N-CSR 1 file001.txt NUVEEN INS CALIF PREMIUM INCOME MUNI FUND, INC. 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 811-6620 --------------------- Nuveen Insured California Premium Income Municipal Fund, Inc. -------------------------------------------------------------------------------- (Exact name of registrant as specified in charter) Nuveen Investments 333 West Wacker Drive Chicago, IL 60606 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Kevin J. McCarthy 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: August 31 ------------------ Date of reporting period: August 31, 2008 ------------------ Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. ANNUAL REPORT | Nuveen Investments August 31, 2008 | MUNICIPAL CLOSED-END FUNDS Photo of: Small child NUVEEN INSURED CALIFORNIA PREMIUM INCOME MUNICIPAL FUND, INC. NPC NUVEEN INSURED CALIFORNIA PREMIUM INCOME MUNICIPAL FUND 2, INC. NCL NUVEEN CALIFORNIA PREMIUM INCOME MUNICIPAL FUND NCU NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND NAC NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NVX NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 NZH NUVEEN INSURED CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND NKL NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND NKX IT'S NOT WHAT YOU EARN, IT'S WHAT YOU KEEP.(R) LOGO: NUVEEN Investments Photo of: Man working on computer LIFE IS COMPLEX. NUVEEN MAKES THINGS E-simple. It only takes a minute to sign up for e-Reports. Once enrolled, you'll receive an e-mail as soon as your Nuveen Investments Fund information is ready--no more waiting for delivery by regular mail. Just click on the link within the e-mail to see the report and save it on your computer if you wish. FREE E-REPORTS RIGHT TO YOUR E-MAIL! www.investordelivery.com If you receive your Nuveen Fund dividends and statements from your financial advisor or brokerage account. OR www.nuveen.com/accountaccess If you receive your Nuveen Fund dividends and statements directly from Nuveen. Logo: NUVEEN Investments Photo of: Robert P. Bremner Chairman's LETTER TO SHAREHOLDERS | Robert P. Bremner | Chairman of the Board Dear Shareholders, I'd like to use my initial letter to you to accomplish several things. First, I want to report that after fourteen years of service on your Fund's Board, including the last twelve as chairman, Tim Schwertfeger retired from the Board in June. The Board has elected me to replace him as the chairman, the first time this role has been filled by someone who is not an employee of Nuveen Investments. Electing an independent chairman marks a significant milestone in the management of your Fund, and it aligns us with what is now considered a "best practice" in the fund industry. Further, it demonstrates the independence with which your Board has always acted on your behalf. Following Tim will not be easy. During my eleven previous years on the Nuveen Fund Board, I found that Tim always set a very high standard by combining insightful industry and market knowledge and sound, clear judgment. While the Board will miss his wise counsel, I am certain we will retain the primary commitment Tim shared with all of us - an unceasing dedication to creating and retaining value for Nuveen Fund shareholders. This focus on value over time is a touchstone that I and all the other Board members will continue to use when making decisions on your behalf. Second, I also want to report that we are very fortunate to be welcoming two new Board members to our team. John Amboian, the current chairman and CEO of Nuveen Investments, has agreed to replace Tim as Nuveen's representative on the Board. John's presence will allow the independent Board members to benefit not only from his leadership role at Nuveen but also his broad understanding of the fund industry and Nuveen's role within it. We also are adding Terry Toth as an independent director. A former CEO of the Northern Trust Company's asset management group, Terry will bring extensive experience in the fund industry to our deliberations. Third, on behalf of the entire Board, I would like you to know that we are closely monitoring the unprecedented market developments and their distressing impact on the Funds. We believe that these Funds continue to be actively and constructively managed for the long term and at the same time we are very aware that these are trying times for our investors. We appreciate the patience you have shown with the Board and with Nuveen Investments as they manage your investment through this extremely difficult period. Fourth, again on behalf of the entire Board, I would like to acknowledge the effort the whole Nuveen organization is making to resolve the auction rate preferred share situation in a satisfactory manner. As you know, we are actively pursuing a number of possible solutions, all with the goal of providing liquidity for preferred shareholders while preserving the potential benefits of leverage for common shareholders. We appreciate the patience you have shown as we've worked through the many details involved. Finally, I urge you to take the time to review the Portfolio Manager's Comments, the Common Share Dividend and Share Price Information, and the Performance Overview sections of this report. All of us are grateful that you have chosen Nuveen Investments as a partner as you pursue your financial goals, and, on behalf of myself and the other members of your Fund's Board, let me say we look forward to continuing to earn your trust in the months and years ahead. Sincerely, /s/ Robert P. Bremner Robert P. Bremner Chairman of the Board October 21, 2008 Portfolio Manager's COMMENTS Nuveen Investments Municipal Closed-End Funds | NPC, NCL, NCU, NAC, NVX, NZH, NKL, NKX Portfolio manager Scott Romans discusses economic and municipal market conditions at both the national and state levels, key investment strategies, and the twelve-month performance of these Nuveen California Municipal Funds. Scott, who joined Nuveen in 2000, has managed NCU, NAC, NVX, NZH, NKL, and NKX since 2003. He assumed portfolio management responsibility for NPC and NCL in 2005. WHAT FACTORS AFFECTED THE U.S. ECONOMY AND MUNICIPAL MARKET DURING THE TWELVE-MONTH REPORTING PERIOD ENDED AUGUST 31, 2008? During this period, developments in the credit markets led to increased price volatility and reduced liquidity and a general "flight-to-quality". In September 2007, the Federal Reserve (Fed) responded to credit market volatility by launching a series of interest rate cuts that lowered the fed funds rate by 325 basis points--from 5.25% to 2.00%--in eight months, including reductions of 125 basis points in January 2008 alone. Since April 2008, the Fed has left monetary policy unchanged. (On October 8, 2008, after the close of this reporting period, the Fed lowered the fed funds rate by 50 basis points, cutting this target rate from 2.00% to 1.5%). The Fed's rate-cutting actions also were a response to signs of slower growth in the U.S. economy, as evidenced by changes in the U.S. gross domestic product (GDP), a closely watched measure of economic performance. While GDP expanded at 4.8% in the third quarter of 2007, this measure fell into negative territory (-0.2%) in the fourth quarter of 2007 before improving to 0.9% in the first quarter of 2008 (all GDP numbers annualized). During the second quarter of 2008, GDP grew at an annual rate of 2.8%, boosted by an acceleration in exports and upturn in government spending, but reflecting a 13% decline in residential investment. Driven largely by increased energy, transportation and food prices, the Consumer Price Index (CPI) registered a 5.4% year-over-year gain as of August 2008. The core CPI (which excludes food and energy) rose 2.5% between September 2007 and August 2008, well above the Fed's unofficial target of 2.0% or lower. In the labor markets, January 2008 marked the first of eight straight months of decline in new job creation. The national unemployment rate for August 2008 was 6.1%, its highest level in five years, up from 4.7% in August 2007. Discussions of specific investments are for illustrative purposes only and are not intended as recommendations of individual investments. The views expressed in this commentary represent those of the portfolio manager as of the date of this report and are subject to change at any time, based on market conditions and other factors. The Funds disclaim any obligation to advise shareholders of such changes. 4 In the municipal bond market, factors related to the sub-prime mortgage crisis had an indirect, but important, influence on performance. General concerns about the credit markets as well as more specific concerns about municipal bond insurers with exposure to sub-prime mortgages caused some investors to curtail purchases. In addition, hedge funds and other non-traditional buyers of municipal bonds began to sell holdings of longer-maturity bonds into a market already experiencing a lack of liquidity. Combined with the Fed rate cuts, this selling produced a sharp steepening of the municipal yield curve, as longer-term interest rates rose and short-term interest rates declined. In this environment, bonds with shorter maturities generally outperformed longer-maturity bonds and higher quality bonds tended to outperform lower quality credits. Also of note in the municipal market, the U.S. Supreme Court in May 2008 ruled that individual states could continue to offer their residents special tax treatment on municipal bonds issued within their borders. The high court's decision preserved tax rules in forty-two states, allowing them to continue to exempt from taxation the income their residents earn on in-state municipal bonds while taxing the income earned on municipal bonds issued in other states. Over the twelve months ended August 2008, municipal bond issuance nationwide totaled $462.4 billion, a decrease of 1% from the previous twelve months. Despite disruptions in the markets, as of the end of this reporting period, up to August 31st, new municipal issuance continued to be met with solid demand by institutional and retail investors as well as some non-traditional buyers returning to the market over the last few months. HOW WERE THE ECONOMIC AND MARKET ENVIRONMENTS IN CALIFORNIA DURING THIS PERIOD? The California economy has experienced a dramatic slowdown, with the state's economic growth rate, as measured by GDP by state, falling from 3.8% in 2006 to 1.5% in 2007, compared with the 2007 national average of 2.0%. This dropped California from its ranking as the thirteenth fastest growing state economy in the U.S. to thirty-second. Declines in the construction, finance and insurance sectors combined to 5 account for the loss of one full percentage point from the state's 2007 GDP growth. On the positive side, California's economy remained relatively diverse, with international trade, technology, tourism and defense serving as key drivers. Gains in manufacturing and private service production industries helped to offset some of the current weakness. However, as of August 2008, California's unemployment rate had risen to 7.7%, up from 5.5% in August 2007 and the highest level since March 1996. In addition, because California's housing market had greater exposure to riskier, non-traditional mortgage products than most other states, the state was hard hit by the sub-prime mortgage crisis as well as the downturn in the housing sector. According to the Standard & Poor's/Case-Shiller home price index of twenty major metropolitan areas, housing prices in Los Angeles, San Diego and San Francisco fell 26.2%, 25.0%, and 24.8%, respectively, between August 2007 and July 2008, compared with an average decrease of 16.3% nationwide. This placed them fourth, fifth and sixth, respectively, in the country in loss of home value, behind Las Vegas, Phoenix and Miami. The deterioration in household credit quality caused by continuing problems in the housing market forced downward revisions to revenue estimates from state and local governments, with weaker-than-projected tax collections prompting the declaration of a state fiscal emergency in January 2008. After a record delay of eighty-five days past the official July 1st deadline, the $145 billion California state budget was signed into law in late September 2008 (following the close of this reporting period). In April 2008, Moody's and Standard & Poor's confirmed their ratings on California's general obligation bonds at A1 and A+, respectively, while Fitch maintained its A+ rating, albeit with a negative outlook. Moody's and Standard &Poor's maintained stable outlooks for the state. For the twelve months ended August 31, 2008, municipal issuance in California totaled $66.6 billion, a decrease of 7% from the previous twelve months. California remained the largest state issuer in the nation, representing more than 14% of total issuance nationwide for the twelve months ended August 31, 2008. In terms of debt per capita, the state ranked tenth in the nation in 2007, while debt as a percent of personal income was 4.6%, compared with the national median of 2.4%. 6 WHAT KEY STRATEGIES WERE USED TO MANAGE THE CALIFORNIA FUNDS DURING THIS REPORTING PERIOD? During this twelve-month period, as the municipal market was characterized by volatility and a steepening yield curve, we sought to capitalize on the turbulent environment by continuing to focus on finding relative value by using a fundamental approach to find sectors and individual credits with the potential to perform well over the long term. As municipal bonds responded to events in the general financial markets, we found attractive opportunities in various sectors at different times. For example, when hedge funds and high-yield funds began to sell holdings into an illiquid market in order to meet margin requirements and redemption needs, we took advantage of this situation in some of the Funds to add positions in tobacco bonds and A rated health care bonds at attractive prices. We also bought in selected new issues of lower-rated bonds. In the spring of 2008, we saw a substantial increase in new issuance from California hospitals seeking fixed rates on longer bonds. Many of these issues were rated AA or A and offered attractive prices and yields, and we took this opportunity to add to our health care positions. Our focus in the insured Funds(1) was on purchasing bonds that we thought had underlying AA and A ratings. To provide liquidity for purchases, we primarily sold short-dated bonds. Some of our new additions also were funded with proceeds from bond calls. As a key dimension of risk management, we employed a disciplined approach to duration(2) positioning as an important component of our management strategies. As part of this approach, we used inverse floating rate securities,(3) a type of derivative financial instrument, in all eight of these Funds. Inverse floaters typically provide the dual benefit of bringing the Funds' durations closer to our strategic target and enhancing their income-generation capabilities. The Funds also invested in other types of derivatives. The goal of this strategy in all of the Funds except NZH was to lengthen their durations and help us manage their common share net asset value (NAV) volatility without having a negative impact on their income streams or common share dividends over the short (1) As of March 2008, NPC and NCL can invest up to 20% of their assets in uninsured bonds rated A to BBB. (2) Duration is a measure of a bond's price sensitivity as interest rates change, with longer duration bonds displaying more sensitivity to these changes than bonds with shorter durations. (3) An inverse floating rate security is a financial instrument designed to pay long-term tax-exempt interest at a rate that varies inversely with a short-term tax-exempt interest rate index. For the Nuveen Funds, the index typically used is the Securities Industry and Financial Markets (SIFM) Municipal Swap Index (previously referred to as the Bond Market Association Index or BMA). Inverse floaters, including those inverse floating rate securities in which the Funds invested during the reporting period, are further defined within the Notes to Financial Statements and Glossary of Terms Used in This Report sections of this shareholder report. 7 term. In NZH, we used derivative positions throughout the period to shorten this Fund's duration. During periods when interest rates were lower, we believed that managing duration synthetically through derivative positions was more prudent than buying bonds that would extend or reduce duration but also embed lower yields in the portfolio. As of August 31, 2008, the inverse floaters remained in place, while the other derivative positions had been removed from the Funds, except for NZH which still held a derivative position as of August 31, 2008. HOW DID THE FUNDS PERFORM? Individual results for these Nuveen California Funds, as well as relevant index and peer group information, are presented in the accompanying table. Annualized Total Returns on Common Share Net Asset Value For periods ended 8/31/08 Noninsured Funds: 1-Year 5-Year 10-Year NCU 1.81% 5.50% 5.29% NAC 1.85% 5.54% N/A NVX 2.76% 5.89% N/A NZH 0.60% 5.49% N/A Lipper CA Municipal Debt Funds Average(4) 0.70% 5.54% 4.78% Lehman Brothers CA Tax-Exempt Bond Index(5) 3.94% 4.70% 4.87% S&P CA Municipal Bond Index(6) 3.93% 4.87% 4.79% Insured Funds: NPC 4.23% 5.06% 5.02% NCL 1.86% 4.62% 5.06% NKL 2.98% 5.86% N/A NKX 2.97% 6.07% N/A Lipper Single-State Insured Municipal Debt Funds Average(7) 1.32% 4.77% 4.68% Lehman Brothers Insured CA Municipal Bond Index(5) 3.67% 4.45% 4.87% S&P CA Municipal Bond Index(6) 3.93% 4.87% 4.79% Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. For additional information, see the individual Performance Overview for your Fund in this report. (4) The Lipper California Municipal Debt Funds Average is calculated using the returns of all closed-end funds in this category for each period as follows: 1 year, 24 funds; 5 years, 24 funds; and 10 years, 12 funds. Fund and Lipper returns assume reinvestment of dividends. (5) The Lehman Brothers California Tax-Exempt Bond Index is an unleveraged, unmanaged index comprising a broad range of investment-grade California municipal bonds, while the Lehman Brothers Insured California Tax-Exempt Bond Index is an unleveraged, unmanaged index containing a broad range of insured California municipal bonds. Results for the Lehman indexes do not reflect any expenses. (6) The Standard & Poor's (S&P) California Municipal Bond Index is an unleveraged, market value-weighted index designed to measure the performance of the investment-grade California municipal bond market. (7) The Lipper Single-State Insured Municipal Debt Funds Average is calculated using the returns of all closed-end funds in this category for each period as follows: 1 year, 44 funds; 5 years, 44 funds; and 10 years, 24 funds. The performance of the Lipper Single-State Insured Municipal Debt Funds Average represents the overall average of returns for funds from eight different states with a wide variety of municipal market conditions. Fund and Lipper returns assume reinvestment of dividends. 8 For the twelve months ended August 31, 2008, the total returns on common share NAV for NCU, NAC, and NVX exceeded the average return for the Lipper California Municipal Debt Funds Average, while NZH performed relatively in line with this measure. All four of the non-insured Funds underperformed the Lehman Brothers California Tax-Exempt Bond Index and the Standard & Poor's (S&P) California Municipal Bond Index. Among the insured Funds, all four Funds outperformed the average return for the Lipper Single-State Insured Municipal Debt Funds Average. NPC also outperformed the Lehman Brothers Insured California Tax-Exempt Bond Index and the S&P California Municipal Bond Index, while the other three insured Funds underperformed these indexes. Key management factors that influenced the Funds' returns included yield curve and duration positioning, the use of derivatives, credit exposure and sector allocations and individual security selection. Over the period, bonds with maturities between two and eight years, especially those maturing in approximately five years, benefited the most, while bonds having the longest maturities (twenty-two years and longer) posting the worst returns. Among these Funds, NPC, NVX and--to a more modest extent--NKL and NKX had the best duration positioning during the period; that is, they were more heavily weighted in the areas of the yield curve that performed well. Conversely, NZH was not as well positioned, with more exposure to the underperforming long part of the curve. As mentioned earlier, all eight of these Funds used derivative positions during this period to synthetically manage duration and move them closer to our strategic duration target. In seven of the Funds (all except NZH), these derivative instruments were used to synthetically extend the Funds' durations. Despite the fact that longer duration municipal bonds generally underperformed those with shorter durations, the use of these derivatives had a positive overall impact on the total return performance of these seven Funds, especially NPC, which had a shorter underlying duration and made the greatest use of derivative positions. This positive impact was attributable to the fact that the derivative positions provided exposure to taxable markets during a period when, in contrast to historical trends, the taxable markets and the municipal market moved in the opposite directions. As municipal market performance lagged the gains in the taxable markets, these derivatives performed very well. 9 NZH, however, had a duration that exceeded our target and the derivatives were used to synthetically shorten it. Given the outperforming taxable markets, this hurt the Fund's performance. In addition, the inverse floaters used by all eight of these Funds generally had a negative impact on performance. This resulted from the fact that the inverse floaters effectively increased the Funds' exposure to longer-maturity bonds at a time when shorter maturities were in favor in the market. Because risk-averse investors generally sought higher quality investments as disruptions in the financial and housing markets deepened, bonds rated AA and A typically performed very well. NKL and NKX, in particular, benefited from their holdings of uninsured, higher quality (AA/A) bonds. At the same time, the performance of the AAA rated sector, although positive, was hampered to some degree due to the impact of downgrades of the insurers. Insured holdings with underlying credits that were rated BBB or non-rated, originally purchased because of the higher yields they offered, were disproportionately impacted (compared with bonds with underlying credits rated AA or A) if the insurer backing the bond was downgraded from AAA. Bonds rated BBB or below and non-rated bonds generally posted poor returns. Sectors of the market that generally made positive contributions to the Funds' performances included general obligation bonds, water and sewer, education, and special tax issues. Pre-refunded bonds,(8) which are often backed by U.S. Treasury bonds, or were one of the top performing segments of the market, due primarily to their shorter effective maturities, higher credit quality, and perceived safety. Among these Funds, NVX and NZH held the heaviest weightings of pre-refunded bonds. In general, any bonds that carried credit risk, regardless of sector, tended to perform poorly. Revenue bonds as a whole, and the industrial development and housing sectors in particular, underperformed the general municipal market. Next to the industrial development revenue sector, zero coupon bonds were among the worst performing categories in the municipal market. This negatively affected the transportation sector, especially tollroads, as these projects are often financed with longer duration zero coupon bonds. The health care sector also performed poorly, as did lower-rated bonds backed by the 1998 master tobacco settlement agreement. Individual security selection was also a factor in the Funds' performance. Early in the period, some of the Funds purchased natural gas bonds--a number of which were (8) Pre-refunded bonds, also known as advance refundings or refinancings, occur when an issuer sells new bonds and uses the proceeds to fund principal and interest payments of older existing bonds. This process often results in lower borrowing costs for bond issuers. 10 backed by investment banks--at distressed prices relative to new issuance. Unfortunately, as the credit crisis continued to unfold, these bonds tended to come under additional stress. The Funds were also negatively impacted as the majority of their AAA and BBB rated holdings underperformed these same rating categories in the municipal market as a whole. IMPACT OF THE FUNDS' CAPITAL STRUCTURES AND LEVERAGE STRATEGIES ON PERFORMANCE One of the factors impacting the performance of these Funds relative to those of the unleveraged Lehman Brothers California Tax-Exempt Bond Index, Lehman Brothers Insured California Tax-Exempt Bond Index, and S&P California Municipal Bond Index was the use of financial leverage. While leverage offers opportunities for additional income and total returns for common shareholders, the benefits provided by leveraging are influenced by the general price movements of the bonds in each Fund's portfolio. During this period, as the yields on longer-term bonds rose and their prices correspondingly fell, declining valuations had a negative effect on performance that was magnified by the use of leverage. In addition, the Funds' borrowing costs remained relatively high, negatively impacting their total returns. In the turbulent market environment of the past twelve months, the impact of any valuation change in the Funds' holdings--whether positive or negative--was magnified by the use of leverage. RECENT DEVELOPMENTS IN THE CURRENT MARKET ENVIRONMENT After the close of the reporting period, the nations' financial institutions and financial markets - including the municipal bond market - have experienced significant turmoil. Reductions in demand have decreased valuations of municipal bonds across all credit ratings, especially those with lower credit ratings, and this has generally reduced the Funds' net asset values. The municipal market is one in which dealer firms make markets in bonds on a principal basis using their proprietary capital and during the recent market turmoil in which these firms' capital was severely constrained, these firms were unwilling to commit their capital to purchase and to serve as a dealer for municipal bonds. Compounding the situation was the fact that this reduction in demand was accompanied by significant selling pressure, particularly with respect to lower-rated municipal bonds, as institutional investors were generally removing money from the municipal bond market. The selling pressure created by institutional investors was at least in part caused by their need to reduce the leveraging of their municipal investments. This deleveraging was in part driven by the overall reduction in the 11 amount of financing available for such leverage, the increased costs of such leverage financing, and the need to reduce leverage ratios that had recently increased due to the decline in municipal bond prices. Municipal bond prices were further negatively impacted by concerns that the need for further de-leveraging would cause selling pressure to persist for a period of time. In addition, the recent market turmoil (after the period-end of this report) has resulted in a significant increase in certain short-term interest rates and a flattening of the municipal yield curve. This affected the Funds' cost of leverage as the rates at which the Funds' auction rate preferred shares were resetting after the close of the reporting period were significantly higher than historical levels. As a result, the Funds experienced leveraging costs that have been higher than the Funds' portfolio investment yields, negatively affecting the Funds' net earnings and total returns. While the rates at which the auction rate preferred shares have been resetting recently have been decreasing to historically normal levels and the yield curve has steepened, it is not yet clear if these rates will remain at such levels. RECENT DEVELOPMENTS REGARDING BOND INSURANCE COMPANIES Another factor that had an impact on the performance of these Funds was their position in bonds backed by municipal bond insurers that experienced downgrades in their credit ratings. During the period covered by this report, ACA, AMBAC, FGIC, MBIA, RAAI, and XLCA experienced one or more rating reductions by at least one or more rating agencies. At the time this report was prepared, at least one rating agency has placed each of these insurers on "negative outlook" or "negative credit watch," which may presage one or more rating reductions for such insurer or insurers in the future. As concern increased about the balance sheets of these insurers, prices on bonds insured by these companies--especially those bonds with weaker underlying credits--declined, detracting from the Funds' performance. In particular, NCL was overweighted in bonds insured by FGIC, which negatively affected this Fund's performance. However, on the whole, the holdings of all of our Funds continued to be well diversified not only between insured and uninsured bonds, but also within the insured bond category. It is important to note that municipal bonds historically have had a very low rate of default. 12 RECENT DEVELOPMENTS IN THE AUCTION RATE PREFERRED SECURITIES MARKETS Beginning in February 2008, more shares for sale were submitted in the regularly scheduled auctions for the auction rate preferred shares issued by these Funds than there were offers to buy. This meant that these auctions "failed to clear" and that many or all auction preferred shareholders who wanted to sell their shares in these auctions were unable to do so. This decline in liquidity in auction rate preferred shares did not lower the credit quality of these shares, and auction rate preferred shareholders unable to sell their shares received distributions at the "maximum rate" applicable to failed auctions as calculated in accordance with the pre-established terms of the auction rate preferred shares. On June 11, 2008, Nuveen announced the Fund Board's approval of plans to use tender option bonds (TOBs), also known as floating rate securities, to refinance a portion of the municipal Funds' outstanding auction rate preferred shares, for which auctions have been failing for several months. The plan includes an initial phase of approximately $1 billion in forty-one Funds. During the twelve-month reporting period, NCL, NAC, NZH and NKL redeemed and/or noticed for redemption $15,175,000, $39,475,000, $27,075,000 and $9,750,000 of their outstanding auction rate preferred shares, respectively, at liquidation value, using the proceeds from the issuance of TOBs. On August 7, 2008, NKX issued par redemption notices for all outstanding shares of its auction rate preferred securities totaling $45 million. These redemptions were achieved through the issuance of variable rate demand preferred shares (VRDP) in conjunction with the proceeds from the creation of TOBs. VRDP is a new instrument designed to replace the auction rate preferred securities used as leverage in many Nuveen closed-end Funds. VRDP is offered only to qualified institutional buyers, as defined pursuant to Rule 144A under the Securities Act of 1933. During the twelve-month reporting period, NKX issued $35.5 million of VRDP and redeemed and/or noticed for redemption all its outstanding auction rate preferred securities. For current, up-to-date information, please visit the Nuveen CEF Auction Rate Preferred Resource Center at: http://www.nuveen.com/ResourceCenter/AuctionRatePreferred.aspx. 13 Common Share Dividend and Share Price INFORMATION As previously noted, all of the Funds in this report use leverage to potentially enhance opportunities for additional income for common shareholders. While this strategy continued to provide incremental income, the extent of this benefit was reduced to some degree by the borrowing costs associated with leverage, which were relatively high at some points during the period. Some of the Funds' income streams also were impacted as the proceeds from older, higher-yielding bonds that matured or were called were reinvested into bonds currently available in the market, which generally offered lower yields than the maturing or called bonds. These factors resulted in one monthly dividend reduction in NCL, NVX and NKL over the twelve-month period ended August 31, 2008. The dividends of NPC, NCU, NAC, NZH and NKX remained stable throughout this reporting period. Due to capital gains generated by normal portfolio activity, common shareholders of the following Funds received capital gains and net ordinary income distributions at the end of December 2007 as follows: Short-Term Capital Gains Long-Term Capital Gains and/or Ordinary Income (per share) (per share) NPC $0.0056 $0.0078 NAC $0.0357 -- NKL $0.0223 -- All of the Funds in this report seek to pay stable dividends at rates that reflect each Fund's past results and projected future performance. During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund's common share NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund's common share NAV. Each Fund will, over time, pay all of its net investment income as dividends to shareholders. As of August 31, 2008, all of the Funds in this report had positive UNII balances for both financial statement and tax purposes. 14 COMMON SHARE REPURCHASES AND SHARE PRICE INFORMATION On July 30, 2008, the Board of Directors/Trustees for each of Nuveen's 120 closed-end Funds approved a program under which each Fund may repurchase up to 10% of its common shares. No common shares were repurchased by these Nuveen California Funds during the twelve-month reporting period ended August 31, 2008. As of August 31, 2008, the Funds' common share prices were trading at discounts to their common share NAVs as shown in the accompanying chart: 8/31/08 Twelve-Month Discount Average Discount NPC -6.97% -7.41% NCL -10.40% -9.76% NCU -7.97% -8.77% NAC -6.86% -7.13% NVX -11.95% -7.83% NZH -5.51% -6.06% NKL -7.60% -6.72% NKX -2.89% -6.30% 15 NPC Performance OVERVIEW Nuveen Insured California Premium Income Municipal Fund, Inc. as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1),(2) Insured 71% U.S. Guaranteed 29% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share(4) Sep 0.0605 Oct 0.0605 Nov 0.0605 Dec 0.0605 Jan 0.0605 Feb 0.0605 Mar 0.0605 Apr 0.0605 May 0.0605 Jun 0.0605 Jul 0.0605 Aug 0.0605 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 15.03 14.81 14.5 14.12 14.43 14.3901 14.33 14.2 14.31 14.3456 13.8 13.5 13.7 13.788 13.99 13.8 13.87 13.9 14.57 14.68 14.69 14.6599 14.84 15.25 14.11 13.89 13.48 14.15 13.6 13.81 13.96 14.79 14.8 14.28 14.12 14.15 14.25 14.25 14.54 14.47 14.54 14.13 13.81 13.76 13.618 13.9 13.51 13.64 13.72 13.66 13.625 13.75 8/31/08 13.89 FUND SNAPSHOT ------------------------------------ Common Share Price $13.89 ------------------------------------ Common Share Net Asset Value $14.93 ------------------------------------ Premium/(Discount) to NAV -6.97% ------------------------------------ Market Yield 5.23% ------------------------------------ Taxable-Equivalent Yield3 8.01% ------------------------------------ Net Assets Applicable to Common Shares ($000) $96,462 ------------------------------------ Average Effective Maturity on Securities (Years) 15.43 ------------------------------------ Leverage-Adjusted Duration 8.93 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 11/19/92) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year -2.21% 4.23% ------------------------------------ 5-Year 4.44% 5.06% ------------------------------------ 10-Year 4.65% 5.02% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ U.S. Guaranteed 29.0% ------------------------------------ Tax Obligation/Limited 25.0% ------------------------------------ Tax Obligation/General 21.4% ------------------------------------ Water and Sewer 14.7% ------------------------------------ Other 9.9% ------------------------------------ INSURERS (as a % of total Insured investments) ------------------------------------ MBIA 41.0% ------------------------------------ AMBAC 19.3% ------------------------------------ FSA 18.7% ------------------------------------ FGIC 17.3% ------------------------------------ XLCA 2.3% ------------------------------------ AGC 1.4% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (3) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. (4) The Fund paid shareholders capital gains and net ordinary income distributions in December 2007 of $0.0134 per share. 16 NCL Performance OVERVIEW Nuveen Insured California Premium Income Municipal Fund 2, Inc. as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1),(2) Insured 81% U.S. Guaranteed 19% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share Sep 0.056 Oct 0.053 Nov 0.053 Dec 0.053 Jan 0.053 Feb 0.053 Mar 0.053 Apr 0.053 May 0.053 Jun 0.053 Jul 0.053 Aug 0.053 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 13.71 14.09 14.06 13.71 13.84 13.6025 13.64 13.33 13.29 13.3 13.09 12.7899 13.13 13.14 13.16 12.83 12.81 12.95 13.41 13.66 13.459 13.67 13.62 13.74 12.9999 12.944 12.66 12.95 12.7 12.55 12.93 13.19 13.13 13.11 13.16 13.21 13.3 13.3 13.4 13.31 13.32 12.74 12.58 12.56 12.69 12.7799 12.5 12.47 12.49 12.45 12.58 12.56 8/31/08 12.66 FUND SNAPSHOT ------------------------------------ Common Share Price $12.66 ------------------------------------ Common Share Net Asset Value $14.13 ------------------------------------ Premium/(Discount) to NAV -10.40% ------------------------------------ Market Yield 5.02% ------------------------------------ Taxable-Equivalent Yield3 7.69% ------------------------------------ Net Assets Applicable to Common Shares ($000) $179,734 ------------------------------------ Average Effective Maturity on Securities (Years) 16.48 ------------------------------------ Leverage-Adjusted Duration 13.09 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 3/18/93) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year -3.06% 1.86% ------------------------------------ 5-Year 2.93% 4.62% ------------------------------------ 10-Year 4.04% 5.06% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Tax Obligation/Limited 33.2% ------------------------------------ U.S. Guaranteed 19.3% ------------------------------------ Tax Obligation/General 16.4% ------------------------------------ Water and Sewer 14.3% ------------------------------------ Utilities 5.3% ------------------------------------ Other 11.5% ------------------------------------ INSURERS (as a % of total Insured investments) ------------------------------------ MBIA 31.5% ------------------------------------ AMBAC 28.6% ------------------------------------ FSA 20.8% ------------------------------------ FGIC 18.3% ------------------------------------ XLCA 0.8% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (3) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 17 NCU Performance OVERVIEW Nuveen California Premium Income Municipal Fund as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1) AAA/U.S. Guaranteed 23% AA 46% A 14% BBB 12% BB or Lower 4% N/R 1% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share Sep 0.0535 Oct 0.0535 Nov 0.0535 Dec 0.0535 Jan 0.0535 Feb 0.0535 Mar 0.0535 Apr 0.0535 May 0.0535 Jun 0.0535 Jul 0.0535 Aug 0.0535 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 13.03 13.3 13.288 12.96 13.02 12.97 13.0699 12.91 13 13.334 13.1619 13.16 13.07 12.8201 12.65 12.39 12.38 12.42 13.06 13.17 13.08 13.29 13.25 13.22 12.57 12.7 12.34 12.89 12.26 12.35 12.622 12.75 12.97 12.966 12.72 12.75 12.81 12.73 12.77 12.8 12.839 12.58 12.55 12.29 12.29 12.41 12.17 12.15 12.22 12.2601 12.28 12.36 8/31/08 12.58 FUND SNAPSHOT ------------------------------------ Common Share Price $12.58 ------------------------------------ Common Share Net Asset Value $13.67 ------------------------------------ Premium/(Discount) to NAV -7.97% ------------------------------------ Market Yield 5.10% ------------------------------------ Taxable-Equivalent Yield(2) 7.81% ------------------------------------ Net Assets Applicable to Common Shares ($000) $78,966 ------------------------------------ Average Effective Maturity on Securities (Years) 16.46 ------------------------------------ Leverage-Adjusted Duration 11.83 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 6/18/93) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 1.51% 1.81% ------------------------------------ 5-Year 5.09% 5.50% ------------------------------------ 10-Year 4.84% 5.29% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Tax Obligation/Limited 28.9% ------------------------------------ Tax Obligation/General 17.6% ------------------------------------ Health Care 15.6% ------------------------------------ U.S. Guaranteed 13.7% ------------------------------------ Water and Sewer 7.1% ------------------------------------ Utilities 5.3% ------------------------------------ Other 11.8% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 18 NAC Performance OVERVIEW Nuveen California Dividend Advantage Municipal Fund as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1) AAA/U.S. Guaranteed 37% AA 26% A 20% BBB 9% BB or Lower 1% N/R 7% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share(3) Sep 0.0615 Oct 0.0615 Nov 0.0615 Dec 0.0615 Jan 0.0615 Feb 0.0615 Mar 0.0615 Apr 0.0615 May 0.0615 Jun 0.0615 Jul 0.0615 Aug 0.0615 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 14.3299 14.39 14.43 14.06 14.22 14.23 13.99 13.93 13.8 13.914 13.65 13.42 13.44 13.3401 13.58 13.42 13.32 13.33 14.04 14.06 13.88 14.15 14.4 14.49 13.68 13.48 13.23 13.54 13.15 13.04 13.49 13.67 14.11 13.91 13.91 14.11 14.18 14.08 14.02 13.98 13.96 13.66 13.41 13.4 13.4432 13.19 13.06 13.11 13.46 13.47 13.14 13.25 8/31/08 13.44 FUND SNAPSHOT ------------------------------------ Common Share Price $13.44 ------------------------------------ Common Share Net Asset Value $14.43 ------------------------------------ Premium/(Discount) to NAV -6.86% ------------------------------------ Market Yield 5.49% ------------------------------------ Taxable-Equivalent Yield(2) 8.41% ------------------------------------ Net Assets Applicable to Common Shares ($000) $338,732 ------------------------------------ Average Effective Maturity on Securities (Years) 17.81 ------------------------------------ Leverage-Adjusted Duration 12.12 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 5/26/99) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year -0.84% 1.85% ------------------------------------ 5-Year 4.96% 5.54% ------------------------------------ Since Inception 5.00% 6.18% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ U.S. Guaranteed 19.1% ------------------------------------ Tax Obligation/Limited 17.4% ------------------------------------ Health Care 15.1% ------------------------------------ Transportation 13.1% ------------------------------------ Tax Obligation/General 10.1% ------------------------------------ Water and Sewer 6.3% ------------------------------------ Utilities 6.0% ------------------------------------ Other 12.9% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. (3) The Fund paid shareholders a capital gains distribution in December 2007 of $0.0357 per share. 