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.
Financial Highlights (continued)
|
|
|
|
|
|
|
|
|
iMTP,
MFP, VMTP
|
|
|
|
|
|
|
|
|
|
and/or
VRDP
|
|
iMTP
Shares
|
MFP
Shares at
|
VMTP
Shares at the
|
VRDP
Shares
|
Shares
at the
|
|
at
the End of the Period
|
the
End of the Period
|
End
of the Period
|
at
the End of the Period
|
End
of the Period
|
|
Aggregate
|
Asset
|
Aggregate
|
Asset
|
Aggregate
|
Asset
|
Aggregate
|
Asset
|
Asset
Coverage
|
|
Amount
|
Coverage
|
Amount
|
Coverage
|
Amount
|
Coverage
|
Amount
|
Coverage
|
Per
$1
|
|
Outstanding
|
Per
$5,000
|
Outstanding
|
Per
$100,000
|
Outstanding
|
Per
$100,000
|
Outstanding
|
Per
$100,000
|
Liquidation
|
|
(000)
|
Share
|
(000)
|
Share
|
(000)
|
Share
|
(000)
|
Share
|
Preference
|
NKX
|
|
|
|
|
|
|
|
|
|
Year Ended 2/28-2/29:
|
|
|
|
|
|
|
|
|
|
2022(a)
|
$ —
|
$ —
|
$140,400
|
$285,247
|
$ —
|
$ —
|
$292,200
|
$285,247
|
$2.85
|
2021
|
—
|
—
|
140,400
|
281,045
|
—
|
—
|
292,200
|
281,045
|
2.81
|
2020
|
—
|
—
|
140,400
|
289,705
|
—
|
—
|
292,200
|
289,705
|
2.90
|
2019
|
—
|
—
|
140,400
|
266,617
|
—
|
—
|
292,200
|
266,617
|
2.67
|
2018
|
—
|
—
|
140,400
|
268,438
|
—
|
—
|
292,200
|
268,438
|
2.68
|
2017
|
36,000
|
13,468
|
—
|
—
|
—
|
—
|
396,600
|
269,359
|
2.69
|
|
NAC
|
|
|
|
|
|
|
|
|
|
Year Ended 2/28-2/29:
|
|
|
|
|
|
|
|
|
|
2022(a)
|
—
|
—
|
320,000
|
284,210
|
—
|
—
|
957,600
|
284,210
|
2.84
|
2021
|
—
|
—
|
320,000
|
280,237
|
—
|
—
|
957,600
|
280,237
|
2.80
|
2020
|
—
|
—
|
320,000
|
289,294
|
—
|
—
|
957,600
|
289,294
|
2.89
|
2019
|
—
|
—
|
320,000
|
269,324
|
—
|
—
|
957,600
|
269,324
|
2.69
|
2018
|
—
|
—
|
320,000
|
272,351
|
—
|
—
|
957,600
|
272,351
|
2.72
|
2017
|
—
|
—
|
—
|
—
|
145,000
|
301,487
|
957,600
|
301,487
|
3.01
|
(a)
|
|
Unaudited. For the six months ended August 31,2021
|
See accompanying notes to financial statements.
58
Notes
to
Financial Statements
(Unaudited)
1.
General Information
Fund Information
The funds covered in this report and their corresponding New York
Stock Exchange (“NYSE”) symbols are as follows (each a “Fund” and collectively, the “Funds”):
• Nuveen California Municipal Value Fund (NCA)
• Nuveen California AMT-Free Quality Municipal Income Fund
(NKX)
• Nuveen California Quality Municipal Income Fund (NAC)
The Funds are registered under the Investment Company Act of 1940
(the “1940 Act”), as amended, as diversified closed-end management investment companies. NCA was organized as a Massachusetts
business trust on March 8, 2021 (previously organized as a Minnesota trust on July 15, 1987). NKX and NAC were organized as Massachusetts
business trusts on July 29, 2002 and December 1, 1998, respectively.
The end of the reporting period for the Funds is August 31, 2021,
and the period covered by these Notes to Financial Statements is the six months ended August 31, 2021 (the “current fiscal period”).
Investment Adviser and Sub-Adviser
The Funds’ 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 Funds, oversees the management
of the Funds’ portfolios, manages the Funds’ business affairs and provides certain clerical, bookkeeping and other administrative
services, and, if necessary, asset allocation decisions. The Adviser has entered into sub-advisory agreements with Nuveen Asset Management,
LLC (the “Sub-Adviser“), a subsidiary of the Adviser, under which the Sub-Adviser manages the investment portfolios of the
Funds.
Fund Reorganization
Effective prior to the opening of business on March 8, 2021, Nuveen
California Municipal Value Fund 2 (NCB) (the “Target Fund“) was merged into NCA (the “Acquiring Fund“) (the “Reorganization“).
For accounting and performance reporting purposes, the Acquiring
Fund is the survivor.
Upon the closing of the Reorganization, the Target Fund transferred
its assets to the Acquiring Fund in exchange for common of the Acquiring Fund and the assumption by the Acquiring Fund of the liabilities
of the Target Fund. The Target Fund was then liquidated, dissolved and terminated in accordance with its Declaration of Trust. Shareholders
of the Target Fund became shareholders of the Acquiring Fund. Holders of common shares of the Target Fund received newly issued common
shares of the Acquiring Fund, the aggregate net asset value (“NAV”) of which was equal to the aggregate NAV of the common
shares of the Target Fund held immediately prior to the Reorganization (including for this purpose fractional Acquiring Fund shares to
which shareholders were entitled). Details of the Reorganization are further described in Note 10 – Fund Reorganization.
Other Matters
The outbreak of the novel coronavirus (“COVID-19”)
and subsequent global pandemic began significantly impacting the U.S. and global financial markets and economies during the calendar quarter
ended March 31, 2020. The worldwide spread of COVID-19 has created significant uncertainty in the global economy. The duration and extent
of COVID-19 over the long term cannot be reasonably estimated at this time. The ultimate impact of COVID-19 and the extent to which COVID-19
impacts the Funds’ normal course of business, results of operations, investments, and cash flows will depend on future developments,
which are highly uncertain and difficult to predict. Management continues to monitor and evaluate this situation.
2. Significant Accounting Policies
The accompanying financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require the use of
estimates made by management and the evaluation of subsequent events. Actual results may differ from those estimates. Each Fund is an
investment company and follows the accounting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification 946, Financial Services—Investment Companies. The NAV for financial reporting purposes may differ from the NAV for
processing security and common share transactions. The NAV for financial reporting purposes includes security and common share transactions
59
Notes to Financial Statements (Unaudited) (continued)
through the date of the report. Total return is computed based
on the NAV used for processing security and common share transactions. The following is a summary of the significant accounting policies
consistently followed by the Funds.
