-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WH0WUpds/nGFl6KfIRdga2GjG8zqIJ6XseXuNHBo2cRTOHFe88kbep65Z7aVFv2e 98AmpyXiLkGs2gTHXxno6g== 0000891804-03-002219.txt : 20031008 0000891804-03-002219.hdr.sgml : 20031008 20031008080844 ACCESSION NUMBER: 0000891804-03-002219 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030731 FILED AS OF DATE: 20031008 EFFECTIVENESS DATE: 20031008 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND CENTRAL INDEX KEY: 0000878201 IRS NUMBER: 363778171 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06384 FILM NUMBER: 03932484 BUSINESS ADDRESS: STREET 1: 333 W WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3129178200 N-CSR 1 file001.txt NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-6384 --------------------- Nuveen Texas Quality Income Municipal Fund ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Jessica R. Droeger Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: (312) 917-7700 ------------------- Date of fiscal year end: July 31, 2003 ------------------ Date of reporting period: July 31, 2003 ----------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. Nuveen Municipal Closed-End Exchange-Traded Funds ANNUAL REPORT July 31, 2003 ARIZONA NAZ NFZ NKR NXE TEXAS NTX PHOTO OF: WOMAN AND GIRL LOOKING AT PHOTO ALBUM. PHOTO OF: 2 MEN TALKING. DEPENDABLE, TAX-FREE INCOME BECAUSE IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) Logo: NUVEEN Investments FASTER INFORMATION RECEIVE YOUR NUVEEN FUND REPORT ELECTRONICALLY By registering for electronic delivery, you will receive an e-mail as soon as your Nuveen Fund information is available. Click on the link and you will be taken directly to the report. Your Fund report can be viewed and saved on your computer. Your report will arrive faster via e-mail than by traditional mail. Registering is easy and only takes a few minutes (see instructions at right). - -------------------------------------------------------------------------------- SOME COMMON CONCERNS: WILL MY E-MAIL ADDRESS BE DISTRIBUTED TO OTHER COMPANIES? No, your e-mail address is strictly confidential and will not be used for anything other than notification of shareholder information. WHAT IF I CHANGE MY MIND AND WANT TO RECEIVE INVESTOR MATERIALS THROUGH REGULAR MAIL DELIVERY AGAIN? If you decide you do not like receiving your reports electronically, it's a simple process to go back to regular mail delivery. - -------------------------------------------------------------------------------- IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME FROM YOUR FINANCIAL ADVISOR OR BROKERAGE ACCOUNT, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.INVESTORDELIVERY.COM 2 Refer to the address sheet that accompanied this report. Enter the personal 13-CHARACTER ENROLLMENT NUMBER imprinted near your name. 3 You'll be taken to a page with several options. Select the NEW ENROLLMENT-CREATE screen. Once there, enter your e-mail address (e.g. yourID@providerID.com), and a personal, 4-digit PIN number of your choice. (Pick a number that's easy to remember.) 4 Click Submit. Confirm the information you just entered is correct, then click Submit again. 5 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 6 Use this same process if you need to change your registration information or cancel internet viewing. IF YOUR NUVEEN FUND DIVIDENDS AND STATEMENTS COME DIRECTLY TO YOU FROM NUVEEN, FOLLOW THE STEPS OUTLINED BELOW: 1 Go to WWW.NUVEEN.COM 2 Select ACCESS YOUR ACCOUNT. Select the E-REPORT ENROLLMENT section. Click on Enrollment Today. 3 You'll be taken to a screen that asks for your Social Security number and e-mail address. Fill in this information, then click Enroll. 4 You should get a confirmation e-mail within 24 hours. If you do not, go back through these steps to make sure all the information is correct. 5 Use this same process if you need to change your registration information or cancel internet viewing. Logo: NUVEEN Investments Photo of: Timothy R. Schwertfeger Chairman of the Board Sidebar text: "NO ONE KNOWS WHAT THE FUTURE WILL BRING, WHICH IS WHY WE THINK A WELL-BALANCED PORTFOLIO ..... IS AN IMPORTANT COMPONENT IN ACHIEVING YOUR LONG-TERM FINANCIAL GOALS." Dear SHAREHOLDER Once again, I am pleased to report that over the most recent reporting period your Fund continued to provide you with attractive tax-free monthly income and the opportunity for increased portfolio diversi fication. For more specific information about the performance of your Fund, please see the Portfolio Manager's Comments and Performance Overview sections of this report. With interest rates at historically low levels, many have begun to wonder whether interest rates will rise, and whether that possibility should cause them to adjust their holdings of fixed-income investments. No one knows what the future will bring, which is why we think a well-balanced portfolio that is structured and carefully monitored with the help of an investment professional is an important component in achieving your long-term financial goals. A well-diversified portfolio may actually help to reduce your overall investment risk, and we believe that municipal bond investments like your Nuveen Fund can be important building blocks in a portfolio crafted to perform well through a variety of market conditions. I'd also like to direct your attention to the inside front cover of this report, which explains the quick and easy process to begin receiving Fund reports like this via e-mail and the internet. Thousands of Nuveen Fund shareholders already have signed-up, and they are getting their Fund information faster and more conveniently than ever. I urge you to consider joining them. Since 1898, Nuveen Investments has offered financial products and solutions that incorporate careful research, diversification, and the application of conservative risk-management principles. We are grateful that you have chosen us as a partner as you pursue your financial goals. We look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/ Timothy R. Schwertfeger Timothy R. Schwertfeger Chairman of the Board September 15, 2003 1 Nuveen Arizona and Texas Municipal Closed-End Exchange-Traded Funds (NAZ, NFZ, NKR, NXE, NTX) Portfolio Manager's COMMENTS Portfolio manager Rick Huber discusses economic and market conditions, key investment strategies, and the recent performance of the Funds. With 18 years of investment experience, Rick assumed portfolio management responsibility for these Funds in January 2003. WHAT FACTORS AFFECTED THE U.S. ECONOMY AND MUNICIPAL MARKET DURING THE TWELVE-MONTH PERIOD ENDED JULY 31, 2003? In June 2003, the Federal Reserve cut the fed funds rate to 1.0%, its lowest level since 1958. Also in June, the GDP growth rate for the first quarter of 2003 was revised downward to 1.4%. The preliminary second-quarter growth rate, announced in July, was 2.4%, which continued to lag the 3% level some economists consider to be indicative of a recovery. This was just the latest evidence of the two factors that, in our opinion, continued to have the greatest influence on the performance of the U.S. economy and the municipal market over the course of this reporting period - historically low interest rate levels and the sluggish pace of economic growth. In addition, inflation remained dormant through the period, while comments by the Fed kept the topic of potential deflation in the news. In combination, the slow rate of economic recovery, low interest rates and lack of inflationary pressures created conditions that helped many municipal bonds perform well during much of this reporting period. However, in July 2003 some stronger-than-expected economic data raised the specter of a tighter monetary policy sooner rather than later. This, along with volatility in the mortgage-backed securities market, precipitated a spike in bond yields and a corresponding drop in bond prices that impacted all fixed-income markets. One barometer of the volatility experienced in the bond markets during the month of July was the yield on the benchmark 10-year U.S. Treasury, which jumped approximately 150 basis points from 45-year lows in June to its highest point in more than a year by July 31, 2003. During the first seven months of 2003, the municipal market followed up the record issuance of 2002 with continued strong supply, issuing $230 billion in new bonds. This represented an increase of 18% over the same period in 2002. Much of the increase in supply reflected issuance intended to address the fiscal problems facing many states as the result of slow growth, rising costs (especially for healthcare and pensions), and sharp declines in the collection of income and capital gains taxes. Matching the increased supply, demand for municipal bonds also remained strong from both individual and institutional investors, particularly insurance companies. HOW WERE ECONOMIC AND MARKET CONDITIONS IN ARIZONA AND TEXAS? Boosted by an improving tourism industry, reviving demand in the high-tech and biotech areas, and increased defense-related spending, Arizona's economy continued on the path to recovery during the reporting period. Healthy population trends, affordable housing and low business costs also contributed to the state's economic rebound. In June 2003, a $6.4 billion fiscal 2004 state budget was approved. While Arizona's rainy day fund was depleted in 2002, the state's pension liabilities are fully funded, and its debt burden remained rela tively low. During the first seven months of 2003, Arizona issued just under $4 billion in new municipal bonds, down 18% from the same period in 2002. As of July 31, 2003, the state's credit rating remained at A1/AA-, with negative outlooks, from Moody's and Standard & Poor's, respectively. The negative outlooks reflected the state's declining sales and income tax collections last year as well as the rating agencies' expectations that, despite the economic recovery projected for the second half of 2003, significant budgetary imbalances could continue over the next several cycles. Like Arizona, Texas has also benefited from positive demographic trends, a large and diverse high-tech 2 and research sector, and relatively low costs of business and housing. As home to more than 200,000 military personnel, the state's economic growth has been helped by new defense spending contracts and increased activity at Texas military bases. Many of the state's major metropolitan areas were returning to healthy growth during the reporting period, including Houston (aided by a booming energy industry), Austin (with its high-tech and government base), and San Antonio. Northern Texas, including Dallas and Fort Worth, did not fare as well, as this area's economy continued to be constrained by problems in the airline and telecom industries. For the 2004-2005 biennium, the state balanced its $117.4 billion budget by closing a $10 billion gap through across-the-board spending cuts of 1.5%, fee increases, a drawdown of the state's $1 billion rainy day fund, and a new tax amnesty program that is expected to increase collections. While the state's debt levels remained relatively low, pension liabilities were not fully funded. During the first seven months of 2003, Texas retained its position as the third largest state issuer behind California and New York, with $14.6 billion in new municipal bonds, up 9% over January-July 2002. The state's general obligation debt continued to be rated Aa1/AA with a stable outlooks by Moody's and Standard & Poor's, respectively. HOW DID THE FUNDS PERFORM OVER THE YEAR ENDED JULY 31, 2003? Individual results for these Funds, as well as for selected benchmarks, are presented in the accompanying table. TOTAL RETURN LEHMAN LIPPER MARKET YIELD ON NAV TOTAL RETURN1 AVERAGE2 - ------------------------------------------------------------------------ 1 YEAR 1 YEAR 1 YEAR TAXABLE- ENDED ENDED ENDED 7/31/03 EQUIVALENT3 7/31/03 7/31/03 7/31/03 - ------------------------------------------------------------------------ NAZ 6.12% 8.93% 2.21% 3.60% 4.35% - ------------------------------------------------------------------------ NFZ 5.92% 8.64% 3.67% 3.60% 4.35% - ------------------------------------------------------------------------ NKR 6.00% 8.76% 3.67% 3.60% 4.35% - ------------------------------------------------------------------------ NXE 5.76% 8.41% NA - - - ------------------------------------------------------------------------ NTX 6.53% 9.07% 2.54% 3.60% 4.35% - ------------------------------------------------------------------------ Past performance is not predictive of future results. For additional information, see the individual Performance Overview for your Fund in this report. For the twelve months ended July 31, 2003, both NFZ and NKR outperformed the national, unleveraged Lehman Brothers Municipal Bond Index, while the returns of NAZ and NTX trailed this benchmark over the period. While all four older Funds trailed the Lipper Other States Municipal Debt Funds average, we believe this comparison has more limited value since the Lipper average includes the results of Funds from 10 different states, each with its own unique market environment. The results of each of the Nuveen Funds over this reporting period were directly affected by the performance of specific securities within their portfolios. For example, for much of the reporting period, both NAZ and NTX had relatively large positions in bonds with short call provisions. These bonds had relatively short durations,4 which tended to restrain their performance in a market generally more favorable to longer duration bonds. Over the course of the reporting period, these callable bonds were replaced with longer maturity, longer duration bonds. However, as the Funds worked through their call schedules, their ability to benefit from the generally favorable interest rate environment in existence over much of the reporting period was limited. In addition, at the start of the reporting period, NTX held over $11 million (par value) in bonds issued for Alliance and Dallas/Fort Worth airports and backed by American Airlines. Over the reporting period, the market value of most airline-backed bonds fell, due in part to a decline in passenger volume and in part to the well-documented financial struggles of many carriers. Although we significantly trimmed NTX's position in airline-backed bonds during the course of the reporting period, the depreciation of these bonds over the twelve-month period had a negative impact on NTX's total return. NAZ's performance also was affected by its holdings of bonds issued for Phoenix Children's Hospital and Winslow Memorial Hospital, which 1 The total annual returns on common share net asset value (NAV) for these Nuveen Funds are compared with the total annual return of the Lehman Brothers Municipal Bond Index, an unleveraged, unmanaged national index comprising a broad range of investment-grade municipal bonds. Results for the Lehman index do not reflect any expenses. 2 The total returns of the Nuveen Arizona and Texas Funds are compared with the average annualized return of the 36 funds in the Lipper Other States Municipal Debt Funds category. Fund and Lipper returns assume reinvestment of dividends. It should be noted that the performance of the Lipper Other States category represents the overall average of annual returns for funds from 10 different states with a wide variety of economic and municipal market conditions and investment guidelines, making direct comparisons less applicable. 3 The taxable-equivalent yield represents the yield that must be earned on a taxable investment in order to equal the yield of the Nuveen Fund on an after-tax basis. The taxable-equivalent yield is based on the Fund's market yield on the indicated date and a federal income tax rate of 28% plus the applicable state income tax rate. The combined federal and state tax rate used for Arizona is 31.5%. Because Texas has no state income tax, NTX's taxable-equivalent yield is based on a federal income tax rate of 28%. 4 Duration is a measure of a Fund's NAV volatility in reaction to interest rate movements. Fund duration, also known as leverage-adjusted duration, takes into account the leveraging process for a Fund and therefore is generally longer than the duration of the actual portfolio of individual bonds that make up the Fund. References to duration in this commentary are intended to indicate Fund duration unless otherwise noted. 