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 |
811-10491 |
Nuveen Real Estate Income Fund
(Exact name of registrant as specified in charter)
Nuveen Investments
333 West Wacker Drive
Chicago, IL 60606
(Address of principal executive offices) (Zip code)
Gifford R. Zimmerman
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: December 31
Date of reporting period: December 31, 2018
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.
Closed-End Funds
31 December 2018
Nuveen Closed-End Funds
| JRS | Nuveen Real Estate Income Fund |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website (www.nuveen.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you have already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically anytime by contacting the financial intermediary (such as a broker-dealer or bank) through which you hold your Fund shares or, if you are a direct investor, by enrolling at www.nuveen.com/e-reports.
You may elect to receive all future shareholder reports in paper free of charge at any time by contacting your financial intermediary or, if you are a direct investor, (i) by calling 800-257-8787 and selecting option #2 or (ii) by logging into your Investor Center account at www.computershare.com/investor and clicking on “Communication Preferences.” Your election to receive reports in paper will apply to all funds held in your account with your financial intermediary or, if you are a direct investor, to all your directly held Nuveen Funds and any other directly held funds within the same group of related investment companies.
Annual Report
IMPORTANT DISTRIBUTION NOTICE
for Shareholders of the Nuveen Real Estate Income Fund (JRS)
Annual Shareholder Report for the period ending December 31, 2018
The Nuveen Real Estate Income Fund seeks to offer attractive cash flow to its shareholders, by converting the expected long-term total return potential of the Fund’s investments in REITs into regular quarterly distributions. Following is a discussion of the Managed Distribution Policy the Fund uses to achieve this.
The Fund pays quarterly common share distributions that seek to convert the Fund’s expected long-term total return potential into regular cash flow. As a result, the Fund’s regular common share distributions (presently $0.2050 per share) may be derived from a variety of sources, including:
| • | distributions from portfolio companies (REITs), |
| • | realized capital gains or, |
| • | possibly, returns of capital representing in certain cases unrealized capital appreciation. |
Such distributions are sometimes referred to as “managed distributions.” The Fund seeks to establish a distribution rate that roughly corresponds to the Adviser’s projections of the total return that could reasonably be expected to be generated by the Fund over an extended period of time. The Adviser may consider many factors when making such projections, including, but not limited to, long-term historical returns for the asset classes in which the Fund invests. As portfolio and market conditions change, the distribution amount and distribution rate on the Common Shares under the Fund’s Managed Distribution Policy could change.
When it pays a distribution, the Fund provides holders of its Common Shares a notice of the estimated sources of the Fund’s distributions (i.e., what percentage of the distributions is estimated to constitute ordinary income, short-term capital gains, long-term capital gains, and/or a non-taxable return of capital) on a year-to-date basis. It does this by posting the notice on its website (www.nuveen.com/cef), and by sending it in written form.
You should not draw any conclusions about the Fund’s investment performance from the amount of this distribution or from the terms of the Fund’s Managed Distribution Policy. The Fund’s actual financial performance will likely vary from month-to-month and from year-to-year, and there may be extended periods when the distribution rate will exceed the Fund’s actual total returns. The Managed Distribution Policy provides that the Board may amend or terminate the Policy at any time without prior notice to Fund shareholders. There are presently no reasonably foreseeable circumstances that might cause the Fund to terminate its Managed Distribution Policy.
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3
Chairman’s Letter to Shareholders
4
Nuveen Real Estate Income Fund (JRS)
The Fund’s portfolio is managed by a team of real estate investment professionals at Security Capital Research & Management Incorporated (Security Capital), a wholly-owned subsidiary of JPMorgan Chase & Company. Anthony R. Manno Jr., Kenneth D. Statz and Kevin W. Bedell lead the team and have managed JRS since its inception in 2001.
Here they discuss U.S. economy and domestic and global markets, their management strategy and the performance of the Fund for the twelve-month reporting period ended December 31, 2018.
What factors affected the U.S. economic and financial markets during the twelve-month reporting period ended December 31, 2018?
The U.S. economy accelerated in this reporting period, with gross domestic product (GDP) growth reaching 4.2% (annualized) in the second quarter of 2018, the fastest pace since 2014, then receding to a still relatively robust 3.4% annualized rate in the third quarter of 2018, according to the Bureau of Economic Analysis “third” estimate. GDP is the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes. The boost in economic activity during the second quarter of 2018 was attributed to robust spending by consumers, businesses and the government, as well as a temporary increase in exports, as farmers rushed soybean shipments ahead of China’s retaliatory tariffs. While consumer and government spending continued to drive economic growth in the third quarter, the export contribution declined as expected and both business spending and housing investment weakened. The government’s fourth quarter 2018 GDP growth estimate was not yet available due to the partial government shutdown from late December 2018 to late January 2019.
Consumer spending, the largest driver of the economy, remained well supported by low unemployment, wage gains and tax cuts. As reported by the Bureau of Labor Statistics, the unemployment rate fell to 3.9% in December 2018 from 4.1% in December 2017 and job gains averaged around 219,000 per month for the past twelve months. The jobs market has continued to tighten, while average hourly earnings grew at an annualized rate of 3.2% in December 2018. The Consumer Price Index (CPI) increased 1.9% over the twelve-month reporting period ended December 31, 2018 on a seasonally adjusted basis, as reported by the Bureau of Labor Statistics.
Low mortgage rates and low inventory drove home prices higher during this recovery cycle. But the price momentum slowed in recent months as mortgage rates began to drift higher and homes have become less affordable. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, which covers all nine U.S. census divisions, was up 5.2%
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.
Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Fund disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s (S&P), Moody’s Investors Service (Moody’s), Inc. or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.
Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.
5
Portfolio Managers’ Comments (continued)
year-over-year in November 2018 (most recent data available at the time this report was prepared). The 10-City and 20-City Composites reported year-over-year increases of 4.3% and 4.7%, respectively.
With the U.S. economy delivering a sustainable growth rate and employment strengthening, the Federal Reserve’s (Fed) policy making committee continued to incrementally raise its main benchmark interest rate. The most recent increase, in December 2018, was the fourth rate hike in 2018 and the ninth rate hike since December 2015. Fed Chair Janet Yellen’s term expired in February 2018, and the new Chairman Jerome Powell maintained the Fed’s gradual pace of interest rate hikes. However, amid signs that economic growth might have peaked, the markets’ unease about the future pace of monetary tightening, along with other factors, drove sharp volatility in the final months of 2018. Additionally, the Fed continued reducing its balance sheet by allowing a small amount of maturing Treasury and mortgage securities to roll off each month without reinvestment.
During the twelve-month reporting period, geopolitical news remained a prominent market driver. The U.S. moved forward with tariffs on imported goods from China, as well as on steel and aluminum from Canada, Mexico and Europe. These countries announced retaliatory measures in kind, intensifying concerns about a trade war, although there have been some positive developments. In July 2018, the U.S. and the European Union announced they would refrain from further tariffs while they negotiate trade terms, and in October 2018, the U.S., Mexico and Canada agreed to a new trade deal to replace the North American Free Trade Agreement. At the November 2018 G-20 summit, the U.S. and China agreed to a 90-day trade truce, although the details were murky. Brexit negotiations continued to be uncertain and Prime Minister Theresa May faced significant difficulty getting a plan approved in Parliament. Elsewhere in Europe, markets remained nervous about Italy’s new euroskeptic coalition government, immigration policy and political risk in Turkey. The U.S. Treasury issued additional sanctions on Russia in April 2018 and re-imposed sanctions on Iran following the U.S. withdrawal from the 2015 nuclear agreement. Bearish crude oil supply news, along with heightened tensions between the U.S. and Saudi Arabia after the disappearance of a Saudi journalist, drove oil price volatility. On the Korean peninsula, the leaders of South Korea and North Korea met during April 2018 and jointly announced a commitment toward peace, while the U.S.-North Korea summit yielded an agreement with few additional details. In the final week of the reporting period, the U.S. government began a prolonged partial shutdown due to an impasse on border security funding (which ended in late January, subsequent to the close of the reporting period, when a temporary funding measure was passed).
With a late-year swoon, U.S. real estate investment trusts (REITs) common equities generated negative returns for 2018, along with the broader U.S. equity markets, in the context of growing investor unease regarding the outlook for U.S. and global economic growth. For REIT senior securities, the impact of higher interest rates during the year was most pronounced on long duration perpetual preferred securities where late-year selling mirrored high yield market trends and defied more positive trends in REIT bonds.
What key strategies were used to manage the Fund during this twelve-month reporting period ended December 31, 2018?
The Fund is designed to invest at least 90% of its assets in income producing common stocks, preferred stocks, convertible preferred stocks and debt securities issued by real estate companies, with at least 80% of its total assets invested in income producing equity securities issued by real estate investment trusts (REITs).
In managing the JRS portfolio, Security Capital seeks to maintain significant property type and geographic diversification while taking into account company credit quality, sector, and security-type allocations. Investment decisions are based on a multi-layered analysis of the company, the real estate it owns, its management, and the relative price of the security, with a focus on securities that we believe will be best positioned to generate sustainable income and potential price appreciation over the long-run. In addition to fundamental security research, the proportion of the fund invested in common equity versus preferred, fixed-income and cash investments is a key tactic we use to manage risk at a
6
portfolio level. In general, in times of strong economic growth we increase the portfolio allocation to common equity. In less certain times, we tend to increase our allocation toward preferred securities.
How did the Fund perform during this twelve-month reporting period ended December 31, 2018?
The table in the Performance Overview and Holding Summaries section of this report provides total returns for the one-year, five-year and ten-year periods ended December 31, 2018. The Fund’s total returns on net asset value (NAV) are compared with the performance of a corresponding market index. For the twelve-month reporting period ended December 31, 2018, JRS underperformed the Wilshire U.S. Real Estate Securities Index and its Blended Benchmark.
Within the Fund’s common equity investments in 2018, there were distinctive performance differences by property type with the underlying themes and influences reflecting company-specific factors, earlier period performance differentials and, importantly, shifting investor expectations colored by macro-economic trends. In general, investors remain keenly focused on a number of risks including inflation, rising interest rates, economic growth and heightened capital expenditure requirements as new construction and shifting millennial preferences can speed obsolescence for existing assets.
In this context, leading performance contributors relative to the index by major property type in 2018 were the self-storage, office and hotel companies. Self-storage companies continue to exhibit steady property operations, though investors have been wary of moderating net operating income (NOI) growth rates and the corrosive impact on operations of elevated new construction levels. With healthy user demand, low capital expenditure requirements, short duration leases and low obsolescence risk, equity pricing for the self-storage companies has been more insulated from many of the concerns weighing on other property segments. The underperformance of the office companies was broad based geographically and likely reflected a general downward pressure on net lease economics due to competition from new construction and significant capital costs to introduce amenities that will appeal to tenants so focused on attracting and retaining millennial talent. Our strong bias toward west coast office exposure (and away from east coast/NYC office) benefitted the portfolio. Finally, hotel REITs have been volatile quarter-to-quarter and among the outperformers early in the reporting period, boosted on the prospects of tax reform driving corporate profitability and travel. With their significant alignment to the general economy, the lodging names were buffeted in the fourth quarter 2018 by broader market forces regarding U.S. and global economic growth. Our underweight relative to index in the hotel space contributed positively to performance.
During the reporting period, the Fund’s benchmark-relative performance was impacted by common equity investments in regional malls, manufactured homes and industrial sectors. In particular, investments within regional mall companies such as Simon Property Group, Inc., Taubman Centers Incorporated and Macerich Company detracted from performance. Investors have been highly cautious regarding the shifting retailing landscape in the context of accelerating online sales and the associated shifts in strategy by retailers, including store closures and bankruptcies.
For the reporting period ending December 31, 2018, the Fund’s average allocation was 64.4% REIT common equity and 34.2% REIT preferreds with the balance in cash. We expect further exaggerated pricing swings for REIT common equity. In this context, we remained neutral in our allocation to common equity and remain in place to take advantage of further volatility in common equity through our allocation to REIT preferreds and cash. Shifting allocations between common equity and preferreds is an important tool for the Fund and the balancing of growth and income in an economy experiencing a slow, uneven recovery.
7
IMPACT OF THE FUND’S LEVERAGE STRATEGY ON PERFORMANCE
One important factor impacting the returns of the Fund’s common shares relative to its comparative benchmark was the Fund’s use of leverage through bank borrowings. The Fund uses leverage because our research has shown that, over time, leveraging provides opportunities for additional income and total return, particularly in the recent market environment where short-term market rates are at or near historical lows, meaning that the short-term rates the Fund has been paying on its leveraging instruments in recent years have been much lower than the interest the Fund has been earning on its portfolio securities that it has bought with the proceeds of that leverage.
However, use of leverage can expose Fund common shares to additional price volatility. When the Fund uses leverage, the Fund common shares will experience a greater increase in their net asset value if the securities acquired through the use of leverage increase in value, but will also experience a correspondingly larger decline in their net asset value if the securities acquired through leverage decline in value, which will make the shares’ net asset value more volatile, and total return performance more variable, over time.
In addition, common share income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. Over the last few quarters, short-term interest rates have indeed increased from their extended lows after the 2007-09 financial crisis. This increase has reduced common share net income, and also reduced potential for long-term total returns. Nevertheless, the ability to effectively borrow at current short-term rates is still resulting in enhanced common share income, and management believes that the advantages of continuation of leverage outweigh the associated increase in risk and volatility described above.
The Fund’s use of leverage had a negative impact on total return performance during this reporting period.
The Fund also continued to utilize forward starting interest rate swap contracts to partially hedge its future interest cost of leverage, which as mentioned previously, is through the use of bank borrowings. The swap contracts impact on total return performance was positive during this reporting period.
As of December 31, 2018, the Fund’s percentages of leverage are as shown in the accompanying table.
| JRS | ||||
| Effective Leverage* |
31.53 | % | ||
| Regulatory Leverage* |
31.53 | % | ||
| * | Effective leverage is the Fund’s effective economic leverage, and includes both regulatory leverage and the leverage effects of certain derivative and other investments in a Fund’s portfolio that increase the Fund’s investment exposure. Regulatory leverage consists of preferred shares issued or borrowings of the Fund. Both of these are part of the Fund’s capital structure. The Fund, however, may from time to time borrow on a typically transient basis in connection with its day-to-day operations, primarily in connection with the need to settle portfolio trades. Such incidental borrowings are excluded from the calculation of the Fund’s effective leverage ratio. Regulatory leverage is subject to asset coverage limits set forth in the Investment Company Act of 1940. |
THE FUND’S REGULATORY LEVERAGE
Bank Borrowings
As noted above, the Fund employs leverage through the use of bank borrowings. The Fund’s bank borrowing activities are as shown in the accompanying table.
| Current Reporting Period | Subsequent to the Close of the Reporting Period |
|||||||||||||||||||||||||||||||||
| January 1, 2018 | Draws | Paydowns | December 31, 2018 | Average Balance Outstanding |
Draws | Paydowns | February 28, 2019 | |||||||||||||||||||||||||||
| $145,300,000 | $ — | $(19,300,000) | $126,000,000 | $127,750,137 | $ — | $ | — | $126,000,000 | ||||||||||||||||||||||||||
Refer to Notes to Financial Statements, Note 8 – Borrowing Arrangements for further details.