Compensation
The Funds pay 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 Funds from the Adviser
or its affiliates. The Funds' Board of the Trustees (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.
Distributions to Common Shareholders
Distributions to common shareholders are recorded on the ex-dividend
date. The amount, character and timing of distributions are determined in accordance with federal income tax regulations, which may differ
from U.S. GAAP.
Indemnifications
Under the Funds’ organizational documents, their officers
and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in
the normal course of business, the Funds enter into contracts that provide general indemnifications to other parties. The Funds’
maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have
not yet occurred. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be
remote.
Investments and Investment Income
Securities transactions are accounted for as of the trade date
for financial reporting purposes. Realized gains and losses on securities transactions are based upon the specific identification method.
Investment income is comprised of interest income, which is recorded on an accrual basis and includes the amortization of premiums and
accretion of discounts for financial reporting purposes. Investment 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.
Netting Agreements
In the ordinary course of business, the Funds may enter into transactions
subject to enforceable International Swaps and Derivatives Association, Inc. (ISDA) master agreements or other similar arrangements (“netting
agreements”). Generally, the right to offset in netting agreements allows each 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, each Fund manages its cash collateral and securities collateral on a counterparty basis.
The Funds’ investments subject to netting agreements as
of the end of the reporting period, if any, are further described in Note 4 – Portfolio Securities and Investments in Derivatives.
New Accounting Pronouncements and Rule Issuances
Reference Rate Reform
In March 2020, FASB issued Accounting Standards Update (“ASU”)
2020-04, Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The main objective of the
new guidance is to provide relief to companies that will be impacted by the expected change in benchmark interest rates, when participating
banks will no longer be required to submit London Interbank Offered Rate (LIBOR) quotes by the UK Financial Conduct Authority (FCA). The
new guidance allows companies to, provided the only change to existing contracts are a change to an approved benchmark interest rate,
account for modifications as a continuance of the existing contract without additional analysis. For new and existing contracts, the Funds
may elect to apply the amendments as of March 12, 2020 through December 31, 2022. Management has not yet elected to apply the amendments,
is continuously evaluating the potential effect a discontinuation of LIBOR could have on the Funds’ investments and has currently
determined that it is unlikely the ASU’s adoption will have a significant impact on the Funds’ financial statements and various
filings.
Securities and Exchange Commission (“SEC”) Adopts
New Rules to Modernize Fund Valuation Framework
In December 2020, the SEC voted to adopt a new rule governing
fund valuation practices. New Rule 2a-5 under the 1940 Act establishes requirements for determining fair value in good faith for purposes
of the 1940 Act. Rule 2a-5 will permit fund boards to designate certain parties to perform fair value determinations, subject to board
oversight and certain other conditions. Rule 2a-5 also defines when market quotations are “readily available” for purposes
of Section 2(a)(41) of the 1940 Act, which requires a fund to fair value a security when market quotation are not readily available. The
SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth the recordkeeping requirements associated with fair value determinations.
Finally, the SEC is rescinding previously issued guidance on related issues, including the role of a board in determining fair value and
the accounting and auditing of fund investments. Rule 2a-5 and Rule 31a-4 became effective on March 8, 2021, with a compliance date of
60
September 8, 2022. A fund may voluntarily comply with the
rules after the effective date, and in advance of the compliance date, under certain conditions. Management is currently assessing the
impact of these provisions on the Funds’ financial statements.
3. Investment Valuation and Fair Value Measurements
The Fund’s investments in securities are recorded at their
estimated fair value utilizing valuation methods approved by the Board. 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. U.S. GAAP establishes the three-tier hierarchy which 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 management’s 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).
A description of the valuation techniques applied to the Funds’
major classifications of assets and liabilities measured at fair value follows:
Prices of fixed-income securities are generally 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. 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.
Any portfolio security or derivative for which market quotations
are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued at fair value, as
determined in good faith using procedures approved by the Board. 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. To the extent the inputs are observable and timely, the values would be classified as Level 2 of the fair value hierarchy;
otherwise they would be classified as Level 3.
The following table summarizes the market value of the Fund’s
investments as of the end of the reporting period, based on the inputs used to value them:
NCA
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Long-Term Investments*:
|
|
|
|
|
Municipal Bonds
|
$ —
|
$ 352,346,057
|
$ —
|
$ 352,346,057
|
NKX
|
|
|
|
|
Long-Term Investments*:
|
|
|
|
|
Municipal Bonds
|
$ —
|
$1,228,821,550
|
$ —
|
$1,228,821,550
|
NAC
|
|
|
|
|
Long-Term Investments*:
|
|
|
|
|
Municipal Bonds
|
$ —
|
$3,567,709,772
|
$ —
|
$3,567,709,772
|
* Refer to the Fund’s Portfolio of Investments for industry
classifications.
The Funds hold liabilities in floating rate obligations and preferred
shares, where applicable, which are not reflected in the tables above. The fair values of the Funds’ liabilities for floating rate
obligations approximate their liquidation values. Floating rate obligations are generally classified as Level 2 and further described
in Note 4 - Portfolio Securities and Investments in Derivatives. The fair values of the Funds’ liabilities for preferred shares
approximate their liquidation preference. Preferred shares are generally classified as Level 2 and further described in Note 5 - Fund
Shares.
61
Notes to Financial Statements (Unaudited) (continued)
4. Portfolio Securities and Investments in Derivatives
Portfolio Securities
Inverse Floating Rate Securities
Each Fund is authorized to invest in inverse floating rate securities.
An inverse floating rate security is created by depositing a municipal bond (referred to as an “Underlying Bond”), typically
with a fixed interest rate, into a special purpose tender option bond (“TOB”) trust (referred to as the “TOB Trust”)
created by or at the direction of one or more Funds. In turn, the TOB Trust issues (a) floating rate certificates (referred to as “Floaters”),
in face amounts equal to some fraction of the Underlying Bond’s par amount or market value, and (b) an inverse floating rate certificate
(referred to as an “Inverse Floater”) that represents all remaining or residual interest in the TOB Trust. Floaters typically
pay short-term tax-exempt interest rates to third parties who are also provided a right to tender their certificate and receive its par
value, which may be paid from the proceeds of a remarketing of the Floaters, by a loan to the TOB Trust from a third party liquidity provider
(“Liquidity Provider”), or by the sale of assets from the TOB Trust. The Inverse Floater is issued to a long term investor,
such as one or more of the Funds. The income received by the Inverse Floater holder varies inversely with the short-term rate paid to
holders of the Floaters, and in most circumstances the Inverse Floater holder bears substantially all of the Underlying Bond’s downside
investment risk and also benefits disproportionately from any potential appreciation of the Underlying Bond’s value. The value of
an Inverse Floater will be more volatile than that of the Underlying Bond because the interest rate is dependent on not only the fixed
coupon rate of the Underlying Bond but also on the short-term interest paid on the Floaters, and because the Inverse Floater essentially
bears the risk of loss (and possible gain) of the greater face value of the Underlying Bond.
