions as to the quality of the municipal securities they rate. It should be emphasized, however, that ratings are general and are not absolute
standards of quality. Consequently, municipal securities with the same maturity, coupon and rating may have different yields while obligations of the same maturity and coupon with different ratings may have the same yield.
The foregoing credit quality policies apply only at the time a security is purchased, and the Fund is not required to dispose of a
security in the event that a Rating Agency downgrades its assessment of the credit characteristics of a particular issuer or that valuation changes of various bonds cause the Funds portfolio to fail to satisfy those policies. In determining
whether to retain or sell such a security, Nuveen Asset Management may consider such factors as Nuveen Asset Managements assessment of the credit quality of the issuer of such security, the price at which such security could be sold and the
rating, if any, assigned to such security by other rating agencies. See Municipal Securities. The Fund may also invest in securities of other open- or closed-end investment companies that invest primarily in municipal bonds of the
types in which the Fund may invest directly. See Other Investment Companies.
The Fund will primarily invest
in municipal securities with long-term maturities in order to maintain a weighted average maturity of 15-30 years, but the average weighted maturity of obligations held by the Fund may be shortened, depending on market conditions. As a result, the
Funds portfolio at any given time may include both long-term and intermediate-term municipal securities. Moreover, during temporary defensive periods (e.g., times when, in NFAs opinion, temporary imbalances of supply and demand or other
temporary dislocations in the tax-exempt bond market adversely affect the price at which long-term or intermediate-term municipal securities are available), and in order to keep the Funds 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 and up to 10% of its Managed Assets in securities of other open- or closed-end investment companies (including
ETFs) that invest primarily in municipal securities of the types in which the Fund may invest directly. The Fund will generally select obligations which may not be redeemed at the option of the issuer for approximately seven to nine years.
The Fund has not established any limit on the percentage of its portfolio that may be invested in municipal bonds subject to
the alternative minimum tax provisions of federal tax law, and the Fund expects that a substantial portion of the income it produces will be includable in alternative minimum taxable income. Shares of Common Stock therefore would not ordinarily be a
suitable investment for investors who are subject to the federal alternative minimum tax or who would become subject to such tax by purchasing shares of Common Stock . The suitability of an investment in shares of Common Stock will depend upon a
comparison of the after-tax yield likely to be provided from the Fund with that from comparable tax-exempt investments not subject to the alternative minimum tax, and from comparable fully taxable investments, in light of each such investors
tax position. Special considerations apply to corporate investors. See Tax Matters.
Municipal Securities
The Fund may purchase municipal securities that are additionally secured by insurance, bank credit agreements, or escrow accounts. The
credit quality of companies which provide such credit enhancements may affect the value of those securities. Although the insurance feature may reduce certain financial risks, the
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premiums for insurance and the higher market price paid for insured obligations may reduce the Funds income. The insurance feature does not guarantee the market value of the insured
obligations, and the effectiveness and value of the insurance itself is dependent on the continued creditworthiness of the insurer.
Obligations of issuers of municipal securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Bankruptcy Reform Act of
1978. In addition, the obligations of such issuers may become subject to the laws enacted in the future by Congress, state legislatures or referenda extending the time for payment of principal or interest, or both, or imposing other constraints upon
enforcement of such obligations or upon municipalities to levy taxes. There is also the possibility that, as a result of legislation or other conditions, the power or ability of any issuer to pay, when due, the principal of and interest on its
municipal securities may be materially affected.
The Fund cannot change its investment objectives without the approval of the
holders of a majority of the outstanding shares of Common Stock and VRDP Shares, voting together as a single class, and of the holders of a majority of the outstanding VRDP Shares, voting as a separate class. When used with
respect to particular shares of the Fund, a majority of the outstanding shares under the 1940 Act, 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. See Description of VRDP SharesVoting Rights for additional information with respect to the voting rights of Fund shareholders.
As of October 31, 2011, the Fund invested approximately 92% of its total investments in municipal securities rated investment grade
(using the higher of S&Ps, Moodys, or Fitchs rating), approximately 5% of its total investments in municipal securities rated below investment grade, and approximately 3% of its total investments in municipal securities not
rated by Moodys, S&Ps, or Fitch. The relative percentages of the value of the investments attributable to investment grade municipal securities and to below investment grade municipal securities could change over time as a result of
rebalancing the Funds assets by Nuveen Asset Management, market value fluctuations, issuance of additional shares and other events.
General.
The Fund may invest in various municipal securities, including municipal bonds and notes, other securities issued to finance and refinance public projects, and other
related securities and derivative instruments creating exposure to municipal bonds, notes and securities that provide for the payment of interest income that is exempt from regular federal income tax (as previously defined, municipal
securities). Municipal securities are often issued by state and local governmental entities to finance or refinance public projects such as roads, schools, and water supply systems. Municipal securities may also be issued on behalf of private
entities or for private activities, such as housing, medical and educational facility construction, or for privately owned transportation, electric utility and pollution control projects. Municipal securities may be issued on a long-term basis to
provide permanent financing. The repayment of such debt may be secured generally by a pledge of the full faith and credit taxing power of the issuer, a limited or special tax, or any other revenue source, including project revenues, which may
include tolls, fees and other user charges, lease payments and mortgage payments. Municipal securities may also be issued to finance projects on a short-term interim basis, anticipating repayment with the proceeds of the later issuance of long-term
debt. The Fund may purchase municipal securities in the form of bonds, notes, leases or certificates of participation; structured as callable or non-callable; with payment forms including fixed coupon, variable rate, zero coupon, capital
appreciation bonds, tender option bonds, and residual interest bonds or inverse floating rate securities; or acquired through investments in pooled vehicles, partnerships or other investment companies. Inverse floating rate securities are securities
that pay interest at rates that vary inversely with changes in prevailing short-term tax-exempt interest rates and represent a leveraged investment in an underlying municipal security, which could have the economic effect of financial leverage.
Municipal Leases and Certificates of Participation.
Also included within the general category
of municipal securities described in the Funds Prospectus are municipal leases, certificates of participation in such lease obligations or installment purchase contract obligations (hereinafter collectively called Municipal Lease
Obligations) of municipal authorities or entities. Although a Municipal Lease Obligation does not constitute a
7
general obligation of the municipality for which the municipalitys taxing power is pledged, a Municipal Lease Obligation is ordinarily backed by the municipalitys covenant to budget
for, appropriate and make the payments due under the Municipal Lease Obligation. However, certain Municipal Lease Obligations contain non-appropriation clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. In the case of a non-appropriation lease, the Funds ability to recover under the lease in the event of non-appropriation
or default will be limited solely to the repossession of the leased property, without recourse to the general credit of the lessee, and disposition or releasing of the property might prove difficult. In order to reduce this risk, the Fund will only
purchase Municipal Lease Obligations where Nuveen Asset Management believes the issuer has a strong incentive to continue making appropriations until maturity.
Municipal Notes.
Municipal securities in the form of notes generally are used to provide for short-term capital needs, in anticipation of an issuers receipt of other
revenues or financing, and typically have maturities of up to three years. Such instruments may include tax anticipation notes, revenue anticipation notes, bond anticipation notes, tax and revenue anticipation notes and construction loan notes. Tax
anticipation notes are issued to finance the working capital needs of governments. Generally, they are issued in anticipation of various tax revenues, such as income, sales, property, use and business taxes, and are payable from these specific
future taxes. Revenue anticipation notes are issued in expectation of receipt of other kinds of revenue, such as federal revenues available under federal revenue sharing programs. Bond anticipation notes are issued to provide interim financing until
long-term bond financing can be arranged. In most cases, the long-term bonds then provide the funds needed for repayment of the bond anticipation notes. Tax and revenue anticipation notes combine the funding sources of both tax anticipation notes
and revenue anticipation notes. Construction loan notes are sold to provide construction financing. Mortgage notes insured by the Federal Housing Authority secure these notes; however, the proceeds from the insurance may be less than the economic
equivalent of the payment of principal and interest on the mortgage note if there has been a default. The anticipated revenues from taxes, grants or bond financing generally secure the obligations of an issuer of municipal notes. An investment in
such instruments, however, presents a risk that the anticipated revenues will not be received or that such revenues will be insufficient to satisfy the issuers payment obligations under the notes or that refinancing will be otherwise
unavailable.
Pre-Refunded Municipal Securities.
The principal of and interest on pre-refunded
municipal securities are no longer paid from the original revenue source for the securities. Instead, the source of such payments is typically an escrow fund consisting of U.S. government securities. The assets in the escrow fund are derived from
the proceeds of refunding bonds issued by the same issuer as the pre-refunded municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable terms with respect to securities that are not yet
subject to call or redemption by the issuer. For example, advance refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash flow or eliminate restrictive covenants in the indenture or other
governing instrument for the pre-refunded municipal securities. However, except for a change in the revenue source from which principal and interest payments are made, the pre-refunded municipal securities remain outstanding on their original terms
until they mature or are redeemed by the issuer.
Private Activity Bonds.
Private activity
bonds, formerly referred to as industrial development bonds, are issued by or on behalf of public authorities to obtain funds to provide privately operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste
disposal or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other types of private activity bonds, the proceeds of which are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the current federal tax laws place substantial limitations on the size of such issues. The Funds distributions of its interest
income from private activity bonds may subject certain investors to the federal alternative minimum tax.
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Tender Option Bonds.
A tender option bond is a municipal
security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term, tax-exempt rates. The bond is typically issued with the agreement
of a third party, such as a bank, broker-dealer or other financial institution, which grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration
for providing the option, the financial institution receives periodic fees equal to the difference between the bonds fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period,
that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing
short-term, tax-exempt rate. However, an institution will not be obligated to accept tendered bonds in the event of certain defaults or a significant downgrade in the credit rating assigned to the issuer of the bond. The Fund intends to invest in
tender option bonds the interest on which will, in the opinion of bond counsel, counsel for the issuer of interests therein or counsel selected by Nuveen Asset Management, be exempt from regular federal income tax. However, because there can be no
assurance that the IRS will agree with such counsels opinion in any particular case, there is a risk that the Fund will not be considered the owner of such tender option bonds and thus will not be entitled to treat such interest as exempt from
such tax. Additionally, the federal income tax treatment of certain other aspects of these investments, including the proper tax treatment of tender option bonds and the associated fees in relation to various regulated investment company tax
provisions, is unclear. The Fund intends to manage its portfolio in a manner designed to eliminate or minimize any adverse impact from the tax rules applicable to these investments.
Special Taxing Districts.
Special taxing districts are organized to plan and finance infrastructure
development to induce residential, commercial and industrial growth and redevelopment. The bond financing methods such as tax increment finance, tax assessment, special services district and Mello-Roos bonds, are generally payable solely from taxes
or other revenues attributable to the specific projects financed by the bonds without recourse to the credit or taxing power of related or overlapping municipalities. They often are exposed to real estate development-related risks and can have more
taxpayer concentration risk than general tax-supported bonds, such as general obligation bonds. Further, the fees, special taxes, or tax allocations and other revenues that are established to secure such financings are generally limited as to the
rate or amount that may be levied or assessed and are not subject to increase pursuant to rate covenants or municipal or corporate guarantees. The bonds could default if development failed to progress as anticipated or if larger taxpayers failed to
pay the assessments, fees and taxes as provided in the financing plans of the districts.
HEDGING STRATEGIES AND OTHER USES OF DERIVATIVES
The Fund may periodically engage in hedging transactions, and otherwise use various types of derivative instruments,
described below, to reduce risk, to effectively gain particular market exposures, to seek to enhance returns, and to reduce transaction costs, among other reasons.
Hedging is a term used for various methods of seeking to preserve portfolio capital value by offsetting price changes in one investment through making another investment whose price should
tend to move in the opposite direction.
A derivative is a financial contract whose value is based on (or
derived from) a traditional security (such as a stock or a bond), an asset (such as a commodity like gold), or a market index (such as the Lehman Municipal Bond Index). Some forms of derivatives may trade on exchanges, while
non-standardized derivatives, which tend to be more specialized and complex, trade in over-the-counter or a one-on-one basis. It may be desirable and possible in various market environments to partially hedge the portfolio against
fluctuations in market value due to market interest rate or credit quality fluctuations, or instead to gain a desired investment exposure, by entering into various types of derivative transactions, including financial futures and index futures as
well as related put and call options on such instruments, structured notes, or interest rate swaps on taxable or tax-exempt securities or indexes (which may be forward-starting), credit default swaps, and options on interest rate swaps,
among others.
9
These transactions present certain risks. In particular, the imperfect correlation between
price movements in the futures contract and price movements in the securities being hedged creates the possibility that losses on the hedge by a Fund may be greater than gains in the value of the securities in the Funds portfolio. In addition,
futures and options markets may not be liquid in all circumstances. As a result, in volatile markets, the Fund may not be able to close out the transaction without incurring losses substantially greater than the initial deposit. Finally, the
potential deposit requirements in futures contracts create an ongoing greater potential financial risk than do options transactions, where the exposure is limited to the cost of the initial premium. Losses due to hedging transactions will reduce
yield. Net gains, if any, from hedging and other portfolio transactions will be distributed as taxable distributions to shareholders. Successful implementation of most hedging strategies will generate taxable income.
Both parties entering into an index or financial futures contract are required to post an initial deposit, typically equal to 1% to 5% of
the total contract price. Typically, option holders enter into offsetting closing transactions to enable settlement in cash rather than take delivery of the position in the future of the underlying security. Interest rate swap and credit default
swap transactions are typically entered on a net basis, meaning that the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments. The Fund will only sell covered futures
contracts, which means that the Fund segregates assets equal to the amount of the obligations.
Interest Rate and Total
Return Swaps.
The Fund may invest in interest rate swaps, total return swaps and other debt-related derivative instruments. The Fund will enter into swap agreements only with counterparties that meet certain standards of
creditworthiness. In an interest rate swap, the Fund and another party exchange their respective commitments to pay each other floating for fixed rates of interest at a floating rate referenced to local short-term interest rates and a fixed rate
referenced to the interest rate in the international (non-U.S.) local government securities market denominated in that non-U.S. market currency. In a total return swap, the Fund exchanges with another party their respective commitments to pay or
receive the total return of an underlying asset and a floating local short-term interest rate.
The Fund usually will enter
into interest rate swaps and total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of
the Funds obligations over its entitlements with respect to each interest rate swap will be accrued on a daily basis, and an amount of cash or liquid securities having an aggregate net asset value at least equal to the accrued excess will be
segregated by the Fund. If the interest rate swap transaction is entered into on other than a net basis, the full amount of the Funds obligations will be accrued on a daily basis, and the full amount of the Funds obligations will be
segregated by the Fund.
The use of swaps is a highly specialized activity that involves investment techniques and risks
different from those associated with ordinary portfolio securities transactions, including the risk that the counterparty may be unable to fulfill the transaction. If there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. If Nuveen Asset Management is incorrect in its forecasts of market values, interest rates and other applicable factors, the investment performance of the Fund would be
unfavorably affected.
Credit Default Swaps.
A credit default swap is an agreement between two
counterparties, in which one party makes a periodic payment to the other party in exchange for a potential payoff if a third party (the reference credit) defaults in the payment of its debt obligations. The Fund may enter into a credit
default swap as the first party (or buyer) seeking to receive credit protection to hedge a specific portfolio holding. In this example, a counterparty is the provider (or seller) of credit protection. Generally, credit
default swaps may reference a specific entity or a pool of entities. The settlement of a credit default swap, upon the occurrence of a trigger event, may be accomplished by means of physical delivery of the securities of the reference entity, or a
cash payment. Entering into credit default swap agreements involves counterparty risks.
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Bond Futures and Forward Contracts.
Bond futures contracts are
agreements in which one party agrees to deliver to the other an amount of cash equal to a specific dollar amount times the difference between the value of a specific bond at the close of the last trading day of the contract and the price at which
the agreement is made. No physical delivery of securities is made. Forward contracts are agreements to purchase or sell a specified security or currency at a specified future date (or within a specified time period) and price set at the time of the
contract. Forward contracts are usually entered into with banks, foreign exchange dealers or broker-dealers and are usually for less than one year, but may be renewed. Forward contracts are generally purchased or sold in over-the-counter
transactions.
Under regulations of the Commodity Futures Trading Commission (CFTC) currently in effect, which may
change from time to time, with respect to futures contracts purchased by the Fund, the Fund will set aside in a segregated account liquid securities with a value at least equal to the value of instruments underlying such futures contracts less the
amount of initial margin on deposit for such contracts. The current view of the staff of the Securities and Exchange Commission is that the Funds long and short positions in futures contracts must be collateralized with cash or certain liquid
assets held in a segregated account or covered in order to counter the impact of any potential leveraging.
Parties to a futures contract must make initial margin deposits to secure performance of the contract. There are also
requirements to make variation margin deposits from time to time as the value of the futures contract fluctuates.
Options on Currency Futures Contracts.
Currency futures contracts are standardized agreements between two
parties to buy and sell a specific amount of a currency at a set price on a future date. While similar to currency forward contracts, currency futures contracts are traded on commodities exchanges and are standardized as to contract size and
delivery date. An option on a currency futures contract gives the holder of the option the right to buy or sell a position in a currency futures contract, at a set price and on or before a specified expiration date. Trading options on international
(non-U.S.) currency futures contracts is relatively new. The ability to establish and close out positions on such options is subject to the maintenance of a liquid secondary market.
The Fund and Nuveen Asset Management have claimed, respectively, an exclusion from registration as a commodity pool operator and as a
commodity trading advisor under the Commodity Exchange Act (the CEA) and, therefore, neither the Fund, Nuveen Asset Management, nor their officers and directors, are subject to the registration requirements of the CEA or regulation as a
commodity pool operator or a commodity trading advisor under the CEA. The Fund reserves the right to engage in transactions involving futures and options thereon to the extent allowed by CFTC regulations in effect from time to time and in accordance
with the Funds policies.
Index Futures.
A tax-exempt bond index which assigns relative
values to the tax-exempt bonds included in the index is traded on the Chicago Board of Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of cashrather than any securityequal to a specified dollar amount times the difference between the index value at the close of the last trading day of the contract
and the price at which the index future was originally written. Thus, an index future is similar to traditional financial futures except that settlement is made in cash.
Index Options.
The Fund may also purchase put or call options on U.S. government or tax-exempt bond index futures and enter into closing transactions with respect to such
options to terminate an existing position. Options on index futures are similar to options on debt instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a position in an index
contract rather than an underlying security at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be
accompanied by delivery of the accumulated balance of the writers futures margin account which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of the option on the
index future.
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Bond index futures and options transactions would be subject to risks similar to
transactions in financial futures and options thereon as described above.
Interest Rate
Transactions.
In order to seek to hedge the value of the Funds portfolio or to seek to increase the Funds return, the Fund may enter into various interest rate transactions such as interest rate swaps and the
purchase or sale of interest rate caps and floors. The Fund may enter into these transactions to seek to increase its return, to preserve a return or spread on a particular investment or portion of its portfolio, or to seek to protect against any
increase in the price of securities the Fund anticipates purchasing at a later date.
Interest rate swaps involve the
Funds agreement with the swap counterparty to pay a fixed rate payment in exchange for the counterparty agreeing to pay the Fund a payment at a variable rate that is expected to approximate the rate on the Funds variable rate payment
obligations. The payment obligations would be based on the notional amount of the swap. The Fund may use an interest rate cap, 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 would use interest rate swaps or caps only with the intent to reduce or eliminate the risk that
an increase in short-term interest rates could have on Common Stock net earnings as a result of leverage.
The Fund will
usually enter into swaps or caps on a net basis; that is, the two payment streams will be netted out in a cash settlement on the payment date or dates specified in the instrument, with the Fund receiving or paying, as the case may be, only the net
amount of the two payments. The Fund intends to maintain in a segregated account with its custodian cash or liquid securities having a value at least equal to the Funds net payment obligations under any swap transaction, marked-to-market
daily.
The use of interest rate transactions, such as interest rate swaps and caps, is a highly specialized activity that
involves investment techniques and risks different from those associated with ordinary portfolio security transactions. Depending on the state of interest rates in general, the Funds use of interest rate swaps or caps could enhance or harm the
overall performance of the Funds Common Stock. To the extent there is a decline in interest rates, the value of the interest rate swap or cap could decline, and could result in a decline in the net asset value of the Common Stock. In addition,
if short-term interest rates are lower than the Funds fixed rate of payment on the interest rate swap, the swap will reduce Common Stock net earnings. If, on the other hand, short-term interest rates are higher than the fixed rate of payment
on the interest rate swap, the swap will enhance Common Stock net earnings. Buying interest rate caps could enhance the performance of the Common Stock by providing a maximum leverage expense. Buying interest rate caps could also decrease the net
earnings of the shares of Common Stock in the event that the premium paid by the Fund to the counterparty exceeds the additional amount the Fund would have been required to pay had it not entered into the cap agreement.
Interest rate swaps and caps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of
loss with respect to interest rate swaps is limited to the net amount of interest payments that the Fund is contractually obligated to make. If the counterparty defaults, the Fund would not be able to use the anticipated net receipts under the swap
or cap to offset interest payments. Depending on whether the Fund would be entitled to receive net payments from the counterparty on the swap or cap, which in turn would depend on the general state of short-term interest rates at that point in time,
such a default could negatively impact the performance of the Common Stock.
Although this will not guarantee that the
counterparty does not default, the Fund will not enter into an interest rate swap or cap transaction with any counterparty that Nuveen Asset Management believes does not have the financial resources to honor its obligation under the interest rate
swap or cap transaction. Further, Nuveen Asset Management will continually monitor the financial stability of a counterparty to an interest rate swap or cap transaction in an effort to proactively protect the Funds investments.
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In addition, at the time the interest rate swap or cap transaction reaches its scheduled
termination date, there is a risk that the Fund would not be able to obtain a replacement transaction or that the terms of the replacement would not be as favorable as on the expiring transaction. If this occurs, it could have a negative impact on
the performance of the Funds shares of Common Stock.
NFA may use derivative instruments to seek to enhance return, to
hedge some of the risk of the Funds investments in municipal securities or as a substitute for a position in the underlying asset. These types of strategies may generate taxable income.
There is no assurance that these derivative strategies will be available at any time or that NFA will determine to use them for the Fund
or, if used, that the strategies will be successful.
For further information regarding these investment strategies and risks
presented thereby, see Appendix B to this Statement of Additional Information.
ILLIQUID SECURITIES
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 that are deemed to be illiquid, and certain repurchase
agreements.
Restricted securities may be sold only in privately negotiated transactions or in a public offering with respect
to which a registration statement is in effect under the Securities Act. Where registration is required, the Fund may be obligated to pay all or part of the registration expenses and a considerable period may elapse between the time of the decision
to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might obtain a less favorable price than that which prevailed
when it decided to sell. To the extent that the Board of Directors or its delegatee determines that the price of any illiquid security provided by the pricing service is inappropriate, such security will be priced at a fair value as determined in
good faith by the Board of Directors or its delegatee.
INVERSE FLOATING RATE SECURITIES
The Fund may invest up to approximately 15% of its Managed Assets in inverse floating rate securities. Inverse floating rate securities
(sometimes referred to as inverse floaters or residual interests of a tender option bond) are securities whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. Generally,
inverse floating rate securities represent beneficial interests in a special purpose trust formed by a third party sponsor for the purpose of holding municipal bonds. The special purpose trust typically sells two classes of beneficial interests or
securities: short-term floating rate municipal securities (sometimes referred to as short-term floaters or tender option bonds), which are sold to third party investors, and inverse floating rate municipal securities, which the Fund would purchase.
