Dear Shareholder,

 

The global economic environment in which your Fund operates reflects continuing but uneven economic recovery. The U.S. and other major industrial countries are experiencing steady but comparatively low levels of economic growth, while emerging market countries are seeing a resumption of relatively strong economic expansion. The largest source of economic uncertainty is the potential impact of steps being considered by many governments to counteract the extraordinary governmental spending and credit expansion carried out to deal with the financial and economic crisis of 2008. Consequently, the implications for future tax rates, government spending, interest rates and the pace of economic recovery in the U.S. and other leading economies are extremely difficult to predict at the present time. The long term health of the global economy depends on restoring some measure of fiscal discipline around the world, but since all of the corrective steps require economic pain, it is not surprising that governments are reluctant to undertake them.

 

In the near term, governments remain committed to furthering economic recovery and realizing a meaningful reduction in their national unemployment rates. Such an environment should produce continued economic growth and, consequently, attractive investment opportunities. Over the longer term, the larger uncertainty mentioned earlier carries the risk of unexpected potholes in the road to sustained recovery. For this reason, Nuveen’s investment management teams are working hard to balance return and risk by building well-diversified portfolios, among other strategies. I encourage you to read the following commentary on the management of your Fund. As always, I also encourage you to contact your financial consultant if you have any questions about your Nuveen Fund investment.

 

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 and Lead Independent Director

March 25, 2010

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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 have been managed by Gunther Stein of Symphony Asset Management, LLC, an affiliate of Nuveen Investments, since 2001. Gunther, who is Symphony’s chief investment officer, has more than 20 years of investment management experience, much of it in evaluating and purchasing senior corporate loans and other high-yield debt.

 

Here Gunther talks about his management strategies and the performance of the Funds for the six-month period ended January 31, 2010.

 

What key strategies were used to manage the Funds during the six-month period ended January 31, 2010?

 

 

Over this period, the Fund continued to invest at least 80% of its total assets in adjustable rate senior secured loans. Other investment included U.S. dollar denominated senior loans of non-U.S. borrowers, senior loans that were not secured, other debt securities, and equity securities and warrants acquired in connection with the Funds’ investments in senior loans.

 

Conditions remained firm in the senior loan market throughout the six-month period, as the market continued its record-breaking year in terms of positive performance. Overall, the loan market posted gains in each month of the period.

 

The positive performance since the market correction has been driven by a combination of better-than-expected corporate performance, limited new supply and healthy demand. It is important to note that while the fundamentals of many companies have been weakening, they often have been better than the analysts’ consensus. Default projections, which had been as high as 15-20% for senior loans and high yield debt, generally have come back down to well under 10%.

 

The senior loan market saw approximately $55 billion of new issuance in 2009, most of which came in the second half of the year. Loan paydowns and inflows into the asset class more than absorbed this new supply, leaving secondary market levels generally higher. This was a common theme throughout the period, and a stark contrast to the market environment seen in 2008 when new-issue loan supply was well over $100 billion and demand was nonexistent as the market deleveraged.

 

A common trend throughout the period was the refinancing of senior debt, much of which is shorter-maturity paper, using high yield bond issuance. In many cases, firms chose to “term out” their liabilities while locking in their funding cost using fixed-rate debt. This has

4		Nuveen Investments

generally been a positive for the senior loan market, as refinancings have taken senior debt out at par while the average secondary market issue trades at a discount to par.

 

We feel that technical factors will keep the market firm in the short term, as new issues should remain limited and demand remains firm. This demand is coming from both investors looking to take on credit risk, as well as investors who want to swap into floating rate income given the steepness in the yield curve.

 

In terms of fundamentals, we remain cautiously optimistic in the near term. However, in the next two to three years we expect there may be a large spike in the outstanding maturities in the loan market. According to Credit Suisse, this may total roughly $600 billion between 2011 and 2015. While we believe that this market will be navigable for managers that understand the companies they invest in, it will be more challenging for the market overall and the more index-like managers. Also worth noting is that many of these maturities will be removed from the market earlier than expected via paydowns, refinancings, and other means. These all represent powerful catalysts for active managers who can make opportunistic investments in the asset class.