8
DISTRIBUTION INFORMATION
The following 19(a) Notice presents the Fund’s most current distribution information as of November 30, 2018 as required by certain exempted regulatory relief the Fund has received.
Because the ultimate tax character of your distributions depends on the Fund’s performance for its entire fiscal year (which is the calendar year for the Fund) as well as certain fiscal year-end (FYE) tax adjustments, estimated distribution source information you receive with each distribution may differ from the tax information reported to you on your Fund’s IRS Form 1099 statement.
DISTRIBUTION INFORMATION – AS OF NOVEMBER 30, 2018
This notice provides shareholders with information regarding fund distributions, as required by current securities laws. You should not draw any conclusions about the Fund’s investment performance from the amount of this distribution or from the terms of the Fund’s Managed Distribution Policy.
The Fund may in certain periods distribute more than its income and net realized capital gains, and the Fund currently estimates that it has done so for the fiscal year-to-date period. In such instances, a portion of the distribution may be a return of capital. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused with “yield” or “income.”
The amounts and sources of distributions set forth below are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that will tell you how to report these distributions for federal income tax purposes. More details about the Fund’s distributions and the basis for these estimates are available on www.nuveen.com/cef.
The following table provides estimates of the Fund’s distribution sources, reflecting year-to-date cumulative experience through the latest month-end. The Fund attributes these estimates equally to each regular distribution throughout the year. Consequently, the estimated information shown below is for the current distribution, and also represents an updated estimate for all prior months in the year.
Data as of November 30, 2018
| Estimated Per Share Sources of Distribution1 | Estimated Percentage of the Distribution1 | |||||||||||||||||||||||||||||||||||
| JRS (FYE 12/31) |
Per Share Distribution |
Net Investment Income |
Long- Term Gains |
Short- Term Gains |
Return of Capital |
Net Investment Income |
Long-Term Gains |
Short-Term Gains |
Return of Capital |
|||||||||||||||||||||||||||
| Current Quarter |
$ | 0.2050 | $ | 0.0733 | $ | 0.1066 | $ | 0.0000 | $ | 0.0252 | 35.7 | % | 52.0 | % | 0.0 | % | 12.3 | % | ||||||||||||||||||
| Fiscal YTD |
$ | 0.8450 | $ | 0.3020 | $ | 0.4392 | $ | 0.0000 | $ | 0.1038 | 35.7 | % | 52.0 | % | 0.0 | % | 12.3 | % | ||||||||||||||||||
| 1 | Net investment income (NII) is a projection through the end of the current calendar quarter using actual data through the stated month-end date above. Capital gain amounts are as of the stated date above. JRS owns REIT securities which attribute their distributions to various sources including NII, gains, and return of capital. The estimated per share sources above include an allocation of the NII based on prior year attributions which can be expected to differ from the actual final attributions for the current year. |
9
Common Share Information (continued)
The following table provides information regarding JRS’ distributions and total return performance over various time periods. This information is intended to help you better understand whether returns for the specified time periods were sufficient to meet distributions.
Data as of November 30, 2018
| Annualized | Cumulative | |||||||||||||||||||||||||||
| JRS (FYE 12/31) Inception Date |
Quarterly Distribution |
Fiscal YTD Distribution |
Net Asset Value (NAV) |
5-Year Return on NAV |
Fiscal YTD Dist Rate on NAV 1 |
Fiscal YTD Return on NAV |
Fiscal YTD Dist Rate on NAV 1 |
|||||||||||||||||||||
| Nov 2001 |
$ | 0.2050 | $ | 0.8450 | $ | 10.56 | 10.18 | % | 8.00 | % | (1.16 | )% | 8.00 | % | ||||||||||||||
| 1 | As a percentage of 11/30/18 NAV. |
DISTRIBUTION INFORMATION – AS OF DECEMBER 31, 2018
The following tables provide information regarding the Fund’s common share distributions and total return performance for the fiscal year ended December 31, 2018. This information is intended to help you better understand whether the Fund’s returns for the specified time period were sufficient to meet its distributions.
Data as of December 31, 2018
| Per Share Sources of Distribution | Percentage of the Distribution | |||||||||||||||||||||||||||||||||||
| JRS (FYE 12/31) | Per Share Distribution |
Net Investment Income |
Long-Term Gains |
Short-Term Gains |
Return of Capital1 |
Net Investment Income |
Long-Term Gains |
Short-Term Gains |
Return of Capital1 |
|||||||||||||||||||||||||||
| Fiscal YTD |
$0.8450 | $0.3298 | $0.3706 | $0.00 | $0.1446 | 39.03% | 43.86% | 0.00% | 17.11% | |||||||||||||||||||||||||||
| Annualized | ||||||||||||||||
| JRS (FYE 12/31) Inception Date | Net Asset Value (NAV) |
1-Year Return on NAV |
5-Year Return on NAV |
Fiscal YTD Dist Rate on NAV |
||||||||||||
| Nov 2001 |
$9.47 | (9.44)% | 8.39% | 8.92% | ||||||||||||
| 1 | Return of Capital may represent unrealized gains, return of shareholder’s principal, or both. In certain circumstances, all or a portion of the return of capital may be characterized as ordinary income under federal tax law. The actual tax characterization will be provided to shareholders on Form 1099-DIV shortly after calendar year-end. |
COMMON SHARE REPURCHASES
During August 2018, the Fund’s Board of Trustees reauthorized an open-market share repurchase program, allowing the Fund to repurchase an aggregate of up to approximately 10% of its outstanding shares.
As of December 31, 2018, and since the inception of the Fund’s repurchase program, the Fund has cumulatively repurchased and retired common shares as shown in the accompanying table.
| JRS | ||||
| Common shares cumulatively repurchased and retired |
0 | |||
| Common shares authorized for repurchase |
2,890,000 | |||
OTHER COMMON SHARE INFORMATION
As of December 31, 2018, and during the current reporting period, the Fund’s common share price was trading at a premium/(discount) to its common share NAV as shown in the accompanying table.
| JRS | ||||
| Common share NAV |
$9.47 | |||
| Common share price |
$8.46 | |||
| Premium/(Discount) to NAV |
(10.67 | )% | ||
| 12-month average premium/(discount) to NAV |
(6.83 | )% | ||
10
Fund shares are not guaranteed or endorsed by any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation.
Nuveen Real Estate Income Fund (JRS)
Investing in closed-end funds involves risk; principal loss is possible. There is no guarantee the Fund’s investment objectives will be achieved. Closed-end fund shares may frequently trade at a discount or premium to their net asset value. Real estate investments may suffer due to economic downturns and changes in commercial real estate values, rents, property taxes, interest rates and tax laws. The Fund’s concentration in real estate may involve greater risk and volatility than more diversified investments. Prices of equity securities may decline significantly over short or extended periods of time. Debt or fixed income securities such as those held by the Fund, are subject to market risk, credit risk, interest rate risk, derivatives risk, liquidity risk, and income risk. As interest rates rise, bond prices fall. Leverage increases return volatility and magnifies the Fund’s potential return and its risks; there is no guarantee a fund’s leverage strategy will be successful. For these and other risks such as preferred securities risk, see the Fund’s web page at www.nuveen.com/JRS.
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| JRS | Nuveen Real Estate Income Fund Performance Overview and Holding Summaries as of December 31, 2018 |
Refer to the Glossary of Terms Used in this Report for further definitions of terms used in this section.
Average Annual Total Returns as of December 31, 2018
| Average Annual | ||||||||||||
| 1-Year | 5-Year | 10-Year | ||||||||||
| JRS at Common Share NAV | (9.44)% | 8.39% | 14.09% | |||||||||
| JRS at Common Share Price | (17.93)% | 6.50% | 15.77% | |||||||||
| Wilshire U.S. Real Estate Securities Index (WILRESI) | (4.80)% | 8.17% | 12.41% | |||||||||
| Blended Benchmark | (5.56)% | 7.73% | 13.21% | |||||||||
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. Returns at NAV are net of Fund expenses and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.
Common Share Price Performance — Weekly Closing Price
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This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.
For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.
13
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Nuveen Real Estate Income Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of Nuveen Real Estate Income Fund (the “Fund”) as of December 31, 2018, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2018, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and brokers or other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the auditor of one or more Nuveen investment companies since 2014.
Chicago, Illinois
February 28, 2019
14
| JRS | Nuveen Real Estate Income Fund
|
| Shares | Description (1) | Value | ||||||||||||||||||
| LONG-TERM INVESTMENTS – 143.8% (99.4% of Total Investments) |
|
|||||||||||||||||||
| REAL ESTATE INVESTMENT TRUST COMMON STOCKS – 93.3% (64.5% of Total Investments) |
|
|||||||||||||||||||
| Diversified – 4.2% (2.9% of Total Investments) | ||||||||||||||||||||
| 270,675 | Liberty Property Trust |
$ | 11,335,869 | |||||||||||||||||
| Health Care – 6.7% (4.6% of Total Investments) | ||||||||||||||||||||
| 399,175 | Health Care Property Investors Inc., (2) |
11,148,958 | ||||||||||||||||||
| 104,550 | Welltower Inc. |
7,256,815 | ||||||||||||||||||
| Total Health Care |
18,405,773 | |||||||||||||||||||
| Hotels, Restaurants & Leisure – 3.3% (2.3% of Total Investments) | ||||||||||||||||||||
| 409,325 | Host Hotels & Resorts Inc. |
6,823,448 | ||||||||||||||||||
| 76,275 | Pebblebrook Hotel Trust |
2,159,345 | ||||||||||||||||||
| Total Hotels, Restaurants & Leisure |
8,982,793 | |||||||||||||||||||
| Industrial – 5.5% (3.8% of Total Investments) | ||||||||||||||||||||
| 253,428 | Prologis Inc., (2) |
14,881,292 | ||||||||||||||||||
| Office – 19.1% (13.2% of Total Investments) | ||||||||||||||||||||
| 115,025 | Alexandria Real Estate Equities Inc. |
13,255,481 | ||||||||||||||||||
| 81,225 | Boston Properties, Inc. |
9,141,874 | ||||||||||||||||||
| 193,950 | Brandywine Realty Trust |
2,496,137 | ||||||||||||||||||
| 252,325 | Douglas Emmett Inc. |
8,611,852 | ||||||||||||||||||
| 207,725 | Hudson Pacific Properties Inc., (2) |
6,036,488 | ||||||||||||||||||
| 147,475 | Kilroy Realty Corporation |
9,273,228 | ||||||||||||||||||
| 281,100 | Paramount Group Inc. |
3,530,616 | ||||||||||||||||||
| Total Office |
52,345,676 | |||||||||||||||||||
| Residential – 19.0% (13.1% of Total Investments) | ||||||||||||||||||||
| 598,050 | American Homes 4 Rents, Class A |
11,871,292 | ||||||||||||||||||
| 184,500 | Apartment Investment & Management Company, Class A, (2) |
8,095,860 | ||||||||||||||||||
| 83,663 | AvalonBay Communities, Inc. |
14,561,545 | ||||||||||||||||||
| 173,645 | Equity Residential |
11,462,306 | ||||||||||||||||||
| 301,975 | Invitation Homes, Inc., (2) |
6,063,658 | ||||||||||||||||||
| Total Residential |
52,054,661 | |||||||||||||||||||
| Retail – 15.8% (10.9% of Total Investments) | ||||||||||||||||||||
| 536,925 | Kimco Realty Corporation |
7,865,951 | ||||||||||||||||||
| 178,327 | Macerich Company, (2) |
7,717,993 | ||||||||||||||||||
| 89,210 | Regency Centers Corporation |
5,234,843 | ||||||||||||||||||
| 61,999 | Simon Property Group, Inc., (2) |
10,415,212 | ||||||||||||||||||
| 160,150 | Taubman Centers Inc., (2) |
7,285,223 | ||||||||||||||||||
| 188,675 | Weingarten Realty Trust, (2) |
4,681,027 | ||||||||||||||||||
| Total Retail |
43,200,249 | |||||||||||||||||||
| Specialized – 19.7% (13.7% of Total Investments) | ||||||||||||||||||||
| 65,850 | Coresite Realty Corporation |
5,744,096 | ||||||||||||||||||
| 149,875 | CubeSmart |
4,299,914 | ||||||||||||||||||
| 76,125 | Digital Realty Trust Inc., (2) |
8,111,119 | ||||||||||||||||||
| 33,925 | Equinix Inc., (2) |
11,960,598 | ||||||||||||||||||
| 75,225 | Life Storage, Inc., (2) |
6,995,173 | ||||||||||||||||||
| 83,512 | Public Storage, Inc., (2) |
16,903,664 | ||||||||||||||||||
| Total Specialized |
54,014,564 | |||||||||||||||||||
| Total Real Estate Investment Trust Common Stocks (cost $225,872,308) |
|
255,220,877 | ||||||||||||||||||
15
| JRS | Nuveen Real Estate Income Fund (continued) | |
| Portfolio of Investments December 31, 2018 | ||
| Shares | Description (1) | Coupon | Ratings (3) | Value | ||||||||||||||||
| REAL ESTATE INVESTMENT TRUST PREFERRED STOCKS – 49.6% (34.3% of Total Investments) |
| |||||||||||||||||||
| Diversified – 4.1% (2.8% of Total Investments) | ||||||||||||||||||||
| 104,925 | PS Business Parks, Inc. |
5.750% | BBB | $ | 2,460,491 | |||||||||||||||
| 365,775 | VEREIT, Inc. |
6.700% | BB | 8,654,236 | ||||||||||||||||
| Total Diversified |
11,114,727 | |||||||||||||||||||
| Health Care – 0.1% (0.1% of Total Investments) | ||||||||||||||||||||
| 17,450 | Senior Housing Properties Trust |
6.250% | BBB– | 396,115 | ||||||||||||||||
| Hotels, Restaurants & Leisure – 1.9% (1.3% of Total Investments) | ||||||||||||||||||||
| 25,235 | Ashford Hospitality Trust Inc. |
8.450% | N/R | 596,303 | ||||||||||||||||
| 2,100 | Hersha Hospitality Trust |
6.500% | N/R | 42,420 | ||||||||||||||||
| 7,375 | Pebblebrook Hotel Trust |
6.375% | N/R | 171,100 | ||||||||||||||||
| 179,450 | Sunstone Hotel Investors Inc. |
6.950% | N/R | 4,459,332 | ||||||||||||||||
| Total Hotels, Restaurants & Leisure |
5,269,155 | |||||||||||||||||||
| Industrial – 0.9% (0.6% of Total Investments) | ||||||||||||||||||||
| 79,000 | Monmouth Real Estate Investment Corp |
6.125% | N/R | 1,796,460 | ||||||||||||||||
| 7,000 | Rexford Industrial Realty Inc. |
5.875% | BB+ | 156,520 | ||||||||||||||||