The short-term floating rate securities have first priority on the cash flow from the municipal bonds held by the special purpose trust. Typically, a third party, such as a bank, broker-dealer or other financial institution, grants the floating rate
security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees. The holder of the
short-term floater effectively holds a demand obligation that bears interest at the prevailing short-term, tax-exempt rate. However, an institution will not be obligated to accept tendered short-term floaters in the event of certain defaults or a
significant downgrade in the credit rating assigned to the bond issuer. For its inverse floating rate investment, the Fund receives the residual cash flow from the special purpose trust. Because the holder of the short-term floater is generally
assured liquidity at the face value of the security, the Fund as the holder of the inverse floater assumes the interest rate cash flow risk and the market value risk associated with the municipal
13
security deposited into the special purpose trust. The volatility of the interest cash flow and the residual market value will vary with the degree to which the trust is leveraged. This is
expressed in the ratio of the face value of the short-term floaters in relation to the residual inverse floaters that are issued by the special purpose trust. The Fund expects to make limited investments in inverse floaters, with leverage ratios
that may vary between one and three times. The higher the percentage of the special purpose trusts total value represented by the short-term floaters, the greater the effective leverage. For example, if municipal bonds worth $100 are deposited
in a special purpose trust and the trust issues short-term floaters worth $75 and inverse floaters worth $25, the trust will have a leverage ratio of 3:1 and the inverse floaters will exhibit price movements at a rate that is four times that of the
underlying bonds deposited into the trust. If that same trust were to issue only $50 of floaters, the leverage ratio would be 1:1 and the inverse floaters would exhibit price movements at a rate that is only two times that of the underlying bonds.
In addition, all voting rights and decisions to be made with respect to any other rights relating to the municipal bonds held in the special purpose trust are passed through to the Fund, as the holder of the residual inverse floating rate
securities.
Because increases in the interest rate on the short-term floaters reduce the residual interest paid on inverse
floaters, and because fluctuations in the value of the municipal bond deposited in the special purpose trust affect the value of the inverse floater only, and not the value of the short-term floater issued by the trust, inverse floaters value
are more volatile than that of fixed rate bonds. The market price of inverse floating rate securities is more volatile than the underlying bonds due to the leveraging effect of this ownership structure. These securities generally will underperform
the market of fixed rate bonds in a rising interest rate environment (
i.e.,
when bond values are falling), but tend to out-perform the market of fixed rate bonds when interest rates decline or remain relatively stable. Although volatile,
inverse floaters typically offer the potential for yields available on fixed rate bonds with comparable credit quality, coupon, call provisions and maturity. Inverse floaters have varying degrees of liquidity based upon the liquidity of the
underlying bonds deposited in a special purpose trust.
The Fund may invest in inverse floating rate securities issued by
special purpose trusts that have recourse to the Fund. In NFAs discretion, the Fund may enter into a separate shortfall and forbearance agreement with the third party sponsor of a special purpose trust. The Fund may enter into such recourse
agreements (i) when the liquidity provider to the special purpose trust requires such an agreement because the level of leverage in the trust exceeds the level that the liquidity provider is willing to support absent such an agreement; and/or
(ii) to seek to prevent the liquidity provider from collapsing the trust in the event that the municipal obligation held in the trust has declined in value. Such an agreement would require the Fund to reimburse the third party sponsor of such
inverse floater, upon termination of the trust issuing the inverse floater, the difference between the liquidation value of the bonds held in the trust and the principal amount due to the holders of floating rate interests. Such agreements may
expose the Fund to a risk of loss that exceeds its investment in the inverse floating rate securities. Absent a shortfall and forbearance agreement, the Fund would not be required to make such a reimbursement. If the Fund chooses not to enter into
such an agreement, the special purpose trust could be liquidated and the Fund could incur a loss.
The Funds investments
in inverse floating rate securities issued by special purpose trusts that have recourse to the Fund may be highly leveraged. The structure and degree to which the Funds inverse floating rate securities are highly leveraged will vary based upon
a number of factors, including the size of the trust itself and the terms of the underlying municipal security held in a special purpose trust. An inverse floating rate security generally is considered highly leveraged if the principal amount of the
short-term floating rate interests issued by the related special purpose trust is in excess of three times the principal amount of the inverse floating rate securities owned by the trust (the ratio of the principal amount of such short-term floating
rate interests to the principal amount of the inverse floating rate securities is referred to as the gearing). In the event of a significant decline in the value of an underlying security, the Fund may suffer losses in excess of the
amount of its investment (up to an amount equal to the value of the municipal securities underlying the inverse floating rate securities) as a result of liquidating special purpose trusts or other collateral required to maintain the Funds
anticipated effective leverage ratio.
14
See Segregation of Assets below.
OTHER INVESTMENT COMPANIES
The Fund may invest up to 10% of its Managed Assets in securities of other open or closed-end investment companies (including exchange-traded funds (ETFs)) that invest primarily in municipal
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 municipal securities of the
types in which the Fund may invest directly. The Fund generally expects that it may invest in other investment companies and/or other pooled investment vehicles either during periods when it has large amounts of uninvested cash, such as the period
shortly after the Fund receives the proceeds of an offering of its Common Stock, or borrowing or during periods when there is a shortage of attractive, high-yielding municipal securities available in the market. The Fund may invest in investment
companies that are advised by NFA, Nuveen Asset Management or their respective affiliates to the extent permitted by applicable law and/or pursuant to exemptive relief from the Securities and Exchange Commission. As a stockholder in an investment
company, the Fund will bear its ratable share of that investment companys expenses and would remain subject to payment of the Funds management, advisory and administrative fees with respect to assets so invested. Common Stockholders
would therefore be subject to duplicative expenses to the extent the Fund invests in other investment companies.
NFA will
take expenses into account when evaluating the investment merits of an investment in an investment company relative to available municipal security investments. In addition, the securities of other investment companies may also be leveraged and will
therefore be subject to the same leverage risks described herein. As described in the Funds Prospectus, the net asset value and market value of leveraged shares will be more volatile and the yield to Common Stockholders will tend to fluctuate
more than the yield generated by unleveraged shares.
PORTFOLIO TRADING AND TURNOVER RATE
The Fund may engage in portfolio trading when considered appropriate, but short-term trading will not be used as the primary means of
achieving the Funds investment objectives. Although the Fund cannot accurately predict its annual portfolio turnover rate, it is generally not expected to exceed 25% under normal circumstances. However, there are no limits on the Funds
rate of portfolio turnover, and investments may be sold without regard to length of time held when, in NFAs opinion, investment considerations warrant such action. A higher portfolio turnover rate would result in correspondingly greater
brokerage commissions and other transactional expenses that are borne by the Fund. Although these commissions and expenses are not reflected in the Funds Annual Expenses on page 14 of the Prospectus, they will be reflected in the
Funds total return. In addition, high portfolio turnover may result in the realization of net short-term capital gains by the Fund which, when distributed to shareholders, will be taxable as ordinary income. See Tax Matters.
QUALITY INVESTMENTS
Under normal circumstances, the Fund will invest at least 80% of its Managed Assets in investment grade securities that, at the time of investment are rated within the four highest grades (Baa or BBB or
better) by at least one NRSRO or are unrated but judged to be of comparable quality by Nuveen Asset Management.
REPURCHASE AGREEMENTS
As temporary investments, the Fund may invest in repurchase agreements. A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. government securities or municipal securities) agrees to repurchase the same security at a specified price on a future date agreed upon by the parties. The agreed-upon repurchase price determines the yield
during the Funds holding period. Repurchase agreements are considered to be loans collateralized by the underlying security that is the subject of the repurchase contract. Income generated
15
from transactions in repurchase agreements will be taxable. See Tax Matters for information relating to the allocation of taxable income between Common Stock and VRDP Shares. The Fund
will only enter into repurchase agreements with registered securities dealers or domestic banks that, in the opinion of NFA, present minimal credit risk. The risk to the Fund is limited to the ability of the issuer to pay the agreed-upon repurchase
price on the delivery date; however, although the value of the underlying collateral at the time the transaction is entered into always equals or exceeds the agreed-upon repurchase price, if the value of the collateral declines there is a risk of
loss of both principal and interest. In the event of default, the collateral may be sold but the Fund might incur a loss if the value of the collateral declines, and might incur disposition costs or experience delays in connection with liquidating
the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon the collateral by the Fund may be delayed or limited. Nuveen Asset Management will monitor the value of the collateral
at the time the transaction is entered into and at all times subsequent during the term of the repurchase agreement in an effort to determine that such value always equals or exceeds the agreed-upon repurchase price. In the event the value of the
collateral declines below the repurchase price, Nuveen Asset Management will demand additional collateral from the issuer to increase the value of the collateral to at least that of the repurchase price, including interest.
SEGREGATION OF ASSETS
As a closed-end investment company registered with the Securities and Exchange Commission, the Fund is subject to the federal securities
laws, including the 1940 Act, the rules thereunder, and various interpretive provisions of the Securities and Exchange Commission and Securities and its staff. In accordance with these laws, rules and positions, the Fund must set aside
(often referred to as asset segregation) liquid assets, or engage in other Securities and Exchange Commission or staff-approved measures, to cover open positions with respect to certain kinds of derivatives instruments. In
the case of forward currency contracts that are not contractually required to cash settle, for example, the Fund must set aside liquid assets equal to such contracts full notional value while the positions are open. With respect to forward
currency contracts that are contractually required to cash settle, however, the Fund is permitted to set aside liquid assets in an amount equal to the Funds daily marked-to-market net obligations (
i.e.
, the Funds daily net
liability) under the contracts, if any, rather than such contracts full notional value. The Fund reserves the right to modify its asset segregation policies in the future to comply with any changes in the positions from time to time
articulated by the Securities and Exchange Commission or its staff regarding asset segregation.
The Fund generally will use
its assets to cover its obligations as required by the 1940 Act, the rules thereunder, and applicable positions of the Securities and Exchange Commission and its staff. As a result of their segregation, such assets may not be used for other
operational purposes. NFA will monitor the Funds use of derivatives and will take action as necessary for the purpose of complying with the asset segregation policy stated above. Such actions may include the sale of the Funds portfolio
investments.
SHORT-TERM INVESTMENTS
Short-Term Taxable Fixed Income Securities.
For temporary defensive purposes or to keep cash on hand fully invested, the Fund may invest up to 100% of its net assets in cash equivalents and
short-term taxable fixed-income securities, although the Fund intends to invest in taxable short-term investments only in the event that suitable tax-exempt short-term investments are not available at reasonable prices and yields. Short-term taxable
fixed income investments are defined to include, without limitation, the following:
(1) U.S. government
securities, including bills, notes and bonds differing as to maturity and rates of interest that are either issued or guaranteed by the U.S. Treasury or by U.S. government agencies or instrumentalities. U.S. government agency securities include
securities issued by (a) the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, and the Government National Mortgage Association, whose securities are supported
by the
16
full faith and credit of the United States; (b) the Federal Home Loan Banks*, Federal Intermediate Credit Banks, and the Tennessee Valley Authority, whose securities are supported by the
right of the agency to borrow from the U.S. Treasury; (c) the Federal National Mortgage Association,
1
whose securities are supported by the discretionary authority of the U.S. government to purchase certain obligations of the agency or instrumentality; and (d) the Student Loan Marketing Association,
whose securities are supported only by its credit. While the U.S. government provides financial support to such U.S. government-sponsored agencies or instrumentalities, no assurance can be given that it always will do so since it is not so obligated
by law. The U.S. government, its agencies, and instrumentalities do not guarantee the market value of their securities. Consequently, the value of such securities may fluctuate.
(2) Certificates of Deposit issued against funds deposited in a bank or a savings and loan association. Such certificates
are for a definite period of time, earn a specified rate of return, and are normally negotiable. The issuer of a certificate of deposit agrees to pay the amount deposited plus interest to the bearer of the certificate on the date specified thereon.
Under current FDIC regulations, the maximum insurance payable as to any one certificate of deposit is $100,000; therefore, certificates of deposit purchased by the Fund may not be fully insured.
(3) Repurchase agreements, which involve purchases of debt securities. At the time the Fund purchases securities pursuant
to a repurchase agreement, it simultaneously agrees to resell and redeliver such securities to the seller, who also simultaneously agrees to buy back the securities at a fixed price and time. This assures a predetermined yield for the Fund during
its holding period, since the resale price is always greater than the purchase price and reflects an agreed-upon market rate. Such actions afford an opportunity for the Fund to invest temporarily available cash. The Fund may enter into repurchase
agreements only with respect to obligations of the U.S. government, its agencies or instrumentalities; certificates of deposit; or bankers acceptances in which the Fund may invest. Repurchase agreements may be considered loans to the seller,
collateralized by the underlying securities. The risk to the Fund is limited to the ability of the seller to pay the agreed-upon sum on the repurchase date; in the event of default, the repurchase agreement provides that the Fund is entitled to sell
the underlying collateral. If the seller defaults under a repurchase agreement when the value of the underlying collateral is less than the repurchase price, the Fund could incur a loss of both principal and interest. Nuveen Asset Management
monitors the value of the collateral at the time the action is entered into and at all times during the term of the repurchase agreement. Nuveen Asset Management does so in an effort to determine that the value of the collateral always equals or
exceeds the agreed-upon repurchase price to be paid to the Fund. If the seller were to be subject to a federal bankruptcy proceeding, the ability of the Fund to liquidate the collateral could be delayed or impaired because of certain provisions of
the bankruptcy laws.
(4) Commercial paper, which consists of short-term unsecured promissory notes, including
variable rate master demand notes issued by corporations to finance their current operations. Master demand notes are direct lending arrangements between the Fund and a corporation. There is no secondary market for such notes. However, they are
redeemable by the Fund at any time. Nuveen Asset Management will consider the financial condition of the corporation (
e.g.
, earning power, cash flow, and other liquidity measures) and will continuously monitor the corporations ability
to meet all of its financial obligations, because the Funds liquidity might be impaired if the corporation were unable to pay principal and interest on demand. Investments in commercial paper will be limited to commercial paper rated in the
highest categories by a major rating agency and which mature within one year of the date of purchase or carry a variable or floating rate of interest.
1
|
These securities are not backed by the full faith and credit of the United States Government.
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17
Short-Term Tax-Exempt Municipal Securities.
Short-term tax-exempt municipal
securities are securities that are exempt from regular federal income tax and mature within three years or less from the date of issuance. Short-term tax-exempt municipal income securities are defined to include, without limitation, the following:
Bond Anticipation Notes (BANs) are usually general obligations of state and local governmental issuers which are
sold to obtain interim financing for projects that will eventually be funded through the sale of long-term debt obligations or bonds. The ability of an issuer to meet its obligations on its BANs is primarily dependent on the issuers access to
the long-term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments to finance the current operations of such governments. Repayment is generally to be derived from specific future tax
revenues. TANs are usually general obligations of the issuer. A weakness in an issuers capacity to raise taxes due to, among other things, a decline in its tax base or a rise in delinquencies, could adversely affect the issuers ability
to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a designated source will be used to repay the notes. In general, they also constitute general obligations of the issuer. A decline in the receipt of projected revenues, such as
anticipated revenues from another level of government, could adversely affect an issuers ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are
issued to provide construction financing for specific projects. Frequently, these notes are redeemed with funds obtained from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies, such as those described above to commercial banks as evidence of borrowings. The purposes for which the notes are issued are varied but
they are frequently issued to meet short-term working capital or capital-project needs. These notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term unsecured, negotiable promissory notes issued by states, municipalities and their agencies. Payment of principal and
interest on issues of municipal paper may be made from various sources, to the extent the funds are available therefrom. Maturities of municipal paper generally will be shorter than the maturities of TANs, BANs or RANs. There is a limited secondary
market for issues of Municipal Paper.
Certain municipal securities may carry variable or floating rates of interest whereby
the rate of interest is not fixed but varies with changes in specified market rates or indices, such as a bank prime rate or a tax-exempt money market index.
While the various types of notes described above as a group represent the major portion of the short-term tax-exempt note market, other types of notes are available in the marketplace and the Fund may
invest in such other types of notes to the extent permitted under its investment objectives, policies and limitations. Such notes may be issued for different purposes and may be secured differently from those mentioned above.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Fund may buy and sell municipal securities on a when-issued or delayed delivery basis, making payment or taking delivery at a later date, normally within 15-45 days of the trade date. On such
transactions the payment obligation and the interest rate are fixed at the time the buyer enters into the commitment. Beginning on the date the Fund enters into a commitment to purchase securities on a when-issued or delayed delivery basis, the
18
Fund is required under rules of the Commission to maintain in a separate account liquid assets, consisting of cash, cash equivalents or liquid securities having a market value, at all times, of
at least equal to the amount of the commitment. Income generated by any such assets which provide taxable income for federal income tax purposes is includable in the taxable income of the Fund. The Fund may enter into contracts to purchase municipal
securities on a forward basis (i.e., where settlement will occur more than 60 days from the date of the transaction) only to the extent that the Fund specifically collateralizes such obligations with a security that is expected to be called or
mature within sixty days before or after the settlement date of the forward transaction. The commitment to purchase securities on a when-issued, delayed delivery or forward basis may involve an element of risk because no interest accrues on the
bonds prior to settlement and at the time of delivery the market value may be less than cost.
STRUCTURED NOTES
The Fund may utilize structured notes and similar instruments for investment purposes and also for hedging purposes. Structured notes are
privately negotiated debt obligations where the principal and/or interest is determined by reference to the performance of a benchmark asset, market or interest rate (an embedded index), such as selected securities, an index of
securities or specified interest rates, or the differential performance of two assets or markets. The terms of such structured instruments normally provide that their principal and/or interest payments are to be adjusted upwards or downwards (but
not ordinarily below zero) to reflect changes in the embedded index while the structured instruments are outstanding. As a result, the interest and/or principal payments that may be made on a structured product may vary widely, depending upon a
variety of factors, including the volatility of the embedded index and the effect of changes in the embedded index on principal and/or interest payments. The rate of return on structured notes may be determined by applying a multiplier to the
performance or differential performance of the referenced index or indices or other assets. Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss. These types of investments may generate
taxable income.
ZERO COUPON BONDS
The Fund may invest in zero coupon bonds. A zero coupon bond is a bond that does not pay interest for its entire life. When held to its maturity, its return comes from the difference between the purchase
price and its maturity value. The market prices of zero coupon bonds are affected to a greater extent by changes in prevailing levels of interest rates and thereby tend to be more volatile in price than securities that pay interest periodically and
may be more speculative than such securities. In addition, because the Fund accrues income with respect to these securities prior to the receipt of such interest, it may have to dispose of portfolio securities under disadvantageous circumstances in
order to obtain cash needed to pay income dividends in amounts necessary to avoid unfavorable tax consequences.
19
MANAG
EMENT OF THE FUND
DIRECTORS AND OFFICERS
The management of the Fund, including general supervision of the duties performed for the Fund under the investment management agreement
with NFA (the management agreement), is the responsibility of the Board of Directors of the Fund. The number of directors of the Fund is ten, one of whom is an interested person (as the term interested person is
defined in the 1940 Act) and nine of whom are not interested persons (referred to herein as independent directors). None of the independent directors has ever been a director, trustee or employee of, or consultant to, Nuveen Investments,
NFA, Nuveen Asset Management or their affiliates. At the annual meeting of the Fund, directors are to be elected to serve until the next annual meeting or until their successors have been duly elected and qualified. Under the Articles, under normal
circumstances, holders of preferred shares are entitled to elect two (2) directors, and the remaining directors are to be elected by holders of Common Shares and preferred shares, voting together as a single class. At the most recent annual
meeting, Directors Amboian, Bremner, Evans, Kundert, Stockdale, Stone, Stringer and Toth were nominated for election by all shareholders (holders of Common Stock and preferred shares voting together) and Directors Hunter and Schneider were nominated
for election by holders of the preferred shares only. The names, business addresses and birthdates of the directors and officers of the Fund, their principal occupations and other affiliations during the past five years, the number of portfolios
each oversees and other directorships they hold are set forth below. The directors of the Fund are directors or directors, as the case may be, of 102 Nuveen-sponsored open-end funds (the Nuveen Mutual Funds) and 133 Nuveen-sponsored
closed-end funds (collectively with the Nuveen Mutual Funds, the Nuveen Funds).
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|
|
|
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Name, Business Address
and Birthdate
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Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
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Other
Directorships
Held by
Director
During Past
5 Years
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INDEPENDENT DIRECTORS:
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Robert P. Bremner
8/22/40
333 West Wacker Drive
Chicago, IL
60606
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Chairman of
the Board
and Director
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TermClass III
Length of service
Since 1997
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Private Investor and Management Consultant; Treasurer and Director, Humanities Council of Washington D.C.; Board Member, Independent Directors Council affiliated with the
Investment Company Institute.
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235
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N/A
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20
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Name, Business Address
and Birthdate
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Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During
Past
5 Years
|
Jack B. Evans
10/22/48
333 West Wacker Drive
Chicago, IL
60606
|
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Director
|
|
TermClass III
Length of service
Since
1999
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President, The Hall-Perrine Foundation, a private philanthropic corporation (since 1996); Member of the Board of Regents for the State of Iowa University System; Director, Source
Media Group; Life Trustee of Coe College and the Iowa College Foundation; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., (a regional financial services
firm).
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235
|
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Director and Vice Chairman, United Fire Group, a publicly held company; formerly, Director, Alliant Energy.
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William C. Hunter
3/6/48
333 West Wacker Drive
Chicago, IL
60606
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Director
|
|
TermClass I
Length of service
Since
2004
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Dean, Tippie College of Business, University of Iowa (since 2006); Director (since 2005) of Beta Gamma Sigma International Honor Society; Director of Wellmark, Inc. (since 2009);
formerly, Dean and Distinguished Professor of Finance, School of Business at the University of Connecticut (2003-2006); formerly, Director (1997-2007), Credit Research Center at Georgetown University; previously, Senior Vice President and Director
of Research at the Federal Reserve Bank of Chicago (1995-2003).
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235
|
|
|
Director (since 2004) of Xerox Corporation.
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21
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|
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Name, Business Address
and Birthdate
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During Past
5 Years
|
David J. Kundert
(1)
10/28/42
333 West Wacker Drive
Chicago, IL 60606
|
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Director
|
|
TermClass III
Length of service
Since 2005
|
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Director, Northwestern Mutual Wealth Management Company; retired (since 2004) as Chairman, JPMorgan Fleming Asset Management, President and CEO, Banc One Investment Advisors
Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Bank One Corporation and Chairman and CEO, Banc One Investment Management Group; member of the Board of Regents, Luther College; member of the Wisconsin Bar
Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Board of Directors and Chair of Investment Committee, Greater Milwaukee Foundation.
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235
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|
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N/A
|
22
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|
|
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|
|
Name, Business Address
and Birthdate
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During
Past
5 Years
|
William J. Schneider
(1)
9/24/44
333 West Wacker Drive
Chicago, IL 60606
|
|
Director
|
|
TermClass III
Length of service
Since 1997
|
|
Chairman of Miller-Valentine Partners Ltd., a real estate investment company; Member, Mid-America Health System Board; Member, University of Dayton Business School Advisory Council;
formerly, Senior Partner and Chief Operating Officer (retired) of Miller-Valentine Group; formerly member, Dayton Philharmonic Orchestra Association; formerly, Director, Dayton Development Coalition; formerly, member, Business Advisory Council,
Cleveland Federal Reserve Bank.
|
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|
235
|
|
|
N/A
|
|
|
|
|
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Judith M. Stockdale
12/29/47
333 West Wacker Drive
Chicago, IL
60606
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Director
|
|
TermClass I
Length of service
Since 1997
|
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Executive Director, Gaylord and Dorothy Donnelley Foundation (since 1994); prior thereto, Executive Director, Great Lakes Protection Fund (1990-1994).
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235
|
|
|
N/A
|
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Carole E. Stone
(1)
6/28/47
333 West Wacker Drive
Chicago, IL 60606
|
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Director
|
|
TermClass I
Length of service
Since 2007
|
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Director, C2 Options Exchange, Incorporated (since 2009); formerly, Commissioner, New York State Commission on Public Authority Reform (2005-2010); formerly, Chair, New York
Racing Association Oversight Board (2005-2007).
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235
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|
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Director, Chicago Board Options Exchange (since 2006).
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23
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|
|
|
|
|
|
|
Name, Business Address
and Birthdate
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During
Past
5 Years
|
Virginia L. Stringer
8/16/44
333 West Wacker Drive
Chicago, IL
60606
|
|
Director
|
|
TermClass I
Length of Service
Since 2011
|
|
Board Member, Mutual Fund Directors Forum; Member, Governing Board, Investment Company Institutes Independent Directors Council; Governance consultant and non-profit board
member; former Owner and President, Strategic Management Resources, Inc., a management consulting firm; previously, held several executive positions in general management, marketing and human resources at IBM and The Pillsbury Company.
|
|
|
235
|
|
|
Independent Director, First American Fund Complex from (1987-2010) and Chair from (1997-2010).
