<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1997.
1933 ACT REGISTRATION NO. 333-14729
1940 ACT REGISTRATION NO. 811-07755
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION
STATEMENT
UNDER THE
SECURITIES
ACT OF 1933 [_]
Pre-Effec-
tive Amend-
ment No. [_]
Post-Effec-
tive Amend-
ment No.
1 [X]
and/or
REGISTRATION
STATEMENT
UNDER THE
INVESTMENT
COMPANY ACT
OF 1940 [_]
Amendment
No. 1 [X]
(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 (Zip Code)
Office)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice With a copy to:
President and Assistant Secretary Thomas S. Harman
333 West Wacker Drive Fried, Frank, Harris, Shriver &
Chicago, Illinois 60606 Jacobson
(Name and Address of Agent for 1001 Pennsylvania Avenue, N.W.
Service) Washington, D.C. 20004
It is proposed that this filing will become effective (check appropriate box):
[_]
Immediately upon filing pursu-
ant to paragraph (b) [_] on (date) pursuant to paragraph
[_] (a)(1)
75 days after filing pursuant to
[X] paragraph (a)(2)
on June 30, 1997 pursuant to [_]
paragraph (b) on (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[_]
60 days after filing pursuant
to paragraph (a)(1)
[_]
This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
PURSUANT TO RULE 24F-2 OF THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT HAS
REGISTERED AN INDEFINITE NUMBER OF SHARES (DESIGNATED AS CLASS A SHARES, CLASS
B SHARES, CLASS C SHARES AND CLASS R SHARES) OF THE FOLLOWING SERIES: NUVEEN
FLAGSHIP NEW YORK MUNICIPAL BOND FUND; NUVEEN NEW YORK INSURED MUNICIPAL BOND
FUND; NUVEEN FLAGSHIP NEW JERSEY 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; AND AN INDEFINITE
NUMBER OF SHARES (DESIGNATED AS CLASS A SHARES, CLASS C SHARES AND CLASS R
SHARES) OF THE FOLLOWING SERIES: NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE
MUNICIPAL BOND FUND. A RULE 24F-2 NOTICE FOR THE REGISTRANT'S FISCAL YEAR
ENDED FEBRUARY 28, 1997 WAS FILED ON OR ABOUT APRIL 29, 1997.
CALCULATION OF REGISTRATION FEE FOR SHARES OF
MASSACHUSETTS MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.01 par value................... 21,103 $10.29 $0 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the manner described in
Rule 24e-2 under the Investment Company Act of 1940. The total amount of secu-
rities redeemed during the previous fiscal year was $11,875,027. The total
amount of redeemed securities used for reduction pursuant to Rule 24f-2(c) was
$11,657,868. The amount of redeemed securities being used for reduction of the
registration fee in this Amendment is $217,159.
CALCULATION OF REGISTRATION FEE FOR SHARES OF
NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.01 par value................... 135,076 $10.59 $0 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the manner described in
Rule 24e-2 under the Investment Company Act of 1940. The total amount of secu-
rities redeemed during the previous fiscal year was $1,905,553. The total
amount of redeemed securities used for reduction pursuant to Rule 24f-2(c) was
$475,093. The amount of redeemed securities being used for reduction of the
registration fee in this Amendment is $1,430,460.
CALCULATION OF REGISTRATION FEE FOR SHARES OF
NEW YORK INSURED MUNICIPAL BOND FUND
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE REGISTRATION
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.01 par value................... 2,832,599 $10.92 $0 $0
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Registrant has elected to calculate its filing fee in the manner described in
Rule 24e-2 under the Investment Company Act of 1940. The total amount of secu-
rities redeemed during the previous fiscal year was $47,601,839. The total
amount of redeemed securities used for reduction pursuant to Rule 24f-2(c) was
$16,669,852. The amount of redeemed securities being used for reduction of the
registration fee in this Amendment is $30,931,987.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-14729
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07755
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
OF FORM N- LOCATION IN STATEMENT
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>
NUVEEN
Municipal
Bond Funds
June 30, 1997
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF LADY APPEARS HERE]
Connecticut
New Jersey
New York
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen Flagship Connecticut 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
JUNE 30, 1997
PROSPECTUS
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 in-
vestments in diversified portfolios of quality munici-
pal 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 circumstances
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 investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus 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, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW DIVIDENDS AND TAXES
2 FUND SUMMARIES AND 18 How the Funds Pay Dividends
FINANCIAL HIGHLIGHTS
18 Taxes and Tax Reporting
FUND STRATEGIES
19 Taxable Equivalent Yields
12 Investment Objective
GENERAL INFORMATION
12 How the Funds Select Investments
19 How to Contact Nuveen
13 Risk Reduction Strategies
19 Fund Service Providers
INVESTING IN THE FUNDS
20 How the Funds Report Performance
14 How to Buy Fund Shares
20 How Fund Shares are Priced
14 How to Select a Purchase Option
20 Organization
16 How to Sell Fund Shares
APPENDIX
16 Exchanging Shares
21 Special State Considerations
17 Optional Features and Services
---
1
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: July 13, 1987
NET ASSETS: $217.1 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 1.04% 5.47% 4.87% 4.89% 5.46%
5 Years 6.15% 7.06% 6.47% 6.43% 7.06%
Inception 6.91% 7.38% 6.90% 6.77% 7.38%
</TABLE>
Class A total returns reflect actual performance for all periods; Classes B, C
and R total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges and
(in the cases of Classes B and C) fees between the classes. Class B total re-
turns assume an ongoing investment and do not reflect the imposition of the
CDSC; your returns for the 1 year and 5 year periods would be lower if you re-
deemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 19.5
Average Modified Duration 7.4
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR 3%
BBB 16%
A 20%
AA 17%
AAA 44%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Other 21%
General Obligation Bonds 10%
Escrowed Bonds 8%
Housing Facilities 9%
Educational Facilities 18%
Health Care Facilities 34%
EXPENSE INFORMATION AS OF 2/28/97
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 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 0.12% 0.12% 0.12% 0.12%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.86% 1.61% 1.41% 0.66%
Waivers/
Reimbursements (0.07%) (0.07%) (0.07%) (0.07%)
- -------------------------------------------------------------------------------------------------
Total (Net) 0.79% 1.54% 1.34% 0.59%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $55 $14 $6
3 Years $66 $81 $42 $19
5 Years $84 $95 $73 $33
10 Years $136 $163 $161 $74
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION INVESTMENT OPERATIONS AND DISTRIBUTIONS:
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
MAY 31, VALUE INCOME(C) INVESTMENTS(A) INCOME GAINS VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (7/87)
1997(d) $10.230 $.421 $.279 $(.420) $ - $10.510
1996 10.380 .570 (.140) (.580) - 10.230
1995 10.170 .580 .220 (.590) - 10.380
1994 10.660 .590 (.390) (.600) (.090) 10.170
1993 10.050 .610 .610 (.610) - 10.660
1992 9.840 .630 .210 (.630) - 10.050
1991 9.640 .630 .200 (.630) - 9.840
1990 9.780 .630 (.130) (.630) (.010) 9.640
1989 9.250 .630 .550 (.640) (.010) 9.780
1988(e) 9.580 .540 (.310) (.560) - 9.250
CLASS B (2/97)
1997(f) 10.530 .037 (.017) (.040) - 10.510
CLASS C (10/93)
1997(d) 10.220 .378 .269 (.377) - 10.490
1996 10.360 .520 (.140) (.520) - 10.220
1995 10.160 .530 .200 (.530) - 10.360
1994(e) 11.060 .330 (.840) (.330) (.060) 10.160
CLASS R (2/97)
1997(f) 10.550 .013 (.053) - - 10.510
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA:
DATE) --------------------------------------------------------------
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
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (7/87)
1997(d) 6.96% $209.9 .79%+ 5.41%+ 20%
1996 4.18 202.2 .74 5.52 24
1995 8.21 203.2 .73 5.84 25
1994 1.70 202.6 .65 5.52 30
1993 12.48 184.7 .66 5.88 19
1992 8.81 141.2 .65 6.30 18
1991 8.97 103.6 .67 6.49 19
1990 5.34 73.0 .60 6.55 31
1989 13.36 49.0 .70 6.62 33
1988(e) 3.09+ 25.6 .54+ 6.54+ 71
CLASS B (2/97)
1997(f) .19 0.1 1.12+ 7.08+ 20
CLASS C (10/93)
1997(d) 6.43 7.1 1.34+ 4.88+ 20
1996 3.71 7.2 1.29 4.96 24
1995 7.53 5.5 1.28 5.27 25
1994(e) (6.48)+ 4.4 1.22+ 4.77+ 30
CLASS R (2/97)
1997(f) (.38) - - 10.97+ 20
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) For the nine months ending February 28, 1997.
(e) From commencement of class operations as noted.
(f) From commencement of class operations as noted, through February 28, 1997.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. Long-term holders of Class B and C shares may pay more in
distribution fees and CDSCs than the maximum initial sales charge permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
3
<PAGE>
Nuveen Flagship New Jersey Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: December 13, 1991
NET ASSETS: $73.3 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.45% 4.85% 4.11% 4.18% 5.09%
5 Years 6.02% 6.93% 6.20% 6.19% 7.21%
Inception 6.02% 6.93% 6.20% 6.19% 7.21%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes 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 peri-
ods prior to class inception, adjusted for the differences in sales charges
and (in the case of Class C) fees between the classes. Class B total returns
assume an ongoing investment and do not reflect the imposition of the CDSC;
your returns for the 1 year and 5 year periods would be lower if you redeemed
at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 17.0
Average Modified Duration 6.4
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB 15%
NR 11%
BB 4%
AA 9%
AAA 43%
A 18%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Transportation 10%
Other 35%
Housing Facilities 14%
Health Care Facilities 15%
Excrowed 10%
Government Obligations 16%
EXPENSE INFORMATION AS OF 2/28/97
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%
- --------------------------------------------------------------------------------------------------
Total (Gross) 1.11% 1.86% 1.66% 0.91%
Waivers/
Reimbursements (0.45%) (0.45%) (0.45%) (0.45%)
- --------------------------------------------------------------------------------------------------
Total (Net) 0.66% 1.41% 1.21% 0.46%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $48 $54 $12 $5
3 Years $62 $77 $38 $15
5 Years $77 $89 $67 $26
10 Years $121 $149 $147 $58
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent
auditors. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227. Information for the years be-
ginning prior to February 1, 1997 reflects the financial highlights of the
Nuveen New Jersey Tax-Free Value Fund.
<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
JANUARY 31, VALUE INCOME(C) INVESTMENTS(A) INCOME GAINS VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997(D) $10.220 $.046 $.041 $(.047) $ - $10.260
1997 10.400 .478 (.148) (.510) - 10.220
1996 9.730 .519 .685 (.534) - 10.400
1995(e) 10.030 .205 (.209) (.210) (.086) 9.730
CLASS B (2/97)
1997(D) 10.220 .049 .031 (.040) - 10.260
CLASS C (9/94)
1997(D) 10.200 .042 .050 (.042) - 10.250
1997 10.380 .410 (.158) (.432) - 10.200
1996 9.710 .443 .683 (.456) - 10.380
1995(e) 9.770 .159 (.050) (.169) - 9.710
CLASS R (12/91)
1997(D) 10.230 .048 .040 (.048) - 10.270
1997 10.410 .491 (.137) (.534) - 10.230
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(e) 9.525 .445 .431 (.441) - 9.960
1992 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
JANUARY 31, RETURN(B) (MILLIONS) ASSETS(C) NET ASSETS(C) RATE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997(D) .85% $27.9 .55%+ 5.89%+ -%
1997 3.31 17.1 1.00 4.98 10
1996 12.63 10.7 1.00 5.10 39
1995(e) .02 2.7 1.00+ 5.34+ 32
CLASS B (2/97)
1997(D) .78 0.7 1.27+ 6.21+ -
CLASS C (9/94)
1997(D) .90 2.7 1.10+ 5.35+ -
1997 2.53 2.6 1.75 4.22 10
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) .86 42.7 .35+ 6.09+ -
1997 3.55 42.9 .75 5.24 10
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(e) 9.36 16.2 .75+ 4.96+ 9
1992 - .02 - - -
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) For the one month ending February 28, 1997.
(e) From commencement of class operations.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen has undertaken, in connection with its ac-
quisition of Flagship Resources as described in "Fund Service Providers--
Investment Adviser," to continue Flagship's general dividend-setting prac-
tices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
5
<PAGE>
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: September 16, 1992
NET ASSETS: $7.0 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year -0.79% 3.56% 3.21% 3.56%
Inception 5.47% 6.49% 6.11% 6.49%
</TABLE>
Class A total returns reflect actual performance for all periods; Classes C
and R total returns reflect Class A performance for all periods, 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 for further information.
MATURITY (YEARS)
Average Maturity 7.5
Average Modified Duration 5.5
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB 24%
A 11%
NR 5%
BB 2%
AAA 40%
AA 18%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
General Obligations 29%
Educational Facilities 11%
Pollution Control 15%
Water and Sewer 5%
Other 24%
Health Care Facilities 16%
EXPENSE INFORMATION AS OF 2/28/97
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%
- -----------------------------------------------------------------------------------------------------
Total (Gross) 1.75% 2.30% 1.55%
Waivers/
Reimbursements (1.06%) (1.06%) (1.06%)
- -----------------------------------------------------------------------------------------------------
Total (Net) 0.69% 1.24% 0.49%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (4)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $37 $13 $5
3 Years $51 $39 $16
5 Years $67 $68 $27
10 Years $113 $150 $62
</TABLE>
---
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION INVESTMENT OPERATIONS AND DISTRIBUTIONS:
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
MAY 31 VALUE INCOME(C) INVESTMENTS(A) INCOME GAINS VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(D) $10.140 $.378 $.162 $(.380) $ - $10.300
1996 10.250 .510 (.110) (.510) - 10.140
1995 10.040 .500 .220 (.510) - 10.250
1994 10.150 .530 (.100) (.520) (.020)(f) 10.040
1993(e) 9.700 .340 .450 (.340) - 10.150
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA:
DATE) --------------------------------------------------------------
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
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/92)
1997(D) 5.41% $7.0 .68%+ 4.94%+ 11%
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(e) 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.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) For the nine months ending February 28, 1997.
(e) From commencement of class operations as noted.
(f) The amounts shown reflect distributions in excess of capital gains.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) Imposed only on redemptions within 12 months of purchase.
(3) Effective February 1, 1997 the fund eliminated the 0.20% distribution fee
on Class A shares. Long-term holders of Class C shares may pay more in
distribution fees and CDSCs than the maximum initial sales charge permit-
ted under National Association of Securities Dealers (NASD) Rules of Fair
Practice. The waiver/reimbursement levels shown reflect Nuveen's current
undertaking, made in connection with its acquisition of Flagship Resources
as described in "Fund Service Providers--Investment Adviser," to continue
Flagship's general dividend-setting practices.
(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 exam-
ple does not represent past or future expenses; actual expenses may be
higher or lower.
---
7
<PAGE>
Nuveen Flagship New York Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION:
December 22, 1986
NET ASSETS:
$228.4 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.67% 5.08% 4.27% 4.31% 5.26%
5 Years 6.40% 7.32% 6.62% 6.65% 7.63%
10 Years 6.53% 6.99% 6.43% 6.26% 7.28%
Inception 6.86% 7.31% 6.76% 6.58% 7.61%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes 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 peri-
ods prior to class inception, adjusted for the differences in sales charges and
fees between the classes. Class B total returns assume an ongoing investment
and do not reflect the imposition of the CDSC; your returns for the 1 year and
5 year periods would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 21.1
Average Modified Duration 7.5
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR 1%
BBB 45%
BB 1%
A 12%
AA 12%
AAA 29%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Housing Facilities 20%
Educational Facilities 16%
General Obligations 12%
Other 21%
Escrowed Bonds 11%
Lease Rental 20%
EXPENSE INFORMATION AS OF 2/28/97
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 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.15% 0.15% 0.15% 0.15%
- -----------------------------------------------------------------------------------------------
Total (Gross) 0.89% 1.64% 1.44% 0.69%
Waivers/
Reimbursements (0.08%) (0.08%) (0.08%) (0.08%)
- -----------------------------------------------------------------------------------------------
Total (Net) 0.81% 1.56% 1.36% 0.61%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $54 $14 $6
3 Years $67 $74 $43 $20
5 Years $85 $84 $74 $34
10 Years $138 $131 $164 $76
</TABLE>
---
8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227. Information for the years be-
ginning prior to February 1, 1997 reflects the financial highlights of the
Nuveen New York Tax-Free Value Fund.
<TABLE>
<CAPTION>
CLASS
(INCEPTION INVESTMENT OPERATIONS AND DISTRIBUTIONS:
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 $10.610 $.588 $(.069) $(.556) $(.043) $10.530
1996 10.120 .555 .487 (.552) - 10.610
1995(d) 10.230 .277 (.067) (.273) (.047) 10.120
CLASS B (2/97)
1997(d) 10.480 .049 .042 (.041) - 10.530
CLASS C (9/94)
1997 10.640 .554 (.111) (.480) (.043) 10.560
1996 10.110 .478 .528 (.476) - 10.640
1995(d) 10.110 .231 .038 (.222) (.047) 10.110
CLASS R (12/86)
1997 10.640 .586 (.047) (.586) (.043) 10.550
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
(INCEPTION RATIOS/SUPPLEMENTAL DATA:
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 5.08% $71.7 .89% 5.45% 37%
1996 10.52 15.7 .99 5.31 47
1995(d) 2.21 3.2 1.00+ 5.87+ 29
CLASS B (2/97)
1997(d) .87 0.1 1.44+ 6.07+ 37
CLASS C (9/94)
1997 4.31 4.0 1.57 4.80 37
1996 10.13 .6 1.73 4.55 47
1995(d) 2.80 0.1 1.75+ 5.16+ 29
CLASS R (12/86)
1997 5.26 152.6 .69 5.57 37
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.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, 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.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen has undertaken, in connection with its ac-
quisition of Flagship Resources as described in "Fund Service Providers--
Investment Adviser," to continue Flagship's general dividend-setting prac-
tices. Nuveen Advisory has agreed to waive some or all of its fees or re-
imburse expenses to prevent total operating expenses (not counting distri-
bution and service fees) from exceeding 0.75% of the fund's average daily
net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
9
<PAGE>
Nuveen New York Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION:
December 22, 1986
NET ASSETS:
$358.5 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year -0.35% 4.02% 3.17% 3.06% 4.15%
5 Years 6.03% 6.95% 6.19% 6.17% 7.21%
10 Years 6.19% 6.65% 6.06% 5.87% 6.91%
Inception 6.46% 6.90% 6.33% 6.11% 7.17%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes 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 peri-
ods prior to class inception, adjusted for the differences in sales charges and
fees between the classes. Class B total returns assume an ongoing investment
and do not reflect the imposition of the CDSC; your returns for the 1 year and
5 year periods would be lower if you refeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 21.3
Average Modified Duration 7.0
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 17%
Insured 83%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Housing Facilities 20%
General Obligations 16%
Transportation 10%
Educational Facilities 10%
Escrowed Bonds 17%
Other 27%
EXPENSE INFORMATION AS OF 2/28/97
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 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.14% 0.14% 0.14% 0.14%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.88% 1.63% 1.43% 0.68%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 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 the Total Expenses shown at left, an assumed annual total return
of 5% 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 $100 $78 $38
10 Years $146 $173 $171 $85
</TABLE>
---
10
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or 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 $10.610 $.549 $(.139) $(.520) $ - $10.500
1996 10.150 .521 .492 (.524) (.029)(e) 10.610
1995 (d) 10.160 .253 .037 (.260) (.040) 10.150
CLASS B (2/97)
1997(d) 10.530 .027 (.020) (.037) - 10.500
CLASS C (9/94)
1997 10.610 .472 (.159) (.443) - 10.480
1996 10.120 .442 .524 (.447) (.029)(e) 10.610
1995 (d) 10.030 .207 .133 (.210) (.040) 10.120
CLASS R (12/86)
1997 10.610 .550 (.127) (.543) - 10.490
1996 10.150 .548 .495 (.554) (.029)(e) 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 9.320 .590 .467 (.597) - 9.780
1991 9.250 .598 .068 (.596) - 9.320
1990 9.060 .596 .190 (.596) - 9.250
1989 9.100 .593 (.040) (.593) - 9.060
1988 9.830 .606 (.730) (.606) - 9.100
1987 (d) 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 4.02% $36.0 .92% 5.04% 29%
1996 10.19 24.7 .93 4.97 17
1995 (d) 3.01 7.3 1.05+ 5.41+ 11
CLASS B (2/97)
1997(d) .07 1.3 1.64+ 5.17+ 29
CLASS C (9/94)
1997 3.06 2.0 1.67 4.28 29
1996 9.71 1.4 1.69 4.21 17
1995 (d) 3.53 .3 1.80+ 4.65+ 11
CLASS R (12/86)
1997 4.15 319.2 .68 5.28 29
1996 10.51 343.3 .67 5.26 17
1995 1.37 345.1 .65 5.57 11
1994 5.57 388.2 .68 5.11 5
1993 14.96 314.9 .73 5.56 6
1992 11.66 167.0 .69 6.08 4
1991 7.61 80.5 .73 6.46 13
1990 8.75 40.4 .85 6.35 30
1989 6.37 20.2 .97 6.58 62
1988 (.85) 14.1 .61 6.73 36
1987 (d) 3.76 5.2 - 4.97+ -
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) The amounts shown include distributions in excess of capital gains of
$.0024 per share for the year ended 2/29/96 and $.0015 per share for the
year ended 2/28/95.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen Advisory has agreed to waive some or all of
its fees or reimburse expenses to prevent total operating expenses (not
counting distribution and service fees) from exceeding 0.975% of the
fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
11
<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, state and, in some
cases, local income taxes 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 over time;
.. 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 substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal, state and, in
some cases, local income taxes. Income from these bonds 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 re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The New York Insured Fund primarily purchases insured municipal bonds. See
"Insurance" below. Under normal market conditions, the Nuveen New York Insured
Fund will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment 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' in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The New York Fund, New York
Insured Fund and the New Jersey Fund may not invest more than 20% of their net
assets in these territorial municipal bonds. 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. gov-
ernment-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 re-
duce 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
identical--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
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; 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 mu-
nicipal 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 ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. The New Jersey Intermediate Fund maintains a weighted average portfolio
maturity of 5 to 10 years. The Connecticut Fund, the New York Fund, the New
York Insured Fund, and the New Jersey Fund are long-term funds and normally
maintain a weighted average portfolio maturity of 15 to 30 years. See "Defen-
sive Investment Strategies" below for further information.
INSURANCE
The New York Insured Fund primarily purchases insured municipal bonds. Insured
municipal bonds are either covered by individual, permanent insurance policies
(obtained either at the time of issuance or subsequently), or covered "while
in fund" under a master portfolio insurance policy
---
12
<PAGE>
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 individ-
ual bonds or fund shares.
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of
such a bond would not benefit from the insurance. Insurers under master port-
folio insurance policies currently include MBIA Insurance Corp., AMBAC Indem-
nity Corp., Financial Security Assurance, Inc., and Financial Guaranty Insur-
ance Co. The fund's investment adviser may obtain master policies from other
insurers, but only from insurers that specialize in insuring municipal bonds
and whose claims-paying ability is rated Aaa or AAA by Moody's and S&P. Insur-
ers are responsible for making their own assessment of the insurability of a
municipal bond.
The New York Insured Fund can invest up to 20% of its net assets in uninsured
municipal bonds that are backed by an escrow containing sufficient U.S. Gov-
ernment or U.S. Government agency securities to ensure timely payment of prin-
cipal and interest. Such bonds are normally regarded as having the credit
characteristics of the underlying U.S. Government-backed securities.
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
portfolio turnover rate. The funds intend to keep portfolio turnover rela-
tively 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 or 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
securities 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 obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal 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 (durations) or lower ratings generally provide higher current in-
come, 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 the economic, political or regula-
tory changes that could adversely affect municipal bond issuers in that state
and therefore the value of the fund's investment portfolio. These risks may be
greater for the Connecticut, New Jersey and New Jersey Intermediate Funds,
which as "non-diversified" funds may concentrate their investments in munici-
pal bonds of certain issuers to a greater extent than the New York and New
York Insured Funds described in this prospectus, which are diversified funds.
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 as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. 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 con-
ditions. 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 strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securi-
---
13
<PAGE>
ties or on debt securities whose prices, in the opinion of the funds' invest-
ment 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 major-
ity of the shareholders of each fund.
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower 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 re-
ceive 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 ad-
visers 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 portfolio on an ongoing basis to assure your investments con-
tinue 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 invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed 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 in-
crease 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
refer 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 finan-
cial 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 in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial 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 finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." 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 pur-
chase. 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 pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus except the New Jersey Intermediate Fund:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT 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) - -(1)
</TABLE>
---
14
<PAGE>
The following Class A sales charges and commissions apply to the New Jersey
Intermediate Fund:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT 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) - -(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 commis-
sion, 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 deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain cir-
cumstances, Nuveen may also make ongoing payments to authorized dealers to fa-
cilitate the marketing and administration of new and existing shareholder ac-
counts, including payments for advertising that features the products and
services of both parties. The statement of additional information contains
further information about these programs.
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
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. 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 pur-
chase. 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 compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase. The New Jersey Intermediate
Fund does not currently offer Class B shares.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion 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 as-
sessed 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>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but 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% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser 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 as-
sessed 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 qualify to
purchase Class A shares without a sales charge, under certain of the programs
described under "Other Sales Charge Discounts" above. See the statement of ad-
ditional information for more details. There are no sales charges or ongoing
fees.
---
15
<PAGE>
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 rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund 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 immedi-
ately 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;
.. 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.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed 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 no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in an-
other 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."
---
16
<PAGE>
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 ex-
changing. 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 determin-
ing 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 pur-
chase of fund shares, you should consult your tax adviser about the tax conse-
quences 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 cir-
cumstances 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 ter-
minate the exchange privilege, limit the amount or number of exchanges, or re-
ject 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 (see "Fund Di-
rect--Electronic Funds Transfer" below), or directly from your paycheck. To in-
vest regularly from your bank account, simply complete the appropriate section
of the account application. To invest regularly 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 aver-
aging 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 con-
tinue investing in declining as well as rising markets before deciding to in-
vest 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").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. Theses annual returns do not
reflect past or projected fund performance.
THE POWER OF SYSTEMATIC INVESTING
[GRAPH APPEARS HERE]
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, semi-annually or annually and may choose to re-
ceive a check, have the monies transferred directly into your bank account (see
"Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must com-
plete the appropriate section of the account application or Account Update Form
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, you may reinvest all or part of your redemption pro-
ceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. 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.
---
17
<PAGE>
FUND DIRECT--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 appli-
cation or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial ad-
viser or call Nuveen at (800) 621-7227. You may use Fund Direct to quickly and
conveniently purchase or sell shares by telephone, systematically invest or
withdraw funds, or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited 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 or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class 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 the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count 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 included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend 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.
TAXES AND TAX REPORTING
The discussion below and in 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 mu-
nicipal bonds whose income is otherwise 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 alternative 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 por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, 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.
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.
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18
<PAGE>
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 tax-
able 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 in-
come 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.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
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
Tax-Free Yield
<TABLE>
<CAPTION>
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.
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 con-
duct 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
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 open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume 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 funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. 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. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT 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>
---
19
<PAGE>
For more information 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 portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, 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 ex-
ecution 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 Fund and the New
York Insured 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
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 Connecticut Fund and the New Jersey Intermediate Fund. Mr. Huber has
managed the funds since 1993 and since 1995 had been a Vice President of Flag-
ship Financial Inc., the fund's prior investment adviser, until becoming a
Vice President of Nuveen Advisory upon the acquisition of Flagship Resources
Inc. by The John Nuveen Company in January 1997.
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 all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. 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
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, cur-
rently serves as transfer agent for the New York and New Jersey Funds. Boston
Financial Data Services, 225 Franklin Street, Boston, MA 02106, currently
serves as transfer agent for the Connecticut 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 in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
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, sub-
tracting 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 mu-
nicipal 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.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
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20
<PAGE>
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
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 in-
vestment 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 in-
formation.
CONNECTICUT
Connecticut is in the midst of a slow economic recovery from a recession that
began in 1989 and ended in late 1992. Almost 40% of the state's recessionary
employment loss has been recovered. Connecticut ranks first among the states
in per capita personal income. Governor Rowland's recommended budget for fis-
cal year 1998 anticipates significant income tax changes aimed at increasing
overall disposable income and encouraging economic expansion in the state.
Moderate, but steady economic growth is expected over the next four years.
While Connecticut ranks first among the states in per capita personal income
($31,776), the state's ratio of tax-supported debt to personal income is high-
est in the nation. Large debt levels are expected to limit the state's finan-
cial flexibility. The state's general obligation bonds are rated Aa3 by
Moody's and AA- by S&P.
Tax Treatment:
The Connecticut Fund's regular monthly dividends will not be subject to the
Connecticut personal income tax to the extent they are paid out of income
earned on or capital gains realized from the sale of Connecticut municipal
bonds or out of income earned on obligations of U.S. territories and posses-
sions. The portion of the Connecticut Fund's monthly dividends that is attrib-
utable to income earned on other obligations will be subject to the Connecti-
cut personal income tax. You also will be subject to Connecticut personal in-
come tax to the extent the Connecticut Fund distributes any taxable income or
realized capital gains (other than capital gains on Connecticut municipal
bonds), or if you sell or exchange Connecticut Fund shares and realize a capi-
tal gain on the transaction.
The treatment of corporate shareholders of the Connecticut Fund differs from
that described above. Corporate shareholders should refer to the statement of
additional information for more detailed information and are urged to consult
their tax adviser.
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 1997. The State's 1996 unemployment rate was 6.2% and average per-
sonal income was $28,782. New York City's 1996 unemployment rate was 8.8%. New
York State general obligation bonds are rated A2 by Moody's and A- by Standard
& Poor's; New York City general obligation bonds are rated Baa1 by Moody's and
BBB+ by Standard & Poor's.
The State ended its 1995-96 fiscal year with a GAAP operating deficit. The
$378 million proposed 1996-97 State budget projects a balanced general fund,
receipts of $31.9 billion, and disbursements of $31.2 billion. The Governor
also proposed an alternative budget to replace over $1 billion in Medicaid re-
imbursements which the federal government might not pay.
New York City ended its 1996 fiscal year with an operating surplus of approxi-
mately $5 million. Before the State enacted its 1996-97 budget, New York City
adopted a fiscal year 1997 budget in June 1996 which provided for $33.4 bil-
lion in spending. In March 1996, Moody's announced that it was reviewing the
City's general obligation bond rating pending adoption of the City's 1997 bud-
get. S&P placed the City on negative credit watch in January 1995. The City's
1997 budget of $33.3 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 fiscal 1998, and the City
may have to adopt further budget cuts after the 1998 State budget is adopted.
Recent changes in federal law may lower the amount of federal aid the City re-
ceives. 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
additional 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 is-
sue bonds or increase the risk that they may default on their obligations to
pay bondholders, the
---
21
<PAGE>
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 1997 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.
Tax Treatment.
The New York Funds' regular monthly dividends will not be subject to New York
state or New York city personal income taxes to the extent they are paid out
of income earned on New York municipal bonds or out of income earned on obli-
gations of U.S. territories and possessions. The portion of the New York
Funds' monthly dividends that is attributable to income earned on other obli-
gations will be subject to the New York state or the New York city personal
income taxes. You also will be subject to New York state and New York city
personal income taxes to the extent the New York Funds distribute any taxable
income or realized capital gains, or if you sell or exchange shares of the New
York Funds and realize a capital gain on the transaction.
The treatment of corporate and unincorporated business shareholders of the New
York Funds differs from that described above. Corporate shareholders should
refer to the statement of additional information for more detailed information
and are urged to consult their tax adviser.
NEW JERSEY
New Jersey has a diversified economic base comprised of various manufacturing,
construction and service industries. New Jersey ranks second among the states
in per cap-
ita personal income which was $31,053 in 1996. The national recession, howev-
er, adversely affected the State's employment rate. Improvement has been slow
but steady.
The 1996 fiscal year audited general fund revenues were $17.8 billion against
expenditures of $16.4 billion. The general fund surplus totaled $441 million
in fiscal year 1996. The state's jobless rate is now the lowest it has been
since August 1990. New Jersey's general obligation bonds are rated Aa1 by
Moody's and AA+ by Standard and Poor's.
Tax Treatment.
The New Jersey Funds' regular monthly dividends will not be subject to New
Jersey gross income tax to the extent they are paid out of income earned on or
capital gains realized from the sale of New Jersey municipal bonds or U.S.
government securities. You will be subject to New Jersey gross income tax,
however, to the extent the New Jersey Funds distribute any taxable income. If
you realize a capital gain on the sale or exchange of shares of the New Jersey
Funds, you will not be subject to New Jersey gross income tax. If you realize
a capital loss on the sale or exchange of shares of the New Jersey Funds, you
may not use the loss to offset other New Jersey taxable capital gains.
The treatment of corporate shareholders of the New Jersey Funds differs from
that described above. Corporate shareholders should refer to the statement of
additional information for more detailed information and are urged to consult
their tax adviser.
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22
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety
of funds designed to help you reach your
financial goals. The funds below are grouped
by investment objectives.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Funds
Alabama
Arizona
California/1/
Colorado
Connecticut
Florida/2/
Georgia
Kansas
Kentucky/3/
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey/2/
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.