| 22,900 | Rexford Industrial Realty Inc. |
5.875% | BB+ | 503,571 | ||||||||||||||||
| Total Industrial |
2,456,551 | |||||||||||||||||||
| Office – 8.9% (6.2% of Total Investments) | ||||||||||||||||||||
| 9,989 | Highwoods Properties, Inc., Series A, (4) |
8.625% | Baa3 | 11,237,625 | ||||||||||||||||
| 233,625 | SL Green Realty Corporation |
6.500% | Ba1 | 5,894,359 | ||||||||||||||||
| 236,850 | Vornado Realty Trust |
5.700% | BBB– | 5,326,756 | ||||||||||||||||
| 96,100 | Vornado Realty Trust |
5.250% | BBB– | 1,974,855 | ||||||||||||||||
| Total Office |
24,433,595 | |||||||||||||||||||
| Residential – 6.7% (4.6% of Total Investments) | ||||||||||||||||||||
| 44,600 | American Homes 4 Rent |
6.350% | BB | 987,890 | ||||||||||||||||
| 132,400 | American Homes 4 Rent |
6.250% | Ba1 | 2,941,928 | ||||||||||||||||
| 170,275 | American Homes 4 Rent |
6.500% | BB | 3,834,593 | ||||||||||||||||
| 356,900 | Apartment Investment & Management Company |
6.875% | BB | 9,065,260 | ||||||||||||||||
| 23,505 | Mid–America Apartment Communities Inc. |
8.500% | BBB– | 1,478,935 | ||||||||||||||||
| Total Residential |
18,308,606 | |||||||||||||||||||
| Retail – 20.2% (14.0% of Total Investments) | ||||||||||||||||||||
| 307,400 | Brookfield Property REIT Inc. |
6.375% | N/R | 6,655,210 | ||||||||||||||||
| 5,625 | Kimco Realty Corporation |
6.000% | Baa2 | 134,944 | ||||||||||||||||
| 17,650 | Kimco Realty Corporation |
5.625% | Baa2 | 380,358 | ||||||||||||||||
| 142,200 | Penn Real Estate Investment Trust |
7.200% | N/R | 2,287,998 | ||||||||||||||||
| 42,950 | Penn Real Estate Investment Trust |
7.200% | N/R | 702,662 | ||||||||||||||||
| 230,979 | Saul Centers, Inc. |
6.875% | N/R | 5,779,095 | ||||||||||||||||
| 3,169 | Simon Property Group, Inc. |
8.375% | BBB+ | 217,710 | ||||||||||||||||
| 316,800 | SITE Centers Corporation |
6.500% | Ba1 | 7,181,856 | ||||||||||||||||
| 155,700 | SITE Centers Corporation |
6.375% | BB+ | 3,363,120 | ||||||||||||||||
| 101,850 | SITE Centers Corporation |
6.250% | Ba1 | 2,237,644 | ||||||||||||||||
| 310,525 | Taubman Centers Incorporated, Series K |
6.500% | N/R | 7,446,389 | ||||||||||||||||
| 541,125 | Taubman Centers Incorporated, Series J |
6.250% | N/R | 12,743,494 | ||||||||||||||||
| 163,400 | Urstadt Biddle Properties |
6.750% | N/R | 4,019,640 | ||||||||||||||||
| 57,375 | Urstadt Biddle Properties |
6.250% | N/R | 1,345,444 | ||||||||||||||||
| 52,175 | Washington Prime Group, Inc. |
6.875% | Ba1 | 822,278 | ||||||||||||||||
| Total Retail |
55,317,842 | |||||||||||||||||||
| Specialized – 6.8% (4.7% of Total Investments) | ||||||||||||||||||||
| 6,100 | Digital Realty Trust Inc. |
6.350% | Baa3 | 155,367 | ||||||||||||||||
| 38,350 | National Storage Affiliates Trust |
6.000% | N/R | 860,958 | ||||||||||||||||
| 217,563 | Public Storage, Inc. |
6.375% | A3 | 5,463,007 | ||||||||||||||||
| 127,400 | Public Storage, Inc. |
6.000% | A3 | 3,191,370 | ||||||||||||||||
| 74,000 | Public Storage, Inc. |
5.875% | A3 | 1,850,000 | ||||||||||||||||
| 86,075 | Public Storage, Inc. |
5.625% | A3 | 2,107,977 | ||||||||||||||||
| 21,275 | Public Storage, Inc. |
5.400% | A3 | 485,070 | ||||||||||||||||
| 67,450 | Public Storage, Inc. |
5.375% | A3 | 1,524,370 | ||||||||||||||||
| 55,125 | Public Storage, Inc. |
5.200% | A3 | 1,213,301 | ||||||||||||||||
| 18,100 | QTS Realty Trust Inc. |
6.500% | B– | 1,706,468 | ||||||||||||||||
| Total Specialized |
18,557,888 | |||||||||||||||||||
| Total Real Estate Investment Trust Preferred Stocks (cost $143,721,383) |
|
135,854,479 | ||||||||||||||||||
16
| Shares | Description (1) | Value | ||||||||||||||||||
| COMMON STOCKS – 0.9% (0.6% of Total Investments) |
||||||||||||||||||||
| Hotels, Restaurants & Leisure – 0.9% (0.6% of Total Investments) | ||||||||||||||||||||
| 37,400 | Hyatt Hotels Corporation, Class A |
$ | 2,528,240 | |||||||||||||||||
| Total Common Stocks (cost $2,837,563) |
2,528,240 | |||||||||||||||||||
| Total Long-Term Investments (cost $372,431,254) |
393,603,596 | |||||||||||||||||||
| Principal Amount (000) |
Description (1) | Coupon | Maturity | Value | ||||||||||||||||
| SHORT-TERM INVESTMENTS – 0.9% (0.6% of Total Investments) |
|
|||||||||||||||||||
| REPURCHASE AGREEMENTS – 0.9% (0.6% of Total Investments) |
|
|||||||||||||||||||
| $ | 2,557 | Repurchase Agreement with Fixed Income Clearing Corporation, dated 12/31/18, repurchase price $2,556,849, collateralized by $2,615,000 U.S. Treasury Bonds, 3.000%, due 5/15/45, value $2,608,695 |
1.200% | 1/02/19 | $ | 2,556,679 | ||||||||||||||
| Total Short-Term Investments (cost $2,556,679) |
2,556,679 | |||||||||||||||||||
| Total Investments (cost $374,987,933) – 144.7% |
396,160,275 | |||||||||||||||||||
| Borrowings – (46.0)% (5), (6) |
(126,000,000 | ) | ||||||||||||||||||
| Other Assets Less Liabilities – 1.3% (7) |
3,455,994 | |||||||||||||||||||
| Net Assets Applicable to Common Shares – 100% |
$ | 273,616,269 | ||||||||||||||||||
Investments in Derivatives
Interest Rate Swaps – OTC Uncleared
| Counterparty | Notional Amount |
Fund Pay/Receive Floating Rate |
Floating Rate Index | Fixed Rate (Annualized) |
Fixed Rate Payment Frequency |
Effective Date (8) |
Optional Termination Date |
Maturity Date |
Value | Unrealized Appreciation (Depreciation) |
||||||||||||||||||||||||||||||
| Morgan Stanley Capital Services LLC |
$ | 72,400,000 | Receive | 1-Month LIBOR | 1.994 | % | Monthly | 6/01/18 | 7/01/25 | 7/01/27 | $ | 1,629,321 | $ | 1,629,321 | ||||||||||||||||||||||||||
For Fund portfolio compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications into sectors for reporting ease.
| (1) | All percentages shown in the Portfolio of Investments are based on net assets applicable to common shares unless otherwise noted. |
| (2) | Investment, or portion of investment, is hypothecated as described in the Notes to Financial Statements, Note 8 – Borrowing Arrangements, Rehypothecation. The total value of investments hypothecated as of the end of the reporting period was $110,829,341. |
| (3) | For financial reporting purposes, the ratings disclosed are the highest of Standard & Poor’s Group (“Standard & Poor’s”), Moody’s Investors Service, Inc. (“Moody’s”) or Fitch, Inc. (“Fitch”) rating. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Ratings below BBB by Standard & Poor’s, Baa by Moody’s or BBB by Fitch are considered to be below investment grade. Holdings designated N/R are not rated by any of these national rating agencies. Ratings are not covered by the report of independent registered public accounting firm. |
| (4) | For fair value measurement disclosure purposes, investment classified as Level 2. See Notes to Financial Statements, Note 2 – Investment Valuation and Fair Value Measurements for more information. |
| (5) | Borrowings as a percentage of Total Investments is 31.8%. |
| (6) | The Fund may pledge up to 100% of its eligible investments (excluding any investments separately pledged as collateral for specific investments in derivatives, when applicable) in the Portfolio of Investments as collateral for borrowings. As of the end of the reporting period investments with a value of $304,602,589 have been pledged as collateral for borrowings. |
| (7) | Other assets less liabilities includes the unrealized appreciation (depreciation) of certain over-the-counter (“OTC”) derivatives as presented on the Statement of Assets and Liabilities, when applicable. The unrealized appreciation (depreciation) of OTC-cleared and exchange-traded derivatives is recognized as part of the cash collateral at brokers and/or the receivable or payable for variation margin as presented on the Statement of Assets and Liabilities, when applicable. |
| (8) | Effective date represents the date on which both the Fund and counterparty commence interest payment accruals on each contract. |
| LIBOR | London Inter-Bank Offered Rate |
See accompanying notes to financial statements.
17
Statement of Assets and Liabilities
December 31, 2018
| Assets |
||||
| Long-term investments, at value (cost $372,431,254) |
$ | 393,603,596 | ||
| Short-term investments, at value (cost approximates value) |
2,556,679 | |||
| Cash |
58,476 | |||
| Unrealized appreciation on interest rate swaps |
1,629,321 | |||
| Receivable for dividends |
2,201,884 | |||
| Other assets |
105,598 | |||
| Total assets |
400,155,554 | |||
| Liabilities |
||||
| Borrowings |
126,000,000 | |||
| Accrued expenses: |
||||
| Interest on borrowings |
41,925 | |||
| Management fees |
303,145 | |||
| Trustees fees |
105,573 | |||
| Other |
88,642 | |||
| Total liabilities |
126,539,285 | |||
| Net assets applicable to common shares |
$ | 273,616,269 | ||
| Common shares outstanding |
28,892,471 | |||
| Net asset value (“NAV”) per common share outstanding |
$ | 9.47 | ||
| Net assets applicable to common shares consist of: |
||||
| Common shares, $.01 par value per share |
$ | 288,925 | ||
| Paid-in surplus |
254,444,778 | |||
| Total distributable earnings |
18,882,566 | |||
| Net assets applicable to common shares |
$ | 273,616,269 | ||
| Authorized shares: |
||||
| Common |
Unlimited | |||
| Preferred |
Unlimited |
See accompanying notes to financial statements.
18
Year Ended December 31, 2018
| Investment Income |
||||
| Dividends |
$ | 16,668,761 | ||
| Interest |
81,559 | |||
| Other |
55,938 | |||
| Total investment income |
16,806,258 | |||
| Expenses |
||||
| Management fees |
3,708,164 | |||
| Interest expense on borrowings |
3,456,198 | |||
| Custodian fees |
56,826 | |||
| Trustees fees |
10,773 | |||
| Professional fees |
40,036 | |||
| Shareholder reporting expenses |
78,376 | |||
| Shareholder servicing agent fees |
3,156 | |||
| Stock exchange listing fees |
8,019 | |||
| Investor relations expense |
7,192 | |||
| Other |
16,396 | |||
| Total expenses |
7,385,136 | |||
| Net investment income (loss) |
9,421,122 | |||
| Realized and Unrealized Gain (Loss) |
||||
| Net realized gain (loss) from: |
||||
| Investments |
13,632,959 | |||
| Swaps |
62,771 | |||
| Change in net unrealized appreciation (depreciation) of: |
||||
| Investments |
(53,852,326 | ) | ||
| Swaps |
857,866 | |||
| Net realized and unrealized gain (loss) |
(39,298,730 | ) | ||
| Net increase (decrease) in net assets applicable to common shares from operations |
$ | (29,877,608 | ) |
See accompanying notes to financial statements.
19
Statement of Changes in Net Assets
| Year Ended 12/31/18 |
Year 12/31/17(1) |
|||||||
| Operations |
||||||||
| Net investment income (loss) |
$ | 9,421,122 | $ | 11,737,148 | ||||
| Net realized gain (loss) from: |
||||||||
| Investments |
13,632,959 | 8,378,449 | ||||||
| Swaps |
62,771 | (1,636,708 | ) | |||||
| Change in net unrealized appreciation (depreciation) of: |
||||||||
| Investments |
(53,852,326 | ) | 6,754,018 | |||||
| Swaps |
857,866 | 2,446,420 | ||||||
| Net increase (decrease) in net assets applicable to common shares from operations |
(29,877,608 | ) | 27,679,327 | |||||
| Distributions to Common Shareholders(2) |
||||||||
| Dividends(3) |
(20,237,545 | ) | (17,787,787 | ) | ||||
| Return of capital |
(4,176,593 | ) | (11,104,684 | ) | ||||
| Decrease in net assets applicable to common shares from distributions to common shareholders |
(24,414,138 | ) | (28,892,471 | ) | ||||
| Net increase (decrease) in net assets applicable to common shares |
(54,291,746 | ) | (1,213,144 | ) | ||||
| Net assets applicable to common shares at the beginning of period |
327,908,015 | 329,121,159 | ||||||
| Net assets applicable to common shares at the end of period |
$ | 273,616,269 | $ | 327,908,015 | ||||
| (1) | Prior period amounts have been conformed to current year presentation. See Notes to Financial Statements, Note 9 – New Accounting Pronouncements for further details. |
| (2) | The composition and per share amounts of the Fund’s distribution are presented in the Financial Highlights. The distribution information for the Fund as of its most recent tax year end is presented within the Notes to Financial Statements, Note 6 – Income Tax Information. |
| (3) | For the fiscal year ended December 31, 2017 the Fund’s distributions to shareholders were paid from net investment income. |
See accompanying notes to financial statements.
20
Year Ended December 31, 2018
| Cash Flows from Operating Activities: |
||||
| Net Increase (Decrease) in Net Assets Applicable to Common Shares from Operations |
$ | (29,877,608 | ) | |
| Adjustments to reconcile the net increase (decrease) in net assets applicable to common shares from
operations to |
||||
| Purchases of investments |
(277,312,311 | ) | ||
| Proceeds from sales and maturities of investments |
304,240,491 | |||
| Proceeds from (Purchases of) short-term investments, net |
3,192,274 | |||
| Capital gain and return of capital distributions from investments |
4,500,260 | |||
| Proceeds from litigation settlement |
5,528 | |||
| (Increase) Decrease in: |
||||
| Receivable for dividends |
288,484 | |||
| Receivable for investments sold |
1,868,050 | |||
| Other assets |
(12,355 | ) | ||
| Increase (Decrease) in: |
||||
| Payable for investments purchased |
(2,383,571 | ) | ||
| Accrued interest on borrowings |
9,640 | |||
| Accrued management fees |
(42,919 | ) | ||
| Accrued Trustees fees |
12,078 | |||
| Accrued other expenses |
(76,928 | ) | ||
| Net realized (gain) loss from investments |
(13,632,959 | ) | ||
| Change in net unrealized (appreciation) depreciation of: |
||||
| Investments |
53,852,326 | |||
| Swaps |
(857,866 | ) | ||
| Net cash provided by (used in) operating activities |
43,772,614 | |||
| Cash Flows from Financing Activities: |
||||
| Repayment of borrowings |
(19,300,000 | ) | ||
| Cash distributions paid to common shareholders |
(24,414,138 | ) | ||
| Net cash provided by (used in) financing activities |
(43,714,138 | ) | ||
| Net Increase (Decrease) in Cash |
58,476 | |||
| Cash at the beginning of period |
— | |||
| Cash at the end of period |
$ | 58,476 | ||
| Supplemental Disclosure of Cash Flow Information | ||||
| Cash paid for interest on borrowings (excluding borrowing costs) |
$ | 3,446,558 | ||
See accompanying notes to financial statements.