The Inverse Floater held by a Fund gives the Fund the right to
(a) cause the holders of the Floaters to tender their certificates at par (or slightly more than par in certain circumstances), and (b)
have the trustee of the TOB Trust (the “Trustee”) transfer the Underlying Bond held by the TOB Trust to the Fund, thereby
collapsing the TOB Trust.
The Fund may acquire an Inverse Floater in a transaction where
it (a) transfers an Underlying Bond that it owns to a TOB Trust created by a third party or (b) transfers an Underlying Bond that it owns,
or that it has purchased in a secondary market transaction for the purpose of creating an Inverse Floater, to a TOB Trust created at its
direction, and in return receives the Inverse Floater of the TOB Trust (referred to as a “self-deposited Inverse Floater”).
A Fund may also purchase an Inverse Floater in a secondary market transaction from a third party creator of the TOB Trust without first
owning the Underlying Bond (referred to as an “externally-deposited Inverse Floater”).
An investment in a self-deposited Inverse Floater is accounted
for as a “financing” transaction (i.e., a secured borrowing). For a self-deposited Inverse Floater, the Underlying Bond deposited
into the TOB Trust is identified in the Fund’s Portfolio of Investments as “(UB) – Underlying bond of an inverse floating
rate trust reflected as a financing transaction,” with the Fund recognizing as liabilities, labeled “Floating rate obligations”
on the Statement of Assets and Liabilities, (a) the liquidation value of Floaters issued by the TOB Trust, and (b) the amount of any borrowings
by the TOB Trust from a Liquidity Provider to enable the TOB Trust to purchase outstanding Floaters in lieu of a remarketing. In addition,
the Fund recognizes in “Investment Income” the entire earnings of the Underlying Bond, and recognizes (a) the interest paid
to the holders of the Floaters or on the TOB Trust’s borrowings, and (b) other expenses related to remarketing, administration,
trustee, liquidity and other services to a TOB Trust, as a component of “Interest expense and amortization of offering costs”
on the Statement of Operations. Earnings due from the Underlying Bond and interest due to the holders of the Floaters as of the end of
the reporting period are recognized as components of “Receivable for interest” and “Payable for interest” on the
Statement of Assets and Liabilities, respectively.
In contrast, an investment in an externally-deposited Inverse
Floater is accounted for as a purchase of the Inverse Floater and is identified in the Fund’s Portfolio of Investments as “(IF)
– Inverse floating rate investment.” For an externally-deposited Inverse Floater, a Fund’s Statement of Assets and Liabilities
recognizes the Inverse Floater and not the Underlying Bond as an asset, and the Fund does not recognize the Floaters, or any related borrowings
from a Liquidity Provider, as a liability. Additionally, the Fund reflects in “Investment Income” only the net amount of earnings
on the Inverse Floater (net of the interest paid to the holders of the Floaters or the Liquidity Provider as lender, and the expenses
of the Trust), and does not show the amount of that interest paid or the expenses of the TOB Trust as described above as interest expense
on the Statement of Operations.
Fees paid upon the creation of a TOB Trust for self-deposited
Inverse Floaters and externally-deposited Inverse Floaters are recognized as part of the cost basis of the Inverse Floater and are capitalized
over the term of the TOB Trust.
As of the end of the reporting period, the aggregate value of
Floaters issued by each Fund’s TOB Trust for self-deposited Inverse Floaters and externally-deposited Inverse Floaters was as follows:
Floating Rate Obligations Outstanding
|
NCA
|
NKX
|
NAC
|
Floating rate obligations: self-deposited Inverse Floaters
|
$ —
|
$20,975,000
|
$ 4,185,000
|
Floating rate obligations: externally-deposited Inverse Floaters
|
—
|
11,250,000
|
28,500,000
|
Total
|
$ —
|
$32,225,000
|
$32,685,000
|
62
During the current fiscal period, the average amount of Floaters
(including any borrowings from a Liquidity Provider) outstanding, and the average annual interest rate and fees related to self-deposited
Inverse Floaters, were as follows:
Self-Deposited Inverse Floaters
|
NCA
|
NKX
|
NAC
|
Average floating rate obligations outstanding
|
$ —
|
$20,975,000
|
$4,185,000
|
Average annual interest rate and fees
|
—%
|
0.57%
|
0.51%
|
TOB Trusts are supported by a liquidity facility provided by a
Liquidity Provider pursuant to which the Liquidity Provider agrees, in the event that Floaters are (a) tendered to the Trustee for remarketing
and the remarketing does not occur, or (b) subject to mandatory tender pursuant to the terms of the TOB Trust agreement, to either purchase
Floaters or to provide the Trustee with an advance from a loan facility to fund the purchase of Floaters by the TOB Trust. In certain
circumstances, the Liquidity Provider may otherwise elect to have the Trustee sell the Underlying Bond to retire the Floaters that were
tendered and not remarketed prior to providing such a loan. In these circumstances, the Liquidity Provider remains obligated to provide
a loan to the extent that the proceeds of the sale of the Underlying Bond is not sufficient to pay the purchase price of the Floaters.
The size of the commitment under the loan facility for a given
TOB Trust is at least equal to the balance of that TOB Trust’s outstanding Floaters plus any accrued interest. In consideration
of the loan facility, fee schedules are in place and are charged by the Liquidity Provider(s). Any loans made by the Liquidity Provider
will be secured by the purchased Floaters held by the TOB Trust. Interest paid on any outstanding loan balances will be effectively borne
by the Fund that owns the Inverse Floaters of the TOB Trust that has incurred the borrowing and may be at a rate that is greater than
the rate that would have been paid had the Floaters been successfully remarketed.
As described above, any amounts outstanding under a liquidity
facility are recognized as a component of “Floating rate obligations” on the Statement of Assets and Liabilities by the Fund
holding the corresponding Inverse Floaters issued by the borrowing TOB Trust. As of the end of the reporting period, there were no loans
outstanding under any such facility for any of the Funds as of the end of the reporting period.
