Dear Shareholder,

 

The financial markets in which your Funds operate continue to reflect the larger economic crosscurrents. The illiquidity that infected global credit markets over the last year appears to be slowly but steadily receding. The major institutions that are the linchpin of the international financial system are strengthening their capital structures, but many still struggle with losses in their various portfolios. There are encouraging signs of recovery in European and Asian economies, while the U.S. economy continues to feel the impact of job losses and an over-borrowed consumer. Global trends include modestly increasing trade and increased concern about the ability of the U.S. government to address its substantial budgetary deficits. Identifying those developments that will define the future is never easy, but rarely is it more difficult than at present.

 

After considerable volatility in the first few months of 2009, both the fixed-income and equity markets have seen a partial recovery. A fundamental component of a successful long-term investment program is a commitment to remain invested during market downturns in order to share in the rewards of the inevitable recovery. Another component is to re-evaluate investment disciplines and tactics and to confirm their validity following periods of extreme volatility and market dislocation, such as we have recently experienced. Your Board carried out an intensive review of investment performance with these objectives in mind during April and May of this year as part of the annual management contract renewal process. I encourage you to read the description of this process in the Annual Investment Management Agreement Approval Process section in this report.

 

Remaining invested through market downturns and reconfirming the appropriateness of a long term investment strategy is as important for our shareholders as it is for professional investment managers. For that reason, I again encourage you to remain in communication with your financial consultant on these subjects. For recent developments on all your Nuveen Funds, please visit the Nuveen web site: www.nuveen.com.

 

Nuveen remains committed to resolving the issues connected with outstanding auction rate preferred shares. In September 2009, Nuveen completed the refinancing at par of all the auction rate preferred shares issued by its taxable closed-end funds that were outstanding when the preferred auctions began to fail in the February 2008. For a variety of reasons, refinancing the outstanding preferred shares issued by the municipal closed-end funds is taking longer but Nuveen is diligently pursuing a range of options to accomplish this. Please consult the Nuveen web site for the most recent information about the redemption of MuniPreferred shares.

 

On behalf of the other members of your Fund’s Board, we look forward to continuing to earn your trust in the months and years ahead.

 

Sincerely,

Robert P. Bremner

Chairman of the Board

September 21, 2009

Nuveen Investments		3

 

Portfolio Manager’s Comments

 

 

Nuveen Senior Income Fund (NSL)

 

Nuveen Floating Rate Income Fund (JFR)

 

Nuveen Floating Rate Income Opportunity Fund (JRO)

 

The Funds’ investment portfolios are managed by a team at Symphony Asset Management, LLC, an affiliate of Nuveen Investments. Gunther Stein, Chief Investment Officer at Symphony, leads a team with more than 25 years of combined investment management experience, much of it in evaluating and purchasing senior corporate loans and other high-yield debt. Gunther and his team have managed NSL since 2001, and JFR and JRO since their inceptions in 2004.

 

Here Gunther talks about the general market environment, his investment strategy and the performance of the Funds for the twelve-month period ended July 31, 2009.

 

What were the general market conditions for the twelve-month period ended July 31, 2009?

 

 

This period was among the most volatile in the history of the capital markets. Equity markets across the globe fell sharply in the fall of 2008 as the United States economy pushed further into recession. After IndyMac’s bankruptcy filing in August 2008, the U.S. government engaged in one of the most dramatic market interventions in years and placed both the Federal National Mortgage Association (FannieMae) and the Federal Home Loan Mortgage Corporation (FreddieMac) into conservatorship. In September 2008, Lehman Brothers, a major Wall Street broker/dealer, filed for bankruptcy protection. AIG, one of the world’s largest insurers, effectively was nationalized by the U.S. government, and Wachovia, Washington Mutual and other financial institutions were seized by U.S. regulators and/or merged into stronger banks. Merrill Lynch, concerned about its own solvency, negotiated a deal to be acquired by Bank of America. Goldman Sachs and Morgan Stanley converted to commercial banks, possibly signaling the end of the independent broker/dealer model. Compounding the situation was the subsequent collapse of values for structured financial products, which included auction rate securities, collateralized loan obligations (CLOs), collateralized debt obligations (CDOs) and other structured products. The following months included major financial write-downs in many areas of the U.S. economy, the uncovering of the largest Ponzi scheme in history, continued declines in real U.S. Gross Domestic Product, and significant spikes in market volatility.

