<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996.
1933 ACT REGISTRATION NO.
1940 ACT REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
<TABLE>
<CAPTION>
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [X]
<S> <C>
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [_]
</TABLE>
(Check appropriate box or boxes)
----------------
NUVEEN FLAGSHIP MULTISTATE TRUST II
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, 60606
Illinois
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
James J. Wesolowski, Esq.--Vice With a copy to:
President and Secretary Thomas A. Harman
333 West Wacker Drive Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for Service) 1001 Pennsylvania Ave., NW
Suite 800
Washington, D.C. 20004
APPROXIMATE DATE OF PROPOSED OFFERING: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Reg. (S) 270.24f-2 under the Investment Company Act of 1940,
Registrant hereby declares that an indefinite number or amount of shares are
being registered under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933 ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO.
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO.
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus
Part B-The Statement of Additional Information
Copy of Annual Reports and Semi-Annual Reports to
Shareholders (the financial statements from which are
incorporated by reference into the Statement of Additional
Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN PART A
OF FORM N-1A PROSPECTUS LOCATION
------------- -------------------
<S> <C>
1 Cover Page Cover Page
2 Synopsis Expense Information
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Fund Strategies
5 Management of the Fund General Information
5A Management's Discussion of Fund Incorporated by Reference to Annual and
Performance Semi-Annual Reports to Shareholders; Taxes
and Tax Reporting
6 Capital Stock and Other How to Select a Purchase Option; Taxes and
Securities Tax Reporting
7 Purchase of Securities Being Investing in the Funds
Offered
8 Redemption or Repurchase How to Sell Fund Shares
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN PART B LOCATION IN STATEMENT
OF FORM N-1A OF ADDITIONAL INFORMATION
--------------- -------------------------
<S> <C>
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Not Applicable
13 Investment Objectives and Investment Policies and Investment
Policies Portfolio
14 Management of the Fund Management
15 Control Persons and Principal Management
Holders of Securities
16 Investment Advisory and Other Investment Adviser and Investment
Services Management Agreement; Portfolio
Transactions Distribution and Service Plan;
Independent Public Accountants and
Custodian
17 Brokerage Allocation and Other Portfolio Transactions
Practices
18 Capital Stock and Other See "How to Select a Purchase Option" and
Securities "Taxes and Tax Reporting" in the Prospectus
19 Purchase, Redemption and Pricing Additional Information on the Purchase and
of Securities Redemption of Fund Shares; Net Asset Value
20 Tax Status Tax Matters
21 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares; See "Investing
in the Funds" and "Fund Service Providers"
in the Prospectus
22 Calculation of Performance Data Performance Information
23 Financial Statements Incorporated by Reference to Annual and
Semi-Annual Reports to Shareholders
</TABLE>
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST II
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
[LOGO OF NUVEEN] Prospectus
Municipal
Mutual
Funds
[PHOTO OF COUPLE APPEARS HERE]
Income funds designed to provide
high tax-free income and preserve
capital through investments in
quality municipal bonds
New York
New Jersey
February 1, 1997
<PAGE>
[INSIDE FRONT COVER]
INVESTING WITH NUVEEN
For nearly 100 years, John Nuveen & Co. Incorporated has been dedicated to
serving the distinctive investment needs of conservative investors and their
financial advisers.
The hallmarks of Nuveen's investment philosophy are a belief in the importance
of rigorous research as the basis for prudent investment decisions, a value-
investing philosophy dedicated to uncovering investments with above-average
return potential and a commitment to superior service. Since 1961, more than
1.5 million investors have entrusted over $65 billion of their investment
assets to Nuveen.
Whether you invest through mutual funds, exchange-traded funds, unit trusts or
individually-managed accounts, Nuveen offers a wide array of investments to
suit your financial objectives and risk tolerance.
To learn more about how Nuveen can help you achieve your financial objectives,
consult your financial adviser or call (800) 621-7227.
NUVEEN MUTUAL FUNDS
Mutual funds provide investors the benefits of professional investment manage-
ment, low-cost diversification and simplified record keeping. Nuveen offers a
wide variety of mutual funds designed to meet the needs of the conservative
investor for growth, current income and capital preservation:
EQUITY MUTUAL FUNDS
Nuveen Growth and Income Stock Fund
Nuveen Balanced Stock and Bond Fund
Nuveen Balanced Municipal and Stock Fund
MUNICIPAL MUTUAL FUNDS
National Michigan
Alabama Missouri
Arizona New Jersey
California New Mexico
Colorado New York
Connecticut North Carolina
Florida Ohio
Georgia Pennsylvania
Kansas South Carolina
Kentucky Tennessee
Louisiana Virginia
Maryland Wisconsin
Massachusetts
Nuveen offers both insured and uninsured municipal funds as well as limited-,
intermediate- and long-term municipal funds. Single-state municipal funds are
exempt from state and, in some cases, local income taxes, where applicable.
<PAGE>
PROSPECTUS
February 1, 1997
- ------------------------------------------------------------------
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
- ------------------------------------------------------------------
OVERVIEW
The funds listed above are part of the Nuveen Flagship Multistate Trust II, an
open-end investment company. Each fund seeks to provide high double or triple
tax-free income and preservation of capital through investments in diversified
portfolios of quality municipal bonds whose income is exempt from regular
federal, state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options which permit you to
purchase fund shares in the way that is best suited to your individual circum-
stances and investment needs. For detailed information about these flexible
purchase options, please refer to "How to Select a Purchase Option" later in
this prospectus.
This prospectus contains important information you should know before invest-
ing. Please read it carefully and keep it for future reference. You can find
more detailed information about each fund in the statement of additional infor-
mation which is part of this prospectus by reference. For a free copy, write to
Nuveen or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY. SHARES OF THE FUNDS
INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT
INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
CONTENTS
- --------------------------------------------
<TABLE>
<S> <C>
OVERVIEW 1
FUND SUMMARIES AND FINANCIAL HIGHLIGHTS 2
FUND STRATEGIES
Investment Objective 10
How the Funds Select Investments 10
Risk Reduction Strategies 11
INVESTING IN THE FUNDS
How to Buy Fund Shares 11
How to Select a Purchase Option 12
How to Sell Fund Shares 13
Optional Features and Services 14
DIVIDENDS AND TAXES
How the Funds Pay Dividends 15
Taxes and Tax Reporting 15
Taxable Equivalent Yields 16
GENERAL INFORMATION
How to Contact Nuveen 16
Fund Service Providers 16
How the Funds Report Performance 17
How Fund Shares are Priced 17
APPENDIX
Special State Considerations 18
</TABLE>
- ---------------------------------------------
PAGE 1
<PAGE>
- -----------------------------------------------------------------------
Nuveen Flagship New York Municipal Bond Fund
PERFORMANCE INFORMATION (As of 8/31/96)
INCEPTION: December 22, 1986
NET ASSETS: $171.9 million
TOTAL RETURN
(Annualized)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.94% 5.69% 0.00% 5.00% 5.98%
5 YEARS 6.35% 7.33% 0.00% 6.65% 7.67%
10 YEARS 0.00% 0.00% 0.00% 0.00% 0.00%
INCEPTION 6.68% 7.19% 0.00% 6.70% 7.50%
- -----------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for
periods prior to class inception, adjusted for the differences in sales
charges and fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies in the prospectus for further information.
DURATION AND WEIGHTED AVERAGE MATURITY
[TO COME]
CREDIT QUALITY
[CHART APPEARS HERE]
NR (1%)
AAA (31%)
AA (13%)
A (12%)
BBB (43%)
INDUSTRY DIVERSIFICATION (TOP 5)
[CHART APPEARS HERE]
Housing Facilities (23%)
Lease Rental Facilities (19%)
Educational Facilities (13%)
Escrowed Bonds (13%)
General Obligation Bonds (13%)
Other (19%)
- -------------------------------------------------------------------------------
EXPENSE INFORMATION (As of 8/31/96)
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES(4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.16% 0.16% 0.16% 0.16%
WAIVERS/REIMBURSEMENTS -- -- -- --
TOTAL EXPENSES 0.91% 1.66% 1.46% 0.71%
- -------------------------------------------------------
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES(5)
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on an assumed annual total return of 5.00% and reinvestment of
all dividends.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 56 $ 15 $ 7
3 YEARS $ 70 $ 84 $ 46 $23
5 YEARS $ 90 $102 $ 80 $40
10 YEARS $149 $177 $175 $88
- ------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES ON NEXT PAGE
- -----------
PAGE 2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
February 28/29, Value Income(c) Investments(a) Income Gains Value
- -------------------------------------------------------------------------------------
CLASS A (9/94)
1997(g) $10.610 $.282 $(.246) $(.276) $ -- $10.370
- -------------------------------------------------------------------------------------
1996 10.120 .555 .487 (.552) -- 10.610
- -------------------------------------------------------------------------------------
1995(d) 10.230 .277 (.067) (.273) (.047) 10.120
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(g) 10.640 .239 (.242) (.237) -- 10.400
- -------------------------------------------------------------------------------------
1996 10.110 .478 .528 (.476) -- 10.640
- -------------------------------------------------------------------------------------
1995(d) 10.110 .231 .038 (.222) (.047) 10.110
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997(g) 10.640 .291 (.240) (.291) -- 10.400
- -------------------------------------------------------------------------------------
1996 10.150 .582 .490 (.582) -- 10.640
- -------------------------------------------------------------------------------------
1995 10.720 .579 (.529) (.573) (.047) 10.150
- -------------------------------------------------------------------------------------
1994 10.610 .578 .161 (.580) (.049) 10.720
- -------------------------------------------------------------------------------------
1993 9.880 .603 .806 (.598) (.081) 10.610
- -------------------------------------------------------------------------------------
1992(e) 9.820 .163 .053 (.156) -- 9.880
- -------------------------------------------------------------------------------------
1991(f) 9.380 .629 .441 (.630) -- 9.820
- -------------------------------------------------------------------------------------
1990(f) 9.560 .631 (.181) (.630) -- 9.380
- -------------------------------------------------------------------------------------
1989(f) 9.180 .633 .380 (.633) -- 9.560
- -------------------------------------------------------------------------------------
1988(f) 8.760 .625 .420 (.625) -- 9.180
- -------------------------------------------------------------------------------------
1987(d)(f) 9.600 .612 (.840) (.612) -- 8.760
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
February 28/29, Return(b) (millions) Assets(c) Net Assets(c) Rate
- -------------------------------------------------------------------------------------
CLASS A (9/94)
1997(g) .37% $18.9 .96%+ 5.29%+ 18%
- -------------------------------------------------------------------------------------
1996 10.52 15.7 .99 5.31 47
- -------------------------------------------------------------------------------------
1995(d) 2.21 3.2 1.00+ 5.87+ 29
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997(g) (.01) 0.7 1.71+ 4.54+ 18
- -------------------------------------------------------------------------------------
1996 10.13 0.6 1.73 4.55 47
- -------------------------------------------------------------------------------------
1995(d) 2.80 0.1 1.75+ 5.16+ 29
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997(g) .51 152.3 .71+ 5.54+ 18
- -------------------------------------------------------------------------------------
1996 10.80 154.8 .74 5.57 47
- -------------------------------------------------------------------------------------
1995 .75 149.5 .74 5.79 29
- -------------------------------------------------------------------------------------
1994 7.10 146.3 .75 5.33 15
- -------------------------------------------------------------------------------------
1993 14.79 107.1 .75 5.84 12
- -------------------------------------------------------------------------------------
1992(e) 2.21 66.5 .75+ 6.27+ 16
- -------------------------------------------------------------------------------------
1991(f) 11.79 59.4 .75 6.50 19
- -------------------------------------------------------------------------------------
1990(f) 4.92 44.3 .75 6.65 51
- -------------------------------------------------------------------------------------
1989(f) 11.34 29.0 .75 6.63 85
- -------------------------------------------------------------------------------------
1988(f) 12.20 15.0 .75 6.89 71
- -------------------------------------------------------------------------------------
1987(d)(f) (2.44) 8.2 .37+ 6.46+ 20
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized
(a) Net of any applicable taxes
(b) Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the five months ending February 29.
(f) For the year ending November 30.
(g) For the six months ending August 31, 1996.
- -------------------------------------------------------------------------------
NOTES:
(1)The sales charge may be reduced or waived based on the amount of purchase or
for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2)CDSC declines to 0% at the end of six years.
(3)Imposed only on redemptions within 12 months of purchase.
(4)Effective 2/1/97, the funds reduced the service fee on Class A and C shares
from 0.25% to 0.20% and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table. These
changes are expected to reduce total operating expenses on Class A from
0.96% to 0.91% and on Class C from 1.71% to 1.46%. Long-term holders of
Class B and C shares may pay more in distribution fees and CDSCs than the
maximum initial sales charge permitted under National Association of Secu-
rities Dealers (NASD) Rules of Fair Practice.
(5)The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to the
end of each holding period, your expenses would be higher. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
---------
PAGE 3
<PAGE>
- -------------------------------------------------------------------------------
Nuveen New York Insured Municipal Bond Fund
PERFORMANCE INFORMATION (As of 8/31/96)
INCEPTION: December 22, 1986
NET ASSETS: $359.0 million
TOTAL RETURN
(Annualized)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.47% 5.20% 0.00% 4.33% 5.45%
5 YEARS 6.11% 7.09% 0.00% 6.35% 7.37%
10 YEARS 0.00% 0.00% 0.00% 0.00% 0.00%
INCEPTION 6.31% 6.82% 0.00% 6.33% 7.09%
- -----------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for
periods prior to class inception, adjusted for the differences in sales
charges and fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies in the prospectus for further information.
DURATION AND WEIGHTED AVERAGE MATURITY
[TO COME]
CREDIT QUALITY
[CHART APPEARS HERE]
Insured (85%)
Escrowed (15%)
INDUSTRY DIVERSIFICATION (TOP 5)
[CHART APPEARS HERE]
Housing Facilities (18%)
General Obligation Bonds (17%)
Escrowed Bonds (15%)
Water/Sewer Facilities (11%)
Transportation (11%)
Other (28%)
- -------------------------------------------------------------------------------
EXPENSE INFORMATION (As of 8/31/96)
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
- -------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEE 0.54% 0.54% 0.54% 0.54%
12B-1 FEE 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.14% 0.14% 0.14% 0.14%
WAIVERS/REIMBURSEMENTS -- -- -- --
TOTAL EXPENSES 0.88% 1.63% 1.43% 0.68%
- -------------------------------------------------------
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on an assumed annual total return of 5.00% and reinvestment of
all dividends.
<TABLE>
<CAPTION>
- -----------------------------------------
HOLDING
PERIOD CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 56 $ 15 $ 7
3 YEARS $ 69 $ 83 $ 45 $22
5 YEARS $ 89 $106 $ 78 $38
10 YEARS $146 $173 $171 $85
- -----------------------------------------
</TABLE>
SEE NOTES ON NEXT PAGE
- ---------
PAGE 4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
February 28/29, Value Income(c) Investments(a) Income Gains Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 (g) $10.610 $.266 $(.285) $(.261) $ -- $10.330
- -------------------------------------------------------------------------------------
1996 10.150 .521 .492 (.524) (.029) 10.610
- -------------------------------------------------------------------------------------
1995 (d) 10.160 .253 .037 (.260) (.040) 10.150
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997 (g) 10.610 .226 (.284) (.222) -- 10.330
- -------------------------------------------------------------------------------------
1996 10.120 .442 .524 (.447) (.029) 10.610
- -------------------------------------------------------------------------------------
1995 (d) 10.030 .207 .133 (.210) (.040) 10.120
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997 (g) 10.610 .273 (.280) (.273) -- 10.330
- -------------------------------------------------------------------------------------
1996 10.150 .548 .495 (.554) (.029) 10.610
- -------------------------------------------------------------------------------------
1995 10.630 .555 (.440) (.555) (.040) 10.150
- -------------------------------------------------------------------------------------
1994 10.620 .550 .035 (.543) (.032) 10.630
- -------------------------------------------------------------------------------------
1993 9.780 .566 .849 (.562) (.013) 10.620
- -------------------------------------------------------------------------------------
1992 (e) 9.320 .590 .467 (.597) -- 9.780
- -------------------------------------------------------------------------------------
1991 (f) 9.250 .598 .068 (.596) -- 9.320
- -------------------------------------------------------------------------------------
1990 (f) 9.060 .596 .190 (.596) -- 9.250
- -------------------------------------------------------------------------------------
1989 (f) 9.100 .593 (.040) (.593) -- 9.060
- -------------------------------------------------------------------------------------
1988 (f) 9.830 .606 (.730) (.606) -- 9.100
- -------------------------------------------------------------------------------------
1987 (d)(f) 9.600 .130 .230 (.130) -- 9.830
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
February 28/29, Return(b) (millions) Assets(c) Net Assets(c) Rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 (g) (.15)% $30.6 .94%+ 5.00%+ 14%
- -------------------------------------------------------------------------------------
1996 10.19 24.7 .93 4.97 17
- -------------------------------------------------------------------------------------
1995 (d) 3.01 7.3 1.05+ 5.41+ 11
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997 (g) (.53) 2.2 1.69+ 4.24+ 14
- -------------------------------------------------------------------------------------
1996 9.71 1.4 1.69 4.21 17
- -------------------------------------------------------------------------------------
1995 (d) 3.53 0.3 1.80+ 4.65+ 11
- -------------------------------------------------------------------------------------
CLASS R (12/86)
1997 (g) (.03) 326.2 0.68+ 5.25+ 14
- -------------------------------------------------------------------------------------
1996 10.51 343.3 0.67 5.26 17
- -------------------------------------------------------------------------------------
1995 1.37 345.1 0.65 5.57 11
- -------------------------------------------------------------------------------------
1994 5.57 388.2 0.68 5.11 5
- -------------------------------------------------------------------------------------
1993 14.96 314.9 0.73 5.56 6
- -------------------------------------------------------------------------------------
1992 (e) 11.66 167.0 0.69+ 6.08+ 4
- -------------------------------------------------------------------------------------
1991 (f) 7.61 80.5 0.73 6.46 13
- -------------------------------------------------------------------------------------
1990 (f) 8.75 40.4 0.85 6.35 30
- -------------------------------------------------------------------------------------
1989 (f) 6.37 20.2 0.97 6.58 62
- -------------------------------------------------------------------------------------
1988 (f) (0.85) 14.1 0.61 6.73 36
- -------------------------------------------------------------------------------------
1987 (d)(f) 3.76 5.2 -- 4.97+ --
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized
(a) Net of any applicable taxes
(b) Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the three months ending February 29.
(f) For the year ending November 30.
(g) For the six months ending August 31, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase or
for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective 2/1/97, the funds reduced the service fee on Class A and C shares
from 0.25% to 0.20% and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table. These
changes are expected to reduce the total operating expenses on Class A from
0.93% to 0.88% and on Class C from 1.63% to 1.43%. Long-term holders of
Class B and C shares may pay more in distribution fees and CDSCs than the
maximum initial sales charge permitted under National Association of
Securities Dealers (NASD) Rules of Fair Practice.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to the
end of each holding period, your expenses would be higher. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
- --------------------------------------------------------------------------------
PAGE 5
<PAGE>
- -----------------------------------------------------------------------
Nuveen Flagship New Jersey Municipal Bond Fund
PERFORMANCE INFORMATION (As of 7/31/96)
INCEPTION: February 28, 1992
NET ASSETS: $58.3 million
TOTAL RETURN
(Annualized)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 YEAR 0.91% 5.67% 0.00% 4.88% 6.01%
5 YEARS 0.00% 0.00% 0.00% 0.00% 0.00%
10 YEARS 0.00% 0.00% 0.00% 0.00% 0.00%
INCEPTION 5.73% 6.84% 0.00% 6.06% 7.11%
- -----------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for
periods prior to class inception, adjusted for the differences in sales
charges and fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies in the prospectus for further information.
DURATION AND WEIGHTED AVERAGE MATURITY
[TO COME]
CREDIT QUALITY
[CHART APPEARS HERE]
NR (11%)
AAA (43%)
AA (6%)
A (30%)
BBB (8%)
BB (2%)
INDUSTRY DIVERSIFICATION (TOP 5)
[CHART APPEARS HERE]
Health Care Facilities (16%)
General Obligation Bonds (15%)
Housing Facilities (12%)
Escrowed Bonds (11%)
Pollution Control (10%)
Other (36%)
- -------------------------------------------------------------------------------
EXPENSE INFORMATION (As of 7/31/96)
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES CHARGE ON PURCHASES 4.20%(1) -- -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 5%(2) 1%(3) --
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES(4)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
- ----------------------------------------------------------
CLASS A CLASS B CLASS C CLASS R
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.95% 0.75% --
OTHER EXPENSES 0.36% 0.36% 0.36% 0.36%
WAIVERS/REIMBURSEMENTS (0.16%) (0.16%) (0.16%) (0.16%)
TOTAL EXPENSES 0.95% 1.70% 1.50% 0.75%
- ----------------------------------------------------------
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES(5)
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on an assumed annual total return of 5.00% and reinvestment of
all dividends.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR $ 51 $ 57 $ 15 $ 8
3 YEARS $ 71 $ 85 $ 47 $24
5 YEARS $ 92 $104 $ 82 $42
10 YEARS $154 $181 $179 $93
- ------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES ON NEXT PAGE
- --------
PAGE 6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Arthur Andersen LLP, the fund's independent
auditors, and the fund's subsequent unaudited semi-annual report. For a free
copy of the fund's latest annual and semi-annual reports, write to Nuveen or
call (800) 621-7227.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
February 28/29, Value Income(c) Investments(a) Income Gains Value
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 (d) $10.400 $.261 $(.287) $(.254) $ -- $10.120
- -------------------------------------------------------------------------------------
1996 9.730 .519 .685 (.534) -- 10.400
- -------------------------------------------------------------------------------------
1995 (e) 10.030 .205 (.209) (.210) (.086) 9.730
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997 (d) 10.380 .227 (.292) (.215) -- 10.100
- -------------------------------------------------------------------------------------
1996 9.710 .443 .683 (.456) -- 10.380
- -------------------------------------------------------------------------------------
1995 (e) 9.770 .159 (.050) (.169) -- 9.710
- -------------------------------------------------------------------------------------
CLASS R (12/91)
1997 (d) 10.410 .266 (.280) (.266) -- 10.130
- -------------------------------------------------------------------------------------
1996 9.740 .551 .677 (.558) -- 10.410
- -------------------------------------------------------------------------------------
1995 10.710 .524 (.886) (.522) (.086) 9.740
- -------------------------------------------------------------------------------------
1994 9.960 .513 .810 (.513) (.060) 10.710
- -------------------------------------------------------------------------------------
1993 9.525 .445 .431 (.441) -- 9.960
- -------------------------------------------------------------------------------------
1992 (e) 9.525 -- -- -- -- 9.525
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
February 28/29, Return(b) (millions) Assets(c) Net Assets(c) Rate
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 (d) (.23)% $13.9 1.00%+ 5.02%+ 8%
- -------------------------------------------------------------------------------------
1996 12.63 10.7 1.00 5.10 39
- -------------------------------------------------------------------------------------
1995 (e) .02 2.7 1.00+ 5.34+ 32
- -------------------------------------------------------------------------------------
CLASS C (9/94)
1997 (d) (.61) 1.9 1.75+ 4.27+ 8
- -------------------------------------------------------------------------------------
1996 11.80 1.1 1.75 4.37 39
- -------------------------------------------------------------------------------------
1995 (e) 1.16 .5 1.75+ 4.62+ 32
- -------------------------------------------------------------------------------------
CLASS R (12/91)
1997 (d) (.11) 42.4 .75+ 5.27+ 8
- -------------------------------------------------------------------------------------
1996 12.88 43.3 .75 5.43 39
- -------------------------------------------------------------------------------------
1995 (3.27) 39.6 .75 5.32 32
- -------------------------------------------------------------------------------------
1994 13.60 36.5 .75 4.84 52
- -------------------------------------------------------------------------------------
1993 9.36 16.2 .75 4.96 9
- -------------------------------------------------------------------------------------
1992 (e) -- .02 -- -- --
- -------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c) After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory.
(d) For the six months ending July 31, 1996.
(e) From commencement of class operations as noted.
- --------------------------------------------------------------------------------
NOTES:
(1) The sales charge may be reduced or waived based on the amount of purchase or
for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective 2/1/97, the funds reduced the service fee on Class A and C shares
from 0.25% to 0.20% and reduced the distribution fee on Class C shares from
0.75% to 0.55%. These lower expenses are reflected in the table. These
changes are expected to reduce total operating expenses on Class A from
1.00% to 0.95% and on Class C from 1.75% to 1.50%. Long-term holders of
Class B and C shares may pay more in distribution fees and CDSCs than the
maximum initial sales charge permitted under National Association of
Securities Dealers (NASD) Rules of Fair Practice.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This example
does not represent past or future expenses; actual expenses may be higher
or lower.
- --------------------------------------------------------------------------------
PAGE 7
<PAGE>
- ----------------------------------------------------------------------
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
PERFORMANCE INFORMATION (As of 11/30/96)
INCEPTION: September 16, 1992
NET ASSETS: $8.3 million
TOTAL RETURN
(Annualized)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
CLASS A
(OFFER CLASS A
PRICE) (NAV) CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 0.00% 0.00% 0.00% 0.00%
5 YEARS 0.00% 0.00% 0.00% 0.00%
10 YEARS 0.00% 0.00% 0.00% 0.00%
INCEPTION 0.00% 0.00% 0.00% 0.00%
- --------------------------------------------------------------------------------------------------
</TABLE>
Class R total returns reflect actual performance for all periods; Class A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for
periods prior to class inception, adjusted for the differences in sales
charges and fees between the classes. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies in the prospectus for further information.
DURATION AND WEIGHTED AVERAGE MATURITY
[PIE CHART TO COME]
CREDIT QUALITY
[CHART APPEARS HERE]
AAA (45%)
AA (19%)
A (16%)
BBB (18%)
NR (2%)
INDUSTRY DIVERSIFICATION
[CHART APPEARS HERE]
Non-State General Obligations (28%)
Hospitals (14%)
Education (11%)
Industrial Development and Pollution Control (10%)
Municipal Revenue/Transportation (10%)
Other (27%)
- -------------------------------------------------------------------------------
EXPENSE INFORMATION (As of 11/30/96)
SHAREHOLDER TRANSACTION EXPENSES
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
CLASS A CLASS C CLASS R
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES CHARGE ON PURCHASES 3.00%(1) -- --
SALES CHARGE ON REINVESTED DIVIDENDS -- -- --
CONTINGENT DEFERRED SALES CHARGE (CDSC) ON REDEMPTIONS --(1) 1%(2) --
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES(3)
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
- -------------------------------------------------
CLASS A CLASS C CLASS R
- -------------------------------------------------
<S> <C> <C> <C>
MANAGEMENT FEES 0.55% 0.55% 0.55%
12B-1 FEES 0.20% 0.75% --
OTHER EXPENSES 1.00% 1.00% 1.00%
WAIVERS/REIMBURSEMENTS (1.00%) (1.00%) (1.00%)
TOTAL EXPENSES 0.75% 1.30% 0.55%
- -------------------------------------------------
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES(4)
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on an assumed annual total return of 5.00% and reinvestment of
all dividends.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
HOLDING PERIOD CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YEAR $ 37 $ 13 $ 6
3 YEARS $ 53 $ 41 $18
5 YEARS $ 70 $ 71 $31
10 YEARS $120 $157 $69
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES ON NEXT PAGE
- ---------
PAGE 8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual
report which has been audited by Deloitte & Touche LLP, the fund's independent
auditors at that time, and the fund's subsequent unaudited semi-annual report.
For a free copy of the fund's latest annual and semi-annual reports, write to
Nuveen or call (800) 621-7227.
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C> <C>
Net Realized Distribu-
and Unreal- Dividends tions
Beginning Net ized Gain from Net from Ending
Year Ending Net Asset Investment (Loss) From Investment Capital Net Asset
May 31 Value Income(c) Investments(a) Income Gains Value
- -------------------------------------------------------------------------------------
CLASS A (9/92)
1997(e) $ $ $ $ $ $
- -------------------------------------------------------------------------------------
1996 10.25 .51 (.11) (.51) -- 10.14
- -------------------------------------------------------------------------------------
1995 10.04 .50 .22 (.51) -- 10.25
- -------------------------------------------------------------------------------------
1994 10.15 .53 (.10) (.52) .02 10.04
- -------------------------------------------------------------------------------------
1993(d) 9.70 .34 .45 (.34) -- 10.15
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION DATE)
<S> <C> <C> <C> <C> <C>
Ratio of Net
Ratio of Investment
Ending Expenses to Income to Portfolio
Year Ending Total Net Assets Average Net Average Turnover
May 31 Return(b) (millions) Assets(c) Net Assets(c) Rate
- -------------------------------------------------------------------------------------
CLASS A (9/92)
1997(e) % $ %+ %+ %
- -------------------------------------------------------------------------------------
1996 3.89 8.3 .60 4.90 17
- -------------------------------------------------------------------------------------
1995 7.42 9.2 .69 5.04 35
- -------------------------------------------------------------------------------------
1994 4.27 9.3 .16 5.10 27
- -------------------------------------------------------------------------------------
1993(d) 11.07 5.6 .40+ 4.84+ 29
- -------------------------------------------------------------------------------------
</TABLE>
+Annualized.
(a)Net of any applicable taxes.
(b)Total returns are calculated on net asset value and are annualized in the
first year after commencement of class operations.
(c)After waiver of certain management fees or reimbursement of expenses by
Nuveen Advisory.
(d)From commencement of class operations as noted.
(e)For the six months ending November 30, 1996.
- --------------------------------------------------------------------------------
NOTES:
(1)The sales charge may be reduced or waived based on the amount of purchase or
for certain eligible categories of investors. A CDSC of 1% is imposed on
redemptions of certain purchases of $1 million or more within 18 months of
purchase.
(2)Imposed only on redemptions within 12 months of purchase.
(3)Effective 2/1/97, the fund eliminated the 0.20% distribution fee on Class A
shares and reduced the distribution fee on Class C shares from 0.75% to
0.55%. These lower expenses are reflected in the table. These changes are
expected to reduce total operating
expenses on Class A from 0.95% to 0.75% and on Class C from 1.50% to 1.30%.
Long-term holders of Class C shares may pay more in distribution fees and
CDSCs than the maximum initial sales charge permitted under National Associ-
ation of Securities Dealers (NASD) Rules of Fair Practice.
(4)The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to the
end of each holding period, your expenses would be higher. This example does
not represent past or future expenses; actual expenses may be higher or
lower.
----------
PAGE 9
<PAGE>
- --------------------------------------------------------------------------------
FUND STRATEGIES
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level of
current interest income exempt from regular federal and state income tax as is
consistent with preservation of capital. There is no assurance that the funds
will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital;
. Reduce taxes on investment income;
. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
. Pursue an aggressive, high-growth investment strategy;
. Invest through an IRA or 401k plan;
. Avoid fluctuations in share price.
- --------------------------------------------------------------------------------
HOW THE FUNDS SELECT
INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest primarily in municipal bonds from a specific state that pay
interest that is exempt from regular federal, state and, in some cases, local
income taxes. Income from these bonds, however, may be subject to the federal
alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by the
full faith and credit, or taxing authority, of the issuer and may be repaid
from any revenue source; revenue bonds may be repaid only from the revenues of
a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds focus on quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment adviser. Each fund except the New York Insured Fund will invest at
least 80% of its net assets in investment-grade quality bonds from its partic-
ular state. The New York Insured Fund will invest at least 80% of its net
assets in insured municipal bonds or municipal bonds backed by an escrow or
trust account that contains sufficient U.S. government-backed securities to
assure timely payment of interest and principal.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase leases where the issuer has a strong
incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not iden-
tical--S&P and Fitch consider bonds rated BBB to have adequate capacity to pay
principal and interest; Moody's considers bonds rated Baa to have some specula-
tive characteristics. Bond ratings represent the opinions of the ratings agen-
cies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects
municipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The adviser
then monitors each fund's portfolio to assure that municipal bonds purchased
continue to represent over time the best values available.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an invest-
ment portfolio with an overall weighted average maturity within a defined
range. The New Jersey Intermediate Municipal Bond Fund maintains a weighted
average portfolio maturity of 5 to 10 years. Each of the other three funds
described in this prospectus are long-term funds and maintain a weighted
average portfolio maturity of 15 to 30 years. See "Defensive Investment Strate-
gies" below for further information.
INSURANCE
Insured municipal bonds are purchased primarily by the New York Insured Munic-
ipal Bond Fund. Insured municipal bonds are covered either by individual insur-
ance policies (obtained either at time of issue or subsequently) or under a
master portfolio insurance policy purchased by a fund. Insurance guarantees
only the timely payment of interest and principal on the bonds; it does not
guarantee the value of either individual bonds or fund shares.
Insurers currently used include MBIA Insurance Corp., AMBAC Indemnity Corp.,
Financial Security Assurance, Inc., and Financial Guaranty Insurance Co. The
funds' investment adviser may change insurers, but will only use insurers that
specialize in insuring municipal bonds and whose claims-paying ability is rated
Aaa or AAA by Moody's and S&P. Insurers are responsible for making their own
assessment of the insurability of a municipal bond.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is sold
and replaced with new securities during a year is known as the fund's port-
- --------------------------------------------------------------------------------
PAGE 10
<PAGE>
folio turnover rate. The funds intend to keep portfolio turnover relatively low
in order to reduce trading costs and the realization of taxable capital gains.
Each fund, however, may make limited short-term trades to take advantage of
market opportunities and reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of risk
because no interest accrues on the bonds prior to settlement and, since securi-
ties are subject to market fluctuation, the value of the bonds at time of
delivery may be less (or more) than cost.
- --------------------------------------------------------------------------------
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is the
risk that changes in market interest rates will affect the value of a fund's
investment portfolio. In general, the value of a municipal bond falls when
interest rates rise, and increases when interest rates fall. Credit risk is the
risk that an issuer of a municipal bond is unable to meet its obligation to
make interest and principal payments. In general, lower rated municipal bonds
are perceived to carry a greater degree of risk in the issuer's ability to make
interest and principal payments. Municipal bonds with longer maturities (dura-
tions) or lower ratings generally provide higher current income, but are
subject to greater price fluctuation due to changes in market conditions than
bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. As non-diversified
funds, the New Jersey and New Jersey Intermediate Funds generally are subject
to greater share price fluctuations due to these changes than the other funds
described in this prospectus, which are diversified funds. In pursuing its
value-oriented strategy, each fund may also invest a portion of its investment
portfolio in municipal bonds of U.S. territories (such as Puerto Rico and Guam)
which are exempt from regular, federal, state and local income taxes. See the
appendix and the statement of additional information for further information.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund
assets) designed to limit your investment risk and maintain portfolio diversi-
fication. Each fund may not have more than:
. 25% in any one industry sector, such as electric utilities or health care;
. 10% in borrowings (33% if used to meet redemptions).
As diversified funds, the New York and the New York Insured Funds also may not
have more than:
. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities that
are exempt from regular federal income tax, although the funds may invest up to
100% as a temporary defensive measure in response to adverse market conditions.
During temporary defensive periods, the weighted average maturity of a fund's
investment portfolio may fall below the defined range described above under
"Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have a
maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strate-
gies" are fundamental and may not be changed without the approval of a majority
of the shareholders of each fund.
- --------------------------------------------------------------------------------
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
HOW TO BUY FUND SHARES
You may open an account with $3,000 and make additional investments at any time
with as little as $50. Reinvestment of Nuveen unit trust distributions have no
purchase minimums. The share price you pay will depend on when Nuveen receives
your order: orders received before the close of regular trading on the New York
Stock Exchange (normally 4:00 p.m. Eastern time) will receive that day's share
price; otherwise you will receive the next business day's share price.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial
advisers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your
- --------------------------------------------------------------------------------
PAGE 11
<PAGE>
portfolio on an ongoing basis to assure your investments continue to meet your
needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing investment
advice and
services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can
refer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the
enclosed Nuveen application and mailing it along with your check (payable to
the appropriate fund) to the address listed under "How to Contact Nuveen."
Sales charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or increase
minimum investment requirements. The funds also reserve the right to suspend
the issuance of shares at any time; any suspension, however, will not affect
your ability to redeem shares.
- --------------------------------------------------------------------------------
HOW TO SELECT A PURCHASE
OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your financial
adviser work on a commission or fee basis, the types of services that you will
receive, the amount you intend to buy, how long you plan to own your investment
and whether or not you will reinvest dividends. If you compensate your finan-
cial adviser directly, you should consider the fees your financial adviser
charges for investment advice or handling your trades in addition to any sales
charges and fees imposed by the funds. Please refer to your financial adviser's
sales material for further information. Each class of shares is described in
more detail below and under "The Distributor." Your financial adviser can
explain each option and help you determine which is most appropriate for you,
or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of
purchase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear a
0.20% annual service fee which compensates your financial adviser for providing
you with ongoing service.
The following Class A sales charges and commissions apply to all funds
described in this prospectus except the New Jersey Intermediate Municipal Bond
Fund:
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE COMMISSION
------------------------------------- -----------------
AS % OF
AS % OF PUBLIC YOUR NET AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE INVESTMENT OFFERING PRICE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over -- -- --(1)
- ------------------------------------------------------------------------------------
</TABLE>
The following Class A sales charges and commissions apply to the New Jersey
Intermediate Municipal Bond Fund:
CLASS A SALES CHARGES AND COMMISSIONS
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE COMMISSION
------------------------------------- -----------------
AS % OF
AS % OF PUBLIC YOUR NET AS % OF PUBLIC
PURCHASE AMOUNT OFFERING PRICE INVESTMENT OFFERING PRICE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000-100,000 2.50 2.56 2.00
$100,000-250,000 2.00 2.04 1.50
$250,000-500,000 1.50 1.52 1.25
$500,000-1,000,000 1.25 1.27 1.00
$1,000,000 and over -- -- --(1)
- ------------------------------------------------------------------------------------
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 1% of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% of
any amount over $5 million. Unless the authorized dealer waived the
commission, you may be assessed a contingent deferred sales charge (CDSC)
of 1% if you redeem any of your shares within 18 months of purchase.
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in connec-
tion with sales meetings, seminars, prospecting seminars and other events at
which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of adver-
tising that features the products and services of both parties. The statement
of additional information contains further information about these programs.
- --------------------------------------------------------------------
PAGE-12
<PAGE>
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions Sales Charge Waivers
. Rights of Accumulation . Unit Trust Reinvestment
. Letter of Intent (LOI) . Purchases using Redemptions from
Unrelated Funds
. Group Purchase
. Fee-Based Programs
. Bank Trust Departments
. Certain Employees of Nuveen or
Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of
purchase. The price you pay will equal the Class B NAV. There is no initial
sales charge, but Class B shares bear a 0.20% annual service fee which compen-
sates your financial adviser for providing you with ongoing service, and a
0.75% annual distribution fee which compensates Nuveen for paying your finan-
cial adviser a 4% commission at the time of purchase. The New Jersey Interme-
diate Municipal Bond Fund does not currently offer Class B shares.
Class B shares convert automatically to Class A shares eight years after
purchase. Class B shares will convert only if the fund is assured that the
conversion does not generate tax consequences for investors, based upon the
opinion of outside counsel or the written assurance of the IRS.
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be
assessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR 1 2 3 4 5 6 7+
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of
purchase. The price you pay will equal the Class C NAV. There is no initial
sales charge, Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55%
annual distribution fee which compensates Nuveen for paying your financial
adviser for the sale, including a 1% commission at the time of sale.
If you redeem your Class C shares within one year of purchase, you may be
assessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you are investing at least $1 million or would otherwise
qualify to purchase Class A shares without a sales charge as described under
"Other Sales Charge Discounts" above. There are no sales charges or ongoing
fees. Class R Shares have lower ongoing expenses than Class A Shares.
- -------------------------------------------------------------------------------
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on
record. If you have established electronic funds transfer privileges on your
account, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your
request by having your redemption proceeds wired directly into your bank
account.
