NEV Nuveen Enhanced Municipal Value Fund

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Table of Contents

 

3

Chair’s Letter
to Shareholders

Dear Shareholders,

More than a year has passed since the World Health Organization declared COVID-19 a global pandemic in March 2020, resulting in a year of global economic recession, financial market turbulence and some immeasurable losses. Although the health crisis persists, with the widespread distribution of vaccines in the U.S. and extraordinary economic interventions by governments and central banks around the world, we collectively look forward to what our “new normal” might be.

With vaccine progress and economic stimulus providing real benefits to the global economy, markets continue to anticipate a strong rebound in growth, especially in the U.S., along with higher inflation. To extend relief programs enacted earlier in the crisis, the U.S. government passed $900 billion in aid to individuals and businesses in late December 2020. Another $1.9 tril-lion relief package was signed into law in March 2021 providing extended unemployment benefits, direct payments to individuals and families, assistance to state and local municipalities, grants to education and public health, and other support. Currently, Congress is working on an infrastructure spending plan, although its final shape and whether it passes remains to be seen. The U.S. Federal Reserve (Fed) and other central banks around the world remain committed to supporting the recovery by maintaining accommodative monetary conditions. However, as economies have reopened, the surge in consumer demand has outpaced supply chain capacity, resulting in a jump in inflation indicators in recent months. Whether inflation persists is a subject of debate by economists and market observers, while the Fed and other central banks believe it to be more transitory.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue. Markets are closely monitoring central bank signals, particularly if inflation remains elevated, as a sooner-than-expected shift to monetary tightening could slow the economic recovery. Additionally, COVID-19 cases are still elevated in some regions, as more virulent strains have spread and vaccination rollouts have been uneven around the world. The recovery hinges on controlling the virus, and estimates vary considerably on when economic activity might be fully restored and what level of public inoculation would be sufficient to contain the virus spread. On the political front, the Biden administration’s full policy agenda and the potential for Congressional gridlock remain to be seen, either of which could cause investment outlooks to shift. Short-term market fluctuations can provide your Fund opportunities to invest in new ideas as well as upgrade existing positioning while providing long-term value for shareholders. For more than 120 years, the careful consideration of risk and reward has guided Nuveen’s focus on delivering long-term results to our shareholders.

If you have concerns about what’s coming next, it can be an opportune time to assess your portfolio. We encourage you to review your time horizon, risk tolerance and investment goals with your financial professional. On behalf of the other members of the Nuveen Fund Board, we look forward to continuing to earn your trust in the months and years ahead.

Sincerely,

Terence J. Toth
Chair of the Board
June 22, 2021

4

Portfolio Managers’ Comments

Nuveen Municipal Value Fund, Inc. (NUV)

Nuveen AMT-Free Municipal Value Fund (NUW)

Nuveen Municipal Income Fund, Inc. (NMI)

Nuveen Enhanced Municipal Value Fund (NEV)

These Funds feature portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen Fund Advisors, LLC, the Fund’s investment adviser. Portfolio managers Daniel J. Close, CFA, Christopher L. Drahn, CFA, and Steven M. Hlavin discuss key investment strategies and the six-month performance of these four national Funds. Dan has managed NUV and NUW since 2016. Chris assumed portfolio management responsibility for NMI in 2011. Steve has been involved in the management of NEV since its inception in 2009, taking on full portfolio management responsibility in 2010.

An Update on COVID-19 Coronavirus and its Impact on the Securities Markets

Vaccination progress across Western countries has been encouraging for the markets, although the spread of new variants of the COVID-19 coronavirus is being closely watched. Although the pace of vaccinations in the U.S. has recently slowed, half of U.S. states and Washington D.C. have fully vaccinated at least 50% of their adult populations as of May 2021 according to the Centers for Disease Control and Prevention. In other regions of the world, vaccine rollouts have been slower than expected. Nevertheless, there are more vaccines still in development, some of which have announced positive trial results, vaccine trials have begun for children and governments are looking to adjust rollout plans to speed and/or broaden distribution.

After moderating in late 2020, the U.S. economic recovery reaccelerated in early 2021 as vaccinations, reopening and federal stimulus checks encouraged consumer spending. Pledges from central banks and governments to sustain the recovery with policy support are underpinning positive economic outlooks for the full year and beyond. The U.S. government approved a $900 billion relief package in late December 2020 and followed with another $1.9 trillion stimulus plan in March 2021. The Biden administration has proposed a $2 trillion infrastructure improvement plan and a $1.8 trillion families plan investing in education, child care, paid family leave and other support, although the specifics of both proposals are expected to be highly debated in Congress.

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This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy, sell or hold a security or an investment strategy and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors.