 

In an effort to improve overall conditions, the Federal Reserve lowered the fed funds rate from 2.00% on August 1, 2008, to a target range of zero to 0.25% in December 2008, its lowest level on record. In March 2009, the Fed announced that, in addition to maintaining the current target rate, it would buy $300 billion in long-term U.S. Treasury securities in an effort to support private credit markets and up to an additional $750 billion (for a total of

4		Nuveen Investments

$1.25 trillion) in U.S. agency mortgage-backed securities to bolster the housing market. Additionally, the U.S. government passed a $700 billion financial industry rescue package in October 2008, which was followed by a $787 billion stimulus package in February 2009.

 

As noted, this period saw the virtual collapse of some of the largest and most respected financial firms in the world, including Lehman Brothers and AIG. While nearly every market and asset class was affected by these events, very few were impacted more than the senior loan market. The demise of Lehman Brothers, which had large amounts of credit-related assets on its books (including senior loans), led to a massive deleveraging in the credit markets. Not only were prices driven down by the forced selling of assets by Lehman Brothers into a volatile market, but Lehman also was a major counterparty in the credit default swap (CDS) market. Investors who traded with Lehman in the CDS market were attempting to offset exposure, and the uncertainty surrounding Lehman’s exit created significant dislocations during the period. As Lehman began to flood the market with securities that had to be sold, buyers willing to pay acceptable prices were virtually non-existent. Many parties had some exposure to Lehman (either directly or indirectly) or held assets similar to those that Lehman was pushing out into the market at fire sale prices. Often they, too, became forced sellers. The result was the simultaneous and broad offering of assets into a marketplace with few or no buyers.

 

Default concerns also became more of an issue as the period progressed. As of June 2009, the trailing twelve-month default rate according to Credit Suisse stood at 11.66% for corporate high yield securities and 7.67% for senior loans. This is very close to the 8.05% default rate for senior loans seen in the economic downturn of 2001 - 2002.

 

In mid-December, even as some fundamentals were deteriorating further, the senior loan market’s technical factors began to improve. For example, there was a decline in new-issue supply, which helped ease the supply side of the market. On the demand side, we also saw some stabilization. Buyers continued to move into the senior loan market in late December and, in January, the senior loan market began a strong rally that continued through the second half of the reporting period. The CSFB Leveraged Loan Index, the Credit Suisse High Yield Index, and the Barclays U.S. Convertibles Index all have posted consistent monthly gains in 2009. On a year-to-date basis through the end of July, the CSFB Leveraged Loan Index was up 32.4%.

 

What key strategies were used to manage the Funds?

 

While the massive technical imbalance during much of this period was painful from a mark-to-market perspective, it did create opportunities for the Funds to optimize their risk and market exposure. This was a common thread especially throughout the first half of 2009.

 

In December 2008, with prices at relatively low levels, we were buyers of high-quality issues from firms like Hospital Corporation of America (HCA). HCA is a large hospital company and the largest constituent in the CSFB Leveraged Loan Index. The company recently went through a leveraged buyout, which resulted in a large supply of HCA debt in the market. In a volatile environment, the investors who owned these issues often were quick to sell them as they remained fairly liquid. Within limits, we were positive on HCA from a fundamental perspective–the company has a defensive business, very good asset quality, and relatively low leverage through bank debt–as well as from a technical

Nuveen Investments		5

perspective. We saw HCA as a good candidate to do a high yield bond offering to refinance some of its shorter-dated floating rate bank loans. This was a fairly common occurrence in the first half of 2009, with a number of companies coming to the market to refinance existing bank debt as the credit markets firmed. This provided financial flexibility for the company and a potential catalyst that could move prices quickly as discounted loans got paid off at par in a short period of time.

 

In many cases, this selling was driven by liquidity, meaning that investors sold what they could in order to raise cash. The senior loan market is larger and generally more liquid than the high yield bond market. The ability to use actual sales to value securities, rather than estimates or extrapolations, was one reason that senior debt underperformed less liquid securities on a mark-to-market basis during this period, despite the fact that it remained senior to high-yield bonds within a company’s capital structure. In many cases, the market saw senior bank loans trading at higher implied yield than subordinated debt of the same issuers. We believe these types of anomalies created attractive longer-term investment opportunities.

 

While we expect the loan market to remain volatile going forward, we feel that the market presents many unprecedented values at current levels for investors who are willing to tolerate this volatility. Our buying activity toward the end of this period remained focused on higher-quality issuers. We continued to believe that many loans were at depressed levels versus their intrinsic value, and that if this environment continues it may create opportunities to purchase mispriced names.

 

How did the Funds perform over this twelve-month period?

 

The performance of the Funds, as well as the performance of widely followed market indexes, is presented in the accompanying table.

