ANNUAL REPORT October 31, 2002
Nuveen
Closed-End
Exchange-Traded
Fund
NUVEEN
REAL ESTATE
INCOME FUND
JRS
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Photo of: Timothy R. Schwertfeger
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Dear
SHAREHOLDER
Despite an uncertain environment for real estate investments during much of this
period, the Nuveen Real Estate Income Fund continued to meet its objective of
providing attractive monthly income. Detailed information on your Fund's
performance can be found in the Portfolio Manager's Comments and on the
Performance Overview pages within this report. Please take the time to read
them.
In addition to providing regular income, we believe that a real estate-based
investment like your Nuveen Fund also may offer opportunities to reduce the risk
of your overall investment portfolio. This is because the prices of real
estate-based securities may move differently than the prices of the common
stocks, mutual funds or other investments you may own. Since one part of your
portfolio may be going up when another is going down, portfolio diversification
may reduce your overall risk. Your financial advisor can explain the advantages
of portfolio diversification in more detail. I urge you to contact him or her
soon for more information on this important investment strategy.
I also urge you to consider receiving future Fund reports and other Fund
information through the Internet and by e-mail rather than in hard copy. Not
only will you be able to receive the information faster, but this also may help
lower your Fund expenses. Sign up is quick and easy - see the inside front cover
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For more than 100 years, Nuveen has specialized in offering quality investments
such as your Nuveen Fund to those seeking to accumulate and preserve wealth. Our
commitment to careful research, constant surveillance and judicious trading by
the seasoned portfolio management team has never been stronger. Our mission
continues to be to assist you and your financial advisor by offering the
investment solutions and services that can help you meet your financial
objectives. We thank you for choosing us as a partner as you work toward that
goal.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
December 16, 2002
1
Nuveen Real Estate Income Fund (JRS)
Manager's
PERSPECTIVE
The Nuveen Real Estate Income Fund was introduced in November 2001 and is
managed by a team of real estate investment professionals at Security Capital
Research & Management Incorporated, a wholly-owned subsidiary of General
Electric Capital Services, Inc. Tony Manno and Ken Statz, who each have more
than 21 years' experience in managing real estate investments, lead the team.
Here the Security Capital Research & Management team reviews the economic
environment and performance of the Fund since its inception.
WHAT WERE THE MAJOR ECONOMIC DRIVERS OF THE U.S. REAL ESTATE MARKET DURING THIS
REPORTING PERIOD (SINCE THE FUND'S INCEPTION) AND HOW DID THOSE DRIVERS AFFECT
THE REIT MARKET?
From the Fund's inception in November 2001 through October 31, 2002, a generally
weak but slowly improving overall U.S. economy, a persistent equity bear market,
and low interest rates combined to create conditions for strong relative
performance of real estate securities. Investors, focused increas ingly on
income quality and transparency, have been drawn throughout the period to the
relatively stable cash flows, substantial dividends, and attractive valuations
available from some real estate common and preferred securities. In this year of
waning investor confidence in other investment alternatives, real estate
securities maintained the core reasons for their attraction - namely the steady
income and demonstrable value of real properties.
Despite the relatively solid performance of real estate securities in the past
year, the underlying operating fundamentals of the business deteriorated. With
notable exceptions, occupancy levels in the major property types declined,
leading to downward pressure on rental rates (for newly signed leases only).
Nevertheless, the negative impacts to real estate company earnings this year
were not unanticipated; real estate is, after all, a cyclical business that
tends to lag changes in the macro-economic environment.
Looking specifically at some of the major types of property:
o Apartment occupancy levels in many markets face continued pressures from
both a weak job market and competition for would-be renters from an ever
more accessible home ownership market.
o Office market rent and occupancy levels have been hit especially hard by a
weak business economy and a virtual hiring standstill in corporate America.
As a result, leasing activity has slowed significantly in many markets
around the country.
o The retail sector, including both malls and smaller shopping centers, has
remained a bright spot in the real estate business thanks to resilient
consumers and strong demand from retailers expanding into new stores.
Despite the widely publicized news of the Kmart bankruptcy, overall
retailer bankruptcy levels remain below those of past recessions.
WHAT WERE THE KEY STRATEGIES AND TACTICS USED TO MANAGE JRS OVER THIS PERIOD?
Throughout the year, we continued to focus the portfolio on securities that we
believed were best poised to generate sustainable income and possible
appreciation while maintaining a very diverse portfolio. The key investment
tactics we used to accomplish this goal were the careful management of the
Fund's allocation to common and preferred securities, and the credit quality of
the portfolio.
2
At the completion of JRS's initial investment phase in March 2002 the Fund had,
as planned, approximately a 35% allocation to preferred securities and a 65%
allocation to common stock. The ensuing seven months has seen a persistent
equity bear market and a continuation of the Federal Reserve's policy of
lowering short-term interest rates, fueling investor demand for income-oriented
securities. Our strategy from the outset was to aggressively compile the
more-liquid common stock portion of the target portfolio as soon as possible and
to opportunistically participate in preferred initial public offerings (IPO's)
to assemble the less-liquid ratable securities portion. This strategy has worked
well, given the subsequent significant rise in prices of most of the common
securities purchased in mid-November 2001.
Gradually since March, we have shifted the balance of JRS's portfolio toward a
more even split between common and preferred investments. This strategic change
was executed for two reasons: first, to try to take full advantage of the
relative value and inherent stability of preferreds in this market environment;
and second, in recognition that many common stocks in the higher yield segment
of our investment universe had reached or exceeded our target valuations. We
implemented the strategy by purchasing in the open market and by participating
in a number of attractively priced preferred offerings.
The ability to tilt JRS between these two distinct securities markets based on
their relative pricing is an important strategy tool in seeking to achieve both
income and long-term capital appreciation. As of October 31, 2002, JRS's
preferred allocation had increased to 48% of the Fund's total net assets, due to
this reallocation of capital.
WERE THERE ANY SPECIFIC AREAS OR TYPES OF PROPERTIES YOU FOCUSED ON IN
PARTICULAR?
We believe the portfolio is well diversified by property type, geography, and
issuer, which dampens the Fund's exposure to an adverse event that might affect
one or a small group of issuers. The Fund's ability to invest in preferred
securities allows it to capture cash flows generated by cyclically depressed
property types and issuers through a priority position in the capital structure.
For example, in two of the most challenging property types, apartments and
hotels, we accomplished the Fund's 14% and 5% allocations to these sectors
(respectively), primarily through investing in preferred stock (79% of our
allocation to apartment companies is through preferred stock, and 100% of our
allocation to hotels is through preferreds). At the same time, our allocation to
retail property (25%), which we believe to be more stable and attractive at
present, was accomplished primarily through investing in common stocks. We
believe this extra layer of strategic flexibility enables us to better diversify
the portfolio by property type and issuer, without adding undue risks.