Nuveen and Shareholder Services, Inc. ("SSI") will be liable for losses
resulting from unauthorized telephone redemptions only if they do not follow
reasonable procedures designed to verify the identity of the caller. You
should immediately verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
. The fund's name;
. Your name and account number;
. The dollar or share amount you wish to redeem;
- -------------------------------------------------------------------------------
PAGE 13
<PAGE>
. The signature of each owner exactly as it appears on the account;
. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
. The address you want your redemption proceeds sent to, if other than to the
address of record;
. Any certificates you have for the shares; and
. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written
notice if the value of your account falls below the established minimum. Pres-
ently, accounts worth less than $100 will be redeemed without notice unless
you have an active unit trust reinvestment account. You will not be assessed a
CDSC on an involuntary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in
another Nuveen mutual fund that is available within your state. You may
exchange fund shares by calling (800) 621-7227 or by mailing your written
request to Nuveen at the address listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are
exchanging. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of deter-
mining any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on
fund shareholders. In order to limit excessive exchange activity and in other
circumstances where the funds' investment adviser believes doing so would be
in the best interests of the fund, each fund reserves the right to revise or
terminate the exchange privilege, limit the amount or number of exchanges, or
reject any exchange. You will be notified in the event this happens to the
extent required by law.
- -------------------------------------------------------------------------------
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account, or directly
from your paycheck. To invest regularly from your bank account, simply
complete the appropriate section of the account application. To invest regu-
larly from your paycheck, call Nuveen for a Payroll Direct Deposit Enrollment
form. If you need additional copies of these forms, or would like assistance
completing them, contact your financial adviser or call Nuveen toll-free at
(800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging."
Because you are making fixed payments, you buy fewer shares when the price is
high, and more when the price is low. As a result, the average price you pay
will be less than the average share price of fund shares over this period.
Dollar cost averaging does not assure profits or protect against losses in a
steadily declining market. Since dollar cost averaging involves continuous
investment regardless of fluctuating price levels, you should consider your
financial ability to continue investing in declining as well as rising markets
before deciding to invest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
- ------------------------------------------------------------------------
PAGE-14
<PAGE>
THE POWER OF SYSTEMATIC INVESTING
Assuming $3,000 initial investment, $100 monthly contributions are added to an
investment account every month for 20 years. From the same $3,000 beginning,
the chart shows the amount that would be in the account after 20 years,
assuming no interest and interest compounded annually at the rates of 4%, 5%
and 6%.
LOGO
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly or semi-annually, and may choose to receive a
check, have the monies transferred directly into your bank account, paid to a
third party or sent payable to you at an address other than your address of
record. You must complete the appropriate section of the account application to
participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares on which you paid an initial sales charge or contin-
gent deferred sales charge (CDSC), you may reinvest all or part of your redemp-
tion proceeds up to one year later without incurring any additional charge. You
may only reinvest into the same class of shares you redeemed and will receive
the share price next determined after Nuveen receives your reinvestment
request. You may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of exer-
cising your reinstatement privilege.
ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account applica-
tion. Your financial adviser can provide and help you prepare the application
form, or you may obtain the form by calling (800) 621-7227. You may use elec-
tronic funds transfer to quickly and conveniently purchase or sell shares by
telephone, systematically invest or withdraw funds, or send dividend payments
directly to your bank account.
If you have established electronic funds transfer privileges on your account,
you may request that redemption proceeds of $1,000 or more be wired directly
into your bank account. While you will generally receive your redemption
proceeds more quickly than a regular telephone redemption, the fund may charge
you a fee for this expedited service.
- --------------------------------------------------------------------------------
DIVIDENDS AND TAXES
- --------------------------------------------------------------------------------
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or other
distributions once a year in December. The funds declare dividends on the ninth
of each month and generally pay dividends on the first business day of the
following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares unless you request otherwise. You may request to have your dividends
paid to you by check, deposited directly into your bank account, paid to a
third party, sent to an address other than your address of record or reinvested
in shares of another Nuveen mutual fund. If you wish to do so, complete the
appropriate section of the account application, contact your financial adviser
or call Nuveen at (800) 621-7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is added to the fund's share price; similarly, distributions from previ-
ously undistributed net income are deducted from the fund's share price. This
dividend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
- --------------------------------------------------------------------------------
PAGE 15
<PAGE>
- -------------------------------------------------------------------------------
TAXES AND TAX REPORTING
The discussion below and the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from a specific state or in
municipal bonds whose income is exempt from regular federal, state and local
income taxes. Consequently, the regular monthly dividends you receive will be
exempt from regular federal, state and, in some cases, local income taxes. All
or a portion of these dividends, however, may be subject to the federal alter-
native minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a
portion of the dividend effectively represents a return of your purchase
price. This is commonly known as "buying a dividend." Similarly, if you sell
or exchange fund shares shortly before the record date for a tax-exempt divi-
dend, a portion of the price you receive may be treated as a taxable capital
gain even though it reflects tax-free income earned but not yet distributed by
the fund.
TAX CONSEQUENCES OF PRIVATE ACTIVITY BONDS
Because each fund may invest in private activity bonds, the portion of your
regular monthly dividends derived from the income earned on these bonds that
would otherwise be tax-exempt will be treated as taxable income if:
. you are subject to the AMT (including corporate shareholders);
. you are a "substantial user" of a facility financed by these bonds; or
. you are a "related person" of a substantial user.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be
taxable as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free
income is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
- -------------------------------------------------------------------------------
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
<TABLE>
<CAPTION>
TAX-FREE YIELD
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- ------
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
- -------------------------------------------------------------------------------
PAGE 16
<PAGE>
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or conduct
other account transactions, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m.
Central time. If you are sending a written request to Nuveen, you should mail
your request to the following address:
Nuveen Mutual Funds
c/o Shareholder Services Inc.
P.O. Box 5330
Denver, CO 80217-5330
When purchasing fund shares by mail, please be sure to include a check made out
to the name of the Fund and mark clearly on your check which class of shares
you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are opening
a new account; if you are adding to an existing account, Nuveen will assume you
wish to buy more shares of the class you already own.
- --------------------------------------------------------------------------------
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The activities of Nuveen
Advisory, which also include managing the funds' business affairs and providing
certain clerical, booking and other administrative services, are overseen by
the funds' Board of Trustees. Established in 1976, Nuveen Advisory is a wholly-
owned subsidiary of John Nuveen & Co. Incorporated, which itself is approxi-
mately 78% owned by the St. Paul Companies, Inc.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
<TABLE>
<CAPTION>
AVERAGE DAILY MANAGEMENT
NET ASSET VALUE FEE
- --------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
- --------------------------------------
</TABLE>
Nuveen will waive some or all of its fees or reimburse expenses so that the
total operating expenses (not counting distribution and service fees) for the
New York Municipal Bond Fund, the New Jersey Municipal Bond Fund (through July
31, 1997) and the New York Insured Municipal Bond Fund do not exceed 0.75%,
0.75% and 0.975%, respectively, of average daily net assets. For more informa-
tion about fees and expenses, see the fund operating expense tables in the Fund
Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds are
set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and portfolio
managers of Nuveen Advisory and meets weekly to review economic conditions, the
outlook for the financial markets in general and the status of the municipal
markets in particular. Day-to-day operation of each fund and the execution of
its specific investment strategies is the responsibility of the designated
portfolio manager described below.
Daniel S. Solender is the portfolio manager for the New York Municipal Bond
Fund and the New York Insured Municipal Bond Fund. Mr. Solender has managed the
funds since September 1994 and joined Nuveen Advisory in January 1992. Stephen
S. Peterson is an Assistant Vice President of Nuveen Advisory and the portfolio
manager for the New Jersey Municipal Bond Fund. Mr. Peterson has managed the
fund since its inception in March 1992 and joined Nuveen Advisory in October
1991. Richard Huber is the portfolio manager for the New Jersey Intermediate
Municipal Bond Fund. Mr. Huber has managed the fund since 1992 and since 1995
had been a Vice President of Flagship Financial Inc., the fund's prior invest-
ment adviser, until becoming an employee of Nuveen Advisory upon the acquisi-
tion of Flagship Resources Inc. by The John Nuveen Company in December 1996.
THE DISTRIBUTOR
John Nuveen and Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order to
reimburse Nuveen for its costs in connection with these activities, including
compensation paid to authorized dealers, each fund has adopted a distribution
and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and
Class C shares, Nuveen retains the first year's service fee on sales of Class B
shares and retains the first year's service and distribution fees on sales of
Class C shares. The statement of additional information contains a detailed
description of the plan and its provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administra-
- -------------------------------------------------------------------------------
PAGE-17
<PAGE>
tive services in connection with the maintenance of shareholder accounts.
Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, currently
serves as transfer agent for each fund.
- -------------------------------------------------------------------------------
HOW THE FUNDS REPORT
PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar
investment objectives. Comparative performance information may include data
from Lipper Analytical Services, Inc., Morningstar, Inc. and other industry
publications. See the statement of additional information for a more detailed
discussion.
- -------------------------------------------------------------------------------
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets,
subtracting any liabilities or other debts, and dividing by the total number
of its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for
municipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions. When price quotes are readily available for a
municipal bond, the price used is the average of the quoted bid and asked
prices (or their yield equivalent).
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
funds. The discussion includes general state tax information related to an
investment in fund shares. Because tax laws are complex and often change, you
should consult your tax adviser about the state tax consequences of a specific
fund investment. See the statement of additional information for further
information.
NEW YORK
While New York State historically has been one of the wealthiest states in the
nation, for decades its economy has grown more slowly than the nation as a
whole. There are many reasons for this slow growth. New York has a very high
state and local tax burden relative to other states. Declines in the banking
and financial services industry, cutbacks in defense spending, and an over-
built real estate market have hurt the State's economy. High taxes and other
factors have prompted some businesses and individuals to leave the State, or
not to move to the State. More affluent residents of its cities have moved to
the suburbs and been replaced by less affluent residents, who may require more
government support. Cities outside the state have developed financial and
business resources which make them less dependent on New York City, which has
hindered its economic recovery. The State projects a slow rate of economic
growth in 1996. The State's 1995 unemployment rate was % and average
personal income was $ . New York City's 1995 unemployment rate was %
and average personal income was $ . New York State general obligation
bonds are rated by Moody's and by Standard & Poor's; New York City
general obligation bonds are rated Baa1 by Moody's and by Standard &
Poor's.
The State ended its 1995-96 fiscal year with an operating surplus of approxi-
mately $445 million. The proposed 1996-97 State budget projected a balanced
general fund, receipts of $31.3 billion, and disbursements of $31.2 billion.
The Governor also proposed an alternative budget to replace over $1 billion in
Medicaid reimbursements which the federal government might not pay.
New York City ended its 1995 fiscal year with an operating of
approximately $ million. After the State enacted its 1995-96 budget, New
York City adopted a fiscal year 1996 budget in June 1995 which provided for
$31.4 billion in spending. In January 1996, however, the City discovered
budget shortfalls and the Mayor proposed additional spending cuts to avoid a
deficit. In March 1996, Moody's announced that it was reviewing the City's
general obligation bond rating pending adoption of the City's 1997 budget. S&P
placed the City on negative credit watch in January 1995. The City's proposed
1997 budget of $32.7 billion reduces spending from the previous year and cuts
$1.1 billion from City agencies. The Governor and the legislature have not
agreed on how much State aid to provide the City in 1997, and the City may
have to adopt further budget cuts after the State budget is adopted. Recent
changes in federal law may lower the amount of federal aid the City receives.
If State and federal aid to the City declines, savings in the City's budget
may be lower than projected and the Mayor may be required to propose addi-
tional spending cuts or tax increases to balance the City's budget in 1997 and
beyond.
If serious financial difficulties arise that hamper the ability of the State,
its agencies, New York City, other municipalities, or school districts to
issue bonds or increase the risk that they may default on their obligations to
pay bondholders, the market value of the bonds they have issued may decrease.
In addition, without help from the State legislature, the State Constitution
may prevent the City from issuing bonds after 1998 because of declining real
estate values within the City. If the City cannot issue bonds to pay for
capital improvements, this would increase its budget deficits in later years.
- ------------------------------------------------------------------------
PAGE-18
<PAGE>
Tax Treatment.
Distributions by the New York funds that are attributable to interest earned on
municipal obligations issued by governmental authorities in New York or to
interest on obligations of the United States, its agencies, territories,
possessions, or instrumentalities that are exempt from state taxation under
federal law will not be subject to the New York State personal income tax or
the New York City personal income or unincorporated business taxes. All
remaining distributions, including distributions attributable to capital gains,
will be subject to the New York State personal income tax and the New York City
personal income and unincorporated business taxes.
All New York fund distributions, regardless of source, will be subject to the
New York State corporate franchise tax or the New York City general corporation
tax.
Any gain realized when shareholders sell, exchange, or redeem shares of the New
York funds will be subject to the New York State personal income and corporate
franchise taxes and the New York City personal income, unincorporated business,
and general corporation taxes.
NEW JERSEY
New Jersey has a diversified economic base comprised of various manufacturing,
construction and service industries. Compared to other states, New Jersey ranks
high in per capita personal income. The national recession, however, adversely
affected the State's employment rate. Economic recovery is expected to be slow
and uneven.
On June 30, 1995, the Governor signed the State's $16 billion budget for fiscal
year 1996. The balanced budget, which includes $541 million in surplus, is $300
million more than the 1995 budget. Whether the State can achieve a balanced
budget depends on its ability to reduce expenditures and collect estimated tax
revenues.
The 1995 fiscal year unaudited general fund revenues were $ billion against
expenditures of $ billion, leaving a surplus of approximately $569 million.
In April 1996, the unemployment rate was 6.6% and average personal income was
$ . New Jersey's general obligation bonds are rated Aa1 by Moody's and AA+
by Standard and Poor's.
Tax Treatment.
The portion of distributions by the New Jersey funds that are attributable to
interest or gains on New Jersey Tax Exempt Obligations or to interest or gains
on obligations of the United States, its agencies, territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the New Jersey gross income tax. All remaining distributions
will be subject to the New Jersey gross income tax.
All distributions from the New Jersey funds, regardless of source, will be
subject to the New Jersey corporation business tax or the New Jersey corpora-
tion income tax.
Any gain realized when shareholders sell, exchange, or redeem shares of the New
Jersey funds will not be subject to the New Jersey gross income tax.
Conversely, losses from such transactions may not be used to offset New Jersey
taxable gains. Gains from such transactions will be subject to the New Jersey
corporation business tax and the New Jersey corporation income tax.
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PAGE 19
<PAGE>
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
<PAGE>
FEBRUARY 1, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
NUVEEN FLAGSHIP CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus of
the Nuveen Flagship Multistate Trust II dated February 1, 1997. The Prospectus
may be obtained without charge from certain securities representatives, banks,
and other financial institutions that have entered into sales agreements with
John Nuveen & Co. Incorporated, or from the Funds, by mailing a written request
to the Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive,
Chicago, Illinois 60606 or by calling (800) 414-7447.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-31
Investment Adviser and Investment Management Agreement..................... S-33
Portfolio Transactions..................................................... S-34
Net Asset Value............................................................ S-35
Tax Matters................................................................ S-35
Performance Information.................................................... S-40
Additional Information on the Purchase and Redemption of Fund Shares....... S-49
Distribution and Service Plans............................................. S-52
Independent Public Accountants and Custodians.............................. S-54
Financial Statements....................................................... S-54
Appendix A--Ratings of Investments......................................... A-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each Fund appear in the Funds' Semi-
Annual Reports; each is included herein by reference. The Semi-Annual Reports
accompany this Statement of Additional Information.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and temporary
investments, as those terms are defined in the Prospectus.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the California Municipal Bond Fund, and
the California Insured Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a
privately owned or operated hospital, if the security is backed only by the
assets and revenues of the non-governmental user, then such non-governmental
user would be deemed to be the sole issuer. Where a security is also backed by
the
S-2
<PAGE>
enforceable obligation of a superior or unrelated governmental entity or other
entity (other than a bond insurer), it shall also be included in the
computation of securities owned that are issued by such governmental or other
entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end
diversified management series investment company organized as a Massachusetts
business trust on . Each of the Funds is an open-end management
investment company organized as a series of the Nuveen Flagship Multistate
Trust II. The Trust is an open-end management series company under SEC Rule
18f-2. Each Fund is a separate series issuing its own shares. The Trust
currently has ten series: the Nuveen Flagship New York Municipal Bond Fund
(formerly the Nuveen New York Tax-Free Value Fund, a series of the Nuveen Tax-
Free Bond Fund, Inc., a Minnesota corporation incorporated on July 11, 1986);
the Nuveen New York Insured Municipal Bond Fund (formerly the Nuveen New York
Insured Tax-Free Value Fund, a series of the Nuveen Insured Tax-Free Bond Fund,
Inc., a Minnesota corporation incorporated on July 14, 1986); the Nuveen
Flagship New Jersey Municipal Bond Fund (formerly the Nuveen New Jersey Tax-
Free Value Fund, a series of the Nuveen Multistate Tax-Free Trust, a
Massachusetts business trust organized on July 26, 1991); the Nuveen Flagship
New Jersey Intermediate Municipal Bond Fund (formerly the Flagship New Jersey
Intermediate Tax Exempt Fund, organized on September 16, 1992 as a series of
the Flagship Tax Exempt Funds Trust, a Massachusetts business trust organized
on March 8, 1985) the Nuveen California Municipal Bond Fund (formerly the
Nuveen California Tax-Free Value Fund, a series of the Nuveen California Tax-
Free Fund, Inc., a Maryland corporation incorporated on October 3, 1985); the
Nuveen California Insured Municipal Bond Fund (formerly the Nuveen California
Insured Tax-Free Value Fund, a series of the Nuveen Insured Tax-Free Bond Fund,
Inc., a Minnesota corporation incorporated on July 14, 1986); the Nuveen
Flagship California Intermediate Municipal Bond Fund (formerly the Flagship
California Intermediate Tax Exempt Fund, organized on as a
series of the Flagship Tax Exempt Funds Trust, a Massachusetts business trust
organized on March 8, 1985); the Nuveen Flagship Connecticut Municipal Bond
Fund (formerly the Flagship Connecticut Double Tax Exempt Fund, organized on
July 13, 1987 as a series of the Flagship Tax Exempt Funds Trust, a
Massachusetts business trust organized on March 8, 1985); the Nuveen
Massachusetts Municipal Bond Fund (formerly the Nuveen Massachusetts Tax-Free
Value Fund, a series of the Nuveen Tax-Free Bond Fund, Inc., a Minnesota
corporation incorporated on July 11, 1986); and the Nuveen Massachusetts
Insured Municipal Bond Fund (formerly the Nuveen Massachusetts Insured Tax-Free
Value Fund, a series of the Nuveen Insured Tax-Free Bond Fund, Inc., a
Minnesota corporation incorporated on July 14, 1986). Certain matters under the
Investment Company Act of 1940 which must be submitted to a vote of the holders
of the outstanding voting securities of a series company shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority
of the outstanding voting securities of each series affected by such matter.
PORTFOLIO SECURITIES
As described in the Prospectus, the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the California Municipal Bond Fund, and the
California Insured Municipal Bond Fund invest primarily in a diversified
portfolio, and the New Jersey Municipal Bond Fund, the New Jersey Intermediate
Municipal Bond Fund, the California Intermediate Municipal Bond Fund, the
Connecticut Municipal Bond Fund, the Massachusetts Municipal Bond Fund, and the
Massachusetts Insured Municipal Bond Fund invest primarily in a non-diversified
portfolio, of Municipal Obligations free from regular federal and state income
tax in each Fund's respective state, which generally will be Municipal
Obligations issued within the Fund's respective state. In general, Municipal
Obligations include debt obligations issued by states, cities and local
authorities to obtain funds for various public purposes, including construction
of a wide range of public facilities such as airports, bridges, highways,
hospitals, housing, mass transportation, schools, streets and water and sewer
works. Industrial development bonds and pollution control bonds that are issued
by or on behalf of public authorities to finance various privately-rated
facilities are included within the term Municipal Obligations if the interest
paid thereon is exempt from federal income tax.
S-3
<PAGE>
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, except that the Fund may not invest more than 20% of
its net assets in unrated bonds and (3) temporary investments as described
below, the income from which may be subject to state income tax or to both
federal and state income taxes. See Appendix A for more information about
ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer
has a strong incentive to continue making appropriations and timely payment
until the security's maturity. Some lease obligations may be illiquid under
certain circumstances. Lease obligations normally provide a premium interest
rate which along with regular amortization of the principal may make them
attractive for a portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
INSURANCE
Each insured Municipal Obligation held by the Nuveen New York Insured
Municipal Bond Fund, the Nuveen California Insured Municipal Bond Fund, and the
Nuveen Massachusetts Insured Municipal Bond Fund (the "Funds") will either be
(1) covered by an insurance policy applicable to a specific security and
obtained by the issuer of the security or a third party at the time of original
issuance ("Original Issue Insurance"), (2) covered by an insurance policy
applicable to a specific security and obtained by the Fund or a third party
subsequent to the time of original issuance ("Secondary Market Insurance"), or
(3) covered by a master municipal insurance policy purchased by the Funds
("Portfolio Insurance"). The Funds currently maintain a policy of Portfolio
Insurance with MBIA Insurance Corporation, AMBAC Indemnity Corporation,
Financial Security Assurance, Inc., and Financial Guaranty Insurance Company,
and may in the future obtain other policies of Portfolio Insurance, depending
on the availability of such policies on terms favorable to the Fund. However,
the Funds may determine not to obtain such policies and to emphasize
investments in Municipal Obligations insured under Original Issue Insurance or
Secondary Market Insurance. In any event, the Funds will only obtain policies
of Portfolio Insurance issued by insurers whose claims-paying ability is rated
Aaa by Moody's Investors Service, Inc. ("Moody's") or AAA by Standard & Poor's
Corporation ("S&P"). The Funds currently intend to obtain insurance polices
only from mono-line insurers specializing in insuring municipal debt. Municipal
Obligations covered by Original Issue Insurance or Secondary Market Insurance
are themselves typically assigned a rating of Aaa or AAA, as the case may be,
by virtue of the Aaa or AAA claims-paying ability of the insurer and would
generally be assigned a lower rating if the ratings were based primarily upon
the credit characteristics of the issuer without regard to the insurance
feature. By way or contrast, the ratings, if any, assigned to Municipal
Obligations insured under Portfolio Insurance will be based primarily upon the
credit characteristics of the issuers without regard to the insurance feature,
and will generally carry a rating that is below Aaa or AAA. While in the
portfolio of a Fund, however, a Municipal Obligation backed by Portfolio
Insurance will effectively be of the same quality as a Municipal Obligation
issued by an issuer of comparable credit characteristics that is backed by
Original Issue Insurance or Secondary Market Insurance.
The Funds' policy of investing in Municipal Obligations insured by insurers
whose claims-paying ability is rated Aaa or AAA will apply only at the time of
the purchase of a security, and a Fund will not be required to dispose of
securities in the event Moody's or S&P, as the case may be, downgrades its
assessment of the claims-paying ability of a particular insurer or the credit
characteristics of a particular issuer. In this connection, it should be noted
that in the event Moody's or S&P or both should down grade its assessment of
the claims-paying ability of a particular insurer, it could also be expected to
downgrade the ratings assigned to Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance issued by such insurer, and
Municipal Obligations insured under Portfolio Insurance issued by such insurer
would also be of reduced quality in the portfolio of the Fund. Moody's and S&P
continually assess the claims-paying ability of insurers and the credit
characteristics of issuers, and there can be no assurance that they will not
downgrade their assessments subsequent to the time a Fund purchases securities.
S-4
<PAGE>
In addition to insured Municipal Obligations, a Fund may invest in Municipal
Obligations that are entitled to the benefit of an escrow or trust account
which contains securities issued or guaranteed by the U.S. Government or U.S.
Government agencies, backed by the full faith and credit of the United States,
and sufficient in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates ("collateralized obligations").
These collateralized obligations generally will not be insured and will
include, but are not limited to, Municipal Obligations that have been (1)
advance refunded where the proceeds of the refunding have been used to purchase
U.S. Government or U.S. Government agency securities that are placed in escrow
and whose interest or maturing principal payments, or both, are sufficient to
cover the remaining scheduled debt service on the Municipal Obligations, and
(2) issued under state or local housing finance programs which use the issuance
proceeds to fund mortgages that are then exchanged for U.S. Government or U.S.
Government agency securities and deposited with a trustee as security for the
Municipal Obligations. These collateralized obligations are normally regarded
as having the credit characteristics of the underlying U.S. Government or U.S.
Government agency securities. Collateralized obligations will not constitute
more than 20% of a Fund's assets.
Each insured Municipal Obligation in which a Fund invests will be covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
There is no limitation on the percentage of a Fund's assets that may be
invested in Municipal Obligations insured by any given insurer.
Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of Municipal Obligations by the issuer thereof or a third
party in conjunction with the original issuance of such Municipal Obligations.
Under such insurance, the insurer unconditionally guarantees to the holder of
the Municipal Obligation the timely payment of principal and interest on such
obligation when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or
optional redemption (other than acceleration by reason of a mandatory sinking
fund payment), default or otherwise, the payments guaranteed may be made in
such amounts and at such times as payments of principal would have been due had
there not been such acceleration. The insurer is responsible for such payments
less any amounts received by the holder from any trustee for the Municipal
Obligation issuers or from any other source. Original Issue Insurance does not
guarantee payment on an accelerated basis, the payment of any redemption
premium (except with respect to certain premium payments in the case of certain
small issue industrial development and pollution control Municipal
Obligations), the value of the shares of the Fund, the market value of
Municipal Obligations, or payments of any tender purchase price upon the tender
of the Municipal Obligations. Original Issue Insurance also does not insure
against nonpayment of principal of or interest on Municipal Obligations
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for such obligations.
In the event that interest on or principal of a Municipal Obligation covered
by insurance is due for payment but is unpaid by the issuer thereof, the
applicable insurer will make payments to its fiscal agent (the "Fiscal Agent")
equal to such unpaid amounts of principal and interest not later than one
business day after the insurer has been notified that such nonpayment has
occurred (but not earlier than the date such payment is due). The Fiscal Agent
will disburse to the Fund the amount of principal and interest which is then
due for payment but is unpaid upon receipt by the Fiscal Agent of (i) evidence
of the Fund's right to receive payment of such principal and interest and (ii)
evidence, including any appropriate instruments of assignment, that all of the
rights to payment of such principal or interest then due for payment shall
thereupon vest in the insurer. Upon payment by the insurer of any principal or
interest payments with respect to any Municipal Obligations, the insurer shall
succeed to the rights of a Fund with respect to such payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether a Fund ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Secondary Market Insurance. Subsequent to the time of original issuance of a
Municipal Obligation, a Fund or a third party may, upon the payment of a single
premium, purchase insurance on such Municipal Obligation. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and remains in effect as long as the Municipal
Obligation covered thereby remain outstanding, the holder of such Municipal
Obligation does not voluntarily relinquish the Secondary Market Insurance and
the insurer remains in business, regardless of whether the Fund ultimately
disposes of such Municipal Obligation.
One of the purposes of acquiring Secondary Market Insurance with respect to a
particular Municipal Obligation would be to enable a Fund to enhance the value
of such Municipal Obligation. A Fund, for example, might seek to purchase a
particular Municipal Obligation and obtain Secondary Market Insurance with
respect thereto if, in the opinion of Nuveen Advisory, the market value of such
Municipal Obligation, as insured, would exceed the current value of the
Municipal Obligation without insurance plus the cost of the Secondary Market
Insurance. Similarly, if a Fund owns but wishes to sell a Municipal Obligation
that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance with respect thereto if, in the opinion of Nuveen
Advisory, the net proceeds of a sale by the Fund of such obligation, as
insured, would exceed the current value of such obligation plus the cost of the
Secondary Market Insurance.
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Portfolio Insurance. Portfolio Insurance guarantees the payment of principal
and interest on specified eligible Municipal Obligations purchased by a Fund.
Except as described below, Portfolio Insurance generally provides the same type
of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal Obligations insured under one Portfolio Insurance policy
would generally not be insured under any other policy purchased by a Fund. A
Municipal Obligation is eligible for coverage under a policy if it meets
certain requirements of the insurer. Portfolio Insurance is intended to reduce
financial risk, but the cost thereof and compliance with investment
restrictions imposed under the policy will reduce the yield to shareholders of
a Fund.
If a Municipal Obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then such Municipal Obligation is not required to
be additionally insured under any policy of Portfolio Insurance that a Fund may
purchase. All premiums respecting Municipal Obligations covered by Original
Issue Insurance or Secondary Market Insurance are paid in advance by the issuer
or other party obtaining the insurance.
Portfolio Insurance policies are effective only as to Municipal Obligations
owned by and held by a Fund, and do not cover Municipal Obligations for which
the contract for purchase fails. A "when-issued" Municipal Obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the
issue of such "when-issued" Municipal Obligation. In determining whether to
insure Municipal Obligations held by a Fund, an insurer will apply its own
standards, which correspond generally to the standards it has established for
determining the insurability of new issues of Municipal Obligations. See
"Original Issue Insurance" above.
Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as a Fund is in existence, the Municipal Obligations covered by
the policy continue to be held by the Fund, and the Fund pays the premiums for
the policy. Each insurer will generally reserve the right at any time upon 90
days' written notice to a Fund to refuse to insure any additional securities
purchased by the Fund after the effective date of such notice. The Board of
Trustees will
generally reserve the right to terminate each policy upon seven days' written
notice to an insurer if it determines that the cost of such policy is not
reasonable in relation to the value of the insurance to the Fund.
Each Portfolio Insurance policy will terminate as to any Municipal Obligation
that has been redeemed from or sold by a Fund on the date of such redemption or
the settlement date of such sale, and an insurer shall not have any liability
thereafter under a policy as to any such Municipal Obligation, except that if
the date of such redemption or the settlement date of such sale occurs after a
record date and before the related payment date with respect to any such
Municipal Obligation, the policy will terminate as to such Municipal Obligation
on the business day immediately following such payment date. Each policy will
terminate as to all Municipal Obligations covered thereby on the date on which
the last of the covered Municipal Obligations mature, are redeemed or are sold
by a Fund.
One or more policies of Portfolio Insurance may provide a Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
Municipal Obligation that is to be sold by the Fund. The Fund would exercise
the right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such Municipal
Obligation. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a Municipal Obligation only if, in the opinion of
Nuveen Advisory, upon such exercise the net proceeds from the sale by the Fund
of such obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance.
The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date
of purchase by the Fund and will not be increased or decreased for any change
in the creditworthiness of such obligation unless such obligation is in default
as to payment or principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by the Fund.
Each Fund generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated BBB) that are not
in default. In certain circumstances, however, Nuveen Advisory may determine
that an alternative value for the insurance, such as the difference between the
market value of the defaulted security and either its par value or the market
value of securities of a similar nature that are not in default or in
significant risk of default, is more appropriate. To the extent that the Fund
holds such defaulted securities, it may be limited in its ability to manage its
investment portfolio and to purchase other Municipal Obligations. Except as
described above with respect to securities covered by Portfolio Insurance that
are in default or subject to significant risk of default, the Funds will not
place any value on the insurance in valuing the Municipal Obligations that it
holds.
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by a Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by a
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance generally will remain in effect as long as Municipal Obligations
covered thereby are outstanding, such insurance may enhance the marketability
of such securities, even when such securities are in default or in significant
risk of default, but the exact effect, if any, on marketability
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cannot be estimated. Accordingly, the Funds may determine to retain or,
alternatively, to sell Municipal Obligations covered by Original Issue
Insurance or Secondary Market Insurance that are in default or in significant
risk of default.
Premiums for a Portfolio Insurance policy are paid monthly, and are adjusted
for purchases and sales of Municipal Obligations covered by the policy during
the month. The yield on a Fund is reduced to the extent of the insurance
premiums it pays. Depending upon the characteristics of the Municipal
Obligations held by a Fund, the annual premium rate for policies of Portfolio
Insurance is estimated to range from .15% to .30% of the value of the Municipal
Obligations covered under the policy. Because the majority of the Municipal
Obligations in the Funds were not covered by policies of Portfolio Insurance
during the year ended February 29, 1996, premium expenses as a percentage of
the value of Municipal Obligations held by the Funds for such period were .00%.
Set forth below is information about the various municipal bond insurers with
whom the Funds currently maintain policies of Portfolio Insurance.
AMBAC INDEMNITY CORPORATION ("AMBAC INDEMNITY")
AMBAC Indemnity is a Wisconsin-domiciled stock insurance corporation
regulated by the Office of the Commissioner of Insurance of the State of
Wisconsin and licensed to do business in 50 states, the District of Columbia,
the Territory of Guam and the Commonwealth of Puerto Rico, with admitted assets
of approximately $2,440,000,000 (unaudited) and statutory capital of
approximately $1,387,000,000 (unaudited) as of March 31, 1996. Statutory
capital consists of AMBAC Indemnity's policyholders' surplus and statutory
contingency reserve. AMBAC Indemnity is a wholly-owned subsidiary of AMBAC,
Inc., a 100% publicly-held company. Moody's , S&P and Fitch Investors Service,
L.P., each have assigned a triple-A claims-paying ability rating to AMBAC
Indemnity.
AMBAC Indemnity has obtained a ruling from the Internal Revenue Service to
the effect that the insuring of an obligation by AMBAC Indemnity will not
affect the treatment for federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
AMBAC Indemnity under policy provisions substantially identical to those
contained in its municipal bond insurance policy shall be treated for federal
income tax purposes in the same manner as if such payments were made by the
issuer of the bonds.
Copies of AMBAC Indemnity's financial statements prepared in accordance with
statutory accounting standards are available from AMBAC Indemnity. The address
of AMBAC Indemnity's administrative offices and its telephone number are One
State Street Plaza, 17th Floor, New York, New York 10004 and (212) 668-0340.
FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")
Financial Security is a monoline insurance company incorporated under the
laws of the State of New York. Financial Security is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of
Columbia and Puerto Rico.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U.S. West Capital Corporation and the Tokio Marine and Fire Insurance Co., Ltd.
No shareholder is obligated to pay any debts of or any claims against Financial
Security. Financial Security is domiciled in the State of New York and is
subject to regulation by the State of New York Insurance Department. As of
March 31, 1996, the total policyholders' surplus and contingency reserves and
the total unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $650,052,000 (unaudited) and $387,239,000
(unaudited), the total shareholders' equity and the total unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $779,177,000 (unaudited) and $340,226,000 (unaudited). Copies of
Financial Security's financial statements may be obtained by writing to
Financial Security at 350 Park Avenue, New York, New York 10022, Attention:
Communications Department. Financial Security's telephone number is (212) 826-
0100.
MBIA INSURANCE CORPORATION ("MBIA")
MBIA, formerly known as Municipal Bond Investors Assurance Corporation, is
the principal operating subsidiary of MBIA Inc., a New York Stock Exchange
listed company. MBIA Inc. is not obligated to pay the debts of or claims
against MBIA. MBIA is a limited liability corporation rather than a several
liability association. MBIA is domiciled in the State of New York and licensed
to do business to all 50 states, the District of Columbia, the Commonwealth of
Puerto Rico, the Commonwealth of the Northern Mariana Islands, the Virgin
Islands of the United States and the Territory of Guam.
As of December 31, 1994, MBIA had admitted assets of $3.4 billion (audited),
total liabilities of $2.3 billion (audited), and total capital and surplus of
$1.1 billion (audited) determined in accordance with statutory accounting
practices prescribed or permitted by insurance regulatory authorities. As of
December 31, 1995, MBIA had admitted assets of $3.8 billion (audited), total
liabilities of $2.5 billion (audited), and total capital and surplus of $1.3
billion (audited), determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities. Copies of MBIA's
year end financial statements prepared in accordance with statutory accounting
practices are available from MBIA. The address of MBIA is 113 King Street,
Armonk, New York 10504.
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MBIA's policy unconditionally and irrevocably guarantees to the Nuveen
Insured Municipal Bond Fund the full and complete payment required to be made
by or on behalf of the issuer to the applicable paying agent or its successor
of an amount equal to (i) the principal of (either at the stated maturity or by
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on, the Municipal Obligations as such payments shall become due but
shall not be so paid (except that in the event of any acceleration of the due
date of such principal by reason of mandatory or optional redemption or
acceleration resulting from default or otherwise, other than any advancement of
maturity pursuant to a mandatory sinking fund payment, the payments guaranteed
by MBIA's policy shall be made in such amounts and at such times as such
payments of principal would have been due had there not been any such
acceleration) and (ii) the reimbursement of any such payment which is
subsequently recovered from the Fund pursuant to a final judgment by a court of
competent jurisdiction that such payment constitutes an avoidable preference to
the Fund within the meaning of any applicable bankruptcy law (a "Preference").
MBIA's policy does not insure against loss of any prepayment premium which
may at any time be payable with respect to any Municipal Obligation. MBIA's
policy does not, under any circumstance, insure against loss relating to: (i)
optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. MBIA's policy also
does not insure against nonpayment of principal of or interest on the Municipal
Obligations resulting from the insolvency, negligence or any other act or
omission of any paying agent for the Municipal Obligations.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, MBIA guarantees the full and
complete payments required to be made by or on behalf of an issuer of such
bonds if there occurs pursuant to the terms of the bonds an event which results
in the loss of the tax-exempt status of interest on such
bonds, including principal, interest or premium payments payable thereon, if
any, as and when required to be made by or on behalf of the issuer pursuant to
the terms of such bonds.
When MBIA receives from the paying agent or the Fund, (1) telephonic or
telegraphic notice (subsequently confirmed in writing by registered or
certified mail), or (2) written notice by registered or certified mail, that a
required payment of any insured amount which is then due has not been made,
MBIA on the due date of such payment or within one business day after receipt
of notice of such nonpayment, whichever is later, will make a deposit of funds,
in an account with State Street Bank and Trust Company, N.A., in New York, New
York, or its successor, sufficient for the payment of any such insured amounts
which are then due. Upon presentment and surrender of such Municipal
Obligations or presentment of such other proof of ownership of the Municipal
Obligations, together with any appropriate instruments of assignment to
evidence the assignment of the insured amounts due on the Municipal Obligations
as are paid by MBIA, and appropriate instruments to effect the appointment of
MBIA as agent for the Fund in any legal proceeding related to payment of
insured amounts on Municipal Obligations, such instruments being in a form
satisfactory to State Street Bank and Trust Company, N.A., State Street Bank
and Trust Company, N.A. shall disburse to the Fund or the paying agent payment
of the insured amounts due on such Municipal Obligations, less any amount held
by the paying agent for the payment of such insured amounts and legally
available therefor.
FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")
The Portfolio Insurance Policy is non-cancellable except for failure to pay
the premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments prior to maturity of Insured Bonds during the
month. In the event of a sale of any Insured Bond by the Fund or payment
thereof prior to maturity, the Portfolio Insurance policy terminates as to such
Insured Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer of the
Insured Bonds. The term "due for payment" means, when referring to the
principal of an Insured Bond, its stated maturity date or the date on which it
shall have been called for mandatory sinking fund redemption and does not refer
to any earlier date on which payment is due by reason of call for redemption
(other than by mandatory sinking fund redemption), acceleration or other
advancement of maturity and means, when referring to interest on an Insured
Bond, the stated date for payment of interest. In addition, the Portfolio
Insurance Policy covers nonpayment by the issuer that results from any payment
of principal or interest made by such issuer on the Insured Bond to the Fund
which has been recovered from the Fund or its shareholders pursuant to the
United States Bankruptcy Code by a trustee in bankruptcy in accordance with a
final, nonappealable order of a court having competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or
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interest due for payment thereupon shall vest in Financial Guaranty. Upon such
disbursement, Financial Guaranty shall become the owner of the Insured Bond,
appurtenant coupon or right to payment of principal or interest on such Insured
Bond and shall be fully subrogated to all of the Trustee's rights thereunder,
including the right to payment, thereof.
In determining whether to insure municipal securities held in the Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by the Fund.