 

Total Returns on Common Share Net Asset Value*

For the twelve-month period ended 7/31/09

 

		1-Year		5-Year
NSL		-12.25%		0.35%
JFR		-10.37%		0.37%
JRO		-10.57%		0.06%
CSFB Leveraged Loan Index1		-3.06%		-2.15%
Barclays Capital U.S. Aggregate Bond Index2		7.85%		5.14%

 

For the twelve-month period ended July 31, 2009, all three Funds underperformed the CSFB Leveraged Loan Index and the Barclays Capital Index. As previously noted, senior loans did not perform well over this period, and this unfavorable environment is reflected in the returns of both the CSFB Leveraged Loan Index and the Funds. Additionally, a primary factor in the relative underperformance of the Funds when compared with the CSFB Index was their use of financial leverage as described further on page seven.

 

This twelve-month period provided few opportunities to generate positive absolute performance. While this is no excuse for the Funds’ poor relative performance, it is important to understand that much of the weakness in the loan market was driven by the swift and broad collapse of the financial markets generally in the second half of 2008. As

6		Nuveen Investments

noted, this led to forced sales in the senior loan markets at very depressed prices, and it proved impossible to protect the Funds against these market-driven events.

 

As the market began to turn in late 2008 and rallied in 2009, we had some core, lower-
volatility positions that did not enjoy the run up seen in some higher volatility names. One of these issuers was Fountainbleau Las Vegas, which was effectively flat for the first seven months of this year despite the general rally. The loan the Funds own is a hotel development project in Las Vegas, a market that was hit hard by the downturn in both business and pleasure travel. Another position that continued to trade under pressure despite this year’s rising market was Philadelphia News, which like most media companies has had a difficult time as a result of decreased advertising spending.

 

We were able to find a few situations to make money in a collapsing market, such as the position in Alltel, which we purchased at a discount to par not only because we felt it was a good asset but because we believed the Verizon buyout might act as a catalyst to drive Alltel’s term loan higher. In mid-December, our positioning in better quality began to pay off as loans issued by HCA advanced. Another positive holding was Univision, which resolved a lawsuit.

 

One other large position in the portfolios that enjoyed good performance was Swift Transportation. Swift, which is the largest trucking company in North America, saw its term loan trade from roughly $35 at year end to the mid-$70’s by the end of July.

 

IMPACT OF LEVERAGE ON FUND PERFORMANCE AND RECENT DEVELOPMENTS REGARDING THE FUNDS’ LEVERAGED CAPITAL STRUCTURES

 

Shortly after their inceptions, each Fund issued auction rate preferred shares to create financial leverage. The Funds use leverage because their managers believe that, over time, leveraging provides opportunities for additional income and total return for common shareholders. However, use of leverage also can expose common shareholders to additional risk–especially when market conditions are unfavorable. For example, if the prices of loans or securities held by the Funds decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return are magnified by the use of leverage. This is one primary reason why each Fund’s performance trailed the unleveraged indexes during this period’s unfavorable market environment.

 

As noted in the last several shareholder reports, the auction rate preferred shares issued by many closed-end funds, including these Nuveen Funds, have been hampered by a lack of liquidity since February 2008. Since that time, more auction rate preferred shares have been submitted for sale in their regularly scheduled auctions than there have been offers to buy. This means that these auctions have “failed to clear,” and that many, or all, of the auction rate preferred shareholders who wanted to sell their shares in these auctions were unable to do so. This decline in liquidity in auction rate preferred shares did not lower the credit quality of these shares, and auction rate preferred shareholders unable to sell their shares received distributions at the “maximum rate” applicable to failed auctions, as calculated in accordance with the pre-established terms of the auction rate preferred shares.

Nuveen Investments		7

 

One continuing implication for the Funds’ common shareholders from the auction failures is that the Funds’ cost of leverage likely has been incrementally higher at times than it otherwise might have been had the auctions continued to be successful. As a result, the Funds’ common share earnings likely have been incrementally lower at times than they otherwise might have been.

 

Beginning in 2008, the Funds announced their intention to redeem their auction rate preferred shares and retain their leveraged structures primarily through bank borrowings. The Funds began a series of periodic, partial redemptions in 2008 and as of July 31, 2009, the amount of auction rate preferred redeemed, at par, by the Funds are as shown in the accompanying table.

 

		Auction Rate		% of Original
		Preferred Shares		Auction Rate
Fund		Redeemed		Preferred Shares
NSL		$20,000,000		43.5%
JFR		$295,000,000		73.8%
JRO		$180,000,000		75.0%

 

On August 31, 2009, subsequent to the reporting period, the Funds announced the remaining portion of their outstanding auction rate preferred shares will be redeemed, at par, during September 2009 for JFR and JRO and October 2009 for NSL. The Funds have been granted temporary exemptive relief from Section 18 of the Investment Company Act of 1940 (’40 Act) from the Securities and Exchange Commission (SEC). This relief permits the Funds to operate temporarily (until October 31, 2010) with reduced asset coverage levels for the debt used to refinance these remaining auction rate preferred shares.