 

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

 

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

 

Total Returns on Common Share Net Asset Value

For periods ended 1/31/10

 

		Cumulative		Annualized
		6-Month		1-Year		5-Year		10-Year
NSL		22.68%		97.45%		3.50%		5.04%
JFR		19.24%		82.15%		3.17%		N/A
JRO		21.86%		95.91%		3.77%		N/A
CSFB Leveraged Loan Index1		5.27%		39.44%		3.85%		4.38%
Barclays Capital U.S. Aggregate Bond Index2		5.54%		8.51%		5.16%		6.53%

 

For the six-months ended January 31, 2010, all three Funds outperformed the CSFB Leveraged Loan Index and the Barclays Capital U.S. Aggregate Bond Index. During the period, higher risk assets generally outperformed higher quality assets. The risk-driven rally was most evident in some of the low dollar-priced names we hold in the Funds, such as Tribune Company and Univision. Both of these issuers, which are heavily involved in the media business and had recent LBO deals, came under pressure in 2008. However, we believed that both businesses had sufficient asset quality and some level of downside protection in terms of recovery value. Looking at return potential, we thought these distressed assets provided a unique total return opportunity due to their price appreciation potential. Historically, senior loan asset class returns generally have been driven by coupons.

 

Given the broad rally seen during the period, very few issues had negative performance. Howerver, there was some relative underperformance in higher quality names. Many of these assets were new-issue loans which provide healthy risk-adjusted income, but lacked the total return potential of lower priced and stressed/distressed assets. We did think, however, that the income generated by these new-issue loans, such as Reynolds and

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Warner Chilcott, represented a solid value for the Funds in the current environment. Many of these issues have very tight creditor agreements and provide LIBOR floors which help support a higher coupon rate.

 

IMPACT OF THE FUNDS’ LEVERAGE STRATEGIES ON PERFORMANCE

 

One important factor impacting the returns of these Funds relative to the comparative indexes was the Funds’ use of financial leverage. The Funds use leverage because their managers believe that, over time, leveraging provides opportunities for additional income and total returns for common shareholders. However, use of leverage also can expose common shareholders to additional volatility. For example, as the prices of securities held by a Fund decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage. Conversely, leverage may enhance common share returns during periods when prices generally are rising.

 

Leverage made a significant positive contribution to the returns of each Fund over this period.

 

RECENT DEVELOPMENTS REGARDING THE FUNDS’ LEVERAGED CAPITAL STRUCTURES

 

Shortly after their inceptions, all three Funds issued auction rate preferred shares (APRS) to create financial leverage. As noted in the last several shareholder reports, the ARPS 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 ARPS have been submitted for sale in each of 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 ARPS holders who wanted to sell their shares in these auctions were unable to do so. This decline in liquidity in ARPS 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 ARPS.

 

One continuing implication for common shareholders of these Funds 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 the summer of 2008, the Funds announced their intention to redeem most or all of their ARPS and retain their leveraged structure primarily through the use of bank borrowings. Leveraging using bank borrowings offers common shareholders most benefits and risks as leveraging with ARPS.

 

As of January 31, 2010, these Funds had redeemed all of their outstanding ARPS. For additional information, please visit the Nuveen CEF Auction Rate Preferred Resource Center at: http://www.nuveen.com/arps.

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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. All three fund’s distributions increased twice over the six-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 January 31, 2010, all three Funds had positive UNII balances, based upon our best estimate, for tax purposes. For financial statement purposes, NSL had a negative UNII balance while JFR and JRO had positive UNII balances.

 

Common Share Repurchases and Share Price Information

 

As of January 31, 2010, JFR and JRO cumulatively repurchased common shares as shown in the accompanying table. Since the inception of the Funds’ repurchase program, NSL has not repurchased any of its outstanding common shares.

 

		Common Shares		% of Outstanding
Fund		Repurchased		Common Shares
JFR		147,593		0.3%
JRO		19,400		0.1%

 

During the six-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		137,893		$9.15		12.86%
JRO		9,700		$8.95		13.25%

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As of January 31, 2010, the Fund’s common share prices were trading at a discount (-) to their common share NAVs as shown in the accompanying table.

 

		1/31/10		Six-Month
		(-)Discount/		Average
Fund		(+)Premium		(-) Discount
NSL		+6.07%		-2.46%
JFR		-5.11%		-10.67%
JRO		-0.53%		-8.24%

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NSL Performance OVERVIEW			Nuveen Senior Income Fund
			as of January 31, 2010

 

 

Portfolio Allocation (as a % of total investments)

 

 

2009-2010 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

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JFR Performance OVERVIEW			Nuveen Floating Rate Income Fund
			as of January 31, 2010

 

 

Portfolio Allocation (as a % of total investments)

 

 

2009-2010 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

10		Nuveen Investments

JRO Performance OVERVIEW			Nuveen Floating Rate Income Opportunity Fund
			as of January 31, 2010

 

 

Portfolio Allocation (as a % of total investments)

 

 

2009-2010 Monthly Dividends Per Common Share

 

 

Share Price Performance — Weekly Closing Price

 

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