Nuveen Family of Municipal Bond Funds
[MAP OF UNITED STATES APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bond Funds
June 30, 1997
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF LADY APPEARS HERE]
California
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
JUNE 30, 1997
PROSPECTUS
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 in-
vestments in diversified portfolios of quality munici-
pal 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 circumstances
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 investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus 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, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW DIVIDENDS AND TAXES
2 FUND SUMMARIES AND 11 How the Funds Pay Dividends
FINANCIAL HIGHLIGHTS
12 Taxes and Tax Reporting
FUND STRATEGIES
12 Taxable Equivalent Yields
6 Investment Objective
GENERAL INFORMATION
6 How the Funds Select Investments
13 How to Contact Nuveen
7 Risk Reduction Strategies
13 Fund Service Providers
INVESTING IN THE FUNDS
14 How the Funds Report Performance
8 How to Buy Fund Shares
14 How Fund Shares are Priced
8 How to Select a Purchase Option
14 Organization
9 How to Sell Fund Shares
APPENDIX
10 Exchanging Shares
14 Special State Considerations
10 Optional Features and Services
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1
<PAGE>
Nuveen California Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: July 1, 1986
NET ASSETS: $235.8 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.87% 5.29% 4.67% 4.53% 5.67%
5 Years 5.80% 6.72% 6.05% 6.00% 7.06%
10 Years 6.12% 6.58% 6.02% 5.83% 6.88%
Inception 6.79% 7.22% 6.66% 6.46% 7.52%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A and
C total returns reflect actual performance for periods since class inception
(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. Class B total returns reflect Class R performance for
all periods, adjusted for the differences in sales charges and fees between the
classes. Class B total returns assume an ongoing investment and do not reflect
the imposition of the CDSC; your returns for the 1 year and 5 year periods
would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 20.8
Average Modified Duration 8.0
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AA 14%
A 24%
BB 1%
BBB 9%
NR 3%
AAA 49%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Health Care Facilities 19%
Escrowed Bonds 16%
Electric Utilities 6%
Other 22%
Housing Facilities 16%
Lease Rental 21%
EXPENSE INFORMATION AS OF 2/28/97
SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Chargeon Purchases 4.20%(1) - - -
Sales Chargeon Reinvested Dividends - - - -
ContingentDeferred 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 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 0.16% 0.16% 0.16% 0.16%
- ------------------------------------------------------------------------------------------
Total (Gross) 0.90% 1.65% 1.45% 0.70%
Waivers/
Reimbursements - - - -
- ------------------------------------------------------------------------------------------
Total Expenses (Net) 0.90% 1.65% 1.45% 0.70%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% 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 $84 $46 $22
5 Years $90 $101 $79 $39
10 Years $148 $175 $174 $87
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual re-
ports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS INVESTMENT OPERATIONS AND DISTRIBUTIONS:
(INCEPTION ------------------------------------------------------------------
DATE)
NET REALIZED DISTRIBU-
AND UNREAL- DIVIDENDS TIONS
YEAR ENDING BEGINNING NET IZED GAIN FROM NET FROM ENDING
FEBRUARY NET ASSET INVESTMENT (LOSS) FROM INVESTMENT CAPITAL NET ASSET
28/29, VALUE INCOME(C) INVESTMENTS(A) INCOME GAINS VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 $10.580 $.553 $(.015) $(.538) $ - $10.580
1996 10.100 .549 .473 (.542) - 10.580
1995(d) 10.210 .270 (.031) (.275) (.074) 10.100
CLASS C (9/94)
1997 10.580 .473 (.012) (.461) - 10.580
1996 10.100 .470 .474 (.464) - 10.580
1995(d) 10.040 .218 .139 (.223) (.074) 10.100
CLASS R (7/86)
1997 10.600 .568 .009 (.567) - 10.610
1996 10.130 .575 .467 (.572) - 10.600
1995 10.740 .582 (.531) (.587) (.074) 10.130
1994 10.850 .598 (.054) (.596) (.058) 10.740
1993 10.140 .633 .707 (.626) (.004) 10.850
1992(e) 9.920 .429 .218 (.427) - 10.140
1991(f) 9.790 .639 .133 (.642) - 9.920
1990(f) 9.850 .641 (.058) (.643) - 9.790
1989(f) 9.240 .649 .610 (.649) - 9.850
1988(f) 9.280 .647 (.040) (.647) - 9.240
1987(f) 9.600 .652 (.320) (.652) - 9.280
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION ------------------------------------------------------------
DATE)
RATIO OF NET
RATIO OF INVESTMENT
YEAR ENDING ENDING EXPENSES TO INCOME TO PORTFOLIO
FEBRUARY TOTAL NET ASSETS AVERAGE NET AVERAGE TURNOVER
28/29, RETURN(B) (MILLIONS) ASSETS(C) NET ASSETS(C) RATE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 5.29% $20.6 .94% 5.16% 74%
1996 10.36 12.7 .96 5.27 36
1995(d) 2.52 3.1 1.00+ 5.81+ 32
CLASS C (9/94)
1997 4.53 1.0 1.67 4.44 74
1996 9.53 .7 1.71 4.52 36
1995(d) 3.71 .2 1.75+ 5.03+ 32
CLASS R (7/86)
1997 5.67 214.3 .70 5.41 74
1996 10.54 216.4 .71 5.53 36
1995 .78 208.1 .71 5.83 32
1994 5.08 218.4 .73 5.47 19
1993 13.66 183.2 .71 6.05 5
1992(e) 6.61 133.4 .67+ 6.30+ -
1991(f) 8.16 107.5 .69 6.48 15
1990(f) 6.14 78.7 .69 6.51 8
1989(f) 14.12 52.0 .75 6.79 22
1988(f) 6.87 29.6 .70 7.09 48
1987(f) 3.28 19.1 .18 6.62 17
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the eight months ending February 29.
(f) For the year ending June 30.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen Advisory has agreed to waive some or all of
its fees or reimburse expenses to prevent total operating expenses (not
counting distribution and service fees) from exceeding 0.75% of the fund's
average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
---
3
<PAGE>
Nuveen California Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION:
July 1, 1986
NET ASSETS:
$224.9 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.18% 4.57% 3.82% 3.99% 4.81%
5 Years 6.03% 6.95% 6.17% 6.14% 7.18%
10 Years 6.19% 6.65% 6.03% 5.84% 6.89%
Inception 6.64% 7.07% 6.51% 6.27% 7.33%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A and
C total returns reflect actual performance for periods since class inception
(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. Class B total returns reflect Class R performance for
all periods, adjusted for the differences in sales charges and fees between the
classes. Class B total returns assume an ongoing investment and do not reflect
the imposition of the CDSC; your returns for the 1 year and five year periods
would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 22.0
Average Modified Duration 7.7
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 18%
Insured 82%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Lease Rental 19%
Housing Facilities 12%
Health Care Facilities 8%
Escrowed Bonds 18%
Water and Sewer 9%
Other 34%
EXPENSE INFORMATION AS OF 2/28/97
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 0.54% 0.54% 0.54% 0.54%
12b-1 Fee 0.20% 0.95% 0.75% -
Other 0.15% 0.15% 0.15% 0.15%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.89% 1.64% 1.44% 0.69%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 0.89% 1.64% 1.44% 0.69%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% 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 $84 $46 $22
5 Years $89 $101 $79 $38
10 Years $147 $174 $172 $86
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual re-
ports, 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 $10.760 $.549 $(.078) $(.531) $ -- $10.700
1996 10.250 .530 .505 (.525) -- 10.760
1995(d) 10.220 .255 .068 (.265) (.028) 10.250
CLASS C (9/94)
1997 10.670 .462 (.054) (.448) -- 10.630
1996 10.150 .448 .516 (.444) -- 10.670
1995(d) 10.060 .210 .123 (.215) (.028) 10.150
CLASS R (7/86)
1997 10.740 .561 (.067) (.554) -- 10.680
1996 10.230 .556 .507 (.553) -- 10.740
1995 10.670 .559 (.412) (.559) (.028) 10.230
1994 10.850 .560 (.101) (.556) (.083) 10.670
1993 10.010 .584 .871 (.579) (.036) 10.850
1992(e) 9.650 .401 .360 (.401) -- 10.010
1991(f) 9.480 .600 .176 (.606) -- 9.650
1990(f) 9.630 .608 (.151) (.607) -- 9.480
1989(f) 9.020 .607 .610 (.607) -- 9.630
1988(f) 8.980 .600 .040 (.600) -- 9.020
1987(f) 9.600 .630 (.620) (.630) -- 8.980
<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) (IN THOUSANDS) ASSETS(C) NET ASSETS(C) RATE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CLASS A (9/94)
1997 4.57% $ 27.6 .94% 5.05% 51%
1996 10.32 17.3 .97 5.00 38
1995(d) 3.33 4.8 1.05+ 5.45+ 25
CLASS C (9/94)
1997 3.99 1.7 1.67 4.32 51
1996 9.67 1.0 1.71 4.26 38
1995(d) 3.45 .2 1.80+ 4.69+ 25
CLASS R (7/86)
1997 4.81 195.6 .69 5.30 51
1996 10.63 205.6 .70 5.29 38
1995 1.68 198.9 .70 5.60 25
1994 4.27 208.1 .71 5.12 14
1993 15.05 168.9 .75 5.72 9
1992(e) 7.99 100.9 .64+ 5.97+ 7
1991(f) 8.43 74.6 .68 6.26 29
1990(f) 4.93 50.6 .70 6.36 13
1989(f) 13.97 35.0 .82 6.52 23
1988(f) 7.44 22.4 .82 6.77 31
1987(f) (.13) 16.2 .17 6.48 4
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) From commencement of class operations as noted.
(e) For the eight months ending February 29.
(f) For the year ending June 30.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen Advisory has agreed to waive some or all of
its fees or reimburse expenses to prevent total operating expenses (not
counting distribution and service fees) from exceeding 0.975% of the fund's
average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight years.
If instead you redeemed your shares immediately prior to the end of each
holding period, your expenses would be higher. This example does not repre-
sent past or future expenses; actual expenses may be higher or lower.
---
5
<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 taxes
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 over time;
.. 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 substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal and state income
taxes. Income from these bonds may be subject to the federal alternative mini-
mum 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 re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The California Insured Fund primarily purchases insured municipal bonds. See
"Insurance" below. Under normal market conditions, the California Insured Fund
will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment 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' in-
vestment adviser. If suitable municipal bonds from California are not avail-
able at attractive prices and yields, a fund may invest in municipal bonds of
U.S. territories (such as Puerto Rico and Guam) which are exempt from regular
federal, state, and local income taxes. The funds may not invest more than 20%
of their net assets in these territorial municipal bonds.
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 re-
duce 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
identical--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
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; 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 mu-
nicipal 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 ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
INSURANCE
The California Insured Fund primarily purchases insured municipal bonds. In-
sured municipal bonds are either covered by individual, permanent insurance
policies (obtained either at the time of issuance or subsequently), or covered
"while in fund" 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.
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of
such a bond would not benefit from the insurance. Insurers under master port-
folio insurance policies currently include MBIA Insurance Corp.,
---
6
<PAGE>
AMBAC Indemnity Corp., Financial Security Assurance, Inc., and Financial Guar-
anty Insurance Co. The funds' investment adviser may obtain master policies
from other insurers, but only from insurers that specialize in insuring munici-
pal bonds and whose claims-paying ability is rated Aaa or AAA by Moody's or
S&P. Insurers are responsible for making their own assessment of the insurabil-
ity of a municipal bond.
The California Insured Fund can invest up to 20% of its net assets in
uninusured municipal bonds that are backed by an escrow containing sufficient
U.S. Government or U.S. Government agency securities to ensure timely payment
of principal and interest. Such bonds are normally regarded as having the
credit characteristics of the underlying U.S. Government-backed securities.
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 portfolio
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 or 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 de-
livery 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 in-
terest 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 sub-
ject 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 California, each fund
also bears investment risk from the economic, political or regulatory changes
that could adversely affect municipal bond issuers in the state and therefore
the value of the fund's investment portfolio.
The funds limit your investment risk generally by restricting the types and ma-
turities of municipal bonds they purchase, and by diversifying their investment
portfolios across different industry sectors. The funds should be considered
long-term investments and may not be suitable for investors with short-term in-
vestment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. 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 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 op-
tions based on either an index of long-term tax-free securities or on debt se-
curities whose prices, in the opinion of the funds' investment adviser, corre-
late 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.
---
7
<PAGE>
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower 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 re-
ceive 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 ad-
visers 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 portfolio on an ongoing basis to assure your investments con-
tinue 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 invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed 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 in-
crease 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 finan-
cial 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 in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial 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 finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." 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 pur-
chase. 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 pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE COMMISSION
------------------------------------- -----------------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT 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) - -(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 commis-
sion, 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 deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain cir-
cumstances, Nuveen may also make ongoing payments to authorized dealers to fa-
cilitate the marketing and administration of new and existing shareholder ac-
counts, including payments for advertising that features the products and
services of both parties. The statement of additional information contains
further information about these programs.
---
8
<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
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. 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 pur-
chase. 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 compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion 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 as-
sessed 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>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but 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% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser 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 as-
sessed 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 qualify to
purchase Class A shares without a sales charge, but only under certain of the
programs described under "Other Sales Charge Discounts" above. See the state-
ment of additional information for more details. 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 rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund 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 immedi-
ately verify your trade confirmations when you receive them.
---
9
<PAGE>
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;
.. 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.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed 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 no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in an-
other Nuveen mutual fund that is available within your state of residence. 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 ex-
changing. 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 determin-
ing 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 ex-
tent 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 (see "Fund
Direct--Electronic Funds Transfer" below), or directly from your paycheck. To
invest regularly from your bank account, simply complete the appropriate sec-
tion of the account application. To invest regularly 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.
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10
<PAGE>
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 aver-
aging 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 con-
tinue investing in declining as well as rising markets before deciding to in-
vest 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").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not re-
flect past or projected fund performance.
The Power of Systematic Investing
[GRAPH APPEARS HERE]
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, semi-annually, or annually and may choose to re-
ceive a check, have the monies transferred directly into your bank account (see
"Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must com-
plete the appropriate section of the account application or Account Update Form
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, you may reinvest all or part of your redemption pro-
ceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. 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.
FUND DIRECT--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 or Account Update Form. If you need additional copies of these forms, or
would like assistance completing them, contact your financial adviser or call
Nuveen at (800) 621-7227. You may use Fund Direct to quickly and conveniently
purchase or sell shares by telephone, systematically invest or withdraw funds,
or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited 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 or about 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 of the same share class unless you request otherwise. You may request to
have your dividends paid to you by check, deposited directly into your bank ac-
count, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class of another Nuveen mutual
fund. If you wish to do so, complete the appropriate section of the account ap-
plication, contact your financial adviser or call Nuveen at (800) 621-7227.
---
11
<PAGE>
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 included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend 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.
TAXES AND TAX REPORTING
The discussion below and in 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 California or in municipal
bonds whose income is otherwise exempt from regular federal and state income
taxes. Consequently, the regular monthly dividends you receive will be exempt
from regular federal and state income taxes. All or a portion of these divi-
dends, however, may be subject to the federal alternative minimum tax (AMT).
More specific state tax information can be found below in the Appendix.
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 por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, 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.
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 contem-
plating 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 (nor-
mally 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 in-
come 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 mon-
ey.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
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 in-
vestment. To assist you to more easily compare municipal investments like the
funds
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12
<PAGE>
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
Tax-Free Yield
<TABLE>
<CAPTION>
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.
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 con-
duct 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
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 open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume 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 funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. 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. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
<TABLE>
- ------------------------------------------
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT 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>
For more information 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 portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, 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 ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Steven J. Krupa is the portfolio manager for the California Fund and the Cali-
fornia Insured Fund. Mr. Krupa has been a Vice President of Nuveen Advisory
since 1990.
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
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13
<PAGE>
C shares, Nuveen retains the first year's service fee on sales of Class B
shares and all Class B distribution fees, and retains the first year's service
and distribution fees on sales of Class C shares. Otherwise, Nuveen pays these
fees to the broker of record. 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
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, cur-
rently 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 in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publica-
tions. See the statement of additional information for a more detailed discus-
sion. You may find more information about each fund's performance in its annual
report. Call Nuveen at (800) 621-7227 for a free copy.
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, sub-
tracting 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 mu-
nicipal securities), the pricing service establishes fair market value based on
yields or prices of municipal bonds of comparable quality, type of issue, cou-
pon, maturity and rating, indications of value from securities dealers and gen-
eral market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act of
1940, consisting of multiple funds. The shares of each fund are divided into
classes. Each class of shares represents an interest in the same portfolio of
investments and the shares of each class have equal rights as to voting, re-
demption, dividends and liquidation. However, each class bears different sales
charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings. Share-
holders owning ten percent or more of a fund's outstanding shares may call a
special meeting for any purpose, including to elect or remove trustees or to
change fundamental policies.
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from California, each fund
also bears investment risk from economic, political or regulatory changes that
could adversely affect municipal bond issuers in the state and therefore the
value of the fund's investment portfolio. The following discussion 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 ad-
viser about the state tax consequences of a specific fund investment. See the
statement of additional information for further information.
CALIFORNIA
California's economy, the largest in the nation, is undergoing a slow, steady
growth following a recession from mid-1990 to late 1993 in which the construc-
tion, manufacturing and financial services industries were adversely affected,
job losses were severe, and substantial, broad-based revenue shortfalls af-
fected both the state and local governments. The state's 1996 unemployment rate
was 7.2% and average personal income was $23,764. California's general obliga-
tion bonds are rated A1 by Moody's and A+ by Standard and Poor's.
The taxing authority of California's governmental entities is limited due to
the adoption of "Proposition 13" and other amendments to the California Consti-
tution. Proposition 13, adopted by voters in 1978, limits to 1% of full cash
value the rate of ad valorem property taxes on real property and generally re-
stricts the reassessment of property to 2% per year, except upon new construc-
tion or change of ownership (subject to a number of exemptions). Because the
basic 1% ad valorem tax levy is applied against the assessed value of property
as of the owner's date of acquisition, the amount of tax on similarly situated
properties varies widely. The state and local governments are also subject to
annual "appropriations limits" imposed by Article XIIIB of the California Con-
stitution, which limits the state and local governments from spending the pro-
ceeds of tax revenues, regulatory licenses, user charges or other fees beyond
imposed appropriations limits which are adjusted annually to reflect changes in
cost of living and population. Revenues in excess of the limitations are mea-
sured over a two year cycle. Local governments must return any excess to tax-
payers by rate reductions; the state must refund 50% of any excess, with the
other 50% paid to schools and community colleges. A 1986 initiative statute
called "Proposition 62" requires either a majority or 2/3 voter approval for
any increase in general or special taxes. Court decisions had struck down most
of Prop-
---
14
<PAGE>
osition 62, but the California Supreme Court upheld its constitutionality in
September 1995. Many aspects of the decision, such as whether it applies ret-
roactively, remain unclear, but its future effect will be to further limit the
fiscal flexibility of many local governments. The complex and ambiguous nature
of the foregoing limitations makes it impossible to fully determine their im-
pact on California Municipal Obligations or the ability of the state and local
governments to pay debt service on California Municipal Obligations.
On November 5, 1996, California voters approved Proposition 218 which added
Articles XIIIC and XIIID to the California Constitution, imposing certain vote
requirements and other limitations on the imposition of new or increased and
in some cases existing taxes, assessments and property-related fees and
charges. Proposition 218 also extends the initiative power to include the re-
duction or repeal of any local taxes, assessments, fees and charges. This ex-
tension of the initiative power is not limited to taxes imposed on or after
the effective date of Proposition 218, and could result in the retroactive re-
peal or reduction in any existing taxes, assessments, fees or charges. If such
a repeal or reduction occurs in a particular California entity, the financial
condition of that entity may be adversely impacted and rating downgrades
and/or defaults may result. Additionally, the voter approval requirement re-
duces the financial flexibility of local governments to deal with fiscal prob-
lems by limiting the ability to increase taxes, assessments, fees or charges.
In some cases, this loss of flexibility may, and in fact has, been cited as
the reason for rating downgrades. No assurances can be given that California
entities will be able to raise taxes to meet future spending requirements. In
addition, at this time it is not clear exactly how Proposition 218 will be in-
terpreted by a court.
California is estimated to end its 1996-97 fiscal year with a general fund
surplus of approximately $763 million, of which $312 million is reserved for
economic uncertainties reducing the accumulated budget deficit to approxi-
mately $1.14 billion. As a result of the improved revenues, the state's cash
position has substantially recovered. Only $3 billion of cash flow borrowing
was needed during 1996-97, and about $3 billion is projected for 1997-98, with
no external borrowing over the end of the fiscal year. The Governor's proposed
budget for 1997-98 projects $52.0 billion of revenues and transfers, and $51.7
billion of expenditures, resulting in a budget reserve at June 30, 1998 of
about $580 million. A number of issues related to the 1997-98 budget still
have to be resolved, including additional school funding and the Governor's
proposals for future health and welfare cuts.
California's finances have dramatically improved since 1994 and the economy
has further diversified. However, 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 Califor-
nia, its public authorities or local governments could be adversely affected.
Tax Treatment.
The funds' regular monthly dividends will not be subject to California per-
sonal income taxes to the extent they are paid out of income earned on Cali-
fornia municipal obligations or U.S. government securities. You will be sub-
ject to California personal income taxes, however, to the extent the funds
distribute any taxable income or realized capital gains, or if you sell or ex-
change shares of the funds and realize capital gain on the transaction.
The treatment of corporate shareholders of the funds differs from that de-
scribed above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information.
---
15
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety
of funds designed to help you reach your
financial goals. The funds below are grouped
by investment objectives.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Funds
Alabama
Arizona
California/1/
Colorado
Connecticut
Florida/2/
Georgia
Kansas
Kentucky/3/
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey/2/
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.
Nuveen Family of Municipal Bond Funds
[MAP OF UNITED STATES APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bond Funds
June 30, 1997
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF LADY APPEARS HERE]
Massachusetts
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
JUNE 30, 1997
PROSPECTUS
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 tax-free income
and preservation of capital through investments in di-
versified portfolios of quality municipal bonds whose
income is exempt from regular federal and state 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 circumstances
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 investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus 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, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW DIVIDENDS AND TAXES
2 FUND SUMMARIES AND 12 How the Funds Pay Dividends
FINANCIAL HIGHLIGHTS
12 Taxes and Tax Reporting
FUND STRATEGIES
13 Taxable Equivalent Yields
6 Investment Objective
GENERAL INFORMATION
6 How the Funds Select Investments
13 How to Contact Nuveen
7 Risk Reduction Strategies
13 Fund Service Providers
INVESTING IN THE FUNDS
14 How the Funds Report Performance
8 How to Buy Fund Shares
14 How Fund Shares are Priced
8 How to Select a Purchase Option
14 Organization
9 How to Sell Fund Shares
APPENDIX
10 Exchanging Shares
15 Special State Considerations
10 Optional Features and Services
---
1
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: December 22, 1986
NET ASSETS: $81.0 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 0.33% 4.73% 4.02% 3.90% 4.99%
5 Years 6.11% 7.03% 6.22% 6.18% 7.24%
10 Years 5.97% 6.42% 5.81% 5.60% 6.66%
Inception 5.95% 6.40% 5.79% 5.58% 6.64%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns reflect Class R perfor-
mance for all periods, adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and 5
years periods would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 19.1
Average Modified Duration 4.8
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB 13%
A 26%
AA 12%
AAA 47%
NR 2%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Escrowed Bonds 25%
Housing Facilities 20%
Health Care Facilities 19%
Other 2%
Educational Facilities 13%
General Obligations 21%
EXPENSE INFORMATION AS OF 2/28/97
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 0.21% 0.21% 0.21% 0.21%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.96% 1.71% 1.51% 0.76%
Waivers/
Reimbursements (0.01%) (0.01%) (0.01%) (0.01%)
- -------------------------------------------------------------------------------------------------
Total (Net) 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 the Total Expenses shown at left, an assumed annual total
return of 5% 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>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION INVESTMENT OPERATIONS AND DISTRIBUTIONS:
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 $9.940 $.528 $(.073) $(.505) $ - $9.890
1996 9.560 .513 .388 (.521) - 9.940
1995(d) 9.540 .254 .025 (.259) - 9.560
CLASS C (9/94)
1997 9.890 .451 (.077) (.434) - 9.830
1996 9.510 .437 .392 (.449) - 9.890
1995(d) 9.280 .188 .254 (.212) - 9.510
CLASS R (12/86)
1997 9.910 .538 (.060) (.528) - 9.860
1996 9.540 .537 .378 (.545) - 9.910
1995 9.940 .541 (.403) (.538) - 9.540
1994 9.910 .543 .038 (.541) (.010) 9.940
1993 9.210 .563 .704 (.563) (.004) 9.910
1992(e) 9.130 .146 .077 (.143) - 9.210
1991(f) 8.760 .577 .375 (.582) - 9.130
1990(f) 8.900 .587 (.144) (.583) - 8.760
1989(f) 8.600 .587 .300 (.587) - 8.900
1988(f) 8.250 .581 .350 (.581) - 8.600
1987(d)(f) 9.600 .577 (1.350) (.577) - 8.250
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA:
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 4.73% $7.2 0.99% 5.24% 10%
1996 9.62 4.3 1.00 5.21 6
1995(d) 3.05 1.1 1.00+ 5.75+ 17
CLASS C (9/94)
1997 3.90 .9 1.73 4.51 10
1996 8.87 .6 1.75 4.45 6
1995(d) 4.86 .1 1.75+ 5.11+ 17
CLASS R (12/86)
1997 4.99 72.9 .75 5.48 10
1996 9.80 76.8 .75 5.49 6
1995 1.64 71.6 .75 5.77 17
1994 5.96 71.9 .75 5.38 3
1993 14.21 53.2 .75 5.91 5
1992(e) 2.44 34.5 .71+ 6.31+ 5
1991(f) 11.19 31.2 .75 6.39 19
1990(f) 5.21 20.8 .75 6.68 23
1989(f) 10.62 15.5 .75 6.64 31
1988(f) 11.56 9.5 .75 6.74 55
1987(d)(f) (8.19) 5.7 .37+ 6.47+ 34
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, 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.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen Advisory 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 fund (through July 31, 1997) do not
exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
3
<PAGE>
Nuveen Massachusetts Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/97
INCEPTION: December 22, 1986
NET ASSETS: $65.5 million
TOTAL RETURN (ANNUALIZED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year -0.35% 4.02% 3.18% 3.17% 4.16%
5 Years 5.81% 6.72% 5.98% 5.95% 6.99%
10 Years 6.15% 6.60% 6.01% 5.82% 6.87%
Inception 6.10% 6.55% 5.96% 5.76% 6.82%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A and
C total returns reflect actual performance for periods since class inception
(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. Class B total returns reflect Class R performance for
all periods, adjusted for the differences in sales charges and fees between the
classes. Class B total returns assume an ongoing investment and do not reflect
the imposition of the CDSC; your total returns for the 1 year and 5 year peri-
ods would be lower if you redeemed at the end of those periods. 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 for further information.
MATURITY (YEARS)
Average Maturity 17.9
Average Modified Duration 5.8
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 19%
Insured 81%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Health Care Facilities 20%
Housing Facilities 2%
Educational Facilities 20%
Other 2%
Escrowed Bonds 19%
General Obligations 37%
EXPENSE INFORMATION AS OF 2/28/97
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 0.25% 0.25% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------
Total (Gross) 1.00% 1.75% 1.55% 0.80%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 1.00% 1.75% 1.55% 0.80%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- --------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in the
fund based on the Total Expenses shown at left, an assumed annual total return
of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $52 $57 $16 $8
3 Years $73 $87 $49 $26
5 Years $95 $106 $84 $44
10 Years $159 $186 $185 $99
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent
auditors. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION DATE) INVESTMENT OPERATIONS AND DISTRIBUTIONS:
------------------------------------------------------------------
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 $10.490 $.527 $(.120) $(.517) $ - $10.380
1996 10.060 .512 .433 (.515) - 10.490
1995(d) 10.030 .249 .039 (.258) - 10.060
CLASS C (9/94)
1997 10.470 .449 (.129) (.440) - 10.350
1996 10.040 .434 .435 (.439) - 10.470
1995(d) 9.910 .202 .137 (.209) - 10.040
CLASS R (12/86)
1997 10.500 .544 (.124) (.540) - 10.380
1996 10.060 .538 .445 (.543) - 10.500
1995 10.450 .545 (.386) (.549) - 10.060
1994 10.440 .537 - (.527) - 10.450
1993 9.650 .551 .784 (.545) - 10.440
1992 9.360 .570 .301 (.581) - 9.650
1991 9.140 .568 .219 (.567) - 9.360
1990 8.960 .571 .178 (.569) - 9.140
1989 9.030 .576 (.070) (.576) - 8.960
1988 9.540 .582 (.510) (.582) - 9.030
1987 (d) 9.600 .131 (.060) (.131) - 9.540
<CAPTION>
CLASS
(INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA:
------------------------------------------------------------
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 4.02% $ 7.5 1.04% 5.02% 10%
1996 9.59 5.3 1.07 4.94 1
1995(d) 2.99 2.0 1.15+ 5.34+ 10
CLASS C (9/94)
1997 3.17 1.0 1.78 4.29 10
1996 8.80 .7 1.81 4.20 1
1995(d) 3.52 .3 1.90+ 4.58+ 10
CLASS R (12/86)
1997 4.16 57.1 .80 5.26 10
1996 9.99 60.1 .81 5.21 1
1995 1.77 57.1 .79 5.54 10
1994 5.22 58.3 .84 5.09 3
1993 14.28 47.1 .86 5.47 2
1992 9.57 28.2 .72 5.93 5
1991 8.95 15.6 .85 6.19 6
1990 8.52 8.6 .97 6.17 15
1989 5.84 5.4 .97 6.44 41
1988 1.14 4.9 .59 6.53 42
1987 (d) .75 2.3 - 5.82+ -
</TABLE>
+ Annualized.
(a) Net of any applicable taxes.
(b) Total returns are calculated on net asset value.
(c) After waiver of certain management fees or reimbursement of expenses, if
applicable, by Nuveen Advisory.
(d) From commencement of class operations as noted.
NOTES:
(1) The Class A 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. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Effective February 1, 1997, 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%. 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. Nuveen Advisory will waive some or all of its fees
or reimburse expenses so that total operating expenses (not counting dis-
tribution and service fees) for the fund do not exceed 0.975% of the
fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. 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.
---
5
<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, state and, in some
cases, local income taxes 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 over time;
.. 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 substantially all of their assets (at least 80%) in Massachu-
setts municipal bonds that pay interest that is exempt from regular federal
and state income taxes. Income from these bonds 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 re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The Massachusetts Insured Fund primarily purchases insured municipal bonds.
See "Insurance" below. Under normal market conditions, the Massachusetts In-
sured Fund will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment 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' in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The funds may not invest more
than 20% of their net assets in these territorial municipal bonds. The Massa-
chusetts 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 re-
duce 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
identical--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
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; 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 mu-
nicipal 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 ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
INSURANCE
The Massachusetts Insured Fund primarily purchases insured municipal bonds.
Insured municipal bonds are either covered by individual, permanent insurance
policies (obtained either at the time of issuance or subsequently), or covered
"while in fund" 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.
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6
<PAGE>
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of such
a bond would not benefit from the insurance. Insurers under master portfolio
insurance policies currently include MBIA Insurance Corp., AMBAC Indemnity
Corp., Financial Security Assurance, Inc., and Financial Guaranty Insurance Co.
The fund's investment adviser may obtain master policies from other insurers,
but only from insurers that specialize in insuring municipal bonds and whose
claims-paying ability is rated Aaa or AAA by Moody's or S&P. Insurers are re-
sponsible for making their own assessment of the insurability of a municipal
bond.
An insured fund can invest up to 20% of its net assets in uninsured municipal
bonds that are backed by an escrow containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment of principal and in-
terest. Such bonds are normally regarded as having the credit characteristics
of the underlying U.S. Government-backed securities.
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 portfolio
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 or 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 de-
livery 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 in-
terest 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 sub-
ject 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 Massachusetts, each
fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in the state and
therefore the value of the fund's investment portfolio. These risks may be
greater for the Massachusetts and Massachusetts Insured Funds, which as "non-
diversified" funds may concentrate their investments in municipal bonds of cer-
tain issuers to a greater extent than diversified funds.
The funds limit your investment risk generally by restricting the types and ma-
turities of municipal bonds they purchase, and by diversifying their investment
portfolios across different industry sectors. The funds should be considered
long-term investments and may not be suitable for investors with short-term in-
vestment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. 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).
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 op-
tions based on either an index of long-term tax-free securities or on debt se-
curities whose prices, in the opinion of the funds' investment adviser, corre-
late 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.
---
7
<PAGE>
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower 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 re-
ceive 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 ad-
visers 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 portfolio on an ongoing basis to assure your investments con-
tinue 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 invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed 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 in-
crease 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 finan-
cial 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 in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial 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 finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." 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 pur-
chase. 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 pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT 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) - -(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 commis-
sion, 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 deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain cir-
cumstances, Nuveen also will share with authorized dealers up to half the
costs of advertising that features the products and services of both parties,
and make ongoing payments to authorized dealers to facili-
---
8
<PAGE>
tate the marketing and administration of new and existing shareholder ac-
counts, including payments for advertising that features the products and
services of both parties. The statement of additional information contains
further information about these programs.