HOW HAS THE FUND PERFORMED OVER THIS PERIOD?
For the period from its inception in November 2001 through October 31, 2002, the
Fund produced a 2.09% return on net asset value. This compares with a 0.11%
return over the same period for the Wilshire Real Estate Securities Index, an
unmanaged index comprised of publicly-traded real estate investment trusts
(REITs) and real estate operating companies. A significant portion of the
differential between the Fund and this index is explained by the Fund's active
program of investing in preferred stocks, which are not included in the index.
3
The Fund manager's efforts to limit the Fund's exposure to short-term interest
rate risk also affected the Fund's total return for the reporting period.
Shortly after its common share IPO in November 2001, the Fund issued preferred
shares that pay floating dividends tied to short-term interest rates. This
leveraging strategy can help the Fund generate additional income for common
shareholders if short-term rates remain below the longer-term rates at which the
Fund invests the bulk of its assets. However, the strategy will not work as well
if the dividends paid to the Fund's preferred shareholders begin to rise. In an
effort avoid some of the detrimental effects on common shareholder income that
would come from a rise in short-term rates, the Fund has entered into a series
of swap transactions that, in effect, lock in for several years the amount the
Fund will pay to its preferred shareholders. This will help to create a more
predictable, enhanced income stream for the Fund's common shareholders during
the period the swaps are in effect.
Since the swaps are considered assets of the Fund, a rise or fall in their value
will affect the Fund's NAV and total return performance. Falling short-term
interest rates, as has been the case through much of the reporting period, will
cause the swaps to lose value. While this had a dampening effect on the Fund's
total return over this reporting period, we believe the swaps will provide a
corresponding NAV and total return benefit if and when short-term rates begin to
rise.
Part of the JRS return comes from its monthly dividend, which the Fund began
paying in February 2002. On October 31, 2002, the Fund's share price was $14.40,
which was below its IPO price of $15.00. As of that date it was trading at a
6.19% premium to its net asset value per share.
WHAT IS YOUR OUTLOOK FOR THE REAL ESTATE MARKETS AND WHAT DO YOU ANTICIPATE YOUR
STRATEGY WILL BE GOING FORWARD?
Our current outlook for real estate markets over the next year is for continued
occupancy weakness among office and hotel companies, gradual improvement in
occupancy rates for the more cyclically sensitive apartment companies, and
strong occupancy and rental rate levels for retail-oriented properties.
Regardless of property type, we believe most companies in the industry are
well-positioned and should have little difficulty paying their dividends, thanks
in part to sharp declines in new construction starts, which should limit new
supply in 2003 and 2004.
Our strategy of managing JRS for maximum income and capital appreciation over
the next year will mainly be achieved by adjusting, as needed, the allocations
between common and preferred securities. After a sustained period of economic
weakness during which an income-focused strategy has been appropriate, we expect
the near-term investment environment to shift from weakness to moderate growth.
We also expect the Federal Reserve's posture on short-term interest rates to
shift from the aggressive lowering of short-term rates to a new policy of
increasing short-term rates as the economy recovers. This outlook suggests both
that common stocks of well positioned companies may become more attractive, and
that JRS's preferred allocation, the most interest rate sensitive area of the
portfolio, may need to be pruned back in favor of growth-oriented common real
estate securities, depending on the ultimate strength of the economy.
Overall, we believe JRS is well positioned to take advantage of these
developments, and that the Fund continues to offer investors opportunities for
strong returns and portfolio diversification.
4
NUVEEN REAL ESTATE INCOME FUND
Performance
OVERVIEW As of October 31, 2002
JRS
PORTFOLIO STATISTICS
--------------------------------------------------
Share Price $14.40
--------------------------------------------------
Common Share Net Asset Value $13.56
--------------------------------------------------
Net Assets Attributable to
Common Shares ($000) $381,290
--------------------------------------------------
TOP 5 COMMON % OF TOTAL
STOCK HOLDINGS INVESTMENTS
--------------------------------------------------
Mack-Cali Realty Corporation 7.0%
--------------------------------------------------
HRPT Properties Trust 5.1%
--------------------------------------------------
The Macerich Company 4.9%
--------------------------------------------------
First Industrial Realty Trust, Inc. 4.3%
--------------------------------------------------
Arden Realty, Inc. 3.8%
--------------------------------------------------
TOP 5 PREFERRED % OF TOTAL
STOCK HOLDINGS INVESTMENTS
--------------------------------------------------
Crescent Real Estate
Equities Company 8.0%
--------------------------------------------------
Apartment Investment &
Management Company 5.5%
--------------------------------------------------
Federal Realty Investment Trust 5.1%
--------------------------------------------------
Home Properties of New York, Inc. 4.5%
--------------------------------------------------
CarrAmerica Realty Corp. 3.5%
--------------------------------------------------
% OF TOTAL
TOP 5 SECTORS INVESTMENTS
--------------------------------------------------
Office 37.5%
--------------------------------------------------
Retail 25.1%
--------------------------------------------------
Multifamily 13.9%
--------------------------------------------------
Healthcare 9.9%
--------------------------------------------------
Industrial 6.6%
--------------------------------------------------
CUMULATIVE TOTAL RETURN
SINCE INCEPTION
--------------------------------------------------
Market NAV
--------------------------------------------------
Since 11/15/01 3.30% 2.09%
--------------------------------------------------
Bar Chart:
2002 Monthly Dividends Per Share
Jan 02 0.1125
Feb 02 0.1125
Mar 02 0.1125
Apr 02 0.1125
May 02 0.1125
Jun 02 0.1125
Jul 02 0.1125
Aug 02 0.1125
Sep 02 0.115
Oct 02 0.115
Line Chart:
Share Price Performance
Weekly Closing Price
Past performance is not predictive of future results.
11/16/01 15.25
15.07
15.09
15.14
15.01
15.05
15.13
15.06
15.16
15.13
15.06
15.12
15.34
15.1
14.92
15.2
15.4
15.47
15.34
15.66
15.75
15.8
15.99
15.98
15.96
16
15.9
15.84
16
16.02
16.16
16.18
16.02
16.14
15.85
15.05
14.99
15.53
15.52
15.85
15.62
16
16.2
16.13
15.85
15.92
15.78
14.45
14.69
10/31/02 14.31
5
Shareholder
MEETING REPORT
The annual shareholder meeting was held on July 24, 2002, at the Northern Trust
Bank, Chicago, Illinois.