19 NVX Performance OVERVIEW Nuveen California Dividend Advantage Municipal Fund 2 as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1) AAA/U.S. Guaranteed 40% AA 29% A 15% BBB 9% BB or Lower 1% N/R 6% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share Sep 0.06 Oct 0.0575 Nov 0.0575 Dec 0.0575 Jan 0.0575 Feb 0.0575 Mar 0.0575 Apr 0.0575 May 0.0575 Jun 0.0575 Jul 0.0575 Aug 0.0575 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 13.8399 14.0999 13.85 13.7 13.82 13.7 13.63 13.43 13.47 13.5 13.2 12.75 12.84 13.05 13.1 12.91 12.9 13.15 13.84 13.75 13.69 13.89 13.84 13.97 13.24 13.29 12.85 13.3 12.79 12.92 13.27 13.59 13.56 13.48 13.34 13.32 13.33 13.38 13.47 13.4 13.47 13.08 12.77 12.71 12.9399 12.88 12.66 12.65 12.74 12.72 12.75 12.61 8/31/08 12.67 FUND SNAPSHOT ------------------------------------ Common Share Price $12.67 ------------------------------------ Common Share Net Asset Value $14.39 ------------------------------------ Premium/(Discount) to NAV -11.95% ------------------------------------ Market Yield 5.45% ------------------------------------ Taxable-Equivalent Yield(2) 8.35% ------------------------------------ Net Assets Applicable to Common Shares ($000) $212,890 ------------------------------------ Average Effective Maturity on Securities (Years) 15.31 ------------------------------------ Leverage-Adjusted Duration 11.59 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 3/27/01) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year -2.80% 2.76% ------------------------------------ 5-Year 5.03% 5.89% ------------------------------------ Since Inception 3.65% 5.80% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ U.S. Guaranteed 28.7% ------------------------------------ Tax Obligation/Limited 15.2% ------------------------------------ Health Care 11.1% ------------------------------------ Education and Civic Organizations 8.6% ------------------------------------ Transportation 7.2% ------------------------------------ Tax Obligation/General 6.6% ------------------------------------ Water and Sewer 6.2% ------------------------------------ Consumer Staples 4.9% ------------------------------------ Other 11.5% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 20 NZH Performance OVERVIEW Nuveen California Dividend Advantage Municipal Fund 3 as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1), (2) AAA/U.S. Guaranteed 31% AA 31% A 19% BBB 11% BB or Lower 1% N/R 7% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share Sep 0.059 Oct 0.059 Nov 0.059 Dec 0.059 Jan 0.059 Feb 0.059 Mar 0.059 Apr 0.059 May 0.059 Jun 0.059 Jul 0.059 Aug 0.059 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 13.49 13.68 13.69 13.38 13.55 13.55 13.34 13.42 13.3 13.39 13.18 12.87 12.91 12.95 13.09 12.71 12.51 12.64 13.48 13.64 13.62 13.78 13.78 13.71 12.91 12.82 12.4 12.96 12.62 12.66 13.0198 13.08 13.08 13.18 13.15 13.27 13.3 13.28 13.33 13.35 13.44 13.13 12.63 12.5 12.69 12.69 12.5 12.57 12.57 12.89 13 12.72 8/31/08 12.87 FUND SNAPSHOT ------------------------------------ Common Share Price $12.87 ------------------------------------ Common Share Net Asset Value $13.62 ------------------------------------ Premium/(Discount) to NAV -5.51% ------------------------------------ Market Yield 5.50% ------------------------------------ Taxable-Equivalent Yield(3) 8.42% ------------------------------------ Net Assets Applicable to Common Shares ($000) $328,659 ------------------------------------ Average Effective Maturity on Securities (Years) 17.79 ------------------------------------ Leverage-Adjusted Duration 12.89 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 9/25/01) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 0.46% 0.60% ------------------------------------ 5-Year 6.25% 5.49% ------------------------------------ Since Inception 3.73% 4.96% ------------------------------------ INDUSTRIES (as a % of total investments)(2) ------------------------------------ Tax Obligation/Limited 26.2% ------------------------------------ Health Care 16.5% ------------------------------------ U.S. Guaranteed 15.2% ------------------------------------ Tax Obligation/General 11.3% ------------------------------------ Water and Sewer 8.6% ------------------------------------ Consumer Staples 4.9% ------------------------------------ Transportation 4.9% ------------------------------------ Other 12.4% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) Excluding derivative transactions. (3) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 21 NKL Performance OVERVIEW Nuveen Insured California Dividend Advantage Municipal Fund as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1), (2) Insured 74% U.S. Guaranteed 14% GNMA/FNMA Guaranteed 1% A (Uninsured) 4% BBB (Uninsured) 7% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share(4) Sep 0.062 Oct 0.0595 Nov 0.0595 Dec 0.0595 Jan 0.0595 Feb 0.0595 Mar 0.0595 Apr 0.0595 May 0.0595 Jun 0.0595 Jul 0.0595 Aug 0.0595 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 14.55 14.71 14.72 14.16 14.35 14.4425 14.07 13.98 13.86 13.981 13.732 13.21 13.28 13.44 13.81 13.11 13.06 13.55 14.21 14.16 14.16 14.12 14.38 14.42 13.57 13.6506 13.212 13.55 13.13 13.27 13.6 13.63 14.11 14 13.95 14.02 14.1 14.09 14 14.05 14.13 13.73 13.653 13.36 13.39 13.36 13.32 13.58 13.55 13.46 13.8399 13.45 8/31/08 13.5 FUND SNAPSHOT ------------------------------------ Common Share Price $13.50 ------------------------------------ Common Share Net Asset Value $14.61 ------------------------------------ Premium/(Discount) to NAV -7.60% ------------------------------------ Market Yield 5.29% ------------------------------------ Taxable-Equivalent Yield3 8.10% ------------------------------------ Net Assets Applicable to Common Shares ($000) $223,356 ------------------------------------ Average Effective Maturity on Securities (Years) 17.19 ------------------------------------ Leverage-Adjusted Duration 9.52 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 3/25/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year -0.03% 2.98% ------------------------------------ 5-Year 5.30% 5.86% ------------------------------------ Since Inception 4.36% 6.19% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Tax Obligation/Limited 32.9% ------------------------------------ Tax Obligation/General 18.4% ------------------------------------ U.S. Guaranteed 14.2% ------------------------------------ Utilities 10.9% ------------------------------------ Water and Sewer 7.3% ------------------------------------ Health Care 4.5% ------------------------------------ Other 11.8% ------------------------------------ INSURERS (as a % of total Insured investments) ------------------------------------ AMBAC 27.5% ------------------------------------ MBIA 25.4% ------------------------------------ FGIC 21.4% ------------------------------------ FSA 19.1% ------------------------------------ XLCA 4.7% ------------------------------------ AGC 1.5% ------------------------------------ ACA 0.4% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (3) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. (4) The Fund paid shareholders a capital gains distribution in December 2007 of $0.0223 per share. 22 NKX Performance OVERVIEW Nuveen Insured California Tax-Free Advantage Municipal Fund as of August 31, 2008 Pie Chart: Credit Quality (as a % of total investments)(1), (2) Insured 76% U.S. Guaranteed 13% A (Uninsured) 5% BBB (Uninsured) 6% Bar Chart: 2007-2008 Monthly Tax-Free Dividends Per Common Share Sep 0.059 Oct 0.059 Nov 0.059 Dec 0.059 Jan 0.059 Feb 0.059 Mar 0.059 Apr 0.059 May 0.059 Jun 0.059 Jul 0.059 Aug 0.059 Line Chart: Common Share Price Performance -- Weekly Closing Price 9/01/07 14.43 14.75 14.82 14.41 14.63 14.425 14.21 14.39 14.24 14.27 13.6999 13.47 13.5901 13.67 14.07 14.3 13.59 14.2 14.79 14.96 14.95 15.05 14.72 14.76 14.04 14.14 13.59 13.85 14.25 13.96 14.05 14.1501 14.38 14.26 14.17 14.27 14.5 14.51 14.1 14.05 14.014 13.93 13.61 13.4599 13.66 13.68 13.5 13.28 13.28 13.46 13.38 13.45 8/31/08 13.78 FUND SNAPSHOT ------------------------------------ Common Share Price $13.78 ------------------------------------ Common Share Net Asset Value $14.19 ------------------------------------ Premium/(Discount) to NAV -2.89% ------------------------------------ Market Yield 5.14% ------------------------------------ Taxable-Equivalent Yield3 7.87% ------------------------------------ Net Assets Applicable to Common Shares ($000) $83,531 ------------------------------------ Average Effective Maturity on Securities (Years) 18.50 ------------------------------------ Leverage-Adjusted Duration 9.93 ------------------------------------ AVERAGE ANNUAL TOTAL RETURN (Inception 11/21/02) ------------------------------------ ON SHARE PRICE ON NAV ------------------------------------ 1-Year 0.12% 2.97% ------------------------------------ 5-Year 5.94% 6.07% ------------------------------------ Since Inception 4.04% 5.29% ------------------------------------ INDUSTRIES (as a % of total investments) ------------------------------------ Tax Obligation/Limited 31.0% ------------------------------------ Health Care 14.5% ------------------------------------ Tax Obligation/General 13.9% ------------------------------------ U.S. Guaranteed 13.1% ------------------------------------ Water and Sewer 9.5% ------------------------------------ Transportation 7.1% ------------------------------------ Other 10.9% ------------------------------------ INSURERS (as a % of total Insured investments) ------------------------------------ AMBAC 45.1% ------------------------------------ MBIA 21.1% ------------------------------------ FSA 13.7% ------------------------------------ AGC 5.7% ------------------------------------ BHAC 5.1% ------------------------------------ XLCA 4.7% ------------------------------------ FGIC 4.6% ------------------------------------ (1) The percentages shown in the foregoing chart may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (2) At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (3) Taxable-Equivalent Yield represents the yield that must be earned on a fully taxable investment in order to equal the yield of the Fund on an after-tax basis. It is based on a combined federal and state income tax rate of 34.7%. When comparing this Fund to investments that generate qualified dividend income, the Taxable-Equivalent Yield is lower. 23 Report of INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THE BOARDS OF DIRECTORS/TRUSTEES AND SHAREHOLDERS NUVEEN INSURED CALIFORNIA PREMIUM INCOME MUNICIPAL FUND, INC. NUVEEN INSURED CALIFORNIA PREMIUM INCOME MUNICIPAL FUND 2, INC. NUVEEN CALIFORNIA PREMIUM INCOME MUNICIPAL FUND NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND 2 NUVEEN CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND 3 NUVEEN INSURED CALIFORNIA DIVIDEND ADVANTAGE MUNICIPAL FUND NUVEEN INSURED CALIFORNIA TAX-FREE ADVANTAGE MUNICIPAL FUND We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Insured California Premium Income Municipal Fund, Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen California Premium Income Municipal Fund, Nuveen California Dividend Advantage Municipal Fund, Nuveen California Dividend Advantage Municipal Fund 2, Nuveen California Dividend Advantage Municipal Fund 3, Nuveen Insured California Dividend Advantage Municipal Fund and Nuveen Insured California Tax-Free Advantage Municipal Fund (the "Funds"), as of August 31, 2008, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of August 31, 2008, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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 Insured California Premium Income Municipal Fund, Inc., Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen California Premium Income Municipal Fund, Nuveen California Dividend Advantage Municipal Fund, Nuveen California Dividend Advantage Municipal Fund 2, Nuveen California Dividend Advantage Municipal Fund 3, Nuveen Insured California Dividend Advantage Municipal Fund and Nuveen Insured California Tax-Free Advantage Municipal Fund at August 31, 2008, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with U.S. generally accepted accounting principles. /s/ Ernst & Young LLP Chicago, Illinois October 21, 2008 24 NPC Nuveen Insured California Premium Income Municipal Fund, Inc. Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 5.8% (4.0% OF TOTAL INVESTMENTS) $ 2,125 California Educational Facilities Authority, Student Loan Revenue 9/08 at 102.00 A2 $ 2,071,684 Bonds, Cal Loan Program, Series 2001A, 5.400%, 3/01/21 - MBIA Insured (Alternative Minimum Tax) 1,500 California State University, Systemwide Revenue Bonds, 5/15 at 100.00 AA 1,529,730 Series 2005A, 5.000%, 11/01/25 - AMBAC Insured 2,000 California State University, Systemwide Revenue Bonds, 11/15 at 100.00 AA 2,029,960 Series 2005C, 5.000%, 11/01/27 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 5,625 Total Education and Civic Organizations 5,631,374 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 5.5% (3.8% OF TOTAL INVESTMENTS) 3,000 California Health Facilities Financing Authority, Insured Revenue 2/09 at 101.00 AA 3,032,910 Bonds, Sutter Health, Series 1998A, 5.375%, 8/15/30 - MBIA Insured 724 California Statewide Communities Development Authority, 7/18 at 100.00 AAA 747,935 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) 1,500 California Statewide Community Development Authority, 8/09 at 101.00 AAA 1,557,900 Certificates of Participation, Sutter Health Obligated Group, Series 1999, 5.500%, 8/15/19 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 5,224 Total Health Care 5,338,745 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.3% (0.2% OF TOTAL INVESTMENTS) 210 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 213,627 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) 100 California Housing Finance Agency, Single Family Mortgage 2/09 at 100.00 AA 100,254 Bonds II, Series 1997A-1, 6.000%, 8/01/20 - MBIA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 310 Total Housing/Single Family 313,881 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 31.4% (21.4% OF TOTAL INVESTMENTS) Bonita Unified School District, San Diego County, California, General Obligation Bonds, Series 2004A: 1,890 5.250%, 8/01/23 - MBIA Insured 8/14 at 100.00 AA 1,988,979 1,250 5.250%, 8/01/25 - MBIA Insured 8/14 at 100.00 AA 1,306,275 2,000 California, General Obligation Veterans Welfare Bonds, 12/08 at 100.00 AA 1,999,840 Series 2001BZ, 5.375%, 12/01/24 - MBIA Insured (Alternative Minimum Tax) El Segundo Unified School District, Los Angeles County, California, General Obligation Bonds, Series 2004: 2,580 5.250%, 9/01/21 - FGIC Insured 9/14 at 100.00 A+ 2,720,378 1,775 5.250%, 9/01/22 - FGIC Insured 9/14 at 100.00 A+ 1,858,638 565 Fontana Unified School District, San Bernardino County, 8/18 at 100.00 AAA 684,577 California, General Obligation Bonds, Trust 2668, 13.010%, 8/01/28 - FSA Insured (IF) 1,225 Fresno Unified School District, Fresno County, California, 2/13 at 103.00 AA 1,400,408 General Obligation Refunding Bonds, Series 1998A, 6.550%, 8/01/20 - MBIA Insured 1,180 Jurupa Unified School District, Riverside County, California, 8/13 at 100.00 A 1,207,057 General Obligation Bonds, Series 2004, 5.000%, 8/01/21 - FGIC Insured 3,000 Pomona Unified School District, Los Angeles County, California, 8/11 at 103.00 AA 3,344,790 General Obligation Refunding Bonds, Series 1997A, 6.500%, 8/01/19 - MBIA Insured 25 NPC Nuveen Insured California Premium Income Municipal Fund, Inc. (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 160 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- $ 162,707 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 3,000 Sacramento City Unified School District, Sacramento County, 7/15 at 100.00 Aa3 3,067,770 California, General Obligation Bonds, Series 2005, 5.000%, 7/01/27 - MBIA Insured San Diego Unified School District, San Diego County, California, General Obligation Bonds, Election of 1998, Series 2001C: 1,335 5.000%, 7/01/21 - FSA Insured 7/11 at 102.00 AAA 1,444,977 3,500 5.000%, 7/01/22 - FSA Insured 7/11 at 102.00 AAA 3,788,330 4,895 5.000%, 7/01/23 - FSA Insured 7/11 at 102.00 AAA 5,298,250 ------------------------------------------------------------------------------------------------------------------------------------ 28,355 Total Tax Obligation/General 30,272,976 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 36.7% (25.0% OF TOTAL INVESTMENTS) 1,000 Brea and Olinda Unified School District, Orange County, 8/11 at 101.00 AAA 1,010,390 California, Certificates of Participation Refunding, Series 2002A, 5.125%, 8/01/26 - FSA Insured California Infrastructure Economic Development Bank, Revenue Bonds, North County Center for Self-Sufficiency Corporation, Series 2004: 1,215 5.000%, 12/01/19 - AMBAC Insured 12/13 at 100.00 AA 1,269,189 1,615 5.000%, 12/01/21 - AMBAC Insured 12/13 at 100.00 AA 1,667,568 195 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 189,560 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 595 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 570,914 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 1,900 Corona-Norco Unified School District, Riverside County, 9/12 at 100.00 AA 1,946,455 California, Special Tax Bonds, Community Facilities District 98-1, Series 2002, 5.100%, 9/01/25 - AMBAC Insured 5,000 El Monte, California, Senior Lien Certificates of Participation, 1/11 at 100.00 AA 5,009,450 Department of Public Services Facility Phase II, Series 2001, 5.250%, 1/01/34 - AMBAC Insured 1,540 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AAA 1,590,743 Enhanced Tobacco Settlement Revenue Bonds, Drivers Trust 2091, 14.214%, 6/01/45 - AGC Insured (IF) 1,000 Hesperia Public Financing Authority, California, Redevelopment 9/17 at 100.00 Baa1 884,510 and Housing Projects Tax Allocation Bonds, Series 2007A, 5.000%, 9/01/37 - XLCA Insured 435 Indian Wells Redevelopment Agency, California, Tax Allocation 9/13 at 100.00 AA 447,693 Bonds, Consolidated Whitewater Project Area, Series 2003A, 5.000%, 9/01/20 - AMBAC Insured 345 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 335,226 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 895 Los Angeles Community Redevelopment Agency, California, 12/14 at 100.00 AAA 919,299 Tax Allocation Bonds, Bunker Hill Project, Series 2004A, 5.000%, 12/01/20 - FSA Insured 1,500 Los Angeles, California, Municipal Improvement Corporation, 1/17 at 100.00 AA- 1,424,625 Lease Revenue Bonds, Police Headquarters, Series 2006A, 4.750%, 1/01/31 - FGIC Insured 3,150 Moreno Valley Community Redevelopment Agency, California, 8/17 at 100.00 AA 3,022,520 Tax Allocation Bonds, Series 2007A, 5.000%, 8/01/38 - AMBAC Insured 7,000 Rancho Cucamonga Redevelopment Agency, California, Housing 9/17 at 100.00 AA 6,840,610 Set-Aside Tax Allocation Bonds, Series 2007A, 5.000%, 9/01/34 - MBIA Insured 165 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 157,935 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 205 Roseville, California, Certificates of Participation, Public Facilities, 8/13 at 100.00 AA 205,968 Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 1,500 San Jose Redevelopment Agency, California, Tax Allocation Bonds, 8/15 at 100.00 AA 1,479,465 Merged Project Area, Series 2005A, 5.000%, 8/01/28 - MBIA Insured 26 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 3,565 Sweetwater Union High School District Public Financing 9/15 at 100.00 AAA $ 3,662,467 Authority, California, Special Tax Revenue Bonds, Series 2005A, 5.000%, 9/01/25 - FSA Insured 2,805 Yucaipa-Calimesa Joint Unified School District, San Bernardino 10/11 at 100.00 AA 2,737,315 County, California, General Obligation Refunding Bonds, Series 2001A, 5.000%, 10/01/31 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 35,625 Total Tax Obligation/Limited 35,371,902 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 2.5% (1.7% OF TOTAL INVESTMENTS) 2,400 San Diego Unified Port District, California, Revenue Bonds, 9/14 at 100.00 AA 2,406,168 Series 2004B, 5.000%, 9/01/29 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 42.6% (29.0% OF TOTAL INVESTMENTS) (4) California, Various Purpose General Obligation Bonds, Series 2000: 7,995 5.750%, 3/01/22 (Pre-refunded 3/01/10) - MBIA Insured 3/10 at 101.00 AAA 8,502,203 2,000 5.750%, 3/01/27 (Pre-refunded 3/01/10) - MBIA Insured 3/10 at 101.00 AAA 2,126,880 2,500 Fresno Unified School District, Fresno County, California, 8/09 at 102.00 AAA 2,583,025 General Obligation Bonds, Series 2001A, 5.125%, 8/01/26 - FSA Insured (ETM) 6,000 Huntington Park Redevelopment Agency, California, Single No Opt. Call AAA 8,266,500 Family Residential Mortgage Revenue Refunding Bonds, Series 1986A, 8.000%, 12/01/19 (ETM) 5,135 Palmdale Community Redevelopment Agency, California, No Opt. Call AAA 6,715,604 Single Family Restructured Mortgage Revenue Bonds, Series 1986A, 8.000%, 3/01/16 (Alternative Minimum Tax) (ETM) 6,220 Riverside County, California, GNMA Mortgage-Backed Securities No Opt. Call AAA 8,674,411 Program Single Family Mortgage Revenue Bonds, Series 1987A, 9.000%, 5/01/21 (Alternative Minimum Tax) (ETM) 1,485 San Jose, California, Single Family Mortgage Revenue Bonds, No Opt. Call Aaa 1,949,241 Series 1985A, 9.500%, 10/01/13 (ETM) 2,150 Santa Clara Valley Water District, California, Water Utility 6/10 at 100.00 AA (4) 2,266,337 System Revenue Bonds, Series 2000A, 5.125%, 6/01/31 (Pre-refunded 6/01/10) - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ 33,485 Total U.S. Guaranteed 41,084,201 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 0.3% (0.2% OF TOTAL INVESTMENTS) 345 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 315,827 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 21.6% (14.7% OF TOTAL INVESTMENTS) 5,255 El Dorado Irrigation District, California, Water and Sewer 3/13 at 100.00 A2 5,352,901 Certificates of Participation, Series 2003A, 5.000%, 3/01/20 - FGIC Insured 1,230 El Dorado Irrigation District, California, Water and Sewer 3/14 at 100.00 A 1,249,200 Certificates of Participation, Series 2004A, 5.000%, 3/01/21 - FGIC Insured 235 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 230,166 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 5,000 Indio Water Authority, California, Water Revenue Bonds, 4/16 at 100.00 AA 5,006,050 Series 2006, 5.000%, 4/01/31 - AMBAC Insured 220 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 217,041 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured 1,500 Placerville Public Financing Authority, California, Wastewater 9/16 at 100.00 BBB- 1,325,235 System Refinancing and Improvement Project Revenue Bonds, Series 2006, 5.000%, 9/01/34 - XLCA Insured 3,400 San Diego Public Facilities Financing Authority, California, 11/08 at 100.50 A+ 3,408,194 Sewerage Revenue Bonds, Series 1997A, 5.250%, 5/15/22 - FGIC Insured 1,310 Santa Fe Springs Public Financing Authority, California, 5/13 at 100.00 AA 1,319,668 Water Revenue Bonds, Series 2003A, 5.000%, 5/01/33 - MBIA Insured 27 NPC Nuveen Insured California Premium Income Municipal Fund, Inc. (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 1,345 West Basin Municipal Water District, California, Revenue 8/13 at 100.00 AA $ 1,385,175 Certificates of Participation, Series 2003A, 5.000%, 8/01/20 - MBIA Insured 1,310 Wheeler Ridge-Maricopa Water District, Kern County, California, 11/08 at 100.00 AA 1,317,153 Water Revenue Refunding Bonds, Series 1996, 5.700%, 11/01/15 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 20,805 Total Water and Sewer 20,810,783 ------------------------------------------------------------------------------------------------------------------------------------ $ 132,174 Total Investments (cost $135,840,088) - 146.7% 141,545,857 =============----------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - (0.0)% (83,598) -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (46.7)% (5) (45,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 96,462,259 ====================================================================================================================
At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 31.8%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. See accompanying notes to financial statements. 28 NCL Nuveen Insured California Premium Income Municipal Fund 2, Inc. Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 5.8% (3.9% OF TOTAL INVESTMENTS) $ 620 California Educational Facilities Authority, Revenue Bonds, 11/10 at 100.00 A2 $ 656,983 University of the Pacific, Series 2000, 5.875%, 11/01/20 - MBIA Insured 2,125 California Educational Facilities Authority, Student Loan Revenue 9/08 at 102.00 A2 2,071,684 Bonds, Cal Loan Program, Series 2001A, 5.400%, 3/01/21 - MBIA Insured (Alternative Minimum Tax) 1,500 California State University, Systemwide Revenue Bonds, 5/15 at 100.00 AA 1,529,730 Series 2005A, 5.000%, 11/01/25 - AMBAC Insured 6,000 University of California, Revenue Bonds, Multi-Purpose Projects, 5/13 at 100.00 AA 6,095,160 Series 2003A, 5.000%, 5/15/27 - AMBAC Insured (UB) ------------------------------------------------------------------------------------------------------------------------------------ 10,245 Total Education and Civic Organizations 10,353,557 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 2.2% (1.5% OF TOTAL INVESTMENTS) 1,410 California Statewide Communities Development Authority, 7/18 at 100.00 AAA 1,456,615 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) 2,000 The Regents of the University of California, Medical Center 5/15 at 101.00 AA 1,851,180 Pooled Revenue Bonds, Series 2007A, 4.500%, 5/15/37 - MBIA Insured 650 University of California, Hospital Revenue Bonds, UCLA Medical 5/12 at 101.00 AA 695,624 Center, Series 2004A, 5.500%, 5/15/18 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 4,060 Total Health Care 4,003,419 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 2.2% (1.4% OF TOTAL INVESTMENTS) 400 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 406,908 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) 2,325 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aaa 2,363,107 Bonds, Series 2006K, 5.500%, 2/01/42 - AMBAC Insured (Alternative Minimum Tax) 1,100 California Housing Finance Agency, Single Family Mortgage 2/09 at 100.75 AA 1,103,421 Bonds, Series 1997C-2-II, 5.625%, 8/01/20 - MBIA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 3,825 Total Housing/Single Family 3,873,436 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 24.4% (16.4% OF TOTAL INVESTMENTS) 1,460 ABC Unified School District, Los Angeles County, California, 8/10 at 101.00 A+ 1,554,710 General Obligation Bonds, Series 2000B, 5.750%, 8/01/16 - FGIC Insured 1,425 Bassett Unified School District, Los Angeles County, California, 8/16 at 100.00 A- 1,440,575 General Obligation Bonds, Series 2006B, 5.250%, 8/01/30 - FGIC Insured 3,000 California State, General Obligation Bonds, Series 2006, 9/16 at 100.00 AAA 2,783,760 4.500%, 9/01/36 - FSA Insured 4,400 California, General Obligation Bonds, Series 2003, 2/13 at 100.00 AA 4,393,928 5.000%, 2/01/31 - MBIA Insured 3,000 California, General Obligation Veterans Welfare Bonds, 12/08 at 100.00 AA 2,999,760 Series 2001BZ, 5.375%, 12/01/24 - MBIA Insured (Alternative Minimum Tax) 3,200 Coast Community College District, Orange County, California, 8/18 at 100.00 AAA 2,451,136 General Obligation Bonds, Series 2006C, 0.000%, 8/01/31 - FSA Insured 1,105 Fontana Unified School District, San Bernardino County, California, 8/18 at 100.00 AAA 1,338,862 General Obligation Bonds, Trust 2668, 13.010%, 8/01/28 - FSA Insured (IF) 29 NCL Nuveen Insured California Premium Income Municipal Fund 2, Inc. (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 1,910 Fresno Unified School District, Fresno County, California, No Opt. Call AA $ 2,122,220 General Obligation Bonds, Series 2002A, 6.000%, 8/01/26 - MBIA Insured 1,255 Los Angeles Community College District, Los Angeles County, 8/15 at 100.00 AAA 1,304,020 California, General Obligation Bonds, Series 2005A, 5.000%, 8/01/24 - FSA Insured 4,000 Los Angeles Unified School District, Los Angeles County, California, 7/17 at 100.00 AAA 3,990,800 General Obligation Bonds, Series 2007A, 4.500%, 7/01/24 - FSA Insured Los Rios Community College District, Sacramento, El Dorado and Yolo Counties, California, General Obligation Bonds, Series 2006C: 2,110 5.000%, 8/01/21 - FSA Insured (UB) 8/14 at 102.00 AAA 2,236,558 3,250 5.000%, 8/01/22 - FSA Insured (UB) 8/14 at 102.00 AAA 3,434,828 3,395 5.000%, 8/01/23 - FSA Insured (UB) 8/14 at 102.00 AAA 3,574,018 1,270 Merced City School District, Merced County, California, General 8/13 at 100.00 A 1,305,052 Obligation Bonds, Series 2004, 5.000%, 8/01/22 - FGIC Insured 305 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 310,161 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 2,500 Sacramento City Unified School District, Sacramento County, 7/15 at 100.00 Aa3 2,556,475 California, General Obligation Bonds, Series 2005, 5.000%, 7/01/27 - MBIA Insured 1,125 San Diego Unified School District, California, General Obligation No Opt. Call AA 596,745 Bonds, Election of 1998, Series 1999A, 0.000%, 7/01/21 - FGIC Insured 2,000 San Francisco Community College District, California, General 6/10 at 102.00 Aa3 2,018,420 Obligation Bonds, Series 2002A, 5.000%, 6/15/26 - FGIC Insured 1,000 San Ramon Valley Unified School District, Contra Costa County, 8/14 at 100.00 AAA 1,027,270 California, General Obligation Bonds, Series 2004, 5.000%, 8/01/24 - FSA Insured 2,445 Washington Unified School District, Yolo County, California, 8/13 at 100.00 A- 2,501,064 General Obligation Bonds, Series 2004A, 5.000%, 8/01/21 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ 44,155 Total Tax Obligation/General 43,940,362 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 49.5% (33.2% OF TOTAL INVESTMENTS) Anaheim Public Finance Authority, California, Subordinate Lease Revenue Bonds, Public Improvement Project, Series 1997C: 5,130 0.000%, 9/01/18 - FSA Insured No Opt. Call AAA 3,281,097 8,000 0.000%, 9/01/21 - FSA Insured No Opt. Call AAA 4,230,160 California Infrastructure Economic Development Bank, Revenue Bonds, North County Center for Self-Sufficiency Corporation, Series 2004: 1,535 5.000%, 12/01/20 - AMBAC Insured 12/13 at 100.00 AA 1,592,271 1,780 5.000%, 12/01/23 - AMBAC Insured 12/13 at 100.00 AA 1,821,955 3,725 California State Public Works Board, Lease Revenue Bonds, 1/16 at 100.00 AA 4,038,533 Department of Corrections & Rehabilitation, Series 2005J, 5.000%, 1/01/17 - AMBAC Insured 380 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 369,398 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 6,000 El Monte, California, Senior Lien Certificates of Participation, 1/11 at 100.00 AA 6,052,259 Department of Public Services Facility Phase II, Series 2001, 5.000%, 1/01/21 - AMBAC Insured 8,280 Fontana Public Financing Authority, California, Tax Allocation 10/15 at 100.00 AA 8,109,265 Revenue Bonds, North Fontana Redevelopment Project, Series 2005A, 5.000%, 10/01/32 - AMBAC Insured 3,000 Galt Schools Joint Powers Authority, Sacramento County, 11/08 at 101.00 AA 3,043,320 California, Revenue Refunding Bonds, High School and Elementary School Facilities, Series 1997A, 5.875%, 11/01/24 - MBIA Insured 3,015 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AAA 3,114,344 Enhanced Tobacco Settlement Revenue Bonds, Drivers Trust 2091, 14.214%, 6/01/45 - AGC Insured (IF) 30 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 4,500 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 A $ 3,165,480 Enhanced Tobacco Settlement Revenue Bonds, Residual Series 2040, 10.510%, 6/01/45 - FGIC Insured (IF) Golden State Tobacco Securitization Corporation, California, Tobacco Settlement Asset-Backed Revenue Bonds, Series 2005A, Trust 2448: 5,025 11.686%, 6/01/35 - FGIC Insured (IF) 6/15 at 100.00 A 3,361,323 585 11.691%, 6/01/38 - FGIC Insured (IF) 6/15 at 100.00 A 382,590 1,255 Hesperia Public Financing Authority, California, 9/17 at 100.00 Baa1 1,110,060 Redevelopment and Housing Projects Tax Allocation Bonds, Series 2007A, 5.000%, 9/01/37 - XLCA Insured 1,700 Hesperia Unified School District, San Bernardino County, 2/17 at 100.00 AA 1,628,192 California, Certificates of Participation, Capital Improvement, Series 2007, 5.000%, 2/01/41 - AMBAC Insured 1,810 Kern County Board of Education, California, Certificates of 5/10 at 100.00 Aaa 1,820,516 Participation Refunding, Series 1998A, 5.200%, 5/01/28 - MBIA Insured 5,000 La Quinta Redevelopment Agency, California, Tax Allocation 9/08 at 101.00 AA 5,013,050 Refunding Bonds, Redevelopment Project Area 1, Series 1998, 5.200%, 9/01/28 - AMBAC Insured 2,185 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 2,123,099 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 1,000 Los Angeles Community Redevelopment Agency, California, 12/14 at 100.00 AAA 1,027,150 Tax Allocation Bonds, Bunker Hill Project, Series 2004A, 5.000%, 12/01/20 - FSA Insured 1,250 Los Angeles County Metropolitan Transportation Authority, 7/13 at 100.00 AAA 1,307,738 California, Proposition A First Tier Senior Sales Tax Revenue Bonds, Series 2003B, 5.000%, 7/01/19 - MBIA Insured 4,000 Los Angeles, California, Certificates of Participation, Municipal 6/13 at 100.00 AA 3,977,200 Improvement Corporation, Series 2003AW, 5.000%, 6/01/33 - AMBAC Insured 3,000 Los Angeles, California, Municipal Improvement Corporation, 1/17 at 100.00 AA- 2,849,250 Lease Revenue Bonds, Police Headquarters, Series 2006A, 4.750%, 1/01/31 - FGIC Insured 6,120 Moreno Valley Community Redevelopment Agency, California, 8/17 at 100.00 AA 5,872,323 Tax Allocation Bonds, Series 2007A, 5.000%, 8/01/38 - AMBAC Insured 4,140 Plumas County, California, Certificates of Participation, Capital 6/13 at 101.00 AA 4,124,227 Improvement Program, Series 2003A, 5.000%, 6/01/28 - AMBAC Insured 390 Poway Redevelopment Agency, California, Tax Allocation 12/10 at 102.00 AAA 413,735 Refunding Bonds, Paguay Redevelopment Project, Series 2000, 5.750%, 6/15/33 - MBIA Insured 325 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 311,084 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 1,000 Rocklin Unified School District, Placer County, California, 9/13 at 100.00 AA 1,014,580 Special Tax Bonds, Community Facilities District 1, Series 2004, 5.000%, 9/01/25 - MBIA Insured 405 Roseville, California, Certificates of Participation, Public 8/13 at 100.00 AA 406,912 Facilities, Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 5,000 San Bernardino Joint Powers Financing Authority, California, 9/09 at 102.00 AA 5,238,650 Certificates of Participation Refunding, Police Station Financing Project, Series 1999, 5.500%, 9/01/20 - MBIA Insured 1,500 San Jose Redevelopment Agency, California, Tax Allocation 8/15 at 100.00 AA 1,479,465 Bonds, Merged Project Area, Series 2005A, 5.000%, 8/01/28 - MBIA Insured 5,510 Sweetwater Union High School District Public Financing Authority, 9/15 at 100.00 AAA 5,607,692 California, Special Tax Revenue Bonds, Series 2005A, 5.000%, 9/01/28 - FSA Insured 1,020 Washington Unified School District, Yolo County, California, 8/17 at 100.00 AA 999,610 Certificates of Participation, Series 2007, 5.125%, 8/01/37 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 97,565 Total Tax Obligation/Limited 88,886,528 ------------------------------------------------------------------------------------------------------------------------------------ 31 NCL Nuveen Insured California Premium Income Municipal Fund 2, Inc. (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 7.0% (4.7% OF TOTAL INVESTMENTS) $ 6,500 Foothill/Eastern Transportation Corridor Agency, California, 1/10 at 65.32 AA $ 3,745,690 Toll Road Revenue Refunding Bonds, Series 1999, 0.000%, 1/15/18 - MBIA Insured 4,000 Orange County Transportation Authority, California, Toll Road 8/13 at 100.00 AA 4,190,240 Revenue Bonds, 91 Express Lanes Project, Series 2003A, 5.000%, 8/15/18 - AMBAC Insured 5,000 San Francisco Airports Commission, California, Revenue Refunding 5/11 at 100.00 AA 4,709,150 Bonds, San Francisco International Airport, Second Series 2001, Issue 27A, 5.250%, 5/01/31 - MBIA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 15,500 Total Transportation 12,645,080 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 28.8% (19.3% OF TOTAL INVESTMENTS) (4) 1,380 California Educational Facilities Authority, Revenue Bonds, 11/10 at 100.00 A2 (4) 1,492,056 University of the Pacific, Series 2000, 5.875%, 11/01/20 (Pre-refunded 11/01/10) - MBIA Insured California Infrastructure Economic Development Bank, Revenue Bonds, Asian Art Museum of San Francisco, Series 2000: 1,295 5.500%, 6/01/19 (Pre-refunded 6/01/10) - MBIA Insured 6/10 at 101.00 AAA 1,384,756 1,000 5.500%, 6/01/20 (Pre-refunded 6/01/10) - MBIA Insured 6/10 at 101.00 AAA 1,069,310 2,250 California State, General Obligation Bonds, Series 2004, 4/14 at 100.00 AAA 2,498,243 5.000%, 4/01/31 (Pre-refunded 4/01/14) - AMBAC Insured California, Various Purpose General Obligation Bonds, Series 2000: 7,995 5.750%, 3/01/22 (Pre-refunded 3/01/10) - MBIA Insured 3/10 at 101.00 AAA 8,502,202 1,900 5.750%, 3/01/27 (Pre-refunded 3/01/10) - MBIA Insured 3/10 at 101.00 AAA 2,020,536 2,260 Central Unified School District, Fresno County, California, 3/09 at 100.00 AA (4) 2,296,341 General Obligation Bonds, Series 1993, 5.625%, 3/01/18 - AMBAC Insured (ETM) 3,000 Escondido Union High School District, San Diego County, California, 11/08 at 100.00 AA (4) 3,017,910 General Obligation Bonds, Series 1996, 5.700%, 11/01/10 - MBIA Insured (ETM) Fresno Unified School District, Fresno County, California, General Obligation Bonds, Series 2001F: 1,065 5.125%, 8/01/21 - FSA Insured (ETM) 8/09 at 102.00 AAA 1,106,429 1,160 5.125%, 8/01/22 - FSA Insured (ETM) 8/09 at 102.00 AAA 1,205,124 1,220 5.125%, 8/01/23 - FSA Insured (ETM) 8/09 at 102.00 AAA 1,267,458 1,500 Hacienda La Puente Unified School District, Los Angeles County, 8/10 at 101.00 AA (4) 1,607,310 California, General Obligation Bonds, Series 2000A, 5.250%, 8/01/25 (Pre-refunded 8/01/10) - MBIA Insured 3,865 Los Angeles County Metropolitan Transportation Authority, 7/10 at 101.00 AA (4) 4,132,574 California, Proposition C Second Senior Lien Sales Tax Revenue Bonds, Series 2000A, 5.250%, 7/01/30 (Pre-refunded 7/01/10) - FGIC Insured Manteca Unified School District, San Joaquin County, California, General Obligation Bonds, Series 2004: 1,000 5.250%, 8/01/21 (Pre-refunded 8/01/14) - FSA Insured 8/14 at 100.00 AAA 1,128,050 1,000 5.250%, 8/01/22 (Pre-refunded 8/01/14) - FSA Insured 8/14 at 100.00 AAA 1,128,050 2,500 Oakland, California, Insured Revenue Bonds, 1800 Harrison 1/10 at 100.00 AA (4) 2,637,025 Foundation - Kaiser Permanente, Series 1999A, 6.000%, 1/01/29 (Pre-refunded 1/01/10) - AMBAC Insured 1,610 Poway Redevelopment Agency, California, Tax Allocation 12/10 at 102.00 A2 (4) 1,771,596 Refunding Bonds, Paguay Redevelopment Project, Series 2000, 5.750%, 6/15/33 (Pre-refunded 12/15/10) - MBIA Insured 3,500 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/12 at 101.00 AAA 3,866,695 Series 2002II, 5.125%, 7/01/26 (Pre-refunded 7/01/12) - FSA Insured 4,320 Riverside County, California, GNMA Mortgage-Backed Securities No Opt. Call AAA 5,646,154 Program Single Family Mortgage Revenue Bonds, Series 1987B, 8.625%, 5/01/16 (Alternative Minimum Tax) (ETM) 1,690 Sacramento City Financing Authority, California, Capital 12/09 at 102.00 AA (4) 1,807,320 Improvement Revenue Bonds, Solid Waste and Redevelopment Projects, Series 1999, 5.800%, 12/01/19 (Pre-refunded 12/01/09) - AMBAC Insured 32 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED (4) (continued) $ 1,000 Sacramento County Sanitation District Financing Authority, 12/10 at 101.00 AA (4) $ 1,084,510 California, Revenue Bonds, Series 2000A, 5.500%, 12/01/20 (Pre-refunded 12/01/10) - AMBAC Insured 905 University of California, Hospital Revenue Bonds, UCLA Medical 5/12 at 101.00 AA (4) 1,008,532 Center, Series 2004A, 5.500%, 5/15/18 (Pre-refunded 5/15/12) - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 47,415 Total U.S. Guaranteed 51,678,181 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 7.8% (5.3% OF TOTAL INVESTMENTS) 3,740 California Pollution Control Financing Authority, Revenue 9/09 at 101.00 AA 3,590,961 Refunding Bonds, Southern California Edison Company, Series 1999B, 5.450%, 9/01/29 - MBIA Insured 670 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 613,345 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured 100 Sacramento City Financing Authority, California, Capital 12/09 at 102.00 AA 105,943 Improvement Revenue Bonds, Solid Waste and Redevelopment Projects, Series 1999, 5.800%, 12/01/19 - AMBAC Insured 1,950 Salinas Valley Solid Waste Authority, California, Revenue Bonds, 8/12 at 100.00 AA 1,877,499 Series 2002, 5.250%, 8/01/27 - AMBAC Insured (Alternative Minimum Tax) Santa Clara, California, Subordinate Electric Revenue Bonds, Series 2003A: 2,800 5.000%, 7/01/24 - MBIA Insured 7/13 at 100.00 AA 2,863,756 5,000 5.000%, 7/01/28 - MBIA Insured 7/13 at 100.00 AA 5,016,700 ------------------------------------------------------------------------------------------------------------------------------------ 14,260 Total Utilities 14,068,204 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 21.2% (14.3% OF TOTAL INVESTMENTS) 2,975 Chino Basin Regional Finance Authority, California, Sewerage 2/09 at 100.00 AA 2,983,806 System Revenue Bonds, Inland Empire Utilities Agency, Series 1994, 6.000%, 8/01/16 - AMBAC Insured 2,000 El Dorado Irrigation District, California, Water and Sewer 3/14 at 100.00 A 2,031,220 Certificates of Participation, Series 2004A, 5.000%, 3/01/21 - FGIC Insured 750 Fortuna Public Finance Authority, California, Water Revenue 10/16 at 100.00 AAA 751,448 Bonds, Series 2006, 5.000%, 10/01/36 - FSA Insured 460 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 450,538 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 2,700 Los Angeles County Sanitation Districts Financing Authority, 10/13 at 100.00 AAA 2,824,632 California, Senior Revenue Bonds, Capital Projects, Series 2003A, 5.000%, 10/01/21 - FSA Insured 2,000 Los Angeles, California, Wastewater System Revenue Bonds, 6/15 at 100.00 AA 1,904,900 Series 2005A, 4.500%, 6/01/29 - MBIA Insured 430 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 424,217 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured 12,000 Orange County Sanitation District, California, Certificates of 8/13 at 100.00 AAA 11,965,917 Participation, Series 2003, 5.000%, 2/01/33 - FGIC Insured 1,520 San Buenaventura, California, Water Revenue Certificates of 10/14 at 100.00 AA 1,528,649 Participation, Series 2004, 5.000%, 10/01/25 - AMBAC Insured 3,675 San Dieguito Water District, California, Water Revenue Bonds, 10/14 at 100.00 AA- 3,775,695 Series 2004, 5.000%, 10/01/23 - FGIC Insured Santa Clara Valley Water District, California, Certificates of Participation, Series 2004A: 1,400 5.000%, 2/01/19 - FGIC Insured 2/14 at 100.00 AA+ 1,463,224 445 5.000%, 2/01/20 - FGIC Insured 2/14 at 100.00 AA+ 461,216 465 5.000%, 2/01/21 - FGIC Insured 2/14 at 100.00 AA+ 479,671 33 NCL Nuveen Insured California Premium Income Municipal Fund 2, Inc. (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 2,500 West Basin Municipal Water District, California, Revenue 8/13 at 100.00 AA $ 2,503,150 Certificates of Participation, Series 2003A, 5.000%, 8/01/30 - MBIA Insured Yorba Linda Water District, California, Certificates of Participation, Highland Reservoir Renovation, Series 2003: 2,010 5.000%, 10/01/28 - FGIC Insured 10/13 at 100.00 AAA 2,035,105 2,530 5.000%, 10/01/33 - FGIC Insured 10/13 at 100.00 AAA 2,546,825 ------------------------------------------------------------------------------------------------------------------------------------ 37,860 Total Water and Sewer 38,130,213 ------------------------------------------------------------------------------------------------------------------------------------ $ 274,885 Total Investments (cost $266,598,998) - 148.9% 267,578,980 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (6.2)% (11,060,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.7% 3,039,610 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (44.4)% (5) (79,825,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $179,733,590 ====================================================================================================================
