NUO Nuveen Ohio Quality Municipal Income Fund

 

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Table of Contents

 

3

Chair’s Letter
to Shareholders

Dear Shareholders,

A year has passed since the World Health Organization declared COVID-19 a global pandemic in March 2020. A year of global economic recession, financial market turbulence and some immeasurable losses. A year later the health crisis persists but the widespread distribution of vaccines in the U.S. is enabling us to look forward to what our “new normal” might be. In the meantime, extraordinary economic interventions by governments and central banks, around the world, are helping to bridge the gap.

With vaccine progress and economic stimulus beginning to provide real benefits to the global economy, markets are anticipating a strong rebound in growth, especially in the U.S. 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 trillion 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. The U.S. Federal Reserve, along with other central banks around the world, has pledged to keep monetary conditions accommodative for as long as necessary, as they consider the recent increase in inflation risks as transitory.

While the markets’ longer-term outlook has brightened, we expect intermittent bouts of volatility to continue. 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. While achieving sufficient inoculation of the population depends on many variables, including logistics, public confidence, real-world efficacy and the emergence of variant virus strains, vaccination rates are gathering pace and three options (Pfizer/BioNTech, Moderna and Johnson & Johnson) were authorized for use in the U.S. By early April the U.S. was administering an average of 3 million doses per day, up from 1.3 million per day on average at the beginning of February, according to Bloomberg’s vaccine tracker. 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. 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. 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’s resilience and readiness. 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
April 23, 2021

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Portfolio Managers’ Comments

Nuveen Arizona Quality Municipal Income Fund (NAZ)

Nuveen Ohio Quality Municipal Income Fund (NUO)

Nuveen New Jersey Quality Municipal Income Fund (NXJ)

Nuveen Pennsylvania Quality Municipal Income Fund (NQP)

These Funds feature portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen Fund Advisors, LLC, the Funds’ investment adviser. Portfolio managers Michael S. Hamilton, Daniel J. Close, CFA, and Paul L. Brennan, CFA, review U.S. economic and market conditions, key investment strategies and the twelve-month reporting period performance of these Nuveen Funds.

Michael assumed portfolio management responsibility for NAZ in 2011, while Dan has managed NUO since 2007. Paul assumed portfolio management responsibility for the NXJ and NQP in 2011.

What factors affected the U.S. economy and the market during the twelve-month annual reporting period ended February 28, 2021?

The U.S. economy rebounded more quickly than expected from the deep downturn caused by the COVID-19 crisis and containment measures, but had not made a full recovery by the end of 2020. The economy fell into a deep recession in February 2020 due to the restrictions on business and social activity to mitigate the COVID-19 spread. In the first and second quarters of 2020, annualized gross domestic product (GDP) shrank 5% and 31.4%, respectively. Government relief programs provided significant aid to individuals and businesses as the economy began reopening in May 2020, which helped the economy bounce back strongly over the second half of the year. U.S. GDP grew 4.3% on an annualized basis in the fourth quarter of 2020 and 33.4% (annualized) in the third quarter, but remained down 3.5% in 2020 overall (from the 2019 annual level to the 2020 annual level) as measured by the Bureau of Economic Analysis “third” estimate. GDP measures the value of goods and services produced by the nation’s economy less the value of the goods and services used up in production, adjusted for price changes.

Although, consumer spending, the largest driver of the economy, remained resilient despite the disruption caused by the health and economic crisis, it declined significantly as unemployment rose sharply starting in March 2020. These measures rebounded markedly in the second half of 2020, although the momentum slowed toward the end of 2020 amid a resurgence of COVID-19 infections. As of February 2021, slightly more than half of the 22 million jobs lost in March and April 2020 have been recovered resulting

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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)

in an unemployment rate of 6.2% in February 2021 as reported by the Bureau of Labor Statistics, up from 3.5% in February 2020. The average hourly earnings rate increased, growing at an annualized rate of 5.3% in February 2021, despite the spike in unemployment. Earnings data was skewed by the concentration of job losses in lower-wage work, which effectively eliminated most of the low-wage data, resulting in an average of mostly higher numbers. The overall trend of inflation remained muted, as decreases in apparel, transportation and pharmaceutical drug prices offset an increase in food, energy and used car prices. The Bureau of Labor Statistics said the Consumer Price Index (CPI) increased 1.7% over the twelve-month reporting period ended February 28, 2021, before seasonal adjustment.