JRS
------------------------------------------------------------------------------------------------------------------------------------
APPROVAL OF NEW SUB-ADVISORY AGREEMENT
Preferred Preferred Preferred Preferred
Shares Shares Shares Shares
Common Shares Series - M Series - T Series - W Series - F
====================================================================================================================================
For 27,147,936 1,688 1,620 1,689 1,637
Against 224,369 1 2 3 3
Abstain 351,005 27 18 25 --
------------------------------------------------------------------------------------------------------------------------------------
Total 27,723,310 1,716 1,640 1,717 1,640
====================================================================================================================================
6
Report of
INDEPENDENT AUDITORS
THE BOARD OF TRUSTEES AND SHAREHOLDERS
NUVEEN REAL ESTATE INCOME FUND
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Nuveen Real Estate Income Fund as of October
31, 2002, and the related statement of operations, changes in net assets and the
financial highlights for the period November 15, 2001 (commencement of
operations) through October 31, 2002. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of October 31, 2002, by correspondence with
the custodian and brokers or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Nuveen
Real Estate Income Fund at October 31, 2002, and the results of its operations,
changes in its net assets and financial highlights for the period November 15,
2001 (commencement of operations) through October 31, 2002 in conformity with
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
December 11, 2002
7
Nuveen Real Estate Income Fund (JRS)
Portfolio of
INVESTMENTS October 31, 2002
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 75.6% (51.4% OF TOTAL INVESTMENTS)
HEALTHCARE - 13.6%
371,200 Health Care Property Investors, Inc. $ 16,035,840
1,054,600 Nationwide Health Properties, Inc. 17,970,384
1,740,300 Senior Housing Properties Trust 17,820,672
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 6.3%
890,400 First Industrial Realty Trust, Inc. 24,076,416
------------------------------------------------------------------------------------------------------------------------------------
MULTIFAMILY - 4.3%
189,800 Amli Residential Properties Trust 3,985,800
137,000 Avalonbay Communities, Inc. 5,164,900
320,700 Gables Residential Trust 7,263,855
------------------------------------------------------------------------------------------------------------------------------------
OFFICE - 28.6%
1,000,800 Arden Realty, Inc. 21,417,120
822,500 Brandywine Realty Trust 16,450,000
114,900 Highwoods Properties, Inc. 2,298,000
3,658,900 HRPT Properties Trust 28,795,543
1,351,500 Mack-Cali Realty Corporation 39,044,835
52,000 Prentiss Properties Trust 1,401,400
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 22.4%
413,800 Federal Realty Investment Trust 10,903,630
239,100 Glimcher Realty Trust 3,859,074
585,000 Heritage Property Investment Trust 13,952,250
771,700 IRT Property Company 9,152,362
961,500 The Macerich Company 27,354,675
1,159,400 New Plan Excel Realty Trust 20,092,402
------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 0.4%
56,400 Public Storage, Inc. 1,514,340
------------------------------------------------------------------------------------------------------------------------------------
Total Common Stocks (cost $298,489,023) 288,553,498
--------------------------------------------------------------------------------------------------------------------
PREFERRED STOCKS - 69.9% (47.4% OF TOTAL INVESTMENTS)
DIVERSIFIED - 0.8%
Colonial Properties Trust:
33,100 Series A, 8.750% 835,775
25,100 Series C, 9.250% 655,110
31,000 Duke Realty Corporation - Series B, 7.990% 1,530,625
------------------------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 0.9%
46,530 Health Care Property Investors, Inc. - Series B, 8.700% 1,174,882
32,558 Nationwide Health Properties, Inc. - Series A, 7.677% 2,361,474
8
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
HOTEL - 7.2%
360,000 Boykin Lodging Company - Series A, 10.500% $ 8,996,400
141,300 FelCor Lodging Trust Inc. - Series B, 9.000% 3,023,820
600,000 LaSalle Hotel Properties - Series A, 10.250% 15,270,000
------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL - 3.4%
5,000 CenterPoint Properties Corporation - Series A, 8.480% 124,800
497,623 PS Business Parks, Inc. - Series F, 8.750% 12,679,434
------------------------------------------------------------------------------------------------------------------------------------
MULTIFAMILY - 16.2%
Apartment Investment & Management Company:
91,600 Series G, 9.375% 2,304,656
59,400 Series H, 9.500% 1,449,360
225,600 Series P (Convertible), 9.000% 5,662,560
51,050 Series Q, 10.100% 1,301,775
803,500 Series R, 10.000% 20,408,900
40,000 Avalonbay Communities, Inc - Series D, 8.000% 1,005,200
970,000 Home Properties of New York, Inc. - Series F, 9.000% 25,462,500
60,000 Post Properties, Inc. - Series A, 8.500% 2,835,000
51,300 United Dominion Realty Trust, Inc. - Series B, 8.600% 1,298,403
------------------------------------------------------------------------------------------------------------------------------------
OFFICE - 26.4%
233,300 Alexandria Real Estate Equities, Inc. - Series B, 9.100% 5,953,816
CarrAmerica Realty Corp.:
274,782 Series B, 8.570% 6,954,732
503,800 Series C, 8.550% 12,771,330
Crescent Real Estate Equities Company:
835,100 Series A (Convertible), 6.750% 14,697,760
1,200,000 Series B, 9.500% 30,300,000
136,500 Glenborough Realty Trust Incorporated - Series A (Convertible), 7.750% 2,764,125
Highwoods Properties, Inc.:
12,141 Series A, 8.625% 12,068,919
33,600 Series B, 8.000% 745,920
HRPT Properties Trust:
174,900 Series A, 9.875% 4,512,420
325,000 Series B, 8.750% 7,910,500
92,881 Parkway Properties, Inc. - Series A, 8.750% 2,390,757
------------------------------------------------------------------------------------------------------------------------------------
RETAIL - 14.6%
180,000 CBL & Associates Properties, Inc. - Series B, 8.750% 9,243,000
Developers Diversified Realty Corporation:
49,000 Series C, 8.375% 1,196,580
96,200 Series F, 8.600% 2,400,190
1,150,000 Federal Realty Investment Trust - Series B, 8.500% 28,635,000
237,300 Glimcher Realty Trust - Series B, 9.250% 5,374,845
New Plan Excel Realty Trust:
99,100 Series B, 8.625% 2,502,275
21,000 Series D, 7.800% 1,000,782
50,000 Simon Property Group, Inc. - Series B (Convertible), 6.500% 4,600,000
24,500 Taubman Centers, Inc. - Series A, 8.300% 552,476
9
Nuveen Real Estate Income Fund (JRS) (continued)
Portfolio of INVESTMENTS October 31, 2002
MARKET
SHARES DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
STORAGE - 0.4%
Shurgard Storage Centers, Inc.:
30,000 Series C, 8.700% $ 781,500
24,600 Series D, 8.750% 632,220
------------------------------------------------------------------------------------------------------------------------------------
Total Preferred Stocks (cost $264,865,515) 266,369,821
--------------------------------------------------------------------------------------------------------------------
Total Long-Term Investments (cost $563,354,538) - 145.5% 554,923,319
--------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT (000) DESCRIPTION(1) VALUE
------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (COST $6,762,000) - 1.8% (1.2% OF TOTAL INVESTMENTS)
$ 6,762 State Street Bank Repurchase Agreement, 1.740%, dated 10/31/02, due 11/01/02, repurchase price 6,762,000
============= $6,905,450, collateralized by U.S. Treasury Bonds
--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (2.2)% (8,395,567)
--------------------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred Shares, at Liquidation Value - (45.1)% (172,000,000)
--------------------------------------------------------------------------------------------------------------------
Net Assets Applicable to Common Shares - 100% $ 381,289,752
====================================================================================================================
(1) All percentages shown in the Portfolio of Investments
are based on net assets applicable to Common shares
unless otherwise noted.