21
Selected data for a common share outstanding throughout each period:
| Investment Operations | Less Distributions to Common Shareholders |
Common Shares | ||||||||||||||||||||||||||||||||||||||||||
| Beginning Common Share NAV |
Net Investment Income (Loss)(a) |
Net Realized/ Unrealized Gain (Loss) |
Total | From Net Investment Income |
From Net Realized |
Return of Capital |
Total | Premium from Shares Sold through Shelf Offering |
Ending NAV |
Ending Share Price |
||||||||||||||||||||||||||||||||||
| Year Ended 12/31: |
| |||||||||||||||||||||||||||||||||||||||||||
| 2018 |
$ | 11.35 | $ | 0.33 | $ | (1.36 | ) | $ | (1.03 | ) | $ | (0.33 | ) | $ | (0.37 | ) | $ | (0.15 | ) | $ | (0.85 | ) | $ | — | $ | 9.47 | $ | 8.46 | ||||||||||||||||
| 2017 |
11.39 | 0.41 | 0.55 | 0.96 | (0.62 | ) | — | (0.38 | ) | (1.00 | ) | — | 11.35 | 11.26 | ||||||||||||||||||||||||||||||
| 2016 |
11.71 | 0.39 | 0.27 | 0.66 | (0.98 | ) | — | — | (0.98 | ) | — | 11.39 | 10.77 | |||||||||||||||||||||||||||||||
| 2015 |
12.08 | 0.38 | 0.21 | 0.59 | (0.89 | ) | — | (0.07 | ) | (0.96 | ) | — | 11.71 | 10.62 | ||||||||||||||||||||||||||||||
| 2014 |
9.56 | 0.37 | 3.05 | 3.42 | (0.90 | ) | — | — | (0.90 | ) | — | * | 12.08 | 11.50 | ||||||||||||||||||||||||||||||
| Borrowings at End of Period | ||||||||
| Aggregate Outstanding |
Asset Coverage Per $1,000 |
|||||||
| Year Ended 12/31: |
||||||||
| 2018 |
$ | 126,000 | $ | 3,172 | ||||
| 2017 |
145,300 | 3,257 | ||||||
| 2016 |
144,750 | 3,274 | ||||||
| 2015 |
140,000 | 3,417 | ||||||
| 2014 |
134,100 | 3,602 | ||||||
22
| Common Share Supplemental Data/ Ratios Applicable to Common Shares |
||||||||||||||||||||||
| Common Share Total Returns |
Ratios to Average Net Assets(c) | |||||||||||||||||||||
| Based on NAV(b) |
Based on Share Price(b) |
Ending Net Assets (000) |
Expenses | Net Investment Income (Loss) |
Portfolio Turnover Rate(d) |
|||||||||||||||||
| (9.44 | )% | (17.93 | )% | $ | 273,616 | 2.43 | % | 3.10 | % | 67 | % | |||||||||||
| 8.72 | 14.23 | 327,908 | 2.13 | 3.56 | 52 | |||||||||||||||||
| 5.53 | 10.43 | 329,121 | 1.81 | 3.33 | 101 | |||||||||||||||||
| 5.24 | 0.99 | 338,333 | 1.81 | 3.19 | 56 | |||||||||||||||||
| 36.78 | 31.03 | 348,993 | 1.75 | 3.35 | 61 | |||||||||||||||||
| (a) | Per share Net Investment Income (Loss) is calculated using the average daily shares method. |
| (b) | Total Return Based on Common Share NAV is the combination of changes in common share NAV, reinvested dividend income at NAV and reinvested capital gains distributions at NAV, 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 NAV. 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 NAV), and therefore may be different from the price used in the calculation. Total returns are not annualized. |
Total Return Based on Common Share Price is the combination of changes in the market price per share and the effect of reinvested dividend income and reinvested capital gains distributions, if any, at the average price paid per share at the time of reinvestment. The last dividend declared in the period, which is typically paid on the first business day of the following month, is assumed to be reinvested at the ending market price. The actual reinvestment for the last dividend declared in the period may take place over several days, and in some instances may not be based on the market price, so the actual reinvestment price may be different from the price used in the calculation. Total returns are not annualized.
| (c) • | Net Investment Income (Loss) ratios reflect income earned and expenses incurred on assets attributable to borrowings (as described in Note 8 – Borrowing Arrangements). |
| • | Each ratio includes the effect of all interest expense paid and other costs related to borrowings as follows: |
| (d) | Portfolio Turnover Rate is calculated based on the lesser of long-term purchases or sales (as disclosed in Note 5 – Investment Transactions) divided by the average long-term market value during the period. |
| * | Rounds to less than $0.01 per share. |
See accompanying notes to financial statements.
23
1. General Information and Significant Accounting Policies
General Information
Fund Information
Nuveen Real Estate Income Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended, as a diversified closed-end management investment company. The Fund’s common shares are listed on the New York Stock Exchange (“NYSE”) and trade under the ticker symbol “JRS.” The Fund was organized as a Massachusetts business trust on August 27, 2001.
The end of the reporting period for the Fund is December 31, 2018, and the period covered by these Notes to Financial Statements is the fiscal year ended December 31, 2018 (the “current fiscal period”).
Investment Adviser
The Fund’s investment adviser is Nuveen Fund Advisors, LLC (the “Adviser”), a subsidiary of Nuveen, LLC (“Nuveen”). Nuveen is the investment management arm of Teachers Insurance and Annuity Association of America (TIAA). The Adviser has overall responsibility for management of the Fund, oversees the management of the Fund’s portfolio, manages the Fund’s business affairs and provides certain clerical, bookkeeping and other administrative services, and, if necessary, asset allocation decisions. The Adviser has entered into a sub-advisory agreement with Security Capital Research & Management Incorporated (“Security Capital”). Security Capital manages the Fund’s investment portfolio, while the Adviser manages the Fund’s investments in swap contracts.
Investment Objective and Principal Investment Strategies
The Fund seeks to provide high current income and capital appreciation by investing at least 90% of its total assets in income producing common stocks, preferred stocks, convertible preferred stocks and debt securities issued by real estate companies. The Fund will invest at least 80% of its total assets in income producing equity securities issued by Real Estate Investment Trusts (“REITs”), and will not invest more than 25% of its total assets in non-investment grade preferred stocks, convertible preferred stocks and debt securities.
Significant Accounting Policies
The Fund is an investment company and follows accounting and reporting guidance under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) Topic 946 “Financial Services – Investment Companies.” The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).
Investment Transactions
Investment transactions are recorded on a trade date basis. Realized gains and losses from investment transactions are determined on the specific identification method, which is the same basis used for federal income tax purposes. 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 Fund has earmarked securities in its portfolio with a current value at least equal to the amount of the when-issued/delayed delivery purchase commitments.
As of the end of the reporting period, the Fund did not have any outstanding when-issued/delayed delivery purchase commitments.
Investment Income
Dividend income is recorded on the ex-dividend date or, for foreign securities, when information is available. Non-cash dividends received in the form of stock, if any, are recognized on the ex-dividend date and are recorded at fair value. Interest income, which reflects the amortization of premiums and includes accretion of discounts for financial reporting purposes, is recorded on an accrual basis. Interest income also reflects payment-in-kind (“PIK”) interest and paydown gains and losses, if any. PIK interest represents income received in the form of securities in lieu of cash. Other income is comprised of fees earned in connection with the rehypothecation of pledged collateral as further described in Note 8 – Borrowing Arrangements, Rehypothecation.
Professional Fees
Professional fees presented on the Statement of Operations consist of legal fees incurred in the normal course of operations, audit fees, tax consulting fees and, in some cases, workout expenditures. Workout expenditures are incurred in an attempt to protect or enhance an investment or to pursue other claims or legal actions on behalf of Fund shareholders. If a refund is received for workout expenditures paid in a prior reporting period, such amounts will be recognized as “Legal fee refund” on the Statement of Operations.
24
Dividends and Distributions to Common Shareholders
Distributions to common shareholders 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. GAAP.
The Fund makes quarterly cash distributions to common shareholders of a stated dollar amount per share. Subject to approval and oversight by the Fund’s Board of Trustees (the “Board”), the Fund seeks to maintain a stable distribution level designed to deliver the long-term return potential of the Fund’s investment strategy through regular quarterly distributions (a “Managed Distribution Program”). Total distributions during a calendar year generally will be made from the Fund’s net investment income, net realized capital gains and net unrealized capital gains in the Fund’s portfolio, if any. The portion of distributions paid attributed to net unrealized gains, if any, is distributed from the Fund’s assets and is treated by shareholders as a nontaxable distribution (“return of capital”) for tax purposes. In the event that total distributions during a calendar year exceed the Fund’s total return on net asset value (“NAV”), the difference will reduce NAV per share. If the Fund’s total return on NAV exceeds total distributions during a calendar year, the excess will be reflected as an increase in NAV per share. The final determination of the source and character of all distributions paid by the Fund during the fiscal year is made after the end of the fiscal year and is reflected in the financial statements contained in the annual report as of December 31 each year.
The tax character of Fund distributions for a fiscal year is dependent upon the amount and tax character of distributions received from securities held in the Fund’s portfolio. Distributions received from certain securities in which the Fund invests, most notably REIT securities, may be characterized for tax purposes as ordinary income, long-term capital gain and/or a return of capital. The issuer of a security reports the tax character of its distributions only once per year, generally during the first two months of the calendar year. The distribution is included in the Fund’s ordinary income until such time the Fund is notified by the issuer of the actual tax character. Dividend income, net realized gain (loss) and unrealized appreciation (depreciation) recognized on the Statement of Operations reflect the amounts of ordinary income, capital gain, and/or return of capital as reported by the issuers of such securities for distributions during the current fiscal period.
Compensation
The Fund pays no compensation directly to those of its trustees who are affiliated with the Adviser or to its officers, all of whom receive remuneration for their services to the Fund from the Adviser or its affiliates. The Board has adopted a deferred compensation plan for independent trustees that enables 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.
Indemnifications
Under the Fund’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts that provide general indemnifications to other parties. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Netting Agreements
In the ordinary course of business, the Fund may enter into transactions subject to enforceable master repurchase agreements, International Swaps and Derivatives Association, Inc. (ISDA) master agreements or other similar arrangements (“netting agreements”). Generally, the right to offset in netting agreements allows the Fund to offset certain securities and derivatives with a specific counterparty, when applicable, as well as any collateral received or delivered to that counterparty based on the terms of the agreements. Generally, the Fund manages its cash collateral and securities collateral on a counterparty basis.
The Fund’s investments subject to netting agreements as of the end of the reporting period, if any, are further described in Note 3 – Portfolio Securities and Investments in Derivatives.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 current fiscal period. Actual results may differ from those estimates.
25
Notes to Financial Statements (continued)
2. Investment Valuation and Fair Value Measurements
The fair valuation input levels as described below are for fair value measurement purposes.
Fair value is defined as the price that would be received upon selling an investment or transferring a liability in an orderly transaction to an independent buyer in the principal or most advantageous market for the investment. A three-tier hierarchy is used to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability. Observable inputs are based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability. Unobservable inputs are based on the best information available in the circumstances. The following is a summary of the three-tiered hierarchy of valuation input levels.
| Level 1 – | Inputs are unadjusted and prices are determined using quoted prices in active markets for identical securities. | |
| Level 2 – | Prices are determined using other significant observable inputs (including quoted prices for similar securities, interest rates, credit spreads, etc.). | |
| Level 3 – | Prices are determined using significant unobservable inputs (including management’s assumptions in determining the fair value of investments). |
Common stocks and other equity-type securities are valued at the last sales price on the securities exchange on which such securities are primarily traded and are generally classified as Level 1. Securities primarily traded on the Nasdaq National Market (“Nasdaq”) are valued at the Nasdaq Official Closing Price and are generally classified as Level 1. However, securities traded on a securities exchange or Nasdaq for which there were no transactions on a given day or securities not listed on a securities exchange or Nasdaq are valued at the quoted bid price and are generally classified as Level 2.
Prices of fixed-income securities are provided by an independent pricing service (“pricing service”) approved by the Board. The pricing service establishes a
security’s fair value using methods that may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers,
evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. These securities are generally classified as Level 2. In
pricing certain securities, particularly less liquid and lower quality securities, the pricing service may consider information about a security, its issuer or market activity, provided by the Adviser. These securities are generally classified
as
Level 2 or Level 3 depending on the observability of the significant inputs.
Prices of swap contracts are also provided by a pricing service approved by the Board using the same methods as described above, and are generally classified as Level 2.
Repurchase agreements are valued at contract amount plus accrued interest, which approximates market value. These securities are generally classified as Level 2.
Certain securities may not be able to be priced by the pre-established pricing methods as described above. Such securities may be valued by the Board and/or its appointee at fair value. These securities generally include, but are not limited to, restricted securities (securities which may not be publicly sold without registration under the Securities Act of 1933, as amended) for which a pricing service is unable to provide a market price; securities whose trading has been formally suspended; debt securities that have gone into default and for which there is no current market quotation; a security whose market price is not available from a pre-established pricing source; a security with respect to which an event has occurred that is likely to materially affect the value of the security after the market has closed but before the calculation of the Fund’s NAV (as may be the case in non-U.S. markets on which the security is primarily traded) or make it difficult or impossible to obtain a reliable market quotation; and a security whose price, as provided by the pricing service, is not deemed to reflect the security’s fair value. As a general principle, the fair value of a security would appear to be the amount that the owner might reasonably expect to receive for it in a current sale. A variety of factors may be considered in determining the fair value of such securities, which may include consideration of the following: yields or prices of investments of comparable quality, type of issue, coupon, maturity and rating, market quotes or indications of value from security dealers, evaluations of anticipated cash flows or collateral, general market conditions and other information and analysis, including the obligor’s credit characteristics considered relevant. These securities are generally classified as Level 2 or Level 3 depending on the observability of the significant inputs. Regardless of the method employed to value a particular security, all valuations are subject to review by the Board and/or its appointee.
26
The inputs or methodologies used for valuing securities are not an indication of the risks associated with investing in those securities. The following is a summary of the Fund’s fair value measurements as of the end of the reporting period:
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Long-Term Investments*: |
||||||||||||||||
| Real Estate Investment Trust Common Stocks |
$ | 255,220,877 | $ | — | $ | — | $ | 255,220,877 | ||||||||
| Real Estate Investment Trust Preferred Stocks |
124,616,854 | 11,237,625 | ** | — | 135,854,479 | |||||||||||
| Common Stocks |
2,528,240 | — | — | 2,528,240 | ||||||||||||
| Short-Term Investments: |
||||||||||||||||
| Repurchase Agreements |
— | 2,556,679 | — | 2,556,679 | ||||||||||||
| Investments in Derivatives: |
||||||||||||||||
| Interest Rate Swaps*** |
— | 1,629,321 | — | 1,629,321 | ||||||||||||
| Total |
$ | 382,365,971 | $ | 15,423,625 | $ | — | $ | 397,789,596 | ||||||||
| * | Refer to the Fund’s Portfolio of Investments for industry classifications. |
| ** | Refer to the Fund’s Portfolio of Investments for securities classified as Level 2. |
| *** | Represents net unrealized appreciation (depreciation) as reported in the Fund’s Portfolio of Investments. |
3. Portfolio Securities and Investments in Derivatives
Portfolio Securities
Repurchase Agreements
In connection with transactions in repurchase agreements, it is the Fund’s policy that its custodian take possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest, at all times. If the counterparty defaults, and the fair value of the collateral declines, realization of the collateral may be delayed or limited.