Each Fund may also enter into shortfall and forbearance agreements
(sometimes referred to as a “recourse arrangement”) (TOB Trusts involving such agreements are referred to herein as “Recourse
Trusts”), under which a Fund agrees to reimburse the Liquidity Provider for the Trust’s Floaters, in certain circumstances,
for the amount (if any) by which the liquidation value of the Underlying Bond held by the TOB Trust may fall short of the sum of the liquidation
value of the Floaters issued by the TOB Trust plus any amounts borrowed by the TOB Trust from the Liquidity Provider, plus any shortfalls
in interest cash flows. Under these agreements, a Fund’s potential exposure to losses related to or on an Inverse Floater may increase
beyond the value of the Inverse Floater as a Fund may potentially be liable to fulfill all amounts owed to holders of the Floaters or
the Liquidity Provider. Any such shortfall amount in the aggregate is recognized as “Unrealized depreciation on Recourse Trusts”
on the Statement of Assets and Liabilities.
As of the end of the reporting period, each Fund’s maximum
exposure to the Floaters issued by Recourse Trusts for self-deposited Inverse Floaters and externally-deposited Inverse Floaters was as
follows:
Floating Rate Obligations - Recourse Trusts
|
NCA
|
NKX
|
NAC
|
Maximum exposure to Recourse Trusts: self-deposited Inverse Floaters
|
$ —
|
$20,975,000
|
$ 4,185,000
|
Maximum exposure to Recourse Trusts: externally-deposited Inverse Floaters
|
—
|
11,250,000
|
28,500,000
|
Total
|
$ —
|
$32,225,000
|
$32,685,000
|
Zero Coupon Securities
A zero coupon security does not pay a regular interest coupon
to its holders during the life of the security. Income to the holder of the security comes from accretion of the difference between the
original purchase price of the security at issuance and the par value of the security at maturity and is effectively paid at maturity.
The market prices of zero coupon securities generally are more volatile than the market prices of securities that pay interest periodically.
Investment Transactions
Long-term purchases and sales (including maturities) during the
current fiscal period were as follows:
|
NCA
|
NKX
|
NCA
|
Purchases
|
$58,268,127
|
$59,205,060
|
$194,306,244
|
Sales and Maturities
|
10,329,111
|
70,801,788
|
218,748,211
|
The Funds may purchase securities on a when-issued or delayed-delivery
basis. Securities purchased on a when-issued or delayed-delivery basis may have extended settlement periods; interest income is not accrued
until settlement date. Any securities so purchased are subject to market fluctuation during this period. The Funds have earmarked securities
in their portfolios with a current value at least equal to the amount of the when-issued/ delayed-delivery purchase commitments. If a
Fund has outstanding when-issued/delayed-delivery purchases commitments as of the end of the reporting period, such amounts are recognized
on the Statement of Assets and Liabilities.
63
Notes to Financial Statements (Unaudited) (continued)
Investments in Derivatives
In addition to the inverse floating rate securities in which each
Fund may invest, which are considered portfolio securities for financial reporting purposes, each Fund is authorized to invest in certain
derivative instruments such as futures, options and swap contracts. Each 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 Funds record derivative instruments at fair value, with changes in fair value
recognized on the Statement of Operations, when applicable. Even though the Funds’ investments in derivatives may represent economic
hedges, they are not considered to be hedge transactions for financial reporting purposes.
Although the Funds are authorized to invest in derivative instruments
and may do so in future, they did not make any such investments during the current fiscal period.
Market and Counterparty Credit Risk
In the normal course of business each 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 each Fund to counterparty credit risk, consist
principally of cash due from counterparties on forward, option and swap transactions, when applicable. The extent of each Fund’s
exposure to counterparty credit risk in respect to these financial assets approximates their carrying value as recorded on the Statement
of Assets and Liabilities.
Each 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 each Fund with a value approximately equal to the amount of any unrealized
gain above a pre-determined threshold. Reciprocally, when each Fund has an unrealized loss, the Funds have instructed the custodian to
pledge assets of the Funds as collateral with a value approximately equal to the amount of the unrealized loss above a pre-determined
threshold. Collateral pledges are monitored and subsequently adjusted if and when the valuations fluctuate, either up or down, by at least
the pre-determined threshold amount.
5. Fund Shares
Common Shares
Common Shares Equity Shelf Programs and Offering Costs
The following Fund has filed a registration statement with the
Securities and Exchange Commission (“SEC”) authorizing the Fund to issue additional common shares through one or more equity
shelf programs (“Shelf Offering”), which became effective with the SEC during prior fiscal periods.
Under this Shelf Offering, the Fund, subject to market conditions,
may raise additional equity capital by issuing additional common shares from time to time in varying amounts and by different offering
methods at a net price at or above the Fund’s NAV per common share. In the event the Fund’s Shelf Offering registration statement
is no longer current, the Fund may not issue additional common shares until a post-effective amendment to the registration statement has
been filed with the SEC.
Additional authorized common shares, common shares sold and offering
proceeds, net of offering costs under the Fund’s Shelf Offering during the Fund’s current fiscal period were as follows:
|
NKX
|
|
Six Months
|
Year
|
|
Ended
|
Ended
|
|
8/31/21
|
2/28/21
|
Additional authorized common shares
|
4,100,000*
|
4,100,000
|
Common shares sold
|
—
|
—
|
Offering proceeds, net of offering cost
|
—
|
—
|
* Represents additional authorized common shares for the period
March 1, 2020 through June 30, 2021.
Costs incurred by the Fund in connection with its initial shelf
registration are recorded as a prepaid expense and recognized as “Deferred offering costs” on the Statement of Assets and
Liabilities. These costs are amortized pro rata as common shares are sold and are recognized as a component of “Proceeds from shelf
offering, net of offering costs” on the Statement of Changes in Net Assets. Any deferred offering costs remaining one year after
the effectiveness of the initial shelf registration will be expensed. Costs incurred by the Fund to keep the shelf registration current
are expensed as incurred and recognized as a component of “Shelf offering expenses” on the Statement of Operations.
64
Common Share Transactions
Transactions in common shares for the Funds during the Funds’
current and prior fiscal period, where applicable, were as follows:
|
NCA
|
|
Six Months
|
|
Year
|
|
Ended
|
|
Ended
|
|
8/31/21
|
|
2/28/21
|
Common shares:
|
|
|
|
Issued to shareholders due to reinvestment of distributions
|
—
|
|
5,684
|
Issued in the Merger
|
5,011,513
|
|
—
|
Preferred
Shares
MuniFund Preferred Shares
NKX and NAC have issued and have outstanding MuniFund Preferred
(“MFP”) Shares, with a $100,000 liquidation preference per share. These MFP Shares were issued via private placement and are
not publically available.