See accompanying notes to financial statements.
10
Statement of
ASSETS AND LIABILITIES October 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at market value (cost $570,116,538) $561,685,319
Cash 211
Receivables:
Dividends and interest 2,584,536
Investments sold 11,037,403
Other assets 6,845
------------------------------------------------------------------------------------------------------------------------------------
Total assets 575,314,314
------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payable for investments purchased 12,470,324
Interest rate swaps, at value 9,132,040
Accrued expenses:
Management fees 271,745
Other 129,189
Taxable Auctioned Preferred share dividends payable 21,264
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 22,024,562
------------------------------------------------------------------------------------------------------------------------------------
Taxable Auctioned Preferred shares, at liquidation value $172,000,000
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $381,289,752
====================================================================================================================================
Common shares outstanding 28,109,556
====================================================================================================================================
Net asset value per Common share outstanding (net assets applicable to
Common shares, divided by Common shares outstanding) $ 13.56
====================================================================================================================================
NET ASSETS APPLICABLE TO COMMON SHARES CONSIST OF:
------------------------------------------------------------------------------------------------------------------------------------
Common shares, $.01 par value per share $ 281,096
Paid-in surplus 399,422,953
Undistributed (Over-distribution of) net investment income (5,801,153)
Accumulated net realized gain from investment transactions 4,692,936
Net unrealized appreciation (depreciation) of investments and interest rate swap transactions (17,306,080)
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares $381,289,752
====================================================================================================================================
Authorized shares:
Common Unlimited
Taxable Auctioned Preferred Unlimited
====================================================================================================================================
See accompanying notes to financial statements.
11
Statement of
OPERATIONS For the Period November 15, 2001
(commencement of operations) through October 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $ 34,480,354
Interest 756,967
------------------------------------------------------------------------------------------------------------------------------------
Total investment income 35,237,321
------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees 4,813,814
Net interest expense on interest rate swap transactions 2,720,621
Taxable Auctioned Preferred shares - auction fees 346,356
Taxable Auctioned Preferred shares - dividend disbursing agent fees 18,122
Shareholders' servicing agent fees and expenses 9,696
Custodian's fees and expenses 135,663
Trustees' fees and expenses 51,072
Professional fees 143,399
Shareholders' reports - printing and mailing expenses 78,097
Stock exchange listing fees 3,425
Investor relations expense 26,690
Other expenses 120,948
------------------------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 8,467,903
Custodian fee credit (94)
Expense reimbursement (1,610,843)
------------------------------------------------------------------------------------------------------------------------------------
Net expenses 6,856,966
------------------------------------------------------------------------------------------------------------------------------------
Net investment income 28,380,355
------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain from investment transactions 4,692,936
Change in net unrealized appreciation (depreciation) of investments (8,431,219)
Change in net unrealized appreciation (depreciation) of interest rate swap transactions (8,874,861)
------------------------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (12,613,144)
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO TAXABLE AUCTIONED PREFERRED SHAREHOLDERS
From and in excess of net investment income (2,527,734)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations $ 13,239,477
====================================================================================================================================
See accompanying notes to financial statements.
12
Statement of
CHANGES IN NET ASSETS For the Period
November 15, 2001 (commencement of operations) through October 31, 2002
------------------------------------------------------------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 28,380,355
Net realized gain from investment transactions 4,692,936
Change in net unrealized appreciation (depreciation) of investments (8,431,219)
Change in net unrealized appreciation (depreciation) of interest rate swap transactions (8,874,861)
Distributions to Taxable Auctioned Preferred Shareholders from undistributed net investment income (2,527,734)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from operations 13,239,477
------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS
From and in excess of net investment income (31,761,958)
------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets applicable to Common shares from distributions to
Common shareholders (31,761,958)
------------------------------------------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS
Common shares:
Net proceeds from sale of shares 401,689,500
Net proceeds from shares issued to shareholders due to reinvestment of distributions 39,666
Taxable Auctioned Preferred shares offering costs (2,017,208)
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares from capital share transactions 399,711,958
------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets applicable to Common shares 381,189,477
Net assets applicable to Common shares at the beginning of period 100,275
------------------------------------------------------------------------------------------------------------------------------------
Net assets applicable to Common shares at the end of period $381,289,752
====================================================================================================================================
Undistributed (Over-distribution of) net investment income at the end of period $ (5,801,153)
====================================================================================================================================
See accompanying notes to financial statements.
13
Notes to
FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
Nuveen Real Estate Income Fund (the "Fund") is a non-diversified, closed-end
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's Common shares are listed on the American Stock
Exchange and trade under the ticker symbol "JRS." The Fund was organized as a
Massachusetts business trust on August 27, 2001.
Prior to the commencement of operations, the Fund had no operations other than
those related to organizational matters, the initial capital contribution of
$100,275 by Nuveen Institutional Advisory Corp. (the "Adviser"), a wholly owned
subsidiary of The John Nuveen Company, and the recording of the organizational
expenses ($15,000) and their reimbursement by Nuveen Investments, also a wholly
owned subsidiary of The John Nuveen Company.
The Fund seeks to provide high current income by investing primarily in a
portfolio of income-producing common stocks, preferred stocks, convertible
preferred stocks and debt securities issued by real estate companies, such as
Real Estate Investment Trusts ("REITs").
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements in accordance with
accounting principles generally accepted in the United States.
Securities Valuation
Securities are valued at the last sales price on the securities exchange or
Nasdaq on which such securities are primarily traded. Securities traded on a
securities exchange or Nasdaq for which there are no transactions on a given day
or securities not listed on a securities exchange or Nasdaq are valued at the
mean of the closing bid and asked price. If it is determined that market prices
for a security are unavailable or inappropriate, the Board of Trustees of the
Fund or its designee may establish a fair value for the security.