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Business Address
and Birthdate
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During Past
5 Years
|
Terence J. Toth
(1)
9/29/59
333 West Wacker Drive
Chicago, IL 60606
|
|
Director
|
|
TermClass II
Length of service
Since 2008
|
|
Director, Legal & General Investment Management America, Inc. (since 2008); Managing Partner, Promus Capital (since 2008); formerly, CEO and President, Northern Trust Global
Investments (2004-2007); Executive Vice President, Quantitative Management & Securities Lending (2000-2004); prior thereto, various positions with Northern Trust Company (since 1994); Member, Goodman Theatre Board (since 2004), Chicago
Fellowship Board (since 2005) and Catalyst Schools of Chicago Board (since 2008); formerly, Member, Northern Trust Mutual Funds Board (2005-2007), Northern Trust Global Investments Board (2004-2007), Northern Trust Japan Board (2004-2007), Northern
Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004).
|
|
|
235
|
|
|
N/A
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
Name, Business Address
and Birthdate
|
|
Position(s)
Held with
Fund
|
|
Term of Office
and Length of Time
Served with Fund
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number Of
Portfolios
in Fund
Complex
Overseen By
Director
|
|
|
Other
Directorships
Held by
Director
During Past
5 Years
|
INTERESTED DIRECTOR:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Amboian
(1)
6/14/61
333 West Wacker Drive
Chicago, IL 60606
|
|
Director
|
|
TermClass II
Length of service
Since 2008
|
|
Chief Executive Officer and Chairman (since 2007) and Director (since 1999) of Nuveen Investments, Inc.; formerly, President (1999-2001) Chief Executive Officer
(since 2007) of Nuveen Investments Advisers, Inc.; Director (since 1998), formerly, Chief Executive Officer (2007-2010) of Nuveen Fund Advisors, Inc.
|
|
|
235
|
|
|
N/A
|
(1)
|
Mr. Amboian is an interested person of the Trust, as defined in the 1940 Act, by reason of his positions with Nuveen Investments, Inc. (Nuveen
Investments) and certain of its subsidiaries.
|
26
OFFICERS OF THE FUND
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Gifford R. Zimmerman
9/9/56
333 West Wacker Drive
Chicago, IL
60606
|
|
Chief
Administrative
Officer
|
|
TermUntil
August 2012
Length of Service
Since Inception
|
|
Managing Director (since 2002), Assistant Secretary and Associate General Counsel of Nuveen Securities, LLC; Managing Director (since 2002), Assistant Secretary (since
1997) and Co-General Counsel (since 2011) of Nuveen Fund Advisors, Inc.; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Managing Director, Assistant Secretary and Associate General Counsel of Nuveen
Asset Management, LLC (since 2011); Vice President and Assistant Secretary of NWQ Investment Management Company, LLC and Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Symphony
Asset Management LLC (since 2003); Vice President and Assistant Secretary of Santa Barbara Asset Management, LLC (since 2006), Winslow Capital Management, Inc. (since 2006); Chief Administrative Officer and Chief Compliance Officer (since
2006) of Nuveen Commodities Asset Management, LLC; Chartered Financial Analyst.
|
|
235
|
27
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Williams Adams IV
6/9/55
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2012
Length of Service
Since 2007
|
|
Senior Executive Vice President, Global Structured Products, formerly, Executive Vice President (1999-2010) of Nuveen Investments, LLC; Co-President of Nuveen Fund Advisors, Inc.
(since 2011); Managing Director (since 2010) of Nuveen Commodities Asset Management, LLC.
|
|
133
|
|
|
|
|
|
Cedric H. Antosiewicz
1/11/62
333 West Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2012
Length of Service
Since 2007
|
|
Managing Director of Nuveen Securities, LLC.
|
|
133
|
|
|
|
|
|
Margo L. Cook
4/11/64
333 West Wacker Drive
Chicago, IL
60606
|
|
Vice President
|
|
TermUntil
August 2012
Length of Service
Since 2009
|
|
Executive Vice President (since 2008) of Nuveen Investments, Inc. and Nuveen Fund Advisors, Inc. (since 2011); Managing DirectorInvestment Services of Nuveen Commodities Asset
Management, LLC (since 2011); previously, Head of Institutional Asset Management (2007-2008) of Bear Stearns Asset Management; Head of Institutional Asset Management (1986-2007) of Bank of NY Mellon; Chartered Financial Analyst.
|
|
235
|
|
|
|
|
|
Lorna C. Ferguson
10/24/45
333 W. Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2012
Length of Service
Since 1998
|
|
Managing Director (since 2004) of Nuveen Securities, LLC; Managing Director (since 2005) of Nuveen Fund Advisors, Inc.
|
|
235
|
28
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Stephen D. Foy
5/31/54
333 W. Wacker Drive
Chicago, IL 60606
|
|
Vice President
and Controller
|
|
TermUntil
August 2012
Length
of Service
Since 1998
|
|
Senior Vice President (since 2010), formerly Vice President (2004-2010) and Funds Controller of Nuveen Securities, LLC; Vice President of Nuveen Fund Advisors, Inc. (since 2005);
Chief Financial Officer (since 2010) of Nuveen Commodities Asset Management, LLC; Certified Public Accountant.
|
|
235
|
29
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Scott S. Grace
333 West Wacker Drive
Chicago, IL 60606
(8/20/70)
|
|
Vice President
and Treasurer
|
|
TermUntil
August 2012
Length of Service
Since
2009
|
|
Managing Director, Corporate Finance & Development, Treasurer (since 2009) of Nuveen Securities, LLC; Managing Director and Treasurer (since 2009) of Nuveen Investment
Solutions, Inc., Nuveen Investment Advisers Inc., Nuveen Investments Holdings, Inc., Nuveen Fund Advisors, Inc. and (since 2011) Nuveen Asset Management, LLC; Vice President and Treasurer of NWQ Investment Management Company, LLC, Tradewinds Global
Investors, LLC, Symphony Asset Management LLC and Winslow Capital Management, Inc.; Vice President of Santa Barbara Asset Management, LLC; formerly, Treasurer (2006-2009), Senior Vice President (2008-2009), previously, Vice President (2006-2008) of
Janus Capital Group, Inc.; formerly, Senior Associate in Morgan Stanleys Global Financial Services Group (2000-2003); Chartered Accountant.
|
|
235
|
|
|
|
|
|
Walter M. Kelly
2/24/70
333 West Wacker Drive
Chicago, IL
60606
|
|
Vice President
and Chief
Compliance
Officer
|
|
TermUntil
August 2012
Length of Service
Since
2003
|
|
Senior Vice President (since 2008) and Assistant Secretary (since 2003) of Nuveen Fund Advisors, Inc..
|
|
235
|
30
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Tina M. Lazar
8/27/61
333 W. Wacker Drive
Chicago, IL 60606
|
|
Vice President
|
|
TermUntil
August 2012
Length of Service
Since 2002
|
|
Senior Vice President (since 2010), formerly, Vice President (2005-2010) of Nuveen Fund Advisors, Inc.
|
|
235
|
|
|
|
|
|
Kevin J. McCarthy
3/26/66
333 West Wacker Drive
Chicago, IL
60606
|
|
Vice President
and Secretary
|
|
TermUntil
August 2012
Length of Service
Since
2007
|
|
Managing Director (since 2008), formerly, Vice President (2007-2008) of Nuveen Securities, LLC; Managing Director (since 2008), Vice President and Assistant Secretary (since 2007)
and Co-General Counsel (since 2011) of Nuveen Fund Advisors, Inc; Managing Director, Assistant Secretary and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC Vice President and Assistant Secretary of Nuveen Investments Advisers
Inc., NWQ Investment Management Company, LLC, NWQ Holdings, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management, LLC and Winslow Capital Management, Inc. (since 2010); Vice President and Secretary (since 2010) of Nuveen Commodities
Asset Management, LLC; prior thereto, Partner, Bell, Boyd & Lloyd LLP (1997-2007).
|
|
235
|
31
|
|
|
|
|
|
|
|
|
Name, Birthdate and
Business Address
|
|
Position(s)
Held with
Fund
|
|
Term of Office and
Length of Time
Served with Fund
|
|
Principal Occupations
Including Other Directorships
During Past Five Years
|
|
Number Of Portfolios
in Fund Complex
Overseen By
Director/Officer
|
Kathleen L. Prudhomme
3/30/53
901 Marquette Ave.
Minneapolis, MN 55402
|
|
Vice President
and Assistant
Secretary
|
|
TermUntil
August 2012
Length of Service
Since
2011
|
|
Managing Director, Assistant Secretary and Co-General Counsel (since 2011) of Nuveen Fund Advisors, Inc.; Managing Director and Assistant Secretary of Nuveen Securities, LLC (since
2011); Managing Director, Assistant Secretary and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC; formerly, Deputy General Counsel, FAF Advisors, Inc. (2004-2010).
|
|
235
|
Board Leadership Structure and Risk Oversight
The Board of Directors or the Board of Directors (as the case may be, each is referred to hereafter as the Board and the
trustees or directors of the Nuveen Funds, as applicable, are each referred to herein as Directors) oversees the operations and management of the Nuveen Funds, including the duties performed for the Nuveen Funds by the investment adviser
and sub-adviser. The Board has adopted a unitary board structure. A unitary board consists of one group of directors who serve on the board of every fund in the complex. In adopting a unitary board structure, the Directors seek to provide effective
governance through establishing a board, the overall composition of which, will, as a body, possess the appropriate skills, independence and experience to oversee the Nuveen Funds business. With this overall framework in mind, when the Board,
through its Nominating and Governance Committee discussed below, seeks nominees for the Board, the Directors consider, not only the candidates particular background, skills and experience, among other things, but also whether such background,
skills and experience enhance the Boards diversity and at the same time complement the Board given its current composition and the mix of skills and experiences of the incumbent Directors.
The Board believes the unitary board structure enhances good and effective governance, particularly given the nature of the structure of
the investment company complex. Funds in the same complex generally are served by the same service providers and personnel and are governed by the same regulatory scheme which raises common issues that must be addressed by the directors across the
fund complex (such as compliance, valuation, liquidity, brokerage, trade allocation or risk management). The Board believes it is more efficient to have a single board review and oversee common policies and procedures which increases the
Boards knowledge and expertise with respect to the many aspects of fund operations that are complex-wide in nature. The unitary structure also enhances the Boards influence and oversight over the investment adviser and other service
providers.
In an effort to enhance the independence of the Board, the Board also has a Chairman that is an independent
Director. The Board recognizes that a chairman can perform an important role in setting the agenda for the Board, establishing the boardroom culture, establishing a point person on behalf of the Board for fund management, and reinforcing the
Boards focus on the long-term interests of shareholders. The Board recognizes that a chairman may be able to better perform these functions without any conflicts of interests arising from a position with fund management. Accordingly, the
Directors have elected Robert P. Bremner as the independent
32
Chairman of the Board. Specific responsibilities of the Chairman include: (i) presiding at all meetings of the Board and of the shareholders; (ii) seeing that all orders and resolutions
of the Directors are carried into effect; and (iii) maintaining records of and, whenever necessary, certifying all proceedings of the Directors and the shareholders.
Although the Board has direct responsibility over various matters (such as advisory contracts, underwriting contracts and Fund performance), the Board also exercises certain of its oversight
responsibilities through several committees that it has established and which report back to the full Board. The Board believes that a committee structure is an effective means to permit Directors to focus on particular operations or issues
affecting the Nuveen Funds, including risk oversight. More specifically, with respect to risk oversight, the Board has delegated matters relating to valuation and compliance to certain committees (as summarized below) as well as certain aspects of
investment risk. In addition, the Board believes that the periodic rotation of Directors among the different committees allows the Directors to gain additional and different perspectives of the Funds operations. The Board has established five
standing committees: the Executive Committee, the Dividend Committee, the Audit Committee, the Compliance, Risk Management and Regulatory Oversight Committee and the Nominating and Governance Committee. The Board may also from time to time create ad
hoc committees to focus on particular issues as the need arises. The membership and functions of the standing committees are summarized below.
The Executive Committee, which meets between regular meetings of the Board, is authorized to exercise all of the powers of the Board. Robert P. Bremner, Chair, Judith M. Stockdale and John P. Amboian
serve as the current members of the Executive Committee of the Board. During the fiscal year ended October 31, 2011, the Executive Committee did not meet.
The Dividend Committee is authorized to declare distributions on the Trusts shares including, but not limited to, regular and special dividends, capital gains and ordinary income distributions. The
members of the Dividend Committee are Jack B. Evans, Chair, Judith M. Stockdale and Terence J. Toth. During the fiscal year ended October 31, 2011 the Dividend Committee met six times.
The Compliance, Risk Management and Regulatory Oversight Committee (the Compliance Committee) is responsible for the
oversight of compliance issues, risk management and other regulatory matters affecting the Nuveen Funds that are not otherwise the jurisdiction of the other committees. The Board has adopted and periodically reviews policies and procedures designed
to address the Nuveen Funds compliance and risk matters. As part of its duties, the Compliance Committee reviews the policies and procedures relating to compliance matters and recommends modifications thereto as necessary or appropriate to the
full Board; develops new policies and procedures as new regulatory matters affecting the Nuveen Funds arise from time to time; evaluates or considers any comments or reports from examinations from regulatory authorities and responses thereto; and
performs any special reviews, investigations or other oversight responsibilities relating to risk management, compliance and/or regulatory matters as requested by the Board.
In addition, the Compliance Committee is responsible for risk oversight, including, but not limited to, the oversight of risks related to investments and operations. Such risks include, among other
things, exposures to particular issuers, market sectors, or types of securities; risks related to product structure elements, such as leverage; and techniques that may be used to address those risks, such as hedging and swaps. In assessing issues
brought to the committees attention or in reviewing a particular policy, procedure, investment technique or strategy, the Compliance Committee evaluates the risks to the Nuveen Funds in adopting a particular approach or resolution compared to
the anticipated benefits to the Nuveen Funds and their shareholders. In fulfilling its obligations, the Compliance Committee meets on a quarterly basis, and at least once a year in person. The Compliance Committee receives written and oral reports
from the Nuveen Funds Chief Compliance Officer (CCO) and meets privately with the CCO at each of its quarterly meetings. The CCO also provides an annual report to the full Board regarding the operations of the Nuveen Funds
and other service providers compliance programs as well as any recommendations for modifications thereto. The Compliance Committee also receives
33
reports from the investment services group of Nuveen regarding various investment risks. Notwithstanding the foregoing, the full Board also participates in discussions with management regarding
certain matters relating to investment risk, such as the use of leverage and hedging. The investment services group therefore also reports to the full Board at its quarterly meetings regarding, among other things, Fund performance and the various
drivers of such performance. Accordingly, the Board directly and/or in conjunction with the Compliance Committee oversees matters relating to investment risks. Matters not addressed at the committee level are addressed directly by the full Board.
The committee operates under a written charter adopted and approved by the Board of Directors. The members of the Compliance Committee are Jack B. Evans, William C. Hunter, William J. Schneider, Virginia L. Stringer and Judith M.
Stockdale, Chair. During the fiscal year ended October 31, 2011, the Compliance Committee met five times.
The Audit
Committee assists the Board in the oversight and monitoring of the accounting and reporting policies, processes and practices of the Nuveen Funds, and the audits of the financial statements of the Nuveen Funds; the quality and integrity of the
financial statements of the Nuveen Funds; the Nuveen Funds compliance with legal and regulatory requirements relating to the Nuveen Funds financial statements; the independent auditors qualifications, performance and independence;
and the pricing procedures of the Nuveen Funds and the internal valuation group of Nuveen. It is the responsibility of the Audit Committee to select, evaluate and replace any independent auditors (subject only to Board and, if applicable,
shareholder ratification) and to determine their compensation. The Audit Committee is also responsible for, among other things, overseeing the valuation of securities comprising the Nuveen Funds portfolios. Subject to the Boards general
supervision of such actions, the Audit Committee addresses any valuation issues, oversees the Nuveen Funds pricing procedures and actions taken by Nuveens internal valuation group which provides regular reports to the committee, reviews
any issues relating to the valuation of the Directors Funds securities brought to its attention and considers the risks to the Funds in assessing the possible resolutions to these matters. The Audit Committee may also consider any financial
risk exposures for the Directors Funds in conjunction with performing its functions.
To fulfill its oversight duties, the
Audit Committee receives annual and semi-annual reports and has regular meetings with the external auditors for the Nuveen Funds and the internal audit group at Nuveen Investments. The Audit Committee also may review in a general manner the
processes the Board or other Board committees have in place with respect to risk assessment and risk management as well as compliance with legal and regulatory matters relating to the Nuveen Funds financial statements. The committee operates
under a written charter adopted and approved by the Board. Members of the Audit Committee shall be independent (as set forth in the charter) and free of any relationship that, in the opinion of the Directors, would interfere with their exercise of
independent judgment as an Audit Committee member. The members of the Audit Committee are Robert P. Bremner, David J. Kundert, Chair, William J. Schneider, Carole E. Stone and Terence J. Toth, each of whom is an independent
Director/Trustee of the Nuveen Funds. During the fiscal year ended October 31, 2011, the Audit Committee met four times.
The Nominating and Governance Committee is responsible for seeking, identifying and recommending to the Board qualified candidates for
election or appointment to the Board. In addition, the Nominating and Governance Committee oversees matters of corporate governance, including the evaluation of Board performance and processes, the assignment and rotation of committee members, and
the establishment of corporate governance guidelines and procedures, to the extent necessary or desirable, and matters related thereto. Although the unitary and committee structure has been developed over the years and the Nominating and Governance
Committee believes the structure has provided efficient and effective governance, the committee recognizes that as demands on the Board evolve over time (such as through an increase in the number of funds overseen or an increase in the complexity of
the issues raised), the committee must continue to evaluate the Board and committee structures and their processes and modify the foregoing as may be necessary or appropriate to continue to provide effective governance. Accordingly, the Nominating
and Governance Committee has a separate meeting each year to, among other things, review the Board and committee structures, their performance and functions, and recommend any modifications thereto or alternative structures or processes that would
enhance the Boards governance over the Nuveen Funds business.
34
In addition, the Nominating and Governance Committee, among other things, makes
recommendations concerning the continuing education of Directors; monitors performance of legal counsel and other service providers; establishes and monitors a process by which security holders are able to communicate in writing with members of the
Board; and periodically reviews and makes recommendations about any appropriate changes to Director/Trustee compensation. In the event of a vacancy on the Board, the Nominating and Governance Committee receives suggestions from various sources,
including shareholders, as to suitable candidates. Suggestions should be sent in writing to Lorna Ferguson, Manager of Fund Board Relations, Nuveen Investments, 333 West Wacker Drive, Chicago, IL 60606. The Nominating and Governance Committee sets
appropriate standards and requirements for nominations for new Directors and reserves the right to interview any and all candidates and to make the final selection of any new Directors. In considering a candidates qualifications, each
candidate must meet certain basic requirements, including relevant skills and experience, time availability (including the time requirements for due diligence site visits to internal and external sub-advisers and service providers) and, if
qualifying as an Independent Director/Trustee candidate, independence from the Adviser, sub-advisers, underwriters or other service providers, including any affiliates of these entities. These skill and experience requirements may vary depending on
the current composition of the Board, since the goal is to ensure an appropriate range of skills, diversity and experience, in the aggregate. Accordingly, the particular factors considered and weight given to these factors will depend on the
composition of the Board and the skills and backgrounds of the incumbent Directors at the time of consideration of the nominees. All candidates, however, must meet high expectations of personal integrity, independence, governance experience and
professional competence. All candidates must be willing to be critical within the Board and with management and yet maintain a collegial and collaborative manner toward other Board members. The committee operates under a written charter adopted and
approved by the Board. This committee is composed of the independent Directors of the Nuveen Funds. Accordingly, the members of the Nominating and Governance Committee are Robert P. Bremner, Chair, Jack B. Evans, William C. Hunter, David J. Kundert,
William J. Schneider, Judith M. Stockdale, Carole E. Stone and Terence J. Toth. During the fiscal year ended October 31, 2011, the Nominating and Governance Committee met six times.
Effective January 1, 2012, the Board approved the creation of the Open-End Funds Committee. The Open-End Funds Committee is
responsible for assisting the Board in the oversight and monitoring of the Nuveen Funds that are registered as open-end management investment companies (Open-End Funds). The committee may review and evaluate matters related to the
formation and the initial presentation to the Board of any new Open-End Fund and may review and evaluate any matters relating to any existing Open-End Fund. The committee operates under a written charter adopted and approved by the Board. The
members of the Open-End Funds Committee are Robert P. Bremner, David J. Kundert, Judith M. Stockdale, Virginia L. Stringer and Terence J. Toth, Chair.
Effective January 1, 2012, the Board approved the creation of the Closed-End Funds Committee. The Closed-End Funds Committee is responsible for assisting the Board in the oversight and monitoring of
the Nuveen Funds that are registered as closed-end investment companies (Closed-End Funds). The committee may review and evaluate matters related to the formation and the initial presentation to the Board of any new Closed-End Fund and
may review and evaluate any matters relating to any existing Closed-End Fund. The committee operates under a written charter adopted and approved by the Board. The members of the Closed-End Funds Committee are Robert P. Bremner, Jack B. Evans,
William C. Hunter, William J. Schneider, Chair, and Carole E. Stone.
Board Diversification and Director/Trustee Qualifications
In determining that a particular Board Member was qualified to serve as a Board Member, the Board has considered each
Board Members background, skills, experience and other attributes in light of the composition of the Board with no particular factor controlling. The Board believes that Board Members need to have the ability to critically review, evaluate,
question and discuss information provided to them, and to interact effectively with Fund management, service providers and counsel, in order to exercise effective business
35
judgment in the performance of their duties and the Board believes each Board Member satisfies this standard. An effective Board Member may achieve this ability through his or her educational
background; business, professional training or practice; public service or academic positions; experience from service as a board member (including the Boards of the Funds), or as an executive of investment funds, public companies or significant
private or not-for-profit entities or other organizations; and or/other life experiences. Accordingly, set forth below is a summary of the experiences, qualifications, attributes, and skills that led to the conclusion, as of the date of this
document, that each Board Member should continue to serve in that capacity. References to the experiences, qualifications, attributes and skills of Board Members are pursuant to requirements of the Securities and Exchange Commission, do not
constitute holding out of the Board or any Board Member as having any special expertise or experience and shall not impose any greater responsibility or liability on any such person or on the Board by reason thereof.
John P. Amboian
Mr. Amboian, an interested Director/Trustee of the Nuveen Funds, joined Nuveen Investments, Inc. (Nuveen) in June 1995
and became Chief Executive Officer in July 2007 and Chairman in November 2007. Prior to this, since 1999, he served as President with responsibility for the firms product, marketing, sales, operations and administrative activities.
Mr. Amboian initially served Nuveen as Executive Vice President and Chief Financial Officer. Prior to joining Nuveen, Mr. Amboian held key management positions with two consumer product firms affiliated with the Phillip Morris Companies.
He served as Senior Vice President of Finance, Strategy and Systems at Miller Brewing Company. Mr. Amboian began his career in corporate and international finance at Kraft Foods, Inc., where he eventually served as Treasurer. He received a
Bachelors degree in economics and a Masters of Business Administration (MBA) from the University of Chicago. Mr. Amboian serves on the Board of Directors of Nuveen and is a Board Member or Trustee of the Investment Company
Institute Board of Governors, Boys and Girls Clubs of Chicago, Childrens Memorial Hospital and Foundation, the Council on the Graduate School of Business (University of Chicago), and the North Shore Country Day School Foundation. He is also a
member of the Civic Committee of the Commercial Club of Chicago and the Economic Club of Chicago.