Certain statements in this report are forward-looking statements. Discussions of specific investments are for illustration only and are not intended as recommendations of individual investments. The forward-looking statements and other views expressed herein are those of the portfolio managers as of the date of this report. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and the views expressed herein are subject to change at any time, due to numerous market and other factors. The Funds disclaim any obligation to update publicly or revise any forward-looking statements or views expressed herein.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group (S&P), Moody’s Investors Service, Inc. (Moody’s) or Fitch, Inc. (Fitch). This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings, while BB, B, CCC, CC, C and D are below investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

Bond insurance guarantees only the payment of principal and interest on the bond when due, and not the value of the bonds themselves, which will fluctuate with the bond market and the financial success of the issuer and the insurer. Insurance relates specifically to the bonds in the portfolio and not to the share prices of a Fund. No representation is made as to the insurers’ ability to meet their commitments.

Refer to the Glossary of Terms Used in this Report for further definition of the terms used within this section.

5

 

Portfolio Managers’ Comments (continued)

Markets rallied on optimism for normalization in daily life and in the economy, furthering the recovery from the March 2020 sell-off. Although the detection of the virus in China was made public in December 2019, markets did not start to fully acknowledge the risks and potential economic impact until the latter portion of February 2020, when outbreaks outside of China were first reported. Global stock markets sold off severely, with the S&P 500^® Index reaching a bear market (a 20% drop from the previous high) within three weeks, the fastest bear market decline in history. Even certain parts of the bond market suffered; below investment grade municipal and corporate bonds generally dropped the furthest, mostly out of concerns for the continued financial stability of lower quality issuers. Demand for safe-haven assets, along with mounting recession fears, drove the yield on the 10-year U.S. Treasury note to 0.5% in March 2020, an all-time low. Additionally, oil prices collapsed to an 18-year low on supply glut concerns, as shut-downs across the global economy sharply reduced oil demand, although oil prices have recovered to well above those lows.

Nuveen Fund Advisors, LLC, and the portfolio management teams are monitoring the situation carefully and managing the Funds to best pursue investment objectives while mitigating risks through all market environments.

What key strategies were used to manage the Funds during the six-month reporting period ended April 30, 2021, and how did these strategies influence performance?

Each Fund’s primary investment objective is to provide current income exempt from regular federal income tax by investing primarily in a portfolio of municipal obligations issued by state and local government authorities or certain U.S. territories. For NUV, NUW and NMI, each Fund may use inverse floating rate securities (or tender option bond financing) to more efficiently implement its investment strategy to create up to 10% effective leverage. NEV also uses inverse floating rate securities to create effective leverage, but to a greater extent than NUV, NUW and NMI. A further discussion on leverage can be found in the Fund Leverage section of this report.

During the six-month reporting period, the municipal bond market continued to recover amid upgraded economic forecasts, additional fiscal stimulus and the Federal Reserve’s commitment to accommodative monetary policy. Municipal yields declined for most longer maturities and the municipal yield curve flattened slightly. Credit spreads narrowed further as the municipal credit outlook improved and investors continued to seek higher yielding investments lower down the credit spectrum. Against this backdrop, municipal bonds had positive performance during the reporting period.

The Funds’ trading activity continued to focus on pursuing their investment objectives. NUV traded actively in this reporting period, adding bonds across a diverse group of sectors, primarily in 4% and 5% coupon structures with longer maturities, and focused on intermediate credit quality (A and low AA rated) paper. NUV tended to buy more new issues than secondary market offerings, due to attractive availability and the relative value on offer in the new issue market. Additions to NUV included seven transportation (toll road) issues, a state general obligation (GO) bond, three local GOs, an “other transportation” bond, four dedicated tax bonds, a public utility credit, an “other revenue” bond, a state appropriation issue, a local appropriation bond and an industrial development revenue (IDR) credit. Most of the purchases were funded with the proceeds from maturing and called bonds, although we sold some lower book yield positions at a loss in December 2020 to reinvest in more attractive, higher book yield opportunities.

NUW was less active, by comparison, buying three transportation (toll roads) bonds, a higher education credit, a health care credit and a dedicated tax bond. These additions were 4% and 5% coupon structures with intermediate maturities (given NUW’s longer duration), and focused on intermediate credit quality (mainly A rated). NUW did not have any material sales during this reporting period, financing new purchases with cash from called and maturing bonds.

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NMI’s overall sector and credit quality positioning remained stable over the reporting period, although the Fund had marginal increases in health care and some miscellaneous tax-backed sector weightings. NMI continued to utilize more 4% coupon structures than 5% structures for the bonds’ additional advantages and still-reasonable defensiveness if interest rates rise.