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
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. 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 pur-
chase. 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 compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion 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 as-
sessed 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>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but 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% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser 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 as-
sessed 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 qualify to
purchase Class A shares without a sales charge, under certain of the programs
described under "Other Sales Charge Discounts" above. See the statement of ad-
ditional information for more details. 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 rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
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9
<PAGE>
Nuveen, the transfer agent or the fund 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 immedi-
ately 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;
.. 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.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed 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 no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares at any time for the same class of shares in an-
other 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 ex-
changing. 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 determin-
ing 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 ex-
tent 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 (see "Fund
Direct--Electronic Funds Transfer" below), or directly from your pay-
---
10
<PAGE>
check. To invest regularly from your bank account, simply complete the appro-
priate section of the account application. To invest regularly from your pay-
check, 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." Be-
cause 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 in-
vestment regardless of fluctuating price levels, you should consider your fi-
nancial 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").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
THE POWER OF SYSTEMATIC INVESTING
[GRAPH APPEARS HERE]
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 re-
ceive payments monthly, quarterly, semi-annually or annually and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Fund Direct--Electronic Funds Transfer" below), 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 or Account Update
Form 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, you may reinvest all or part of your redemption
proceeds in shares of the same class up to one year later without incurring
any applicable sales charges, and your prior holding period will be reinstat-
ed. 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 ex-
ercising your reinstatement privilege.
FUND DIRECT--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 appli-
cation or Account Update Form. If you need additional copies of these forms,
or would like assistance completing them, contact your financial adviser or
Nuveen at (800) 621-7227. You may use Fund Direct to quickly and conveniently
purchase or sell shares by telephone, systematically invest or withdraw funds,
or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
---
11
<PAGE>
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 or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class 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 the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count 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 included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend 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.
TAXES AND TAX REPORTING
The discussion below and in 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 Massachusetts municipal bonds or in municipal
bonds whose income is otherwise exempt from regular federal and state income
taxes. Consequently, the regular monthly dividends you receive will be exempt
from regular federal and state income taxes. All or a portion of these divi-
dends, however, may be subject to the federal alternative 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 por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, 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.
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 tax-
able 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.
---
12
<PAGE>
If you receive social security benefits, you should be aware that tax-free in-
come 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.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
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
Tax-Free Yield
<TABLE>
<CAPTION>
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.
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 con-
duct 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
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 open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume 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 funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. 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. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT 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>
For more information 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 portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, 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 ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
---
13
<PAGE>
Stephen S. Peterson is an Assistant Vice President of Nuveen Advisory and the
portfolio manager for the Massachusetts Fund and the Massachusetts Insured
Fund. Mr. Peterson has managed the funds since May 1993 and joined Nuveen Ad-
visory in October 1991.
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 all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of the record. 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
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, cur-
rently 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 in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
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, sub-
tracting 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 mu-
nicipal 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.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
---
14
<PAGE>
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from Massachusetts, 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 discussion of spe-
cial state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The dis-
cussion 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 invest-
ment. See the statement of additional information for further information.
MASSACHUSETTS
Massachusetts is experiencing an economic recovery based largely on growth in
the services, trade, finance, insurance, real estate and construction indus-
tries. Nonetheless, the state's economic growth is expected to lag behind the
rest of the nation until the year 2000 due to restructuring in the computer,
defense and health care sectors of the state's economy.
The state's fiscal 1996 revenues were approximately $17.3 billion against ex-
penditures of $16.9 billion. The fiscal 1997 budget approved by the governor
on June 30, 1996, provides for approximately $17.452 billion in expenditures
against an estimated $17.296 billion in revenues. In February 1997, Massachu-
setts' unemployment rate was 3.8%. In 1996, personal income in Massachusetts
was $29,439 compared to the national average of $24,231. The state's uninsured
general obligation bonds are rated A1 by Moody's and A+ by Standard and
Poor's.
Tax Treatment:
The funds' regular monthly dividends will not be subject to Massachusetts per-
sonal income taxes to the extent they are paid out of income earned on Massa-
chusetts municipal bonds or U.S. government securities. You will be subject to
Massachusetts personal income taxes, however, to the extent the funds distrib-
ute any taxable income, or if you sell or exchange fund shares and realize a
capital gain on the transaction.
The treatment of corporate shareholders of the funds differs from that de-
scribed above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information and are urged to consult
their tax adviser.
---
15
<PAGE>
Nuveen Family of Mutual Funds
Nuveen's family of funds offers a variety
of funds designed to help you reach your
financial goals. The funds below are grouped
by investment objectives.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Funds
Alabama
Arizona
California/1/
Colorado
Connecticut
Florida/2/
Georgia
Kansas
Kentucky/3/
Louisiana
Maryland
Massachusetts/1/
Michigan
Missouri
New Jersey/2/
New Mexico
New York/1/
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
1. Long-term and insured long-term portfolios.
2. Long-term and intermediate-term portfolios.
3. Long-term and limited-term portfolios.
Nuveen Family of Municipal Bond Funds
[MAP OF UNITED STATES APPEARS HERE]
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
www.nuveen.com
<PAGE>
JUNE 30, 1997
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
NUVEEN FLAGSHIP CONNECTICUT 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 MASSACHUSETTS MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
NUVEEN NEW YORK 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 June 30, 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-30
Investment Adviser and Investment Management Agreement..................... S-37
Portfolio Transactions..................................................... S-38
Net Asset Value............................................................ S-39
Tax Matters................................................................ S-39
Performance Information.................................................... S-45
Additional Information on the Purchase and Redemption of Fund Shares....... S-55
Distribution and Service Plan.............................................. S-57
Independent Public Accountants and Custodian............................... S-59
Financial Statements....................................................... S-59
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports. The 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 short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(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
S-2
<PAGE>
user, then such non-governmental user would be deemed to be the sole issuer.
Where a security is also backed by the 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
management series investment company organized as a Massachusetts business
trust on July 1, 1996. 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.);
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.); 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); the Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
(formerly the Flagship New Jersey Intermediate Tax Exempt Fund, as a series of
the Flagship Tax Exempt Funds Trust); the Nuveen California Municipal Bond Fund
(formerly the Nuveen California Tax-Free Value Fund, a series of the Nuveen
California Tax-Free Fund, Inc.); the Nuveen California Insured Municipal Bond
Fund (formerly the Nuveen California Insured Tax-Free Value Fund, a series of
the Nuveen California Tax-Free Fund, Inc.); the Nuveen Flagship Connecticut
Municipal Bond Fund (formerly the Flagship Connecticut Double Tax Exempt Fund,
a series of the Flagship Tax Exempt Funds Trust); the Nuveen Massachusetts
Municipal Bond Fund (formerly the Nuveen Massachusetts Tax-Free Value Fund, a
series of the Nuveen Tax-Free Bond Fund, Inc.); 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.). The
Nuveen Flagship California Intermediate Municipal Bond Fund has also been
organized as a series of the Trust, but has issued no shares to date. 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 Fund
affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local 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.
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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.
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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 28, 1997, 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 $2,642,000,000 (unaudited) and statutory capital of
approximately $1,509,000,000 (unaudited) as of March 31, 1997. 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.,
US 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, 1997, 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 $691,321,000 (unaudited) and $417,390,000
(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 $824,939,000 (unaudited) and $361,589,000 (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")
The Insurer 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 the Insurer. The Insurer is domiciled in the State of New
York and licensed to do business in and subject to regulation under the laws of
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. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations
of investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
As of December 31, 1996 the Insurer had admitted assets of $4.4 billion
(audited), total liabilities of $3.0 billion (audited), and total capital and
surplus of $1.4 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1997, the Insurer had admitted
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assets of $4.5 billion (unaudited), total liabilities of $3.0 billion
(unaudited), and total capital and surplus of $1.5 billion (unaudited)
determined in accordance with statutory accounting practices prescribed or
permitted by insurance regulatory authorities.
Furthermore, copies of the Insurer's year end financial statements prepared
in accordance with statutory accounting practices are available without charge
from the Insurer. A copy of the Annual Report on Form 10-K of MBIA Inc. is
available from the Insurer or the Securities and Exchange Commission. The
address of the Insurer is 113 King Street, Armonk, New York 10504. The
telephone number of the Insurer is (914) 273-4545.
The Insurer'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 the Insurer'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").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Municipal Obligation. The
Insurer'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. The Insurer'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, the Insurer 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 the Insurer 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, the
Insurer 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 the Insurer, and appropriate instruments to effect
the appointment of the Insurer 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
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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 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, 1997,
the total capital and surplus of Financial Guaranty was approximately
$1,123,724,061. 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
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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 extent in
short-term trading consistent with their 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 1996 fiscal year-end of the
Fund as a series of its predecessor entity (described above), and for the 1997
fiscal year-end, as indicated, were:
<TABLE>
<CAPTION>
FISCAL
YEAR
1996 1997
---- ----
<S> <C> <C>
Nuveen Flagship New York Municipal Bond Fund.................. 47% 37%
Nuveen New York Insured Municipal Bond Fund................... 17% 29%
Nuveen Flagship New Jersey Municipal Bond Fund................ 39% 10%*
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund... 17% 11%
Nuveen California Municipal Bond Fund......................... 36% 74%
Nuveen California Insured Municipal Bond Fund................. 38% 51%
Nuveen Flagship Connecticut Municipal Bond Fund............... 24% 20%
Nuveen Massachusetts Municipal Bond Fund...................... 6% 10%
Nuveen Massachusetts Insured Municipal Bond Fund.............. 1% 10%
</TABLE>
- --------
* For the fiscal year ended January 31, 1997. For the period February 1 to
February 28, 1997, the portfolio turnover rate was 0%.
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 Funds reserve 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 substantially all of its assets (at
least 80%) 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
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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
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 their 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 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.
State Economy Remains Sluggish: The State's economy has been slow to recover
from the 1989-92 recession and continues to lag behind the nation and other
urban, industrial states. Over the last three full years, 1993-95, total New
York State job growth has averaged only 0.6% annually compared to 2.6% yearly
job growth for the nation. In 1995 the State ranked 49th among all states for
job growth. Unemployment for the first half of 1996 stood at 6.3% within New
York State versus 5.5% national unemployment for the same period. New York's
employment picture has been marked by job reductions in commercial banking,
defense-related manufacturing, and government. Despite modest improvements in
tourism, media, financial services, and real estate, the state as a whole has
regained, as of mid-1996, only 40% of the 517,000 jobs lost during the
recession. Although average household income levels continue to be higher in
the State than the national average, New York's personal income growth has been
two-thirds the national pace, with total personal income growing on average
3.8% per year in New York compared to 5.8% annually nationwide. There is
concern that income growth has been concentrated among high earners, masking
declines of low earners, and that a widening income gap carries the potential
to undermine overall consumer spending and aggravate social service
expenditures. 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 State's budget was enacted by the Legislature on
July 13, 1996, more than three months after the start of the fiscal year. Prior
to the adaptation of the budget, the Legislature enacted appropriations for
disbursements considered to be necessary for State operations and other
purposes, including necessary appropriations for state-supported debt service.
The State Financial Plan for the 1996-97 fiscal year was formulated on July 25,
1996 and is based on the State's budget as enacted as well as actual results
for the first quarter of the fiscal year. Each State Financial Plan is updated
in July (if a budget is in place), October, and January.
The October update to the 1996-97 Financial Plan projects a GAAP-basis
General Fund operating surplus of $93 million (0.3% revenues). Total revenues
in the General Fund are projected at $32.50 billion, consisting of $29.39
billion in tax revenues and $3.11 billion in miscellaneous revenues. Personal
income tax is expected to reach $16.83 billion, or 52% of total tax revenue,
with robust growth fueled in part by financial sector bonus payments.
Although revisions to the 1996-97 State Financial Plan contained in the
October update are favorable, the State faces certain risks which could
potentially cost the State up to one-half billion dollars (1.5% revenues). The
Division of Budget believes these risks are balanced by reserves in the 1996-97
State Financial Plan, however, there can be no assurances that these reserves
will fully offset litigation or other risks to the State. The greatest risks
relate to the economy and tax collections, which could produce either favorable
or unfavorable results during the year. Additional risks come from the
potential impact of certain litigation now pending against the State.
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The 1996-97 State Financial Plan includes actions that will provide non-
recurring resources and savings totalling approximately $1.3 billion. These
include the use of $481 million in surplus funds available from MMIA, $134
million in savings from a refinancing of certain pension obligations, $88
million in projected savings from bond refundings, and $36 million in surplus
fund transfers. The balance is composed of $314 million in resources carried
forward from the States 1995-96 fiscal year and various other actions,
including that portion of the proposed tax amnesty program that is projected to
be non-recurring.
Future Budget Projections: The State closed projected budget gaps of $5.0
billion and $3.9 billion for its 1995-96 and 1996-97 fiscal years,
respectively. The 1997-98 gap was projected at $1.4 billion base on the
Governor's proposed budget of December 1995. As a result of changes made in the
enacted budget, the gap is now expected by the State Division of Budget to be
larger. However, the gap is not expected to be as large as those in the prior
two fiscal years.
The out-year projection will be impacted by a variety of factors. Enacted tax
reductions, which reduced receipts in the 1996-97 fiscal year by an incremental
$2.4 billion, are projected to reduce receipts in the 1997-98 fiscal year by an
additional increment of $2.1 billion. The use of up to $1.3 billion of non-
recurring resources in 1996-97, and the annualized costs of certain programs
increases in the 1996-97 annualized budget, will both add additional pressure
in closing the 1997-98 gap.
Impact of Welfare Reform: On August 22, 1996, the President signed into law
the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.
This federal legislation fundamentally changed the programmatic and fiscal
responsibilities for administration of welfare programs at the federal, state,
and local levels. The new law abolishes the federal Aid to Families with
Dependent Children (AFDC), and creates a new Temporary Assistance to Needy
Families program (TANF) funded with federal block grant to states. The new law
also imposes a five-year durational limit on TANF recipients, requires that
virtually all recipients be engaged in work or community service activities
within two years of receiving benefits, and limits assistance provided to
certain immigrants and other classes of individuals. States are required to
meet these federally mandated job participation rates, or that fail to conform
with certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
The State expects that funding levels provided under the TANF block grant
initially will be higher than currently anticipated in the State's financial
plan. Spending close to $8 billion on welfare in the 1996-97 fiscal year, the
State has among the most generous programs in the nation, and the only one
mandated by a State Constitution (Article XVII). The Governor has previously
noted that the current state program is unsustainable in its current form, and
in November 1996 submitted a reform proposal for the State Legislature to
consider. The net fiscal impact of any changes to the State's welfare programs
that are necessary to conform with federal law will be dependent upon such
factors as the ability of the State to avoid any federal fiscal penalties, the
level of additional resources required to comply with any new State and/or
federal requirements, and the division of non-federal welfare costs between the
State and its localities.
Indebtedness. As of March 31, 1996, the total amount of long-term State
general obligation debt authorized but unissued stood at $1.5 billion. As of
the same date, the State had approximately $4.8 billion in general obligation
bonds, including $294 million in commercial paper outstanding.
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, 1996, 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, 1996, there were $19.6 billion of such other financing
arrangements outstanding and additional financings of this nature by public
authorities.
Ratings. Moody's rating of the State's general obligation bonds stood at A2
on June 6, 1997, and S&P's rating stood at A- with a positive outlook, on June
6, 1997, an improvement from S&P's stable outlook from February 1994 through
April 1993 and negative outlook prior to April 1993. Moody's revised the rating
on the State from A to A2 on February 10, 1997. 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 $75 million of general obligation bonds in August
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).
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The New York City economy has continued to grow slowly in 1996 greatly aided
by a record Wall Street performance. The surge in profits, capital gains, and
year end bonuses is likely to continue to fuel growth in the City's economy and
economically sensitive taxes into fiscal year 1997. Although employment growth
citywide has improved in recent months, the City has yet to completely regain
the numbers of jobs lost during the City's 1989-1992 recession. After a
substantial decline in the early 1990's, the City's real estate market has
begun to rebound, as exhibited by declining Class A vacancy rates and rising
asking rents. This combined with an acute shortage of rental housing in
Manhattan has led to numerous new construction and renovation projects. Total
reported crimes are at their lowest levels since the 1960's. Hotel occupancy
rates are near record highs, topping 80% in August 1996. As income growth has
outpaced national levels in Manhattan, the more populous outer boroughs have
seen their income levels drop in relation to regional and national levels. As a
result, the City has become increasingly reliant upon a highly taxed base of
wealth to support a myriad of social services for an increasingly poor majority
of residents, further straining City resources and flexibility.
Fiscal Year 1997 and the 1997-2000 Financial Plan. The November revision to
the City's Financial Plan was greatly aided by an additional $450 million in
additional tax revenues, mainly resulting from increased earnings on Wall
Street, allowing the City to reduce risks that appeared in the budget, scale
back anticipated budget cuts, and fund a new $70 million textbook initiative
for the public schools. After instructing his Agency heads in August to produce
current year expenditure cuts totalling $500 million, the Mayor only needs
further cuts of $179 million to achieve a projected balance.
Despite the recent improvement, the City faces significant out-year budget
gaps. The City projects expenditures to increase five times faster than
revenues and budget gaps to more than double between Fiscal 1998 and Fiscal
2000. The City's budget gap is projected to rise from $1.2 billion in Fiscal
1998 (4% revenues), to $2.1 billion in Fiscal 1999 and $3.0 billion in Fiscal
2000. The gaps are driven primarily by expenditures for new labor agreements as
well as medical and debt service costs. As well, enacted and proposed tax cuts
account for about $1 billion of the Fiscal 1999 and 2000 gaps. The City
Comptroller and State Comptroller have each warned that the current and out-
year budgets include significant risks, including the renewal of the income tax
surcharge, potential Board of Education overspending, the postponed Port
Authority ground lease payments, and anticipated labor costs savings. In 1997
as in past years, the City relies on one-time resources ($1.2 billion) to help
achieve budgetary balance.
The City is reliant upon the intergovernmental transfers for a substantial
portion of its budget. State categorical grants of $6.2 billion account for 19%
of gross City revenues. Federal categorical grants of $3.96 billion account for
12% of gross City revenues. An extended delay by the State in adopting its
fiscal year budget or in the 1997-98 adoption of the federal budget would
negatively impact upon the City's financial condition and ability to close
budget gaps for fiscal years 1998 and thereafter.
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.
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 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 1998 and thereafter. Any such
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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 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.
The City faces limitations on its borrowing capacity after Fiscal 1997 under
the State Constitution that will prevent it from additional general obligation
borrowings, as a late result of the declining real estate values in the City
during the early 1990's. To ensure that the City can meet finance future
capital necessities and improvements, the City has proposed and the State has
approved the Transitional Finance Authority (TFA). The new TFA debt will be
secured with City personal income taxes and will not be subject to the
Constitutional limits. The City has already built the TFA into its Financing
Plan. The inability to finance capital improvements would have increased the
City's budget gaps in later years or required 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.
Fiscal Years 1991 through 1996. The City achieved balanced operating results
in accordance with generally accepted accounting principles for fiscal years
1991 through 1996. 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.
In May 1997, Moody's confirmed its Baa1 rating in connection with a scheduled
May 1997 sale of $750 million of the City's general obligation bonds. S&P also
confirmed its rating of the City's general obligation bonds in connection with
such general obligation bond issue in May 1997.
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 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
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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.
(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. Although many cities and towns in upstate New York have been
operating under a high level of fiscal stress since the late 1980's, their
fiscal erosion has been in process for over two decades. Factors contributing
to this include: a loss of high-wage manufacturing jobs, including large
military, textile, and industrial component facilities; a dramatic loss of
population; unfunded government mandates; contentious municipal labor issues
and collective bargaining agreements; large elderly populations; high poverty
rates; and tax appeals, compounding the loss to a City's tax base. Struggling
to provide a consistent level of government services from a deflated tax base,
many local governments have become increasingly reliant upon governmental
transfers. 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
1996-97 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. In November 1996, Troy MAC issued debt to refinance $55 million
of the City's $72 million in outstanding debt, including certain lease
obligations at the time in default. 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.
FACTORS PERTAINING TO NEW JERSEY
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 substantially all of their assets
in New Jersey Municipal Obligations. The New Jersey Funds are therefore
susceptible to political, economic or regulatory factors affecting New Jersey
and governmental bodies within New Jersey. The following information provides
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only a brief summary of the complex factors affecting the financial situation
in New Jersey, 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 or contained in
Official Statements for various New Jersey Municipal Obligations. 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 Jersey Obligations
in the Funds or the ability of particular obligors to make timely payments of
debt service on (or relating to) those obligations.
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 1,094 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 1995 the State ranked second among the
states in per capita personal income ($29,848).
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. Improvement has been slow but steady. New Jersey's unemployment rate
dropped to 5.2% in April 1997 versus the natural average of 4.9%. The state's
jobless rate is now the lowest it has been since August 1990.
Going forward, moderate growth is expected to continue through fiscal year
1998. Corporate restructuring will continue in such fields as chemicals,
telecommunications and financial services. Meanwhile, because of the state's
high technology labor resources, its economy stands to benefit from emerging
information-based fields.
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. General
obligation debt must be approved by voter referendum and is used primarily to
finance various environmental, transportation, correctional and institutional
projects. As of June 30, 1996, the state's outstanding general obligation debt
totaled $3.7 billion. The debt service obligation for such outstanding
indebtedness is $450 million for fiscal year 1997.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. The State closed recent fiscal years
with surpluses in the general fund (the fund into which all State revenues not
otherwise restricted by statute are deposited and from which appropriations are
made) of $761 million in 1992, $937 million in 1993, $926 million in 1994, $569
million in 1995, and $442 million in 1996. It is estimated that fiscal year
1997 will end with a surplus of $300 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, 1996, Governor Whitman signed the New Jersey Legislature's $15.7
billion budget for fiscal year 1997. The balanced budget included $276 million
in surplus funds. As part of the Fiscal Year 1996 Budget, the State enacted
several additional tax cuts. For the Gross Income Tax, a 15 percent reduction
of personal income tax rates became effective on January 1, 1996. This cut was
in addition to the tax rate reductions that were implemented during Fiscal Year
1994 and Fiscal Year 1995. Effective April 1, 1996, yellow pages advertisements
will be exempt from the State's Sales Tax. Effective July 1, 1996, a reduction
in the Corporation Business Tax rate from 9.0 percent to 7.5 percent will apply
to those corporations that have an allocated net income of $100,000 or less.
Also effective July 1, 1996, corporations' sales will be double weighted in
calculating receipt factors in determining a multistate corporation's New
Jersey State Corporation Business Tax liability. As part of the fiscal year
1997 budget, the State has enacted several policies that will affect the
State's Gross Income Tax and Corporate Business Tax.
On July 12, 1994, the New Jersey Supreme Court declared the State's Quality
Education Act of 1990 unconstitutional and gave the Chief Executive and the
Legislature until Fiscal Year 1998 to achieve "substantial equivalence" between
spending on pupils in poor urban districts and spending on their counterparts
in wealthy suburban districts. The New Jersey Supreme Court also said that it
expected the State to address the continuing disparity during the Fiscal Year
1996 and 1997 budgets. In May 1997, Governor Whitman's most recent school
funding plan (entitled the Comprehensive Educational Financing Act of 1996)
failed to meet the State's constitutional mandates. The State Supreme Court
ordered New Jersey to spend an extra $246.2 million on 28 poor school
districts.
The State's fiscal year 1998 $16.3 billion proposed budget had a structural
imbalance in excess of $500 million prior to the legislative approval of
Governor Whitman's $2.7 billion pension bond issue. Approval was won in early
June 1997. The administration plans to use the proceeds from a $2.7 billion
pension obligation bond issue in addition to a portion of the pension system's
market-based surplus (approximately $600 million) to offset the State's pension
contributions in fiscal year 1997 and fiscal year 1998 and eliminate the
State's pension system deficit. Eliminating the pension system's deficit will
enable the administration to reduce this year's scheduled pension payment to
$97 million from $687 million, and provide the State with approximately $590
million to balance the State budget and cover the $246 million that the State
Supreme Court ordered the State to raise for urban schools.
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,
the State's failure to reimburse certain hospitals' charity care costs, 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.
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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 July 1, 1996, S&P reaffirmed the State's long-term ratings.
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,
and again on August 18, 1995 Moody's reaffirmed its Aa1 rating, citing on the
positive side New Jersey's broad-based 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. On
May 1, 1996, Moody's reaffirmed the State's long-term ratings.
The State's recently approved pension obligation issuance has met with
skepticism from both rating agencies.
FACTORS PERTAINING TO CALIFORNIA
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 34 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 $810 billion in 1996,
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
were reached in 1996). Unemployment, while remaining higher than the national
average, has come down substantially from its 10% peak. 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.
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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, 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.
On November 5, 1996, California voters approved Proposition 218 which added
Articles XIIIC and XIIID to the California Constitution, imposing certain vote
requirements and other limitations on the imposition of new or increased and in
some cases existing taxes, assessments and property-related fees and charges.
Proposition 218 also extends the initiative power to include the reduction or
repeal of any local taxes, assessments, fees and charges. This extension of the
initiative power is not limited to taxes imposed on or after the effective date
of Proposition 218, and could result in the retroactive repeal or reduction in
any existing taxes, assessments, fees or charges. If such a repeal or reduction
occurs in a particular California entity, the financial condition of that
entity may be adversely impacted and rating downgrades and/or defaults may
result. Additionally, the voter approval requirement reduces the financial
flexibility of local governments to deal with fiscal problems by limiting the
ability to increase taxes, assessments, fees or charges. In some cases, this
loss of flexibility may, and in fact has, been cited as the reason for rating
downgrades. No assurances can be given that California entities will be able to
raise taxes to meet future spending requirements. In addition, at this time it
is not clear exactly how Proposition 218 will be interpreted by a court.
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
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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.
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 1995-96, debt service on general obligation bonds and lease
purchase debt was approximately 5.0% of General Fund revenues.
RECENT FINANCIAL RESULTS
The principal sources of General Fund revenues in 1995-1996 were the
California personal income tax (45% of total revenues), the sales tax (34%),
bank and corporation taxes (13%), and the gross premium tax on insurance (2%).
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. However, projections for 1996-1997 estimate a balance of $312 million
will be maintained in the Economic Uncertainties Fund.
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;
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. 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. The economy in California has steadily improved in recent
years evidenced by the upward revisions to revenue forecasts by the Department
of Finance. In the Governor's May Revision of the 1996-1997 Budget, State
revenues are projected to be $49.4 billion, a 6.6% increase. Expenditures are
projected to be $49.2 billion, an 8.0% increase. The modest surplus would
increase the budgetary reserve to $312 million.
As a result of the improved revenues, the State's cash position has
substantially improved. Only $3 billion of cash flow borrowing was needed
during 1996-1997, and about $3 billion is projected for 1997-1998, with no
external borrowing over the end of the fiscal year.
The Governor's proposed budget for 1997-1998 projects $52 billion in revenues
and transfers, and $51.7 billion of expenditures, resulting in a budgetary
reserve at June 30, 1998 of about $580 million. A number of issues related to
the 1997-1998 budget still have to be resolved, including additional school
funding and the Governor's proposals for future 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.
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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 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.
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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 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
Except to the extent the Connecticut Municipal Bond Fund (the "Connecticut
Fund") invests in temporary investments, the Connecticut Fund will invest
substantially all of its net assets in Connecticut Municipal Obligations. The
Connecticut Fund is therefore susceptible to political, economic or regulatory
factors affecting issuers of Connecticut Municipal Obligations. The following
briefly summarizes the current financial situation of the State of Connecticut
(the "State"). It is derived from sources that are generally available to
investors and is based in part on information obtained from various agencies in
sources that are generally available to investors and is based in part on
information obtained from various agencies in Connecticut. 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 Connecticut Obligations in the Fund or
the ability of particular obligors to make timely payments of debt service on
(or relating to) those obligations.
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 foregoing industries.
Statistics show that Connecticut has recovered from almost 40% of its
recessionary employment loss with small business fueling much of the growth in
the services, wholesale, and retail trade industries. Casinos are expected to
continue to draw tourists and contribute to the state's slow but steady
economic growth over the next four years. While Connecticut ranks first among
the states in per capita personal income ($31,776), the state's ratio of tax-
supported debt to personal income is highest in the nation. Large debt levels
are expected to limit the state's financial flexibility.
A $21.1 billion two-year budget plan won legislature approval in early June
1997. The budget totals $10.5 billion in the first year and $10.5 billion in
the second, for a total increase of 3.7% over current spending. The 1997-99
plan limits growth in spending to 2% in the first budget year and 1.7% in the
second. The result would allow the state to trim taxes by $394 million,
including $153 million in income tax cuts. A 6 cent-per-gallon cut in the gas
tax was also adopted. The state's general obligation bonds are rated Aa3 by
Moody's and AA- by S&P.
FACTORS PERTAINING TO MASSACHUSETTS
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
their 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
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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.
1998 FISCAL YEAR BUDGET
The 1998 Fiscal Year budget is currently being discussed by the Senate and
House of the Commonwealth. In his 1998 Fiscal Year budget proposal, Governor
Weld recommended approximately $18.224 billion in expenditures, which
represents a $520 million, or 2.9%, increase over anticipated Fiscal Year 1997
spending. Most of the increase in spending supports education reform and
initiatives designed to aid cities and towns. The Governor's budget proposal
estimates fiscal 1998 total tax and non-tax revenues to be approximately
$17.998 billion. The tax revenue projects ($12.667 billion) represents an
increase of approximately 2.9% over Fiscal Year 1997 projected tax revenues and
includes the revenue impact of tax reductions recommended by the Governor. Non-
tax revenues are projected to be $5.331 billion, a 3.5% increase over Fiscal
Year 1997. Tax reductions recommended include phasing out a telecommunications
sales tax over five years, eliminating the net investment income tax on life
insurance companies located in Massachusetts, and lowering the tax on certain
unearned income.
1997 Fiscal Year Budget. The fiscal 1997 budget approved by the Governor on
June 30, 1996, provides for approximately $17.452 billion in fiscal 1997
expenditures. The Executive Office for Administration and Finance estimates
fiscal 1997 total revenues to be approximately $17.296 billion, including
approximately $12.197 billion in tax revenues which represents an increase of
approximately $146 million or 1.2% over estimated fiscal 1996 tax collections.
The tax revenue estimate reflects adjustments for certain tax reductions, a
change in the way the Commonwealth calculates the tax liability for certain
mutual fund companies, and an increase in the cigarette tax.
The recent enactment of federal welfare reform legislation is not expected to
have a material effect on the Commonwealth's finances in fiscal 1997. The
Executive Office for Administration and Finance is currently evaluating the
impact of the legislation on the Commonwealth's spending for public assistance
programs.
The President of the United States has recommended Governor Weld for the
position of the U.S. Ambassador to Mexico. Confirmation hearings have not yet
begun. If the Governor were to assume the position, Lieutenant Governor Paul
Cellucci would become acting Governor.
On August 8, 1996, the Governor approved legislation changing the
apportionment formula for the business corporations tax payable by certain
mutual fund service corporations. Effective January 1, 1997, the legislation
changes the computation of the sales factor. The new law requires the affected
corporations to increase their numbers of employees by 5% per year for five
years, subject to certain conditions. The Department of Revenue estimates that
the changes will result in a revenue reduction of approximately $10 million in
fiscal 1997 and approximately $39 million to $53 million on an annualized
basis, starting in fiscal 1998.
On July 24, 1996, the Legislature overrode the Governor's veto of legislation
imposing a tax increase on certain tobacco products. The Department of Revenue
estimates that these changes will result in approximately $74 million in
additional tax revenue for fiscal 1997, approximately $80 million to $90
million in additional revenue in 1998, and between $73 million and $83 million
by fiscal 2000.
The Department of Revenue's fiscal 1997 tax revenue forecasts have been
adjusted for the $150 million personal income tax reduction mandated by the
fiscal 1996 supplemental appropriations bill approved on July 30, 1996.
1996 Fiscal Year. Preliminary figures for fiscal 1996 indicate that tax
collections totaled approximately $12.051 billion, approximately $886.1
million, or 7.9%, greater than tax collections for fiscal 1995. The Department
of Revenue believes that the strong tax revenue growth in fiscal 1996 was due
partly to one-time factors that may not recur in fiscal 1997.
The Governor approved the final fiscal 1996 appropriations bills on July 30,
1996, and August 10, 1996. Fiscal 1996 spending is currently estimated at
approximately $16.930 billion, with revenues totaling approximately $17.281
billion. These assumptions would result in a fiscal 1996 year-end transfer to
the Commonwealth Stabilization Fund of approximately $95.4 million, bringing
its balance to approximately $543 million, the maximum allowed under state law.
The bill approved on July 30, 1996 mandates a personal income tax reduction of
$150 million to be funded by a fiscal 1996 transfer from the General Fund to
the Tax Reduction Fund and to be implemented by a temporary increase in the
amount of the personal exemption allowable for the 1996 taxable year.
As of June 30, 1996, the Commonwealth had a cash position of approximately
$889 million, not including the Stabilization Fund. This compares to a
projected position of $645.5 million. The fiscal 1996 year-end cash position
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reflected approximately $161.7 million in advance payments for fiscal 1997
expenses and approximately $110 million in capital expenditures for which the
Commonwealth has not yet issued bonds or notes to reimburse itself.