At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 29.8%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 34 NCU Nuveen California Premium Income Municipal Fund Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 6.8% (4.6% OF TOTAL INVESTMENTS) $ 1,500 California County Tobacco Securitization Agency, Tobacco 6/12 at 100.00 Baa3 $ 1,394,700 Settlement Asset-Backed Bonds, Alameda County Tobacco Asset Securitization Corporation, Series 2002, 5.750%, 6/01/29 265 California County Tobacco Securitization Agency, Tobacco 6/15 at 100.00 BBB 241,513 Settlement Asset-Backed Bonds, Sonoma County Tobacco Securitization Corporation, Series 2005, 4.250%, 6/01/21 3,245 California Statewide Financing Authority, Tobacco Settlement 5/12 at 100.00 Baa3 2,981,182 Asset-Backed Bonds, Pooled Tobacco Securitization Program, Series 2002A, 5.625%, 5/01/29 1,350 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB 758,471 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 6,360 Total Consumer Staples 5,375,866 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 5.5% (3.7% OF TOTAL INVESTMENTS) 70 California Educational Facilities Authority, Revenue Bonds, 10/15 at 100.00 A3 67,482 University of Redlands, Series 2005A, 5.000%, 10/01/35 California Educational Facilities Authority, Revenue Bonds, University of the Pacific, Series 2006: 45 5.000%, 11/01/21 11/15 at 100.00 A2 45,783 60 5.000%, 11/01/25 11/15 at 100.00 A2 60,427 556 California State Public Works Board, Lease Revenue Bonds, 3/18 at 100.00 AA- 525,109 University of California Regents, Trust 1065, 13.699%, 3/01/33 (IF) 2,000 California State University, Systemwide Revenue Bonds, 11/15 at 100.00 AA 2,029,960 Series 2005C, 5.000%, 11/01/27 - MBIA Insured 1,500 University of California, Revenue Bonds, Multi-Purpose 5/13 at 100.00 AA 1,618,185 Projects, Series 2003A, 5.125%, 5/15/17 - AMBAC Insured (UB) ------------------------------------------------------------------------------------------------------------------------------------ 4,231 Total Education and Civic Organizations 4,346,946 ------------------------------------------------------------------------------------------------------------------------------------ ENERGY - 0.5% (0.4% OF TOTAL INVESTMENTS) 500 Virgin Islands Public Finance Authority, Revenue Bonds, 1/15 at 100.00 BBB 419,885 Refinery Project Hovensa LLC, Series 2007, 4.700%, 7/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 23.1% (15.6% OF TOTAL INVESTMENTS) 4,705 California Health Facilities Financing Authority, Hospital Revenue 11/08 at 100.00 CCC 4,481,842 Bonds, Downey Community Hospital, Series 1993, 5.750%, 5/15/15 155 California Health Facilities Financing Authority, Revenue Bonds, 4/16 at 100.00 A+ 146,876 Kaiser Permanante System, Series 2006, 5.000%, 4/01/37 3,525 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 Aa3 3,435,747 Sutter Health, Series 2007A, 5.250%, 11/15/46 (UB) 1,500 California Infrastructure Economic Development Bank, Revenue 8/11 at 102.00 A+ 1,510,695 Bonds, Kaiser Hospital Assistance LLC, Series 2001A, 5.550%, 8/01/31 685 California Municipal Financing Authority, Certificates of 2/17 at 100.00 Baa2 592,450 Participation, Community Hospitals of Central California, Series 2007, 5.250%, 2/01/46 35 NCU Nuveen California Premium Income Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (continued) $ 377 California Statewide Communities Development Authority, 7/18 at 100.00 AAA $ 388,947 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) 1,000 California Statewide Community Development Authority, Insured 10/17 at 100.00 A+ 929,160 Health Facility Revenue Bonds, Henry Mayo Newhall Memorial Hospital, Series 2007A, 5.000%, 10/01/37 2,180 California Statewide Community Development Authority, Revenue 3/16 at 100.00 A+ 2,051,838 Bonds, Kaiser Permanante System, Series 2006, 5.000%, 3/01/41 730 California Statewide Community Development Authority, Revenue 8/16 at 100.00 A+ 728,423 Bonds, Kaiser Permanente System, Series 2001C, 5.250%, 8/01/31 1,000 California Statewide Community Development Authority, Revenue 4/17 at 100.00 A+ 910,540 Bonds, Kaiser Permanente System, Series 2007A, 4.750%, 4/01/33 2,100 California Statewide Community Development Authority, Revenue No Opt. Call AA 2,174,424 Bonds, Sherman Oaks Health System, Series 1998A, 5.000%, 8/01/22 - AMBAC Insured 1,000 The Regents of the University of California, Medical Center 5/15 at 101.00 AA 925,590 Pooled Revenue Bonds, Series 2007A, 4.500%, 5/15/37 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 18,957 Total Health Care 18,276,532 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.5% (0.4% OF TOTAL INVESTMENTS) 185 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 188,195 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) 175 California Housing Finance Agency, Single Family Mortgage 2/09 at 100.00 AA 175,445 Bonds II, Series 1997A-1, 6.000%, 8/01/20 - MBIA Insured (Alternative Minimum Tax) 15 California Rural Home Mortgage Finance Authority, No Opt. Call AAA 15,318 Mortgage-Backed Securities Program Single Family Mortgage Revenue Bonds, Series 1996C, 7.500%, 8/01/27 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 375 Total Housing/Single Family 378,958 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 0.6% (0.4% OF TOTAL INVESTMENTS) 500 California Pollution Control Financing Authority, Solid Waste 1/16 at 102.00 BBB 428,725 Disposal Revenue Bonds, Waste Management Inc., Series 2002A, 5.000%, 1/01/22 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 26.1% (17.6% OF TOTAL INVESTMENTS) California, General Obligation Bonds, Series 2003: 1,000 5.250%, 11/01/19 - RAAI Insured 11/13 at 100.00 A+ 1,048,440 1,500 5.000%, 2/01/31 - MBIA Insured 2/13 at 100.00 AA 1,497,930 California, General Obligation Bonds, Series 2004: 1,750 5.000%, 4/01/22 4/14 at 100.00 A+ 1,787,538 1,400 5.200%, 4/01/26 4/14 at 100.00 A+ 1,427,930 4,000 California, General Obligation Veterans Welfare Bonds, 12/08 at 100.00 AA- 3,824,800 Series 1999BR, 5.300%, 12/01/29 (Alternative Minimum Tax) 6,000 Hartnell Community College District, California, General 6/16 at 100.00 AAA 6,131,100 Obligation Bonds, Series 2006B, 5.000%, 6/01/29 - FSA Insured (UB) 3,000 Pomona Unified School District, Los Angeles County, California, 8/11 at 103.00 AA 3,357,840 General Obligation Refunding Bonds, Series 1997A, 6.150%, 8/01/15 - MBIA Insured 15 Riverside Community College District, California, General 8/14 at 100.00 AA 15,877 Obligation Bonds, Series 2004A, 5.250%, 8/01/22 - MBIA Insured 135 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 137,284 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 1,355 San Jose-Evergreen Community College District, Santa Clara 9/15 at 100.00 AA 1,382,832 County, California, General Obligation Bonds, Series 2005A, 5.000%, 9/01/25 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 20,155 Total Tax Obligation/General 20,611,571 ------------------------------------------------------------------------------------------------------------------------------------ 36 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 42.8% (28.9% OF TOTAL INVESTMENTS) $ 1,000 Bell Community Redevelopment Agency, California, Tax Allocation 10/13 at 100.00 BBB+ $ 961,640 Bonds, Bell Project Area, Series 2003, 5.625%, 10/01/33 - RAAI Insured California Infrastructure Economic Development Bank, Revenue Bonds, North County Center for Self-Sufficiency Corporation, Series 2004: 1,695 5.000%, 12/01/22 - AMBAC Insured 12/13 at 100.00 AA 1,741,341 1,865 5.000%, 12/01/24 - AMBAC Insured 12/13 at 100.00 AA 1,903,717 5,920 California State Public Works Board, Lease Revenue Bonds, 11/09 at 101.00 AA 6,172,131 Department of Veterans Affairs, Southern California Veterans Home - Chula Vista Facility, Series 1999A, 5.600%, 11/01/19 - AMBAC Insured 905 California, Economic Recovery Revenue Bonds, Series 2004A, 7/14 at 100.00 AA+ 990,586 5.000%, 7/01/15 165 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 160,397 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 500 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 479,760 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 1,450 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AA 1,019,988 Enhanced Asset Backed Settlement Revenue Bonds, Series 2005A, Trust Series 1500, 10.450%, 6/01/45 - AMBAC Insured (IF) Irvine, California, Unified School District, Community Facilities District Special Tax Bonds, Series 2006A: 80 5.000%, 9/01/26 9/16 at 100.00 N/R 72,450 185 5.125%, 9/01/36 9/16 at 100.00 N/R 162,831 3,500 Livermore Redevelopment Agency, California, Tax Allocation 8/11 at 100.00 AA 3,495,765 Revenue Bonds, Livermore Redevelopment Project Area, Series 2001A, 5.000%, 8/01/26 - MBIA Insured 310 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 301,218 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 2,000 Los Angeles, California, Municipal Improvement Corporation, 1/17 at 100.00 AA- 1,899,500 Lease Revenue Bonds, Police Headquarters, Series 2006A, 4.750%, 1/01/31 - FGIC Insured 3,230 Murrieta Redevelopment Agency, California, Tax Allocation 8/15 at 100.00 AA 3,118,662 Bonds, Series 2005, 5.000%, 8/01/35 - MBIA Insured 1,000 Poway, California, Community Facilities District 88-1, Special 2/09 at 102.00 N/R 1,022,520 Tax Refunding Bonds, Parkway Business Centre, Series 1998, 6.500%, 8/15/09 155 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 148,363 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 190 Roseville, California, Certificates of Participation, Public Facilities, 8/13 at 100.00 AA 190,897 Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 1,500 Sacramento City Financing Authority, California, Lease Revenue No Opt. Call AA 1,632,855 Refunding Bonds, Series 1993A, 5.400%, 11/01/20 - MBIA Insured 3,000 Sacramento City Financing Authority, California, Lease Revenue No Opt. Call AA- 3,285,840 Refunding Bonds, Series 1993B, 5.400%, 11/01/20 San Marcos Public Facilities Authority, California, Revenue Refunding Bonds, Series 1998: 1,500 5.800%, 9/01/18 9/08 at 101.00 Baa3 1,513,380 1,000 5.800%, 9/01/27 9/08 at 101.00 Baa3 993,740 325 San Mateo Union High School District, San Mateo County, 12/17 at 100.00 AA 317,714 California, Certificates of Participation, Phase 1, Series 2007A, 5.000%, 12/15/30 - AMBAC Insured 2,050 Santa Barbara County, California, Certificates of Participation, 12/11 at 102.00 AA 2,173,451 Series 2001, 5.250%, 12/01/19 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 33,525 Total Tax Obligation/Limited 33,758,746 ------------------------------------------------------------------------------------------------------------------------------------ 37 NCU Nuveen California Premium Income Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 3.4% (2.3% OF TOTAL INVESTMENTS) $ 780 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/16 at 100.00 AA $ 790,288 Bay Area Toll Bridge, Series 2006, 5.000%, 4/01/31 (UB) 165 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/18 at 100.00 AA 174,263 Bay Area Toll Bridge, Series 2008, Trust 2921, 13.428%, 4/01/39 (IF) 2,000 Foothill/Eastern Transportation Corridor Agency, California, 1/10 at 100.00 BBB- 1,750,840 Toll Road Revenue Bonds, Series 1995A, 5.000%, 1/01/35 ------------------------------------------------------------------------------------------------------------------------------------ 2,945 Total Transportation 2,715,391 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 20.3% (13.7% OF TOTAL INVESTMENTS) (4) 2,250 California Department of Water Resources, Power Supply 5/12 at 101.00 Aaa 2,483,573 Revenue Bonds, Series 2002A, 5.125%, 5/01/18 (Pre-refunded 5/01/12) 3,000 California Infrastructure Economic Development Bank, First Lien No Opt. Call AAA 3,264,600 Revenue Bonds, San Francisco Bay Area Toll Bridge, Series 2003A, 5.000%, 7/01/22 - FSA Insured (ETM) Golden State Tobacco Securitization Corporation, California, Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2003B: 1,000 5.625%, 6/01/33 (Pre-refunded 6/01/13) 6/13 at 100.00 AAA 1,107,300 1,000 5.500%, 6/01/33 (Pre-refunded 6/01/13) 6/13 at 100.00 AAA 1,101,820 3,495 Orange County Sanitation District, California, Certificates 8/13 at 100.00 AAA 3,904,998 of Participation, Series 2003, 5.250%, 2/01/21 (Pre-refunded 8/01/13) - FGIC Insured 2,000 Puerto Rico, General Obligation and Public Improvement Bonds, 7/10 at 100.00 AA (4) 2,127,760 Series 2000, 5.750%, 7/01/21 (Pre-refunded 7/01/10) - MBIA Insured 2,000 Vista, California, Mobile Home Park Revenue Bonds, Vista 3/24 at 100.00 N/R (4) 2,066,040 Manor Mobile Home Park Project, Series 1999A, 5.750%, 3/15/29 (Pre-refunded 3/15/24) ------------------------------------------------------------------------------------------------------------------------------------ 14,745 Total U.S. Guaranteed 16,056,091 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 7.8% (5.3% OF TOTAL INVESTMENTS) 890 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A 830,094 Purchase Revenue Bonds, Series 2007A, 5.500%, 11/15/37 275 Los Angeles Department of Water and Power, California, Power 7/13 at 100.00 AA 284,785 System Revenue Bonds, Series 2003A-2, 5.000%, 7/01/21 - MBIA Insured 295 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 270,055 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured 4,580 Sacramento Municipal Utility District, California, Electric Revenue 8/12 at 100.00 AAA 4,780,879 Refunding Bonds, Series 2002Q, 5.250%, 8/15/20 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 6,040 Total Utilities 6,165,813 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 10.5% (7.1% OF TOTAL INVESTMENTS) 1,125 Burbank, California, Wastewater System Revenue Bonds, 6/14 at 100.00 AA 1,147,455 Series 2004A, 5.000%, 6/01/23 - AMBAC Insured 5,000 Culver City, California, Wastewater Facilities Revenue Refunding 9/09 at 102.00 A+ 5,175,800 Bonds, Series 1999A, 5.700%, 9/01/29 - FGIC Insured 38 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 205 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA $ 200,783 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 1,795 Woodbridge Irrigation District, California, Certificates of 7/13 at 100.00 BBB+ 1,752,117 Participation, Water Systems Project, Series 2003, 5.500%, 7/01/33 ------------------------------------------------------------------------------------------------------------------------------------ 8,125 Total Water and Sewer 8,276,155 ------------------------------------------------------------------------------------------------------------------------------------ $ 116,458 Total Investments (cost $116,394,237) - 147.9% 116,810,679 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (10.8)% (8,562,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 17.4% 13,717,168 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (54.5)% (5) (43,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 78,965,847 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 36.8%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 39 NAC Nuveen California Dividend Advantage Municipal Fund Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 6.2% (4.2% OF TOTAL INVESTMENTS) $ 1,145 California County Tobacco Securitization Agency, Tobacco 6/15 at 100.00 BBB $ 1,043,519 Settlement Asset-Backed Bonds, Sonoma County Tobacco Securitization Corporation, Series 2005, 4.250%, 6/01/21 7,500 Golden State Tobacco Securitization Corporation, California, 6/17 at 100.00 BBB 6,278,550 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-1, 5.750%, 6/01/47 24,265 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB 13,632,804 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 32,910 Total Consumer Staples 20,954,873 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 5.9% (4.0% OF TOTAL INVESTMENTS) 290 California Educational Facilities Authority, Revenue Bonds, 10/15 at 100.00 A3 279,569 University of Redlands, Series 2005A, 5.000%, 10/01/35 10,000 California Educational Facilities Authority, Revenue Bonds, 10/17 at 100.00 Aa1 9,467,200 University of Southern California, Series 2007A, 4.500%, 10/01/33 (UB) California Educational Facilities Authority, Revenue Bonds, University of the Pacific, Series 2006: 200 5.000%, 11/01/21 11/15 at 100.00 A2 203,482 265 5.000%, 11/01/25 11/15 at 100.00 A2 266,887 2,343 California State Public Works Board, Lease Revenue Bonds, 3/18 at 100.00 AA- 2,212,823 University of California Regents, Trust 1065, 13.699%, 3/01/33 (IF) 615 California Statewide Community Development Authority, 10/13 at 100.00 N/R 608,266 Revenue Bonds, Notre Dame de Namur University, Series 2003, 6.500%, 10/01/23 3,000 Long Beach Bond Financing Authority, California, Lease Revenue 11/11 at 100.00 AA 3,197,550 Refunding Bonds, Long Beach Aquarium of the South Pacific, Series 2001, 5.500%, 11/01/17 - AMBAC Insured 3,500 University of California, Revenue Bonds, Multi-Purpose Projects, 5/13 at 100.00 AA 3,775,765 Series 2003A, 5.125%, 5/15/17 - AMBAC Insured (UB) ------------------------------------------------------------------------------------------------------------------------------------ 20,213 Total Education and Civic Organizations 20,011,542 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 22.3% (15.1% OF TOTAL INVESTMENTS) 2,160 California Health Facilities Financing Authority, Health Facility 3/13 at 100.00 A 2,236,529 Revenue Bonds, Adventist Health System/West, Series 2003A, 5.000%, 3/01/15 California Health Facilities Financing Authority, Revenue Bonds, Kaiser Permanante System, Series 2006: 660 5.000%, 4/01/37 4/16 at 100.00 A+ 625,409 10,140 5.250%, 3/01/45 3/16 at 100.00 A+ 9,867,031 14,895 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 Aa3 14,517,859 Sutter Health, Series 2007A, 5.250%, 11/15/46 (UB) 10,000 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 AA 9,950,500 Sutter Health, Series 2007A, 5.000%, 11/15/42 - MBIA Insured 1,120 California Statewide Communities Development Authority, Revenue 3/15 at 100.00 A 1,051,994 Bonds, Adventist Health System West, Series 2005A, 5.000%, 3/01/35 1,586 California Statewide Communities Development Authority, 7/18 at 100.00 AAA 1,638,433 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) 40 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (continued) $ 1,535 California Statewide Communities Development Authority, 7/17 at 100.00 N/R $ 1,258,577 Revenue Bonds, ValleyCare Health System, Series 2007A, 5.125%, 7/15/31 9,280 California Statewide Community Development Authority, Revenue 3/16 at 100.00 A+ 8,734,429 Bonds, Kaiser Permanante System, Series 2006, 5.000%, 3/01/41 3,095 California Statewide Community Development Authority, Revenue 8/16 at 100.00 A+ 3,088,315 Bonds, Kaiser Permanente System, Series 2001C, 5.250%, 8/01/31 10,000 California Statewide Community Development Authority, Revenue 3/16 at 100.00 AAA 9,936,500 Bonds, Kaiser Permanente System, 5.000%, 3/01/41 - BHAC Insured (UB) 10,500 Duarte, California, Certificates of Participation, City of Hope 4/09 at 101.00 A- 10,186,050 National Medical Center, Series 1999A, 5.250%, 4/01/31 2,570 Rancho Mirage Joint Powers Financing Authority, California, 7/17 at 100.00 A3 2,347,438 Revenue Bonds, Eisenhower Medical Center, Series 2007A, 5.000%, 7/01/38 ------------------------------------------------------------------------------------------------------------------------------------ 77,541 Total Health Care 75,439,064 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 2.4% (1.6% OF TOTAL INVESTMENTS) 5,000 Contra Costa County, California, Multifamily Housing Revenue 6/09 at 102.00 N/R 5,030,400 Bonds, Delta View Apartments Project, Series 1999C, 6.750%, 12/01/30 (Alternative Minimum Tax) 320 Independent Cities Lease Finance Authority, California, Mobile 5/16 at 100.00 N/R 292,918 Home Park Revenue Bonds, San Juan Mobile Estates, Series 2006B, 5.850%, 5/15/41 1,725 Rohnert Park Finance Authority, California, Senior Lien 9/13 at 100.00 A+ 1,661,744 Revenue Bonds, Rancho Feliz Mobile Home Park, Series 2003A, 5.750%, 9/15/38 1,120 Rohnert Park Finance Authority, California, Subordinate Lien 9/13 at 100.00 N/R 1,121,938 Revenue Bonds, Rancho Feliz Mobile Home Park, Series 2003B, 6.625%, 9/15/38 ------------------------------------------------------------------------------------------------------------------------------------ 8,165 Total Housing/Multifamily 8,107,000 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.2% (0.2% OF TOTAL INVESTMENTS) 770 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 783,298 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.7% (1.2% OF TOTAL INVESTMENTS) 2,000 California Pollution Control Financing Authority, Solid Waste 1/16 at 102.00 BBB 1,714,900 Disposal Revenue Bonds, Waste Management Inc., Series 2002A, 5.000%, 1/01/22 (Alternative Minimum Tax) 5,120 California Statewide Communities Development Authority, No Opt. Call BB 4,197,120 Revenue Bonds, EnerTech Regional Biosolids Project, Series 2007A, 5.500%, 12/01/33 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 7,120 Total Industrials 5,912,020 ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 2.5% (1.7% OF TOTAL INVESTMENTS) 8,500 Riverside County Public Financing Authority, California, 5/09 at 101.00 BBB- 8,313,850 Certificates of Participation, Air Force Village West, Series 1999, 5.800%, 5/15/29 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 14.8% (10.1% OF TOTAL INVESTMENTS) 2,000 California, General Obligation Bonds, Series 2003, 11/13 at 100.00 A+ 2,096,880 5.250%, 11/01/19 - RAAI Insured California, General Obligation Bonds, Series 2004: 5,000 5.125%, 4/01/23 4/14 at 100.00 A+ 5,117,950 4,150 5.125%, 4/01/25 4/14 at 100.00 A+ 4,225,406 4,435 California, General Obligation Refunding Bonds, Series 2002, No Opt. Call AA 5,080,736 6.000%, 4/01/16 - AMBAC Insured 5,000 Coast Community College District, Orange County, California, 8/16 at 100.00 AAA 5,219,050 General Obligation Bonds, Series 2006B, 5.000%, 8/01/24 - FSA Insured 3,425 Coast Community College District, Orange County, California, 8/18 at 100.00 AAA 2,623,482 General Obligation Bonds, Series 2006C, 0.000%, 8/01/31 - FSA Insured 5,000 Fresno Unified School District, Fresno County, California, No Opt. Call AA 5,555,550 General Obligation Bonds, Series 2002A, 6.000%, 8/01/26 - MBIA Insured 41 NAC Nuveen California Dividend Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 5,150 Hacienda La Puente Unified School District Facilities Financing No Opt. Call AAA $ 5,457,764 Authority, California, General Obligation Revenue Bonds, Series 2007, 5.000%, 8/01/26 - FSA Insured 5,210 Oak Valley Hospital District, Stanislaus County, California, 7/14 at 101.00 A3 5,059,796 General Obligation Bonds, Series 2005, 5.000%, 7/01/35 - FGIC Insured 575 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 584,729 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 5,000 San Diego Unified School District, San Diego County, California, 7/13 at 101.00 AAA 5,510,600 General Obligation Bonds, Series 2003E, 5.250%, 7/01/20 - FSA Insured 3,605 West Contra Costa Unified School District, Contra Costa County, 8/11 at 101.00 AAA 3,768,198 California, General Obligation Bonds, Series 2003B, 5.000%, 8/01/21 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 48,550 Total Tax Obligation/General 50,300,141 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 25.7% (17.4% OF TOTAL INVESTMENTS) Beaumont Financing Authority, California, Local Agency Revenue Bonds, Series 2004D: 1,000 5.500%, 9/01/24 9/14 at 102.00 N/R 957,430 615 5.800%, 9/01/35 9/14 at 102.00 N/R 591,901 1,990 Borrego Water District, California, Community Facilities 8/17 at 102.00 N/R 1,860,292 District 2007-1 Montesoro, Special Tax Bonds, Series 2007, 5.750%, 8/01/25 1,990 Brentwood Infrastructure Financing Authority, California, 9/12 at 100.00 AAA 2,059,411 Infrastructure Revenue Refunding Bonds, Series 2002A, 5.125%, 9/02/24 - FSA Insured Brentwood Infrastructure Financing Authority, Contra Costa County, California, Capital Improvement Revenue Bonds, Series 2001: 1,110 5.375%, 11/01/18 - FSA Insured 11/11 at 100.00 AAA 1,180,674 1,165 5.375%, 11/01/19 - FSA Insured 11/11 at 100.00 AAA 1,239,176 2,000 Capistrano Unified School District, Orange County, California, 9/13 at 100.00 N/R 2,011,560 Special Tax Bonds, Community Facilities District 90-2 - Talega, Series 2003, 6.000%, 9/01/33 710 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 690,191 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 1,225 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 1,175,412 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 3,490 Fontana, California, Senior Special Tax Refunding Bonds, 9/08 at 102.00 AA 3,603,251 Heritage Village Community Facilities District 2, Series 1998A, 5.250%, 9/01/17 - MBIA Insured 1,125 Fontana, California, Special Tax Bonds, Sierra Community 9/14 at 100.00 N/R 1,129,208 Facilities District 22, Series 2004, 6.000%, 9/01/34 3,980 Garden Grove, California, Certificates of Participation, Financing 3/12 at 101.00 AA 4,190,741 Project, Series 2002A, 5.500%, 3/01/22 - AMBAC Insured Golden State Tobacco Securitization Corporation, California, Tobacco Settlement Asset-Backed Revenue Bonds, Series 2005A, Trust 2448: 9,425 11.686%, 6/01/35 - FGIC Insured (IF) 6/15 at 100.00 A 6,304,571 1,105 11.691%, 6/01/38 - FGIC Insured (IF) 6/15 at 100.00 A 722,670 2,850 Hesperia Community Redevelopment Agency, California, 9/15 at 100.00 A- 2,727,963 Tax Allocation Bonds, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 4,500 Inglewood Redevelopment Agency, California, Tax Allocation No Opt. Call AA 4,780,080 Refunding Bonds, Merged Area Redevelopment Project, Series 1998A, 5.250%, 5/01/23 - AMBAC Insured Irvine, California, Unified School District, Community Facilities District Special Tax Bonds, Series 2006A: 345 5.000%, 9/01/26 9/16 at 100.00 N/R 312,442 795 5.125%, 9/01/36 9/16 at 100.00 N/R 699,735 42 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 675 Lammersville School District, San Joaquin County, California, 9/16 at 100.00 N/R $ 580,068 Community Facilities District 2002, Mountain House Special Tax Bonds, Series 2006, 5.125%, 9/01/35 2,000 Lee Lake Water District, Riverside County, California, Special 9/13 at 102.00 N/R 2,010,580 Tax Bonds, Community Facilities District 1 of Sycamore Creek, Series 2003, 6.500%, 9/01/24 1,000 Lindsay Redevelopment Agency, California, Project 1 Tax Allocation 8/17 at 100.00 BBB+ 893,540 Bonds, Series 2007, 5.000%, 8/01/37 - RAAI Insured 1,290 Los Angeles Community Redevelopment Agency, California, Lease 9/15 at 100.00 Aa3 1,253,454 Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 1,750 Los Angeles County Metropolitan Transportation Authority, 1/09 at 101.00 Aa3 1,755,880 California, Proposition C Second Senior Lien Sales Tax Revenue Refunding Bonds, Series 1998A, 5.000%, 7/01/23 - AMBAC Insured 1,530 Moreno Valley Unified School District, Riverside County, 3/14 at 100.00 AAA 1,567,684 California, Certificates of Participation, Series 2005, 5.000%, 3/01/24 - FSA Insured 3,500 Murrieta Redevelopment Agency, California, Tax Allocation Bonds, 8/17 at 100.00 AA 3,365,390 Series 2007A, 5.000%, 8/01/37 - MBIA Insured 9,200 Norco Redevelopment Agency, California, Tax Allocation Refunding 3/11 at 102.00 AA 9,573,520 Bonds, Project Area 1, Series 2001, 5.000%, 3/01/19 - MBIA Insured North Natomas Community Facilities District 4, Sacramento, California, Special Tax Bonds, Series 2006D: 545 5.000%, 9/01/26 9/14 at 102.00 N/R 487,982 250 5.000%, 9/01/33 9/14 at 102.00 N/R 218,270 3,290 Oakland Redevelopment Agency, California, Subordinate Lien 3/13 at 100.00 A- 3,549,976 Tax Allocation Bonds, Central District Redevelopment Project, Series 2003, 5.500%, 9/01/16 - FGIC Insured 5,600 Palm Springs Financing Authority, California, Lease Revenue 11/11 at 101.00 AA 5,740,224 Refunding Bonds, Convention Center Project, Series 2001A, 5.000%, 11/01/22 - MBIA Insured 1,000 Palmdale Community Redevelopment Agency, California, 12/14 at 100.00 AA 1,016,020 Tax Allocation Bonds, Merged Redevelopment Project Areas, Series 2004, 5.000%, 12/01/24 - AMBAC Insured 1,570 Poway Redevelopment Agency, California, Tax Allocation 12/10 at 102.00 AAA 1,665,550 Refunding Bonds, Paguay Redevelopment Project, Series 2000, 5.750%, 6/15/33 - MBIA Insured 620 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 593,452 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 1,860 Riverside Redevelopment Agency, California, Tax Allocation 8/13 at 100.00 AA 1,900,325 Refunding Bonds, Merged Project Areas, Series 2003, 5.250%, 8/01/22 - MBIA Insured 770 Roseville, California, Certificates of Participation, Public 8/13 at 100.00 AA 773,634 Facilities, Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 2,500 Sacramento City Financing Authority, California, Lease Revenue No Opt. Call AA 2,680,075 Refunding Bonds, Series 1993A, 5.400%, 11/01/20 - AMBAC Insured 1,150 Sacramento, California, Special Tax Bonds, North Natomas 9/14 at 100.00 N/R 1,152,001 Community Facilities District 4, Series 2003C, 6.000%, 9/01/33 2,695 San Jose Financing Authority, California, Lease Revenue Refunding 6/12 at 100.00 AA+ 2,839,587 Bonds, Civic Center Project, Series 2002B, 5.250%, 6/01/19 - AMBAC Insured 1,000 Washington Unified School District, Yolo County, California, 8/17 at 100.00 AA 980,010 Certificates of Participation, Series 2007, 5.125%, 8/01/37 - AMBAC Insured 2,810 West Patterson Financing Authority, California, Special Tax Bonds, 9/13 at 103.00 N/R 2,899,976 Community Facilities District 01-1, Series 2003B, 7.000%, 9/01/38 2,000 West Patterson Financing Authority, California, Special Tax Bonds, 9/13 at 102.00 N/R 1,879,440 Community Facilities District 01-1, Series 2004B, 6.000%, 9/01/39 1,350 West Patterson Financing Authority, California, Special Tax Bonds, 9/13 at 103.00 N/R 1,295,487 Community Facilities District 2001-1, Series 2004A, 6.125%, 9/01/39 ------------------------------------------------------------------------------------------------------------------------------------ 89,375 Total Tax Obligation/Limited 86,908,833 ------------------------------------------------------------------------------------------------------------------------------------ 43 NAC Nuveen California Dividend Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 19.3% (13.1% OF TOTAL INVESTMENTS) $ 1,430 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/16 at 100.00 AA $ 1,448,862 Bay Area Toll Bridge, Series 2006, 5.000%, 4/01/31 (UB) 610 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/18 at 100.00 AA 644,245 Bay Area Toll Bridge, Series 2008, Trust 2921, 13.428%, 4/01/39 (IF) 8,150 Foothill/Eastern Transportation Corridor Agency, California, 1/10 at 101.00 BBB- 7,924,571 Toll Road Revenue Refunding Bonds, Series 1999, 5.750%, 1/15/40 8,515 Los Angeles Harbors Department, California, Revenue Refunding 8/11 at 100.00 AA 8,650,048 Bonds, Series 2001B, 5.500%, 8/01/18 - AMBAC Insured (Alternative Minimum Tax) 120 Palm Springs Financing Authority, California, Palm Springs 7/14 at 102.00 N/R 113,723 International Airport Revenue Bonds, Series 2006, 5.450%, 7/01/20 (Alternative Minimum Tax) 23,000 Port of Oakland, California, Revenue Bonds, Series 2000K, 5/10 at 100.00 A+ 23,023,229 5.750%, 11/01/29 - FGIC Insured (Alternative Minimum Tax) 23,275 San Francisco Airports Commission, California, Revenue Bonds, 5/10 at 101.00 AAA 23,610,625 San Francisco International Airport, Second Series 2000, Issue 24A, 5.750%, 5/01/30 - FSA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 65,100 Total Transportation 65,415,303 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 28.1% (19.1% OF TOTAL INVESTMENTS) (4) 9,750 California Department of Water Resources, Power Supply 5/12 at 101.00 Aaa 10,762,148 Revenue Bonds, Series 2002A, 5.125%, 5/01/18 (Pre-refunded 5/01/12) 115 California Department of Water Resources, Water System Revenue 12/11 at 100.00 Aaa 125,647 Bonds, Central Valley Project, Series 2001W, 5.250%, 12/01/22 (Pre-refunded 12/01/11) - FSA Insured 1,500 California Health Facilities Financing Authority, Revenue Bonds, 12/09 at 101.00 N/R (4) 1,593,735 Cedars-Sinai Medical Center, Series 1999A, 6.125%, 12/01/30 (Pre-refunded 12/01/09) 8,400 California Health Facilities Financing Authority, Revenue Bonds, 10/08 at 101.00 AAA 8,505,756 Kaiser Permanente System, Series 1998B, 5.250%, 10/01/14 (ETM) 715 California Statewide Community Development Authority, 10/15 at 100.00 N/R (4) 758,243 Revenue Bonds, Thomas Jefferson School of Law, Series 2005A, 4.875%, 10/01/31 (Pre-refunded 10/01/15) 8,000 Central California Joint Powers Health Finance Authority, 2/10 at 101.00 AAA 8,529,280 Certificates of Participation, Community Hospitals of Central California Obligated Group, Series 2000, 6.000%, 2/01/30 (Pre-refunded 2/01/10) 4,850 Golden State Tobacco Securitization Corporation, California, 6/13 at 100.00 AAA 5,291,641 Tobacco Settlement Asset-Backed Bonds, Series 2003A-1, 6.250%, 6/01/33 (Pre-refunded 6/01/13) 1,940 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 2,290,616 Community Facilities District 03-1, Series 2003A, 6.500%, 9/01/25 (Pre-refunded 9/01/13) 1,335 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 1,545,436 Community Facilities District 03-1, Series 2004, 6.000%, 9/01/34 (Pre-refunded 9/01/13) 10,845 Los Angeles Unified School District, California, General 7/12 at 100.00 AA (4) 11,858,247 Obligation Bonds, Series 2002E, 5.000%, 7/01/19 (Pre-refunded 7/01/12) - MBIA Insured Northern California Tobacco Securitization Authority, Tobacco Settlement Asset-Backed Bonds, Series 2001A: 2,500 5.250%, 6/01/31 (Pre-refunded 6/01/11) 6/11 at 100.00 AAA 2,698,175 4,500 5.375%, 6/01/41 (Pre-refunded 6/01/11) 6/11 at 100.00 AAA 5,840 Orange County Water District, California, Revenue Certificates 8/09 at 101.00 AA+ (4) 6,036,166 of Participation, Series 1999A, 5.375%, 8/15/29 (ETM) 6,530 Poway Redevelopment Agency, California, Tax Allocation 12/10 at 102.00 A2 (4) 7,185,416 Refunding Bonds, Paguay Redevelopment Project, Series 2000, 5.750%, 6/15/33 (Pre-refunded 12/15/10) - MBIA Insured 44 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED (4) (continued) $ 4,000 Puerto Rico, General Obligation and Public Improvement Bonds, 7/10 at 100.00 AA (4) $ 4,255,520 Series 2000, 5.750%, 7/01/16 (Pre-refunded 7/01/10) - MBIA Insured 2,860 Tobacco Securitization Authority of Southern California, Tobacco 6/12 at 100.00 AAA 3,135,304 Settlement Asset-Backed Bonds, San Diego County Tobacco Asset Securitization Corporation, Senior Series 2001A, 5.250%, 6/01/27 (Pre-refunded 6/01/12) 700 University of California, Certificates of Participation, San Diego 1/10 at 101.00 Aa1 (4) 736,946 and Sacramento Campus Projects, Series 2002A, 5.250%, 1/01/22 (Pre-refunded 1/01/10) 11,305 University of California, Revenue Bonds, Multi-Purpose Projects, 9/10 at 101.00 AA (4) 12,084,253 Series 2002O, 5.000%, 9/01/21 (Pre-refunded 9/01/10) - FGIC Insured 2,500 Whittier, California, Health Facility Revenue Bonds, Presbyterian 6/12 at 101.00 A+ (4) 2,802,175 Intercommunity Hospital, Series 2002, 5.600%, 6/01/22 (Pre-refunded 6/01/12) ------------------------------------------------------------------------------------------------------------------------------------ 88,185 Total U.S. Guaranteed 95,066,359 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 8.8% (6.0% OF TOTAL INVESTMENTS) 3,630 Imperial Irrigation District, California, Certificates of 11/13 at 100.00 AAA 3,767,722 Participation, Electric System Revenue Bonds, Series 2003, 5.250%, 11/01/23 - FSA Insured 3,775 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A 3,285,043 Purchase Revenue Bonds, Series 2007A, 5.000%, 11/15/35 7,000 Los Angeles Department of Water and Power, California, 7/11 at 100.00 AAA 7,281,820 Power System Revenue Bonds, Series 2001A-1, 5.250%, 7/01/21 - FSA Insured 8,370 Los Angeles Department of Water and Power, California, 7/11 at 100.00 AA 8,795,949 Power System Revenue Bonds, Series 2001A-2, 5.375%, 7/01/19 - MBIA Insured 5,500 Los Angeles Department of Water and Power, California, 7/15 at 100.00 Aaa 5,569,575 Power System Revenue Bonds, Series 2005A-1, 5.000%, 7/01/31 - FSA Insured (UB) 1,270 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 1,162,609 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured ------------------------------------------------------------------------------------------------------------------------------------ 29,545 Total Utilities 29,862,718 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 9.3% (6.3% OF TOTAL INVESTMENTS) 9,050 California Department of Water Resources, Water System Revenue 12/11 at 100.00 AAA 9,487,296 Bonds, Central Valley Project, Series 2001W, 5.250%, 12/01/22 - FSA Insured 875 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 857,001 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 2,500 Indio Water Authority, California, Water Revenue Bonds, 4/16 at 100.00 AA 2,503,025 Series 2006, 5.000%, 4/01/31 - AMBAC Insured 835 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 823,769 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured 8,250 Pico Rivera Water Authority, California, Revenue Bonds, 12/11 at 102.00 N/R 8,250,825 Series 2001A, 6.250%, 12/01/32 1,855 Puerto Rico Aqueduct and Sewerage Authority, Revenue Bonds, 7/18 at 100.00 BBB- 1,944,708 Senior Lien Series 2008A, 6.000%, 7/01/38 45 NAC Nuveen California Dividend Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) $ 2,250 Sacramento County Sanitation District Financing Authority, 6/16 at 100.00 AA $ 2,264,200 California, Revenue Bonds, Series 2006, 5.000%, 12/01/31 - FGIC Insured 5,115 San Francisco City and County Public Utilities Commission, 11/12 at 100.00 AA 5,348,500 California, Water Revenue Bonds, Series 2002A, 5.000%, 11/01/18 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 30,730 Total Water and Sewer 31,479,324 ------------------------------------------------------------------------------------------------------------------------------------ $ 506,704 Total Investments (cost $502,078,399) - 147.2% 498,554,325 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (9.6)% (32,605,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.4% 8,307,313 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (40.0)% (5) (135,525,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $338,731,638 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 27.2%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 46 NVX Nuveen California Dividend Advantage Municipal Fund 2 Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 7.4% (4.9% OF TOTAL INVESTMENTS) $ 710 California County Tobacco Securitization Agency, Tobacco 6/15 at 100.00 BBB $ 647,073 Settlement Asset-Backed Bonds, Sonoma County Tobacco Securitization Corporation, Series 2005, 4.250%, 6/01/21 4,625 California County Tobacco Securitization Agency, Tobacco 6/12 at 100.00 Baa3 4,134,473 Settlement Asset-Backed Bonds, Stanislaus County Tobacco Funding Corporation, Series 2002A, 5.500%, 6/01/33 4,000 Golden State Tobacco Securitization Corporation, California, 6/17 at 100.00 BBB 3,348,560 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-1, 5.750%, 6/01/47 13,480 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB 7,573,468 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 22,815 Total Consumer Staples 15,703,574 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 13.0% (8.6% OF TOTAL INVESTMENTS) 2,000 California Educational Facilities Authority, Revenue Bonds, 6/11 at 101.00 AAA 2,035,940 Stanford University, Series 2001Q, 5.250%, 12/01/32 180 California Educational Facilities Authority, Revenue Bonds, 10/15 at 100.00 A3 173,525 University of Redlands, Series 2005A, 5.000%, 10/01/35 California Educational Facilities Authority, Revenue Bonds, University of the Pacific, Series 2006: 125 5.000%, 11/01/21 11/15 at 100.00 A2 127,176 165 5.000%, 11/01/25 11/15 at 100.00 A2 166,175 6,375 California Educational Facilities Authority, Student Loan Revenue 9/08 at 102.00 A2 6,215,051 Bonds, Cal Loan Program, Series 2001A, 5.400%, 3/01/21 - MBIA Insured (Alternative Minimum Tax) 1,472 California State Public Works Board, Lease Revenue Bonds, 3/18 at 100.00 AA- 1,390,216 University of California Regents, Trust 1065, 13.699%, 3/01/33 (IF) 10,570 California State Public Works Board, Lease Revenue Bonds, 10/12 at 100.00 AAA 11,258,423 University of California, UCLA Replacement Hospital Project, Series 2002A, 5.375%, 10/01/18 - FSA Insured 620 California Statewide Community Development Authority, Revenue 10/13 at 100.00 N/R 613,211 Bonds, Notre Dame de Namur University, Series 2003, 6.500%, 10/01/23 3,000 Long Beach Bond Financing Authority, California, Lease Revenue 11/11 at 101.00 AA 3,008,670 Refunding Bonds, Long Beach Aquarium of the South Pacific, Series 2001, 5.250%, 11/01/30 - AMBAC Insured 2,680 University of California, Revenue Bonds, Multi-Purpose Projects, 5/13 at 100.00 AA 2,673,407 Series 2003A, 5.000%, 5/15/33 - AMBAC Insured (UB) ------------------------------------------------------------------------------------------------------------------------------------ 27,187 Total Education and Civic Organizations 27,661,794 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 16.7% (11.1% OF TOTAL INVESTMENTS) 2,000 California Health Facilities Financing Authority, Revenue Bonds, 4/12 at 100.00 BBB+ 2,035,820 Casa Colina Inc., Series 2001, 6.000%, 4/01/22 415 California Health Facilities Financing Authority, Revenue Bonds, 4/16 at 100.00 A+ 393,250 Kaiser Permanante System, Series 2006, 5.000%, 4/01/37 9,260 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 Aa3 9,025,536 Sutter Health, Series 2007A, 5.250%, 11/15/46 (UB) 47 NVX Nuveen California Dividend Advantage Municipal Fund 2 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (continued) $ 500 California Infrastructure Economic Development Bank, Revenue 8/11 at 102.00 A+ $ 503,565 Bonds, Kaiser Hospital Assistance LLC, Series 2001A, 5.550%, 8/01/31 2,520 California Statewide Communities Development Authority, 3/15 at 100.00 A 2,366,986 Revenue Bonds, Adventist Health System West, Series 2005A, 5.000%, 3/01/35 California Statewide Communities Development Authority, Revenue Bonds, Saint Joseph Health System, Trust 2554: 998 14.166%, 7/01/47 - FSA Insured (IF) 7/18 at 100.00 AAA 1,030,477 1,325 14.144%, 7/01/47 - FSA Insured (IF) 7/18 at 100.00 AAA 1,368,805 960 California Statewide Communities Development Authority, Revenue 7/17 at 100.00 N/R 787,123 Bonds, ValleyCare Health System, Series 2007A, 5.125%, 7/15/31 2,185 California Statewide Community Development Authority, Health No Opt. Call A+ 2,355,496 Facility Revenue Refunding Bonds, Memorial Health Services, Series 2003A, 6.000%, 10/01/11 2,500 California Statewide Community Development Authority, Hospital 6/13 at 100.00 AAA 2,659,450 Revenue Bonds, Monterey Peninsula Hospital, Series 2003B, 5.250%, 6/01/18 - FSA Insured 7,775 California Statewide Community Development Authority, Revenue 3/16 at 100.00 A+ 7,317,908 Bonds, Kaiser Permanante System, Series 