With the onset of the COVID-19 crisis, the Federal Reserve (Fed) enacted an array of emergency measures in March 2020 to stabilize the financial system and support the markets, including cutting its main interest rate to near zero, offering lending programs to aid small and large companies and allowing unlimited bond purchases, known as quantitative easing. In August 2020, the Fed announced a change in its inflation targeting policy, moving from a program of absolute targeting to an average inflation targeting policy. Under this regime, the Fed will tolerate the inflation rate temporarily overshooting the target rate to offset periods of below-target inflation, so that inflation averages a 2% target rate over time. Fed officials remained cautious, acknowledging the economy’s significant improvement from the COVID-19 recession but also expressing concerns about near-term weakness, and left monetary policy unchanged over the remainder of their meetings in 2020 and early 2021.

The federal government also intervened with historic relief measures, starting with three aid packages in March and April 2020. These included $2 trillion allocated across direct payments to Americans, an expansion of unemployment insurance, loans to large and small businesses, funding to hospitals and health agencies and support to state and local governments, and more than $100 billion in funding to health agencies and employers offering paid leave. In December 2020, the government enacted a $900 billion relief package extending some of these programs, and followed in March 2021 with another $1.9 trillion deal providing support to individuals and families, small businesses, state and local governments, education and public health/vaccination.

The COVID-19 crisis rapidly dwarfed all other market concerns starting in late February 2020. Equity and commodity markets sold off and safe-haven assets rallied in March 2020 as countries initiated quarantines, restricted travel and shuttered factories and businesses. The potential economic shock was particularly difficult to assess at the time, which amplified market volatility. An ill-timed oil price war between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC member Russia, which caused oil prices to plunge in March 2020, exacerbated the market sell-off. At year end, the announcement of high efficacy rates in several COVID-19 vaccine trials, followed by regulatory authorizations and public vaccination drives across Western countries, improved the outlook for 2021 and led to risk-on sentiment in the markets. Market volatility picked up in early 2021, however, as a stronger economic outlook and improving vaccination rates led to rising inflation concerns and an increase in long-term interest rates.

Geopolitical uncertainty remained elevated during 2020 in anticipation of the U.S. presidential election in November 2020 and the Brexit transition period set to expire in December 2020. However, political risks began to ease with the election of President Joe Biden and a final deal struck between the European Union and U.K. before the end of the transition period. Although China and the U.S. signed a “phase one” trade deal in January 2020, tensions continued to flare over other trade and technology/security issues, Hong Kong’s sovereignty and the management of the COVID-19 crisis.

Despite the severe sell-off in March 2020 and an abrupt increase in interest rates toward the end of the reporting period, the broad municipal bond market managed positive performance in the twelve-month reporting period overall. For most of the reporting period, a significant decline in interest rates drove municipal bond prices higher, with positive technical and fundamental conditions also supporting credit spread tightening. This contrasted sharply with the beginning of the reporting period when coronavirus risks drove U.S. Treasury yields to historic lows and rate volatility increased sharply during a six-week period from late February to the end of March 2020. As liquidity became stressed, investors began to liquidate any asset possible, including municipal bonds. Municipal bond prices declined rapidly (and yields spiked higher), amid rampant selling across both the high grade and high yield segments that was exacerbated in some cases by exchange-traded fund and closed-end fund selling. Municipal bond prices became severely

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dislocated from Treasury prices. Credit spreads widened significantly during the March 2020 sell-off, ending the month above their long-term average. Ongoing monetary and fiscal interventions from the Fed and U.S. government helped the market stabilize, then recover over the course of 2020.