3 depreciated in value as these two credits experienced financial and management difficulties. With new managements in place, both Phoenix Children's and Winslow are currently working to resolve problems and achieve a potential turnaround. NKR and NXE also held smaller positions in the Phoenix Children's Hospital bonds. NAZ, NXE, and NTX had less than 3% of their portfolios invested in bonds backed by the 1998 master tobacco settlement agreement. In recent months, the prices of these bonds weakened as the result of lawsuits involving the major tobacco companies as well as the increased issuance of such bonds by states planning to use the proceeds to help close budget gaps. Although the sector as a whole produced negative returns over the twelve months ended July 31, 2003, tobacco-backed bonds showed some recovery toward the end of the period. As of the end of this reporting period, our strategy was to maintain our tobacco holdings while we continued to regularly evaluate the situation. HOW DID THE MARKET ENVIRONMENT AFFECT THE FUNDS' DIVIDENDS AND SHARE PRICES? With short-term interest rates at historically low levels during the reporting period, the dividend-paying capabilities of these Funds benefited from their use of leverage. The amount of this benefit is tied in part to the short-term rates the Funds pay their MuniPreferred(R) shareholders. Low short-term rates can enable the Funds to reduce the amount of income paid to MuniPreferred shareholders, which can potentially leave more earnings to support common share dividends. During the twelve months ended July 31, 2003, the continued low level of short-term interest rates enabled us to implement three dividend increases in NFZ and one in NTX. As of July 2003, NAZ had paid steady or increasing dividends for 38 consec utive months, while NKR had offered shareholders stable, attractive dividends for 15 consecutive months. NXE, which was introduced in September 2002, declared its first monthly distribution in November 2002. Although the share prices and net asset values of these Funds performed well during much of this twelve-month reporting period, the increased volatility that led to a general weakening of bond prices during July 2003 resulted in share prices and NAVs that were lower on July 31, 2003, than they had been one year earlier. As of July 31, 2003, NAZ, NFZ, NXE and NTX were trading at premiums to their common share NAVs, while NKR had moved to trading at a slight discount (see charts on individual Performance Overview pages). WHAT KEY STRATEGIES WERE USED TO MANAGE THESE FUNDS DURING THE PERIOD ENDED JULY 31, 2003? Over this reporting period, we continued to place strong emphasis on diversifying the portfolios, improving call protection and enhancing each Fund's dividend-paying capabilities. Strategically, our main focus centered on systematically controlling the Funds' durations, which we believed would enhance our ability to mitigate the Funds' interest rate risk and produce more consistent returns over time. Interest rate risk is the risk that the value of a Fundport folio will decline when market interest rates rise (since bond prices move in the opposite direction of interest rates). The longer the duration of a Fund's portfolio, the greater its interest rate risk. In line with our duration strategy, we concentrated on finding value in the intermediate part of the yield curve (i.e., bonds that mature in 15 to 20 years), particularly in the Funds with longer durations that we were seeking to moderate. In many cases, bonds in this part of the curve offered yields similar to those of longer-term bonds but, in our opinion, had less inherent interest rate risk. In NAZ and NTX, the need to replace shorter duration bonds that were called from the portfolio with current bonds having longer durations served to extend the Fund's duration over this reporting period. 4 In general, issuance in the Texas municipal market over the past year increased our opportunities to make purchases for NTX, while finding appropriate bonds among the tighter supply provided by the Arizona market was more difficult. In both markets, we continued to look for individual issues that we thought would perform relatively well regardless of the future direction of interest rates. In carrying out trades, we watched for opportunities to take losses on selected securities in order to offset the generation of capital gains. Over the past year, we increased the Arizona Funds' exposure to limited tax obligation bonds, which were more plentiful in the Arizona market, with the goal of enhancing the diversification of these Funds. NXE, our newest Arizona Fund introduced in September 2002, is now fully invested and, as mentioned earlier, began declaring regular monthly dividends in November 2002. As attractive opportunities appeared in the market, we added Arizona securities to this Fund to replace bonds from Puerto Rico that were purchased during the initial investment phase last fall. As of July 31, 2003, approximately 95% of NXE's portfolio was invested in Arizona bonds, up from 90% last fall. Given the current geopolitical and economic climate, we believed that maintaining strong credit quality remained a vital requirement. As of July 31, 2003, the Arizona and Texas Funds offered excellent credit quality, with allocations of bonds rated AAA/U.S. guaranteed and AA ranging from 73% to 89%. In general, our weightings in insured and AAA bonds benefited the performance of these Funds during the past year. WHAT IS YOUR OUTLOOK FOR THESE FUNDS? We continue to believe that the U.S. economy is slowly headed for a recovery. We also think that inflation and interest rates will remain relatively low over the near term. However, an eventual rise in interest rates remains a distinct risk, and we plan to keep a careful watch on the Funds' durations and holdings in order to be as well positioned as possible if and when this happens. Looking ahead at potential bond calls for these Funds, the newer Arizona Funds (NFZ, NKR, and NXE) should not experience any significant call exposure for several years. Despite our actions to mitigate the call risks in NAZ and NTX, these Funds still face potential calls on 22% and 11% of their portfolios, respectively, through 2005. The number of actual calls in all of these Funds will depend largely on market interest rates in coming months. We will continue to manage the Funds' durations and seek to enhance their income-generating capabilities. We also plan to continue closely monitoring the budgetary situations in both states. We believe that these Nuveen Funds remain attractive sources of tax-free income, and continue to offer the potential for considerable portfolio diversification. 5 Nuveen Arizona Premium Income Municipal Fund, Inc. Performance OVERVIEW As of July 31, 2003 NAZ CREDIT QUALITY Pie Chart: AAA/U.S. Guaranteed 63% AA 13% A 2% BBB 17% NR 1% BB or lower 4% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $15.00 - -------------------------------------------------- Common Share Net Asset Value $13.66 - -------------------------------------------------- Market Yield 6.12% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 8.50% - -------------------------------------------------- Taxable-Equivalent Yield (Federal and State Income Tax Rate)1 8.93% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $60,547 - -------------------------------------------------- Average Effective Maturity (Years) 16.63 - -------------------------------------------------- Leverage-Adjusted Duration 9.32 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 11/19/92) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year -5.98% 2.21% - -------------------------------------------------- 5-Year 3.77% 3.63% - -------------------------------------------------- 10-Year 5.26% 5.35% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Tax Obligation/Limited 25% - -------------------------------------------------- Healthcare 17% - -------------------------------------------------- U.S. Guaranteed 17% - -------------------------------------------------- Tax Obligation/General 9% - -------------------------------------------------- Housing/Multifamily 9% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE Aug 0.0765 Sep 0.0765 Oct 0.0765 Nov 0.0765 Dec 0.0765 Jan 0.0765 Feb 0.0765 Mar 0.0765 Apr 0.0765 May 0.0765 Jun 0.0765 Jul 0.0765 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/02 17 16.85 16.9 16.87 16.95 16.98 16.85 16.74 16.48 16.3 16.11 15.93 15.6 15.9 15.72 15.49 15.15 15.16 15.15 14.95 14.67 15.04 15.31 15.15 15.3 15.75 15.6 16.18 15.87 15.89 15.95 16 16.11 16.11 16.12 16.08 15.85 15.59 15.37 15.84 16 15.9 16.56 16.52 16.45 16.7 16.58 16.9 16.62 16.3 7/31/03 15 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 28%. The rate shown for federal and state highlights the added value of owning shares that are also exempt from state income taxes. It is based on a combined federal and state income tax rate of 31.5%. 6 Nuveen Arizona Dividend Advantage Municipal Fund Performance OVERVIEW As of July 31, 2003 NFZ Pie Chart: CREDIT QUALITY AAA/U.S. Guaranteed 53% AA 20% A 11% BBB 15% BB or lower 1% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $15.30 - -------------------------------------------------- Common Share Net Asset Value $14.45 - -------------------------------------------------- Market Yield 5.92% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 8.22% - -------------------------------------------------- Taxable-Equivalent Yield (Federal and State Income Tax Rate)1 8.64% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $22,290 - -------------------------------------------------- Average Effective Maturity (Years) 19.27 - -------------------------------------------------- Leverage-Adjusted Duration 11.86 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 1/30/01) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year 3.06% 3.67% - -------------------------------------------------- Since Inception 6.52% 6.32% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Tax Obligation/Limited 26% - -------------------------------------------------- Utilities 17% - -------------------------------------------------- Housing/Multifamily 13% - -------------------------------------------------- Tax Obligation/General 13% - -------------------------------------------------- U.S. Guaranteed 8% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Aug 0.07 Sep 0.071 Oct 0.071 Nov 0.071 Dec 0.073 Jan 0.073 Feb 0.073 Mar 0.0755 Apr 0.0755 May 0.0755 Jun 0.0755 Jul 0.0755 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/02 15.8 15.71 15.9 15.41 15.25 15.44 15.38 15.58 15.55 15.6 15.36 15.25 15.15 15.2 15.45 15 15.2 15.2 15.35 15.25 15.15 15.2 15.5 15.6 15.8 15.5 15.28 15.28 15.24 15.5 15.65 16.19 16.23 16.09 15.8 15.53 15.52 15.56 15.38 15.65 16.01 16.3 16.25 16.57 16.5 16.54 16.79 16.88 16.52 16.35 7/31/03 15.3 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 28%. The rate shown for federal and state highlights the added value of owning shares that are also exempt from state income taxes. It is based on a combined federal and state income tax rate of 31.5%. 2 The Fund also paid shareholders capital gains and net ordinary income distributions in December 2002 of $0.0438 per share. 7 Nuveen Arizona Dividend Advantage Municipal Fund 2 Performance OVERVIEW As of July 31, 2003 NKR Pie Chart: CREDIT QUALITY AAA/U.S. Guaranteed 79% AA 10% A 3% BBB 7% BB or lower 1% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $14.40 - -------------------------------------------------- Common Share Net Asset Value $14.57 - -------------------------------------------------- Market Yield 6.00% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 8.33% - -------------------------------------------------- Taxable-Equivalent Yield (Federal and State Income Tax Rate)1 8.76% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $35,237 - -------------------------------------------------- Average Effective Maturity (Years) 17.56 - -------------------------------------------------- Leverage-Adjusted Duration 11.85 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 3/25/02) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year -3.53% 3.67% - -------------------------------------------------- Since Inception 2.26% 6.78% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Tax Obligation/General 30% - -------------------------------------------------- Tax Obligation/Limited 26% - -------------------------------------------------- Education and Civic Organizations 10% - -------------------------------------------------- Utilities 6% - -------------------------------------------------- Healthcare 6% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Aug 0.072 Sep 0.072 Oct 0.072 Nov 0.072 Dec 0.072 Jan 0.072 Feb 0.072 Mar 0.072 Apr 0.072 May 0.072 Jun 0.072 Jul 0.072 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/02 15.7 15.5 15.85 15.65 15.2 15.25 15.31 15.34 15.5 15.68 15.2 14.76 14.78 14.89 14.75 14.7 15.2 15.22 15.29 15.1 15.4 15.49 15.59 15.59 15.5 15.53 15.55 15.3 15.09 15.15 15.34 15.21 15.26 15.1 15.1 15.23 15.31 15.32 15.12 15.21 15.44 15.86 15.8 16.08 15.83 16.15 16.18 16.2 15.76 15.5 7/31/03 14.4 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 28%. The rate shown for federal and state highlights the added value of owning shares that are also exempt from state income taxes. It is based on a combined federal and state income tax rate of 31.5%. 2 The Fund also paid shareholders capital gains and net ordinary income distributions in December 2002 of $0.0122 per share. 8 Nuveen Arizona Dividend Advantage Municipal Fund 3 Performance OVERVIEW As of July 31, 2003 NXE Pie Chart: CREDIT QUALITY AAA/U.S. Guaranteed 70% AA 17% A 5% BBB 6% BB or lower 2% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $13.97 - -------------------------------------------------- Common Share Net Asset Value $13.45 - -------------------------------------------------- Market Yield 5.76% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 8.00% - -------------------------------------------------- Taxable-Equivalent Yield (Federal and State Income Tax Rate)1 8.41% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $41,247 - -------------------------------------------------- Average Effective Maturity (Years) 18.95 - -------------------------------------------------- Leverage-Adjusted Duration 14.03 - -------------------------------------------------- CUMULATIVE TOTAL RETURN (Inception 9/25/02) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- Since Inception -2.76% -2.05% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Tax Obligation/Limited 21% - -------------------------------------------------- Tax Obligation/General 18% - -------------------------------------------------- Education and Civic Organizations 13% - -------------------------------------------------- Transportation 9% - -------------------------------------------------- Housing/Multifamily 9% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE Nov 0.067 Dec 0.067 Jan 0.067 Feb 0.067 Mar 0.067 Apr 0.067 May 0.067 Jun 0.067 Jul 0.067 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 9/27/02 15.02 15.02 15 15 15 15 15 14.95 14.38 14.15 13.9 13.81 13.54 13.72 14.09 13.65 13.5 13.6 13.52 13.85 13.75 13.85 14 14.01 14.02 13.85 13.8 13.65 13.4 13.65 13.93 14.01 14.01 14.18 14.11 14.26 14.05 14.29 14.7 14.73 14.25 14.1 7/31/03 13.97 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 28%. The rate shown for federal and state highlights the added value of owning shares that are also exempt from state income taxes. It is based on a combined federal and state income tax rate of 31.5%. 9 Nuveen Texas Quality Income Municipal Fund Performance OVERVIEW As of July 31, 2003 NTX Pie Chart: CREDIT QUALITY AAA/U.S. Guaranteed 63% AA 13% A 12% BBB 11% BB or lower 1% PORTFOLIO STATISTICS - -------------------------------------------------- Share Price $14.71 - -------------------------------------------------- Common Share Net Asset Value $14.57 - -------------------------------------------------- Market Yield 6.53% - -------------------------------------------------- Taxable-Equivalent Yield (Federal Income Tax Rate)1 9.07% - -------------------------------------------------- Net Assets Applicable to Common Shares ($000) $137,975 - -------------------------------------------------- Average Effective Maturity (Years) 20.85 - -------------------------------------------------- Leverage-Adjusted Duration 11.00 - -------------------------------------------------- AVERAGE ANNUAL TOTAL RETURN (Inception 10/17/91) - -------------------------------------------------- ON SHARE PRICE ON NAV - -------------------------------------------------- 1-Year 4.14% 2.54% - -------------------------------------------------- 5-Year 5.50% 4.76% - -------------------------------------------------- 10-Year 6.03% 6.04% - -------------------------------------------------- TOP FIVE SECTORS (as a % of total investments) - -------------------------------------------------- Tax Obligation/General 22% - -------------------------------------------------- Healthcare 14% - -------------------------------------------------- Utilities 9% - -------------------------------------------------- Education and Civic Organizations 8% - -------------------------------------------------- Water and Sewer 8% - -------------------------------------------------- Bar Chart: 2002-2003 MONTHLY TAX-FREE DIVIDENDS PER SHARE2 Aug 0.079 Sep 0.079 Oct 0.079 Nov 0.079 Dec 0.079 Jan 0.079 Feb 0.079 Mar 0.08 Apr 0.08 May 0.08 Jun 0.08 Jul 0.08 Line Chart: SHARE PRICE PERFORMANCE Weekly Closing Price Past performance is not predictive of future results. 8/1/02 15.17 15.41 15.51 15.24 15.1 15.39 15.38 15.54 15.66 15.56 15.37 14.31 14.09 14.56 14.48 14.23 14.11 14.35 14.39 14.19 14.08 14.39 14.63 14.25 14.19 14.35 14.43 14.51 14.29 14.39 14.55 14.9 14.93 14.74 14.82 14.94 14.9 15.09 15.09 15.05 15.17 15.34 15.38 15.54 15.53 15.25 15.44 15.7 15.17 15.25 7/31/03 14.71 1 Taxable-equivalent yield represents the yield on a taxable investment necessary to equal the yield of the Nuveen Fund on an after-tax basis. It is calculated using the current market yield and a federal income tax rate of 28%. 2 The Fund also paid shareholders capital gains and net ordinary income distributions in December 2002 of $0.0112 per share. 