On November 1, 1995, the Governor released a proposal to reorganize state
government, and on January 23, 1996, he filed implementing legislation
constituting eight bills. Two of the eight reorganization bills became law in
March; the other six bills were disapproved by the legislature. Pursuant to the
two bills and the fiscal 1997 budget, effective July 1, 1996, the number of
Executive Offices was reduced from eleven to six. Offices eliminated include
the Executive Office of Communities and Development (which became the
Department of Housing and Community Development), the Executive Office of
Economic Affairs (which became the Department of Economic Development, with
certain functions transferred to a new Department of Labor and Workforce
Development), the Executive Office of Labor (which became the Department of
Labor and Workforce Development), and the Executive Office of Education, and a
hundred various state boards and commissions were abolished.
On November 28, 1995, the Governor approved a modified version of the
legislation he had filed in September to change the apportionment formula used
for the business corporations tax on certain firms. The new formula will become
effective for certain federal defense contractors on January 1, 1996, and will
be phased in over five years for manufacturing firms generally. The Department
of Revenues estimates that the legislation will reduce revenues by $44 million
in fiscal 1996 and by $90 million in fiscal 1997. If the new formula were fully
effective for all covered businesses, it is estimated that the annual revenue
reduction would be $100 million to $150 million.
On January 23, 1996, the Governor filed legislation that would reduce the
personal income tax rate over two years. The Executive Office for
Administration and Finance estimates that this cut would reduce base tax
revenues by approximately $133 million in fiscal 1997, an additional $265
million in fiscal 1998 and a further $132 million in fiscal 1999, at which time
the tax reduction would be fully implemented.
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"),
subject to federal approval of certain waivers. On August 4, 1995, the federal
government granted a waiver of federal regulations for the Commonwealth's
proposed changes to its AFDC program. However, the federal government imposed
additional conditions upon the proposed two-year limit on the availability of
AFDC benefits for able-bodied adults. On September 23, 1995, the Governor
accepted the federal waiver (except for the provision regarding no time limit
on benefits), and on November 1, 1995, the changes to the AFDC program were
implemented. Fiscal 1996 budget appropriations were expected to be sufficient
to cover program costs.
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 exclude 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. 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.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. The legislation established a
fiscal 1993 state spending base of approximately $1.288 billion for local
education purposes and required annual increases in state expenditures for such
purposes above that base, subject to appropriation, estimated to be
approximately $175 million in fiscal 1994, approximately $396 million in fiscal
1995, approximately $625 million in fiscal 1996 and approximately $867 million
in fiscal 1997, with additional annual increases anticipated in later years.
The fiscal 1994, 1995, and 1996 budgets have fully funded the requirements
imposed by this legislation.
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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.
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 ended with an excess of
revenues and other sources over expenditure and other uses of $312.3 million
and with positive fund balances of $549.4 million.
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. For example, during 1991, the Massachusetts
unemployment rate averaged 9.0% while the average United States unemployment
rate was 6.7%. Since 1993, the average monthly unemployment rate has declined
steadily and has been at or below the national average. The Massachusetts
unemployment rate in September 1996 was 4.2%, as compared with the United
States unemployment rate of 5.2% for the same period. 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 1993, 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 October, 1993, when the rating declined to A+. S&P last
affirmed the Commonwealth's rating at A+ on September 16, 1996.
Moody's currently rates the Commonwealth's uninsured general obligation bonds
at A1 and its notes at MIG-1. From 1989 through 1992, the Commonwealth had
experienced a steady decline in its rating by Moody's. In May 1989, Moody's
lowered its rating on the Commonwealth's notes from MIG-1 to MIG-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. In
September 1992, Moody's raised the Commonwealth's rating to A. A further
increase to A1 was given in November 1994. The Commonwealth's A1 rating was
last affirmed September 17, 1996.
There can be no assurance that these ratings will continue.
In recent years, certain public bodies and municipalities in the Commonwealth
have faced serious financial difficulties which have affected the credit
standing and borrowing abilities of the 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 in the Fund. Should there
be during the term of the Fund a financial crisis relating to public bodies or
municipalities in the Commonwealth, the market value and marketability of all
outstanding bonds issued by certain public authorities or municipalities 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 July 1, 1996 was approximately $10.012 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 July 1, 1996, including guaranteed bond
was approximately $13.619 billion.
Debt Service. During the 1980s, capital expenditures were increased
substantially, which accounts for a significant rise in debt service since
1989. 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
S-26
<PAGE>
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 Medicaid-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).
This law may be amended or repealed by the legislature. The percentage of total
appropriations expended from the budgeted operating funds for debt service
(excluding debt service on Fiscal Recovery Bonds) was 5.6%, 5.9% and 5.4%, for
fiscal 1994, fiscal 1995 and fiscal 1996, respectively.
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
$3.562 billion in current dollars, with approximately $840 billion to be spent
on or after December 31, 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 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. Spaulding has signed
interrogatories indicating that it believes that the property is worth more
than $60 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.
S-27
<PAGE>
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 Commissioner of Revenue v. BayBank Middlesex, the Commonwealth
appealed an Appellate Tax Board ruling that granted abatements to 12
Massachusetts banks for tax years 1984 to 1990. The Appellate Tax Board
decision held that the measure of bank excise tax did not include certain
income from tax exempt obligations. On January 24, 1996, the Supreme Judicial
Court affirmed the Appellate Tax Board's decision. The potential liability is
approximately $55 million, including similarly situated banks and tax years
after 1990. Approximately $70 million in taxes and interest are at issue in
several other cases are pending.
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. 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 April 30, 1996, the Supreme Judicial Court
entered a partial final judgment implementing its decision for tax years ending
prior to January 1, 1995. The Department of Revenue estimates that tax revenues
in the amount of $40 million to $55 million may be abated as a result of the
partial final judgment. On May 13, 1996, the Court entered an order for
judgment and memorandum concerning relief for tax years ending on or after
January 1, 1996. The Department of Revenue is estimating the fiscal impact of
that ruling.
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
legislation passed by an initiative petition established a state tax revenue
growth limit for each fiscal year. Any excess in state tax revenue collections
over the prescribed limit is to be applied as a proportional credit against the
personal income tax liability of all taxpayers in the Commonwealth. The
legislation passed by the October 1986 legislation established a state tax
revenue growth limit for each fiscal year using a different measure. Tax
revenues in fiscal 1991 through fiscal 1995 were lower than the limit set by
the limitations and the Executive Office for Administration and Finance
currently estimates that same tax revenues in fiscal 1996 will not teach the
limit imposed by either of these statutes.
In November 1980, voters approved Proposition 2 1/2, a statewide limitation
initiative, to constrain levels of property taxation and to limit the certain
charges and fees imposed on cities and towns. Under the terms of Proposition 2
1/2, the increase in the property tax levy is limited to the lesser of: 1) 2.5%
over the previous year's levy plus any growth in the tax base attributable to
certain new construction and 2) 2.5% of the full and fair cash value of the
real estate and personal property therein. Proposition 2 1/2 does permit
communities, with voter approval, to assess taxes in excess of its levy limit
for certain reasons, including payment of specified debt service costs.
Legislation has also been enacted providing for certain local option taxes. A
voter initiative petition approved at the statewide general election in
November, 1990 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 to cities and towns. Local Aid
payments expressly remain subject to annual appropriation, and fiscal 1992,
fiscal 1993, fiscal 1994 and fiscal 1995 appropriations for Local Aid did not
meet, and fiscal 1996 appropriations for Local Aid do not meet, the levels set
forth in the initiative law.
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
original $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. The
marital deduction had been 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 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
S-28
<PAGE>
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. 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
S-29
<PAGE>
paper generally will be shorter than the maturities of TANs, BANs or RANs.
There is a limited secondary market for issues of municipal paper.
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. Schwertfeger* 48 Chairman and Chairman 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).
Anthony T. Dean* 52 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).
Robert P. Bremner 56 Trustee Private Investor and Management Consultant.
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown 62 Trustee Retired (August 1989) as Senior Vice President of
201 Michigan Avenue The Northern Trust Company.
Highwood, IL 60040
Anne E. Impellizzeri 64 Trustee President and Chief Executive Officer of Blanton-
3 West 29th Street Peale Institute of Religion and Health.
New York, NY 10001
Margaret K. Rosenheim 70 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 64 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; Chartered Financial Analyst;
Certified Management Consultant.
William J. Schneider 52 Trustee Senior Partner, Miller-Valentine Partners, Vice
4000 Miller-Valentine Ct. President, Miller-Valentine Realty, Inc.
P.O. Box 744
Dayton, OH 45401
Bruce P. Bedford 57 Executive Vice Executive Vice President of John Nuveen & Co.
333 West Wacker Drive President Incorporated, Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (since January 1997);
prior thereto, Chairman and CEO of Flagship
Resources Inc. and Flagship Financial Inc. and the
Flagship funds (since January 1986).
Michael S. Davern 39 Vice President Vice President of Nuveen Advisory Corp. (since
One South Main Street January 1997); prior thereto, Vice President and
Dayton, OH 45402 Portfolio Manager (since September 1991) of
Flagship Financial.
</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>
William M. Fitzgerald 33 Vice President Vice President of Nuveen Advisory Corp. (since
333 West Wacker Drive December 1995); Assistant Vice President of Nuveen
Chicago, IL 60606 Advisory Corp. (from September 1992 to December
1995), prior thereto Assistant Portfolio Manager
of Nuveen Advisory Corp. (from June 1988 to
September 1992).
Kathleen M. Flanagan 50 Vice President Vice President of John Nuveen & Co. Incorporated,
333 West Wacker Drive Vice President of Nuveen Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp. (since June 1996).
J. Thomas Futrell 41 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Richard A. Huber 34 Vice President Vice President of Nuveen Advisory Corp. (since
One South Main Street January 1997); prior thereto, Vice President and
Dayton, OH 45402 Portfolio Manager (since August 1985) of Flagship
Financial.
Steven J. Krupa 39 Vice President Vice President of Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Anna R. Kucinskis 51 Vice President Vice President of John Nuveen & Co. Incorporated.
333 West Wacker Drive
Chicago, IL 60606
Larry W. Martin 45 Vice President Vice President (since September 1992), and
333 West Wacker Drive and Assistant Assistant Secretary and Assistant General Counsel
Chicago, IL 60606 Secretary of John Nuveen & Co. Incorporated; Vice President
(since May 1993) and Assistant Secretary of Nuveen
Advisory Corp.; Vice President (since May 1993)
and Assistant Secretary of Nuveen Institutional
Advisory Corp.; Assistant Secretary of The John
Nuveen Company (since February 1993).
Edward F. Neild, IV 31 Vice President Vice President (since September 1996), previously
One South Main Street Assistant Vice President (since December 1993) of
Dayton, OH 45402 Nuveen Advisory Corp., portfolio manager prior
thereto (since January 1992); Vice President
(since September 1996), previously Assistant Vice
President (since May 1995) of Nuveen Institutional
Advisory Corp., portfolio manager prior thereto.
Walter K. Parker 48 Vice President Vice President of Nuveen Advisory Corp. (since
One South Main Street January 1997); prior thereto, Vice President and
Dayton, OH 45402 Portfolio Manager (since July 1994) of Flagship
Financial; Portfolio Manager and CIO Trust
Investor (between 1983 and June 1994) for PNC
Bank.
O. Walter Renfftlen 57 Vice President Vice President and Controller of the John Nuveen
333 West Wacker Drive and Controller Company, John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory
Corp.
Thomas C. Spalding, Jr. 45 Vice President Vice President of Nuveen Advisory Corp. and Nuveen
333 West Wacker Drive Institutional Advisory Corp.; Chartered Financial
Chicago, IL 60606 Analyst.
H. William Stabenow 62 Vice President Vice President and Treasurer of the John Nuveen
333 West Wacker Drive and Treasurer Company, John Nuveen & Co. Incorporated, Nuveen
Chicago, IL 60606 Advisory Corp. and Nuveen Institutional Advisory
Corp.
Jan E. Terbrueggen 41 Vice President Vice President of Nuveen Advisory Corp. (since
One South Main Street January 1997); prior thereto, Vice President and
Dayton, OH 45402 Portfolio Manager of Flagship Financial.
</TABLE>
S-32
<PAGE>
<TABLE>
<CAPTION>
POSITIONS
AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE WITH TRUST DURING PAST FIVE YEARS
- ---------------- --- ----------- ----------------------
<S> <C> <C> <C>
Gifford 40 Vice President Vice President (since September 1992), Assistant
R. and Assistant Secretary and Assistant General Counsel of John
Zimmerman Secretary Nuveen & Co. Incorporated; Vice President (since
333 West May 1993) and Assistant Secretary of Nuveen
Wacker Advisory Corp.; Vice President (since May 1993)
Drive and Assistant Secretary of Nuveen Institutional
Chicago, Advisory Corp.
IL 60606
</TABLE>
Anthony Dean, Margaret Rosenheim and Timothy 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 42 other Nuveen open-end funds and 52 Nuveen closed-end funds advised by
Nuveen Advisory Corp.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended February 28, 1997. 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>
Robert P. Bremner........................ $ 880(1) $12,250(1)
Lawrence H. Brown........................ $3,497 $59,000
Anne E. Impellizzeri..................... $3,497 $59,000
Margaret K. Rosenheim.................... $4,388(2) $66,815(3)
Peter R. Sawers.......................... $3,497 $59,000
William S. Schneider..................... $ 952(1) $13,250(1)
</TABLE>
- --------
(1) Received as a trustee of the Flagship Funds, for the period June 1, 1996 to
January 1, 1997.
(2) Includes $337 in interest accrued on deferred compensation from prior
years.
(3) Includes $1,565 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 June 3, 1997, 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 New York Insured Municipal
Bond Fund BHC Securities Inc. 15.30%
Class A Shares................... FAO 70015729
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103N
Nuveen New York Insured Municipal
Bond Fund Donaldson Lufkin Jenrette 16.77
Class C Shares................... Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
PaineWebber for the Benefit of 10.55
Morgan F Kelly
Rose Moran-Kelly JT TEN
19 Honeyhollow Road
Queensbury, NV 12804-9117
</TABLE>
S-33
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Prudential Securities FBO 8.11%
Laurie D Wax Ttee, Irrevocable
Trust of 1995 UA JTD 05/02/95,
FBO Laurie D Wax
Via Di Monteronald, 14 6N
Ruth Preston & 7.96
Sara P. Costello &
Patricia N. Kohl
JT TEN WROS NOT TC
2 Middleton Rd.
Greenport, NY 11944-1115
Debra Arizzi 7.90
9725 92nd St
Ozone Park, NY 11416-2214
Nuveen New York Insured
Municipal Bond Fund BHC Securities Inc. 23.96
Class R Shares............ FAO 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 & Smith 13.93
Class A Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Jersey
Municipal Bond Fund William G. Osborne 20.12
Class C Shares............ % Aurachem Corp.
South 3R & Somerset St.
PO Box 471
Harrison, NJ 07029-0471
Alvin H. Frankel Agent for 7.32
Louise I. Grill
U/POA DTD Jun 17 94
601 Haddon Ave
Collingswood, NJ 08108-3703
Donaldson Lufkin Jenrette 5.33
Securities Corporation Inc
PO Box 2052
Jersey City, NJ 07303-9998
Nuveen Flagship New Jersey
Intermediate Municipal Merrill Lynch, Pierce, Fenner & Smith 22.65
Bond Fund Class A Shares.. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen California Municipal
Bond Fund NFSC FEBO # OFP-002135 18.87
Class C Shares............ Michele Chiapella
103 Northwood Commons
Chico, CA 95926
</TABLE>
S-34
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Thomas K. Larson & 9.83%
Melanie P. Larson
JT TEN WROS NOT TC
142 Via Novella
Aptos, CA 95003-5841
Paul R. Hoeber 9.62
611 Bay St. Apt. 4
San Francisco, CA 94133-1619
Charlotte H. Feo Tr 9.50
UA DEC 06 79
Charlotte H. Feo Family Trust
530 Galleon Way
Seal Beach, CA 90740-5939
John C. MacGregor-Scott Tr 9.24
UA JUN 22 87
MacGregor-Scott Rev Fam Trust
720 W Camino Real Ave.
Arcadia, CA 91007-7839
David Neil Daniels & 5.05
Judy Curry Daniels Trs
UA JAN 13 94
Daniels Revocable Trust
305 Tioga Ct
Palo Alto, CA 94306-4543
Nuveen California Municipal Bond
Fund J. Andrew Kitzman & 9.62
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 Smith Barney Shearson 5.16
Class R Shares.................... 00119601999
388 Greenwich Street
New York, NY 10013
Nuveen California Insured Municipal
Bond Fund John Hancock Clearing Corp 5.29
Class A Shares.................... 1 World Financial Center
200 Liberty St.
New York, NY 10281-1003
Nuveen California Insured Municipal
Bonds Funds NFSC FEBO #042-626996 30.08
Class C Shares.................... Fleming Trust
William E. Fleming
U/A 04/20/93
7057 Blackhawk Rd P.O. Box 908
Forest Hill, CA 95631
Mildred H. Hachtowski TR 9.99
UA Sep 14 95
Hachtowski Family Trust
3045 Rita Ct
Napa, CA 94558-3317
BA Investment Services Inc. 7.54
FBO 406912971
189 Berry St.
3rd Floor #2640
San Francisco CA 94104
</TABLE>
S-35
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Prudential Securities FBO 5.60%
Alan R Josefsberg &
Vickie Josefsberg Jt Ten
2700 N. Cahuenga Blvd. East
Unit 1301
Hollywood, CA 90068-2139
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.48
Class A Shares............ for the sole benefit of its customers
Attn; Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund John H. Germain TR. 33.97
Class B Shares............ Isabel Germain Trust
U/A DTD 10-16-95
96 Four Mile Rd.
West Hartford, CT 06107-2703
PaineWebber FBO 23.39
Josephine F. Smith
57 Arnold Way
West Hartford, CT 06119-1207
US Clearing Corp. 12.40
FBO 952-13798-L9
26 Broadway
New York, NY 10004-1798
Sidney Fagan & 8.75
Lois Fagan JT Ten
856 East Broadway
Milford, CT 06460-6217
Smith Barney Inc. 8.20
00136200806
388 Greenwich Street
New York, NY 10013-2375
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 35.18
Class C Shares............ for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr E Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Smith Barney Inc. 99.85
Class R Shares............ 00138430250
388 Greenwich Street
New York, NY 10013-2375
Nuveen Massachusetts
Municipal Bond Fund NFSC FEBO #006-166235 9.18
Class A Shares............ Richard J. and Joy S. Gilbert TR
Joanne G. Arnold TTEE
c/o Richard J. Gilbert
20 Winchester Drive
Lexington, MA 02173
Donaldson Lufkin Jenrette 6.00
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
</TABLE>
S-36
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Smith Barney Inc. 5.77%
00162105158
388 Greenwich Street
New York, New York 10013
Nuveen Massachusetts Municipal Bond
Fund Hudson L. Matson 26.86
Class C Shares.................... 39 Griggs Rd.
Sutton, MA 01590-1015
Richard Doucette 6.55
363 Farrwood Dr.
Bradford, MA 01835-8400
Wheat First FBO A/C 2591-6003 5.96
Jane W. Curran
4 Lawler Dr.
Easthampton, MA 01027-9715
Mary H. Melville 5.72
4 Paul Revere Rd.
Worcester MA 01609-1210
Charles G. Allen, Jr. Tr. 5.34
UA MAR 05 54
UW Flora A. Generess
FBO Charles G. Allen Jr. Et al
221 James St. #65
Barre, MA 01005-8805
Emily Pelczarski Cust 5.31
FBO Brian Pelczarski
Unif Trans Min Act MA
8 Coram St
Taunton, MA 02780-2512
Emily Pelczarski Cust 5.26
FBO Laurie Pelczarski
Unif Trans Min Act MA
8 Coram St
Taunton, MA 02780-2512
Irene J. Majko 5.22
134 Brook St
Wellesley, MA 02181-6630
Nuveen Massachusetts Insured
Municipal Bond Fund Gerald W. Mahoney & 8.20
Class A Shares.................... Elaine Mahoney Tr
UA 10/05/94
Mahoney Rev. Trust
162 Oakland St.
Fall River, MA 02720-6114
Nuveen Massachusetts Insured
Municipal Bond Fund Raymond James & Assoc Inc. 16.57
Class C Shares.................... for Elite Acct # 50099466
FAO George A. D'Auteuil Sr. &
Pauline T. D'Auteuil JT/WROS
9 Church St.
Millbury, MA 01527-3134
Ruth Biller 16.26
51 Oak Rd.
Canton, MA 02021-2625
</TABLE>
S-37
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
John Sullivan 14.60%
6 Margaret St.
Boston, MA 02113-2523
Rose E. Frisch 14.25
3 Hillside Pl.
Cambridge, MA 02140-3617
PaineWebber for the Benefit of 5.97
John J. Brodbine TTEE
Ralph L. Cunningham Trust
DTD 4/27/89
27 School St
Boston, MA 02108-4303
Magdalene S. Kapuscienski &
Gene S. Kapuscienski 5.21
JT TEN WROS NOT TC
15 D Country Club Lane
Milford, MA 01757
Nuveen Massachusetts Insured
Municipal Bond Fund NFSC FEBO # 006-133914 5.10
Class R Shares................... Robert L. Varney
Janet N. Varney
9 Almira Rd
South Yarmouth, MA 02664
</TABLE>
S-38
<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 all or a portion of its management fee or
reimburse certain expenses of the California, California Insured,
Massachusetts, Massachusetts Insured, New York and New York Insured Municipal
Bond 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 .75 (.975 for insured Funds) of 1% of average daily net asset value
of any class of shares of those Funds.
Nuveen Advisory has voluntarily agreed to waive some or all of its fees or
reimburse expenses to prevent total operating expenses (not counting
distribution and service fees) for the year ended July 31, 1997 from exceeding
0.75% of average daily net assets of the New Jersey Fund. For the New Jersey,
New Jersey Intermediate, Connecticut, and New York Funds, Nuveen Advisory has
committed through at least 1998 to continue Flagship's general dividend-setting
practices.
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
------------------------------- ------------------------
1/31/95 1/31/96 2/28/97* 1/31/95 1/31/96 2/28/97*
---------- --------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund.............. $ 156,717 152,929 249,860 54,105 115,121 105,204
</TABLE>
*For the thirteen month period ended February 28, 1997.
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
------------------------------ -----------------------
2/28/95 2/29/96 2/28/97 2/28/95 2/29/96 2/28/97
---------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New York Municipal Bond
Fund................... $ 786,847 852,809 921,217 4,556 29,700 40,876
New York Insured
Municipal Bond Fund.... $1,921,472 1,940,010 1,932,218 1,767 0 --
California Municipal
Bond Fund.............. $1,123,360 1,199,571 1,249,684 3,483 3,302 --
California Insured
Municipal Bond Fund.... $1,073,336 1,156,993 1,205,656 2,697 1,695 --
Massachusetts Municipal
Bond Fund.............. $ 370,394 366,859 430,684 17,319 59,879 13,780
Massachusetts Insured
Municipal Bond Fund.... $ 302,241 346,952 356,539 1,148 788 --
</TABLE>
For the last three fiscal years, the New Jersey Intermediate Municipal Bond
Fund and the Connecticut Municipal Bond Fund paid net management fees to
Flagship Financial, predecessor to Nuveen Advisory, and beginning on 2/1/97, to
Nuveen Advisory, 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
------------------------- ------------------------
5/31/95 5/31/96 2/28/97* 5/31/95 5/31/96 2/28/97*
-------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Municipal Bond Fund........ $ 0 0 0 45,333 101,996 71,304
Connecticut Municipal Bond
Fund....................... $396,094 421,811 440,411 615,631 636,447 367,429
</TABLE>
*For the nine month period ended February 28, 1997.
S-39
<PAGE>
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.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. 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 $36 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. Founded in 1898,
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. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal 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-40
<PAGE>
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of those Funds' shares by The
Chase Manhattan Bank, 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 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. 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 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.
S-41
<PAGE>
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 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
S-42
<PAGE>
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.
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.
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.
S-43
<PAGE>
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
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.
NEW YORK
The following is a general, abbreviated summary of certain provisions of the
applicable New York tax law as presently in effect as it directly governs the
taxation of resident individual, corporate, and unincorporated business
shareholders of the New York Funds. This summary does not address the taxation
of other shareholders nor does it discuss any local taxes, other than New York
City taxes, that may be applicable. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to New York Fund transactions.
The following is based on the assumptions that the New York Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause New York Funds' distributions
to qualify as exempt-interest dividends to shareholders, and that they will
distribute all interest and dividends they receive to the New York Funds'
shareholders.
The New York Funds will be subject to the New York State corporate franchise
tax and the New York City general corporation tax only if they have a
sufficient nexus with New York State or New York City. If they are subject to
such taxes, they do not expect to pay a material amount of either tax.
Distributions by the New York Funds that are attributable to interest on any
obligation of New York and its political subdivisions or to interest on
obligations of U.S. territories and possessions 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. Distributions by the New York Funds that are attributable to interest on
obligations of the United States or its instrumentalities. All other
distributions, including distributions attributable to interest on obligations
of the United States or its instrumentalities and 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 distributions from the New York Funds, regardless of source, will
increase the taxable base of shareholders subject to the New York State
franchise tax or the New York City general corporation tax.
Gain from the sale, exchange, or other disposition of shares of the New York
Funds will be subject to the New York State personal income and franchise taxes
and the New York City personal income, unincorporated business, and general
corporation taxes.
Shares of the New York Funds may be subject to the New York State estate tax
if owned by a New York decedent at the time of death.
NEW JERSEY
The following is a general, abbreviated summary of certain provisions of the
applicable New Jersey tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the New Jersey
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local taxes that may be applicable. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to transactions of the New Jersey Funds.
The following is based on the assumptions that the New Jersey Funds will
qualify under Subchapter M of the Code as regulated investment companies and
under New Jersey law as qualified investment funds, that they will satisfy the
conditions which will cause New Jersey Funds' distributions to qualify as
exempt-interest dividends to shareholders, and that they will distribute all
interest and dividends they receive to the New Jersey Funds' shareholders.
The New Jersey Funds will be subject to the New Jersey corporation business
tax or the New Jersey corporation income tax only if they have a sufficient
nexus with New Jersey. If they are subject to either tax, the New Jersey Funds
do not expect to pay a material amount of either tax.
Distributions by the New Jersey Funds that are attributable to interest or
gains on any obligation of New Jersey or its political subdivisions or to
interest or gains on obligations of the United States, its 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 other
distributions will be subject to the New Jersey gross income tax.
S-44
<PAGE>
All distributions from the New Jersey Funds, regardless of source, will
increase the taxable base of shareholders subject to the New Jersey corporation
business tax or the New Jersey corporation income tax.
Gain on the sale, exchange, or other disposition of 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 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.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New Jersey state and local tax matters.
CALIFORNIA
The following is a general, abbreviated summary of certain provisions of the
applicable California tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the California
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local taxes that may be applicable. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to transactions of the California Funds.
The following is based on the assumptions that the California Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of the
California Funds to qualify as exempt-interest dividends to shareholders, and
that they will distribute all interest and dividends they receive to the
California Funds' shareholders.
The California Funds will not be subject to the California corporate
franchise tax. The California Funds will be subject to the California corporate
income tax only if they have a sufficient nexus with California. If they are
subject to the California corporate income tax, the California Funds do not
expect to pay a material amount of such tax.
Distributions by the California Funds that are attributable to interest on
any obligation of California and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the California personal income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
California personal income tax.
All distributions of California Funds to corporate shareholders, regardless
of source, will be subject to the California corporate franchise tax.
Gain on the sale, exchange, or other disposition of shares of the California
Funds will be subject to the California personal income and corporate franchise
taxes.
Shares of the California Funds may be subject to the California estate tax if
held by a California decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters.
CONNECTICUT
The following is a general, abbreviated summary of certain provisions of the
applicable Connecticut tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Connecticut Fund. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Connecticut Fund
transactions.
The following is based on the assumptions that the Connecticut Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Connecticut Fund distributions
to qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Connecticut Fund's
shareholders.
The Connecticut Fund will be subject to the Connecticut corporation business
tax only if it has a sufficient nexus with Connecticut. If it is subject to
that tax, it does not expect to pay a material amount of such tax.
Distributions from the Connecticut Fund that are attributable to interest or
gain on any obligation of Connecticut and its political subdivisions
("Connecticut Obligations") or to interest on obligations of U.S. territories
and possessions that are exempt from state taxation under federal law will not
be subject to the Connecticut personal income tax. All other distributions,
including distributions attributable to interest on obligations of the United
States or instrumentalities and distributions attributable to capital gain
(other than capital gain on Connecticut Obligations), will be subject to the
Connecticut personal income tax.
S-45
<PAGE>
All distributions from the Connecticut Fund, regardless of source, will be
subject to the Connecticut corporation business tax, but corporate shareholders
may be permitted a dividends received deduction for a portion of Connecticut
Fund distributions received.
Gain on the sale, exchange, or other disposition of shares of the Connecticut
Fund 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
tax, the Connecticut transfer tax, and the Connecticut estate tax if owned by,
or subject to a general power of appointment by, a Connecticut decedent at the
time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Connecticut and local tax matters.
MASSACHUSETTS
The following is a general, abbreviated summary of certain provisions of the
applicable Massachusetts tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Massachusetts Funds. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to the Massachusetts Funds'
transactions.
The following is based on the assumptions that the Massachusetts Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of the
Massachusetts Funds to qualify as exempt-interest dividends to shareholders,
and that they will distribute all interest and dividends they receive to the
Massachusetts Funds' shareholders.
The Massachusetts Funds are not subject to the Massachusetts corporate excise
tax, the Massachusetts franchise tax, or the Massachusetts income tax.
Distributions by the Massachusetts Funds that are attributable to interest on
or gain from the sale or exchange of any obligation of Massachusetts and its
political subdivisions, agencies and instrumentalities or to interest on
obligations of the United States and its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the Massachusetts personal income tax. All other
distributions will be subject to the Massachusetts personal income tax.
Distributions by the Massachusetts Funds, regardless of source, are subject
to the Massachusetts corporate excise tax.
Gain on the sale, exchange, or other disposition of shares of the
Massachusetts Funds will be subject to the Massachusetts personal income and
corporate excise tax.
Shares of the Massachusetts Funds may be subject to the Massachusetts estate
tax if owned by a Massachusetts decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Massachusetts state and local tax matters.
S-46
<PAGE>
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.
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:
a-b
Yield=2[(--- +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-47
<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. None of the Funds had Class B Shares
outstanding for the 30-day period ending on February 28, 1997.
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1997
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New Jersey Municipal Bond
Fund
Class A Shares............. 4.61% 43.5% 8.16%
Class B Shares............. N/A 43.5% N/A
Class C Shares............. 4.07% 43.5% 7.20%
Class R Shares............. 5.08% 43.5% 8.99%
New York Municipal Bond
Fund**
Class A Shares............. 4.41% 43.5% 7.81%
Class B Shares............. N/A 43.5% N/A
Class C Shares............. 3.86% 43.5% 6.83%
Class R Shares............. 4.86% 43.5% 8.60%
New York Insured Municipal
Bond Fund**
Class A Shares............. 4.19% 43.5% 7.42%
Class B Shares............. N/A 43.5% N/A
Class C Shares............. 3.80% 43.5% 6.73%
Class R Shares............. 4.58% 43.5% 8.11%
California Municipal Bond
Fund
Class A Shares............. 4.35% 45.0% 7.91%
Class B Shares............. N/A 45.0% N/A
Class C Shares............. 3.97% 45.0% 7.22%
Class R Shares............. 4.74% 45.0% 8.62%
California Insured Municipal
Bond Fund
Class A Shares............. 4.26% 45.0% 7.75%
Class B Shares............. N/A 45.0% N/A
Class C Shares............. 3.88% 45.0% 7.05%
Class R Shares............. 4.65% 45.0% 8.45%
Massachusetts Municipal Bond
Fund
Class A Shares............. 4.33% 47.0% 8.17%
Class B Shares............. N/A 47.0% N/A
Class C Shares............. 3.96% 47.0% 7.47%
Class R Shares............. 4.73% 47.0% 8.92%
Massachusetts Insured
Municipal Bond Fund
Class A Shares............. 3.99% 47.0% 7.53%
Class B Shares............. N/A 47.0% N/A
Class C Shares............. 3.60% 47.0% 6.79%
Class R Shares............. 4.37% 47.0% 8.25%
New Jersey Intermediate
Municipal Bond Fund
Class A Shares............. 4.33% 43.5% 7.66%
Class C Shares............. N/A 43.5% N/A
Class R Shares............. N/A 43.5% N/A
Connecticut Municipal Bond
Fund
Class A Shares............. 4.61% 42.5% 8.02%
Class B Shares............. N/A 42.5% N/A
Class C Shares............. 4.27% 42.5% 7.43%
Class R Shares............. N/A 42.5% 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-48
<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>
FEBRUARY 28, 1997
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
New Jersey Municipal Bond Fund........... 5.21% 4.69% 4.89% 5.64%
New York Municipal Bond Fund............. 5.16% 4.64% 4.84% 5.58%
New York Insured Municipal Bond Fund..... 4.76% 4.23% 4.41% 5.15%
California Municipal Bond Fund .......... 4.95% N/A 4.59% 5.37%
California Insured Municipal Bond Fund... 4.83% N/A 4.46% 5.22%
Massachusetts Municipal Bond Fund........ 4.94% N/A 4.64% 5.35%
Massachusetts Insured Municipal Bond
Fund..................................... 4.82% N/A 4.46% 5.20%
New Jersey Intermediate Bond Fund........ 4.76% N/A N/A N/A
Connecticut Municipal Bond Fund.......... 5.09% 4.57% 4.78% 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.