Certain of the municipal securities insured under the Portfolio Insurance
Policy may also be insured under an insurance policy obtained by the issuer of
such municipal securities. The premium for any insurance policy or policies
obtained by an issuer or Insured Bonds has been paid in advance by such issuer
and any such policy or policies are non-cancellable and will continue in force
so long as the Insured Bonds so insured are outstanding. Financial Guaranty has
also agreed, if requested by the Funds on or before the fifth day preceding the
1st day of any month, to insure to maturity Insured Bonds sold by the Trustee
during the month immediately following such request of the Funds. The premium
for any such insurance to maturity provided by Financial Guaranty is paid by
the Fund and any such insurance is non-cancellable and will continue in force
so long as the Bonds so insured are outstanding.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a subsidiary of
General Electric Capital Corporation. Financial Guaranty is a monoline
financial guaranty insurer domiciled in the State of New York and subject to
regulation by the State of New York Insurance Department. As of March 31, 1996,
the total capital and surplus of Financial Guaranty was approximately
$1,032,675,000. Financial Guaranty prepares financial statements on the basis
of both statutory accounting principles and generally accepted accounting
principles. Copies of such financial statements may be obtained by writing to
Financial Guaranty at 115 Broadway, New York, New York 10006, Attention:
Communications Department (telephone number:
(212) 312-3000) or to the New York State Insurance Department at 160 West
Broadway, 18th Floor, New York, New York 10013, Attention: Property Companies
Bureau (telephone number: (212) 602-0389).
The policies of insurance obtained by the Fund from Financial Guaranty and
the negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Fund. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with the Fund or the Board of Trustees of the
Fund.
The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an
insurance claims-paying ability rating of AAA from Fitch.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with its terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the financial
strength of these companies is likely to change, such changes as can be
visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully or
partially supported by insurance policies, contracts or guarantees is a
separate process form the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
S&P's and Moody's ratings are not recommendations to buy, sell or hold the
Municipal Obligations insured by policies issued by AMBAC Indemnity, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to
revision or withdrawal at any time by the rating agencies. Any downward
revision or withdrawal of either or both ratings may have an adverse effect on
the market price of the Municipal Obligations insured by policies issued by
AMBAC Indemnity, Financial Security, MBIA or Financial Guaranty.
S&P's ratings of AMBAC Indemnity, Financial Security, MBIA and Financial
Guaranty should be evaluated independent of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
PORTFOLIO TRADING AND TURNOVER
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited
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extent in short-term trading consistent with its investment objective.
Securities may be sold in anticipation of market decline or purchased in
anticipation of market rise and later sold. In addition, a security may be sold
and another of comparable quality purchased at approximately the same time to
take advantage of what Nuveen Advisory believes to be a temporary disparity in
the normal yield relationship between the two securities. Each Fund may make
changes in its investment portfolio in order to limit its exposure to changing
market conditions. Changes in a Fund's investments are known as "portfolio
turnover." While it is impossible to predict future portfolio turnover rates,
the annual portfolio turnover rate for each of the Funds is generally not
expected to exceed 75%. However, each Fund reserves the right to make changes
in its investments whenever it deems such action advisable, and therefore, a
Fund's annual portfolio turnover rate may exceed 75% in particular years
depending upon market conditions.
The portfolio turnover rates for the Funds, for the fiscal year-end of the Fund
as a series of its predecessor entity (described above), as indicated, were:
<TABLE>
<CAPTION>
FISCAL
YEAR
1995 1996
---- ----
<S> <C> <C>
Nuveen Flagship New York Municipal Bond Fund (2/28)........... 29% 47%
Nuveen New York Insured Municipal Bond Fund (2/28)............ 11% 17%
Nuveen Flagship New Jersey Municipal Bond Fund (1/31)......... 32% 39%
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
(5/31)....................................................... 00% 00%
Nuveen California Municipal Bond Fund (2/28).................. 32% 36%
Nuveen California Insured Municipal Bond Fund (2/28).......... 25% 38%
Nuveen Flagship California Intermediate Municipal Bond Fund
(0/00)....................................................... 00% 00%
Nuveen Flagship Connecticut Municipal Bond Fund (5/31)........ 00% 00%
Nuveen Massachusetts Municipal Bond Fund (2/28)............... 17% 6%
Nuveen Massachusetts Insured Municipal Bond Fund (2/28)....... 10% 1%
</TABLE>
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but the Fund reserves the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed
delivery transactions in order to manage its operations more effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest primarily all of its net assets in
municipal bonds that are exempt from federal and state tax in that state
("Municipal Obligations"), generally Municipal Obligations issued in its
respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained from official
statements of issuers located in the respective states as well as from other
publicly available official documents and statements. The Funds have not
independently verified any of the information contained in such statements and
documents. The information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any
particular obligation or issuer.
FACTORS PERTAINING TO NEW YORK
As described above, except to the extent the New York Municipal Bond Fund and
the New York Insured Municipal Bond Fund (the "New York Funds") invest in
temporary investments, the New York Funds will invest substantially all of its
assets in New York Municipal Obligations. The New York Funds are therefore
susceptible to political, economic or regulatory factors affecting New York
State and governmental bodies within New York State. Some of the more
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significant events and conditions relating to the financial situation in New
York are summarized below. The following information provides only a brief
summary of the complex factors affecting the financial situation in New York,
is derived from sources that are generally available to investors and is
believed to be accurate. It is based on information drawn from official
statements and prospectuses issued by, and other information reported by, the
State of New York (the "State"), by its various public bodies (the "Agencies"),
and by other entities located within the State, including the City of New York
(the "City"), in connection with the issuance of their respective securities.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of New York
Municipal Obligations held in the portfolio of the New York Fund or the ability
of particular obligors to make timely payments of debt service on (or relating
to) those obligations.
(1) The State: The State has historically been one of the wealthiest states
in the nation. For decades, however, the State economy has grown more slowly
than that of the nation as a whole, gradually eroding the State's relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx
of generally less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and the West have
had in attracting people and business. The City has also had to face greater
competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City. The State has for many
years had a very high state and local tax burden relative to other states. The
burden of State and local taxation, in combination with the many other causes
of regional economic dislocation, has contributed to the decisions of some
businesses and individuals to relocate outside, or not locate within, the
State.
Slowdown of Regional Economy. A national recession commenced in mid-1990. The
downturn continued throughout the State's 1990-91 fiscal year and was followed
by a period of weak economic growth during the 1991 and 1992 calendar years.
For calendar year 1993, the economy grew faster than in 1992, but still at a
very moderate rate as compared to other recoveries. Moderate economic growth
continued in calendar year 1994. Economic growth slowed within New York during
1995 as the expansion of the national economy moderated. The State has
forecasted a slowdown in the expansion of the State's economy in 1996. Economic
recovery started considerably later in the State than in the nation as a whole,
the State's economic growth continues to lag behind the nation's, due in part
to a significant retrenchment in the banking and financial services industries,
downsizing by major corporations, cutbacks in defense spending, and an
oversupply of office buildings. Many uncertainties exist in forecasts of both
the national and State economies and there can be no assurance that the State's
economy will perform at a level sufficient to meet the State's projections of
receipts and disbursements.
1996-97 Fiscal Year. The Governor issued a proposed Executive Budget for the
1996-97 fiscal year (the "Proposed Budget") on December 15, 1995, which
projected a balanced general fund and receipts and disbursements of $31.3
billion and $31.2 billion, respectively. As of June 10, 1996, the State
legislature had not yet enacted, nor had the Governor and the legislature
reached an agreement on, the budget for the 1996-97 fiscal year which commenced
on April 1, 1996. The Governor and the State's legislature have agreed on or
proposed a series of short-term stopgap spending measures to fund State
payrolls and advances to certain municipalities and certain State programs. The
delay in the enactment of the budget may negatively affect certain proposed
actions and reduce projected savings.
The Proposed Budget and the 1996-97 Financial Plan provide for the closing of
a projected $3.9 billion budget gap in the 1996-97 fiscal year by cost-
containment savings in social welfare programs, savings from State agency
restructurings, decreasing the level of some categories of local aid, new
revenue measures and a reduction in the number of state employees. Up to $1.3
billion of gap closing measures by the State are dependent upon federal actions
with respect to the Medicaid program that have not been enacted due to the
federal budget impact. The Governor has proposed that, depending upon the
ultimate form of Medicaid relief provided to the states, any resulting gap
would be filled through a combination of increased revenues, additional cuts in
spending for social services, and so-called "one shot" sources of revenue or
cost savings.
The Proposed Budget and the 1996-97 Financial Plan may be impacted negatively
by uncertainties relating to the economy and tax collections. In particular,
should the national economy grow more slowly than forecasted by the State,
revenues received by the State would be adversely affected. In addition,
proposed retroactive changes to the federal tax treatment of capital gains
would flow through to the State and could significantly reduce tax receipts.
1995-96 Fiscal Year. The Governor announced on April 3, 1996 that the State
ended its 1994-95 fiscal year with an operating surplus of approximately $445
million. The State Legislature enacted the State's 1995-96 fiscal year budget
on June 7, 1995, more than two months after the start of that fiscal year. As
of January 19, 1996, the updated 1995-96 State Financial Plan (the "Plan")
projected total general fund receipts and disbursements each of $32.7 billion
representing reductions in receipts and disbursements of $144 million and $103
million, respectively, from the amounts set forth in the 1995-96 budget. The
Plan projected for a General Fund balance of approximately $172 million at the
close of the 1995-96 fiscal year.
1994-95 Fiscal Year. The State ended the 1994-95 fiscal year with a General
Fund balance of approximately $158 million.
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Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements. The
Governor's budget for fiscal year 1996-97 projects that budget gaps of $1.4
billion and $2.5 billion may need to be closed for fiscal years 1997-98 and
1998-99, respectively.
Indebtedness. As of March 31, 1995, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.8 billion. As of
the same date, the State had approximately $5.2 billion in general obligation
bonds, including $149 million in bond anticipation notes outstanding.
The State originally projected that its borrowings for capital purposes
during the State's 1995-96 fiscal year would consist of $248 million in general
obligation bonds and bond anticipation notes and $186 million in general
obligation commercial paper. The Legislature authorized the issuance of up to
$33 million in certificates of participation in pools of leases for equipment
and real property to be utilized by State agencies in fiscal year 1995-96. The
Governor's budget for fiscal year 1996-97 projects approximately $400 million
of borrowings by the state for capital purposes. The projections of the State
regarding its borrowings for any fiscal year are subject to change if actual
receipts fall short of State projections or if other circumstances require.
In June 1990, legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. As of June
30, 1995, LGAC has issued its bonds to provide net proceeds of $4.7 billion
completing the program.
Financing of capital programs by other public authorities of the State is
also obtained from lease-purchase and contractual-obligation financing
arrangements, the debt service for which is paid from State appropriations. As
of March 31, 1995, there were $18 billion of such other financing arrangements
outstanding and additional financings of this nature by public authorities. In
addition, certain agencies had issued and outstanding approximately $7.0
billion of "moral obligation financings" as of March 31, 1995, which are to be
repaid from project revenues. While there has never been a default on moral
obligation debt of the State, the State would be required to make up any
shortfall in debt service.
Ratings. Moody's rating of the State's general obligation bonds stood at A on
January 24, 1996, and S&P's rating stood at A- with a positive outlook, on
January 24, 1996, an improvement from S&P's stable outlook from February 1994
through April 1993 and negative outlook prior to April 1993. Previously,
Moody's lowered its rating to A on June 6, 1990, its rating having been A1
since May 27, 1986. S&P lowered its rating from A to A- on January 13, 1992.
S&P's previous ratings were A from March 1990 to January 1992, AA- from August
1987 to March 1990 and A+ from November 1982 to August 1987.
Moody's maintained its A rating and S&P continued its A- rating in connection
with the State's issuance of $116 million of general obligation bonds in
January 1996.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City
accounts for approximately 40% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other actions,
the State Legislature (i) created MAC to assist with long-term financing for
the City's short-term debt and other cash requirements and (ii) created the
State Financial Control Board (the "Control Board") to review and approve the
City's budgets and four-year financial plans (the financial plans also apply to
certain City-related public agencies).
In recent years, the rate of economic growth in the City slowed substantially
as the City's economy entered a recession. While by some measures the City's
economy may have begun to recover, a number of factors, including poor
performance by the City's financial services companies, may prevent a
significant improvement in the City's economy and may in fact negatively impact
upon the City's finances by reducing tax receipts. The City Comptroller has
issued reports concluding that the recession of the City's economoy may be
ending, but there is little prospect of any significant improvement in the near
term.
Fiscal Year 1997 and the 1996-1999 Financial Plan. On January 31, 1996, the
Mayor released his preliminary $31 billion budget for fiscal year 1997, which
included $2.0 billion of deficit reduction measures. The Mayor is seeking a
$750 million reduction in mandated welfare and Medicaid expenditures from the
State and a $643 million reduction in expenditures by City agencies and the
Board of Education ("BOE") budget. The Mayor has also received from MAC for
$125 million in fiscal year 1996 in return for a commitment by the City to cut
projected City spending by $125 million in fiscal year 1997 and each of the
next three fiscal years. On May 9, 1996, the Mayor released a revised fiscal
year 1997 budget of $32.7 billion that would reduce overall spending from
fiscal year 1996 and impose $1.1 billion of budget cuts on City agencies. The
revised budget reduces reliance on savings in welfare and Medicaid expenditures
by $250 million and restores $300 million of proposed tax cuts, including a
recommended four year extension of the City surcharge on personal income taxes.
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The City Council has not yet approved the Mayor's revised fiscal year 1997
budget, although a tentative agreement on the budget was announced on June 10,
1996.
The 1996-1999 Financial Plan (the "Plan"), as revised in May 1996, projected
budget gaps of $1.4 billion and $2.3 billion for fiscal years 1998 and 1999,
respectively. The 1996-1999 Financial Plan (the "Plan"), as revised in May 1996
by the Mayor, projected budget gaps of $1.4 and $2.3 billion for fiscal years
1998 and 1999, respectively. The forecasted budget shortfall in fiscal year
2000 could be as much as $2.9 million. The City Comptroller and State
Comptroller have each warned that the fiscal year 1997 budget includes
significant revenue risks. The State Comptroller has expressed concern that
projected budget gaps for fiscal years 1999 and 2000 are each in excess of $2
billion despite the City's significant cost-cutting efforts.
The amount of gap closing measures requiring State action set forth in the
Plan is well in excess of proposed assistance to the City outlined in the
Governor's Proposed Budget. Due to the continuing federal budget impasse, the
City cannot be assured that its assumptions regarding the amount of federal aid
or the impact of changes in federal law upon its operations or tax receipts. An
extended delay by the State in adopting its 1996-97 fiscal year budget or in
the adoption of the federal budget would negatively impact upon the City's
financial condition and ability to close budget gaps for fiscal years 1997 and
thereafter.
The Mayor was required to submit an executive budget for fiscal year 1997 to
the City Council in late April 1996. Due to continuing uncertainties related to
the amount of State and federal aid, the City Council extended the date by
which the Mayor was to submit such executive budget.
Given the foregoing, there can be no assurance that the City will continue to
maintain a balanced budget during fiscal year 1997 or thereafter, or that it
can maintain a balanced budget without additional tax or other revenue
increases or reductions in City services, which could adversely affect the
City's economic base.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to submit
its financial plans to review bodies, including the Control Board. If the City
were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and the imminence of the occurrence of
an annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to exercise
certain powers, including prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1996-97 fiscal year or subsequent years, such developments could result in
reductions in projected State aid to the City. In addition, there can be no
assurance that State budgets for the 1997-98 or future fiscal years will be
adopted by the April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures as a result of
such delays.
The City projections set forth in the Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing of any
regional and local economic recovery, the absence of wage increases in excess
of the increases assumed in its financial plan, employment growth, provision of
State and Federal aid and mandate relief, State legislative approval of future
State budgets, levels of education expenditures as may be required by State
law, adoption of future City budgets by the New York City Council, approval by
the Governor or the State Legislature and the cooperation of MAC with respect
to various other actions proposed in the Plan and changes in federal tax law.
The City's ability to maintain a balanced operating budget is dependent on
whether it can implement necessary service and personnel reduction programs
successfully. As discussed above, the City must identify additional expenditure
reductions and revenue sources to achieve balanced operating budgets for fiscal
year 1997 and thereafter. Any such proposed expenditure reductions will be
difficult to implement because of their size and the substantial expenditure
reductions already imposed on City operations in recent years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. On May 3,
1996, the Mayor announced a $1 billion reduction in City capital spending over
a five year period through fiscal year 2000. The City's financing program for
fiscal years 1996 through 1999 contemplates capital spending of $14.1 billion,
which will be financed through issuance of general obligation bonds, Water
Authority Revenue Bonds and Covered Organization obligations, and will be used
primarily to reconstruct and rehabilitate the City's infrastructure and
physical assets and to make capital investments. The City's financing program
assumes the receipt of approximately $1 billion from the sale of City's sewer
and water systems. However, the City Comptroller has obtained a court order
blocking such sale, which the City is appealing. In the event such appeal is
unsuccessful the City would be required to reduce capital spending during the
next four years or find additional sources of funds in such amount. A
significant portion of such bond financing is used to reimburse the City's
general fund for capital expenditures already incurred. In addition, the City
issues revenue and tax anticipation notes to finance its seasonal working
capital
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requirements. The terms and success of projected public sales of City general
obligation bonds and notes will be subject to prevailing market conditions at
the time of the sale, and no assurance can be given that the credit markets
will absorb the projected amounts of public bond and note sales. In addition,
future developments concerning the City and public discussion of such
developments, the City's future financial needs and other issues may affect the
market for outstanding City general obligation bonds and notes. If the City
were unable to sell its general obligation bonds and notes, it would be
prevented from meeting its planned operating and capital expenditures.
Absent appropriate legislative relief, the City may also face limitations on
its borrowing capacity after 1998 under the State's Constitution that will
prevent it from borrowing additional funds, as a result of the decrease in real
estate values within the City. The inability to finance capital improvements
would increase the City's budget gaps in later years or require it to
significantly curtail capital spending which would lead to a deterioration in
the City's infrastructure and ability to deliver services.
The City is a defendant in a significant number of lawsuits and is subject to
numerous claims and investigations, including, but not limited to, actions
commenced and claims asserted against the City arising out of alleged
constitutional violations, torts, breaches of contracts, and other violations
of law and condemnation proceedings. While the ultimate outcome and fiscal
impact, if any, on the proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse effect
upon the City's ability to carry out its financial plan. As of June 30, 1995,
the City estimated its potential future liability on outstanding claims to be
$2.5 billion.
On January 30, 1995, Robert L. Schulz and other defendants commenced a
federal district court action seeking among other matters to cancel the
issuance on January 31, 1995 of $659 million of City bonds. While the federal
courts have rejected requests for temporary restraining orders and expedited
appeals, the case is still pending. The City has indicated that it believes the
action to be without merit as it relates to the City, but there can be no
assurance as to the outcome of the litigation and an adverse ruling or the
granting of a permanent injunction would have a negative impact on the City's
financial condition and its ability to fund its operations.
Fiscal Year 1996. New York City adopted its fiscal year 1996 budget in June,
1995 and submitted its Financial Plan for the 1996 fiscal year to the Control
Board on July 11, 1995. The fiscal 1996 budget and Financial Plan originally
provided for spending of $31.4 billion and closed a budget gap of $3.1 billion.
However, in January 1996 additional unexpected budget gaps totaling
approximately $760 million were identified in the fiscal 1996 budget. The
widening of the budget gap for fiscal year 1996 resulted from shortfalls in tax
revenues and State and federal aid and the failure to achieve Medicaid, welfare
and other savings at the levels projected. The City has undertaken a number of
actions to close the recently discovered gap, including additional agency cuts,
refinancing of MAC debt, the proposed sale of the City's parking meters and the
proposed sale of approximately $250 million of uncollected tax liens. The City
Comptroller has questioned whether the City will be able to close the remaining
budget gap for fiscal year 1996 prior to fiscal year-end on June 30, 1996 and
has criticized certain gap-closing measures as being at the expense of future
revenues.
Fiscal Years 1991 through 1995. The City achieved balanced operating results
in accordance with generally accepted accounting principles for fiscal years
1991 through 1995. The City was required to close substantial budget gaps in
these fiscal years in order to maintain balanced operating results.
Ratings. As of the date of this prospectus, Moody's rating of the City's
general obligation bonds stood at Baa1 and S&P's rating stood at A-. On
February 11, 1991, Moody's had lowered its rating from A.
On March 1, 1996, Moody's confirmed its Baa1 rating in connection with a
scheduled March 1996 sale of $1.3 billion of the City's general obligation
bonds but indicated that it would review such rating for a possible downgrade
following adoption of the City's 1997 fiscal year budget. S&P also confirmed
its rating of the City's general obligation bonds in connection with such
general obligation bond issue in March 1996.
In January 1995, in response to the City's plan to borrow $120 million to
refund debt due in February without imposing additional cuts in the fiscal 1995
budget, S&P's placed the City on negative credit watch. In late May 1996, S&P
confirmed the City's rating citing improvements in the revised fiscal year 1997
budget. Any rating decrease would negatively affect the marketability of the
City's bonds and significantly increase the City's financing costs.
On October 12, 1993, Moody's increased its rating of the City's issuance of
$650 million of Tax Anticipation Notes ("TANs") to MIG-1 from MIG-2. Prior to
that date, on May 9, 1990, Moody's revised downward its rating on outstanding
City revenue anticipation notes from MIG-1 to MIG-2 and rated the $900 million
notes then being sold MIG-2. S&P's rating of the October 1993 TANs issue
increased to SP-1 from SP-2. Prior to that date, on April 29, 1991, S&P revised
downward its rating on City revenue anticipation notes from SP-1 to SP-2.
As of December 31, 1995, the City and MAC had, respectively, $24.4 billion
and $4.0 billion of outstanding net long-term indebtedness.
(3) The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability of such
Agencies to make payments of interest on, and principal amounts of, their
respective bonds. The difficulties have in certain instances caused the State
(under so-called "moral obligation" provisions, which are non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds) to appropriate
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funds on behalf of the Agencies. Moreover, it is expected that the problems
faced by these Agencies will continue and will require increasing amounts of
State assistance in future years. Failure of the State to appropriate necessary
amounts or to take other action to permit those Agencies having financial
difficulties to meet their obligations could result in a default by one or more
of the Agencies. Such default, if it were to occur, would be likely to have a
significant adverse affect on investor confidence in, and therefore the market
price of, obligations of the defaulting Agencies. In addition, any default in
payment on any general obligation of any Agency whose bonds contain a moral
obligation provision could constitute a failure of certain conditions that must
be satisfied in connection with Federal guarantees of City and MAC obligations
and could thus jeopardize the City's long-term financing plans.
As of September 30, 1994, the State reported that eighteen Agencies each had
outstanding debt of $100 million or more and an aggregate of $70.3 billion of
outstanding debt, some of which was state-supported, state-relatd debt.
(4) State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a
variety of significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs
in the future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and
nineteenth centuries. The claimants seek recovery of approximately six million
acres of land, as well as compensatory and punitive damages.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State
assistance. The potential impact on the State of such actions by localities is
not included in projections of State receipts and expenditures in the State's
1994-95 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1993, the total indebtedness of all localities in
the State (other than New York City) was approximately $17.7 billion. State law
requires the Comptroller to review and make recommendations concerning the
budgets of those local government units other than New York City authorized by
State law to issue debt to finance deficits during the period that such deficit
financing is outstanding. Fifteen localities had outstanding indebtedness for
State financing at the close of their fiscal year ending in 1993. In December
1995, in reaction to continuing financial problems, the Troy Municipal
Assistance Corp., which was created in 1995, imposed a 1996 budget plan upon
Troy, New York. Troy MAC had been expected to refinance $35 million of revenue
bonds issued by Troy, for which Troy lacks resources to fund debt service. Such
revenue bonds have not to date been refinanced. A similar municipal assistance
corporation has also been established for Newburgh. In addition, several other
smaller New York cities, including Utica, Rome, Schenectady and Niagara Falls
have faced continuing budget deficits, as federal and state aid and local tax
revenues have declined while government expenses have increased. The financial
problems being experienced by the State's smaller urban centers place
additional strains upon the State's financial condition at a time when the
State is struggling with its own budget gaps.
Certain proposed Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities to
increase local revenues to sustain those expenditures. In addition, proposed
changes in the treatment of capital gains for federal income tax purposes could
reduce tax receipts of the state and city. If the State, New York City or any
of the Agencies were to suffer serious financial difficulties jeopardizing
their respective access to the public credit markets, the marketability of
notes and bonds issued by localities within the State, including notes or bonds
in the Fund, could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial
decisions, and long-range economic trends. The longer-range potential problems
of declining urban population, increasing expenditures, and other economic
trends could adversely affect certain localities and require increasing State
assistance in the future.
However, the information below is intended only as a general summary, and is
not intended as a discussion of any specific factor that may affect any
particular obligation or issuer.
FACTORS PERTAINING TO NEW JERSEY
As described above, except to the extent the New Jersey Municipal Bond Fund
and the New Jersey Intermediate Municipal Bond Fund (the "New Jersey Funds")
invest in temporary investments, the New Jersey Funds will invest
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substantially all of its net assets in New Jersey Municipal Obligations. The
New Jersey Funds are therefore susceptible to political, economic or regulatory
factors affecting issuers of New Jersey Municipal Obligations. The following
information provides only a brief summary of some of the complex factors
affecting the financial situation in New Jersey (the "State") and is derived
from sources that are generally available to investors and is believed to be
accurate. It is based in part on information obtained from various State and
local agencies in New Jersey. No independent verification has been made of the
accuracy or completeness of any of the following information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local governmental
finances generally, will not adversely affect the market value of New Jersey
Municipal Obligations held in the portfolio of the New Jersey Fund or the
ability of particular obligors to make timely payments of debt service on (or
relating to) those obligations.
The State and Its Economy. The State is the ninth largest state in population
and the fifth smallest in land area. With an average of 1,062 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. Historically, New Jersey's average per capita income has been well
above the national average, and in 1994 the State ranked second among the
states in per capita personal income ($27,742).
The New Jersey Economic Policy Council, a statutory arm of the New Jersey
Department of Commerce and Economic Development, has reported in New Jersey
Economic Indicators, a monthly publication of the New Jersey Department of
Labor, Division of Labor Market and Demographic Research, that in 1988 and 1989
employment in New Jersey's manufacturing sector failed to benefit from the
export boom experienced by many Midwest states and the State's service sectors,
which had fueled the State's prosperity since 1982, lost momentum. In the
meantime, the prolonged fast growth in the State in the mid 1980s resulted in a
tight labor market situation, which has led to relatively high wages and
housing prices. This means that, while the incomes of New Jersey residents are
relatively high, the State's business sector has become more vulnerable to
competitive pressures.
The onset of the national recession (which officially began in July 1990
according to the National Bureau of Economic Research) caused an acceleration
of New Jersey's job losses in construction and manufacturing. In addition, the
national recession caused an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities and trucking and
warehousing. Reflecting the downturn, the rate of unemployment in the State
rose from a low of 3.6% during the first quarter of 1989 to an estimated 6.6%
in April 1996, which is greater than the national average of 5.4% in April
1996.
Because some sectors will lag due to continued excess capacity, employers
even in rebounding sectors can be expected to remain cautious about hiring
until they become convinced that improved business will be sustained, and
certain firms will continue to merge or downsize to increase profitability.
Economic recovery is likely to be slow and uneven in New Jersey, with
unemployment receding at a correspondingly slow pace.
Debt Service. The primary method for State financing of capital projects is
through the sale of the general obligation bonds of the State. These bonds are
backed by the full faith and credit of the State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments, if any, required to repay the bonds. As of June
30, 1995, there was a total authorized bond indebtedness of approximately $9.48
billion, of which $3.65 billion was issued and outstanding, $4.0 billion was
retired (including bonds for which provision for payment has been made through
the sale and issuance of refunding bonds) and $1.83 billion was unissued. The
debt service obligation for such outstanding indebtedness is $466.3 million for
fiscal year 1996.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. At the end of fiscal year 1989, there
was a surplus in the State's general fund (the fund into which all State
revenues not otherwise restricted by statute are deposited and from which
appropriations are made) of $411.2 million. At the end of fiscal year 1990,
there was a surplus in the general fund of $1.0 million. At the end of fiscal
year 1991, there was a surplus in the general fund of $1.4 million. New Jersey
closed its fiscal year 1992 with a surplus in the general fund of $760.8
million, fiscal year 1993 with a surplus of $937.4 million, and fiscal year
1994 with a surplus of $926.0 million. It is estimated that New Jersey closed
its fiscal year 1995 with a surplus of $569 million.
In order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, Governor Florio signed into law legislation which was
estimated to raise approximately $2.8 billion in additional taxes (consisting
of $1.5 billion in sales and use taxes and $1.3 billion in income taxes), the
biggest tax hike in New Jersey history. There can be no assurance that receipts
and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the increase
in the State's sales and use tax rate from 6.0% to 7.0% and the elimination of
exemptions for certain products and services not previously subject to the tax,
such as telephone calls, disposable paper products (which has since been
reinstated), soaps and detergents, janitorial services, alcoholic beverages and
cigarettes. At the time of enactment, it was projected that these taxes would
raise approximately $1.5 billion in additional revenue. Projections and
estimates of receipts from sales and use taxes, however, have been subject to
variance in recent fiscal years.
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The second part of the tax hike took effect on January 1, 1991, in the form
of an increased state income tax on individuals. At the time of enactment, it
was projected that this increase would raise approximately $1.3 billion in
additional income taxes to fund a new school aid formula, a new homestead
rebate program and state assumption of welfare and social services costs.
Projections and estimates of receipts from income taxes, however, have also
been subject to variance in recent fiscal years. Under the legislation, income
tax rates increased from their previous range of 2.0% to 3.5% to a new range of
2.0% to 7.0%, with the higher rates applying to married couples with incomes
exceeding $70,000 who file joint returns, and to individuals filing single
returns with incomes of more than $35,000.
The Florio administration had contended that the income tax package would
help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation the State assumed
approximately $289.0 million in social services costs that previously were paid
by counties and municipalities and funded by property taxes. In addition, under
the new formula for funding school aid, an extra $1.1 billion was proposed to
be sent by the State to school districts beginning in 1991, thus reducing the
need for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased from 7%
to 6%. Effective January 1, 1994, an across-the-board 5% reduction in the
income tax rates was enacted and effective January 1, 1995, further reductions
ranging from 1% up to 10% in income tax rates took effect.
On June 30, 1995, Governor Whitman signed the New Jersey Legislature's $16.0
billion budget for fiscal year 1996. The balanced budget, which includes $541
million in surplus, is $300 million more than the 1995 budget. Whether the
State can achieve a balanced budget depends on its ability to enact and
implement expenditure reductions and to collect estimated tax revenues.
Litigation. The State is a party in numerous legal proceedings pertaining to
matters incidental to the performance of routine governmental operations. Such
litigation includes, but is not limited to, claims asserted against the State
arising from alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal laws. Included in
the State's outstanding litigation are cases challenging the following: the
funding of teachers' pension funds, the adequacy of Medicaid reimbursement for
hospital services, the hospital assessment authorized by the Health Care Reform
Act of 1992, various provisions, and the constitutionality, of the Fair
Automobile Insurance Reform Act of 1990, the State's role in a consent order
concerning the construction of a resource facility in Passaic County, actions
taken by the Bureau of Securities against an individual, the State's actions
regarding alleged chromium contamination of State-owned property in Hudson
County, the issuance of emergency redirection orders and a draft permit by the
Department of Environmental Protection and Energy, refusal of the State to
share with Camden County federal funding the State recently received for
disproportionate share hospital payments made to county psychiatric facilities,
and the constitutionality of annual A-901 hazardous and solid waste licensure
renewal fees collected by the Department of Environmental Protection and
Energy. Adverse judgments in these and other matters could have the potential
for either a significant loss of revenue or a significant unanticipated
expenditure by the State.
At any given time, there are various numbers of claims and cases pending
against the State, State agencies and employees seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the New
Jersey Tort Claims Act. In addition, at any given time, there are various
numbers of contract claims against the State and State agencies seeking
recovery of monetary damages. The State is unable to estimate its exposure for
these claims.
Debt Ratings. For many years prior to 1991, both Moody's and S&P had rated
New Jersey general obligation bonds Aaa and AAA, respectively. On July 3, 1991,
however, S&P downgraded New Jersey general obligation bonds to AA+. On June 4,
1992, S&P placed New Jersey general obligation bonds on CreditWatch with
negative implications, citing as its principal reason for its caution the
denial by the federal government of New Jersey's request for $450 million in
retroactive Medicaid payments for psychiatric hospitals. These funds were
critical to closing a $1 billion gap in the State's $15 billion budget for
fiscal year 1992 which ended on June 30, 1992. Under New Jersey state law, the
gap in the budget must be closed before the new budget year began on July 1,
1992. S&P suggested the State could close fiscal year 1992's budget gap and
help fill fiscal year 1993's hole by a reversion of $700 million of pension
contributions to its general fund under a proposal to change the way the State
calculates its pension liability.
On July 6, 1992, S&P reaffirmed its AA+ rating for New Jersey general
obligation bonds and removed the debt from its CreditWatch list, although it
stated that New Jersey's long-term financial outlook was negative. S&P was
concerned that the State was entering fiscal year 1993 with only a $26 million
surplus and remained concerned about whether the State economy would recover
quickly enough to meet lawmakers' revenue projections. It also remained
concerned about the recent federal ruling leaving in doubt how much the State
was due in retroactive Medicaid reimbursements and a ruling by a federal judge,
now on appeal, of the State's method for paying for uninsured hospital
patients. However, on July 27, 1994, S&P announced that it was changing the
State's outlook from negative to stable due to a brightening of the State's
prospects as a result of Governor Whitman's effort to trim spending and cut
taxes, coupled with an improving economy. S&P reaffirmed its AA+ rating at the
same time.
On August 24, 1992, Moody's downgraded New Jersey general obligation bonds to
Aa1, stating that the reduction reflected a developing pattern of reliance on
nonrecurring measures to achieve budgetary balance, four years of financial
operations marked by revenue shortfalls and operating deficits, and the
likelihood that serious financial pressures would persist. On August 5, 1994,
Moody's reaffirmed its Aa1 rating, citing on the positive side New Jersey's
broad-based
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economy, high income levels, history of maintaining a positive financial
position and moderate (albeit rising) debt ratios, and, on the negative side, a
continued reliance on one-time revenues and a dependence on pension-related
savings to achieve budgetary balance.
There can be no assurance that these ratings will continue.
Other Issuers of New Jersey Municipal Obligations. There are a number of
state agencies, instrumentalities and political subdivisions of the State that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
SPECIAL CONSIDERATIONS RELATING TO CALIFORNIA
As described above, except to the extent the California Municipal Bond Fund
and the California Insured Municipal Bond Fund (the "California Funds") invest
in temporary investments, the California Funds will invest substantially all of
their assets in California Municipal Obligations. The Funds are therefore
susceptible to political, economic or regulatory factors affecting issuers of
California Municipal Obligations.
These include the possible adverse effects of certain California
constitutional amendments, legislative measures, voter initiatives and other
matters that are described below. The following information provides only a
brief summary of the complex factors affecting the financial situation in
California (the "State") and is derived from sources that are generally
available to investors and is believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from various
State and local agencies in California or contained in Official Statements for
various California Municipal Obligations.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved since 1994. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital bonds) are generally
linked directly to California's rating. Should the financial condition of
California deteriorate again, its credit ratings could be further reduced, and
the market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.
ECONOMIC OVERVIEW
California's economy is the largest among the 50 states and one of the
largest in the world. The State's population of more than 32 million represents
over 12% of the total United States population and grew by 27% in the 1980s.
Total personal income in the State, at an estimated $703 billion in 1994,
accounts for almost 13% of all personal income in the nation. Total employment
is over 14 million, the majority of which is in the service, trade and
manufacturing sectors.
From mid-1990 to late 1993, the State suffered a recession with the worst
economic, fiscal and budget conditions since the 1930s. Construction,
manufacturing (especially aerospace), and financial services, among others,
were all severely affected, particularly in Southern California. Job losses
were the worst of any post-war recession. Employment levels stabilized by late
1993 and steady growth has occurred since early 1994. Pre-recession job levels
are expected to be reached in 1996. Unemployment, while remaining higher than
the national average, has come down substantially from its 10% peak in January.
Economic indicators show a steady recovery underway in California since the
start of 1994. However, any delay or reversal of the recovery may create new
shortfalls in State revenues.
CONSTITUTIONAL AND STATUTORY LIMITATIONS ON TAXES AND APPROPRIATIONS
Limitation on Taxes. Certain California Municipal Obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The taxing powers of
California local governments and districts are limited by Article XIIIA of the
California Constitution, enacted by the voters in 1978 and commonly known as
"Proposition 13." Briefly, Article XIIIA limits to 1% of full cash value the
rate of ad valorem property taxes on real property and generally restricts the
reassessment of property to 2% per year, except upon new construction or change
of ownership (subject to a number of exemptions). Taxing entities may, however,
raise ad valorem taxes above the 1% limit to pay debt service on voter-approved
bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, and on June 18, 1992 the U.S. Supreme
Court announced a decision upholding Proposition 13.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use. In response to these decisions, the
voters of the State of 1986 adopted an initiative statute which imposed
significant new limits on the ability of local entities to raise or levy
general taxes, except by receiving majority local voter approval. Significant
elements of this initiative, "Proposition 62," have been overturned in recent
court cases. An initiative proposed
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to re-enact the provisions of Proposition 62 as a constitutional amendment was
defeated by the voters in November 1990, but such a proposal may be renewed in
the future.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non-tax funds, including
bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979, or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for certain
capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50% of
any excess, with the other 50% paid to schools and community colleges. With
more liberal annual adjustment factors since 1988, and depressed revenues since
1990 because of the recession, few governments are currently operating near
their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years. During fiscal year 1986-87, State receipts from proceeds of taxes
exceeded its appropriations limit by $1.1 billion, which was returned to
taxpayers. Since that year, appropriations subject to limitation have been
under the State limit. State appropriations were $6.5 billion under the limit
for fiscal year 1995-96.
A 1986 initiative statute, called "Proposition 62," imposed additional limits
on local governments by requiring either majority or 2/3 voter approval for any
increases in "general taxes" or "special taxes," respectively (other than
property taxes, which are unchangeable). Court decisions had struck down most
of Proposition 62 and many local governments, especially cities, had enacted or
raised local "general taxes" without voter approval. In September, 1995, the
California Supreme Court overruled the prior cases, and upheld the
constitutionality of Proposition 62. Many aspects of this decision remain
unclear (such as its impact on charter (home rule) cities, and whether it will
have retroactive effect), but its future effect will be to further limit the
fiscal flexibility of many local governments.
Because of the complex nature of Articles XIIIA and XIIIB of the California
Constitution, the ambiguities and possible inconsistencies in their terms, and
the impossibility of predicting future appropriations or changes in population
and cost of living, and the probability of continuing legal challenges, it is
not currently possible to determine fully the impact of Article XIIIA or
Article XIIIB on California Municipal Obligations or on the ability of the
State or local governments to pay debt service on such California Municipal
Obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of either Article XIIIA or Article XIIIB, or the impact of
any such determinations upon State agencies or local governments, or upon their
ability to pay debt service on their obligations. Future initiatives or
legislative changes in laws or the California Constitution may also affect the
ability of the State or local issuers to repay their obligations.
OBLIGATIONS OF THE STATE OF CALIFORNIA
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. Total
outstanding general obligation bonds and lease purchase debt of California
increased from $9.4 billion at June 30, 1987 to $23.8 billion at February 1,
1996. In FY 1994-95, debt service on general obligation bonds and lease
purchase debt was approximately 5.3% of General Fund revenues.
RECENT FINANCIAL RESULTS
The principal sources of General Fund revenues in 1994-1995 were the
California personal income tax (43% of total revenues), the sales tax (34%),
bank and corporation taxes (13%), and the gross premium tax on insurance (3%).