10 Report of INDEPENDENT AUDITORS THE BOARDS OF DIRECTORS, TRUSTEES AND SHAREHOLDERS NUVEEN ARIZONA PREMIUM INCOME MUNICIPAL FUND, INC. NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NUVEEN ARIZONA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 NUVEEN TEXAS QUALITY INCOME MUNICIPAL FUND We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund as of July 31, 2003, and the related statements of operations, changes in net assets and the financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of investments owned as of July 31, 2003, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Arizona Premium Income Municipal Fund, Inc., Nuveen Arizona Dividend Advantage Municipal Fund, Nuveen Arizona Dividend Advantage Municipal Fund 2, Nuveen Arizona Dividend Advantage Municipal Fund 3 and Nuveen Texas Quality Income Municipal Fund at July 31, 2003, and the results of their operations, changes in their net assets and the financial highlights for the periods indicated therein in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Chicago, Illinois September 12, 2003 11 Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 1.4% $ 970 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 A- $ 841,213 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 - ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 9.2% 1,000 Arizona State University, Certificates of Participation, 7/12 at 100.00 AAA 1,046,810 Series 2002, 5.375%, 7/01/19 - MBIA Insured 1,750 Arizona Student Loan Acquisition Authority, Subordinated 5/04 at 102.00 Aa1 1,850,503 Fixed-Rate Student Loan Revenue Bonds, Series 1994B, 6.600%, 5/01/10 (Alternative Minimum Tax) 1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 BBB+ 1,273,050 Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31 1,400 Southern Arizona Capital Facilities Financing Corporation, 9/12 at 100.00 AAA 1,393,798 Student Housing Revenue Bonds, La Aldea Project at the University of Arizona, Series 2002, 5.000%, 9/01/23 - MBIA Insured - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 22.9% 2,000 Arizona Health Facilities Authority, Hospital Revenue 11/09 at 100.00 Ba2 1,599,380 Bonds, Phoenix Children's Hospital, Series 1999A, 6.125%, 11/15/22 2,125 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 2,243,086 Bonds, John C. Lincoln Health Network, Series 2000, 7.000%, 12/01/25 2,000 Arizona Health Facilities Authority, Revenue Bonds, 7/10 at 101.00 BBB 2,098,260 Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 3,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 3,124,290 Bonds, Discovery Health System, Series 1999A, 5.750%, 1/01/25 - MBIA Insured 515 Puerto Rico Industrial, Tourist, Educational, Medical, and 11/10 at 101.00 AA 567,159 Environmental Control Facilities Financing Authority, Hospital Revenue Bonds, Hospital de la Concepcion Project, Series 2000A, 6.375%, 11/15/15 1,500 Scottsdale Industrial Development Authority, Arizona, 12/11 at 101.00 A3 1,517,850 Hospital Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 2,000 University Medical Center Corporation, Tucson, Arizona, 1/04 at 101.00 AAA 2,026,880 Hospital Revenue Refunding Bonds, Series 1992, 6.250%, 7/01/16 - MBIA Insured 1,055 Industrial Development Authority, Winslow, Arizona, 6/08 at 101.00 N/R 705,753 Hospital Revenue Bonds, Winslow Memorial Hospital Project, Series 1998, 5.500%, 6/01/22 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 11.9% 2,011 Glendale Industrial Development Authority, Arizona, 10/10 at 105.00 Aaa 2,167,033 GNMA Collateralized Mortgage Loan Multifamily Housing Revenue Bonds, Maridale Apartments Project, Series 2000A, 7.500%, 10/20/35 1,275 Maricopa County Industrial Development Authority, Arizona, 10/10 at 105.00 Aaa 1,329,583 GNMA Collateralized Multifamily Housing Revenue Bonds, Villas at Augusta Project, Series 2000, 6.400%, 10/20/20 400 Phoenix Industrial Development Authority, Arizona, 6/11 at 102.00 Aaa 409,628 GNMA Collateralized Multifamily Housing Revenue Bonds, Campaigne Place on Jackson Project, Series 2001, 5.700%, 6/20/31 (Alternative Minimum Tax) 3,215 Tucson Industrial Development Authority, Arizona, 7/10 at 101.00 AA 3,298,654 Senior Living Facilities Revenue Bonds, Christian Care Project, Series 2000A, 5.625%, 7/01/20 - RAAI Insured - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.5% 110 Phoenix Industrial Development Authority, Arizona, 6/05 at 102.00 AAA 115,878 Statewide Single Family Mortgage Revenue Bonds, Series 1995, 6.150%, 6/01/08 (Alternative Minimum Tax) 50 Phoenix Industrial Development Authority, Arizona, 6/10 at 105.00 AAA 53,795 FNMA/GNMA Single Family Mortgage Revenue Bonds, Series 2000-1B, 7.350%, 6/01/31 (Alternative Minimum Tax) 105 Pima County Industrial Development Authority, Arizona, 5/07 at 102.00 AAA 105,455 FNMA/GNMA Single Family Mortgage Revenue Bonds, Series 1997A, 6.250%, 11/01/30 (Alternative Minimum Tax) 12 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 3.3% $ 2,000 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB $ 2,027,240 Solid Waste Disposal Revenue Bonds, Waste Management, Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put 3/01/08) - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 1.7% 1,000 Mohave County Industrial Development Authority, Arizona, 5/06 at 103.00 AAA 1,048,800 GNMA Collateralized Healthcare Revenue Refunding Bonds, Chris Ridge and Silver Ridge Village Projects, Series 1996, 6.375%, 11/01/31 - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 12.6% 1,000 Maricopa County School District 6, Arizona, General No Opt. Call AAA 1,100,860 Obligation Refunding Bonds, Washington Elementary School, Series 2002A, 5.375%, 7/01/15 - FSA Insured 3,000 Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 3,058,320 5.000%, 7/01/18 - FGIC Insured 1,255 Phoenix, Arizona, Various Purpose General Obligation Bonds, 7/12 at 100.00 AA+ 1,267,086 Series 2002B, 5.000%, 7/01/21 Puerto Rico Public Improvement, General Obligation Bonds, Series 2002A: 1,000 5.500%, 7/01/19 - FGIC Insured No Opt. Call AAA 1,101,340 500 5.375%, 7/01/28 7/11 at 100.00 A- 501,415 585 Tempe Union High School District 213, Maricopa County, 7/04 at 101.00 AAA 614,970 Arizona, General Obligation Bonds, Series 1994, 6.000%, 7/01/12 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 34.4% 1,070 Arizona School Facilities Board, State School Improvement 7/13 at 100.00 AAA 1,087,955 Revenue Bonds, Series 2003, 5.000%, 7/01/20 Arizona Tourism and Sports Authority, Tax Revenue Bonds, Multipurpose Stadium Facility Project, Series 2003A: 2,000 5.375%, 7/01/20 - MBIA Insured 7/13 at 100.00 Aaa 2,093,840 1,000 5.375%, 7/01/21 - MBIA Insured 7/13 at 100.00 Aaa 1,041,300 Bullhead City, Arizona, Parkway District Special Assessment Improvement Bonds, Series 1993: 830 6.100%, 1/01/08 1/04 at 102.00 Baa2 855,962 890 6.100%, 1/01/09 1/04 at 102.00 Baa2 916,478 1,500 Maricopa County Industrial Development Authority, 7/10 at 102.00 Baa3 1,473,780 Education Revenue Bonds, Arizona Charter Schools Project I, Series 2000A, 6.750%, 7/01/29 3,400 Maricopa County Stadium District, Arizona, Revenue 6/12 at 100.00 Aaa 3,570,408 Refunding Bonds, Series 2002, 5.375%, 6/01/18 - AMBAC Insured Phoenix Industrial Development Authority, Arizona, Government Office Lease Revenue Bonds, Capitol Mall LLC Project, Series 2000: 1,000 5.375%, 9/15/22 - AMBAC Insured 9/10 at 100.00 AAA 1,022,780 2,000 5.500%, 9/15/27 - AMBAC Insured 9/10 at 100.00 AAA 2,043,560 2,150 Phoenix Civic Plaza Building Corporation, Arizona, Senior 7/05 at 101.00 AAA 2,323,075 Lien Excise Tax Revenue Bonds, Series 1994, 6.000%, 7/01/14 1,200 Prescott Valley Municipal Property Corp., Arizona, Municipal 1/13 at 100.00 AAA 1,189,320 Facilities Revenue Bonds, Series 2003, 5.000%, 1/01/27 - FGIC Insured 1,000 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 A- 981,090 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 500 Surprise Municipal Property Corporation, Arizona, Excise 7/09 at 101.00 AAA 531,550 Tax Revenue Bonds, Series 2000, 5.700%, 7/01/20 - FGIC Insured 500 Tucson, Arizona, Certificates of Participation, Series 2000, 7/08 at 100.00 AAA 530,295 5.700%, 7/01/20 - MBIA Insured 1,100 Tucson, Arizona, Streets and Highway Junior Lien User Fee 7/10 at 100.00 AAA 1,121,208 Revenue Bonds, Series 1994E, 5.000%, 7/01/18 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATION SERVICES - 5.6% 2,000 Mohave County Industrial Development Authority, Arizona, 11/03 at 101.00 BBB 2,011,080 Revenue Bonds, Citizens Utility Company Project, Series 1994, 6.600%, 5/01/29 (Alternative Minimum Tax) 1,450 Industrial Development Authority, Yavapai County, Arizona, 6/07 at 101.00 BBB 1,373,745 Revenue Bonds, Citizens Utilities Company Project, Series 1998, 5.450%, 6/01/33 (Alternative Minimum Tax) 13 Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 22.9% $ 530 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA $ 590,113 Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20 (Pre-refunded to 7/01/10) 3,500 Maricopa County Industrial Development Authority, Arizona, No Opt. Call AAA 4,327,995 Samaritan Health Services, Hospital Revenue Refunding Bonds, Series 1990A, 7.000%, 12/01/16 - MBIA Insured 2,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/10 at 101.00 AAA 2,322,480 Wastewater System Revenue Bonds, Series 2000, 6.000%, 7/01/24 (Pre-refunded to 7/01/10) - FGIC Insured 1,000 Puerto Rico Highway and Transportation Authority, 7/10 at 101.00 A*** 1,196,500 Highway Revenue Bonds, Series 2000B, 6.500%, 7/01/27 (Pre-refunded to 7/01/10) 1,415 Tempe Union High School District 213, Maricopa County, 7/04 at 101.00 AAA 1,494,410 Arizona, General Obligation Bonds, Series 1994, 6.000%, 7/01/12 (Pre-refunded to 7/01/04) - FGIC Insured 3,000 Tucson, Arizona, General Obligation Bonds, Series 1984G, 7/04 at 101.00 AAA 3,175,200 6.250%, 7/01/18 (Pre-refunded to 7/01/04) - FGIC Insured 725 Tucson, Arizona, Certificates of Participation, Series 1994, 7/04 at 100.00 AA*** 760,975 6.375%, 7/01/09 (Pre-refunded to 7/01/04) - RAAI Insured - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 7.9% 1,000 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,084,760 Revenue Refunding Crossover Bonds, Hoover Project, Series 2001, 5.250%, 10/01/15 1,615 Coconino County, Arizona, Pollution Control Revenue Bonds, 10/06 at 102.00 B- 1,422,444 Nevada Power Company Project, Series 1996, 6.375%, 10/01/36 (Alternative Minimum Tax) 500 Navajo County Pollution Control Corp., Arizona, Pollution 8/03 at 102.00 AAA 511,415 Control Revenue Refunding Bonds, Arizona Public Service Company, Series 1993A, 5.875%, 8/15/28 - MBIA Insured 1,200 Pima County Industrial Development Authority, Arizona, 1/04 at 102.00 AAA 1,270,380 Lease Obligation Revenue Refunding Bonds, Tucson Electric Power Company Irvington Project, Series 1988A, 7.250%, 7/15/10 - FSA Insured 500 Agricultural Improvement and Power District, Arizona, 1/12 at 101.00 AA 492,272 Electric System Revenue Refunding Bonds, Salt River Project, Series 2002A, 5.000%, 1/01/31 - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 2.4% 1,500 Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 1,476,810 Lien Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ $ 80,146 Total Long-Term Investments (cost $80,747,376) - 136.7% 82,781,269 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 12.8% 7,765,541 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (49.5)% (30,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $60,546,810 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares. * Optional Call Provisions (not covered by the report of independent auditors): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent auditors): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 14
Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 10.2% $ 1,020 Mesa Industrial Development Authority, Arizona, Student 7/11 at 101.00 BBB- $ 1,010,534 Housing Revenue Bonds, ASU East/Maricopa County Community College District, Williams Campus Project, Series 2001A, 6.000%, 7/01/26 1,000 Puerto Rico Industrial, Tourist, Educational, Medical, and 2/09 at 101.00 BBB 971,630 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, Ana G. Mendez University System Project, Series 1999, 5.375%, 2/01/29 300 Puerto Rico Industrial, Tourist, Educational, Medical, and 9/11 at 100.00 BBB 295,341 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, University of the Sacred Heart Project, Series 2001, 5.250%, 9/01/21 - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 11.5% 550 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 580,415 Bonds, John C. Lincoln Health Network, Series 2000, 6.875%, 12/01/20 920 Arizona Health Facilities Authority, Revenue Bonds, 7/10 at 101.00 BBB 965,200 Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 1,000 Scottsdale Industrial Development Authority, Arizona, Hospital 12/11 at 101.00 A3 1,011,900 Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 19.8% 1,000 Maricopa County Industrial Development Authority, Arizona, 7/09 at 102.00 Aaa 1,013,370 Multifamily Housing Revenue Bonds, Whispering Palms Apartments Project, Series 1999A, 5.900%, 7/01/29 - MBIA Insured 1,125 Maricopa County Industrial Development Authority, Arizona, 10/11 at 103.00 Aaa 1,140,953 Multifamily Housing Revenue Bonds, Syl-Mar Apartments Project, Series 2001, 5.650%, 4/20/21 (Alternative Minimum Tax) 275 Phoenix Industrial Development Authority, Arizona, 6/11 at 102.00 Aaa 281,619 GNMA Collateralized Multifamily Housing Revenue Bonds, Campaigne Place on Jackson Project, Series 2001, 5.700%, 6/20/31 (Alternative Minimum Tax) 1,000 Phoenix Industrial Development Authority, Arizona, 11/11 at 105.00 AAA 1,023,350 GNMA Collateralized Multifamily Housing Revenue Bonds, Bay Club Apartments Project, Series 2001, 5.900%, 11/20/31 990 Phoenix Industrial Development Authority, Arizona, 10/12 at 102.00 Aaa 944,024 GNMA Enhanced Mortgage Loan Multifamily Housing Revenue Bonds, Liberty Cove Apartments, Series 2002A, 5.050%, 10/20/32 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 1.5% 320 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 323,885 FNMA/GNMA Single Family Mortgage Revenue Bonds, Series 2001A-4, 5.050%, 5/01/17 - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 4.5% 1,000 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 1,013,620 Solid Waste Disposal Revenue Bonds, Waste Management, Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put 3/01/08) - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 18.9% 1,500 Maricopa County School District 6, Arizona, General No Opt. Call AAA 1,651,290 Obligation Refunding Bonds, Washington Elementary School, Series 2002A, 5.375%, 7/01/15 - FSA Insured 1,000 Mesa, Arizona, General Obligation Bonds, Series 1999, 7/09 at 100.00 AAA 1,024,120 5.000%, 7/01/17 - FGIC Insured 500 Puerto Rico Public Improvement, General Obligation Bonds, No Opt. Call A- 505,860 Series 2002A, 5.500%, 7/01/29 1,020 Tucson, Arizona, General Obligation Refunding Bonds, 7/07 at 100.00 AA 1,029,333 Series 1997, 5.000%, 7/01/19 - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 38.2% 700 Arizona School Facilities Board, School Improvement Revenue 7/11 at 100.00 AAA 748,853 Bonds, Series 2001, 5.500%, 7/01/18 1,000 Arizona State Transportation Board, Highway Revenue 7/13 at 100.00 AAA 1,000,340 Bonds, Series 2003A, 5.000%, 7/01/22 15 Nuveen Arizona Dividend Advantage Municipal Fund (NFZ) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 1,000 Arizona Tourism and Sports Authority, Tax Revenue Bonds, 7/13 at 100.00 Aaa $ 1,041,300 Multipurpose Stadium Facility Project, Series 2003A, 5.375%, 7/01/21 - MBIA Insured 2,000 Maricopa County Industrial Development Authority, 6/07 at 102.00 A 2,087,820 Arizona, Education Revenue Bonds, Horizon Community Learning Center Project, Series 2000, 6.350%, 6/01/26 - ACA Insured 900 Phoenix Industrial Development, Arizona, Government Office 3/12 at 100.00 AAA 949,392 Lease Revenue Bonds, Capitol Mall LLC II Project, Series 2001, 5.250%, 9/15/16 - AMBAC Insured 2,675 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,684,229 Series 2003, 5.000%, 7/01/21 - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 11.6% 500 Maricopa County Industrial Development Authority, Arizona, 9/05 at 101.00 AAA 546,265 Baptist Hospital System Revenue Refunding Bonds, Series 1995, 5.500%, 9/01/16 (Pre-refunded to 9/01/05) - MBIA Insured 1,350 Puerto Rico Infrastructure Financing Authority, Special 10/10 at 101.00 AAA 1,419,188 Obligation Bonds, Series 2000A, 5.500%, 10/01/40 Agricultural Improvement and Power District, Arizona, Electric System Revenue Refunding Bonds, Salt River Project, Series 1997A: 140 5.000%, 1/01/20 (Pre-refunded to 1/01/08) 1/08 at 101.00 AA*** 154,717 430 5.000%, 1/01/20 (Pre-refunded to 1/01/11) 1/08 at 101.00 AA*** 464,942 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 25.8% 1,500 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,611,105 Revenue Refunding Crossover Bonds, Hoover Project, Series 2001, 5.250%, 10/01/17 500 Coconino County, Arizona, Pollution Control Revenue Bonds, 11/03 at 101.00 B- 407,515 Nevada Power Company Project, Series 1997B, 5.800%, 11/01/32 (Alternative Minimum Tax) 1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2000, 7/09 at 100.00 AAA 1,019,620 5.125%, 7/01/19 - FGIC Insured 1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,079,600 Series 2002, 5.250%, 7/01/17 - FGIC Insured 350 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 355,481 Series 2002II, 5.125%, 7/01/26 - FSA Insured 1,000 Agricultural Improvement and Power District, Arizona, 1/12 at 101.00 AA 1,045,680 Electric System Revenue Refunding Bonds, Salt River Project, Series 2002A, 5.250%, 1/01/18 235 Agricultural Improvement and Power District, Arizona, 1/08 at 101.00 AA 237,170 Electric System Revenue Refunding Bonds, Salt River Project, Series 1997A, 5.000%, 1/01/20 - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 6.6% 1,500 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/12 at 100.00 AAA 1,476,810 Water System Revenue Bonds, Series 2002, 5.000%, 7/01/26 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ $ 32,300 Total Long-Term Investments (cost $32,884,139) - 148.6% 33,116,471 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 5.2% 1,173,938 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (53.8)% (12,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $22,290,409 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares. * Optional Call Provisions (not covered by the report of independent auditors): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent auditors): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. See accompanying notes to financial statements. 16
Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 14.7% $ 510 Arizona State University, Certificates of Participation, 7/12 at 100.00 AAA $ 510,699 Series 2002, 5.125%, 7/01/26 - MBIA Insured Arizona State University, System Revenue Bonds, Series 2002: 1,000 5.000%, 7/01/25 - FGIC Insured 7/12 at 100.00 AAA 992,720 715 5.750%, 7/01/27 - FGIC Insured 7/12 at 100.00 AAA 764,464 1,250 Glendale Industrial Development Authority, Arizona, Revenue 5/11 at 101.00 BBB+ 1,273,050 Bonds, Midwestern University, Series 2001A, 5.875%, 5/15/31 320 Puerto Rico Industrial, Tourist, Educational, Medical, and 2/09 at 101.00 BBB 321,174 Environmental Control Facilities Financing Authority, Higher Education Revenue Bonds, Ana G. Mendez University System Project, Series 1999, 5.375%, 2/01/19 University of Arizona, Certificates of Participation, Series 2002A: 750 5.500%, 6/01/18 - AMBAC Insured 6/12 at 100.00 AAA 799,335 500 5.125%, 6/01/22 - AMBAC Insured 6/12 at 100.00 AAA 504,240 - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 9.0% 735 Arizona Health Facilities Authority, Hospital System Revenue 2/12 at 101.00 Ba2 602,288 Bonds, Phoenix Children's Hospital, Series 2002A, 6.250%, 2/15/21 1,000 Arizona Health Facilities Authority, Revenue Bonds, 7/10 at 101.00 BBB 1,049,130 Catholic Healthcare West, Series 1999A, 6.625%, 7/01/20 500 Maricopa County Industrial Development Authority, 5/08 at 101.00 AA 485,870 Arizona, Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998, 5.250%, 11/15/37 1,000 Mesa Industrial Development Authority, Arizona, Revenue 1/10 at 101.00 AAA 1,022,740 Bonds, Discovery Health System, Series 1999A, 5.625%, 1/01/29 - MBIA Insured - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 7.2% 1,000 Maricopa County Industrial Development Authority, 10/11 at 105.00 AAA 1,040,420 Arizona, GNMA Collateralized Multifamily Housing Revenue Refunding Bonds, Pine Ridge, Cambridge Court, Cove on 44th and Fountain Place Apartments Projects, Series 2001A-1, 6.000%, 10/20/31 1,425 Phoenix Industrial Development Authority, Arizona, 7/12 at 105.00 AAA 1,502,178 GNMA Collateralized Multifamily Housing Revenue Bonds, Summit Apartments Project, Series 2002, 6.450%, 7/20/32 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.4% 150 Pima County Industrial Development Authority, Arizona, 11/10 at 101.00 AAA 150,894 FNMA/GNMA Single Family Mortgage Revenue Bonds, Series 2001A-1, 5.350%, 11/01/24 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 2.9% 1,000 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 1,013,620 Solid Waste Disposal Revenue Bonds, Waste Management, Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put 3/01/08) - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 44.8% 1,725 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA+ 1,780,666 5.000%, 7/01/17 1,000 Gilbert, Arizona, General Obligation Bonds, Series 2002A, 7/11 at 100.00 AAA 1,025,580 5.000%, 7/01/18 - AMBAC Insured Maricopa County School District 6, Arizona, General Obligation Refunding Bonds, Washington Elementary School, Series 2002A: 1,000 5.375%, 7/01/15 - FSA Insured No Opt. Call AAA 1,100,860 2,000 5.375%, 7/01/16 - FSA Insured No Opt. Call AAA 2,193,600 2,165 Maricopa County Unified School District 69, Paradise Valley, No Opt. Call AAA 2,353,442 Arizona, General Obligation Refunding Bonds, Series 2002A, 5.250%, 7/01/14 - FGIC Insured 1,000 Mesa, Arizona, General Obligation Bonds, Series 2000, No Opt. Call AAA 1,177,080 6.500%, 7/01/11 - FGIC Insured 17 Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 1,405 Mesa, Arizona, General Obligation Bonds, Series 2002, No Opt. Call AAA $ 1,546,708 5.375%, 7/01/15 - FGIC Insured Phoenix, Arizona, Various Purpose General Obligation Bonds, Series 2002B: 1,700 5.000%, 7/01/22 7/12 at 100.00 AA+ 1,709,044 250 5.000%, 7/01/27 7/12 at 100.00 AA+ 248,885 1,000 Pinal County Unified School District 43, Apache Junction, No Opt. Call AAA 1,133,560 Arizona, General Obligation Refunding Bonds, Series 2001, 5.750%, 7/01/15 - FGIC Insured 1,500 Scottsdale, Arizona, General Obligation Bonds, 7/11 at 100.00 AAA 1,507,245 Series 2002, 5.000%, 7/01/24 - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 37.7% Arizona State, Certificates of Participation, Series 2002A: 750 5.000%, 11/01/17 - MBIA Insured 5/12 at 100.00 AAA 771,630 1,000 5.000%, 11/01/18 - MBIA Insured 5/12 at 100.00 AAA 1,021,610 500 5.000%, 11/01/20 - MBIA Insured 5/12 at 100.00 AAA 504,370 1,000 Arizona State Transportation Board, Highway Revenue 7/12 at 100.00 AAA 1,026,090 Bonds, Series 2002B, 5.250%, 7/01/21 1,000 Maricopa County Public Finance Authority, Arizona, Lease 7/11 at 100.00 Aaa 1,081,290 Revenue Bonds, Series 2001, 5.500%, 7/01/15 - AMBAC Insured Maricopa County Stadium District, Arizona, Revenue Refunding Bonds, Series 2002: 840 5.375%, 6/01/18 - AMBAC Insured 6/12 at 100.00 Aaa 882,101 2,645 5.375%, 6/01/19 - AMBAC Insured 6/12 at 100.00 Aaa 2,763,919 1,500 Phoenix Industrial Development, Arizona, Government Office 3/12 at 100.00 AAA 1,582,320 Lease Revenue Bonds, Capitol Mall LLC II Project, Series 2001, 5.250%, 9/15/16 - AMBAC Insured 500 Puerto Rico Highway and Transportation Authority, Highway 7/16 at 100.00 A 509,805 Revenue Bonds, Series 1996Y, 5.500%, 7/01/36 500 Puerto Rico Highway and Transportation Authority, Highway 7/12 at 100.00 AAA 501,945 Revenue Bonds, Series 2002D, 5.000%, 7/01/32 - FSA Insured 1,000 Puerto Rico Public Buildings Authority, Guaranteed 7/12 at 100.00 A- 981,090 Government Facilities Revenue Refunding Bonds, Series 2002D, 5.125%, 7/01/24 1,000 Tucson, Arizona, Streets and Highway Junior Lien User Fee 7/10 at 100.00 AAA 1,019,280 Revenue Bonds, Series 1994E, 5.000%, 7/01/18 - FGIC Insured 640 Yuma Municipal Property Corporation, Arizona, Municipal 7/10 at 100.00 AAA 642,573 Facilities Tax Revenue Bonds, Series 2001, 5.000%, 7/01/21 - AMBAC Insured - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 5.6% 1,000 Phoenix Civic Improvement Corporation, Arizona, Senior Lien 7/08 at 101.00 AAA 987,500 Airport Revenue Bonds, Series 1998A, 5.000%, 7/01/25 - FSA Insured 1,000 Phoenix Civic Improvement Corporation, Arizona, Senior 7/12 at 100.00 AAA 993,890 Lien Airport Revenue Bonds, Series 2002B, 5.250%, 7/01/27 (Alternative Minimum Tax) - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 8.4% 1,215 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA 1,388,429 Asset-Backed Bonds, Series 2000, 5.750%, 7/01/12 (Pre-refunded to 7/01/10) 1,500 Puerto Rico Infrastructure Financing Authority, Special 10/10 at 101.00 AAA 1,576,875 Obligation Bonds, Series 2000A, 5.500%, 10/01/40 - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 9.4% 1,115 Arizona Power Authority, Special Obligation Power Resource No Opt. Call AA 1,209,507 Revenue Refunding Crossover Bonds, Hoover Project, Series 2001, 5.250%, 10/01/15 1,000 Mesa, Arizona, Utility System Revenue Bonds, Series 2002, 7/11 at 100.00 AAA 1,009,720 5.000%, 7/01/20 - FGIC Insured 1,000 Mesa, Arizona, Utility System Revenue Refunding Bonds, No Opt. Call AAA 1,079,600 Series 2002, 5.250%, 7/01/17 - FGIC Insured 18 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 7.5% $ 500 Maricopa County Industrial Development Authority, Arizona, 12/07 at 102.00 AAA $ 502,890 Water System Improvement Revenue Bonds, Chaparra City Water Company Project, Series 1997A, 5.400%, 12/01/22 (Alternative Minimum Tax) - AMBAC Insured 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,077,900 Water System Revenue Refunding Bonds, Series 2001, 5.500%, 7/01/22 - FGIC Insured 1,000 Tucson, Arizona, Water System Revenue Refunding Bonds, 7/12 at 102.00 AAA 1,077,860 Series 2001, 5.500%, 7/01/18 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ $ 49,805 Total Long-Term Investments (cost $51,188,087) - 147.6% 52,001,686 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 4.9% 1,735,790 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (52.5)% (18,500,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $35,237,476 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares. * Optional Call Provisions (not covered by the report of independent auditors): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent auditors): Using the higher of Standard & Poor's or Moody's rating. See accompanying notes to financial statements. 19
Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 4.1% $ 1,940 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 A- $ 1,682,426 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 - ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 19.1% 2,000 Arizona State University, System Revenue Bonds, 7/12 at 100.00 AAA 2,138,360 Series 2002, 5.750%, 7/01/27 - FGIC Insured 1,000 Arizona Student Loan Acquisition Authority, Student Loan 11/09 at 102.00 Aaa 1,066,810 Revenue Refunding Bonds, Senior Series 1999A-1, 5.750%, 5/01/15 (Alternative Minimum Tax) 1,130 Energy Management Services LLC, Arizona State University, 7/12 at 100.00 AAA 1,176,884 Energy Conservation Revenue Bonds, Main Campus Project, Series 2002, 5.250%, 7/01/18 - MBIA Insured 500 Glendale Industrial Development Authority, Arizona, Revenue 5/08 at 101.00 BBB+ 497,245 Bonds, Midwestern University, Series 1998A, 5.375%, 5/15/28 1,000 Tucson Industrial Development Authority, Arizona, Lease 7/12 at 100.00 AAA 975,330 Revenue Bonds, University of Arizona-Marshall Foundation Project, Series 2002A, 5.000%, 7/15/32 - AMBAC Insured 2,000 University of Arizona, Certificates of Participation, 6/12 at 100.00 AAA 2,038,420 Series 2002B, 5.125%, 6/01/20 - AMBAC Insured - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 13.4% Arizona Health Facilities Authority, Hospital Revenue Bonds, Phoenix Children's Hospital, Series 1999A: 750 6.125%, 11/15/22 11/09 at 100.00 Ba2 599,767 520 6.250%, 11/15/29 11/09 at 100.00 Ba2 406,172 1,000 Arizona Health Facilities Authority, Hospital System Revenue 12/10 at 102.00 BBB 1,055,300 Bonds, John C. Lincoln Health Network, Series 2000, 6.875%, 12/01/20 250 Arizona Health Facilities Authority, Revenue Bonds, Catholic 7/10 at 101.00 BBB 262,283 Healthcare West, Series 1999A, 6.625%, 7/01/20 2,000 Maricopa County Industrial Development Authority, Arizona, 5/08 at 101.00 AA 1,943,480 Hospital Revenue Bonds, Mayo Clinic Hospital, Series 1998, 5.250%, 11/15/37 1,250 Scottsdale Industrial Development Authority, Arizona, Hospital 12/11 at 101.00 A3 1,264,875 Revenue Bonds, Scottsdale Healthcare, Series 2001, 5.800%, 12/01/31 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 13.7% 1,750 Maricopa County Industrial Development Authority, Arizona, 1/18 at 100.00 AAA 1,702,383 Multifamily Housing Senior Revenue Bonds, National Voluntary Health Facilities II Project, Series 1998A, 5.100%, 1/01/33 - FSA Insured 1,545 Phoenix Industrial Development Authority, Arizona, 6/11 at 102.00 Aaa 1,579,979 GNMA Collateralized Multifamily Housing Revenue Bonds, Campaigne Place on Jackson Project, Series 2001, 5.600%, 6/20/21 (Alternative Minimum Tax) 2,460 Phoenix Industrial Development Authority, Arizona, 10/12 at 102.00 Aaa 2,379,829 GNMA Enhanced Mortgage Loan Multifamily Housing Revenue Bonds, Liberty Cove Apartments, Series 2002A, 4.950%, 10/20/22 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 3.7% 1,500 Yavapai County Industrial Development Authority, Arizona, No Opt. Call BBB 1,520,430 Solid Waste Disposal Revenue Bonds, Waste Management, Inc. Project, Series 2003B, 4.450%, 3/01/28 (Alternative Minimum Tax) (Mandatory put 3/01/08) 20 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 27.0% $ 660 Chandler, Arizona, General Obligation Bonds, Series 2002, 7/12 at 100.00 AA+ $ 675,952 5.000%, 7/01/18 2,250 DC Ranch Community Facilities District, Scottsdale, Arizona, 7/13 at 100.00 Aaa 2,223,315 General Obligation Bonds, Series 2002, 5.000%, 7/15/27 - AMBAC Insured 1,930 Glendale, Arizona, General Obligation Refunding Bonds, 7/11 at 100.00 AA 1,958,275 Series 2002, 5.000%, 7/01/19 1,000 Maricopa County School District 11, Peoria, Arizona, General No Opt. Call AAA 1,070,010 Obligation Refunding Bonds, Series 2002, 5.000%, 7/01/15 - FSA Insured 765 Maricopa County Unified School District 69, Paradise Valley, No Opt. Call AAA 816,339 Arizona, General Obligation Refunding Bonds, Series 2002, 5.000%, 7/01/15 - FSA Insured 1,000 Maricopa County Unified School District 95, Queen Creek, No Opt. Call Aaa 1,066,280 Arizona, General Obligation Bonds, Series 2002, 5.000%, 7/01/14 - FGIC Insured 1,500 Puerto Rico Public Improvement, General Obligation Refunding No Opt. Call AAA 1,643,505 Bonds, Series 2002A, 5.500%, 7/01/20 - MBIA Insured 1,150 Scottsdale, Arizona, General Obligation Refunding Bonds, No Opt. Call AAA 1,221,473 Series 2002, 5.000%, 7/01/16 440 Tucson, Arizona, General Obligation Bonds, Series 2001B, 7/11 at 100.00 AA 444,136 5.000%, 7/01/20 - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 31.6% 2,000 Arizona School Facilities Board, School Improvement Revenue 7/12 at 100.00 AAA 2,074,120 Bonds, Series 2002, 5.250%, 7/01/20 1,000 Goodyear, Arizona, Municipal Financing Program, Certificates No Opt. Call AAA 1,212,090 of Participation, Series 31, 7.250%, 8/01/09 - MBIA Insured 2,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/11 at 100.00 AAA 2,051,980 Series 2001, 5.250%, 7/01/20 3,000 Arizona State Transportation Board, Highway Revenue 7/12 at 102.00 AAA 3,171,000 Refunding Bonds, Series 2002A, 5.250%, 7/01/18 1,000 Arizona State Transportation Board, Highway Revenue Bonds, 7/12 at 100.00 AAA 1,021,730 Series 2002B, 5.250%, 7/01/22 680 Avondale Municipal Development Corporation, Arizona, 7/12 at 100.00 AAA 705,990 Excise Tax Revenue Bonds, Series 2002, 5.000%, 7/01/16 - FGIC Insured 2,770 Tempe, Arizona, Excise Tax Revenue Refunding Bonds, 7/13 at 100.00 AA+ 2,761,496 Series 2003, 5.000%, 7/01/22 - ------------------------------------------------------------------------------------------------------------------------------------ TELECOMMUNICATION SERVICES - 1.1% 500 Industrial Development Authority, Yavapai County, Arizona, 6/07 at 101.00 BBB 473,705 Revenue Bonds, Citizens Utilities Company Project, Series 1998, 5.450%, 6/01/33 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 14.0% Phoenix, Arizona, Civic Improvement Corporation, Senior Lien Airport Revenue Bonds, Series 2002B: 1,000 5.750%, 7/01/16 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 1,073,090 2,300 5.250%, 7/01/21 (Alternative Minimum Tax) - FGIC Insured 7/12 at 100.00 AAA 2,302,323 2,450 Tucson Airport Authority, Inc., Arizona, Revenue Refunding 6/11 at 100.00 AAA 2,391,274 Bonds, Series 2001B, 5.000%, 6/01/20 (Alternative Minimum Tax) - AMBAC Insured - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 11.4% 1,750 Maricopa County, Arizona, Pollution Control Corporation 11/12 at 100.00 AAA 1,719,655 Revenue Bonds, Arizona Public Service Company Palo Verde Project, Series 2002A, 5.050%, 5/01/29 - AMBAC Insured 2,000 Agricultural Improvement and Power District, Arizona, 1/12 at 101.00 AA 2,010,300 Electric System Revenue Refunding Bonds, Salt River Project, Series 2002A, 5.125%, 1/01/27 1,000 Agricultural Improvement and Power District, Arizona, 1/13 at 100.00 AA 980,210 Electric System Revenue Bonds, Salt River Project, Series 2002B, 5.000%, 1/01/31 21 Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 10.7% $ 1,000 Phoenix Civic Improvement Corporation, Arizona, Junior Lien 7/11 at 100.00 AAA $ 1,012,610 Wastewater System Revenue Refunding Bonds, Series 2001, 5.125%, 7/01/21 - FGIC Insured 1,250 Phoenix Civic Improvement Corporation, Arizona, Junior Lien No Opt. Call AAA 1,356,672 Water System Revenue Refunding Bonds, Series 2001, 5.500%, 7/01/21 - FGIC Insured 2,000 Phoenix Civic Improvement Corporation, Arizona, Junior 7/12 at 100.00 AAA 2,046,880 Lien Water System Revenue Bonds, Series 2002, 5.000%, 7/01/18 - FGIC Insured - ------------------------------------------------------------------------------------------------------------------------------------ $ 60,990 Total Long-Term Investments (cost $63,733,881) - 149.8% 61,774,383 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 3.5% 1,472,659 -------------------------------------------------------------------------------------------------------------------- Preferred Shares, at Liquidation Value - (53.3)% (22,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $41,247,042 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares. * Optional Call Provisions (not covered by the report of independent auditors): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent auditors): Using the higher of Standard & Poor's or Moody's rating. See accompanying notes to financial statements. 22
Nuveen Texas Quality Income Municipal Fund (NTX) Portfolio of INVESTMENTS July 31, 2003
PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 1.8% $ 2,910 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 5/12 at 100.00 A- $ 2,523,639 Asset-Backed Refunding Bonds, Series 2002, 5.375%, 5/15/33 - ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 11.7% 205 Brazos Higher Education Authority, Inc., Texas, Student Loan No Opt. Call Aa2 215,498 Revenue Refunding Bonds, Subordinate Series 1993A-2, 6.800%, 12/01/04 (Alternative Minimum Tax) 1,000 Georgetown Higher Education Finance Corporation, Texas, 2/04 at 100.00 Aa3 1,008,150 Higher Education Revenue Bonds, Southwestern University Project, Series 1994, 6.300%, 2/15/14 1,000 Raven Hills Higher Education Corporation, Texas, Student 8/11 at 100.00 Aaa 1,008,120 Housing Revenue Bonds, Cardinal Village LLC - Lamar University Project, Series 2001A, 5.250%, 8/01/24 - MBIA Insured 3,000 Texas State University System, Financing Revenue Refunding No Opt. Call AAA 3,013,380 Bonds, Series 2002, 5.000%, 3/15/20 - FSA Insured 1,445 Tyler Junior College District, Smith and Van Zanlt Counties, 8/04 at 100.00 AAA 1,509,823 Texas, Combined Fee Improvement Revenue Refunding Bonds, Series 1994, 5.900%, 8/15/13 - MBIA Insured 2,330 Universal City Education Facilities Corporation, Texas, 3/11 at 102.00 A- 2,341,697 Revenue Bonds, Wayland Baptist University Project, Series 2001, 5.625%, 3/01/26 2,000 University of Houston, Texas, Consolidated Revenue Bonds, 2/05 at 100.00 AAA 2,113,100 Series 1995, 6.000%, 2/15/17 - FGIC Insured 5,000 University of North Texas, Financing System Revenue Bonds, 4/12 at 100.00 AAA 4,901,700 Series 2001, 5.000%, 4/15/24 - FSA Insured - ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 2.9% 3,000 Gulf Coast Waste Disposal Authority, Texas, Waste Disposal 4/08 at 102.00 BBB 2,774,910 Revenue Bonds, Valero Energy Corporation Project, Series 1998, 5.600%, 4/01/32 (Alternative Minimum Tax) 1,300 Gulf Coast Waste Disposal Authority, Texas, Waste 4/09 at 101.00 BBB 1,219,855 Disposal Revenue Bonds, Valero Energy Corporation Project, Series 1999, 5.700%, 4/01/32 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE - 20.5% 3,500 Abilene Health Facilities Development Corporation, Texas, 9/05 at 102.00 AAA 3,748,115 Hospital Revenue Refunding and Improvement Bonds, Hendrick Medical Center Project, Series 1995C, 6.150%, 9/01/25 - MBIA Insured Gregg County Health Facilities Development Corporation, Texas, Hospital Revenue Bonds, Good Shepherd Medical Center Project, Series 2000: 2,000 6.875%, 10/01/20 - RAAI Insured 10/10 at 101.00 AA 2,283,720 3,250 6.375%, 10/01/25 - RAAI Insured 10/10 at 101.00 AA 3,515,070 1,500 Harris County Health Facilities Development Corporation, 8/11 at 100.00 AA- 1,514,025 Texas, Revenue Bonds, St. Luke's Episcopal Hospital, Series 2001A, 5.500%, 2/15/21 2,000 Harris County Health Facilities Development Corporation, 6/11 at 101.00 A 2,107,380 Texas, Hospital Revenue Bonds, Memorial Hermann Healthcare System, Series 2001A, 6.375%, 6/01/29 5,750 Midland County Hospital District, Texas, Hospital Revenue No Opt. Call A- 3,719,215 Bonds, Series 1992, 0.000%, 6/01/11 2,000 North Central Texas Health Facilities Development 5/11 at 100.00 AA- 1,898,440 Corporation, Hospital Revenue Bonds, Baylor Healthcare System Project, Series 2001A, 5.125%, 5/15/29 1,760 Parker County Hospital District, Texas, Hospital Revenue 8/09 at 102.00 BBB- 1,754,826 Bonds, Campbell Health System, Series 1999, 6.250%, 8/15/19 1,050 Tarrant County Health Facilities Development Corporation, 11/08 at 101.00 A 1,019,771 Texas, Hospital Revenue Bonds, Adventist Health System/ Sunbelt Obligated Group, Series 1998, 5.375%, 11/15/20 23 Nuveen Texas Quality Income Municipal Fund (NTX) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ HEALTHCARE (continued) $ 3,500 Tarrant County Health Facilities Development Corporation, 11/10 at 101.00 A $ 3,744,615 Texas, Hospital Revenue Bonds, Adventist Health System/ Sunbelt Obligated Group, Series 2000, 6.625%, 11/15/20 2,000 Tom Green County Health Facilities Development 5/11 at 101.00 Baa3 2,044,400 Corporation, Texas, Hospital Revenue Bonds, Shannon Health System Project, Series 2001, 6.750%, 5/15/21 1,000 Tyler Health Facilities Development Corporation, Texas, 7/12 at 100.00 Baa1 992,570 Hospital Revenue Bonds, Mother Frances Hospital Regional Health Center, Series 2001, 6.000%, 7/01/31 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 8.7% Bexar County Housing Finance Corporation, Texas, Multifamily Housing Revenue Bonds, Waters at Northern Hills Apartments Project, Series 2001A: 2,000 6.000%, 8/01/31 - MBIA Insured 8/11 at 102.00 Aaa 2,090,220 750 6.050%, 8/01/36 - MBIA Insured 8/11 at 102.00 Aaa 785,048 Grand Prairie Housing Finance Corporation, Texas, GNMA Multifamily Housing Revenue Bonds, Landings of Carrier Project, Series 2000A: 1,000 6.650%, 9/20/22 9/10 at 105.00 AAA 1,052,370 2,030 6.750%, 9/20/28 9/10 at 105.00 AAA 2,123,685 5,668 Houston Housing Finance Corporation, Texas, GNMA 9/11 at 105.00 Aaa 5,900,785 Collateralized Mortgage Multifamily Housing Revenue Bonds, RRG Apartments Project, Series 2001, 6.250%, 9/20/35 - ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 6.6% 2,800 El Paso Housing Finance Corporation, Texas, GNMA 4/11 at 106.75 AAA 2,894,500 Collateralized Single Family Mortgage Revenue Bonds, Series 2001A-3, 6.180%, 4/01/33 270 Galveston Property Finance Authority, Inc., Texas, Single 9/03 at 101.00 A3 276,059 Family Mortgage Revenue Bonds, Series 1991A, 8.500%, 9/01/11 585 Houston Housing Finance Corporation, Texas, Single Family 12/03 at 102.00 AAA 589,177 Mortgage Revenue Refunding Bonds, Series 1993A, 5.950%, 12/01/10 - FSA Insured 1,940 Texas Department of Housing, Single Family Mortgage 9/06 at 102.00 AAA 2,015,893 Revenue Bonds, Series 1996E, 6.000%, 9/01/17 - MBIA Insured 3,000 Texas Department of Housing and Community Affairs, 3/12 at 100.00 AAA 3,012,450 Single Family Mortgage Bonds, Series 2002B, 5.550%, 9/01/33 (Alternative Minimum Tax) - MBIA Insured 320 Victoria Housing Finance Corporation, Texas, FNMA Single No Opt. Call Aaa 327,254 Family Mortgage Revenue Refunding Bonds, Series 1995, 8.125%, 1/01/11 - ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 7.2% Bell County Health Facilities Development Corporation, Texas, Retirement Facility Revenue Bonds, Buckner Retirement Services, Inc. Obligated Group Project, Series 1998: 3,400 5.250%, 11/15/19 11/08 at 101.00 A- 3,224,220 5,000 5.250%, 11/15/28 11/08 at 101.00 A- 4,596,800 2,000 Tarrant County Health Facilities Development Corporation, 1/08 at 105.00 AAA 2,101,280 Texas, Tax-Exempt Mortgage Revenue Bonds, South Central Nursing Homes, Inc. Project, Series 1997A, 6.000%, 1/01/37 - MBIA Insured - ------------------------------------------------------------------------------------------------------------------------------------ MATERIALS - 5.7% 4,500 Cass County Industrial Development Corporation, Texas, 3/10 at 101.00 BBB 4,737,465 Environmental Improvement Revenue Bonds, International Paper Company Project, Series 2000A, 6.600%, 3/15/24 (Alternative Minimum Tax) 3,000 Guadalupe-Blanco River Authority, Texas, Sewage and Solid 4/06 at 102.00 AA- 3,074,700 Waste Disposal Facility Bonds, E.I. DuPont de Nemours and Company Project, Series 1996, 6.400%, 4/01/26 (Alternative Minimum Tax) - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 32.2% 4,130 Coppell Independent School District, Dallas County, Texas, 8/09 at 75.34 AAA 2,343,610 Unlimited Tax School Building and Refunding Bonds, Series 1992, 0.000%, 8/15/14 - MBIA Insured 1,450 Donna Independent School District, Hidalgo County, Texas, 2/11 at 100.00 AAA 1,611,501 Unlimited Tax School Building Bonds, Series 2000, 6.000%, 2/15/17 1,750 El Paso County, Texas, Certificates of Obligation, 2/12 at 100.00 AAA 1,744,908 Series 2001, 5.000%, 2/15/21 - FSA Insured 2,000 Harlingen Independent School District, Cameron County, 8/09 at 100.00 AAA 2,071,520 Texas, Unlimited Tax School Building Bonds, Series 1999, 5.650%, 8/15/29 24 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 2,000 Harris County, Texas, Tax and Revenue Certificates of 8/11 at 100.00 AA+ $ 1,957,780 Obligation, Series 2001, 5.000%, 8/15/27 1,500 Judson Independent School District, Bexar County, Texas, 2/11 at 100.00 Aaa 1,529,790 General Obligation Refunding Bonds, Series 2002, 5.250%, 2/01/21 1,250 Katy Independent School District, Harris, Fort Bend, and 2/12 at 100.00 AAA 1,197,775 Waller Counties, Texas, General Obligation Bonds, Series 2002A, 5.000%, 2/15/32 2,600 Klein Independent School District, Harris County, Texas, 8/09 at 100.00 AAA 2,651,272 Unlimited Tax Schoolhouse Bonds, Series 1999A, 5.000%, 8/01/18 1,500 Lake Dallas Independent School District, Denton County, 8/11 at 100.00 Aaa 1,440,900 Texas, General Obligation Building Bonds, Series 2001, 5.000%, 8/15/30 5,220 Leander Independent School District, Williamson and 8/09 at 46.74 AAA 1,843,756 Travis Counties, Texas, Unlimited Tax School Building and Refunding Bonds, Series 2000, 0.000%, 8/15/21 1,545 Montgomery County, Texas, General Obligation Refunding 9/07 at 72.39 AAA 897,830 Bonds, Series 1997, 0.000%, 3/01/14 - MBIA Insured 2,000 Northside Independent School District, Bexar County, 8/10 at 100.00 AAA 2,137,300 Texas, Unlimited Tax School Building and Refunding Bonds, Series 2000, 5.875%, 8/15/25 500 Puerto Rico Public Improvement, General Obligation No Opt. Call A- 505,860 Bonds, Series 2002A, 5.500%, 7/01/29 1,825 Socorro Independent School District, El Paso County, Texas, 2/06 at 100.00 Aaa 1,931,781 General Obligation Bonds, Series 1996, 5.750%, 2/15/21 1,440 South Texas Community College District, General Obligation 8/12 at 100.00 AAA 1,536,581 Bonds, Series 2002, 5.500%, 8/15/17 - AMBAC Insured 2,000 Texas State, General Obligation Bonds, Veterans Land Board, 12/04 at 100.00 Aa1 2,104,540 Series 1994, 6.400%, 12/01/24 (Alternative Minimum Tax) 3,490 Texas State, General Obligation Bonds, Veterans Housing 12/03 at 102.00 Aa1 3,582,415 Assistance Program Fund, Series 1993, 6.800%, 12/01/23 (Alternative Minimum Tax) 2,000 Texas State, General Obligation Bonds, Water Financial 8/11 at 100.00 Aa1 2,028,040 Assistance Program, Series 2001, 5.250%, 8/01/23 1,500 Texas State Public Finance Authority, General Obligation 10/12 at 100.00 Aa1 1,531,425 Refunding Bonds, Series 2002, 5.000%, 10/01/18 1,795 United Independent School District, Webb County, Texas, 8/12 at 100.00 AAA 1,878,647 Unlimited Tax School Building Bonds, Series 2000, 5.375%, 8/15/18 5,290 Weslaco Independent School District, Hidalgo County, 2/10 at 100.00 Aaa 5,406,274 Texas, General School Building Obligation Bonds, Series 2000, 5.500%, 2/15/25 West Texas Independent School District, McLennan and Hill Counties, Unlimited Tax School Building and Refunding Bonds, Series 1998: 1,000 0.000%, 8/15/22 8/13 at 61.20 AAA 325,080 1,000 0.000%, 8/15/24 8/13 at 54.88 AAA 283,620 1,800 Williamson County, Texas, General Obligation Road Bonds, 2/12 at 100.00 AAA 1,923,120 Series 2002, 5.500%, 2/15/16 - FSA Insured - ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 11.1% 4,500 Austin, Texas, Hotel Occupancy Tax Subordinate Lien 11/09 at 100.00 AAA 4,755,690 Revenue Refunding Bonds, Series 1999, 5.800%, 11/15/29 - AMBAC Insured 2,305 Corpus Christi, Texas, Certificates of Obligation, Limited Tax 9/12 at 100.00 AAA 2,413,058 and Hotel Occupancy Tax Revenue Bonds, Series 2002, 5.500%, 9/01/21 - FSA Insured 2,250 Harris County-Houston Sports Authority, Texas, Senior Lien 11/11 at 100.00 AAA 2,289,150 Revenue Bonds, Series 2001G, 5.250%, 11/15/22 - MBIA Insured 1,000 Laredo, Texas, Sports Venue Sales Tax Revenue Bonds, 3/09 at 100.00 AAA 1,009,120 Series 2001, 5.300%, 3/15/26 - FGIC Insured 4,580 San Antonio, Texas, Hotel Occupancy Tax Revenue Bonds, 8/06 at 102.00 AAA 4,782,436 Henry B. Gonzalez Convention Center Project, Series 1996, 5.700%, 8/15/26 - FGIC Insured 25 Nuveen Texas Quality Income Municipal Fund (NTX) (continued) Portfolio of INVESTMENTS July 31, 2003 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 5.3% $ 2,600 Dallas-Fort Worth International Airport Facility Improvement 11/09 at 101.00 CCC $ 1,222,000 Corporation, Texas, Revenue Bonds, American Airlines, Inc., Series 1999, 6.375%, 5/01/35 (Alternative Minimum Tax) 1,000 Harris County, Texas, Toll Road Senior Lien Revenue Refunding 8/04 at 102.00 AAA 1,025,860 Bonds, Series 1994, 5.375%, 8/15/20 - FGIC Insured 2,000 Houston, Texas, Airport System Subordinate Lien Revenue 7/10 at 100.00 AAA 2,035,280 Bonds, Series 2000A, 5.625%, 7/01/30 (Alternative Minimum Tax) - FSA Insured 3,000 Texas Turnpike Authority, Central Texas Turnpike System 8/12 at 100.00 AAA 3,078,540 First Tier Revenue Bonds, Series 2002A, 5.500%, 8/15/39 - AMBAC Insured - ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 8.0% 195 Abilene Housing Development Corporation, Texas, Section 8 No Opt. Call N/R*** 219,203 First Lien Revenue Bonds, Abilene East Apartments, Series 1978, 7.000%, 7/01/08 1,000 Caddo Mills Independent School District, Hunt County, Texas, 2/05 at 100.00 N/R*** 1,076,430 General Obligation Unlimited Tax School Building and Refunding Bonds, Series 1995, 6.375%, 8/15/25 (Pre-refunded to 2/15/05) 575 Puerto Rico, The Children's Trust Fund, Tobacco Settlement 7/10 at 100.00 AAA 640,217 Asset-Backed Bonds, Series 2000, 5.750%, 7/01/20 (Pre-refunded to 7/01/10) 1,185 Fort Bend County Levee Improvement District 11, Texas, 9/04 at 100.00 AAA 1,260,674 Unlimited Tax Levee Improvement Bonds, Series 1994, 6.900%, 9/01/17 (Pre-refunded to 9/01/04) - MBIA Insured 1,450 Galveston Industrial Development Corporation, Texas, Sales 9/05 at 100.00 AAA 1,576,890 Tax Revenue Bonds, Series 1995, 5.750%, 9/01/15 (Pre-refunded to 9/01/05) - AMBAC Insured 800 Laredo, Webb County, Texas, Waterworks System Combined 8/04 at 100.00 AAA 838,360 Tax and Revenue Certificates of Obligation, Series 1994, 5.625%, 8/15/11 (Pre-refunded to 8/15/04) - MBIA Insured 1,000 North Central Texas Health Facilities Development No Opt. Call AAA 1,090,140 Corporation, Hospital Revenue Bonds, Presbyterian Healthcare System Project, Series 1996B, 5.750%, 6/01/26 - MBIA Insured 2,500 Retama Development Corporation, Texas, Special Facilities No Opt. Call AAA 3,612,675 Revenue Bonds, Retama Park Racetrack Project, Series 1993, 8.750%, 12/15/17 665 San Antonio, Texas, Water System Revenue Refunding Bonds, No Opt. Call AAA 772,803 Series 1992, 6.500%, 5/15/10 - MBIA Insured - ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 13.3% 5,000 Austin, Texas, Electric Utility System Revenue Refunding 5/13 at 100.00 AAA 4,810,850 Bonds, Series 2003, 5.000%, 11/15/28 - MBIA Insured 2,560 Brazos River Authority, Texas, Pollution Control Revenue 4/13 at 101.00 BBB 2,819,507 Refunding Bonds, TXU Electric Company Project, Series 1999C, 7.700%, 4/01/32 (Alternative Minimum Tax) 2,500 Brazos River Authority, Texas, Revenue Refunding Bonds, 4/09 at 101.00 BBB- 2,236,075 Reliant Energy, Incorporated Project, Series 1999A, 5.375%, 4/01/19 2,000 Harris County Health Facilities Development Corporation, 2/10 at 100.00 AAA 2,126,600 Texas, Thermal Utility Revenue Bonds, TECO Project, Series 2000, 5.750%, 2/15/15 (Alternative Minimum Tax) - AMBAC Insured 1,500 Matagorda County Navigation District 1, Texas, Pollution 1/04 at 102.00 AAA 1,534,725 Control Revenue Refunding Bonds, Central Power and Light Company Project, Series 1993, 6.000%, 7/01/28 - MBIA Insured 1,000 Matagorda County Navigation District 1, Texas, Revenue 5/09 at 101.00 BBB- 943,830 Refunding Bonds, Reliant Energy Project, Series 1999B, 5.950%, 5/01/30 (Alternative Minimum Tax) 2,000 Sabine River Authority, Texas, Pollution Control Revenue No Opt. Call BBB 2,061,040 Refunding Bonds, TXU Electric Company Project, Series 2001A, 5.500%, 5/01/22 (Mandatory put 11/01/11) 1,750 San Antonio, Texas, Electric and Gas System Revenue 2/12 at 100.00 AA+ 1,812,755 Refunding Bonds, Series 2002, 5.375%, 2/01/20 - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 11.4% 3,500 Houston, Texas, Water and Sewer System Junior Lien 12/12 at 100.00 AAA 3,375,960 Revenue Refunding Bonds, Series 2002A, 5.000%, 12/01/30 - FSA Insured 5,275 Houston, Texas, Water and Sewer System Junior Lien 12/10 at 100.00 AAA 5,306,492 Revenue Refunding Bonds, Series 2000B, 5.250%, 12/01/30 - FGIC Insured 800 Houston, Texas, Water and Sewer System Junior Lien 12/07 at 101.00 AAA 810,856 Revenue Refunding Bonds, Series 1997A, 5.375%, 12/01/27 - FGIC Insured 26 PRINCIPAL OPTIONAL CALL MARKET AMOUNT (000) DESCRIPTION(1) PROVISIONS* RATINGS** VALUE - ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 3,500 Houston, Texas, Water and Sewer System Junior Lien 12/11 at 100.00 AAA $ 3,741,500 Revenue Refunding Bonds, Series 2001A, 5.500% 12/01/17 - FSA Insured 1,000 San Antonio, Texas, Water System Senior Lien Revenue 5/12 at 100.00 AAA 967,900 Refunding Bonds, Series 2002, 5.000%, 5/15/28 - FSA Insured 1,500 Texas Water Development Board, State Revolving Fund 7/09 at 100.00 AAA 1,548,312 Senior Lien Revenue Bonds, Series 1999A, 5.500%, 7/15/21 - ------------------------------------------------------------------------------------------------------------------------------------ $ 207,838 Total Long-Term Investments (cost $196,080,113) - 146.4% 202,034,178 - ------------------------------------------------------------------------------------------------------------------------------------ Other Assets Less Liabilities - 3.6% 4,940,931 - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Shares, at Liquidation Value - (50.0)% (69,000,000) - ------------------------------------------------------------------------------------------------------------------------------------ Net Assets Applicable to Common Shares - 100% $137,975,109 ==================================================================================================================== (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares. * Optional Call Provisions (not covered by the report of independent auditors): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. ** Ratings (not covered by the report of independent auditors): Using the higher of Standard & Poor's or Moody's rating. *** Securities are backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensures the timely payment of principal and interest. Such securities are normally considered to be equivalent to AAA rated securities. N/R Investment is not rated. See accompanying notes to financial statements. 27