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes, total returns reflect actual performance
for periods since class inception, and the oldest class's performance for
periods prior to inception, adjusted for the differences in sales charges and
fees between the classes.
S-49
<PAGE>
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
New Jersey Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 26, 1991
New York Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
New York Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
California Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 1, 1986
California Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 1, 1986
Massachusetts Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
Massachusetts Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
New Jersey Intermediate Municipal Bond Fund
Class A Shares....................................... September 16, 1992
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
Connecticut Municipal Bond Fund
Class A Shares....................................... July 13, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
</TABLE>
S-50
<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, the
Massachusetts Insured Municipal Bond Fund, the California Municipal Bond Fund
and the California Insured Municipal Bond Fund, including the effect of the
maximum sales charge for Class A shares, and applicable CDSC for Class B
Shares, for the one-year, five-year, and ten-year periods ended February 28,
1997 and for the period from inception through February 28, 1997, respectively,
were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1997 1997 1997
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 0.67% 6.40% 6.53% 6.86%
Class B Shares........ 0.30% 6.47% 6.43% 6.76%
Class C Shares........ 4.31% 6.65% 6.26% 6.58%
Class R Shares........ 5.26% 7.63% 7.28% 7.61%
New York Insured
Municipal Bond Fund
Class A Shares........ -0.35% 6.03% 6.19% 6.46%
Class B Shares........ -0.79% 6.03% 6.06% 6.33%
Class C Shares........ 3.06% 6.17% 5.87% 6.11%
Class R Shares........ 4.15% 7.21% 6.91% 7.17%
Massachusetts Municipal
Bond Fund
Class A Shares........ 0.33% 6.11% 5.97% 5.95%
Class B Shares........ 0.04% 6.07% 5.81% 5.79%
Class C Shares........ 3.09% 6.18% 5.60% 5.58%
Class R Shares........ 4.99% 7.24% 6.66% 6.64%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ -0.35% 5.81% 6.15% 6.10%
Class B Shares........ -0.78% 5.82% 6.01% 5.96%
Class C Shares........ 3.17% 5.95% 5.82% 5.76%
Class R Shares........ 4.16% 6.99% 6.87% 6.82%
California Municipal
Bond Fund
Class A Shares........ 0.87% 5.80% 6.12% 6.79%
Class B Shares........ 0.67% 5.89% 6.02% 6.66%
Class C Shares........ 4.53% 6.00% 5.83% 6.46%
Class R Shares........ 5.67% 7.06% 6.88% 7.52%
California Insured
Municipal Bond Fund
Class A Shares........ 0.18% 6.03% 6.19% 6.64%
Class B Shares........ -0.16% 6.01% 6.03% 6.51%
Class C Shares........ 3.99% 6.14% 5.84% 6.27%
Class R Shares........ 4.81% 7.18% 6.89% 7.33%
</TABLE>
S-51
<PAGE>
The annual total return figures for the New Jersey Municipal Bond Fund, the
New Jersey Intermediate Bond Fund, and the Connecticut Municipal Bond Fund,
including the effect of the maximum sales charge for Class A Shares, including
the effect of the maximum sales charge for Class A Shares, and applicable CDSC
for Class B Shares, for the one-year and five-year periods (as applicable)
ended February 28, 1997, and for the period since inception through February
28, 1997, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
-----------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
FEBRUARY 28, 1997 FEBRUARY 28, 1997 FEBRUARY 28, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ 0.45% 6.02% 6.02%
Class B Shares........ 0.12% 6.04% 6.04%
Class C Shares........ 4.18% 6.19% 6.19%
Class R Shares........ 5.09% 7.21% 7.21%
New Jersey Intermediate
Municipal Bond Fund
Class A Shares........ -0.79% N/A 5.47%
Class C Shares........ 3.21% N/A 6.11%
Class R Shares........ 3.56% N/A 6.49%
Connecticut Municipal
Bond Fund
Class A Shares........ 1.04% 6.15% 6.91%
Class B Shares........ 0.88% 6.32% 6.90%
Class C Shares........ 4.89% 6.43% 6.77%
Class R Shares........ 5.46% 7.06% 7.38%
</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.
S-52
<PAGE>
The cumulative total return figures for the New York Municipal Bond Fund, the
New York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
the Massachusetts Insured Municipal Bond Fund, 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, and applicable CDSC for Class
B Shares, for the one-year, five-year and ten-year periods ended February 28,
1997, and for the period since inception February 28, 1997, using the
performance of the oldest class for periods prior to the inception of the newer
classes, as described above, respectively, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM
ENDED ENDED ENDED INCEPTION
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1997 1997 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 0.67% 36.38% 88.24% 96.65%
Class B Shares........ 0.30% 36.81% 86.41% 94.76%
Class C Shares........ 4.31% 38.00% 83.46% 91.30%
Class R Shares........ 5.26% 44.45% 101.88% 111.03%
New York Insured
Municipal Bond Fund
Class A Shares........ -0.35% 34.03% 82.39% 89.12%
Class B Shares........ -0.79% 34.04% 80.13% 86.93%
Class C Shares........ 3.06% 34.87% 76.83% 83.02%
Class R Shares........ 4.15% 41.60% 95.13% 102.46%
Massachusetts Municipal
Bond Fund
Class A Shares........ 0.33% 34.54% 78.50% 80.22%
Class B Shares........ 0.04% 34.24% 75.88% 77.34%
Class C Shares........ 3.90% 34.94% 72.50% 73.84%
Class R Shares........ 4.99% 41.80% 90.57% 92.53%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ -0.35% 32.62% 81.58% 82.83%
Class B Shares........ -0.78% 32.71% 79.30% 80.29%
Class C Shares........ 3.17% 33.47% 76.08% 76.96%
Class R Shares........ 4.16% 40.20% 94.40% 95.86%
California Municipal
Bond Fund
Class A Shares ....... 0.87% 32.58% 81.17% 101.55%
Class B Shares........ 0.67% 33.13% 79.40% 98.94%
Class C Shares........ 4.53% 33.83% 76.16% 95.01%
Class R Shares........ 5.67% 40.61% 94.52% 116.76%
California Insured
Municipal Bond Fund
Class A Shares ....... 0.18% 34.04% 82.30% 98.57%
Class B Shares........ -0.16% 33.89% 79.64% 95.98%
Class C Shares........ 3.99% 34.68% 76.45% 91.25%
Class R Shares........ 4.81% 41.44% 94.78% 112.51%
</TABLE>
S-53
<PAGE>
The cumulative total return figures for the New Jersey Municipal Bond Fund,
the New Jersey Intermediate Municipal Bond Fund and the Connecticut Municipal
Bond Fund, including the effect of the maximum sales charge for the Class A
Shares, and applicable CDSC for Class B Shares, for the one-year and five-year
periods (as applicable) ended February 28, 1997, and for the period since
inception through February 28, 1997, respectively, using the performance of the
oldest class for periods prior to the inception of the newer classes, as
described above, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
--------------------------------------
FROM
ONE YEAR FIVE YEARS INCEPTION
ENDED ENDED THROUGH
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1997 1997 1997
------------ ------------ ------------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund
Class A Shares................. 0.45% 33.92% 33.92%
Class B Shares................. 0.12% 34.07% 34.07%
Class C Shares................. 4.18% 35.00% 35.00%
Class R Shares................. 5.09% 41.61% 41.61%
New Jersey Intermediate Municipal
Bond Fund
Class A Shares................. -0.79% N/A 26.74%
Class C Shares................. 3.21% N/A 30.23%
Class R Shares................. 3.56% N/A 32.30%
Connecticut Municipal Bond Fund
Class A Shares................. 1.04% 34.75% 90.26%
Class B Shares................. 0.88% 35.84% 90.10%
Class C Shares................. 4.89% 36.59% 88.01%
Class R Shares................. 5.46% 40.65% 98.60%
</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 47.0% maximum combined marginal federal and state tax rate for
1997, the annual taxable equivalent total return for the Massachusetts
Municipal Bond Fund's shares for the five-year period ended February 28, 1997
with respect to the Class R shares was 12.65%.
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.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U. S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest
S-54
<PAGE>
but are subject to fluctuating rollover rates. Money market funds are short-
term investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
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 calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. 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 Funds primarily invest 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 share 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.
The minimum initial investment is $3,000 per fund share class, and may be
lower for accounts opened through fee-based programs for which the program
sponsor has established a single master account with the fund's transfer agent
and performs all sub-accounting services related to that account.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARE PURCHASE ELIGIBILITY
Rights of Accumulation. 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 Mutual Fund, or units of a Nuveen unit trust, on
which an up-front sales charge or ongoing distribution fee is imposed, or is
normally 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
S-55
<PAGE>
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 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 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 Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten 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 $50, the
minimum monthly investment in Class A Shares of any particular Fund or
portfolio for all participants in the program combined is $3,000; and the
minimum initial investment in Class A shares of any particular Fund or
portfolio for each participant in the program is $3,000. 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 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 one year prior to the
reinvestment of the 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;
S-56
<PAGE>
. 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 or their
immediate family members;
. 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 must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. 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, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $1 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
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, or their
immediate family members;
. 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.
In addition, purchasers of Nuveen unit investment trusts may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund.
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.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any
S-57
<PAGE>
redemption within 18 months of purchase. In the case of Class B Shares redeemed
within six years of purchase, a CDSC is imposed, beginning at 5% for
redemptions within the first year, declining to 4% for redemptions within years
two and three, and declining by 1% each year thereafter until disappearing
after the sixth year. Class C Shares are redeemed at net asset value, without
any CDSC, except that a CDSC of 1% is imposed upon redemption of Class C Shares
that are redeemed within 12 months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. You may not
exchange Class B Shares for shares of a
Nuveen money market fund. The holding period is calculated on a monthly basis
and begins the first day of the month in which the order for investment is
received. The CDSC is calculated based on the lower of the redeemed shares'
cost or net asset value at the time of the redemption and is deducted from the
redemption proceeds. Nuveen receives the amount of any CDSC shareholders pay.
If Class A or Class C Shares subject to a CDSC are exchanged for shares of a
Nuveen money market fund, the CDSC would be imposed on the subsequent
redemption of those money market shares, and the period during which the
shareholder holds the money market fund shares would be counted in determining
the remaining duration of the CDSC. The Fund may elect not to so count the
period during which the shareholder held the money market fund shares, in which
event the amount of any applicable CDSC would be reduced in accordance with
applicable SEC rules by the amount of any 12b-1 plan payments to which those
money market funds shares may be subject.
The CDSC may be waived or reduced under the following six special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; and 6) redemptions made pursuant to a Fund's automatic withdrawal
plan, up to 12% of the original investment amount. If a Fund waives or reduces
the CDSC, such waiver or reduction would be uniformly applied to all Fund
shares in the particular category. In waiving or reducing a CDSC, the Funds
will comply with the requirements of Rule 22d-1 of the Investment Company Act
of 1940, as amended.
GENERAL MATTERS
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
Funds 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.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
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.
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 the Funds' transfer agent. No share
certificates will be issued for fractional shares.
S-58
<PAGE>
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 II, dated February 1, 1997
("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 Financial, Inc. which Nuveen acquired on
January 1, 1997) 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
FEBRUARY 28, 1997* JANUARY 31, 1996 JANUARY 31, 1995
------------------------ ------------------------ ------------------------
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......... 206 19 241 16 255 35
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996 FEBRUARY 28, 1995
------------------------ ------------------------ ------------------------
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........... 244 24 272 33 428 64
New York Insured Fund... 394 49 450 71 850 126
California Fund......... 209 31 221 33 370 60
California Insured Fund. 338 52 357 56 517 93
Massachusetts Fund...... 99 9 96 12 170 20
Massachusetts Insured
Fund................... 79 11 113 14 147 24
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 1997** MAY 31, 1996 MAY 31, 1995
------------------------ ------------------------ ------------------------
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 Intermediate
Fund................... 6 1 19 4 31 6
Connecticut Fund........ 127 18 349 47 447 60
</TABLE>
- --------
*For the thirteen month period ended February 28, 1997.
**For the nine month period ended February 28, 1997.
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.
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
S-59
<PAGE>
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 February 28, 1997, 100% of service fees and
distribution fees were paid out as compensation to Authorized Dealers. Prior to
February 1, 1997, 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. Thereafter, the service fee for the Class A and Class
C Shares was .20% and the distribution fee for the Class C Shares was .55%. For
the period from June 1, 1996 to January 31, 1997, the service fee for the New
Jersey Intermediate Fund and the Connecticut Municipal Bond Fund Class C Shares
was .20% and the distribution fee was .20% for the Class A Shares and .75% for
the Class C Shares; thereafter, the fees were the same as the aforementioned
Funds.
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1997
----------------------
<S> <C>
New York Municipal Bond Fund
Class A................................................ $ 54,119
Class B................................................ $ 34
Class C................................................ $ 8,973
New York Insured Municipal Bond Fund
Class A................................................ $ 73,862
Class B................................................ $ 494
Class C................................................ $ 19,878
New Jersey Municipal Bond Fund*
Class A................................................ $ 39,563
Class B................................................ $ 15
Class C................................................ $ 20,820
New Jersey Intermediate Municipal Bond Fund**
Class A................................................ $ 11,368
Class C................................................ --
California Municipal Bond Fund
Class A................................................ $ 40,524
Class B................................................ N/A
Class C................................................ $ 7,416
California Insured Municipal Bond Fund
Class A................................................ $ 54,387
Class B................................................ N/A
Class C................................................ $ 11,151
Connecticut Municipal Bond Fund**
Class A................................................ $586,511
Class B................................................ $ 16
Class C................................................ $ 49,392
Massachusetts Municipal Bond Fund
Class A................................................ $ 13,857
Class B................................................ N/A
Class C................................................ $ 7,619
Massachusetts Insured Municipal Bond Fund
Class A................................................ $ 15,491
Class B................................................ N/A
Class C................................................ $ 8,380
</TABLE>
- --------
*For the thirteen month period ended February 28, 1997.
**For the nine month period ended February 28, 1997.
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.
S-60
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago Illinois 60603 has been selected as auditors for all of the Funds. 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 auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of that firm in giving that report. Prior to February 1,
1997, Deloitte & Touche LLP was the auditor for the Connecticut Fund and the
New Jersey Intermediate Fund.
The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York
Plaza, New York 10004. The 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; each is included herein by reference. The
Annual Reports accompany this Statement of Additional Information.
S-61
<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>
VAI-MS2
<PAGE>
NUVEEN
Municipal
Bond Funds
February 28, 1997
[PHOTO OF COUPLE APPEARS HERE]
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
Connecticut
<PAGE>
CONTENTS
2 Dear Shareholder
4 Answering Your Questions
6 Connecticut Overview
9 Financial Section
31 Shareholder Meeting Results
35 Shareholder Information
36 Fund Information
1
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
It is my pleasure to report to you on the performance of the Nuveen Flagship
Connecticut Municipal Bond Fund and to welcome new investors to our family of
investments. The fund rewarded investors during the fiscal year with
consistent performance, delivering attractive tax-free income while also
preserving your capital. At the same time, the fund added a measure of
stability to investor portfolios containing more volatile equity funds.
As of the fiscal year end, investors in the Nuveen Flagship Connecticut
Municipal Bond Fund's A shares were receiving dividends providing an
annualized tax-free current yield on net asset value of 4.81%. To receive this
yield on an after-tax basis, investors in the 39% federal and state income tax
bracket would have had to receive 7.89% from comparable taxable investments.
Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you. In January we acquired Flagship
Resources Inc., a respected manager of municipal bond mutual funds, based in
Dayton, Ohio. This added 19 mutual funds to the Nuveen family, giving
investors an expanded array of tax-free investment solutions for their
personal portfolios. As we increase our product offerings,
2
<PAGE>
"Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you."
we now offer you more flexibility to purchase fund shares according to your
specific circumstances through expanded pricing options.
Nuveen also has created new equity and balanced funds to help investors keep
more of what they have earned. In November we launched the Nuveen Growth and
Income Stock Fund, a fund that seeks to provide superior stock market
performance with moderated risk. Last month we introduced two new balanced
mutual funds, each designed to provide investors an attractive combination of
long-term growth potential and current income.
Nuveen prides itself on helping more than 1.3 million investors maintain the
lifestyle they currently enjoy by providing quality investment solutions with
reduced risk. Thank you for your continued confidence in Nuveen and our family
of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 1997
3
<PAGE>
Answering Your Questions
[PHOTO OF TED NIELD APPEARS HERE]
Ted Neild, Vice President and Senior Portfolio Manager of Nuveen Advisory
Corp., talks about the municipal bond market and offers insights into factors
that affected fund performance over the past year.
WHAT KEY ECONOMIC FACTORS AFFECTED
THESE FUNDS DURING THE PAST YEAR?
In the last 12 months, the bond market - despite some fluctuations - was
relatively stable compared with recent years. Following a strong start to the
year, a succession of mixed reports affecting interest rate and inflation
forecasts caused investors to view the markets with alternating enthusiasm and
uncertainty. In the third quarter of 1996, evidence of an economic slowdown,
the strong U.S. dollar, and lack of inflationary pressures combined to allay
investor fears, sparking a rally in bonds that continued through the
post-election period.
Throughout the year, stock market euphoria focused investors' attention on
stocks and brought record amounts of new money into stock funds, bypassing the
bond market. Some investors, concerned about a possible correction in the
stock market, decided to take their profits, but adopted a wait-and-see
attitude about investing capital gains, electing to go with short-term
vehicles until a clearer picture of market trends emerged. These events
affected demand for bond issues of all types in the last year.
GIVEN THIS MARKET ENVIRONMENT,
HOW DID THE FUND PERFORM?
The Connecticut Municipal Bond Fund rewarded Class A investors with a solid
total return on net asset value for the period, recording price changes and
reinvested dividends of 5.46%. During the same period, the Lehman Brothers
Municipal Bond Index, which does not incur operating expenses or transaction
costs, reported a 5.51% total return.
WHAT STRATEGIES DID YOU EMPLOY TO ADD VALUE?
The fluctuations of 1996 created specific inefficiencies in the market,
enabling Nuveen to uncover and take advantage of price discrepancies to
improve the fund's portfolio. For example, we were able to enhance the
durability of the fund's dividend by purchasing bonds with longer call
protection. These bonds were less in demand as interest rates began to rise
in
4
<PAGE>
1996, creating a value investing opportunity. These bonds then appreciated in
value more than other bonds as rates moved down during the year.
WHAT IS THE CURRENT STATUS OF CONNECTICUT'S ECONOMY?
Connecticut is in the midst of a slow economic recovery from a recession that
began in 1989 and ended in late 1992. Statistics show that the state has
recovered almost 40% of its recessionary employment loss with small business
fueling much of the growth in the services, wholesale, and retail trade
industries. The recovery has helped improve financial performance for two of
the State's largest metro areas (Bridgeport and New Haven), while the City of
Hartford continues to battle budget pressures. Governor Rowland's recommended
budget for 1998 anticipates significant income tax changes aimed at increasing
overall disposable income and encouraging economic expansion in the State.
Generally speaking, the outlook for the State's economy is favorable.
WHAT IS THE CURRENT ECONOMIC OUTLOOK?
A look at the current environment shows continued economic growth
characterized by low unemployment, increased manufacturing and construction
activity, and lack of price pressure at the consumer and producer levels.
Although inflation remains at the same subdued levels it has exhibited over
the past six years, the strength of the current economic expansion encouraged
the Federal Reserve to make a preemptive strike against inflation's potential
return. It raised short-term interest rates by 0.25% at the end of March.
While the bond market had already anticipated and discounted much of the
impact of this tightening, the Fed's action set off a decline in the equity
market that - in combination with the attractive yields currently available -
increased interest in municipal bonds on the part of investors looking to move
out of stocks. We believe we will continue to find value in the municipal
market over the next 12 months, giving prudent investors the attractive
tax-free income they seek, while limiting the volatility inherent in an
uncertain market.
"We believe we will continue to find value in the municipal market over the
next 12 months, giving prudent investors the attractive tax-free income they
seek, while limiting the volatility inherent in an uncertain market."
5
<PAGE>
Connecticut
Overview
Credit Quality
[PIE CHART APPEAR HERE]
BBB 16%
A 20%
AA 17%
NR 3%
AAA 44%
Diversification
[PIE CHART APPEAR HERE]
Housing Facilities 9%
Educational Facilities 18%
Escrowed Bonds 8%
Other 18%
General Obligation Bonds 10%
Pollution Control 3%
Health Care Facilities 34%
FUND HIGHLIGHTS
- ----------------------------------------------------------------------
SHARE CLASS A B C R
Inception Date 7/87 2/97 10/93 2/97
Net Asset Value (NAV) $10.51 $10.51 $10.49 $10.51
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Total Net Assets ($000) $217,061
Average Weighted Maturity (years) 19.5
Duration (years) 7.4
- ----------------------------------------------------------------------
ANNUALIZED TOTAL RETURN (1)
- ----------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
1-Year 5.47% 1.04% 4.87% 4.89% 5.46%
5-Year 7.06% 6.15% 6.47% 6.43% 7.06%
Inception 7.38% 6.91% 6.80% 6.77% 7.38%
- ----------------------------------------------------------------------
TAX-FREE YIELDS
- ----------------------------------------------------------------------
SHARE CLASS A(NAV) A(OFFER) B C R
Dist Rate 5.31% 5.09% 4.57% 4.78% 5.51%
SEC 30-Day Yld 4.81% 4.61% 4.07% 4.27% 5.02%
Taxable Equiv Yld(2) 7.89% 7.56% 6.67% 7.00% 8.23%
- ----------------------------------------------------------------------
1 Class A Share returns are actual. Class B, C and R Share returns
are actual for the period since class inception; returns prior to
class inception are Class A Share returns adjusted for differences
in sales charges and expenses, which are primarily differences in
distribution and service fees. Class A Shares have a 4.2% maximum
sales charge. Class B Shares have a CDSC that begins at 5% for
redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not
reflected in the total returns. Class C Shares have a 1% CDSC for
redemptions within one year, which is not reflected in the 1-year
total return.
2 Based on the SEC yield and on a combined federal and state income
tax rate of 39%; represents the income needed from a taxable
investment necessary to equal the income of the Nuveen fund on an
after-tax basis.
6
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
February 28, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in
the A shares of the Nuveen fund compared with the Lehman Brothers
Municipal Bond Index. The Lehman Municipal Bond Index is comprised of
a broad range of investment-grade municipal bonds, and does not
reflect any initial or ongoing expenses. The Nuveen fund return
depicted in the chart reflects the initial maximum sales charge
applicable to A shares at the time (4.20%) and all ongoing fund
expenses.
Index Comparison*
[GRAPH CHART APPEARS HERE]
[PLOT POINTS TO COME]
Lehman Brothers Municipal Bond Index $21,457
Nuveen Flagship Connecticut Municipal Bond Fund (NAV) $19,859
Nuveen Flagship Connecticut Municipal Bond Fund (Offer) $19,025
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
[PLOT POINTS TO COME]
7
<PAGE>
Financial Section
CONTENTS
10 Portfolio of Investments
19 Statement of Net Assets
20 Statement of Operations
21 Statement of Changes in Net Assets
22 Notes to Financial Statements
28 Financial Highlights
30 Report of Independent Public Accountants
9
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$8,000,000 Bristol Resource Recovery Facility, Operating Committee, 7/05 at 102 A $8,453,760
Solid Waste Revenue Refunding Bonds, Series 1995,
6.500%, 7/01/14
325,000 Town of Canterbury, Connecticut, General Obligation No Opt. Call A 382,187
Bonds, Series 1989, 7.200%, 5/01/09
2,800,000 State of Connecticut, General Obligation Capital No Opt. Call AA- 1,272,740
Appreciation Bonds, College Savings Plan,
1991 Series B, 0.000%, 12/15/11
1,000,000 State of Connecticut, General Obligation Capital No Opt. Call AA- 531,020
Appreciation Bonds, College Savings
Plan, 1990 Series A, 0.000%, 5/15/09
3,000,000 State of Connecticut, General Obligation Capital No Opt. Call AA- 1,400,460
Appreciation Bonds, College Savings
Plan, 1993 Series A, 0.000%, 6/15/11
3,200,000 State of Connecticut Health and Educational Facilities 7/03 at 100 AAA 3,621,440
Authority, Series 1988,
8.000%, 7/01/18 (Pre-refunded to 7/01/03)
100,000 State of Connecticut Health and Educational Facilities 7/98 at 102 Baa 104,485
Authority, St. Mary's, Series 1988, 7.600%, 7/01/03
2,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AA- 2,096,660
Authority Revenue Bonds, Nursing Home Program Issue,
Series 1994, (St. Camillus Health Center
Project), 6.250%, 11/01/18
State of Connecticut Health and Educational Facilities
Authority Revenue Bonds, Greenwich Academy Issue,
Series A:
1,000,000 5.700%, 3/01/16 3/06 at 101 AAA 1,005,270
2,000,000 5.750%, 3/01/26 3/06 at 101 AAA 2,007,260
1,300,000 State of Connecticut Health and Educational Facilities No Opt. Call AAA 1,559,441
Authority Revenue Bonds, Johnson Evergreen
Corporation Issue, Series A, (Lutheran General Parkside
Lodge), Series 1989, 7.375%, 7/01/19
250,000 State of Connecticut Health and Educational Facilities 7/99 at 102 BBB+ 258,220
Authority, Fairfield, Series F, 6.900%, 7/01/14
State of Connecticut Health and Educational Facilities
Authority Revenue Bonds, Quinnipiac College, Series D:
1,800,000 5.625%, 7/01/03 No Opt. Call BBB- 1,820,394
500,000 6.000%, 7/01/13 7/03 at 102 BBB- 492,035
8,285,000 6.000%, 7/01/23 7/03 at 103 BBB- 7,982,100
</TABLE>
10
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,600,000 State of Connecticut Health and Educational Facilities 7/00 at 102 AAA $2,831,036
Authority Revenue Bonds, Bristol Hospital Issue,
Series A, 7.000%, 7/01/20
1,000,000 State of Connecticut Health and Educational Facilities No Opt. Call N/R 1,103,620
Authority Revenue Bonds, The Taft School Issue,
Series A, 7.375%, 7/01/20
190,000 State of Connecticut Health and Educational Facilities 7/00 at 102 Baa1 199,164
Authority Revenue Bonds, St. Mary's Hospital Issue,
Series C, 7.375%, 7/01/20
5,500,000 State of Connecticut Health and Educational Facilities No Opt. Call AAA 6,071,615
Authority Revenue Bonds, Yale - New Haven Hospital
Issue, Series F, 7.100%, 7/01/25
1,750,000 State of Connecticut Health and Educational Facilities 7/00 at 102 AAA 1,895,863
Authority Revenue Bonds, Waterbury Hospital Issue,
Series B, 7.000%, 7/01/20
State of Connecticut Health and Educational Facilities
Authority Revenue Bonds, Sacred Heart University
Issue, Series B:
1,500,000 5.500%, 7/01/09 7/03 at 102 BBB- 1,433,250
500,000 5.700%, 7/01/16 7/03 at 102 BBB- 469,600
2,200,000 5.800%, 7/01/23 7/03 at 102 BBB- 2,055,262
900,000 State of Connecticut Health and Educational Facilities 7/01 at 102 AAA 969,615
Authority Revenue Bonds, Hospital of Saint Raphael
Issue, 6.625%, 7/01/14
3,500,000 State of Connecticut Health and Educational Facilities 7/02 at 102 AAA 3,700,830
Authority Revenue Bonds, Middlesex Hospital Issue,
6.250%, 7/01/12
2,000,000 State of Connecticut Health and Educational Facilities 7/02 at 102 AAA 2,168,020
Authority Revenue Bonds, Bridgeport Hospital Issue,
Series A, 6.625%, 7/01/18
4,200,000 State of Connecticut Health and Educational Facilities 7/04 at 102 AAA 4,300,590
Authority Revenue Bonds, New Britain General
Hospital Issue, Series B, 6.000%, 7/01/24
2,000,000 State of Connecticut Health and Educational Facilities 5/02 at 102 AAA 2,020,660
Authority Revenue Bonds, Yale-New Haven Hospital,
(Yale University), Series G, 5.929%, 6/10/30
1,100,000 State of Connecticut Health and Educational Facilities 7/02 at 102 A- 1,109,306
Authority Revenue Bonds, Ed Backus Hospital Issue,
6.000%, 7/01/12
</TABLE>
11
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$4,000,000 State of Connecticut Health and Educational Facilities 7/04 at 102 AAA $4,181,880
Authority Revenue Bonds, Nursing Home Program Issue,
Series 1994 (Sharon Health Care Project),
6.125%, 7/01/24
4,555,000 Connecticut Higher Education Supplemental Loan 11/01 at 102 A 4,893,749
Authority Revenue Bonds, Series A 1991,
7.200%, 11/15/10
Connecticut Higher Education Supplemental Loan Authority
Revenue Bonds (Family Education Loan Program), 1994 Series A:
1,845,000 6.300%, 11/15/10 11/04 at 102 A1 1,909,114
1,385,000 6.350%, 11/15/11 11/04 at 102 A1 1,438,212
710,000 Connecticut Housing Finance Authority, Housing Mortgage 11/01 at 102 AA 739,728
Finance Program Bonds, 1991 Series A,
7.200%, 11/15/08
850,000 Connecticut Housing Finance Authority, Housing Mortgage 11/02 at 102 AA 881,969
Finance Program Bonds, 1991 Series C,
6.700%, 11/15/22
2,250,000 Connecticut Housing Finance Authority, Housing Mortgage 5/03 at 102 AA 2,300,535
Finance Program Bonds, 1993 Series A,
6.200%, 5/15/14
25,000 Connecticut Housing Finance Authority, Housing Mortgage 11/00 at 102 AA 25,150
Finance Program Bonds, 1990 Series B,
7.550%, 11/15/08
3,750,000 Connecticut Housing Finance Authority, Housing Mortgage 5/04 at 102 AA 3,818,325
Finance Program Bonds, 1994 Series A,
6.100%, 5/15/17
1,265,000 Connecticut Housing Finance Authority, Housing Mortgage 5/04 at 102 AA 1,324,872
Finance Program Bonds, Series 1994, 6.750%, 5/15/22
1,500,000 Connecticut Housing Finance Authority, Housing Mortgage 5/05 at 102 AA 1,529,520
Finance Program Bonds, 1995 Series A1,
6.100%, 5/01/17
1,000,000 Connecticut Housing Finance Authority, Housing Mortgage 11/05 at 102 AA 1,016,490
Finance Program Bonds, 1995 Series A1,
6.000%, 5/15/17
1,500,000 Connecticut Housing Finance Authority, Housing Mortgage 5/06 at 102 AA 1,526,730
Finance Program Bonds, 6.050%, 5/15/18
5,000,000 Connecticut State Housing Finance Authority, Series 1996, 11/06 at 102 AA 5,053,500
6.150%, 11/15/27
</TABLE>
12
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,000,000 State of Connecticut Health and Educational Facilities 7/04 at 101 1/2 AAA $2,075,500
Authority Revenue Bonds, The Loomis Chaffee School
Issue, Series B, 6.000%, 7/01/25
1,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 1,062,920
Authority Revenue Bonds, Nursing Home Program Issue
(New Horizons Village Project), Series 1994,
6.250%, 11/01/21
5,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 5,326,250
Authority Revenue Bonds, Nursing Home Program Issue
(St. Joseph's Manor Project), Series 1994,
6.250%, 11/01/16
3,695,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 3,927,489
Authority Revenue Bonds, Nursing Home Program Issue
(St. Camillus Health Center), Series 1994, 6.250%,
11/01/18
3,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 3,188,760
Authority Revenue Bonds, Nursing Home Program Issue
(Jewish Nursing Home Program), Series 1994, 6.250%,
11/01/20
State of Connecticut Health and Educational Facilities
Authority Revenue Bonds, Nursing Home Program Issue
(Highland View), Series 1994:
1,500,000 7.200%, 11/01/10 11/04 at 102 AAA 1,691,130
4,200,000 7.500%, 11/01/16 11/04 at 102 AAA 4,813,578
1,100,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 1,240,162
Authority Revenue Bonds, Nursing Home Program Issue
(Wadsworth), Series 1994, 7.200%, 11/01/10
1,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 1,146,090
Authority Revenue Bonds, Nursing Home Program Issue
(Wadsworth Glen), Series 1994, 7.500%, 11/01/16
2,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 2,246,860
Authority Revenue Bonds, Nursing Home Program Issue,
Series 1994, 7.125%, 11/01/24
2,500,000 State of Connecticut Health and Educational Facilities 7/05 at 101 AAA 2,419,650
Authority Revenue Bonds, Kent School Issue,
Series B, 5.400%, 7/01/23
2,240,000 State of Connecticut Health and Educational Facilities 11/05 at 102 AAA 2,148,586
Authority Revenue Bonds, Connecticut State University,
5.125%, 11/01/15
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,645,000 State of Connecticut Health and Educational Facilities 7/06 at 102 AAA $1,583,822
Authority Revenue Bonds, Day Kimball Hospital Issue,
Series A, 5.375%, 7/01/26
State of Connecticut Health and Educational Facilities
Authority Revenue Bonds, Greenwich Hospital Issue, Series A:
3,000,000 5.750%, 7/01/16 7/06 at 102 AAA 3,008,400
1,500,000 5.800%, 7/01/26 7/06 at 102 AAA 1,502,955
4,115,000 State of Connecticut Health and Educational Facilities 11/06 at 102 AA- 4,119,815
Authority Revenue Bonds, Nursing Home
Program Issue (Abbott Terrace Health Center Project),
Series A, 5.750%, 11/01/13