The State maintains a Special Fund for Economic Uncertainties (the "Economic
Uncertainties Fund"), derived from General Fund revenues, as a reserve to meet
cash needs of the General Fund, but which is required to be replenished as soon
as sufficient revenues are available. Year-end balances in the Economic
Uncertainties Fund are included for financial reporting purposes in the General
Fund balance. In most recent years, the State has budgeted to maintain the
Economic Uncertainties Fund at around 3% of General Fund expenditures but
essentially no reserve was budgeted from 1992-93, to 1995-96 because revenues
had been reduced by the recession and an accumulated budget deficit had to be
paid.
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General. Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).
Since the start of the 1990-91 fiscal year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. The State is also facing a structural imbalance in its
budget with the largest programs supported by the General Fund (education,
health, welfare and corrections) growing at rates significantly higher than the
growth rates for the principal revenue sources of the General Fund. These
structural concerns will be exacerbated in coming years by the expected need to
substantially increase capital and operating funds for corrections as a result
of a "Three Strikes" law enacted in 1994.
Recent Budgets. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the budget reserve, the
SFEU approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance and to close large "budget gaps" which were identified. The Legislature
and Governor eventually agreed on a number of different steps to produce Budget
Acts in the years 1991-92 to 1995-96, including:
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on
local government;
. transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to
local school districts, thereby reducing state funding for schools;
. reduction in growth of support for higher education programs, coupled
with increases in student fees;
. revenue increases (particularly in the 1992-93 Fiscal Year budget), most
of which were for a short duration;
. increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less
federal aid than the State Administration had requested); and
. various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that is was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equals in FY 1992-93 (following two years of excess expenditures
over revenues), the General Fund had positive operating results in FY 1993-94,
1994-95, and 1995-96 which have reduced the accumulated budget deficit to about
$70 million as of June 30, 1996.
A consequence of the accumulated budget deficits in the early 1990's together
with other factors such as disbursement of funds to local school districts
"borrowed" from future fiscal years and hence not shown in the annual budget,
was to significantly reduce the State's cash resources available to pay its
ongoing obligations. When the Legislature and the Governor failed to adopt a
budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed
the State to carry out its normal annual cash flow borrowing to replenish its
cash reserves, the State Controller was forced to issue approximately $3.8
billion of registered warrants ("IOUs") over a 2-month period to pay a variety
of obligations representing prior years' or continuing appropriations, and
mandates from court orders.
The State's cash condition became so serious that from late spring 1992 until
1995, the State had to rely on issuance of short term notes which matured in a
subsequent fiscal year to finance its ongoing deficit, and pay current
obligations. With the repayment of the last of these deficit notes in April,
1996, the State does not plan to rely further on external borrowing across
fiscal years, but will continue its normal cash flow borrowings during a fiscal
year.
Current Budget. For the first time in four years, the State entered the 1995-
96 fiscal year with strengthening revenues based on an improving economy. The
major feature of the Governor's proposed Budget, a 15% phased cut in personal
income and business taxes, was rejected by the Legislature.
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The 1995-96 Budget Act was signed by the Governor on August 3, 1995, 34 days
after the start of the fiscal year. The Budget Act projected General Fund
revenues and transfers of $44.1 billion, a 3.5 percent increase from prior
years. Expenditures were budgeted at $43.4 billion, a 4 percent increase. A
principal feature of the 1995-96 Budget Act, in addition to those noted above
was the first significant increase in per-pupil funding for public schools and
community colleges in four years.
In its regular budget update in May, 1996, the Department of Finance
indicated that, with the strengthening economy, State General Fund revenues for
1995-96 would be about $46.1 billion, some $2 billion higher than originally
estimated. Because of mandated spending for public schools, the failure to
receive expected federal aid for illegal immigrants, and the failure of
Congress to enact welfare reform which the Administration had expected would
reduce State costs, expenditures for 1995-96 were also increased, to about
$45.4 billion. As a result, the Department estimated that the accumulated
budget deficit would be reduced to about $70 million as of June 30, 1996.
As a result of the improved revenues, that State's cash position has
substantially recovered. Only $2 billion of cash flow borrowing was needed
during 1995-96, and only about $3 billion is projected for 1996-97, with no
external borrowing over the end of the fiscal year.
The Governor's proposed budget for 1996-97 projects $47.1 billion of revenues
and transfers, and $46.5 billion of expenditures, resulting in a budget reserve
at June 30, 1997 of about $500 million. A number of issues related to the 1996-
97 budget still have to be resolved, including the Governor's tax reduction
proposals, and his proposals for further health and welfare cuts.
BOND RATING
State general obligation bonds are currently rated A1 by Moody's and A by
S&P. Both of these ratings have been reduced in several stages from AAA levels
which the State held until late 1991.
There can be no assurance that such ratings will be maintained in the future.
It should be noted that the creditworthiness of obligations issued by local
California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
LEGAL PROCEEDINGS
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or injunctions
which would overturn several parts of the State's recent budget compromises.
The matters covered by these lawsuits include a deferral of payments by
California to the Public Employees Retirement System, reductions in welfare
payments and the use of certain cigarette tax funds for health costs. All of
these cases are subject to further proceedings and appeals, and if California
eventually loses, the final remedies may not have to be implemented in one
year.
OBLIGATIONS OF OTHER ISSUERS
OTHER ISSUERS OF CALIFORNIA MUNICIPAL OBLIGATIONS
There are a number of State agencies, instrumentalities and political
subdivisions of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private borrowers.
These entities are subject to various economic risks and uncertainties, and the
credit quality of the securities issued by them may vary considerably from the
credit quality of obligations backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
the State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately
75% of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. To the extent the State should be
constrained by its Article XIIIB appropriations limit, or its obligation to
conform to Proposition 98, or other fiscal considerations, the absolute level,
or the rate of growth, of State assistance to local governments may continue to
be reduced. Any such reductions in State aid could compound the serious fiscal
constraints already experienced by many local governments, particularly
counties. At least one rural county (Butte) publicly announced that it might
enter bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for the
county. Other counties have also indicated that their budgetary condition is
extremely grave. Los Angeles County, the largest in the State, faced a nominal
$1.2 billion gap in its 1995-96 budget, half of which was in the County health
care system. The gaps were closed only with significant cuts in services and
personnel, particularly in the health care system, federal aid, and transfer of
some funds from other local governments to the County pursuant to special
legislation. The
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County's debt was downgraded by Moody's and S&P in the summer of 1995. Orange
County, just emerged from Federal Bankruptcy Court protection in June 1996, has
significantly reduced county services and personnel, and faces strict financial
conditions following large investment fund losses in 1994 which resulted in
bankruptcy.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Certain California long-term lease
obligations, though typically payable from the general fund of the
municipality, are subject to "abatement" in the event the facility being leased
is unavailable for beneficial use and occupancy by the municipality during the
term of the lease. Abatement is not a default, and there may be no remedies
available to the holders of the certificates evidencing the lease obligation in
the event abatement occurs. The most common cases of abatement are failure to
complete construction of the facility before the end of the period during which
lease payments have been capitalized and uninsured casualty losses to the
facility (e.g., due to earthquake). In the event abatement occurs with respect
to a lease obligation, lease payments may be interrupted (if all available
insurance proceeds and reserves are exhausted) and the certificates may not be
paid when due.
Several years ago the Richmond Unified School District (the "District")
entered into a lease transaction in which certain existing properties of the
District were sold and leased back in order to obtain funds to cover operating
deficits. Following a fiscal crisis in which the District's finances were taken
over by a State receiver (including a brief period under bankruptcy court
protection), the District failed to make rental payments on this lease,
resulting in a lawsuit by the Trustee for the Certificate of Participation
holders, in which the State was named defendant (on the grounds that it
controlled the District's finances). One of the defenses raised in answer to
this lawsuit was the invalidity of the original lease transaction. The trial
court has upheld the validity of the District's lease, and the case has been
settled. Any judgment in any future case against the position asserted by the
Trustee in the Richmond case may have adverse implications for lease
transactions of a similar nature by other California entities.
OTHER CONSIDERATIONS
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by healthcare and hospital revenues may be affected by
changes in State regulations, governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of State and local governments to impose new taxes or increase
existing taxes. It is not possible, at present, to predict the extent to which
any such legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California Municipal
Obligations in which the Fund may invest, future allocations of State revenues
to local governments or the abilities of State or local governments to pay the
interest on, or repay the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or
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property tax assessment reductions. Compensatory financial assistance could be
constrained by the inability of (i) an issuer to have obtained earthquake
insurance coverage at reasonable rates; (ii) an insurer to perform on its
contracts of insurance in the event of widespread losses; or (iii) the federal
or State government to appropriate sufficient funds within their respective
budget limitations.
FACTORS PERTAINING TO CONNECTICUT
Connecticut's economy, historically based on the insurance, defense
manufacturing, finance and real estate industries, is slowly recovering from
one of the most severe recessions in the country, which was due in part to
reductions in defense spending and the downsizing of the forgoing industries.
The construction, trade and service industries are expected to lead the state's
economic recovery. Connecticut is the highest income state in the nation.
The state's unaudited general fund revenues for fiscal year 1995-96 were
$ billion against expenditure of $ , adding to a cumulative general fund
deficit of $ million. [Status of the 1996-97 budget] The state's 1995
unemployment rate was % and average personal income was $ . While the
state's per capita personal income levels are 135% of the national average, the
state's ratio of tax-supported debt to personal income is among the highest in
the nation. These high debts are expected to limit the state's financial
flexibility. The state's general obligation bonds are rated Aa by Moody's and
AA- by Standard and Poor's.
FACTORS PERTAINING TO MASSACHUSETTS
As described above, except to the extent the Massachusetts Municipal Bond
Fund and the Massachusetts Insured Municipal Bond Fund (the "Massachusetts
Funds") invest in temporary investments, the Massachusetts Funds will invest
substantially all of its net assets in Massachusetts Municipal Obligations. The
Massachusetts Funds are therefore susceptible to political, economic or
regulatory factors affecting issuers of Massachusetts Municipal Obligations.
Without intending to be complete, the following briefly summarizes the current
financial situation, as well as some of the complex factors affecting the
financial situation, in the Commonwealth of Massachusetts (the "Commonwealth").
It is derived from sources that are generally available to investors and is
based in part on information obtained from various agencies in Massachusetts.
No independent verification has been made of the accuracy or completeness of
the following information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on Commonwealth or local
government finances generally, will not adversely affect the market value of
Massachusetts Obligations in the Funds or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
Since 1988, there has been a significant slowdown in the Commonwealth's
economy, as indicated by a rise in unemployment, a slowing of its per capita
income growth and declining state revenues. Since fiscal 1991, the
Commonwealth's revenues for state government programs have exceeded
expenditures. However, no assurance can be given that lower than expected tax
revenues will not resume and continue.
1996 Fiscal Year Budget. On July 21, 1995, the Governor signed the
Commonwealth's budget for fiscal 1996. The fiscal 1996 budget is based on
estimated budgeted revenues and other sources of approximately $16.778 billion,
which includes fiscal 1996 tax revenues of $11.653 billion. Estimated fiscal
1996 tax revenues are approximately $490 million, or 4.3%, higher than
estimated fiscal 1995 tax revenues.
Fiscal 1996 non-tax revenues are projected to total $5.58 billion,
approximately $66 million, or 1.3%, less than fiscal 1995 non-tax revenues of
approximately $5.224 billion. Federal reimbursements are projected to decrease
by approximately $1 million from approximately $2.970 billion in fiscal 1995 to
approximately $2.969 billion in fiscal 1996, primarily as a result of increased
reimbursements for Medicare spending, offset by a reduction in reimbursements
received in 1995 for one-time Medicare expenses incurred in fiscal 1994 and
fiscal 1995. Fiscal 1996 departmental revenues are projected to decline by
approximately $94 million, or 7.4%, from approximately $1.273 billion in fiscal
1995 to approximately $1.179 billion in fiscal 1996. Major changes in projected
non-tax received for fiscal 1996 include a decline in motor vehicle license and
registration fees, reduction of abandoned property revenues and a decrease due
to non-recurring revenues received in fiscal 1995 from hospitals and nursing
homes as part of Medicare fiscal rate settlements and other reimbursements by
municipal hospital to the state.
Fiscal 1996 appropriations in the Annual Appropriations Act total
approximately $16.847 billion, including approximately $25 million in
gubernatorial vetoes overridden by the legislature. In the final supplemental
budget for fiscal 1995, approved on August 24, 1995, another $71.1 million of
appropriations were continued for use in 1996.
As of February 1, 1996, the Governor had signed into law fiscal 1996
supplemental appropriations totalling approximately $23.5 million, including
approximately $12.6 million to fund higher education collective bargaining
contracts and $5.6 million for the Department of Social Services. These
appropriations were offset by approximately $10.4 million in line item
reductions, including a reduction of $9.8 million for the state's debt service
contract assistance to the MBTA. Both the House and Senate have passed
supplemental appropriation bills totalling $64.8 million primarily relating to
snow and ice removal costs incurred by both the Commonwealth and cities and
towns. The bills are currently awaiting resolution by a conference committee of
the House and Senate. On January 26, 1996 and February 9, 1996, the Governor
filed additional supplemental appropriation bills totalling approximately $7.3
million for costs relating to prison
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overcrowding relief as well as reimbursement costs associated with a court
settlement. No action has been taken on these bills by either branch of the
Legislature.
As of May 28, 1996, fiscal 1996 projected spending is approximately $16.963
billion, including approximately $153.2 million reserved for contingencies.
Projected revenues are approximately $16.851 billion.
The fiscal 1996 tax revenue projection is $11.684 billion, which represents
an increase of approximately $80 million from the earlier estimate, based upon
tax revenue collections through April 1996.
The fiscal 1996 budget is based on numerous spending and revenue estimates
the achievement of which cannot be assured.
1995 Fiscal Year. Budgeted revenues and other sources, including non-tax
revenues, collected in fiscal 1995 were approximately $16.387 billion,
approximately $837 million, or 5.4%, above fiscal 1994 revenues of $15.550
billion. Fiscal 1995 tax revenue collections were approximately $11.163
billion, approximately $12 million above the Department of Revenue's revised
fiscal year 1995 tax revenue estimate of $10.151 billion and $556 million, or
5.2%, above fiscal year tax revenues of $10.607 billion.
Budgeted expenditures and other uses of funds in fiscal 1995 were
approximately $16.251 billion, approximately $728 million, or 4.7%, above
fiscal 1994 budgeted expenditures and uses of $15.523 billion. The Commonwealth
ended fiscal 1995 with an operating gain of $137 million and an ending fund
balance of $726 million.
On February 10, 1995, the Governor signed into law certain reforms to the
Commonwealth's program for Aid to Families with Dependent Children ("AFDC")
which take effect on July 1, 1995, subject to federal approval of certain
waivers. The revised program reduces AFDC benefits to able bodied recipients by
2.75%, while allowing them to keep a larger portion of their earned wages,
requires approximately 22,000 able-bodied parents of school-aged children to
work or perform community service for 20 hours per week and requires
approximately 16,000 recipients who have children between the ages of two and
six to participate in an education or training program or perform community
service. The plan also establishes a pilot program for up to 2,000 participants
that offers tax credits and wage subsidies to employers who hire welfare
recipients. Parents who find employment will be provided with extended medical
benefits and day care benefits for up to one year. The plan mandates paternal
identification, expands funding for anti-fraud initiatives, and requires
parents on AFDC to immunize their children. Parents who are disabled, caring
for a disabled child, have a child under the age of two, or are teen-agers
living at home and attending high school, will continue to receive cash
assistance. Since most provisions of the new law do not take effect until July
1, 1995, the Executive Office for Administration projects that the reforms will
not materially affect fiscal 1995 public assistance spending. The fiscal 1995
expenditure estimate of $16.449 billion includes $247.8 million appropriated to
fund the Commonwealth's public assistance programs for the last four months of
fiscal 1995. The Commonwealth is currently evaluating the new law's impact on
fiscal 1996 projected spending for public assistance programs.
On November 8, 1994, the voters in the statewide general election approved an
initiative petition that would slightly increase the portion of the gasoline
tax revenue credited to the Highway Fund, one of the Commonwealth's three major
budgetary funds, prohibit the transfer of money from the Highway Fund to other
funds for non-highway purposes and do the Highway Fund balance in the
computation "consolidated net surplus" for purposes of state finance laws. The
initiative petition also provides that no more than 15% of gasoline tax
revenues may be used for mass transportation purposes, such as expenditures
related to the Massachusetts Bay Transit Authority. The Executive Office of
Administration and Finance is analyzing the effect, if any, this initiative
petition, which became law on December 8, 1994, may have on the fiscal 1995
budget and it currently does not expect it to have any materially adverse
impact. This is not a constitutional amendment and is subject to amendment or
repeal by the Legislature, which may also, notwithstanding the terms of the
petition, appropriate moneys from the Highway Fund in such amounts and for such
purposes as it determines, subject only to a constitutional restriction that
such moneys be used for highways or mass transit purposes.
1994 Fiscal Year. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year 1994
tax revenue estimate of $10.694 billion and $677 million above fiscal 1993 tax
revenues of $9.930 billion. Budgeted revenues and other sources, including non-
tax revenues, collected in fiscal 1994 were approximately $15.550 billion.
Total revenues and other sources increased by approximately 5.7% from fiscal
1993 to fiscal 1994 while tax revenues increased by 6.8% for the same period.
Budgeted expenditures and other uses of funds in fiscal 1994 were approximately
$15.523 billion, which is $826.5 million or approximately 5.6% higher than
fiscal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599
million.
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In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects the annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion to be
approximately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868
million in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $896
million in appropriations to satisfy this legislation.
1993 Fiscal Year. The Commonwealth's budgeted expenditures and other uses
were approximately $14.696 billion in fiscal 1993, which is approximately
$1.280 billion or 9.6% higher than fiscal 1992 expenditures and other uses.
Final fiscal 1993 budgeted expenditures were $23 million lower than the initial
July 1992 estimates of fiscal 1993 budgeted expenditures. Budgeted revenues and
other sources for fiscal 1993 totalled approximately $14.710 billion, including
tax revenues of $9.930 billion. Total revenues and other sources increased by
approximately 6.9% from fiscal 1992 to fiscal 1993, while tax revenues
increased by 4.7% for the same period. Overall, fiscal 1993 ended with a
surplus of revenues and other sources over expenditures and other uses of $13.1
million and aggregate ending fund balances in the budgeted operating funds of
the Commonwealth of approximately $562.5 million. After payment in full of the
distribution of local aid to the Commonwealth's cities and towns ("Local Aid")
and the retirement of short term debt, the Commonwealth showed a year end cash
position of approximately $622.2 million, as compared to a projected position
of $485.1 million.
1992 Fiscal Year. The Commonwealth's budgeted expenditures and other uses
were approximately $13.4 billion in fiscal 1992, which is $238.7 million or
1.7% lower than fiscal 1991 budgeted expenditures. Final fiscal 1992 budgeted
expenditures were $300 million more than the initial July 1991 estimates of
budgetary expenditures, due in part to increases in certain human services
programs, including an increase of $268.7 million for the Medicaid program and
$50.0 million for mental retardation consent decree requirements. Budgeted
revenues and other sources for fiscal 1992 totalled approximately $13.7 billion
(including tax revenues of approximately $9.5 billion), reflecting an increase
of approximately 0.7% from fiscal 1991 to 1992 and an increase of 5.4% in tax
revenues for the same period. Overall, fiscal 1992 is estimated to have ended
with an excess of revenues and other sources over expenditure and other uses of
$312.3 million. After payment in full of Local Aid in the amount of $514.0
million due on June 30, 1992, retirement of the Commonwealth's outstanding
commercial paper (except for approximately $50 million of bond anticipation
notes) and certain other short term borrowings, as of June 30, 1992, the end of
fiscal 1992, the Commonwealth showed a year-end cash position of approximately
$731 million, as compared with the Commonwealth's cash balance of $182.3
million at the end of fiscal 1991.
1991 Fiscal Year. Budgeted expenditures for fiscal 1991 were approximately
$13.659 billion, as against budgeted revenues and other sources of
approximately $13.634 billion. The Commonwealth suffered an operating loss of
approximately $21.2 million. Application of the adjusted fiscal 1990 fund
balances of $258.3 million resulted in a fiscal 1991 budgetary surplus of
$237.1 million. State law requires that approximately $59.2 million of the
fiscal year ending balances of $237.1 million be placed in the Stabilization
Fund, a reserve from which funds can be appropriated (i) to make up any
difference between actual state revenues in any fiscal year in which actual
revenues fall below the allowable amount, (ii) to replace state and local
losses by federal funds or (iii) for any event, as determined by the
legislature, which threatens the health, safety or welfare of the people or the
fiscal stability of the Commonwealth or any of its political subdivisions.
Upon taking office in January 1991, the new Governor proposed a series of
legislative and administrative actions, including withholding of allotments
under Section 9C of Chapter 29 of the General Laws, intended to eliminate the
projected deficits. The new Governor's review of the Commonwealth's budget
indicated projected spending of approximately $14.1 billion with an estimated
$850 million in budget balancing measures that would be needed prior to the
close of fiscal 1991. At that time, estimated tax revenues where revised to
approximately $8.8 billion, $903 million less than was estimated at the time
the fiscal 1991 budget was adopted. The Legislature adopted a number of the
Governor's recommendations and the Governor took certain administrative actions
not requiring legislative approval, including the adoption of a state employee
furlough program. It is estimated by the Commonwealth that spending reductions
achieved through savings initiatives and withholding of allotments total
approximately $484.3 million in aggregate for fiscal 1991. However, these
savings and reductions may be impacted negatively by litigation pursued by
third parties concerning the Governor's actions under Section 9C of Chapter 29
of the General Laws and with regard to the state employee furlough program.
In addition, the new administration in May 1991 filed an amendment to its
Medicaid state plan that enables it to claim 50% federal reimbursement on
uncompensated care payments for certain hospitals in the Commonwealth. As a
result, in fiscal 1991, the Commonwealth obtained additional non-tax revenues
in the form of federal reimbursements equal to approximately $513 million on
account of uncompensated care payments. This reimbursement claim was based upon
recent amendments of federal law contained in the Omnibus Budget Reconciliation
Act of 1990 and, consequently, on relatively undeveloped federal laws,
regulations and guidelines. At the request of the federal Health Care Financing
Administration, the Office of Inspector General of the United States Department
of Health and Human Services has commenced an audit of the reimbursement. The
administration, which had reviewed the matter with the Health Care Financing
Administration prior to claiming the reimbursement, believes that the
Commonwealth will prevail in the audit.
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If the Commonwealth does not prevail, the Commonwealth would have the right to
contest an appeal, but could be required to pay all or part of Medicaid
reimbursements with interest and to have such amount deducted from future
reimbursement payments.
Employment. Reversing a trend of relatively low unemployment during the early
and mid 1980's, the Massachusetts unemployment rate beginning in 1990 increased
significantly to where the Commonwealth's unemployment rate exceeded the
national unemployment rate. During 1990, the Massachusetts unemployment rate
increased from 4.5% in January to 6.1% in July to 6.7% in August. During 1991,
the Massachusetts unemployment rate averaged 9.0% while the average United
States unemployment rate was 6.7%. The Massachusetts unemployment rate during
1992 averaged 8.5% while the average United States unemployment rate was 7.4%.
Since 1993, the average monthly unemployment rate has declined steadily. The
Massachusetts unemployment rate in February 1996 was 5.0%, as compared with the
United States unemployment rate of 5.5% for the same period. Other factors
which may significantly and adversely affect the employment rate in the
Commonwealth include reductions in federal government spending on defense-
related industries. Due to this and other considerations, there can be no
assurance that unemployment in the Commonwealth will not increase in the
future.
Debt Ratings. S&P currently rates the Commonwealth's uninsured general
obligation bonds at A+. At the same time, S&P currently rates state and agency
notes at SP1. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its S&P rating, with its decline beginning in May 1989, when S&P
lowered its rating on the Commonwealth's general obligation bonds and other
Commonwealth obligations from AA+ to AA and continuing a series of further
reductions until March 1992, when the rating was affirmed at BBB.
Moody's currently rates the Commonwealth's uninsured general obligation bonds
at A1. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its rating by Moody's since May 1989. In May 1989, Moody's lowered
its rating on the Commonwealth's notes from MIG-1 to MIG-2, and its rating on
the Commonwealth's commercial paper from P-1 to P-2. On June 21, 1989, Moody's
reduced the Commonwealth's general obligation rating from Aa to A. On November
15, 1989, Moody's reduced the rating on the Commonwealth's general obligations
from A to Baa1, and on March 9, 1990, Moody's reduced the rating of the
Commonwealth's general obligation bonds from Baa1 to Baa.
There can be no assurance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and
municipalities have faced serious financial difficulties which have affected
the credit standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt obligations.
The continuation of, or an increase in, such financial difficulties could
result in declines in the market values of, or default on, existing obligations
including Massachusetts Obligations in the Fund. Should there be during the
term of the Fund a financial crisis relating to Massachusetts, its public
bodies or municipalities, the market value and marketability of all outstanding
bonds issued by the Commonwealth and its public authorities or municipalities
including the Massachusetts Obligations in the Fund and interest income to the
Fund could be adversely affected.
Total Bond and Note Liabilities. The total general obligation bond
indebtedness of the Commonwealth (including Dedicated Income Tax Debt and
Special Obligation Debt) as of April 1, 1996 was approximately $10.093 billion.
There were also outstanding approximately $240 million in general obligation
notes and other short term general obligation debt. The total bond and note
liabilities of the Commonwealth as of April 1, 1996, including guaranteed bond
and contingent liabilities was approximately $13.818 billion.
Debt Service. During the 1980s, capital expenditures were increased
substantially, which has had a short term impact on the cash needs of the
Commonwealth and also accounts for a significant rise in debt service during
that period. In November, 1988, the Executive Office for Administration and
Finance established an administrative limit on state-financed capital spending
in the Capital Projects Fund of $925 million per fiscal year. Capital
expenditures were $847.0 million, $694.1 million, $575.9 million, $760.6
million and $902.2 million in fiscal 1991, fiscal 1992, fiscal 1993, fiscal
1994 and fiscal 1995, respectively. Commonwealth-financed capital expenditures
are projected to be approximately $898.0 million in fiscal 1996. Debt service
expenditures for fiscal 1991, fiscal 1992, fiscal 1993, fiscal 1994 and fiscal
1995 were $942.3 million, $898.3 million, $1.140 billion, $1.149 billion, and
$1.231 billion, respectively, and are projected to be approximately $1.199
billion for fiscal 1996. The amounts represented do not include debt service on
notes issued to finance certain Medicare-related liabilities, certain debt
service contract assistance payment to Massachusetts Bay Transportation
Authority ($205.5 million projected in fiscal 1996), the Massachusetts
Convention Center ($24.6 million projected in fiscal 1996), the Massachusetts
Government Land Bank ($6 million projected in fiscal 1996), the Massachusetts
Water Pollution Abatement Trust ($16.6 million projected in fiscal 1996) and
grants to municipalities under the school building assistance program to defray
a portion of the debt service costs on local school bonds ($174.5 million
projected in fiscal 1996).
In January 1990, legislation was passed to impose a limit on debt service
beginning in fiscal 1991, providing that no more than 10% of the total
appropriations in any fiscal year may be expended for payment of interest and
principal on general obligation debt (excluding the Fiscal Recovery Bonds). The
percentage of total appropriations expended from the
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budgeted operating funds for debt service (excluding debt service on Fiscal
Recovery Bonds) for fiscal 1994 is 5.6% which is projected to increase to 5.9%
in fiscal 1995.
Certain Liabilities. Among the material future liabilities of the
Commonwealth are significant unfunded general liabilities of its retirement
systems and a program to fund such liabilities; a program whereby, starting in
1978, the Commonwealth began assuming full financial responsibility for all
costs of the administration of justice within the Commonwealth; continuing
demands to raise aggregate aid to cities, towns, schools and other districts
and transit authorities above current levels; and Medicaid expenditures which
have increased each year since the program was initiated. The Commonwealth has
signed consent decrees to continue improving mental health care and programs
for the mentally retarded in order to meet federal standards, including those
governing receipt of federal reimbursements under various programs, and the
parties in those cases have worked cooperatively to resolve the disputed
issues.
As a result of comprehensive legislation approved in January, 1988, the
Commonwealth is required, beginning in fiscal 1989 to fund future pension
liabilities currently and to amortize the Commonwealth's unfunded liabilities
over 40 years. The funding schedule must provide for annual payments in each of
the ten years ending fiscal 1998 which are at least equal to the total
estimated pay-as-you-go pension costs in each year. As a result of this
requirement, the funding requirements for fiscal 1996, 1997 and 1998 are
estimates to be increased to approximately $1.007 billion, $1.061 billion and
$1.128 billion, respectively.
Litigation. The Commonwealth is engaged in various lawsuits involving
environmental and related laws, including an action brought on behalf of the
U.S. Environmental Protection Agency alleging violations of the Clean Water Act
and seeking to enforce the clean-up of Boston Harbor. The MWRA, successor in
liability to the Metropolitan District Commission, has assumed primary
responsibility for developing and implementing a court-approved plan for the
construction of the treatment facilities necessary to achieve compliance with
federal requirements. Under the Clean Water Act, the Commonwealth may be liable
for costs of compliance in these or any other Clean Water cases if the MWRA or
a municipality is prevented from raising revenues necessary to comply with a
judgment. The MWRA currently projects that the total cost of construction of
the treatment facilities required under the court's order is approximately
$3.557 billion in current dollars, with approximately $1.046 billion to be
spent on or after June 30, 1995. On October 18, 1995, the court entered an
order which reduced the MWRA's obligation to build certain additional secondary
treatment facilities, which is estimated by the MWRA will save ratepayers
approximately $165 million.
The Department of Public Welfare has been sued for the alleged unlawful
denial of personal care attendant services to certain disabled Medicaid
recipients. The Superior Court has denied the plaintiff's motion for
preliminary injunction and has also denied the plaintiff's motion for class
certification. If the plaintiffs were to prevail on their claims and the
Commonwealth were required to provide all of the services sought by the
plaintiffs to all similarly situated persons, it would substantially increase
the annual cost to the Commonwealth. The Department of Public Welfare currently
estimates this increase to be as much as $200 million per year.
There are also actions pending in which recipients of human services
benefits, such as welfare recipients, the mentally retarded, the elderly, the
handicapped, children, residents of state hospitals and inmates of corrections
institutions, seek expanded levels of services and benefits and in which
providers of services to such recipients challenge the rates at which they are
reimbursed by the Commonwealth. To the extent that such actions result in
judgments requiring the Commonwealth to provide expanded services or benefits
or pay increased rates, additional operating and capital expenditures might be
needed to implement such judgments.
In 1995, the Spaulding Rehabilitation Hospital ("Spaulding") filed an action
to enforce an agreement to acquire its property by eminent domain in connection
with the Central Artery/Third Harbor Tunnel Project. If successful, Spaulding
could recover the fair market value of its property in addition to its
relocation costs with respect to its personal property. The Commonwealth
estimates its potential liability at approximately $50 million.
The Commonwealth faces an additional potential liability of approximately $40
million in connection with a taking by the Massachusetts Highway Department
related to the relocation of Northern Avenue in Boston.
In addition there are several tax matters in litigation which could result in
significant refunds to taxpayers if decisions unfavorable to the Commonwealth
are rendered. In BayBank, et al. v. Commissioner of Revenue, the banks
challenge the inclusion of income from tax exempt obligations in the measure of
the bank excise tax. The Appellate Tax Board issued findings of fact and a
report in favor of the Commissioner of Revenue on September 30, 1993. The case
is pending before the Supreme Judicial Court. The potential liability is
approximately $55 million, including similarly situated banks and tax years
after 1990.
In National Association of Government Employees v. Commonwealth, the Superior
Court declared that a line item in the Commonwealth's general appropriations
act for fiscal 1994 that increased the state employees' percentage share of
their group health insurance premiums from 10% to 15% violated the terms of
several collective bargaining agreements, and therefore was invalid under the
United State Constitution as regards employees covered by the agreements. On
February 9, 1995, the Supreme Judicial Court vacated the Superior Court's
decision and declared that the fiscal 1994 line item did not violate the
contracts clause. In June, 1995, the United States Supreme Court denied the
plaintiff's writ of certiorari. Several other unions have filed a companion
suit asserting that the premium increase similarly violated other
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collective bargaining agreements. The latter suit is in its initial stages.
Prior to the Supreme Judicial Court's decision, the Commonwealth's aggregate
liability is estimated to be approximately $32 million.
A variety of other civil suits pending against the Commonwealth may also
affect its future liabilities. These include challenges to the Commonwealth's
allocation of school aid under Section 9C of Chapter 29 of the General Laws and
to adopt a state employee furlough program. No prediction is possible as to the
ultimate outcome of these proceedings.
On March 22, 1995, the Supreme Judicial Court held in Perini Corporation v.
Commission of Revenues that certain deductions from the net worth measure of
the Massachusetts corporate excise tax violate the Commerce Clause of the
United States Constitution. On October 2, 1995, the United States Supreme Court
denied the Commonwealth's petition for writ of certiorari. The Department of
Revenue estimates that tax revenues in the amount of $40 to $55 million may be
abated as a result of the Supreme Judicial Court's decision.
Many factors, in addition to those cited above, do or may have a bearing upon
the financial condition of the Commonwealth, including social and economic
conditions, many of which are not within the control of the Commonwealth.
Expenditure and Tax Limitation Measures. Limits have been established on
state tax revenues by legislation approved by the Governor on October 25, 1986
and by an initiative petition approved by the voters on November 4, 1986. The
Executive Office for Administration and Finance currently estimates that state
tax revenues will not reach the limit imposed by either the initiative petition
or the legislative enactment in fiscal 1992.
Proposition 2 1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns and large
increases in state aid to offset such revenue losses. According to the
Executive Office for Administration and Finance, all of the 351 cities and
towns have now achieved a property tax level of no more than 2.5% of full
property values. Under the terms of Proposition 2 1/2, the property tax levy
can now be increased annually for all cities and towns, almost all by 2.5% of
the prior fiscal year's tax levy plus 2.5% of the value of new properties and
of significant improvements to property. Legislation has also been enacted
providing for certain local option taxes. A voter initiative petition approved
at the statewide general election in November, 1990 further regulates the
distribution of Local Aid of no less than 40% of collections from individual
income taxes, sales and use taxes, corporate excise taxes, and the balance of
the state lottery fund. If implemented in accordance with its terms (including
appropriation of the necessary funds), the petition as approved would shift
several hundred million dollars to direct Local Aid.
Other Tax Measures. To provide revenue to pay debt service on both the
deficit and Medicaid-related borrowings and to fund certain direct Medicaid
expenditures, legislation was enacted imposing an additional tax on certain
types of personal income for 1989 and 1990 taxable years at rates of 0.375% and
0.75%, respectively, effectively raising the tax rate of 1989 from 5% to 5.375%
and for 1990 to 5.75%. Recent legislation has effectively further increased tax
rates to 5.95% for tax year 1990 to 6.25% for tax year 1991 and returning to
5.95% for tax year 1992 and subsequent tax years. The tax is applicable to all
personal income except income derived from dividends, capital gains,
unemployment compensation, alimony, rent, interest, pensions, annuities and
IRA/Keogh distributions. The income tax rate on other interest (excluding
interest on obligations of the United States and of the Commonwealth and its
subdivisions), dividends and net capital gains (after a 50% reduction) was
increased from 10% to 12% for tax year 1990 and subsequent years, by recently
enacted legislation.
Estate Tax Revisions. The fiscal 1993 budget included legislation which
gradually phases out the current Massachusetts estate tax and replaces it with
a "sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for state taxes allowed for federal estate tax purposes. The estate tax
is phased out by means of annual increases in the basic exemption from the
current $200,000 level. The exemption is increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the
legislation includes a full marital deduction starting July 1, 1994. Currently
the marital deduction is limited to 50% of the Massachusetts adjusted gross
estate. The static fiscal impact of the phase out of the estate tax was
estimated to be approximately $24.8 million in fiscal 1994 and is estimated to
be approximately $72.5 million in fiscal 1995.
Other Issuers of Massachusetts Obligations. There are a number of state
agencies, instrumentalities and political subdivisions of the Commonwealth that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the Commonwealth. The brief
summary above does not address, nor does it attempt to address, any
difficulties and the financial situations of those other issuers of
Massachusetts Obligations.
HEDGING AND OTHER DEFENSIVE ACTIONS
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price.
S-28
<PAGE>
Typically, option holders enter into offsetting closing transactions to enable
settlement in cash rather than take delivery of the position in the future of
the underlying security. Each Fund will only sell covered futures contracts,
which means that the Fund segregates assets equal to the amount of the
obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial risk than do
options transactions, where the exposure is limited to the cost of the initial
premium. Losses due to hedging transactions will reduce yield. Net gains, if
any, from hedging and other portfolio transactions will be distributed as
taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable "temporary investments."
Temporary investments will not exceed 20% of a Fund's assets except when made
for defensive purposes. The Funds will invest only in taxable temporary
investments that are either U.S. Government securities or are rated within the
highest grade by Moody's, S&P, or Fitch and mature within one year from the
date of purchase or carry a variable or floating rate of interest. See Appendix
A for more information about ratings by Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general
obligations of the issuer. A decline in the receipt of projected revenues,
such as anticipated revenues from another level of government, could
adversely affect an issuer's ability to meet its obligations on outstanding
RANs. In addition, the possibility that the revenues would, when received,
be used to meet other obligations could affect the ability of the issuer to
pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
S-29
<PAGE>
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-30
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has eight
trustees, two of whom are "interested persons" (as the term "interested
persons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Timothy R. 47 Chairman and Chairman since July 1, 1996 of The John Nuveen
Schwertfeger* Trustee Company, John Nuveen & Co. Incorporated, Nuveen
333 West Wacker Advisory Corp. and Nuveen Institutional Advisory
Drive Corp.; prior thereto Executive Vice President and
Chicago, IL 60606 Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Lawrence H. Brown 61 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company.
Highwood, IL 60040
Anthony T. Dean* 51 President and President since July 1, 1996 of The John Nuveen
333 West Wacker Drive Trustee Company, John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory
Corp.; prior thereto, Executive Vice President and
Director of The John Nuveen Company (since March
1992), John Nuveen & Co. Incorporated, Nuveen
Advisory Corp. (since October 1992) and Nuveen
Institutional Advisory Corp. (since October 1992).
Anne E. Impellizzeri 63 Trustee President and Chief Executive Officer of Blanton-
3 West 29th Street Peale Institute (since December 1990); prior
New York, NY 10001 thereto, Vice President of New York City
Partnership (from 1987 to 1990).
Margaret K. Rosenheim 69 Trustee Helen Ross Professor of Social Welfare Policy,
969 East 60th Street School of Social Service Administration,
Chicago, IL 60637 University of Chicago.
Peter R. Sawers 63 Trustee Adjunct Professor of Business and Economics,
22 The Landmark University of Dubuque, Iowa; Adjunct Professor,
Northfield, IL 60093 Lake Forest Graduate School of Management, Lake
Forest, Illinois (since January 1992); prior
thereto, Executive Director, Towers Perrin
Australia (management consultant); Chartered
Financial Analyst; Certified Management
Consultant.
William M. Fitzgerald 32 Vice President Vice President of Nuveen Advisory Corp. (since
333 West Wacker December 1995); Assistant Vice President of Nuveen
Drive Advisory Corp. (from September 1992 to December
Chicago, IL 60606 1995), prior thereto Assistant Portfolio Manager
of Nuveen Advisory Corp. (from June 1988 to
September 1992).
Kathleen M. Flanagan 49 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker
Drive
Chicago, IL 60606
J. Thomas Futrell 41 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker
Drive
Chicago, IL 60606
Steven J. Krupa 38 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker
Drive
Chicago, IL 60606
</TABLE>
S-31
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Anna R. 50 Vice President Vice President of John Nuveen & Co. Incorporated.