2006, 5.000%, 3/01/41 425 California Statewide Community Development Authority, Revenue 8/16 at 100.00 A+ 424,082 Bonds, Kaiser Permanente System, Series 2001C, 5.250%, 8/01/31 5,785 Rancho Mirage Joint Powers Financing Authority, California, 7/17 at 100.00 A3 5,284,019 Revenue Bonds, Eisenhower Medical Center, Series 2007A, 5.000%, 7/01/38 ------------------------------------------------------------------------------------------------------------------------------------ 36,648 Total Health Care 35,552,517 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 5.2% (3.5% OF TOTAL INVESTMENTS) 5,962 California Statewide Community Development Authority, 6/11 at 102.00 AAA 6,153,201 Multifamily Housing Revenue Refunding Bonds, Claremont Village Apartments, Series 2001D, 5.500%, 6/01/31 (Mandatory put 6/01/16) (Alternative Minimum Tax) 205 Independent Cities Lease Finance Authority, California, Mobile 5/16 at 100.00 N/R 187,651 Home Park Revenue Bonds, San Juan Mobile Estates, Series 2006B, 5.850%, 5/15/41 1,055 Rohnert Park Finance Authority, California, Senior Lien Revenue 9/13 at 100.00 A+ 1,016,313 Bonds, Rancho Feliz Mobile Home Park, Series 2003A, 5.750%, 9/15/38 700 Rohnert Park Finance Authority, California, Subordinate Lien 9/13 at 100.00 N/R 701,211 Revenue Bonds, Rancho Feliz Mobile Home Park, Series 2003B, 6.625%, 9/15/38 3,045 Yucaipa Redevelopment Agency, California, Mobile Home Park 5/11 at 102.00 N/R 3,109,645 Revenue Bonds, Rancho del Sol and Grandview, Series 2001A, 6.750%, 5/15/36 ------------------------------------------------------------------------------------------------------------------------------------ 10,967 Total Housing/Multifamily 11,168,021 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 1.0% (0.5% OF TOTAL INVESTMENTS) 480 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 488,290 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) 1,925 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 AA- 954,280 Bonds, Series 2007M, Trust 1021, 9.741%, 8/01/31 (Alternative Minimum Tax) (IF) 480 California Rural Home Mortgage Finance Authority, 6/11 at 102.00 AAA 491,366 Mortgage-Backed Securities Program Single Family Mortgage Revenue Bonds, Series 2001A, 5.650%, 12/01/31 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 2,885 Total Housing/Single Family 1,933,936 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.7% (1.1% OF TOTAL INVESTMENTS) 1,250 California Pollution Control Financing Authority, Solid Waste 1/16 at 102.00 BBB 1,071,813 Disposal Revenue Bonds, Waste Management Inc., Series 2002A, 5.000%, 1/01/22 (Alternative Minimum Tax) 3,175 California Statewide Communities Development Authority, No Opt. Call BB 2,602,706 Revenue Bonds, EnerTech Regional Biosolids Project, Series 2007A, 5.500%, 12/01/33 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 4,425 Total Industrials 3,674,519 ------------------------------------------------------------------------------------------------------------------------------------ 48 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 2.4% (1.6% OF TOTAL INVESTMENTS) $ 1,550 California Health Facilities Financing Authority, Cal-Mortgage 1/13 at 100.00 A+ $ 1,568,817 Insured Revenue Bonds, Northern California Retired Officers Community Corporation - Paradise Valley Estates, Series 2002, 5.125%, 1/01/22 3,750 California Statewide Communities Development Authority, 12/17 at 100.00 Baa1 3,511,463 Revenue Bonds, Inland Regional Center Project, Series 2007, 5.375%, 12/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 5,300 Total Long-Term Care 5,080,280 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 10.0% (6.6% OF TOTAL INVESTMENTS) 10,000 California State, General Obligation Bonds, Series 2006CD, 12/15 at 100.00 AA- 8,406,000 4.600%, 12/01/32 (Alternative Minimum Tax) 3,615 Colton Joint Unified School District, San Bernardino County, 8/12 at 102.00 A 3,856,012 California, General Obligation Bonds, Series 2002A, 5.500%, 8/01/22 - FGIC Insured Contra Costa County Community College District, California, General Obligation Bonds, Series 2002: 3,005 5.000%, 8/01/21 - FGIC Insured 8/12 at 100.00 AA 3,105,938 3,300 5.000%, 8/01/22 - FGIC Insured 8/12 at 100.00 AA 3,396,987 2,000 Puerto Rico, General Obligation and Public Improvement Bonds, No Opt. Call AA 2,074,800 Series 2001A, 5.500%, 7/01/20 - MBIA Insured 355 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 361,007 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ 22,275 Total Tax Obligation/General 21,200,744 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 22.9% (15.2% OF TOTAL INVESTMENTS) Beaumont Financing Authority, California, Local Agency Revenue Bonds, Series 2004D: 650 5.500%, 9/01/24 9/14 at 102.00 N/R 622,330 385 5.800%, 9/01/35 9/14 at 102.00 N/R 370,539 1,240 Borrego Water District, California, Community Facilities 8/17 at 102.00 N/R 1,159,177 District 2007-1 Montesoro, Special Tax Bonds, Series 2007, 5.750%, 8/01/25 4,900 California State Public Works Board, Lease Revenue Bonds, 12/13 at 100.00 A 5,326,006 Department of Corrections, Series 2003C, 5.500%, 6/01/16 2,105 California, Economic Recovery Revenue Bonds, Series 2004A, 7/14 at 100.00 AA+ 2,304,070 5.000%, 7/01/15 1,200 Capistrano Unified School District, Orange County, California, 9/13 at 100.00 N/R 1,206,936 Special Tax Bonds, Community Facilities District 90-2 - Talega, Series 2003, 6.000%, 9/01/33 435 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 422,864 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 4,845 Encinitas Public Financing Authority, California, Lease Revenue 10/08 at 102.00 AA 4,917,723 Bonds, Acquisition Project, Series 2001A, 5.250%, 4/01/31 - MBIA Insured 750 Fontana, California, Special Tax Bonds, Sierra Community 9/14 at 100.00 N/R 752,805 Facilities District 22, Series 2004, 6.000%, 9/01/34 1,785 Hawthorne Community Redevelopment Agency, California, Project 9/16 at 100.00 A- 1,769,471 Area 2 Tax Allocation Bonds, Series 2006, 5.250%, 9/01/36 - XLCA Insured 1,800 Hesperia Unified School District, San Bernardino County, California, 2/17 at 100.00 AA 1,723,968 Certificates of Participation, Capital Improvement, Series 2007, 5.000%, 2/01/41 - AMBAC Insured Irvine, California, Unified School District, Community Facilities District Special Tax Bonds, Series 2006A: 215 5.000%, 9/01/26 9/16 at 100.00 N/R 194,710 495 5.125%, 9/01/36 9/16 at 100.00 N/R 435,684 2,000 Lake Elsinore Public Finance Authority, California, Local Agency 10/13 at 102.00 N/R 2,029,940 Revenue Refunding Bonds, Series 2003H, 6.000%, 10/01/20 415 Lammersville School District, San Joaquin County, California, 9/16 at 100.00 N/R 356,634 Community Facilities District 2002, Mountain House Special Tax Bonds, Series 2006, 5.125%, 9/01/35 49 NVX Nuveen California Dividend Advantage Municipal Fund 2 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 1,265 Lee Lake Water District, Riverside County, California, Special Tax 9/13 at 102.00 N/R $ 1,271,692 Bonds, Community Facilities District 1 of Sycamore Creek, Series 2003, 6.500%, 9/01/24 800 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 777,336 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 2,795 Los Angeles County Metropolitan Transportation Authority, 1/09 at 101.00 Aa3 2,804,391 California, Proposition C Second Senior Lien Sales Tax Revenue Refunding Bonds, Series 1998A, 5.000%, 7/01/23 - AMBAC Insured 495 North Natomas Community Facilities District 4, Sacramento, 9/14 at 102.00 N/R 432,175 California, Special Tax Bonds, Series 2006D, 5.000%, 9/01/33 2,000 Orange County, California, Special Tax Bonds, Community Facilities 8/11 at 101.00 N/R 1,939,300 District 02-1 of Ladera Ranch, Series 2003A, 5.550%, 8/15/33 385 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 368,514 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 475 Roseville, California, Certificates of Participation, Public Facilities, 8/13 at 100.00 AA 477,242 Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 700 Sacramento, California, Special Tax Bonds, North Natomas 9/14 at 100.00 N/R 701,218 Community Facilities District 4, Series 2003C, 6.000%, 9/01/33 1,530 San Marcos Public Facilities Authority, California, Tax Allocation 8/15 at 100.00 AA 1,477,261 Bonds, Project Areas 2 and 3, Series 2005C, 5.000%, 8/01/35 - AMBAC Insured 825 San Mateo Union High School District, San Mateo County, 12/17 at 100.00 AA 806,504 California, Certificates of Participation, Phase 1, Series 2007A, 5.000%, 12/15/30 - AMBAC Insured 1,330 Washington Unified School District, Yolo County, California, 8/17 at 100.00 AA 1,303,413 Certificates of Participation, Series 2007, 5.125%, 8/01/37 - AMBAC Insured 1,930 West Patterson Financing Authority, California, Special Tax 9/13 at 103.00 N/R 1,978,578 Bonds, Community Facilities District 01-1, Series 2003B, 6.750%, 9/01/30 500 West Patterson Financing Authority, California, Special Tax 9/13 at 102.00 N/R 469,860 Bonds, Community Facilities District 01-1, Series 2004B, 6.000%, 9/01/39 850 West Patterson Financing Authority, California, Special Tax 9/13 at 103.00 N/R 815,677 Bonds, Community Facilities District 2001-1, Series 2004A, 6.125%, 9/01/39 10,000 Western Placer Unified School District, Placer County, California, 8/18 at 100.00 AAA 9,540,600 Certificates of Participation, Series 2008, 5.000%, 8/01/47 - AGC Insured ------------------------------------------------------------------------------------------------------------------------------------ 49,100 Total Tax Obligation/Limited 48,756,618 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 10.9% (7.2% OF TOTAL INVESTMENTS) 1,930 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/16 at 100.00 AA 1,955,457 Bay Area Toll Bridge, Series 2006, 5.000%, 4/01/31 (UB) 1,055 Bay Area Toll Authority, California, Revenue Bonds, San Francisco 4/18 at 100.00 AA 1,114,228 Bay Area Toll Bridge, Series 2008, Trust 2921, 13.428%, 4/01/39 (IF) 7,000 Foothill/Eastern Transportation Corridor Agency, California, 1/14 at 101.00 BBB- 6,586,720 Toll Road Revenue Refunding Bonds, Series 1999, 0.000%, 1/15/27 5,585 Port of Oakland, California, Revenue Bonds, Series 2002N, 11/12 at 100.00 AA 5,613,819 5.000%, 11/01/16 - MBIA Insured (Alternative Minimum Tax) San Francisco Airports Commission, California, Revenue Bonds, San Francisco International Airport, Second Series 2003, Issue 29A: 2,430 5.250%, 5/01/18 - FGIC Insured (Alternative Minimum Tax) 5/13 at 100.00 A1 2,426,890 2,555 5.250%, 5/01/19 - FGIC Insured (Alternative Minimum Tax) 5/13 at 100.00 A1 2,528,913 1,000 San Francisco Airports Commission, California, Revenue Bonds, 5/13 at 100.00 A1 1,042,430 San Francisco International Airport, Second Series 2003, Issue 29B, 5.125%, 5/01/17 - FGIC Insured 50 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION (continued) $ 2,000 San Francisco Airports Commission, California, Revenue 5/12 at 100.00 AA $ 2,017,380 Refunding Bonds, San Francisco International Airport, Second Series 2002, Issue 28A, 5.250%, 5/01/17 - MBIA Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 23,555 Total Transportation 23,285,837 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 43.2% (28.7% OF TOTAL INVESTMENTS) (4) 9,000 Anitoch Area Public Facilities Financing Agency, California, 8/11 at 100.00 AA (4) 9,770,489 Special Tax Bonds, Community Facilities District 1989-1, Series 2001, 5.250%, 8/01/25 (Pre-refunded 8/01/11) - MBIA Insured 6,000 California Department of Water Resources, Power Supply 5/12 at 101.00 Aaa 6,622,860 Revenue Bonds, Series 2002A, 5.125%, 5/01/18 (Pre-refunded 5/01/12) 450 California Statewide Community Development Authority, Revenue 10/15 at 100.00 N/R (4) 477,216 Bonds, Thomas Jefferson School of Law, Series 2005A, 4.875%, 10/01/31 (Pre-refunded 10/01/15) 4,000 Daly City Housing Development Finance Agency, California, 12/13 at 102.00 N/R (4) 4,648,520 Mobile Home Park Revenue Bonds, Franciscan Mobile Home Park Project, Series 2002A, 5.850%, 12/15/32 (Pre-refunded 12/15/13) 4,900 East Bay Municipal Utility District, Alameda and Contra Costa 6/11 at 100.00 AA+ (4) 5,272,204 Counties, California, Water System Subordinated Revenue Bonds, Series 2001, 5.000%, 6/01/26 (Pre-refunded 6/01/11) - MBIA Insured 2,985 Golden State Tobacco Securitization Corporation, California, 6/13 at 100.00 AAA 3,256,814 Tobacco Settlement Asset-Backed Bonds, Series 2003A-1, 6.250%, 6/01/33 (Pre-refunded 6/01/13) 1,170 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 1,381,454 Community Facilities District 03-1, Series 2003A, 6.500%, 9/01/25 (Pre-refunded 9/01/13) 885 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 1,024,503 Community Facilities District 03-1, Series 2004, 6.000%, 9/01/34 (Pre-refunded 9/01/13) 7,530 Los Angeles Unified School District, California, General 7/10 at 100.00 AA- (4) 7,995,505 Obligation Bonds, Series 2000D, 5.375%, 7/01/25 (Pre-refunded 7/01/10) - FGIC Insured 9,510 Los Angeles Unified School District, California, General 7/12 at 100.00 AA (4) 10,398,518 Obligation Bonds, Series 2002E, 5.000%, 7/01/19 (Pre-refunded 7/01/12) - MBIA Insured 3,000 Northern California Tobacco Securitization Authority, Tobacco 6/11 at 100.00 AAA 3,247,770 Settlement Asset-Backed Bonds, Series 2001A, 5.375%, 6/01/41 (Pre-refunded 6/01/11) 2,000 Puerto Rico Public Finance Corporation, Commonwealth No Opt. Call AAA 2,324,460 Appropriation Bonds, Series 2002E, 6.000%, 8/01/26 (ETM) 6,000 Riverside County Redevelopment Agency, California, Tax 10/11 at 102.00 AA (4) 6,648,960 Allocation Bonds, Jurupa Valley Project Area, Series 2001, 5.250%, 10/01/35 (Pre-refunded 10/01/11) - AMBAC Insured 12,090 Santa Clara Valley Transportation Authority, California, Sales 6/11 at 100.00 AAA 12,998,320 Tax Revenue Bonds, Series 2001A, 5.000%, 6/01/25 (Pre-refunded 6/01/11) - MBIA Insured 4,050 Santa Rosa High School District, Sonoma County, California, 5/11 at 101.00 A+ (4) 4,417,133 General Obligation Bonds, Series 2001, 5.300%, 5/01/26 (Pre-refunded 5/01/11) - FGIC Insured 6,200 Southwestern Community College District, San Diego County, 8/11 at 101.00 AA (4) 6,810,762 California, General Obligation Bonds, Series 2001, 5.375%, 8/01/25 (Pre-refunded 8/01/11) - AMBAC Insured 2,800 Tobacco Securitization Authority of Southern California, Tobacco 6/12 at 100.00 AAA 3,094,448 Settlement Asset-Backed Bonds, San Diego County Tobacco Asset Securitization Corporation, Senior Series 2001A, 5.500%, 6/01/36 (Pre-refunded 6/01/12) 1,500 Whittier, California, Health Facility Revenue Bonds, Presbyterian 6/12 at 101.00 A+ (4) 1,681,305 Intercommunity Hospital, Series 2002, 5.600%, 6/01/22 (Pre-refunded 6/01/12) ------------------------------------------------------------------------------------------------------------------------------------ 84,070 Total U.S. Guaranteed 92,071,241 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 7.2% (4.8% OF TOTAL INVESTMENTS) 5,000 Anaheim Public Finance Authority, California, Second Lien 10/14 at 100.00 AA 5,210,300 Electric Distribution Revenue Bonds, Series 2004, 5.250%, 10/01/21 - MBIA Insured 2,355 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A 2,049,345 Purchase Revenue Bonds, Series 2007A, 5.000%, 11/15/35 51 NVX Nuveen California Dividend Advantage Municipal Fund 2 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES (continued) $ 1,000 Los Angeles Department of Water and Power, California, 7/13 at 100.00 AA $ 1,024,520 Power System Revenue Bonds, Series 2003A-2, 5.000%, 7/01/23 - MBIA Insured 500 Los Angeles Department of Water and Power, California, Power 7/15 at 100.00 Aaa 506,325 System Revenue Bonds, Series 2008, 5.000%, 7/01/31 - FSA Insured (UB) 790 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 723,198 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured 2,000 Santa Clara, California, Subordinate Electric Revenue Bonds, 7/13 at 100.00 AA 2,101,080 Series 2003A, 5.250%, 7/01/20 - MBIA Insured 4,000 Southern California Public Power Authority, Natural Gas Project 1 No Opt. Call AA- 3,713,440 Revenue Bonds, Series 2007A, 5.000%, 11/01/33 ------------------------------------------------------------------------------------------------------------------------------------ 15,645 Total Utilities 15,328,208 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 9.3% (6.2% OF TOTAL INVESTMENTS) 1,400 Castaic Lake Water Agency, California, Certificates of Participation, 8/16 at 100.00 AA 1,393,672 Series 2006C, 5.000%, 8/01/36 - MBIA Insured 545 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 533,789 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 750 Sacramento County Sanitation District Financing Authority, 6/16 at 100.00 AA 754,733 California, Revenue Bonds, Series 2006, 5.000%, 12/01/31 - FGIC Insured 1,700 San Buenaventura, California, Wastewater Revenue Certificates 3/14 at 100.00 AA 1,728,611 of Participation, Series 2004, 5.000%, 3/01/24 - MBIA Insured 4,785 San Diego Public Facilities Financing Authority, California, 8/12 at 100.00 AA 4,927,020 Subordinate Lien Water Revenue Bonds, Series 2002, 5.000%, 8/01/21 - MBIA Insured 10,000 San Francisco City and County Public Utilities Commission, 4/13 at 100.00 AA 10,512,999 California, Clean Water Revenue Refunding Bonds, Series 2003A, 5.250%, 10/01/20 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 19,180 Total Water and Sewer 19,850,824 ------------------------------------------------------------------------------------------------------------------------------------ $ 324,052 Total Investments (cost $319,536,900) - 150.9% 321,268,113 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (4.7)% (10,004,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 5.5% 11,625,854 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (51.7)% (5) (110,000,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $212,889,967 ====================================================================================================================
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 34.2%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 52 NZH Nuveen California Dividend Advantage Municipal Fund 3 Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 7.3% (4.9% OF TOTAL INVESTMENTS) $ 1,150 California County Tobacco Securitization Agency, Tobacco 6/15 at 100.00 BBB $ 1,048,076 Settlement Asset-Backed Bonds, Sonoma County Tobacco Securitization Corporation, Series 2005, 4.250%, 6/01/21 7,500 Golden State Tobacco Securitization Corporation, California, 6/17 at 100.00 BBB 6,278,550 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-1, 5.750%, 6/01/47 29,660 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB 16,663,876 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ 38,310 Total Consumer Staples 23,990,502 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 6.5% (4.4% OF TOTAL INVESTMENTS) 290 California Educational Facilities Authority, Revenue Bonds, 10/15 at 100.00 A3 279,569 University of Redlands, Series 2005A, 5.000%, 10/01/35 California Educational Facilities Authority, Revenue Bonds, University of the Pacific, Series 2006: 200 5.000%, 11/01/21 11/15 at 100.00 A2 203,482 270 5.000%, 11/01/25 11/15 at 100.00 A2 271,922 3,825 California Educational Facilities Authority, Student Loan 9/08 at 102.00 A2 3,729,031 Revenue Bonds, Cal Loan Program, Series 2001A, 5.400%, 3/01/21 - MBIA Insured (Alternative Minimum Tax) 2,354 California State Public Works Board, Lease Revenue Bonds, 3/18 at 100.00 AA- 2,223,212 University of California Regents, Trust 1065, 13.699%, 3/01/33 (IF) 3,600 California State Public Works Board, Lease Revenue Bonds, 10/12 at 100.00 AAA 3,899,196 University of California, UCLA Replacement Hospital Project, Series 2002A, 5.375%, 10/01/17 - FSA Insured 6,000 California State University, Systemwide Revenue Bonds, 11/15 at 100.00 AA 6,089,880 Series 2005C, 5.000%, 11/01/27 - MBIA Insured 620 California Statewide Community Development Authority, Revenue 10/13 at 100.00 N/R 613,211 Bonds, Notre Dame de Namur University, Series 2003, 6.500%, 10/01/23 4,000 University of California, Revenue Bonds, Multi-Purpose Projects, 5/13 at 100.00 AA 4,100,880 Series 2003A, 5.000%, 5/15/23 - AMBAC Insured (UB) ------------------------------------------------------------------------------------------------------------------------------------ 21,159 Total Education and Civic Organizations 21,410,383 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 24.5% (16.5% OF TOTAL INVESTMENTS) California Health Facilities Financing Authority, Revenue Bonds, Casa Colina Inc., Series 2001: 4,000 6.000%, 4/01/22 4/12 at 100.00 BBB+ 4,071,640 2,000 6.125%, 4/01/32 4/12 at 100.00 BBB+ 2,016,040 670 California Health Facilities Financing Authority, Revenue Bonds, 4/16 at 100.00 A+ 634,885 Kaiser Permanante System, Series 2006, 5.000%, 4/01/37 9,330 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 Aa3 8,385,058 Sutter Health Residual Trust 2061, 14.853%, 11/15/46 (IF) 2,000 California Health Facilities Financing Authority, Revenue Bonds, 11/16 at 100.00 AA 1,990,100 Sutter Health, Series 2007A, 5.000%, 11/15/42 - MBIA Insured 9,000 California Infrastructure Economic Development Bank, Revenue 8/11 at 102.00 A+ 9,064,170 Bonds, Kaiser Hospital Assistance LLC, Series 2001A, 5.550%, 8/01/31 2,520 California Statewide Communities Development Authority, 3/15 at 100.00 A 2,366,986 Revenue Bonds, Adventist Health System West, Series 2005A, 5.000%, 3/01/35 53 NZH Nuveen California Dividend Advantage Municipal Fund 3 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE (continued) $ 1,594 California Statewide Communities Development Authority, 7/18 at 100.00 AAA $ 1,646,181 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) 1,575 California Statewide Communities Development Authority, 7/17 at 100.00 N/R 1,291,374 Revenue Bonds, ValleyCare Health System, Series 2007A, 5.125%, 7/15/31 6,525 California Statewide Community Development Authority, No Opt. Call A+ 7,107,487 Health Facility Revenue Refunding Bonds, Memorial Health Services, Series 2003A, 6.000%, 10/01/12 6,450 California Statewide Community Development Authority, 6/13 at 100.00 AAA 6,861,381 Hospital Revenue Bonds, Monterey Peninsula Hospital, Series 2003B, 5.250%, 6/01/18 - FSA Insured 4,500 California Statewide Community Development Authority, Insured 7/17 at 100.00 AAA 4,623,255 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2008K, 5.500%, 7/01/41 - AGC Insured 7,665 California Statewide Community Development Authority, 11/09 at 102.00 A+ 7,814,161 Insured Mortgage Hospital Revenue Bonds, Mission Community Hospital, Series 2001, 5.375%, 11/01/21 12,425 California Statewide Community Development Authority, 3/16 at 100.00 A+ 11,694,534 Revenue Bonds, Kaiser Permanante System, Series 2006, 5.000%, 3/01/41 645 California Statewide Community Development Authority, 8/16 at 100.00 A+ 643,607 Revenue Bonds, Kaiser Permanente System, Series 2001C, 5.250%, 8/01/31 Rancho Mirage Joint Powers Financing Authority, California, Revenue Bonds, Eisenhower Medical Center, Series 2007A: 5,790 5.000%, 7/01/38 7/17 at 100.00 A3 5,288,586 5,540 5.000%, 7/01/47 7/17 at 100.00 A3 4,969,879 ------------------------------------------------------------------------------------------------------------------------------------ 82,229 Total Health Care 80,469,324 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 3.3% (2.2% OF TOTAL INVESTMENTS) 325 Independent Cities Lease Finance Authority, California, Mobile 5/16 at 100.00 N/R 297,495 Home Park Revenue Bonds, San Juan Mobile Estates, Series 2006B, 5.850%, 5/15/41 1,735 Rohnert Park Finance Authority, California, Senior Lien 9/13 at 100.00 A+ 1,671,378 Revenue Bonds, Rancho Feliz Mobile Home Park, Series 2003A, 5.750%, 9/15/38 1,125 Rohnert Park Finance Authority, California, Subordinate Lien 9/13 at 100.00 N/R 1,126,946 Revenue Bonds, Rancho Feliz Mobile Home Park, Series 2003B, 6.625%, 9/15/38 3,610 San Bernardino County Housing Authority, California, 11/11 at 105.00 Aaa 3,733,859 GNMA Collateralized Multifamily Mortgage Revenue Bonds, Pacific Palms Mobile Home Park, Series 2001A, 6.700%, 12/20/41 San Jose, California, Multifamily Housing Revenue Bonds, GNMA Mortgage-Backed Securities Program, Lenzen Housing, Series 2001B: 1,250 5.350%, 2/20/26 (Alternative Minimum Tax) 8/11 at 102.00 AAA 1,207,738 2,880 5.450%, 2/20/43 (Alternative Minimum Tax) 8/11 at 102.00 AAA 2,646,432 ------------------------------------------------------------------------------------------------------------------------------------ 10,925 Total Housing/Multifamily 10,683,848 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 1.5% (1.1% OF TOTAL INVESTMENTS) 785 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 798,557 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) 8,485 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 AA- 4,206,269 Bonds, Series 2007M, Trust 1021, 9.741%, 8/01/31 (Alternative Minimum Tax) (IF) ------------------------------------------------------------------------------------------------------------------------------------ 9,270 Total Housing/Single Family 5,004,826 ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.8% (1.2% OF TOTAL INVESTMENTS) 2,000 California Pollution Control Financing Authority, Solid Waste 1/16 at 102.00 BBB 1,714,900 Disposal Revenue Bonds, Waste Management Inc., Series 2002A, 5.000%, 1/01/22 (Alternative Minimum Tax) 5,205 California Statewide Communities Development Authority, No Opt. Call BB 4,266,799 Revenue Bonds, EnerTech Regional Biosolids Project, Series 2007A, 5.500%, 12/01/33 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 7,205 Total Industrials 5,981,699 ------------------------------------------------------------------------------------------------------------------------------------ 54 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 1.6% (1.1% OF TOTAL INVESTMENTS) $ 2,450 California Health Facilities Financing Authority, Cal-Mortgage 1/13 at 100.00 A+ $ 2,479,743 Insured Revenue Bonds, Northern California Retired Officers Community Corporation - Paradise Valley Estates, Series 2002, 5.125%, 1/01/22 California Health Facilities Financing Authority, Insured Senior Living Revenue Bonds, Aldersly Project, Series 2002A: 1,500 5.125%, 3/01/22 3/12 at 101.00 A+ 1,518,930 1,315 5.250%, 3/01/32 3/12 at 101.00 A+ 1,304,467 ------------------------------------------------------------------------------------------------------------------------------------ 5,265 Total Long-Term Care 5,303,140 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 16.8% (11.3% OF TOTAL INVESTMENTS) 9,335 California, General Obligation Bonds, Series 2002, No Opt. Call AAA 10,879,102 6.000%, 2/01/16 - FSA Insured 10 California, General Obligation Veterans Welfare Bonds, 12/08 at 100.00 AA- 10,090 Series 1997BJ, 5.500%, 12/01/18 (Alternative Minimum Tax) 14,300 California, General Obligation Veterans Welfare Bonds, 12/08 at 100.00 AA 14,300,857 Series 2001BZ, 5.350%, 12/01/21 - MBIA Insured (Alternative Minimum Tax) 3,000 Contra Costa County Community College District, California, 8/12 at 100.00 AA 3,072,990 General Obligation Bonds, Series 2002, 5.000%, 8/01/23 - FGIC Insured 2,500 Fullerton Joint Union High School District, Orange County, 8/12 at 100.00 Aaa 2,568,225 California, General Obligation Bonds, Series 2002A, 5.000%, 8/01/23 - FSA Insured 2,260 Jurupa Unified School District, Riverside County, California, 8/11 at 101.00 A 2,336,365 General Obligation Bonds, Series 2002, 5.125%, 8/01/22 - FGIC Insured 870 Puerto Rico, General Obligation and Public Improvement Bonds, 7/11 at 100.00 AAA 881,580 Series 2001, 5.000%, 7/01/24 - FSA Insured 575 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 584,729 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 10,810 San Diego Unified School District, San Diego County, 7/11 at 102.00 AAA 11,700,527 California, General Obligation Bonds, Election of 1998, Series 2001C, 5.000%, 7/01/26 - FSA Insured 4,000 San Diego Unified School District, San Diego County, 7/12 at 101.00 AA 4,356,520 California, General Obligation Bonds, Election of 1998, Series 2002D, 5.250%, 7/01/21 - FGIC Insured 2,715 San Jose-Evergreen Community College District, 9/15 at 100.00 AA 2,770,766 Santa Clara County, California, General Obligation Bonds, Series 2005A, 5.000%, 9/01/25 - MBIA Insured 1,630 West Contra Costa Unified School District, Contra Costa County, 8/11 at 101.00 A- 1,660,122 California, General Obligation Bonds, Series 2003C, 5.000%, 8/01/22 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ 52,005 Total Tax Obligation/General 55,121,873 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 38.8% (26.2% OF TOTAL INVESTMENTS) 2,040 Borrego Water District, California, Community Facilities 8/17 at 102.00 N/R 1,907,033 District 2007-1 Montesoro, Special Tax Bonds, Series 2007, 5.750%, 8/01/25 7,135 Brentwood Infrastructure Financing Authority, Contra Costa 11/11 at 100.00 AAA 7,256,224 County, California, Capital Improvement Revenue Bonds, Series 2001, 5.000%, 11/01/25 - FSA Insured 8,210 California State Public Works Board, Lease Revenue Bonds, 12/13 at 100.00 A 8,923,777 Department of Corrections, Series 2003C, 5.500%, 6/01/16 4,000 California State Public Works Board, Lease Revenue Bonds, 3/12 at 100.00 AA 4,003,800 Department of General Services, Series 2002B, 5.000%, 3/01/27 - AMBAC Insured 4,510 California State Public Works Board, Lease Revenue Bonds, 12/11 at 102.00 AA 4,488,262 Department of Mental Health, Hospital Addition, Series 2001A, 5.000%, 12/01/26 - AMBAC Insured Capistrano Unified School District, Orange County, California, Special Tax Bonds, Community Facilities District 90-2 - Talega, Series 2003: 1,750 5.875%, 9/01/23 9/13 at 100.00 N/R 1,763,545 550 6.000%, 9/01/33 9/13 at 100.00 N/R 553,179 55 NZH Nuveen California Dividend Advantage Municipal Fund 3 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 715 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R $ 695,052 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 2,160 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 2,072,563 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 1,125 Fontana, California, Special Tax Bonds, Sierra Community 9/14 at 100.00 N/R 1,129,208 Facilities District 22, Series 2004, 6.000%, 9/01/34 1,000 Fullerton Community Facilities District 1, California, Special 9/12 at 100.00 N/R 1,016,460 Tax Bonds, Amerige Heights, Series 2002, 6.100%, 9/01/22 5,000 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AA 4,505,650 Tobacco Settlement Asset-Backed Revenue Bonds, Series 2005A, 5.000%, 6/01/45 - AMBAC Insured Irvine, California, Unified School District, Community Facilities District Special Tax Bonds, Series 2006A: 350 5.000%, 9/01/26 9/16 at 100.00 N/R 316,971 805 5.125%, 9/01/36 9/16 at 100.00 N/R 708,537 3,000 Lake Elsinore Public Finance Authority, California, Local Agency 10/13 at 102.00 N/R 3,044,910 Revenue Refunding Bonds, Series 2003H, 6.000%, 10/01/20 685 Lammersville School District, San Joaquin County, California, 9/16 at 100.00 N/R 588,662 Community Facilities District 2002, Mountain House Special Tax Bonds, Series 2006, 5.125%, 9/01/35 5,250 Lammersville School District, San Joaquin County, California, 9/12 at 101.00 N/R 5,319,248 Special Tax Bonds, Community Facilities District of Mountain House, Series 2002, 6.300%, 9/01/24 2,000 Lee Lake Water District, Riverside County, California, Special Tax 9/13 at 102.00 N/R 2,010,580 Bonds, Community Facilities District 1 of Sycamore Creek, Series 2003, 6.500%, 9/01/24 1,000 Lindsay Redevelopment Agency, California, Project 1 Tax Allocation 8/17 at 100.00 BBB+ 893,540 Bonds, Series 2007, 5.000%, 8/01/37 - RAAI Insured 5,425 Lodi, California, Certificates of Participation, Public Improvement 10/12 at 100.00 AA 5,458,635 Financing Project, Series 2002, 5.000%, 10/01/26 - MBIA Insured 1,310 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 1,272,888 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 1,675 Moreno Valley Unified School District, Riverside County, 3/14 at 100.00 AAA 1,708,065 California, Certificates of Participation, Series 2005, 5.000%, 3/01/26 - FSA Insured North Natomas Community Facilities District 4, Sacramento, California, Special Tax Bonds, Series 2006D: 545 5.000%, 9/01/26 9/14 at 102.00 N/R 487,982 250 5.000%, 9/01/33 9/14 at 102.00 N/R 218,270 3,000 Oakland Redevelopment Agency, California, Subordinate 3/13 at 100.00 A- 3,124,470 Lien Tax Allocation Bonds, Central District Redevelopment Project, Series 2003, 5.500%, 9/01/19 - FGIC Insured 4,520 Ontario Redevelopment Financing Authority, California, Lease 8/11 at 101.00 AA 4,594,670 Revenue Bonds, Capital Projects, Series 2001, 5.000%, 8/01/24 - AMBAC Insured 2,000 Orange County, California, Special Tax Bonds, Community 8/11 at 101.00 N/R 1,939,300 Facilities District 02-1 of Ladera Ranch, Series 2003A, 5.550%, 8/15/33 11,165 Palm Desert Financing Authority, California, Tax Allocation 4/12 at 102.00 AA 10,604,070 Revenue Refunding Bonds, Project Area 1, Series 2002, 5.100%, 4/01/30 - MBIA Insured 3,250 Pomona Public Financing Authority, California, Revenue 2/11 at 100.00 AA 3,258,678 Refunding Bonds, Merged Redevelopment Projects, Series 2001AD, 5.000%, 2/01/27 - MBIA Insured 6,000 Puerto Rico Highway and Transportation Authority, Highway No Opt. Call BBB+ 5,927,280 Revenue Bonds, Series 2007N, 5.250%, 7/01/39 - FGIC Insured 625 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 598,238 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 56 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 780 Roseville, California, Certificates of Participation, Public 8/13 at 100.00 AA $ 783,682 Facilities, Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 1,145 Sacramento, California, Special Tax Bonds, North Natomas 9/14 at 100.00 N/R 1,146,992 Community Facilities District 4, Series 2003C, 6.000%, 9/01/33 14,505 San Diego Redevelopment Agency, California, Tax Allocation 9/11 at 101.00 AAA 14,613,497 Bonds, Centre City Project, Series 2001, 5.000%, 9/01/26 - FSA Insured (UB) 2,300 San Francisco Bay Area Rapid Transit District, California, 7/11 at 100.00 AA+ 2,322,862 Sales Tax Revenue Bonds, Series 2001, 5.000%, 7/01/26 - AMBAC Insured 1,345 San Mateo Union High School District, San Mateo County, 12/17 at 100.00 AA 1,314,845 California, Certificates of Participation, Phase 1, Series 2007A, 5.000%, 12/15/30 - AMBAC Insured 8,710 South Orange County Public Financing Authority, California, 8/15 at 100.00 AA 8,461,068 Special Tax Revenue Bonds, Ladera Ranch, Series 2005A, 5.000%, 8/15/32 - AMBAC Insured 2,810 West Patterson Financing Authority, California, Special 9/13 at 103.00 N/R 2,899,976 Tax Bonds, Community Facilities District 01-1, Series 2003B, 7.000%, 9/01/38 2,000 West Patterson Financing Authority, California, Special 9/13 at 102.00 N/R 1,879,440 Tax Bonds, Community Facilities District 01-1, Series 2004B, 6.000%, 9/01/39 1,375 West Patterson Financing Authority, California, Special 9/13 at 103.00 N/R 1,319,478 Tax Bonds, Community Facilities District 2001-1, Series 2004A, 6.125%, 9/01/39 2,500 Yucaipa-Calimesa Joint Unified School District, 10/11 at 100.00 AA 2,511,950 San Bernardino County, California, General Obligation Refunding Bonds, Series 2001A, 5.000%, 10/01/26 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 128,520 Total Tax Obligation/Limited 127,643,537 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 7.2% (4.9% OF TOTAL INVESTMENTS) 1,690 Bay Area Toll Authority, California, Revenue Bonds, 4/16 at 100.00 AA 1,712,291 San Francisco Bay Area Toll Bridge, Series 2006, 5.000%, 4/01/31 (UB) 1,305 Bay Area Toll Authority, California, Revenue Bonds, 4/18 at 100.00 AA 1,378,263 San Francisco Bay Area Toll Bridge, Series 2008, Trust 2921, 13.428%, 4/01/39 (IF) 11,750 Foothill/Eastern Transportation Corridor Agency, California, 1/14 at 101.00 BBB- 10,973,560 Toll Road Revenue Refunding Bonds, Series 1999, 0.000%, 1/15/28 San Francisco Airports Commission, California, Revenue Bonds, San Francisco International Airport, Second Series 2003, Issue 29B: 4,110 5.125%, 5/01/17 - FGIC Insured 5/13 at 100.00 A1 4,284,387 5,140 5.125%, 5/01/19 - FGIC Insured 5/13 at 100.00 A1 5,297,695 ------------------------------------------------------------------------------------------------------------------------------------ 23,995 Total Transportation 23,646,196 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 22.6% (15.2% OF TOTAL INVESTMENTS) (4) 4,000 Beaumont Financing Authority, California, Local Agency 9/12 at 102.00 N/R (4) 4,688,160 Revenue Bonds, Series 2002A, 6.750%, 9/01/25 (Pre-refunded 9/01/12) 11,240 California County Tobacco Securitization Agency, Tobacco 6/12 at 100.00 Baa3 (4) 12,139,536 Settlement Asset-Backed Bonds, Merced County Tobacco Funding Corporation, Series 2002A, 5.500%, 6/01/33 (Pre-refunded 6/01/12) (5) California Department of Water Resources, Power Supply Revenue Bonds, Series 2002A: 3,500 5.375%, 5/01/17 (Pre-refunded 5/01/12) - XLCA Insured 5/12 at 101.00 Aaa 3,893,890 9,000 5.125%, 5/01/18 (Pre-refunded 5/01/12) 5/12 at 101.00 Aaa 9,934,290 720 California Statewide Community Development Authority, 10/15 at 100.00 N/R (4) 763,546 Revenue Bonds, Thomas Jefferson School of Law, Series 2005A, 4.875%, 10/01/31 (Pre-refunded 10/01/15) 1,770 Central California Joint Powers Health Finance 2/10 at 101.00 AAA 1,887,103 Authority, Certificates of Participation, Community Hospitals of Central California Obligated Group, Series 2000, 6.000%, 2/01/20 (Pre-refunded 2/01/10) 2,000 Daly City Housing Development Finance Agency, California, 12/13 at 102.00 N/R (4) 2,333,380 Mobile Home Park Revenue Bonds, Franciscan Mobile Home Park Project, Series 2002A, 5.800%, 12/15/25 (Pre-refunded 12/15/13) 57 NZH Nuveen California Dividend Advantage Municipal Fund 3 (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED (4) (continued) $ 5,690 Golden State Tobacco Securitization Corporation, California, 6/13 at 100.00 AAA $ 6,208,131 Tobacco Settlement Asset-Backed Bonds, Series 2003A-1, 6.250%, 6/01/33 (Pre-refunded 6/01/13) 1,940 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 2,290,616 Community Facilities District 03-1, Series 2003A, 6.500%, 9/01/25 (Pre-refunded 9/01/13) 1,335 Lincoln, California, Special Tax Bonds, Lincoln Crossing 9/13 at 102.00 N/R (4) 1,545,436 Community Facilities District 03-1, Series 2004, 6.000%, 9/01/34 (Pre-refunded 9/01/13) 1,525 Lucia Mar Unified School District, San Luis Obispo County, 8/14 at 100.00 A1 (4) 1,720,276 California, General Obligation Bonds, Series 2004A, 5.250%, 8/01/22 (Pre-refunded 8/01/14) - FGIC Insured 5,500 Puerto Rico Highway and Transportation Authority, Highway 7/12 at 100.00 AAA 5,981,525 Revenue Bonds, Series 2002D, 5.375%, 7/01/36 (Pre-refunded 7/01/12) 4,725 San Francisco Bay Area Rapid Transit District, California, Sales 7/11 at 100.00 AA+ (4) 5,087,691 Tax Revenue Bonds, Series 2001, 5.000%, 7/01/26 (Pre-refunded 7/01/11) - AMBAC Insured 7,595 San Francisco State University Foundation Inc., California, 9/11 at 101.00 AA (4) 8,266,930 Auxiliary Organization Student Housing Revenue Bonds, Series 2001, 5.000%, 9/01/26 (Pre-refunded 9/01/11) - MBIA Insured 4,200 Tobacco Securitization Authority of Southern California, 6/12 at 100.00 AAA 4,641,672 Tobacco Settlement Asset-Backed Bonds, San Diego County Tobacco Asset Securitization Corporation, Senior Series 2001A, 5.500%, 6/01/36 (Pre-refunded 6/01/12) 2,500 Whittier, California, Health Facility Revenue Bonds, 6/12 at 101.00 A+ (4) 2,802,175 Presbyterian Intercommunity Hospital, Series 2002, 5.600%, 6/01/22 (Pre-refunded 6/01/12) ------------------------------------------------------------------------------------------------------------------------------------ 67,240 Total U.S. Guaranteed 74,184,357 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 3.5% (2.4% OF TOTAL INVESTMENTS) 3,815 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A 3,319,851 Purchase Revenue Bonds, Series 2007A, 5.000%, 11/15/35 1,285 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 1,176,340 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured 5,000 Merced Irrigation District, California, Revenue Certificates 9/13 at 102.00 Baa3 4,880,450 of Participation, Electric System Project, Series 2003, 5.700%, 9/01/36 2,250 Salinas Valley Solid Waste Authority, California, Revenue Bonds, 8/12 at 100.00 AA 2,181,330 Series 2002, 5.125%, 8/01/22 - AMBAC Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 12,350 Total Utilities 11,557,971 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 12.8% (8.6% OF TOTAL INVESTMENTS) 1,070 Burbank, California, Wastewater System Revenue Bonds, 6/14 at 100.00 AA 1,095,156 Series 2004A, 5.000%, 6/01/22 - AMBAC Insured 7,000 Carmichael Water District, Sacramento County, California, 9/09 at 102.00 AA 7,035,770 Water Revenue Certificates of Participation, Series 1999, 5.125%, 9/01/29 - MBIA Insured Eastern Municipal Water District, California, Water and Sewerage System Revenue Certificates of Participation, Series 2008, Trust 2965: 2,750 13.177%, 7/01/33 (IF) 7/18 at 100.00 AA 2,714,800 1,230 13.177%, 7/01/35 (IF) 7/18 at 100.00 AA 1,193,789 1,125 Fortuna Public Finance Authority, California, Water Revenue 10/16 at 100.00 AAA 1,127,171 Bonds, Series 2006, 5.000%, 10/01/36 - FSA Insured 890 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 871,693 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 850 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 838,568 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured 1,000 Pico Rivera Water Authority, California, Revenue Bonds, 12/11 at 102.00 N/R 1,000,100 Series 2001A, 6.250%, 12/01/32 1,000 San Buenaventura, California, Wastewater Revenue Certificates 3/14 at 100.00 AA 1,016,830 of Participation, Series 2004, 5.000%, 3/01/24 - MBIA Insured 58 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) San Diego Public Facilities Financing Authority, California, Subordinate Lien Water Revenue Bonds, Series 2002: $ 2,500 5.000%, 8/01/23 - MBIA Insured 8/12 at 100.00 AA $ 2,546,200 6,260 5.000%, 8/01/24 - MBIA Insured 8/12 at 100.00 AA 6,366,670 San Francisco City and County Public Utilities Commission, California, Clean Water Revenue Refunding Bonds, Series 2003A: 3,315 5.250%, 10/01/18 - MBIA Insured 4/13 at 100.00 AA 3,507,668 12,000 5.250%, 10/01/19 - MBIA Insured 4/13 at 100.00 AA 12,697,439 ------------------------------------------------------------------------------------------------------------------------------------ 40,990 Total Water and Sewer 42,011,854 ------------------------------------------------------------------------------------------------------------------------------------ $ 499,463 Total Investments (cost $494,013,497) - 148.2% 487,009,510 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (4.6)% (15,142,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 5.1% 16,716,159 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (48.7)% (6) (159,925,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $328,658,669 ====================================================================================================================
FORWARD SWAPS OUTSTANDING AT AUGUST 31, 2008:
FUND FIXED RATE UNREALIZED NOTIONAL PAY/RECEIVE FLOATING RATE FIXED RATE PAYMENT EFFECTIVE TERMINATION APPRECIATION COUNTERPARTY AMOUNT FLOATING RATE INDEX (ANNUALIZED) FREQUENCY DATE (7) DATE (DEPRECIATION) ------------------------------------------------------------------------------------------------------------------------------------ Citigroup Inc. $10,000,000 Receive 3-Month USD-LIBOR 5.323% Semi-Annually 7/29/09 7/29/38 $(595,545) ==================================================================================================================================== USD-LIBOR (United States Dollar-London Inter-Bank Offered Rate).