Robert P. Bremner
Mr. Bremner, the Nuveen Funds Independent Chairman, is a private investor and management consultant in Washington, D.C. His
biography of William McChesney Martin, Jr., a former chairman of the Federal Reserve Board, was published by Yale University Press in November 2004. From 1994 to 1997, he was a Senior Vice President at Samuels International Associates, an
international consulting firm specializing in governmental policies, where he served in a part-time capacity. Previously, Mr. Bremner was a partner in the LBK Investors Partnership and was chairman and majority stockholder with ITC Investors
Inc., both private investment firms. He currently serves on the Board and as Treasurer of the Humanities Council of Washington D.C. and is a Board Member of the Independent Directors Council affiliated with the Investment Company Institute. From
1984 to 1996, Mr. Bremner was an independent Trustee of the Flagship Funds, a group of municipal open-end funds. He began his career at the World Bank in Washington D.C. He graduated with a Bachelor of Science degree from Yale University and
received his MBA from Harvard University.
Jack B. Evans
President of the Hall-Perrine Foundation, a private philanthropic corporation, since 1996, Mr. Evans was formerly President and Chief Operating Officer of the SCI Financial Group, Inc., a regional
financial services firm headquartered in Cedar Rapids, Iowa. Formerly, he was a member of the Board of the Federal Reserve Bank of Chicago as well as a Director of Alliant Energy. Mr. Evans is Chairman of the Board of United Fire Group, sits on
the Board of the Source Media Group, is a member of the Board of Regents for the State of Iowa University System, is a Life Trustee of Coe College and is a member of the Advisory Council of the Department of Finance in the Tippie College of
Business, University of Iowa. He has a Bachelor of Arts degree from Coe College and an MBA from the University of Iowa.
36
William C. Hunter
Mr. Hunter was appointed Dean of the Henry B. Tippie College of Business at the University of Iowa effective July 1, 2006. He had been Dean and Distinguished Professor of Finance at the
University of Connecticut School of Business since June 2003. From 1995 to 2003, he was the Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago. While there he served as the Banks Chief Economist and was an
Associate Economist on the Federal Reserve Systems Federal Open Market Committee (FOMC). In addition to serving as a Vice President in charge of financial markets and basic research at the Federal Reserve Bank in Atlanta, he held faculty
positions at Emory University, Atlanta University, the University of Georgia and Northwestern University. A past Director of the Credit Research Center at Georgetown University, SS&C Technologies, Inc. (2005) and past President of the
Financial Management Association International, he has consulted with numerous foreign central banks and official agencies in Western Europe, Central and Eastern Europe, Asia, Central America and South America. From 1990 to 1995, he was a U.S.
Treasury Advisor to Central and Eastern Europe. He has been a Director of the Xerox Corporation since 2004 and Wellmark, Inc. since 2009. He is President-Elect of Beta Gamma Sigma, Inc., the International Business Honor Society.
David J. Kundert
Mr. Kundert retired in 2004 as Chairman of JPMorgan Fleming Asset Management, and as President and CEO of Banc One Investment
Advisors Corporation, and as President of One Group Mutual Funds. Prior to the merger between Bank One Corporation and JPMorgan Chase and Co., he was Executive Vice President, Bank One Corporation and, since 1995, the Chairman and CEO, Banc One
Investment Management Group. From 1988 to 1992, he was President and CEO of Bank One Wisconsin Trust Company. Currently, Mr. Kundert is a Director of the Northwestern Mutual Wealth Management Company. He started his career as an attorney for
Northwestern Mutual Life Insurance Company. Mr. Kundert has served on the Board of Governors of the Investment Company Institute and he is currently a member of the Wisconsin Bar Association. He is on the Board of the Greater Milwaukee
Foundation and chairs its Investment Committee. He received his Bachelor of Arts degree from Luther College, and his Juris Doctor from Valparaiso University.
William J. Schneider
Mr. Schneider is currently Chairman, formerly
Senior Partner and Chief Operating Officer (retired, December 2004) of Miller-Valentine Partners Ltd., a real estate investment company. He is a Director and Past Chair of the Dayton Development Coalition. He was formerly a member of the Community
Advisory Board of the National City Bank in Dayton as well as a former member of the Business Advisory Council of the Cleveland Federal Reserve Bank. Mr. Schneider is a member of the Business Advisory Council for the University of Dayton
College of Business. Mr. Schneider was an independent Trustee of the Flagship Funds, a group of municipal open-end funds. He also served as Chair of the Miami Valley Hospital and as Chair of the Finance Committee of its parent holding company.
Mr. Schneider has a Bachelor of Science in Community Planning from the University of Cincinnati and a Masters of Public Administration from the University of Dayton.
Judith M. Stockdale
Ms. Stockdale is currently Executive Director of
the Gaylord and Dorothy Donnelley Foundation, a private foundation working in land conservation and artistic vitality in the Chicago region and the Lowcountry of South Carolina. Her previous positions include Executive Director of the Great Lakes
Protection Fund, Executive Director of Openlands, and Senior Staff Associate at the Chicago Community Trust. She has served on the Boards of the Land Trust Alliance, the National Zoological Park, the Governors Science Advisory Council
(Illinois), the Nancy Ryerson Ranney Leadership Grants Program, Friends of Ryerson Woods and the Donors Forum. Ms. Stockdale, a native of the United Kingdom, has a Bachelor of Science degree in geography from the University of Durham (UK) and a
Master of Forest Science degree from Yale University.
37
Carole E. Stone
Ms. Stone retired from the New York State Division of the Budget in 2004, having served as its Director for nearly five years and as Deputy Director from 1995 through 1999. Ms. Stone is
currently on the Board of Directors of the Chicago Board Options Exchange, CBOE Holdings, Inc. and C2 Options Exchange, Incorporated and was formerly a Commissioner on the New York State Commission on Public Authority Reform. She has also served as
the Chair of the New York Racing Association Oversight Board, as Chair of the Public Authorities Control Board and as a member of the Boards of Directors of several New York State public authorities. Ms. Stone has a Bachelor of Arts from
Skidmore College in Business Administration.
Virginia L. Stringer
Ms. Stringer served as the independent chair of the Board of the First American Fund Complex from 1997 to 2010, having joined such
Board in 1987. Ms. Stringer serves on the Governing Board of the Investment Company Institutes Independent Directors Council and on the board of the Mutual Fund Directors Forum. She is a recipient of the Outstanding Corporate Director
award from Twin Cities Business Monthly and the Minnesota Chapter of the National Association of Corporate Directors. Ms. Stringer is the immediate past board chair of the Oak Leaf Trust, director and immediate past board chair of the Saint
Paul Riverfront Corporation and is immediate past President of the Minneapolis Clubs Governing Board. She is a director and former board chair of the Minnesota Opera and a Life Trustee and former board member of the Voyageur Outward Bound
School. She also served as a trustee of Outward Bound USA. She was appointed by the Governor of Minnesota to the Board on Judicial Standards and recently served on a Minnesota Supreme Court Judicial Advisory Committee to reform the states
judicial disciplinary process. She is a member of the International Womens Forum and attended the London Business School as an International Business Fellow. Ms. Stringer also served as board chair of the Human Resource Planning Society,
the Minnesota Womens Campaign Fund and the Minnesota Womens Economic Roundtable. Ms. Stringer is the retired founder of Strategic Management Resources, a consulting practice focused on corporate governance, strategy and leadership.
She has twenty five years of corporate experience having held executive positions in general management, marketing and human resources with IBM and the Pillsbury Company.
Terence J. Toth
Mr. Toth is a Director, Legal & General
Investment Management America, Inc. (since 2008) and a Managing Partner, Promus Capital (since 2008). From 2004 to 2007, he was Chief Executive Officer and President of Northern Trust Global Investments, and Executive Vice President of Quantitative
Management & Securities Lending from 2000 to 2004. He also formerly served on the Board of the Northern Trust Mutual Funds. He joined Northern Trust in 1994 after serving as Managing Director and Head of Global Securities Lending at Bankers
Trust (1986 to 1994) and Head of Government Trading and Cash Collateral Investment at Northern Trust from 1982 to 1986. He currently serves on the Boards of the Goodman Theatre and Chicago Fellowship and is Chairman of the Board of Catalyst Schools
of Chicago. Mr. Toth graduated with a Bachelor of Science degree from the University of Illinois, and received his MBA from New York University. In 2005, he graduated from the CEO Perspectives Program at Northwestern University.
38
SHARE OWNERSHIP
The following table sets forth the dollar range of equity securities beneficially owned by each trustee as of December 31, 2011:
|
|
|
|
|
|
|
|
|
Name of Director/Trustee
|
|
Dollar Range
of Equity
Securities in
the Fund
|
|
|
Aggregate Dollar Range
of Equity Securities in
All Registered
Investment
Companies
Overseen by Director
in Family of Investment
Companies
|
|
John M. Amboian
|
|
|
None
|
|
|
|
Over $100,000
|
|
Robert P. Bremner
|
|
|
None
|
|
|
|
Over $100,000
|
|
Jack B. Evans
|
|
|
None
|
|
|
|
Over $100,000
|
|
William C. Hunter
|
|
|
None
|
|
|
|
Over $100,000
|
|
David J. Kundert
|
|
|
None
|
|
|
|
Over $100,000
|
|
William S. Schneider
|
|
|
None
|
|
|
|
Over $100,000
|
|
Judith M. Stockdale
|
|
|
None
|
|
|
|
Over $100,000
|
|
Carole E. Stone .
|
|
|
None
|
|
|
|
Over $100,000
|
|
Virginia L. Stringer
|
|
|
None
|
|
|
|
Over $100,000
|
|
Terence J. Toth
|
|
|
None
|
|
|
|
Over $100,000
|
|
No trustee who is not an interested person of the Fund or his immediate family member owns beneficially
or of record, any security of NFA, Nuveen Asset Management, Nuveen Investments or any person (other than a registered investment company) directly or indirectly controlling, controlled by or under common control with NFA, or Nuveen Investments.
As of January 31, 2012, the officers and Directors as a group beneficially owned less than 1% of any class of the
Funds outstanding securities. As of January 31, 2012, no shareholder beneficially owned more than 5% of any class of shares of the Fund. Additionally, no disinterested trustee owned shares of NFA, Nuveen Asset Management or Nuveen (or any
entity controlled by or under common control with NFA, Nuveen Asset Management or Nuveen).
COMPENSATION
The following table shows, for each independent trustee, (1) the aggregate compensation paid by the Fund for its fiscal year ended
October 31, 2011, (2) the amount of total compensation paid by the Fund that has been deferred and (3) the total compensation paid to each trustee by the Nuveen Funds during the calendar year ended December 31, 2011. The Fund
does not have a retirement or pension plan. The officers and directors affiliated with Nuveen Investments serve without any compensation from the Fund. Certain of the Nuveen Funds have a deferred compensation plan (the Plan) that permits
any trustee who is not an interested person of certain funds to elect to defer receipt of all or a portion of his or her compensation as a trustee. The deferred compensation of a participating trustee is credited to the book reserve
account of a fund when the compensation would otherwise have been paid to the trustee. The value of the trustees deferral account at any time is equal to the value that the account would have had if contributions to the account had been
invested and reinvested in shares of one or more of the eligible Nuveen Funds. At the time for commencing distributions from a trustees deferral account, the trustee may elect to receive distributions in a lump sum or over a period of five
years. The Fund will not be liable for any other funds obligations to make distributions under the Plan.
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Compensation from Fund
(1)
|
|
|
Amount of
Total Compensation
From the Fund
That Has Been
Deferred
(2)
|
|
|
Total Compensation from
Fund and Fund Complex
(3)
|
|
Robert P. Bremner
|
|
$
|
3,185
|
|
|
$
|
472
|
|
|
$
|
329,731
|
|
Jack B. Evans
|
|
|
2,104
|
|
|
|
521
|
|
|
|
260,124
|
|
William C. Hunter
|
|
|
1,921
|
|
|
|
1,921
|
|
|
|
218,576
|
|
David J. Kundert .
|
|
|
2,542
|
|
|
|
2,542
|
|
|
|
244,966
|
|
William J. Schneider
|
|
|
2,124
|
|
|
|
620
|
|
|
|
259,415
|
|
Judith M. Stockdale
|
|
|
2,059
|
|
|
|
1,095
|
|
|
|
248,033
|
|
Carole E. Stone .
|
|
|
2,519
|
|
|
|
|
|
|
|
245,650
|
|
Virginia L. Stringer(4)
|
|
|
1,358
|
|
|
|
|
|
|
|
175,000
|
|
Terence J. Toth
|
|
|
2,546
|
|
|
|
107
|
|
|
|
263,891
|
|
(1)
|
The compensation paid, including deferred amounts, to the independent directors for the fiscal year ended October 31, 2011 for services to the Fund.
|
(2)
|
Pursuant to a deferred compensation agreement with certain of the Nuveen Funds, deferred amounts are treated as though an equivalent dollar amount has been invested in
shares of one or more eligible Nuveen Funds. Total deferred fees for the Fund (including the return from the assumed investment in the eligible Nuveen Funds) payable are stated above.
|
(3)
|
Based on the compensation paid (including any amounts deferred) for the 2011 calendar year ended December 31, 2011 for services to the Nuveen open-end and
closed-end funds. Because the funds in the Fund Complex have different fiscal year ends, the amounts shown in this column are presented on a calendar year basis.
|
(4)
|
Virginia L. Stringer was appointed to the Board of Directors/Trustees of the Nuveen Funds, effective January 1, 2011.
|
Prior to January 1, 2012, independent directors received a $120,000 annual retainer plus (a) a fee of $4,500 per day for
attendance in person or by telephone at regularly scheduled meetings of the Board; (b) a fee of $3,000 per meeting for attendance in person or by telephone at special, non-regularly scheduled Board meetings where in-person attendance was
required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance was not required; (c) a fee of $2,500 per meeting for attendance in person or by telephone at Audit Committee meetings where
in-person attendance was required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance was not required; (d) a fee of $2,500 per meeting for attendance in person or by telephone at
Compliance, Risk Management and Regulatory Oversight Committee meetings where in-person attendance was required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance was not required; (e) a
fee of $1,000 per meeting for attendance in person or by telephone at Dividend Committee meetings; and (f) a fee of $500 per meeting for attendance in person or by telephone at all other committee meetings ($1,000 for shareholder
meetings) where in-person attendance was required and $250 per meeting for attendance by telephone or in person at such committee meetings (excluding shareholder meetings) where in-person attendance was not required, and $100 per meeting when the
Executive Committee acts as pricing committee for IPOs, plus, in each case, expenses incurred in attending such meetings, provided that no fees were received for meetings held on days on which regularly scheduled Board meetings were held. In
addition to the payments described above, the Chairman of the Board received $75,000, the chairpersons of the Audit Committee, the Dividend Committee and the Compliance, Risk Management and Regulatory Oversight Committee received $10,000 each and
the chairperson of the Nominating and Governance Committee received $5,000 as additional retainers. Independent directors also received a fee of $3,000 per day for site visits to entities that provided services to the Nuveen Funds on days on which
no Board meeting was held. When ad hoc committees were organized, the Nominating and Governance Committee will at the time of formation determined compensation to be paid to the members of such committee; however, in general, such fees were $1,000
per meeting for attendance in person or by telephone at ad hoc committee meetings where in-person attendance was required and $500 per meeting for attendance by
40
telephone or in person at such meetings where in-person attendance was not required. The annual retainer, fees and expenses were allocated among the Nuveen Funds on the basis of relative net
assets, although management might have, in its discretion, established a minimum amount to be allocated to each fund.
Effective January 1, 2012, independent directors receive a $130,000 annual retainer plus (a) a fee of $4,500 per day for
attendance in person or by telephone at regularly scheduled meetings of the Board; (b) a fee of $3,000 per meeting for attendance in person or by telephone at special, nonregularly scheduled Board meetings where in-person attendance is
required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; (c) a fee of $2,500 per meeting for attendance in person or by telephone at Audit Committee meetings where
in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; (d) a fee of $2,500 per meeting for attendance in person or by telephone at
Compliance, Risk Management and Regulatory Oversight Committee meetings where in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required; (e) a
fee of $1,000 per meeting for attendance in person or by telephone at Dividend Committee meetings; (f) a fee of $500 per meeting for attendance in person or by telephone at all other committee meetings ($1,000 for shareholder
meetings) where in-person attendance is required and $250 per meeting for attendance by telephone or in person at such committee meetings (excluding shareholder meetings) where in-person attendance is not required, and $100 per meeting when the
Executive Committee acts as pricing committee for IPOs, plus, in each case, expenses incurred in attending such meetings, provided that no fees are received for meetings held on days on which regularly scheduled Board meetings are held; and
(g) a fee of $2,500 per meeting for attendance in person or by telephone at Open-End Funds Committee meetings where in-person attendance is required and $2,000 per meeting for attendance by telephone or in person at such meetings where
in-person attendance is not required; provided that no fees are received for meetings held on days on which regularly scheduled Board meetings are held. In addition to the payments described above, the Chairman of the Board receives $75,000, the
chairpersons of the Audit Committee, the Dividend Committee, the Compliance, Risk Management and Regulatory Oversight Committee and the Open-End Funds Committee receive $12,500 each and the chairperson of the Nominating and Governance Committee
receives $5,000 as additional retainers. Independent directors also receive a fee of $3,000 per day for site visits to entities that provide services to the Nuveen Funds on days on which no Board meeting is held. When ad hoc committees are
organized, the Nominating and Governance Committee will at the time of formation determine compensation to be paid to the members of such committee; however, in general, such fees will be $1,000 per meeting for attendance in person or by telephone
at ad hoc committee meetings where in-person attendance is required and $500 per meeting for attendance by telephone or in person at such meetings where in-person attendance is not required. The annual retainer, fees and expenses are allocated among
the Nuveen Funds on the basis of relative net assets, although management may, in its discretion, establish a minimum amount to be allocated to each fund.
The Fund has no employees. Its officers are compensated by Nuveen Investments or its affiliates.
INVESTMENT ADVISER AND SUB-ADVISER
Nuveen
Fund Advisors, Inc. (NFA) is responsible for the Funds overall investment strategy and its implementation. NFA also is responsible for managing the Funds business affairs and providing certain clerical, bookkeeping and other
administrative services.
NFA, 333 West Wacker Drive, Chicago, Illinois 60606, a registered investment adviser, is a wholly
owned subsidiary of Nuveen Investments, Inc. (Nuveen Investments). Founded in 1898, Nuveen Investments and its affiliates had approximately $220 billion of assets under management as of December 31, 2011.
Nuveen Asset Management, 333 West Wacker Drive, Chicago, Illinois 60606, serves as the Funds subadviser, pursuant to a sub-advisory
agreement between NFA and Nuveen Asset Management. Nuveen Asset
41
Management is a registered investment adviser, and a wholly-owned subsidiary of NFA. Nuveen Asset Management oversees day-to-day operations and provides portfolio management services to the Fund.
Pursuant to the sub-advisory agreement, Nuveen Asset Management will be compensated for the services it provides to the fund with a portion of the management fee NFA receives from the Fund. NFA and Nuveen Asset Management retain the right to
reallocate investment advisory responsibilities and fees between themselves in the future.
PORTFOLIO MANAGER
Unless otherwise indicated, the information below is provided as of the date of this Statement of Additional Information.
Portfolio Management.
Paul Brennan, CFA, CPA, is a Vice President of NFA and is the portfolio manager to the Fund (Portfolio Manager). Mr. Brennan became a portfolio manager of
Flagship Financial Inc. in 1994, and subsequently became an Assistant Vice President of NFA upon the acquisition of Flagship Resources Inc. by Nuveen in 1997. He became Vice President of NFA in 2002. He currently manages investments for 15 Nuveen
sponsored investment companies.
The Portfolio Manager also has responsibility for the day-to-day management of accounts other
than the Fund. Information regarding these other accounts is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Other Accounts Managed and Assets by Account
Type as of October 31, 2011
|
|
Portfolio Manager
|
|
Type of
Account Managed
|
|
Number
of
Accounts
|
|
Total
Assets
|
|
|
Number of
Accounts with
Performance
Based Fees
|
|
|
Assets of
Account with
Performance
Based Fees
|
|
Paul Brennan
|
|
Registered Investment Companies
|
|
|
|
$
|
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
Other Pooled Investment Vehicles
|
|
|
|
$
|
|
|
|
|
0
|
|
|
$
|
0
|
|
|
|
Other Accounts
|
|
|
|
$
|
|
|
|
|
0
|
|
|
$
|
0
|
|
The Funds portfolio manager is responsible for managing the Fund and other accounts, including
separate accounts and unregistered funds.
As shown in the above table, the Funds portfolio manager may manage accounts
in addition to the Fund. The potential for conflicts of interest exists when a portfolio manager manages other accounts with similar investment objectives and strategies to the Fund (Similar Accounts). Potential conflicts may include,
for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities.
Responsibility for managing NFAs clients portfolios is organized according to investment strategies. Generally, client
portfolios with similar strategies are managed using the same objectives, approach and philosophy. Therefore, portfolio holdings, relative position sizes and sector exposures tend to be similar across similar portfolios which minimizes the potential
for conflicts of interest.
NFA may receive more compensation with respect to certain Similar Accounts than that received with
respect to the Fund or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for the Funds portfolio manager by providing an incentive to favor these Similar
Accounts when, for example, placing securities transactions. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities. Allocations of aggregated
trades, particularly trade orders that were only partially completed due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest.
Nuveen Asset Management has policies and procedures designed to manage these conflicts described above such as allocation of investment
opportunities to achieve fair and equitable allocation of investment opportunities among its clients over time. For example, orders for the same equity security are aggregated on a continual basis throughout each trading day consistent with Nuveen
Asset Managements duty of best execution for its clients. If
42
aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders will be allocated among the
participating accounts on a pro-rata average price basis as well.
Compensation
. Portfolio manager compensation
consists primarily of base pay, an annual cash bonus and long-term incentive payments.
Base pay.
Base pay is
determined based upon an analysis of the portfolio managers general performance, experience, and market levels of base pay for such position.
Annual cash bonus.
The Funds portfolio manager is eligible for an annual cash bonus determined based upon the portfolio managers performance, experience and market levels of base pay
for such position. The maximum potential annual cash bonus is equal to a multiple of base pay.
A portion of the portfolio
managers annual cash bonus is based on his or her Funds investment performance, generally measured over the past one- and three-year periods unless the portfolio managers tenure is shorter. Investment performance for the Fund is
determined by evaluating the Funds performance relative to its benchmark(s) and/or Lipper industry peer group.
Each
portfolio manager whose performance is evaluated in part by comparing the managers performance to a benchmark is measured against a Fund-specific customized subset (limited to bonds in each Funds specific state and with certain maturity
parameters) of the S&P/Investortools Municipal Bond Index, an index comprised of bonds held by managed municipal bond fund customers of Standard & Poors Securities Pricing, Inc. that are priced daily and whose fund holdings
aggregate at least $ million. As of October 31, 2011, the S&P/Investortools Municipal Bond Index was comprised of
securities with an aggregate current market value of $ billion.
Bonus amounts can also be influenced by factors other than investment performance. These other factors are more subjective and are based
on evaluations by each portfolio managers supervisor and reviews submitted by his or her peers. These reviews and evaluations often take into account a number of factors, including the portfolio managers effectiveness in communicating
investment performance to shareholders and their advisors, his or her contribution to Nuveen Asset Managements investment process and to the execution of investment strategies consistent with risk guidelines, his or her participation in asset
growth, and his or her compliance with Nuveen Asset Managements policies and procedures.
Investment performance is
measured on a pre-tax basis, gross of fees for a Funds results and for its Lipper industry peer group.
Long-term
incentive compensation.
Certain key employees of Nuveen Investments and its affiliates, including certain portfolio managers, have received profits interests in the parent company of Nuveen Investments which entitle their holders to participate
in the appreciation in the value of Nuveen Investments. In addition, in July 2009, Nuveen Investments created and funded a trust which purchased shares of certain Nuveen Mutual Funds and awarded such shares, subject to vesting, to certain key
employees, including certain portfolio managers. Finally, certain key employees of Nuveen Asset Management, including certain portfolio managers, have received profits interests in Nuveen Asset Management which entitle their holders to participate
in the firms growth over time.