The Funds are obligated to redeem their MFP Shares by the date
as specified in its offering documents (“Term Redemption Date”), unless earlier redeemed by the Funds. MFP Shares are initially
issued in a pre-specified mode, however, MFP Shares can be subsequently designated as an alternative mode at a later date at the discretion
of the Funds. The modes within MFP Shares detail the dividend mechanics and are described as follows. At a subsequent date, the Funds
may establish additional mode structures with the MFP Share.
•
|
|
Variable Rate Remarketed Mode (“VRRM”) – Dividends for MFP Shares within
this mode will be established by a remarketing agent; therefore, market value of the MFP Shares is expected to approximate its liquidation
preference. Shareholders have the ability to request a best-efforts tender of its shares upon seven days notice. If the remarketing agent
is unable to identify an alternative purchaser, the shares will be retained by the shareholder requesting tender and the subsequent dividend
rate will increase to its step-up dividend rate. If after one consecutive year of unsuccessful remarketing attempts, the Fund will be
required to designate an alternative mode or redeem the shares.
|
Each Fund will pay a remarketing fee on the aggregate principal
amount of all MFP Shares while designated in VRRM. Payments made by the Fund to the remarketing agent are recognized as “Remarketing
fees” on the Statement of Operations.
•
|
|
Variable Rate Mode (“VRM”) – Dividends for MFP Shares designated in this
mode are based upon a short-term index plus an additional fixed “spread” amount established at the time of issuance or renewal
/ conversion of its mode. At the end of the period of the mode, the Fund will be required to either extend the term of the mode, designate
an alternative mode or redeem the MFP Shares.
|
The fair value of MFP Shares while in VRM are expected to approximate
their liquidation preference so long as the fixed “spread” on the shares remains roughly in line with the “spread”
being demanded by investors on instruments having similar terms in the current market. In current market conditions, the Adviser has determined
that the fair value of the shares are approximately their liquidation preference, but their fair value could vary if market conditions
change materially.
•
|
|
Variable Rate Demand Mode (“VRDM”) – Dividends for MFP Shares designated
in this mode will be established by a remarketing agent; therefore, the market value of the MFP Shares is expected to approximate its
liquidation preference. While in this mode, Shares will have an unconditional liquidity feature that enable its shareholders to require
a liquidity provider, which the Fund has entered into a contractual agreement, to purchase shares in the event that the shares are not
able to be successfully remarketed. In the event that shares within this mode are unable to be successfully remarketed and are purchased
by the liquidity provider, the dividend rate will be the maximum rate which is designed to escalate according to a specified schedule
in order to enhance the remarketing agent’s ability to successfully remarket the shares. Each Fund is required redeem any shares
that are still owned by a liquidity provider after six months of continuous, unsuccessful remarketing.
|
The Fund will pay a liquidity and remarketing fee on the aggregate
principal amount of all MFP shares while within VRDM. Payments made by the Fund to the liquidity provider and remarketing agent are recognized
as “Liquidity fees” and “Remarketing fees”, respectively, on the Statement Operations.
For financial reporting purposes, the liquidation preference of
MFP Shares is recorded as a liability and is recognized as a component of “MuniFund Preferred (“MFP”) Shares, net of
deferred offering costs” on the Statement of Assets and Liabilities. Dividends on the MFP shares are treated as interest payments
for financial reporting purposes. Unpaid dividends on MFP shares are recognized as a component on “Interest payable” on the
Statement of Assets and Liabilities. Dividends accrued on MFP Shares are recognized as a component of “Interest expense and amortization
of offering costs” on the Statement of Operations.
Subject to certain conditions, MFP Shares may be redeemed, in
whole or in part, at any time at the option of the Fund. The Fund may also be required to redeem certain MFP shares if the Fund fails
to maintain certain asset coverage requirements and such failures are not cured by the applicable cure date. The redemption price per
share in all circumstances is equal to the liquidation preference per share plus any accumulated but unpaid dividends.
65
Notes to Financial Statements (Unaudited) (continued)
Costs incurred connection with each Fund’s offering of MFP
Shares were recorded as deferred charges and are amortized over the life of the shares and are recognized as a component of “MuniFund
Preferred (“MFP”) Shares, net of deferred offering costs” on the Statement of Assets and Liabilities and “Interest
expense and amortization of offering costs” on the Statement of Operations.
As of the end of the reporting period, details of each Fund’s
MFP Shares outstanding as of the end of the reporting period, were as follows:
|
|
|
|
Liquidation
|
|
|
|
|
|
|
|
Preference,
|
|
|
|
|
|
Shares
|
Liquidation
|
net of deferred
|
Term
|
|
Mode
|
Fund
|
Series
|
Outstanding
|
Preference
|
offering costs
|
Redemption Date
|
Mode
|
Termination Date
|
NKX
|
A
|
1,404
|
$140,400,000
|
$140,001,858
|
10/01/47
|
VRRM
|
N/A
|
NAC
|
A
|
3,200
|
320,000,000
|
319,815,345
|
1/03/28
|
VRM
|
1/03/28*
|
*
|
|
Subject to earlier termination by either the Fund or the holder.
|
The average liquidation preference of MFP Shares outstanding and
annualized dividend rate for the Funds during the current fiscal period were as follows:
|
NKX
|
NAC
|
Average liquidation preference of MFP Shares outstanding
|
$140,400,000
|
$320,000,000
|
Annualized dividend rate
|
0.35%
|
0.89%
|
Variable Rate Demand Preferred Shares
The following Funds have issued and have outstanding Variable
Rate Demand Preferred (“VRDP”) Shares, with a $100,000 liquidation preference per share. VRDP Shares are issued via private
placement and are not publicly available.