The following table presents the repurchase agreements for the Fund that are subject to netting agreements as of the end of the reporting period, and the collateral delivered related to those repurchase agreements.
| Counterparty | Short-Term Investments, at Value |
Collateral Pledged (From) Counterparty* |
Net Exposure |
|||||||||
| Fixed Income Clearing Corporation |
$ | 2,556,679 | $ | (2,556,679 | ) | $ | — | |||||
| * | As of the end of the reporting period, the value of the collateral pledged from the counterparty exceeded the value of the repurchase agreements. Refer to the Fund’s Portfolio of Investments for details on the repurchase agreements. |
27
Notes to Financial Statements (continued)
Investments in Derivatives
The Fund is authorized to invest in certain derivative instruments, such as futures, options and swap contracts. The Fund limits its investments in futures, options on futures and swap contracts to the extent necessary for the Adviser to claim the exclusion from registration by the Commodity Futures Trading Commission as a commodity pool operator with respect to the Fund. The Fund records derivative instruments at fair value with changes in fair value recognized on the Statement of Operations, when applicable. Even though the Fund’s investments in derivatives may represent economic hedges, they are not considered to be hedge transactions for financial reporting purposes.
Interest Rate Swap Contracts
Interest rate swap contracts involve the Fund’s agreement with the counterparty to pay or receive a fixed rate payment in exchange for the counterparty receiving or paying a variable rate payment. Forward interest rate swap contracts involve the Fund’s agreement with a counterparty to pay, in the future, a fixed or variable rate payment in exchange for the counterparty paying the Fund a variable or fixed rate payment, the accruals for which would begin at a specified date in the future (the “effective date”).
The amount of the payment obligation for an interest rate swap is based on the notional amount and the termination date of the contract. Interest rate swap contracts do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to the swap counterparty on such transactions is limited to the net amount of interest payments that the Fund is to receive.
Interest rate swap contracts are valued daily. Upon entering into an interest rate swap contract (and beginning on the effective date for a forward interest rate swap contract), the Fund accrues the fixed rate payment expected to be paid or received and the variable rate payment expected to be received or paid on the interest rate swap contracts on a daily basis, and recognizes the daily change in the fair value of the Fund’s contractual rights and obligations under the contracts. For an over-the-counter (“OTC”) swap that is not cleared through a clearing house (“OTC Uncleared”), the amount recorded on these transactions is recognized on the Statement of Assets and Liabilities as a component of “Unrealized appreciation or depreciation on interest rate swaps.”
Upon the execution of an OTC swap cleared through a clearing house (“OTC Cleared”), the Fund is obligated to deposit cash or eligible securities, also known as “initial margin,” into an account at its clearing broker equal to a specified percentage of the contract amount. Cash deposited by the Fund to cover initial margin requirements on open swap contracts, if any, is recognized as a component of “Cash collateral at brokers for investments in swaps” on the Statement of Assets and Liabilities. Investments in OTC Cleared swaps obligate the Fund and the clearing broker to settle monies on a daily basis representing changes in the prior day’s “mark-to-market” of the swap contract. If the Fund has unrealized appreciation, the clearing broker will credit the Fund’s account with an amount equal to the appreciation. Conversely, if the Fund has unrealized depreciation, the clearing broker will debit the Fund’s account with an amount equal to the depreciation. These daily cash settlements are also known as “variation margin.” Variation margin for OTC Cleared swaps is recognized as a receivable and/or payable for “Variation margin on swap contracts” on the Statement of Assets and Liabilities. Upon the execution of an OTC Uncleared swap, neither the Fund nor the counterparty is required to deposit initial margin as the trades are recorded bilaterally between both parties to the swap contract, and the terms of the variation margin are subject to a predetermined threshold negotiated by the Fund and the counterparty. Variation margin for OTC Uncleared swaps is recognized as a component of “Unrealized appreciation or depreciation on interest rate swaps” as described in the preceding paragraph.
The net amount of periodic payments settled in cash are recognized as a component of “Net realized gain (loss) from swaps” on the Statement of Operations, in addition to the net realized gain or loss recorded upon the termination of the swap contract. For tax purposes, payments expected to be received or paid on the swap contracts are treated as ordinary income or expense, respectively. Changes in the value of the swap contracts during the fiscal period are recognized as a component of “Change in net unrealized appreciation (depreciation) of swaps” on the Statement of Operations. In certain instances, payments are made or received upon entering into the swap contract to compensate for differences between the stated terms of the swap agreements and prevailing market conditions (credit spreads, currency exchange rates, interest rates, and other relevant factors). Payments received or made at the beginning of the measurement period, if any, are recognized as “Interest rate swaps premiums received and/or paid” on the Statement of Assets and Liabilities.
During the current fiscal period, the Fund continued to utilize forward starting interest rate swap contracts to partially hedge its future interest cost of leverage, which is through the use of bank borrowings.
The average notional amount of interest rate swap contracts outstanding during the current fiscal period was as follows:
| Average notional amount of interest rate swap contracts outstanding* |
$72,400,000 |
| * | The average notional amount is calculated based on the outstanding notional at the beginning of the current fiscal period and at the end of each fiscal quarter within the current fiscal period. |
28
The following table presents the fair value of all swap contracts held by the Fund as of the end of the reporting period, the location of these instruments on the Statement of Assets and Liabilities and the primary underlying risk exposure.
| Location on the Statements of Assets and Liabilities |
||||||||||||||||||
| Underlying Risk Exposure |
Derivative Instrument |
Asset Derivatives |
(Liability) Derivatives |
|||||||||||||||
| Location | Value | Location | Value | |||||||||||||||
| Interest rate | Swaps (OTC Uncleared) | Unrealized appreciation on interest rate swaps** | $ | 1,629,321 | — | $ | — | |||||||||||
| ** | Some swap contracts require a counterparty to pay or receive a premium, which is disclosed on the Statement of Assets and Liabilities, when applicable, and is not reflected in the cumulative unrealized appreciation (depreciation) presented above. |
The following table presents the swap contracts subject to netting agreements and the collateral delivered related to those swap contracts as of the end of the reporting period.
| Gross Amounts not offset on the Statement of Assets and Liabilities |
||||||||||||||||||||||||
| Counterparty | Gross Unrealized Appreciation on Interest Rate Swaps*** |
Gross Unrealized (Depreciation) on Interest Rate Swaps*** |
Net Unrealized Appreciation (Depreciation) on Interest Rate Swaps |
Interest Rate Swaps Premiums Paid |
Collateral Pledged |
Net Exposure |
||||||||||||||||||
| Morgan Stanley Capital Services LLC |
$ | 1,629,321 | $ | — | $ | 1,629,321 | $ | — | $ | (1,629,321 | ) | $ | — | |||||||||||
| *** | Represents gross unrealized appreciation (depreciation) for the counterparty as reported in the Fund’s Portfolio of Investments. |
The following table presents the amount of net realized gain (loss) and change in net unrealized appreciation (depreciation) recognized on swap contracts on the Statement of Operations during the current fiscal period, and the primary underlying risk exposure.
| Underlying Risk Exposure |
Derivative Instrument |
Net Realized Swaps |
Change in Net Unrealized (Depreciation) of | |||
| Interest rate |
Swaps |
$62,771 | $857,866 |
Market and Counterparty Credit Risk
In the normal course of business the Fund may invest in financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to the transaction to perform (counterparty credit risk). The potential loss could exceed the value of the financial assets recorded on the financial statements. Financial assets, which potentially expose the Fund to counterparty credit risk, consist principally of cash due from counterparties on forward, option and swap transactions, when applicable. The extent of the Fund’s exposure to counterparty credit risk in respect to these financial assets approximates its carrying value as recorded on the Statement of Assets and Liabilities.
The Fund helps manage counterparty credit risk by entering into agreements only with counterparties the Adviser believes have the financial resources to honor their obligations and by having the Adviser monitor the financial stability of the counterparties. Additionally, counterparties may be required to pledge collateral daily (based on the daily valuation of the financial asset) on behalf of the Fund with a value approximately equal to the amount of any unrealized gain above a pre-determined threshold. Reciprocally, when the Fund has an unrealized loss, the Fund has instructed the custodian to pledge assets of the Fund as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined threshold. Collateral pledges are monitored and subsequently adjusted if and when the valuations fluctuate, either up or down, by at least the pre-determined threshold amount.
4. Fund Shares
The Fund did not have any transactions in common shares during current and prior fiscal period.
5. Investment Transactions
Long-term purchases and sales (including maturities but excluding derivative transactions) during the current fiscal period aggregated $277,312,311 and $304,240,491, respectively.
29
Notes to Financial Statements (continued)
6. Income Tax Information
The Fund intends to distribute substantially all of its net investment company taxable income to shareholders and to otherwise comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. In any year when the Fund realizes net capital gains, the Fund may choose to distribute all or a portion of its net capital gains to shareholders, or alternatively, to retain all or a portion of its net capital gains and pay federal corporate income taxes on such retained gains.
For all open tax years and all major taxing jurisdictions, management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Open tax years are those that are open for examination by taxing authorities (i.e., generally the last four tax year ends and the interim tax period since then). Furthermore, management of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
The following information is presented on an income tax basis. Differences between amounts for financial statement and federal income tax purposes are primarily due to timing differences in recognizing certain gains and losses on investment transactions. To the extent that differences arise that are permanent in nature, such amounts are reclassified within the capital accounts as detailed below. Temporary differences do not require reclassification. Temporary and permanent differences do not impact the NAV of the Fund.
The tables below present the cost and unrealized appreciation (depreciation) of the Fund’s investment portfolio, as determined on a federal income tax basis, as of December 31, 2018.
For purposes of this disclosure, derivative tax cost is generally the sum of any upfront fees or premiums exchanged and any amounts unrealized for income statement reporting but realized in income and/or capital gains for tax reporting. If a particular derivative category does not disclose any tax unrealized appreciation or depreciation, the change in value of those derivatives have generally been fully realized for tax purposes.
| Tax cost of investments |
$378,777,792 | |||
| Gross unrealized: |
||||
| Appreciation |
$43,056,796 | |||
| Depreciation |
(25,674,313 | ) | ||
| Net unrealized appreciation (depreciation) of investments |
$17,382,483 |
| Tax cost of swaps |
$ — | |||
| Net unrealized appreciation (depreciation) of swaps |
1,629,321 |
Permanent differences, primarily due to treatment of notional principal contracts and securities litigation settlements, resulted in reclassifications among the Fund’s components of common share net assets as of December 31, 2018, the Fund’s tax year end.
| The tax components of undistributed net ordinary income and net long-term capital gains as of December 31, 2018, the Fund’s tax year end, were as follows: |
| |||
| Undistributed net ordinary income |
$ — | |||
| Undistributed net long-term capital gains |
— | |||
| The tax character of distributions paid during the Fund’s tax years ended December 31, 2018 and December 31, 2017 was designated for purposes of the dividends paid deduction as follows: |
| |||
| 2018 | ||||
| Distributions from net ordinary income1 |
$ | 9,528,426 | ||
| Distributions from net long-term capital gains2 |
10,709,119 | |||
| Return of capital |
4,176,593 | |||
| 2017 | ||||
| Distributions from net ordinary income1 |
$ | 17,787,787 | ||
| Distributions from net long-term capital gains |
— | |||
| Return of capital |
11,104,684 | |||
| 1 Net ordinary income consists of net taxable income derived from dividends, interest, and net short term capital gains, if any, or current year earnings and profits attributable to realized gains. |
| |||
| 2 The Fund designates as long-term capital gain dividend, pursuant to Internal Revenue Code Section 852(b)(3), the amount necessary to reduce earnings and profits of the Fund related to net capital gain to zero for the tax year ended December 31, 2018. |
| |||
30
7. Management Fees
The Fund’s management fee compensates the Adviser for overall investment advisory and administrative services and general office facilities. Security Capital is compensated for its services to the Fund from the management fees paid to the Adviser.
The Fund’s management fee consists of two components – a fund-level fee, based only on the amount of assets within the Fund, and a complex-level fee, based on the aggregate amount of all eligible fund assets managed by the Adviser. This pricing structure enables Fund shareholders to benefit from growth in the assets within the Fund as well as from growth in the amount of complex-wide assets managed by the Adviser.
The annual fund-level fee, payable monthly, is calculated according to the following schedule:
| Average Daily Managed Assets* | Fund-Level Fee Rate | |||
| For the first $500 million |
0.7000 | % | ||
| For the next $500 million |
0.6750 | |||
| For the next $500 million |
0.6500 | |||
| For the next $500 million |
0.6250 | |||
| For managed assets over $2 billion |
0.6000 | |||
The annual complex-level fee, payable monthly, is calculated by multiplying the current complex-wide fee rate, determined according to the following schedule by the Fund’s daily managed assets:
| Complex-Level Eligible Asset Breakpoint Level* | Effective Complex-Level Fee Rate at Breakpoint Level | |||
| $55 billion |
0.2000 | % | ||
| $56 billion |
0.1996 | |||
| $57 billion |
0.1989 | |||
| $60 billion |
0.1961 | |||
| $63 billion |
0.1931 | |||
| $66 billion |
0.1900 | |||
| $71 billion |
0.1851 | |||
| $76 billion |
0.1806 | |||
| $80 billion |
0.1773 | |||
| $91 billion |
0.1691 | |||
| $125 billion |
0.1599 | |||
| $200 billion |
0.1505 | |||
| $250 billion |
0.1469 | |||
| $300 billion |
0.1445 | |||
| * | For the complex-level fees, managed assets include closed-end fund assets managed by the Adviser that are attributable to certain types of leverage. For these purposes, leverage includes the funds’ use of preferred stock and borrowings and certain investments in the residual interest certificates (also called inverse floating rate securities) in tender option bond (TOB) trusts, including the portion of assets held by a TOB trust that has been effectively financed by the trust’s issuance of floating rate securities, subject to an agreement by the Adviser as to certain funds to limit the amount of such assets for determining managed assets in certain circumstances. The complex-level fee is calculated based upon the aggregate daily managed assets of all Nuveen open-end and closed-end funds that constitute “eligible assets.” Eligible assets do not include assets attributable to investments in other Nuveen funds or assets in excess of a determined amount (originally $2 billion) added to the Nuveen fund complex in connection with the Adviser’s assumption of the management of the former First American Funds effective January 1, 2011. As of December 31, 2018, the complex-level fee for the Fund was 0.1602%. |
8. Borrowing Arrangements
Borrowings
The Fund has entered into a borrowing arrangement as a means of leverage.
As of the end of the reporting period, the Fund has a $150,000,000 (maximum commitment amount) committed financing agreement (“Borrowings”). As of the end of the reporting period, the outstanding balance on these Borrowings was $126,000,000.