The municipal yield curve steepened over this reporting period, initially driven by a pronounced drop in yields at the short end of the curve. Then a new steepening cycle began in early 2021 as markets priced in a stronger economic recovery and higher inflation, fueled by increasing vaccination rates and more federal stimulus, which drove longer-term interest rates higher.

Municipal bond gross issuance nationwide remained strong in the reporting period, with deals postponed rather than canceled during the COVID-driven sell-off. The overall low level of interest rates has encouraged issuers to continue to actively refund their outstanding debt. In these transactions the issuers are issuing new bonds and taking the bond proceeds and redeeming (calling) old bonds. These refunding transactions have ranged from 30% to 60% of total issuance over the past few years. Thus, the net issuance (all bonds issued less bonds redeemed) is actually much lower than the gross issuance. This lower net issuance was an overall positive technical factor on municipal bond investment performance in recent years. Notably, taxable municipal bond issuance has increased meaningfully since the advent of the Tax Cut and Jobs Act of 2017, which prohibits municipal issuers from issuing new tax-exempt bonds to pre-refund existing tax-exempt bonds. However, municipalities have taken advantage of the low interest rate environment and the strong demand for yield to issue taxable municipal debt, enabling them to save on net interest costs while adding to the scarcity value of tax-exempt issues.

While municipal bond funds suffered significant outflows in March 2020, particularly from high yield municipal bond funds, fund flows rebounded strongly over the remainder of 2020 and sustained a robust pace through early 2021. Demand has been resilient even though municipal defaults, as expected, have increased somewhat during the COVID-19 crisis. Notably, default activity has occurred mainly in sectors with greater COVID-19 risk exposure, such as senior living, corporate-backed and real estate-backed. Moreover, while there are some pockets of municipal credit ratings stress, a wave of downgrades has not materialized. With interest rates in the U.S. and globally still near all-time lows, even after the recent increase in long-term rates, the appetite for yield has continued to drive investors toward higher after-tax yielding assets, including U.S. municipal bonds. Additionally, as tax payers have adjusted to the 2017 tax law, which caps the state and local tax (SALT) deduction for individuals, there has been increased demand for tax-exempt municipal bonds, especially in states with high income taxes and/or property taxes.

How were the economic and market environments in Arizona, New Jersey, Ohio and Pennsylvania during the twelve-month reporting period ended February 28, 2021?

Arizona’s economy has held up better than the nation as its shutdowns were relatively shorter and less strict. Employment fell at the start of the COVID-19 crisis but has since recorded consecutive month gains. Given Arizona’s service-based economy, leisure/hospitality jobs have been most affected by COVID-19 crisis related shutdowns. Arizona’s favorable business environment and ample workforce continues to lure new businesses into the state. Gains in the housing market were supported by low interest rates and increased demand. According to the S&P CoreLogic Case-Shiller Index, housing prices in Phoenix rose 15.8% over the twelve months ended January 2021 (most recent data available at the time this report was prepared), compared with an 11.2% price increase nationally. In the job market, prior to the economic fallout from COVID-19, Arizona’s unemployment rate was a low 4.2% in February 2020, then peaked at 13.1% in April 2020 and now sits at 6.9% as of February 2021 versus 6.2% for the nation. On March 28, 2020, Governor Ducey enacted the state’s $11.8 billion general fund Fiscal Year 2021 budget, down 2.7% over the previously enacted budget. The budget includes money to respond to COVID-19 crisis, additional money for K-12 education, including a teacher salary increase, and increased funding for public safety and drought contingency plans without raising taxes. Governor Ducey presented his Fiscal Year 2022 Budget in January totaling $12.6 billion, up 9.2% over revised Fiscal Year 2021 budget. The state projects a $351 million budget surplus as revenues have performed better than expected. Under the American Rescue Plan, the state is expected to receive $7.48 billion: $4 billion for the state and $3.48 billion for local governments. Due to the COVID-19

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Portfolio Managers’ Comments (continued)

crisis, the state’s budget will be impacted to a varying degree as tax receipts are reduced and the expense to fight the virus increases. For the state of Arizona, its Biennial Fiscal Year end is June 30, 2021. Moody’s upgraded the state’s issuer credit rating (ICR) on November 19, 2019, from Aa2 to Aa1, citing “the state’s continued economic growth, the rebuilding of its reserves and the reduction to its already low debt burden.” As of May 2020, S&P and Moody’s rated Arizona’s ICR at AA and Aa1, respectively, with a stable outlook.