(1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Portion of investment, with an aggregate market value of $313,209, has been pledged to collateralize the net payment obligations under forward swap contracts. (6) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 32.8%. (7) Effective Date represents the date on which both the Fund and counterparty commence interest payment accruals on each forward swap contract. N/R Not rated. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 59 NKL Nuveen Insured California Dividend Advantage Municipal Fund Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 3.6% (2.4% OF TOTAL INVESTMENTS) $ 14,155 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB $ 7,952,704 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ EDUCATION AND CIVIC ORGANIZATIONS - 4.8% (3.3% OF TOTAL INVESTMENTS) 1,675 California Educational Facilities Authority, Revenue Bonds, 10/12 at 100.00 A2 1,695,787 University of San Diego, Series 2002A, 5.250%, 10/01/30 9,000 California State University, Systemwide Revenue Bonds, 11/12 at 100.00 AA 9,105,390 Series 2002A, 5.125%, 11/01/26 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 10,675 Total Education and Civic Organizations 10,801,177 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 6.6% (4.5% OF TOTAL INVESTMENTS) 5,000 ABAG Finance Authority for Non-Profit Corporations, California, 4/12 at 100.00 A+ 5,108,050 Cal-Mortgage Insured Revenue Bonds, Sansum-Santa Barbara Medical Foundation Clinic, Series 2002A, 5.600%, 4/01/26 5,000 California Health Facilities Financing Authority, Revenue 3/16 at 100.00 A+ 4,865,400 Bonds, Kaiser Permanante System, Series 2006, 5.250%, 3/01/45 2,815 California Health Facilities Financing Authority, Revenue 8/13 at 100.00 AA 2,919,971 Bonds, Lucile Salter Packard Children's Hospital, Series 2003C, 5.000%, 8/15/20 - AMBAC Insured 1,748 California Statewide Communities Development Authority, 7/18 at 100.00 AAA 1,805,272 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) ------------------------------------------------------------------------------------------------------------------------------------ 14,563 Total Health Care 14,698,693 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 1.3% (0.9% OF TOTAL INVESTMENTS) 1,000 California Statewide Community Development Authority, 8/12 at 100.00 Baa1 987,990 Student Housing Revenue Bonds, EAH - Irvine East Campus Apartments, LLC Project, Series 2002A, 5.500%, 8/01/22 - ACA Insured 1,905 Los Angeles, California, GNMA Mortgage-Backed Securities 7/11 at 102.00 AAA 1,894,637 Program Multifamily Housing Revenue Bonds, Park Plaza West Senior Apartments, Series 2001B, 5.300%, 1/20/21 (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ 2,905 Total Housing/Multifamily 2,882,627 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/SINGLE FAMILY - 0.3% (0.1% OF TOTAL INVESTMENTS) 505 California Housing Finance Agency, Home Mortgage Revenue 2/16 at 100.00 Aa2 513,721 Bonds, Series 2006H, 5.750%, 8/01/30 - FGIC Insured (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ INDUSTRIALS - 1.2% (0.7% OF TOTAL INVESTMENTS) 3,000 California Pollution Control Financing Authority, No Opt. Call BBB+ 2,788,260 Solid Waste Disposal Revenue Bonds, Republic Services Inc., Series 2002C, 5.250%, 6/01/23 (Mandatory put 12/01/17) (Alternative Minimum Tax) ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 1.4% (0.9% OF TOTAL INVESTMENTS) 3,000 ABAG Finance Authority for Non-Profit Corporations, California, 11/12 at 100.00 A+ 3,045,270 Insured Senior Living Revenue Bonds, Odd Fellows Home of California, Series 2003A, 5.200%, 11/15/22 ------------------------------------------------------------------------------------------------------------------------------------ 60 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 27.1% (18.4% OF TOTAL INVESTMENTS) $ 5,920 Cajon Valley Union School District, San Diego County, 8/10 at 102.00 AA $ 5,945,811 California, General Obligation Bonds, Series 2002B, 5.125%, 8/01/32 - MBIA Insured 2,900 California, General Obligation Bonds, Series 2003, 5.000%, 2/01/21 8/13 at 100.00 A+ 2,967,135 8,250 California, General Obligation Refunding Bonds, Series 2002, 2/12 at 100.00 AA 8,368,718 5.000%, 2/01/22 - MBIA Insured 3,375 Coast Community College District, Orange County, California, 8/18 at 100.00 AAA 2,585,183 General Obligation Bonds, Series 2006C, 0.000%, 8/01/31 - FSA Insured 230 El Monte Union High School District, Los Angeles County, 6/13 at 100.00 AAA 233,579 California, General Obligation Bonds, Series 2003A, 5.000%, 6/01/28 - FSA Insured 1,365 Fontana Unified School District, San Bernardino County, 8/18 at 100.00 AAA 1,653,889 California, General Obligation Bonds, Trust 2668, 13.010%, 8/01/28 - FSA Insured (IF) 10,000 Fremont Unified School District, Alameda County, California, 8/12 at 101.00 Aa3 10,209,400 General Obligation Bonds, Series 2002A, 5.000%, 8/01/25 - FGIC Insured 1,000 Los Rios Community College District, Sacramento, El Dorado 8/14 at 102.00 Aaa 1,046,550 and Yolo Counties, California, General Obligation Bonds, Series 2006C, 5.000%, 8/01/25 - FSA Insured (UB) 1,500 Madera Unified School District, Madera County, California, 8/12 at 100.00 AAA 1,508,955 General Obligation Bonds, Series 2002, 5.000%, 8/01/28 - FSA Insured 2,000 Murrieta Valley Unified School District, Riverside County, 9/17 at 100.00 AAA 1,908,540 California, General Obligation Bonds, Series 2007, 4.500%, 9/01/30 - FSA Insured 2,500 Oakland Unified School District, Alameda County, California, 8/12 at 100.00 BBB+ 2,537,275 General Obligation Bonds, Series 2002, 5.250%, 8/01/21 - FGIC Insured 375 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 381,345 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 3,250 San Diego Unified School District, San Diego County, 7/11 at 102.00 AAA 3,517,735 California, General Obligation Bonds, Election of 1998, Series 2001C, 5.000%, 7/01/22 - FSA Insured 3,500 San Mateo County Community College District, California, 9/12 at 100.00 Aa1 3,548,125 General Obligation Bonds, Series 2002A, 5.000%, 9/01/26 - FGIC Insured 10,000 Vista Unified School District, San Diego County, California, 8/12 at 100.00 AAA 10,275,599 General Obligation Bonds, Series 2002A, 5.000%, 8/01/23 - FSA Insured 3,905 West Kern Community College District, California, General 11/17 at 100.00 A+ 3,856,344 Obligation Bonds, Election 2004, Series 2007C, 5.000%, 10/01/32 - XLCA Insured ------------------------------------------------------------------------------------------------------------------------------------ 60,070 Total Tax Obligation/General 60,544,183 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 48.4% (32.9% OF TOTAL INVESTMENTS) 1,450 Baldwin Park Public Financing Authority, California, Sales 8/13 at 102.00 BBB 1,491,963 Tax and Tax Allocation Bonds, Puente Merced Redevelopment Project, Series 2003, 5.250%, 8/01/21 6,895 Brea and Olinda Unified School District, Orange County, 8/11 at 101.00 AAA 6,966,639 California, Certificates of Participation Refunding, Series 2002A, 5.125%, 8/01/26 - FSA Insured 2,200 California Infrastructure Economic Development Bank, 9/13 at 101.00 AA 2,226,158 Los Angeles County, Revenue Bonds, Department of Public Social Services, Series 2003, 5.000%, 9/01/28 - AMBAC Insured 3,100 California State Public Works Board, Lease Revenue Bonds, 11/15 at 100.00 A 3,071,077 Department of Health Services, Richmond Lab, Series 2005B, 5.000%, 11/01/30 - XLCA Insured 465 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 452,027 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 1,400 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 1,343,328 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 61 NKL Nuveen Insured California Dividend Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 7,035 Corona-Norco Unified School District, Riverside County, 9/13 at 100.00 AA $ 7,146,927 California, Special Tax Bonds, Community Facilities District 98-1, Series 2003, 5.000%, 9/01/28 - MBIA Insured 3,145 Culver City Redevelopment Agency, California, Tax Allocation 5/11 at 101.00 AA 3,192,584 Revenue Bonds, Redevelopment Project, Series 2002A, 5.125%, 11/01/25 - MBIA Insured 8,720 El Monte, California, Senior Lien Certificates of Participation, 1/11 at 100.00 AA 8,795,951 Department of Public Services Facility Phase II, Series 2001, 5.000%, 1/01/21 - AMBAC Insured 4,000 Folsom Public Financing Authority, California, Special Tax 9/12 at 102.00 AA 4,064,240 Revenue Bonds, Series 2004A, 5.000%, 9/01/21 - AMBAC Insured 3,735 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AAA 3,858,068 Enhanced Tobacco Settlement Revenue Bonds, Drivers Trust 2091, 14.214%, 6/01/45 - AGC Insured (IF) 8,780 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AA 7,911,921 Tobacco Settlement Asset-Backed Revenue Bonds, Series 2005A, 5.000%, 6/01/45 - AMBAC Insured 1,300 Hesperia Public Financing Authority, California, Redevelopment 9/17 at 100.00 Baa1 1,149,863 and Housing Projects Tax Allocation Bonds, Series 2007A, 5.000%, 9/01/37 - XLCA Insured 2,115 Inglewood Redevelopment Agency, California, Tax Allocation No Opt. Call AA 2,246,638 Refunding Bonds, Merged Area Redevelopment Project, Series 1998A, 5.250%, 5/01/23 - AMBAC Insured 3,500 La Quinta Redevelopment Agency, California, Tax Allocation 9/11 at 102.00 AA 3,506,125 Bonds, Redevelopment Project Area 1, Series 2001, 5.100%, 9/01/31 - AMBAC Insured 3,400 La Quinta Redevelopment Agency, California, Tax Allocation 9/12 at 102.00 AA 3,485,000 Bonds, Redevelopment Project Area 1, Series 2002, 5.000%, 9/01/22 - AMBAC Insured 845 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 821,061 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 1,640 Los Angeles County Metropolitan Transportation Authority, 1/09 at 101.00 Aa3 1,645,510 California, Proposition C Second Senior Lien Sales Tax Revenue Refunding Bonds, Series 1998A, 5.000%, 7/01/23 - AMBAC Insured 1,460 Los Angeles, California, Certificates of Participation, Municipal 6/13 at 100.00 AA 1,451,678 Improvement Corporation, Series 2003AW, 5.000%, 6/01/33 - AMBAC Insured 7,000 Los Angeles, California, Certificates of Participation, 4/12 at 100.00 AA 7,107,100 Series 2002, 5.200%, 4/01/27 - AMBAC Insured 8,470 Ontario Redevelopment Financing Authority, California, Lease 8/11 at 101.00 AA 8,553,768 Revenue Bonds, Capital Projects, Series 2001, 5.200%, 8/01/29 - AMBAC Insured 5,000 Palm Desert Financing Authority, California, Tax Allocation 4/12 at 102.00 AA 5,080,150 Revenue Refunding Bonds, Project Area 1, Series 2002, 5.000%, 4/01/25 - MBIA Insured 3,000 Puerto Rico Highway and Transportation Authority, Highway No Opt. Call BBB+ 2,963,640 Revenue Bonds, Series 2007N, 5.250%, 7/01/39 - FGIC Insured 405 Rialto Redevelopment Agency, California, Tax Allocation Bonds, 9/15 at 100.00 A- 387,658 Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 4,475 Riverside County, California, Asset Leasing Corporate Leasehold 6/12 at 101.00 AA 4,604,551 Revenue Bonds, Riverside County Hospital Project, Series 1997B, 5.000%, 6/01/19 - MBIA Insured 505 Roseville, California, Certificates of Participation, Public 8/13 at 100.00 AA 507,384 Facilities, Series 2003A, 5.000%, 8/01/25 - AMBAC Insured 3,175 San Buenaventura, California, Certificates of Participation, 2/11 at 101.00 AA 3,183,541 Series 2001C, 5.250%, 2/01/31 - AMBAC Insured 3,730 San Diego Redevelopment Agency, California, Subordinate 9/09 at 101.00 Baa2 3,657,675 Lien Tax Increment and Parking Revenue Bonds, Centre City Project, Series 2003B, 5.250%, 9/01/26 4,000 San Jose Financing Authority, California, Lease Revenue 9/11 at 100.00 AA+ 4,166,840 Refunding Bonds, Convention Center Project, Series 2001F, 5.000%, 9/01/19 - MBIA Insured 62 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 1,000 San Jose Redevelopment Agency, California, Tax Allocation 8/15 at 100.00 AA $ 986,310 Bonds, Merged Project Area, Series 2005A, 5.000%, 8/01/28 - MBIA Insured 2,160 Temecula Redevelopment Agency, California, Tax Allocation 8/09 at 101.00 AA 2,169,504 Revenue Bonds, Redevelopment Project 1, Series 2002, 5.125%, 8/01/27 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 108,105 Total Tax Obligation/Limited 108,194,879 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 5.1% (3.5% OF TOTAL INVESTMENTS) 7,500 Foothill/Eastern Transportation Corridor Agency, California, 1/14 at 101.00 BBB- 6,958,050 Toll Road Revenue Refunding Bonds, Series 1999, 0.000%, 1/15/29 San Francisco Airports Commission, California, Revenue Bonds, San Francisco International Airport, Second Series 2003, Issue 29A: 2,185 5.250%, 5/01/16 - FGIC Insured (Alternative Minimum Tax) 5/13 at 100.00 A1 2,201,016 2,300 5.250%, 5/01/17 - FGIC Insured (Alternative Minimum Tax) 5/13 at 100.00 A1 2,304,922 ------------------------------------------------------------------------------------------------------------------------------------ 11,985 Total Transportation 11,463,988 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 20.9% (14.2% OF TOTAL INVESTMENTS) (4) 6,000 California Department of Water Resources, Power Supply Revenue 5/12 at 101.00 Aaa 6,622,860 Bonds, Series 2002A, 5.125%, 5/01/18 (Pre-refunded 5/01/12) 35 California Department of Water Resources, Water System Revenue 12/12 at 100.00 Aa2 (4) 38,730 Bonds, Central Valley Project, Series 2002X, 5.150%, 12/01/23 (Pre-refunded 12/01/12) - FGIC Insured 2,250 California Infrastructure Economic Development Bank, First Lien 1/28 at 100.00 AAA 2,441,340 Revenue Bonds, San Francisco Bay Area Toll Bridge, Series 2003A, 5.000%, 7/01/36 (Pre-refunded 1/01/28) - AMBAC Insured 9,000 Eastern Municipal Water District, California, Water and Sewerage 7/11 at 100.00 AA (4) 9,680,580 System Revenue Certificates of Participation, Series 2001B, 5.000%, 7/01/30 (Pre-refunded 7/01/11) - FGIC Insured Fresno Unified School District, Fresno County, California, General Obligation Bonds, Series 2002B: 1,135 5.125%, 8/01/23 - FGIC Insured (ETM) 8/10 at 102.00 A+ (4) 1,184,463 1,190 5.125%, 8/01/24 - FGIC Insured (ETM) 8/10 at 102.00 A+ (4) 1,240,087 1,245 5.125%, 8/01/25 - FGIC Insured (ETM) 8/10 at 102.00 A+ (4) 1,296,580 1,255 5.125%, 8/01/26 - FGIC Insured (ETM) 8/10 at 102.00 A+ (4) 1,272,507 2,070 Fresno Unified School District, Fresno County, California, 8/10 at 102.00 AAA 2,149,053 General Obligation Bonds, Series 2002G, 5.125%, 8/01/26 - FSA Insured (ETM) 4,500 Golden State Tobacco Securitization Corporation, California, 6/13 at 100.00 AAA 5,418,990 Tobacco Settlement Asset-Backed Revenue Bonds, Series 2003A-2, 7.900%, 6/01/42 (Pre-refunded 6/01/13) 5,000 Los Angeles Unified School District, California, General 7/12 at 100.00 AA (4) 5,489,900 Obligation Bonds, Series 2002E, 5.125%, 1/01/27 (Pre-refunded 7/01/12) - MBIA Insured 3,380 Rancho Mirage Joint Powers Financing Authority, California, 7/14 at 100.00 A3 (4) 3,845,358 Revenue Bonds, Eisenhower Medical Center, Series 2004, 5.875%, 7/01/26 (Pre-refunded 7/01/14) 2,980 Santa Clarita Community College District, Los Angeles County, 8/11 at 101.00 AA- (4) 3,252,581 California, General Obligation Bonds, Series 2002, 5.125%, 8/01/26 (Pre-refunded 8/01/11) - FGIC Insured 2,460 Vacaville Unified School District, Solano County, California, 8/11 at 101.00 AAA 2,676,357 General Obligation Bonds, Series 2002, 5.000%, 8/01/26 (Pre-refunded 8/01/11) - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 42,500 Total U.S. Guaranteed 46,609,386 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 16.0% (10.9% OF TOTAL INVESTMENTS) 9,000 Anaheim Public Finance Authority, California, Revenue Bonds, 10/12 at 100.00 AAA 9,095,670 Electric System Distribution Facilities, Series 2002A, 5.000%, 10/01/27 - FSA Insured 10,000 California Pollution Control Financing Authority, Remarketed 4/11 at 102.00 AA 10,115,700 Revenue Bonds, Pacific Gas and Electric Company, Series 1996A, 5.350%, 12/01/16 - MBIA Insured (Alternative Minimum Tax) 63 NKL Nuveen Insured California Dividend Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES (continued) $ 2,490 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A $ 2,166,823 Purchase Revenue Bonds, Series 2007A, 5.000%, 11/15/35 3,000 Los Angeles Department of Water and Power, California, 7/11 at 100.00 AAA 3,120,780 Power System Revenue Bonds, Series 2001A-1, 5.250%, 7/01/21 - FSA Insured 830 Merced Irrigation District, California, Electric System Revenue 9/15 at 100.00 BBB- 759,815 Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured 1,775 Northern California Power Agency, Revenue Refunding Bonds, 7/10 at 100.00 AAA 1,780,733 Hydroelectric Project 1, Series 1998A, 5.200%, 7/01/32 - MBIA Insured 3,000 Sacramento Municipal Utility District, California, Electric 8/11 at 100.00 AA 2,988,690 Revenue Bonds, Series 2001N, 5.000%, 8/15/28 - MBIA Insured 5,630 Southern California Public Power Authority, Subordinate Revenue 7/12 at 100.00 AAA 5,793,777 Refunding Bonds, Transmission Project, Series 2002A, 4.750%, 7/01/19 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 35,725 Total Utilities 35,821,988 ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 10.8% (7.3% OF TOTAL INVESTMENTS) 2,965 California Department of Water Resources, Water System 12/12 at 100.00 AAA 3,086,180 Revenue Bonds, Central Valley Project, Series 2002X, 5.150%, 12/01/23 - FGIC Insured 750 Fortuna Public Finance Authority, California, Water Revenue 10/16 at 100.00 AAA 751,448 Bonds, Series 2006, 5.000%, 10/01/36 - FSA Insured 570 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 558,275 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 4,500 Los Angeles County Sanitation Districts Financing Authority, 10/13 at 100.00 AAA 4,665,555 California, Senior Revenue Bonds, Capital Projects, Series 2003A, 5.000%, 10/01/23 - FSA Insured 2,425 Manteca Financing Authority, California, Sewerage Revenue 12/13 at 100.00 A2 2,468,868 Bonds, Series 2003B, 5.000%, 12/01/33 - MBIA Insured 500 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 493,275 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured 9,185 Orange County Sanitation District, California, Certificates 8/13 at 100.00 AAA 9,158,915 of Participation, Series 2003, 5.000%, 2/01/33 - FGIC Insured 64 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER (continued) Semitropic Water Storage District, Kern County, California, Water Banking Revenue Bonds, Series 2004A: $ 1,315 5.500%, 12/01/20 - XLCA Insured 12/14 at 100.00 A $ 1,381,815 1,415 5.500%, 12/01/21 - XLCA Insured 12/14 at 100.00 A 1,477,345 ------------------------------------------------------------------------------------------------------------------------------------ 23,625 Total Water and Sewer 24,041,676 ------------------------------------------------------------------------------------------------------------------------------------ $ 330,813 Total Investments (cost $323,929,350) - 147.5% 329,358,552 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (0.3)% (750,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 1.3% 2,997,216 -------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred Shares, at Liquidation Value - (48.5)% (5) (108,250,000) -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $223,355,768 ====================================================================================================================
At least 80% of the Fund's net assets (including net assets attributable to Auction Rate Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Auction Rate Preferred Shares, at Liquidation Value as a percentage of Total Investments is 32.9%. N/R Not rated. (ETM) Escrowed to maturity. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 65 NKX Nuveen Insured California Tax-Free Advantage Municipal Fund Portfolio of INVESTMENTS August 31, 2008
PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ CONSUMER STAPLES - 4.1% (2.8% OF TOTAL INVESTMENTS) $ 6,070 Golden State Tobacco Securitization Corporation, California, 6/22 at 100.00 BBB $ 3,410,308 Enhanced Tobacco Settlement Asset-Backed Bonds, Series 2007A-2, 0.000%, 6/01/37 ------------------------------------------------------------------------------------------------------------------------------------ HEALTH CARE - 21.0% (14.5% OF TOTAL INVESTMENTS) 1,815 California Health Facilities Financing Authority, Revenue Bonds, 3/16 at 100.00 A+ 1,766,140 Kaiser Permanante System, Series 2006, 5.250%, 3/01/45 1,800 California Infrastructure Economic Development Bank, Revenue 8/11 at 102.00 A+ 1,812,834 Bonds, Kaiser Hospital Assistance LLC, Series 2001A, 5.550%, 8/01/31 4,000 California Statewide Community Development Authority, Insured 7/17 at 100.00 AAA 4,109,560 Health Facility Revenue Bonds, Catholic Healthcare West, Series 2008K, 5.500%, 7/01/41 - AGC Insured 5,000 California Statewide Community Development Authority, Revenue 3/16 at 100.00 AAA 4,968,250 Bonds, Kaiser Permanente System, 5.000%, 3/01/41 - BHAC Insured (UB) 4,060 California Statewide Community Development Authority, Revenue No Opt. Call AA 4,203,886 Bonds, Sherman Oaks Health System, Series 1998A, 5.000%, 8/01/22 - AMBAC Insured 662 California Statewide Communities Development Authority, 7/18 at 100.00 AAA 683,369 Revenue Bonds, Saint Joseph Health System, Trust 2554, 14.166%, 7/01/47 - FSA Insured (IF) ------------------------------------------------------------------------------------------------------------------------------------ 17,337 Total Health Care 17,544,039 ------------------------------------------------------------------------------------------------------------------------------------ HOUSING/MULTIFAMILY - 1.3% (0.9% OF TOTAL INVESTMENTS) 1,165 Poway, California, Housing Revenue Bonds, Revenue Bonds, 5/13 at 102.00 A+ 1,091,722 Poinsettia Mobile Home Park, Series 2003, 5.000%, 5/01/23 ------------------------------------------------------------------------------------------------------------------------------------ LONG-TERM CARE - 3.6% (2.5% OF TOTAL INVESTMENTS) 1,000 ABAG Finance Authority for Non-Profit Corporations, California, 11/12 at 100.00 A+ 1,015,090 Insured Senior Living Revenue Bonds, Odd Fellows Home of California, Series 2003A, 5.200%, 11/15/22 2,000 California Health Facilities Financing Authority, Cal-Mortgage 1/13 at 100.00 A+ 2,019,140 Insured Revenue Bonds, Northern California Retired Officers Community Corporation - Paradise Valley Estates, Series 2002, 5.250%, 1/01/26 ------------------------------------------------------------------------------------------------------------------------------------ 3,000 Total Long-Term Care 3,034,230 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL - 20.2% (13.9% OF TOTAL INVESTMENTS) 2,000 Butte-Glenn Community College District, Butte and Glenn Counties, 8/12 at 101.00 A1 2,023,400 California, General Obligation Bonds, Series 2002A, 5.000%, 8/01/26 - MBIA Insured California State, General Obligation Bonds, Series 2002: 2,460 5.000%, 4/01/27 - AMBAC Insured 4/12 at 100.00 AA 2,475,129 55 5.250%, 4/01/30 - XLCA Insured 4/12 at 100.00 A1 55,570 515 Fontana Unified School District, San Bernardino County, 8/18 at 100.00 AAA 623,995 California, General Obligation Bonds, Trust 2668, 13.010%, 8/01/28 - FSA Insured (IF) 450 Fremont Unified School District, Alameda County, California, 8/12 at 101.00 Aa3 459,423 General Obligation Bonds, Series 2002A, 5.000%, 8/01/25 - FGIC Insured 2,000 Los Angeles, California, General Obligation Bonds, Series 2002A, 9/12 at 100.00 AA 2,065,340 5.000%, 9/01/22 - MBIA Insured 1,000 Murrieta Valley Unified School District, Riverside County, 9/13 at 100.00 A+ 1,011,910 California, General Obligation Bonds, Series 2003A, 5.000%, 9/01/26 - FGIC Insured 66 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/GENERAL (continued) $ 1,000 Murrieta Valley Unified School District, Riverside County, 9/17 at 100.00 AAA $ 954,270 California, General Obligation Bonds, Series 2007, 4.500%, 9/01/30 - FSA Insured 140 Roseville Joint Union High School District, Placer County, 8/15 at 100.00 AA- 142,369 California, General Obligation Bonds, Series 2006B, 5.000%, 8/01/27 - FGIC Insured 3,000 San Diego Unified School District, California, General 7/10 at 100.00 AA 3,147,780 Obligation Bonds, Election of 1998, Series 2000B, 5.125%, 7/01/22 - MBIA Insured 3,855 San Rafael City High School District, Marin County, 8/12 at 100.00 AAA 3,893,087 California, General Obligation Bonds, Series 2003A, 5.000%, 8/01/28 - FSA Insured ------------------------------------------------------------------------------------------------------------------------------------ 16,475 Total Tax Obligation/General 16,852,273 ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED - 44.8% (31.0% OF TOTAL INVESTMENTS) 550 Baldwin Park Public Financing Authority, California, Sales 8/13 at 102.00 BBB 565,917 Tax and Tax Allocation Bonds, Puente Merced Redevelopment Project, Series 2003, 5.250%, 8/01/21 1,165 Burbank Public Financing Authority, California, Revenue 12/13 at 100.00 AA 1,191,725 Refunding Bonds, Golden State Redevelopment Project, Series 2003A, 5.250%, 12/01/22 - AMBAC Insured 4,000 California State Public Works Board, Lease Revenue Bonds, 12/12 at 100.00 AA 4,013,360 Department of General Services, Capital East End Project, Series 2002A, 5.000%, 12/01/27 - AMBAC Insured 170 Capistrano Unified School District, Orange County, California, 9/15 at 100.00 N/R 165,257 Special Tax Bonds, Community Facilities District, Series 2005, 5.000%, 9/01/24 - FGIC Insured 525 Chino Redevelopment Agency, California, Merged Chino 9/16 at 101.00 AA 503,748 Redevelopment Project Area Tax Allocation Bonds, Series 2006, 5.000%, 9/01/38 - AMBAC Insured 1,610 Folsom Public Financing Authority, California, Special Tax 9/12 at 102.00 AA 1,635,857 Revenue Bonds, Series 2004A, 5.000%, 9/01/21 - AMBAC Insured 1,410 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AAA 1,456,460 Enhanced Tobacco Settlement Revenue Bonds, Drivers Trust 2091, 14.214%, 6/01/45 - AGC Insured (IF) 3,285 Golden State Tobacco Securitization Corporation, California, 6/15 at 100.00 AA 2,960,212 Tobacco Settlement Asset-Backed Revenue Bonds, Series 2005A, 5.000%, 6/01/45 - AMBAC Insured 1,000 Hesperia Public Financing Authority, California, Redevelopment 9/17 at 100.00 Baa1 884,510 and Housing Projects Tax Allocation Bonds, Series 2007A, 5.000%, 9/01/37 - XLCA Insured 5,540 Irvine Public Facilities and Infrastructure Authority, California, 9/13 at 100.00 AA 5,692,956 Assessment Revenue Bonds, Series 2003C, 5.000%, 9/02/21 - AMBAC Insured 315 Los Angeles Community Redevelopment Agency, California, 9/15 at 100.00 Aa3 306,076 Lease Revenue Bonds, Manchester Social Services Project, Series 2005, 5.000%, 9/01/37 - AMBAC Insured 1,770 Los Angeles Unified School District, California, Certificates 10/12 at 100.00 AA 1,771,221 of Participation, Administration Building Project II, Series 2002C, 5.000%, 10/01/27 - AMBAC Insured 2,000 Los Angeles, California, Certificates of Participation, 6/13 at 100.00 AA 1,988,600 Municipal Improvement Corporation, Series 2003AW, 5.000%, 6/01/33 - AMBAC Insured 1,500 Los Angeles, California, Municipal Improvement Corporation, 1/17 at 100.00 AA- 1,424,625 Lease Revenue Bonds, Police Headquarters, Series 2006A, 4.750%, 1/01/31 - FGIC Insured 1,500 Los Osos, California, Improvement Bonds, Community Services 9/10 at 103.00 AA 1,364,670 Wastewater Assessment District 1, Series 2002, 5.000%, 9/02/33 - MBIA Insured 150 Rialto Redevelopment Agency, California, Tax Allocation 9/15 at 100.00 A- 143,577 Bonds, Merged Project Area, Series 2005A, 5.000%, 9/01/35 - XLCA Insured 190 Roseville, California, Certificates of Participation, Public 8/13 at 100.00 AA 190,897 Facilities, Series 2003A, 5.000%, 8/01/25 - AMBAC Insured San Buenaventura, California, Certificates of Participation, Golf Course Financing Project, Series 2002D: 3,000 5.000%, 2/01/27 - AMBAC Insured 2/12 at 100.00 AA 3,001,740 3,300 5.000%, 2/01/32 - AMBAC Insured 2/12 at 100.00 AA 3,241,755 67 NKX Nuveen Insured California Tax-Free Advantage Municipal Fund (continued) Portfolio of INVESTMENTS August 31, 2008 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ TAX OBLIGATION/LIMITED (continued) $ 1,200 San Diego Redevelopment Agency, California, Subordinate 9/09 at 101.00 Baa2 $ 1,176,732 Lien Tax Increment and Parking Revenue Bonds, Centre City Project, Series 2003B, 5.250%, 9/01/26 2,770 San Jose Financing Authority, California, Lease Revenue 6/12 at 100.00 AA+ 2,776,371 Refunding Bonds, Civic Center Project, Series 2002B, 5.000%, 6/01/32 - AMBAC Insured 1,000 San Jose Redevelopment Agency, California, Tax Allocation 8/15 at 100.00 AA 986,310 Bonds, Merged Project Area, Series 2005A, 5.000%, 8/01/28 - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 37,950 Total Tax Obligation/Limited 37,442,576 ------------------------------------------------------------------------------------------------------------------------------------ TRANSPORTATION - 10.3% (7.1% OF TOTAL INVESTMENTS) 5,480 Bay Area Governments Association, California, BART SFO 8/12 at 100.00 AA 5,512,716 Extension, Airport Premium Fare Revenue Bonds, Series 2002A, 5.000%, 8/01/26 - AMBAC Insured 2,000 Foothill/Eastern Transportation Corridor Agency, California, 1/10 at 100.00 BBB- 1,750,840 Toll Road Revenue Bonds, Series 1995A, 5.000%, 1/01/35 1,300 San Francisco Airports Commission, California, Revenue Bonds, 5/10 at 101.00 A1 1,314,235 San Francisco International Airport, Second Series 2000, Issue 26B, 5.000%, 5/01/25 - FGIC Insured ------------------------------------------------------------------------------------------------------------------------------------ 8,780 Total Transportation 8,577,791 ------------------------------------------------------------------------------------------------------------------------------------ U.S. GUARANTEED - 19.0% (13.1% OF TOTAL INVESTMENTS) (4) 1,000 Berryessa Union School District, Santa Clara County, California, 8/12 at 100.00 AAA 1,094,910 General Obligation Bonds, Series 2003C, 5.000%, 8/01/21 (Pre-refunded 8/01/12) - FSA Insured California State, General Obligation Bonds, Series 2002: 1,290 5.000%, 4/01/27 (Pre-refunded 4/01/12) - AMBAC Insured 4/12 at 100.00 AAA 1,404,410 2,945 5.250%, 4/01/30 (Pre-refunded 4/01/12) - XLCA Insured 4/12 at 100.00 A1 (4) 3,231,372 500 California, General Obligation Bonds, Series 2004, 4/14 at 100.00 AAA 561,580 5.250%, 4/01/34 (Pre-refunded 4/01/14) 1,625 Golden State Tobacco Securitization Corporation, California, 6/13 at 100.00 AAA 1,956,858 Tobacco Settlement Asset-Backed Revenue Bonds, Series 2003A-2, 7.900%, 6/01/42 (Pre-refunded 6/01/13) 2,030 Hacienda La Puente Unified School District, Los Angeles 8/13 at 100.00 AAA 2,244,896 County, California, General Obligation Bonds, Series 2003B, 5.000%, 8/01/27 (Pre-refunded 8/01/13) - FSA Insured 1,260 Rancho Mirage Joint Powers Financing Authority, California, 7/14 at 100.00 A3 (4) 1,433,477 Revenue Bonds, Eisenhower Medical Center, Series 2004, 5.875%, 7/01/26 (Pre-refunded 7/01/14) 1,220 San Jose Redevelopment Agency, California, Tax Allocation 8/10 at 101.00 AA (4) 1,301,557 Bonds, Merged Area Redevelopment Project, Series 2002, 5.000%, 8/01/32 (Pre-refunded 8/01/10) - MBIA Insured 2,390 Solano County, California, Certificates of Participation, 11/12 at 100.00 AA (4) 2,650,582 Series 2002, 5.250%, 11/01/24 (Pre-refunded 11/01/12) - MBIA Insured ------------------------------------------------------------------------------------------------------------------------------------ 14,260 Total U.S. Guaranteed 15,879,642 ------------------------------------------------------------------------------------------------------------------------------------ UTILITIES - 6.8% (4.7% OF TOTAL INVESTMENTS) 1,000 Anaheim Public Finance Authority, California, Second Lien 10/14 at 100.00 AA 1,042,060 Electric Distribution Revenue Bonds, Series 2004, 5.250%, 10/01/21 - MBIA Insured 945 Long Beach Bond Finance Authority, California, Natural Gas No Opt. Call A 881,392 Purchase Revenue Bonds, Series 2007A, 5.500%, 11/15/37 3,055 Los Angeles Department of Water and Power, California, 7/11 at 100.00 AAA 3,177,994 Power System Revenue Bonds, Series 2001A-1, 5.250%, 7/01/22 - FSA Insured 275 Los Angeles Department of Water and Power, California, 7/13 at 100.00 AA 284,785 Power System Revenue Bonds, Series 2003A-2, 5.000%, 7/01/21 - MBIA Insured 310 Merced Irrigation District, California, Electric System 9/15 at 100.00 BBB- 283,786 Revenue Bonds, Series 2005, 5.125%, 9/01/31 - XLCA Insured ------------------------------------------------------------------------------------------------------------------------------------ 5,585 Total Utilities 5,670,017 ------------------------------------------------------------------------------------------------------------------------------------ 68 PRINCIPAL OPTIONAL CALL AMOUNT (000) DESCRIPTION (1) PROVISIONS (2) RATINGS (3) VALUE ------------------------------------------------------------------------------------------------------------------------------------ WATER AND SEWER - 13.7% (9.5% OF TOTAL INVESTMENTS) $ 1,000 Castaic Lake Water Agency, California, Certificates of Participation, 8/16 at 100.00 AA $ 995,480 Series 2006C, 5.000%, 8/01/36 - MBIA Insured 750 Fortuna Public Finance Authority, California, Water Revenue Bonds, 10/16 at 100.00 AAA 751,448 Series 2006, 5.000%, 10/01/36 - FSA Insured 215 Healdsburg Public Financing Authority, California, Wastewater 4/16 at 100.00 AA 210,577 Revenue Bonds, Series 2006, 5.000%, 4/01/36 - MBIA Insured 895 Manteca Financing Authority, California, Sewerage Revenue 12/13 at 100.00 A2 911,191 Bonds, Series 2003B, 5.000%, 12/01/33 - MBIA Insured 170 Marina Coast Water District, California, Enterprise Certificate 6/16 at 100.00 AA 167,714 of Participation, Series 2006, 5.000%, 6/01/31 - MBIA Insured San Diego Public Facilities Financing Authority, California, Subordinate Lien Water Revenue Bonds, Series 2002: 3,000 5.000%, 8/01/22 - MBIA Insured 8/12 at 100.00 AA 3,061,920 2,500 5.000%, 8/01/23 - MBIA Insured 8/12 at 100.00 AA 2,546,200 1,180 South Feather Water and Power Agency, California, 4/13 at 100.00 BBB 1,171,941 Water Revenue Certificates of Participation, Solar Photovoltaic Project, Series 2003, 5.375%, 4/01/24 1,600 Sunnyvale Financing Authority, California, Water and Wastewater 10/11 at 100.00 AA 1,614,496 Revenue Bonds, Series 2001, 5.000%, 10/01/26 - AMBAC Insured ------------------------------------------------------------------------------------------------------------------------------------ 11,310 Total Water and Sewer 11,430,967 ------------------------------------------------------------------------------------------------------------------------------------ $ 121,932 Total Investments (cost $120,979,271) - 144.8% 120,933,565 =============----------------------------------------------------------------------------------------------------------------------- Floating Rate Obligations - (4.5)% (3,750,000) -------------------------------------------------------------------------------------------------------------------- Variable Rate Demand Preferred Shares, at Liquidation Value - (42.5)% (5) (35,500,000) -------------------------------------------------------------------------------------------------------------------- Other Assets Less Liabilities - 2.2% 1,847,695 -------------------------------------------------------------------------------------------------------------------- Net Assets Applicable to Common Shares - 100% $ 83,531,260 ====================================================================================================================
At least 80% of the Fund's net assets (including net assets attributable to Variable Rate Demand Preferred shares) are invested in municipal securities that are covered by insurance or backed by an escrow or trust account containing sufficient U.S. Government or U.S. Government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure the timely payment of principal and interest. See Notes to Financial Statements, Footnote 1 - Insurance, for more information. (1) All percentages shown in the Portfolio of Investments are based on net assets applicable to Common shares unless otherwise noted. (2) Optional Call Provisions (not covered by the report of independent registered public accounting firm): Dates (month and year) and prices of the earliest optional call or redemption. There may be other call provisions at varying prices at later dates. Certain mortgage-backed securities may be subject to periodic principal paydowns. (3) Ratings (not covered by the report of independent registered public accounting firm): Using the higher of Standard & Poor's Group ("Standard & Poor's") or Moody's Investor Service, Inc. ("Moody's") rating. Ratings below BBB by Standard & Poor's or Baa by Moody's are considered to be below investment grade. The Portfolio of Investments may reflect the ratings on certain bonds insured by ACA, AMBAC, FGIC, MBIA, RAAI and XLCA as of August 31, 2008. Please see the Portfolio Manager's Commentary for an expanded discussion of the affect on the Fund of changes to the ratings of certain bonds in the portfolio resulting from changes to the ratings of the underlying insurers both during the period and after period end. (4) Backed by an escrow or trust containing sufficient U.S. Government or U.S. Government agency securities which ensure the timely payment of principal and interest. Such investments are normally considered to be equivalent to AAA rated securities. (5) Variable Rate Demand Preferred Shares, at Liquidation Value, as a percentage of Total Investments is 29.4%. N/R Not rated. (IF) Inverse floating rate investment. (UB) Underlying bond of an inverse floating rate trust reflected as a financing transaction pursuant to the provisions of SFAS No. 140. See accompanying notes to financial statements. 69 Statement of ASSETS & LIABILITIES August 31, 2008
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM DIVIDEND PREMIUM INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value (cost $135,840,088, $266,598,998, $116,394,237 and $502,078,399, respectively) $141,545,857 $267,578,980 $116,810,679 $498,554,325 Cash -- 7,814,106 12,514,451 2,023,540 Time deposit, 2.050%, maturity 9/05/08 -- -- -- -- Receivables: Interest 2,446,438 3,630,449 1,608,634 7,985,884 Investments sold -- -- -- 25,000 Deferred offering costs -- -- -- -- Other assets 8,039 41,591 1,092 58,655 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 144,000,334 279,065,126 130,934,856 508,647,404 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Cash overdraft 2,055,917 -- -- -- Payable for Auction Rate Preferred shares redeemed and/or noticed for redemption, at liquidation value -- 7,575,000 -- -- Floating rate obligations -- 11,060,000 8,562,000 32,605,000 Unrealized depreciation on forward swaps -- -- -- -- Variable Rate Demand Preferred shares, at liquidation value -- -- -- -- Accrued expenses: Management fees 76,025 145,486 65,595 228,963 Other 44,944 85,384 35,450 134,351 Common share dividends payable 344,295 613,640 287,491 1,372,303 Auction Rate Preferred share dividends payable 16,894 27,026 18,473 50,149 Offering costs payable -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 2,538,075 19,506,536 8,969,009 34,390,766 ------------------------------------------------------------------------------------------------------------------------------------ Auction Rate Preferred shares, at liquidation value 45,000,000 79,825,000 43,000,000 135,525,000 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 96,462,259 $179,733,590 $ 78,965,847 $338,731,638 ==================================================================================================================================== Common shares outstanding 6,459,832 12,716,370 5,775,188 23,480,254 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.93 $ 14.13 $ 13.67 $ 14.43 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 64,598 $ 127,164 $ 57,752 $ 234,803 Paid-in surplus 89,426,693 176,235,765 78,312,931 333,573,985 Undistributed (Over-distribution of) net investment income 149,112 707,293 150,354 234,601 Accumulated net realized gain (loss) from investments and derivative transactions 1,116,087 1,683,386 28,368 8,212,323 Net unrealized appreciation (depreciation ) of investments and derivative transactions 5,705,769 979,982 416,442 (3,524,074) ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $ 96,462,259 $179,733,590 $ 78,965,847 $338,731,638 ==================================================================================================================================== Authorized shares: Common 200,000,000 200,000,000 Unlimited Unlimited Auction Rate Preferred and Variable Rate Demand Preferred 1,000,000 1,000,000 Unlimited Unlimited ====================================================================================================================================
See accompanying notes to financial statements. 70
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------------------------ ASSETS Investments, at value (cost $319,536,900, $494,013,497, $323,929,350 and $120,979,271, respectively) $321,268,113 $487,009,510 $329,358,552 $120,933,565 Cash 8,152,614 11,333,506 9,853,404 312,714 Time deposit, 2.050%, maturity 9/05/08 -- -- -- 45,000,000 Receivables: Interest 4,521,100 7,624,158 3,995,245 1,604,986 Investments sold 15,000 25,000 -- -- Deferred offering costs -- -- -- 528,790 Other assets 35,546 39,071 35,153 3,617 ------------------------------------------------------------------------------------------------------------------------------------ Total assets 333,992,373 506,031,245 343,242,354 168,383,672 ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Cash overdraft -- -- -- -- Payable for Auction Rate Preferred shares redeemed and/or noticed for redemption, at liquidation value -- -- 9,750,000 45,000,000 Floating rate obligations 10,004,000 15,142,000 750,000 3,750,000 Unrealized depreciation on forward swaps -- 595,545 -- -- Variable Rate Demand Preferred shares, at liquidation value -- -- -- 35,500,000 Accrued expenses: Management fees 129,963 174,049 122,763 43,085 Other 95,161 127,653 88,461 40,452 Common share dividends payable 821,626 1,355,556 873,145 333,507 Auction Rate Preferred share dividends payable 51,656 52,773 52,217 10,368 Offering costs payable -- -- -- 175,000 ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 11,102,406 17,447,576 11,636,586 84,852,412 ------------------------------------------------------------------------------------------------------------------------------------ Auction Rate Preferred shares, at liquidation value 110,000,000 159,925,000 108,250,000 -- ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $212,889,967 $328,658,669 $223,355,768 $ 83,531,260 ==================================================================================================================================== Common shares outstanding 14,797,422 24,132,334 15,286,005 5,886,667 ==================================================================================================================================== Net asset value per Common share outstanding (net assets applicable to Common shares, divided by Common shares outstanding) $ 14.39 $ 13.62 $ 14.61 $ 14.19 ==================================================================================================================================== NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF: ------------------------------------------------------------------------------------------------------------------------------------ Common shares, $.01 par value per share $ 147,974 $ 241,323 $ 152,860 $ 58,867 Paid-in surplus 210,182,679 342,810,815 217,031,715 83,049,473 Undistributed (Over-distribution of) net investment income 265,440 718,052 310,679 51,473 Accumulated net realized gain (loss) from investments and derivative transactions 562,661 (7,511,989) 431,312 417,153 Net unrealized appreciation (depreciation) of investments and derivative transactions 1,731,213 (7,599,532) 5,429,202 (45,706) ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares $212,889,967 $328,658,669 $223,355,768 $ 83,531,260 ==================================================================================================================================== Authorized shares: Common Unlimited Unlimited Unlimited Unlimited Auction Rate Preferred and Variable Rate Demand Preferred Unlimited Unlimited Unlimited Unlimited ====================================================================================================================================
See accompanying notes to financial statements. 71 Statement of OPERATIONS Year Ended August 31, 2008
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM DIVIDEND PREMIUM INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $ 7,281,324 $14,344,641 $ 6,389,691 $27,872,039 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 906,873 1,750,979 786,957 3,202,468 Auction fees 112,500 237,344 107,500 425,770 Dividend disbursing agent fees 10,000 20,000 10,000 20,000 Shareholders' servicing agent fees and expenses 8,083 13,391 5,736 3,895 Interest expense -- 40,691 92,394 374,756 Custodian's fees and expenses 51,209 70,900 29,070 163,424 Directors'/Trustees' fees and expenses 3,510 6,800 2,909 12,491 Professional fees 18,332 25,570 13,445 32,767 Shareholders' reports - printing and mailing expenses 15,312 38,137 8,496 53,728 Stock exchange listing fees 9,385 9,367 709 9,459 Investor relations expense 14,047 26,761 12,510 46,677 Other expenses 14,874 22,375 15,410 26,003 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 1,164,125 2,262,315 1,085,136 4,371,438 Custodian fee credit (11,540) (20,298) (13,211) (49,217) Expense reimbursement -- -- -- (497,428) ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 1,152,585 2,242,017 1,071,925 3,824,793 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 6,128,739 12,102,624 5,317,766 24,047,246 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments 328,360 1,445,377 118,683 4,832,689 Forward swaps 863,429 856,758 239,634 4,168,843 Futures -- -- -- -- Change in net unrealized appreciation (depreciation) of: Investments (1,420,724) (7,171,193) (2,804,244) (18,634,531) Forward swaps (364,728) (656,230) 1,018 (2,275,676) ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (593,663) (5,525,288) (2,444,909) (11,908,675) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO AUCTION RATE PREFERRED SHAREHOLDERS From net investment income (1,447,316) (3,061,483) (1,399,028) (5,502,755) From accumulated net realized gains (25,344) -- -- (260,925) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Auction Rate Preferred shareholders (1,472,660) (3,061,483) (1,399,028) (5,763,680) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations $ 4,062,416 $ 3,515,853 $ 1,473,829 $ 6,374,891 ====================================================================================================================================