Kucinskis
333 West
Wacker
Drive
Chicago,
IL 60606
Larry W. 45 Vice President Vice President (since September 1992), and
Martin Assistant Secretary and Assistant General Counsel
333 West of Secretary John Nuveen & Co. Incorporated; Vice
Wacker President (since May 1993) and Assistant Secretary
Drive of Nuveen Advisory Corp.; Vice President (since
Chicago, May 1993) and Assistant Secretary (since January
IL 60606 1992) of Nuveen Institutional Advisory Corp.;
Assistant Secretary of The John Nuveen Company
(since February 1993).
O. Walter 57 Vice President Vice President and Controller of The John and
Renfftlen Controller Nuveen Company (since March 1992), John
333 West Nuveen & Co. Incorporated, Nuveen Advisory Corp.
Wacker and Nuveen Institutional Advisory Corp.
Drive
Chicago,
IL 60606
Thomas C. 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
Spalding, Institutional Advisory Corp.; Chartered Financial
Jr. Analyst.
333 West
Wacker
Drive
Chicago,
IL 60606
H. William 66 Vice President Vice President and Treasurer of The John and
Stabenow Treasurer Nuveen Company (since March 1992), John
333 West Nuveen Nuveen & Co. Incorporated, Nuveen Advisory
Wacker Corp. and Nuveen Institutional Advisory Corp,
Drive (since January 1992).
Chicago,
IL 60606
James J. 46 Vice President Vice President, General Counsel and Secretary and
Wesolowski Secretary of The John Nuveen Company (since March
333 West 1992), John Nuveen & Co. Incorporated, Nuveen
Wacker Advisory Corp. and Nuveen Institutional Advisory
Drive Corp.
Chicago,
IL 60606
Gifford R. 40 Vice President Vice President (since September 1992), Assistant
Zimmerman and Assistant Secretary and Assistant General Counsel of John
333 West Secretary Nuveen & Co. Incorporated; Vice President (since
Wacker May 1993) and Assistant Secretary of Nuveen
Drive Advisory Corp.; Vice President (since May 1993)
Chicago, and Assistant Secretary (since January 1992) of
IL 60606 Nuveen Institutional Advisory Corp.
</TABLE>
Anthony Dean, Margaret Rosenheim and Schwertfeger serve as members of the
Executive Committee of the Board of Trustees. The Executive Committee, which
meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are also directors or trustees, as the case may be,
of 59 other Nuveen open-end fund portfolios and 53 Nuveen closed-end funds.
S-32
<PAGE>
The following table sets forth estimated compensation paid or accrued by the
Trust to each of the trustees of the Trust for the first full fiscal year and
the total compensation that all Nuveen Funds paid to each trustee during the
calendar year 1995. The Trust has no retirement or pension plans. The officers
and trustees affiliated with Nuveen serve without any compensation from the
Trust.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Lawrence H. Brown........................ $3,237 $55,500
Anne E. Impellizzeri..................... $3,237 $63,000
Margaret K. Rosenheim.................... $3,579(2) $62,322(1)
Peter R. Sawers.......................... $3,237 $55,500
</TABLE>
- --------
(1) Includes $1,572 in interest accrued on deferred compensation from prior
years.
(2) Includes $324 in interest accrued on deferred compensation from prior
years.
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
fee. The Trust requires no employees other than its officers, all of whom are
compensated by Nuveen.
The officers and directors of each Fund, in the aggregate, own less than 1%
of the shares of the Fund.
The following table sets forth the percentage ownership of each person, who,
as of September 30, 1996, owns of record, or is known by Registrant to own of
record or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Flagship New York Municipal
Bond Fund BHC Securities Inc. 7.06%
Class A Shares................... FAO 72893684
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
NFSC FEBO # AAD-262439 5.88
Elinor Hodder
Sheila G. Moore
7600 Shore Front Pkwy. Apt. 12H
Rockaway Beach, NY 11692
Nuveen Flagship New York Municipal
Bond Fund Katherine C. Hinton & 12.58
Class C Shares................... Lorin W. Lyle
JT TEN WROS NOT TC
100 La Salle St. Apt. 11F
New York, NY 10027-4738
Carol Wieder 10.63
315 Vista Dr.
Jericho, NY 11753-2808
Leila W. Bugenhagen & 6.40
Kenneth Bugenhagen
JT TEN WROS NOT TC
552 Forest Edge Dr.
East Amherst, NY 14051-2468
Adam S. Katz & 5.37
Karen Katz
JT TEN WROS NOT TC
2276 Merrick Ave.
Merrick, NY 11566
Dennis E. McGee 5.36
7 Hillary Ln.
Penfield, NY 14526-1607
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Faye R. Eilen 5.23%
9952 66th Rd. Apt. 9c
Rego Park, NY 11374-4429
Nuveen Flagship New York Municipal
Bond Fund BHC Securities Inc. 8.62
Class R Shares..................... FAO 70001464
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
Nuveen New York Insured Municipal
Bond Fund BHC Securities Inc. 15.45
Class A Shares..................... FAO 70015729
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
NFSC FEBO # OSN-710261 6.69
Beverly S. Greenberg
150 E. 69th St. Apt 15B
New York, NY 10021
Nuveen New York Insured Municipal
Bond Fund N De Filippes Corp. 16.30
Class C Shares..................... 310 Madison Ave. Rm. 1012
New York, NY 10017-6009
Arlene Krasnoff 9.49
21707 82nd Ave.
Queens Village, NY 11427-1103
Ruth Preston & 7.26
Sara P. Costello &
Patricia M. Kohl
JT TEN WROS NOT TC
2 Middleton Rd.
Greenport, NY 11944-1115
Donaldson Lufkin Jenrette 6.27
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Nuveen New York Insured Municipal
Bond Fund BHC Securities Inc. 22.93
Class R Shares..................... FAD 70001770
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
Nuveen Flagship New Jersey Municipal
Bond Fund Merrill Lynch Pierce Fenner & 9.21
Class A Shares..................... Smith Inc. 97E82
Attn: Book Entry Dept.
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nicholas A. Rao 6.72%
& Catherine F. Rao
JT TEN WROS NOT TC
9 Marlin Ave. W
Edison, NJ 08520-3164
NFSC FEBO # AAR-452009 5.05
Olga Schadas
28 Madison Street
S Bound Brook, NJ 08880
Nuveen Flagship New Jersey Municipal
Bond Fund William G. Osborne 24.09
Class C Shares..................... c/o Aurachen Corp.
South 3R & Somerset St.
PO Box 471
Harrison, NJ 07029-0471
Alvin H. Frankel Agent For 8.65
Louise I. Grill
U/POA Dtd Jun 17 94
601 Haddon Ave.
Collinswood, NJ 08108-3703
Donaldson Lufkin Jenrette 6.37
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Nuveen Flagship New Jersey
Intermediate Municipal Bond Fund Merrill Lynch Pierce Fenner & 21.64
Class A Shares..................... Smith 97393
Attn Book Entry
PO Box 45266
Jacksonville, FL 32232-5288
Nuveen California Municipal Bond
Fund J. Andrew Kitzman & 5.39
Class A Shares..................... Hazel Lloyd Kitzman Cotr
UA JUL 02 82
Kitzman Family Trust
10558 Grandview Dr. # 4063
La Mesa, CA 91941-6905
Nuveen California Municipal Bond
Fund Paul R. Hoeber 23.91
Class C Shares..................... 611 Bay St. Apt. 4
San Francisco, CA 94133-1619
NFSC FEBO # OFP-002135 16.16
Michele Chiapella
103 Northwood Commons
Chico, CA 95926
Charlotte N Fed Tr 7.90
UA DEC 06 79
Charlotte N Fed Family Trust
530 Galleon Way
Seal Beach, CA 90740-5939
John C MacGregor-Scott Tr 7.69
UA JUN 22 87
MacGregor-Scott Rev Fam Trust
720 W Camino Real Ave.
Arcadia, CA 91007-7839
Nuveen California Municipal Bond
Fund Smith Barney Shearson 5.16
Class R Shares..................... 00119601999
388 Greenwich Street
New York, NY 10013
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen California Insured Municipal Smith Barney Shearson Inc 5.92%
Bond Fund 00152919411
Class A Shares.................... 388 Greenwich Street
New York, NY 10013
Nuveen California Insured Municipal NFSC FEBO # 041-626996 16.37
Bond Fund Fleming Trust
Class C Shares.................... William E. Fleming
U/A 04/20/93
7057 Blackhawk Rd., PO Box 908
Forest Hill, CA 95631
Mildred H. Machtowski TR 9.61
UA Sep 14 95
Machtowski Family Trust
3145 Rita Ct
Napa, CA 94558-3317
Donaldson Lufkin Jenrette 9.25
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
BA Investment Services Inc. 7.46
FBO 406912971
185 Berry St.
3rd Floor #2640
San Francisco, CA 94104
Elzie R. Amlin & 5.90
Annita S. Amlin Tr
UA Mar 02 91
Amlin Family Trust
4005 Share Ranch Rd.
Shingle Springs, CA 95682-8020
Nuveen Flagship California
Intermediate Municipal Bond Fund
Class A Shares....................
Nuveen Flagship Connecticut
Municipal Bond Fund MLPF&S for the Sole Benefit & 26.87
Class A Shares.................... of its Customers
Attn Fund Administration
4800 Deer Lake DR E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch Pierce Fenner 44.12
Class C Shares.................... & Smith 97393
Attn Book Entry
PO Book 45286
Jacksonville, FL 32297-5266
Nuveen Massachusetts Municipal Bond
Fund Smith Barney Inc. 6.72
Class A Shares.................... 00162105158
388 Greenwich Street
New York, New York 10013
Montgomery Securities 6.08
752-08220-11
Attn: Mutual Funds--4th Floor
600 Montgomery Street
San Francisco, CA 94111
NFSC FEBO #OC8-412740 5.72
Barbara Polverari
PO Box 30
W Springfield, MA 01090
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Massachusetts Municipal Bond
Fund Hudson L. Matson 17.17%
Class C Shares.................... 39 Griggs Rd.
Sutton, MA 01590-1015
Swastika Sengupta 10.24
23 Loumar Dr. # 2
Pittsfield, MA 01201-5932
Loren Robbins 7.80
51 Main St.
N. Chelmsford, MA 01863-1628
Anthony Macolini 6.40
17 Mossdale Rd.
Jamaica Plain, MA 02130-3022
Charles G. Allen, Jr. Tr. 5.92
UA MAR 05 54
UW Flora A. Generess
FBO Charles G. Allen Jr. Et AL
221 James St. #65
Barre, MA 01005-8805
Nuveen Massachusetts Insured
Municipal Bond Fund Gerald W. Mahoney & 6.01
Class A Shares.................... Elaine Mahoney Tr
UA AUG 18 94
The Bagley Family Rev. Trust
162 Oakland St.
Fall River, MA 02720-6114
NFSC FEBO # DKR-016039
Allen Wrightington 5.65
Mary Ann Wrightington
93 Micajah Pond
Plymouth, MA 02360
Nuveen Massachusetts Insured
Municipal Bond Fund Raymond James & Assoc. Inc. 13.42
Class C Shares.................... For Elite Acct# 50099466
FAO George A. Dauteuil Sr. &
Pauline T. Dauteuil Jtwros
9 Church St.
Millbury, MA 01527-3134
Ruth Biller
51 Oak Rd. 13.16
Canton, MA 02021-2625
Rose E. Frisch
3 Hillside Pl. 12.12
Cambridge, MA 02140-3617
Daniel M. Flynn &
Kathleen F. Flynn 11.84
JT TEN WROS. NOT TC
232 North Rd.
Hampden, MA 01036-9659
John Sullivan
6 Margaret St. 11.82
Boston, MA 02113-2523
Magdalene S. Kapuscienski &
Gene S. Kapuscienski 5.26
JT TEN WROS NOT TC
15 D Country Club Lane
Milford, MA 01757
</TABLE>
S-37
<PAGE>
INVESTMENT ADVISER AND INVESTMENT MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
- --------------------------------- --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For assets over $2 billion....................................... .4750 of 1%
</TABLE>
[Nuveen Advisory has agreed to waive fees and reimburse the Funds through
July 31, 199[ ].]
Nuveen Advisory will waive all or a portion of its management fee or
reimburse certain expenses of the Funds in order to prevent total operating
expenses (including Nuveen Advisory's fee, but excluding interest, taxes, fees
incurred in acquiring and disposing of portfolio securities, any asset-based
distribution or service fees and, to the extent permitted, extraordinary
expenses) in any fiscal year from exceeding .00 of 1% of average daily net
asset value of any class of shares of a Fund.
Nuveen Advisory also may voluntarily agree to reimburse additional expenses
from time to time, and may terminate these voluntary reimbursements at any time
in its discretion. For the last three fiscal years, the New Jersey Municipal
Bond Fund paid net management fees to Nuveen Advisory as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO NUVEEN REIMBURSEMENTS
ADVISORY FOR THE YEAR ENDED FOR THE YEAR ENDED
-------------------------------- -----------------------
1/31/94 1/31/95 1/31/96 1/31/94 1/31/95 1/31/96
---------- ---------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund.............. $ 85,065 156,717 152,929 61,303 54,105 115,121
</TABLE>
For the last three fiscal years, the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the California Municipal Bond Fund, the
California Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
and the Massachusetts Insured Municipal Bond Fund paid net management fees to
Nuveen Advisory as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO NUVEEN REIMBURSEMENTS
ADVISORY FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------ -----------------------
2/28/94 2/28/95 2/29/96 2/28/94 2/28/95 2/29/96
---------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New York Municipal Bond
Fund................... $ 688,156 786,847 852,809 34,007 4,556 29,700
New York Insured
Municipal Bond Fund.... $1,968,122 1,921,472 1,940,010 0 1,767 0
California Municipal
Bond Fund.............. $1,130,541 1,123,360 1,199,571 0 3,483 3,302
California Insured
Municipal Bond Fund.... $1,053,393 1,073,336 1,156,993 0 2,697 1,695
Massachusetts Municipal
Bond Fund.............. $ 320,135 370,394 366,859 37,413 17,319 59,879
Massachusetts Insured
Municipal Bond Fund.... $ 295,357 302,241 346,952 0 1,148 788
</TABLE>
Flagship Financial has agreed to reimburse the Funds it advises to the extent
necessary to prevent each Fund's total operating expenses (as described above)
from exceeding the most restrictive expense limitation imposed by any state.
For the last three fiscal years, the New Jersey Intermediate Municipal Bond
Fund, the California Intermediate Municipal Bond Fund, and the Connecticut
Municipal Bond Fund paid net management fees to Flagship Financial as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE REIMBURSEMENT
PAID TO FLAGSHIP FEE WAIVERS AND EXPENSE
FINANCIAL FOR THE YEAR REIMBURSEMENTS
ENDED FOR THE YEAR ENDED
------------------------ -----------------------
5/31/94 5/31/95 5/31/96 5/31/94 5/31/95 5/31/96
-------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Municipal Bond Fund.......... $ 0 0 0 40,542 45,333 56,229
California Intermediate
Municipal Bond Fund.......... $ 00 00 00 00 00 00
Connecticut Municipal Bond
Fund......................... $255,441 396,094 00 768,360 615,631 00
</TABLE>
As discussed in the Prospectus, in addition to the management fee of Nuveen
Advisory, each Fund pays all other costs and expenses of its operations and a
portion of the Trust's general administrative expenses allocated in proportion
to the net assets of each Fund.
S-38
<PAGE>
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. Founded in 1898,
Nuveen is the oldest and largest investment banking firm specializing in the
underwriting and distribution of tax-exempt securities and maintains the
largest research department in the investment banking community devoted
exclusively to the analysis of municipal securities. In 1961, Nuveen began
sponsoring the Nuveen Tax-Exempt Unit Trust and since that time has issued more
than $36 billion in tax-exempt unit trusts, including over $12 billion in tax-
exempt insured unit trusts. In addition, Nuveen open-end and closed-end funds
held approximately $[31.6] billion in tax-exempt securities under management as
of the date of this Statement. Over 1,000,000 individuals have invested to date
in Nuveen's tax-exempt funds and trusts. Nuveen is a subsidiary of The John
Nuveen Company which, in turn, is approximately 78% owned by The St. Paul
Companies, Inc. ("St. Paul"). St. Paul is located in St. Paul, Minnesota and is
principally engaged in providing property-liability insurance through
subsidiaries.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department, the largest in the investment banking industry devoted
exclusively to tax-exempt securities. Nuveen's Research Department was selected
in 1994 by Research & Ratings Review, a municipal industry publication, as one
of the leading research teams in the municipal industry, based on an extensive
industry-wide poll of portfolio managers, department heads and bond buyers. The
Nuveen Research Department reviews more than $100 billion in tax-exempt bonds
every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
S-39
<PAGE>
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the New
York Municipal Bond Fund, the New York Insured Municipal Bond Fund, the New
Jersey Municipal Bond Fund, the California Municipal Bond Fund, the California
Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund, and the
Massachusetts Insured Municipal Bond Fund will be determined separately for
each class of those Funds' shares by The Chase Manhattan Bank, N.A., the Funds'
custodian, as of the close of trading (normally 4:00 p.m. Eastern Time) on each
day on which the New York Stock Exchange (the "Exchange") is normally open for
trading. The net asset value of the shares of the New Jersey Intermediate
Municipal Bond Fund, the California Intermediate Municipal Bond Fund, and the
Connecticut Municipal Bond Fund will be determined separately for each class of
those Funds' shares by State Street Bank and Trust Company, the Funds'
custodian, as of the close of trading (normally 4:00 p.m. Eastern Time) on each
day on which the Exchange is normally open for trading. The Exchange is not
open for trading on New Year's Day, Washington's Birthday, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share of a class of shares of a Fund will be computed
by dividing the value of the Fund's assets attributable to the class, less the
liabilities attributable to the class, by the number of shares of the class
outstanding.
In determining net asset value for the Funds, each Fund's custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. The pricing service values portfolio securities at the mean
between the quoted bid and asked price or the yield equivalent when quotations
are readily available. Securities for which quotations are not readily
available (which constitute a majority of the securities held by the Funds) are
valued at fair value as determined by the pricing service using methods which
include consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Fried, Frank, Harris, Shriver & Jacobson, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities and (ii) certain options, futures, or forward
contracts (the "short-short test"). Third, a Fund must diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the value of its total assets is comprised of cash, cash items, United States
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the value of a Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the total assets is invested in the securities of any one
issuer (other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may designate the retained amount as undistributed capital
gains in a notice to its shareholders who, if subject to federal income tax on
long-term capital gains, (i) will be required to include in income for federal
income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their proportionate
shares of the tax paid by such Fund against their federal income tax
liabilities if any, and to claim refunds to the extent the credit exceeds such
liabilities. For federal income tax purposes, the tax basis of shares owned by
a shareholder of the Fund will be increased by an amount equal under current
law to 65% of the amount of undistributed capital gains included in the
shareholder's gross income. Each Fund intends to distribute at
S-40
<PAGE>
least annually to its shareholders all or substantially all of its net tax-
exempt interest and any investment company taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes. See "Investment Policies and Investment Portfolio; Portfolio
Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the
dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) will be taxed at a maximum
marginal rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum marginal rate of 39.6%. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent
S-41
<PAGE>
shares of a Fund or another fund are subsequently acquired without payment of a
sales charge pursuant to the reinvestment or exchange privilege. Any
disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that are
substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Among the requirements that a Fund must meet in order to qualify under
Subchapter M in any year is that less than 30% of its gross income must be
derived from the sale or other disposition of securities and certain other
assets held for less than three months.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
S-42
<PAGE>
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer identification
number (in the case of individuals, their social security number) and certain
certifications, or who are otherwise subject to backup withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
STATE TAX MATTERS
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
and as qualified investment funds under applicable state law, that they will
satisfy the conditions which will cause distributions to qualify as exempt-
interest dividends to shareholders when distributed as intended, and that each
Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. The tax discussion summarizes general state tax laws which
are currently in effect and are subject to change by legislative or
administrative action; any such changes may be retroactive with respect to the
applicable Fund's transactions. Investors should consult a tax adviser for more
detailed information about state taxes to which they may be subject.
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND AND NUVEEN NEW YORK INSURED
MUNICIPAL BOND FUND
Although the New York Municipal Bond Fund and the New York Insured Municipal
Bond Fund (the "New York Funds") are subject to the New York State corporate
franchise tax and the New York City general corporation tax, they do not expect
to pay a material amount with respect to either tax.
Distributions by the New York Funds that are attributable to interest earned
on municipal obligations issued by governmental authorities in New York or to
interest on obligations of the United States, its agencies, territories,
possessions, or instrumentalities that are exempt from state taxation under
federal law will not be subject to the New York State personal income tax or
the New York City personal income or unincorporated business taxes. All
remaining distributions, including distributions attributable to capital gains,
will be subject to the New York State personal income tax and the New York City
personal income and unincorporated business taxes.
All New York Funds distributions, regardless of source, will be subject to
the New York State corporate franchise tax or the New York City general
corporation tax.
Any gain realized when shareholders sell, exchange, or redeem shares of the
New York Funds will be subject to the New York State personal income and
corporate franchise taxes and the New York City personal income, unincorporated
business, and general corporation taxes.
Shares of the New York Funds will be subject to the New York State estate tax
if owned by a New York decedent at the time of death.
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND AND NUVEEN FLAGSHIP NEW JERSEY
INTERMEDIATE BOND FUND
Although the New Jersey Municipal Bond Fund and the New Jersey Intermediate
Municipal Bond Fund (the "New Jersey Funds") are subject to the New Jersey
corporation business tax, they do not expect to pay a material amount of such
tax.
The portion of distributions by the New Jersey funds that are attributable to
interest or gains on New Jersey Tax Exempt Obligations or to interest or gains
on obligations of the United States, its agencies, territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the New Jersey gross income tax. All remaining distributions
will be subject to the New Jersey gross income tax.
All distributions from the New Jersey Funds, regardless of source, will be
subject to the New Jersey corporation business tax or the New Jersey
corporation income tax.
Any gain realized when shareholders sell, exchange, or redeem shares of the
New Jersey Funds will not be subject to the New Jersey gross income tax.
Conversely, losses from such transactions may not be used to offset New Jersey
taxable gains. Gains from such transactions will be subject to the New Jersey
corporation business tax and the New Jersey corporation income tax.
Shares of the New Jersey Funds may be subject to the New Jersey inheritance
tax or the New Jersey estate tax if owned by a New Jersey decedent at the time
of death.
S-43
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL BOND FUND, NUVEEN CALIFORNIA INSURED MUNICIPAL BOND
FUND, AND NUVEEN FLAGSHIP CALIFORNIA INTERMEDIATE MUNICIPAL BOND FUND
Although the Nuveen California Municipal Bond Fund, the Nuveen California
Insured Municipal Bond Fund, and the Nuveen Flagship California Intermediate
Municipal Bond Fund (the "California Funds") are subject to the California
corporate franchise tax and the California corporate income tax, the Funds do
not expect to pay a material amount with respect to either tax.
Distributions by the California Funds that are attributable to interest on
obligations issued by the State of California or its political subdivisions
("California Obligations") or to interest on obligations of the United States,
its agencies, territories, possessions, or instrumentalities that are exempt
from state taxation under federal law ("Federal Obligations") will not be
subject to the California personal income tax. All remaining distributions to
individual shareholders will be subject to the California personal income tax.
All California Funds' distributions to corporate shareholders, regardless of
source, will be subject to the California corporation franchise tax or the
California corporation income tax.
Gain realized from the sale, exchange, or redemption of California Funds'
shares will be subject to the California personal income, corporation
franchise, and corporation income taxes.
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
Although the Connecticut Fund will be subject to the Connecticut corporation
business tax, the Connecticut Fund does not expect to pay a material amount of
such tax.
Distributions from the Connecticut Fund that are attributable to interest on or
gain from obligations issued by the State of Connecticut or its political
subdivisions ("Connecticut Obligations") or to interest on obligations of the
United States, its agencies, territories, possessions, or instrumentalities
which are exempt from state taxation under federal law ("Federal Obligations")
will not be subject to the Connecticut personal income tax. All remaining
distributions will be subject to the Connecticut personal income tax.
Corporate shareholders subject to the Connecticut business corporation tax will
be subject to tax on all Connecticut Fund distributions, regardless of source,
but may be permitted a dividends received deduction for a portion of
distributions received from the Connecticut Fund.
Gain from the sale, exchange, or redemption of Connecticut Fund shares will be
subject to the Connecticut personal income tax and the Connecticut corporation
business tax.
Shares of the Connecticut Fund may be subject to the Connecticut succession,
transfer, and estate taxes if held by, or subject to a general power of
appointment by, a Connecticut decedent at the time of his or her death.
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND AND NUVEEN MASSACHUSETTS INSURED
MUNICIPAL BOND FUND
The Nuveen Massachusetts Municipal Bond Fund and the Nuveen Massachusetts
Insured Municipal Bond Fund (the "Massachusetts Funds") are not subject to the
Massachusetts corporate excise tax, the Massachusetts franchise tax, or the
Massachusetts income tax.
Distributions from the Massachusetts Funds that are attributable to interest on
or gain from obligations issued by the State of Massachusetts or its political
subdivisions ("Massachusetts Obligations") or to interest on obligations of the
United States, its agencies, territories, possessions or instrumentalities that
are exempt from state income taxation under federal law ("Federal Obligations")
will not be subject to the Massachusetts personal income tax. All remaining
distributions will be subject to the Massachusetts personal income tax.
All distributions from the Massachusetts Funds, regardless of source, to
corporate shareholders will be subject to the Massachusetts excise tax.
Gain from the sale, exchange or redemption of Massachusetts Funds shares will
be subject to the Massachusetts personal income tax and the Massachusetts
excise tax.
Shares of the Massachusetts Funds will be subject to the Massachusetts estate
tax if owned by a Massachusetts decedent at the time of death.
PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
S-44
<PAGE>
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge of 4.20%.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
S-45
<PAGE>
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
AS OF JULY 31, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New Jersey Municipal Bond
Fund
Class A Shares............. 4.78% 43.5% 8.46%
Class C Shares............. 4.25% 43.5% 7.52%
Class R Shares............. 5.24% 43.5% 9.27%
<CAPTION>
AS OF AUGUST 31, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New York Municipal Bond
Fund**
Class A Shares............. 4.69% 46.5% 8.77%
Class C Shares............. 4.09% 46.5% 7.64%
Class R Shares............. 5.11% 46.5% 9.55%
New York Insured Municipal
Bond Fund**
Class A Shares............. 4.30% 46.5% 8.04%
Class C Shares............. 3.77% 46.5% 7.05%
Class R Shares............. 4.78% 46.5% 8.93%
California Municipal Bond
Fund
Class A Shares............. 4.53% 45.0% 8.24%
Class C Shares............. 4.02% 45.0% 7.31%
Class R Shares............. 5.03% 45.0% 9.15%
California Insured Municipal
Bond Fund
Class A Shares............. 4.45% 45.0% 8.09%
Class C Shares............. 3.94% 45.0% 7.16%
Class R Shares............. 4.96% 45.0% 9.02%
Massachusetts Municipal Bond
Fund
Class A Shares............. 4.42% 47.0% 8.34%
Class C Shares............. 3.91% 47.0% 7.38%
Class R Shares............. 4.92% 47.0% 9.28%
Massachusetts Insured
Municipal Bond Fund
Class A Shares............. 4.03% 47.0% 7.60%
Class C Shares............. 3.50% 47.0% 6.60%
Class R Shares............. 4.51% 47.0% 8.51%
<CAPTION>
AS OF NOVEMBER 30, 1996
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New Jersey Intermediate Bond
Fund
Class A Shares............. 0.00% 0.00% 0.00%
Class C Shares............. N/A N/A N/A
Class R Shares............. N/A N/A N/A
California Intermediate
Municipal Bond Fund
Class A Shares............. 0.00% 0.00% 0.00%
Class C Shares............. 0.00% 0.00% 0.00%
Class R Shares............. N/A N/A N/A
Connecticut Municipal Bond
Fund
Class A Shares............. 0.00% 0.00% 0.00%
Class C Shares............. 0.00% 0.00% 0.00%
Class R Shares............. N/A N/A N/A
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
** Reflects a combined federal, state and New York City tax rate.
S-46
<PAGE>
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen UITs, or the maximum public
offering price). The distribution rate differs from yield and total return and
therefore is not intended to be a complete measure of performance. Distribution
rate may sometimes differ from yield because a Fund may be paying out more than
it is earning and because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares of 4.20%, were as follows:
<TABLE>
<CAPTION>
JULY 31, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund.................... 4.77% 4.22% 5.21%
<CAPTION>
AUGUST 31, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
New York Municipal Bond Fund...................... 5.10% 4.56% 5.60%
New York Insured Municipal Bond Fund.............. 4.79% 4.24% 5.23%
California Municipal Bond Fund ................... 5.00% 4.46% 5.49%
California Insured Municipal Bond Fund............ 4.82% 4.26% 5.27%
Massachusetts Municipal Bond Fund................. 4.94% 4.44% 5.42%
Massachusetts Insured Municipal Bond Fund......... 4.82% 4.29% 5.27%
<CAPTION>
NOVEMBER 30, 1996
-----------------------
DISTRIBUTION RATES
-----------------------
CLASS A CLASS C CLASS R
------- ------- -------
<S> <C> <C> <C>
New Jersey Intermediate Bond Fund................. 0.00% N/A N/A
California Intermediate Municipal Bond Fund....... 0.00% 0.00% N/A
Connecticut Municipal Bond Fund................... 0.00% 0.00% N/A
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
The annual total return figures for the New Jersey Municipal Bond Fund,
including the effect of the maximum sales charge for Class A shares, for the
one-year and five-year periods ended July 31, 1996 and for the period from
inception (on July 26, 1991 with respect to the Class R Shares and on or after
September 6, 1994 with respect to the Class A and Class C Shares) through July
30, 1996, were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
JULY 31, 1996 JULY 31, 1996 JULY 31, 1996
------------- ------------- --------------
<S> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ 1.23% N/A 3.97%
Class C Shares........ 4.88% N/A 6.49%
Class R Shares........ 6.01% 0.00% 7.11%
</TABLE>
S-47
<PAGE>
The annual total return figures for the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund, and
the Massachusetts Insured Municipal Bond Fund, including the effect of the
maximum sales charge for Class A shares, for the one-year and five-year periods
ended August 31, 1996 and for the period from inception (on December 10, 1986
with respect to the Class R Shares and on or after September 6, 1994 with
respect to the Class A Shares and Class C Shares) through August 31, 1996,
were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31, 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 1.26% N/A 4.25%
Class C Shares........ 5.00% N/A 6.51%
Class R Shares........ 5.98% 7.67% 7.50%
New York Insured
Municipal Bond Fund
Class A Shares........ 0.78% N/A 4.23%
Class C Shares........ 4.33% N/A 6.40%
Class R Shares........ 5.45% 7.37% 7.09%
Massachusetts Municipal
Bond Fund
Class A Shares........ 1.10% N/A 4.50%
Class C Shares........ 4.68% N/A 7.47%
Class R Shares........ 5.69% 7.44% 6.56%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ 0.58% N/A 4.11%
Class C Shares........ 4.11% N/A 6.09%
Class R Shares........ 5.23% 7.19% 6.76%
</TABLE>
The annual total return figures for the California Municipal Bond Fund and
the California Insured Municipal Bond Fund, including the effect of the maximum
sales charge for Class A Shares, for the one-year, five-year, and ten-year
periods ended August 31, 1996, and for the period from inception (on July 1,
1986 with respect to the Class R Shares and on or after September 6, 1994 with
respect to the Class A Shares and Class C Shares) through August 31, 1996,
respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31, 1996 AUGUST 31, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
California Municipal
Bond Fund
Class A Shares........ 1.80% N/A N/A 4.33%
Class C Shares........ 5.47% N/A N/A 6.73%
Class R Shares........ 6.65% 6.86% 7.17% 7.39%
California Insured
Municipal Bond Fund
Class A Shares........ 1.73% N/A N/A 4.57%
Class C Shares........ 5.41% N/A N/A 6.49%
Class R Shares........ 6.45% 7.26% 7.08% 7.22%
</TABLE>
S-48
<PAGE>
The annual total return figures for the New Jersey Intermediate Bond Fund,
including the effect of the maximum sales charge for Class A shares, for the
one-year and five-year periods ended November 30, 1996 and for the period from
inception (on September 16, 1992); for the California Intermediate Municipal
Bond Fund, including the effect of the maximum sales charge for Class A Shares,
for the one-year period ended November 30, 1996 and for the period from
inception (on ); and for the Connecticut Municipal Bond Fund, including
the effect of the maximum sales charge for Class A Shares, for the one-year
period ended November 30, 1996 for the Class A Shares and the Class C Shares,
and for the five-year period for the Class A Shares, and for the period since
inception (on July 13, 1987 with respect to the Class A Shares and on October
4, 1993 with respect to the Class C Shares) were:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, 1996 NOVEMBER 30, 1996 NOVEMBER 30, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
New Jersey Intermediate
Bond Fund
Class A Shares........ 0.00% 0.00% 0.00%
Class C Shares........ 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A
California Intermediate
Municipal Bond Fund
Class A Shares........ 0.00% 0.00% 0.00%
Class C Shares........ 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A
Connecticut Municipal
Bond Fund
Class A Shares........ 0.00% 0.00% 0.00%
Class C Shares........ 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
The cumulative total return figures for the New Jersey Municipal Bond Fund,
including the effect of the maximum sales charge for the Class A Shares, for
the one-year and five-year periods ended July 31, 1996, and for the period
since inception (on July 26, 1991 with respect to the Class R Shares and on or
after September 6, 1994 with respect to the Class A Shares and Class C Shares)
through July 31, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-----------------------
FROM
ONE YEAR INCEPTION
ENDED FIVE YEARS THROUGH
JULY 31, ENDED JULY 31,
1996 JULY 31, 1996 1996
-------- ------------- ---------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund
Class A Shares.............. 1.23% N/A 7.68%
Class C Shares.............. 4.88% N/A 12.40%
Class R Shares.............. 6.01% 0.00% 35.51%
</TABLE>
S-49
<PAGE>
The cumulative total return figures for the New York Municipal Bond Funds the
New York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
and the Massachusetts Insured Municipal Bond Fund, including the effect of the
maximum sales charge for the Class A Shares, for the one-year and five-year
periods ended August 31, 1996, and for the period since inception (on December
10, 1986 with respect to the Class R Shares and on or after September 6, 1994
with respect to the Class A Shares and Class C Shares), through August 31,
1996, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
------------------------------------
ONE YEAR FIVE YEARS FROM
ENDED ENDED INCEPTION
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996
---------- ---------- ----------
<S> <C> <C> <C> <C>
New York Municipal Bond Fund
Class A Shares................... 1.26% N/A 8.61%
Class C Shares................... 5.00% N/A 13.20%
Class R Shares................... 5.98% 44.72% 101.51%
New York Insured Municipal Bond
Fund
Class A Shares................... .78% N/A 8.57%
Class C Shares................... 4.33% N/A 12.98%
Class R Shares................... 5.45% 42.73% 94.32%
Massachusetts Municipal Bond Fund
Class A Shares................... 1.10% N/A 9.14%
Class C Shares................... 4.68% N/A 14.71%
Class R Shares................... 5.69% 43.20% 85.17%
Massachusetts Insured Municipal
Bond Fund
Class A Shares................... .58% N/A 8.33%
Class C Shares................... 4.11% N/A 12.31%
Class R Shares................... 5.23% 41.50% 88.45%
</TABLE>
The cumulative total return figures for the California Municipal Bond Fund
and the California Insured Municipal Bond Fund, including the effect of the
maximum sales charge for the Class A Shares, for the one-year, five-year, and
ten-year periods ended August 31, 1996, and for the period since inception (on
July 1, 1986 with respect to the Class R Shares and on or after September 6,
1994 with respect to the Class A Shares and Class C Shares), were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
-------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
California Municipal Bond
Fund
Class A Shares ........... 1.80% N/A N/A 8.79%
Class C Shares............ 5.47% N/A N/A 13.60%
Class R Shares............ 6.65% 39.39% 100.00% 106.39%
California Insured Municipal
Bond Fund
Class A Shares ........... 1.73% N/A N/A 9.27%
Class C Shares............ 5.41% N/A N/A 13.17%
Class R Shares............ 6.45% 42.00% 98.18% 103.13%
</TABLE>
S-50
<PAGE>
The cumulative total return figures for the New Jersey Intermediate Municipal
Bond Fund, the California Intermediate Municipal Bond Fund, and the Connecticut
Municipal Bond Fund, including the effect of the maximum sales charge for the
Class A Shares, for the one-year period ended November 30, 1996, and for the
period since inception (on September 16, 1992 with respect to the New Jersey
Intermediate Municipal Bond Fund Class A Shares; on with respect
to the California Intermediate Municipal Bond Fund Class A Shares and Class C
Shares, and on July 13, 1987 with respect to the Connecticut Municipal Bond
Fund Class A Shares, and on October 4, 1993 with respect to that Fund's Class C
Shares), through November 30, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------ ------------ ------------
<S> <C> <C> <C>
New Jersey Intermediate Municipal
Bond Fund
Class A Shares.................. 0.00% 0.00% 0.00%
Class C Shares.................. N/A N/A 0.00%
Class R Shares.................. N/A N/A N/A
California Intermediate Municipal
Bond Fund........................
Class A Shares.................. 00.0% 00.0% 0.00%
Class C Shares.................. 0.00% 00.0% 0.00%
Class R Shares.................. N/A N/A N/A
Connecticut Municipal Bond Fund...