Trading activity in NEV was relatively light in this reporting period. NEV reinvested the income from bond calls and maturities into issues for New York MTA (Metropolitan Transportation Authority), a Florida toll road, a Florida hospital, a Louisiana hospital and Puerto Rico sales tax revenue bonds (known as COFINAs). There were no meaningful sales in NEV in this reporting period.

As of April 30, 2021, NUV, NUW and NEV continued to use inverse floating rate securities. The Funds employ inverse floaters for a variety of reasons, including duration management, income enhancement and total return enhancement. As part of our duration management strategies, during this reporting period NUW entered into duration-shortening interest rate futures contracts, which added to performance during the reporting period.

How did the Funds perform during the six-month reporting period ended April 30, 2021?

The tables in each Fund’s Performance Overview and Holding Summaries section of this report provide the Funds’ total returns at net asset value (NAV) for the period ended April 30, 2021. Each Fund’s total returns at NAV are compared with the performance of a corresponding market index.

For the six months ended April 30, 2021, the total returns at NAV for the four Funds outperformed the return for the national S&P Municipal Bond Index.

The factors affecting performance in this reporting period included yield curve and duration positioning, credit ratings allocation and sector allocation. In addition, the use of leverage was an important factor affecting performance of NEV. Leverage is discussed in more detail later in the Fund Leverage section of this report.

In this reporting period, yields fell across the shortest and longest maturities, but rose in the short-intermediate part of the curve. Given this dynamic, longer duration bonds generally performed the best. For NUV and NUW, underweight allocations to the shortest durations (zero to 6 years) and overweight allocations to the longest durations (8 to 12 years) were both beneficial to relative performance. NMI’s yield curve and duration positioning was an overall positive factor, largely due to the overweight in longer duration bonds, which more than offset the overweight in some older, shorter duration positions that detracted. For NEV, duration and yield curve positioning were not a material factor affecting performance in this reporting period.

Looking at credit ratings, lower rated and high yield bonds outperformed high grade (AAA and AA rated) bonds in this reporting period. The four Funds were well positioned for the environment, with overweights to the lower rated, higher yielding credit categories and underweights to the highest credit qualities. NUV and NUW were most helped by overweights to A and BBB bonds and underweights to AAA and AA rated paper. NMI benefited from both an underweight and security selection in high grade paper, strong security selection in A rated debt, an overweight in BBB rated bonds (despite a slightly negative impact from security selection in the BBB category) and an overweight in non-rated bonds. NEV has maintained its 20% maximum allocation to below investment grade and non-rated bonds, and this was highly additive to performance.

7

 

Portfolio Managers’ Comments (continued)

Sector positioning provided a smaller positive contribution than the other factors. NUV’s overweight to pre-refunded bonds and underweight to the “other transportation” sector detracted, but it was offset by advantageous overweights to the dedicated tax and hospital sectors. NUW was also helped by overweight allocations to the dedicated tax and hospital sectors, although an underweight to “other transportation” modestly hurt performance. NMI’s overweight in the pre-refunded bond sector was a negative influence on performance, whereas overweights in hospitals, senior living and toll roads, underweights in state and local GOs and utilities, and a small overweight in tobacco all added value. NEV benefited from overweights in several sectors that outperformed, including dedicated tax, health care (hospitals), tobacco, transportation and IDR.

Individual credit selection was also favorable to the Funds’ performance. For NUV and NUW, zero coupon bonds with a credit component (i.e., BBB or A rated) were by far the best performers in the two Funds’ portfolios. However, bonds bought early in the reporting period, prior to interest rates rising, tended to underperform when viewing the reporting period as a whole. NUV and NUW’s tender option bond trusts were marginally beneficial to performance. NMI benefited from spread tightening on certain longer duration holdings that had underperformed in previous periods (such as the Metropolitan Pier and Exposition Authority IL McCormick Expansion Project zero coupon bonds). Half of NEV’s relative outperformance came from credit selection. The most notable outperformers for NEV included Illinois and Illinois-related bonds (including Metropolitan Pier bonds), the New Jersey megamall and entertainment complex American Dream, New Jersey appropriation debt, Brightline Passenger Rail Project, Metropolitan Washington DC Airports Authority Dulles Toll Road Revenue Bonds, American Airlines and Big River Steel. NEV’s holding in Energy Harbor common stock, acquired when holdings of certain municipal bonds issued by FirstEnergy Solutions were converted into Energy Harbor equity as part of the company’s emergence from bankruptcy protection, also performed strongly in this reporting period. Over time, we expect to sell these shares and reinvest the proceeds into municipal bonds. NEV’s largest underperforming holding was Puerto Rico Childrens Trust Fund Tobacco Settlement Asset Backed Bonds, but the outperforming positions more than outweighed the negative impact.