Ohio has a population of 11.7 million, making it the seventh-largest U.S. state by population. The state has a large, diverse economy that is the seventh largest among the states. After above-average job losses and GDP contraction in the first few months of the COVID-19 crisis, Ohio’s initial economic recovery has been strong and compares favorably to the nation’s recovery. From February 2020 to April 2020, Ohio lost 16% of its total non-farm jobs, compared to 14.7% for the U.S. However, the state’s unemployment rate was 5.0% in February 2021, compared to 6.2% for the nation, although some of this may reflect declining labor force participation. According to the S&P CoreLogic Case-Shiller Index, housing prices in Cleveland rose 11.7% over the twelve months ended January 2021 (most recent data available at the time this report was prepared), which outpaced the national average of 11.2%. Ohio’s real median household income in 2019 stood at $64,663, which places it 33rd in the U.S., according to the Census Bureau. Ohio operates on a biennial budget cycle. To balance the state budget in Fiscal Year 2020, due to anticipated declines in revenue and increased costs related to the state’s response to the COVID-19 crisis, Governor DeWine directed spending cuts of $775 million for the remainder of the Fiscal Year (June 30, 2020) and reduced spending by $390 million across all agencies for Fiscal Year 2021. Ohio was directly allocated a minimum of $2.49 billion of the total $4.53 billion granted by the federal government under the CARES Act in March 2020 to the state and its eligible local governments. The federal government also allocated approximately $5.6 billion directly to the state under the American Rescue Plan Act of 2021 out of a total $11.2 billion granted to the state and its eligible local governments. According to the latest revenue figures, Ohio’s tax revenues are $1.3 billion (8.3%) above last year through February 2021. On a year-over-year basis, February total General Revenue Fund disbursements were $289.2 million (-12.0%) lower than those of the same month in the previous Fiscal Year, with a decrease in Medicaid largely responsible for the difference. The governor’s proposed Fiscal Year 2022-2023 budget is structurally balanced and based on conservative economic forecasts that assume slower economic recovery than the nation. The state’s conservative fiscal management has resulted in a strong financial position, with sound liquidity and reserve levels, heading into the COVID-19 crisis. Ohio prioritized the rebuilding of its budget stabilization fund after the Great Recession. The current budget stabilization fund balance of $2.7 billion is 8.0% of general fund revenues and, to date, there has been no draw on these rainy day funds. Ohio has maintained a moderate debt burden relative to other states. The state’s net tax-supported debt totaled $13.3 billion in 2020, which is 2.3% of state personal income, compared to the Moody’s 50-state median of 2.0%. For the state of Ohio, its Biennial Fiscal Year end is June 30, 2021. As of March 2021, Moody’s and S&P rated Ohio GO debt at Aa1 and AA+, respectively, with stable outlooks.

