NID Nuveen Intermediate Duration Municipal Term Fund

 

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Table of Contents

 

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Table of Contents

Chair’s Letter
to Shareholders

Dear Shareholders,

As 2020 draws to a close, the concerns that dominated much of the year are beginning to show signs of easing. COVID-19 vaccines are being administered around the world, with several of the vaccine candidates announcing high efficacy rates during their phase 3 trials. Markets took a generally positive view of Joe Biden winning the Electoral College, with Congress’s final confirmation of the Electoral College vote on January 7, 2021. The U.S. economy has made a significant, although incomplete, turnaround from the depths of a historic recession. In late December, the U.S. government enacted another $900 billion in aid to individuals and businesses, extending some of the programs enacted earlier in the crisis. Ongoing fiscal and monetary stimulus along with widening vaccine distribution have bolstered confidence that a semblance of normalcy can return in 2021.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue into the New Year. COVID-19 cases are still alarmingly high in some regions, and the renewed restrictions on social and business activity taken by local and, in some cases, national authorities will undoubtedly hinder the economy’s momentum. The pandemic’s course can still be unpredictable. The timeline of vaccine rollouts depends on many variables, public confidence can shift and real-world efficacy remains to be seen. Additionally, after Democrats won both of Georgia’s Senate run-off elections, which provided them with a democratic majority (the Democratic Vice President-elect casts the tie breaking vote in a 50/50 split Senate), this changing political landscape may cause investment outlooks to shift. Nevertheless, short-term market fluctuations can provide opportunities to invest in new ideas as well as upgrade existing positioning, within our goal of providing long-term value for our shareholders.

The New Year can be an opportune time to assess your portfolio’s resilience and readiness for what may come next. 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
January 21, 2021

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Portfolio Managers’ Comments


Nuveen Intermediate Duration Municipal Term Fund (NID)
Nuveen Intermediate Duration Quality Municipal Term Fund (NIQ)

These Funds feature portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen Fund Advisors, LLC, the Funds’ investment adviser. Portfolio managers John V. Miller, CFA, Timothy T. Ryan, CFA, Steven M. Hlavin and Daniel J. Close, CFA, discuss key investment strategies and the six-month performance of these two Nuveen Funds. John, Tim and Steve have managed NID since its inception in December 2012 and Dan has managed NIQ since its inception in February 2013.

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

Renewed COVID-19 coronavirus outbreaks across the U.S. and Europe prompted tightening COVID-19 restrictions at the local and, in some cases, national levels during the fall of 2020, weighing on short-term economic indicators. Additionally, certain government programs supporting businesses and workers are expiring with little clarity on extensions or replacement options. In late December 2020 (subsequent to the close of this reporting period), the U.S. government approved a $900 billion relief package. In November 2020, three vaccine trials announced successful results, paving the way for selective distribution at year end 2020 and inoculation of the wider public during 2021.

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 shutdowns across the global economy sharply reduced oil demand, although oil prices have recovered to well above those lows.

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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.

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Portfolio Managers’ Comments (continued)

While most markets have recovered most of their losses, volatility will likely remain elevated until the health crisis itself is under control (via fewer new cases, lower infection rates and/or verified treatments or widespread vaccination). The situation remains fluid, given production and logistical challenges with rolling out the vaccine as well as public trust in it, and new information is incoming daily, compounding the difficulty of modeling outcomes for epidemiologists and economists alike.

Nuveen Fund Advisors, LLC, and our portfolio management teams are monitoring the situation carefully and continuously refining our views and approaches to 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 November 30, 2020?

The Funds’ primary investment objective is to provide a high level of current income exempt from regular federal income tax. The Funds’ secondary investment objective is to seek additional total return. NID has a 10-year term and intends to liquidate and distribute its then-current net assets to shareholders on or before March 31, 2023. NIQ has a 10-year term and intends to liquidate and distribute its then-current net assets to shareholders on or before June 30, 2023.