Material Conflicts of Interest
. The portfolio managers simultaneous
management of the Fund and the other accounts noted above may present actual or apparent conflicts of interest with respect to the allocation and aggregation of securities orders placed on behalf of the Fund and the other account. Nuveen Asset
Management, however, believes that such potential conflicts are mitigated by the fact that Nuveen Asset Management has adopted several policies that address potential conflicts of interest, including best execution and trade allocation policies that
are designed to ensure (1) that portfolio management is seeking the best price for portfolio securities
43
under the circumstances, (2) fair and equitable allocation of investment opportunities among accounts over time and (3) compliance with applicable regulatory requirements. All accounts
are to be treated in a non-preferential manner, such that allocations are not based upon account performance, fee structure or preference of the portfolio manager. In addition, Nuveen Asset Management has adopted a Code of Conduct that sets forth
policies regarding conflicts of interest.
At January 31, 2012, the portfolio manager beneficially owned (as determined
pursuant to Rule 16a-1(a)(2) under the 1934 Act) shares of the Fund having values within the indicated dollar ranges.
|
|
|
Portfolio Manager
|
|
Dollar Range of Equity Securities
Beneficially Owned in the Fund
|
Paul Brennan
|
|
$10,001 - $50,000
|
Pursuant to an investment management agreement between NFA and the Fund (the Investment Management
Agreement), the Fund has agreed to pay an annual management fee for the overall advisory and administrative services and general office facilities provided by NFA. The Funds management fee is separated into two componentsa
complex-level component, based on the aggregate amount of all fund assets managed by NFA, and a specific fund-level component, based only on the amount of assets within the Fund. This pricing structure enables Nuveen fund shareholders to benefit
from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by NFA.
Fund-Level Fee.
The annual fund-level fee for the Fund, payable monthly, is calculated according to the following schedule:
|
|
|
|
|
Average Daily Managed Assets*
|
|
Fund-Level Fee Rate
|
|
For the first $125 million
|
|
|
0.4500%
|
|
For the next $125 million
|
|
|
0.4375%
|
|
For the next $250 million
|
|
|
0.4250%
|
|
For the next $500 million
|
|
|
0.4125%
|
|
For the next $1 billion
|
|
|
0.4000%
|
|
For the next $3 billion
|
|
|
0.3875%
|
|
For managed assets over $5 billion
|
|
|
0.3750
|
%
|
Complex-Level Fee.
The annual complex-level fee for the Fund, payable
monthly, is calculated according to the following schedule:
|
|
|
|
|
Complex-Level Managed
Asset Breakpoint Level*
|
|
Effective 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 fund-level and complex-level fees, managed assets include closed-end fund assets managed by NFA that are attributable to financial leverage.
For these purposes, financial leverage includes the funds use of
|
44
|
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 trusts issuance of floating rate securities, subject to an agreement by NFA 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 funds that constitute eligible assets. Eligible assets do not include assets attributable to investments in other
Nuveen funds or assets in excess of $2 billion added to the Nuveen fund complex in connection with NFAs assumption of the management of the former First American Funds effective January 1, 2011. As of December 31, 2011, the
complex-level fee rate for the Fund was 0.1767%.
|
The following table sets forth the management fee paid by the
Fund for the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
Management Fee Net of Expense
Reimbursement Paid
to
NFA for the Fiscal Year Ended
|
|
|
Expense
Reimbursement from
NFA for the Fiscal Year Ended
|
|
Twelve months ended October 31, 2009
|
|
$
|
4,423,495
|
|
|
$
|
|
|
Twelve months ended October 31, 2010
|
|
$
|
4,731,688
|
|
|
$
|
|
|
Twelve months ended October 31, 2011
|
|
$
|
4,529,398
|
|
|
$
|
|
|
Pursuant to an investment sub-advisory agreement between NFA and Nuveen Asset Management, Nuveen Asset
Management will receive from NFA a management fee equal to 46.6667% of NFAs net management fee from the Fund.
In
addition to the fee of NFA, the Fund pays all other costs and expenses of its operations, including compensation of its directors (other than those affiliated with NFA), custodian, transfer agency and dividend disbursing expenses, legal fees,
expenses of independent auditors, expenses of repurchasing shares, expenses of issuing VRDP Shares, expenses of preparing, printing and distributing shareholder reports, notices, proxy statements and reports to governmental agencies and taxes, if
any. All fees and expenses are accrued daily and deducted before payment of dividends to investors.
The Investment Management
Agreement has been approved by a majority of the disinterested directors of the Fund and shareholders of the Fund. The Investment Management Agreement was initially approved by the Board of Directors at a meeting held on October 16, 2007 and
was approved by shareholders on November 13, 2007. The current Investment Management Agreement went into effect November 13, 2007 and was renewed most recently at a meeting held on May 23-25, 2011. The Investment Management Agreement
will remain in effect until August 1, 2012. A discussion regarding the Board of Directors decision to renew the Investment Management Agreement is in the Funds annual report to shareholders dated October 31, 2011.
The Investment Sub-Advisory Agreement has been approved by a majority of the disinterested directors of the Fund and shareholders of the
Fund. The Investment Sub-Advisory Agreement was initially approved by the Board of Directors at a meeting held on November 16-18, 2010.
The Investment Sub-Advisory Agreement went into effect December 31, 2010 and will remain in effect until August 1, 2012.
A discussion regarding the Board of Directors decision to renew the Investment Sub-Advisory Agreement may be found in the Funds annual report to shareholders for the period ending
October 31, 2011.
CODE OF ETHICS
The Fund, NFA, Nuveen Asset Management, Nuveen Securities and other related entities have adopted codes of ethics that essentially
prohibit certain of their personnel, including the Funds Portfolio Manager, from
45
engaging in personal investments that compete or interfere with, or attempt to take advantage of a clients, including the Funds, anticipated or actual portfolio transactions, and are
designed to assure that the interests of clients, including Fund shareholders, are placed before the interests of personnel in connection with personal investment transactions. Text-only versions of the codes of ethics of the Fund, NFA, Nuveen Asset
Management, and Nuveen can be viewed online or downloaded from the EDGAR Database on the SECs internet web site at www.sec.gov. You may also review and copy those documents by visiting the SECs Public Reference Room in Washington, DC.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-942-8090. In addition, copies of those codes of ethics may be obtained, after mailing the appropriate duplicating fee, by writing to the SECs
Public Reference Section, 100 F Street, N.E., Washington, DC 20549 or by e-mail request at
publicinfo@sec.gov
.
PROXY VOTING POLICIES
The Fund invests primarily in municipal securities. On rare occasions the Fund may acquire,
directly or through a special purpose vehicle, equity securities of a municipal bond issuer whose bonds the Fund already owns when such bonds have deteriorated or are expected shortly to deteriorate significantly in credit quality. The purpose of
acquiring equity securities generally will be to acquire control of the municipal bond issuer and to seek to prevent the credit deterioration or facilitate the liquidation or other workout of the distressed issuers credit problem. In the
course of exercising control of a distressed municipal issuer, Nuveen Asset Management may pursue the Funds interests in a variety of ways, which may entail negotiating and executing consents, agreements and other arrangements, and otherwise
influencing the management of the issuer. Nuveen Asset
Management does not consider such activities proxy voting for purposes
of Rule 206(4)-6 under the Investment Advisers Act of 1940, as amended, but nevertheless provides reports to the Funds Board of Directors on its control activities on a quarterly basis.
In the rare event that a municipal issuer held by the Fund were to issue a proxy, or that the Fund were to receive a proxy issued by a
cash management security, Nuveen Asset Management would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Funds Board of Directors or
its representative. In the case of a conflict of interest, the proxy would be submitted to the Funds Board to determine how the proxy should be voted. A member of Nuveen Asset Managements legal department would oversee the administration
of the voting, and ensure that records were maintained in accordance with Rule 206(4)-6, reports were filed with the SEC on Form N-PX, and the results provided to the Funds Board of Directors and made available to shareholders as required by
applicable rules.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to the supervision of the Board of Directors, Nuveen Asset Management is responsible for decisions to purchase and sell
securities for the Fund, the negotiation of the prices to be paid and the allocation of transactions among various dealer firms. Transactions on stock exchanges involve the payment by the Fund of brokerage commissions. There generally is no stated
commission in the case of securities traded in the over-the-counter (OTC) market but the price paid by the Fund usually includes an undisclosed dealer commission or mark-up. Transactions in the OTC market can also be placed with
broker-dealers who act as agents and charge brokerage commissions for effecting OTC transactions. The Fund may place its OTC transactions either directly with principal market makers, or with broker-dealers if that is consistent with Nuveen Asset
Managements obligation to obtain best qualitative execution. In certain instances, the Fund may make purchases of underwritten issues at prices that include underwriting fees.
46
Portfolio securities may be purchased directly from an underwriter or in the OTC market from
the principal dealers in such securities, unless it appears that a better price or execution may be obtained through other means. Portfolio securities will not be purchased from Nuveen Investments or its affiliates or affiliates of NFA except in
compliance with the 1940 Act.
It is Nuveen Asset Managements policy to seek the best execution under the circumstances
of each trade. Nuveen Asset Management will evaluate price as the primary consideration, with the financial condition, reputation and responsiveness of the dealer considered secondary in determining best execution. Given the best execution
obtainable, it will be Nuveen Asset Managements practice to select dealers that, in addition, furnish research information (primarily credit analyses of issuers and general economic reports) and statistical and other services to Nuveen Asset
Management. It is not possible to place a dollar value on information and statistical and other services received from dealers. Since it is only supplementary to Nuveen Asset Managements own research efforts, the receipt of research
information is not expected to reduce significantly Nuveen Asset Managements expenses. While Nuveen Asset Management will be primarily responsible for the placement of the business of the Fund, Nuveen Asset Managements policies and
practices in this regard must be consistent with the foregoing and will, at all times, be subject to review by the Board of Directors of the Fund.
Nuveen Asset Management may manage other investment accounts and investment companies for other clients that may invest in the same types of securities as the Fund and that may have investment objectives
similar to those of the Fund. Nuveen Asset Management seeks to allocate portfolio transactions equitably whenever concurrent decisions are made to purchase or sell assets or securities by the Fund and another advisory account. If an aggregated order
cannot be filled completely, allocations will generally be made on a pro rata basis. An order may not be allocated on a pro rata basis where, for example (i) consideration is given to portfolio managers who have been instrumental in developing
or negotiating a particular investment; (ii) consideration is given to an account with specialized investment policies that coincide with the particulars of a specific investment; (iii) pro rata allocation would result in odd-lot or de
minimis amounts being allocated to a portfolio or other client; or (iv) where Nuveen Asset Management reasonably determines that departure from a pro rata allocation is advisable. There may also be instances where the Fund will not participate
at all in a transaction that is allocated among other accounts. While these allocation procedures could have a detrimental effect on the price or amount of the securities available to the Fund from time to time, it is the opinion of the Board of
Directors that the benefits available from Nuveen Asset Managements management outweigh any disadvantage that may arise from Nuveen Asset Managements larger management activities and its need to allocate securities.
NET ASSET VALUE
The Funds net asset value per share is determined as of the close of regular session trading (normally 4:00 p.m. eastern time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated by taking the fair value of the Funds total assets, including interest or dividends accrued but not yet collected, less all liabilities, and dividing by the total number of shares outstanding. The result, rounded to
the nearest cent, is the net asset value per share. All valuations are subject to review by the Funds Board of Directors or its delegate, Nuveen Asset Management.
In determining net asset value, expenses are accrued and applied daily, and securities and other assets for which market quotations are available are valued daily at market value. The prices of fixed
income securities are provided by a pricing service and are based on the mean between the bid and asked price. When price quotes are not readily available, which is typically the case for municipal bonds, the pricing service establishes a
securitys fair value based on various factors, including prices of comparable fixed income securities utilizing a matrix pricing system. Due to the subjective and variable nature of fair value pricing, it is possible that the fair value
determined for a particular security may be different from the value realized upon the sale of the security.
47
Certain securities may not be able to be priced by pre-established pricing methods. Such
securities may be valued by the Board of Directors or its delegate at fair value. These securities generally include but are not limited to, restricted securities (securities that may not be publicly sold without registration under the Securities
Act) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; debt securities that have gone into default and for which there is no current market quotation; a security whose market price
is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of net asset value; a
security with respect to which an event has occurred that is likely to make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, does not reflect the securitys
fair value. As a general principle, the current fair value of a security would be the amount that the owner might reasonably expect to receive for it upon its current sale. A variety of factors may be considered in
determining the fair value of such securities.
DISTRIBUTIONS
The Fund pays regular monthly cash distributions to Common Stockholders at a level rate (stated in terms of a fixed cents per share of
Common Stock dividend rate) that reflects the past and projected performance of the Fund. Distributions can only be made from net investment income after paying any interest and required principal payments on borrowings to VRDP Shareholders.
To permit the Fund to maintain a more stable monthly distribution, the Fund may from time to time distribute less than the
entire amount of net investment income earned in a particular period. Such undistributed net investment income would be available to supplement future distributions, including distributions that might otherwise have been reduced by a decrease in the
Funds monthly net income due to fluctuations in investment income or expenses, an increase in interest payments on borrowings, or due to an increase in the dividend rate on the Funds outstanding preferred shares, including VRDP Shares.
As a result, the distributions paid by the Fund for any particular period may be more or less than the amount of net investment income actually earned by the Fund during such period. However, the Fund intends to maintain distributions of net
investment income for any period in amounts sufficient to continue to qualify under Subchapter M of the Code as a regulated investment company (as explained more fully below in Tax Matters). Undistributed net investment income will be
added to the Funds net asset value and, correspondingly, distributions from undistributed net investment income will be deducted from the Funds net asset value.
As explained more fully below in Tax Matters, at least annually, the Fund intends to distribute to Common Stockholders any net capital gain (which is the excess of net long-term capital gain
over net short-term capital loss) after paying any interest and required principal payments on borrowings and making any redemption or liquidation payments to VRDP Shareholders or, alternatively, to retain all or a portion of the years net
capital gain and pay federal income tax on the retained gain. As provided under federal tax law, Common Stockholders of record as of the end of the Funds taxable year will include their attributable share of the retained net capital gain in
their income for the year as a long-term capital gain (regardless of their holding period in the Common Stock), and will be entitled to an income tax credit or refund for the tax deemed paid on their behalf by the Fund.
For tax purposes, the Fund is currently required to allocate net capital gain and other taxable income, if any, between Common Stock and
VRDP Shares in proportion to total dividends paid to each class for the year in which such net capital gain or other taxable income is realized. For information relating to the impact of the issuance of VRDP Shares on the distributions made by a
Fund to Common Stockholders, see the Funds Prospectus under Use of Leverage.
If preferred shares are
outstanding, the Fund may not declare any cash dividend or other distribution on its Common Stock unless at the time of such declaration (1) all accumulated dividends on the preferred shares have been paid, (2) all interest and required
principal on borrowings has been paid, (3) the net asset value of the
48
Funds portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of the liquidation value of any outstanding preferred shares and (4) the
net asset value of the Funds portfolio (determined after deducting the amount of such dividend or other distribution) is at least 300% of the value of the Funds borrowings. This latter limitation on the Funds ability to make
distributions on its Common Stock could under certain circumstances impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company.
The Fund reserves the right to change its distribution policy and the basis for establishing the rate of its monthly distributions at any
time.
DIVIDEND REINVESTMENT PLAN
If your Common Stock are registered directly with the Fund or if you hold your Common Stock with a brokerage firm that participates in
the Funds Dividend Reinvestment Plan (the Plan), you may elect to have all dividends, including any capital gain dividends, on your Common Stock automatically reinvested by the Plan Agent (defined below) in additional Common Stock
under the Plan. You may elect to participate in the Plan by completing the Dividend Reinvestment Plan Application Form. If you do not participate, you will receive all distributions in cash paid by check mailed directly to you or your brokerage firm
by State Street Bank and Trust Company as dividend paying agent (the Plan Agent).
If you decide to participate in
the Plan, the number of Common Stock you will receive will be determined as follows:
|
(1)
|
If shares of Common Stock are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then current market price;
|
|
(2)
|
If shares of Common Stock are trading below net asset value at the time of valuation, the Plan Agent will receive the dividend or distribution in cash and will purchase
Common Stock in the open market, on the New York Stock Exchange or elsewhere, for the participants accounts. It is possible that the market price for the Common Stock may increase before the Plan Agent has completed its purchases. Therefore,
the average purchase price per share paid by the Plan Agent may exceed the market price at the time of valuation, resulting in the purchase of fewer shares than if the dividend or distribution had been paid in Common Stock issued by the Fund. The
Plan Agent will use all dividends and distributions received in cash to purchase Common Stock in the open market within 30 days of the valuation date. Interest will not be paid on any uninvested cash payments; or
|
|
(3)
|
If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Funds shares subsequently trade at or
above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater
of the shares net asset value or 95% of the shares market value.
|
You may withdraw from the Plan at
any time by giving written notice to the Plan Agent. If you withdraw or the Plan is terminated, you will receive whole shares in your account under the Plan and you will receive a cash payment for any fraction of a share in your account. If you
wish, the Plan Agent will sell your shares and send you the proceeds, minus brokerage commissions and a $2.50 service fee.
The Plan Agent maintains all shareholders accounts in the Plan and gives written confirmation of all transactions in the accounts,
including information you may need for tax records. Common Stock in your account will be held by the Plan Agent in non-certificated form. Any proxy you receive will include all Common Stock you have received under the Plan.
There is no brokerage charge for reinvestment of your dividends or distributions in Common Stock. However, all participants will pay a
pro rata share of brokerage commissions incurred by the Plan Agent when it makes open market purchases.
49
Automatically reinvesting dividends and distributions does not mean that you do not have to
pay income taxes due upon receiving dividends and distributions.
If you hold your Common Stock with a brokerage firm that
does not participate in the Plan, you will not be able to participate in the Plan and any dividend reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information.
The Fund reserves the right to amend or terminate the Plan if in the judgment of the Board of Directors the change is warranted. There is
no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. Additional information about the Plan may be obtained from State Street Bank and
Trust Company, Attn: ComputerShare Nuveen Investments, P.O. Box 43071, Providence, Rhode Island 02940-3071, (800) 257-8787.
PLAN OF DISTRIBUTION
The Fund may sell the Common Stock offered under this Prospectus through
|
|
at-the-market transactions;
|
|
|
underwriting syndicates; and
|
|
|
privately negotiated transactions.
|
The Fund will bear the expenses of the Offering, including but not limited to, the expenses of preparation of the Prospectus and SAI for the Offering and the expense of counsel and auditors in connection
with the Offering.
Distribution Through At-the-Market Transactions
The Fund has entered into a Distribution Agreement with Nuveen Securities, a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The summary of the Distribution Agreement contained herein is qualified by reference to the Distribution Agreement. Subject to the terms and conditions of the Distribution Agreement, the
Fund may from time to time offer its Common Stock through Nuveen Securities to certain broker-dealers which have entered into selected dealer agreements with Nuveen Securities. Currently, Nuveen Securities has entered into a selected dealer
agreement with UBS Securities LLC (UBS) pursuant to which UBS will be acting as Nuveen Securities sub-placement agent with respect to at-the-market offerings of Common Stock.
Common Stock will only be sold on such days as shall be agreed to by the Fund and Nuveen Securities. Shares of Common Stock will be sold
at market prices, which shall be determined with reference to trades on the Exchange, subject to a minimum price to be established each day by the Fund. The minimum price on any day will not be less than the current net asset value per share of
Common Stock plus the per share amount of the commission to be paid to Nuveen Securities. The Fund and Nuveen Securities will suspend the sale of Common Stock if the per share price of the shares is less than the minimum price.
The Fund will compensate Nuveen Securities with respect to sales of the Common Stock at a fixed commission rate of 1% of the gross
proceeds of the sale of Common Stock. Nuveen Securities will compensate broker-dealers participating in the offering at a rate of 0.8% of the gross proceeds of the sale of Common Stock sold by that broker-dealer. Nuveen Securities may from time to
time change the dealer re-allowance. Settlements of sales of Common Stock will occur on the third business day following the date on which any such sales are made.
In connection with the sale of the Common Stock on behalf of the Fund, Nuveen Securities may be deemed to be an underwriter within the meaning of the 1933 Act, and the compensation of Nuveen Securities
may be deemed to be underwriting commissions or discounts. Unless otherwise indicated in a further Prospectus supplement, Nuveen Securities will act as underwriter on a reasonable efforts basis.
50
The offering of Common Stock pursuant to the Distribution Agreement will terminate upon the
earlier of (i) the sale of all Shares subject thereto or (ii) termination of the Distribution Agreement. The Fund and Nuveen Securities each have the right to terminate the Distribution Agreement in its discretion at any time. The Fund
currently intends to distribute the shares offered pursuant to this Prospectus primarily through at-the-market transactions, although from time to time it may also distribute shares through an underwriting syndicate or a privately negotiated
transaction. To the extent shares are distributed other than through at-the-market transactions, the Fund will file a supplement to this Prospectus describing such transactions.
Distribution Through Underwriting Syndicates
The Fund from time to time
may issue additional Common Stock through a syndicated secondary offering. In order to limit the impact on the market price of the Funds shares of Common Stock, underwriters will market and price the offering on an expedited basis (e.g.,
overnight or similarly abbreviated offering period). The Fund will launch a syndicated offering on a day, and upon terms, mutually agreed upon between the Fund, Nuveen Securities, one of the Funds underwriters, and the underwriting syndicate.
The Fund will offer its shares at price equal to a specified discount of up to 5% from the closing market price of the
Funds shares of Common Stock on the day prior to the offering date. The applicable discount will be negotiated by the Fund and Nuveen Securities in consultation with the underwriting syndicate on a transaction-by-transaction basis. The Fund
will compensate the underwriting syndicate out of the proceeds of the offering based upon a sales load of up to 4% of the gross proceeds of the sale of Common Stock. The minimum net proceeds per share to the Fund will not be less than the greater of
(i) the Funds latest net asset value per share of Common Stock or (ii) 91% of the closing market price of the shares of the Funds Common Stock on the day prior to the offering date.
Distribution Through Privately Negotiated Transactions
The Fund, through Nuveen Securities, from time to time may sell directly to, and solicit offers from, institutional and other sophisticated investors, who may be deemed to be underwriters as defined in
the 1933 Act for any resale of Common Stock.
The terms of such privately negotiated transactions will be subject to the
discretion of the management of the Fund. In determining whether to sell Common Stock through a privately negotiated transaction, the Fund will consider relevant factors including, but not limited to, the attractiveness of obtaining additional funds
through the sale of Common Stock, the purchase price to apply to any such sale of Common Stock and the person seeking to purchase the Common Stock.
Shares of Common Stock issued by the Fund through privately negotiated transactions will be issued at a price equal to the greater of (i) the net asset value per share of the Funds Common Stock
or (ii) at a discount ranging from 0% to 5% of the average daily closing market price of the Funds Common Stock at the close of business on the two business days preceding the date upon which shares of Common Stock are sold pursuant to
the privately negotiated transaction. The applicable discount will be determined by the Fund on a transaction-by-transaction basis.
51
DESCRIPTION OF SHARES
Common Stock
The
Funds Articles of Incorporation authorize the issuance of 200,000,000 shares of common stock. All shares of common stock have equal rights to the payment of dividends and the distribution of assets upon liquidation. Shares of common stock are,
when issued, fully paid and non-assessable, and have no pre-emptive or conversion rights except as the directors may determine or rights to cumulative voting. At any time when preferred shares are outstanding, common stockholders will not be
entitled to receive any cash distributions from the Fund unless all accrued dividends on Preferred Stock have been paid, and unless Asset Coverage with respect to preferred shares would be at least 200% after giving effect to the distributions. The
Fund pays monthly dividends, typically on the first business day of the following month.
The Funds common stock is
listed on the New York Stock Exchange. The Fund intends to hold annual meetings of stockholders so long as the Funds shares are listed on a national securities exchange and such meetings are required as a condition to such listing.
Unlike open-end funds, closed-end funds like the Fund do not provide daily redemptions. Rather, if a shareholder determines to buy
additional Common Stock or sell shares already held, the shareholder may conveniently do so by trading on the exchange through a broker or otherwise. Shares of closed-end investment companies may frequently trade on an exchange at prices lower than
net asset value. Shares of closed-end investment companies like the Fund have during some periods traded at prices higher than net asset value and have during other periods traded at prices lower than net asset value.