New Jersey’s economy is slowly recovering from the COVID-19 crisis. Several characteristics that historically positioned the state to do quite well, such as its proximity to New York City’s extensive job market, a shoreline along the Atlantic coast that benefits from a strong tourism industry and two large transportation hubs in the Port of New York and New Jersey and Newark airport, exposed the state to the epicenter of the virus outbreak. New Jersey lost 341,700 jobs in 2020, led by declines in leisure and hospitality as well as education and health services sectors. After steep losses at the beginning of the COVID-19 crisis, from April to December 2020, the state regained 49% of jobs lost. This is lower than the 55.5% of jobs regained nationally. New Jersey’s unemployment rate peaked at 16.6% in April 2020 and has declined to 7.8% as of February 2021, well above the national rate of 6.2%. New Jersey continues to be challenged by a structural budget gap and low reserves. For Fiscal Year 2021, the state implemented a “millionaire’s tax,” cut expenses and issued $4.3 billion in bonds to finance the expected budget deficit. Revenue has declined less than originally projected, allowing Governor Murphy to propose funding 100% of the actuarially recommended pension contribution in the Fiscal Year 2022 budget, one year earlier than expected. The governor’s budget proposal does not raise taxes but spends down $4 billion in reserves. The budget that is ultimately enacted by the legislature could vary from this proposal, particularly since the state will be receiving federal stimulus funds from the American Rescue Plan that were not accounted for in the governor’s spending plan. For the state of New Jersey, its Fiscal Year end is June 30, 2021. The state carries a BBB+ rating and stable outlook by S&P and A- rating

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and negative outlook by Fitch. On April 9, 2021 (subsequent to the close of the reporting period), Moody’s affirmed its rating on New Jersey’s general obligation debt at A3 but changed the outlook to stable from negative.

Pennsylvania has the sixth-largest economy among U.S. states, based on a 2019 real total GDP of $726.2 billion. The Commonwealth is home to 12.8 million residents, making it the fifth-largest state by population. Severe job losses associated with the fallout of the COVID-19 crisis caused employment in Pennsylvania to contract by 7.3% on a year-over-year basis, as of February 2021. The nation’s employment contracted by 6.2% over the same period. Pennsylvania’s economy is large and diverse, but it has lagged the U.S. for the better part of a decade in terms of job, GDP and income growth. Pennsylvania’s Independent Fiscal Office projects that it will take six years for the Commonwealth’s labor market to return to its pre-COVID-19 crisis level. Pennsylvania came into the current economic recession with a weaker financial position than most states. This is most evident in the state’s very slim budget reserve, which covers just 0.3 days of expenses. Through February 2021, General Fund collections totaled $23.9 billion, which is $901.3 million, or 3.9%, above estimate. Pennsylvania received $4.7 billion in federal aid under the CARES Act in 2020, with $2.2 billion of the funds allocated to eligible local governments. An estimated $7.3 billion of federal relief funding is expected to come to the Pennsylvania state government from the American Rescue Plan Act of 2021. Governor Wolf’s Fiscal Year 2022 proposed budget totals $37.8 billion and is a $3.8 billion (11.1%) increase over the prior year. The budget includes a $1.35 billion increase in K-12 spending as well as $3 billion over a ten-year period to workers and businesses to recover from the COVID-19 crisis. Funding for this spending increase comes from a proposal to raise income taxes from 3.07% to 4.49% on higher-income earners, legalizing and taxing marijuana, and a severance tax on the natural gas industry. The Commonwealth has an above-average debt burden relative to other states. Its net tax-supported debt totaled $19.4 billion in 2019, which is 2.6% of state personal income, compared to the Moody’s 50-state median of 2.0%. Pennsylvania’s adjusted net pension liability totaling $79 billion is also above average, ranking it the fifth highest among the states. For the state of Pennsylvania, its Fiscal Year end is June 30, 2021. As of March 2021, Pennsylvania’s general obligation (GO) debt was rated Aa3 by Moody’s and A+ by S&P.

What key strategies were used to manage these Funds during the twelve-month reporting period ended February 28, 2021?

The Nuveen Arizona Quality Municipal Income Fund’s primary investment objective is current income exempt from both regular federal income taxes and Arizona individual income taxes; its secondary investment objective is the enhancement of portfolio value. The Fund invests in municipal securities that are exempt from federal and Arizona state income taxes. The Fund invests at least 80% of its managed assets in securities rated, at the time of investment, investment grade or, if they are unrated, are judged by the manager to be of comparable quality. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund uses leverage.