Interest is charged on these Borrowings at 1-Month LIBOR (London Inter-Bank Offered Rate) plus 0.65% per annum on the amount borrowed. The Fund is also charged an undrawn fee of 0.50% per annum undrawn fee if the undrawn portion of the Borrowings on that day is more than 20% of the maximum commitment amount. During the current fiscal period, the average daily balance outstanding and average annual interest rate on these Borrowings were $127,750,137 and 2.67%, respectively.
In order to maintain these Borrowings, the Fund must meet certain collateral, asset coverage and other requirements. Borrowings outstanding are fully secured by securities specifically identified in the Fund’s portfolio of investments (“Pledged Collateral”).
Borrowings outstanding are recognized as “Borrowings” on the Statement of Assets and Liabilities. Interest expense incurred on the drawn amount and undrawn balance are recognized as a component of “Interest expense on borrowings” on the Statement of Operations.
31
Notes to Financial Statements (continued)
Rehypothecation
The Fund has entered into a Rehypothecation Side Letter (“Side Letter”) with its prime brokerage lender, allowing it to re-register the Pledged Collateral in its own name or in a name other than the Fund’s to pledge, repledge, hypothecate, rehyphothecate, sell, lend or otherwise transfer or use the Pledged Collateral (the “Hypothecated Securities”) with all rights of ownership as described in the Side Letter. Subject to certain conditions, the total value of the outstanding Hypothecated Securities shall not exceed the lesser of (i) 98% of the outstanding balance on the Borrowings to which the Pledged Collateral relates and (ii) 331⁄3% of the Fund’s total assets. The Fund may designate any Pledged Collateral as ineligible for rehypothecation. The Fund may also recall Hypothecated Securities on demand.
The Fund also has the right to apply and set-off an amount equal to one-hundred percent (100%) of the then-current fair market value of such Pledged Collateral against the current Borrowings under the Side Letter in the event that prime brokerage lender fails to timely return the Pledged Collateral and in certain other circumstances. In such circumstances, however, the Fund may not be able to obtain replacement financing required to purchase replacement securities and, consequently, the Fund’s income generating potential may decrease. Even if the Fund is able to obtain replacement financing, it might not be able to purchase replacement securities at favorable prices.
The Fund will receive a fee in connection with the Hypothecated Securities (“Rehypothecation Fees”) in addition to any principal, interest, dividends and other distributions paid on the Hypothecated Securities.
As of the end of the reporting period, the Fund had Hypothecated Securities totaling $110,829,341. During the current fiscal period, the Fund earned Rehypothecation Fees of $55,938, which is recognized as “Other income” on the Statement of Operations.
Inter-Fund Borrowing and Lending
The Securities and Exchange Commission (“SEC”) has granted an exemptive order permitting registered open-end and closed-end Nuveen funds to participate in an inter-fund lending facility whereby the Nuveen funds may directly lend to and borrow money from each other for temporary purposes (e.g., to satisfy redemption requests or when a sale of securities “fails,” resulting in an unanticipated cash shortfall) (the “Inter-Fund Program”). The closed-end Nuveen funds, including the Fund covered by this shareholder report, will participate only as lenders, and not as borrowers, in the Inter-Fund Program because such closed-end funds rarely, if ever, need to borrow cash to meet redemptions. The Inter-Fund Program is subject to a number of conditions, including, among other things, the requirements that (1) no fund may borrow or lend money through the Inter-Fund Program unless it receives a more favorable interest rate than is typically available from a bank or other financial institution for a comparable transaction; (2) no fund may borrow on an unsecured basis through the Inter-Fund Program unless the fund’s outstanding borrowings from all sources immediately after the inter-fund borrowing total 10% or less of its total assets; provided that if the borrowing fund has a secured borrowing outstanding from any other lender, including but not limited to another fund, the inter-fund loan must be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value; (3) if a fund’s total outstanding borrowings immediately after an inter-fund borrowing would be greater than 10% of its total assets, the fund may borrow through the inter-fund loan on a secured basis only; (4) no fund may lend money if the loan would cause its aggregate outstanding loans through the Inter-Fund Program to exceed 15% of its net assets at the time of the loan; (5) a fund’s inter-fund loans to any one fund shall not exceed 5% of the lending fund’s net assets; (6) the duration of inter-fund loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days; and (7) each interfund loan may be called on one business day’s notice by a lending fund and may be repaid on any day by a borrowing fund. In addition, a Nuveen fund may participate in the Inter-Fund Program only if and to the extent that such participation is consistent with the fund’s investment objective and investment policies. The Board is responsible for overseeing the Inter-Fund Program.
The limitations detailed above and the other conditions of the SEC exemptive order permitting the Inter-Fund Program are designed to minimize the risks associated with Inter-Fund Program for both the lending fund and the borrowing fund. However, no borrowing or lending activity is without risk. When a fund borrows money from another fund, there is a risk that the loan could be called on one day’s notice or not renewed, in which case the fund may have to borrow from a bank at a higher rate or take other actions to payoff such loan if an inter-fund loan is not available from another fund. Any delay in repayment to a lending fund could result in a lost investment opportunity or additional borrowing costs.
During the current reporting period, the Fund did not enter into any inter-fund loan activity.
9. New Accounting Pronouncements
Disclosure Update and Simplification
During August 2018, the SEC issued Final Rule Release No. 33-10532, Disclosure Update and Simplification (“Final Rule Release No. 33-10532”). Final Rule Release No. 33-10532 amends certain financial statement disclosure requirements to conform to U.S. GAAP. The amendments to Rule 6-04.17 of Regulation S-X (balance sheet) remove the requirement to separately state the book basis components of net assets: undistributed (over-distribution of) net investment income (“UNII”), accumulated undistributed net realized gains (losses), and net unrealized appreciation (depreciation) at the balance sheet date. Instead, consistent with U.S. GAAP, funds will be required to disclose total distributable earnings. The amendments to Rule 6-09 of Regulation S-X (statement of changes in net assets) remove the requirement to separately state the sources of distributions paid. Instead, consistent with U.S. GAAP, funds will be required to disclose the total amount of distributions paid, except that any tax return of capital must be separately disclosed. The amendments also remove the requirement to parenthetically state the book basis amount of UNII on the statement of changes in net assets.
32
The requirements of Final Rule Release No. 33-10532 are effective November 5, 2018, and the Fund’s Statement of Assets and Liabilities and Statement of Changes in Net Assets for the current reporting period have been modified accordingly. In addition, certain amounts within the Fund’s Statement of Changes in Net Assets for the prior fiscal period have been modified to conform to Final Rule Release No. 33-10532.
For the prior fiscal period, the total amount of distributions paid to shareholders from net investment income and from accumulated net realized gains, if any, are recognized as “Dividends” on the Statement of Changes in Net Assets.
As of December 31, 2017, the Fund’s Statement of Changes in Net Assets reflected the following UNII balance.
| UNII at the end of period |
$(90,233) |
Fair Value Measurement: Disclosure Framework
During August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13 (“ASU 2018-13”), Fair Value Measurement: Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurements. ASU 2018-13 modifies the disclosures required by Topic 820, Fair Value Measurements. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. During the current reporting period, management early implemented this guidance. This implementation did not have a material impact on the Fund’s financial statements.
33
Additional Fund Information (unaudited)
| Board of Trustees | ||||||||||
| Margo Cook* | Jack B. Evans | William C. Hunter | Albin F. Moschner | John K. Nelson |
||||||
| William J. Schneider** | Judith M. Stockdale |
Carole E. Stone |
Terence J. Toth | Margaret L. Wolff |
| * | Interested Board Member. |
| ** | Retired from the Funds’ Board of Trustees effective December 31, 2018. |
| Fund Manager Nuveen Fund Advisors, LLC 333 West Wacker Drive Chicago, IL 60606 |
Custodian State Street Bank One Lincoln Street Boston, MA 02111 |
Legal Counsel Chapman and Cutler LLP Chicago, IL 60603 |
Independent Registered KPMG LLP 200 East Randolph Street Chicago, IL 60601 |
Transfer Agent and Computershare
Trust 250 Royall Street Canton, MA 02021 (800) 257-8787 | ||||
Distribution Information
The Fund hereby designates its percentage of dividends paid from net ordinary income as dividends qualifying for the dividends received deduction (“DRD”) for corporations, its percentage of qualified dividend income (“QDI”) for individuals under Section 1(h)(11) of the Internal Revenue Code, and its percentage of qualified business income (“QBI”) for individuals under Section 199A of the Internal Revenue Code as shown in the accompanying table. The actual qualified dividend and business income distributions will be reported to shareholders on Form 1099-DIV which will be sent to shareholders shortly after calendar year end.
| JRS | ||||
| % DRD |
2.6% | |||
| % QDI |
2.6% | |||
| % QBI |
95.1% | |||
Quarterly Portfolio of Investments Information
The Fund is required to file its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its report on Form N-PORT. You may obtain this information on the SEC’s website at http://www.sec.gov.
Nuveen Funds’ Proxy Voting Information
You may obtain (i) information regarding how each fund voted proxies relating to portfolio securities held during the most recent twelve-month period ended June 30, without charge, upon request, by calling Nuveen toll-free at (800) 257-8787 or on Nuveen’s website at www.nuveen.com and (ii) a description of the policies and procedures that each fund used to determine how to vote proxies relating to portfolio securities without charge, upon request, by calling Nuveen toll free at (800) 257-8787. You may also obtain this information directly from the SEC. Visit the SEC on-line at http://www.sec.gov.
CEO Certification Disclosure
The Fund’s Chief Executive Officer (CEO) 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. The Fund has filed with the SEC the certification of its CEO and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act.
Common Share Repurchases
The Fund intends to repurchase, through its open-market share repurchase program, shares of its own common stock at such times and in such amounts as is deemed advisable. During the period covered by this report, the Fund repurchased shares of its common stock, as shown in the accompanying table. Any future repurchases will be reported to shareholders in the next annual or semi-annual report.
| JRS | ||||
| Common shares repurchased |
— | |||
FINRA BrokerCheck
The Financial Industry Regulatory Authority (FINRA) provides information regarding the disciplinary history of FINRA member firms and associated investment professionals. This information as well as an investor brochure describing FINRA BrokerCheck is available to the public by calling the FINRA BrokerCheck Hotline number at (800) 289-9999 or by visiting www.FINRA.org.
34
Glossary of Terms Used in this Report (unaudited)
| ∎ | 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. |
| ∎ | Blended Benchmark: A blended return comprised of: 1) 60% Wilshire U.S. Real Estate Securities Index (WILRESI). The Wilshire U.S. Real Estate Securities Index measures the performance of publicly traded real estate investment trusts (REITs) and 2) 40% Wells Fargo Hybrid and Preferred Securities REIT Index (inception date 5/31/2007). The Wells Fargo Hybrid and Preferred Securities REIT Index is designed to track the performance of preferred securities issued in the U.S. market by REITs. The index is composed exclusively of preferred shares and depositary shares. Index returns assume reinvestment of distributions, but do not include the effects of any applicable sales charges or management fees. |
| ∎ | Effective Leverage: Effective leverage is a fund’s effective economic leverage, and includes both regulatory leverage (see below) and the leverage effects of certain derivative investments in the fund’s portfolio. |
| ∎ | Gross Domestic Product (GDP): The total market value of all final goods and services produced in a country/region in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. |
| ∎ | Leverage: Leverage is created whenever a fund has investment exposure (both reward and/or risk) equivalent to more than 100% of the investment capital. |
| ∎ | Net Asset Value (NAV) Per Share: A fund’s Net Assets is equal to its total assets (securities, cash, accrued earnings and receivables) less its total liabilities. NAV per share is equal to the fund’s Net Assets divided by its number of shares outstanding. |
| ∎ | Regulatory Leverage: Regulatory leverage consists of preferred shares issued by or borrowings of a fund. Both of these are part of a fund’s capital structure. Regulatory leverage is subject to asset coverage limits set in the Investment Company Act of 1940. |
| ∎ | Wilshire U.S. Real Estate Securities Index (WILRESI): A float-adjusted market capitalization index that is reviewed quarterly. This index is designed to measure the performance of publicly traded real estate investment trusts and to serve as a proxy for direct real estate investments. Index returns assume reinvestment of distributions, but do not reflect any applicable sales charges or management fees. |
35
Reinvest Automatically, Easily and Conveniently
36
(Unaudited)
The management of the Funds, including general supervision of the duties performed for the Funds by the Adviser, is the responsibility of the Board of Trustees of the Funds. The number of trustees of the Funds is set at nine. None of the trustees 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 trustees and officers of the Funds, their principal occupations and other affiliations during the past five years, the number of portfolios each oversees and other directorships they hold are set forth below.