Because the market value of the Common Stock may be influenced by such factors as distribution levels (which are in turn affected by
expenses), call protection, dividend stability, portfolio credit quality, net asset value, relative demand for and supply of such shares in the market, general market and economic conditions, and other factors beyond the control of the Fund, the
Fund cannot assure you that Common Stock will trade at a price equal to or higher than net asset value in the future. Shares of Common Stock are designed primarily for long-term investors, and investors in the Common Stock should not view the Fund
as a vehicle for trading purposes. See Repurchase of Fund Shares; Conversion to Open-End Fund.
The Articles
authorize the Fund, without approval of the Common Stockholders, to borrow money. In this connection, the Fund may issue notes or other evidence of indebtedness (including bank borrowings or commercial paper) and may secure any such borrowings by
mortgaging, pledging or otherwise subjecting as security the Funds assets. Under the requirements of the 1940 Act, the Fund, immediately after any such Borrowings, must have asset coverage of at least 300%. With respect to any such
borrowings, asset coverage means the ratio that the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of such borrowings
represented by senior securities issued by the Fund. Certain types of borrowings may result in the Fund being subject to covenants in credit agreements relating to asset coverage or portfolio coverage or otherwise. In addition, as with the issuance
of VRDP Shares, certain types of borrowings may result in the Fund being subject to certain restrictions imposed by guidelines of one or more rating agencies that may issue ratings for commercial paper or notes issued by the Fund. Such restrictions
may be more stringent than those imposed by the 1940 Act.
The rights of lenders to the Fund to receive interest on and
repayment of principal of any such borrowings will be senior to those of the Common Stockholders, and the terms of any such borrowings may contain provisions which limit certain activities of the Fund, including the payment of dividends to Common
Stockholders in certain circumstances. Further, the 1940 Act does (in certain circumstances) grant to the lenders to the Fund certain voting rights in the event of default in the payment of interest on or repayment of principal. In the event that
such provisions would impair the Funds status as a regulated investment company under the Code, the Fund would repay the borrowings. Any borrowings will likely be ranked senior or equal to all other existing
52
and future borrowings of the Fund. The Fund may also borrow money for repurchase of its shares or as a temporary measure for extraordinary or emergency situations. See Investment
Restrictions in the Statement of Additional Information.
Preferred Shares
The Funds Articles authorize the issuance of 1,000,000 preferred shares, par value $.01 per share, in one or more classes or series,
with rights as determined by the Board of Directors without the approval of holders of Common Stock, out of which the Executive Committee of the Board of Directors, acting pursuant to authority delegated to it by the full Board of Directors, has
designated 50,000 preferred shares as Variable Rate Demand Preferred (VRDP) Shares. The Fund currently has 2,525 VRDP Shares outstanding as of February 29, 2012. The Funds Board of Directors has authorized the offering of
MuniPreferred Shares in the past. As of October 31, 2011, all of the Funds MuniPreferred shares have been redeemed.
Limited Issuance of Preferred Shares.
Under the 1940 Act, the Fund could issue preferred shares with an aggregate liquidation
value of up to one-half of the value of the Funds total net assets, including any liabilities associated with borrowings, measured immediately after issuance of the preferred shares . Liquidation value means the original purchase
price of the shares being liquidated plus any accrued and unpaid dividends. In addition, the Fund is not permitted to declare any cash dividend or other distribution on its Common Stock unless the liquidation value of the preferred shares is less
than one-half of the value of the Funds total net assets (determined after deducting the amount of such dividend or distribution) immediately after the distribution.
Distribution Preference.
Preferred shares, including VRDP Shares, have complete priority over the Common Stock as to distribution of assets.
Liquidation Preference.
In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the
Fund, holders of preferred shares, including VRDP Shares would be entitled to receive a preferential liquidating distribution (expected to equal the original purchase price per share plus accumulated and unpaid dividends thereon, whether or not
earned or declared) before any distribution of assets is made to Common Stockholders.
Voting Rights.
Preferred shares,
including VRDP Shares, are required to be voting shares and to have equal voting rights with Common Stock. Except as otherwise indicated in this Prospectus or the SAI and except as otherwise required by applicable law, preferred shares would vote
together with Common Stockholders as a single class.
Holders of preferred shares, including VRDP Shares, voting as a separate
class, will be entitled to elect two of the Funds directors (following the establishment of the Fund by an initial director, the Articles provide for a total of no less than two and no more than 12 directors). The remaining directors will be
elected by Common Stockholders and holders of preferred shares, voting together as a single class. In the unlikely event that two full years of accrued dividends are unpaid on the preferred shares, including VRDP Shares, the holders of all
outstanding preferred shares, including VRDP Shares, voting as a separate class, will be entitled to elect a majority of the Funds directors until all dividends in arrears have been paid or declared and set apart for payment. In order for the
Fund to take certain actions or enter into certain transactions, a separate class vote of holders of preferred shares would be required, in addition to the single class vote of the holders of preferred shares, and Common Stock. See Certain
Provisions in the Articles of Incorporation and the SAI under Description of SharesPreferred SharesVoting Rights.
Redemption, Purchase and Sale of Preferred Shares.
The terms of any preffered share offering, including VRDP Shares, provides that they may be redeemed by the issuer at certain times, in whole or
in part, at the original purchase price per share plus accumulated dividends. Any redemption or purchase of preferred shares, including VRDP Shares, by the Fund will reduce the leverage applicable to Common Stock, while any issuance of shares by the
Fund would increase such leverage.
53
The Fund applied for and obtained ratings for its VRDP Shares from two NRSROs. As long as
VRDP Shares are outstanding, the composition of the Funds portfolio would reflect guidelines established by such NRSROs. Based on previous guidelines established by such NRSROs for the securities of other issuers, the Fund anticipates that the
guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. However, at this time, no assurance can be given as to the nature or extent of the guidelines that may
be imposed in connection with obtaining a rating of any VRDP Shares.
CERTAIN PROVISIONS IN
THE ARTICLES OF INCORPORATION
Stockholder and Director Liability
. Under the Minnesota Business Corporation Act, a
subscriber for shares or a shareholder of a corporation is under no obligation to the corporation or its creditors with respect to the shares subscribed for or owned, except to pay the corporation the full agreed-upon consideration for the shares.
However, a shareholder who receives a distribution which is made in violation of the Minnesota Business Corporation Acts limitations on distributions is liable to the corporation to the extent that the distribution exceeded the amount that
properly could have been paid.
The Articles of Incorporation provide that the Funds obligations are not binding upon
the Funds directors individually, but only upon the Funds assets and property and provide for the indemnification of directors individually by the Fund for certain liabilities arising out of the performance of their duties to the Fund to
the maximum extent permitted under Minnesota law. Nothing in the Articles of Incorporation, however, protects a director against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or her office.
Anti
Takeover Provisions.
The Funds Articles of Incorporation include provisions that could have the effect of limiting the ability of other entities or persons to acquire control of the Fund. Specifically, the Articles require the affirmative
vote of the holders of at least 66
2
/
3
% of the
Funds outstanding shares of Common Stock and outstanding preferred shares, including VRDP Shares, voting together as a single class, except as described below, to approve, adopt or authorize any of the following transactions:
(1)
|
conversion of the Fund from a closed-end investment company to an open-end investment company,
|
(2)
|
a merger or consolidation of the Fund with any other corporation or a reorganization or recapitalization,
|
(3) a sale, lease or transfer of all or substantially all of the Funds assets (other than in the regular course of the Funds investment
activities), or
(4)
|
a liquidation or dissolution of the Fund,
|
unless such action has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed in accordance with the By-Laws, in which case the
affirmative vote of the holders of at least a majority of the Funds outstanding shares of Common Stock and outstanding preferred shares, including VRDP Shares, voting together as a single class, is required. Except as may otherwise be required
by law, in the case of the conversion of the Fund to an open-end investment company, or in the case of any of the foregoing transactions constituting a plan of reorganization (as such term is used in the 1940 Act) which adversely affects the holders
of shares of preferred stock, the action in question will also require the approval, adoption or authorization of the holders of
66
2
/
3
% of the Funds preferred shares voting
as a separate class; provided, however, that such separate class vote shall be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of two-thirds of the total number of directors fixed
in accordance with the By-Laws. The 66
2
/
3
% vote
required under certain circumstances to approve the conversion of the Fund from a closed-end to an open-end investment company or to approve the other transactions described above are higher than those required by the 1940 Act. See the SAI under
Certain Provisions in the Articles of Incorporation.
54
The provisions of the Articles of Incorporation described above could have the effect of
depriving the Common Stockholders of opportunities to sell their shares of Common Stock at a premium over the then current market price of the shares of Common Stock by discouraging a third party from seeking to obtain control of the Fund in a
tender offer or similar transaction. The overall effect of these provisions is to render more difficult the accomplishment of a merger or the assumption of control by a third party. They provide, however, the advantage of potentially requiring
persons seeking control of the Fund to negotiate with its management regarding the price to be paid and facilitating the continuity of the Funds investment objectives and policies. The Board of Directors of the Fund has considered the
foregoing anti-takeover provisions and concluded that they are in the best interests of the Fund and its Common Stockholders.
Reference should be made to the Articles on file with the SEC for the full text of these provisions.
55
REPURCHASE OF FUND SHARES; CONVERSION TO OPEN-END FUND
The Fund is a closed-end investment company and as such its stockholders will not have the right to cause the Fund to
redeem their shares. Instead, the shares of Common Stock will trade in the open market at a price that will be a function of several factors, including dividend levels (which are in turn affected by expenses), net asset value, call protection,
price, dividend stability, relative demand for and supply of such shares in the market, general market and economic conditions and other factors. Because shares of a closed-end investment company may frequently trade at prices lower than net asset
value, the Funds Board of Directors has currently determined that, at least annually, it will consider action that might be taken to reduce or eliminate any material discount from net asset value in respect of common shares, which may include
the repurchase of such shares in the open market or in private transactions, the making of a tender offer for such shares at net asset value, or the conversion of the Fund to an open-end investment company. There can be no assurance, however, that
the Board of Directors will decide to take any of these actions, or that share repurchases or tender offers, if undertaken, will reduce market discount. On November 16, 2011, the Funds Board of Trustees approved an open market share repurchase
program under which the Fund may repurchase up to 10% of its Common Shares. To date, the Fund has not repurchased any Common Shares under the program.
Notwithstanding the foregoing, at any time if the Fund has preferred shares outstanding, including VRDP Shares, the Fund may not purchase, redeem or otherwise acquire any of its Common Stock unless
(1) all accrued preferred shares dividends have been paid and (2) at the time of such purchase, redemption or acquisition, the net asset value of the Funds portfolio (determined after deducting the acquisition price of the Common
Stock) is at least 200% of the liquidation value of the outstanding preferred shares (expected to equal the original purchase price per share plus any accrued and unpaid dividends thereon). The staff of the U.S. Securities and Exchange Commission
currently requires that any tender offer made by a closed-end investment company for its shares must be at a price equal to the net asset value of such shares at the close of business on the last day of the tender offer. Any service fees incurred in
connection with any tender offer made by the Fund will be borne by the Fund and will not reduce the stated consideration to be paid to tendering shareholders.
Subject to its investment limitations, the Fund may borrow to finance the repurchase of shares or to make a tender offer. Interest on any borrowings to finance share repurchase transactions or the
accumulation of cash by the Fund in anticipation of share repurchases or tenders will reduce the Funds net income. Any share repurchase, tender offer or borrowing that might be approved by the Board of Directors would have to comply with the
Securities Exchange Act of 1934, as amended, and the 1940 Act and the rules and regulations thereunder.
Although the decision
to take action in response to a discount from net asset value will be made by the Board of the Fund at the time it considers such issue, it is the Boards present policy, which may be changed by the Board, not to authorize repurchases of shares
of Common Stock or a tender offer for such shares if (1) such transactions, if consummated, would (a) result in the delisting of the shares of Common Stock from the New York Stock Exchange, or (b) impair the Funds status as a
regulated investment company under the Internal Revenue Code of 1986, as amended (which would make the Fund a taxable entity, causing the Funds income to be taxed at the corporate level in addition to the taxation of shareholders who receive
dividends from the Fund) or as a registered closed-end investment company under the 1940 Act; (2) the Fund would not be able to liquidate portfolio securities in an orderly manner and consistent with the Funds investment objectives and
policies in order to repurchase shares; or (3) there is, in the Boards judgment, any (a) material legal action or proceeding instituted or threatened challenging such transactions or otherwise materially adversely affecting the Fund,
(b) general suspension of or limitation on prices for trading securities on the New York Stock Exchange, (c) declaration of a banking moratorium by Federal or state authorities or any suspension of payment by United States or state banks
in which the Fund invests, (d) material limitation affecting the Fund or the issuers of its portfolio securities by federal or state authorities on the extension of credit by lending institutions or on the exchange of foreign currency,
(e) commencement of war, armed hostilities or other international or national calamity directly or indirectly involving the United States, or (f) other event or condition which would have a material adverse effect (including any adverse
tax effect) on the Fund or its shareholders if shares were repurchased. The Board of Directors of the Fund may in the future modify these conditions in light of experience.
56
Conversion to an open-end company would require the approval of the holders of at least
two-thirds of the Funds shares of Common Stock and preferred shares, including VRDP Shares, outstanding at the time, voting together as a single class, and of the holders of at least two-thirds of the Funds preferred shares, including
VRDP Shares, outstanding at the time, voting as a separate class, provided however, that such separate class vote shall be a majority vote if the action in question has previously been approved, adopted or authorized by the affirmative vote of
two-thirds of the total number of trustees fixed in accordance with the Declaration or By-laws. See the Prospectus under Certain Provisions in the Declaration of Trust for a discussion of voting requirements applicable to conversion of
the Fund to an open-end company. If the Fund converted to an open-end company, it would be required to redeem all preferred shares then outstanding, and the Funds common shares would no longer be listed on the New York Stock Exchange.
Stockholders of an open-end investment company may require the company to redeem their shares on any business day (except in certain circumstances as authorized by or under the 1940 Act) at their net asset value, less such redemption charge, if any,
as might be in effect at the time of redemption. In order to avoid maintaining large cash positions or liquidating favorable investments to meet redemptions, open-end companies typically engage in a continuous offering of their shares. Open-end
companies are thus subject to periodic asset in-flows and out-flows that can complicate portfolio management. The Board of Directors of the Fund may at any time propose conversion of the Fund to an open-end company depending upon their judgment as
to the advisability of such action in light of circumstances then prevailing.
The repurchase by the Fund of its shares at
prices below net asset value would result in an increase in the net asset value of those shares that remain outstanding. However, there can be no assurance that share repurchases or tenders at or below net asset value would result in the Funds
shares trading at a price equal to their net asset value. Nevertheless, the fact that the Funds shares may be the subject of repurchase or tender offers at net asset value from time to time, or that the Fund may be converted to an open-end
company, may reduce any spread between market price and net asset value that might otherwise exist.
In addition, a purchase
by the Fund of its Common Stock would decrease the Funds total assets which would likely have the effect of increasing the Funds expense ratio. Any purchase by the Fund of its common shares at a time when preferred shares are outstanding
will increase the leverage applicable to the outstanding common shares then remaining.
Before deciding whether to take any
action if the Funds shares of Common Stock trade below net asset value, the Board of the Fund would consider all relevant factors, including the extent and duration of the discount, the liquidity of the Funds portfolio, the impact of any
action that might be taken on the Fund or its shareholders and market considerations. Based on these considerations, even if the Funds shares should trade at a discount, the Board of Directors may determine that, in the interest of the Fund
and its shareholders, no action should be taken.
TAX MATTERS
The following is intended to be a general summary of certain US federal income tax consequences of investing, holding and disposing of
common stock of the Fund. It is not intended to be a complete discussion of all such federal income tax consequences, nor does it purport to deal with all categories of investors (including investors in common stock with large positions in the
Fund). Investors are advised to consult with their own tax advisors before investing in the Fund.
The Fund intends to elect
to be treated, and to qualify each year, as a regulated investment company, under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code) and to satisfy conditions which enable dividends on common stock which are
attributable to interest on municipal obligations to be exempt from federal income tax in the hands of owners of such stock, subject to the possible application of the federal alternative minimum tax.
57
Congress passed the RIC Modernization Act on December 22, 2010 (the RIC Mod
Act) which makes certain beneficial changes for RICs and their shareholders, some of which are referenced below. In general, the RIC Mod Act contains simplification provisions effective for taxable years beginning after December 22, 2010,
which are aimed at preventing disqualification of a RIC for inadvertent failures of the asset diversification and/or qualifying income tests. Additionally, the RIC Mod Act allows capital losses to be carried forward indefinitely, and
retain the character of the original loss, exempts RICs from the preferential dividend rule, and repealed the 60-day designation requirement for certain types of income and gains.
To qualify under Subchapter M of the Code as a regulated investment company, the Fund must, among other things: (a) distribute to
its shareholders each year at least 90% of the sum of (i) its investment company taxable income (as that term is defined in the Code, determined without regard to the deduction for dividends paid) and (ii) its net tax-exempt income (the
excess of its gross tax-exempt interest income over certain disallowed deductions) and (b) diversify its holdings so that, at the end of each quarter of the Funds taxable year (i) at least 50% of the market value of the Funds
assets is represented by cash, cash items, U.S. government securities, securities of other regulated investment companies, and other securities, with these other securities limited, with respect to any one issuer, to an amount not greater in value
than 5% of the Funds total assets, and to not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the market value of the Funds assets is invested in the securities of any one issuer
(other than U.S. government securities or securities of other regulated investment companies) or two or more issuers controlled by the Fund and engaged in the same, similar or related trades or businesses, or one or more publicly traded
partnerships. In meeting these requirements, the Fund may be restricted in the utilization of certain of the investment techniques described under Investment Policies and Techniques and Other Investment Policies and
Techniques above.
If the Fund fails to satisfy the qualifying income or diversification requirements in any taxable
year, the Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is
provided for certain de minimis failures of the diversification requirements where the Fund corrects the failure within a specified period of time. If the Fund fails to qualify as a RIC, and these relief provisions are not available, the Fund will
be taxable at regular corporate rates (and, to the extent applicable, corporate alternative minimum tax). In such an event, all distributions (including capital gains distributions) will be taxable as ordinary dividends to the extent of the
Funds current and accumulated earnings and profits, subject to the dividends-received deduction for corporate shareholders and the lower tax rates applicable to qualified dividend income distributed to individuals. In addition, the Fund could
be required to recognize unrealized gains, pay substantial taxes and interest, and make substantial distributions before re-qualifying as a RIC.
A regulated investment company that fails to distribute, by the close of each calendar year, an amount equal to the sum of 98% of its ordinary taxable income for such year and 98.2% of its capital gain
net income for the one-year period ending October 31 in such year, plus any shortfalls from the prior years required distribution, is liable for a nondeductible 4% federal excise tax on the excess of the required distribution for such
calendar year over the distributed amount for such calendar year. To avoid the imposition of this excise tax, the Fund generally intends to make the required distributions of its ordinary taxable income, if any, and its capital gain net income, to
the extent possible, by the close of each calendar year.
As described in Distributions above, the Fund may retain
for investment some (or all) of its net capital gain. If the Fund retains any net capital gain or investment company taxable income, it will be subject to tax at regular corporate rates on the amount retained. If the Fund retains any net capital
gain, it may designate the retained amount as undistributed capital gains in a notice to its shareholders who, if subject to federal income tax on long-term capital gains, (i) will be required to include in income for federal income tax
purposes, as long-term capital gain, their share of such undistributed amount; (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if
any; and (iii) to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference
58
between the amount of undistributed capital gains included in the shareholders gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
The Fund intends to qualify to pay exempt-interest dividends, as defined in the Code, to its common stock by
satisfying the requirement that, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consist of tax-exempt municipal bonds. Exempt-interest dividends are dividends or any part thereof (other than a capital
gain dividend) paid by the Fund which are attributable to interest on municipal bonds and are so designated by the Fund. Exempt-interest dividends will be exempt from federal income tax, subject to the possible application of the federal alternative
minimum tax. Insurance proceeds received by the Fund under any insurance policies in respect of scheduled interest payments on defaulted municipal bonds, as described herein, will generally be excludable from federal gross income under
Section 103(a) of the Code. In the case of non-appropriation by a political subdivision, however, there can be no assurance that payments made by the issuer representing interest on such non-appropriation municipal lease obligations
will be excludable from gross income for federal income tax purposes
.
See Investment Policies and Techniques above. Gains of the Fund that are attributable to market discount on certain municipal obligations are treated as
ordinary income to the extent of accrued market discount on the bond.
Recent legislation effective beginning in 2013 provides
that U.S. individuals with income exceeding $200,000 ($250,000 if married and filing jointly) will be subject to a new 3.8% Medicare contribution tax on their net investment income, including interest, dividends, and capital gains
(including capital gains realized on the sale or exchange of shares of the Fund), but net investment income for this purpose does not include exempt-interest dividends.
A portion of the Funds expenditures that would otherwise be deductible may not be allowed as deductions by reason of the
Funds investment in municipal securities (which such disallowed portion, in general, being the same percentage of the Funds aggregate expenses as the percentage of the Funds aggregate income that constitutes exempt interest income
from municipal securities). A similar disallowance rule also applied to interest expense paid or incurred by the Fund, if any. Such disallowed deductions, if any, will reduce the amount that the Fund can designate as exempt-interest dividends by the
disallowed amount.
The Funds investment in zero coupon bonds will cause it to realize income prior to the receipt of
cash payments with respect to these bonds. Such income will be accrued daily by the Fund and, in order to avoid a tax payable by the Fund, the Fund may be required to liquidate securities that it might otherwise continue to hold in order to generate
cash so that the Fund may make required distributions to its shareholders.
Distributions to shareholders of net investment
income received by the Fund from taxable temporary investments, if any, and of net short-term capital gains realized by the Fund, if any, will be taxable to its shareholders as ordinary income. Distributions by the Fund of net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss), if any, are taxable as long-term capital gain, regardless of the length of time the shareholder has owned the shares with respect to which such distributions are made. The
amount of taxable income allocable to the Funds shares will depend upon the amount of such income realized by the Fund, but is not generally expected to be significant. Distributions, if any, in excess of the Funds earnings and profits
will first reduce the adjusted tax basis of a shareholders shares and, after that basis has been reduced to zero, will constitute capital gain to the shareholder (assuming the shares are held as a capital asset). As long as the Fund qualifies
as a regulated investment company under the Code, it is not expected that any part of its distributions to shareholders from its investments will qualify for the dividends-received deduction available to corporate shareholders or as qualified
dividend income available to noncorporate shareholders.
The Internal Revenue Service (the IRS) indicates
that the Fund is required to designate distributions paid with respect to its Common Stock and its VRDP Shares, as consisting of a portion of each type of income distributed by the Fund. The portion of each type of income deemed received by the
holders of each class of shares will be equal to the portion of total Fund dividends received by such class. Thus, the Fund will designate
59
dividends paid as exempt-interest dividends in a manner that allocates such dividends between the holders of the common stock and the preferred VRDP Shares, in proportion to the total dividends
paid to each such class during or with respect to the taxable year, or otherwise as required by applicable law. Capital gain dividends and ordinary income dividends will similarly be allocated between the two classes.
The Code provides that interest on indebtedness incurred or continued to purchase or carry the Funds shares to which
exempt-interest dividends are allocated is not deductible. Under rules used by the IRS for determining when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase or ownership of shares may be
considered to have been made with borrowed funds even though such funds are not directly used for the purchase or ownership of such shares.
The interest on private activity bonds in most instances is not federally tax-exempt to a person who is a substantial user of a facility financed by such bonds or a related person
of such substantial user. As a result, the Fund may not be an appropriate investment for a shareholder who is considered either a substantial user or a related person within the meaning of the Code. In general, a
substantial user of a facility includes a nonexempt person who regularly uses a part of such facility in his trade or business. Related persons are in general defined to include persons among whom there exists a
relationship, either by family or business, which would result in a disallowance of losses in transactions among them under various provisions of the Code (or if they are members of the same controlled group of corporations under the Code),
including a partnership and each of its partners (and certain members of their families), an S corporation and each of its shareholders (and certain members of their families) and various combinations of these and other relationships. The foregoing
is not a complete description of all of the provisions of the Code covering the definitions of substantial user and related person.