See accompanying notes to financial statements. 72
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------------------------ INVESTMENT INCOME $16,999,827 $27,744,430 $17,573,242 $ 6,514,310 ------------------------------------------------------------------------------------------------------------------------------------ EXPENSES Management fees 2,046,464 3,238,100 2,158,393 829,062 Auction fees 275,000 459,548 295,000 114,925 Dividend disbursing agent fees 20,000 20,000 20,000 11,028 Shareholders' servicing agent fees and expenses 1,908 3,315 2,025 996 Interest expense 190,552 72,436 3,167 66,087 Custodian's fees and expenses 96,770 147,034 103,861 40,157 Directors'/Trustees' fees and expenses 7,274 12,533 8,358 3,178 Professional fees 24,722 35,261 26,405 13,962 Shareholders' reports - printing and mailing expenses 35,728 48,260 35,898 17,031 Stock exchange listing fees 1,816 2,962 1,876 722 Investor relations expense 21,070 46,560 31,530 12,352 Other expenses 1,450 27,782 20,755 32,083 ------------------------------------------------------------------------------------------------------------------------------------ Total expenses before custodian fee credit and expense reimbursement 2,722,754 4,113,791 2,707,268 1,141,583 Custodian fee credit (34,119) (60,420) (19,336) (21,466) Expense reimbursement (587,369) (1,068,648) (793,160) (339,627) ------------------------------------------------------------------------------------------------------------------------------------ Net expenses 2,101,266 2,984,723 1,894,772 780,490 ------------------------------------------------------------------------------------------------------------------------------------ Net investment income 14,898,561 24,759,707 15,678,470 5,733,820 ------------------------------------------------------------------------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) from: Investments (313,737) (978,786) 1,337,028 1,101,623 Forward swaps 1,314,381 (1,478,000) 731,015 128,891 Futures -- (291,364) -- -- Change in net unrealized appreciation (depreciation) of: Investments (6,006,208) (14,054,312) (6,994,006) (3,013,642) Forward swaps (396,451) 57,314 (24,419) (12,888) ------------------------------------------------------------------------------------------------------------------------------------ Net realized and unrealized gain (loss) (5,402,015) (16,745,148) (4,950,382) (1,796,016) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO AUCTION RATE PREFERRED SHAREHOLDERS From net investment income (3,691,110) (6,076,255) (3,886,043) (1,400,428) From accumulated net realized gains -- -- (116,419) -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Auction Rate Preferred shareholders (3,691,110) (6,076,255) (4,002,462) (1,400,428) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations $ 5,805,436 $ 1,938,304 $ 6,725,626 $ 2,537,376 ====================================================================================================================================
See accompanying notes to financial statements. 73 Statement of CHANGES in NET ASSETS
INSURED CALIFORNIA INSURED CALIFORNIA CALIFORNIA PREMIUM INCOME (NPC) PREMIUM INCOME 2 (NCL) PREMIUM INCOME (NCU) ----------------------------- ----------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 6,128,739 $ 5,834,849 $ 12,102,624 $ 11,372,772 $ 5,317,766 $ 5,169,371 Net realized gain (loss) from: Investments 328,360 132,902 1,445,377 (30,877) 118,683 (251,856) Forward swaps 863,429 159,600 856,758 419,200 239,634 (57,143) Futures -- -- -- -- -- -- Change in net unrealized appreciation (depreciation) of: Investments (1,420,724) (2,928,553) (7,171,193) (6,140,606) (2,804,244) (2,648,488) Forward swaps (364,728) 35,238 (656,230) (181,996) 1,018 (1,018) Futures -- -- -- -- -- -- Distributions to Auction Rate Preferred shareholders: From net investment income (1,447,316) (1,373,537) (3,061,483) (3,120,823) (1,399,028) (1,400,856) From accumulated net realized gains (25,344) (118,110) -- -- -- (50,482) ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 4,062,416 1,742,389 3,515,853 2,317,670 1,473,829 759,528 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (4,689,975) (4,725,196) (8,125,762) (8,545,402) (3,707,671) (3,863,107) From accumulated net realized gains (86,562) (486,696) -- -- -- (177,846) ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (4,776,537) (5,211,892) (8,125,762) (8,545,402) (3,707,671) (4,040,953) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions -- 65,214 -- -- -- 14,098 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from capital share transactions -- 65,214 -- -- -- 14,098 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares (714,121) (3,404,289) (4,609,909) (6,227,732) (2,233,842) (3,267,327) Net assets applicable to Common shares at the beginning of year 97,176,380 100,580,669 184,343,499 190,571,231 81,199,689 84,467,016 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $96,462,259 $ 97,176,380 $179,733,590 $184,343,499 $78,965,847 $81,199,689 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 149,112 $ 158,730 $ 707,293 $ (179,908) $ 150,354 $ (60,685) ====================================================================================================================================
See accompanying notes to financial statements. 74
CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND ADVANTAGE (NAC) DIVIDEND ADVANTAGE 2 (NVX) DIVIDEND ADVANTAGE 3 (NZH) ----------------------------- ---------------------------- ----------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 24,047,246 $ 23,391,916 $ 14,898,561 $ 14,244,418 $ 24,759,707 $ 23,582,231 Net realized gain (loss) from: Investments 4,832,689 1,330,465 (313,737) (394,576) (978,786) (1,177,206) Forward swaps 4,168,843 (824,000) 1,314,381 352,500 (1,478,000) (401,000) Futures -- 29,877 -- -- (291,364) -- Change in net unrealized appreciation (depreciation) of: Investments (18,634,531) (14,848,472) (6,006,208) (8,830,002) (14,054,312) (15,582,514) Forward swaps (2,275,676) 1,437,247 (396,451) (351,758) 57,314 (652,859) Futures -- (27,339) -- -- -- -- Distributions to Auction Rate Preferred shareholders: From net investment income (5,502,755) (5,740,999) (3,691,110) (3,680,820) (6,076,255) (6,425,421) From accumulated net realized gains (260,925) (310,662) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 6,374,891 4,438,033 5,805,436 1,339,762 1,938,304 (656,769) ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (17,328,427) (18,656,213) (10,247,217) (11,272,438) (17,085,692) (18,308,241) From accumulated net realized gains (838,245) (1,250,132) -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (18,166,672) (19,906,345) (10,247,217) (11,272,438) (17,085,692) (18,308,241) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions -- 475,567 -- 104,551 -- 298,310 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from capital share transactions -- 475,567 -- 104,551 -- 298,310 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares (11,791,781) (14,992,745) (4,441,781) (9,828,125) (15,147,388) (18,666,700) Net assets applicable to Common shares at the beginning of year 350,523,419 365,516,164 217,331,748 227,159,873 343,806,057 362,472,757 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $338,731,638 $350,523,419 $212,889,967 $217,331,748 $328,658,669 $343,806,057 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 234,601 $ (979,692) $ 265,440 $ (655,912) $ 718,052 $ (878,892) ====================================================================================================================================
See accompanying notes to financial statements. 75 Statement of CHANGES in NET ASSETS (continued)
INSURED CALIFORNIA INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) TAX-FREE ADVANTAGE (NKX) ---------------------------- ---------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------------------------ OPERATIONS Net investment income $ 15,678,470 $ 15,395,108 $ 5,733,820 $ 5,654,749 Net realized gain (loss) from: Investments 1,337,028 653,722 1,101,623 91,706 Forward swaps 731,015 (200,000) 128,891 (57,143) Futures -- -- -- -- Change in net unrealized appreciation (depreciation) of: Investments (6,994,006) (8,944,129) (3,013,642) (2,767,618) Forward swaps (24,419) 24,419 (12,888) 12,888 Futures -- -- -- -- Distributions to Auction Rate Preferred shareholders: From net investment income (3,886,043) (4,037,528) (1,400,428) (1,431,890) From accumulated net realized gains (116,419) (10,666) -- -- ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from operations 6,725,626 2,880,926 2,537,376 1,502,692 ------------------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO COMMON SHAREHOLDERS From net investment income (10,952,422) (11,778,209) (4,167,394) (4,166,045) From accumulated net realized gains (340,878) (39,709) -- -- ------------------------------------------------------------------------------------------------------------------------------------ Decrease in net assets applicable to Common shares from distributions to Common shareholders (11,293,300) (11,817,918) (4,167,394) (4,166,045) ------------------------------------------------------------------------------------------------------------------------------------ CAPITAL SHARE TRANSACTIONS Net proceeds from Common shares issued to shareholders due to reinvestment of distributions -- 335,845 17,615 32,211 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares from capital share transactions -- 335,845 17,615 32,211 ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in net assets applicable to Common shares (4,567,674) (8,601,147) (1,612,403) (2,631,142) Net assets applicable to Common shares at the beginning of year 227,923,442 236,524,589 85,143,663 87,774,805 ------------------------------------------------------------------------------------------------------------------------------------ Net assets applicable to Common shares at the end of year $223,355,768 $227,923,442 $83,531,260 $85,143,663 ==================================================================================================================================== Undistributed (Over-distribution of) net investment income at the end of year $ 310,679 $ (520,310) $ 51,473 $ (109,506) ====================================================================================================================================
See accompanying notes to financial statements. 76 Notes to FINANCIAL STATEMENTS 1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES The funds covered in this report and their corresponding Common share stock exchange symbols are Nuveen Insured California Premium Income Municipal Fund, Inc. (NPC), Nuveen Insured California Premium Income Municipal Fund 2, Inc. (NCL), Nuveen California Premium Income Municipal Fund (NCU), Nuveen California Dividend Advantage Municipal Fund (NAC), Nuveen California Dividend Advantage Municipal Fund 2 (NVX), Nuveen California Dividend Advantage Municipal Fund 3 (NZH), Nuveen Insured California Dividend Advantage Municipal Fund (NKL) and Nuveen Insured California Tax-Free Advantage Municipal Fund (NKX) (collectively, the "Funds"). Common shares of Insured California Premium Income (NPC), Insured California Premium Income 2 (NCL) and California Dividend Advantage (NAC) are traded on the New York Stock Exchange while Common shares of California Premium Income (NCU), California Dividend Advantage 2 (NVX), California Dividend Advantage 3 (NZH), Insured California Dividend Advantage (NKL) and Insured California Tax-Free Advantage (NKX) are traded on the American Stock Exchange. The Funds are registered under the Investment Company Act of 1940, as amended, as closed-end management investment companies. Each Fund seeks to provide current income exempt from both regular federal and California state income taxes, and in the case of Insured California Tax-Free Advantage (NKX) the alternative minimum tax applicable to individuals, by investing primarily in a diversified portfolio of municipal obligations issued by state and local government authorities within the state of California or certain U.S. territories. The following is a summary of significant accounting policies followed by the Funds in the preparation of their financial statements in accordance with U.S. generally accepted accounting principles. Investment Valuation The prices of municipal bonds in each Fund's investment portfolio are provided by a pricing service approved by the Fund's Board of Directors/Trustees. When market price quotes are not readily available (which is usually the case for municipal securities), the pricing service may establish fair value based on yields or prices of municipal bonds of comparable quality, type of issue, coupon, maturity and rating, indications of value from securities dealers, evaluations of anticipated cash flows or collateral and general market conditions. Prices of forward swap contracts are also provided by an independent pricing service approved by each Fund's Board of Directors/Trustees. Futures contracts are valued using the closing settlement price, or in the absence of such a price, at the mean of the bid and asked prices. If the pricing service is unable to supply a price for an investment or derivative instrument, each Fund may use market quotes provided by major broker/dealers in such investments. If it is determined that the market price for an investment or derivative instrument is unavailable or inappropriate, the Board of Directors/Trustees of the Funds, or its designee, may establish fair value in accordance with procedures established in good faith by the Board of Directors/Trustees. Temporary investments in securities that have variable rate and demand features qualifying them as short-term investments are valued at amortized cost, which approximates value. Investment Transactions Investment transactions are recorded on a trade date basis. Realized gains and losses from transactions are determined on the specific identification method. Investments purchased on a when-issued/delayed delivery basis may have extended settlement periods. Any investments so purchased are subject to market fluctuation during this period. The Funds have instructed the custodian to segregate assets with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments. At August 31, 2008, there were no such outstanding purchase commitments in any of the Funds. Investment Income Interest income, which includes the amortization of premiums and accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Investment income also includes paydown gains and losses, if any. 77 Notes to FINANCIAL STATEMENTS (continued) Income Taxes Each Fund is a separate taxpayer for federal income tax purposes. Each Fund intends to distribute substantially all of its net investment income and net capital gains to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no federal income tax provision is required. Furthermore, each Fund intends to satisfy conditions which will enable interest from municipal securities, which is exempt from regular federal and California state income taxes, and in the case of Insured California Tax-Free Advantage (NKX) the alternative minimum tax applicable to individuals, to retain such tax-exempt status when distributed to shareholders of the Funds. Net realized capital gains and ordinary income distributions paid by the Funds are subject to federal taxation. Effective February 29, 2008, the Funds adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the affirmative evaluation of tax positions taken or expected to be taken in the course of preparing the Funds' tax returns to determine whether it is "more-likely-than-not" (i.e., a greater than 50-percent likelihood) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold may result in a tax expense in the current year. Implementation of FIN 48 required management of the Funds to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which includes federal and certain states. Open tax years are those that are open for examination by taxing authorities (i.e., generally, the last four tax year ends and the interim tax period since then). The Funds have no examinations in progress. For all open tax years and all major taxing jurisdictions through the end of the reporting period, management of the Funds has reviewed all tax positions taken or expected to be taken in the preparation of the Funds' tax returns and concluded the adoption of FIN 48 resulted in no impact to the Funds' net assets or results of operations as of and during the fiscal year ended August 31, 2008. The Funds are also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. 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 at least annually. Furthermore, capital gains are distributed only to the extent they exceed available capital loss carryforwards. Distributions to Common shareholders of tax-exempt net investment income, net realized capital gains and/or market discount, if any, are recorded on the ex-dividend date. The amount and timing of distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Auction Rate Preferred Shares The following Funds have issued and outstanding Auction Rate Preferred shares, $25,000 stated value per share, as a means of effecting financial leverage. Each Fund's Auction Rate Preferred shares are issued in one or more Series. The dividend rate paid by the Funds on each Series is determined every seven days, pursuant to a dutch auction process overseen by the auction agent, 78 and is payable at the end of each rate period. As of August 31, 2008, the number of Auction Rate Preferred shares outstanding, by Series and in total, for each Fund is as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Number of shares: Series M -- -- 1,720 -- Series T 1,800 1,597 -- -- Series TH -- 1,596 -- 2,710 Series F -- -- -- 2,711 ------------------------------------------------------------------------------------------------------------------ Total 1,800 3,193 1,720 5,421 ================================================================================================================== INSURED CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE (NVX) (NZH) (NKL) ------------------------------------------------------------------------------------------------------------------ Number of shares: Series M 2,200 3,198 -- Series T -- -- 2,165 Series TH -- 3,199 -- Series F 2,200 -- 2,165 ------------------------------------------------------------------------------------------------------------------ Total 4,400 6,397 4,330 ==================================================================================================================
Beginning in February 2008, more shares for sale were submitted in the regularly scheduled auctions for the Auction Rate Preferred shares issued by the Funds than there were offers to buy. This meant that these auctions "failed to clear," and that many Auction Rate Preferred shareholders who wanted to sell their shares in these auctions were unable to do so. Auction Rate Preferred shareholders unable to sell their shares received distributions at the "maximum rate" applicable to failed auctions as calculated in accordance with the pre-established terms of the Auction Rate Preferred shares. These developments generally do not affect the management or investment policies of the Funds. However, one implication of these auction failures for Common shareholders is that the Funds' cost of leverage will likely be higher, at least temporarily, than it otherwise would have been had the auctions continued to be successful. As a result, the Funds' future Common share earnings may be lower than they otherwise would have been. On June 11, 2008, Nuveen Investments, Inc. ("Nuveen") announced the Fund Board's approval of plans to use tender option bonds (TOBs), also known as "floaters" or floating rate obligations, to refinance a portion of the municipal funds' outstanding Auction Rate Preferred shares, whose auctions have been failing for several months. The plan included an initial phase of approximately $1 billion in forty-one funds. During the fiscal year ended August 31, 2008, Insured California Premium Income 2 (NCL), California Dividend Advantage (NAC), California Dividend Advantage 3 (NZH) and Insured California Dividend Advantage (NKL) redeemed and/or noticed for redemption $15,175,000, $39,475,000, $27,075,000 and $9,750,000 of their outstanding Auction Rate Preferred shares, respectively, at liquidation value, using the proceeds from the issuance of TOBs. Variable Rate Demand Preferred Shares On August 7, 2008, Insured California Tax-Free Advantage (NKX) issued 355 Series 1 Variable Rate Demand Preferred shares, $100,000 liquidation value per share, in a privately negotiated offering. Proceeds of this offering along with the proceeds from the Fund's creation of TOBs, discussed above, will be used to redeem all of the Fund's outstanding Auction Rate Preferred shares totaling $45,000,000. The Variable Rate Demand Preferred shares were offered to institutional buyers as defined pursuant to Rule 144A under the Securities Act of 1933, have a maturity date of August 1, 2038, and include a liquidity feature that allows the Variable Rate Demand Preferred shareholders to have their shares purchased by the liquidity provider in the event that sell orders are not matched with purchase orders in a remarketing. Dividends on the Variable Rate Demand Preferred shares (which are treated as interest payments for financial reporting purposes) are set weekly at a rate established by a remarketing agent; therefore, the liquidation value of the Variable Rate Demand Preferred shares approximates fair value. Subject to certain conditions, Variable Rate Demand Preferred shares may be redeemed, in whole or in part, at any time at the option of the Fund. The Fund may also redeem certain of the Variable Rate Demand Preferred shares if the Fund fails to maintain certain asset coverage requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends. Insured California Tax-Free Advantage (NKX) had $35,500,000 Variable Rate Demand Preferred shares outstanding for the period August 7, 2008 through August 31, 2008 with an annualized interest rate of 1.98%. 79 Notes to FINANCIAL STATEMENTS (continued) For financial reporting purposes only, Variable Rate Demand Preferred shares, at the liquidation value are recorded as a liability on the Statement of Assets and Liabilities and the dividends paid on the Variable Rate Demand Preferred shares are included as a component of "Interest expense" on the Statement of Operations. Insurance Under normal circumstances, Insured California Premium Income (NPC), Insured California Premium Income 2 (NCL), Insured California Dividend Advantage (NKL) and Insured California Tax-Free Advantage (NKX) will invest at least 80% of their net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares) in municipal securities that are covered by insurance guaranteeing the timely payment of principal and interest. For purposes of this 80% test, insurers must have a claims paying ability rated at least "A" at the time of purchase by at least one independent rating agency. In addition, each Fund will invest at least 80% of its net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares) in municipal securities that are rated at least "AA" at the time of purchase (based on the higher of the rating of the insurer, if any, or the underlying security) by at least one independent rating agency, or are unrated but judged to be of similar credit quality by Nuveen Asset Management (the "Adviser"), or municipal bonds backed by an escrow or trust account containing sufficient U.S. government or U.S. government agency securities or U.S. Treasury-issued State and Local Government Series securities to ensure timely payment of principal and interest. Each Fund may also invest up to 20% of its net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares) in municipal securities rated below "AA" (based on the higher rating of the insurer, if any, or the underlying bond) or are unrated but judged to be of comparable quality by the Adviser. Each insured municipal security is covered by Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance. Such insurance does not guarantee the market value of the municipal securities or the value of the Funds' Common shares. Original Issue Insurance and Secondary Market Insurance remain in effect as long as the municipal securities covered thereby remain outstanding and the insurer remains in business, regardless of whether the Funds ultimately dispose of such municipal securities. Consequently, the market value of the municipal securities covered by Original Issue Insurance or Secondary Market Insurance may reflect value attributable to the insurance. Portfolio Insurance, in contrast, is effective only while the municipal securities are held by the Funds. Accordingly, neither the prices used in determining the market value of the underlying municipal securities nor the Common share net asset value of the Funds include value, if any, attributable to the Portfolio Insurance. Each policy of the Portfolio Insurance does, however, give the Funds the right to obtain permanent insurance with respect to the municipal security covered by the Portfolio Insurance policy at the time of its sale. Inverse Floating Rate Securities Each Fund is authorized to invest in inverse floating rate securities. An inverse floating rate security is created by depositing a municipal bond, typically with a fixed interest rate, into a special purpose trust created by a broker-dealer. In turn, this trust (a) issues floating rate certificates, in face amounts equal to some fraction of the deposited bond's par amount or market value, that typically pay short-term tax-exempt interest rates to third parties, and (b) issues to a long-term investor (such as one of the Funds) an inverse floating rate certificate (sometimes referred to as an "inverse floater") that represents all remaining or residual interest in the trust. The income received by the inverse floater holder varies inversely with the short-term rate paid to the floating rate certificates' holders, and in most circumstances the inverse floater holder bears substantially all of the underlying bond's downside investment risk and also benefits disproportionately from any potential appreciation of the underlying bond's value. The price of an inverse floating rate security will be more volatile than that of the underlying bond because the interest rate is dependent on not only the fixed coupon rate of the underlying bond but also on the short-term interest paid on the floating rate certificates, and because the inverse floating rate security essentially bears the risk of loss of the greater face value of the underlying bond. A Fund may purchase an inverse floating rate security in a secondary market transaction without first owning the underlying bond (referred to as an "externally-deposited inverse floater"), or instead by first selling a fixed-rate bond to a broker-dealer for deposit into the special purpose trust and receiving in turn the residual interest in the trust (referred to as a "self-deposited inverse floater"). The inverse floater held by a Fund gives the Fund the right (a) to cause the holders of the floating rate certificates to tender their notes at par, and (b) to have the broker transfer the fixed-rate bond held by the trust to the Fund, thereby collapsing the trust. An investment in an externally-deposited inverse floater is identified in the Portfolio of Investments as an "Inverse floating rate investment". An investment in a self-deposited inverse floater is accounted for as a financing transaction in accordance with Statement of Financial Accounting Standards (SFAS) No. 140 "Accounting for Transfers and Servicing of Financial Assets and 80 Extinguishment of Liabilities". In such instances, a fixed-rate bond deposited into a special purpose trust is identified in the Portfolio of Investments as an "Underlying bond of an inverse floating rate trust", with the Fund accounting for the short-term floating rate certificates issued by the trust as "Floating rate obligations" on the Statement of Assets and Liabilities. In addition, the Fund reflects in Investment Income the entire earnings of the underlying bond and the related interest paid to the holders of the short-term floating rate certificates is included as a component of "Interest expense" on the Statement of Operations. Each Fund may also enter into shortfall and forbearance agreements (sometimes referred to as a "recourse trust" or "credit recovery swap") with a broker-dealer by which a Fund agrees to reimburse the broker-dealer, in certain circumstances, for the difference between the liquidation value of the fixed-rate bond held by the trust and the liquidation value of the floating rate certificates, as well as any shortfalls in interest cash flows. Under these agreements, a Fund's potential exposure to losses related to or on inverse floaters increases beyond the value of the investments included in the Fund's Statement of Assets and Liabilities as the Fund may potentially be liable to fulfill all amounts owed to holders of the floating rate certificates. During the fiscal year ended August 31, 2008, each Fund invested in externally deposited inverse floaters and/or self-deposited inverse floaters. At August 31, 2008, each Fund's maximum exposure to recourse trusts and/or credit recovery swaps is as follows:
INSURED INSURED INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND DIVIDEND DIVIDEND DIVIDEND TAX-FREE INCOME INCOME 2 INCOME ADVANTAGE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NPC) (NCL) (NCU) (NAC) (NVX) (NZH) (NKL) (NKX) ---------------------------------------------------------------------------------------------------------- $ -- $16,845,000 $ -- $31,560,000 $ -- $ -- $ -- $ -- ==========================================================================================================
The average floating rate obligations outstanding and average annual interest rate and fees related to self-deposited inverse floaters during the fiscal year ended August 31, 2008, were as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Average floating rate obligations -- $1,891,913 $3,678,148 $14,883,298 Average annual interest rate and fees -- 2.15% 2.51% 2.52% ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Average floating rate obligations $7,179,923 $3,301,240 $151,639 $829,918 Average annual interest rate and fees 2.65% 2.19% 2.09% 2.03% ==================================================================================================================
Forward Swap Transactions Each Fund is authorized to invest in forward interest rate swap transactions. Each Fund's use of forward interest rate swap transactions is intended to help the Fund manage its overall interest rate sensitivity, either shorter or longer, generally to more closely align the Fund's interest rate sensitivity with that of the broader municipal market. Forward interest rate swap transactions involve each Fund's agreement with a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the "effective date"). The amount of the payment obligation is based on the notional amount of the forward swap contract and the termination date of the swap (which is akin to a bond's maturity). The value of the Fund's swap commitment would increase or decrease based primarily on the extent to which long-term interest rates for bonds having a maturity of the swap's termination date increases or decreases. The Funds may terminate a swap contract prior to the effective date, at which point a realized gain or loss is recognized. When a forward swap is terminated, it ordinarily does not involve the delivery of securities or other underlying assets or principal, but rather is settled in cash on a net basis. Each Fund intends, but is not obligated, to terminate its forward swaps before the effective date. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the credit risk associated with a counterparty failing to honor its commitment to pay any realized gain to the Fund upon termination. To reduce such credit risk, all counterparties are required to pledge collateral daily (based on the daily valuation of each swap) on behalf of each Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when any of the Funds have an unrealized loss on a swap contract, the Funds have instructed the custodian to pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the swap valuations fluctuate, either up or down, by at least the predetermined threshold amount. 81 Notes to FINANCIAL STATEMENTS (continued) Futures Contracts Each Fund is authorized to invest in futures contracts. Upon entering into a futures contract, a Fund is required to deposit with the broker an amount of cash or liquid securities equal to a specified percentage of the contract amount. This is known as the "initial margin." Subsequent payments ("variation margin") are made or received by a Fund each day, depending on the daily fluctuation of the value of the contract. During the period the futures contract is open, changes in the value of the contract are recognized as an unrealized gain or loss by "marking-to-market" on a daily basis to reflect the changes in market value of the contract. When the contract is closed or expired, a Fund records a realized gain or loss equal to the difference between the value of the contract on the closing date and value of the contract when originally entered into. Cash held by the broker to cover initial margin requirements on open futures contracts, if any, is recognized on the Statement of Assets and Liabilities. Additionally, the Statement of Assets and Liabilities reflects a receivable or payable for the variation margin when applicable. California Dividend Advantage 3 (NZH) was the only Fund to invest in futures contracts during the fiscal year ended August 31, 2008. Risks of investments in futures contracts include the possible adverse movement of the securities or indices underlying the contracts, the possibility that there may not be a liquid secondary market for the contracts and/or that a change in the value of the contract may not correlate with a change in the value of the underlying securities or indices. Zero Coupon Securities Each Fund is authorized to invest in zero coupon securities. A zero coupon security does not pay a regular interest coupon to its holders during the life of the security. Tax-exempt income to the holder of the security comes from accretion of the difference between the original purchase price of the security at issuance and the par value of the security at maturity and is effectively paid at maturity. Such securities are included in the Portfolios of Investments with a 0.000% coupon rate in their description. The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically. Offering Costs Costs incurred by Insured California Tax-Free Advantage (NKX) in connection with its offering of the Variable Rate Demand Preferred shares ($530,000) were recorded as a deferred charge which will be amortized over the 30-year life of the shares and is included as a component of "Interest expense" on the Statement of Operations. Custodian Fee Credit Each Fund has an arrangement with the custodian bank whereby certain custodian fees and expenses are reduced by net credits earned on each Fund's cash on deposit with the bank. Such deposit arrangements are an alternative to overnight investments. Credits for cash balances may be offset by charges for any days on which a Fund overdraws its account at the custodian bank. Indemnifications Under the Funds' organizational documents, their Officers and Directors/Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets applicable to Common shares from operations during the reporting period. Actual results may differ from those estimates. 2. FUND SHARES Common Share Repurchases On July 30, 2008, the Funds' Board of Directors/Trustees approved a program under which each Fund may repurchase up to 10% of its common shares. The Funds did not repurchase any of their common shares during the fiscal year ended August 31, 2008. 82 Transactions in Common shares were as follows:
INSURED CALIFORNIA INSURED CALIFORNIA CALIFORNIA PREMIUM INCOME (NPC) PREMIUM INCOME 2 (NCL) PREMIUM INCOME (NCU) --------------------- -------------------- -------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 8/31/08 8/31/07 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------ Common shares issued to shareholders due to reinvestment of distributions -- 4,166 -- -- -- 972 ================================================================================================================== CALIFORNIA DIVIDEND CALIFORNIA DIVIDEND CALIFORNIA DIVIDEND ADVANTAGE (NAC) ADVANTAGE 2 (NVX) ADVANTAGE 3 (NZH) --------------------- -------------------- -------------------- YEAR YEAR YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED ENDED ENDED 8/31/08 8/31/07 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------ Common shares issued to shareholders due to reinvestment of distributions -- 29,993 -- 6,762 -- 19,501 ================================================================================================================== INSURED INSURED CALIFORNIA DIVIDEND CALIFORNIA TAX-FREE ADVANTAGE (NKL) ADVANTAGE (NKX) -------------------- -------------------- YEAR YEAR YEAR YEAR ENDED ENDED ENDED ENDED 8/31/08 8/31/07 8/31/08 8/31/07 ------------------------------------------------------------------------------------------------------------------ Common shares issued to shareholders due to reinvestment of distributions -- 21,450 1,226 2,139 ==================================================================================================================
Transactions in Auction Rate Preferred shares were as follows:
INSURED INSURED CALIFORNIA CALIFORNIA PREMIUM INCOME (NPC) PREMIUM INCOME 2 (NCL) --------------------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 --------------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred shares redeemed and/or noticed for redemption: Series M -- $ -- -- $ -- -- $ -- -- $ -- Series T -- -- -- -- 303 7,575,000 -- -- Series TH -- -- -- -- 304 7,600,000 -- -- Series F -- -- -- -- -- -- -- -- --------------------------------------------------------------------------------------------------------------------- Total -- $ -- -- $ -- 607 $15,175,000 -- $ -- ===================================================================================================================== CALIFORNIA CALIFORNIA DIVIDEND PREMIUM INCOME (NCU) ADVANTAGE (NAC) --------------------------------------- ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 --------------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred shares redeemed and/or noticed for redemption: Series M -- $ -- -- $ -- -- $ -- -- $ -- Series T -- -- -- -- -- -- -- -- Series TH -- -- -- -- 790 19,750,000 -- -- Series F -- -- -- -- 789 19,725,000 -- -- --------------------------------------------------------------------------------------------------------------------- Total -- $ -- -- $ -- 1,579 $39,475,000 -- $ -- =====================================================================================================================
83 Notes to FINANCIAL STATEMENTS (continued)
CALIFORNIA DIVIDEND CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) ADVANTAGE 3 (NZH) ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 ----------------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred shares redeemed and/or noticed for redemption: Series M -- $ -- -- $ -- 542 $13,550,000 -- $ -- Series T -- -- -- -- -- -- -- -- Series TH -- -- -- -- 541 $13,525,000 -- -- Series F -- -- -- -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total -- $ -- -- $ -- 1,083 $27,075,000 -- $ -- ======================================================================================================================= INSURED INSURED CALIFORNIA DIVIDEND CALIFORNIA TAX-FREE ADVANTAGE (NKL) ADVANTAGE (NKX) ------------------------------------------ ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED 8/31/08 8/31/07 8/31/08 8/31/07 ----------------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------------------------------------------------------------------- Auction Rate Preferred shares redeemed and/or noticed for redemption: Series M -- $ -- -- $ -- -- $ -- -- $ -- Series T 195 4,875,000 -- -- -- -- -- -- Series TH -- -- -- -- 1,800 45,000,000 -- -- Series F 195 4,875,000 -- -- -- -- -- -- ----------------------------------------------------------------------------------------------------------------------- Total 390 $9,750,000 -- $ -- 1,800 $45,000,000 -- $ -- =======================================================================================================================
Transactions in Variable Rate Demand Preferred shares were as follows:
INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) ------------------------------------------ YEAR ENDED YEAR ENDED 8/31/08 8/31/07 ----------------------------------------------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ----------------------------------------------------------------------------------------------------------------------- Variable Rate Demand Preferred shares issued: Series 1 355 $35,500,000 -- $ -- =======================================================================================================================
3. INVESTMENT TRANSACTIONS Purchases and sales (including maturities but excluding short-term investments and derivative transactions) during the fiscal year ended August 31, 2008, were as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) -------------------------------------------------------------------------------------------------------------------- Purchases $24,476,645 $34,316,455 $5,947,420 $100,123,596 Sales and maturities 24,477,060 35,625,054 11,794,660 117,435,613 ====================================================================================================================
84
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) -------------------------------------------------------------------------------------------------------------------- Purchases $64,122,478 $119,657,892 $21,900,905 $34,917,108 Sales and maturities 68,545,230 153,537,475 38,036,895 44,533,576 ====================================================================================================================
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 taxable market discount, timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments in inverse floating rate transactions subject to SFAS No.140. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts on the Statement of Assets and Liabilities presented in the annual report, based on their federal tax basis treatment; temporary differences do not require reclassification. Temporary and permanent differences do not impact the net asset values of the Funds. At August 31, 2008, the cost of investments was as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Cost of investments $135,787,726 $255,335,448 $107,769,507 $469,222,970 ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Cost of investments $309,644,085 $478,818,423 $323,037,760 $117,205,395 ==================================================================================================================
Gross unrealized appreciation and gross unrealized depreciation of investments at August 31, 2008, were as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) --------------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 6,972,873 $ 7,113,290 $ 3,407,995 $ 14,237,419 Depreciation (1,214,742) (5,928,400) (2,928,675) (17,511,427) --------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $ 5,758,131 $ 1,184,890 $ 479,320 $ (3,274,008) ===================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) --------------------------------------------------------------------------------------------------------------------- Gross unrealized: Appreciation $ 11,894,981 $ 13,169,005 $12,055,425 $ 2,767,668 Depreciation (10,275,181) (20,119,880) (6,484,638) (2,789,498) --------------------------------------------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) of investments $ 1,619,800 $ (6,950,875) $ 5,570,787 $ (21,830) =====================================================================================================================
85 Notes to FINANCIAL STATEMENTS (continued) The tax components of undistributed net tax-exempt income, net ordinary income and net long-term capital gains at August 31, 2008, the Funds' tax year end, were as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Undistributed net tax-exempt income * $504,463 $1,265,455 $394,553 $1,551,788 Undistributed net ordinary income ** 759,818 212,980 -- 4,390,503 Undistributed net long-term capital gains 356,269 1,408,325 48,738 3,748,751 ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Undistributed net tax-exempt income * $1,134,252 $2,157,520 $983,345 $350,039 Undistributed net ordinary income ** 35,139 11,584 616,317 43,459 Undistributed net long-term capital gains 672,624 -- 153,290 408,931 ==================================================================================================================
* Undistributed net tax-exempt income (on a tax basis) has not been reduced for the dividend declared on August 1, 2008, paid on September 2, 2008. ** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. The tax character of distributions paid during the Funds' tax years ended August 31, 2008 and August 31, 2007, was designated for purposes of the dividends paid deduction as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE 2008 (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income *** $6,134,637 $11,218,712 $5,106,134 $22,909,598 Distributions from net ordinary income ** 65,183 -- -- -- Distributions from net long-term capital gains **** 46,723 -- -- 1,099,170 ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE 2008 (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income *** $13,977,615 $23,159,643 $14,876,094 $5,562,376 Distributions from net ordinary income ** -- -- -- -- Distributions from net long-term capital gains **** -- -- 457,297 -- ==================================================================================================================
** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. *** The Funds hereby designate these amounts paid during the fiscal year ended August 31, 2008, as Exempt Interest Dividends. **** The Funds designated as a long-term capital gain dividend, pursuant to the Internal Revenue Code Section 852(b)(3), the amount necessary to reduce earnings and profits of the Funds related to net capital gain to zero for the tax year ended August 31, 2008. 86
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE 2007 (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income $6,064,156 $11,716,879 $5,291,072 $24,556,552 Distributions from net ordinary income ** 46,600 -- -- 395 Distributions from net long-term capital gains 604,806 -- 228,328 1,560,803 ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE 2007 (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Distributions from net tax-exempt income $15,011,893 $24,913,042 $15,884,429 $5,618,698 Distributions from net ordinary income ** -- -- -- -- Distributions from net long-term capital gains -- -- 50,375 -- ==================================================================================================================
** Net ordinary income consists of taxable market discount income and net short-term capital gains, if any. At August 31, 2008, the Fund's tax year end, the following Fund 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: CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) -------------------------------------------------------------------------------- Expiration: August 31, 2011 $2,816,211 August 31, 2012 323,840 August 31, 2016 3,869,938 -------------------------------------------------------------------------------- Total $7,009,989 ================================================================================ The following Funds have elected to defer net realized losses from investments incurred from November 1, 2007 through August 31, 2008, the Funds' tax year end, ("post-October losses") in accordance with federal income tax regulations. Post-October losses are treated as having arisen on the first day of the following fiscal year: INSURED CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND ADVANTAGE 3 ADVANTAGE (NZH) (NKL) -------------------------------------------------------------------------------- Post-October capital losses $529,587 $190,813 ================================================================================ 5. MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES Each Fund's management fee is separated into two components - a complex-level component, based on the aggregate amount of all fund assets managed by the Adviser, and a specific fund-level component, based only on the amount of assets within each individual Fund. This pricing structure enables Nuveen fund shareholders to benefit from growth in the assets within each individual fund as well as from growth in the amount of complex-wide assets managed by the Adviser. 87 Notes to FINANCIAL STATEMENTS (continued) The annual fund-level fee, payable monthly, for each Fund is based upon the average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares) of each Fund as follows:
INSURED CALIFORNIA PREMIUM INCOME (NPC) INSURED CALIFORNIA PREMIUM INCOME 2 (NCL) AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS ATTRIBUTABLE CALIFORNIA PREMIUM INCOME (NCU) TO AUCTION RATE PREFERRED SHARES OR VARIABLE RATE DEMAND PREFERRED SHARES) FUND-LEVEL FEE RATE ------------------------------------------------------------------------------------------------------------------ For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For the next $3 billion .3875 For net assets over $5 billion .3750 ==================================================================================================================
CALIFORNIA DIVIDEND ADVANTAGE (NAC) CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) AVERAGE DAILY NET ASSETS (INCLUDING NET ASSETS ATTRIBUTABLE TO INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) AUCTION RATE PREFERRED SHARES OR VARIABLE RATE DEMAND PREFERRED SHARES) FUND-LEVEL FEE RATE ------------------------------------------------------------------------------------------------------------------ For the first $125 million .4500% For the next $125 million .4375 For the next $250 million .4250 For the next $500 million .4125 For the next $1 billion .4000 For net assets over $2 billion .3750 ==================================================================================================================
The annual complex-level fee, payable monthly, which is additive to the fund-level fee, for all Nuveen sponsored funds in the U.S., is based on the aggregate amount of total fund assets managed as stated in the table below. As of August 31, 2008, the complex-level fee rate was .1867%. 88 The complex-level fee schedule is as follows: COMPLEX-LEVEL ASSET BREAKPOINT LEVEL (1) EFFECTIVE RATE AT BREAKPOINT LEVEL -------------------------------------------------------------------------------- $55 billion .2000% $56 billion .1996 $57 billion .1989 $60 billion .1961 $63 billion .1931 $66 billion .1900 $71 billion .1851 $76 billion .1806 $80 billion .1773 $91 billion .1691 $125 billion .1599 $200 billion .1505 $250 billion .1469 $300 billion .1445 ================================================================================ (1) The complex-level fee component of the management fee for the funds is calculated based upon the aggregate daily net assets of all Nuveen-sponsored funds in the United States, with such daily net assets to include assets attributable to Preferred stock (Auction Rate Preferred shares or Variable Rate Demand Preferred shares) issued by or borrowings by such funds but to exclude assets attributable to investments in other Nuveen-sponsored funds. The management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. The Funds pay no compensation directly to those of its Directors/Trustees who are affiliated with the Adviser or to its Officers, all of whom receive remuneration for their services to the Funds from the Adviser or its affiliates. The Board of Directors/Trustees has adopted a deferred compensation plan for independent Directors/Trustees that enables Directors/Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from certain Nuveen advised funds. Under the plan, deferred amounts are treated as though equal dollar amounts had been invested in shares of select Nuveen advised funds. For the first ten years of California Dividend Advantage's (NAC) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING JULY 31, JULY 31, -------------------------------------------------------------------------------- 1999* .30% 2005 .25% 2000 .30 2006 .20 2001 .30 2007 .15 2002 .30 2008 .10 2003 .30 2009 .05 2004 .30 ================================================================================ * From the commencement of operations. The Adviser has not agreed to reimburse California Dividend Advantage (NAC) for any portion of its fees and expenses beyond July 31, 2009. For the first ten years of California Dividend Advantage 2's (NVX) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand 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, -------------------------------------------------------------------------------- 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. 89 Notes to FINANCIAL STATEMENTS (continued) The Adviser has not agreed to reimburse California Dividend Advantage 2 (NVX) for any portion of its fees and expenses beyond March 31, 2011. For the first ten years of California Dividend Advantage 3's (NZH) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand 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, -------------------------------------------------------------------------------- 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 California Dividend Advantage 3 (NZH) for any portion of its fees and expenses beyond September 30, 2011. For the first ten years of Insured California Dividend Advantage's (NKL) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand 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 Insured California Dividend Advantage (NKL) for any portion of its fees and expenses beyond March 31, 2012. For the first eight years of Insured California Tax-Free Advantage's (NKX) operations, the Adviser has agreed to reimburse the Fund, as a percentage of average daily net assets (including net assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares), for fees and expenses in the amounts and for the time periods set forth below: YEAR ENDING YEAR ENDING NOVEMBER 30, NOVEMBER 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 Insured California Tax-Free Advantage (NKX) for any portion of its fees and expenses beyond November 30, 2010. 90 Agreement and Plan of Merger On June 20, 2007, Nuveen announced that it had entered into a definitive Agreement and Plan of Merger ("Merger Agreement") with Windy City Investments, Inc. ("Windy City"), a corporation formed by investors led by Madison Dearborn Partners, LLC ("Madison Dearborn"), pursuant to which Windy City would acquire Nuveen. Madison Dearborn is a private equity investment firm based in Chicago, Illinois. The merger was consummated on November 13, 2007. The consummation of the merger was deemed to be an "assignment" (as that term is defined in the Investment Company Act of 1940) of the investment management agreement between each Fund and the Adviser, and resulted in the automatic termination of each Fund's agreement. The Board of Directors/Trustees of each Fund considered and approved a new investment management agreement with the Adviser on the same terms as the previous agreements. Each new ongoing investment management agreement, was approved by the shareholders of each Fund and took effect on November 13, 2007. The investors led by Madison Dearborn includes an affiliate of Merrill Lynch. As a result, Merrill Lynch is an indirect "affiliated person" (as that term is defined in the Investment Company Act of 1940) of each Fund. Certain conflicts of interest may arise as a result of such indirect affiliation. For example, the Funds are generally prohibited from entering into principal transactions with Merrill Lynch and its affiliates. The Adviser does not believe that any such prohibitions or limitations as a result of Merrill Lynch's affiliation will significantly impact the ability of the Funds to pursue their investment objectives and policies. 6. NEW ACCOUNTING PRONOUNCEMENTS Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157 In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this standard relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of August 31, 2008, management does not believe the adoption of SFAS No. 157 will impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements included within the Statement of Operations for the period. Financial Accounting Standards Board Statement of Financial Accounting Standards No. 161 In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities." This standard is intended to enhance financial statement disclosures for derivative instruments and hedging activities and enable investors to understand: a) how and why a fund uses derivative instruments, b) how derivative instruments and related hedge items are accounted for, and c) how derivative instruments and related hedge items affect a fund's financial position, results of operations and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As of August 31, 2008, management does not believe the adoption of SFAS No. 161 will impact the financial statement amounts; however, additional footnote disclosures may be required about the use of derivative instruments and hedging items. 7. SUBSEQUENT EVENTS Distributions to Common Shareholders The Funds declared Common share dividend distributions from their tax-exempt net investment income which were paid on October 1, 2008, to shareholders of record on September 15, 2008, as follows:
INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA PREMIUM PREMIUM PREMIUM DIVIDEND INCOME INCOME 2 INCOME ADVANTAGE (NPC) (NCL) (NCU) (NAC) ------------------------------------------------------------------------------------------------------------------ Dividend per share $.0605 $.0560 $.0555 $.0630 ================================================================================================================== INSURED INSURED CALIFORNIA CALIFORNIA CALIFORNIA CALIFORNIA DIVIDEND DIVIDEND DIVIDEND TAX-FREE ADVANTAGE 2 ADVANTAGE 3 ADVANTAGE ADVANTAGE (NVX) (NZH) (NKL) (NKX) ------------------------------------------------------------------------------------------------------------------ Dividend per share $.0605 $.0615 $.0620 $.0590 ==================================================================================================================
91 Financial HIGHLIGHTS Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ----------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Auction Rate Auction Rate Common Common Net Asset Investment Unrealized Preferred Preferred Share- Share- Value Income Gain (Loss) Shareholders+ Shareholders+ Total holders holders Total =============================================================================================================================== INSURED CALIFORNIA PREMIUM INCOME (NPC) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $15.04 $.95 $(.10) $(.22) $ --*** $ .63 $(.73) $(.01) $ (.74) 2007 15.58 .90 (.40) (.21) (.02) .27 (.73) (.08) (.81) 2006 16.21 .92 (.38) (.18) (.02) .34 (.83) (.14) (.97) 2005 16.23 .95 .22 (.10) (.01) 1.06 (.92) (.16) (1.08) 2004 15.59 .99 .68 (.05) -- 1.62 (.93) (.05) (.98) INSURED CALIFORNIA PREMIUM INCOME 2 (NCL) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 14.50 .95 (.44) (.24) -- .27 (.64) -- (.64) 2007 14.99 .89 (.46) (.25) -- .18 (.67) -- (.67) 2006 15.33 .90 (.28) (.20) -- .42 (.76) -- (.76) 2005 15.12 .91 .29 (.11) -- 1.09 (.88) -- (.88) 2004 14.60 .96 .53 (.06) -- 1.43 (.91) -- (.91) =============================================================================================================================== Total Returns -------------------- Based Ending on Common Based Common Share Ending on Share Net Net Asset Market Market Asset Value Value Value* Value* ============================================================== INSURED CALIFORNIA PREMIUM INCOME (NPC) -------------------------------------------------------------- Year Ended 8/31: 2008 $14.93 $13.89 (2.21)% 4.23% 2007 15.04 14.96 4.61 1.70 2006 15.58 15.08 1.00 2.23 2005 16.21 15.90 7.58 6.74 2004 16.23 15.81 11.80 10.64 INSURED CALIFORNIA PREMIUM INCOME 2 (NCL) -------------------------------------------------------------- Year Ended 8/31: 2008 14.13 12.66 (3.06) 1.86 2007 14.50 13.71 1.26 1.18 2006 14.99 14.19 (.63) 2.91 2005 15.33 15.05 5.10 7.42 2004 15.12 15.18 12.71 10.02 ============================================================== Ratios/Supplemental Data ------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Before Credit/Reimbursement After Credit/Reimbursement** ----------------------------------------- ------------------------------------------- Ending Net Assets Applicable Expenses Expenses Net Expenses Expenses Net Portfolio to Common Including Excluding Investment Including Excluding Investment Turnover Shares (000) Interest++(a) Interest++(a) Income++ Interest++(a) Interest++(a) Income++ Rate =================================================================================================================================== INSURED CALIFORNIA PREMIUM INCOME (NPC) ----------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $ 96,462 1.19% 1.19% 6.24% 1.17% 1.17% 6.25% 17% 2007 97,176 1.22 1.16 5.84 1.20 1.14 5.87 9 2006 100,581 1.16 1.16 5.89 1.15 1.15 5.90 9 2005 104,510 1.14 1.14 5.85 1.13 1.13 5.86 9 2004 104,618 1.17 1.17 6.17 1.16 1.16 6.17 25 INSURED CALIFORNIA PREMIUM INCOME 2 (NCL) ----------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 179,734 1.23 1.21 6.56 1.22 1.19 6.57 12 2007 184,343 1.24 1.18 6.00 1.22 1.17 6.01 19 2006 190,571 1.20 1.20 6.05 1.19 1.19 6.05 14 2005 194,895 1.17 1.17 6.03 1.17 1.17 6.03 7 2004 192,035 1.19 1.19 6.38 1.19 1.19 6.38 35 ===================================================================================================================================
Auction Rate Preferred Shares Variable Rate Demand Preferred Shares at End of Period at End of Period -------------------------------------- ------------------------------------------- Aggregate Liquidation Aggregate Liquidation Amount and Market Asset Amount and Market Asset Outstanding Value Coverage Outstanding Value Coverage (000) Per Share Per Share (000) Per Share Per Share ================================================================================================== INSURED CALIFORNIA PREMIUM INCOME (NPC) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $45,000 $25,000 $78,590 $ -- $ -- $ -- 2007 45,000 25,000 78,987 -- -- -- 2006 45,000 25,000 80,878 -- -- -- 2005 45,000 25,000 83,061 -- -- -- 2004 45,000 25,000 83,121 -- -- -- INSURED CALIFORNIA PREMIUM INCOME 2 (NCL) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 87,400 25,000 76,411 -- -- -- 2007 95,000 25,000 73,511 -- -- -- 2006 95,000 25,000 75,150 -- -- -- 2005 95,000 25,000 76,288 -- -- -- 2004 95,000 25,000 75,535 -- -- -- ==================================================================================================
* Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based on Common Share Net Asset Value is the combination of changes in Common share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not annualized. ** After custodian fee credit and expense reimbursement, where applicable. *** Rounds to less than $.01 per share. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Auction Rate Preferred shareholders; income ratios reflect income earned on assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares, where applicable. (a) Interest expense arises from payments to Variable Rate Demand Preferred shareholders and the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities, where applicable. See accompanying notes to financial statements. 92-93 spread Financial HIGHLIGHTS (continued) Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ----------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Auction Rate Auction Rate Common Common Net Asset Investment Unrealized Preferred Preferred Share- Share- Value Income Gain (Loss) Shareholders+ Shareholders+ Total holders holders Total =============================================================================================================================== CALIFORNIA PREMIUM INCOME (NCU) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $14.06 $ .92 $ (.43) $(.24) $ -- $ .25 $(.64) $ -- $ (.64) 2007 14.63 .90 (.52) (.24) (.01) .13 (.67) (.03) (.70) 2006 15.03 .89 (.30) (.21) -- .38 (.77) (.01) (.78) 2005 14.51 .90 .60 (.12) -- 1.38 (.86) -- (.86) 2004 13.66 .94 .85 (.06) -- 1.73 (.88) -- (.88) CALIFORNIA DIVIDEND ADVANTAGE (NAC) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 14.93 1.02 (.50) (.23) (.01) .28 (.74) (.04) (.78) 2007 15.59 1.00 (.56) (.24) (.01) .19 (.80) (.05) (.85) 2006 15.98 1.01 (.25) (.21) -- .55 (.91) (.03) (.94) 2005 15.59 1.04 .50 (.12) -- 1.42 (.98) (.05) (1.03) 2004 14.82 1.05 .76 (.06) -- 1.75 (.98) -- (.98) =============================================================================================================================== Total Returns -------------------- Based Ending on Common Based Common Share Ending on Share Net Net Asset Market Market Asset Value Value Value* Value* =============================================================== CALIFORNIA PREMIUM INCOME (NCU) --------------------------------------------------------------- Year Ended 8/31: 2008 $13.67 $12.58 1.51% 1.81% 2007 14.06 13.03 (2.21) .82 2006 14.63 14.01 3.14 2.72 2005 15.03 14.37 11.76 9.75 2004 14.51 13.67 12.04 12.94 CALIFORNIA DIVIDEND ADVANTAGE (NAC) --------------------------------------------------------------- Year Ended 8/31: 2008 14.43 13.44 (.84) 1.85 2007 14.93 14.34 (5.19) 1.16 2006 15.59 15.97 5.47 3.63 2005 15.98 16.07 14.62 9.41 2004 15.59 15.00 12.07 12.11 =============================================================== Ratios/Supplemental Data ----------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Before Credit/Reimbursement After Credit/Reimbursement** ----------------------------------------- ------------------------------------------- Ending Net Assets Applicable Expenses Expenses Net Expenses Expenses Net Portfolio to Common Including Excluding Investment Including Excluding Investment Turnover Shares (000) Interest++(a) Interest++(a) Income++ Interest++(a) Interest++(a) Income++ Rate ==================================================================================================================================== CALIFORNIA PREMIUM INCOME (NCU) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 $ 78,966 1.34% 1.23% 6.56% 1.33% 1.21% 6.57% 5% 2007 81,200 1.29 1.21 6.14 1.27 1.19 6.16 11 2006 84,467 1.23 1.23 6.09 1.21 1.21 6.10 20 2005 86,785 1.21 1.21 6.08 1.20 1.20 6.09 13 2004 83,772 1.23 1.23 6.62 1.22 1.22 6.63 19 CALIFORNIA DIVIDEND ADVANTAGE (NAC) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 338,732 1.26 1.15 6.77 1.10 .99 6.93 19 2007 350,523 1.17 1.12 6.24 .94 .89 6.47 20 2006 365,516 1.13 1.13 6.22 .83 .83 6.51 13 2005 374,265 1.12 1.12 6.22 .75 .75 6.59 4 2004 365,066 1.14 1.14 6.38 .70 .70 6.83 12 ====================================================================================================================================
Auction Rate Preferred Shares Variable Rate Demand Preferred Shares at End of Period at End of Period -------------------------------------- ------------------------------------------- Aggregate Liquidation Aggregate Liquidation Amount and Market Asset Amount and Market Asset Outstanding Value Coverage Outstanding Value Coverage (000) Per Share Per Share (000) Per Share Per Share ================================================================================================== CALIFORNIA PREMIUM INCOME (NCU) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $ 43,000 $25,000 $70,910 $ -- $ -- $ -- 2007 43,000 25,000 72,209 -- -- -- 2006 43,000 25,000 74,109 -- -- -- 2005 43,000 25,000 75,456 -- -- -- 2004 43,000 25,000 73,704 -- -- -- CALIFORNIA DIVIDEND ADVANTAGE (NAC) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 135,525 25,000 87,485 -- -- -- 2007 175,000 25,000 75,075 -- -- -- 2006 175,000 25,000 77,217 -- -- -- 2005 175,000 25,000 78,466 -- -- -- 2004 175,000 25,000 77,152 -- -- -- ==================================================================================================
* Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based on Common Share Net Asset Value is the combination of changes in Common share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not annualized. ** 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 Auction Rate Preferred shareholders; income ratios reflect income earned on assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares, where applicable. (a) Interest expense arises from payments to Variable Rate Demand Preferred shareholders and the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities, where applicable. See accompanying notes to financial statements. 94-95 spread Financial HIGHLIGHTS (continued) Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ----------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Auction Rate Auction Rate Common Common Net Asset Investment Unrealized Preferred Preferred Share- Share- Value Income Gain (Loss) Shareholders+ Shareholders+ Total holders holders Total =============================================================================================================================== CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $14.69 $1.01 $(.37) $(.25) $ -- $ .39 $(.69) $ -- $(.69) 2007 15.36 .96 (.62) (.25) -- .09 (.76) -- (.76) 2006 15.63 .97 (.19) (.21) -- .57 (.84) -- (.84) 2005 14.97 .98 .71 (.12) -- 1.57 (.91) -- (.91) 2004 14.18 .99 .77 (.06) -- 1.70 (.91) -- (.91) CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 14.25 1.03 (.70) (.25) -- .08 (.71) -- (.71) 2007 15.03 .98 (.73) (.27) -- (.02) (.76) -- (.76) 2006 15.31 .97 (.20) (.22) -- .55 (.83) -- (.83) 2005 14.65 .97 .68 (.13) -- 1.52 (.86) -- (.86) 2004 13.72 .98 .88 (.07) -- 1.79 (.86) -- (.86) =============================================================================================================================== Total Returns -------------------- Based Ending on Common Based Common Share Ending on Share Net Net Asset Market Market Asset Value Value Value* Value* =============================================================== CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) --------------------------------------------------------------- Year Ended 8/31: 2008 $14.39 $12.67 (2.80)% 2.76% 2007 14.69 13.73 (3.39) .46 2006 15.36 14.95 4.19 3.82 2005 15.63 15.19 14.98 10.80 2004 14.97 14.08 13.60 12.11 CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) --------------------------------------------------------------- Year Ended 8/31: 2008 13.62 12.87 .46 .60 2007 14.25 13.52 (4.12) (.32) 2006 15.03 14.84 8.50 3.81 2005 15.31 14.49 15.75 10.69 2004 14.65 13.33 11.97 13.36 =============================================================== Ratios/Supplemental Data ------------------------------------------------------------------------------------------------------------------ Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Before Credit/Reimbursement After Credit/Reimbursement** ----------------------------------------- ------------------------------------------- Ending Net Assets Applicable Expenses Expenses Net Expenses Expenses Net Portfolio to Common Including Excluding Investment Including Excluding Investment Turnover Shares (000) Interest++(a) Interest++(a) Income++ Interest++(a) Interest++(a) Income++ Rate ==================================================================================================================================== CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 $212,890 1.25% 1.16% 6.56% .97% .88% 6.85% 20% 2007 217,332 1.25 1.17 5.97 .89 .81 6.33 21 2006 227,160 1.16 1.16 5.94 .73 .73 6.36 9 2005 231,140 1.16 1.16 5.94 .70 .70 6.40 3 2004 221,395 1.18 1.18 6.24 .72 .72 6.70 13 CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 328,659 1.21 1.19 6.96 .88 .86 7.29 23 2007 343,806 1.22 1.16 6.16 .81 .76 6.56 23 2006 362,473 1.16 1.16 6.08 .70 .70 6.54 10 2005 369,262 1.17 1.17 6.05 .70 .70 6.51 5 2004 353,360 1.20 1.20 6.32 .73 .73 6.78 13 ====================================================================================================================================
Auction Rate Preferred Shares Variable Rate Demand Preferred Shares at End of Period at End of Period -------------------------------------- ------------------------------------------- Aggregate Liquidation Aggregate Liquidation Amount and Market Asset Amount and Market Asset Outstanding Value Coverage Outstanding Value Coverage (000) Per Share Per Share (000) Per Share Per Share ================================================================================================== CALIFORNIA DIVIDEND ADVANTAGE 2 (NVX) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $110,000 $25,000 $73,384 $ -- $ -- $ -- 2007 110,000 25,000 74,394 -- -- -- 2006 110,000 25,000 76,627 -- -- -- 2005 110,000 25,000 77,532 -- -- -- 2004 110,000 25,000 75,317 -- -- -- CALIFORNIA DIVIDEND ADVANTAGE 3 (NZH) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 159,925 25,000 76,377 -- -- -- 2007 187,000 25,000 70,963 -- -- -- 2006 187,000 25,000 73,459 -- -- -- 2005 187,000 25,000 74,367 -- -- -- 2004 187,000 25,000 72,241 -- -- -- ==================================================================================================
* Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based on Common Share Net Asset Value is the combination of changes in Common share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not annualized. ** 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 Auction Rate Preferred shareholders; income ratios reflect income earned on assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares, where applicable. (a) Interest expense arises from payments to Variable Rate Demand Preferred shareholders and the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities, where applicable. See accompanying notes to financial statements. 96-97 spread Financial HIGHLIGHTS (continued) Selected data for a Common share outstanding throughout each period:
Investment Operations Less Distributions ----------------------------------------------------------------- ------------------------------- Distributions Distributions from Net from Net Beginning Investment Capital Investment Capital Common Net Income to Gains to Income to Gains to Share Net Realized/ Auction Rate Auction Rate Common Common Net Asset Investment Unrealized Preferred Preferred Share- Share- Value Income Gain (Loss) Shareholders+ Shareholders+ Total holders holders Total =============================================================================================================================== INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $14.91 $1.03 $(.33) $(.25) $(.01) $.44 $(.72) $(.02) $ (.74) 2007 15.50 1.01 (.57) (.26) --*** .18 (.77) --*** (.77) 2006 15.81 1.01 (.25) (.22) -- .54 (.85) -- (.85) 2005 15.35 1.01 .52 (.12) -- 1.41 (.90) (.05) (.95) 2004 14.60 1.02 .84 (.06) (.01) 1.79 (.91) (.13) (1.04) INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) ------------------------------------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 14.47 .97 (.30) (.24) -- .43 (.71) -- (.71) 2007 14.92 .96 (.46) (.24) -- .26 (.71) -- (.71) 2006 15.17 .95 (.25) (.21) -- .49 (.74) -- (.74) 2005 14.62 .96 .57 (.13) -- 1.40 (.85) -- (.85) 2004 13.79 .96 .84 (.06) -- 1.74 (.91) -- (.91) =============================================================================================================================== Total Returns -------------------- Based Ending on Common Based Common Share Ending on Share Net Net Asset Market Market Asset Value Value Value* Value* =============================================================== INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) --------------------------------------------------------------- Year Ended 8/31: 2008 $14.61 $13.50 (.03)% 2.98% 2007 14.91 14.24 (4.64) 1.13 2006 15.50 15.70 10.72 3.62 2005 15.81 15.00 9.00 9.46 2004 15.35 14.67 12.54 12.53 INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) --------------------------------------------------------------- Year Ended 8/31: 2008 14.19 13.78 .12 2.97 2007 14.47 14.47 6.35 1.69 2006 14.92 14.27 4.56 3.43 2005 15.17 14.38 7.46 9.84 2004 14.62 14.19 11.54 12.86 =============================================================== Ratios/Supplemental Data ----------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets Ratios to Average Net Assets Applicable to Common Shares Applicable to Common Shares Before Credit/Reimbursement After Credit/Reimbursement** ----------------------------------------- ------------------------------------------- Ending Net Assets Applicable Expenses Expenses Net Expenses Expenses Net Portfolio to Common Including Excluding Investment Including Excluding Investment Turnover Shares (000) Interest++(a) Interest++(a) Income++ Interest++(a) Interest++(a) Income++ Rate ==================================================================================================================================== INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 $223,356 1.19% 1.19% 6.52% .83% .83% 6.88% 6% 2007 227,923 1.21 1.16 6.12 .78 .73 6.55 12 2006 236,525 1.17 1.17 6.12 .71 .71 6.58 3 2005 241,254 1.16 1.16 6.06 .71 .71 6.51 4 2004 234,186 1.18 1.18 6.28 .72 .72 6.74 14 INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) ------------------------------------------------------------------------------------------------------------------------------------ Year Ended 8/31: 2008 83,531 1.33 1.26 6.28 .91 .83 6.70 28 2007 85,144 1.27 1.21 5.95 .77 .71 6.45 15 2006 87,775 1.22 1.22 5.97 .73 .73 6.46 4 2005 89,272 1.21 1.21 5.95 .73 .73 6.43 3 2004 86,008 1.23 1.23 6.17 .73 .73 6.67 20 ====================================================================================================================================
Auction Rate Preferred Shares Variable Rate Demand Preferred Shares at End of Period at End of Period -------------------------------------- ------------------------------------------- Aggregate Liquidation Aggregate Liquidation Amount and Market Asset Amount and Market Asset Outstanding Value Coverage Outstanding Value Coverage (000) Per Share Per Share (000) Per Share Per Share ================================================================================================== INSURED CALIFORNIA DIVIDEND ADVANTAGE (NKL) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 $118,000 $25,000 $72,321 $ -- $ -- $ -- 2007 118,000 25,000 73,289 -- -- -- 2006 118,000 25,000 75,111 -- -- -- 2005 118,000 25,000 76,113 -- -- -- 2004 118,000 25,000 74,616 -- -- -- INSURED CALIFORNIA TAX-FREE ADVANTAGE (NKX) -------------------------------------------------------------------------------------------------- Year Ended 8/31: 2008 -- -- -- 35,500 100,000 335,299 2007 45,000 25,000 72,302 -- -- -- 2006 45,000 25,000 73,764 -- -- -- 2005 45,000 25,000 74,595 -- -- -- 2004 45,000 25,000 72,782 -- -- -- ==================================================================================================
* Total Return Based on Market Value is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized. Total Return Based on Common Share Net Asset Value is the combination of changes in Common share net asset value, reinvested dividend income at net asset value and reinvested capital gains distributions at net asset value, if any. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending net asset value. The actual reinvest price for the last dividend declared in the period may often be based on the Fund's market price (and not its net asset value), and therefore may be different from the price used in the calculation. Total returns are not annualized. ** After custodian fee credit and expense reimbursement, where applicable. *** Rounds to less than $.01 per share. + The amounts shown are based on Common share equivalents. ++ Ratios do not reflect the effect of dividend payments to Auction Rate Preferred shareholders; income ratios reflect income earned on assets attributable to Auction Rate Preferred shares or Variable Rate Demand Preferred shares, where applicable. (a) Interest expense arises from payments to Variable Rate Demand Preferred shareholders and the application of SFAS No. 140 to certain inverse floating rate transactions entered into by the Fund as more fully described in Footnote 1 - Inverse Floating Rate Securities, where applicable. See accompanying notes to financial statements. 98-99 spread Board Members & Officers The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board Members of the Funds. The number of board members of the Fund is currently set at nine. None of the board members who are not "interested" persons of the Funds (referred to herein as "independent board members") has ever been a director or employee of, or consultant to, Nuveen or its affiliates. The names and business addresses of the board members and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
NAME, POSITION(S) HELD YEAR FIRST NUMBER PRINCIPAL BIRTHDATE WITH THE FUNDS ELECTED OR OF PORTFOLIOS OCCUPATION(S) & ADDRESS APPOINTED IN FUND COMPLEX INCLUDING OTHER AND TERM(1) OVERSEEN BY DIRECTORSHIPS BOARD MEMBER DURING PAST 5 YEARS INDEPENDENT BOARD MEMBERS: [] ROBERT P. BREMNER Private Investor and Management Consultant. 8/22/40 Chairman of 1997 333 W. Wacker Drive the Board CLASS III 186 Chicago, IL 60606 and Board member [] JACK B. EVANS President, The Hall-Perrine Foundation, a 10/22/48 1999 private philanthropic corporation (since 333 W. Wacker Drive Board member CLASS III 186 1996); Director and Vice Chairman, United Chicago, IL 60606 Fire Group, a publicly held company; Member of the Board of Regents for the State of Iowa University System; Director, Gazette Companies; Life Trustee of Coe College and Iowa College Foundation; Member of the Advisory Council of the Department of Finance in the Tippie College of Business, University of Iowa; formerly, Director, Alliant Energy; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. [] WILLIAM C. HUNTER Dean, Tippie College of Business, University 3/6/48 2004 of Iowa (since July 2006); formerly, Dean 333 W. Wacker Drive Board member ANNUAL 186 and Distinguished Professor of Finance, Chicago, IL 60606 School of Business at the University of Connecticut (2003-2006); previously, Senior Vice President and Director of Research at the Federal Reserve Bank of Chicago (1995-2003); Director (since 1997), Credit Research Center at Georgetown University; Director (since 2004) of Xerox Corporation; Director (since 2005), Beta Gamma Sigma International Honor Society; Director, SS&C Technologies, Inc. (May 2005-October 2005). [] DAVID J. KUNDERT Director, Northwestern Mutual Wealth 10/28/42 2005 Management Company; Retired (since 2004) as 333 W. Wacker Drive Board member CLASS II 186 Chairman, JPMorgan Fleming Asset Management, Chicago, IL 60606 President and CEO, Banc One Investment Advisors Corporation, and President, One Group Mutual Funds; prior thereto, Executive Vice President, Banc One Corporation and Chairman and CEO, Banc One Investment Management Group; Member, Board of Regents, Luther College; member of the Wisconsin Bar Association; member of Board of Directors, Friends of Boerner Botanical Gardens; member of Investment Committee, Greater Milwaukee Foundation. [] WILLIAM J. SCHNEIDER Chairman, formerly, Senior Partner and Chief 9/24/44 1997 Operating Officer (retired, 2004) of 333 W. Wacker Drive Board member ANNUAL 186 Miller-Valentine Partners Ltd., a real Chicago, IL 60606 estate investment company; Director, Dayton Development Coalition; formerly, member, Business Advisory Council, Cleveland Federal Reserve Bank. 100 NAME, POSITION(S) HELD YEAR FIRST NUMBER PRINCIPAL BIRTHDATE WITH THE FUNDS ELECTED OR OF PORTFOLIOS OCCUPATION(S) & ADDRESS APPOINTED IN FUND COMPLEX INCLUDING OTHER AND TERM(1) OVERSEEN BY DIRECTORSHIPS BOARD MEMBER DURING PAST 5 YEARS INDEPENDENT BOARD MEMBERS: [] JUDITH M. STOCKDALE Executive Director, Gaylord and Dorothy 12/29/47 1997 Donnelley Foundation (since 1994); prior 333 W. Wacker Drive Board member CLASS I 186 thereto, Executive Director, Great Lakes Chicago, IL 60606 Protection Fund (from 1990 to 1994). [] CAROLE E. STONE Director, Chicago Board Options Exchange 6/28/47 2007 (since 2006); Commissioner, New York State 333 W. Wacker Drive Board member CLASS I 186 Commission on Public Authority Reform (since Chicago, IL 60606 2005); formerly, Chair New York Racing Association Oversight Board (2005-2007); formerly, Director, New York State Division of the Budget (2000-2004), Chair, Public Authorities Control Board (2000-2004) and Director, Local Government Assistance Corporation (2000-2004). [] TERENCE J. TOTH(2) 9/29/59 2008 Private Investor (since 2007); CEO and 333 W. Wacker Drive Board Member CLASS II 186 President, Northern Trust Investments Chicago, IL 60606 (2004-2007); Executive Vice President, Quantitative Management & Securities Lending (2007-2004); prior thereto, various positions with Northern Trust Company (since 1994); Member: Goodman Theatre Board (Since 2004); Chicago Fellowship Boards (since 2005), University of Illinois Leadership Council Board (since 2007) and Catalyst Schools of Chicago Board (since 2008); formerly Member: Northern Trust Mutual Funds Board (2005-2007), Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004). INTERESTED BOARD MEMBER: [] JOHN P. AMBOIAN(2)(3) Chief Executive Officer (since July 2007) 6/14/61 2008 and Director (since 1999) of Nuveen 333 W. Wacker Drive Board Member CLASS II 186 Investments, Inc.; Chief Executive Officer Chicago, IL 60606 (since 2007) of Nuveen Asset Management, Rittenhouse Asset Management, Nuveen Investments Advisors, Inc. formerly, President (1999-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(4) OFFICERS OF THE FUND: [] GIFFORD R. ZIMMERMAN Managing Director (since 2002), Assistant 9/9/56 Chief Secretary and Associate General Counsel, 333 W. Wacker Drive Administrative 1988 186 formerly, Vice President and Assistant Chicago, IL 60606 Officer General Counsel, of Nuveen Investments, LLC; Managing Director (since 2002), Associate General Counsel and Assistant Secretary, of Nuveen Asset Management; Vice President and Assistant Secretary of NWQ Investment Management Company, LLC. (since 2002), Nuveen Investments Advisers Inc. (since 2002), Symphony Asset Management LLC, and NWQ Investment Management Company, LLC (since 2003), Tradewinds Global Investors, LLC, and Santa Barbara Asset Management, LLC (since 2006), Nuveen HydePark Group LLC and Richards & Tierney, Inc. (since 2007); Managing Director, Associate General Counsel and Assistant Secretary of Rittenhouse Asset Management, Inc. (since 2003); Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; formerly, Managing Director (2002-2004), General Counsel (1998-2004) and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(4); Chartered Financial Analyst. [] WILLIAM ADAMS IV Executive Vice President of Nuveen 6/9/55 Investments, Inc.; Executive Vice President, 333 W. Wacker Drive Vice President 2007 120 U.S. Structured Products of Nuveen Chicago, IL 60606 Investments, LLC, (since 1999), prior thereto, Managing Director of Structured Investments. 101 NAME, POSITION(S) HELD YEAR FIRST NUMBER PRINCIPAL BIRTHDATE WITH THE FUNDS ELECTED OR OF PORTFOLIOS OCCUPATION(S) AND ADDRESS APPOINTED(5) IN FUND COMPLEX DURING PAST 5 YEARS OVERSEEN BY OFFICER OFFICERS OF THE FUND: [] CEDRIC H. ANTOSIEWICZ Managing Director, (since 2004) previously, 1/11/62 Vice President (1993-2004) of Nuveen 333 W. Wacker Drive Vice President 2007 120 Investments, LLC. Chicago, IL 60606 [] MICHAEL T. ATKINSON Vice President (since 2002) of Nuveen 2/3/66 Vice President Investments, LLC. 333 W. Wacker Drive and Assistant 2000 186 Chicago, IL 60606 Secretary [] LORNA C. FERGUSON Managing Director (since 2004), formerly, 10/24/45 Vice President of Nuveen Investments, LLC, 333 W. Wacker Drive Vice President 1998 186 Managing Director (2004) formerly, Vice Chicago, IL 60606 President (1998-2004) of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(4); Managing Director (since 2005) of Nuveen Asset Management. [] STEPHEN D. FOY Vice President (since 1993) and Funds 5/31/54 Vice President Controller (since 1998) of Nuveen 333 W. Wacker Drive and Controller 1998 186 Investments, LLC; formerly, Vice President Chicago, IL 60606 and Funds Controller (1998-2004) of Nuveen Investments, Inc.; Certified Public Accountant. [] WALTER M. KELLY Senior Vice President (since 2008), Vice 2/24/70 Chief Compliance President (2006-2008) formerly, Assistant 333 W. Wacker Drive Officer and 2003 186 Vice President and Assistant General Counsel Chicago, IL 60606 Vice President (2003-2006) of Nuveen Investments, LLC; Vice President (since 2006) and Assistant Secretary (since 2008) of Nuveen Asset Management. [] DAVID J. LAMB Vice President (since 2000) of Nuveen 3/22/63 Investments, LLC; Certified Public 333 W. Wacker Drive Vice President 2000 186 Accountant. Chicago, IL 60606 [] TINA M. LAZAR Vice President of Nuveen Investments, LLC 8/27/61 (since 1999). 333 W. Wacker Drive Vice President 2002 186 Chicago, IL 60606 [] LARRY W. MARTIN Vice President, Assistant Secretary and 7/27/51 Vice President Assistant General Counsel of Nuveen 333 W. Wacker Drive and Assistant 1988 186 Investments, LLC; Vice President (since Chicago, IL 60606 Secretary 2005) and Assistant Secretary of Nuveen Investments, Inc.; Vice President (since 2005) and Assistant Secretary (since 1997) of Nuveen Asset Management; 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); NWQ Investment Management Company, LLC (since 2002), Symphony Asset Management LLC (since 2003), Tradewinds Global Investors, LLC, Santa Barbara Asset Management LLC (since 2006) and of Nuveen HydePark Group, LLC and Richards &Tierney, Inc. (since 2007); formerly, Vice President and Assistant Secretary of Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp.(4) 102 NAME, POSITION(S) HELD YEAR FIRST NUMBER PRINCIPAL BIRTHDATE WITH THE FUNDS ELECTED OR OF PORTFOLIOS OCCUPATION(S) AND ADDRESS APPOINTED(5) IN FUND COMPLEX DURING PAST 5 YEARS OVERSEEN BY OFFICER OFFICERS OF THE FUND: [] KEVIN J. MCCARTHY Managing Director (since 2008), formerly, 3/26/66 Vice President Vice President (2007-2008), Nuveen 333 W. Wacker Drive and Secretary 2007 186 Investments, LLC; Vice President, and Chicago, IL 60606 Assistant Secretary, Nuveen Asset Management, Rittenhouse Asset Management, Inc., Nuveen Investment Advisers Inc., Nuveen Investment Institutional Services Group LLC, NWQ Investment Management Company, LLC, Tradewinds Global Investors LLC, NWQHoldings, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management LLC, Nuveen HydePark Group, LLC and Richards &Tierney, Inc. (since 2007); prior thereto, Partner, Bell, Boyd & Lloyd LLP (1997-2007). [] JOHN V. MILLER Managing Director (since 2007), formerly, 4/10/67 Vice President Vice President (2002-2007) of Nuveen 333 W. Wacker Drive 2007 186 Investments, LLC; Chartered Financial Chicago, IL 60606 Analyst. [] CHRISTOPHER M. ROHRBACHER Vice President, Nuveen Investments, LLC 8/1/71 Vice President (since 2008); Vice President and Assistant 333 W. Wacker Drive and Assistant 2008 186 Secretary, Nuveen Asset Management (since Chicago, IL 60606 Secretary 2008); prior thereto, Associate, Skadden, Arps, Slate Meagher & Flom LLP (2002-2008). [] JAMES F. RUANE Vice President, Nuveen Investments, LLC 7/3/62 Vice President (since 2007); prior thereto, Partner, 333 W. Wacker Drive and Assistant 2007 186 Deloitte & Touche USA LLP (since 2005), Chicago, IL 60606 Secretary formerly, senior tax manager (since 2002); Certified Public Accountant. [] MARK L. WINGET Vice President, Nuveen Investments, LLC 12/21/68 Vice President (since 2008); Vice President and Assistant 333 W. Wacker Drive and Assistant 2008 186 Secretary, Nuveen Asset Management (since Chicago, IL 60606 Secretary 2008); prior thereto, Counsel, Vedder Price P.C. (1997-2007).