| Name, Year of Birth & Address |
Position(s) Held with the Funds |
Year First Elected or Appointed and Term(1) |
Principal Occupation(s) Including other Directorships During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Board Member | ||||
| Independent Board Members: | ||||||||
| ∎ TERENCE J. TOTH |
Formerly, a Co-Founding Partner, Promus Capital (2008-2017); Director, Fulcrum IT Service LLC (since 2010) and Quality Control Corporation (since 2012); member: Catalyst Schools of Chicago Board (since 2008) and Mather Foundation Board (since 2012), and chair of its Investment Committee; formerly, Director, Legal & General Investment Management America, Inc. (2008-2013); formerly, CEO and President, Northern Trust Global Investments (2004-2007): Executive Vice President, Quantitative Management & Securities Lending (2000-2004); prior thereto, various positions with Northern Trust Company (since 1994); formerly, Member, Northern Trust Mutual Funds Board (2005-2007), Northern Trust Global Investments Board (2004-2007), Northern Trust Japan Board (2004-2007), Northern Trust Securities Inc. Board (2003-2007) and Northern Trust Hong Kong Board (1997-2004). | |||||||
| 1959 333 W. Wacker Drive Chicago, IL 60606 |
Chairman and Board Member | 2008 Class II |
168 | |||||
| ∎ JACK B. EVANS |
Chairman (since 2019), formerly, President (1996-2019), The Hall-Perrine Foundation, a private philanthropic corporation; Director and Chairman, United Fire Group, a publicly held company; Director, Public Member, American Board of Orthopaedic Surgery (since 2015); Life Trustee of Coe College and the Iowa College Foundation; formerly, President Pro-Tem of the Board of Regents for the State of Iowa University System; formerly, Director, Alliant Energy and The Gazette Company; formerly, Director, Federal Reserve Bank of Chicago; formerly, President and Chief Operating Officer, SCI Financial Group, Inc., a regional financial services firm. | |||||||
| 1948 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
1999 Class III |
168 | |||||
| ∎ WILLIAM C. HUNTER |
Dean Emeritus, formerly, Dean, Tippie College of Business, University of Iowa (2006-2012); Director of Wellmark, Inc. (since 2009); past Director (2005-2015), and past President (2010-2014) Beta Gamma Sigma, Inc., The International Business Honor Society; formerly, Director (2004-2018) of Xerox Corporation; Dean and Distinguished Professor of Finance, 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); formerly, Director (1997-2007), Credit Research Center at Georgetown University. | |||||||
| 1948 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2003 Class I |
168 | |||||
| ∎ ALBIN F. MOSCHNER |
Founder and Chief Executive Officer, Northcroft Partners, LLC, a management consulting firm (since 2012); Chairman (since 2009), and Director (since 2012), USA Technologies, Inc., a provider of solutions and services to facilitate electronic payment transactions (since 2012); formerly, Director, Wintrust Financial Corporation (1996-2016); previously, held positions at Leap Wireless International, Inc., including Consultant (2011-2012), Chief Operating Officer (2008-2011), and Chief Marketing Officer (2004-2008); formerly, President, Verizon Card Services division of Verizon Communications, Inc. (2000-2003); formerly, President, One Point Services at One Point Communications (1999-2000); formerly, Vice Chairman of the Board, Diba, Incorporated (1996-1997); formerly, various executive positions and Chief Executive Officer of Zenith Electronics Corporation (1991-1996). | |||||||
| 1952 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2016 Class III |
168 | |||||
37
Board Members & Officers (continued)
(Unaudited)
| Name, Year of Birth & Address |
Position(s) Held with the Funds |
Year First Elected or Appointed and Term(1) |
Principal Occupation(s) Including other Directorships During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Board Member | ||||
| Independent Board Members (continued): | ||||||||
| ∎ JOHN K. NELSON |
Member of Board of Directors of Core12 LLC (since 2008), a private firm which develops branding, marketing and communications strategies for clients; serves on The President’s Council, Fordham University (since 2010); and previously was a Director of The Curran Center for Catholic American Studies (2009-2018) formerly, senior external advisor to the financial services practice of Deloitte Consulting LLP (2012-2014): formerly, Chairman of the Board of Trustees of Marian University (2010 as trustee, 2011-2014 as Chairman); formerly, Chief Executive Officer of ABN AMRO N.V. North America, and Global Head of its Financial Markets Division (2007-2008); prior senior positions held at ABN AMRO include Corporate Executive Vice President and Head of Global Markets-the Americas (2006-2007), CEO of Wholesale Banking North America and Global Head of Foreign Exchange and Futures Markets (2001-2006), and Regional Commercial Treasurer and Senior Vice President Trading-North America (1996-2001); formerly, Trustee at St. Edmund Preparatory School in New York City. | |||||||
| 1962 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2013 Class II |
168 | |||||
| ∎ JUDITH M. STOCKDALE |
Board Member, Land Trust Alliance (since 2013) and U.S. Endowment for Forestry and Communities (since 2013); formerly, Executive Director (1994-2012), Gaylord and Dorothy Donnelley Foundation; prior thereto, Executive Director, Great Lakes Protection Fund (1990-1994). | |||||||
| 1947 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
1997 Class I |
168 | |||||
| ∎ CAROLE E. STONE |
Former Director, Chicago Board Options Exchange, Inc. (2006-2017); and C2 Options Exchange, Incorporated (2009-2017); Director, Cboe, L.C. Global Markets, Inc., formerly, CBOE Holdings, Inc. (since 2010); formerly, Commissioner, New York State Commission on Public Authority Reform (2005-2010). | |||||||
| 1947 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2007 Class I |
168 | |||||
| ∎ MARGARET L. WOLFF |
Formerly, member of the Board of Directors (2013-2017) of Travelers Insurance Company of Canada and The Dominion of Canada General Insurance Company (each, a part of Travelers Canada, the Canadian operation of The Travelers Companies, Inc.); formerly, Of Counsel, Skadden, Arps, Slate, Meagher & Flom LLP (Mergers & Acquisitions Group) (2005-2014); Member of the Board of Trustees of New York-Presbyterian Hospital (since 2005); Member (since 2004) and Chair (since 2015) of the Board of Trustees of The John A. Hartford Foundation (a philanthropy dedicated to improving the care of older adults); formerly, Member (2005-2015) and Vice Chair (2011-2015) of the Board of Trustees of Mt. Holyoke College. | |||||||
| 1955 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2016 Class I |
168 | |||||
| Interested Board Member: | ||||||||
| ∎ MARGO L. COOK(2) |
President (since 2017), formerly, Co-Chief Executive Officer and Co-President (2016-2017), formerly, Senior Executive Vice President of Nuveen Investments, Inc.; President, Global Products and Solutions (since 2017), and, Co-Chief Executive Officer (since 2015), formerly, Executive Vice President (2013-2015), of Nuveen Securities, LLC; Executive Vice President (since 2017) of Nuveen, LLC; President (since August 2017), formerly Co-President (2016- 2017), formerly, Senior Executive Vice President of Nuveen Fund Advisors, LLC (Executive Vice President since 2011); President (since 2017), Nuveen Alternative Investments, LLC; Chartered Financial Analyst.
|
|||||||
| 1964 333 W. Wacker Drive Chicago, IL 60606 |
Board Member |
2016 Class III |
168 | |||||
38
| Name, Year of Birth & Address |
Position(s) Held with the Funds |
Year First Elected or Appointed(3) |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Officer | ||||
| Officers of the Funds: | ||||||||
|
∎ CEDRIC H. ANTOSIEWICZ |
Senior Managing Director (since 2017), formerly, Managing Director (2004-2017) of Nuveen Securities, LLC; Senior Managing Director (since 2017), formerly, Managing Director (2014-2017) of Nuveen Fund Advisors, LLC. | |||||||
| 1962 333 W. Wacker Drive Chicago, IL 60606 |
Chief Administrative Officer | 2007 |
74 | |||||
| ∎ STEPHEN D. FOY |
Managing Director (since 2014), formerly, Senior Vice President (2013- 2014) and Vice President (2005-2013) of Nuveen Fund Advisors, LLC; Managing Director (since 2016) of Nuveen Securities, LLC Managing Director (since 2016) of Nuveen Alternative Investments, LLC; Certified Public Accountant. | |||||||
| 1954 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Controller | 1998 |
168 | |||||
| ∎ NATHANIEL T. JONES |
Managing Director (since 2017), formerly, Senior Vice President (2016- 2017), formerly, Vice President (2011-2016) of Nuveen; Managing Director of Nuveen Fund Advisors, LLC; Chartered Financial Analyst. | |||||||
| 1979 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Treasurer | 2016 |
168 | |||||
| ∎ WALTER M. KELLY |
Managing Director (since 2017), formerly, Senior Vice President (2008-2017) of Nuveen. | |||||||
| 1970 333 W. Wacker Drive Chicago, IL 60606 |
Chief Compliance Officer and Vice President | 2003 |
168 | |||||
| ∎ DAVID J. LAMB |
Managing Director (since 2017), formerly, Senior Vice President of Nuveen (since 2006), Vice President prior to 2006. | |||||||
| 1963 333 W. Wacker Drive Chicago, IL 60606 |
Vice President |
2015 |
74 | |||||
| ∎ TINA M. LAZAR |
Managing Director (since 2017), formerly, Senior Vice President (2014-2017) of Nuveen Securities, LLC. | |||||||
| 1961 333 W. Wacker Drive Chicago, IL 60606 |
Vice President |
2002 |
168 | |||||
| ∎ KEVIN J. MCCARTHY |
Senior Managing Director (since 2017) and Secretary and General Counsel (since 2016) of Nuveen Investments, Inc., formerly, Executive Vice President (2016-2017) and Managing Director and Assistant Secretary (2008-2016); Senior Managing Director (since 2017) and Assistant Secretary (since 2008) of Nuveen Securities, LLC, formerly Executive Vice President (2016-2017) and Managing Director (2008-2016); Senior Managing Director (since 2017), Secretary (since 2016) and Co-General Counsel (since 2011) of Nuveen Fund Advisors, LLC, formerly, Executive Vice President (2016-2017), Managing Director (2008-2016) and Assistant Secretary (2007-2016); Senior Managing Director (since 2017), Secretary (since 2016) and Associate General Counsel (since 2011) of Nuveen Asset Management, LLC, formerly Executive Vice President (2016-2017) and Managing Director and Assistant Secretary (2011-2016); Senior Managing Director (since 2017) and Secretary (since 2016) of Nuveen Investments Advisers, LLC, formerly Executive Vice President (2016-2017); Vice President (since 2007) and Secretary (since 2016), formerly, Assistant Secretary, of NWQ Investment Management Company, LLC, Symphony Asset Management LLC, Santa Barbara Asset Management, LLC and Winslow Capital Management, LLC (since 2010). Senior Managing Director (since 2017) and Secretary (since 2016) of Nuveen Alternative Investments, LLC. | |||||||
| 1966 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Assistant Secretary | 2007 |
168 | |||||
39
Board Members & Officers (continued)
(Unaudited)
| Name, Year of Birth & Address |
Position(s) Held with the Funds |
Year First Elected or Appointed(3) |
Principal Occupation(s) During Past 5 Years |
Number of Portfolios in Fund Complex Overseen by Officer | ||||
| Officers of the Funds (continued): | ||||||||
| ∎ WILLIAM T. MEYERS |
Senior Managing Director (since 2017), formerly, Managing Director (2016-2017), Senior Vice President (2010-2016) of Nuveen Securities, LLC; and Nuveen Fund Advisors, LLC; Senior Managing Director (since 2017), formerly, Managing Director (2016-2017), Senior Vice President (2010-2016) of Nuveen, has held various positions with Nuveen since 1991. | |||||||
| 1966 333 W. Wacker Drive Chicago, IL 60606 |
Vice President |
2018 |
74 | |||||
| ∎ MICHAEL A. PERRY |
Executive Vice President (since 2017), previously Managing Director from 2016), of Nuveen Fund Advisors, LLC and Nuveen Alternative Investments, LLC; Executive Vice President (since 2017), formerly, Managing Director (2015-2017), of Nuveen Securities, LLC; formerly, Managing Director (2010-2015) of UBS Securities, LLC. | |||||||
| 1967 333 W. Wacker Drive Chicago, IL 60606 |
Vice President |
2017 |
74 | |||||
| ∎ CHRISTOPHER M. ROHRBACHER |
Managing Director (since 2017) and Assistant Secretary of Nuveen Securities, LLC; Managing Director (since 2017), formerly, Senior Vice President (2016-2017) and Assistant Secretary (since 2016) of Nuveen Fund Advisors, LLC. | |||||||
| 1971 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Assistant Secretary | 2008 |
168 | |||||
| ∎ WILLIAM A. SIFFERMANN |
Managing Director (since 2017), formerly Senior Vice President (2016-2017) and Vice President (2011-2016) of Nuveen. | |||||||
| 1975 333 W. Wacker Drive Chicago, IL 60606 |
Vice President |
2017 |
168 | |||||
| ∎ JOEL T. SLAGER |
Fund Tax Director for Nuveen Funds (since 2013); previously, Vice President of Morgan Stanley Investment Management, Inc., Assistant Treasurer of the Morgan Stanley Funds (from 2010 to 2013). | |||||||
| 1978 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Assistant Secretary | 2013 |
168 | |||||
| ∎ MARK L. WINGET |
Vice President and Assistant Secretary of Nuveen Securities, LLC (since 2008); Vice President (since 2010) and Associate General Counsel (since 2008) of Nuveen. | |||||||
| 1968 333 W. Wacker Drive Chicago, IL 60606 |
Vice President and Assistant Secretary | 2008 |
168 | |||||
| ∎ GIFFORD R. ZIMMERMAN |
Managing Director (since 2002), and Assistant Secretary of Nuveen Securities, LLC; Managing Director (since 2004) and Assistant Secretary (since 1994) of Nuveen Investments, Inc.; Managing Director (since 2002), Assistant Secretary (since 1997) and Co-General Counsel (since 2011) of Nuveen Fund Advisors, LLC; Managing Director, Assistant Secretary and Associate General Counsel of Nuveen Asset Management, LLC (since 2011); Vice President (since 2017), formerly, Managing Director (2003-2017) and Assistant Secretary (since 2003) of Symphony Asset Management LLC; Managing Director and Assistant Secretary (since 2002) of Nuveen Investments Advisers, LLC; Vice President and Assistant Secretary of NWQ Investment Management Company, LLC (since 2002), Santa Barbara Asset Management, LLC (since 2006), and of Winslow Capital Management, LLC, (since 2010); Chartered Financial Analyst. | |||||||
| 1956 333 W. Wacker Drive Chicago, IL 60606 |
Vice President Secretary | 1988 |
168 | |||||
| (1) | The Board of Trustees 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, when applicable, 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. The year first elected or appointed represents the year in which the board member was first elected or appointed to any fund in the Nuveen Complex. |
| (2) | “Interested person” as defined in the 1940 Act, by reason of her position with Nuveen, LLC. and certain of its subsidiaries, which are affiliates of the Nuveen Funds. |
| (3) | Officers serve one year terms through August 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. |
40
Notes
41
Notes
42
Notes
43
Nuveen:
Serving Investors for Generations
Since 1898, financial advisors and their clients have relied on Nuveen to provide
dependable investment solutions through continued adherence to proven,
long-term investing
principles. Today, we offer a range of high quality solutions designed to
be integral components of a well-diversified core portfolio.
Focused on meeting investor needs.
Nuveen is the investment manager of TIAA. We have grown into one of the world’s premier global asset managers, with specialist knowledge across all major asset classes and particular strength in solutions that provide income for investors and that draw on our expertise in alternatives and responsible investing. Nuveen is driven not only by the independent investment processes across the firm, but also the insights, risk management, analytics and other tools and resources that a truly world-class platform provides. As a global asset manager, our mission is to work in partnership with our clients to create solutions which help them secure their financial future.
Find
out how we can help you.
To learn more about how the products and services of Nuveen may be able to help you meet your financial goals, talk to your financial advisor, or call us at (800) 257-8787. Please read the information provided carefully before you invest. Investors should consider the investment objective and policies, risk considerations, charges and expenses of any investment carefully.
Learn more about Nuveen Funds at: www.nuveen.com/closed-end-funds
| Nuveen Securities, LLC, member FINRA and SIPC | 333 West Wacker Drive Chicago, IL 60606 | www.nuveen.com |
|
EAN-A-1218D 741740-INV-Y-02/19 |
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/CEF/Shareholder/FundGovernance.aspx. (To view the code, click on Code of Conduct.)
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
As of the end of the period covered by this report, the registrant’s Board of Directors or Trustees (“Board”) 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 experts are Carole E. Stone, Jack B. Evans and William C. Hunter who are “independent” for purposes of Item 3 of Form N-CSR.
Ms. Stone served for five years as Director of the New York State Division of the Budget. As part of her role as Director, Ms. Stone was actively involved in overseeing the development of the State’s operating, local assistance and capital budgets, its financial plan and related documents; overseeing the development of the State’s bond-related disclosure documents and certifying that they fairly presented the State’s financial position; reviewing audits of various State and local agencies and programs; and coordinating the State’s system of internal audit and control. Prior to serving as Director, Ms. Stone worked as a budget analyst/examiner with increasing levels of responsibility over a 30 year period, including approximately five years as Deputy Budget Director. Ms. Stone has also served as Chair of the New York State Racing Association Oversight Board, as Chair of the Public Authorities Control Board, as a Commissioner on the New York State Commission on Public Authority Reform and as a member of the Boards of Directors of several New York State public authorities. These positions have involved overseeing operations and finances of certain entities and assessing the adequacy of project/entity financing and financial reporting. Currently, Ms. Stone is on the Board of Directors of CBOE Holdings, Inc., of the Chicago Board Options Exchange, and of C2 Options Exchange. Ms. Stone’s position on the boards of these entities and as a member of both CBOE Holdings’ Audit Committee and its Finance Committee has involved, among other things, the oversight of audits, audit plans and preparation of financial statements.