Class A Shares.................. 00.0% 00.0% 0.00%
Class C Shares.................. 00.0% 00.0% 0.00%
Class R Shares.................. N/A N/A N/A
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 39.6% maximum marginal federal tax rate for 1996, the annual
taxable equivalent total returns for the New Jersey Municipal Bond Fund's
shares for the one-year period ended July 30, 1996, and for the period from
inception (on July 26, 1991 with respect to the Class R Shares and on or after
September 6, 1994 with respect to the Class A and Class C Shares) through July
30, 1996, respectively, were as follows:
<TABLE>
<CAPTION>
FROM INCEPTION
THROUGH
ONE YEAR ENDED FIVE YEARS ENDED JULY 30,
JULY 30, 1996 JULY 30, 1996 1996
-------------- ------------------- --------------
COMBINED
WITH WITH WITH FEDERAL
MAXIMUM MAXIMUM MAXIMUM AND
4.20% AT NET 4.20% AT NET 4.20% AT NET STATE
SALES ASSET SALES ASSET SALES ASSET TAX
CHARGE VALUE CHARGE VALUE CHARGE VALUE RATE*
------- ------ --------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ 4.17% 9.76% N/A N/A 7.88% 10.24% 43.5%
Class C Shares........ N/A 8.36% N/A N/A N/A 9.79% 43.5%
Class R Shares........ N/A 10.30% N/A N/A N/A 11.12% 43.5%
</TABLE>
- --------
* The combined tax rates used in the table do not reflect the current federal
tax limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
S-51
<PAGE>
Using the 39.6% maximum marginal federal tax rate for 1996, the annual
taxable equivalent total returns for the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund, and
the Massachusetts Insured Municipal Bond Fund's shares for the one and five-
year periods ended August 31, 1996, and for the period from inception (on
December 10, 1986 with respect to the Class R Shares and on or after September
6, 1994 with respect to the Class A and Class C Shares) through August 31,
1996, respectively, were as follows:
<TABLE>
<CAPTION>
FIVE YEARS FROM INCEPTION
ONE YEAR ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, AUGUST 31,
1996 1996 1996
-------------- -------------- --------------
COMBINED
WITH WITH WITH FEDERAL
MAXIMUM MAXIMUM MAXIMUM AND
4.20% AT NET 4.20% AT NET 4.20% AT NET STATE
SALES ASSET SALES ASSET SALES ASSET TAX
CHARGE VALUE CHARGE VALUE CHARGE VALUE RATE*
------- ------ ------- ------ ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 5.81% 10.45% 0.00% 0.00% 8.96% 11.34% 46.5%
Class C Shares........ N/A 9.06% N/A 0.00% N/A 10.65% 46.5%
Class R Shares........ N/A 10.98% N/A 12.78% N/A 13.10% 46.5%
New York Insured
Municipal Bond Fund
Class A Shares........ 5.11% 9.71% 0.00% 0.00% 8.71% 11.08% 46.5%
Class C Shares........ N/A 8.17% N/A 0.00% N/A 10.31% 46.5%
Class R Shares........ N/A 10.19% N/A 12.24% N/A 12.47% 46.5%
Massachusetts Municipal
Bond Fund
Class A Shares........ 5.66% 10.29% 0.00% 0.00% 9.30% 11.69% 47.0%
Class C Shares........ N/A 8.78% N/A 0.00% N/A 11.87% 47.0%
Class R Shares........ N/A 10.70% N/A 12.65% N/A 12.22% 47.0%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ 4.94% 9.54% 0.00% 0.00% 8.67% 11.04% 47.0%
Class C Shares........ N/A 7.98% N/A 0.00% N/A 10.06% 47.0%
Class R Shares........ N/A 10.01% N/A 12.10% N/A 12.12% 47.0%
</TABLE>
Using the 39.6% maximum marginal federal tax rate for 1996, the annual
taxable equivalent total returns for the California Municipal Bond Fund, and
the California Insured Municipal Bond Fund, for the one-year, five-year, and
ten-year periods ended August 31, 1996 with respect to the Class R Shares, and
for the one-year and five-year periods ended August 31, 1996, and for the
period since inception (on July 1, 1986 with respect to the Class R Shares and
on or after September 6, 1994 with respect to the Class A Shares and Class C
Shares), were as follows:
<TABLE>
<CAPTION>
FIVE YEARS FROM INCEPTION
ONE YEAR ENDED ENDED THROUGH
AUGUST 31, AUGUST 31, TEN YEARS ENDED AUGUST 31,
1996 1996 AUGUST 31, 1996 1996
-------------- -------------- ----------------- --------------
COMBINED
WITH WITH WITH WITH FEDERAL
MAXIMUM MAXIMUM MAXIMUM MAXIMUM AND
4.20% AT NET 4.20% AT NET 4.20% AT NET 4.20% AT NET STATE
SALES ASSET SALES ASSET SALES ASSET SALES ASSET TAX
CHARGE VALUE CHARGE VALUE CHARGE VALUE CHARGE VALUE RATE*
------- ------ ------- ------ -------- -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
California Municipal
Bond Fund
Class A Shares........ 5.98% 10.63% 0.00% 0.00% 0.00% 0.00% 8.73% 11.11% 45.0%
Class C Shares........ N/A 9.19% N/A 0.00% N/A 0.00% N/A 10.60% 45.0%
Class R Shares........ N/A 11.26% N/A 11.69% N/A 12.47% N/A 12.68% 45.0%
California Insured
Municipal Bond Fund
Class A Shares........ 5.80% 10.43% 0.00% 0.00% 0.00% 0.00% 8.80% 11.17% 45.0%
Class C Shares........ N/A 9.00% N/A 0.00% N/A 0.00% N/A 10.16% 45.0%
Class R Shares........ N/A 10.91% N/A 11.85% N/A 12.15% N/A 12.29% 45.0%
</TABLE>
- --------
* The combined tax rates used in the table do not reflect the current federal
tax limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
Using the 39.6% maximum marginal federal tax rate for 1996, the annual
taxable equivalent total returns for the New Jersey Intermediate Municipal Bond
Fund, the California Intermediate Municipal Bond Fund, and the Connecticut
Municipal Bond Fund's shares for the one and five-year periods ended November
30, 1996, and for the period from inception (on September 16, 1992 with respect
to the New Jersey Intermediate Municipal Bond Fund Class A Shares; on
with respect to the California Intermediate Municipal Bond Fund Class A and
Class C Shares; and on July 13, 1987 with respect to the Connecticut Municipal
Bond Fund Class A Shares, and on October 4, 1993 with respect to that Fund's
Class C Shares) through November 30, 1996, respectively, were as follows:
S-52
<PAGE>
<TABLE>
<CAPTION>
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
NOVEMBER 30, NOVEMBER 30, NOVEMBER 30,
1996 1996 1996
------------- ------------- -------------
COMBINED
FEDERAL
WITH AT WITH AT WITH AT AND
MAXIMUM NET MAXIMUM NET MAXIMUM NET STATE
SALES ASSET SALES ASSET SALES ASSET TAX
CHARGE VALUE CHARGE VALUE CHARGE VALUE RATE*
------- ----- ------- ----- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Municipal Bond Fund
(maximum 3.0% sales
charge)
Class A Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 00.0%
Class C Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A N/A N/A N/A N/A
California Intermediate
Municipal Bond Fund
(maximum 3.0% sales
charge)
Class A Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 00.0%
Class C Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A N/A N/A N/A N/A
Connecticut Municipal
Bond Fund
(maximum 4.2% sales
charge)
Class A Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 00.0%
Class C Shares........ 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Class R Shares........ N/A N/A N/A N/A N/A N/A N/A
</TABLE>
- --------
* The combined tax rates used in the table do not reflect the current federal
tax limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
From time to time, a Fund may compare its risk-adjusted performance with
other investments that may provide different levels of risk and return. For
example, a Fund may compare its risk level, as measured by the variability of
its periodic returns, or its RISK-ADJUSTED TOTAL RETURN, with those of other
funds or groups of funds. Risk-adjusted total return would be calculated by
adjusting each investment's total return to account for the risk level of the
investment.
A Fund may also compare its TAX-ADJUSTED TOTAL RETURN with that of other
funds or groups of funds. This measure would take into account the tax-exempt
nature of exempt-interest dividends and the payment of income taxes on a fund's
distributions of net realized capital gains and ordinary income.
The risk level for a class of shares of a Fund, and any of the other
investments used for comparison, would be evaluated by measuring the
variability of the investment's return, as indicated by the annualized standard
deviation of the investment's monthly returns over a specified measurement
period (e.g., three years). An investment with a higher annualized standard
deviation of monthly returns would indicate that a fund had greater price
variability, and therefore greater risk, than an investment with a lower
annualized standard deviation. The annualized standard deviation of monthly
returns for the three years ended July 30, 1996 for the Class R Shares of the
New Jersey Municipal Bond Fund was 0.00%. The annualized standard deviation of
monthly returns for the three years ended August 30, 1996 for the Class R
Shares of the New York Municipal Bond Fund, the New York Insured Municipal Bond
Fund, the Massachusetts Municipal Bond Fund, and the Massachusetts Insured
Municipal Bond Fund was 0.00%. The annualized standard deviation of monthly
returns for the three years ended November 30, 1996 for the Class A Shares of
the New Jersey Intermediate Bond Fund, the California Intermediate Bond Fund,
and the Connecticut Municipal Bond Fund was %.
THE RISK-ADJUSTED TOTAL RETURN for a class of shares of a Fund and for other
investments over a specified period would be evaluated by dividing (a) the
remainder of the investment's annualized three-year total return minus the
annualized total return of an investment in short-term tax-exempt securities
(essentially a risk-free return) over that period, by (b) the annualized
standard deviation of the investment's monthly returns for the period. This
ratio is sometimes referred to as the "Sharpe measure" of return. An investment
with a higher Sharpe measure would be regarded as producing a higher return for
the amount of risk assumed during the measurement period than an investment
with a lower Sharpe measure. The Sharpe measure, for the three-year period
ended July 30, 1996 for the Class R Shares of the New Jersey Municipal Bond
Fund was 0.0. The Sharpe measure, for the three-year period ended August 30,
1996 for the Class R Shares of the New York Municipal Bond Fund, the New York
Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund, and the
Massachusetts Insured Municipal Bond Fund was 0.00. The Sharpe measure, for the
three-year period ended November 30, 1996 for the Class A Shares of the New
Jersey Intermediate Bond Fund, the California Intermediate Bond Fund, and the
Connecticut Municipal Bond Fund was .
S-53
<PAGE>
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper, Morningstar, Wiesenberger and CDA are widely
recognized mutual fund reporting services whose performance calculations are
based upon changes in net asset value with all dividends reinvested and which
do not include the effect of any sales charges. The market prices and yields of
taxable and tax-exempt bonds will fluctuate. The Fund primarily invests in
investment grade Municipal Obligations in pursuing their objective of as high a
level of current interest income which is exempt from federal and state income
tax as is consistent, in the view of the Funds' management, with preservation
of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment grade or high yield),
or Ginnie Mae funds. These types of funds, because of the character of their
underlying securities, differ from municipal bond funds in several respects.
The susceptibility of the price of treasury bonds to credit risk is far less
than that of municipal bonds, but the price of treasury bonds tends to be
slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds
are generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the volatility of Ginnie Mae bonds due to
changes in market interest rates may differ from municipal bonds of comparable
coupon and maturity because bonds of the sensitivity of Ginnie Mae prepayment
experience to change in interest rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND
REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will shares expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
S-54
<PAGE>
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES
Cumulative Discount. You may qualify for a reduced sales charge on a purchase
of Class A Shares of any Fund if the amount of your purchase, when added to the
value that day of all of your prior purchases of shares of any Fund or of
another Nuveen Municipal Mutual Fund, or units of a Nuveen unit trust, on which
an up-front sales charge or ongoing distribution fee is imposed, falls within
the amounts stated in the Class A Sales Charges and Commissions table in "How
to Select a Purchase Option" in the Prospectus. You or your financial adviser
must notify Nuveen or the Fund's transfer agent of any cumulative discount
whenever you plan to purchase Class A Shares of a Fund that you wish to qualify
for a reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How to
Select a Purchase Option" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Municipal
Mutual Fund that you already own on which you paid an up-front sales charge or
an ongoing distribution fee and any Class C Shares of a Nuveen Mutual Fund that
you purchase over the next 13 months towards completion of your investment
program, but you will receive a reduced sales charge only on new Class A Shares
you purchase with a sales charge over the 13 months. You cannot count towards
completion of your investment program Class A Shares that you purchase without
a sales charge through investment of distributions from a Nuveen Municipal
Mutual Fund or a Nuveen Unit Trust or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial adviser, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Unit Trust Distributions. You may purchase Class A
Shares without an up-front sales charge by reinvestment of distributions from
any of the various unit trusts sponsored by Nuveen. There is no initial or
subsequent minimum investment requirement for such reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Municipal Mutual Fund
at the reduced sales charge applicable to the group's purchases taken as a
whole. A "qualified group" is one which has been in existence for more than six
months, has a purpose other than investment, has five or more participating
members, has agreed to include Fund sales publications in mailings to members
and has agreed to comply with certain administrative requirements relating to
its group purchases.
Under any group purchase program, the minimum monthly investment in Class A
Shares of any particular Fund or portfolio by each participant is $25, and the
minimum monthly investment in Class A Shares of any particular Fund or
portfolio for all participants in the program combined is $1,000. No
certificates will be issued for any participant's account. All dividends and
other distributions by a Fund will be reinvested in additional Class A Shares
of the same Fund. No participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by checking the
applicable box on the enclosed Application Form or by calling Nuveen toll-free
(800) 621-7227.
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or more registered investment
companies not affiliated with Nuveen. You must provide appropriate
documentation that the redemption occurred not more than 60 days prior to the
reinvestment of the
S-55
<PAGE>
proceeds in Class A Shares, and that you either paid an up-front sales charge
or were subject to a contingent deferred sales charge in respect of the
redemption of such shares of such other investment company.
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and Class R Shares may be purchased, by
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees of Nuveen, any parent company
of Nuveen, and subsidiaries thereof, or their immediate family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Holders of Class C Shares acquired on or before [January 31, 1997] can
convert those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares purchased after that date will not have the option to convert those
shares to Class A Shares.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses and their children under 21 years
of age); or (3) all purchases made through a group purchase program as
described above.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time upon prior written notice to shareholders of the Funds.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 621-7227.
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
To help advisers and investors better understand and most efficiently use the
Fund to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software or additional sales literature to promote the advantages of using the
Funds to meet these and other specific investor needs.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
S-56
<PAGE>
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to Shareholder Services, Inc., the Funds'
transfer agent. No share certificates will be issued for fractional shares.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Flagship Multistate Trust IV, dated ,
1996 ("Distribution Agreement"). Pursuant to the Distribution Agreement, the
Trust appointed Nuveen to be its agent for the distribution of the Funds'
shares on a continuous offering basis. Nuveen sells shares to or through
brokers, dealers, banks or other qualified financial intermediaries
(collectively referred to as "Dealers"), or others, in a manner consistent with
the then effective registration statement of the Trust. Pursuant to the
Distribution Agreement, Nuveen, at its own expense, finances certain activities
incident to the sale and distribution of the Funds' shares, including printing
and distributing of prospectuses and statements of additional information to
other than existing shareholders, the printing and distributing of sales
literature, advertising and payment of compensation and giving of concessions
to Dealers. Nuveen receives for its services the excess, if any, of the sales
price of the Funds' shares less the net asset value of those shares, and
reallows a majority or all of such amounts to the Dealers who sold the shares;
Nuveen may act as such a Dealer. Nuveen also receives compensation pursuant to
a distribution plan adopted by the Trust pursuant to Rule 12b-1 and described
herein under "Distribution and Service Plan." Nuveen receives any CDSCs imposed
on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen (or Flagship Funds) for each of the Funds for the last three
fiscal years. All figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1996 JANUARY 31, 1995 JANUARY 31, 1994
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Fund......... 241 16 255 35 527 76
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1995 FEBRUARY 28, 1994
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New York Fund........... 272 33 428 64 989 146
New York Insured Fund... 450 71 850 126 3,018 411
California Fund......... 221 33 370 60 949 148
California Insured Fund. 357 56 517 93 1,421 209
Massachusetts Fund...... 96 12 170 20 430 52
Massachusetts Insured
Fund................... 113 14 147 24 435 66
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 MAY 31, 1995 MAY 31, 1994
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP COMMISSIONS FLAGSHIP
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Fund................... 19 36 31 6 118 20
California Intermediate
Fund................... 0 0 0 0 0 0
Connecticut Fund........ 349 47 1,034 139 452 65
</TABLE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
S-57
<PAGE>
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
.20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended January 31, 1996 with respect to the New Jersey
Municipal Bond Fund, the fiscal year ended February 29, 1996 with respect to
the New York Municipal Bond Fund and New York Insured Municipal Bond Fund, the
California Municipal Bond Fund, the California Insured Municipal Bond Fund, the
Massachusetts Municipal Bond Fund, and the Massachusetts Insured Municipal Bond
Fund, and the fiscal year ended May 31, 1996 with respect to the New Jersey
Intermediate Bond Fund, the California Intermediate Municipal Bond Fund, and
the Connecticut Municipal Bond Fund, 100% of service fees and distribution fees
were paid out as compensation to Authorized Dealers. For such periods, the
service fee for the New York Municipal Bond Fund, the New York Insured
Municipal Bond Fund, the New Jersey Municipal Bond Fund, the California
Municipal Bond Fund, the California Insured Municipal Bond Fund, the
Massachusetts Municipal Bond Fund, and the Massachusetts Insured Municipal Bond
Fund was .25% for both Class A and Class C Shares and the distribution fee was
.75% for Class C Shares. For such periods, the service fee for the New Jersey
Intermediate Fund, the California Intermediate Municipal Bond Fund, and the
Connecticut Municipal Bond Fund Class C Shares was .20% and the distribution
fee was .40% for the Class A Shares and .75% for the Class C Shares.
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1996
----------------------
<S> <C>
New York Municipal Bond Fund (2/29/96)
Class A............................................... $ 26,638
Class C............................................... $ 4,101
Class R............................................... N/A
New York Insured Municipal Bond Fund (2/29/96)
Class A............................................... $ 42,326
Class C............................................... $ 8,893
Class R............................................... N/A
New Jersey Municipal Bond Fund (1/31/96)
Class A............................................... $ 16,159
Class C............................................... $ 7,121
Class R............................................... N/A
New Jersey Intermediate Bond Fund (5/31/96)
Class A............................................... $ 15,500
Class C............................................... N/A
Class R............................................... N/A
California Municipal Bond Fund (2/29/96)
Class A............................................... $ 19,006
Class C............................................... $ 4,155
Class R............................................... N/A
California Insured Municipal Bond Fund (2/29/96)
Class A............................................... $ 25,512
Class C............................................... $ 6,916
Class R............................................... N/A
California Intermediate Municipal Bond Fund (5/31/96)
Class A............................................... N/A
Class C............................................... N/A
Class R............................................... N/A
Connecticut Municipal Bond Fund (5/31/96)
Class A............................................... $ 818,000
Class C............................................... $ 62,142
Class R............................................... N/A
Massachusetts Municipal Bond Fund (2/29/96)
Class A............................................... $ 6,732
Class C............................................... $ 2,609
Class R............................................... N/A
Massachusetts Insured Municipal Bond Fund (2/29/96)
Class A............................................... $ 8,932
Class C............................................... $ 5,438
Class R............................................... N/A
</TABLE>
S-58
<PAGE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued only if the trustees who vote to approve such continuance
conclude, in the exercise of reasonable business judgment and in light of their
fiduciary duties under applicable law, that there is a reasonable likelihood
that the Plan will benefit the Fund and its shareholders. The Plan may not be
amended to increase materially the cost which a class of shares may bear under
the Plan without the approval of the shareholders of the affected class, and
any other material amendments of the Plan must be approved by the non-
interested trustees by a vote cast in person at a meeting called for the
purpose of considering such amendments. During the continuance of the Plan, the
selection and nomination of the non-interested trustees of the Trust will be
committed to the discretion of the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago Illinois 60603 has been selected as auditors for the New York Municipal
Bond Fund, the New York Insured Municipal Bond Fund, the New Jersey Municipal
Bond Fund, the New Jersey Intermediate Municipal Bond Fund, the California
Municipal Bond Fund, the California Insured Municipal Bond Fund, the
Massachusetts Municipal Bond Fund, and the Massachusetts Insured Municipal Bond
Fund. Deloitte & Touche LLP, independent public accountants, 1700 Courthouse
Plaza N.E., Dayton, Ohio 45402 has been selected as auditors for the California
Intermediate Municipal Bond Fund and the Connecticut Municipal Bond Fund. In
addition to audit services, the auditors will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the respective
auditors as indicated in their respective reports with respect thereto, and are
included in reliance upon the authority of that firm in giving that report.
The custodian of the assets of the New York Municipal Bond Fund, the New York
Insured Municipal Bond Fund, the New Jersey Municipal Bond Fund, the New Jersey
Intermediate Municipal Bond Fund, the California Municipal Bond Fund, the
California Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
and the Massachusetts Insured Municipal Bond Fund, is The Chase Manhattan Bank,
770 Broadway, New York, New York 10003. The custodian of the assets of the
California Intermediate Municipal Bond Fund and the Connecticut Municipal Bond
Fund, is State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02106. Each custodian performs custodial, fund accounting,
portfolio accounting, shareholder, and transfer agency services.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports and the unaudited financial statements for
the most recent semi-annual period for each fund appear in the Fund's Semi-
Annual Reports, each is included herein by reference. The Annual Reports and
the Semi-annual Reports accompany this Statement of Additional Information.
S-59
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-1
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to
B-1
<PAGE>
which two parties agree to take or make delivery of an amount of cash--rather
than any security--equal to specified dollar amount times the difference
between the index value at the close of the last trading day of the contract
and the price at which the index future was originally written. Thus, an index
future is similar to traditional financial futures except that settlement is
made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its bankruptcy or
otherwise, the Fund will seek to dispose of such securities, which action could
involve costs or delays. If the seller becomes insolvent and subject to
liquidation or reorganization under applicable bankruptcy or other laws, the
Fund's ability to dispose of the underlying securities may be restricted.
Finally, it is possible that the Fund may not be able to substantiate its
interest in the underlying securities. To minimize this risk, the securities
underlying the repurchase agreement will be held by the custodian at all times
in an amount at least equal to the repurchase price, including accrued
interest. If the seller fails to repurchase the securities, the Fund may suffer
a loss to the extent proceeds from the sale of the underlying securities are
less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-2
<PAGE>
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual and Semi-Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
(b) Exhibits:
<TABLE>
<C> <S>
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest dated October 11, 1996.
1(c). Certificate for the Establishment and Designation of Classes dated
July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4(a). Specimen certificates of Class A Shares of each Fund.*
4(b). Specimen certificates of Class B Shares of each Fund.*
4(c). Specimen certificates of Class C Shares of each Fund.*
4(d). Specimen certificates of Class R Shares of each Fund.*
5(a). Form of Management Agreement between Registrant and Nuveen Advisory
Corp.*
6(a). Form of Distribution Agreement between Registrant and John Nuveen &
Co. Incorporated.*
7. Not applicable.
8(a). Form of Custodian Agreement among Registrant, Nuveen Advisory Corp.
and Chase Manhattan Bank, N.A.*
8(b). Form of Custodian Agreement among Registrant, Nuveen Advisory Corp.
and State Street Bank and Trust Company.*
9(a). Form of Transfer Agency Agreement among Registrant, Nuveen Advisory
Corp. and Shareholder Services, Inc.*
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
11. Consent of Independent Public Accountants.*
12. Not applicable.
[13. Subscription Agreement with .*]
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule 12b-1 for the Class
A Shares, Class B Shares and Class C Shares of each Fund.*
16. Schedule of Computation of Performance Figures.*
17. Financial Data Schedule.*
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.*
99(a). Original Powers of Attorney for the Trustees authorizing, among oth-
ers, James J. Wesolowski and Gifford R. Zimmerman to execute the Reg-
istration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing the
signing of the names of trustees and officers on the Registrant's
Registration Statement pursuant to power of attorney.
</TABLE>
- --------
* To be filed by pre-effective amendment.
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
At , 1996:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Flagship New York Municipal Bond Fund
<S> <C>
Class A Shares......................................... 1,025
Class B Shares......................................... 0
Class C Shares......................................... 47
Class R Shares......................................... 5,165
Nuveen New York Insured Municipal Bond Fund
Class A Shares......................................... 1,503
Class B Shares......................................... 0
Class C Shares......................................... 75
Class R Shares......................................... 9,444
Nuveen Flagship New Jersey Municipal Bond Fund
Class A Shares......................................... 948
Class B Shares......................................... 0
Class C Shares......................................... 56
Class R Shares......................................... 2,032
Nuveen Flagship New Jersey Intermediate Municipal Bond
Fund
Class A Shares......................................... 00
Class B Shares......................................... 00
Class C Shares......................................... 00
Class R Shares......................................... 00
Nuveen California Municipal Bond Fund
Class A Shares......................................... 779
Class B Shares......................................... 0
Class C Shares......................................... 34
Class R Shares......................................... 5,207
Nuveen California Insured Municipal Bond Fund
Class A Shares......................................... 975
Class B Shares......................................... 0
Class C Shares......................................... 54
Class R Shares......................................... 4,637
Nuveen Flagship California Intermediate Municipal Bond
Fund
Class A Shares......................................... 00
Class B Shares......................................... 00
Class C Shares......................................... 00
Class R Shares......................................... 00
Nuveen Flagship Connecticut Municipal Bond Fund
Class A Shares......................................... 3,926
Class B Shares......................................... 0
Class C Shares......................................... 206
Class R Shares......................................... 0
Nuveen Massachusetts Municipal Bond Fund
Class A Shares......................................... 467
Class B Shares......................................... 0
Class C Shares......................................... 33
Class R Shares......................................... 2,629
Nuveen Massachusetts Insured Municipal Bond Fund
Class A Shares......................................... 394
Class B Shares......................................... 0
Class C Shares......................................... 26
Class R Shares......................................... 1,984
</TABLE>
C-2
<PAGE>
ITEM 27: INDEMNIFICATION [UPDATE FOR NEW DECLARATION]
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith,
C-3
<PAGE>
gross negligence and willful disregard of duty (i.e., where the insured did not
act in good faith for a purpose he or she reasonably believed to be in the best
interest of Registrant or where he or she shall have had reasonable cause to
believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Multistate Trust I, Nuveen
Multistate Trust II, Nuveen Municipal Trust, Nuveen Flagship Municipal Trust,
Flagship Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-
Free Money Market Fund, Inc., Tax-Exempt Money Market Fund, and Nuveen Tax-Free
Reserves. It also serves as investment adviser to the following closed-end
management type investment companies: Nuveen Municipal Value Fund, Inc., Nuveen
California Municipal Value Fund, Inc., Nuveen New York Municipal Value Fund,
Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income Municipal Fund,
Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen California
Performance Plus Municipal Fund, Inc., Nuveen New York Performance Plus
Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen Municipal
Market Opportunity Fund, Inc., Nuveen California Municipal Market Opportunity
Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen California
Investment Quality Municipal Fund, Inc., Nuveen New York Investment Quality
Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc., Nuveen
Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment Quality
Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal Fund,
Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select Quality
Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund, Inc.,
Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Insured Premium Income Municipal Fund, Inc., Nuveen Premium Income
Municipal Fund 4, Inc., Nuveen Insured California Premium Income Municipal Fund
2, Inc., Nuveen Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland
Premium Income Municipal Fund, Nuveen Massachusetts Premium Income Municipal
Fund, Nuveen Virginia Premium Income Municipal Fund, Nuveen Washington Premium
Income Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen
Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal
Fund, Nuveen North Carolina Premium Income Municipal Fund, Nuveen California
Premium Income Municipal Fund, and Nuveen Insured Premium Income Municipal Fund
2. Nuveen Advisory Corp. has no other clients or business at the present time.
The principal business address for all of these investment companies is 333
West Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman of Nuveen Advisory Corp., the investment
adviser. Mr. Schwertfeger has, during the last two years, been Chairman and
formerly Executive Vice President and Director of the John Nuveen Company, John
Nuveen & Co. Incorporated, and Nuveen Institutional Advisory Corp. Anthony T.
Dean is Director of Nuveen Advisory Corp., the investment adviser. Mr. Dean
has, during the last two years, been Executive Vice President and Director of
The John Nuveen Company and John Nuveen & Co. Incorporated; and Director of
Nuveen Institutional Advisory Corp.
C-4
<PAGE>
ITEM 29: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies:Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Multistate
Trust I, Nuveen Multistate Trust II, Nuveen Municipal Trust, Nuveen Flagship
Municipal Trust, Flagship Admiral Funds Inc., Nuveen California Tax-Free Fund,
Inc., Nuveen Tax-Free Money Market Fund, Inc., Tax-Exempt Money Market Fund,
and Nuveen Tax-Free Reserves. Nuveen also acts as principal underwriter for the
following open-end management type investment companies: Nuveen Growth and
Income Stock Fund; Nuveen Balanced Stock and Bond Fund; and Nuveen Balanced
Municipal and Stock Fund. Nuveen also acts as depositor and principal
underwriter of the Nuveen Tax-Exempt Unit Trust, a registered unit investment
trust. Nuveen has also served or is serving as co-managing underwriter to the
following closed-end management type investment companies: Nuveen Municipal
Value Fund, Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York
Municipal Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium
Income Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc.,
Nuveen California Performance Plus Municipal Fund, Inc., Nuveen New York
Performance Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc.,
Nuveen Municipal Market Opportunity Fund, Inc., Nuveen California Municipal
Market Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc.,
Nuveen California Investment Quality Municipal Fund, Inc., Nuveen New York
Investment Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund,
Inc., Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey
Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality
Municipal Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California
Select Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal
Fund, Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured
Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund,
Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc., Nuveen Select Tax-Free Income
Portfolio, Nuveen Premium Income Municipal Fund 2, Inc., Nuveen Insured
California Premium Income Municipal Fund, Inc., Nuveen Insured New York Premium
Income Municipal Fund, Inc., Nuveen Select Maturities Municipal Fund, Nuveen
Arizona Premium Income Municipal Fund, Inc., Nuveen Insured Florida Premium
Income Municipal Fund, Nuveen Michigan Premium Income Municipal Fund, Inc.,
Nuveen New Jersey Premium Income Municipal Fund, Inc., Nuveen Insured Premium
Income Municipal Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc.,
Nuveen Insured California Premium Income Municipal Fund 2, Inc., Nuveen
Pennsylvania Premium Income Municipal Fund 2, Nuveen Maryland Premium Income
Municipal Fund, Nuveen Massachusetts Premium Income Municipal Fund, Nuveen
Virginia Premium Income Municipal Fund, Nuveen Washington Premium Income
Municipal Fund, Nuveen Connecticut Premium Income Municipal Fund, Nuveen
Georgia Premium Income Municipal Fund, Nuveen Missouri Premium Income Municipal
Fund, Nuveen North Carolina Premium Income Municipal Fund, Nuveen California
Premium Income Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2,
Nuveen Select Tax-Free Income Portfolio 2, Nuveen Insured California Select
Tax-Free Income Portfolio, Nuveen Insured New York Select Tax-Free Income
Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- --------------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Trustee
Chicago, IL 60606
Anthony T. Dean President President and Trustee
333 Wacker Drive
Chicago, IL 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, IL 60606
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- ----------------------------------------------------------------------------------
<S> <C> <C>
Stephen D. Foy Vice President None
333 West Wacker Drive
Chicago, IL 60606
Robert D. Freeland Vice President None
333 West Wacker Drive
Chicago, IL 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
Robert B. Kuppenheimer Vice President None
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, IL 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, IL 60606
O. Walter Renfftlen Vice President Vice President and
333 West Wacker Drive and Controller Controller
Chicago, IL 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, IL 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive
Chicago, IL 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, IL 60606
James J. Wesolowski Vice President, Vice President and
333 West Wacker Drive General Counsel Secretary
Chicago, IL 60606 and Secretary
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, IL 60606
Gifford R. Zimmerman Vice President Vice President and
333 West Wacker Drive and Assistant Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
(c) Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
C-6
<PAGE>
The Chase Manhattan Bank, N.A., 770 Broadway, New York, New York 10003 and
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02106 maintain all general and subsidiary ledgers, journals, trial balances,
records of all portfolio purchases and sales, and all other required records
not maintained by Nuveen Advisory Corp., Shareholder Services, Inc. or Boston
Financial.
Shareholder Services, Inc., P.O. Box 5330, Denver, Colorado 80217-5330 and
Boston Financial Data Services, 225 Franklin Street, Boston, Massachusetts
02106 maintain all the required records in their capacity as transfer, dividend
paying, and shareholder service agents for the Funds.
ITEM 31: MANAGEMENT SERVICES
Not applicable.
ITEM 32: UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual Report to Sharehold-
ers upon request and without charge.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE DAY OF
OCTOBER, 1996.
NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ O. Walter Renfftlen
-------------------------------
O. Walter Renfftlen Vice President and October , 1996
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Anthony T. Dean President and Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Margaret K. Rosenheim Trustee
Peter R. Sawers Trustee
/s/ Gifford R. Zimmerman
By____________________________
Gifford R. Zimmerman
Attorney-in-Fact
October , 1996
</TABLE>
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, JAMES J. WESOLOWSKI
AND GIFFORD R. ZIMMERMAN TO EXECUTE THIS REGISTRATION STATEMENT, AND
AMENDMENTS THERETO, FOR EACH OF THE OFFICERS AND TRUSTEES OF REGISTRANT ON
WHOSE BEHALF THIS REGISTRATION STATEMENT IS FILED, HAS BEEN EXECUTED AND IS
INCORPORATED BY REFERENCE TO THIS REGISTRATION STATEMENT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1(a). Declaration of Trust of Registrant.
1(b). Amended and Restated Establishment and Designation of
Series of Shares of Beneficial Interest dated October
11, 1996.
1(c). Certificate for the Establishment and Designation of
Classes dated July 10, 1996.
2. By-Laws of Registrant.
3. Not applicable.
4(a). Specimen certificates of Class A Shares of each
Fund.*
4(b). Specimen certificates of Class B Shares of each
Fund.*
4(c). Specimen certificates of Class C Shares of each
Fund.*
4(d). Specimen certificates of Class R Shares of each
Fund.*
5(a). Form of Management Agreement between Registrant and
Nuveen Advisory Corp.*
6(a). Form of Distribution Agreement between Registrant and
John Nuveen & Co. Incorporated.*
7. Not applicable.
8(a). Form of Custodian Agreement among Registrant, Nuveen
Advisory Corp. and Chase Manhattan Bank, N.A.*
8(b). Form of Custodian Agreement among Registrant, Nuveen
Advisory Corp. and State Street Bank and Trust Compa-
ny.*
9(a). Form of Transfer Agency Agreement among Registrant,
Nuveen Advisory Corp. and Shareholder Services, Inc.*
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.*
11. Consent of Independent Public Accountants.*
12. Not applicable.
[13. Subscription Agreement with .*]
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule
12b-1 for the Class A Shares, Class B Shares and
Class C Shares of each Fund.
16. Schedule of Computation of Performance Figures.*
17. Financial Data Schedule.*
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3.*
99(a). Original Powers of Attorney for the Trustees autho-
rizing, among others, James J. Wesolowski and Gifford
R. Zimmerman to execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
- --------
* To be filed by pre-effective amendment.
<PAGE>
EXHIBIT 1(a)
DECLARATION OF TRUST
OF
NUVEEN FLAGSHIP MULTISTATE TRUST II
DECLARATION OF TRUST made as of this 1st day of July, 1996 by the Trustees
hereunder.
WHEREAS, the Trustees desire to establish a trust fund for the purposes of
carrying on the business of a management investment company; and
WHEREAS, in furtherance of such purpose, the Trustees and any successor
Trustees elected in accordance with Article V hereof are acquiring and may
hereafter acquire assets and properties which they will hold and manage as
trustees of a Massachusetts business trust with transferable shares in
accordance with the provisions hereinafter set forth;
NOW, THEREFORE, the Trustees and any successor Trustees elected or
appointed in accordance with Article V hereof hereby declare that they will hold
all cash, securities and other assets and properties, which they may from time
to time acquire in any manner as Trustees hereunder, IN TRUST, and that they
will manage and dispose of the same upon the following terms and conditions for
the benefit of the holders from time to time of shares of beneficial interest in
this Trust as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1. Name. This Trust shall be known as the "Nuveen Flagship
Multistate Trust II" and the Trustees shall conduct the business of the Trust
under that name or any other name as they may from time to time determine.
Section 2. Definitions. Whenever used herein, unless otherwise required by
the context or specifically provided:
<PAGE>
-2-
(a) The "Trust" refers to the Massachusetts voluntary association
established by this Declaration of Trust, as amended from time to time;
(b) "Trustee" or "Trustees" refers to each signatory to this
Declaration of Trust so long as such signatory shall continue in office in
accordance with the terms hereof, and all other individuals who at the time
in question have been duly elected or appointed and qualified in accordance
with Article V hereof and are then in office;
(c) "Shares" mean the shares of beneficial interest described in
Article IV hereof and include fractions of Shares as well as whole Shares;
(d) "Shareholder" means a record owner of Shares;
(e) The "1940 Act" refers to the Investment Company Act of 1940 (and
any successor statute) and the Rules and Regulations thereunder, all as
amended from time to time;
(f) The terms "Commission," "Interested Person," "Principal
Underwriter" and "vote of a majority of the outstanding voting securities"
shall have the meanings given them in the 1940 Act;
(g) "Declaration of Trust" or "Declaration" shall mean this
Declaration of Trust as amended or restated from time to time; and
(h) "By-Laws" shall mean the By-Laws of the Trust as amended from
time to time.
ARTICLE II
NATURE AND PURPOSE OF TRUST
The Trust is a voluntary association with transferable shares (commonly
known as a business trust) of the type referred to in Chapter 182 of the General
Laws of the Commonwealth of Massachusetts. The Trust is not intended to be,
shall not be deemed to be, and shall not be treated as, a general or a limited
partnership, joint venture, corporation or joint stock company, nor shall the
Trustees or Shareholders or any of them for any purpose be deemed to be, or be
treated in any way whatsoever as though they were, liable or responsible
hereunder as
<PAGE>
-3-
partners or joint venturers. The purpose of the Trust is to engage in, operate
and carry on the business of an open-end management investment company and to do
any and all acts or things as are necessary, convenient, appropriate, incidental
or customary in connection therewith.
The Trust set forth in this instrument shall be deemed made in the
Commonwealth of Massachusetts, and it is created under and is to be governed by
and construed and administered according to the laws of said Commonwealth. The
Trust shall be of the type commonly called a business trust, and without
limiting the provisions hereof, the Trust may exercise all powers which are
ordinarily exercised by such a trust. No provision of this Declaration shall be
effective to require a waiver of compliance with any provision of the Securities
Act of 1933, as amended, or the 1940 Act, or of any valid rule, regulation or
order of the Commission thereunder.
ARTICLE III
REGISTERED AGENT; PRINCIPAL PLACE OF BUSINESS
The name of the registered agent of the Trust is CT Corporation System at 2
Oliver Street, Boston, Massachusetts. The principal place of business of the
Trust is 333 West Wacker Drive, Chicago, Illinois 60606. The Trustees may,
without the approval of Shareholders, change the registered agent of the Trust
and the principal place of business of the Trust.
ARTICLE IV
BENEFICIAL INTEREST
Section 1. Shares of Beneficial Interest. The beneficial interest in the
Trust shall be divided into such transferable Shares of beneficial interest, of
such series or classes, and of such designations and par values (if any) and
with such rights, preferences, privileges and restrictions as shall be
determined by the Trustees in their sole discretion, without Shareholder
approval, from time to time and shall initially consist of one class of
transferable shares, par value $.01 per share. The number of Shares is unlimited
and each Share shall be fully paid and nonassessable. The Trustees shall have
full power and authority, in their sole discretion and without obtaining any
prior authorization or vote of the Shareholders of the Trust or of the
Shareholders of any series or class of Shares, to
<PAGE>
-4-
create and establish (and to change in any manner) Shares or any series or
classes thereof with such preferences, voting powers, rights and privileges as
the Trustees may from time to time determine; to divide or combine the Shares or
the Shares of any series or classes thereof into a greater or lesser number; to
classify or reclassify any issued Shares into one or more series or classes of
Shares; to abolish any one or more series or classes of Shares; and to take such
other action with respect to the Shares as the Trustees may deem desirable.
Except as may be specifically set forth in Section 2 of this Article IV or in an
instrument establishing and designating classes or series of Shares, the Shares
shall have the powers, preferences, rights, qualifications, limitations and
restrictions described below:
(i) In the event of the termination of the Trust the holders of the
Shares shall be entitled to receive pro rata the net distributable assets
of the Trust.
(ii) Each holder of Shares shall be entitled to one vote for each
Share held on each matter submitted to a vote of Shareholders, and the
holders of outstanding Shares shall vote together as a single class.
(iii) Dividends or other distributions to Shareholders, when, as and
if declared or made by the Trustees, shall be shared equally by the holders
of Shares on a share for share basis, such dividends or other distributions
or any portion thereof to be paid in cash or to be reinvested in full and
fractional Shares of the Trust as the Trustees shall direct.
(iv) Any Shares purchased, redeemed or otherwise reacquired by the
Trust shall be retired automatically and such retired Shares shall have the
status of authorized but unissued Shares.
(v) Shares may be issued from time to time, without the vote of the
Shareholders (or, if the Trustees in their sole discretion deem advisable,
with a vote of Shareholders), either for cash or for such other
consideration (which may be in any one or more instances a certain
specified consideration or certain specified considerations) and on such
terms as the Trustees, from time to time, may deem advisable, and the Trust
may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities).
<PAGE>
-5-
(vi) The Trust may issue Shares in fractional denominations to the
same extent as its whole Shares, and Shares in fractional denominations
shall be Shares having proportionately to the respective fractions
represented thereby all the rights of whole Shares, including, without
limitation, the right to vote, the right to receive dividends and
distributions and the right to participate upon termination of the Trust.
The Trustees may from time to time, without the vote of Shareholders,
divide or combine Shares into a greater or lesser number without thereby
changing their proportionate beneficial interest in the Trust.
Section 2. Establishment of Series and Classes of Shares.
(a) Series. The Trustees, in their sole discretion, without obtaining any
prior authorization or vote of the Shareholders of the Trust or of the
Shareholders of any series or class of Shares, from time to time may authorize
the division of Shares into two or more series, the number and relative rights,
privileges and preferences of which shall be established and designated by the
Trustees, in their discretion, upon and subject to the following provisions:
(i) All Shares shall be identical except that there may be such
variations as shall be fixed and determined by the Trustees between different
series as to purchase price, right of redemption, and the price, terms and
manner or redemption, and special and relative rights as to dividends and on
liquidation.
