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Table of Contents

 

3

Chair’s Letter

to Shareholders

Dear Shareholders,

The COVID-19 crisis is taking an unprecedented toll on our health, societies, economies and financial markets. Our thoughts are with you during this time of significant disruption caused by the disease and its economic fallout.

A renewed increase in COVID-19 cases in multiple areas, including an outbreak affecting President Trump and White House staffers and contacts, showed that controlling the spread of the novel coronavirus remains an ongoing public health concern as economies reopen and social activities resume. In the meantime, medical knowledge is improving and some areas have been able to implement much narrower restrictions when infection clusters have recurred. This, along with government stimulus, has helped an economic recovery gain traction, with a significant recovery in jobs, consumer spending, manufacturing and other indicators from their weakest levels. Additionally, progress toward a vaccine and treatments has been promising, while the timeline is unknown. Markets have recently taken an optimistic view, but the course of the virus and policy goals of the presumptive Biden administration – and their implications for the U.S. economic recovery – will continue to shape sentiment.

While we do not want to understate the dampening effect on the global economy, it is important to differentiate short-term interruptions from the longer-lasting implications to the economy. Prior to the COVID-19 crisis, some areas of the global economy were showing signs of improvement after trade tensions had weighed on economic activity for much of 2019. More recently, countries that have reopened have seen marked improvement in some near-term economic indicators.

Central banks and governments around the world have announced economic stimulus measures and pledged to continue doing what it takes to support their economies. In the U.S., the Federal Reserve has cut its benchmark interest rate to near zero and introduced similar programs that helped revive the U.S. economy after the 2008 financial crisis. The U.S. Government has approved three relief packages, including a $2 trillion-dollar package directly supporting businesses and individuals. The Coronavirus Aid, Relief and Economic Security Act, called the CARES Act, has provided direct payments and expanded unemployment benefits to individuals, loans and grants to small businesses, loans and other money to large corporations and funding for hospitals, public health, education and state and local governments. Additional stimulus measures are expected after the election, even if control of Congress remains divided. In the European Union, the European Central Bank recently increased the size of its Pandemic Emergency Purchase Program, known as PEPP, to $1.6 trillion from $882 billion and extended its duration to June 2021.

In the meantime, patience and a long-term perspective are key for investors. When market fluctuations are the leading headlines day after day, it’s tempting to “do something.” However, your long-term goals can’t be met with short-term thinking. We encourage you to talk to your financial professional, who can review your time horizon, risk tolerance and investment goals. 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
November 20, 2020

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Portfolio Manager’s Comments

Nuveen Taxable Municipal Income Fund (NBB)

The Fund features portfolio management by Nuveen Asset Management, LLC (NAM), an affiliate of Nuveen, LLC, the Funds’ investment adviser. Portfolio manager Daniel J. Close, CFA, discusses key investment strategies and the six-month performance of the Nuveen Taxable Municipal Income Fund (NBB). Dan has managed NBB since its inception in April 2010.

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

Slowing COVID-19 coronavirus infection rates around the world encouraged authorities to loosen restrictions on business and social activity in recent months. While economic indicators have improved considerably from the depths of the shutdown, some regions, including the U.S. and Europe, have seen an uptick in infection rates after reopening, which prompted tightening coronavirus restrictions in some areas. Additionally, certain government programs supporting businesses and workers are expiring with little clarity on extensions or replacement options. Amid these challenges, the pace of recovery appeared to be moderating and short-term market volatility has picked up again.

The initial market response was severe, but the responses from central banks and governments to ease the strain on financial systems, businesses and individuals, as well as positive vaccine news, have helped markets bounce back from the depths of the crisis. 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.

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 vaccines). There are still many unknowns and new information is incoming daily, compounding the difficulty of modeling outcomes for epidemiologists and economists alike.

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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 manager 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 Fund disclaims 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 Manager’s Comments (continued)

Nuveen, 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 NBB during the six-month reporting period ended September 30, 2020?

The Fund’s primary investment objective is to provide current income through investments in taxable municipal securities. The Fund’s secondary investment objective is to seek enhanced portfolio value and total return. The Fund seeks to achieve its investment objective by investing primarily in a diversified portfolio of taxable municipal securities, which make up approximately 80% of its managed assets. Under normal circumstances, the Fund may invest 20% of its managed assets in securities other than taxable municipal securities including tax-exempt municipal securities, U.S. Treasury and other U.S. government agency securities. At least 80% of the Fund’s managed assets will be invested in securities that are investment grade quality at the time of purchase, as rated by at least one independent rating agency or judged to be of comparable quality by NAM. In addition, the Fund will use an integrated leverage and hedging strategy so that the Fund has the potential to enhance income and risk-adjusted total return over time. The Fund may employ leverage instruments such as bank borrowings, including loans from certain financial institutions, and portfolio investments that have the economic effect of leverage, including investments in inverse floating rate securities.

During the six-month reporting period, the municipal market continued to recover from the liquidity-driven sell-off in March 2020 (prior to the beginning of this reporting period). As the economic shock caused by coronavirus containment measures was becoming apparent in March 2020, financial markets including U.S. municipal bonds responded dramatically. Interest rate volatility spiked, municipal bond prices severely dislocated from Treasury bond prices and municipal credit spreads widened to levels significantly above the long-term average. Quick intervention from the government and Federal Reserve (Fed) brought stability to the municipal market, supporting a rebound in the high grade segments of the municipal bond market. Lower rated, higher yielding municipal bonds, however, were slower to rebound, as these credits are more typically found in sectors more affected by the coronavirus, including transportation, lodging, convention centers, hospitals, senior living facilities and higher education.