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.
Mr. Hunter was formerly a Senior Vice President at the Federal Reserve Bank of Chicago. As part of his role as Senior Vice President, Mr. Hunter was the senior officer responsible for all operations of each of the Economic Research, Statistics, and Community and Consumer Affairs units at the Federal Reserve Bank of Chicago. In such capacity, Mr. Hunter oversaw the subunits of the Statistics and Community and Consumer Affairs divisions responsible for the analysis and evaluation of bank and bank holding company financial statements and financial filings. Prior to serving as Senior Vice President at the Federal Reserve Bank of Chicago, Mr. Hunter was the Vice President of the Financial Markets unit at the Federal Reserve Bank of Atlanta where he supervised financial staff and bank holding company analysts who analyzed and evaluated bank and bank holding company financial statements. Mr. Hunter also currently serves on the Boards of Directors of Xerox Corporation and Wellmark, Inc. as well as on the Audit Committees of such Boards. As an Audit Committee member, Mr. Hunter’s responsibilities include, among other things, reviewing financial statements, internal audits and internal controls over financial reporting. Mr. Hunter also formerly was a Professor of Finance at the University of Connecticut School of Business and has authored numerous scholarly articles on the topics of finance, accounting and economics.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following tables show the amount of fees that KPMG LLP, the Funds’ auditor, billed to the Funds’ during the Funds’ last two full fiscal years. The Audit Committee approved in advance all audit services and non-audit services that KPMG LLP provided to the Funds, 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 preapproval exception for services provided directly to the Funds 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 Funds during the fiscal year in which the services are provided; (B) the Funds 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
| Fiscal Year Ended |
Audit Fees Billed to Fund 1 |
Audit-Related Fees Billed to Fund 2 |
Tax Fees Billed to Fund 3 |
All Other Fees Billed to Fund 4 |
||||||||||||
| December 31, 2018 |
$ | 27,900 | $ | 0 | $ | 0 | $ | 0 | ||||||||
|
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|
|
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|
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|
|
|||||||||
| Percentage approved pursuant to pre-approval exception |
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 31, 2017 |
$ | 27,150 | $ | 0 | $ | 0 | $ | 0 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Percentage approved pursuant to pre-approval exception |
0 | % | 0 | % | 0 | % | 0 | % | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
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 that are not reported under “Audit Fees”. These fees include offerings related to the Fund’s common shares and leverage.
3 “Tax Fees” are the aggregate fees billed for professional services for tax advice, tax compliance, and tax planning. These fees include: all global withholding tax services; excise and state tax reviews; capital gain, tax equalization and taxable basis calculation performed by the principal accountant.
4 “All Other Fees” are the aggregate fees billed for products and services other than “Audit Fees”, “Audit-Related Fees” and “Tax Fees”. These fees represent all “Agreed-Upon Procedures” engagements pertaining to the Fund’s use of leverage.
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 KPMG LLP to Nuveen Fund Advisors, LLC (formerly Nuveen Fund Advisors, Inc.) (the “Adviser”), and any entity controlling, controlled by or under common control with the Adviser 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 KPMG 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
Billed to Adviser and Affiliated Fund Service Providers |
Tax Fees Billed to Adviser and Affiliated Fund Service Providers |
All Other Fees Billed to Adviser and Affiliated Fund Service Providers |
|||||||||
| December 31, 2018 |
$ | 0 | $ | 0 | $ | 0 | ||||||
|
|
|
|
|
|
|
|||||||
|
|
||||||||||||
| Percentage approved pursuant to pre-approval exception |
0 | % | 0 | % | 0 | % | ||||||
|
|
|
|
|
|
|
|||||||
|
|
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| December 31, 2017 |
$ | 0 | $ | 0 | $ | 0 | ||||||
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|
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|||||||
|
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| Percentage approved pursuant to pre-approval exception |
0 | % | 0 | % | 0 | % | ||||||
|
|
|
|
|
|
|
|||||||
NON-AUDIT SERVICES
The following table shows the amount of fees that KPMG 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 KPMG 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 pre-approval exception described above). The Audit Committee requested and received information from KPMG LLP about any non-audit services that KPMG 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 KPMG LLP’s independence.
| Fiscal Year Ended |
Total Non-Audit Fees Billed to Fund |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) |
Total | ||||||||||||
| December 31, 2018 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
| December 31, 2017 |
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
“Non-Audit Fees billed to Fund” for both fiscal year ends represent “Tax Fees” and “All Other Fees” billed to Fund in their respective amounts from the previous table.
Less than 50 percent of the hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.
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 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 the end of the period covered by this report, the members of the audit committee are Jack B. Evans, William C. Hunter, John K. Nelson, Carole E. Stone and Terence J. Toth.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) See Portfolio of Investments in Item 1.
(b) Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Nuveen Fund Advisors, LLC is the registrant’s investment adviser (also referred to as the “Adviser”). The Adviser is responsible for the on-going monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain clerical, bookkeeping and administrative services. The Adviser has engaged Security Capital Research & Management Incorporated (“Security Capital”) as Sub-Adviser to provide discretionary investment advisory services. As part of these services, the Adviser has also delegated to the Sub-Adviser the full responsibility for proxy voting and related duties in accordance with the Sub-Adviser’s policy and procedures. The Adviser periodically will monitor the Sub-Adviser’s voting to ensure that they are carrying out their duties. The Sub-Adviser’s proxy voting policies and procedures are summarized as follows:
Security Capital may be granted by its clients the authority to vote the proxies of the securities held in client portfolios. To ensure that the proxies are voted in the best interests of its clients, Security Capital has adopted detailed proxy voting procedures (“Procedures”) that incorporate detailed proxy guidelines (“Guidelines”) for voting proxies on specific types of issues.
Pursuant to the Procedures, most routine proxy matters will be voted in accordance with the Guidelines, which have been developed with the objective of encouraging corporate action that enhances shareholder value. For proxy matters that are not covered by the Guidelines (including matters that require a case-by-case determination) or where a vote contrary to the Guidelines is considered appropriate, the Procedures require a certification and review process to be completed before the vote is cast. That process is designed to identify actual or potential material conflicts of interest and ensure that the proxy is cast in the best interest of clients. For proxy matters that are not covered by the Guidelines or where a vote contrary to the Guidelines is considered appropriate, the investment analyst who covers that company will document on a proxy summary how Security Capital is voting and that summary is signed-off by the investment analyst, as well as two Portfolio Managers. In addition, this summary is provided to Security Capital’s Chief Compliance Officer.
To oversee and monitor the proxy-voting process, Security Capital has established a proxy committee and appointed a proxy administrator. The proxy committee meets periodically to review general proxy-voting matters, review and approve the Guidelines annually, and provide advice and recommendations on general proxy-voting matters as well as on specific voting issues.
A copy of the Security Capital’s proxy voting procedures and guidelines are available upon request by contacting your client service representative.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Nuveen Fund Advisors, LLC is the registrant’s investment adviser (also referred to as the “Adviser”.) The Adviser is responsible for the selection and on-going monitoring of the Fund’s investment portfolio, managing the Fund’s business affairs and providing certain clerical, bookkeeping and administrative services. The Adviser has engaged Security Capital Research & Management Incorporated (“Security Capital” or “Sub-Adviser”) for a portion of the registrant’s investments. Security Capital, as Sub-Adviser, provides discretionary investment advisory services. The following section provides information on the portfolio managers at the Sub-Adviser:
| Item 8 (a)(1). | Portfolio management team from SECURITY CAPITAL RESEARCH & MANAGEMENT INCORPORATED |
As of the date of filing this report, the following individuals at the Sub-Adviser (the “Portfolio Managers”) have primary responsibility for the day-to-day implementation of the Fund’s investment strategy:
ANTHONY R. MANNO JR. is CEO, President and Chief Investment Officer of Security Capital Research & Management Incorporated. He is Chairman, President and Managing Director of SC-Preferred Growth LLC. Prior to joining Security Capital in 1994, Mr. Manno spent 14 years with LaSalle Partners Limited as a Managing Director, responsible for real estate investment banking activities. Mr. Manno began his career in real estate finance at The First National Bank of Chicago and has 45 years of experience in the real estate investment business. He received an MBA in Finance with honors (Beta Gamma Sigma) from the University of Chicago and graduated Phi Beta Kappa from Northwestern University with a BA and MA in Economics. Mr. Manno is a Certified Public Accountant and was awarded an Elijah Watt Sells Award and is a recipient of the President’s Call to Service Award, December 2008.
KENNETH D. STATZ is a Managing Director and Senior Market Strategist of Security Capital Research & Management Incorporated where he is responsible for the development and implementation of portfolio investment strategy. Prior to joining Security Capital in 1995, Mr. Statz was a Vice President in the Investment Research Department of Goldman, Sachs & Co., concentrating on research and underwriting for the REIT industry. Previously, he was a REIT Portfolio Manager and a Managing Director of Chancellor Capital Management. Mr. Statz has 37 years of experience in the real estate securities industry and received an MBA and a BBA in Finance from the University of Wisconsin.
KEVIN W. BEDELL is a Managing Director of Security Capital Research & Management Incorporated where he directs the Investment Analysis Team, which provides in-depth proprietary research on publicly listed companies. Prior to joining Security Capital in 1996, Mr. Bedell spent nine years with LaSalle Partners Limited where he was Equity Vice President and Portfolio Manager, with responsibility for strategic, operational and financial management of a private real estate investment trust with commercial real estate investments in excess of $1 billion. Mr. Bedell has 31 years of experience in the real estate securities industry and received an MBA in Finance from the University of Chicago and a BA from Kenyon College.
| Item 8 (a)(2). | Other Accounts Managed by Portfolio Managers – As of December 31, 2018 |
| (a)(1) Identify portfolio manager(s) of the Adviser to be named in the Fund prospectus |
(a)(2) For each person identified in column (a)(1), provide number of accounts other than the Funds managed by the person within each category below and the total assets in the accounts managed within each category below |
(a)(3) Performance Fee Accounts. For each of the categories in column (a)(2), provide number of accounts and the total assets in the accounts with respect to which the advisory fee is based on the performance of the account |
||||||||||||||||||||||||||||||||||||||||||||||
| Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | Registered Investment Companies |
Other Pooled Investment Vehicles |
Other Accounts | |||||||||||||||||||||||||||||||||||||||||||
| Number of Accounts |
Total Assets ($billions) |
Number of Accounts |
Total Assets ($billions) |
Number of Accounts |
Total Assets ($billions) |
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets |
Number of Accounts |
Total Assets ($billions) |
|||||||||||||||||||||||||||||||||||||
| Anthony R. Manno Jr. |
1 | $ | 0.1 | 2 | $ | 0.8 | 98 | $ | 2.4 | — | — | — | — | 3 | $ | 0.2 | ||||||||||||||||||||||||||||||||
| Kenneth D. Statz |
1 | $ | 0.1 | 2 | $ | 0.8 | 98 | $ | 2.4 | — | — | — | — | 3 | $ | 0.2 | ||||||||||||||||||||||||||||||||
| Kevin W. Bedell |
1 | $ | 0.1 | 2 | $ | 0.8 | 98 | $ | 2.4 | — | — | — | — | 3 | $ | 0.2 | ||||||||||||||||||||||||||||||||
Potential Material Conflicts of Interest
As shown in the above tables, the portfolio managers may manage accounts in addition to the Nuveen Funds (the “Funds”). The potential for conflicts of interest exists when portfolio managers manage other accounts with similar investment objectives and strategies as the Funds (“Similar Accounts”). Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities.
Responsibility for managing Security Capital’s clients’ portfolios is organized according to investment strategies within asset classes. Generally, client portfolios with similar strategies are managed using the same objectives, approach and philosophy. Therefore, portfolio holdings, relative position sizes and sector exposures tend to be similar across similar portfolios, which minimizes the potential for conflicts of interest.
Security Capital may receive more compensation with respect to certain Similar Accounts than that received with respect to the Nuveen Funds or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for Security Capital or its portfolio managers by providing an incentive to favor these Similar Accounts when, for example, placing securities transactions. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of limited investment opportunities. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability, and allocation of investment opportunities generally, could raise a potential conflict of interest, as Security Capital may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. Security Capital may be perceived as causing accounts it manages to participate in an offering to increase Security Capital’s overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If Security Capital manages accounts that engage in short sales of securities of the type in which the Funds invests, Security Capital could be seen as harming the performance of the Funds for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall.
Security Capital has policies and procedures designed to manage these conflicts described above such as allocation of investment opportunities to achieve fair and equitable allocation of investment opportunities among its clients over time. For example:
Orders placed for the same equity security within a reasonable time period are aggregated consistent with Security Capital’s duty of best execution for its clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders will be allocated among the participating accounts on a pro-rata average price basis as well.
| Item 8 (a)(3). | Fund Manager Compensation |
As of the most recently completed fiscal year end, the primary portfolio managers compensation is as follows:
The principal form of compensation of Security Capital’s professionals is a base salary and annual bonus. Base salaries are fixed for each portfolio manager. Each professional is paid a cash salary and, in addition, a year-end bonus based on achievement of specific objectives that the professional’s manager and the professional agree upon at the commencement of the year. The annual bonus is paid partially in cash and partially in either: (i) restricted stock of Security Capital’s parent company, JPMorgan Chase & Co., and/or (ii) in self-directed parent company mutual funds, all vesting over a three-year period (50% each after the second and third years). The annual bonus is a function of Security Capital achieving its financial, operating and investment performance goals, as well as the individual achieving measurable objectives specific to that professional’s role within the firm and the investment performance of all accounts managed by the portfolio manager. None of the portfolio managers’ compensation is based on the performance of, or the value of assets held in, the Funds.
| Item 8 (a)(4). | Ownership of JRS Securities as of December 31, 2018 |
| Portfolio Manager |
None | $1- $10,000 |
$10,001- $50,000 |
$50,001- $100,000 |
$100,001- $500,000 |
$500,001 - $1,000,000 |
over $1,000,000 | |||||||||||||||||
| Anthony R. Manno Jr. |
X | |||||||||||||||||||||||
| Kenneth D. Statz |
X | |||||||||||||||||||||||
| Kevin W. Bedell |
X | |||||||||||||||||||||||
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 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. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 13. EXHIBITS.
File the exhibits listed below as part of this Form.
(a)(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Not applicable because the code is posted on registrant’s website at www.nuveen.com/CEF/Shareholder/FundGovernance.aspx and there were no amendments during the period covered by this report. (To view the code, click on 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.
(a)(4) Change in registrant’s independent public accountant. 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 Real Estate Income Fund
| By (Signature and Title) | /s/ Gifford R. Zimmerman |
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| Gifford R. Zimmerman | ||||
| Vice President and Secretary | ||||
| Date: March 8, 2019 | ||||
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/ Cedric H. Antosiewicz |
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| Cedric H. Antosiewicz | ||||
| Chief Administrative Officer | ||||
| (principal executive officer) | ||||
| Date: March 8, 2019 | ||||
| By (Signature and Title) | /s/ Stephen D. Foy |
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| Stephen D. Foy | ||||
| Vice President and Controller | ||||
| (principal financial officer) | ||||
| Date: March 8, 2019 | ||||