(1) For California Premium Income (NCU), California Dividend Advantage (NAC), California Dividend Advantage 2 (NVX), California Dividend Advantage 3 (NZH), Insured California Dividend Advantage (NKL), and Insured California Tax-Free Advantage (NKX), Board Members serve three year terms, except for two board members who are elected by the holders of Preferred shares. The Board of Trustees for NCU, NAC, NVX, NZH, NKL, and NKX is divided into three classes, Class I, Class II, and Class III, with each being elected to serve until the third succeeding annual shareholders' meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed, except two board members are elected by the holders of Preferred shares to serve until the next annual shareholders' meeting subsequent to its election or thereafter in each case when its respective successors are duly elected or appointed. For Insured California Premium Income (NPC) and Insured California Premium Income 2 (NCL), the Board Members serve a one year term to serve until the next annual meeting or until their successors shall have been duly elected and qualified. The first year elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. (2) Mr. Amboian and Mr. Toth were appointed to the Board of Trustees of certain Nuveen Funds, effective July 1, 2008, and were subsequently elected to the Boards of the remaining Nuveen Funds on July 28, 2008. In connection with the appointment of Mr. Amboian as trustee, Timothy R. Schwertfeger, an interested trustee, resigned from the Board of Trustees, effective July 1, 2008. (3) Mr. Amboian is an interested trustee because of his position with Nuveen Investments, Inc. and certain of its subsidiaries, which are affiliates of the Nuveen Funds. (4) Nuveen Advisory Corp. and Nuveen Institutional Advisory Corp. were reorganized into Nuveen Asset Management, effective January 1, 2005. (5) Officers serve one year terms through July of each year. The year first elected or appointed represents the year in which the Officer was first elected or appointed to any fund in the Nuveen Complex. 103 Annual Investment Management Agreement APPROVAL PROCESS The Investment Company Act of 1940, as amended (the "1940 Act"), provides, in substance, that each investment advisory agreement between a fund and its investment adviser will continue in effect from year to year only if its continuance is approved at least annually by the fund's board members, including by a vote of a majority of the board members who are not parties to the advisory agreement or "interested persons" of any parties (the "Independent Board Members"), cast in person at a meeting called for the purpose of considering such approval. In connection with such approvals, the fund's board members must request and evaluate, and the investment adviser is required to furnish, such information as may be reasonably necessary to evaluate the terms of the advisory agreement. Accordingly, at a meeting held on May 28-29, 2008 (the "May Meeting"), the Boards of Trustees or Directors (as the case may be)(each, a "Board" and each Trustee or Director, a "Board Member") of the Funds, including a majority of the Independent Board Members, considered and approved the continuation of the advisory agreement (each, an "Advisory Agreement") between each Fund and Nuveen Asset Management ("NAM") for an additional one-year period. In preparation for their considerations at the May Meeting, the Board also held a separate meeting on April 23, 2008 (the "April Meeting"). Accordingly, the factors considered and determinations made regarding the renewals by the Independent Board Members include those made at the April Meeting. In addition, in evaluating the Advisory Agreements, as described in further detail below, the Independent Board Members reviewed a broad range of information relating to the Funds and NAM, including absolute performance, fee and expense information for the Funds as well as comparative performance, fee and expense information for a comparable peer group of funds, the performance information of recognized benchmarks (as applicable), the profitability of Nuveen for its advisory activities (which includes its wholly owned subsidiaries), and other information regarding the organization, personnel, and services provided by NAM. The Independent Board Members also met quarterly as well as at other times as the need arose during the year and took into account the information provided at such meetings and the knowledge gained therefrom. Prior to approving the renewal of the Advisory Agreements, the Independent Board Members reviewed the foregoing information with their independent legal counsel and with management, reviewed materials from independent legal counsel describing applicable law and their duties in reviewing advisory contracts, and met with independent legal counsel in private sessions without management present. The Independent Board Members considered the legal advice provided by independent legal counsel and relied upon their knowledge of NAM, its services and the Funds resulting from their meetings and other interactions throughout the year and their own business judgment in determining the factors to be considered in evaluating the Advisory Agreements. Each Board Member may have accorded different weight to the various factors in reaching his or her conclusions with respect to a Fund's Advisory Agreement. The Independent Board Members did not identify any single factor as all-important or controlling. The Independent Board Members' considerations were instead based on a comprehensive consideration of all the information presented. The principal factors considered by the Board and its conclusions are described below. 104 A. NATURE, EXTENT AND QUALITY OF SERVICES In considering renewal of the Advisory Agreements, the Independent Board Members considered the nature, extent and quality of NAM's services, including advisory services and administrative services. The Independent Board Members reviewed materials outlining, among other things, NAM's organization and business; the types of services that NAM or its affiliates provide and are expected to provide to the Funds; the performance record of the applicable Fund (as described in further detail below); and any initiatives Nuveen had taken for the applicable fund product line. With respect to personnel, the Independent Board Members evaluated the background, experience and track record of NAM's investment personnel. In this regard, the Independent Board Members considered the additional investment in personnel to support Nuveen fund advisory activities, including in operations, product management and marketing as well as related fund support functions, including sales, executive, finance, human resources and information technology. The Independent Board Members also reviewed information regarding portfolio manager compensation arrangements to evaluate NAM's ability to attract and retain high quality investment personnel. In evaluating the services of NAM, the Independent Board Members also considered NAM's ability to supervise the Funds' other service providers and given the importance of compliance, NAM's compliance program. Among other things, the Independent Board Members considered the report of the chief compliance officer regarding the Funds' compliance policies and procedures. In addition to advisory services, the Independent Board Members considered the quality of administrative services provided by NAM and its affiliates including product management, fund administration, oversight of service providers, shareholder services, administration of Board relations, regulatory and portfolio compliance and legal support. In addition to the foregoing services, the Independent Board Members also noted the additional services that NAM or its affiliates provide to closed-end funds, including, in particular, its secondary market support activities and the costs of such activities. The Independent Board Members recognized Nuveen's continued commitment to supporting the secondary market for the common shares of its closed-end funds through a variety of programs designed to raise investor and analyst awareness and understanding of closed-end funds. These efforts include maintaining an investor relations program to timely provide information and education to financial advisers and investors; providing advertising and marketing for the closed-end funds; maintaining its closed-end fund website; and providing educational seminars. With respect to closed-end funds that utilize leverage through the issuance of auction rate preferred securities ("ARPS"), the Board has recognized the unprecedented market conditions in the auction rate market industry with the failure of the auction process. The Independent Board Members noted Nuveen's efforts and the resources and personnel employed to analyze the situation, explore potential alternatives and develop and implement solutions that serve the interests of the affected funds and all of their respective shareholders. The Independent Board Members further noted Nuveen's commitment and efforts to keep investors and financial advisers informed as to its progress in addressing the ARPS situation through, among other things, conference calls, press releases, and information posted on its website as well as its refinancing activities. The Independent Board Members also noted Nuveen's continued support for holders of preferred shares of its closed-end funds by, among other things, seeking distribution for preferred shares with new market participants, managing relations with remarketing agents and the broker community, maintaining the leverage and risk management of leverage and maintaining systems necessary to test compliance with rating agency criteria. 105 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS (continued) Based on their review, the Independent Board Members found that, overall, the nature, extent and quality of services provided (and expected to be provided) to the respective Funds under the Advisory Agreements were satisfactory. B. THE INVESTMENT PERFORMANCE OF THE FUNDS AND NAM The Board considered the investment performance of each Fund, including the Fund's historic performance as well as its performance compared to funds with similar investment objectives (the "Performance Peer Group") based on data provided by an independent third party (as described below). The Independent Board Members also reviewed portfolio level performance (which does not reflect fund level fees, expenses and leverage), as described in further detail below. In evaluating the performance information, the Board considered whether the Fund has operated within its investment objectives and parameters and the impact that the investment mandates may have had on performance. In addition, in comparing a Fund's performance with that of its Performance Peer Group, the Independent Board Members took into account that the closest Performance Peer Group in certain instances may not adequately reflect the respective fund's investment objectives and strategies thereby hindering a meaningful comparison of the fund's performance with that of the Performance Peer Group. The Independent Board Members also recognized that certain funds lack comparable peers in which case their performance is measured against a more general municipal category for various states. The closed-end municipal funds that do not have corresponding state-specific Performance Peer Groups are from states other than New York, California, Florida, New Jersey, Michigan, and Pennsylvania. The Independent Board Members reviewed performance information including, among other things, total return information compared with the Fund's Performance Peer Group and recognized benchmarks for the one-, three- and five-year periods (as applicable) ending December 31, 2007 and with the Performance Peer Group for the quarter and same yearly periods ending March 31, 2008 (as applicable). The Independent Board Members also reviewed the Fund's portfolio level performance (which does not reflect fund level fees and expenses (and leverage for closed-end funds)) compared to recognized benchmarks for the one- three, and five-year periods ending December 31, 2007 (as applicable). The analysis was used to assess the efficacy of investment decisions against appropriate measures of risk and total return, within specific market segments. This information supplemented the Fund performance information provided to the Board at each of its quarterly meetings. Based on their review, the Independent Board Members determined that each Fund's investment performance over time had been satisfactory. C. FEES, EXPENSES AND PROFITABILITY 1. FEES AND EXPENSES The Board evaluated the management fees and expenses of each Fund reviewing, among other things, such Fund's gross management fees (which take into account breakpoints), net management fees (which take into account fee waivers or reimbursements) and total expense ratios (before and after expense reimbursements and/or waivers) in absolute terms as well as compared to the gross management fees, net management fees (after waivers and/or reimbursements) and total expense ratios (before and after waivers) of a comparable universe of unaffiliated funds based on data provided by an independent data provider (the "Peer Universe") and/or a more focused subset of funds therein (the "Peer Group"). The 106 Independent Board Members further reviewed data regarding the construction of Peer Groups as well as the methods of measurement for the fee and expense analysis and the performance analysis. In reviewing the comparisons of fee and expense information, the Independent Board Members took into account that in certain instances various factors such as the size of the Fund relative to peers, the size and particular composition of the Peer Group, the investment objectives of the peers, expense anomalies, and the timing of information used may impact the comparative data, thereby limiting the ability to make a meaningful comparison. The Independent Board Members also considered, among other things, the differences in the use of leverage and the differences in the use of insurance as well as the states reflected in a respective Peer Group for the state municipal funds (such as the use of a general "other states" category for closed-end state funds (other than New York and California)). In reviewing the fee schedule for a Fund, the Independent Board Members also considered the fund-level and complex-wide breakpoint schedules (described in further detail below) and any fee waivers and reimbursements provided by Nuveen (applicable, in particular, for certain closed-end funds launched since 1999). Based on their review of the fee and expense information provided, the Independent Board Members determined that each Fund's management fees and net total expense ratio were reasonable in light of the nature, extent and quality of services provided to the Fund. 2. COMPARISONS WITH THE FEES OF OTHER CLIENTS The Independent Board Members further reviewed information regarding the nature of services and fee rates offered by NAM to other clients. Such other clients include NAM's municipal separately managed accounts. In evaluating the comparisons of fees, the Independent Board Members noted that the fee rates charged to the Funds and other clients vary, among other things, because of the different services involved and the additional regulatory and compliance requirements associated with registered investment companies, such as the Funds. Accordingly, the Independent Board Members considered the differences in the product types, including, but not limited to, the services provided, the structure and operations, product distribution and costs thereof, portfolio investment policies, investor profiles, account sizes and regulatory requirements. The Independent Board Members noted, in particular, that the range of services provided to the Funds (as discussed above) is much more extensive than that provided to separately managed accounts. Given the inherent differences in the products, particularly the extensive services provided to the Funds, the Independent Board Members believe such facts justify the different levels of fees. 3. PROFITABILITY OF NUVEEN In conjunction with its review of fees, the Independent Board Members also considered the profitability of Nuveen for its advisory activities (which incorporated Nuveen's wholly-owned affiliated sub-advisers) and its financial condition. The Independent Board Members reviewed the revenues and expenses of Nuveen's advisory activities for the last two years and the allocation methodology used in preparing the profitability data. The Independent Board Members noted this information supplemented the profitability information requested and received during the year to help keep them apprised of developments affecting profitability (such as changes in fee waivers and expense reimbursement commitments). In this regard, the Independent Board Members noted that they had also appointed an Independent Board Member as a point person to review and keep them apprised of changes to the profitability analysis and/or methodologies during the year. The Independent Board Members considered Nuveen's profitability compared with other fund sponsors prepared by two independent third party service providers as well as comparisons of the revenues, expenses and profit margins of various unaffiliated management firms with similar amounts of assets under management prepared by Nuveen. 107 ANNUAL INVESTMENT MANAGEMENT AGREEMENT APPROVAL PROCESS (continued) In reviewing profitability, the Independent Board Members recognized the subjective nature of determining profitability which may be affected by numerous factors including the allocation of expenses. Further, the Independent Board Members recognized the difficulties in making comparisons as the profitability of other advisers generally is not publicly available and the profitability information that is available for certain advisers or management firms may not be representative of the industry and may be affected by, among other things, the adviser's particular business mix, capital costs, types of funds managed and expense allocations. Notwithstanding the foregoing, the Independent Board Members reviewed Nuveen's methodology and assumptions for allocating expenses across product lines to determine profitability. In reviewing profitability, the Independent Board Members recognized Nuveeninvestment in its fund business. Based on its review, the Independent Board Members concluded that Nuveen's level of profitability for its advisory activities was reasonable in light of the services provided. In evaluating the reasonableness of the compensation, the Independent Board Members also considered other amounts paid to NAM by the Funds as well as any indirect benefits (such as soft dollar arrangements, if any) NAM and its affiliates receive, or are expected to receive, that are directly attributable to the management of the Funds, if any. See Section E below for additional information on indirect benefits NAM may receive as a result of its relationship with the Funds. Based on their review of the overall fee arrangements of each Fund, the Independent Board Members determined that the advisory fees and expenses of the respective Fund were reasonable. D. ECONOMIES OF SCALE AND WHETHER FEE LEVELS REFLECT THESE ECONOMIES OF SCALE With respect to economies of scale, the Independent Board Members recognized the potential benefits resulting from the costs of a fund being spread over a larger asset base. The Independent Board Members therefore considered whether the Funds have appropriately benefited from any economies of scale and whether there is potential realization of any further economies of scale. In considering economies of scale, the Independent Board Members have recognized that economies of scale are difficult to measure and predict with precision, particularly on a fund-by-fund basis. Notwithstanding the foregoing, one method to help ensure the shareholders share in these benefits is to include breakpoints in the advisory fee schedule. Accordingly, the Independent Board Members reviewed and considered the fund-level breakpoints in the advisory fee schedules that reduce advisory fees. In this regard, given that the Funds are closed-end funds, the Independent Board Members recognized that although the Funds may from time to time make additional share offerings, the growth in their assets will occur primarily through appreciation of each Fund's investment portfolio. In addition to fund-level advisory fee breakpoints, the Board also considered the Funds' complex-wide fee arrangement. Pursuant to the complex-wide fee arrangement, the fees of the funds in the Nuveen complex, including the Funds, are reduced as the assets in the fund complex reach certain levels. In evaluating the complex-wide fee arrangement, the Independent Board Members recognized that the complex-wide fee schedule was recently revised in 2007 to provide for additional fee savings to shareholders and considered the amended schedule. The Independent Board Members further considered that the complex-wide fee arrangement seeks to provide the benefits of economies of scale to fund shareholders when total fund 108 complex assets increase, even if assets of a particular fund are unchanged or have decreased. The approach reflects the notion that some of Nuveen's costs are attributable to services provided to all its funds in the complex and therefore all funds benefit if these costs are spread over a larger asset base. Based on their review, the Independent Board Members concluded that the breakpoint schedule and complex-wide fee arrangement were acceptable and desirable in providing benefits from economies of scale to shareholders. E. INDIRECT BENEFITS In evaluating fees, the Independent Board Members received and considered information regarding potential "fall out" or ancillary benefits NAM or its affiliates may receive as a result of its relationship with each Fund. In this regard, the Independent Board Members considered revenues received by affiliates of NAM for serving as agent at Nuveen's preferred trading desk and for serving as a co-manager in the initial public offering of new closed-end exchange traded funds. In addition to the above, the Independent Board Members considered whether NAM received any benefits from soft dollar arrangements whereby a portion of the commissions paid by a Fund for brokerage may be used to acquire research that may be useful to NAM in managing the assets of the Funds and other clients. The Independent Board Members noted that NAM does not currently have any soft dollar arrangements; however, to the extent certain bona fide agency transactions that occur on markets that traditionally trade on a principal basis and riskless principal transactions are considered as generating "commissions," NAM intends to comply with the applicable safe harbor provisions. Based on their review, the Independent Board Members concluded that any indirect benefits received by NAM as a result of its relationship with the Funds were reasonable and within acceptable parameters. F. OTHER CONSIDERATIONS The Independent Board Members did not identify any single factor discussed previously as all-important or controlling. The Board Members, including the Independent Board Members, unanimously concluded that the terms of the Advisory Agreements are fair and reasonable, that NAM's fees are reasonable in light of the services provided to each Fund and that the Advisory Agreements be renewed. 109 Reinvest Automatically EASILY and CONVENIENTLY NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET UP YOUR REINVESTMENT ACCOUNT. NUVEEN CLOSED-END FUNDS DIVIDEND REINVESTMENT PLAN Your Nuveen Closed-End Fund allows you to conveniently reinvest dividends and/or capital gains distributions in additional Fund shares. By choosing to reinvest, you'll be able to invest money regularly and automatically, and watch your investment grow through the power of tax-free compounding. Just like dividends or distributions in cash, there may be times when income or capital gains taxes may be payable on dividends or distributions that are reinvested. It is important to note that an automatic reinvestment plan does not ensure a profit, nor does it protect you against loss in a declining market. EASY AND CONVENIENT To make recordkeeping easy and convenient, each month you'll receive a statement showing your total dividends and distributions, the date of investment, the shares acquired and the price per share, and the total number of shares you own. HOW SHARES ARE PURCHASED The shares you acquire by reinvesting will either be purchased on the open market or newly issued by the Fund. If the shares are trading at or above net asset value at the time of valuation, the Fund will issue new shares at the greater of the net asset value or 95% of 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. If the Plan Agent begins purchasing Fund shares on the open market while shares are trading below net asset value, but the Fund's shares subsequently trade at or above their net asset value before the Plan Agent is able to complete its purchases, the Plan Agent may cease open-market purchases and may invest the uninvested portion of the distribution in newly-issued Fund shares at a price equal to the greater of the shares' net asset value or 95% of the shares' market value on the last business day immediately prior to the purchase date. Dividends and distributions received to purchase shares in the open market will normally be invested shortly after the dividend payment date. No interest will be paid on dividends and distributions awaiting reinvestment. Because the market price of the shares may increase before purchases are completed, the average purchase price per share may exceed the market price at the time of valuation, resulting in the acquisition of fewer shares than if the dividend or distribution had been paid in shares issued by the Fund. A pro rata portion of any applicable brokerage commissions on open market purchases will be paid by Plan participants. These commissions usually will be lower than those charged on individual transactions. 110 FLEXIBLE You may change your distribution option or withdraw from the Plan at any time, should your needs or situation change. Should you withdraw, you can receive a certificate for all whole shares credited to your reinvestment account and cash payment for fractional shares, or cash payment for all reinvestment account shares, less brokerage commissions and a $2.50 service fee. You can reinvest whether your shares are registered in your name, or in the name of a brokerage firm, bank, or other nominee. Ask your investment advisor if his or her firm will participate on your behalf. Participants whose shares are registered in the name of one firm may not be able to transfer the shares to another firm and continue to participate in the Plan. The Fund reserves the right to amend or terminate the Plan at any time. Although the Fund reserves the right to amend the Plan to include a service charge payable by the participants, there is no direct service charge to participants in the Plan at this time. CALL TODAY TO START REINVESTING DIVIDENDS AND/OR DISTRIBUTIONS For more information on the Nuveen Automatic Reinvestment Plan or to enroll in or withdraw from the Plan, speak with your financial advisor or call us at (800) 257-8787. 111 NOTES 112 NOTES 113 Glossary of TERMS USED in this REPORT [] AUCTION RATE BOND: An auction rate bond is a security whose interest payments are adjusted periodically through an auction process, which process typically also serves as a means for buying and selling the bond. Auctions that fail to attract enough buyers for all the shares offered for sale are deemed to have "failed", with current holders receiving a formula-based interest rate until the next scheduled auction. [] AVERAGE ANNUAL TOTAL RETURN: This is a commonly used method to express an investment's performance over a particular, usually multi-year time period. It expresses the return that would have been necessary each year to equal the investment's actual cumulative performance (including change in NAV or market price and reinvested dividends and capital gains distributions, if any) over the time period being considered. [] AVERAGE EFFECTIVE MATURITY: The average of the number of years to maturity of the bonds in a Fund's portfolio, computed by weighting each bond's time to maturity (the date the security comes due) by the market value of the security. This figure does not account for the likelihood of prepayments or the exercise of call provisions unless an escrow account has been established to redeem the bond before maturity. The market value weighting for an investment in an inverse floating rate security is the value of the portfolio's residual interest in the inverse floating rate trust, and does not include the value of the floating rate securities issued by the trust. [] INVERSE FLOATERS: Inverse floating rate securities are created by depositing a municipal bond, typically with a fixed interest rate, into a special purpose trust created by a broker-dealer. This trust, in turn, (a) issues floating rate certificates typically paying short-term tax-exempt interest rates to third parties in amounts equal to some fraction of the deposited bond's par amount or market value, and (b) issues an inverse floating rate certificate (sometimes referred to as an "inverse floater") to an investor (such as a Fund) interested in gaining investment exposure to a long-term municipal bond. The income received by the holder of the inverse floater varies inversely with the short-term rate paid to the floating rate certificates' holders, and in most circumstances the holder of the inverse floater bears substantially all of the underlying bond's downside investment risk. The holder of the inverse floater typically also benefits disproportionately from any potential appreciation of the underlying bond's value. Hence, an inverse floater essentially represents an investment in the underlying bond on a leveraged basis. [] LEVERAGE-ADJUSTED DURATION: Duration is a measure of the expected period over which a bond's principal and interest will be paid, and consequently is a measure of the sensitivity of a bond's or bond Fund's value to changes when market interest rates change. Generally, the longer a bond's or Fund's duration, the more the price of the bond or Fund will change as interest rates change. Leverage-adjusted duration takes into account the leveraging process for a Fund and therefore is longer than the duration of the Fund's portfolio of bonds. [] MARKET YIELD (ALSO KNOWN AS DIVIDEND YIELD OR CURRENT YIELD): An investment's current annualized dividend divided by its current market price. [] NET ASSET VALUE (NAV): A Fund's common share NAV per share is calculated by subtracting the liabilities of the Fund (including any Auction Rate Preferred shares or Variable Rate Demand Preferred shares issued in order to leverage the Fund) from its total assets and then dividing the remainder by the number of shares outstanding. Fund NAVs are calculated at the end of each business day. [] TAXABLE-EQUIVALENT YIELD: The yield necessary from a fully taxable investment to equal, on an after-tax basis, the yield of a municipal bond investment. [] ZERO COUPON BOND: A zero coupon bond does not pay a regular interest coupon to its holders during the life of the bond. Tax-exempt income to the holder of the bond comes from accretion of the difference between the original purchase price of the bond at issuance and the par value of the bond at maturity and is effectively paid at maturity. The market prices of zero coupon bonds generally are more volatile than the market prices of bonds that pay interest periodically. 114 Other Useful INFORMATION QUARTERLY PORTFOLIO OF INVESTMENTS AND PROXY VOTING INFORMATION You may obtain (i) each Fund's quarterly portfolio of investments, (ii) information regarding how the Funds voted proxies relating to portfolio securities held during the twelve-month period ended June 30, 2008, and (iii) a description of the policies and procedures that the Funds used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen Investments toll-free at (800) 257-8787 or on Nuveen's website at www.nuveen.com. You may also obtain this and other Fund information directly from the Securities and Exchange Commission ("SEC"). The SEC may charge a copying fee for this information. Visit the SEC on-line at http://www.sec.gov or in person at the SEC's Public Reference Room in Washington, D.C. Call the SEC at (202) 942-8090 for room hours and operation. You may also request Fund information by sending an e-mail request to publicinfo@sec.gov or by writing to the SEC's Public References Section at 100 F Street NE, Washington, D.C. 20549. CEO CERTIFICATION DISCLOSURE Each Fund's Chief Executive Officer has submitted to the New York Stock Exchange (NYSE) the annual CEO certification as required by Section 303A.12(a) of the NYSE Listed Company Manual. Each Fund has filed with the Securities and Exchange Commission the certification of its Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act. BOARD OF TRUSTEES John P. Amboian Robert P. Bremner Jack B. Evans William C. Hunter David J. Kundert William J. Schneider Judith M. Stockdale Carole E. Stone Terence J. Toth FUND MANAGER Nuveen Asset Management 333 West Wacker Drive Chicago, IL 60606 CUSTODIAN State Street Bank & Trust Company Boston, MA TRANSFER AGENT AND SHAREHOLDER SERVICES State Street Bank & Trust Company Nuveen Funds P.O. Box 43071 Providence, RI 02940-3071 (800) 257-8787 LEGAL COUNSEL Chapman and Cutler LLP Chicago, IL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Chicago, IL Each Fund intends to repurchase or redeem shares of its own common or auction rate preferred stock in the future at such times and in such amounts as is deemed advisable. During the period covered by this report NCL, NAC, NZH, NKL and NKXredeemed and/or noticed for redemption 607, 1,579, 1,083, 390 and 1,800 auction rate preferred shares, respectively. Any future repurchases or redemptions will be reported to shareholders in the next annual or semi-annual report. 115 Nuveen Investments: ------------------- 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. We offer many different investing solutions for our clients' different needs. Nuveen Investments is a global investment management firm that seeks to help secure the long-term goals of institutions and high net worth investors as well as the consultants and financial advisors who serve them. Nuveen Investments markets its growing range of specialized investment solutions under the high-quality brands of HydePark, NWQ, Nuveen, Rittenhouse, Santa Barbara, Symphony and Tradewinds. In total, the Company managed $152 billion of assets on June 30, 2008. Find out how we can help you reach your financial goals. To learn more about the products and services Nuveen Investments offers, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Be sure to obtain a prospectus, where applicable. Investors should consider the investment objective and policies, risk considerations, charges and expenses of the Fund carefully before investing. The prospectus contains this and other information relevant to an investment in the Fund. For a prospectus, please contact your securities representative or Nuveen Investments, 333 W. Wacker Dr., Chicago, IL 60606. Please read the prospectus carefully before you invest or send money. Learn more about Nuveen Funds at: www.nuveen.com/etf Share prices Fund details Daily financial news Investor education Interactive planning tools EAN-B-0808D 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. There were no amendments to or waivers from the Code during the period covered by this report. The registrant has posted the code of ethics on its website at www.nuveen.com/etf. (To view the code, click on the Shareholder Resources drop down menu box, click on Fund Governance and then click on Code of Conduct.) ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's Board of Directors or Trustees 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 Jack B. Evans, who is "independent" for purposes of Item 3 of Form N-CSR. Mr. Evans was formerly President and Chief Operating Officer of SCI Financial Group, Inc., a full service registered broker-dealer and registered investment adviser ("SCI"). As part of his role as President and Chief Operating Officer, Mr. Evans actively supervised the Chief Financial Officer (the "CFO") and actively supervised the CFO's preparation of financial statements and other filings with various regulatory authorities. In such capacity, Mr. Evans was actively involved in the preparation of SCI's financial statements and the resolution of issues raised in connection therewith. Mr. Evans has also served on the audit committee of various reporting companies. At such companies, Mr. Evans was involved in the oversight of audits, audit plans, and the preparation of financial statements. Mr. Evans also formerly chaired the audit committee of the Federal Reserve Bank of Chicago. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Nuveen Insured California Premium Income Municipal Fund, Inc. The following tables show the amount of fees that Ernst & Young LLP, the Fund's auditor, billed to the Fund during the Fund's last two full fiscal years. For engagements with Ernst & Young LLP the Audit Committee approved in advance all audit services and non-audit services that Ernst & Young LLP provided to the Fund, except for those non-audit services that were subject to the pre-approval exception under Rule 2-01 of Regulation S-X (the "pre-approval exception"). The pre-approval exception for services provided directly to the Fund waives the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid by the Fund to its accountant during the fiscal year in which the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the audit is completed. The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee). SERVICES THAT THE FUND'S AUDITOR BILLED TO THE FUND
AUDIT FEES BILLED AUDIT-RELATED FEES TAX FEES ALL OTHER FEES FISCAL YEAR ENDED TO FUND (1) BILLED TO FUND (2) BILLED TO FUND (3) BILLED TO FUND (4) --------------------------------------------------------------------------------------------------------------------------------- August 31, 2008 $ 11,604 $ 0 $ 0 $ 3,300 --------------------------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% 0% pursuant to pre-approval exception --------------------------------------------------------------------------------------------------------------------------------- August 31, 2007 $ 10,157 $ 0 $ 500 3,100 --------------------------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% 0% pursuant to pre-approval exception ---------------------------------------------------------------------------------------------------------------------------------
(1) "Audit Fees" are the aggregate fees billed for professional services for the audit of the Fund's annual financial statements and services provided in connection with statutory and regulatory filings or engagements. (2) "Audit Related Fees" are the aggregate fees billed for assurance and related services reasonably related to the performance of the audit or review of financial statements and are not reported under "Audit Fees". (3) "Tax Fees" are the aggregate fees billed for professional services for tax advice, tax compliance, and tax planning. (4) "All Other Fees" are the aggregate fees billed for products and services for agreed upon procedures engagements performed for leveraged funds. SERVICES THAT THE FUND'S AUDITOR BILLED TO THE ADVISER AND AFFILIATED FUND SERVICE PROVIDERS The following tables show the amount of fees billed by Ernst & Young LLP to Nuveen Asset Management ("NAM" or the "Adviser"), and any entity controlling, controlled by or under common control with NAM ("Control Affiliate") that provides ongoing services to the Fund ("Affiliated Fund Service Provider"), for engagements directly related to the Fund's operations and financial reporting, during the Fund's last two full fiscal years. The tables also show the percentage of fees subject to the pre-approval exception. The pre-approval exception for services provided to the Adviser and any Affiliated Fund Service Provider (other than audit, review or attest services) waives the pre-approval requirement if: (A) the aggregate amount of all such services provided constitutes no more than 5% of the total amount of revenues paid to Ernst & Young LLP by the Fund, the Adviser and Affiliated Fund Service Providers during the fiscal year in which the services are provided that would have to be pre-approved by the Audit Committee; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the services are promptly brought to the Audit Committee's attention, and the Committee (or its delegate) approves the services before the Fund's audit is completed.
FISCAL YEAR ENDED AUDIT-RELATED FEES TAX FEES BILLED TO ALL OTHER FEES BILLED TO ADVISER AND ADVISER AND BILLED TO ADVISER AFFILIATED FUND AFFILIATED FUND AND AFFILIATED FUND SERVICE PROVIDERS SERVICE PROVIDERS SERVICE PROVIDERS ---------------------------------------------------------------------------------------------------------------- August 31, 2008 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% pursuant to pre-approval exception ---------------------------------------------------------------------------------------------------------------- August 31, 2007 $ 0 $ 0 $ 0 ---------------------------------------------------------------------------------------------------------------- Percentage approved 0% 0% 0% pursuant to pre-approval exception ----------------------------------------------------------------------------------------------------------------
NON-AUDIT SERVICES The following table shows the amount of fees that Ernst & Young LLP billed during the Fund's last two full fiscal years for non-audit services. The Audit Committee is required to pre-approve non-audit services that Ernst & Young LLP provides to the Adviser and any Affiliated Fund Services Provider, if the engagement related directly to the Fund's operations and financial reporting (except for those subject to the de minimis exception described above). The Audit Committee requested and received information from Ernst & Young LLP about any non-audit services that Ernst & Young LLP rendered during the Fund's last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating Ernst & Young LLP's independence.
FISCAL YEAR ENDED TOTAL NON-AUDIT FEES BILLED TO ADVISER AND AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES PROVIDERS (ENGAGEMENTS BILLED TO ADVISER AND RELATED DIRECTLY TO THE AFFILIATED FUND SERVICE TOTAL NON-AUDIT FEES OPERATIONS AND FINANCIAL PROVIDERS (ALL OTHER BILLED TO FUND REPORTING OF THE FUND) ENGAGEMENTS) TOTAL ------------------------------------------------------------------------------------------------------------------------------- August 31, 2008 $ 3,300 $ 0 $ 0 $ 3,300 August 31, 2007 $ 3,600 $ 0 $ 0 $ 3,600
"Non-Audit Fees billed to Adviser" for both fiscal year ends represent "Tax Fees" billed to Adviser in their respective amounts from the previous table. Audit Committee Pre-Approval Policies and Procedures. Generally, the Audit Committee must approve (i) all non-audit services to be performed for the Fund by the Fund's independent accountants and (ii) all audit and non-audit services to be performed by the Fund's independent accountants for the Affiliated Fund Service Providers with respect to operations and financial reporting of the Fund. Regarding tax and research projects conducted by the independent accountants for the Fund and Affiliated Fund Service Providers (with respect to operations and financial reports of the Fund) such engagements will be (i) pre-approved by the Audit Committee if they are expected to be for amounts greater than $10,000; (ii) reported to the Audit Committee chairman for his verbal approval prior to engagement if they are expected to be for amounts under $10,000 but greater than $5,000; and (iii) reported to the Audit Committee at the next Audit Committee meeting if they are expected to be for an amount under $5,000. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. The registrant's Board of Directors or Trustees has a separately designated Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78c(a)(58)(A)). As of September 29, 2008, the members of the audit committee are Robert P. Bremner, Jack B. Evans, Terence J. Toth, William J. Schneider and David J. Kundert. ITEM 6. SCHEDULE OF INVESTMENTS. See Portfolio of Investments in Item 1. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The registrant invests its assets primarily in municipal bonds and cash management securities. On rare occasions the registrant may acquire, directly or through a special purpose vehicle, equity securities of a municipal bond issuer whose bonds the registrant already owns when such bonds have deteriorated or are expected shortly to deteriorate significantly in credit quality. The purpose of acquiring equity securities generally will be to acquire control of the municipal bond issuer and to seek to prevent the credit deterioration or facilitate the liquidation or other workout of the distressed issuer's credit problem. In the course of exercising control of a distressed municipal issuer, NAM may pursue the registrant's interests in a variety of ways, which may entail negotiating and executing consents, agreements and other arrangements, and otherwise influencing the management of the issuer. NAM does not consider such activities proxy voting for purposes of Rule 206(4)-6 under the 1940 Act, but nevertheless provides reports to the registrant's Board of Trustees on its control activities on a quarterly basis. In the rare event that a municipal issuer were to issue a proxy or that the registrant were to receive a proxy issued by a cash management security, NAM 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 registrant's Board of Trustees or its representative. A member of NAM'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 registrant's Board of Trustees and made available to shareholders as required by applicable rules. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. THE PORTFOLIO MANAGER The following individual has primary responsibility for the day-to-day implementation of the registrant's investment strategies: NAME FUND Scott R. Romans Nuveen Insured California Premium Income Municipal Fund, Inc. Other Accounts Managed. In addition to managing the registrant, the portfolio manager is also primarily responsible for the day-to-day portfolio management of the following accounts: TYPE OF ACCOUNT NUMBER OF PORTFOLIO MANAGER MANAGED ACCOUNTS ASSETS* -------------------------------------------------------------------------------- Scott R. Romans Registered Investment Company 28 $5.780 billion Other Pooled Investment Vehicles 0 $0 Other Accounts 3 $.556 million * Assets are as of August 31, 2008. None of the assets in these accounts are subject to an advisory fee based on performance. Compensation. Each portfolio manager's compensation consists of three basic elements--base salary, cash bonus and long-term incentive compensation. The compensation strategy is to annually compare overall compensation to the market in order to create a compensation structure that is competitive and consistent with similar financial services companies. As discussed below, several factors are considered in determining each portfolio manager's total compensation. In any year these factors may include, among others, the effectiveness of the investment strategies recommended by the portfolio manager's investment team, the investment performance of the accounts managed by the portfolio manager, and the overall performance of Nuveen Investments, Inc. (the parent company of NAM). Although investment performance is a factor in determining the portfolio manager's compensation, it is not necessarily a decisive factor. The portfolio manager's performance is evaluated in part by comparing manager's performance against a specified investment benchmark. This fund-specific benchmark is a customized subset (limited to bonds in each Fund's specific state and with certain maturity parameters) of the S&P/Investortools Municipal Bond index, an index comprised of bonds held by managed municipal bond fund customers of Standard & Poor's Securities Pricing, Inc. that are priced daily and whose fund holdings aggregate at least $2 million. As of September 30, 2008, the S&P/Investortools Municipal Bond index was comprised of 53,005 securities with an aggregate current market value of $1,060 billion. Base salary. Each portfolio manager is paid a base salary that is set at a level determined by NAM in accordance with its overall compensation strategy discussed above. NAM is not under any current contractual obligation to increase a portfolio manager's base salary. Cash bonus. Each portfolio manager is also eligible to receive an annual cash bonus. The level of this bonus is based upon evaluations and determinations made by each portfolio manager's supervisors, along with reviews submitted by his peers. These reviews and evaluations often take into account a number of factors, including the effectiveness of the investment strategies recommended to the NAM's investment team, the performance of the accounts for which he serves as portfolio manager relative to any benchmarks established for those accounts, his effectiveness in communicating investment performance to stockholders and their representatives, and his contribution to the NAM's investment process and to the execution of investment strategies. The cash bonus component is also impacted by the overall performance of Nuveen Investments, Inc. in achieving its business objectives. Long-term incentive compensation. In connection with the acquisition of Nuveen Investments, Inc., by a group of investors lead by Madison Dearborn Partners in November 2007, certain employees, including portfolio managers, received profit interests in Nuveen's parent. These profit interests entitle the holders to participate in the appreciation in the value of Nuveen beyond the issue date and vest over five to seven years, or earlier in the case of a liquidity event. Material Conflicts of Interest. Each portfolio manager's simultaneous management of the registrant and the other accounts noted above may present actual or apparent conflicts of interest with respect to the allocation and aggregation of securities orders placed on behalf of the Registrant and the other account. NAM, however, believes that such potential conflicts are mitigated by the fact that the NAM has adopted several policies that address potential conflicts of interest, including best execution and trade allocation policies that are designed to ensure (1) that portfolio management is seeking the best price for portfolio securities under the circumstances, (2) fair and equitable allocation of investment opportunities among accounts over time and (3) compliance with applicable regulatory requirements. All accounts are to be treated in a non-preferential manner, such that allocations are not based upon account performance, fee structure or preference of the portfolio manager. In addition, NAM has adopted a Code of Conduct that sets forth policies regarding conflicts of interest. Beneficial Ownership of Securities. As of August 31, 2008, the portfolio manager beneficially owned the following dollar range of equity securities issued by the Registrant and other Nuveen Funds managed by NAM's municipal investment team.
DOLLAR RANGE OF EQUITY SECURITIES DOLLAR BENEFICIALLY RANGE OF OWNED EQUITY IN THE REMAINDER SECURITIES OF NUVEEN BENEFICIALLY FUNDS MANAGED BY NAME OF PORTFOLIO OWNED IN NAM'S MUNICIPAL MANAGER FUND FUND INVESTMENT TEAM --------------------------------------------------------------------------------------------------------------------- Scott R. Romans Nuveen Insured California Premium Income Municipal Fund, Inc. $0 $10,001--$50,000
PORTFOLIO MANAGER BIO: Scott R. Romans, PhD, joined Nuveen Investments in 2000 as a senior analyst in the education sector. In 2003, he was assigned management responsibility for several closed- and open-ended municipal bond funds most of which are state funds covering California and other western states. He has been Vice President of NAM since 2004, Portfolio Manager since 2003, and was, formerly, Assistant Vice President (2003-2004) and Senior Analyst (2000-2003). Currently, he manages investments for 29 Nuveen-sponsored investment companies. He holds an undergraduate degree from the University of Pennsylvania and an MA and PhD from the University of Chicago. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's Board implemented after the registrant last provided disclosure in response to this item. ITEM 11. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of this report that includes the disclosure required by this paragraph, based on their evaluation of the controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. File the exhibits listed below as part of this Form. 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 the code is posted on registrant's website at www.nuveen.com/etf and there were no amendments during the period covered by this report. (To view the code, click on the Investor Resources drop down menu box, click on Fund Governance and then Code of Conduct.) (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) in the exact form set forth below: Ex-99.CERT Attached hereto. (a)(3) Any written solicitation to purchase securities under Rule 23c-1 under the 1940 Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable. (b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the 1940 Act (17 CFR 270.30a-2(b)); Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)), and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed "filed" for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference. Ex-99.906 CERT attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nuveen Insured California Premium Income Municipal Fund, Inc. -------------------------------------------------------------- By (Signature and Title) /s/ Kevin J. McCarthy ------------------------------------------------- Kevin J. McCarthy Vice President and Secretary Date: November 7, 2008 ---------------------------------------------------------------------- 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: November 7, 2008 ---------------------------------------------------------------------- By (Signature and Title) /s/ Stephen D. Foy ------------------------------------------------- Stephen D. Foy Vice President and Controller (principal financial officer) Date: November 7, 2008 --------------------------------------------------------------------------