4,365,000 State of Connecticut Health and Educational Facilities 11/06 at 102 AA- 4,569,107
Authority Revenue Bonds, Nursing Home
Program Issue (Park Fairfield Health Center), Series
1996, 6.250%, 11/01/21
1,600,000 State of Connecticut Health and Educational Facilities 7/06 at 102 AAA 1,629,712
Authority Revenue Bonds, Trinity College Issue,
Series E, 5.875%, 7/01/26
3,000,000 State of Connecticut Health and Educational Facilities 7/06 at 102 AAA 2,985,120
Authority Revenue Bonds, 5.700%, 7/01/25
1,435,000 State of Connecticut Health and Educational Facilities 7/06 at 101 AAA 1,397,202
Authority Revenue Bonds, The Loomis Chaffee School,
5.500%, 7/01/26
180,000 State of Connecticut Health and Educational Facilities 1/01 at 102 AAA 199,847
Authority Revenue Bonds, Capital Loan Program,
7.000%, 1/01/20 (Pre-refunded 1/01/01)
320,000 State of Connecticut Health and Educational Facilities 1/01 at 102 AAA 349,206
Authority Revenue Bonds, Capital Loan Program,
7.000%, 1/01/20
Connecticut Resources Recovery Authority, Bridgeport
System Bonds:
170,000 7.500%, 1/01/04 1/03 at 100 A 175,532
3,085,000 7.625%, 1/01/09 1/03 at 100 A 3,187,484
1,180,000 Connecticut Resources Recovery Authority, Wallingford 11/97 at 101 1/2 AA 1,216,674
Vicon Resource Recovery System, Series 1986,
7.125%, 11/15/08
400,000 Connecticut Resources Recovery Authority Revenue 11/01 at 102 A 430,644
Bonds, Wallingford Resource Recovery Project,
Series 1991, 6.750%, 11/15/03
</TABLE>
14
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500,000 Connecticut Resources Recovery Authority Revenue Bonds, 11/01 at 102 A $ 536,730
Wallingford Resource Recovery Project, Series 1991,
6.800%, 11/15/04
5,250,000 Connecticut Resources Recovery Authority Revenue 11/02 at 102 A 5,441,730
Bonds, American Fuel, Series 1992,
6.450%, 11/15/22
1,150,000 State of Connecticut Special Tax Obligation Bonds No Opt. Call AA- 1,256,490
Transportation Infrastructure Purposes,
1992 Series B, 6.125%, 9/01/12
770,000 Connecticut Development Authority, Water Facilities 6/00 at 102 A+ 827,219
Revenue Bonds (Bridgeport Hydraulic),
Series 1990, 7.250%, 6/01/20
2,000,000 Connecticut Development Authority, Water Facilities 12/03 at 102 AAA 2,213,540
Revenue Refunding Bonds (The Connecticut Water
Company Project - 1993 Series), 6.650%, 12/15/20
1,750,000 Connecticut Development Authority, Water Facilities 4/07 at 102 A+ 1,772,453
Revenue Bonds, Stamford Water Company,
Series 1997, 6.150%, 4/01/35
7,000,000 Connecticut Development Authority Health Care Project 9/02 at 102 A2 7,437,290
Refunding Bonds (Duncaster, Inc. Project - 1992 Series),
6.750%, 9/01/15
2,250,000 Connecticut Development Authority, Solid Waste Disposal 7/05 at 102 AAA 2,568,038
Facilities Revenue Bonds (Pfizer Inc. Project - 1994 Series),
7.000%, 7/01/25
1,000,000 State of Connecticut Clean Water Fund Revenue Bonds, 1/01 at 102 Aaa 1,103,140
1991 Series, 7.000%, 1/01/11
1,000,000 State of Connecticut Clean Water Fund Revenue Bonds, 6/04 at 102 Aaa 1,016,000
1994 Series, 5.800%, 6/01/16
11,165,000 Eastern Connecticut Resource Recovery Authority Solid 1/03 at 102 BBB+ 10,385,683
Waste Revenue Bonds (Wheelabrator Lisbon Project),
Series 1993, 5.500%, 1/01/20
Town of Glastonbury, Connecticut, General Obligation
Bonds, Issue of 1988:
200,000 7.200%, 8/15/06 No Opt. Call Aa1 236,814
200,000 7.200%, 8/15/07 No Opt. Call Aa1 238,482
200,000 7.200%, 8/15/08 No Opt. Call Aa1 239,296
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Town of Griswold, Connecticut, General Obligation
Bonds, Issue of 1989:
$ 200,000 7.500%, 4/01/02 No Opt. Call AAA $ 228,662
200,000 7.500%, 4/01/03 No Opt. Call AAA 232,456
200,000 7.500%, 4/01/04 No Opt. Call AAA 235,542
150,000 7.500%, 4/01/05 No Opt. Call AAA 178,659
340,000 Town of Middletown, Connecticut, General Obligation No Opt. Call AA 391,037
Bonds, Issue of 1990, 6.900%, 4/15/06
1,500,000 New Britain, Connecticut, Senior Citizens Housing 1/02 at 102 AAA 1,561,515
Development Corporation, Mortgage Revenue
Refunding Bonds, Series 1992, 6.875%, 7/01/24
3,105,000 City of New Haven, Connecticut, General Obligation 8/01 at 102 BBB 3,511,600
Bonds, Issue of 1991, 7.400%, 8/15/11
1,000,000 City of New Haven, Connecticut, General Obligation No Opt. Call BBB 1,143,490
Bonds, Series 1992 A, 9.250%, 3/01/02
1,000,000 City of New Haven, Connecticut, General Obligation 3/02 at 102 BBB 1,138,700
Bonds, Series 1992 A, 7.400%, 3/01/12
1,250,000 City of New Haven, Connecticut, General Obligation 2/05 at 102 AAA 1,290,638
Bonds, Series 1995, 5.750%, 2/15/14
City of New Haven, Connecticut, Facility Revenue
Bonds, Easter Seal, Series 1991:
405,000 8.500%, 4/01/01 No Opt. Call N/R 423,521
995,000 8.875%, 4/01/16 4/01 at 102 N/R 1,056,073
City of New London, Connecticut, General Obligation
Bonds, Series 1988:
120,000 7.300%, 12/01/05 No Opt. Call A+ 141,950
100,000 7.300%, 12/01/07 No Opt. Call A+ 119,873
Town of Old Saybrook, Connecticut, General Obligation
Bonds, Series 1989:
160,000 7.400%, 5/01/08 No Opt. Call A 191,205
160,000 7.400%, 5/01/09 No Opt. Call A 191,619
Town of Old Saybrook, Connecticut, General Obligation
Bonds, Series 1991:
275,000 6.500%, 2/15/10 No Opt. Call AAA 310,767
270,000 6.500%, 2/15/11 No Opt. Call AAA 305,540
925,000 Town of Oxford, Connecticut, General Obligation Bonds, 2/00 at 102 AAA 1,001,396
Series 1990, 7.000%, 2/01/09
</TABLE>
16
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Town of Plainfield, Connecticut, General Obligation Bonds,
Series 1991:
$ 225,000 7.000%, 9/01/00 No Opt. Call A $ 239,166
100,000 7.000%, 9/01/01 No Opt. Call A 107,110
100,000 7.100%, 9/01/02 9/01 at 102 A 108,452
310,000 7.100%, 9/01/03 9/01 at 102 A 334,936
100,000 7.200%, 9/01/04 9/01 at 102 A 107,898
335,000 7.250%, 9/01/06 9/01 at 102 A 371,669
335,000 7.300%, 9/01/08 9/01 at 102 A 370,188
155,000 7.300%, 9/01/10 9/01 at 102 A 169,965
1,130,000 Town of Stratford, Connecticut, General Obligation Bonds, 3/01 at 102 N/R 1,263,995
Issue of 1992, 7.300%, 3/01/12 (Pre-refunded to 3/01/01)
1,380,000 City of Torrington, Connecticut, General Obligation Bonds, 5/02 at 102 AAA 1,484,007
Series 1992, 6.400%, 5/15/02
City of Waterbury, Connecticut, General Obligation Bonds,
Series 1992:
535,000 7.250%, 3/01/01 (Pre-refunded to 3/01/01) 3/01 at 102 N/R 598,515
535,000 7.250%, 3/01/02 No Opt. Call BBB- 579,341
785,000 7.300%, 3/01/05 (Pre-refunded to 3/01/01) 3/01 at 102 N/R 879,624
780,000 7.400%, 3/01/06 (Pre-refunded to 3/01/01) 3/01 at 102 N/R 876,853
Town of Winchester, Connecticut, General Obligation Bonds,
Series 1990:
140,000 6.750%, 4/15/06 No Opt. Call A1 159,814
140,000 6.750%, 4/15/07 No Opt. Call A1 160,901
140,000 6.750%, 4/15/08 No Opt. Call A1 161,291
140,000 6.750%, 4/15/09 No Opt. Call A1 161,451
140,000 6.750%, 4/15/10 No Opt. Call A1 161,392
725,000 Town of Woodstock, Connecticut, Special Obligation Bonds, 3/00 at 103 AAA 790,423
Series 1990, 6.900%, 3/01/06
2,000,000 Puerto Rico Highway and Transportation Authority, 7/06 at 101 1/2 A 1,919,780
5.500%, 7/01/26
3,475,000 Puerto Rico Infrastructure, 7.750%, 7/01/08 7/98 at 102 BBB+ 3,702,820
- -----------------------------------------------------------------------------------------------------------------------------
$209,860,000 Total Investments - (cost $203,024,955) - 99.2% 215,234,911
- -----------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.8% 1,825,817
---------------------------------------------------------------------------------------------------------
Net Assets - 100% $217,060,728
---------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut - continued
<TABLE>
<CAPTION>
Summary of Ratings** - Portfolio of Investments
Standard Number of Market Market
& Poor's Moody's Securities Value Percent
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa 48 $ 94,797,082 44%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 22 35,785,414 17
A+ A1 11 7,013,670 3
A, A- A, A2, A3 21 36,160,400 17
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 15 35,276,144 16
Non-rated Non-rated 7 6,202,201 3
------------------------------------------------------------------------------
Total 124 $215,234,911 100%
------------------------------------------------------------------------------
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may
be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or Moody's
rating.
N/R - Investment is not rated.
18
See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets Nuveen Flagship Municipal Bond Fund
February 28, 1997 February 28, 1997 Annual Report
Nuveen Flagship
Connecticut
- -----------------------------------------------------
ASSETS
Investments in municipal securities,
at market value (note 1) $215,234,911
Receivables:
Interest 3,346,992
Shares sold 27,307
Investments sold 969,082
Other assets 15,359
- -----------------------------------------------------
Total assets 219,593,651
- -----------------------------------------------------
LIABILITIES
Cash overdraft 1,336,039
Payable for shares redeemed 76,543
Accrued expenses:
Management fees (note 6) 58,237
Other 98,655
Dividends payable 963,449
- -----------------------------------------------------
Total liabilities 2,532,923
- -----------------------------------------------------
Net assets (note 7) $217,060,728
- -----------------------------------------------------
CLASS A SHARES (NOTE 1)
Net assets $209,872,528
Shares outstanding 19,973,357
Net asset value and redemption
price per share $ 10.51
Offering price per share (net asset
value per share plus
maximum sales charge of 4.20%
of offering price) $ 10.97
- -----------------------------------------------------
CLASS B SHARES (NOTE 1)
Net assets $ 101,625
Shares outstanding 9,669
Net asset value, offering and
redemption price per share $ 10.51
- -----------------------------------------------------
CLASS C SHARES (NOTE 1)
Net assets $ 7,086,525
Shares outstanding 675,343
Net asset value, offering and
redemption price per share $ 10.49
- -----------------------------------------------------
CLASS R SHARES (NOTE 1)
Net assets $ 50
Shares outstanding 5
Net asset value, offering and
redemption price per share $ 10.51
- -----------------------------------------------------
19
See accompanying notes to financial statements.
<PAGE>
Statement of Operations
Nine months ended February 28, 1997
Nuveen Flagship
Connecticut
- ----------------------------------------------------------------
INVESTMENT INCOME
Tax-exempt interest income (note 1) $ 9,919,446
EXPENSES
Management fees (note 6) 807,840
12b-1 service fees D Class A (notes 1 and 6) 586,511
12b-1 distribution and service fees D Class B
(notes 1 and 6) 16
12b-1 distribution and service fees D Class C
(notes 1 and 6) 49,392
Shareholders' servicing agent fees and expenses 93,300
Custodian's fees and expenses 72,290
Trustees' fees and expenses (note 6) 4,021
Professional fees 16,380
Shareholders' reports - printing and mailing expenses 12,135
Federal and state registration fees 6,830
Other expenses 5,988
- ----------------------------------------------------------------
Total expenses before expense reimbursement 1,654,703
Expense reimbursement from investment adviser
(note 6) (367,429)
- ----------------------------------------------------------------
Net expenses 1,287,274
- ----------------------------------------------------------------
Net investment income 8,632,172
- ----------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
Net realized gain from investment transactions
(notes 1 and 4) 576,956
Net change in unrealized appreciation or
depreciation of investments 5,149,171
- ----------------------------------------------------------------
Net gain from investments 5,726,127
- ----------------------------------------------------------------
Net increase in net assets from operations $14,358,299
- ----------------------------------------------------------------
20
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
Nuveen Flagship Flagship
Connecticut* Connecticut
---------------------------------------------
Nine months ended 2/28/97 Year ended 5/31/96
- -------------------------------------------------------------------------
OPERATIONS
Net investment income $8,632,172 $11,632,542
Net realized gain from investment
transactions (notes 1 and 4) 576,956 951,483
Net change in unrealized appreciation
or depreciation of investments 5,149,171 (3,913,226)
- -------------------------------------------------------------------------
Net increase in net assets from
operations 14,358,299 8,670,799
- -------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (8,367,067) (11,371,201)
Class B (76) N/A
Class C (258,509) (327,137)
Class R -- N/A
- -------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (8,625,652) (11,698,338)
- -------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 13,422,621 17,698,654
Net proceeds from shares issued to
shareholders due to reinvestment of
distributions 4,748,942 6,666,728
- -------------------------------------------------------------------------
18,171,563 24,365,382
- -------------------------------------------------------------------------
Cost of shares redeemed (16,305,341) (20,622,363)
- -------------------------------------------------------------------------
Net increase in net assets
from Fund share transactions 1,866,222 3,743,019
- -------------------------------------------------------------------------
Net increase in net assets 7,598,869 715,480
Net assets at the beginning of period 209,461,859 208,746,379
- -------------------------------------------------------------------------
Net assets at the end of period $217,060,728 $209,461,859
- -------------------------------------------------------------------------
Balance of undistributed net investment
income at end of period $ 6,520 $ --
- -------------------------------------------------------------------------
* Information represents eight months of Flagship
Connecticut and one month of Nuveen Flagship Connecticut
(see note 1 of the Notes to Financial Statements).
N/A - Flagship Connecticut was not authorized to issue
Class B and Class R Shares (see note 1 of the Notes to
Financial Statements).
21
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. GENERAL INFORMATION AND SIGNIFICANT ACCOUNTING POLICIES
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end
investment company registered under the Investment Company Act of 1940,
as amended. The Trust comprises the Nuveen Flagship Connecticut
Municipal Bond Fund (the "Fund"), among others. The Trust was organized
as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor") and
investment advisor ("Adviser") of the Fund, entered into an agreement
under which Nuveen acquired Flagship Resources Inc. and after the close
of business on January 31, 1997, consolidated their respective mutual
fund businesses. This agreement was approved at a meeting by the
shareholders of the Flagship Funds in December, 1996.
After the close of business on January 31, 1997, the Flagship
Connecticut Double Tax-Exempt Fund ("Flagship Connecticut") was
reorganized into the Trust and renamed Nuveen Flagship Connecticut
Municipal Bond Fund. Flagship Connecticut had a May 31 fiscal year end
prior to being reorganized into the Trust and now has a February 28
fiscal year end.
The Fund seeks to provide high double tax-free income and preservation
of capital through investments in a diversified portfolio of quality
municipal bonds whose income is exempt from regular federal and state
income taxes.
The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements in accordance
with generally accepted accounting principles.
Securities Valuation
The prices of municipal bonds in the 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. Temporary investments in securities that have variable rate
and demand features qualifying them as short-term securities are traded and
valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized
gains and losses from such transactions are determined on the specific
identification method. Securities purchased or sold on a when-issued or
delayed delivery basis may be settled a month or more after the
transaction date. Any securities so purchased are subject to market
fluctuation during this period. The Fund has instructed the custodian to
segregate assets in a separate account with a current value at least
equal to the amount of its purchase commitments. At February 28, 1997,
there were no such purchase commitments.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted
for amortization of premiums and accretion of discounts on long-term
debt securities when required for federal income tax purposes.
22
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and
payment is made or reinvestment is credited to shareholder accounts
after month-end. Net realized capital gains and/or market discount from
investment transactions are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed
only to the extent they exceed available capital loss carryovers. Prior
to the reorganization, tax-exempt net investment income for Flagship
Connecticut was declared as a dividend daily and payment was made on the
last business day of each month.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the
ex-dividend date. The amount and timing of such distributions are
determined in accordance with federal income tax regulations, which may
differ from generally accepted accounting principles. Accordingly,
temporary over- distributions as a result of these differences may occur
and will be classified as either distributions in excess of net
investment income, distributions in excess of net realized gains and/or
distributions in excess of ordinary taxable income from investment
transactions, where applicable.
Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute to
shareholders all of its tax-exempt net investment income, in addition to
any significant amounts of net realized capital gains and/or market
discount from investments transactions. The Fund currently considers
significant net realized capital gains and/or market discount as amounts
in excess of $.001 per share. Furthermore, the Fund intends to satisfy
conditions which will enable interest from municipal securities, which
is exempt from regular federal and Connecticut state income taxes, to
retain such tax-exempt status when distributed to the shareholders of
the Fund. All income dividends paid during the period ended February 28,
1997, have been designated Exempt Interest Dividends.
Flexible Sales Charge Program
The Fund offers Class A, Class B, Class C and Class R Shares. Class A
Shares incur a sales charge on purchases and an annual 12b-1 service
fee. Class B Shares, which were first offered for sale on February 1,
1997, are sold without a sales charge on purchases but incur annual
12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a contingent deferred sales charge ("CDSC") up to
5% depending on the length of time the shares are held (CDSC declines to
0% at the end of six years). Class C Shares are sold without a sales
charge on purchases but incur annual 12b-1 distribution and service
fees. An investor purchasing Class C Shares agrees to pay a CDSC of 1%
if Class C Shares are redeemed within 18 months of purchase. Class R
Shares, which were first offered for sale on February 1, 1997, are not
subject to any sales charge on purchases or 12b- 1 distribution or
service fees. Class R Shares are available for purchases of over $1
million and in other limited circumstances.
Derivative Financial Instruments
The Fund may invest in certain derivative financial instruments
including futures, forward, swap, and option contracts, and other
financial instruments with similar charac-
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
teristics. Although the Fund is authorized to invest in such financial
instruments, and may do so in the future, it did not make any such
investments during the period ended February 28, 1997.
Expense Allocation
Expenses of the Fund that are not directly attributable to a specific
class of shares are prorated among the classes based on the relative net
assets of each class. Expenses directly attributable to a class of
shares are recorded to the specific class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the
reporting period.
2. FUND SHARES
Transactions in Fund shares were as follows:
Nuveen Flagship Flagship
Connecticut* Connecticut
----------------------------------------------
Nine months ended Year ended
2/28/97 5/31/96
----------------------------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------
Shares sold:
Class A 1,140,128 $ 11,872,759 1,453,108 $ 15,066,282
Class B 9,669 102,050 N/A N/A
Class C 139,474 1,447,762 253,267 2,632,372
Class R 5 50 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 442,768 4,597,336 624,317 6,491,833
Class B - - N/A N/A
Class C 14,628 151,60 616,838 174,895
Class R - - N/A N/A
- -------------------------------------------------------------------
1,746,672 18,171,563 2,346,530 24,365,382
- -------------------------------------------------------------------
Shares redeemed:
Class A (1,378,317) (14,350,628) (1,889,024) (19,630,307)
Class B - - N/A N/A
Class C (187,749) (1,954,713) (95,257) (992,056)
Class R - - N/A N/A
- -------------------------------------------------------------------
(1,566,066) (16,305,341) (1,984,281) (20,622,363)
- -------------------------------------------------------------------
Net increase 180,606 $ 1,866,222 362,249 $ 3,743,019
- -------------------------------------------------------------------
* Information represents 8 months of Flagship
Connecticut and 1 month of Nuveen Flagship Connecticut
(see note1).
N/A - Flagship Connecticut was not authorized to issue
Class B Shares and Class R Shares (see note 1).
24
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
3. DISTRIBUTIONS TO SHAREHOLDERS
On March 7, 1997, the Fund declared dividend distributions from its
tax-exempt net investment income which were paid on April 1, 1997, to
shareholders of record on March 7, 1997, as follows:
Connecticut
- ---------------------------------------------------------
Dividend per share:
Class A $ .0465
Class B .0400
Class C .0418
Class R .0482
- ---------------------------------------------------------
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities for the nine months (8 months of Flagship Connecticut and 1
month of Nuveen Flagship Connecticut D see note 1) ended February 28,
1997, aggregated $44,342,792 and $42,098,112, respectively.
At February 28, 1997, the identified cost of investments owned for
federal income tax purposes was the same as the cost for financial
reporting purposes for the Fund. The Fund had unused capital loss
carryforwards of $1,022,275 available for federal income tax purposes to
be applied against future capital gains, if any. If not applied, the
carryovers will expire on February 28, 2003.
5. UNREALIZED APPRECIATION (DEPRECIATION)
At February 28, 1997, net unrealized appreciation aggregated
$12,209,956, of which $12,363,825 related to appreciated securities and
$153,869 related to depreciated securities.
6. MANAGEMENT FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the Trust's investment management agreement with the Adviser, the
Fund pays an annual management fee, payable monthly, at the rates set
forth below which are based upon the average daily net asset value of
the Fund:
AVERAGE DAILY NET ASSET VALUE MANAGEMENT FEE
- --------------------------------------------------------------
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 net assets over $2 billion .4750 of 1
- --------------------------------------------------------------
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
The Adviser may voluntarily reimburse expenses from time to time, which
may be terminated at any time at its discretion.
The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office facilities. The
Trust pays no compensation directly to its Trustees who are affiliated
with the Adviser or to its officers, all of whom receive remuneration
for their services to the Trust from the Adviser.
During the nine months ended February 28,1997, the Distributor and its
predecessor (Flagship Funds Inc., a wholly-owned subsidiary of Flagship
Resources Inc.) collected sales charges of approximately $126,700 on
Class A share purchases, of which approximately $109,100 were paid out
as concessions to authorized dealers. The Distributor and its
predecessor also received 12b-1 service fees on Class A shares,
approximately one-half of which was paid to compensate authorized
dealers for providing services to shareholders relating to their
investments.
During the period February 10, 1997, to February 28, 1997, for Class B
shares and during the nine months ended February 28, 1997, for Class C
shares, the Distributor and its predecessor compensated authorized
dealers directly with approximately $19,300 in commission advances at
the time of share purchase. Class B and Class C shares purchased are
subject to a CDSC if the shares are redeemed within a specified period
of purchase. During the nine months ended Feburary 29, 1997, the
Distributor and its predecessor collected and retained approximately
$1,000 in such CDSC to compensate for commissions advanced to authorized
dealers. Additionally, all 12b-1 service fees collected on Class B
shares during the first year following a purchase, all 12b-1
distribution fees collected on Class B shares, and all 12b-1 service and
distribution fees on Class C shares during the first year following a
purchase are retained by the Distributor to compensate for commissions
advanced to authorized dealers. During the nine months ended February
28, 1997, the Distributor and its predecessor retained approximately
$21,800 in such 12b-1 service and distribution fees on Class B and C
shares.
7. COMPOSITION OF NET ASSETS
Nuveen Flagship
Connecticut
- -----------------------------------------------------------------
Capital paid-in $205,882,960
Balance of undistributed net investment income 6,520
Accumulated net realized gain (loss) from investment
transactions (1,038,708)
Net unrealized appreciation of investments 12,209,956
- -----------------------------------------------------------------
Net assets $217,060,728
- -----------------------------------------------------------------
26
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
8. INVESTMENT COMPOSITION
The Fund invests in municipal securities which include general
obligation, escrowed and revenue bonds. The revenue sources by municipal
purpose for these investments, expressed as a percent of total
investments, were as follows:
Nuveen Flagship
Connecticut
- -----------------------------------------------------
Revenue Bonds:
Health Care Facilities 34%
Educational Facilities 18
Housing Facilities 9
Pollution Control 3
Other 18
General Obligation Bonds 10
Escrowed Bonds 8
- -----------------------------------------------------
100%
- -----------------------------------------------------
At February 28, 1997, 47% of the long-term and intermediate-term
investments owned by the Fund are covered by insurance issued by several
private insurers or are backed by an escrow or trust containing U.S.
Government or U.S. Government agency securities, either of which ensure
the timely payment of principal and interest in the event of default.
Such insurance or escrow, however, does not guarantee the market value
of the municipal securities or the value of the Fund's shares.
For additional information regarding each investment security, refer to
the Portfolio of Investments of the Fund.
27
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each
period is as follows:
<TABLE>
<CAPTION>
Operating Performance Less Distributions
--------------------- ------------------
Net
Net realized and Distributions Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Nuveen Flagship beginning investment from investment from capital end of asset
Connecticut of period income(++) investments income gains period value(+)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Nine months ended
2/28/97 $10.230 $.421 $ .279 $(.420) $ -- $10.510 6.96%
Year ended 5/31,
1996 10.380 .570 (.140) (.580) -- 10.230 4.18
1995 10.170 .580 .220 (.590) -- 10.380 8.21
1994 10.660 .590 (.390) (.600) (.090) 10.170 1.70
1993 10.050 .610 .610 (.610) -- 10.660 12.48
1992 9.840 .630 .210 (.630) -- 10.050 8.81
1991 9.640 .630 .200 (.630) -- 9.840 8.97
1990 9.780 .630 (.130) (.630) (.010) 9.640 5.34
1989 9.250 .630 .550 (.640) (.010) 9.780 13.36
7/13/87 to 5/31/88 9.580 .540 (.310) (.560) -- 9.250 3.09
Class B
2/10/97 to 2/28/97 10.530 .037 (.017) (.040) -- 10.510 .19
Class C
Nine months ended
2/28/97 10.220 .378 .269 (.377) -- 10.490 6.43
Year ended 5/31,
1996 10.360 .520 (.140) (.520) -- 10.220 3.71
1995 10.160 .530 .200 (.530) -- 10.360 7.53
10/4/93 to 5/11/94 11.060 .330 (.840) (.330) (.060) 10.160 (6.48)
Class R
2/24/97 to 2/28/97 10.550 .013 (.053) -- -- 10.510 (.38)
</TABLE>
* Annualized.
** Nuveen Flagship Connecticut information included prior to the nine
months ended February 28, 1997, reflects the financial highlights
of Flagship Connecticut.
+ Total Return on Net Asset Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in net asset value per share. The total returns shown for
Class A Shares do not include the effect of applicable sales charge
on purchases. The total returns shown for Class B and Class C Shares
do not include the effect of applicable contingent deferred sales
charges. Class R Shares are not subject to any sales charge on
purchases or contingent deferred sales charges.
++ Reflects the waiver of certain management fees and reimbursement of
certain other expenses by the Adviser (see note 6 of the Notes to
Financial Statements).
28
<PAGE>
<TABLE>
<CAPTION>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
Ratios/Supplemental Data
-----------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment ment rate
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
Nine months ended
2/28/97 $ 209,873 1.02%* 5.18%* .79%* 5.41%* 20%
Year ended 5/31,
1996 202,219 1.03 5.23 .74 5.52 24
1995 203,210 1.03 5.54 .73 5.84 25
1994 202,607 1.03 5.14 .65 5.52 30
1993 184,743 1.04 5.50 .66 5.88 19
1992 141,215 1.05 5.90 .65 6.30 18
1991 103,552 1.07 6.09 .67 6.49 19
1990 73,046 1.07 6.08 .60 6.55 31
1989 48,990 1.17 6.15 .70 6.62 33
7/13/87 to 5/31/88 25,609 .61* 6.47* .54* 6.54* 71
Class B
2/10/97 to 2/28/97 102 1.59* 6.61* 1.12* 7.08* 20
Class C
Nine months ended
2/28/97 7,087 1.57* 4.65* 1.34* 4.88* 20
Year ended 5/31,
1996 7,243 1.58 4.67 1.29 4.96 24
1995 5,536 1.58 4.97 1.28 5.27 25
10/4/93 to 5/11/94 4,360 1.77* 4.22* 1.22* 4.77* 30
Class R
2/24/97 to 2/28/97 -- -- 10.97* -- 10.97* 20
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
NUVEEN FLAGSHIP MULTISTATE TRUST II:
We have audited the accompanying statement of net assets of Nuveen
Flagship Multistate Trust II (comprising the Nuveen Flagship Connecticut
Municipal Bond Fund) (a Massachusetts business trust), including the
portfolio of investments, as of February 28, 1997, and the related
statements of operations, changes in net assets and the financial
highlights for the year then ended. The financial statements and
financial highlights for the years ended May 31, 1996, and prior were
audited by other auditors whose report dated July 3, 1996, expressed an
unqualified opinion on those financial statements and financial
highlights. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of February 28, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the net
assets of the fund constituting the Nuveen Flagship Multistate Trust II,
as of February 28, 1997, the results of its operations, the changes in
its net assets, and the financial highlights for the periods indicated
above, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
30
<PAGE>
Nuveen Flagship Municipal Bond Fund Shareholder Meeting Report
February 28, 1997 Annual Report Connecticut
A SHARES C SHARES
- -----------------------------------------------------------------
ELECTION OF THE FUND'S
BOARD OF DIRECTORS
- -----------------------------------------------------------------
(A) Bremner For 14,760,862 502,501
Withhold 509,067 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(B) Brown For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(C) Dean For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(D) Impellizzeri For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(E) Rosenheim For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(F) Sawers For 14,760,862 502,501
Withhold 509,067 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(G) Schneider For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
(H) Schwertfeger For 14,760,244 502,501
Withhold 509,685 51,847
--------------------------------------
Total 15,269,929 554,348
- -----------------------------------------------------------------
ADVISORY AGREEMENT For 14,261,633 421,506
Against 350,786 31,898
Abstain 330,879 --
--------------------------------------
Total 14,943,298 453,404
- -----------------------------------------------------------------
Broker Non Votes 326,631 100,944
- -----------------------------------------------------------------
REORGANIZATION For 10,555,248 314,856
Against 281,409 12,089
Abstain 270,720 978
--------------------------------------
Total 11,107,377 327,923
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 226,425
--------------------------------------
31
<PAGE>
Shareholder Meeting Report
Connecticut - continued
A SHARES C SHARES
- -------------------------------------------------------------------
INVESTMENT OBJECTIVE For 10,327,901 318,667
Against 747,480 9,256
Abstain 31,996 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
INVESTMENT ASSETS For 10,182,362 318,667
Against 893,019 9,256
Abstain 31,996 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
TYPE OF SECURITIES For 10,342,616 318,667
Against 732,765 9,256
Abstain 31,996 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
BORROWING For 10,148,203 318,667
Against 927,911 9,256
Abstain 31,263 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
PLEDGES For 10,339,661 318,667
Against 736,683 9,256
Abstain 31,033 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
SENIOR SECURITIES For 10,340,011 318,667
Against 735,370 9,256
Abstain 31,996 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -------------------------------------------------------------------
UNDERWRITING For 10,346,058 318,667
Against 729,323 9,256
Abstain 31,996 978
----------------------------------------
Total 11,107,377 328,901
- -------------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
----------------------------------------
32
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
A SHARES C SHARES
- -----------------------------------------------------------------
REAL ESTATE For 10,316,309 318,667
Against 754,104 9,256
Abstain 36,964 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
COMMODITIES For 10,145,044 318,667
Against 927,479 9,256
Abstain 34,854 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
LOANS For 10,312,421 318,667
Against 760,102 9,256
Abstain 34,854 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
SHORT SALES/ MARGIN
PURCHASES For 10,298,827 318,667
Against 770,481 9,256
Abstain 38,069 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
PUT AND CALL OPTIONS For 10,299,593 318,667
Against 766,645 9,256
Abstain 41,139 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
INDUSTRY CONCENTRATION For 10,335,308 319,645
Against 736,858 9,256
Abstain 35,211 --
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
- -----------------------------------------------------------------
AFFILIATE PURCHASES For 10,315,335 319,619
Against 755,871 8,304
Abstain 36,171 978
--------------------------------------
Total 11,107,377 328,901
- -----------------------------------------------------------------
Broker Non Votes 4,162,552 225,447
--------------------------------------
33
<PAGE>
Shareholder Meeting Report
Connecticut - continued
A SHARES C SHARES
- ------------------------------------------------------------------
INVESTMENT COMPANIES For 10,331,161 319,619
Against 743,636 8,304
Abstain 36,171 978
---------------------------------------
Total 11,110,968 328,901
- ------------------------------------------------------------------
Broker Non Votes 4,158,961 225,447
- ------------------------------------------------------------------
DIV VS. NON-DIV For 10,112,106 311,756
Against 656,662 9,490
Abstain 342,200 6,677
---------------------------------------
Total 11,110,968 327,923
- ------------------------------------------------------------------
Broker Non Votes 4,158,961 226,425
- ------------------------------------------------------------------
12B-1 FEES For 14,006,396 432,274
Against 496,947 15,269
Abstain 439,947 5,861
---------------------------------------
Total 14,943,297 453,404
- ------------------------------------------------------------------
Broker Non Votes 326,632 100,944
- ------------------------------------------------------------------
34
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report Shareholder Information
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
NATIONAL FUNDS(1)
STATE FUNDS
Alabama Michigan
Arizona Missouri
California(2) New Jersey(3)
Colorado New Mexico
Connecticut New York2
Florida(3) North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky(4) South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts(2) Wisconsin
1. Long-term, insured long-term, intermediate-term
and limited-term portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
To purchase additional shares of your Nuveen Municipal Bond Fund,
contact your financial adviser. If you would like to add to your current
investment on a monthly or semi-annual basis, you can sign up for
Nuveen's systematic investing program, which allows you to invest a
fixed dollar amount every month automatically.