The broad municipal bond market performed well in the six-month reporting period, continuing its recovery from the COVID-19 crisis downturn earlier in 2020. Municipal yields declined meaningfully and credit spreads contracted, particularly in lower rated, higher yielding areas of the market, as investors grew more comfortable with the economic outlook and the prospects for municipal bonds in general. Positive sentiment was especially strong in the final month of the reporting period, with the election outcome suggesting that significant tax reform was unlikely and positive vaccine news spurring hope for wide distribution in 2021.

Management continues to take a bottom-up approach to discovering sectors that appeared undervalued as well as individual credits that we believed had the potential to perform well over the long term. NID’s trading was mainly driven by the reinvestment of coupon income and the proceeds of called and maturing bonds. There were several notable maturities during the reporting period including Navistar, PPL Energy, Guam Waterworks, Los Angeles County Tobacco Settlement and AK Steel. We bought bonds with the potential to perform well in an economic recovery that were trading at attractive credit spreads. These purchases spanned a diverse range of sectors and names such as New York Metropolitan Transportation Authority (MTA), American Airlines, United Airlines, U.S. Steel, Puerto Rico sales tax revenue (known as COFINAs), Ochsner Health (Louisiana) and South Jersey Port Marine Terminal. We also took advantage of prevailing market conditions earlier in the reporting period to do some tax loss swaps. This tactic entailed selling depreciated bonds with lower yields and buying similarly structured but higher yielding bonds. We implemented this approach to enhance the Fund’s income earning capability and seek to make the Fund more tax efficient.

NIQ added bonds across a range of sectors, in particular taking advantage of attractive credit spreads in the new issue market. We bought two tobacco deals (Los Angeles County Tobacco Settlement and Michigan Tobacco Settlement), airport revenue bonds for Port of Portland, a dedicated tax bond for Broward County (Florida) Half-Cent Sales Tax Revenue, a New York City local general obligation (GO) bond, a toll road issue for Central Texas Regional Mobility Partners and New York MTA bonds. The purchases were largely funded with the proceeds from maturing and called bonds. We also sold a pre-refunded bond and a position we bought in the mid-/late-summer 2020 that had depreciated due to yield curve movements.

As of November 30, 2020, both Funds continued to use inverse floating rate securities. We employ inverse floaters for a variety of reasons, including duration management, income enhancement and total return enhancement. As part of our duration manage-

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ment strategies, NID entered into interest rate swap agreements and shorted interest rate futures contracts to help reduce price volatility risk due to movements in U.S. interest rates relative to the Fund’s benchmark. We have allowed the positions to roll off over time, reducing the amount of hedging in the portfolio. The futures contracts had a negligible impact on NID’s performance in this reporting period.

How did NID and NIQ perform during the six-month reporting period ended November 30, 2020?

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 November 30, 2020. Each Fund’s total returns at common share NAV are compared with the performance of a corresponding market index.

For the six months ended November 30, 2020, the total returns at common share NAV for NID outperformed the return for the S&P Municipal Bond Index but underperformed the S&P Intermediate Duration Municipal Yield Index, and NIQ outperformed the returns for both the S&P Municipal Bond Index and the S&P Municipal Bond Intermediate Index. Please see Glossary of Terms for index definitions.

The main factors influencing the Funds’ relative performance during this reporting period were duration and yield curve positioning, credit ratings allocations, sector positioning and credit selection. In addition, the use of regulatory leverage was an important factor affecting the performance of the Funds. Leverage is discussed in more detail later in the Fund Leverage section of this report.

Duration and yield curve positioning was a positive contributor for the two Funds. The Funds’ longer duration profiles relative to their benchmarks were beneficial at a time when municipal bond yields and municipal high yield spreads were both falling. Although NIQ held an overweight allocation to the 0- to 2-year duration category, which was somewhat detrimental, the outperformance of its overweight allocations to durations of 10- to 12-years and 12-years and longer more than compensated.

Credit quality allocation was a non-factor in NID’s relative performance in this reporting period because the ratings allocations closely matched that of the benchmark. NIQ strongly benefited from its credit quality positioning. NIQ’s overweight to A and BBB rated bonds and underweight to AAA and AA rated paper was advantageous as lower rated credits outperformed high grade bonds in this reporting period.