The Nuveen Ohio Quality Municipal Income Fund’s primary investment objective is current income exempt from both regular federal income taxes and Ohio personal income taxes. The secondary objective is the enhancement of portfolio value. The Fund invests in municipal securities that are exempt from federal, Ohio state, and local income taxes. The Fund invests at least 80% of its managed assets in securities rated, at the time of investment, investment grade or, if they are unrated, are judged by the manager to be of comparable quality. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund uses leverage.

The Nuveen New Jersey Quality Municipal Income Fund’s investment objective is to provide current income exempt from regular federal and New Jersey income tax and to enhance portfolio value. The Fund invests in municipal securities that are exempt from federal and New Jersey state income taxes. The Fund invests at least 80% of its managed assets in securities rated, at the time of investment, investment grade or, if they are unrated, are judged by the portfolio manager to be of comparable quality. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the portfolio

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Portfolio Managers’ Comments (continued)

manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund uses leverage.

The Nuveen Pennsylvania Quality Municipal Income Fund’s primary investment objective is current income exempt from regular federal income taxes and Pennsylvania income taxes. The secondary objective is the enhancement of portfolio value. The Fund invests in municipal securities that are exempt from federal, Pennsylvania state, and local income taxes. The Fund invests at least 80% of its managed assets in securities rated, at the time of investment, investment grade or, if they are unrated, are judged by the portfolio manager to be of comparable quality. The Fund may invest up to 20% of its managed assets in municipal securities rated below investment quality or judged by the portfolio manager to be of comparable quality, of which up to 10% of its managed assets may be rated below B-/B3 or of comparable quality. The Fund uses leverage.

The twelve-month reporting period was bookended by challenging conditions in the municipal bond market, with the advent of the COVID-19 crisis at the beginning of the reporting period and a sudden increase in long-term interest rates at the end of the reporting period. The health and economic crisis and the anticipated recovery from the COVID-19 crisis recession contributed to elevated interest rate volatility and considerable swings in municipal market valuations during this reporting period. Despite these fluctuations, municipal yields ended the reporting period slightly higher than where they began and credit spreads largely recovered from the dramatic widening seen at the peak of the market sell-off in March-April 2020. The municipal yield curve steepened over the reporting period as a whole, with the market pricing in the prospects for a strengthening economic recovery aided by massive fiscal stimulus, accommodative monetary policy and vaccination progress. The Arizona municipal market performed nearly in line with the national market and the New Jersey, Ohio and Pennsylvania municipal markets outperformed the national market during the reporting period, as measured by their respective state S&P Municipal Bond Indexes.

The Funds’ trading activity continued to focus on pursuing its investment objectives. The Funds‘ continued to seek bonds in areas of the market that demonstrated resilience and would perform well over the long term. Additionally, as closed ends funds do not need to manage cash to meet investor redemptions, the Funds weren’t forced to sell positions during periods of market turbulence.

NAZ’s positioning remained relatively stable as the Fund remained fully invested and continued to maintain its duration target. Early in the reporting period, the March-April 2020 market sell-off provided ample opportunities for tax loss swapping. This strategy entails selling depreciated bonds with lower yields and buying similarly structured but higher yielding bonds. This approach was implemented to enhance the Fund’s income earning capability and seek to make the Fund more tax efficient. We would also note that many of the positions we swapped during that timeframe were among the best performing holdings by the end of the reporting period. Outside of these one-for-one bond exchanges, the Fund added bonds issued for dedicated tax, a children’s hospital and other health care names, primarily in maturities of 20 years and longer to help maintain the Fund’s duration target. The Fund sold maturities less than 18 months to fund our buying in longer-dated credits, as well as used the proceeds of called and maturing bonds.

NUO also stayed fully invested, using bond calls and maturities to make new purchases. The Ohio Fund was also active with tax loss swaps earlier in the reporting period, as well as added attractively valued bonds whose revenues are generated from public gathering/social activities. In the second half of the reporting period, the Fund bought three local GOs, two water and sewer, one health care and one state GO. These purchases were a mix of 4% and 5% coupon structures trading at a premium, in the intermediate to long maturity range and with mid to high grade credit quality.