(ii) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(iii) The power of the Trustees to invest and reinvest the assets of
the Trust allocated or belonging to any particular series shall be governed by
Section 1, Article VI hereof unless otherwise provided in the instrument of the
Trustees establishing such series which is hereinafter described.
<PAGE>
-6-
(iv) Each Share of a series shall represent a beneficial interest in
the net assets allocated or belonging to such series only, and such interest
shall not extend to the assets of the Trust generally. Dividends and
distributions on Shares of a particular series may be paid with such frequency
as the Trustees may determine, which may be monthly or otherwise, pursuant to a
standing vote or votes adopted only once or with such frequency as the Trustees
may determine, to the Shareholders of that series only, from such of the income
and capital gains, accrued or realized, from the assets belonging to that
series. All dividends and distributions on Shares of a particular series shall
be distributed pro rata to the Shareholders of that series in proportion to the
number of Shares of that series held by such Shareholders at the date and time
of record established for the payment of such dividends or distributions. Shares
of any particular series of the Trust may be redeemed solely out of the assets
of the Trust allocated or belonging to that series. Upon liquidation or
termination of a series of the Trust, Shareholders of such series shall be
entitled to receive a pro rata share of the net assets of such series only.
(v) Notwithstanding any provision hereof to the contrary, on any
matter submitted to a vote of the Shareholders of the Trust, all Shares then
entitled to vote shall be voted by individual series, except that (i) when
required by the 1940 Act to be voted in the aggregate, Shares shall not be voted
by individual series, (ii) when the Trustees have determined that the matter
affects only the interests of Shareholders of one or more series, only
Shareholders of such series shall be entitled to vote thereon, and (iii) all
series shall vote together on the election of Trustees.
(vi) The establishment and designation of any series of Shares shall
be effective upon the execution by a majority of the Trustees of an instrument
setting forth such establishment and designation and the relative rights and
preferences of such series or as otherwise provided in such instrument.
(b) Classes. Notwithstanding anything in this Declaration to the contrary,
the Trustees may, in their discretion, without obtaining any prior authorization
or vote of the Shareholders of the Trust or of the Shareholders of any series or
class of Shares, from time to time authorize the division of Shares of the Trust
or any series thereof into Shares of one or more classes upon the execution by a
majority of the Trustees of an instrument setting forth such establishment and
designation and the relative rights and preferences of such class or classes.
All Shares of a class shall be identical with each other and with the Shares of
each other
<PAGE>
-7-
class of the same series except for such variations between classes as may be
approved by the Board of Trustees and set forth in such instrument of
establishment and designation and be permitted under the 1940 Act or pursuant to
any exemptive order issued by the Commission.
Section 3. Ownership of Shares. The ownership and transfer of Shares shall
be recorded on the books of the Trust or its transfer or similar agent. No
certificates certifying the ownership of Shares shall be issued except as the
Trustees may otherwise determine from time to time. The Trustees may make such
rules as they consider appropriate for the issuance of Share certificates,
transfer of Shares and similar matters. The record books of the Trust, as kept
by the Trust or any transfer or similar agent of the Trust, shall be conclusive
as to who are the holders of Shares and as to the number of Shares held from
time to time by each Shareholder.
Section 4. No Preemptive Rights, Etc. The holders of Shares shall not, as
such holders, have any right to acquire, purchase or subscribe for any Shares or
securities of the Trust which it may hereafter issue or sell, other than such
right, if any, as the Trustees in their discretion may determine. The holders of
Shares shall have no appraisal rights with respect to their Shares and, except
as otherwise determined by resolution of the Trustees in their sole discretion,
shall have no exchange or conversion rights with respect to their Shares.
Section 5. Assets and Liabilities of Series. In the event that the Trust,
pursuant to Section 2(a) of this Article IV, shall authorize the division of
Shares into two or more series, the following provisions shall apply:
(a) All consideration received by the Trust for the issue or sale of Shares
of a particular series, together with all assets in which such consideration is
invested or reinvested, all income, earnings, profits and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of such
assets, and any funds or payments derived from any reinvestment of such proceeds
in whatever form the same may be, shall irrevocably belong to that series for
all purposes, subject only to the rights of creditors, and shall be so recorded
upon the books of the Trust. Such consideration, assets, income, earnings,
profits and proceeds, including any proceeds derived from the sale, exchange or
liquidation of such assets and any funds or payments derived from any
reinvestment of such proceeds, in whatever form the same may be, together with
any General Items (as hereinafter defined) allocated to that series as provided
in the following sentence, are herein referred to as "Assets belonging to" that
<PAGE>
-8-
series. In the event that there are any assets, income, earnings, profits or
proceeds thereof, funds or payments which are not readily identifiable as
belonging to any particular series (collectively "General Items"), the Trustees
shall allocate such General Items to and among any one or more of the series
created from time to time in such manner and on such basis as they, in their
sole discretion, deem fair and equitable; and any General Items allocated to a
particular series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes.
(b) The assets belonging to a particular series shall be charged with the
liabilities of the Trust in respect of that series and with all expenses, costs,
charges and reserves attributable to that series and shall be so recorded upon
the books of the Trust. Liabilities, expenses, costs, charges and reserves
charged to a particular series, together with any General Items (as hereinafter
defined) allocated to that series as provided in the following sentence, are
herein referred to as "liabilities belonging to" that series. In the event there
are any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular series
(collectively "General Items"), the Trustees shall allocate and charge such
General Items to and among any one or more of the series created from time to
time in such manner and on such basis as the Trustees in their sole discretion
deem fair and equitable; and any General Items so allocated and charges to a
particular series shall belong to that series. Each such allocation by the
Trustees shall be conclusive and binding upon the Shareholders of all series for
all purposes.
Section 6. Status of Shares and Limitation of Personal Liability. Shares
shall be deemed to be personal property giving only the rights provided in this
instrument. Every Shareholder by virtue of having become a Shareholder shall be
held to have expressly assented and agreed to the terms of this Declaration of
Trust and to have become a party thereto. The death of a Shareholder during the
continuance of the Trust shall not operate to terminate the same nor entitle the
representative of any deceased Shareholder to an accounting or to take any
action in court or elsewhere against the Trust or the Trustees, but only to the
rights of said decedent under this Trust. Ownership of Shares shall not entitle
the Shareholder to any title in or to the whole or any part of the Trust
property or right to call for a partition or division of the same or for an
accounting. Neither the Trustees, nor any officer, employee or agent of the
Trust shall have any power to bind any Shareholder personally or to call upon
any Shareholder for the payment of any sum of money or assessment whatsoever
other than such as the Shareholder may at any
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time personally agree to pay by way of subscription for any Shares or otherwise.
ARTICLE V
THE TRUSTEES
Section 1. Management of the Trust. The business and affairs of the Trust
shall be managed by the Trustees, and they shall have all powers necessary and
desirable to carry out that responsibility.
Section 2. Qualification and Number. Each Trustee shall be a natural
person. A Trustee need not be a Shareholder, a citizen of the United States, or
a resident of the Commonwealth of Massachusetts. By the vote or consent of a
majority of the Trustees then in office, the Trustees may fix the number of
Trustees at a number not less than two (2) nor more than twelve (12) and may
fill the vacancies created by any such increase in the number of Trustees.
Except as determined from time to time by resolution of the Trustees, no
decrease in the number of Trustees shall have the effect of removing any Trustee
from office prior to the expiration of his term, but the number of Trustees may
be decreased in conjunction with the removal of a Trustee pursuant to Section 4
of Article V.
Section 3. Term and Election. Each Trustee shall hold office until the next
meeting of Shareholders called for the purpose of considering the election or
re-election of such Trustee or of a successor to such Trustee, and until his
successor is elected and qualified, and any Trustee who is appointed by the
Trustees in the interim to fill a vacancy as provided hereunder shall have the
same remaining term as that of his predecessor, if any, or such term as the
Trustees may determine. Any vacancy resulting from a newly created Trusteeship
or the death, resignation, retirement, removal, or incapacity of a Trustee may
be filled by the affirmative vote or consent of a majority of the Trustees then
in office.
Section 4. Resignation and Removal. Any Trustee may resign his trust or
retire as a Trustee (without need for prior or subsequent accounting except in
the event of removal) by an instrument in writing signed by him and delivered or
mailed to the Chairman, if any, the President or the Secretary, and such
resignation or retirement shall be effective upon such delivery, or at a later
date according to the terms of the instrument. Any Trustee who has become
incapacitated by illness or injury as determined by a majority of the other
Trustees, may be retired
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by written instrument signed by a majority of the other Trustees. Except as
aforesaid, any Trustee may be removed from office only for "Cause" (as
hereinafter defined) and only (i) by action of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding Shares, or (ii) by written instrument,
signed by at least sixty-six and two-thirds percent (66-2/3%) of the remaining
Trustees, specifying the date when such removal shall become effective. "Cause"
shall require willful misconduct, dishonesty, fraud or a felony conviction.
Section 5. Vacancies. The death, declination, resignation, retirement,
removal, or incapacity, of the Trustees, or any one of them, shall not operate
to annul the Trust or to revoke any existing agency created pursuant to the
terms of this Declaration of Trust. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided herein, or the number of
Trustees as fixed is reduced, the Trustees in office, regardless of their
number, shall have all the powers granted to the Trustees, and during the period
during which any such vacancy shall occur, only the Trustees then in office
shall be counted for the purposes of the existence of a quorum or any action to
be taken by such Trustees.
Section 6. Ownership of Assets of the Trust. The assets of the Trust shall
be held separate and apart from any assets now or hereafter held in any capacity
other than as Trustee hereunder by the Trustees or any successor Trustees. All
of the assets of the Trust shall at all times be considered as automatically
vested in the Trustees as shall be from time to time in office. Upon the
resignation, retirement, removal, incapacity or death of a Trustee, such Trustee
shall automatically cease to have any right, title or interest in any of the
Trust property, and the right, title and interest of such Trustee in the Trust
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective without the execution or delivery of any
conveyancing or other instruments. No Shareholder shall be deemed to have a
severable ownership in any individual asset of the Trust or any right of
partition or possession thereof.
Section 7. Voting Requirements. In addition to the voting requirements
imposed by law or by any other provision of this Declaration of Trust, the
provisions set forth in this Article V may not be amended, altered or repealed
in any respect, nor may any provision inconsistent with this Article V be
adopted, without the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding Shares. In the event the holders
of the outstanding shares of any series or class are required by law or any
other provision of this Declaration of
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Trust to approve such an action by a class vote of such holders, such action
must be approved by the holders of at least sixty-six and two-thirds percent
66-2/3%) of the outstanding Shares of such series or class or such lower
percentage as may be required by law or any other provision of this Declaration
of Trust.
ARTICLE VI
POWERS OF TRUSTEES
Section 1. Powers. The Trustees in all instances shall have full, absolute
and exclusive power, control and authority over the Trust assets and the
business and affairs of the Trust to the same extent as if the Trustees were the
sole and absolute owners thereof in their own right. The Trustees shall have
full power and authority to do any and all acts and to make and execute any and
all contracts and instruments that they may consider necessary or appropriate in
connection with the management of the Trust. The enumeration of any specific
power herein shall not be construed as limiting the aforesaid powers. In
construing the provisions of this Declaration of Trust, there shall be a
presumption in favor of the grant of power and authority to the Trustees.
Subject to any applicable limitation in this Declaration, the Trustees shall
have power and authority:
(a) To invest and reinvest in, to buy or otherwise acquire, to hold,
for investment or otherwise, to sell or otherwise dispose of, to lend or to
pledge, to trade in or deal in securities or interests of all kinds,
however evidenced, or obligations of all kinds, however evidenced, or
rights, warrants, or contracts to acquire such securities, interests, or
obligations, of any private or public company, corporation, association,
general or limited partnership, trust or other enterprise or organization
foreign or domestic, or issued or guaranteed by any national or state
government, foreign or domestic, or their agencies, instrumentalities or
subdivisions (including but not limited to, bonds, debentures, bills,
time, notes and all other evidences or indebtedness); negotiable or
non-negotiable instruments; any and all options and futures contracts,
derivatives or structured securities; government securities and money
market instruments (including but not limited to, bank certificates of
deposit, finance paper, commercial paper, bankers acceptances, and all
kinds of repurchase agreements) and, without limitation, all other kinds
and types of financial instruments;
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(b) To adopt By-Laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and
repeal them to the extent that they do not reserve that right to the
Shareholders;
(c) To elect and remove such officers and appoint and terminate such
agents as they consider appropriate;
(d) To set record dates for any purpose;
(e) To delegate such authority as they consider desirable to any
officers of the Trust and to any investment adviser, investment
subadviser, transfer agent, custodian, underwriter or other independent
contractor or agent;
(f) Subject to Article IX, Section 1 hereof, to merge, or consolidate
the Trust with any other corporation, association, trust or other
organization; or to sell, convey, transfer, or lease all or substantially
all of the assets of the Trust;
(g) To vote or give assent, or exercise any rights of ownership, with
respect to stock or other securities or property; and to execute and
deliver proxies or powers of attorney to such person or persons as the
Trustees shall deem proper, granting to such person or persons such power
and discretion with relation to securities or property as the Trustees
shall deem proper;
(h) To exercise powers and rights of subscription or otherwise which
in any manner arise out of ownership of securities;
(i) To hold any security or property in a form not indicating any
trust, whether in bearer, unregistered or other negotiable form; or either
in their or the Trust's name or in the name of a custodian or a nominee or
nominees;
(j) To issue, sell, repurchase, retire, cancel, acquire, hold, resell,
reissue, dispose of, transfer and otherwise deal in Shares and in any
options, warrants or other rights to purchase Shares or any other interests
in the Trust other than Shares;
(k) To set apart, from time to time, out of any funds of the Trust a
reserve or reserves for any proper purpose, and to abolish any such
reserve;
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(l) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or issuer, any security or
property of which is held in the Trust; to consent to any contract, lease,
mortgage, purchase, or sale of property by such corporation or issuer, and
to pay calls or subscriptions with respect to any security held in the
Trust;
(m) To compromise, arbitrate, or otherwise adjust claims in favor of
or against the Trust or any matter in controversy including, but not
limited to, claims for taxes;
(n) To make distributions to Shareholders;
(o) To borrow money and to pledge, mortgage, or hypothecate the assets
of the Trust;
(p) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any
Shareholders whose investment is less than such minimum upon such terms as
shall be established by the Trustees;
(q) To join with other security holders in acting through a committee,
depositary, voting trustee or otherwise, and in that connection to deposit
any security with, or transfer any security to, any such committee,
depositary or trustee, and to delegate to them such power and authority
with relation to any security (whether or not so deposited or transferred)
as the Trustees shall deem proper, and to agree to pay, and to pay, such
portion of the expenses and compensation of such committee, depositary or
trustee as the Trustees shall deem proper;
(r) To purchase and pay for out of Trust property such insurance as
they may deem necessary or appropriate for the conduct of the business of
the Trust, including, without limitation, insurance policies insuring the
assets of the Trust and payment of distributions and principal on its
portfolio investments, and insurance policies insuring the Shareholders,
Trustees, officers, employees, agents, investment advisers, investment
subadvisers or managers, principal underwriters, or independent contractors
of the Trust individually against all claims and liabilities of every
nature arising by reason of holding, being or having held any such office
or position, or by reason of any action alleged to have been taken or
omitted by any such person as Shareholder, Trustee, officer, employee,
agent, investment adviser, subadviser or manager,
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principal underwriter, or independent contractor, whether or not any such
action may be determined to constitute negligence, and whether or not the
Trust would have the power to indemnify such person against such liability;
and
(s) To pay pensions for faithful service, as deemed appropriate by the
Trustees, and to adopt, establish and carry out pension, profit-sharing,
share bonus, share purchase, savings, thrift and other retirement,
incentive and benefit plans, trusts and provisions, including the
purchasing of life insurance and annuity contracts as a means of providing
such retirement and other benefits, for any or all of the Trustees,
officers, employees and agents of the Trust.
Any determination made by or pursuant to the direction of the Trustees in
good faith and consistent with the provisions of this Declaration of Trust shall
be final and conclusive and shall be binding upon the Trust and every holder at
any time of Shares, including, but not limited to the following matters: the
amount of the assets, obligations, liabilities and expenses of the Trust; the
amount of the net income of the Trust from dividends, capital gains, interest or
other sources for any period and the amount of assets at any time legally
available for the payment of dividends or distributions; the amount, purpose,
time of creation, increase or decrease, alteration or cancellation of any
reserves or charges and the propriety thereof (whether or not any obligation or
liability for which such reserves or charges were created shall have been paid
or discharged); the market value, or any quoted price to be applied in
determining the market value, of any security or other asset owned or held by
the Trust; the fair value of any security for which quoted prices are not
readily available, or of any other asset owned or held by the Trust; the number
of Shares of the Trust issued or issuable; the net asset value per Share; any
matter relating to the acquisition, holding and depositing of securities and
other assets by the Trust; any question as to whether any transaction
constitutes a purchase of securities on margin, a short sale of securities, a
borrowing, or an underwriting of the sale of, or participation in any
underwriting or selling group in connection with the public distribution of, any
securities, and any matter relating to the issue, sale, redemption, repurchase,
and/or other acquisition or disposition of Shares of the Trust. No provision of
this Declaration of Trust shall be effective to protect or purport to protect
any Trustee or officer of the Trust against any liability to the Trust or to its
security holders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
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Section 2. Manner of Acting, By-Laws. The By-Laws shall make provision from
time to time for the manner in which the Trustees may take action, including,
without limitation, at meetings within or without Massachusetts, including
meetings held by means of a conference telephone or other communications
equipment, or by written consents, the quorum and notice, if any, that shall be
required for any meeting or other action, and the delegation of some or all of
the power and authority of the Trustees to any one or more committees which they
may appoint from their own number, and terminate, from time to time.
ARTICLE VII
EXPENSES OF THE TRUST
The Trustees shall have the power to reimburse themselves from the Trust
property for their expenses and disbursements, to pay reasonable compensation to
themselves from the Trust property, and to incur and pay out of the Trust
property any other expenses which in the opinion of the Trustees are necessary
or incidental to carry out any of the purposes of this Declaration of Trust, or
to exercise any of the powers of the Trustees hereunder.
ARTICLE VIII
INVESTMENT ADVISER, UNDERWRITER
AND TRANSFER AGENT
Section 1. Investment Adviser. The Trust may enter into written contracts
with one or more persons (which term shall include any firm, corporation, trust
or association), to act as investment adviser or investment subadviser to the
Trust, and as such to perform such functions as the Trustees may deem reasonable
and proper, including, without limitation, investment advisory, management,
research, valuation of assets, clerical and administrative functions, under such
terms and conditions, and for such compensation, as the Trustees may in their
discretion deem advisable.
Upon the termination of any contract with Nuveen Advisory Corp., or any
corporation affiliated with John Nuveen & Co. Incorporated, acting as investment
adviser or manager, the Trustees are hereby required to promptly change the name
of the Trust to a name which does not include "Nuveen" or any approximation or
abbreviation thereof.
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Section 2. Underwriter; Transfer Agent. The Trust may enter into a written
contract or contracts with an underwriter or underwriters or distributor or
distributors whereby the Trust may either agree to sell Shares to the other
party or parties to the contract or appoint such other party or parties its
sales agent or agents for such Shares and with such other provisions as the
Trustees may deem reasonable and proper, and the Trustees may in their
discretion from time to time enter into transfer agency and/or shareholder
service contract(s), in each case with such terms and conditions, and providing
for such compensation, as the Trustees may in their discretion deem advisable.
Section 3. Parties to Contract. Any contract of the character described in
Sections 1 and 2 of this Article VIII or in Article X hereof may be entered into
with any corporation, firm, partnership, trust or association, including,
without limitation, the investment adviser, any investment subadviser or an
affiliate of the investment adviser or investment subadviser, although one or
more of the Trustees or officers of the Trust may be an officer, director,
trustee, shareholder, or member of such other party to the contract, or
otherwise interested in such contract and no such contract shall be invalidated
or rendered voidable by reason of the existence of any such relationship, nor
shall any person holding such relationship be liable merely by reason of such
relationship for any loss or expense to the Trust under or by reason of said
contract or accountable for any profit realized directly or indirectly
therefrom, provided that the contract when entered into was not inconsistent
with the provisions of this Article VIII, Article X, or the By-Laws. The same
person (including a firm, corporation, partnership, trust or association) may be
the other party to contracts entered into pursuant to Sections 1 and 2 above or
Article X, and any individual may be financially interested or otherwise
affiliated with persons who are parties to any or all of the contracts mentioned
in this Section 3.
ARTICLE IX
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote only:
(a) for the election or removal of Trustees as provided in Article V, (b) with
respect to any investment advisory or management contract to the extent required
by the 1940 Act, (c) with respect to any termination of the Trust or a series
thereof to the extent and as provided in this Article IX, Section 1, (d) with
respect to any amendment of this Declaration of Trust to the extent and as
provided in Article XIII, Section 4, (e) with
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respect to a merger or consolidation of the Trust or any series thereof with any
corporation, association, trust or other organization or a reorganization or
recapitalization of the Trust or series thereof, or a sale, lease or transfer of
all or substantially all of the assets of the Trust or any series thereof (other
than in the regular course of the Trust's investment activities) to the extent
and as provided in this Article IX, Section 1, (f) to the same extent as the
shareholders of a Massachusetts business corporation as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the Trust or the Shareholders, and (g) with
respect to such additional matters relating to the Trust as may be required by
law, the 1940 Act, this Declaration of Trust, the By-Laws of the Trust, or any
registration of the Trust with the Commission or any State, or as the Trustees
may consider necessary or desirable.
An affirmative vote of the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the outstanding Shares of the Trust (or, in the event of
any action set forth below affecting only one or more series or classes of the
Trust, an affirmative vote of the holders of at least sixty-six and two-thirds
percent of the outstanding Shares of such affected series or class) shall be
required to approve, adopt or authorize (i) a merger or consolidation of the
Trust or a series of the Trust with any corporation, association, trust or other
organization or a reorganization or recapitalization of the Trust or a series of
the Trust, (ii) a sale, lease or transfer of all or substantially all of the
assets of the Trust or series of the Trust (other than in the regular course of
the Trust's investment activities), or (iii) a termination of the Trust or a
series of the Trust (other than a termination by the Trustees as provided for in
Section 1 of Article XIII hereof), unless in any case such action is recommended
by the Trustees, in which case the affirmative vote of a majority of the
outstanding voting securities of the Trust or the affected series or class shall
be required. Nothing contained herein shall be construed as requiring approval
of Shareholders for any transaction, whether deemed a merger, consolidation,
reorganization or otherwise whereby the Trust issues Shares in connection with
the acquisition of assets (including those subject to liabilities) from any
other investment company or similar entity).
Section 2. Meetings. Meetings of the Shareholders of the Trust or any one
or more series thereof may be called and held from time to time for the purpose
of taking action upon any matter requiring the vote or authority of the
Shareholders as herein provided or upon any other matter deemed by the Trustees
to be necessary or desirable. Meetings of the
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Shareholders shall be held at such place within the United States as shall be
fixed by the Trustees, and stated in the notice of the meeting. Meetings of the
Shareholders may be called by the Trustees and shall be called by the Trustees
upon the written request of Shareholders owning at least one-tenth of the
outstanding Shares entitled to vote. Shareholders shall be entitled to at least
ten days' written notice of any meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
Section 3. Quorum and Action. (a) The Trustees shall set in the By-Laws the
quorum required for the transaction of business by the Shareholders at a
meeting, which quorum shall in no event be less than thirty percent (30%) of the
Shares entitled to vote at such meeting. If a quorum is present when a duly
called or held meeting is convened, the Shareholders present may continue to
transact business until adjournment, even though the withdrawal of a number of
Shareholders originally present leaves less than the proportion or number
otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the Shares present in person or by proxy and
entitled to vote at a meeting of Shareholders at which a quorum is present,
except as may be otherwise required by any provision of this Declaration of
Trust or the By-Laws.
Section 4. Voting. Each whole Share shall be entitled to one vote as to any
matter on which it is entitled to vote and each fractional Share shall be
entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. In the event that there is more than
one series of the Shares, Shares shall be voted by individual series on any
matter submitted to a vote of the Shareholders of the Trust except as provided
in Sections 2(a)(v) and 2(b) of Article IV. There shall be no cumulative voting
in the election of Trustees or on any other matter submitted to a vote of the
Shareholders. Shares may be voted in person or by proxy. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required or permitted by law, this Declaration of Trust or the By-Laws of
the Trust to be taken by Shareholders.
Section 5. Action by Written Consent in Lieu of Meeting of Shareholders.
Any action required or permitted to be taken at a meeting of the Shareholders
may be taken without a meeting by written action signed by all of the
Shareholders entitled to vote on that action. The
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written action is effective when it has been signed by all of those
Shareholders, unless a different effective time is provided in the written
action.
ARTICLE X
CUSTODIAN
All securities and cash of the Trust shall be held by one or more
custodians and subcustodians, each meeting the requirements for a custodian
contained in the 1940 Act, or shall otherwise be held in accordance with the
1940 Act.
ARTICLE XI
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may in their sole discretion from
time to time declare and pay, or may prescribe and set forth in a duly adopted
vote or votes of the Trustees, the bases and time for the declaration and
payment of, such dividends and distributions to Shareholders as they may deem
necessary or desirable, after providing for actual and accrued expenses and
liabilities (including such reserves as the Trustees may establish) determined
in accordance with good accounting practices.
Section 2. Redemption of Shares. All shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. The Trust shall redeem the Shares of the Trust or any series or
class thereof at the price determined as hereinafter set forth, upon the
appropriately verified application of the record holder thereof (or upon such
other form of request as the Trustees may determine) at such office or agency as
may be designated from time to time for that purpose by the Trustees. The
Trustees may from time to time specify additional conditions, not inconsistent
with the 1940 Act, regarding the redemption of Shares in the Trust's then
effective prospectus under the Securities Act of 1933.
Section 3. Redemption Price. Shares shall be redeemed at their net asset
value (less any applicable redemption fee or sales charge) determined as set
forth in Section 7 of this Article XI as of such time as the Trustees shall have
theretofore prescribed by resolution. In the absence of such resolution, the
redemption price of Shares deposited shall
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be the net asset value of such Shares next determined as set forth in such
Section hereof after receipt of such application.
Section 4. Payment. Payment of the redemption price of Shares of the Trust
or any series or class thereof shall be made in cash or in property or partly in
cash and partly in property to the Shareholder at such time and in the manner,
not inconsistent with the 1940 Act or other applicable laws, as may be specified
from time to time in the Trust's then effective prospectus under the Securities
Act of 1933.
Section 5. Redemption of Shareholder's Interest. The Trustees, in their
sole discretion, may cause the Trust to redeem all of the Shares of the Trust or
one or more series of the Trust held by any Shareholder if the value of such
Shares held by such Shareholder is less than the minimum amount established from
time to time by the Trustees.
Section 6. Suspension of Right of Redemption. Notwithstanding the
foregoing, the Trust may postpone payment of the redemption price and may
suspend the right of the holders of Shares to require the Trust to redeem Shares
(a) during any period when the New York Stock Exchange (the "Exchange") is
closed (other than customary weekend and holiday closings), (b) when trading in
the markets the Trust normally utilizes is restricted, or an emergency exists as
determined by the Commission so that disposal of the Trust's investments or
determination of its net asset value is not reasonably practicable, or (c) for
such other periods as the Commission may by order, rule or otherwise permit.
Section 7. Determination of Net Asset Value and Valuation of Portfolio
Assets. The Trustees may in their sole discretion from time to time prescribe
and shall set forth in the By-Laws or in a duly adopted vote or votes of the
Trustees such bases and times for determining the per Share net asset value of
the Shares and the valuation of portfolio assets as they may deem necessary or
desirable.
The Trust may suspend the determination of net asset value during any
period when it may suspend the right of the holders of Shares to require the
Trust to redeem Shares.
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ARTICLE XII
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. No personal liability for any debt or
obligation of the Trust shall attach to any Trustee of the Trust. Without
limiting the foregoing, a Trustee shall not be responsible for or liable in any
event for any neglect or wrongdoing of any officer, agent, employee, investment
adviser, subadviser, principal underwriter or custodian of the Trust, nor shall
any Trustee be responsible or liable for the act or omission of any other
Trustee. Nothing contained herein shall protect any Trustee against any
liability to which such Trustee would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.
Every note, bond, contract, instrument, certificate, Share or undertaking
and every other act or thing whatsoever executed or done by or on behalf of the
Trust or the Trustees or any of them in connection with the Trust shall be
conclusively deemed to have been executed or done only in or with respect to
their or his capacity as Trustees or Trustee and neither such Trustees or
Trustee nor the Shareholders shall be personally liable thereon.
Every note, bond, contract, instrument, certificate or undertaking made or
issued by the Trustees or by any officers or officer shall give notice that this
Declaration of Trust is on file with the Secretary of State of the Commonwealth
of Massachusetts, shall recite that the same was executed or made by or on
behalf of the Trust by them as Trustees or Trustee or as officers or officer and
not individually and that the obligations of such instrument are not binding
upon any of them or the Shareholders individually but are binding only upon the
assets and property of the Trust, and may contain such further recitals as
they or he may deem appropriate, but the omission thereof shall not operate to
bind any Trustees or Trustee or officers or officer or Shareholders or
Shareholder individually.
All persons extending credit to, contracting with or having any claim
against the Trust shall look only to the assets of the Trust for payment under
such credit, contract or claim; and neither the Shareholders nor the Trustees,
nor any of the Trust's officers, employees or agents, whether past, present or
future, shall be personally liable therefor.
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Section 2. Trustees' Good Faith Action, Expert Advice, No Bond or Surety.
The exercise by the Trustees of their powers and discretions thereunder shall be
binding upon everyone interested. A Trustee shall be liable only for his own
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee, and for nothing else,
and shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust and their duties as Trustees
hereunder, and shall be under no liability for any act or omission in accordance
with such advice or for failing to follow such advice. In discharging their
duties, the Trustees, when acting in good faith, shall be entitled to rely upon
the books of account of the Trust and upon written reports made to the Trustees
by any officer appointed by them, any independent public accountant and (with
respect to the subject matter of the contract involved) any officer, partner or
responsible employee of any other party to any contract entered into hereunder.
The Trustees shall not be required to give any bond as such, nor any surety if a
bond is required.
Section 3. Liability of Third Persons Dealing with Trustees. No person
dealing with the Trustees shall be bound to make any inquiry concerning the
validity of any transaction made or to be made by the Trustees or to see to the
application of any payments made or property transferred to the Trust or upon
its order.
Section 4. Indemnification. Subject to the exceptions and limitations
contained in this Section 4, every person who is, or has been, a Trustee,
officer, employee or agent of the Trust, including persons who serve at the
request of the Trust as directors, trustees, officers, employees or agents of
another organization in which the Trust has an interest as a shareholder,
creditor or otherwise (hereinafter referred to as a "Covered Person"), shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been such a
Trustee, director, officer, employee or agent and against amounts paid or
incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful
<PAGE>
-23-
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a
final adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition, or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the Disinterested Trustees
then in office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any other
rights to which any Covered Person may now or hereafter be entitled, shall
continue as to a person who has ceased to be such a Covered Person and shall
inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract
or otherwise under law.
Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding subject to a claim for indemnification under this
Section 4 shall be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification
under this Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other
appropriate security or the Trust shall be insured against losses arising
out of any such advances; or
<PAGE>
-24-
(b) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees then in office act
on the matter) or independent legal counsel in a written opinion shall
determine, based upon a review of the readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the
recipient ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not
an Interested Person of the Trust (including anyone, as such Disinterested
Trustee, who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or
"proceeding" shall apply to all claims, actions, suits, proceedings (civil,
criminal, administrative or other, including appeals), actual or threatened; and
the words "liability" and "expenses" shall include without limitation,
attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties
and other liabilities.
Section 5. Shareholders. No personal liability for any debt or obligation
of the Trust shall attach to any Shareholder or former Shareholder of the Trust.
In case any Shareholder or former Shareholder of the Trust shall be held to be
personally liable solely by reason of his being or having been a Shareholder and
not because of his acts or omissions or for some other reason, the Shareholder
or former Shareholder (or his heirs, executors, administrators or other legal
representatives or in the case of a corporation or other entity, its corporate
or other general successor) shall be entitled out of the assets of the Trust to
be held harmless from and indemnified against all loss and expense arising from
such liability; provided, however, there shall be no liability or obligation of
the Trust arising hereunder to reimburse any Shareholder for taxes paid by
reason of such Shareholder's ownership of any Share or for losses suffered by
reason of any changes in value of any Trust assets. The Trust shall, upon
request by the Shareholder or former Shareholder, assume the defense of any
claim made against the Shareholder for any act or obligation of the Trust and
satisfy any judgment thereon.
<PAGE>
-25-
ARTICLE XIII
MISCELLANEOUS
Section 1. Termination of Trust. Unless terminated as provided herein, the
Trust shall continue without limitation of time. The Trust or any series of the
Trust may be terminated at any time by the Trustees by written notice to the
Shareholders of the Trust, or such Series as the case may be, without a vote of
the Shareholders of the Trust, or of such series, or the Trust or any series of
the Trust may be terminated by the affirmative vote of the Shareholders in
accordance with Section 1 of Article IX hereof.
Upon termination of the Trust or any series thereof, after paying or
otherwise providing for all charges, taxes, expenses and liabilities, whether
due or accrued or anticipated, as may be determined by the Trustees, the Trust
shall, in accordance with such procedures as the Trustees consider appropriate,
reduce the remaining assets of the Trust or of the particular series thereof to
distributable form in cash or other securities, or any combination thereof, and
distribute the proceeds to the holders of the Shares of the Trust or such series
in the manner set forth by resolution of the Trustees.
Section 2. Filing of Copies, References, Headings. The original or a copy
of this instrument and of each amendment hereto shall be kept in the office of
the Trust where it may be inspected by any Shareholder. A copy of this
instrument and of each amendment shall be filed by the Trustees with the
Secretary of State of the Commonwealth of Massachusetts, as well as any other
governmental office where such filing may from time to time be required,
provided, however, that the failure to so file will not invalidate this
instrument or any properly authorized amendment hereto. Anyone dealing with the
Trust may rely on a certificate by an officer or Trustee of the Trust as to
whether or not any such amendments have been made and as to any matters in
connection with the Trust hereunder, and with the same effect as if it were the
original, may rely on a copy certified by an officer or Trustee of the Trust to
be a copy of this instrument or of any such amendments. In this instrument or
in any such amendment, references to this instrument, and all expressions like
"herein," "hereof" and "hereunder," shall be deemed to refer to this instrument
as a whole and as amended or affected by any such amendment, and masculine
pronouns shall be deemed to include the feminine and the neuter, as the context
shall require. Headings are placed herein for convenience of reference only, and
in case of any conflict, the text of this instrument,
<PAGE>
-26-
rather than the headings, shall control. This instrument may be executed in any
number of counterparts, each of which shall be deemed an original.
Section 3. Trustees May Resolve Ambiguities. The Trustees may construe any
of the provisions of this Declaration insofar as the same may appear to be
ambiguous or inconsistent with any other provisions hereof, and any such
construction hereof by the Trustees in good faith shall be conclusive as to the
meaning to be given to such provisions.
Section 4. Amendments. Except as otherwise specifically provided in this
Declaration of Trust, this Declaration of Trust may be amended at any time by an
instrument in writing signed by a majority of the then Trustees with the consent
of Shareholders holding more than fifty percent (50%) of Shares entitled to vote
except that an amendment which in the determination of the Trustees shall
affect the holders of one or more series or classes of Shares but not the
holders of all outstanding series or classes shall be authorized by vote of the
Shareholders holding a majority of the Shares entitled to vote of each series
and class affected and no vote of Shareholders of a series or class not affected
shall be required. In addition, notwithstanding any other provision to the
contrary contained in this Declaration of Trust, the Trustees may amend this
Declaration of Trust without the vote or consent of Shareholders (i) at any time
if the Trustees deem it necessary in order for the Trust or any series or class
thereby to meet the requirements of applicable Federal or State laws or
regulations, or the requirements of the regulated investment company provisions
of the Internal Revenue Code, (ii) to designate series or classes or exercise
other powers with respect thereto in accordance with Section 1 and 2 or Article
IV hereof, (iii) change the name of the Trust or to supply any omission, cure
any ambiguity or cure, correct or supplement any defective or inconsistent
provision contained herein, or (iv) for any reason at any time before a
registration statement under the Securities Act of 1933, as amended, covering
the initial public offering of Shares has become effective.
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the sole Trustee(s) of the
Trust, have executed this instrument as of the date first written above.
/s/ Anthony T. Dean /s/ Timothy R. Schwertfeger
- ----------------------------- ----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Declaration of Trust and who acknowledged the same to be his/her
free act and deed, before me this 1st day of July, 1996.
/s/ Olivia Rubio
----------------------------
Notary Public
My Commission Expires: 2/25/97
"OFFICIAL SEAL"
OLIVIA RUBIO
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES 2/25/97
<PAGE>
EXHIBIT 1(b)
NUVEEN FLAGSHIP MULTISTATE TRUST II
AMENDED AND RESTATED ESTABLISHMENT AND
DESIGNATION OF SERIES OF SHARES OF BENEFICIAL INTEREST
WHEREAS, pursuant to Section 2 of Article IV of the Declaration of Trust
dated July 1, 1996 (the "Declaration"), of Nuveen Flagship Multistate Trust II,
a Massachusetts business trust (the "Trust"), the Trustees of the Trust, on July
10, 1996, established and designated certain series of Shares (as defined in the
Declaration) of the Trust by the execution of an instrument establishing and
designating such series and setting forth the special and relative rights of
such series;
WHEREAS, the Trustees of the Trust now desire to amend and restate such
instrument in order to establish and designate additional series of Shares and
redesignate certain of the series previously designated;
NOW THEREFORE, the Trustees of the Trust, this 9th day of October, 1996,
hereby establish and designate ten series of Shares (each a "Fund") to have the
special and relative rights described below.
1. The following ten Funds are established and designated:
Nuveen California Intermediate Municipal Bond Fund
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
<PAGE>
-2-
Nuveen New York Insured Municipal Bond Fund
2. Each Fund shall be authorized to hold cash, invest in securities,
instruments and other property and use investment techniques as from time to
time described in the Trust's then currently effective registration statement
under the Securities Act of 1933 to the extent pertaining to the offering of
Shares of such Fund. Each Share of each Fund shall be redeemable, shall be
entitled to one vote (or fraction thereof in respect of a fractional share) on
matters on which Shareholders of that Fund may vote in accordance with the
Declaration, shall represent a pro rata beneficial interest in the assets
allocated or belonging to such Fund, and shall be entitled to receive its pro
rata share of the net assets of such Fund upon liquidation of such Fund, all as
provided in Article IV, Sections 2 and 5 of the Declaration. The proceeds of
the sale of Shares of each Fund, together with any income and gain thereon, less
any diminution or expenses thereof, shall irrevocably belong to such Fund,
unless otherwise required by law.
3. Shareholders of each Fund shall vote separately as a class on any
matter to the extent required by, and any matter shall be deemed to have been
effectively acted upon with respect to such Fund as provided in, Rule 18f-2, as
from time to time in effect, under the Investment Company Act of 1940, as
amended, or any successor rules, and by the Declaration.
4. The assets and liabilities of the Trust shall be allocated among each
Fund as set forth in Article IV, Section 5 of the Declaration.
5. The designation of the ten Funds hereby shall not impair the power of
the Trustees from time to time to designate additional series of Shares of the
Trust.
6. Subject to the applicable provisions of the 1940 Act and the
provisions of Article IV, Sections 2 and 5 of the Declaration, the Trustees
shall have the right at any time and from time to time to reallocate assets and
expenses or to change the designation of each Fund now or hereafter created, or
to otherwise change the special relative rights of each Fund designated hereby
without any action or consent of the Shareholders.