Statement of ASSETS AND LIABILITIES July 31, 2003
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at market value (cost $80,747,376, $32,884,139, $51,188,087, $63,733,881, and $196,080,113, respectively) $82,781,269 $33,116,471 $52,001,686 $61,774,383 $202,034,178 Cash 2,940,076 886,917 1,381,467 1,064,564 34,252 Receivables: Interest 751,853 317,765 384,028 437,639 3,548,321 Investments sold 4,187,653 -- -- -- 1,560,000 Other assets 11,302 7,397 9,131 4,188 17,852 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 90,672,153 34,328,550 53,776,312 63,280,774 207,194,603 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Accrued expenses: Management fees 51,264 18,239 21,236 21,025 117,064 Other 70,983 19,541 17,408 11,715 94,716 Preferred share dividends payable 3,096 361 192 992 7,714 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 125,343 38,141 38,836 33,732 219,494 - ------------------------------------------------------------------------------------------------------------------------------------ Preferred shares, at liquidation value 30,000,000 12,000,000 18,500,000 22,000,000 69,000,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $60,546,810 $22,290,409 $35,237,476 $41,247,042 $137,975,109 ==================================================================================================================================== Common shares outstanding 4,431,048 1,542,142 2,418,271 3,067,000 9,466,888 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 13.66 $ 14.45 $ 14.57 $ 13.45 $ 14.57 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: - ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 44,310 $ 15,421 $ 24,183 $ 30,670 $ 94,669 Paid-in surplus 61,569,117 21,800,653 34,248,894 43,256,304 134,168,594 Undistributed (Over-distribution of) net investment income 612,114 211,017 36,173 (8,658) 1,595,053 Accumulated net realized gain (loss) from investments (3,712,624) 30,986 114,627 (71,776) (3,837,272) Net unrealized appreciation (depreciation) of investments 2,033,893 232,332 813,599 (1,959,498) 5,954,065 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $60,546,810 $22,290,409 $35,237,476 $41,247,042 $137,975,109 ==================================================================================================================================== Authorized shares: Common 200,000,000 Unlimited Unlimited Unlimited Unlimited Preferred 1,000,000 Unlimited Unlimited Unlimited Unlimited ==================================================================================================================================== See accompanying notes to financial statements. 28
Statement of OPERATIONS Year Ended July 31, 2003
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE)* (NTX) - ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $ 5,096,247 $1,748,393 $2,613,161 $ 2,273,708 $11,683,964 - ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 605,885 230,324 361,168 338,172 1,372,325 Preferred shares - auction fees 76,972 32,996 45,552 38,468 172,658 Preferred shares - dividend disbursing agent fees 10,000 10,000 10,000 7,097 20,000 Shareholders' servicing agent fees and expenses 7,824 766 1,281 1,665 19,617 Custodian's fees and expenses 30,622 18,064 21,431 14,158 49,363 Directors'/Trustees' fees and expenses 1,343 349 914 889 2,497 Professional fees 9,939 9,156 9,699 15,001 7,909 Shareholders' reports - printing and mailing expenses 12,838 5,591 8,827 13,303 26,412 Stock exchange listing fees 11,540 177 129 163 11,555 Investor relations expense 10,754 2,105 7,090 3,739 23,341 Other expenses 11,851 6,461 5,641 2,352 16,062 - ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 789,568 315,989 471,732 435,007 1,721,739 Custodian fee credit (6,660) (5,071) (7,038) (5,670) (14,918) Expense reimbursement -- (98,590) (162,020) (163,847) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 782,908 212,328 302,674 265,490 1,706,821 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 4,313,339 1,536,065 2,310,487 2,008,218 9,977,143 - ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS Net realized gain (loss) from investments (3,250,460) 43,532 132,780 (72,291) (3,211,937) Change in net unrealized appreciation (depreciation) of investments 649,626 (623,996) (880,264) (1,959,498) (2,256,490) - ------------------------------------------------------------------------------------------------------------------------------------ Net gain (loss) from investments (2,600,834) (580,464) (747,484) (2,031,789) (5,468,427) - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO PREFERRED SHAREHOLDERS From net investment income (295,481) (100,618) (185,421) (166,960) (768,750) From accumulated net realized gains from investments -- (8,316) (3,802) -- (8,765) - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Preferred shareholders (295,481) (108,934) (189,223) (166,960) (777,515) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations $ 1,417,024 $ 846,667 $1,373,780 $ (190,531) $ 3,731,201 ==================================================================================================================================== * For the period September 26, 2002 (commencement of operations) through July 31, 2003. See accompanying notes to financial statements. 29
Statement of CHANGES IN NET ASSETS
ARIZONA ARIZONA ARIZONA PREMIUM INCOME (NAZ) DIVIDEND ADVANTAGE (NFZ) DIVIDEND ADVANTAGE 2 (NKR) ---------------------------- ------------------------------ ---------------------------- FOR THE PERIOD 3/26/02 (COMMENCEMENT YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OF OPERATIONS) 7/31/03 7/31/02 7/31/03 7/31/02 7/31/03 THROUGH 7/31/02 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 4,313,339 $ 4,726,364 $ 1,536,065 $ 1,597,001 $ 2,310,487 $ 572,359 Net realized gain (loss) from investments (3,250,460) (462,165) 43,532 148,987 132,780 13,996 Change in net unrealized appreciation (depreciation) of investments 649,626 (2,058,272) (623,996) 425,309 (880,264) 1,693,697 Distributions to Preferred Shareholders: From net investment income (295,481) (414,197) (100,618) (175,122) (185,421) (51,112) From accumulated net realized gains from investments -- (51,989) (8,316) (4,730) (3,802) -- - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 1,417,024 1,739,741 846,667 1,991,445 1,373,780 2,228,940 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (4,059,731) (3,884,716) (1,357,099) (1,291,796) (2,088,653) (521,078) From accumulated net realized gains from investments -- (182,992) (65,547) (21,217) (28,590) -- - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (4,059,731) (4,067,708) (1,422,646) (1,313,013) (2,117,243) (521,078) - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares -- -- -- -- -- 34,379,475 Net proceeds from shares issued to shareholders due to reinvestment of distributions 313,593 344,887 45,775 39,766 80,623 16,872 Preferred shares offering costs -- -- 29,976 -- (12,866) (291,302) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 313,593 344,887 75,751 39,766 67,757 34,105,045 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares (2,329,114) (1,983,080) (500,228) 718,198 (675,706) 35,812,907 Net assets applicable to Common shares at the beginning of period 62,875,924 64,859,004 22,790,637 22,072,439 35,913,182 100,275 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $60,546,810 $62,875,924 $22,290,409 $22,790,637 $35,237,476 $35,913,182 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of period $ 612,114 $ 656,041 $ 211,017 $ 135,959 $ 36,173 $ 169 ==================================================================================================================================== See accompanying notes to financial statements. 30
ARIZONA TEXAS DIVIDEND ADVANTAGE 3 (NXE) QUALITY INCOME (NTX) ------------------------------- ---------------------------- FOR THE PERIOD 9/26/02 (COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED THROUGH 7/31/03 7/31/03 7/31/02 - ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 2,008,218 $ 9,977,143 $ 10,521,496 Net realized gain (loss) from investments (72,291) (3,211,937) (267,356) Change in net unrealized appreciation (depreciation) of investments (1,959,498) (2,256,490) 1,647 Distributions to Preferred Shareholders: From net investment income (166,960) (768,750) (919,736) From accumulated net realized gains from investments -- (8,765) (197,372) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations (190,531) 3,731,201 9,138,679 - ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (1,849,401) (9,027,160) (8,653,941) From accumulated net realized gains from investments -- (100,152) (634,401) - ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (1,849,401) (9,127,312) (9,288,342) - ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Common shares: Net proceeds from sale of shares 43,742,700 -- -- Net proceeds from shares issued to shareholders due to reinvestment of distributions -- 66,550 327,339 Preferred shares offering costs (556,001) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in net assets applicable to Common shares from capital share transactions 43,186,699 66,550 327,339 - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares 41,146,767 (5,329,561) 177,676 Net assets applicable to Common shares at the beginning of period 100,275 143,304,670 143,126,994 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of period $41,247,042 $137,975,109 $143,304,670 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of period $ (8,658) $ 1,595,053 $ 1,424,229 ==================================================================================================================================== See accompanying notes to financial statements. 31
Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The state funds (the "Funds") covered in this report and their corresponding common share stock exchange symbols are Nuveen Arizona Premium Income Municipal Fund, Inc. (NAZ), Nuveen Arizona Dividend Advantage Municipal Fund (NFZ), Nuveen Arizona Dividend Advantage Municipal Fund 2 (NKR), Nuveen Arizona Dividend Advantage Municipal Fund 3 (NXE), and Nuveen Texas Quality Income Municipal Fund (NTX). Common shares of Arizona Premium Income (NAZ), and Texas Quality Income (NTX) are traded on the New York Stock Exchange while Common shares of Arizona Dividend Advantage (NFZ), Arizona Dividend Advantage 2 (NKR), and Arizona Dividend Advantage 3 (NXE) are traded on the American Stock Exchange. The Funds are registered under the Investment Company Act of 1940, as amended, as closed-end management investment companies. Prior to the commencement of operations of Arizona Dividend Advantage 2 (NKR), and Arizona Dividend Advantage 3 (NXE), each Fund had no operations other than those related to organizational matters, the initial capital contribution of $100,275 per Fund by Nuveen Advisory Corp. (the "Adviser"), a wholly owned subsidiary of Nuveen Investments, Inc. (formerly, The John Nuveen Company), and the recording of the organization expenses ($11,500 per Fund) and their reimbursement by Nuveen Investments, LLC (formerly, Nuveen Investments), also a wholly owned subsidiary of Nuveen Investments, Inc. Each Fund seeks to provide current income exempt from both regular federal and designated state income taxes, where applicable, by investing primarily in a diversified portfolio of municipal obligations issued by state and local government authorities within a single state. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with accounting principles generally accepted in the United States. Securities Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Funds' Board of Directors/Trustees. When price quotes are not readily available (which is usually the case for municipal securities), the pricing service establishes fair market value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers and general market conditions. If it is determined that market prices for a security are unavailable or inappropriate, the Board of Directors/Trustees of the Funds, or its designee, may establish a fair value for the security. Temporary investments in securities that have variable rate and demand features qualifying them as short-term securities are valued at amortized cost, which approximates market value. Securities Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from such transactions are determined on the specific identification method. Securities purchased or sold on a when-issued or delayed delivery basis may have extended settlement periods. The securities so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued and delayed delivery purchase commitments. At July 31, 2003, there were no such outstanding purchase commitments in any of the Funds. 32 Investment Income Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its net investment income to its share holders. Therefore, no federal income tax provision is required. Furthermore, each Fund intends to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and designated state income taxes, where applicable, to retain such tax-exempt status when distributed to shareholders of the Funds. All monthly tax-exempt income dividends paid during the fiscal year ended July 31, 2003, have been designated Exempt Interest Dividends. Dividends and Distributions to Common Shareholders Dividends from tax-exempt net investment income are declared monthly. Net realized capital gains and/or market discount from investment transactions, if any, are distributed to shareholders not less frequently than annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to Common shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. Preferred Shares The Funds have issued and outstanding $25,000 stated value Preferred shares. Each Fund's Preferred shares are issued in one or more Series. The dividend rate on each Series may change every seven days, as set pursuant to a dutch auction process by the auction agent, and is payable at or near the end of each rate period. The number of Preferred shares outstanding, for each Fund is as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - --------------------------------------------------------------------------------------------------------- Number of shares: Series M -- -- -- 880 760 Series T -- 480 -- -- -- Series W -- -- 740 -- -- Series TH 1,200 -- -- -- 2,000 - --------------------------------------------------------------------------------------------------------- Total 1,200 480 740 880 2,760 =========================================================================================================
Effective November 15, 2002, Arizona Dividend Advantage 3 (NXE) issued 880 Series M, $25,000 stated value Preferred shares. 33 Notes to FINANCIAL STATEMENTS (continued) Derivative Financial Instruments The Funds may invest in certain derivative financial instruments including futures, forward, swap, and option contracts, and other financial instruments with similar characteristics. Although the Funds are authorized to invest in such financial instruments, and may do so in the future, they did not make any such investments during the fiscal year ended July 31, 2003. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Offering Costs Nuveen Investments, LLC has agreed to pay all common share offering costs (other than the sales load) that exceed $.03 per Common share for Arizona Dividend Advantage 2 (NKR), and Arizona Dividend Advantage 3 (NXE). Arizona Dividend Advantage 2's (NKR), and Arizona Dividend Advantage 3's (NXE) share of common share offering costs ($72,150, and $91,800, respectively) were recorded as a reduction of the proceeds from the sale of common shares. Costs incurred by Arizona Dividend Advantage 2 (NKR), and Arizona Dividend Advantage 3 (NXE) in connection with their offering of Preferred shares ($304,168, and $556,001, respectively) were recorded as a reduction to paid-in surplus. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 34 2. FUND SHARES Transactions in Common and Preferred shares were as follows:
ARIZONA PREMIUM ARIZONA DIVIDEND ARIZONA DIVIDEND INCOME (NAZ) ADVANTAGE (NFZ) ADVANTAGE 2 (NKR) ------------------------ ------------------------ ------------------------- FOR THE PERIOD 3/26/02 (COMMENCE- MENT OF OPERATIONS) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH 7/31/03 7/31/02 7/31/03 7/31/02 7/31/03 7/31/02 - ---------------------------------------------------------------------------------------------------------- Common shares: Shares sold -- -- -- -- -- 2,405,000 Shares issued to shareholders due to reinvestment of distributions 19,523 21,407 2,947 2,811 5,171 1,100 - ---------------------------------------------------------------------------------------------------------- 19,523 21,407 2,947 2,811 5,171 2,406,100 ========================================================================================================== Preferred shares sold -- -- -- -- -- 740 ========================================================================================================== ARIZONA DIVIDEND ADVANTAGE 3 TEXAS QUALITY (NXE) INCOME (NTX) -------------- ------------------------- FOR THE PERIOD 9/26/02 (COMMENCE- MENT OF OPERATIONS) THROUGH YEAR ENDED YEAR ENDED 7/31/03 7/31/03 7/31/02 - ---------------------------------------------------------------------------------------------------------- Common shares: Shares sold 3,060,000 -- -- Shares issued to shareholders due to reinvestment of distributions -- 4,266 21,816 - ---------------------------------------------------------------------------------------------------------- 3,060,000 4,266 21,816 ========================================================================================================== Preferred shares sold 880 -- -- ==========================================================================================================