Because the Fund may invest a substantial portion of its assets in REITs, the
Fund may be subject to certain risks associated with direct investments in
REITs. REITs may be affected by changes in value of their underlying properties
and by defaults by tenants. REITs depend generally on their ability to generate
cash flow to make distributions to shareholders, and certain REITs have
self-liquidation provisions by which mortgages held may be paid in full and
distributions of capital returns may be made at any time.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income is
determined on an accrual basis.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its net
investment income to its shareholders. Therefore, no federal income tax
provision is required.
Dividends and Distributions to Common Shareholders
Dividends are declared and paid monthly. Net realized capital gains from
investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards. A portion of
distributions may consist of amounts in excess of net investment income and net
capital gains, and will generally be treated by shareholders as a return of
capital and would reduce the basis in the shareholder's shares.
Distributions to Common shareholders of net investment income and net realized
capital gains are recorded on the ex-dividend date. The amount and timing of
distributions are determined in accordance with federal income tax regulations,
which may differ from accounting principles generally accepted in the United
States. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income or distributions in excess of net realized gains, where
applicable.
14
Taxable Auctioned Preferred Shares
The Fund has issued and outstanding 1,720 Series M, 1,720 Series T, 1,720 Series
W and 1,720 Series F $25,000 stated value Taxable Auctioned Preferred shares.
The dividend rate on each series may change every seven days, as set pursuant to
a dutch auction process by the auction agent, and is payable at or near the end
of each rate period.
Interest Rate Swap Transactions
The Fund is authorized to enter into hedging transactions, including interest
rate swap transactions. The Fund uses interest rate swaps with the intent to
reduce or eliminate the risk that an increase in short-term interest rates could
have on Common share net earnings as a result of leverage. Interest rate swaps
involve the Fund's agreement with the swap counterparty to pay a fixed rate
payment in exchange for the counterparty paying the Fund a variable rate payment
that is intended to approximate the Fund's variable rate payment obligation on
Taxable Auctioned Preferred shares or any variable rate borrowing. The payment
obligation is based on the notional amount of the swap. Interest rate swaps do
not involve the delivery of securities or other underlying assets or principal.
Accordingly, the risk of credit loss with respect to interest rate swaps is
limited to the net amount of interest payments that the Fund is to receive. The
Fund has instructed the custodian to segregate assets in a separate account with
a current value at least equal to the amount of the Fund's net payment
obligations under any interest rate swap transactions. Interest rate swap
positions are marked to market daily. Although there are economic advantages of
entering into interest rate swap transactions, there are also additional risks.
The Fund helps manage the credit risks associated with interest rate swap
transactions by entering into agreements only with firms the Adviser believes
has the financial resources to honor its obligations, by having the Adviser
continually monitor the financial stability of that swap counterparty.
At October 31, 2002, the Fund had open interest rate swap agreements with
Citibank NA as follows:
NOTIONAL TERMINATION UNREALIZED
AMOUNT FIXED RATE FLOATING RATE* DATE APPRECIATION (DEPRECIATION)
--------------------------------------------------------------------------------------------------------------
$43,000,000 4.0225% 1.8000% 2/06/05 $(1,786,896)
43,000,000 4.8000 1.8000 2/06/07 (3,140,883)
43,000,000 5.1900 1.8000 2/06/09 (3,947,082)
--------------------------------------------------------------------------------------------------------------
$(8,874,861)
==============================================================================================================
*Based on LIBOR (London Interbank Offered Rate)
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 seller
defaults, and the fair value of the collateral declines, realization of the
collateral by the Fund may be delayed or limited.
Custodian Fee Credit
The Fund has an arrangement with the custodian bank whereby certain custodian
fees and expenses are reduced by credits earned on the Fund's cash on deposit
with the bank. Such deposit arrangements are an alternative to overnight
investments.
Offering Costs
Nuveen Investments agreed to pay all Common share offering costs (other than the
sales load) that exceed $.03 per Common share. The Fund's share of offering
costs ($843,000) were recorded as a reduction of the proceeds from the sale of
Common shares.
Costs incurred by the Fund in connection with its offering of Taxable Auctioned
Preferred shares ($2,017,208) were recorded as a reduction to paid-in surplus.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets applicable to Common shares from operations during the
reporting period. Actual results may differ from those estimates.
15
Notes to
FINANCIAL STATEMENTS (continued)
2. FUND SHARES
During the period November 15, 2001 (commencement of operations) through October
31, 2002, 28,100,000 Common shares and 6,880 Taxable Auctioned Preferred shares
were sold. In addition, 2,556 Common shares were issued to shareholders due to
reinvestment of distributions during the period November 15, 2001 (commencement
of operations) through October 31, 2002.
3. SECURITIES TRANSACTIONS
Purchases and sales of investments (excluding short-term investments) during the
period November 15, 2001 (commencement of operations) through October 31, 2002,
aggregated $762,288,282 and $194,952,987, respectively.
4. INCOME TAX INFORMATION
The following information is presented on an income tax basis as of October 31,
2002. Differences between amounts for financial statement and federal income tax
purposes are primarily due to timing differences in recording income and in
recognizing certain gains and losses on security transactions.
--------------------------------------------------------------------------------
Cost of Investments $575,258,803
================================================================================
--------------------------------------------------------------------------------
Gross unrealized:
Appreciation $ 11,522,749
Depreciation (33,971,094)
--------------------------------------------------------------------------------
Net unrealized appreciation (depreciation), including
interest rate swap $(22,448,345)
================================================================================
The tax components of undistributed net investment income and realized gains at
October 31, 2002, are as follows:
--------------------------------------------------------------------------------
Undistributed ordinary income * $7,287,912
Undistributed net long-term capital gains --
================================================================================
* Ordinary income consists of taxable income derived from dividends, interest
and short-term capital gains, if any.
The tax character of distributions paid during the period ended October 31,
2002, were as follows:
--------------------------------------------------------------------------------
Distributions from ordinary income * $31,035,829
Distributions from net long-term capital gains --
================================================================================
* Ordinary income consists of taxable income derived from dividends, interest
and short-term capital gains, if any.
The Fund hearby designates as a long-term capital gain dividend, pursuant to
Internal Revenue Code Section 852(b)(3), such amount as will reduce the earnings
and profits of the Fund related to net capital gain to zero for the tax year
ended October 31, 2002.
16
5. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Fund's investment management agreement with the Adviser, the Fund pays
an annual management fee, payable monthly, at the rates set forth below, which
are based upon the average daily managed assets of the Fund. "Managed assets"
consists of the average daily net assets applicable to Common shares, assets
attributable to Taxable Auctioned Preferred Shares and the principal amount of
borrowings, if any.