As of the end of the reporting period, NKX and NAC had $290,549,410
and $954,317,005 VRDP Shares at liquidation preference, net of deferred offering costs, respectively. Further details of the Funds’
VRDP Shares outstanding as of the reporting period, were as follows:
|
|
Shares
|
Remarketing
|
Liquidation
|
|
Fund
|
Series
|
Outstanding
|
Fees*
|
Preference
|
Maturity
|
NKX
|
2
|
355
|
0.10%
|
$ 35,500,000
|
June 1, 2040
|
|
3
|
427
|
0.05
|
42,700,000
|
March 1, 2040
|
|
4
|
1,090
|
0.10
|
109,000,000
|
December 1, 2040
|
|
6
|
1,050
|
0.10
|
105,000,000
|
June 1, 2046
|
NAC
|
1
|
1,362
|
0.10%
|
$136,200,000
|
June 1, 2041
|
|
2
|
910
|
N/A
|
91,000,000
|
December 1, 2040
|
|
3
|
498
|
0.05
|
49,800,000
|
March 1, 2040
|
|
4
|
1,056
|
0.10
|
105,600,000
|
December 1, 2042
|
|
5
|
1,589
|
N/A
|
158,900,000
|
August 1, 2040
|
|
6
|
1,581
|
0.10
|
158,100,000
|
August 1, 2040
|
|
7
|
980
|
0.10
|
98,000,000
|
August 3, 2043
|
|
8
|
1,600
|
N/A
|
160,000,000
|
November 6, 2026
|
*
|
|
Remarketing fees as a percentage of the aggregate principal amount of all VRDP Shares outstanding
for each series.
|
N/A
|
|
Not applicable. Series is considered to be Special Rate VRDP and therefore does not pay a
remarketing fee.
|
VRDP Shares include a liquidity feature that allows VRDP shareholders
to have their shares purchased by a liquidity provider with whom each Fund has contracted in the event that VRDP Shares are not able to
be successfully remarketed. Each Fund is required to redeem any VRDP Shares that are still owned by the liquidity provider after six months
of continuous, unsuccessful remarketing. Each Fund pays an annual remarketing fee on the aggregate principal amount of all VRDP Shares
outstanding. Each Fund’s VRDP Shares have successfully remarketed since issuance.
NAC’s Series 2, Series 5 and Series 8 VRDP Shares are considered
to be Special Rate VRDP, which are sold to institutional investors. The special rate period will expire on February 7, 2022, June 14,
2023 and November 6, 2026, for the Fund’s Series 2, 5 and 8 VRDP Shares, respectively. The special rate period for NAC’s Series
8 VRDP Shares is subject to earlier termination by either the Fund or the holder. During the special rate period, the VRDP Shares will
not be remarketed by a remarketing agent, be subject to optional or mandatory tender events, or be supported by a liquidity provider and
are not subject to remarketing fees or liquidity fees. During the special rate period, VRDP dividends will be set monthly as a floating
rate based on the predetermined formula. Following the initial special rate period, Special Rate Period VRDP Shares may transition to
traditional VRDP Shares with dividends set at weekly remarketings, and be supported by designated liquidity provider, or the Board may
approve a subsequent special rate period.
Dividends on the VRDP Shares (which are treated as interest payments
for financial reporting purposes) are set at a rate established by a remarketing agent; therefore, the market value of the VRDP Shares
is expected to approximate its liquidation preference. In the event that VRDP shares are unable
66
to be successfully remarketed, the dividend rate will be the maximum
rate which is designed to escalate according to a specified schedule in order to enhance the remarketing agent’s ability to successfully
remarket the VRDP Shares.
Subject to certain conditions, VRDP Shares may be redeemed, in
whole or in part, at any time at the option of each Fund. Each Fund may also redeem certain of the VRDP Shares if the Fund fails to maintain
certain asset coverage requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal
to the sum of the liquidation preference per share plus any accumulated but unpaid dividends.
The average liquidation preference of VRDP Shares outstanding
and annualized dividend rate for each Fund during the current fiscal period were as follows:
|
NKX
|
NAC
|
Average liquidation preference of VRDP Shares outstanding
|
$292,200,000
|
$957,600,000
|
Annualized dividend rate
|
0.08%
|
0.50%
|
For financial reporting purposes, the liquidation preference of
VRDP Shares is a liability and is recognized as a component of “Variable Rate Demand Preferred (“VRDP”) Shares, net
of deferred offering costs” on the Statement of Assets and Liabilities. Unpaid dividends on VRDP Shares are recognized as a component
of “Interest payable” on the Statement of Assets and Liabilities, when applicable. Dividends accrued on VRDP Shares are recognized
as a component of “Interest expense and amortization of offering costs” on the Statement of Operations. Costs incurred by
the Funds in connection with their offerings of VRDP Shares were recorded as a deferred charge, which are being amortized over the life
of the shares and are recognized as a component of “Variable Rate Demand Preferred (“VRDP”) Shares, net of deferred
offering costs” on the Statement of Assets and Liabilities and “Interest expense and amortization of offerings costs”
on the Statement of Operations. In addition to interest expense, each Fund also pays a per annum liquidity fee to the liquidity provider,
as well as a remarketing fee, which are recognized as “Liquidity fees” and “Remarketing fees,” respectively, on
the Statement of Operations.
Preferred Share Transactions
The Funds did not have any transactions in preferred shares during
the current and prior fiscal period.
6. Income Tax Information
Each Fund is a separate taxpayer for federal income tax purposes.
Each Fund intends to distribute substantially all of its net investment income and net capital gains to shareholders and to otherwise
comply with the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies. Therefore, no
federal income tax provision is required. Furthermore, each Fund intends to satisfy conditions that will enable interest from municipal
securities, which is exempt from regular federal and California state income taxes, and in the case of NKX the AMT applicable to individuals,
to retain such tax-exempt status when distributed to shareholders of the Funds. Net realized capital gains and ordinary income distributions
paid by the Funds are subject to federal taxation.
For all open tax years and all major taxing jurisdictions, management
of the Funds 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 Funds 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
taxable market discount, timing differences in recognizing certain gains and losses on investment transactions and the treatment of investments
in inverse floating rate securities reflected as financing transactions, if any. 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 NAVs of the Funds.
The table below presents the cost and unrealized appreciation
(depreciation) of each Fund’s investment portfolio, as determined on a federal income tax basis, as of August 31, 2021.
|
NCA
|
NKX
|
NAC
|
Tax cost of investments
|
$304,192,977
|
$1,044,372,796
|
$3,155,729,225
|
Gross unrealized:
|
|
|
|
Appreciation
|
$ 48,307,021
|
$ 164,072,024
|
$ 410,017,992
|
Depreciation
|
(153,941)
|
(598,156)
|
(2,222,431)
|
Net unrealized appreciation (depreciation) of investments
|
$ 48,153,080
|
$ 163,473,868
|
$ 407,795,561
|
Permanent differences, primarily due to federal taxes paid, paydowns,
taxable market discount, nondeductible reorganization expenses, and nondeductible offering costs, resulted in reclassifications among
the Funds’ components of common share net assets as of February 28, 2021, the Funds’ last tax year end.