For NXJ and NQP, trading activity was somewhat lighter during this reporting period as the Funds were well positioned for the environment and the prevailing environment offered fewer opportunities to replace positions with more attractive names. Portfolio turnover was mainly driven by the proceeds from called and maturing bonds, bond coupon income and a small amount of strategic and tactical sales. For NXJ and NQP, the Funds took some small precautionary steps early in the reporting period to prepare for the possibility of deleveraging, including delaying the reinvestment of cash proceeds from called bonds and coupon income. However, market liquidity, although stressed, remains sufficient and deleveraging was not needed.

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The state of New Jersey was an active issuer during this reporting period, with three deals coming to market in November 2020, December 2020 and January 2021 for COVID-19 GO Emergency Bonds, New Jersey Transportation Trust Fund Authority and New Jersey Economic Development Authority. NXJ participated in all three new issues, which were well received by the marketplace. Additionally, the New Jersey Fund added issues for Barnabas Health, Atlantic City Electric, New Jersey Housing and Mortgage Finance Agency, New Jersey-American Water Company, New Jersey State Turnpike Authority and a number of county and local municipalities (including Mercer, Monmouth, Somerset and Union counties and Berkeley Heights Township and Cherry Hill Township).

NQP added issues for Pennsylvania Housing Finance Agency, Geisinger Health System, Westmoreland County Water, Puerto Rico sales tax revenue bonds (known as COFINAs), Saint Joseph’s University, St. Luke’s Hospital Bethlehem, Philadelphia Gas Works and Delaware River Port Authority. We continued to limit NXJ’s and NQP’s exposure to each state’s government debt due to concerns about their fiscal health that pre-dated the COVID-19 crisis.

Also during this reporting period, NUO and NQP 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. Over time, the Fund expects to sell these shares and reinvest the proceeds into municipal bonds.

As of February 28, 2021, the four Funds 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 the Funds’ duration management strategies, NXJ and NQP used U.S. Treasury futures as part of an overall portfolio construction strategy to manage portfolio duration and yield curve exposure. The hedging strategies performed as expected given the direction of interest rates during the reporting period, the Treasury futures had a neutral impact to NXJ and NQP (which removed the positions in August 2020) and they enabled the Funds to invest in longer duration bonds that were contributors to performance and that helped support the Funds’ dividends. The Treasury futures positions were eliminated from NXJ and NQP prior to the end of the reporting period.

How did the Funds perform for the twelve-month reporting period ended February 28, 2021?

The tables in the Performance Overview and Holding Summaries section of this report provides total returns at net asset value (NAV) for the period ended February 28, 2021. Each Fund’s total returns at net asset value (NAV) are compared with the performance of corresponding market indexes.

For the twelve months ended February 28, 2021, the total returns on common share NAV for the four Funds underperformed their respective state’s S&P Municipal Bond Index.

The factors driving performance during this reporting period included yield curve and duration positioning, credit ratings exposure and sector allocation. The use of regulatory leverage was also a factor affecting the Funds’ performance. Leverage is discussed in more detail later in the Fund Leverage section of this report.

We continued to position the Funds with longer duration profiles than their respective state’s S&P Municipal Bond Index. NAZ’s large overweight to durations in the 6- to 8-year range detracted from performance, but the relative loss was more than offset by a slight overweight to durations of 8 years and longer, which outperformed. NUO’s duration and yield curve positioning was a modest detractor overall. Although NUO’s underweight to bonds with 4- to 6-year durations added to relative performance, it was outweighed by the negative impact of the overweight to the 2- to 4-year duration category. The longer duration positioning was a positive relative contributor to NXJ and had a neutral impact on NQP relative to their respective state indexes, but the steepening yield curve partially offset the advantage of the two Funds’ longer duration.