You can also invest automatically through dividend reinvestment. By
reinvesting your fund's dividends back into the fund, you gain the added
growth potential of long-term compounding.
For more information on any of these service options call your adviser,
or Nuveen at (800) 225-8530.
35
<PAGE>
FUND INFORMATION
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Margaret K. Rosenheim
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND DIVIDEND DISBURSING AGENT
Boston Financial
Nuveen Investor Services
P.O. Box 8509
Boston, Massachusetts 02266-8509
(800) 225-8530
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
36
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
NUVEEN
John Nuveen & Co. Incorporated 333 West Wacker Drive Chicago, IL 60606-1286
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently
enjoy.
A value investing approach - purchasing securities of strong companies and
communities that represent good long-term value - is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that
offers the potential for attractive returns with moderated risk. Successful
value investing begins with in-depth research and a discerning eye for
marketplace opportunity. Nuveen's team of investment professionals is backed
by the discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products - including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, individual managed account services, and cash
management products.
To find out more about how Nuveen investment products and services can help
you preserve your financial security, talk with your financial adviser, or
call us at (800) 414-7447 for more information, including a prospectus where
applicable. Please read that information carefully before you invest.
VAN-CT-2.97
<PAGE>
[NUVEEN LOGO]
Municipal
Bond Funds
January 31, 1997 and February 28, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF COUPLE SKIING APPEARS HERE]
New Jersey
<PAGE>
Contents
2 Dear Shareholder
4 Answering Your Questions
6 New Jersey Overview
7 New Jersey Intermediate Overview
9 Financial Section
47 Shareholder Meeting Report
51 Shareholder Information
52 Fund Information
1
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
It is a pleasure to report to you on the performance of your funds and to
welcome new investors to the Nuveen family of investments. Each of the funds in
this report continued to achieve its goal of delivering attractive tax-free
income from portfolios of quality municipal bonds, helping you to keep more of
what you've earned.
Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing fund investment results and our service to you. We also have
broadened our family of municipal bond funds to better meet your needs for
attractive current income free from federal and, in some cases, state taxes. One
of these key strategic steps was acquiring Flagship Resources Inc., a respected
manager of municipal bond mutual funds, based in Dayton, Ohio. This added 19
municipal mutual funds to the Nuveen family, giving investors an expanded array
of investment solutions for their personal portfolios. As we increased our
product offerings, we also broadened the pricing options you have to purchase
shares. We believe that all of this offers you even greater access to the
municipal market plus additional expertise, resources, and services to serve you
better.
In January, the Nuveen New Jersey Tax-Free Value Fund merged with the Flagship
New Jersey Double Tax Exempt Fund to reduce operating expenses and to benefit
shareholders. The combined fund's fiscal year end will now be February 28. The
Nuveen Flagship Intermediate Municipal Bond Fund, a former Flagship fund, will
continue forward, though its
TIMOTHY R. SCHWERTFEGER
2
<PAGE>
"Nuveen will continue to create new investments to help investors keep more of
what they have earned."
year end will change to February 28. The next report for the New Jersey funds
will be the semi-annual report dated August 31, 1997.
Nuveen also has created new equity-based investments to help investors keep more
of what they have earned. In November we launched the Nuveen Growth and Income
Stock Fund, a fund that seeks to provide prudent investors superior equity
market performance with equal or less risk than the overall stock market. This
month we introduced two new balanced mutual funds, each designed to give
investors the combination of performance potential and income protection that
comes from a carefully assembled balance of stocks and bonds.
We at Nuveen pride ourselves on providing attractive tax-free income with modest
risk to more than 1.3 million shareholders. In conversations with investors,
many of you have told me how important tax-free income is to maintaining a
lifestyle that you have worked so hard to build. I appreciate the trust you have
placed in us.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
March 17, 1997
3
<PAGE>
Answering Your Questions
Tom Spalding, head of Nuveen's portfolio management team, talks about the
municipal bond market and offers insights into factors that affected fund
performance over the past year.
[PHOTO OF TOM SPALDING APPEARS HERE]
TOM SPALDING
What key economic factors affected
these funds during the past year?
In 1996, the bond market -- despite some fluctuations -- was relatively stable
compared with recent years. Following a strong start to the year, a succession
of mixed reports affecting interest rate and inflation forecasts caused
investors to view the markets with alternating enthusiasm and uncertainty. In
the third quarter of 1996, evidence of an economic slowdown, the strong U.S.
dollar, and lack of inflationary pressures combined to allay investor fears,
sparking a rally in bonds that continued through the post-election period.
Throughout the year, euphoria in the equity market focused investors' attention
on stocks and brought record amounts of new money into equity-based mutual
funds, bypassing the bond market. Some investors, concerned about a possible
correction in the stock market, decided to take their profits, but adopted a
wait-and-see attitude about investing capital gains, electing to go with short-
term vehicles until a clearer picture of market trends emerged. These events
affected demand for bond issues of all types in 1996.
What impact did interest rates have on performance?
Even with relative stability in 1996, interest rates continued to play a role in
bond market performance. The Federal Reserve altered interest rates only once in
1996, with a 0.25% increase in January, but anticipation of further moves kept
the markets restless the remainder of the year. This concern about potential
changes in monetary policy continues into 1997, contributing to higher long-term
interest rates.
4
<PAGE>
"A look at the current economy shows a positive tone, reflecting a combination
of factors that historically bode well for the bond market, especially for
long-term issues."
How has the municipal market
performed during the past year?
The municipal market has not been as volatile as the Treasury market. The easing
of the flat tax concerns in 1996 benefited municipals at a time when bond prices
were otherwise suffering generally. Property and casualty companies were large
buyers of municipals after Steven Forbes' withdrawal from the presidential
primary race last year. Retail buyers came back into the municipal bond market
in the fourth quarter, and institutional investors continue to be strong buyers.
All of this helps to support municipal bond prices.
What is your approach to managing the funds?
We seek income consistent with preservation of capital. To accomplish this, we
follow a value investing strategy that depends on obtaining detailed insights
into the outlook for individual issuers and the characteristics of specific
bonds -- assessments that are not yet recognized by the market as a whole. We
target bonds that may be upgraded, a strategy that results in a higher level of
quality and safety in the portfolios, as well as potential appreciation in asset
value.
What is your outlook for the bond market in the next year?
A look at the current economy shows a positive tone, reflecting a combination of
factors that historically bode well for the bond market, especially for long-
term issues. Yields remain attractive, as inflation maintains the same modest
pace that it has demonstrated over the past six years, giving every indication
of being well under control. At the same time, economic expansion continues to
be slow and steady, as evidenced by a lack of price pressure at the consumer and
producer levels, strong consumer confidence, low unemployment figures, and a
stable money supply.
5
<PAGE>
Nuveen New Jersey Tax-Free Value Fund
January 31, 1997 Annual Report *
New Jersey Overview
A Shares
<TABLE>
<CAPTION>
<S> <C>
Highlights
- -----------------------------------
Net Assets $17,071,934
Net Asset Value $10.22
Average Maturity 16.98
- -----------------------------------
Total Return at NAV
- -----------------------------------
1-Year 3.31%
Since Inception 6.51%
- -----------------------------------
Tax-Free Yields at Offer Price
- -----------------------------------
SEC Yield 4.61%
Distribution Yield 4.72%
- -----------------------------------
</TABLE>
* All information as of January 31, 1997, except for the Index Comparison
chart, which shows the growth of a $10,000 investment in the Nuveen Flagship
New Jersey Municipal Bond Fund from the funds inception through February 28,
1997.
** The Index Comparison shows change in value of a $10,000 investment in the
Nuveen fund compared with the Lehman Brothers Municipal Bond Index. The
Lehman Municipal Bond Index is comprised of a broad range of investment-grade
municipal bonds, and does not reflect any initial or ongoing expenses. The
Nuveen fund return depicted in the chart reflects the initial maximum sales
charge applicable to A Shares at the time (4.50%) and all ongoing fund
expenses.
During the fiscal year, the fund's average annual total return on NAV for R
Shares was 3.55%, and since their inception in February 1992 was 7.13%. For
more information on share class total returns, turn to the Financial
Highlights beginning on page 41.
[PIE CHART APPEARS HERE]
[PIE CHART APPEARS HERE]
[GRAPH APPEARS HERE]
[BAR CHART APPEARS HERE]
6
<PAGE>
Nuveen Flagship New Jersey
Intermediate Municipal Bond Fund
February 28, 1997 Annual Report
New Jersey Intermediate Overview
A Shares
<TABLE>
<CAPTION>
<S> <C>
Fund Highlights
- -----------------------------------------------
Net Assets $7,010,918
Net Asset Value $10.30
Average Maturity 7.47
- -----------------------------------------------
Total Return at NAV
- -----------------------------------------------
1-Year 3.56%
Since Inception 6.49%
- -----------------------------------------------
Tax-Free Yields at Offer Price
- -----------------------------------------------
SEC Yield 4.33%
Distribution Yield 4.76%
- -----------------------------------------------
</TABLE>
* The Index Comparison shows change in value of a $10,000 investment in the
Nuveen fund compared with the Lehman Brothers Municipal Bond Index. The
Lehman Municipal Bond Index is comprised of a broad range of investment-grade
municipal bonds, and does not reflect any initial or ongoing expenses. The
Nuveen fund return depicted in the chart reflects the initial maximum sales
charge applicable to A Shares at the time (3.00%) and all ongoing fund
expenses.
[PIE CHART APPEARS HERE]
[PIE CHART APPEARS HERE]
[GRAPH APPEARS HERE]
[BAR CHART APPEARS HERE]
7
<PAGE>
Financial Section
Contents
10 Portfolio of Investments
27 Statement of Net Assets
28 Statement of Operations
29 Statement of Changes in Net Assets
31 Notes to Financial Statements
41 Financial Highlights
9
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen New Jersey
January 31, 1997
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,415,000 The Delaware River and Bay Authority, Revenue Bonds 1/04 at 102 Aaa $ 1,295,532
Series 1993, 5.000%, 1/01/17
1,000,000 New Jersey Economic Development Authority, 4/97 at 102 A3 1,021,210
Gas Facilities Revenue Bonds, 1991 Series A
(Elizabethtown Gas Company Project), 6.750%, 10/01/21
(Alternative Minimum Tax)
200,000 New Jersey Economic Development Authority, Lease Rental 3/02 at 102 Aaa 223,158
Bonds, 1992 Series (Liberty State Park Project), 6.800%
3/15/22 (Pre-refunded to 3/15/02)
1,000,000 New Jersey Economic Development Authority, Economic No Opt. Call N/R 1,168,500
Development Bonds (Yeshiva K'Tana of Passaic -- 1992
Project), 8.000%, 9/15/18
2,965,000 New Jersey Economic Development Authority, Economic No Opt. Call N/R 3,107,231
Development Bonds (Bridgewater Resources, Inc.
Project) 1994 Series A, 8.375%, 11/01/04
(Alternative Minimum Tax)
250,000 New Jersey Economic Development Authority, Solid Waste 4/02 at 102 Aa1 268,300
Disposal Facility Revenue Bonds (Garden State Paper
Company, Inc. Project), Series 1992, 7.125%, 4/01/22
(Alternative Minimum Tax)
1,215,000 New Jersey Economic Development Authority, Economic 12/03 at 102 Aa3 1,226,166
Growth Bond, Composite Issue -- 1992 Second Series H,
5.300%, 12/01/07 (Alternative Minimum Tax)
650,000 New Jersey Economic Development Authority, Market 7/04 at 102 Aaa 674,707
Transition Facility Senior Lien Revenue Bonds,
Series 1994A, 5.875%, 7/01/11
975,000 New Jersey Educational Facilities Authority, Trenton 7/97 at 100 A+ 976,892
State College Issue, Revenue Bonds, Series 1976 D,
6.750%, 7/01/08
835,000 New Jersey Educational Facilities Authority, Princeton 7/04 at 100 Aaa 867,198
University Revenue Bonds, 1994 Series A,
5.875%, 7/01/11
1,930,000 New Jersey Health Care Facilities Financing Authority, No Opt. Call Aaa 2,272,729
Revenue Bonds, Hackensack Hospital Issue Series A,
8.750%, 7/01/09
2,065,000 New Jersey Health Care Facilities Financing Authority, 7/01 at 102 A1 2,324,323
Revenue Bonds, Series 1990-E (Kennedy Memorial
Hospital), 8.375%, 7/01/10
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 700,000 New Jersey Health Care Facilities Financing Authority 7/00 at 102 Aaa $ 761,138
Revenue Bonds, Community Medical Center/Kensington
Manor Care Center Issue, Series E, 7.000%, 7/01/20
480,000 New Jersey Health Care Facilities Financing Authority 7/98 at 102 A 508,411
Revenue Bonds, Community Memorial Hospital
Association Issue, Series C, 8.000%, 7/01/14
3,000,000 New Jersey Health Care Facilities Financing Authority 7/99 at 102 A- 3,188,940
Revenue Bonds, Newton Memorial Hospital Issue,
Series A, 7.500%, 7/01/19
400,000 New Jersey Health Care Facilities Financing Authority 7/02 at 102 A 433,048
Refunding Revenue Bonds, Atlantic City Medical Center
Issue, Series C, 6.800%, 7/01/05
800,000 New Jersey Health Care Facilities Financing Authority 7/02 at 102 Ba1 827,152
Revenue Bonds, Palisades Medical Center, Obligated
Group Issue, Series 1992, 7.500%, 7/01/06
1,750,000 New Jersey Housing Finance Agency, Special Pledge 11/97 at 103 A1 1,810,148
Revenue Obligations, 1975 Series One, 9.000%, 11/10/18
1,500,000 New Jersey Housing Mortgage Finance Agency, 5/06 at 102 Aaa 1,529,040
Multifamily Housing Revenue Bonds, 1996 Series A,
6.200%, 11/01/18 (Alternative Minimum Tax)
2,000,000 New Jersey Housing and Mortgage Finance Agency, 5/05 at 102 Aaa 2,039,660
Multifamily Housing Revenue Bonds, 1995 Series A,
6.00%m 11/01/14
700,000 New Jersey Housing and Mortgage Finance Agency, 5/02 at 102 A+ 752,605
Housing Revenue Bonds, 1992 Series A,
6.950%, 11/01/13
335,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, No Opt. Call AAA 403,471
1984 Series, 10.375%, 1/01/03
New Jersey Turnpike Authority, Turnpike Revenue Bonds,
Series 1991 C:
1,750,000 6.500%, 1/01/08 No Opt. Call Baa1 1,929,918
435,000 6.500%, 1/01/16 No Opt. Call Aaa 485,999
1,000,000 State of New Jersey, General Obligation Bonds, Series D, No Opt. Call Aa1 1,069,770
5.800%, 2/15/07
1,000,000 Pollution Control Financing Authority of Camden County No Opt. Call BBB+ 1,023,830
(Camden County, New Jersey), Solid Waste Disposal
and Resource Recovery System Revenue Bonds,
Series 1991 C, 7.125%, 12/01/01
(Alternative Minimum Tax)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen New Jersey
January 31, 1997
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,645,000 Pollution Control Financing Authority of Camden County 12/01 at 102 BBB+ $ 2,723,953
(Camden County, New Jersey), Solid Waste Disposal
and Resource Recovery System Revenue Bonds,
Series 1991 D, 7.250%, 12/01/10
500,000 The Essex County Improvement Authority (Essex County, 12/02 at 102 Baa1 518,710
New Jersey), County Guaranteed Pooled Revenue Bonds,
Series 1992 A, 6.500%, 12/01/12
500,000 The Board of Education of The Township of Hillsborough, No Opt. Call AA 525,730
in the County of Somerset, State of New Jersey,
General Obligation School Purpose Bonds, Series 1992,
5.875%, 8/01/11
240,000 Hoboken Housing Finance Corporation, Multifamily No Opt. Call AA+ 241,495
Mortgage Revenue Bonds (Project Uplift - FHA
Section B), 1995 - A Refunding, 6.250%, 2/01/24
400,000 The Hudson County Improvement Authority, Multifamily 6/04 at 100 AAA 417,688
Housing Revenue Bonds, Series 1992 A (Conduit
Financing - Observer Park Project), 6.900%, 6/01/22
(Alternative Minimum Tax)
1,560,000 The Board of Education of the Borough of Little Ferry, No Opt. Call N/R 1,579,016
Bergen County, New Jersey, Certificates of
Participation, 6.300%, 1/15/08
The Board of Education of the Township of Monroe,
In the county of Gloucester, New Jersey, School Bonds,
Series 1993:
725,000 5.200%, 8/01/11 No Opt. Call Aaa 718,381
825,000 5.200%, 8/01/14 No Opt. Call Aaa 808,203
500,000 North Bergen Housing Development Corporation (North 9/09 at 100 N/R 510,310
Bergen, New Jersey), Mortgage Revenue Bonds,
Series 1978 (FHA Insured Mortgage Loan - Section 8
Assisted Project), 7.400%, 9/01/20
300,000 The Township of North Bergen (Hudson County, 8/02 at 102 Aaa 326,322
New Jersey), Fiscal Year Adjustment General Obligation
Bonds, Series 1992, 6.500%, 8/15/12
2,350,000 The Ocean County Utilities Authority (New Jersey), 4/97 at 100 Aaa 2,217,860
Wastewater Revenue Bonds, Refunding Series 1987,
5.000%, 1/01/14
2,215,000 County of Passaic, State of New Jersey, General No Opt. Call Aaa 2,179,892
Obligation Refunding Bonds, Series 1993,
5.125%, 9/01/12
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,100,000 Sparta Township School District, General Obligation 9/06 at 100 AAA $ 1,116,005
Bonds (Unlimited Tax), 5.800%, 9/01/18
270,000 The Union County Utilities Authority (New Jersey), 6/02 at 102 Aaa 287,137
Solid Waste System Revenue Bonds, Series D,
6.850%, 6/15/14 (Alternative Minimum Tax)
The Union County Utilites Authority (New Jersey),
Solid Waste System Revenue Bonds, 1991 Series A:
195,000 7.100%, 6/15/06 (Alternative Minimum Tax) 6/02 at 102 BB 200,004
1,100,000 7.200%, 6/15/14 (Alternative Minimum Tax) 6/02 at 102 BB 1,125,443
100,000 University of Medicine and Denistry of New Jersey 12/01 at 102 AA 110,229
Bonds, Series E, 6.500%, 12/01/18
(Pre-refunded to 12/01/01)
300,000 The Wanaque Borough Sewerage Authority (Passaic 12/02 at 102 Baa1 319,365
County, New Jersey), Sewer Revenue Bonds,
(Series 1992), (Bank Qualified), 7.000%, 12/10/21
2,145,000 The Port Authority of New York and New Jersey, 8/01 at 101 AA- 2,311,322
Consolidated Bonds, Seventy-Fourth Series,
6.750%, 8/01/26
1,750,000 Virgin Islands Housing Finance Authority, Single-Family 3/05 at 102 AAA 1,198,465
Mortgage Revenue Refunding Bonds (GNMA
Mortgage-Backed Securities Program), 1995 Series A,
6.450%, 3/01/16 (Alternative Minimum Tax)
2,000,000 Commonwealth of Puerto Rico, Public Improvement 7/05 at 101 1/2 Aaa 2,020,960
Bonds of 1995 (General Obligation Bonds),
5.750%, 7/01/24
1,000,000 Puerto Rico Aqueduct and Sewer Authority, Revenue 7/98 at 102 AAA 1,076,190
Bonds, Series 1988A, 7.875%, 7/01/17
(Pre-refunded to 7/01/98)
60,000 Puerto Rico Highway and Transportation Authority, 7/02 at 101 1/2 AAA 67,080
Highway Revenue Bonds (Series T),
6.625%, 7/01/18 (Pre-refunded to 7/01/02)
Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series P:
790,000 7.000%, 7/01/07 No Opt. Call Baa1 902,875
1,875,000 7.000%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 Aaa 2,104,837
1,500,000 Puerto Rico Electric Power Authority, Power Revenue 7/05 at 100 Baa1 1,377,344
Refunding Revenue Bonds, Series Z, 5.250%, 7/01/21
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000,000 Puerto Rico Industrial, Tourist, Educational, Medical 1/05 at 102 Aaa $ 1,055,510
and Environmental Control Facilities Financing
Authority, Hospital Revenue Bonds, 1995 Series A
(Hospital Auxilio Mutuo Obligated Group Project),
6.250%, 7/01/16
- ----------------------------------------------------------------------------------------------------------------------------------
$57,720,000 Total Investments --(cost $58,667,900) -- 96.2% 60,229,402
===========-----------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 2.6%
$ 600,000 New Jersey Economic Development Authority, VMIG-1 600,000
Dock Facility Revenue Refunding Bonds
(Bayonne/IMTT -- Bayonne Project), Series 1993A, Variable
Rate Demand Bonds, 3.400%, 12/01/27+
1,000,000 Port Authority of New York and New Jersey, Variable Rate VMIG-1 1,000,000
Demand Bonds, 3.650%, 6/01/20+
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1,600,000 Total Temporary Investments -- 2.6% 1,600,000
===========-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.2% 758,683
------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $62,588,085
==================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Summary of Ratings** -- Portfolio of Investments (excluding temporary investments)
Standard Number Market Market
& Poor's Moody's of Securities Value Percent
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa 24 $26,147,162 43%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 7 5,753,012 9
A+ A1 4 5,863,968 10
A, A- A, A2, A3 4 5,151,609 8
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 7 8,795,995 15
BB+, BB, BB- Ba1, Ba, Ba2, Ba3 3 2,152,599 4
Non-rated Non-rated 4 6,365,057 11
------------------------------------------------------------------------------------------------------------------
TOTAL 53 $60,229,402 100%
==================================================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants): Dates (month and
year) and prices of the earliest optional call or redemption. There may be other call
provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public accountants): Using the higher of Standard &
Poor's or Moody's rating.
N/R -- Investment is not rated.
+ The security has a maturity of more than one year, but has variable rate and demand features which qualify
it as a short-term security. The rate disclosed is that currently in effect. This rate changes periodically
based on market conditions or a specified market index.
14 See accompanying notes to financial statements.
</TABLE>
<PAGE>
Portfolio of Investments Nuveen Municipal Bond Funds
Annual Report
Nuveen Flagship New Jersey
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,415,000 The Delaware River and Bay Authority, Revenue Bonds, 1/04 at 102 Aaa $ 1,311,564
Series 1993, 5.000%, 1/01/17
1,000,000 New Jersey Economic Development Authority, 4/97 at 102 A3 1,021,480
Gas Facilities Revenue Bonds, 1991 Series A
(Elizabethtown Gas Company Project), 6.750%, 10/01/21
(Alternative Minimum Tax)
100,000 New Jersey Economic Development Authority, District 12/03 at 102 BBB- 101,977
Heating and Cooling Revenue Bonds (Trigen - Trenton
Project), 1993 Series A, 6.200%, 12/01/10
200,000 New Jersey Economic Development Authority, Lease 3/02 at 102 Aaa 223,704
Rental Bonds, 1992 Series (Liberty State Park Project),
6.800%, 3/15/22 (Pre-refunded to 3/15/02)
1,000,000 New Jersey Economic Development Authority, Economic No Opt. Call N/R 1,175,020
Development Bonds (Yeshiva K'Tana of Passaic - 1992
Project), 8.000%, 9/15/18
2,965,000 New Jersey Economic Development Authority, Economic No Opt. Call N/R 3,115,385
Development Bonds (Bridgewater Resources, Inc.