AVERAGE DAILY MANAGED ASSETS MANAGEMENT FEE
--------------------------------------------------------------------------------
For the first $500 million .9000%
For the next $500 million .8750
For the next $500 million .8500
For the next $500 million .8250
For Managed Assets over $2 billion .8000
================================================================================
The Adviser has agreed to waive part of its management fees or reimburse certain
expenses of the Fund in an amount equal to .30% of the average daily Managed
Assets for the period November 15, 2001 (commencement of operations) through
November 30, 2006, .25% of the average daily Managed Assets for the year ended
November 30, 2007, .20% of the average daily Managed Assets for the year ended
November 30, 2008, .15% of the average daily Managed Assets for the year ended
November 30, 2009, .10% of the average daily Managed Assets for the year ended
November 30, 2010, and .05% of the average daily Managed Assets for the year
ended November 30, 2011. The Adviser has not agreed to reimburse the Fund for
any portion of its fees and expenses beyond November 30, 2011.
The management fee compensates the Adviser for overall investment advisory and
administrative services and general office facilities. The Adviser has entered
into a Sub-Advisory Agreement with Security Capital Research & Management
Incorporated ("Security Capital"), under which Security Capital manages the
investment portfolio of the Fund. Security Capital is compensated for its
services to the Fund from the management fee paid to the Adviser.
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.
Subadvisor Acquisition
On May 14, 2002, GE Capital Corp., a wholly owned subsidiary of General Electric
Co., acquired Security Capital Group Incorporated, the parent company of
Security Capital, subadvisor to the Fund. Pursuant to the Investment Company Act
of 1940, the change in ownership of Security Capital's parent caused the
existing sub-advisory agreement to terminate, and shareholders of the Fund were
required to approve a new subadvisor agreement with Security Capital. A special
shareholder meeting was held on July 24, 2002, at which shareholders approved
the new sub-advisory agreement.
6. SUBSEQUENT EVENT-DISTRIBUTIONS TO COMMON SHAREHOLDERS
The Fund declared a dividend distribution of $.1150 per Common share which was
paid on December 2, 2002, to shareholders of record on November 15, 2002.
17
Financial
HIGHLIGHTS
Selected data for a Common share outstanding throughout the period:
Investment Operations Less Distributions
-------------------------------------------------------------- --------------------------------
Distributions Distributions
from Net from
Investment Capital
Income to Gains to Net
Beginning Net Taxable Taxable Investment Capital
Common Realized/ Auctioned Auctioned Income to Gains to
Share Net Unrealized Preferred Preferred Common Common
Net Asset Investment Investment Share- Share- Share- Share-
Value Income Gain (Loss) holders+ holders+ Total holders holders Total
====================================================================================================================================
Year Ended 10/31:
2002(a) $14.33 $1.01 $(.46) $(.09) $-- $.46 $(1.13) $-- $(1.13)
====================================================================================================================================
Total Returns
-------------------
Offering
Costs and
Taxable Based
Auctioned Ending on
Preferred Common Based Common
Share Share Ending on Share Net
Underwriting Net Asset Market Market Asset
Discounts Value Value Value** Value**
======================================================================================
Year Ended 10/31:
2002(a) $(.10) $13.56 $14.40 3.30% 2.09%
======================================================================================
Ratios/Supplemental Data
-----------------------------------------------------------------------------------------
Before Credit/Reimbursement After Credit/Reimbursement***
--------------------------- -----------------------------
Ratio of Net Ratio of Net
Ratio of Investment Ratio of Investment
Ending Expenses Income to Expenses Income to
Net to Average Average to Average Average
Assets Net Assets Net Assets Net Assets Net Assets
Applicable Applicable Applicable Applicable Applicable Portfolio
to Common to Common to Common to Common to Common Turnover
Shares (000) Shares++ Shares++ Shares++ Shares++ Rate
=================================================================================================================
Year Ended 10/31:
2002(a) $381,290 2.12%* 6.71%* 1.72%* 7.11%* 37%
=================================================================================================================
Cumulative Taxable Auctioned
Preferred at End of Period
---------------------------------------
Aggregate Liquidation
Amount and Market Asset
Outstanding Value Coverage
(000) Per Share Per Share
===============================================================
Year Ended 10/31:
2002(a) $172,000 $25,000 $80,420
===============================================================
* Annualized.
** Total Investment Return on Market Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in stock price per share. Total Return on Common Share Net Asset
Value is the combination of reinvested dividend income, reinvested capital
gains distributions, if any, and changes in Common share net asset value
per share. Total returns are not annualized.
*** After custodian fee credit and expense reimbursement, where applicable.
+ The amounts shown are based on Common share equivalents.
++ Ratios do not reflect the effect of dividend payments to Taxable Auctioned
Preferred Shareholders; income ratios reflect income earned on assets
attributable to Taxable Auctioned Preferred Shares. Each Ratio of Expenses
to Average Net Assets applicable to Common Shares and each Ratio of Net
Investment Income to Average Net Assets applicable to Common Shares
includes the effect of the net interest expense paid on interest rate swap
transactions of 0.68%.
(a) For the period November 15, 2001 (commencement of operations) through
October 31, 2002.
See accompanying notes to financial statements.
18-19 SPREAD
Trustees
AND OFFICERS
The management of the Funds, including general supervision of the duties
performed for the Funds under the Management Agreement, is the responsibility of
the Board of Trustees of the Funds. The number of directors/trustees of the
Funds is currently set at seven, one of whom is an "interested person" (as the
term is defined in the Investment Company Act of 1940) and six of whom are not
interested persons. None of the trustees who are not interested persons of the
Funds have 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.
YEAR FIRST
ELECTED OR NUMBER OF FUNDS
APPOINTED AND PRINCIPAL OCCUPATION(S) IN NUVEEN COMPLEX
NAME, BIRTHDATE POSITION(S) HELD TERM OF INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUND OFFICE DURING PAST 5 YEARS TRUSTEE
------------------------------------------------------------------------------------------------------------------------------------
TRUSTEE WHO IS AN INTERESTED PERSON OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
TIMOTHY R. SCHWERTFEGER (1) Chairman of the 2001 (Inception) Chairman and Director (since 1996) of The John 141
3/28/1949 Board and Term: Nuveen Company, Nuveen Investments, Nuveen
333 W. Wacker Drive Director/Trustee one year (2) Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp.; Chairman and Director (since 1997) of
Nuveen Asset Management Inc.; Director (since
1996) of Institutional Capital Corporation;
Chairman and Director (since 1999) of Rittenhouse
Financial Services Inc.