35 Notes to FINANCIAL STATEMENTS (continued 3. SECURITIES TRANSACTIONS Purchases and sales (including maturities) of investments in long-term municipal securities during the fiscal year ended July 31, 2003, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE)* (NTX) - ---------------------------------------------------------------------------------------------------------- Purchases $15,527,989 $6,858,818 $2,055,180 $73,054,731 $25,577,508 Sales and maturities 22,363,525 7,354,606 3,257,675 9,048,489 24,551,353 ==========================================================================================================
* For the period September 26, 2002 (commencement of operations) through July 31, 2003. 4. INCOME TAX INFORMATION The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing income on taxable market discount securities and timing differences in recognizing certain gains and losses on security transactions. At July 31, 2003, the cost of investments were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - ----------------------------------------------------------------------------------------------------------- Cost of investments $80,730,842 $32,886,701 $51,187,715 $63,732,793 $195,991,768 ===========================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments at July 31, 2003, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - ----------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 3,474,366 $ 542,694 $1,116,545 $ 85,004 $ 8,964,835 Depreciation (1,423,939) (312,924) (302,574) (2,043,414) (2,922,425) - ----------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $ 2,050,427 $ 229,770 $ 813,971 $(1,958,410) $ 6,042,410 ===========================================================================================================
36 The tax components of undistributed net investment income and net realized gains at July 31, 2003, were as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - -------------------------------------------------------------------- ------------------------------------- Undistributed net tax-exempt income $937,435 $325,194 $208,855 $196,735 $2,271,776 Undistributed net ordinary income * 216 68,563 110,761 -- -- Undistributed net long-term capital gains -- -- 5,120 -- -- ==========================================================================================================
* Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. The tax character of distributions paid during the fiscal years ended July 31, 2003, and July 31, 2002, was designated for purposes of the dividends paid deduction as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME 2003 (NAZ) (NFZ) (NKR) (NXE) (NTX) - ---------------------------------------------------------------------------------------------------------- Distributions from net tax-exempt income $4,355,548 $1,446,815 $2,277,296 $1,809,880 $9,784,102 Distributions from net ordinary income * -- 2,222 33,393 -- 21,034 Distributions from net long-term capital gains -- 73,795 -- -- 93,585 ==========================================================================================================
ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 INCOME 2002 (NAZ) (NFZ) (NKR) (NTX) - ---------------------------------------------------------------------------------------------------------- Distributions from net tax-exempt income $4,276,629 $1,469,871 $393,659 $9,516,981 Distributions from net ordinary income * -- 25,947 -- -- Distributions from net long-term capital gains 234,981 -- -- 831,773 ==========================================================================================================
* Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. At July 31, 2003, the following Funds had unused capital loss carryforwards available for federal income tax purposes to be applied against future capital gains, if any. If not applied, the carryforwards will expire as follows:
ARIZONA TEXAS PREMIUM QUALITY INCOME INCOME (NAZ) (NTX) - ---------------------------------------------------------------------------------------------------------- Expiration year: 2010 $ 2,164 $ -- 2011 1,436,486 855,431 - ---------------------------------------------------------------------------------------------------------- Total $1,438,650 $855,431 ==========================================================================================================
The following Funds have elected to defer net realized losses from investments incurred from November 1, 2002 through July 31, 2003 ("post-October losses") in accordance with Federal income tax regulations. The following post-October losses are treated as having arisen in the following year:
ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 3 INCOME (NAZ) (NFZ) (NXE) (NTX) - ---------------------------------------------------------------------------------------------------------- $2,273,974 $32,396 $71,776 $2,981,841 ==========================================================================================================
37 Notes to FINANCIAL STATEMENTS (continued) 5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES Under Arizona Premium Income's (NAZ), and Texas Quality Income's (NTX) investment management agreements with the Adviser, each Fund pays an annual management fee, payable monthly, at the rates set forth below, which are based upon the average daily net assets (including net assets attributable to Preferred shares) of each Fund as follows: AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE - -------------------------------------------------------------------------------- For the first $125 million .6500% For the next $125 million .6375 For the next $250 million .6250 For the next $500 million .6125 For the next $1 billion .6000 For the next $3 billion .5875 For net assets over $5 billion .5750 ================================================================================ Under Arizona Dividend Advantage's (NFZ), Arizona Dividend Advantage 2's (NKR), and Arizona Dividend Advantage 3's (NXE) investment management agreements with the Adviser, each Fund pays an annual management fee, payable monthly, at the rates set forth below, which are based upon the average daily net assets (including net assets attributable to Preferred shares) of each Fund as follows: AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS ATTRIBUTABLE TO PREFERRED SHARES) MANAGEMENT FEE - -------------------------------------------------------------------------------- For the first $125 million .6500% For the next $125 million .6375 For the next $250 million .6250 For the next $500 million .6125 For the next $1 billion .6000 For net assets over $2 billion .5750 ================================================================================ The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Funds pay no compensation directly to those of its Directors/Trustees who are affiliated with the Adviser or to their officers, all of whom receive remuneration for their services to the Funds from the Adviser. 38 For the first ten years of Arizona Dividend Advantage's (NFZ) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts, and for the time periods set forth below: YEAR ENDING YEAR ENDING JANUARY 31, JANUARY 31, - -------------------------------------------------------------------------------- 2001* .30% 2007 .25% 2002 .30 2008 .20 2003 .30 2009 .15 2004 .30 2010 .10 2005 .30 2011 .05 2006 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage (NFZ) for any portion of its fees and expenses beyond January 31, 2011. For the first ten years of Arizona Dividend Advantage 2's (NKR) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts, and for the time periods set forth below: YEAR ENDING YEAR ENDING MARCH 31, MARCH 31, - -------------------------------------------------------------------------------- 2002* .30% 2008 .25% 2003 .30 2009 .20 2004 .30 2010 .15 2005 .30 2011 .10 2006 .30 2012 .05 2007 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage 2 (NKR) for any portion of its fees and expenses beyond March 31, 2012. For the first eight years of Arizona Dividend Advantage 3's (NXE) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Preferred shares), for fees and expenses in the amounts, and for the time periods set forth below: YEAR ENDING YEAR ENDING SEPTEMBER 30, SEPTEMBER 30, - -------------------------------------------------------------------------------- 2002* .32% 2007 .32% 2003 .32 2008 .24 2004 .32 2009 .16 2005 .32 2010 .08 2006 .32 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse Arizona Dividend Advantage 3 (NXE) for any portion of its fees and expenses beyond September 30, 2010. 39 Notes to FINANCIAL STATEMENTS (continued) 6. SUBSEQUENT EVENT - DISTRIBUTIONS TO COMMON SHAREHOLDERS The Funds declared Common share dividend distributions from their tax-exempt net investment income which were paid on September 2, 2003, to shareholders of record on August 15, 2003, as follows:
ARIZONA ARIZONA ARIZONA ARIZONA TEXAS PREMIUM DIVIDEND DIVIDEND DIVIDEND QUALITY INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 INCOME (NAZ) (NFZ) (NKR) (NXE) (NTX) - --------------------------------------------------------------------------------------------------------- Dividend per share $.0765 $.0755 $.0720 $.0670 $0.800 =========================================================================================================
40 Financial HIGHLIGHTS 41 Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ----------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Net Investment Capital Investment Capital Common Realized/ Income to Gains to Income to Gains to Share Net Unrealized Preferred Preferred Common Common Net Asset Investment Investment Share- Share- Share- Share- Value Income Gain (Loss) holders+ holders+ Total holders holders Total ================================================================================================================================== ARIZONA PREMIUM INCOME (NAZ) - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 $14.25 $ .97 $(.57) $(.07) $ -- $ .33 $(.92) $ -- $ (.92) 2002 14.77 1.07 (.57) (.09) (.01) .40 (.88) (.04) (.92) 2001 14.25 1.09 .50 (.23) -- 1.36 (.83) (.01) (.84) 2000 14.90 1.06 (.61) (.25) -- .20 (.85) -- (.85) 1999 15.43 1.07 (.55) (.21) -- .31 (.84) -- (.84) ARIZONA DIVIDEND ADVANTAGE (NFZ) - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 14.81 1.00 (.38) (.07) (.01) .54 (.88) (.04) (.92) 2002 14.37 1.04 .36 (.11) -- 1.29 (.84) (.01) (.85) 2001(a) 14.33 .44 .23 (.08) -- .59 (.35) -- (.35) ARIZONA DIVIDEND ADVANTAGE 2 (NKR) - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 14.88 .96 (.31) (.08) -- .57 (.86) (.01) (.87) 2002(b) 14.33 .24 .71 (.02) -- .93 (.22) -- (.22) ARIZONA DIVIDEND ADVANTAGE 3 (NXE) - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003(c) 14.33 .66 (.67) (.05) -- (.06) (.61) -- (.61) TEXAS QUALITY INCOME (NTX) - ---------------------------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 15.14 1.05 (.58) (.08) -- .39 (.95) (.01) (.96) 2002 15.16 1.11 (.02) (.10) (.02) .97 (.92) (.07) (.99) 2001 14.26 1.16 .88 (.27) -- 1.77 (.87) -- (.87) 2000 15.13 1.16 (.74) (.27) (.02) .13 (.91) (.09) (1.00) 1999 15.90 1.16 (.72) (.22) (.02) .20 (.90) (.07) (.97) ================================================================================================================================== Total Returns ------------------- Based Offering on Costs and Ending Common Preferred Common Based Share Share Share Ending on Net Underwriting Net Asset Market Market Asset Discounts Value Value Value** Value** ========================================================================================= ARIZONA PREMIUM INCOME (NAZ) - ----------------------------------------------------------------------------------------- Year Ended 7/31: 2003 $-- $13.66 $15.0000 (5.98)% 2.21% 2002 -- 14.25 16.9000 9.63 2.88 2001 -- 14.77 16.3200 17.77 9.74 2000 -- 14.25 14.6250 (8.80) 1.61 1999 -- 14.90 17.0000 8.67 1.92 ARIZONA DIVIDEND ADVANTAGE (NFZ) - ----------------------------------------------------------------------------------------- Year Ended 7/31: 2003 .02 14.45 15.3000 3.06 3.67 2002 -- 14.81 15.7500 6.38 9.32 2001(a) (.20) 14.37 15.6500 6.76 2.81 ARIZONA DIVIDEND ADVANTAGE 2 (NKR) - ----------------------------------------------------------------------------------------- Year Ended 7/31: 2003 (.01) 14.57 14.4000 (3.53) 3.67 2002(b) (.16) 14.88 15.8000 6.81 5.38 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) - ----------------------------------------------------------------------------------------- Year Ended 7/31: 2003(c) (.21) 13.45 13.9700 (2.76) (2.05) TEXAS QUALITY INCOME (NTX) - ----------------------------------------------------------------------------------------- Year Ended 7/31: 2003 -- 14.57 14.7100 4.14 2.54 2002 -- 15.14 15.0700 9.29 6.61 2001 -- 15.16 14.7300 21.16 12.74 2000 -- 14.26 12.9375 (7.93) 1.15 1999 -- 15.13 15.1875 2.97 1.21 ========================================================================================= Ratios/Supplemental Data ------------------------------------------------------------------------------------------- Before Credit/Reimbursement After Credit/Reimbursement*** ------------------------------ ------------------------------ Ratio of Net Ratio of Net Ratio of Investment Ratio of Investment Ending Expenses Income to Expenses Income to Net to Average Average to Average Average Assets Net Assets Net Assets Net Assets Net Assets Applicable Applicable Applicable Applicable Applicable Portfolio to Common to Common to Common to Common to Common Turnover Shares (000) Shares++ Shares++ Shares++ Shares++ Rate =============================================================================================================== ARIZONA PREMIUM INCOME (NAZ) - --------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 $ 60,547 1.25% 6.81% 1.24% 6.82% 17% 2002 62,876 1.28 7.45 1.26 7.47 19 2001 64,859 1.28 7.47 1.27 7.48 18 2000 62,287 1.26 7.58 1.25 7.59 33 1999 64,775 1.29 6.88 1.29 6.88 6 ARIZONA DIVIDEND ADVANTAGE (NFZ) - --------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 22,290 1.35 6.11 .91 6.55 20 2002 22,791 1.41 6.72 .93 7.20 40 2001(a) 22,072 1.43* 5.80* .95* 6.28* 21 ARIZONA DIVIDEND ADVANTAGE 2 (NKR) - --------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 35,237 1.27 5.78 .82 6.23 4 2002(b) 35,913 1.19* 4.43* .77* 4.85* 1 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) - --------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003(c) 41,247 1.19* 5.05* .73* 5.52* 16 TEXAS QUALITY INCOME (NTX) - --------------------------------------------------------------------------------------------------------------- Year Ended 7/31: 2003 137,975 1.20 6.93 1.19 6.94 12 2002 143,305 1.23 7.40 1.22 7.42 22 2001 143,127 1.21 7.87 1.19 7.88 24 2000 134,637 1.27 8.18 1.26 8.19 32 1999 142,784 1.23 7.31 1.23 7.32 19 =============================================================================================================== Preferred Shares at End of Period ------------------------------------------- Aggregate Liquidation Amount and Market Asset Outstanding Value Coverage (000) Per Share Per Share ==================================================================== ARIZONA PREMIUM INCOME (NAZ) - -------------------------------------------------------------------- Year Ended 7/31: 2003 $30,000 $25,000 $75,456 2002 30,000 25,000 77,397 2001 30,000 25,000 79,049 2000 30,000 25,000 76,906 1999 30,000 25,000 78,979 ARIZONA DIVIDEND ADVANTAGE (NFZ) - -------------------------------------------------------------------- Year Ended 7/31: 2003 12,000 25,000 71,438 2002 12,000 25,000 72,480 2001(a) 12,000 25,000 70,984 ARIZONA DIVIDEND ADVANTAGE 2 (NKR) - -------------------------------------------------------------------- Year Ended 7/31: 2003 18,500 25,000 72,618 2002(b) 18,500 25,000 73,531 ARIZONA DIVIDEND ADVANTAGE 3 (NXE) - -------------------------------------------------------------------- Year Ended 7/31: 2003(c) 22,000 25,000 71,872 TEXAS QUALITY INCOME (NTX) - -------------------------------------------------------------------- Year Ended 7/31: 2003 69,000 25,000 74,991 2002 69,000 25,000 76,922 2001 69,000 25,000 76,858 2000 69,000 25,000 73,782 1999 69,000 25,000 76,733 ==================================================================== * Annualized. ** Total Investment Return on Market Value is the combination of reinvested dividend income, reinvested capital gains distributions, if any, and changes in stock price per share. Total Return on Common Share Net Asset Value is the combination of reinvested dividend income, reinvested capital gains distributions, if any, and changes in Common share net asset value per share. Total returns are not annualized. *** After custodian fee credit and expense reimbursement, where applicable. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Preferred shareholders; income ratios reflect income earned on assets attributable to Preferred shares. (a) For the period January 31, 2001 (commencement of operations) through July 31, 2001. (b) For the period March 26, 2002 (commencement of operations) through July 31, 2002. (c) For the period September 26, 2002 (commencement of operations) through July 31, 2003. 42-43 SPREAD See accompanying notes to financial statements.