Although dividends generally will be treated as distributed when paid, dividends declared in October, November or December, payable to shareholders of record on a specified date in one of those months and
paid during the following January, will be treated as having been distributed by the Fund (and received by the shareholders) on December 31 of the year declared.
Certain of the Funds investment practices are subject to special provisions of the Code that, among other things, may defer the use of certain deductions or losses of the Fund, affect the holding
period of securities held by the Fund, and alter the character of the gains or losses realized by the Fund. These provisions may also require the Fund to recognize income or gain without receiving cash with which to make distributions in the amounts
necessary to satisfy the requirements for maintaining regulated investment company status and for avoiding income and excise taxes. The Fund will monitor its transactions and may make certain tax elections in order to mitigate the effect of these
rules and prevent disqualification of the Fund as a regulated investment company.
For taxable years beginning after
December 22, 2010, the Fund may elect to treat part or all of any qualified late year loss as if it had been incurred in the succeeding taxable year in determining the Funds taxable income, net capital gain, net short-term
capital gain, and earnings and profits. The effect of this election is to treat any such qualified late year loss as if it had been incurred in the succeeding taxable year in characterizing Fund distributions for any calendar. A
qualified late year loss generally includes net capital loss, net long-term capital loss, or net short-term capital loss incurred after October 31 of the current taxable year (commonly referred to as post-October losses)
and certain other late-year losses.
The RIC Mod Act changed the treatment of capital loss carryovers for RICs. The new rules
are similar to those that apply to capital loss carryovers of individuals are made applicable to RICs and provide that such losses are carried over by the Fund indefinitely. Thus, if the Fund has a net capital loss (that is, capital
losses in excess of capital gains) for a taxable year beginning after December 22, 2010, the excess of the Funds net short-term capital losses over its net long-term capital gains is treated as a short-term capital loss arising on the
first day of such Funds next taxable year, and the excess (if any) of the Funds net long-term capital losses over its net short-term capital gains is treated as a long-term capital loss arising on the first day of the Funds next
taxable
60
year. Certain transition rules require post-enactment capital losses to be utilized first, which, depending on the circumstances for the Fund, may result in the expiration of unused pre-enactment
losses. In addition, the carryover of capital losses may be limited under the general loss limitation rules if the Fund experiences an ownership change as defined in the Code.
The redemption, sale or exchange of common stock normally will result in capital gain or loss to holders of common stock who hold their shares as capital assets. Generally a shareholders gain or
loss will be long-term capital gain or loss if the shares have been held for more than one year even though the increase in value in such common stock is attributable to tax-exempt interest income. Present law taxes both long-term and short-term
capital gains of corporations at the same rates applicable to ordinary income. For non-corporate taxpayers, however, long-term capital gains are currently taxed at a maximum rate of 15%, while short-term capital gains and other ordinary income are
currently taxed at ordinary income rates. Absent further legislation, the maximum rates applicable to long-term capital gains will cease to apply to taxable years beginning after December 31, 2012 and the maximum rate on long-term capital gains
will return under current law to 20%. Any loss on the sale of common stock that have been held for six months or less will be disallowed to the extent of any distribution of exempt-interest dividends received with respect to such common stock. If a
shareholder sells or otherwise disposes of common stock before holding them for six months, any loss on the sale or disposition will be treated as a long-term capital loss to the extent of any capital gain dividends received by the common
shareholder. Any loss realized on a sale or exchange of shares of the Fund will be disallowed to the extent those shares of the Fund are replaced by other substantially identical shares of the Fund within a period of 61 days beginning 30 days before
and ending 30 days after the date of disposition of the original shares. In that event, the basis of the replacement shares of the Fund will be adjusted to reflect the disallowed loss.
Federal income tax law imposes an alternative minimum tax with respect to corporations, individuals, trusts and estates. Interest on
certain municipal obligations, such as bonds issued to make loans for housing purposes or to private entities (but not to certain tax-exempt organizations such as universities and non-profit hospitals) is included as an item of tax preference in
determining the amount of a taxpayers alternative minimum taxable income. To the extent that the Fund receives income from municipal obligations subject to the federal alternative minimum tax, a portion of the dividends paid by the Fund,
although otherwise exempt from federal income tax, will be taxable to its shareholders to the extent that their tax liability is determined under the federal alternative minimum tax. The Fund will annually provide a report indicating the percentage
of the Funds income attributable to municipal obligations subject to the federal alternative minimum tax. In addition, for certain corporations, federal alternative minimum taxable income is increased by 75% of the difference between an
alternative measure of income (adjusted current earnings) and the amount otherwise determined to be the alternative minimum taxable income. Interest on all municipal obligations, and therefore all distributions by the Fund that would
otherwise be tax-exempt, is included in calculating a corporations adjusted current earnings. Certain small corporations are not subject to the federal alternative minimum tax.
Tax-exempt income, including exempt-interest dividends paid by the Fund, is taken into account in calculating the amount of social
security and railroad retirement benefits that may be subject to federal income tax.
The Fund is required in certain
circumstances to withhold a portion of taxable dividends and certain other payments paid to certain holders of the Funds shares who do not furnish to the Fund their correct taxpayer identification number (in the case of individuals, their
social security number) and certain certifications, or who are otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld from payments made to a shareholder may be refunded or credited against such
shareholders federal income tax liability, provided the required information is furnished to the IRS.
The Code provides
that every shareholder required to file a tax return must include for information purposes on such return the amount of tax-exempt interest received during the taxable year, including any exempt-interest dividends received from the Fund.
61
For payments made on or after January 1, 2014, a U.S. withholding tax at a 30% rate will be
imposed on dividends and proceeds from the sale of Fund shares received by shareholders who own their shares through foreign accounts or foreign intermediaries if certain disclosure requirements related to U.S. accounts or ownership are not
satisfied.
STATE AND LOCAL TAX MATTERS
The exemption from U.S. federal income tax for exempt-interest dividends generally does not result in exemption for such dividends under the income or other tax laws of any state or local taxing
authority. In some states, however, the portion of any exempt-interest dividends derived from interest received by the Fund on its holdings of that states securities and its political subdivisions and instrumentalities is exempt from the
states income tax. The Fund will report annually to its shareholders the percentage of interest income earned by the Fund during the preceding year on tax-exempt obligations indicating, on a state-by-state basis, the source of such income.
Stockholders of the Fund are advised to consult with their own tax advisors about state and local tax matters.
The foregoing
is a general summary of certain provisions of the Code and regulations thereunder presently in effect as they directly govern the federal income taxation of the Fund and its shareholders. These provisions are subject to change by legislative or
administrative action, and any such change may be retroactive. Moreover, the foregoing does not address many of the factors that may be determinative of whether an investor will be liable for the alternative minimum tax. Stockholders are advised to
consult their own tax advisors for more detailed information concerning the federal, foreign, state and local tax consequences of purchasing, holding and disposing of Fund shares.
FINANCIAL STATEMENTS
The Financial Statements and the independent registered public accounting firms reports thereon, appearing in the Funds annual shareholder report for the fiscal year ended October 31, 2011 are
incorporated herein by reference in this Statement of Additional Information. The Funds annual and semi-annual shareholder reports may be obtained without charge by calling (800) 257-8787.
CUSTODIAN AND TRANSFER AGENT
The custodian of the assets of the Fund is State Street Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02110. The
Custodian performs custodial, fund accounting and portfolio accounting services. The Funds transfer, shareholder services and dividend paying agent is also State Street (the Transfer Agent). The Transfer Agent is located at 250
Royall Street, Canton, Massachusetts 02021.
LEGAL OPINION
Certain legal matters in connection with the Common Stock will be passed upon for the Fund by Morgan, Lewis & Bockius LLP,
Washington, DC. Morgan, Lewis & Bockius LLP will rely as to certain matters under Minnesota law on the opinion of Dorsey & Whitney LLP, Minneapolis, MN.
62
ADDITIONAL INFORMATION
A Registration Statement on Form N-2, including amendments thereto, relating to the shares of the Fund offered hereby, has been filed by
the Fund with the SEC, Washington, DC. The Funds Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration Statement, including any exhibits and schedules thereto. For further
information with respect to the Fund and the shares offered hereby, reference is made to the Funds Registration Statement. Statements contained in the Funds Prospectus and this Statement of Additional Information as to the contents of
any contract or other document referred to are not necessarily complete and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement may be inspected without charge at the SECs principal office in Washington, DC, and copies of all or any part thereof may be obtained from the SEC upon the payment of certain
fees prescribed by the SEC.
63
APPENDIX A
Ratings of Investments
Standard & Poors CorporationA brief description of the applicable Standard & Poors Corporation, a
division of The McGraw-Hill Companies (Standard & Poors or S&P), rating symbols and their meanings (as published by S&P) follows:
A Standard & Poors issue credit rating is a current opinion of the creditworthiness of an obligor with respect to a
specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated. The opinion evaluates the obligors capacity and willingness to meet its financial commitments as they
come due, and may assess terms, such as collateral security and subordination, which could affect ultimate payment in the event of default. The issue credit rating is not a recommendation to purchase, sell, or hold a financial obligation, inasmuch
as it does not comment as to market price or suitability for a particular investor.
Issue credit ratings are based on current
information furnished by the obligors or obtained by Standard & Poors from other sources it considers reliable. Standard & Poors does not perform an audit in connection with any credit rating and may, on occasion, rely
on unaudited financial information. Credit ratings may be changed, suspended, or withdrawn as a result of changes in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either long term or short term. Short-term ratings are generally assigned to those obligations considered
short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 daysincluding commercial paper. Short-term ratings are also used to indicate the creditworthiness of an obligor
with respect to put features on long-term obligations. The result is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term notes are assigned long-term ratings.
LONG-TERM ISSUE CREDIT RATINGS
Issue credit ratings are based, in varying degrees, on the following considerations:
Likelihood of paymentcapacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation;
Nature of and provisions of the obligation;
Protection afforded by, and relative position of, the obligation in the event of bankruptcy,
reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors rights.
Issue
ratings are an assessment of default risk, but may incorporate an assessment of relative seniority or ultimate recovery in the event of default. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in
bankruptcy, as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
AAA
An
obligation rated AAA has the highest rating assigned by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is extremely strong.
A-1
AA
An obligation rated AA differs from the highest-rated obligations only to a small degree. The obligors capacity to meet its financial commitment on the obligation is very strong.
A
An obligation rated A is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions
than obligations in higher-rated categories. However, the obligors capacity to meet its financial commitment on the obligation is still strong.
BBB
An obligation rated BBB exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC, CC, and C
Obligations rated BB, B, CCC, CC, and C are regarded as having significant speculative characteristics. BB indicates the least
degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB
An
obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligors
inadequate capacity to meet its financial commitment on the obligation.
B
An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has
the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligors capacity or willingness to meet its financial commitment on the obligation.
CCC
An
obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated CC is currently highly vulnerable to
nonpayment.
C
A C rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an
issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the C rating may be assigned to subordinated debt, preferred stock or other obligations on which cash
payments have been suspended in accordance with the instruments terms.
A-2
D
An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not
expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on
an obligation are jeopardized.
Plus (+) or minus (-)
The ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
NR
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poors does not rate a particular obligation as a
matter of policy.
Short-Term Issue Credit Ratings
A-1
A
short-term obligation rated A-1 is rated in the highest category by Standard & Poors. The obligors capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are
designated with a plus sign (+). This indicates that the obligors capacity to meet its financial commitment on these obligations is extremely strong.
A-2
A short-term obligation rated A-2 is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligors capacity to meet its financial commitment on the obligation is satisfactory.
A-3
A
short-term obligation rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
B
A short-term obligation rated B is regarded as having significant speculative characteristics. Ratings of B-1, B-2, and B-3 may be assigned to indicate
finer distinctions within the B category. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity
to meet its financial commitment on the obligation.
B-1.
A short-term obligation rated B-1 is regarded as having significant speculative characteristics, but the obligor has a
relatively stronger capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
B-2.
A short-term obligation rated B-2 is regarded as having
significant speculative characteristics, and the obligor has an average speculative-grade capacity to meet its financial commitments over the short-term compared to other speculative-grade obligors.
A-3
B-3.
A short-term obligation rated B-3 is regarded as having significant speculative characteristics, and the obligor has a relatively weaker capacity to meet its financial commitments over the
short-term compared to other speculative-grade obligors.
C
A short-term obligation rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and
economic conditions for the obligor to meet its financial commitment on the obligation.
D
A short-term obligation rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poors believes that such payments will be made during such grace period. The D rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Dual
Ratings
Standard & Poors assigns dual ratings to all debt issues that have a put option or demand
feature as part of their structure. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term rating symbols are used for bonds to denote the
long-term maturity and the short-term rating symbols for the put option (for example, AAA/A-1+). With U.S. municipal short-term demand debt, note rating symbols are used with the short-term issue credit rating symbols (for example,
SP-1+/A-1+).
Moodys Investors Service, Inc.A brief description of the applicable Moodys
Investors Service, Inc. (Moodys) rating symbols and their meanings (as published by Moodys) follows:
Municipal Bonds
Aaa
Bonds that are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to as gilt edged. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa
Bonds mat are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other elements present mat make the long-term risks appear somewhat larger than in Aaa securities.
A
Bonds that
are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa
Bonds that are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the present but certain
A-4
protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba
Bonds that are rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B
Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa
Bonds that are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal or interest.
Ca
Bonds that are rated Ca represent obligations that are speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
C
Bonds that are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor Prospects of ever attaining any real investment standing.
#(hatchmark): Represents issues that are secured by escrowed funds held in cash, held in trust, invested and reinvested in direct,
non-callable, non-prepayable United States government obligations or non-callable, non-prepayable obligations unconditionally guaranteed by the U.S. Government, Resolution Funding Corporation debt obligations.
Con. (...): Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated
conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operation experience, (c) rentals that begin when facilities are completed, or (d) payments to which
some other limiting condition attaches. The parenthetical rating denotes probable credit stature upon completion of construction or elimination of the basis of the condition.
(P): When applied to forward delivery bonds, indicates the rating is provisional pending delivery of the bonds. The rating may be revised prior to delivery if changes occur in the legal documents or the
underlying credit quality of the bonds.
Note: Moodys applies numerical modifiers 1,2 and 3 in each generic rating
classification from Aa through Caa. The modifier 1 indicates mat the issue ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
Short-Term Loans
MIG 1/VMIG 1
This designation denotes best quality. There is present strong
protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
A-5
MIG 2/VMIG 2
This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3
This designation denotes favorable quality. All security elements
are accounted for but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
MIG 4/VMIG 4
This designation denotes adequate quality. Protection commonly regarded as required of an investment security is present and although not
distinctly or predominantly speculative, there is specific risk.
SG
This designation denotes speculative quality. Debt instruments in this category lack margins of protection.
Commercial Paper
Issuers (or supporting institutions) rated Prime-1 have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment ability will normally be evidenced by the following
characteristics:
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Leading market positions in well-established industries.
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High rates of return on funds employed.
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Conservative capitalization structures with moderate reliance on debt and ample asset protection.
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Broad margins in earnings coverage of fixed financial charges and high internal cash generation.
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Well-established access to a range of financial markets and assured sources of alternate liquidity.
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Issuers (or supporting institutions) rated Prime-2 have a strong ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation than is the case for Prime-2 securities. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained.
Issuers (or
supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term debt obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability
may result in changes in the level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
Fitch RatingsA brief description of the applicable Fitch Ratings (Fitch) ratings symbols and meanings (as published by
Fitch) follows:
Long-Term Credit Ratings
Investment Grade
AAA
Highest credit quality. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of
exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
A-6
AA
Very high credit quality. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely payment of financial commitments. This capacity is not
significantly vulnerable to foreseeable events.
A
High credit quality. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more
vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings.
BBB
Good credit quality. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Speculative Grade
BB
Speculative. BB ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment
grade.
B
Highly speculative. B ratings indicate that significant credit risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for
continued payment is contingent upon a sustained, favorable business and economic environment.
CCC, CC, C
High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal imminent default.
DDD, DD, and D Default
The ratings of obligations in this category are based on
their Prospects for achieving partial or full recovery in a reorganization or liquidation of the obligor. While expected recovery values are highly speculative and cannot be estimated with any precision, the following serve as general guidelines.
DDD obligations have the highest potential for recovery, around 90%-100% of outstanding amounts and accrued interest DD indicates potential recoveries in the range of 50%-90%, and D the lowest recovery potential,
i.e., below 50%. Entities rated in this category have defaulted on some or all of their obligations. Entities rated DDD have the highest Prospect for resumption of performance or continued operation with or without a formal
reorganization process. Entities rated DD and D are generally undergoing a formal reorganization or liquidation process; those rated DD are likely to satisfy a higher portion of their outstanding obligations,
while entities rated D have a poor Prospect for repaying all obligations.
Short-Term Credit Ratings
The following ratings scale applies to foreign currency and local currency ratings. A Short-term rating has a time horizon
of less than 13 months for most obligations, or up to three years for US public finance, in line with
A-7
industry standards, to reflect unique risk characteristics of bond, tax, and revenue anticipation notes that are commonly issued with terms up to three years. Short-term ratings thus place
greater emphasis on the liquidity necessary to meet financial commitments in a timely manner.
Fl
Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; may have an added + to
denote any exceptionally strong credit feature.
F2
Good credit quality. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the case of the higher ratings.
F3
Fair credit
quality. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a reduction to non-investment grade.
B
Speculative Minimal capacity for timely payment of financial commitments, plus
vulnerability to near-term adverse changes in financial and economic conditions.
C
High default risk. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D
Default. Denotes actual or imminent payment default.
Notes to Long-term and
Short-term ratings:
+ or - may be appended to a rating to denote relative status within major rating categories. Such
suffixes are not added to the AAA Long-term rating category, to categories below CCC, or to Short-term ratings other than FT.
NR indicates that Fitch Ratings does not rate the issuer or issue in question.
Withdrawn: A rating is withdrawn when Fitch Ratings deems the amount of information available to be inadequate for rating purposes, or when an obligation matures, is called, or refinanced.
Rating Watch: Ratings are placed on Rating Watch to notify investors that there is a reasonable probability of a rating
change and the likely direction of such change. These are designated as Positive, indicating a potential upgrade, Negative, for a potential downgrade, or Evolving, if ratings may be raised, lowered or maintained.
Rating Watch is typically resolved over a relatively short period.
A Rating Outlook indicates the direction a rating is
likely to move over a one to two year period. Outlooks may be positive, stable, or negative. A positive or negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which outlooks are stable could be
downgraded before an outlook moves to positive or negative if circumstances warrant such an action. Occasionally, Fitch Ratings may be unable to identify the fundamental trend. In these cases, the Rating Outlook may be described as evolving.
A-8
APPENDIX B
DERIVATIVE STRATEGIES AND RISKS
Set forth below is additional information regarding the various techniques involving the use of derivatives.
FINANCIAL FUTURES
A financial future is an agreement between two parties to buy
and sell a security for a set price on a future date. They have been designed by boards of trade which have been designated contracts markets by the Commodity Futures Trading Commission (CFTC).
The purchase of financial futures is for the purpose of hedging the Funds existing or anticipated holdings of long-term debt
securities. For example, if the Fund desires to increase its exposure to long-term bonds and has identified long-term bonds it wishes to purchase at a future time, but expects market interest rates to decline (thereby causing the value of those
bonds to increase), it might purchase financial futures. If interest rates did decrease, the value of those to-be-purchased long-term bonds would increase, but the value of the Funds financial futures would be expected to increase at
approximately the same rate, thereby helping maintain the Funds purchasing power. When the Fund purchases a financial future, it deposits in cash or securities an initial margin, typically equal to an amount between 1% and 5% of
the contract amount. Thereafter, the Funds account is either credited or debited on a daily basis in correlation with the fluctuation in price of the underlying future or other requirements imposed by the exchange in order to maintain an
orderly market. The Fund must make additional payments to cover debits to its account and has the right to withdraw credits in excess of the liquidity, the Fund may close out its position at any time prior to expiration of the financial future by
taking an opposite position. At closing a final determination of debits and credits is made, additional cash is paid by or to the Fund to settle the final determination and the Fund realizes a loss or gain depending on whether on a net basis it made
or received such payments.
The sale of financial futures is for the purpose of hedging the Funds existing or
anticipated holdings of long-term debt securities. For example, if the Fund owns long-term bonds and market interest rates were expected to increase (causing those bonds values to decline), it might sell financial futures. If interest rates
did increase, the value of long-term bonds in the Funds portfolio would decline, but the value of the Funds financial futures would be expected to increase at approximately the same rate thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have.
Among the risks associated with the use of financial futures by the Fund
as a hedging or anticipatory device, perhaps the most significant is the imperfect correlation between movements in the price of the financial futures and movements in the price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price of the securities which are the subject of the hedge, the
hedge will not be fully effective. To compensate for this imperfect correlation, the Fund may enter into financial futures in a greater dollar amount than the dollar amount of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the financial futures. Conversely, the Fund may enter into fewer financial futures if the historical volatility of the price of the securities being hedged is less than the
historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes in the volume of closing transactions, whether due to volatile markets or movements by speculators, would temporarily distort the normal relationship between the markets
in the financial future and the chosen debt securities. In these circumstances as well as in periods of rapid and large price movements. The Fund might find it difficult or impossible to close out a particular transaction.
B-1
OPTIONS ON FINANCIAL FUTURES
The Fund may also purchase put or call options on financial futures which are traded on a U.S. Exchange or board of trade and enter into closing transactions with respect to such options to terminate an
existing position. The purchase of put options on financial futures is analogous to the purchase of put options by the Fund on its portfolio securities to hedge against the risk of rising interest rates. As with options on debt securities, the
holder of an option may terminate his position by selling an option of the Fund. There is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
INDEX FUTURES
A tax-exempt bond index which assigns relative values to the tax-exempt bonds included in the index is traded on the Chicago Board of
Trade. The index fluctuates with changes in the market values of all tax-exempt bonds included rather than a single bond. An index future is a bilateral agreement pursuant to which two parties agree to take or make delivery of an amount of
cash-rather than any security-equal to a specified dollar amount times the difference between the index value at the close of the last trading day of the contract and the price at which the index future was originally written. Thus, an index future
is similar to traditional financial futures except that settlement is made in cash.
INDEX OPTIONS
The Fund may also purchase put or call options on U.S. Government or tax- exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on index futures are similar to options on debt instruments except that an option on an index future gives the purchaser the right, in return for the premium paid, to assume a
position in an index contract rather than an underlying security at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder
of the option will be accompanied by delivery of the accumulated balance of the writers futures margin account which represents the amount by which the market price of the index futures contract, at exercise, is less than the exercise price of
the option on the index future.
Bond index futures and options transactions would be subject to risks similar to transactions
in financial futures and options thereon as described above.
SWAP AGREEMENTS
Swap agreements are two-party contracts entered into primarily by institutional investors, typically for periods ranging from a few weeks
to several years. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or swapped
between the parties are calculated with respect to a notional amount (the amount or value of the underlying asset used in computing the particular interest rate, return, or other amount to be exchanged) of a particular security, or in a basket of
securities representing a particular index. Swap agreements may include, by way of example, (i) interest rate swaps, in which one party exchanges a commitment to pay a floating, shorter-term interest rate (typically by reference to the rate of
a specific security or index) for the other partys commitment to pay a fixed, longer-term interest rate (either as specifically agreed, or by reference to a specified security or index); (ii) interest rate caps, in which, in return for a
premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate or cap; (iii) interest rate floors, in which, in return for a premium, one party agrees to make payments to the other to the
extent that interest rates fall below a specified level or floor; (iv) interest rate collars, in which a party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given
minimum or maximum levels or collar amounts; (v) total return swaps, in which one party commits to pay the total return of an underlying security or asset in return for receiving from the other party a
B-2
specified return or the return of another instrument (typically a floating short-term interest rate), and (vi) credit default swap, in which the buyer pays a periodic fee in return for a
contingent payment by the seller upon a credit event (such as a default) happening with respect to a specified instrument, typically in an amount equivalent to the loss incurred on a specific investment in that security due to the credit event.