Sector positioning worked against the Funds in this reporting period. NID’s underperformance relative to the S&P Intermediate Duration Municipal Yield Index was almost entirely driven by sector allocations. NID’s overweight to hospitals was the largest sector level detractor, as credit spreads have not yet fully recovered in this COVID sensitive sector. Underweight allocations to the transportation and higher education sectors also detracted. Although these sectors were also among the more COVID sensitive areas of the market, they outperformed in this reporting period. Puerto Rico was another strong performing sector, but NID’s underweight to Puerto Rico bonds detracted from performance despite strong security selection there. NID’s overweight to the outperforming tobacco sector was advantageous and further enhanced by our favorable credit selection there. An underweight to local GOs was beneficial as the local GO sector lagged due to its higher quality. Like NID, NIQ was also negatively affected by sector allocations. Namely, underweight allocations to the “other transportation” sector, which is primarily the New York MTA bonds, and the industrial development revenue (IDR) sector detracted from NIQ’s relative performance, as these sectors performed well.

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Portfolio Managers’ Comments (continued)

NID’s credit selection was positive, with our selections in New Jersey appropriate debt and IDR bonds (including Big River Steel, U.S. Steel, several airlines and Iowa Fertilizer) outperforming. NIQ also benefited from individual credit selection, with its tender option bond positions adding to performance and outperformance from lower rated, longer dated credits. However, a position in Energy Harbor common stock somewhat detracted from both Funds’ performance. The Funds acquired shares in Energy Harbor when their holdings of certain municipal bonds issued by FirstEnergy Solutions were converted into Energy Harbor equity as part of FirstEnergy Solution’s emergence from bankruptcy protection. The share price appreciated strongly post its March 2020 issuance, which increased both the size of each Fund’s position and its impact to performance. In July 2020, the stock suffered a correction on negative headline news about the predecessor company and its former parent company.

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Fund Leverage

IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE

One important factor impacting the returns of the Funds’ common shares relative to their comparative benchmarks was the Funds’ use of leverage through their issuance of preferred shares and/or investments in inverse floating rate securities, which represent leveraged investments in underlying bonds. 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 a 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 positive impact on the total return performance of the Funds over the reporting period.

As of November 30, 2020, the Funds’ percentages of leverage are as shown in the accompanying table.

 

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Refer to Notes to Financial Statements, Note 5 – Fund Shares for further details on preferred shares and each Funds’ respective transactions.

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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 from or comprised of elements other than net investment income, including capital gains and/or a return of capital, shareholders will be notified of those sources. For financial reporting purposes, 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.

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Common Share Information (continued)

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-closed-end funds, 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).

 

During the current reporting period, the Funds did not repurchase any of their outstanding common shares.

 

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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 Intermediate Duration Municipal Term Fund (NID)

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. Lower credit debt securities may be more likely to fail to make timely interest or principal payments. Leverage increases return volatility and magnifies the Fund’s potential return and its risks; there is no guarantee a fund’s leverage strategy will be successful. For these and other risks, including the Fund’s limited term and inverse floater risk, see the Fund’s web page at www.nuveen.com/NID.

Nuveen Intermediate Duration Quality Municipal Term Fund (NIQ)

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. For these and other risks, including the Fund’s limited term and inverse floater risk, see the Fund’s web page at www.nuveen.com/NIQ.

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Since inception returns are from 12/05/12. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as 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.

 

¹ See Portfolio of Investments for details on “other” States and Territories.

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Since inception returns are from 2/07/13. Past performance is not predictive of future results. Current performance may be higher or lower than the data shown. Returns do not reflect the deduction of taxes that shareholders may have to pay on Fund distributions or upon the sale of Fund shares. Returns at NAV are net of Fund expenses, and assume reinvestment of distributions. Comparative index return information is provided for the Fund’s shares at NAV only. Indexes are not available for direct investment.

Common Share Price Performance — Weekly Closing Price

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

For financial reporting purposes, the ratings disclosed are the highest rating given by one of the following national rating agencies: Standard & Poor’s Group, Moody’s Investors Service, Inc. or Fitch, Inc. This treatment of split-rated securities may differ from that used for other purposes, such as 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.

 

¹ See Portfolio of Investments for details on “other” States and Territories.

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