TRUSTEES WHO ARE NOT INTERESTED PERSONS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
JAMES E. BACON Trustee 2001 (Inception) Treasurer (1997-present), Cathedral of St. 19
2/27/1931 Term: John the Divine (New York City); formerly
333 W. Wacker Drive one year (2) (1992-1999), Director of Lone Star Industries,
Chicago, IL 60606 Inc.; previously, Director and Executive Vice
President of U.S. Trust Corporation and Trustee
of United States Trust Company of New York.
------------------------------------------------------------------------------------------------------------------------------------
WILLIAM E. BENNETT Trustee 2001 (Inception) Private Investor; previously, President and 19
10/16/1946 Term: Chief Executive Officer, Draper & Kramer, Inc.
333 W. Wacker Drive one year (2) (September 1995 - August 1998).
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
JACK B. EVANS Trustee 2001 (Inception) President, The Hall-Perrine Foundation, a 19
10/22/1948 Term: private philanthropic corporation (since 1996);
333 W. Wacker Drive one year (2) Director, Federal Reserve Bank of Chicago;
Chicago, IL 60606 Director, Alliant Energy; Director and Vice
Chairman United Fire & Casualty Company;
formerly President and Chief Operating Officer,
SCI Financial Group, Inc., a regional financial
services firm.
------------------------------------------------------------------------------------------------------------------------------------
WILLIAM L. KISSICK Trustee 2001 (Inception) Emeritus Professor, School of Medicine and the 19
7/29/1932 Term: Wharton School of Management and former
333 W. Wacker Drive one year (2) Chairman, Leonard Davis Institute of Health
Chicago, IL 60606 Economics, University of Pennsylvania; Adjunct
Professor, Health Policy and Management, Yale
University.
------------------------------------------------------------------------------------------------------------------------------------
THOMAS E. LEAFSTRAND Trustee 2001 (Inception) Retired; previously, Vice President in charge 19
11/11/1931 Term: of Municipal Underwriting and Dealer Sales at
333 W. Wacker Drive one year (2) The Northern Trust Company.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
SHEILA W. WELLINGTON Trustee 2001 (Inception) President (since 1993) of Catalyst (a 19
2/24/1932 Term: not-for-profit organization focusing on women's
333 W. Wacker Drive one year (2) leadership development in business and the
Chicago, IL 60606 professions).
20
NUMBER OF FUNDS
YEAR FIRST PRINCIPAL OCCUPATION(S) IN NUVEEN COMPLEX
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUND APPOINTED (3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS:
------------------------------------------------------------------------------------------------------------------------------------
MICHAEL T. ATKINSON Vice President 2002 Vice President (since January 2002), formerly, 141
2/3/1966 Assistant Vice President (since 2000),
333 W. Wacker Drive previously, Associate of Nuveen Investments.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
PETER H. D'ARRIGO Vice President and 2001 Vice President of Nuveen Investments (since 141
11/28/1967 Treasurer 1999), prior thereto, Assistant Vice President
333 W. Wacker Drive (from 1997); Chartered Financial Analyst.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
SUSAN M. DESANTO Vice President 2001 Vice President of Nuveen Advisory Corp. (since 141
9/8/1954 2001); previously, Vice President of Van Kampen
333 W. Wacker Drive Investment Advisory Corp. (since 1998); prior
Chicago, IL 60606 thereto, Assistant Vice President of Van Kampen
Investment Advisory Corp.
------------------------------------------------------------------------------------------------------------------------------------
JESSICA R. DROEGER Vice President 2002 Vice President (since January 2002), Assistant 141
9/24/1964 and Secretary General Counsel and Assistant Secretary (since
333 W. Wacker Drive 1998), formerly Assistant Vice President of
Chicago, IL 60606 Nuveen Investments; Vice President (since January
2002) and Assistant Secretary (since 1998),
formerly Assistant Vice President of Nuveen
Advisory Corp. and Nuveen Institutional Advisory
Corp.; prior thereto, Associate at the law firm
D'Ancona Partners LLC.
------------------------------------------------------------------------------------------------------------------------------------
LORNA C. FERGUSON Vice President 2001 Vice President of Nuveen Investments; Vice 141
10/24/1945 President (since 1998) of Nuveen Advisory Corp.
333 W. Wacker Drive and Nuveen Institutional Advisory Corp.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
WILLIAM M. FITZGERALD Vice President 2001 Managing Director (since January 2002) of 141
3/2/1964 Nuveen Investments; Managing Director of Nuveen
333 W. Wacker Drive Advisory Corp. and Nuveen Institutional Advisory
Chicago, IL 60606 Corp. (since 2001); prior thereto, Vice
President of Nuveen Advisory Corp.; Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
STEPHEN D. FOY Vice President and 2001 Vice President of Nuveen Investments and 141
5/31/1954 Controller (since 1998) The John Nuveen Company;
333 W. Wacker Drive Certified Public Accountant.
Chicago, IL 60606
------------------------------------------------------------------------------------------------------------------------------------
DAVID J. LAMB Vice President 2001 Vice President (since 2000) of Nuveen 141
3/22/1963 Investments, previously Assistant Vice President
333 W. Wacker Drive (since 1999); prior thereto, Associate of Nuveen
Chicago, IL 60606 Investments; Certified Public Accountant.
------------------------------------------------------------------------------------------------------------------------------------
TINA M. LAZAR Vice President 2002 Vice President (since 1999), previously, 141
8/27/1961 Assistant Vice President (since 1993) of
333 W. Wacker Drive Nuveen Investments.
Chicago, IL 60606
21
Trustees
AND OFFICERS (CONTINUED)
NUMBER OF FUNDS
YEAR FIRST PRINCIPAL OCCUPATION(S) IN NUVEEN COMPLEX
NAME, BIRTHDATE POSITION(S) HELD ELECTED OR INCLUDING OTHER DIRECTORSHIPS OVERSEEN BY
AND ADDRESS WITH THE FUND APPOINTED (3) DURING PAST 5 YEARS OFFICER
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS OF THE FUNDS (CONTINUED):
------------------------------------------------------------------------------------------------------------------------------------
LARRY W. MARTIN Vice President and 2001 Vice President, Assistant Secretary and 141
7/27/1951 Assistant Secretary Assistant General Counsel of Nuveen
333 W. Wacker Drive Investments; Vice President and Assistant
Chicago, IL 60606 Secretary of Nuveen Advisory Corp. and Nuveen
Institutional Advisory Corp.; Vice President and
Assistant Secretary of The John Nuveen
Company and Nuveen Asset Management, Inc.