A Fund may enter into such swap agreements for any purpose consistent with the Funds investment objective, such as for
the purpose of attempting to obtain, enhance, or preserve a particular desired return or spread at a lower cost to the Fund than if the Fund had invested directly in an instrument that yielded that desired return or spread. The Fund also may enter
into swaps in order to protect against an increase in the price of securities that the Fund anticipates purchasing at a later date.
Whether the Funds use of swap agreements will be successful in furthering its investment objective will depend, in part, on the ability to predict correctly whether certain types of investments are
likely to produce greater returns than other investments and the changes in the future values, indices, or rates covered by the swap agreement. Swap agreements may be considered to be illiquid. Moreover, the Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The Fund will enter swap agreements only with counterparties that the Adviser reasonably believes are capable of performing
under the swap agreements. If there is a default by the other party to such a transaction, the Fund will have to rely on its contractual remedies (which may be limited by bankruptcy, insolvency or similar laws) pursuant to the agreements related to
the transaction. Certain restrictions imposed on the Fund by the Internal Revenue Code of 1986 may limit the Funds ability to use swap agreements. The swap market is largely unregulated.
B-3
Nuveen Select Quality Municipal Fund, Inc.
STATEMENT OF ADDITIONAL INFORMATION
April 11,
2012
PART COTHER INFORMATION
Item 25: Financial Statements and Exhibits
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Financial Highlights for the fiscal years ended October 31, 2011, 2010, 2009, 2008, 2007, 2006, 2005, 2004, 2003, 2002.
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Financial Highlights are incorporated in Part B by reference to Registrants October 31, 2011 Annual Report (audited) on Form N-CSR as filed with the SEC on
January 6, 2012.
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a.1
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Articles of Incorporation of Nuveen Select Quality Municipal Fund, Inc. (the Fund or the Registrant) dated January 23, 1991. Filed on September 24, 2010 as
Exhibit a.1 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
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a.2
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Articles of Amendment to the Articles of Incorporation of the Registrant (Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred
Stock) dated October 1, 1996. Filed on September 24, 2010 as Exhibit a.2 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
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a.3
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Articles of Amendment to the Articles of Incorporation of the Registrant (Statement Establishing and Fixing the Rights and Preferences of Municipal Auction Rate Cumulative Preferred
Stock, Series TH) dated December 18, 1998. Filed on September 24, 2010 as Exhibit a.3 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
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b.
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By-Laws of Registrant (Amended and Restated as of February 20, 2006).*
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c.
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None.
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d.1
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Form of Share Certificate. Filed on September 24, 2010 as Exhibit d.1 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference
herein.
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d.2
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Rating Agency Guidelines. Filed on September 24, 2010 as Exhibit d.2 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference
herein.
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d.3
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Form of Statement Establishing and Fixing the Rights and Preferences of Registrants Variable Rate Demand Preferred (VRDP) Shares.*
|
|
|
|
d.4
|
|
|
Form of Deposit Agreement. Filed on September 24, 2010 as Exhibit d.4 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference
herein.
|
|
|
|
e.
|
|
|
Terms and Conditions of the Automatic Dividend Reinvestment Plan. Filed on September 24, 2010 as Exhibit e to Registrants Registration Statement on Form N-2 (File No.
333-169575) and incorporated by reference herein.
|
|
|
|
f.
|
|
|
None.
|
|
|
|
g.1
|
|
|
Investment Management Agreement between Registrant and Nuveen Asset Management (now, Nuveen Fund Advisors, Inc.) dated November 13, 2007 (Investment Management
Agreement).*
|
|
|
|
g.2
|
|
|
Sub-Advisory Agreement between Nuveen Fund Advisors, Inc. and Nuveen Asset Management, LLC dated December 31, 2010.*
|
|
|
|
h.1
|
|
|
Form of Underwriting Agreement. Filed on May 27, 1999 as Exhibit h to Registrants Registration Statement on Form N-2 (File No. 333-79433) and incorporated by reference
herein.
|
|
|
|
h.2
|
|
|
Form of Standard Dealer Agreement.*
|
|
|
|
h.3
|
|
|
Form of Nuveen Master Selected Dealer Agreement.*
|
|
|
|
h.4
|
|
|
Form of Dealer Letter Agreement. Filed on September 24, 2010 as Exhibit h.5 to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by
reference herein.
|
|
|
|
h.5
|
|
|
Form of Distribution Agreement between Registrant and Nuveen Investments, LLC (now, Nuveen Securities, LLC).**
|
|
|
|
h.6
|
|
|
Form of Selected Dealer Agreement (Common Stock).**
|
C-1
|
|
|
|
|
|
|
|
h.7
|
|
|
Form of Morgan Stanley & Co. Incorporated Master Agreement Among Underwriters.*
|
|
|
|
i.
|
|
|
Nuveen Open-End and Closed-End Funds Deferred Compensation Plan for Independent Directors and Trustees (as amended and restated effective January 1, 2009). Filed on September 24,
2010 as Exhibit i to Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
|
|
|
|
j.1
|
|
|
Amended and Restated Master Custodian Agreement between Registrant and State Street Bank and Trust Company dated February 25, 2005. Filed on September 24, 2010 as Exhibit j.1 to
Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
|
|
|
|
j.2
|
|
|
Appendix A dated March 9, 2012 to the Amended and Restated Master Custodian Agreement dated February 25, 2005.*
|
|
|
|
k.1
|
|
|
Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company dated October 7, 2002. Filed on September 24, 2010 as Exhibit k.1 to
Registrants Registration Statement on Form N-2 (File No. 333-169575) and incorporated by reference herein.
|
|
|
|
k.2
|
|
|
Schedule A dated May 25, 2011 to the Transfer Agency and Service Agreement dated October 7, 2002.*
|
|
|
|
k.3
|
|
|
Amendment to the Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company dated July 1, 2011.*
|
|
|
|
l.
|
|
|
Opinion and Consent of Morgan, Lewis & Bockius LLP.**
|
|
|
|
m.
|
|
|
Not Applicable.
|
|
|
|
n.
|
|
|
Consent of Ernst & Young LLP.*
|
|
|
|
o.
|
|
|
None.
|
|
|
|
p.
|
|
|
Not Applicable.
|
|
|
|
q.
|
|
|
None.
|
|
|
|
r.
|
|
|
Code of Ethics and Reporting Requirements of Nuveen Investments, Inc. (including affiliated entities) and the Nuveen Funds dated January 1, 2011.*
|
|
|
|
s.
|
|
|
Powers of Attorney.*
|
**
|
To be filed by amendment.
|
Item 26:
Marketing Arrangements
See the relevant Sections of the Form of Underwriting Agreement filed as Exhibit h.1 to this
Registration Statement.
See the relevant Sections of the Form of Standard Dealer Agreement filed as Exhibit h.2 to this
Registration Statement and the Introductory Paragraph and Sections 2 and 3 of the Form of Nuveen Master Selected Dealer Agreement filed as Exhibit h.3 to this Registration Statement.
See Paragraph e of the Form of Dealer Letter Agreement between Nuveen and the underwriters filed as Exhibit h.4 to this Registration
Statement.
Item 27: Other Expenses of Issuance and Distribution
|
|
|
|
|
Printing and Engraving Fees
|
|
$
|
40,000
|
|
Legal Fees
|
|
|
65,000
|
|
Accounting Fees
|
|
|
5,000
|
|
FINRA
|
|
|
5,882
|
|
Stock Exchange Fees
|
|
|
11,900
|
|
Securities and Exchange Commission Registration Fees
|
|
|
6,168
|
|
Miscellaneous Fees
|
|
|
6,050
|
|
|
|
|
|
|
Total
|
|
$
|
140,000
|
|
|
|
|
|
|
C-2
Item 28: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 29: Number of Holders of Securities
As of January 31, 2012:
|
|
|
|
|
Title of Class
|
|
Number of Record Holders
|
|
Common Shares, $0.01 par value
|
|
|
16,100
|
|
Preferred Stock, $0.01 par value VRDP Shares
|
|
|
2
|
|
Item 30: Indemnification
Article EIGHTH of the Registrants Articles of Incorporation provides as follows:
EIGHTH: To the maximum extent permitted by the Minnesota Business Corporation Act, as from time to time amended, the Corporation shall indemnify its currently acting and its former directors, officers,
employees and agents, and those persons who, at the request of the Corporation, serve or have served another corporation, partnership, joint venture, trust or other enterprise in one or more such capacities. The indemnification provided for herein
shall not be deemed exclusive of any other rights to which those seeking indemnification may otherwise be entitled.
Expenses
(including attorneys fees) incurred in defending a civil or criminal action, suit or proceeding (including costs connected with the preparation of a settlement) may be paid by the Corporation in advance of the final disposition of such action,
suit or proceeding, if authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay that amount of the advance which exceeds the amount which it is
ultimately determined that he is entitled to receive from the Corporation by reason of indemnification as authorized herein; provided, however, that prior to making any such advance at least one of the following conditions shall have been met:
(1) the indemnitee shall provide a security for his undertaking, (2) the Corporation shall be insured against losses arising by reason of any lawful advances, or (3) a majority of a quorum of the disinterested, non-party directors of
the Corporation, or an independent legal counsel in a written opinion, shall determine, based on a review of readily available facts, that there is reason to believe that the indemnitee ultimately will be found entitled to indemnification.
Nothing in these Articles of Incorporation or in the By-Laws shall be deemed to protect or provide indemnification to any
director or officer of the Corporation against any liability to the Corporation or to its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (disabling conduct), and the Corporation shall not indemnify any of its officers or directors against any liability to the Corporation or to its security holders unless a determination shall have
been made in the manner provided hereafter that such liability has not arisen from such officers or directors disabling conduct. A determination that an officer or director is entitled to indemnification shall have been properly made if
it is based upon (1) a final decision on the merits by a court or other body before whom the proceeding was brought that the indemnitee was not liable by reason of disabling conduct or, (2) in the absence of such a decision, a reasonable
determination, based upon a review of the facts, that the indemnitee was not liable by reason of disabling conduct, by (a) the vote of a majority of a quorum of directors who are neither interested persons of the Corporation as
defined in the Investment Company Act of 1940 nor parties to the proceeding, or (b) an independent legal counsel in a written opinion.
The directors and officers of the Registrant are covered by Investment Trust Errors and Omission policies in the aggregate amount of $40,000,000 (with a maximum deductible of $500,000) against liability
and expenses of claims of wrongful acts arising out of their position with the Registrant, except for matters which involve willful acts, bad faith, gross negligence and willful disregard of duty (i.e., where the insured did not act in good faith
for a purpose he or she reasonably believed to be in the best interest of the Registrant or where he or she had reasonable cause to believe this conduct was unlawful).
C-3
Section of the Underwriting Agreement filed as Exhibit h to this Registration Statement
provides for each of the parties thereto, including the Registrant and the Underwriters, to indemnify the others, their directors, certain of their officers and directors and persons who control them against certain liabilities in connection with
the offering described herein, including liabilities under the federal securities laws.
Insofar as indemnification for
liability arising under the Securities Act of 1933, as amended (the Securities Act), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has
been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Item 31: Business and Other Connections of Investment Adviser
A
description of any other business, profession, vocation or employment of a substantial nature in which the directors and officers of NFA who serve as officers or Directors of the Registrant have engaged during the last two years for his or her
account or in the capacity of director, officer, employee, partner or trustee appears under Management in the Statement of Additional Information. Such information for the remaining senior officers of NFA appears below:
|
|
|
Name and Position with NFA
|
|
Other Business, Profession, Vocation or
Employment During Past Two Years
|
Thomas J. Schreier, Jr., Co-President
|
|
Vice Chairman of Nuveen Investments, Inc.; Chairman of Nuveen Asset Management, LLC; Co-CEO of Nuveen Securities, LLC formerly, Chief Executive Officer and Chief Investment Officer
of FAF Advisors; formerly, President of First American Funds.
|
|
|
Sherri A. Hlavacek, Managing Director and Corporate Controller
|
|
Managing Director and Corporate Controller of Nuveen Investments, Inc., Nuveen Securities, LLC, Nuveen Investments Advisers Inc., Nuveen Investments
Holdings, Inc. and of Nuveen Asset Management, LLC (since 2011); Vice President and Controller of Nuveen Investment Solutions, Inc., NWQ Investment Management Company, LLC, NWQ Holdings, LLC, Santa Barbara Asset Management, LLC, Tradewinds Global
Investors, LLC, Symphony Asset Management LLC and Nuveen HydePark Group, LLC; Certified Public Accountant.
|
|
|
Mary E. Keefe, Managing Director and Chief Compliance Officer
|
|
Managing Director (since 2004) and Director of Compliance of Nuveen Investments, Inc.; Managing Director and Chief Compliance Officer of Nuveen
Securities, LLC, Nuveen Asset Management, LLC, Nuveen Investments Advisers Inc., Symphony Asset Management LLC, Santa Barbara Asset Management, LLC, Nuveen Investment Solutions, Inc. and Nuveen HydePark Group, LLC; Vice President and Assistant
Secretary of Winslow Capital Management, Inc. and NWQ Holdings, LLC.
|
C-4
|
|
|
Name and Position with NFA
|
|
Other Business, Profession, Vocation or
Employment During Past Two Years
|
John L. MacCarthy, Director, Executive Vice President and Secretary
|
|
Executive Vice President (since 2008), Secretary and General Counsel (since 2006) of Nuveen Investments, Inc., and Nuveen Investments Holdings,
Inc.; Executive Vice President (since 2008) and Secretary (since 2006) of Nuveen Investments Advisers Inc., NWQ Holdings, LLC, NWQ Investment Management Company, LLC, Tradewinds Global Investors, LLC, Symphony Asset Management LLC, Santa Barbara
Asset Management, LLC, Nuveen Hyde Park Group, LLC and Nuveen Investment Solutions, Inc.; Executive Vice President and Secretary (since 2011) of Nuveen Asset Management, LLC; Director, Vice President and Secretary of Winslow Capital Management,
Inc.
|
|
|
Glenn R. Richter, Director
|
|
Executive Vice President, Chief Administrative Officer of Nuveen Investments, Inc. (since 2006); Co-CEO and COO of Nuveen Securities, LLC; Executive Vice President of Nuveen
Investments Holdings, Inc.; Chief Administrative Officer of NWQ Holdings, LLC.
|
Nuveen Asset Management, LLC (Nuveen Asset Management) acts as sub-investment adviser to the
Registrant and also serves as sub-investment adviser to other open-end and closed-end funds and investment adviser to separately managed accounts. The following is a list of the senior officers of Nuveen Asset Management. The principal business
address of each person is 333 West Wacker Drive, Chicago, Illinois 60606.
|
|
|
Name and Position with Nuveen Asset Management
|
|
Other Business, Profession, Vocation or
Employment During Past Two Years
|
Thomas J. Schreier, Jr., Chairman
|
|
Vice Chairman of Nuveen Investments, Inc., and Co-President of Nuveen Fund Advisors, Inc., Co-CEO of Nuveen Securities, LLC formerly, Chief Executive Officer and Chief Investment
Officer of FAF Advisors, formerly, President, First American Funds.
|
|
|
William T. Huffman, President
|
|
Chief Operating Officer, Municipal Fixed Income (since 2008) of Nuveen Fund Advisors, Inc.; previously, Chairman, President and Chief Executive Officer (2002-2007) of Northern Trust
Global Advisors, Inc. and Chief Executive Officer (2007) of Northern Trust Global Investments Limited; CPA.
|
|
|
John L. MacCarthy, Executive Vice President and Secretary
|
|
Director, Executive Vice President and Secretary of Nuveen Fund Advisors, Inc.; Executive Vice President (since 2008), Secretary and General Counsel
(since 2006) of Nuveen Investments, Inc. and Nuveen Investments Holdings, Inc.; Executive Vice President (since 2008) and Secretary (since 2006) of Nuveen Investments Advisers Inc., NWQ Holdings, LLC, NWQ Investment Management Company, LLC,
Tradewinds Global Investors, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management, LLC, Nuveen HydePark Group, LLC and Nuveen Investment Solutions, Inc.; Director, Vice President and Secretary of Winslow Capital Management,
Inc.
|
C-5
|
|
|
Name and Position with Nuveen Asset Management
|
|
Other Business, Profession, Vocation or
Employment During Past Two Years
|
Charles R. Manzoni, Jr., Executive Vice President and General Counsel
|
|
Managing Director and General Counsel of Nuveen Securities, LLC; formerly, Chief Risk Officer, and Secretary and General Counsel, director on Board of
Directors, FAF Advisors.
|
|
|
Sherri A. Hlavacek, Managing Director and Corporate Controller
|
|
Managing Director and Corporate Controller of Nuveen Investments, Inc., Nuveen Securities, LLC, Nuveen Investments Advisers Inc., Nuveen Investments
Holdings, Inc. and (since 2011) Nuveen Fund Advisors, Inc.; Vice President and Controller of Nuveen Investment Solutions, Inc., NWQ Investment Management Company, LLC, NWQ Holdings, LLC, Santa Barbara Asset Management, LLC, Tradewinds Global
Investors, LLC, Symphony Asset Management LLC and Nuveen HydePark Group, LLC; Certified Public Accountant.
|
|
|
Mary E. Keefe, Managing Director and Chief Compliance Officer
|
|
Managing Director and Chief Compliance Officer (since 2011) of Nuveen Fund Advisors, Inc.; Managing Director (since 2004) and Director of Compliance of
Nuveen Investments, Inc.; Managing Director and Chief Compliance Officer of Nuveen Securities, LLC, Nuveen Investments Advisers Inc., Symphony Asset Management LLC, Santa Barbara Asset Management, LLC, Nuveen Investment Solutions, Inc. and Nuveen
HydePark Group, LLC; Vice President and Assistant Secretary of Winslow Capital Management, Inc. and NWQ Holdings, LLC.
|
Item 32: Location of Accounts and Records
NFA, 333 West Wacker Drive, Chicago, Illinois 60606, maintains the Articles of Incorporation, By-Laws, minutes of directors and
shareholders meetings and contracts of the Registrant and all advisory material of the investment adviser.
State Street Bank
and Trust Company, 250 Royall Street, Canton, Massachusetts, 02021, maintains all general and subsidiary ledgers, journals, trial balances, records of all portfolio purchases and sales, and all other required records not maintained by NFA.
Item 33: Management Services
Not applicable.
Item 34: Undertakings
1.
|
Registrant undertakes to suspend the offering of its shares until it amends its prospectus if: (1) subsequent to the effective date of its registration statement,
the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement; or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus.
|
C-6
4.
|
If the securities are being registered in reliance on Rule 415 under the 1933 Act, an undertaking:
|
(a) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration
statement:
(1) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(2) to reflect in the prospectus any facts or events arising after the effective date of the registration
statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(3) to include any material information with respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the registration statement.
(b) that, for
the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that
time shall be deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by
means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;
(d) that, for the purpose of determining liability under the 1933 Act to any purchaser, if the Registrant is subject to Rule 430C: each prospectus filed pursuant to Rule 497(b), (c), (d) or
(e) under the 1933 Act as part of this registration statement relating to an offering, other than prospectuses filed in reliance on Rule 430A under the 1933 Act, shall be deemed to be part of and included in this registration statement as
of the date it is first used after effectiveness. Provided, however, that no statement made in this registration statement or prospectus that is part of this registration statement or made in a document incorporated or deemed incorporated by
reference into this registration or prospectus that is part of this registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in this registration
statement or prospectus that was part of this registration statement or made in any such document immediately prior to such date of first use.
(e) that for the purpose of determining liability of the Registrant under the 1933 Act to any purchaser in the initial distribution of securities:
The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to
the purchaser and will be considered to offer or sell such securities to the purchaser:
(1) any preliminary
prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 497 under the 1933 Act;
(2) the portion of any advertisement pursuant to Rule 482 under the 1933 Act relating to the offering containing material information about the undersigned Registrant or its securities provided by or on
behalf of the undersigned Registrant; and
(3) any other communication that is an offer in the offering made by
the undersigned Registrant to the purchaser.
5.
|
The Registrant undertakes that:
|
a. For purposes of determining any liability under the 1933 Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained
in the form of prospectus filed by the Registrant under Rule 497(h) under the 1933 Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
b. For the purpose of determining any liability under the 1933 Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof.
6.
|
The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or
oral request, any Statement of Additional Information.
|
C-7
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in this City of Chicago, and State of Illinois, on the 11th day of April, 2012.
|
NUVEEN SELECT QUALITY MUNICIPAL FUND, INC.
|
|
/s/ Kevin J. McCarthy
|
Kevin J. McCarthy,
Vice
President and Secretary
|
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
|
Date
|
/
S
/ S
TEPHEN
D.
F
OY
STEPHEN D. FOY
|
|
Vice President and Controller (principal financial and accounting officer)
|
|
|
|
|
|
April 11, 2012
|
|
|
|
|
|
/
S
/ G
IFFORD
R.
Z
IMMERMAN
GIFFORD R. ZIMMERMAN
|
|
Chief Administrative Officer (principal executive officer)
|
|
|
|
|
|
|
|
|
|
|
|
R
OBERT
P. B
REMNER
*
|
|
Chairman of the Board and Director
|
|
ý
ï
ï
ï
ï
ï
ï
ï
ï
ï
ï
þ
ï
ï
ï
ï
ï
ï
ï
ï
ï
ï
ï
ï
ý
|
|
By*:
|
|
/
S
/ Kevin J.
McCarthy
KEVIN J.
MCCARTHY,
Attorney-in-Fact
April 11, 2012
|
J
OHN
P. A
MBOIAN
*
|
|
Director
|
|
|
|
J
ACK
B. E
VANS
*
|
|
Director
|
|
|
|
W
ILLIAM
C. H
UNTER
*
|
|
Director
|
|
|
|
D
AVID
J. K
UNDERT
*
|
|
Director
|
|
|
|
W
ILLIAM
J. S
CHNEIDER
*
|
|
Director
|
|
|
|
J
UDITH
M. S
TOCKDALE
*
|
|
Director
|
|
|
|
C
AROLE
E. S
TONE
*
|
|
Director
|
|
|
|
|
|
|
|
|
V
IRGINIA
L. S
TRINGER
*
|
|
Director
|
|
|
|
|
|
|
|
|
|
|
|
T
ERENCE
J. T
OTH
*
|
|
Director
|
|
|
|
|
|
|
*
|
The original powers of attorney authorizing Kevin J. McCarthy and Gifford R. Zimmerman, among others, to execute this Registration Statement, and Amendments thereto,
for the directors of the Registrant on whose behalf this Registration Statement is filed, have been executed and filed as Exhibit s herein.
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Name
|
|
|
|
b.
|
|
|
By-Laws of Registrant.
|
|
|
|
d.3
|
|
|
Form of Statement establishing and Fixing the Rights and Preferences of Registrants Variable Rate Demand Preferred (VRDP) Shares.
|
|
|
|
g.1
|
|
|
Investment Management Agreement between Registrant and Nuveen Asset management, LLC (now, Nuveen Fund Advisors, Inc.).
|
|
|
|
g.2
|
|
|
Sub-Advisory Agreement between Nuveen Fund Advisors, Inc. and Nuveen Asset Management, LLC.
|
|
|
|
h.2
|
|
|
Form of Standard Dealer Agreement.
|
|
|
|
h.3
|
|
|
Form of Nuveen Master Selected Dealer Agreement.
|
|
|
|
h.7
|
|
|
Form of Morgan Stanley & Co. Incorporated Master Agreement Among Underwriters.
|
|
|
|
j.2
|
|
|
Appendix A to the Amended and Restated Master Custodian Agreement.
|
|
|
|
k.2
|
|
|
Schedule A dated May 25, 2011 to the Transfer Agency and Service Agreement dated October 7, 2002.
|
|
|
|
k.3
|
|
|
Amendment to the Transfer Agency and Service Agreement between Registrant and State Street Bank and Trust Company.
|
|
|
|
n.
|
|
|
Consent of Ernst & Young LLP.
|
|
|
|
r.
|
|
|
Code of Ethics and Reporting Requirements of Nuveen Investments, Inc. (including affiliated entities) and the Nuveen Funds.
|
|
|
|
s.
|
|
|
Powers of Attorney.
|
Nuveen Select Quality Municipal Fund, Inc. (NYSE:NQS)
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