IN WITNESS WHEREOF, the undersigned, being a majority of the Trustees
of the Trust, have executed this instrument as of this 11th day of October,
1996.
<PAGE>
-3-
/s/ Anthony T. Dean /s/ Timothy R. Schwertfeger
- -------------------------------- --------------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- -------------------------------- --------------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- -------------------------------- --------------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOlS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 9 day of October, 1996.
- --------------------------------- /s/ Olivia Rubio
"OFFICIAL SEAL" --------------------------------
Olivia Rubio Notary Public
Notary Public, State of Illinois My Commission Expires: _________
My Commission Expires 2/25/97
- ---------------------------------
<PAGE>
-3-
- ----------------------------- -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Lawrence H. Brown
- ----------------------------- -----------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- ----------------------------- -----------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 10th day of October, 1996.
/s/ Olivia Rubio
------------------------------
[SEAL] Notary Public
My Commission Expires:
--------
<PAGE>
-3-
- ----------------------------- -----------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Anne E. Impellizerri
- ----------------------------- -----------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- ----------------------------- -----------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11 day of October, 1996.
- ---------------------------------- /s/ Olivia Rubio
"OFFICIAL SEAL" -----------------------------
Olivia Rubio Notary Public
Notary Public, State of Illinois My Commission Expires:
My Commission Expires 2/25/97 -------
- ----------------------------------
<PAGE>
-3-
- ------------------------------ ------------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- ------------------------------ ------------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Margaret K. Rosenheim
- ------------------------------ ------------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOlS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11 day of October, 1996.
- --------------------------------- /s/ Olivia Rubio
"OFFICIAL SEAL" -------------------------------
Olivia Rubio Notary Public
Notary Public, State of Illinois My Commission Expires:
My Commission Expires 2/25/97 ---------
- ---------------------------------
<PAGE>
-7-
- ------------------------------ ------------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
- ------------------------------ ------------------------------
Lawrence H. Brown, Anne E. Impellizerri,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
/s/ Peter R. Sawers
- ------------------------------ ------------------------------
Margaret K. Rosenheim, Peter R. Sawers,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOlS )
) SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Series and who acknowledged the same to be his/her free
act and deed, before me this 11 day of October, 1996.
- --------------------------------- /s/ Olivia Rubio
"OFFICIAL SEAL" -------------------------------
Olivia Rubio Notary Public
Notary Public, State of Illinois My Commission Expires:
My Commission Expires 2/25/97 ---------
- ---------------------------------
<PAGE>
EXHIBIT 1(c)
NUVEEN FLAGSHIP MULTISTATE TRUST II
ESTABLISHMENT AND DESIGNATION OF CLASSES
The undersigned, being the sole Trustees of Nuveen Flagship Multistate
Trust II, a Massachusetts business trust (the "Trust"), acting pursuant to
Sections 1 and 2 of Article IV of the Declaration of Trust dated July 1, 1996
(the "Declaration"), do hereby divide the Shares of its series, whether
currently existing or created in the future, into four Classes of Shares
effective as of the date hereof, as follows:
1. The four Classes of Shares are designated "Class A Shares", "Class B
Shares", "Class C Shares" and "Class R Shares".
2. Class A Shares, Class B Shares, Class C Shares and Class R Shares
shall be entitled to all the rights and preferences accorded to Shares under the
Declaration.
3. The Number of Shares of each Class designated hereby shall be
unlimited.
4. The purchase price of Class A Shares, Class B Shares, Class C Shares
and Class R Shares, the method of determination of the net asset value of Class
A Shares, Class B Shares, Class C Shares and Class R Shares, the price, terms
and manner of redemption of Class A Shares, Class B Shares, Class C Shares and
Class R Shares, any conversion or exchange feature or privilege of the Class A
Shares, Class B Shares, Class C Shares and Class R Shares, and the relative
dividend rights of the holders of Class A Shares, Class B Shares, Class C Shares
and Class R Shares shall be established by the Trustees of the Trust in
accordance with the Declaration and shall be set forth in the current prospectus
and statement of additional information of the Trust or any series thereof, as
amended from time to time, contained in the Trust's registration statement under
the Securities Act of 1933, as amended (the "Prospectus").
5. Each of the Class A Shares, Class B Shares, Class C Shares and Class R
Shares shall bear the expenses of payments under any distribution and service
agreements entered into by or on behalf of the Trust with respect to that Class,
and any other expenses that are properly allocated to such Class in accordance
with the Investment Company Act of
<PAGE>
-2-
1940, or any rule or order issued thereunder and applicable to the Trust (the
"1940 Act").
6. As to any matter on which shareholders are entitled to vote, Class A
Shares, Class B Shares, Class C Shares and Class R Shares of a series shall vote
together as a single class; provided however, that notwithstanding the
provisions of Section 4 of Article IX of the Declaration to the contrary, (a) as
to any matter with respect to which a separate vote of any Class is required by
the 1940 Act or is required by a separate agreement applicable to such Class,
such requirements as to a separate vote by the Class shall apply, (b) except as
required by (a) above, to the extent that a matter affects more than one Class
and the interests of two or more Classes in the matter are not materially
different, then the Shares of such Classes whose interests in the matter are not
materially different shall vote together as a single Class, but to the extent
that a matter affects more than one Class and the interests of a Class in the
matter are materially different from that of each other Class; then the Shares
of such Class shall vote as a separate class; and (c) except as required by (a)
above or as otherwise required by the 1940 Act, as to any matter which does not
affect the interests of a particular Class, only the holders of Shares of the
one or more affected Classes shall be entitled to vote.
7. The designation of Class A Shares, Class B Shares, Class C Shares and
Class R Shares hereby shall not impair the power of the Trustees from time to
time to designate additional classes of Shares of the Trust.
8. Subject to the applicable provisions of the 1940 Act, the Trustees may
from time to time modify the preferences, voting powers, rights and privileges
of any of the Classes designated hereby or redesignate any of the Classes
designated hereby without any action or consent of the Shareholders.
IN WITNESS WHEREOF, the undersigned, being the sole Trustee(s) of the
Trust, have executed this instrument as of this 10th day of July, 1996.
<PAGE>
-3-
/s/Anthony T. Dean /s/ Timothy R. Schwertfeger
--------------- ------------------------
Anthony T. Dean, Timothy R. Schwertfeger,
as Trustee as Trustee
333 West Wacker Drive 333 West Wacker Drive
Chicago, Illinois 60606 Chicago, Illinois 60606
STATE OF ILLINOIS )
)SS.
COUNTY OF COOK )
Then personally appeared the above-named person(s) who are known to me to
be Trustee(s) of the Trust whose name(s) and signature(s) are affixed to the
foregoing Designation of Classes and who acknowledged the same to be his/her
free act and deed, before me this 10th day of July, 1996.
[SEAL] /s/ Robin D. Freeman
Notary Public
My Commission Expires: 10/31/99
<PAGE>
EXHIBIT 2
BY-LAWS
OF
NUVEEN FLAGSHIP MULTISTATE TRUST II
ARTICLE I
DECLARATION OF TRUST
AND
OFFICES
Section 1.1. Declaration of Trust. These By-Laws shall be subject to the
Declaration of Trust, as from time to time in effect (the "Declaration of
Trust"), of Nuveen Flagship Multistate Trust II, the Massachusetts business
trust established by the Declaration of Trust (the "Trust").
Section 1.2. Other Offices. The Trust may have such other offices and
places of business within or without the Commonwealth of Massachusetts as the
Board of Trustees shall determine.
ARTICLE II
SHAREHOLDERS
Section 2.1. Place of Meetings. Meeting of the Shareholders may be held at
such place or places within or without the Commonwealth of Massachusetts as
shall be fixed by the Board of Trustees and stated in the notice of the meeting.
Section 2.2. Regular Meeting. Regular meetings of the Shareholders for the
election of Trustees and the transaction of such other business as may properly
come before the meeting shall be held on an annual or other less frequent
periodic basis at such date and time as the Board of Trustees by resolution
shall designate, except as otherwise required by applicable law.
Section 2.3. Special Meeting. Special meetings of the Shareholders for any
purpose or purposes may be called by the Chairman of the Board, the President or
two or more Trustees, and must be called at the written request stating the
purpose or purposes of the meeting, of Shareholders entitled to cast at least l0
percent of all the votes entitled to be cast at the meeting.
<PAGE>
-2-
Section 2.4. Notice of Meetings. Notice stating the time and place of the
meeting and in the case of a special meeting the purpose or purposes thereof and
by whom called, shall be delivered to each Shareholder not less than ten nor
more than sixty days prior to the meeting, except where the meeting is an
adjourned meeting and the date, time and place of the meeting were announced at
the time of the adjournment.
Section 2.5. Quorum and Action. (a) The holders of thirty percent (30%) of
the voting power of the shares of beneficial interest of the Trust (the
"Shares") entitled to vote at a meeting are a quorum for the transaction of
business. If a quorum is present when a duly called or held meeting is convened,
the Shareholders present may continue to transact business until adjournment,
even though the withdrawal of a number of Shareholders originally present leaves
less than the proportion or number otherwise required for a quorum.
(b) The Shareholders shall take action by the affirmative vote of the
holders of a majority, except in the case of the election of Trustees which
shall only require a plurality, of the voting power of the Shares present and
entitled to vote at a meeting of Shareholders at which a quorum is present,
except as may be otherwise required by the Investment Company Act of 1940, as
amended (the "1940 Act"), or the Declaration of Trust.
Section 2.6. Voting. At each meeting of the Shareholders, every holder of
Shares then entitled to vote may vote in person or by proxy and shall have one
vote for each Share registered in his name.
Section 2.7. Proxy Representation. A Shareholder may cast or authorize the
casting of a vote by filing a written appointment of a proxy with an officer of
the Trust at or before the meeting at which the appointment is to be effective.
The appointment of a proxy is valid for eleven months, unless a longer period is
expressly provided in the appointment. No appointment is irrevocable unless the
appointment is coupled with an interest in the Shares or in the Trust.
Section 2.8. Adjourned Meetings. Any meeting of Shareholders may be
adjourned to a designated time and place by the vote of the holders of a
majority of the Shares present and entitled to vote thereat even though less
than a quorum is so present without any further notice except by announcement at
the meeting. An adjourned meeting may reconvene as designed, and when a quorum
is present any business may be transacted which might have been transacted at
the meeting as originally called.
<PAGE>
-3-
ARTICLE III
TRUSTEES
Section 3.1. Qualifications and Number: Vacancies. Each Trustee shall be a
natural person. A Trustee need not be a Shareholder, a citizen of the United
States, or a resident of the Commonwealth of Massachusetts. The number of
Trustees of the Trust, their term and election and the filling of vacancies,
shall be as provided in the Declaration of Trust.
Section 3.2. Powers. The business and affairs of the Trust shall be managed
under the direction of the Board of Trustees. All powers of the Trust may be
exercised by or under the authority of the Board of Trustees, except those
conferred on or reserved to the Shareholders by statute, the Declaration of
Trust or these By-Laws.
Section 3.3. Investment Policies. It shall be the duty of the Board of
Trustees to ensure that the purchase, sale, retention and disposal of portfolio
securities and the other investment practices of the Trust are at all times
consistent with the investment objectives, policies and restrictions with
respect to securities investments and otherwise of the Trust filed from time to
time with the Securities and Exchange Commission and as required by the 1940
Act, unless such duty is delegated to an investment adviser pursuant to a
written contract, as provided in the Declaration of Trust. The Trustees,
however, may delegate the duty of management of the assets of the Trust to an
individual or corporate investment adviser or subadviser to act as investment
adviser or subadviser pursuant to a written contract.
Section 3.4. Meetings. Regular meetings of the Trustees may be held without
notice at such times as the Trustees shall fix. Special meetings of the Trustees
may be called by the Chairman of the Board or the President, and shall be called
at the written request of two or more Trustees. Unless waived by each Trustee,
three days' notice of special meetings shall be given to each Trustee in person,
by mail, by telephone, or by telegram or cable, or by any other means that
reasonably may be expected to provide similar notice. Notice of special meetings
need not state the purpose or purposes thereof. Meetings of the Trustees may be
held at any place within or outside the Commonwealth of Massachusetts. A
conference among Trustees by any means of communication through which the
Trustees may simultaneously hear each other during the conference constitutes a
meeting of the Trustees or of a committee of the
<PAGE>
-4-
Trustees, if the notice requirements have been met (or waived) and if the number
of Trustees participating in the conference would be sufficient to constitute a
quorum at such meeting. Participation in such meeting by that means constitutes
presence in person at the meeting.
Section 3.5. Quorum and Action. A majority of the Trustees currently
holding office, or in the case of a meeting of a committee of the Trustees, a
majority of the members of such committee, shall constitute a quorum for the
transaction of business at any meeting. If a quorum is present when a duly
called or held meeting is convened, the Trustees present may continue to
transact business until adjournment, even though the withdrawal of a number of
Trustees originally present leaves less than the proportion or number otherwise
required for a quorum. At any duly held meeting at which a quorum is present,
the affirmative vote of the majority of the Trustees present shall be the act of
the Trustees or the committee, as the case may be, on any question, except where
the act of a greater number is required by these By-Laws or by the Declaration
of Trust.
Section 3.6. Action by Written Consent in Lieu of Meetings of Trustees. An
action which is required or permitted to be taken at a meeting of the Trustees
or a committee of the Trustees may be taken by written action signed by the
number of Trustees that would be required to take the same action at a meeting
of the Trustees or committee, as the case may be, at which all Trustees were
present. The written action is effective when signed by the required number of
Trustees, unless a different effective time is provided in the written action.
When written action is taken by less than all Trustees, all Trustees shall be
notified immediately of its text and effective date.
Section 3.7. Committees. The Trustees, by resolution adopted by the
affirmative vote of a majority of the Trustees, may designate from their members
an Executive Committee, an Audit Committee and any other committee or
committees, each such committee to consist of two or more Trustees and to have
such powers and authority (to the extent permitted by law) as may be provided in
such resolution. Any such committee may be terminated at any time by the
affirmative vote of a majority of the Trustees.
ARTICLE IV
OFFICERS
<PAGE>
-5-
Section 4.1. Number and Qualifications. The officers of the Trust shall
include a Chairman of the Board, a President, a Controller, one or more Vice
Presidents (one of whom may be designated an Executive Vice President), a
Treasurer, and a Secretary. Any two or more offices may be held by the same
person. Unless otherwise determined by the Trustees, each officer shall be
appointed by the Trustees for a term which shall continue until the meeting of
the Trustees following the next regular meeting of Shareholders and until his
successor shall have been duly elected and qualified, or until his death, or
until he shall have resigned or have been removed, as hereinafter provided in
these By-Laws. The Trustees may from time to time elect, or delegate to the
Chairman of the Board or the President, or both, the power to appoint, such
officers (including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents as may be
necessary or desirable for the business of the Trust. Such other officers shall
hold office for such terms as may be prescribed by the Trustees or by the
appointing authority.
Section 4.2. Resignations. Any officer of the Trust may resign at any time
by giving written notice of his resignation to the Trustees, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt, and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.3. Removal. An officer may be removed at any time, with or
without cause, by a resolution approved by the affirmative vote of a majority of
the Trustees present at a duly convened meeting of the Trustees.
Section 4.4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause, may be filled for the
unexpired portion of the term by the Trustees, or in the manner determined by
the Trustees.
Section 4.5. The Chairman of the Board. The Chairman of the Board shall be
elected from among the Trustees. He shall be the chief executive officer of the
Trust and shall:
(a) have general active management of the business of the Trust;
<PAGE>
-6-
(b) when present, preside at all meetings of the Trustees and of the
Shareholders;
(c) see that all orders and resolutions of the Trustees are carried
into effect;
(d) sign and deliver in the name of the Trust any deeds, mortgages,
bonds, contracts or other instruments pertaining to the business of the
Trust, except in cases in which the authority to sign and deliver is
required by law to be exercised by another person or is expressly delegated
by the Declaration of Trust or By-Laws or by the Trustees to some other
officer or agent of the Trust; and
(e) maintain records of and, whenever necessary, certify all
proceedings of the Trustees and the Shareholders.
The Chairman of the Board shall be authorized to do or cause to be done all
things necessary or appropriate, including preparation, execution and filing of
any documents, to effectuate the registration from time to time of the Shares of
the Trust with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended. He shall perform all duties incident to the office of
Chairman of the Board and such other duties as from time to time may be assigned
to him by the Trustees or by these By-Laws.
Section 4.6. The President. The President shall be the chief operating
officer of the Trust and, subject to the Chairman of the Board, he shall have
general authority over and general management and control of the business and
affairs of the Trust. In general, he shall discharge all duties incident to the
office of the chief operating officer of the Trust and such other duties as may
be prescribed by the Trustees and the Chairman of the Board from time to time.
In the absence of the Chairman of the Board or in the event of his disability,
or inability to act or to continue to act, the President shall perform the
duties of the Chairman of the Board and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the Chairman of the Board.
Section 4.7. Executive Vice-President. In the case of the absence or
inability to act of the President and the Chairman of the Board, any Executive
Vice-President shall perform the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. Any Executive Vice-President shall perform all duties incident to the
office of Executive Vice-President and
<PAGE>
-7-
such other duties as from time to time may be assigned to him by the Trustees,
the President or these By-Laws,
Section 4.8. Vice Presidents. Each Vice-President shall perform all such
duties as from time to time may be assigned to him by the Trustees, the Chairman
of the Board or the President.
Section 4.9. Controller. The Controller shall:
(a) keep accurate financial records for the Trust;
(b) render to the Chairman of the Board, the President and the
Trustees, whenever requested, an account of all transactions by and of the
financial condition of the Trust; and
(c) in general, perform all the duties incident to the office of
Controller and such other duties as from time to time may be assigned to
him by the Trustees, the Chairman of the Board or the President.
Section 4.10. Treasurer. The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the funds
and securities of the Trust, except those which the Trust has placed in the
custody of a bank or trust company pursuant to a written agreement
designating such bank: or trust company as custodian of the property of the
Trust, as required by Section 6.5 of these By-Laws;
(b) deposit all money, drafts, and checks in the name of and to the
credit of the Trust in the banks and depositories designated by the
Trustees;
(c) endorse for deposit all notes, checks, and drafts received by the
Trust making proper vouchers therefor:
(d) disburse corporate funds and issue checks and drafts in the name
of the Trust, as ordered by the Trustees; and
(e) in general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
<PAGE>
-8-
Section 4.11. Secretary. The Secretary shall:
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Trustees, the committees of the
Trustees and the Shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by statute;
(c) be custodian of the records of the Trust;
(d) see that the books, reports, statements, certificates and other
documents and records required by statute to be kept and filed are properly
kept and filed; and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him
by the Trustees, the Chairman of the Board or the President.
Section 4.12. Salaries. The salaries of all officers shall be fixed by the
Trustees.
ARTICLE V
SHARES
Section 5.1. Share Certificates. Each owner of Shares of the Trust shall be
entitled upon request to have a certificate, in such form as shall be approved
by the Trustees, representing the number of whole Shares of the Trust owned by
him. Certificates representing fractional Shares shall not be issued. The
certificates representing whole Shares shall be signed in the name of the Trust
by the Chairman of the Board, the President, the Executive Vice President or a
Vice President and by the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer (which signatures may be either manual or facsimile,
engraved or printed). In case any officer who shall have signed such certificate
shall have ceased to be such officer before such certificates shall be issued,
they may nevertheless be issued by the Trust with the same effect as if such
officer were still in office at the date of their issuance.
Section 5.2. Books and Records; Inspection. The Trust shall keep at its
principal executive office, or at another place or places within the United
States determined by the Trustees, a share register not more than
<PAGE>
-9-
one year old, containing the names and addresses of the shareholders and the
number of Shares held by each Shareholder. The Trust shall also keep, at its
principal executive office, or at another place or places within the United
States determined by the Trustees, a record of the dates on which certificates
representing Shares were issued.
Section 5.3. Share Transfers. Upon compliance with any provisions
restricting the transferability of Shares that may be set forth in the
Declaration of Trust, these By-Laws, or any resolution or written agreement in
respect thereof, transfers of Shares of the Trust shall be made only on the
books of the Trust by the registered holder thereof, or by his attorney
thereunto authorized by power of attorney duly executed and filed with an
officer of the Trust, or with a transfer agent or a registrar and on surrender
of any certificate or certificates for such Shares properly endorsed and the
payment of all taxes thereon. Except as may be otherwise provided by law or
these By-Laws, the person in whose name Shares stand on the books of the Trust
shall be deemed the owner thereof for all purposes as regards the Trust;
provided that whenever any transfer of Shares shall be made for collateral
security, and not absolutely, such fact, if known to an officer of the Trust,
shall be so expressed in the entry of transfer.
Section 5.4. Regulations. The Trustees may make such additional rules and
regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the issue, certification, transfer and registration of Shares of the
Trust. They may appoint, or authorize any officer or officers to appoint, one or
mere transfer agents or one or more transfer clerks and one or more registrars
and may require all certificates for Shares to bear the signature or signatures
of any of them.
Section 5.5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing Shares of the Trust shall immediately notify the Trust
of any loss, destruction or mutilation of such certificate, and the Trust may
issue a new certificate in the place of any certificate theretofore issued by it
which the owner thereof shall allege to have been lost or destroyed or which
shall have been mutilated, and the Trustees may, in their discretion, require
such owner or his legal representatives to give to the Trust a bond in such sum,
limited or unlimited, and in such form and with such surety or sureties as the
Trustees in their absolute discretion shall determine, to indemnify the Trust
against any claim that may be made against it on account of the alleged loss or
destruction of any such certificate, or the issuance of a new certificate.
Anything herein to the contrary notwithstanding, the Trustees, in their
absolute discretion, may
<PAGE>
-10-
refuse to issue any such new certificate, except as otherwise required by law.
Section 5.6. Record Date: Certification of Beneficial Owner. (a) The
Trustees may fix a date not more than ninety days before the date of a meeting
of Shareholders as the date for the determination of the holders of Shares
entitled to notice of and entitled to vote at the meeting or any adjournment
thereof.
(b) The Trustees may fix a date for determining Shareholders entitled to
receive payment of any dividend or distribution or allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares.
(c) In the absence of such fixed record date, (i) the date for
determination of Shareholders entitled to notice of and entitled to vote at a
meeting of Shareholders shall be the later of the close of business on the day
on which notice of the meeting is mailed or the thirtieth day before the
meeting, and (ii) the date for determining Shareholders entitled to receive
payment of any dividend or distribution or an allotment of any rights or
entitled to exercise any rights in respect of any change, conversion or exchange
of Shares shall be the close of business on the day on which the resolution of
the Trustees is adopted.
(c) A resolution approved by the affirmative vote of a majority of the
Trustees present may establish a procedure whereby a Shareholder may certify in
writing to the Trust that all or a portion of the Shares registered in the name
of the Shareholder are held for the account of one or more beneficial owners.
Upon receipt by the Trust of the writing, the persons specified as beneficial
owners, rather than the actual Shareholders, are deemed the Shareholders for the
purposes specified in the writing.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Fiscal Year. The fiscal year of the Trust shall be as fixed by
the Trustees of the Trust.
Section 6.2 Notice and Waiver of Notice. (a) Any notice of a meeting
required to be given under these By-Laws to Shareholders or Trustees, or both,
may be waived by any such person (i) orally or in writing signed by such person
before, at or after the meeting or (ii) by
<PAGE>
-11-
attendance at the meeting in person or, in the case of a Shareholder, by proxy.
(b) Except as otherwise specifically provided herein, all notices required
by these By-Laws shall be printed or written, and shall be delivered either
personally, by telecopy, telegraph or cable, or by mail or courier or delivery
service, and, if mailed, shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, addressed to the Shareholder or Trustee at
his address as it appears on the records of the Trust.
ARTICLE VII
AMENDMENTS
Section 7.1. These By-Laws may be amended or repealed, or new By-Laws may
be adopted, by the Trustees at any meeting thereof or by action of the Trustees
by written consent in lieu of a meeting.
<PAGE>
EXHIBIT 15
Nuveen Flagship Municipal Trust
Nuveen Flagship Multistate Trust I
Nuveen Flagship Multistate Trust II
Nuveen Flagship Multistate Trust III
Nuveen Flagship Multistate Trust IV
Plan of Distribution and Service
Pursuant to Rule 12b-1
___________ 199_
Whereas, Nuveen Flagship Municipal Trust, Nuveen Flagship Multistate Trust
I, Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III and
Nuveen Flagship Multistate Trust IV, each a Massachusetts business trust (each,
a "Fund"), engages in business as an open-end management investment company and
is registered under the Investment Company Act of 1940, as amended (the "Act");
Whereas, each Fund is authorized to and may or does issue shares of
beneficial interest in separate series, with the shares of each such series
representing the interests in a separate portfolio of securities and other
assets (each Fund's series together with all other such series subsequently
established by a Fund being referred to herein individually as a "Series" and
collectively as the "Series");
Whereas, each Fund has outstanding the Series set forth on Exhibit A;
Whereas, each Fund, on behalf of each Series, employs John Nuveen & Co.
Incorporated (the "Distributor") as distributor of the shares of each Series of
each Fund (the "Shares") pursuant to a Distribution Agreement dated as of
_______ 199_;
Whereas, each Fund is authorized to issue Shares in four different classes
("Classes"): Class A, Class B, Class C and Class R (although not all Series will
issue all Classes of Shares).
Whereas, each Fund, on behalf of its Series, desires to adopt a Plan of
Distribution and Service pursuant to Rule 12b-1 under the Act ("Rule 12b-1"),
and the Board of Trustees of each Fund has determined that there is a reasonable
likelihood that adoption of this Plan of Distribution and Service will benefit
the Fund and its shareholders;
Whereas, each Fund, on behalf of its Series, has adopted a Multiple Class
Plan Pursuant to Rule 18f-3 (the "Rule 18f-3 Plan") to enable the various
Classes of Shares to be granted
<PAGE>
different rights and privileges and to bear different expenses, and has an
effective registration statement on file with the SEC containing a Prospectus
describing such Classes of Shares;
Whereas, as described in the Rule 18f-3 Plan, the purchase of Class A
Shares is generally subject to an up-front sales charge, as set forth in the
Fund's Prospectus and Statement of Additional Information, and the purchase of
Class B and Class C Shares will not be subject to an up-front sales charge, but
in lieu thereof the Class B Shares will be subject to an asset-based
distribution fee (and a declining contingent deferred sales charge) and Class C
Shares will be subject to an asset-based distribution fee (and a one-year
contingent deferred sales charge), as described in the Prospectus for the
Shares; and
Whereas, Shares representing an investment in Class B will automatically
convert to Class A Shares 8 years after the investment, as described in the
Prospectus for the Shares;
Now, Therefore, each Fund, on behalf of its Series, hereby adopts, and the
Distributor hereby agrees to the terms of, this Plan of Distribution and Service
(the "Plan") in accordance with Rule 12b-1, on the following terms and
conditions:
1. (a) Each Fund, on behalf of its Series, is authorized to
compensate the Distributor for services performed and
expenses incurred by the Distributor in connection with the
distribution of Shares of Class A, Class B and Class C of
the Fund and the servicing of accounts holding such Shares.
(b) The amount of such compensation paid during any one year
shall consist of:
(i) with respect to Class A Shares, a Service Fee not to exceed
.20% of average daily net assets of the Class A Shares of
the Fund;
(ii) with respect to Class B Shares, a Service Fee not to exceed
.20% of average daily net assets of the Class B Shares of
the Fund, plus a Distribution Fee not to exceed .75% of
average daily net assets of the Class B Shares of the Fund;
and
(iii) (A) with respect to Class C Shares of Long-Term and
Intermediate series, a Service Fee not to exceed .20% of
average daily net assets of the Class C Shares of the Fund,
plus a Distribution Fee not to exceed .55% of average daily
net assets of the Class C Shares of the Fund; and
(B) with respect to Class C Shares of Limited-Term series,
a Service Fee not to exceed .20% of average daily net
assets of the Class C Shares of the
-2-
<PAGE>
Fund, plus a Distribution Fee not to exceed .35% of average
daily net assets of the Class C Shares of the Fund.
Such compensation shall be calculated and accrued daily and paid
monthly or at such other intervals as the Board of Trustees may
determine.
(c) With respect to Class A Shares, the Distributor shall pay any
Service Fees it receives under the Plan for which a particular
underwriter, dealer, broker, bank or selling entity having a Dealer
Agreement in effect ("Authorized Dealer", which may include the
Distributor) is the dealer of record to such Authorized Dealers to
compensate such organizations for providing services to
shareholders relating to their investment. The Distributor may
retain any Service Fees not so paid.
(d) With respect to the Class B Shares, the Distributor:
(i) shall retain the Distribution Fee to compensate it for
costs associated with the distribution of the Class B
Shares, including the payment of broker commissions to
Authorized Dealers (which may include the Distributor) who
were the dealer of record with respect to the purchase of
those shares; and
(ii) shall pay any Service Fees it receives under the Plan for
which a particular Authorized Dealer is the dealer of
record (which may include the Distributor) to such
Authorized Dealers to compensate such organizations for
providing services to shareholders relating to their
investment; provided, however, that the Distributor shall
be entitled to retain, for the first year after purchase of
the Class B Shares, the Service Fee to the extent that it
may have pre-paid the Service Fee for that period to the
Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(e) With respect to the Class C Shares, the Distributor:
(i) shall pay the Distribution Fee it receives under the Plan
with respect to Class C Shares for which a particular
Authorized Dealer is the dealer of record (which may
include the Distributor) to such Authorized Dealers to
compensate such organizations in connection with such share
sales; provided, however, that the Distributor shall be
entitled to retain, for the
-3-
<PAGE>
first year after purchase of the Class C Shares, the
Distribution Fee to the extent that it may have pre-paid
the Distribution Fee for that period to the Authorized
Dealer of record; and
(ii) shall pay any Service Fees it receives under the Plan for
which a particular Authorized Dealer is the dealer of
record (which may include the Distributor) to such
Authorized Dealers to compensate such organizations for
providing services to shareholders relating to their
investment; provided, however, that the Distributor shall
be entitled to retain, for the first year after purchase of
the Class C Shares, the Service Fee to the extent that it
may have pre-paid the Service Fee for that period to the
Authorized Dealer of record.
The Distributor may retain any Distribution or Service Fees not so
paid.
(f) Services for which such Authorized Dealers may receive Service Fee
payments include any or all of the following: maintaining account records for
shareholders who beneficially own Shares; answering inquiries relating to the
shareholders' accounts, the policies of the Fund and the performance of their
investment; providing assistance and handling transmission of funds in
connection with purchase, redemption and exchange orders for Shares; providing
assistance in connection with changing account setups and enrolling in various
optional fund services; producing and disseminating shareholder communications
or servicing materials; the ordinary or capital expenses, such as equipment,
rent, fixtures, salaries, bonuses, reporting and recordkeeping and third party
consultancy or similar expenses, relating to any activity for which payment is
authorized by the Board; and the financing of any other activity for which
payment is authorized by the Board.
(g) Payments of Distribution or Service Fees to any organization as of
any month-end (or other period-end, as appropriate) will not exceed the
appropriate amount based on the annual percentages set forth in subparagraphs
(c), (d) and (e) above, based on average net assets of accounts for which such
organization appeared on the records of the Fund and/or its transfer agent as
the organization of record during the preceding month (period).
2. This Plan shall not take effect until the Plan, together with any
related agreement(s), has been approved by votes of a majority of both (a) the
Board of Trustees of the Fund, and (b) those Trustees of the Fund who are not
"interested persons" of the Fund (as defined in the Act) and who have no direct
or indirect financial interest in the operation of the Plan or any agreements
related to it (the "Rule 12b-1 Trustees") cast in person at a meeting (or
meetings) called for the purpose of voting on the Plan and such related
Agreement(s).
-4-
<PAGE>
3. This Plan shall remain in effect until August 1, 1997, and shall
continue in effect thereafter so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
paragraph 2.
4. The Distributor shall provide to the Board of Trustees of the Fund and
the Board shall review, at least quarterly, a written report of distribution-
and service-related activities, Distribution Fees, Service Fees, and the
purposes for which such activities were performed and expenses incurred.
5. This Plan may be terminated at any time by vote of a majority of the
Rule 12b-1 Trustees or by vote of a majority (as defined in the Act) of the
outstanding voting Shares of a Series of the Fund.
6. This Plan may not be amended to increase materially the amount of
compensation payable by a Series with respect to Class A, Class B or Class C
Shares under paragraph 1 hereof unless such amendment is approved by a vote of
at least a majority (as defined in the Act) of the outstanding voting Shares of
that Class of Shares of the Series. No material amendment to the Plan shall be
made unless approved in the manner provided in paragraph 2 hereof.
7. While this Plan is in effect, the selection and nomination of the
Trustees who are not interested persons (as defined in the Act) of the Fund
shall be committed to the discretion of the Trustees who are not such interested
persons.
8. The Fund shall preserve copies of this Plan and any related agreements
and all reports made pursuant to paragraph 4 hereof, for a period of not less
than six years from the date of the Plan, any such agreement or any such report,
as the case may be, the first two years in an easily accessible place.
-5-
<PAGE>
EXHIBIT A
TO Plan of Distribution and Service Pursuant to Rule 12b-1
NUVEEN FLAGSHIP MUNICIPAL TRUST
Nuveen Municipal Bond Fund
Nuveen Insured Municipal Bond Fund
Nuveen Flagship All-American Municipal Bond Fund
Nuveen Flagship Limited Term Municipal Bond Fund
Nuveen Flagship Intermediate Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST I
Nuveen Flagship Arizona Municipal Bond Fund
Nuveen Flagship Colorado Municipal Bond Fund
Nuveen Oklahoma Municipal Bond Fund *
Nuveen Flagship Florida Municipal Bond Fund
Nuveen Flagship Florida Intermediate Municipal Bond Fund
Nuveen Maryland Municipal Bond Fund
Nuveen Flagship New Mexico Municipal Bond Fund
Nuveen Flagship Pennsylvania Municipal Bond Fund
Nuveen Flagship Virginia Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST II
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen California Intermediate Municipal Bond Fund *
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST III
Nuveen Flagship Alabama Municipal Bond Fund
Nuveen Flagship Georgia Municipal Bond Fund
Nuveen Flagship Louisiana Municipal Bond Fund
Nuveen Flagship North Carolina Municipal Bond Fund
Nuveen Flagship South Carolina Municipal Bond Fund
Nuveen Flagship Tennessee Municipal Bond Fund
NUVEEN FLAGSHIP MULTISTATE TRUST IV
Nuveen Flagship Kansas Municipal Bond Fund
Nuveen Flagship Kentucky Municipal Bond Fund
Nuveen Flagship Kentucky Limited Term Municipal Bond Fund
Nuveen Flagship Michigan Municipal Bond Fund
Nuveen Flagship Missouri Municipal Bond Fund
Nuveen Flagship Ohio Municipal Bond Fund
Nuveen Flagship Wisconsin Municipal Bond Fund
* Funds not currently offered which will be described in a Trust's N-1A
registration statement but not included in the publicly-disseminated prospectus
<PAGE>
EXHIBIT 99(a)
NUVEEN FLAGSHIP MULTISTATE TRUST II
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
her true and lawful attorney-in-fact and agent, for him on her behalf and in her
name, place and stead, in any and all capacities, to sign, execute and affix her
seal thereto and file one or more Registration Statements on Form N-1A, under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, including any amendment or amendments thereto, with all exhibits,
and any and all other documents required to be filed with any regulatory
authority, federal or state, relating to the reorganization, without limitation,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set her hand this 10th of October, 1996.
/s/Anthony T. Dean
--------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this ___ of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be her voluntary act and deed for the
intent and purposes therein set forth.
- -----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- -----------------------------------
/s/Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
-----------
POWER OF ATTORNEY
-----------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER. ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
his true and lawful attorney-in-fact and agent, for him on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and affix his
seal thereto and file one or more Registration Statements on Form N-1A, under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, including any amendment or amendments thereto, with all exhibits,
and any and all other documents required to be filed with any regulatory
authority, federal or state, relating to the reorganization, without limitation,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 10th of October, 1996.
/s/ Timothy R. Schwertfeger
-------------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this ____ of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
- --------------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------------
/s/ Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER. ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
his true and lawful attorney-in-fact and agent, for him on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and affix his
seal thereto and file one or more Registration Statements on Form N-1A, under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, including any amendment or amendments thereto, with all exhibits,
and any and all other documents required to be filed with any regulatory
authority, federal or state, relating to the reorganization, without limitation,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 10th of October, 1996.
/s/ Lawrence H. Brown
-------------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 10th of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
person whose name and signature is affixed to the foregoing Power of Attorney
and who acknowledged the same to be his voluntary act and deed for the intent
and purposes therein set forth.
- ------------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ------------------------------------
/s/ Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
her true and lawful attorney-in-fact and agent, for him on her behalf and in
her name, place and stead, in any and all capacities, to sign, execute and
affix her seal thereto and file one or more Registration Statements on Form
N-1A, under the Securities Act of 1933, as amended, and the Investment Company
Act of 1940, as amended, including any amendment or amendments thereto, with all
exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises in order to effectuate the same as fully
to all intents and purposes as he might or could do if personally present,
hereby ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set her hand this 10th of October, 1996.
/s/ Anne E. Impellizzeri
-------------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 10th of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be her voluntary act and deed for the
intent and purposes therein set forth.
- ------------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- ------------------------------------
/s/ Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
her true and lawful attorney-in-fact and agent, for him on her behalf and in her
name, place and stead, in any and all capacities, to sign, execute and affix her
seal thereto and file one or more Registration Statements on Form N-1A, under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, including any amendment or amendments thereto, with all exhibits,
and any and all other documents required to be filed with any regulatory
authority, federal or state, relating to the reorganization, without limitation,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set her hand this 10th of October, 1996.
/s/Margaret K. Rosenheim
-------------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 10th of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be her voluntary act and deed for the
intent and purposes therein set forth.
- -----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- -----------------------------------
/s/Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
---------------
POWER OF ATTORNEY
---------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, JAMES J. WESOLOWSKI, LARRY W. MARTIN AND GIFFORD
R. ZIMMERMAN, and each of them (with full power to each of them to act alone)
his true and lawful attorney-in-fact and agent, for him on his behalf and in his
name, place and stead, in any and all capacities, to sign, execute and affix his
seal thereto and file one or more Registration Statements on Form N-1A, under
the Securities Act of 1933, as amended, and the Investment Company Act of 1940,
as amended, including any amendment or amendments thereto, with all exhibits,
and any and all other documents required to be filed with any regulatory
authority, federal or state, relating to the reorganization, without limitation,
granting unto said attorneys, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 10th of October, 1996.
/s/Peter R. Sawers
------------------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
On this 10th of October, 1996, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
- -----------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- -----------------------------------
/s/Virginia L. Corcoran
-------------------------------
My Commission Expires: 10/26/97
<PAGE>
EXHIBIT 99(b)
Certified Resolution
--------------------
The undersigned, James J. Wesolowski, hereby certifies, on behalf of Nuveen
Flagship Multistate Trust II (the "Fund"), (1) that he is the duly elected,
qualified and acting Secretary of the Trust, and that as such Secretary he has
custody of its corporate books and records, (2) that attached to this
Certificate is a true and correct copy of a resolution duly adopted by the Board
of Trustees of the Fund at a meeting held on July 12, 1996, and (3) that said
resolution has not been amended or rescinded and remains in full force and
effect.
October 17, 1996
/s/ James J. Wesolowski
------------------------------
James J. Wesolowski, Secretary
<PAGE>
FURTHER RESOLVED, that each member of the Board and officer of the Fund who may
be required to execute the Registration Statement on Form N-1A, or any amendment
or amendments thereto, be, and each of them hereby is, authorized to execute a
power of attorney appointing Timothy R. Schwertfeger, Anthony T. Dean, James J.
Wesolowski, Larry W. Martin, and Gifford R. Zimmerman, and each of them, his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign the Registration Statement and any and all amendments
thereto and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, and ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