67
Notes to Financial Statements (Unaudited) (continued)
The tax components of undistributed net tax-exempt income, net
ordinary income and net long-term capital gains as of February 28, 2021, the Funds’ last tax year end, were as follows:
|
NCA
|
NKX
|
NAC
|
Undistributed net tax-exempt income1
|
$436,276
|
$3,505,235
|
$7,690,845
|
Undistributed net ordinary income2
|
57,481
|
293,041
|
410,187
|
Undistributed net long-term capital gains
|
—
|
—
|
—
|
1
|
|
Undistributed net tax-exempt income (on a tax basis) has not been reduced for the dividend
declared on February 1, 2021, paid on March 1, 2021.
|
2
|
|
Net ordinary income consists of taxable market discount income and net short-term capital
gains, if any.
|
The tax character of distributions paid during the Funds’
last tax year ended February 28, 2021 was designated for purposes of the dividends paid deduction as follows:
|
NCA
|
NKX
|
NAC
|
Distributions from net tax-exempt income
|
$8,933,471
|
$30,553,255
|
$91,719,591
|
Distributions from net ordinary income2
|
—
|
97,360
|
404,272
|
Distributions from net long-term capital gains
|
—
|
—
|
—
|
2 Net ordinary income consists of taxable market discount income and net short-term capital gains, if any.
|
|
As of February 28, 2021, the Funds’ last tax year end, the
Funds had unused capital losses carrying forward available for federal income tax purposes to be applied against future capital gains,
if any. The capital losses are not subject to expiration.
|
NCA
|
NKX
|
NAC3
|
Not subject to expiration:
|
|
|
|
Short-term
|
$1,966,743
|
$1,301,642
|
$22,025,202
|
Long-term
|
—
|
—
|
—
|
Total
|
$1,966,743
|
$1,301,642
|
$22,025,202
|
3
|
|
A portion of NAC’s capital loss carryforward is subject to limitation under the Internal
Revenue Code and related regulations.
|
During the Funds’ last tax year ended February 28, 2021,
NCA utilized $797,046 of its capital loss carryforward.
7. Management Fees and Other Transactions with Affiliates
Management Fees
Each Fund’s management fee compensates the Adviser for overall
investment advisory and administrative services and general office facilities. The Sub-Adviser is compensated for its services to the
Funds from the management fees paid to the Adviser.
Each Fund’s management fee consists of two components –
a fund-level fee, based only on the amount of assets within each individual Fund, and a complex-level fee, based on the aggregate amount
of all eligible fund assets managed by the Adviser, and for NCA a gross interest income component. This pricing structure enables Fund
shareholders to benefit from growth in the assets within their respective Fund as well as from growth in the amount of complex-wide assets
managed by the Adviser.
NCA pays an annual fund-level fee, payable monthly, of 0.15% of
the average daily net assets of the Fund, as well as 4.125% of the gross interest income (excluding interest on bonds underlying a “self-deposited
inverse floater” trust that is attributed to the Fund over and above the net interest earned on the inverse floater itself) of the
Fund.
The annual fund-level fee, payable monthly, for each Fund (excluding NCA) is calculated according to the following schedules:
|
NKX
|
|
NAC
|
Average Daily Managed Assets*
|
Fund-Level Fee Rate
|
For the first $125 million
|
0.4500%
|
For the next $125 million
|
0.4375
|
For the next $250 million
|
0.4250
|
For the next $500 million
|
0.4125
|
For the next $1 billion
|
0.4000
|
For the next $3 billion
|
0.3750
|
For managed assets over $5 billion
|
0.3625
|
68
The annual complex-level fee, payable monthly, for each Fund is
calculated by multiplying the current complex-wide fee rate, determined according to the following schedule by the Funds’ daily
managed assets (net assets for NCA):
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, but
do not include certain assets of certain Nuveen Funds that were reorganized into funds advised by an affiliate of the Adviser during
the 2019 calendar year. As of August 31, 2021, the complex-level fee for each Fund was 0.1534%.
|
Other Transactions with Affiliates
Each Fund is permitted to purchase or sell securities from or
to certain other funds or accounts managed by the Sub-Adviser (“Affiliated Entity”) under specified conditions outlined in
procedures adopted by the Board (“cross-trade”). These procedures have been designed to ensure that any cross-trade of securities
by the Fund from or to an Affiliated Entity by virtue of having a common investment adviser (or affiliated investment adviser), common
officer and/or common trustee complies with Rule 17a-7 under the 1940 Act. These transactions are effected at the current market price
(as provided by an independent pricing service) without incurring broker commissions.
During the current fiscal period, the Funds did not engage in
inter-fund trades pursuant to these procedures.
8. Commitments and Contingencies
In the normal course of business, each Fund enters into a variety
of agreements that may expose the Fund to some risk of loss. These could include recourse arrangements for certain TOB Trusts and certain
agreements related to preferred shares, which are each described elsewhere in these Notes to Financial Statements. The risk of future
loss arising from such agreements, while not quantifiable, is expected to be remote. As of the end of the reporting period, the Funds
did not have any unfunded commitments.
From time to time, the Funds may be a party to certain legal proceedings
in the ordinary course of business, including proceedings relating to the enforcement of the Funds’ rights under contracts. As of
the end of the reporting period, the Funds are not subject to any material legal proceedings.
9. Borrowing Arrangements
The Funds, along with certain other funds managed by the Adviser
(“Participating Funds”), have established a 364-day, $2.635 billion standby credit facility with a group of lenders, under
which the Participating Funds may borrow for various purposes other than leveraging for investment purposes. Each Participating Fund is
allocated a designated proportion of the facility’s capacity (and its associated costs, as described below) based upon a multifactor
assessment of the likelihood and frequency of its need to draw on the facility, the size of the Fund and its anticipated draws, and the
potential importance of such draws to the operations and well-being of the Fund, relative to those of the other Funds. A Fund may effect
draws on the facility in excess of its designated capacity if and to the extent that other Participating Funds have undrawn capacity.
The credit facility expires in June 2022 unless extended or renewed.
The credit facility has the following terms: 0.15% per annum on
unused commitment amounts and a drawn interest rate equal to the higher of (a) OBFR (Overnight Bank Funding Rate) plus 1.20% per annum
or (b) the Fed Funds Effective Rate plus 1.20% per annum on amounts borrowed. Prior to June 23, 2021, the drawn interest rate was equal
to the higher of (a) one-month LIBOR (London Inter-Bank Offered Rate) plus 1.25% per annum or (b) the Fed Funds rate plus 1.25% per annum
on amounts borrowed. The Participating Funds also incurred a 0.05% upfront fee on the increase of the $230 million commitment amount during
the reporting period. Interest expense incurred by the Participating Funds, when applicable, is recognized as a
69
Notes to Financial Statements (Unaudited) (continued)
component of “Interest expense” on the Statement of
Operations. Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Interest
expense” on the Statement of Operations, and along with commitment fees, have been allocated among such Participating Funds based
upon the relative proportions of the facility’s aggregate capacity reserved for them and other factors deemed relevant by the Adviser
and the Board of each Participating Fund.