Despite the elevated volatility in March and April 2020, interest rates ended the six-month reporting period down slightly from the beginning of the reporting period. A sharper fall in short-term rates, driven by the Fed moving its benchmark target rate to zero, steepened the yield curve. Demand for municipal bonds began to recover, with investor inflows resuming a positive trend after the March-April 2020 sell-off, including in high yield municipal bonds. Issuance also approached more normal levels by the end of the reporting period. Supply-demand conditions have therefore remained favorable for municipal bonds, helping credit spreads to narrow from the widest levels seen during the pandemic-induced volatility.

We continued to invest according to the Fund’s expanded mandate (following the elimination of the contingent term), which provides the flexibility to seek higher yielding bonds. While these bonds may offer less liquidity, the Fund’s perpetual strategy affords us the time horizon to see credit situations develop. Additionally, given the smaller volume of buyers in the taxable municipal market compared to the tax exempt market, our deep credit analysis can take advantage of overlooked areas of the market to source attractively undervalued credit stories. Issuance in the taxable municipal market has accelerated over the past year as municipal issuers, which are prohibited from issuing new tax-exempt bonds to pre-refund existing tax-exempt bonds, have taken advantage of the low interest rate environment and the strong demand for yield to issue taxable municipal debt.

We were active buyers in this reporting period. Municipal bond prices were significantly dislocated from fundamentals, especially among lower rated, higher yielding bonds, which provided an attractive entry point for investments that we believe can enhance the Fund’s income distribution capability, portfolio value and total return over time. We bought bonds in five car rental facilities (Hawaii, Ohio, Portland, Texas), Seagirt Marine Terminal - Maryland Port Administration, a Baltimore parking garage, a tax increment district for Graceland (Tennessee), a private higher education credit (Seton Hall), a Georgia public utility (Municipal Electric Authority of Georgia) and two dedicated tax bonds for convention centers in Washington state and Wisconsin. All of these bonds had been very out of favor at the time of purchase, but our research indicated they have the ability to weather the temporary disruption. We funded

6

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the new buys with the proceeds from called and maturing bonds and from selectively selling higher grade, lower yielding paper. As the Fund reaches its 10-year mark this year, callable structures are starting to mature, providing ample cash to reinvest.

How did the Fund perform over the six-month reporting period ended September 30, 2020?

The table in the Fund’s Performance Overview and Holding Summaries section of this report provides the Fund’s total returns for the six-month, one-year, five-year and ten-year periods ended September 30, 2020.

The Fund’s total returns are compared with the performance of the corresponding market indexes. For the six-month reporting period ended September 30, 2020, the total returns on common share net asset value (NAV) for NBB outperformed the return for the Bloomberg Barclays Taxable Municipal Long Bond Index.

Individual credit selection added the most value to relative performance in this reporting period. The best performing positions were mainly long duration, high credit quality bonds, especially those we held over the full reporting period. The weakest performers were concentrated in bonds that rely on mass gatherings of people to generate revenue, including holdings in hotels, car rental facilities at airports and public mass transit systems.

As part of its approach to investing, the Fund uses an integrated leverage and hedging strategy in an effort to enhance current income and total return, while working to maintain a level of interest rate risk similar to that of the Bloomberg Barclays Taxable Municipal Long Bond Index. As part of this integrated strategy, NBB used inverse floating rate securities, also known as inverse floaters or tender option bonds (TOBs) and reverse repurchase agreements (known as reverse repos) as leverage to potentially magnify performance. During this reporting period, the Fund used interest rate swaps to reduce their leverage-adjusted durations to a level close to that of the Bloomberg Barclays Taxable Municipal Long Bond Index. In addition, the Fund entered into staggered interest rate swaps to partially fix the interest cost of leverage. During this reporting period, the inverse floaters and interest rate swaps performed as expected. Due to the path of interest rates and credit spread contraction during this reporting period, the use of inverse floaters contributed positively to performance while the duration-shortening swaps detracted, as expected. Leverage is discussed in more detail later in this report. The Fund also managed the duration of its portfolio by shorting interest rate futures contracts, which had a negative impact on performance during the reporting period.

We use these strategies to help manage the portfolio’s duration and enhance income, along with the allocation of bonds by effective duration. In this reporting period, our duration positioning contributed a small gain to relative performance. An underweight to 6- to 8-year effective durations was helpful. However, the positive impact was mostly offset by an overweight to the zero to 2-year effective durations, which were the weakest performing segment, and an underweight to 12 years and longer effective durations, which were outperformers.

The Fund’s positioning was unfavorable on a credit quality basis. An underweight to AA rated credits detracted, as the AA segment outperformed in this reporting period. Overweight allocations to A and BBB rated bonds also hampered relative performance. These mid and lower investment grade bonds lagged the market overall.

Sector allocations were an overall positive contributor to relative performance. Allocations to state and local general obligation bonds detracted, but the outperformance of our overweights to electric utilities and water and sewer bonds more than compensated.

7

 

Fund Leverage

IMPACT OF THE FUND’S LEVERAGE STRATEGY ON PERFORMANCE

One important factor impacting the returns of the Fund’s common shares relative to its comparative benchmark was the Fund’s use of leverage through reverse repurchase agreements and investments in inverse floating rate securities, which represent leveraged investments in underlying bonds. The Fund used 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 the 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, which will make the shares’ net asset value more volatile, and 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 all-time lows, leverage nevertheless continues to provide the opportunity for incremental common share income, particularly over longer-term periods.

 

8

 

 

Refer to Notes to Financial Statements, Note 8 - Fund Leverage, Reverse Repurchase Agreements and Note 10 – Subsequent Events,

Reverse Repurchase Agreements for further details.

9