8

 

Fund Leverage

IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE

One important factor impacting the returns of NEV’s common shares relative to its comparative benchmark was the Fund’s use of leverage. The Fund obtains leverage through investments in inverse floating rate securities, which represent a leveraged investment in an underlying bond. This was also a factor, although less significantly, for NUV and NUW because their use of leverage is more modest. NMI did not invest in inverse floating rate securities during the reporting period.

The Funds use leverage because our research has shown that, over time, leveraging provides opportunities for additional income. The opportunity arises when short-term rates that a Fund pays on its leveraging instruments are lower than the interest the Fund earns on its portfolio of long-term bonds that it has bought with the proceeds of that leverage. This has been particularly true in the recent market environment where short-term rates have been low by historical standards.

However, use of leverage can expose Fund common shares to additional price volatility. When a Fund uses leverage, the Fund’s common shares will experience a greater increase in their net asset value if the municipal bonds acquired through the use of leverage increase in value, but will also experience a correspondingly larger decline in their net asset value if the bonds acquired through leverage decline in value. All this will make the shares’ total return performance more variable over time.

In addition, common share income in levered funds will typically decrease in comparison to unlevered funds when short-term interest rates increase and increase when short-term interest rates decrease. In recent quarters, fund leverage expenses have generally tracked the overall movement of short-term tax-exempt interest rates. While fund leverage expenses are somewhat higher than their recent lows, leverage nevertheless continues to provide the opportunity for incremental common share income, particularly over longer-term periods.

Leverage had a negligible impact on the performance of NUV and NUW over the reporting period. Leverage had a positive impact on the performance of NEV during the reporting period.

 

9

 

 

Each Fund seeks to pay regular monthly dividends out of its net investment income at a rate that reflects its past and projected net income performance. To permit each Fund to maintain a more stable monthly dividend, the Fund may pay dividends at a rate that may be more or less than the amount of net income actually earned by the Fund during the period. Distributions to common shareholders are determined on a tax basis, which may differ from amounts recorded in the accounting records. In instances where the monthly dividend exceeds the earned net investment income, the Fund would report a negative undistributed net ordinary income. Refer to Note 6 – Income Tax Information for additional information regarding the amounts of undistributed net ordinary income and undistributed net long-term capital gains and the character of the actual distributions paid by the Fund during the period.

All monthly dividends paid by each Fund during the current reporting period were paid from net investment income. If a portion of the Fund’s monthly distributions is sourced or comprised of elements other than net investment income, including capital gains and/or a return of capital, common shareholders will be notified of those sources. For financial reporting purposes, the per share amounts of each Fund’s distributions for the reporting period are presented in this report’s Financial Highlights. For income tax purposes, distribution information for each Fund as of its most recent tax year end is presented in Note 6 – Income Tax Information within the Notes to Financial Statements of this report.

NUVEEN CLOSED-END FUND DISTRIBUTION AMOUNTS

The Nuveen Closed-End Funds’ monthly and quarterly periodic distributions to shareholders are posted on www.nuveen.com and can be found on Nuveen’s enhanced closed-end fund resource page, which is at https://www.nuveen.com/resource-center-closedendfunds, along with other Nuveen closed-end fund product updates. To ensure timely access to the latest information, shareholders may use a subscribe function, which can be activated at this web page (https://www.nuveen.com/subscriptions).

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COMMON SHARE EQUITY SHELF PROGRAM

During the current reporting period, NUW and NMI were authorized by the Securities and Exchange Commission to issue additional common shares through an equity shelf program (Shelf Offering). Under these programs, NUW and NMI, subject to market conditions, may raise additional capital from time to time in varying amounts and offering methods at a net price at or above each Fund’s NAV per common share. The total amount of common shares authorized under these Shelf Offerings are shown in the accompanying table.

During the current reporting period, NMI sold common shares through its Shelf Offering at a weighted average premium to the NAV per common share as shown in the accompanying table.

Refer to the Notes to Financial Statements, Note 5 – Fund Shares for further details on Shelf Offerings and each Fund’s transactions.

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

12

 

This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

14

This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

16

 

This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

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Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

18

This data relates to the securities held in the Fund’s portfolio of investments as of the end of the reporting period. It should not be construed as a measure of performance for the Fund itself. Holdings are subject to change.

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as for Fund investment policies. Credit ratings are subject to change. AAA, AA, A and BBB are investment grade ratings; BB, B, CCC, CC, C and D are below-investment grade ratings. Holdings designated N/R are not rated by these national rating agencies.

 

 

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