------------------------------------------------------------------------------------------------------------------------------------
EDWARD F. NEILD, IV Vice President 2002 Managing Director (since January 2002) of 141
7/7/1965 Nuveen Investments; Managing Director
333 W. Wacker Drive (since 1997) of Nuveen Advisory Corp. and
Chicago, IL 60606 Nuveen Institutional Advisory Corp.; Chartered
Financial Analyst.
------------------------------------------------------------------------------------------------------------------------------------
GIFFORD R. ZIMMERMAN Chief 2002 Managing Director (since January 2002, 141
9/9/1956 Administrative formerly Vice President), Assistant Secretary
333 W. Wacker Drive Officer and Associate General Counsel (formerly
Chicago, IL 60606 Assistant General Counsel) of Nuveen
Investments; Managing Director (since
January 2002, formerly Vice President) and
Assistant Secretary of Nuveen Advisory Corp.
and Nuveen Institutional Advisory Corp.; Vice
President and Assistant Secretary of The John
Nuveen Company; Chartered Financial Analyst.
(1) Mr. Schwertfeger is an "interested person" of the Fund, as defined in the
Investment Company Act of 1940, because he is an officer and director of
Nuveen Institutional Advisory Corp.
(2) Trustees are elected each year by shareholders and serve a one year term
until his/her successor is elected.
(3) Officers serve one year terms through July of each year.
22
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23
Build Your Wealth
AUTOMATICALLY
SIDEBAR TEXT: NUVEEN MAKES REINVESTING EASY. A PHONE CALL IS ALL IT TAKES TO SET
UP YOUR REINVESTMENT ACCOUNT.
NUVEEN CLOSED-END EXCHANGE-TRADED FUNDS DIVIDEND REINVESTMENT PLAN
Your Nuveen Closed-End Exchange-Traded Fund allows you to conveniently reinvest
dividends and/or capital gains distributions in additional fund shares.
By choosing to reinvest, you'll be able to invest money regularly and
automatically, and watch your investment grow through the power of compounding.
It is important to note that an automatic reinvestment plan does not ensure a
profit, nor does it protect you against loss in a declining market.
EASY AND CONVENIENT
To make recordkeeping easy and convenient, each month you'll receive a statement
showing your total dividends and distributions, the date of investment, the
shares acquired and the price per share, and the total number of shares you own.
HOW SHARES ARE PURCHASED
The shares you acquire by reinvesting will either be purchased on the open
market or newly issued by the Fund. If the shares are trading at or above net
asset value at the time of valuation, the Fund will issue new shares at 95% of
the then-current market price or at net asset value, whichever is higher. If the
shares are trading at less than net asset value, shares for your account will be
purchased on the open market. Dividends and distributions received to purchase
shares in the open market will normally be invested shortly after the dividend
payment date. No interest will be paid on dividends and distributions awaiting
reinvestment. Because the market price of shares may increase before purchases
are completed, the average purchase price per share may exceed the market price
at the time of valuation, resulting in the acquisition of fewer shares than if
the dividend or distribution had been paid in shares issued by the Fund.
A pro rata portion of any applicable brokerage commissions on open market
purchases will be paid by Plan participants. These commissions usually will be
lower than those charged on individual transactions.
FLEXIBILITY
You may change your distribution option or withdraw from the Plan at any time,
should your needs or situation change. Should you withdraw, you can receive a
certificate for all whole shares credited to your reinvestment account and cash
payment for fractional shares, or cash payment for all reinvestment account
shares, less brokerage commissions and a $2.50 service fee.
You can reinvest whether your shares are registered in your name, or in the name
of a brokerage firm, bank, or other nominee. Ask your investment advisor if his
or her firm will participate on your behalf. Participants whose shares are
registered in the name of one firm may not be able to transfer the shares to
another firm and continue to participate in the Plan.
The Fund reserves the right to amend or terminate the Plan at any time. Although
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants, there is no direct service charge to participants
in the Plan at this time.
For more information on the Nuveen Automatic Reinvestment Plan or to enroll in
or withdraw from the Plan, speak with your financial advisor or call us at (800)
257-8787.
24
Fund
INFORMATION
BOARD OF TRUSTEES
James F. Bacon
William E. Bennett
JackB. Evans
William T. Kissick
Thomas E. Leafstrand
Timothy R. Schwertfeger
Sheila W. Wellington
FUND MANAGER
Nuveen Institutional Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
State Street Bank & Trust
Boston, MA
TRANSFER AGENT AND
SHAREHOLDER SERVICES
State Street Bank &Trust
Nuveen Funds
P.O. Box 43071
Providence, RI 02940-3071
(800) 257-8787
LEGAL COUNSEL
Chapman and Cutler
Chicago, IL
INDEPENDENT AUDITORS
Ernst & Young LLP
Chicago, IL
CHANGE OF INDEPENDENT ACCOUNTANTS
On May 15, 2002, Arthur Andersen LLP ("Arthur Andersen") resigned as independent
accountants for the Nuveen Real Estate Income Fund (the "Fund"). Arthur
Andersen's report for the Fund's financial statements for the period ended
October 29, 2001, did not contain an adverse opinion or disclaimer of opinion
and was not qualified as to uncertainty, audit scope or accounting principles.
In addition there have not been any disagreements with Arthur Andersen during
the Fund's most recent fiscal year on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure which,
if not resolved to the satisfaction of Arthur Andersen, would have caused it to
make a reference to the subject matter of the disagreement in connection with
its reports. The Fund's Board of Trustees appointed Ernst &Young LLP as
independent accountants for the fiscal year ended 2002.
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The Fund intends to repurchase shares of its own common stock in the future at
such times and in such amounts as is deemed advisable. No shares were
repurchased during the period ended October 31, 2002. Any future repurchases
will be reported to shareholders in the next annual or semiannual report.
25
Serving Investors
FOR GENERATIONS
PHOTO OF: John Nuveen, Sr.
For over a century, generations of Americans have relied on Nuveen Investments
to help them grow and keep the money they've earned. Financial advisors,
investors and their families have associated Nuveen Investments with quality,
expertise and dependability since 1898. That is why financial advisors have
entrusted the assets of more than 1.3 million investors to Nuveen.
With the know-how that comes from a century of experience, Nuveen continues to
build upon its reputation for quality. Now, financial advisors and investors can
count on Nuveen Investments to help them design customized solutions that meet
the far-reaching financial goals unique to family wealth strategies - solutions
that can translate into legacies.
To find out more about how Nuveen Investments' products and services can help
you preserve your financial security, talk with your financial advisor, or call
us at (800) 257-8787 for more information, including a prospectus where
applicable. Please read that information carefully before you invest.
Logo: NUVEEN Investments
Nuveen Investments o 333 West Wacker Drive
Chicago, IL 60606 o www.nuveen.com EAN-F-1002D