 

For up-to-date information, please visit the Nuveen CEF Auction Rate Preferred Resource Center at: http://www.nuveen.com/ResourceCenter/AuctionRatePreferred.aspx.

8		Nuveen Investments

 

Common Share Distribution
and Share Price Information

 

 

As noted earlier, these Funds use financial leverage to potentially enhance opportunities for additional income for common shareholders. The Funds’ use of this leverage strategy continued to provide incremental income, although the extent of this benefit was reduced to some degree by short-term interest rates that remained relatively high during the early part of the period. This, in turn, kept the Funds’ borrowing costs high. This is one reason NSL’s distribution decreased twice and JFR’s and JRO’s distributions decreased three times over the twelve-month period.

 

During certain periods, each Fund may pay dividends at a rate that may be more or less than the amount of net investment income actually earned by the Fund during the period. If a Fund has cumulatively earned more than it has paid in dividends, it holds the excess in reserve as undistributed net investment income (UNII) as part of the Fund’s common share NAV. Conversely, if a Fund has cumulatively paid dividends in excess of its earnings, the excess constitutes negative UNII that is likewise reflected in the Fund’s common share NAV. As of July 31, 2009, all three Funds had positive UNII balances for tax purposes. For financial statement purposes, NSL had a positive UNII balance while JFR and JRO had negative UNII balances.

 

Common Share Repurchases and Share Price Information

 

The Funds’ Board of Trustees approved an open-market share repurchase program on July 30, 2008, under which each Fund may repurchase an aggregate of up to 10% of its outstanding common shares.

 

As of July 31, 2009, JFR and JRO cumulatively repurchased common shares as shown in the accompanying table. Since the inception of this program, NSL has not repurchased any of its outstanding common shares.

 

		Common Shares		% of Outstanding
Fund		Repurchased		Common Shares
JFR		9,700		0.0%
JRO		9,700		0.0%

 

During the twelve-month reporting period, the Funds repurchased common shares at a weighted average price and a weighted average discount per common share as shown in the accompanying table.

 

				Weighted Average		Weighted Average
		Common Shares		Price Per Share		Discount Per Share
Fund		Repurchased		Repurchased		Repurchased
JFR		9,700		$7.64		16.08%
JRO		9,700		$7.33		16.02%

Nuveen Investments		9

 

As of July 31, 2009, the Funds were trading at a discount (-) to their common share NAVs as shown in the accompanying table.

 

				Twelve-Month
		7/31/09		Average
Fund		(-) Discount		(-) Discount
NSL		-9.65%		-11.28%
JFR		-14.24%		-12.71%
JRO		-12.47%		-13.72%

10		Nuveen Investments

NSL Performance OVERVIEW			Nuveen Senior Income Fund
			as of July 31, 2009

 

 

Portfolio Allocation (as a % of total investments)

 

 

2008-2009 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

Nuveen Investments		11

JFR Performance OVERVIEW			Nuveen Floating Rate Income Fund
			as of July 31, 2009

 

 

Portfolio Allocation (as a % of total investments)

 

 

2008-2009 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

12		Nuveen Investments

JRO Performance OVERVIEW			Nuveen Floating Rate Income Opportunity Fund
			as of July 31, 2009

 

 

Portfolio Allocation (as a % of total investments)

 

 

2008-2009 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

Nuveen Investments		13

 

Report of Independent
Registered Public Accounting Firm

 

 

The Board of Trustees and Shareholders
Nuveen Senior Income Fund
Nuveen Floating Rate Income Fund
Nuveen Floating Rate Income Opportunity Fund

 

We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of Nuveen Senior Income Fund, Nuveen Floating Rate Income Fund, and Nuveen Floating Rate Income Opportunity Fund (the “Funds”), as of July 31, 2009, and the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of July 31, 2009, by correspondence with the custodian and selling or agent banks or by other appropriate auditing procedures where replies from selling or agent banks were not received. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial positions of Nuveen Senior Income Fund, Nuveen Floating Rate Income Fund and Nuveen Floating Rate Income Opportunity Fund at July 31, 2009, the results of their operations and their cash flows for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended in conformity with US generally accepted accounting principles.

 

 

Chicago, Illinois
September 25, 2009

14		Nuveen Investments