Borrowings outstanding as of the end of the reporting period,
if any, are recognized as “Borrowings” on the Statement of Assets and Liabilities, where applicable.NCA and NXK did not utilize
this facility during the current fiscal period.
During the current fiscal period, the following Funds utilized
this facility. Each Fund’s maximum outstanding balance during the utilization period was as follows:
|
NAC
|
Maximum outstanding balance
|
$11,500,000
|
During each Fund’s utilization period(s) during the current
fiscal period, the average daily balance outstanding and average annual interest rate on the Borrowings were as follows:
|
NAC
|
Utilization period (days Outstanding)
|
1
|
Average daily balance Outstanding
|
$11,500,000
|
Average Annual Interest Rate
|
1.39%
|
Borrowings outstanding as of the end of the reporting period are
recognized as “Borrowings” on the Statement of Assets and Liabilities, where applicable.
Inter-Fund Borrowing and Lending
The 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 Funds 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 interfund 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 inter-fund 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, none of the Funds covered
by this shareholder report have entered into any inter-fund loan activity.
10. Fund Reorganization
The Reorganization as previously described in Note 1 — General
Information was structured to qualify as a tax-free reorganization under the Internal Revenue Code for federal income tax purposes, and
the Target Fund’s shareholders recognized no gain or loss for federal income tax purposes as a result. Prior to the closing of the
Reorganization, the Target Fund distributed all of its net investment income and capital gains, if any. Such a distribution may be taxable
to the Target Fund’s shareholders for federal income tax purposes.
70
Investments
The cost, fair value and net unrealized appreciation (depreciation)
of the investments (including investments in derivatives) of the Target Fund as of the date of the Reorganization, were as follows:
|
NCB
|
Cost of investments
|
$42,312,135
|
Fair value of investments
|
48,786,703
|
Net unrealized appreciation (depreciation) of investments
|
6,474,568
|
For financial reporting purposes, assets received and shares issued
by the Acquiring Fund were recorded at fair value; however, the cost basis of the investments received from the Target Fund were carried
forward to align ongoing reporting of the Acquiring Fund’s realized and unrealized gains and losses with amounts distributable to
shareholders for tax purposes.
Common Shares
The common shares outstanding, net assets applicable to common
shares and NAV per common share outstanding immediately before and after the Reorganization were as follows:
Target Fund – Prior to Reorganization
|
NCB
|
Common shares outstanding
|
3,302,961
|
Net assets applicable to common shares
|
$53,540,962
|
NAV per common share outstanding
|
$16.21
|
Acquiring Fund – Prior to Reorganization
|
NCA
|
Common shares outstanding
|
28,096,683
|
Net assets applicable to common shares
|
$300,172,911
|
NAV per common share outstanding
|
$10.68
|
Acquiring Fund – Post Reorganization
|
NCA
|
Common shares outstanding
|
33,108,196
|
Net assets applicable to common shares
|
$353,713,873
|
NAV per common share outstanding
|
$10.68
|
Pro Forma Results of Operations
The beginning of the Target Fund’s current fiscal period
was March 1, 2021. Assuming the Reorganization had been completed on March 1, 2021, the beginning of the Acquiring Fund’s current
fiscal period, the pro forma results of operations for the current fiscal period, are as follows:
|
|
Acquiring Fund – Pro Forma Results from Operations
|
NCA
|
Net investment income (loss)
|
$6,088,656
|
Net realized and unrealized gains (losses)
|
6,746,957
|
Change in net assets resulting from operations
|
12,835,613
|
Because the combined investment portfolios for the Reorganization
has been managed as a single integrated portfolio since the Reorganization was completed, it is not practicable to separate the amounts
of revenue and earnings of the Target Fund that have been included in the Statement of Operations for the Acquiring Fund since the Reorganization
was consummated.
Cost and Expenses
In connection with the Reorganization, the Acquiring Fund incurred
certain associated costs and expenses. Such amounts were included as components of “Accrued other expenses” on the Statement
of Assets and Liabilities and “Reorganization expenses” on the Statement of Operations.
71
Risk Considerations (Unaudited)
Risk Considerations
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 California Municipal Value Fund, Inc. (NCA)
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. 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. State concentration makes the Fund more susceptible to local adverse economic, political, or regulatory changes
affecting municipal bond issuers. These and other risk considerations such as tax risk are described in more detail on
the Fund’s web page at www.nuveen.com/NCA.
Nuveen California AMT-Free Quality Municipal Income Fund (NKX)
Nuveen California Quality Municipal Income Fund (NAC)
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. 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. State concentration makes the Fund more susceptible to
local adverse economic, political, or regulatory changes affecting municipal bond issuers. These and other risk considerations such as inverse
floater risk and tax risk are described in more detail on the Fund’s web page at www.nuveen.com/NKX and
www.nuveen.com/NAC.
72
Additional Fund Information (Unaudited)
|
|
|
|
|
|
Board of Trustees
|
|
|
|
|
|
Jack B. Evans
|
William C. Hunter
|
Amy B.R. Lancellotta
|
Joanne T. Medero
|
Albin F. Moschner
|
John K. Nelson
|
Judith M. Stockdale
|
Carole E. Stone
|
Mathew Thornton III
|
Terence J. Toth
|
Margaret L. Wolff
|
Robert L. Young
|
|
|
|
|
|
Investment Adviser
|
Custodian
|
Legal Counsel
|
Independent Registered
|
Transfer Agent and
|
Nuveen Fund Advisors, LLC
|
State Street Bank
|
Chapman and Cutler LLP
|
Public Accounting Firm
|
Shareholder Services
|
333 West Wacker Drive
|
& Trust Company
|
Chicago, IL 60603
|
KPMG LLP
|
Computershare Trust
|
Chicago, IL 60606
|
One Lincoln Street
|
|
200 East Randolph Street
|
Company, N.A.
|
|
Boston, MA 02111
|
|
Chicago, IL 60601
|
150 Royall Street
|
|
|
|
|
Canton, MA 02021
|
|
|
|
|
(800) 257-8787
|
Portfolio of Investments Information
Each 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.