Directors/Trustees AND OFFICERS The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board of Directors/ Trustees of the Funds. The number of directors/trustees of the Funds is currently set at eight. None of the directors/trustees who are not "interested" persons of the Funds has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the directors/trustees and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NUMBER OF PORTFOLIOS IN FUND COMPLEX YEAR FIRST PRINCIPAL OCCUPATION(S) OVERSEEN NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS BY DIRECTOR/ AND ADDRESS WITH THE FUNDS APPOINTED(2) DURING PAST 5 YEARS TRUSTEE - ------------------------------------------------------------------------------------------------------------------------------------ DIRECTOR/TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Timothy R. Schwertfeger (1) Chairman of the 1994 Chairman and Director (since 1996) of Nuveen 140 3/28/49 Board and Investments, Inc. and Nuveen Investments, LLC; 333 W. Wacker Drive Director/Trustee Director (since 1992) and Chairman (since 1996) of Chicago, IL 60606 Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Chairman and Director (since 1997) of Nuveen Asset Management, Inc.; Director (since 1996) of Institutional Capital Corporation; Chairman and Director (since 1999) of Rittenhouse Asset Management, Inc.; Chairman of Nuveen Investments Advisers Inc. (since 2002). DIRECTORS/TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ William E. Bennett Director/Trustee 2001 Private Investor; previously, President and Chief 140 10/16/46 Executive Officer, Draper & Kramer, Inc., a private 333 W. Wacker Drive company that handles mortgage banking, real estate Chicago, IL 60606 development, pension advisory and real estate management (1995-1998). Prior thereto, Executive Vice President and Chief Credit Officer of First Chicago Corporation and its principal subsidiary, The First National Bank of Chicago. - ------------------------------------------------------------------------------------------------------------------------------------ Robert P. Bremner Director/Trustee 1997 Private Investor and Management Consultant. 134 8/22/40 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Lawrence H. Brown Director/Trustee 1993 Retired (since 1989) as Senior Vice President of The 134 7/29/34 Northern Trust Company; Director of the United Way of 333 W. Wacker Drive Highland Park-Highwood (since 2002). Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Anne E. Impellizzeri Director/Trustee 1994 Retired, formerly, Executive Director (since 1998) 134 1/26/33 of Manitoga/The Russel Wright Design Center; prior 333 W. Wacker Drive thereto, President and Chief Executive Officer of Chicago, IL 60606 Blanton-Peale Institute (since 1990); prior thereto, Vice President, Metropolitan Life Insurance Co. - ------------------------------------------------------------------------------------------------------------------------------------ Peter R. Sawers Director/Trustee 1991 Adjunct Professor of Business and Economics, 134 4/3/33 University of Dubuque, Iowa; formerly (1991-2000) 333 W. Wacker Drive Adjunct Professor, Lake Forest Graduate School of Chicago, IL 60606 Management, Lake Forest, Illinois; prior thereto, Executive Director, Towers Perrin Australia, a management consulting firm; Chartered Financial Analyst; Certified Management Consultant; Director, Executive Service Corps of Chicago, a not-for-profit organization. - ------------------------------------------------------------------------------------------------------------------------------------ William J. Schneider Director/Trustee 1997 Senior Partner and Chief Operating Officer, 134 9/24/44 Miller-Valentine Group, Vice President, 333 W. Wacker Drive Miller-Valentine Realty, a development and contract Chicago, IL 60606 company; Chair, MiamiValley Hospital; Chair, Miami Valley Economic Development Coalition; formerly, Member, Community Advisory Board, National City Bank, Dayton, Ohio and Business Advisory Council, Cleveland Federal Reserve Bank. - ------------------------------------------------------------------------------------------------------------------------------------ Judith M. Stockdale Director/Trustee 1997 Executive Director, Gaylord and Dorothy Donnelley 134 12/29/47 Foundation (since 1994); prior thereto, Executive 333 W. Wacker Drive Director, Great Lakes Protection Fund (from 1990 Chicago, IL 60606 to 1994). 44 NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS: - ------------------------------------------------------------------------------------------------------------------------------------ Gifford R. Zimmerman Chief 1988 Managing Director (since 2002), Assistant Secretary 140 9/9/56 Administrative and Associate General Counsel, formerly, Vice 333 W. Wacker Drive Officer President and Assistant General Counsel of Nuveen Chicago, IL 60606 Investments, LLC; Managing Director (since 2002), General Counsel and Assistant Secretary, formerly, Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.; Managing Director (since 2002), Assistant Secretary and Associate General Counsel, formerly, Vice President (since 2000), of Nuveen Asset Management, Inc.; Assistant Secretary of Nuveen Investments, Inc. (since 1994); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002); Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since May 2003); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Michael T. Atkinson Vice President 2000 Vice President (since 2002), formerly, Assistant 140 2/3/66 and Assistant Vice President (since 2000), previously, Associate of 333 W. Wacker Drive Secretary Nuveen Investments, LLC. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Paul L. Brennan Vice President 1999 Vice President (since 2002), formerly, Assistant 122 11/10/66 Vice President (since 1997), of Nuveen Advisory Corp.; 333 W. Wacker Drive prior thereto, portfolio manager of Flagship Financial Chicago, IL 60606 Inc.; Chartered Financial Analyst and Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ Peter H. D'Arrigo Vice President 1999 Vice President of Nuveen Investments, LLC (since 140 11/28/67 and Treasurer 1999), prior thereto, Assistant Vice President (since 333 W. Wacker Drive 1997); Vice President and Treasurer of Nuveen Chicago, IL 60606 Investments, Inc. (since 1999); Vice President and Treasurer of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. (since 1999); Vice President and Treasurer of Nuveen Asset Management, Inc. (since 2002) and of Nuveen Investments Advisers Inc. (since 2002); Assistant Treasurer of NWQ Investment Management Company, LLC (since 2002); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Susan M. DeSanto Vice President 2001 Vice President of Nuveen Advisory Corp. (since 2001); 140 9/8/54 previously, Vice President of Van Kampen Investment 333 W. Wacker Drive Advisory Corp. (since 1998); Vice President of Nuveen Chicago, IL 60606 Institutional Advisory Corp. (since 2002); prior thereto, Assistant Vice President of Van Kampen Investment Advisory Corp. (since 1994). - ------------------------------------------------------------------------------------------------------------------------------------ Jessica R. Droeger Vice President 2000 Vice President (since 2002) and Assistant General 140 9/24/64 and Secretary Counsel (since 1998); formerly, Assistant Vice 333 W. Wacker Drive President (since 1998) of Nuveen Investments, LLC; Chicago, IL 60606 Vice President (since 2002) and Assistant Secretary (since 1998), formerly Assistant Vice President of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. 45 Trustees AND OFFICERS (CONTINUED) NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Lorna C. Ferguson Vice President 1998 Vice President of Nuveen Investments, LLC; Vice 140 10/24/45 President (since 1998) of Nuveen Advisory Corp. and 333 W. Wacker Drive Nuveen Institutional Advisory Corp. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ William M. Fitzgerald Vice President 1995 Managing Director (since 2002) of Nuveen Investments, 140 3/2/64 LLC; Managing Director (since 2001), formerly Vice 333 W. Wacker Drive President of Nuveen Advisory Corp. and Nuveen Chicago, IL 60606 Institutional Advisory Corp. (since 1995); Managing Director of Nuveen Asset Management, Inc. (since 2001); Vice President of Nuveen Investment Advisers Inc. (since 2002); Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Stephen D. Foy Vice President 1998 Vice President (since 1993) and Funds Controller 140 5/31/54 and Controller (since 1998) of Nuveen Investments, LLC and Vice 333 W. Wacker Drive President and Funds Controller (since 1998) of Nuveen Chicago, IL 60606 Investments, Inc.; Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ J. Thomas Futrell Vice President 1988 Vice President of Nuveen Advisory Corp.; 122 7/5/55 Chartered Financial Analyst. 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Richard A. Huber Vice President 1997 Vice President of Nuveen Institutional Advisory Corp. 122 3/26/63 (since 1998) and Nuveen Advisory Corp. (since 1997); 333 W. Wacker Drive prior thereto, Vice President and Portfolio Manager of Chicago, IL 60606 Flagship Financial, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ Steven J. Krupa Vice President 1990 Vice President of Nuveen Advisory Corp. 122 8/21/57 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ David J. Lamb Vice President 2000 Vice President (since 2000) of Nuveen Investments, 140 3/22/63 LLC, previously Assistant Vice President (since 333 W. Wacker Drive 1999); prior thereto, Associate of Nuveen Investments, Chicago, IL 60606 LLC; Certified Public Accountant. - ------------------------------------------------------------------------------------------------------------------------------------ Tina M. Lazar Vice President 2002 Vice President (since 1999), previously, Assistant 140 8/27/61 Vice President (since 1993) of Nuveen Investments, LLC. 333 W. Wacker Drive Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Larry W. Martin Vice President 1988 Vice President, Assistant Secretary and Assistant 140 7/27/51 and Assistant General Counsel of Nuveen Investments, LLC; Vice 333 W. Wacker Drive Secretary President and Assistant Secretary of Nuveen Advisory Chicago, IL 60606 Corp. and Nuveen Institutional Advisory Corp.; Assistant Secretary of Nuveen Investments, Inc. and (since 1997) Nuveen Asset Management, Inc.; Vice President (since 2000), Assistant Secretary and Assistant General Counsel (since 1998) of Rittenhouse Asset Management, Inc.; Vice President and Assistant Secretary of Nuveen Investments Advisers Inc. (since 2002); Assistant Secretary of NWQ Investment Management Company, LLC (since 2002). 46 NUMBER OF PORTFOLIOS IN FUND YEAR FIRST COMPLEX NAME, BIRTHDATE POSITION(S) HELD ELECTED OR PRINCIPAL OCCUPATION(S) OVERSEEN AND ADDRESS WITH THE FUNDS APPOINTED(3) DURING PAST 5 YEARS BY OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS OF THE FUNDS (CONTINUED): - ------------------------------------------------------------------------------------------------------------------------------------ Edward F. Neild, IV Vice President 1996 Managing Director (since 2002) of Nuveen Investments, 140 7/7/65 LLC; Managing Director (since 1997), formerly Vice 333 W. Wacker Drive President (since 1996) of Nuveen Advisory Corp. and Chicago, IL 60606 Nuveen Institutional Advisory Corp.; Managing Director of Nuveen Asset Management, Inc. (since 1999). Chartered Financial Analyst. - ------------------------------------------------------------------------------------------------------------------------------------ Thomas J. O'Shaughnessy Vice President 1999 Vice President (since 2002), formerly, Assistant 122 9/4/60 Vice President (since 1998), of Nuveen Advisory Corp.; 333 W. Wacker Drive prior thereto, portfolio manager. Chicago, IL 60606 - ------------------------------------------------------------------------------------------------------------------------------------ Thomas C. Spalding Vice President 1982 Vice President of Nuveen Advisory Corp. and Nuveen 122 7/31/51 Institutional Advisory Corp.; Chartered Financial 333 W. Wacker Drive Analyst. Chicago, IL 60606
(1) Mr. Schwertfeger is an "interested person" of the Funds, as defined in the Investment Company Act of 1940, because he is an officer and trustee of the Adviser. (2) Directors/Trustees serve a one-year term until his/her successor is elected. The year first elected or appointed represents the year in which the Directors/Trustee was first elected or appointed to any fund in the Nuveen Complex. (3) Officers serve a one-year term through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 47 Build Your Wealth AUTOMATICALLY Sidebar text: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the then-current market price. If the shares are trading at less than net asset value, shares for your account will be purchased on the open market. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. FLEXIBILITY You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 48 Fund INFORMATION BOARD OF DIRECTORS/TRUSTEES William E. Bennett Robert P. Bremner Lawrence H. Brown Anne E. Impellizzeri Peter R. Sawers William J. Schneider Timothy R. Schwertfeger Judith M. Stockdale FUND MANAGER Nuveen Advisory Corp. 333 West Wacker Drive Chicago, IL 60606 CUSTODIAN State Street Bank & Trust Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Chapman and Cutler LLP Chicago, IL INDEPENDENT AUDITORS Ernst & Young LLP Chicago, IL POLICY CHANGE On November 14, 2002, the Board adopted a policy that allows these Funds, in addition to investments in municipal bonds, to invest up to 5% of its net assets (including assets attributable to preferred shares, if any) 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 Advisory determines that such investment should enable the Fund to better maximize the value of its existing investment in such issuer. This policy is a non-fundamental policy of each Fund which means that it can be changed at any time by the Board of Trustees without vote of the shareholders. GLOSSARY OF TERMS USED IN THIS REPORT Average Annual Total Return: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return (including change in NAV and reinvested dividends) that would have been necessary on an annual basis to equal the investment's actual performance over the time period being considered. Average Effective Maturity: The average of all the maturities of the bonds in a fund's portfolio, computed by weighting each maturity date (the date the security comes due) by the market value of the security. This figure does not account for the likelihood of prepayments or the exercise of call provisions. Leverage-Adjusted Duration: Duration is a measure of a bond or bond fund's sensitivity to changes in interest rates. Generally, the longer a bond or fund's duration, the more the price of the bond or fund will change as interest rates change. Leverage-adjusted duration takes into account the leveraging process for a Fund and therefore is generally longer than the duration of the actual portfolio of individual bonds that make up the Fund. Market Yield (also known as Dividend Yield or Current Yield): An investment's current annualized dividend divided by its current market price. Net Asset Value (NAV): A fund's NAV is calculated by subtracting the liabilities of the fund from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. Taxable-Equivalent Yield: The yield necessary from a fully taxable investment to equal, on an after-tax basis, the yield of a municipal bond investment. - --------- Each Fund intends to repurchase shares of its own common or preferred stock in the future at such times and in such amounts as is deemed advisable. No shares were repurchased during the fiscal year ended July 31, 2003. Any future repurchases will be reported to shareholders in the next annual or semiannual report. 49 Serving Investors FOR GENERATIONS Since 1898, financial advisors and their clients have relied on Nuveen Investments to provide dependable investment solutions. For the past century, Nuveen Investments has adhered to the belief that the best approach to investing is to apply conservative risk-management principles to help minimize volatility. Building on this tradition, we today offer a range of high quality equity and fixed-income solutions that are integral to a well-diversified core portfolio. Our clients have come to appreciate this diversity, as well as our continued adherence to proven, long-term investing principles. Managing $80 billion in assets, Nuveen Investments offers access to a number of different asset classes and investing solutions through a variety of products. Nuveen Investments markets its capabilities under four distinct brands: Nuveen, a leader in tax-free investments; NWQ, a leader in value-style equities; Rittenhouse, a leader in growth-style equities; and Symphony, a leading institutional manager of market-neutral alternative investment portfolios. To learn more about the products and services Nuveen Investments offers and for a prospectus, where applicable, talk to your financial advisor, or call us at (800) 257-8787. Please read the information carefully before you invest. Distributed by NUVEEN INVESTMENTS, LLC | 333 West Wacker Drive | Chicago, Illinois 60606 | www.nuveen.com EAN-A-0703D ITEM 2. CODE OF ETHICS. As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The registrant has posted such code of ethics on its website at www.nuveen.com/etf. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of directors has determined that the registrant has at least one "audit committee financial expert" (as defined in Item 3 of Form N-CSR) serving on its audit committee. The registrant's audit committee financial expert is William E. Bennett, who is "independent" for purposes of Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable at this time. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES In the rare event that a municipal issuer held by the Fund were to issue a proxy or that the Fund were to receive a proxy issued by a cash management security, Nuveen Advisory Corp. (the "Adviser") would either engage an independent third party to determine how the proxy should be voted or vote the proxy with the consent, or based on the instructions, of the Fund's Board of Directors or Trustees or its representative. A member of the Adviser's legal department would oversee the administration of the voting, and ensure that records were maintained in accordance with Rule 206(4)-6, reports were filed with the SEC on Form N-PX, and the results provided to the Board of Directors or Trustees and made available to shareholders as required by applicable rules. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Exchange Act (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. File the exhibits listed below as part of this Form. Letter or number the exhibits in the sequence indicated. (a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because posted on registrant's website. (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certification required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Texas Quality Income Municipal Fund ----------------------------------------------------------- By (Signature and Title)* /s/ Jessica R. Droeger ---------------------------------------------- Jessica R. Droeger Vice President and Secretary Date: October 8, 2003 ------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /s/ Gifford R. Zimmerman ---------------------------------------------- Gifford R. Zimmerman Chief Administrative Officer (Principal Executive Officer) Date: October 8, 2003 ------------------------------------------------------------------- By (Signature and Title)* /s/ Stephen D. Foy ---------------------------------------------- Stephen D. Foy Vice President and Controller (Principal Financial Officer) Date: October 8, 2003 ------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 3 file002.txt CERTIFICATIONS N-CSR FORM OF CERTIFICATION I, Gifford R. Zimmerman, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Texas Quality Income Municipal Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 8, 2003 /s/ Gifford R. Zimmerman ------------------------- -------------------------------- Chief Administrative Officer (principal executive officer) N-CSR FORM OF CERTIFICATION I, Stephen D. Foy, certify that: 1. I have reviewed this report on Form N-CSR of Nuveen Texas Quality Income Municipal Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: October 8, 2003 /s/ Stephen D. Foy ------------------------- -------------------------------- Vice President and Controller (principal financial officer) EX-99.906CERT 4 file003.txt CERTIFICATIONS Certification Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002; provided by the Chief Executive Officer and Chief Financial Officer, based on each such officer's knowledge and belief. The undersigned officers of Nuveen Texas Quality Income Municipal Fund (the "Fund"), certify that, to the best of each such officer's knowledge and belief: 1. The Form N-CSR of the Fund for the period ended July 31, 2003 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. Date: October 8, 2003 ----------------------- /s/ Gifford R. Zimmerman --------------------- Chief Administrative Officer (Chief Executive Officer) /s/ Stephen D. Foy --------------------- Vice President, Controller (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----