Credit quality and sector positioning produced mixed results for relative performance. The Funds continued to emphasize lower rated, higher yielding bonds and sectors, which generally performed better than high grade, low yielding bonds and sectors. For NAZ, overweight allocations to BB and A rated credits were favorable, but the negative impact of an overweight to BBB rated debt

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Portfolio Managers’ Comments (continued)

and an underweight to AA rated paper outweighed the relative gains. NUO’s credit ratings allocations were the main detractor from its relative performance. The Ohio Fund’s overweight to the AA rated segment was the largest drag, negating the relative advantage of holding strong performing B rated credits. NXJ’s credit ratings and sector allocations detracted from performance relative to the New Jersey index. The Fund holds less exposure than the state index to state appropriation debt, much of which is BBB rated, and the resulting underweight to both the sector and BBB rated credit cost NXJ in terms of relative performance. Credit quality and sector positioning for NQP was unfavorable relative to the Pennsylvania index, as lower rated bonds severely underperformed during the COVID-19 crisis sell-off and only partially recovered over the remainder of the reporting period.

On a sector basis, NAZ’s positioning added to relative performance. While an overweight to longer duration dedicated tax bonds and an underweight to the industrial development revenue (IDR) sector were negative for performance, an underweight in life care and an overweight to gas prepay bonds were positive contributors that more than compensated for the sector weakness elsewhere. NUO’s sector allocations were an overall negative influence on performance, largely due to overweights to the dedicated tax and public power sectors, both of which underperformed in this reporting period. For New Jersey, the better performing sectors included transportation, housing, tobacco and other revenue, and NXJ held underweights in each of these sectors except housing. But New Jersey saw the most weakness in the education sector (where NXJ was overweighted), while the tax-supported (slight overweight), health care (overweight) and pre-refunded sectors (neutral weight) trailed only marginally. Pennsylvania’s municipal market was led by the tax supported, transportation and utility sectors (and NQP was overweighted utility and underweight in tax supported and transportation), whereas the biggest laggards were the health care, IDR and housing sectors (and NQP held overweights in each sector).

Individual security selection contributed positively to NUO’s relative performance. The Fund’s selection in tender option bonds and longer-dated credits that were held through the full reporting period, especially those bonds that recovered from the crisis sell-off by the end of the period, were the most beneficial to performance.

Security selection in NXJ added value relative to the New Jersey index. The Fund had more favorable yield curve/duration positioning in its state debt selections, including GOs, New Jersey Transportation Trust Fund Authority and New Jersey Economic Development Authority. However, some of the relative gain was offset by our selection in housing and education bonds. Holdings in housing bonds underperformed as the low interest rate environment accelerated mortgage refinancing activity, shortening the expected average life of the bonds. NXJ’s education holdings included a number of smaller, lower rated private schools (such as Rider University, Stevens Institute of Technology and Seton Hall), student residence halls project and student loan debt, which hadn’t rebounded to the same extent as higher rated education credits.

Mixed performance from NQP’s security selection resulted in an overall neutral impact to relative performance versus the state index. The Fund’s selection was most beneficial in utilities, transportation (Pittsburgh and Allegheny County Sports and Exhibition Authority Parking Revenue Bonds and Pennsylvania Turnpike Commission), IDR (American Water Works, Amtrak and Pennsylvania Economic Development Financing Authority KDC Agribusiness Fairless Hills) and health care (especially in life care bonds). In utilities, a position in Energy Harbor stock was the leading performer as the stock price recovered from negative headline risk earlier in the reporting period. The Fund owns Energy Harbor common stock after certain bonds held by the Fund were converted to equity as part of the company’s exit from bankruptcy in February 2020. However, selection in housing (particularly Pennsylvania Housing Finance Agency Revenue Bonds) and tax supported debt (especially state GOs) was disadvantageous.

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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 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 from issuance of preferred shares had a negative impact on the total return performance of the Funds over the reporting period. The use of leverage through inverse floating rate securities was negligible to the total return performance of the Funds over the reporting period.

 

 

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

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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, 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-closed-endfunds, 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 following Funds repurchased and retired their common shares at a weighted average price per share and a weighted average discount per share as shown in the following table.

 

 

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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.

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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.

 

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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.

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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.

 

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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.

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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.

 

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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.

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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.

 

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