Project), 1994 Series A, 8.375%, 11/01/04
(Alternative Minimum Tax)
100,000 New Jersey Economic Development Authority, Water 6/03 at 102 Aaa 93,609
Facilities Revenue Refunding Bonds (New Jersey
American Water Company Inc. Project), Series 1993,
5.500%, 6/01/23 (Alternative Minimum Tax)
150,000 New Jersey Economic Development Authority, Water 3/04 at 102 Aaa 151,617
Facilities Revenue Refunding Bonds (Hackensack
Water Company, Project - 1994 Series B), 5.900%,
3/01/24 (Alternative Minimum Tax)
250,000 New Jersey Economic Development Authority, Solid 4/02 at 102 Aa1 268,670
Waste Disposal Facility Revenue Bonds (Garden State
Paper Company, Inc. Project), 7.125%, 4/01/22
(Alternative Minimum Tax)
1,215,000 New Jersey Economic Development Authority, Economic 12/03 at 102 Aa3 1,230,005
Growth Bond, Composite Issue - 1992 Second Series H,
5.300%, 12/01/07 (Alternative Minimum Tax)
185,000 New Jersey Economic Development Authority, 12/02 at 101 1/2 Aa3 196,176
Economic Growth Bonds, Composite Issue - 1992
Second Series A3, 6.550%, 12/01/07 (Alternative
Minimum Tax)
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey - continued
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 625,000 New Jersey Economic Development Authority, 5/05 at 102 Aaa $ 658,650
Insured Revenue Bonds (Educational Testing
Service Issue), Series 1995B, 6.125%, 5/15/15
300,000 New Jersey Economic Development Authority, 7/04 at 102 Aaa 319,509
Revenue Bonds (RWJ Health Care Corp. at
Hamilton Obligated Group Project), Series 1994,
6.250%, 7/01/14
450,000 New Jersey Economic Development Authority, 7/06 at 102 Aaa 412,727
Revenue Bonds (Clara Maass Health System
Obligated Group Project), Series 1996,
5.000%, 7/01/25
300,000 New Jersey Economic Development Authority, 9/02 at 102 Aaa 309,060
State Contract Economic Recovery Bonds, Series
1992 - A, 6.000%, 3/15/21
650,000 New Jersey Economic Development Authority, Market 7/04 at 102 Aaa 678,665
Transition Facility Senior Lien Revenue Bonds,
Series 1994A, 5.875%, 7/01/11
975,000 New Jersey Educational Facilities Authority, Trenton 7/97 at 100 A+ 977,272
State College Issue, Revenue Bonds, Series 1976 D,
6.750%, 7/01/08
835,000 New Jersey Educational Facilities Authority, Princeton 7/04 at 100 Aaa 870,780
University Revenue Bonds, 1994 Series A,
5.875%, 7/01/11
410,000 New Jersey Educational Facilities Authority, Revenue 7/03 at 102 Baa 391,710
Funding Bonds (Monmouth College), Series 1993 - A,
5.625%, 7/01/13
1,930,000 New Jersey Health Care Facilities Financing Authority, No Opt. Call Aaa 2,307,026
Revenue Bonds, Hackensack Hospital Issue, Series A,
8.750%, 7/01/09
2,065,000 New Jersey Health Care Facilities Financing Authority, 7/01 at 102 A1 2,327,771
Revenue Bonds, Series 1990-E (Kennedy Memorial
Hospital), 8.375%, 7/01/10
700,000 New Jersey Health Care Facilities Financing Authority, 7/00 at 102 Aaa 762,202
Revenue Bonds, Community Medical Center/Kensington
Manor Care Center Issue, Series E, 7.000%, 7/01/20
480,000 New Jersey Health Care Facilities Financing Authority, 7/98 at 102 A 507,883
Revenue Bonds, Community Memorial Hospital
Association Issue Series C, 8.000%, 7/01/14
</TABLE>
16
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,000,000 New Jersey Health Care Facilities Financing Authority, 7/99 at 102 A- $ 3,189,840
Revenue Bonds, Newton Memorial Hospital Issue,
Series A, 7.500%, 7/01/19
400,000 New Jersey Health Care Facilities Financing Authority, 7/02 at 102 A 434,096
Refunding Revenue Bonds, Atlantic City Medical Center
Issue, Series C, 6.800%, 7/01/05
800,000 New Jersey Health Care Facilities Financing Authority, 7/02 at 102 Ba1 829,088
Revenue Bonds, Palisades Medical Center, Obligated
Group Issue, Series 1992, 7.500%, 7/01/06
250,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 265,880
Revenue Bonds, Monmouth Medical Center Issue,
Series C, 6.250%, 7/01/16
200,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 214,220
Bayonne Hospital Obligated Group, Revenue Bonds,
Series 1994, 6.250%, 7/01/12
200,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 204,500
Revenue Bonds, Newark Beth Israel Medical Center
Issue, Series 1994, 6.000%, 7/01/16
250,000 New Jersey Health Care Financing Authority, Refunding 8/04 at 102 AAA 262,068
Revenue Bonds, Irrington General Hospital Issue
(FHA Insured Mortgage), Series 1994,
6.375%, 8/01/15
1,750,000 New Jersey Housing Finance Agency, Special Pledge 11/97 at 103 A1 1,811,618
Revenue Obligations, 1975 Series One, 9.000%,
11/01/18
1,500,000 New Jersey Housing Mortgage Finance Agency, 5/06 at 102 Aaa 1,535,055
Multi-Family Housing Revenue Bonds, 1996 Series A,
6.200%, 11/01/18 (Alternative Minimum Tax)
2,000,000 New Jersey Housing and Mortgage Finance Agency, 5/05 at 102 Aaa 2,047,200
Multi-Family Housing Revenue Bonds, 1995 Series A,
6.000%, 11/01/14
700,000 New Jersey Housing and Mortgage Finance Agency, 5/02 at 102 A+ 753,116
Housing Revenue Bonds, 1992 Series A,
6.950%, 11/01/13
500,000 New Jersey Housing and Mortgage Finance Agency, 11/02 at 102 A+ 526,975
Housing Revenue Bonds, 1992 Series One,
6.600%, 11/01/14
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey - continued
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New Jersey Housing and Mortgage Finance Agency,
Home Buyer Revenue Bonds, 1994 Series K:
$ 250,000 6.300%, 10/01/16 (Alternative Minimum Tax) 7/04 at 102 Aaa $ 256,538
400,000 6.375%, 10/01/26 (Alternative Minimum Tax) 7/04 at 102 Aaa 410,568
New Jersey Sports and Exposition Authority, Convention
Center Luxury Tax Bonds, 1992 A:
250,000 6.250%, 7/01/20 7/02 at 102 Aaa 265,283
100,000 5.500%, 7/01/22 7/02 at 102 Aaa 96,484
335,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, No Opt. Call AAA 402,546
1984 Series, 10.375%, 1/01/03
New Jersey Turnpike Authority, Turnpike Revenue Bonds,
Series 1991 C:
1,750,000 6.500%, 1/01/08 No Opt. Call Baa1 1,941,170
435,000 6.500%, 1/01/16 No Opt. Call Aaa 488,614
200,000 New Jersey Wastewater Treatment Trust, Wastewater 4/04 at 102 AA- 218,962
Treatment Bonds, Series 1994A, 6.500%, 4/01/14
1,000,000 State of New Jersey, General Obligation Bonds, Series D, No Opt. Call Aa1 1,074,750
5.800%, 2/15/07
200,000 The City of Atlantic City, In the County of Atlantic, No Opt. Call A- 205,754
New Jersey, General Obligation General Improvement
Bonds, Series 1994, 5.650%, 8/15/04
100,000 The City of Atlantic City, New Jersey, Municipal Utilities 5/02 at 102 A- 99,695
Authority Water System, Revenue Refunding Bonds,
Series 1993, 5.750%, 5/01/17
100,000 County of Atlantic, New Jersey, General Improvements 1/04 at 101 Aaa 106,889
Bonds, 6.000%, 1/01/07
150,000 County of Bergen Utility Authority, Water Pollution Control 12/02 at 102 Aaa 156,671
System Revenue, Series 1992 - B, 6.000%, 12/15/13
250,000 The Camden County Municipal Utilities Authority 7/06 at 102 Aaa 238,433
(Camden County, New Jersey), County Agreement Sewer
Revenue Refunding Bonds, 1996 Series, 5.125%, 7/15/17
1,000,000 Pollution Control Financing Authority of Camden County No Opt. Call BBB+ 1,025,380
(Camden County, New Jersey), Solid Waste Disposal
and Resource Recovery System Revenue Bonds,
Series 1991 C, 7.125%, 12/01/01
(Alternative Minimum Tax)
2,645,000 Pollution Control Finance Authority of Camden County 12/01 at 102 BBB+ 2,729,878
(Camden County, New Jersey), Solid Waste Disposal
and Resource Recovery System Revenue Bonds,
Series 1991 D, 7.250%, 12/01/10
</TABLE>
18
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250,000 City of East Orange, In the County of Essex, New Jersey, No Opt. Call Aaa $ 315,210
Fiscal Year Adjustment Bonds (Qualified under the
Municipal Qualified Bond Act P.L. 1976, c. 38,
as Amended), 8.400%, 8/01/06
The Essex County Improvement Authority (Essex County,
New Jersey), City of Newark General Obligation Lease
Revenue Bonds, Series 1994:
300,000 6.350%, 4/01/07 4/04 at 102 Baa1 311,190
450,000 6.600%, 4/01/14 4/04 at 102 Baa1 470,120
100,000 The Essex County Improvement Authority (Essex County, 12/04 at 102 Aaa 116,254
New Jersey), General Obligation Lease Revenue Bonds,
Series 1994 (County Jail and Youth House Projects),
6.900%, 12/01/14
500,000 The Essex County Improvement Authority (Essex County, 12/02 at 102 Baa1 520,455
New Jersey), County Guaranteed Pooled Revenue Bonds,
Series 1992A, 6.500%, 12/01/12
250,000 The Board of Education of the Township of Hillsborough, No Opt. Call AA 529,490
In the County of Somerset, State of New Jersey, General
Obligation School Purpose Bonds, Series 1992, 5.875%,
8/01/11
240,000 Hoboken Housing Finance Corporation, Multifamily No Opt. Call AA+ 242,177
Mortgage Revenue Bonds (Project Uplift - FHA
Section 8), 1995 - A Refunding, 6.250%, 2/01/24
100,000 Parking Authority of the City of Hoboken, County of 3/02 at 102 Baa1 102,928
Hudson, New Jersey, Parking General Revenue
Refunding Bonds, Series 1992A, 6.625%, 3/01/09
250,000 The Hoboken - Union City Weehawken Sewerage Authority 8/02 at 102 Aaa 264,043
(New Jersey), Sewer Revenue Bonds (Refunding
Series 1992), 6.200%, 8/01/19
400,000 The Hudson County Improvement Authority, Multifamily 6/04 at 100 AAA 418,252
Housing Revenue Bonds, Series 1992 A (Conduit
Financing - Observer Park Project), 6.900%, 6/01/22
(Alternative Minimum Tax)
1,560,000 The Board of Education of the Borough of Little Ferry, No Opt. Call N/R 1,587,518
Bergen County, New Jersey, Certificates of
Participation, 6.300%, 1/15/08
50,000 The Monmouth County Improvement Authority (Monmouth 7/02 at 102 AA+ 53,870
County, New Jersey), Revenue Bonds, Series 1992
(Howell Township Board of Education Project), 6.450%,
7/01/08
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey -- continued
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Board of Education of the Township of Monroe,
In the County of Gloucester, New Jersey, School Bonds,
Series 1993:
$ 725,000 5.200%, 8/01/11 No Opt. Call Aaa $ 722,274
825,000 5.200%, 8/01/14 No Opt. Call Aaa 815,933
500,000 North Bergen Housing Development Corporation (North 9/09 at 100 N/R 512,390
Bergen, New Jersey), Mortgage Revenue Bonds,
Series 1978 (FHA Insured Mortgage Loan -- Section 8
Assisted Project), 7.400%, 9/01/20
300,000 The Township of North Bergen (Hudson County, 8/02 at 102 Aaa 329,259
New Jersey), Fiscal Year Adjustment General Obligation
Bonds, Series 1992, 6.500%, 8/15/12
200,000 North New Jersey District Water Supply Commission of the 7/03 at 102 Aaa 206,398
State of New Jersey, Wanaque South Project, Revenue
Refunding Bonds, Series 1993, 6.000%, 7/01/21
2,350,000 The Ocean County Utilities Authority (New Jersey), 4/97 at 100 Aaa 2,240,467
Wastewater Revenue Bonds, Refunding Series 1987,
5.000%, 1/01/14
165,000 Parsippany -- Troy Hills Township, General Obligation, No Opt. Call Aa 100,734
Capital Appreciation Bonds, Series 1992, 0.000%,
4/01/07
2,215,000 County of Passaic, State of New Jersey, General No Opt. Call Aaa 2,198,388
Obligation Refunding Bonds, Series 1993,
5.125%, 9/01/12
1,100,000 Sparta Township School District General Obligation 9/06 at 100 AAA 1,119,690
Bonds (Unlimited Tax), 5.800%, 9/01/18
250,000 The City of Union City, In the County of Hudson, State of No Opt. Call Aaa 279,645
New Jersey, General Obligation School Purpose Bonds,
Series 1992, 6.375%, 11/01/10
250,000 Pollution Control Financing Authority of Union County No Opt. Call A3 268,168
(New Jersey), Pollution Control Revenue Refunding
Bonds, American Cyanamid Company Issue, Series 1994,
5.800%, 9/01/09
270,000 The Union County Utilities Authority (New Jersey), 6/02 at 102 Aaa 287,582
Solid Waste System Revenue Bonds, Series D,
6.850%, 6/15/14 (Alternative Minimum Tax)
The Union County Utilities Authority (New Jersey),
Solid Waste System Revenue Bonds, 1991 Series A:
195,000 7.100%, 6/15/06 (Alternative Minimum Tax) 6/02 at 102 BB 200,503
1,100,000 7.200%, 6/15/14 (Alternative Minimum Tax) 6/02 at 102 BB 1,128,127
</TABLE>
20
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 University of Medicine and Dentistry of New Jersey 12/01 at 102 AA $ 110,522
Bonds, Series E, 6.500%, 12/01/18
(Pre-refunded to 12/01/01)
300,000 The Wanaque Borough Sewerage Authority (Passaic 12/02 at 102 Baa1 320,244
County, New Jersey), Sewer Revenue Bonds,
(Series 1992), (Bank Qualified), 7.000%, 12/01/21
75,000 The Wanaque Valley Regional Sewerage Authority 9/03 at 102 Baa 72,560
(Passaic County, New Jersey), Sewer Revenue
Bonds (1993 Series A), 6.125%, 9/01/22
2,145,000 The Port Authority of New York and New Jersey, 8/01 at 101 AA- 2,316,150
Consolidated Bonds, Seventy-Fourth Series,
6.750%, 8/01/26
125,000 The Port Authority of New York and New Jersey, 10/04 at 101 Aaa 136,249
Consolidated Bonds, Ninety-Sixth Series,
6.600%, 10/01/20 (Alternative Minimum Tax)
200,000 The Port Authority of New York and New Jersey, 6/05 at 101 AA- 200,366
Consolidated Bonds, One Hundredth Series,
5.750%, 12/15/20 (Alternative Minimum Tax)
200,000 The Port Authority of New York and New Jersey, 7/04 at 101 AA- 208,917
Consolidated Bonds, Ninety-Fifth Series,
5.875%, 7/15/09 (Alternative Minimum Tax)
1,175,000 Virgin Islands Housing Finance Authority, Single Family 3/05 at 102 AAA 1,202,812
Mortgage Revenue Refunding Bonds (GNMA
Mortgage--Backed Securities Program), 1995 Series A,
6.450%, 3/01/16 (Alternative Minimum Tax)
2,000,000 Commonwealth of Puerto Rico, Public Improvement 7/05 at 101 1/2 Aaa 2,027,060
Bonds of 1995 (General Obligation Bonds),
5.750%, 7/01/24
550,000 Commonwealth of Puerto Rico, Public Improvement 7/06 at 101 1/2 A 523,562
Bonds of 1996 (General Obligation Bonds),
5.400%, 7/01/25
1,000,000 Puerto Rico Aqueduct and Sewer Authority, Revenue 7/06 at 101 1/2 AAA 1,074,630
Bonds, Series 1988A, 7.875%, 7/01/17
(Pre-refunded to 7/01/98)
170,000 Puerto Rico Aqueduct and Sewer Authority, Refunding 7/06 at 101 1/2 A 157,012
Bonds, Series 1995, Guaranteed by the Commonwealth
of Puerto Rico, 5.000%, 7/01/15
60,000 Puerto Rico Highway and Transportation Authority, 7/02 at 101 1/2 AAA 67,245
Highway Revenue Bonds (Series T), 6.625%,
7/01/18 (Pre-refunded to 7/01/02)
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey -- continued
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 225,000 Puerto Rico Commonwealth Highway Authority, 7/00 at 100 A $ 225,888
Highway Revenue Bonds, Series 1990 --
Q, 6.000%, 7/01/20
Puerto Rico Electric Power Authority, Power Revenue
Bonds, Series P:
790,000 7.000%, 7/01/07 No Opt. Call Baa1 907,686
1,875,000 7.000%, 7/01/21 (Pre-refunded to 7/01/01) 7/01 at 102 Aaa 2,109,767
200,000 Puerto Rico Electric Power Authority, Power Revenue 7/02 at 101 1/2 Baa1 208,023
Bonds, Series R, 6.250%, 7/01/17
250,000 Puerto Rico Electric Power Authority, Power Revenue 7/04 at 102 Baa1 264,387
Bonds, Series T, 6.375%, 7/01/24
1,500,000 Puerto Rico Electric Power Authority, Power Revenue 7/05 at 100 Baa1 1,390,244
Refunding, Series Z, 5.250%, 7/01/21
1,000,000 Puerto Rico Industrial, Tourist, Educational, Medical, and 1/05 at 102 Aaa 1,066,110
Environmental Control Facilities Financing Authority,
Hospital Revenue Bonds, 1995 Series A (Hospital
Auxilio Mutuo Obligated Group Project), 6.250%, 7/01/16
- --------------------------------------------------------------------------------------------------------------------------------
$68,100,000 Total Investments -- (cost $68,883,751) -- 97.0% 71,134,232
===========---------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 2.2%
$ 600,000 New Jersey Economic Development Authority, VMIG-1 600,000
Dock Facility Revenue Refunding Bonds
(Bayonne/IMTT -- Bayonne Project), Series 1993A, Variable
Rate Demand Bonds, 3.150%, 12/01/27+
1,000,000 Port Authority of New York and New Jersey, Variable Rate VMIG-1 1,000,000
Demand Bonds, 3.450%, 6/01/20+
- --------------------------------------------------------------------------------------------------------------------------------
$ 1,600,000 Total Temporary Investments -- 2.2% 1,600,000
===========---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.8% 582,190
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $73,316,422
================================================================================================================
</TABLE>
22
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Summary of Ratings** -- Portfolio of Investments (excluding
temporary investments)
<TABLE>
<CAPTION>
Standard Number Market Market
& Poor's Moody's of Securities Value Percent
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa 47 $32,047,330 45%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 13 6,750,789 10
A+ A1 5 6,396,752 9
A, A- A, A2, A3 10 6,633,378 9
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 15 10,757,952 15
BB+, BB, BB- Ba1, Ba, Ba2, Ba3 3 2,157,718 3
Non-rated Non-rated 4 6,390,313 9
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL 97 $71,134,232 100%
=================================================================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants): Dates (month
and year) and prices of the earliest optional call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent public accountants): Using the higher of Standard &
Poor's or Moody's rating.
N/R -- Investment is not rated.
+ The security has a maturity of more than one year, but has variable rate and demand features which
qualify it as a short-term security. The rate disclosed is that currently in effect. This rate changes
periodically based on market conditions or a specified market index.
23 See accompanying notes to financial statements.
</TABLE>
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey Intermediate
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 The Board of Education of the City of Atlantic City, 12/02 at 102 Aaa $107,148
In the County of Atlantic, New Jersey, School Bonds,
Series 1992, 6.000%, 12/01/06
250,000 The Atlantic City Municipal Utilities Authority, Atlantic 5/02 at 102 A- 252,473
County, New Jersey, Water System Revenue Bonds,
Series 1990, 5.650%, 5/01/07
100,000 County of Camden, New Jersey, General Obligation No Opt. Call Aaa 104,867
Refunding Bonds, Series 1992, 5.500%, 6/01/02
320,000 The Essex County Improvement Authority (Essex County, 4/04 at 102 Baa1 331,936
New Jersey), City of Newark General Obligation,
Lease Revenue Bonds, Series 1994, 6.350%, 4/01/07
330,000 Parking Authority of the City of Hoboken, County of No Opt. Call Baa1 341,464
Hudson, New Jersey, Parking General Revenue
Refunding Bonds, Series 1992A, 5.850%, 3/01/00
400,000 The City of Jersey City (Hudson County, New Jersey), No Opt. Call AA 435,280
School Bonds, 6.500%, 2/15/02
250,000 The Mercer County Improvement Authority, Mercer County, No Opt. Call Aa 179,208
New Jersey, Revenue Bonds (Hamilton Board of
Education Lease Project, Township Guaranteed
Refunding Series 1992), 0.000%, 4/01/04
100,000 The Monmouth County Improvement Authority 7/02 at 102 AA+ 107,703
(Monmouth County, New Jersey), Revenue Bonds,
Series 1992 (Howell Township Board of Education
Project), 6.000%, 7/01/03
100,000 Township of Montclair, In the County of Essex, New 3/00 at 101 1/2 Aaa 103,965
Jersey, General Obligation Bonds, 5.800%, 3/01/06
250,000 New Jersey Economic Development Authority, District 12/03 at 102 BBB- 260,770
Heating and Cooling Revenue Bonds, 6.100%, 12/01/04
150,000 New Jersey Economic Development Authority, Electric No Opt. Call BB+ 153,486
Energy Facility Revenue Bonds (Vineland Cogeneration
Limited Partnership Project), Series 1992, 6.750%, 6/01/99
100,000 New Jersey Economic Development Authority, Economic No Opt. Call A1 103,376
Development Refunding Bonds (Burlington Coat
Factory Warehouse of New Jersey, Inc. -- 1985 Project),
5.400%, 9/01/03
200,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 212,840
Revenue Bonds, Newark Beth Israel Medical Center
Issue, Series 1994, 5.800%, 7/01/07
</TABLE>
24
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 100,000 New Jersey Health Care Facilities Financing Authority, 7/02 at 102 Aaa $106,232
West Jersey Health System, Series 1992, 6.000%, 7/01/07
250,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 275,968
Revenue Bonds, Bayonne Hospital Obligated Group
Issue, Series 1994, 6.400%, 7/01/07
250,000 New Jersey Health Care Facilities Financing Authority, No Opt. Call Aaa 264,695
Revenue Bonds, Monmouth Medical Center Issue,
Series C, 5.700%, 7/01/02
250,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 269,218
Revenue Bonds, Dover General Hospital and Medical
Center Issue, Series 1994, 5.900%, 7/01/05
480,000 New Jersey Economic Development Authority, Insured No Opt. Call Aaa 500,563
Revenue Bonds (Educational Testing Service Issue),
Series 1995B, 5.500%, 5/15/05
300,000 New Jersey Economic Development Authority, Market No Opt. Call Aaa 340,806
Transition Facility Senior Lien Revenue Bonds,
Series 1994A, 7.000%, 7/01/04
100,000 New Jersey Sports and Exposition Authority, Convention 7/02 at 102 Aaa 106,676
Center Luxury Tax Bonds, 1992 Series A, 6.000%, 7/01/07
200,000 State of New Jersey General Obligation Bonds, No Opt. Call Aa1 152,934
Refunding Bonds (Series D), 0.000%, 2/15/03
140,000 New Jersey Educational Authority, Seton Hall Facilities 7/01 at 102 Baa1 151,739
University Project Revenue Bonds, 1991 Series,
Project D, 6.600%, 7/01/02
330,000 New Jersey Educational Facilities Authority, Higher No Opt. Call BBB+ 342,573
Education Facilities Revenue Bonds, St. Peter's College
Issue, 1992 Series B, 6.000%, 7/01/99
160,000 New Jersey Educational Facilities Authority, Stevens 7/02 at 102 A- 173,296
Institute of Technology Issue Revenue Bonds,
1992 Series A, 6.400%, 7/01/03
85,000 Higher Education Assistance Authority (State of New 7/02 at 102 A+ 85,217
Jersey), Student Loan Revenue Bonds, 1992
Series A, 6.000%, 1/01/06
175,000 New Jersey Transportation Trust Fund Authority, 6/05 at 102 Aaa 175,886
Transportation System Bonds, 1995 Series A,
5.250%, 6/15/09
100,000 North Jersey District Water Supply Commission of the 7/03 at 102 Aaa 106,608
State of New Jersey, Wanaque South Project, Revenue
Refunding Bonds, Series 1993, 5.700%, 7/01/05
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey Intermediate -- continued
February 28, 1997
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 200,000 County of Ocean, New Jersey, General Improvement 10/01 at 102 Aa $215,074
Bonds, Series 1991A, 6.250%, 10/01/06
185,000 The Board of Education of the City of Perth Amboy, No Opt. Call Aaa 202,277
In the County of Middlesex, New Jersey,
School Bonds, 6.200%, 8/01/04
200,000 The Port Authority of New York and New Jersey 7/04 at 101 AA- 208,434
Consolidated Bonds, Ninety-Fifth Series,
5.500%, 7/15/05
100,000 South Jersey Transportation Authority, Transportation 11/02 at 102 Aaa 106,714
Revenue Bonds, 1992 Series, 5.900%, 11/01/06
125,000 Township of Woodbridge, In the County of Middlesex, 8/02 at 102 A1 134,358
State of New Jersey, 6.150%, 8/15/06
300,000 The Port Authority of New York and New Jersey, Special No Opt. Call N/R 323,684
Project Bonds, Series 4, 7.000%, 10/01/07
250,000 Puerto Rico Electric Power Authority, 5.900%, 7/01/01 No Opt. Call Baa1 262,742
- --------------------------------------------------------------------------------------------------------------------------------
$ 6,930,000 Total Investments -- (cost $6,838,216) -- 102.7% 7,200,210
===========---------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (2.7)% (189,292)
----------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $7,010,918
================================================================================================================
Summary of Ratings** -- Portfolio of Investments
Standard Number of Market Market
& Poor's Moody's Securities Value Percent
----------------------------------------------------------------------------------------------------------------
AAA Aaa 15 $2,984,463 40%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 6 1,298,633 18
A+ A1 3 322,951 5
A, A- A, A2, A3 2 425,769 6
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 6 1,691,224 24
BB+, BB, BB- Ba1, Ba, Ba2, Ba3 1 153,486 2
Non-rated Non-rated 1 323,684 5
----------------------------------------------------------------------------------------------------------------
Total 34 $7,200,210 100%
================================================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants): Dates (month
and year) and prices of the earliest optional call or redemption. There may be other call provisions
at varying prices at later dates.
** Ratings (not covered by the report of independent public accountants): Using the higher of Standard &
Poor's or Moody's rating.
N/R -- Investment is not rated.
26 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
Annual Report
Statement of Net Assets
Nuveen Flagship
Nuveen Nuveen Flagship New Jersey
New Jersey* New Jersey Intermediate
-------------------------------------------------
1/31/97 2/28/97 2/28/97
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $60,229,402 $71,134,232 $7,200,210
Temporary investments in short-term municipal securities,
at amortized cost (note 1) 1,600,000 1,600,000 --
Receivables:
Interest 763,197 1,072,312 93,875
Shares sold 116,197 105,279 --
Investments sold 10,000 -- --
Other assets 5,808 26,712 13,389
- ----------------------------------------------------------------------------------------------------------------------
Total assets 62,724,604 73,938,535 7,307,474
- ----------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 3,008 158,129 160,364
Payable for shares redeemed 40,447 147,650 75,316
Accrued expenses:
Management fees (note 6) 28,933 31,048 3,021
Other 64,131 69,856 28,713
Dividends payable -- 215,430 29,142
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 136,519 622,113 296,556
- ----------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $62,588,085 $73,316,422 $7,010,918
======================================================================================================================
Class A Shares (note 1)
Net assets $17,071,934 $27,879,126 $7,010,918
Shares outstanding 1,671,230 2,717,000 680,702
Net asset value and redemption price per share $ 10.22 $ 10.26 $10.30
Offering price per share (net asset value per share plus
maximum sales charge of 4.50%, 4.20% and 3.00%,
respectively, of offering price) $ 10.70 $ 10.71 $10.62
======================================================================================================================
Class B Shares (note 1)
Net assets N/A $ 74,217 N/A
Shares outstanding N/A 7,230 N/A
Net asset value, offering and redemption price per share N/A $ 10.26 N/A
======================================================================================================================
Class C Shares (note 1)
Net assets $ 2,610,879 $ 2,712,111 --
Shares outstanding 255,888 264,614 --
Net asset value, offering and redemption price per share $ 10.20 $ 10.25 --
======================================================================================================================
Class R Shares (note 1)
Net assets $42,905,272 $42,650,968 --
Shares outstanding 4,195,136 4,151,700 --
Net asset value, offering and redemption price per share $ 10.23 $ 10.27 --
======================================================================================================================
</TABLE>
* Nuveen New Jersey was reorganized into Nuveen Flagship New Jersey and
ceased to exist after the close of business on January 31, 1997 (see
note 1 of the Notes to Financial Statements).
N/A - Nuveen New Jersey was not authorized to issue Class B Shares. Nuveen
Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1 of
the Notes to Financial Statements) did not issue Class C Shares and
was not authorized to issue Class R Shares.
See accompanying notes to financial statements.
27
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
Nuveen Flagship
Nuveen Nuveen Flagship New Jersey
New Jersey* New Jersey Intermediate
---------------------------------------------------
Year ended One month ended Nine months ended
1/31/97 2/28/97 2/28/97
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $3,525,548 $363,696 $319,418
- --------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 324,016 31,048 28,675
12b-1 service fees -- Class A (notes 1
and 6) 35,270 4,293 11,368
12b-1 distribution and service fees --
Class B (notes 1 and 6) N/A 15 N/A
12b-1 distribution and service fees --
Class C (notes 1 and 6) 19,286 1,534 --
Shareholders' servicing agent fees and
expenses 85,895 5,968 12,024
Custodian's fees and expenses 46,622 3,664 30,802
Trustees' fees and expenses (note 6) 1,002 117 195
Professional fees 15,660 1,796 8,333
Shareholders' reports - printing and
mailing expenses 32,296 2,913 10,270
Federal and state registration fees 5,092 -- --
Amortization of deferred organization
costs 7,390 -- 8,020
Other expenses 3,381 101 169
- --------------------------------------------------------------------------------------------------
Total expenses before expense
reimbursement 575,910 51,449 109,856
Expense reimbursement from investment
adviser (note 6) (79,514) (25,690) (71,304)
- --------------------------------------------------------------------------------------------------
Net expenses 496,396 25,759 38,552
- --------------------------------------------------------------------------------------------------
Net investment income 3,029,152 337,937 280,866
- --------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from
Investment
Net realized gain (loss) from investment
transactions (notes 1 and 4) (98,679) -- 35,472
Net change in unrealized appreciation or
depreciation of investments (891,352) 328,719 90,246
- --------------------------------------------------------------------------------------------------
Net gain (loss) from investments (990,031) 328,719 125,718
- --------------------------------------------------------------------------------------------------
Net increase in net assets from operations $2,039,121 $666,656 $406,584
==================================================================================================
</TABLE>
* Nuveen New Jersey was reorganized into Nuveen Flagship New
Jersey and ceased to exist after the close of business on
January 31, 1997 (see note 1 of the Notes to Financial
Statements).
N/A - Nuveen New Jersey was not authorized to issue Class B Shares.
Nuveen Flagship New Jersey Intermediate is not authorized to
issue Class B Shares and prior to February 1, 1997, its
predecessor (see note 1 of the Notes to Financial Statements)
did not issue Class C Shares and was not authorized to issue
Class R Shares.
See accompanying notes to financial statements.
28
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Nuveen Flagship
New Jersey* New Jersey
------------------------- ---------------
Year ended Year ended One month ended
1/31/97 1/31/96 2/28/97
- -------------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
Operations
Net investment income $ 3,029,152 $ 2,617,653 $ 337,937
Net realized gain (loss) from investment
transactions (notes 1 and 4) (98,679) (30,019) --
Net change in unrealized appreciation or
depreciation of investments (891,352) 3,249,789 328,719
- -------------------------------------------------------------------------- ---------------
Net increase in net assets from operations 2,039,121 5,837,423 666,656
- -------------------------------------------------------------------------- ---------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (704,372) (329,633) (125,569)
Class B N/A N/A (49)
Class C (82,289) (32,025) (10,843)
Class R (2,250,619) (2,282,656) (200,899)
- -------------------------------------------------------------------------- ---------------
Decrease in net assets from
distributions to shareholders (3,037,280) (2,644,314) (337,360)
- -------------------------------------------------------------------------- ---------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the
reorganization of Nuveen New Jersey
(note 1) -- -- 62,588,085
Net proceeds from shares issued in the
reorganization of Flagship New Jersey
(note 1) -- -- 10,797,401
Net proceeds from sale of shares 14,264,870 12,793,035 859,670
Net asset value of shares issued to
shareholders due to reinvestment
of distributions 2,264,231 1,765,951 --
- -------------------------------------------------------------------------- ---------------
16,529,101 14,558,986 74,245,156
- -------------------------------------------------------------------------- ---------------
Cost of shares redeemed (7,972,757) (5,509,237) (1,308,030)
- -------------------------------------------------------------------------- ---------------
Net increase (decrease) in net assets derived
from Fund share transactions 8,556,344 9,049,749 72,937,126
- -------------------------------------------------------------------------- ---------------
Net increase (decrease) in net assets 7,558,185 12,242,858 73,266,422
- -------------------------------------------------------------------------- ---------------
Net assets at the beginning of year 55,029,900 42,787,042 50,000
- -------------------------------------------------------------------------- ---------------
Net assets at the end of year $62,588,085 $55,029,900 $ 73,316,422
========================================================================== ===============
Balance of undistributed net investment
income at end of year $ -- $ 8,128 $ 577
========================================================================== ===============
</TABLE>
* Nuveen New Jersey was reorganized into Nuveen Flagship New Jersey and
ceased to exist after the close of business on January 31, 1997 (see
note 1 of the Notes to Financial Statements).
N/A - Nuveen New Jersey was not authorized to issue Class B Shares. Nuveen
Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1 of
the Notes to Financial Statements) did not issue Class C Shares and
was not authorized to issue Class R Shares.
See accompanying notes to financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
Nuveen Flagship New Jersey Intermediate*
----------------------------------------
Nine months ended Year ended
2/28/97 5/31/96
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 280,866 $ 447,320
Net realized gain (loss) from investment transactions
(notes 1 and 4) 35,472 12,478
Net change in unrealized appreciation or depreciation
of investments 90,246 (98,145)
- ------------------------------------------------------------------------------------------------
Net increase in net assets from operations 406,584 361,653
- ------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (282,787) (446,648)
Class B N/A N/A
Class C -- --
Class R -- N/A
- ------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (282,787) (446,648)
- ------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the
reorganization of Nuveen New Jersey
(note 1) -- --
Net proceeds from shares issued in the
reorganization of Flagship New Jersey
(note 1) -- --
Net proceeds from sale of shares 300,959 1,086,130
Net asset value of shares issued to shareholders due to
reinvestment of distributions 174,134 265,262
- ------------------------------------------------------------------------------------------------
475,093 1,351,392
- ------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,905,553) (2,165,321)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from Fund share transactions (1,430,460) (813,929)
- ------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (1,306,663) (898,924)
- ------------------------------------------------------------------------------------------------
Net assets at the beginning of year 8,317,581 9,216,505
- ------------------------------------------------------------------------------------------------
Net assets at the end of year $ 7,010,918 $ 8,317,581
================================================================================================
Balance of undistributed net investment income
at end of year $ 33 $ 1,954
================================================================================================
</TABLE>
* Nuveen Flagship New Jersey Intermediate information included for the year
ended May 31, 1996, reflects the financial information of Flagship New
Jersey Intermediate (see note 1 of the Notes to Financial Statements).
N/A - Nuveen New Jersey was not authorized to issue Class B Shares. Nuveen
Flagship New Jersey Intermediate is not authorized to issue Class B Shares
and prior to February 1, 1997, its predecessor (see note 1 of the Notes to
Financial Statements) did not issue Class C Shares and was not authorized
to issue Class R Shares.
See accompanying notes to financial statements.
30
<PAGE>
Notes to Financial Statements Nuveen Municipal Bond Funds
Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end
diversified management investment company registered under the
Investment Company Act of 1940, as amended. The Trust comprises the
Nuveen Flagship New Jersey Municipal Bond Fund ("Nuveen Flagship New
Jersey") and the Nuveen Flagship New Jersey Intermediate Municipal
Bond Fund ("Nuveen Flagship New Jersey Intermediate"), among others.
The Trust was organized as a Massachusetts business trust on July 1,
1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and
Nuveen Advisory Corp., respectively, the distributor ("Distributor")
and investment advisor ("Adviser") of the Funds, entered into an
agreement under which Nuveen acquired Flagship Resources Inc. and
after the close of business on January 31, 1997, consolidated their
respective mutual fund businesses. This agreement was approved at a
meeting by the shareholders of the Flagship Funds in December, 1996.
After the close of business on January 31, 1997, Nuveen New Jersey
Tax-Free Value Fund ("Nuveen New Jersey") and Flagship's New Jersey
Double Tax Exempt Fund ("Flagship New Jersey") reorganized into Nuveen
Flagship New Jersey. Flagship's New Jersey Intermediate Tax Exempt
Fund ("Flagship New Jersey Intermediate") was reorganized into the
Trust and renamed Nuveen Flagship New Jersey Intermediate. Prior to
these reorganizations, Nuveen New Jersey was a series of the Nuveen
Multistate Tax-Free Trust while Flagship New Jersey and Flagship New
Jersey Intermediate were each a sub-trust of the Flagship Tax Exempt
Funds Trust. Nuveen New Jersey had a fiscal year end of January 31
prior to being reorganized into Nuveen Flagship New Jersey which has a
February 28 fiscal year end. Flagship New Jersey Intermediate had a
May 31 fiscal year end prior to being reorganized into the Trust and
now has a February 28 fiscal year end.
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.
The following is a summary of significant accounting policies followed
by the Funds in the preparation of their financial statements in
accordance with generally accepted accounting principles.
Securities Valuation
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. Temporary investments in securities that have
variable rate and demand features qualifying them as short-term
securities are traded and valued at amortized cost.
31
<PAGE>
Notes to Financial Statements - continued
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized
gains and losses from such transactions are determined on the specific
identification method. Securities purchased or sold on a when-issued
or delayed delivery basis may be settled a month or more after the
transaction date. Any securities so purchased are subject to market
fluctuation during this period. The Trust has instructed the custodian
to segregate assets in a separate account with a current value at
least equal to the amount of its purchase commitments. The Funds had
no such purchase commitments at the end of the periods covered by this
report.
Interest Income
Interest income is determined on the basis of interest accrued,
adjusted for amortization of premiums and accretion of discounts on
long-term debt securities when required for federal income tax
purposes.
Dividends and Distributions to Shareholders
Nuveen New Jersey and Nuveen Flagship New Jersey, for the periods
covered by this report, and Nuveen Flagship New Jersey Intermediate,
from February 1, 1997, to February 28, 1997, declared tax-exempt net
investment income as a dividend monthly and payment was made or
reinvestment was credited to shareholder accounts after month-end. Net
realized capital gains and/or market discount from investment
transactions are distributed to shareholders not less frequently than
annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryovers. Prior to the
reorganization, tax-exempt net investment income for Flagship New
Jersey Intermediate was declared as a dividend daily and payment was
made on the last business day of each month.
Distributions to shareholders of tax-exempt net investment income, net
realized capital gains and/or market discount are recorded on the ex-
dividend date. The amount and timing of such distributions are
determined in accordance with federal income tax regulations, which
may differ from generally accepted accounting principles. Accordingly,
temporary over-distributions as a result of these differences may
occur and will be classified as either distributions in excess of net
investment income, distributions in excess of net realized gains
and/or distributions in excess of ordinary taxable income from
investment transactions, where applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes and
intends to comply with the requirements of the Internal Revenue Code
applicable to regulated investment companies by distributing to
shareholders all of its tax-exempt net investment income, in addition
to any significant amounts of net realized capital gains and/or market
discount from investment transactions. The Funds currently consider
significant net realized capital gains and/or market discount as
amounts in excess of $.001 per share. Furthermore, each Fund intends
to satisfy conditions which will enable interest from municipal
securities, which is exempt from regular federal and New Jersey state
income taxes, to retain such tax-exempt status when distributed to the
shareholders of the respective Funds. All income dividends paid during
the periods covered by this report have been designated Exempt
Interest Dividends.
32
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Flexible Sales Charge Program
Each Fund of the Trust offers Class A, Class C and Class R Shares.
Class A Shares incur a sales charge on purchases and an annual 12b-1
service fee. Class C Shares are sold without a sales charge on
purchases but incur annual 12b-1 distribution and service fees. An
investor purchasing Class C Shares agrees to pay a contingent deferred
sales charge ("CDSC") of 1% if Class C Shares are redeemed within 18
months of purchase. Class R Shares are not subject to any sales charge
on purchases or 12b-1 distribution or service fees. Class R Shares are
available for purchases of over $1 million and in other limited
circumstances. Nuveen Flagship New Jersey also offers Class B Shares
which are sold without a sales charge on purchases but incur annual
12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC up to 5% depending upon the length of time
the shares are held (CDSC declines to 0% at the end of six years).
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments
including futures, forward, swap, and option contracts, and other
financial instruments with similar characteristics. Although the Funds
are authorized to invest in such financial instruments, and may do so
in the future, they did not make any such investments during the
periods covered by this report.
Expense Allocation
Expenses of each Fund that are not directly attributable to a specific
class of shares are prorated among the classes based on the relative
net assets of each class. Expenses directly attributable to a class of
shares are recorded to the specific class.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of increases and decreases in net assets from operations
during the reporting period.
33
<PAGE>
Notes to Financial Statements - continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen New Jersey*
----------------------------------------------------
Year ended Year ended
1/31/97 1/31/96
----------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 798,711 $ 8,132,760 765,342 $ 7,757,684
Class B N/A N/A N/A N/A
Class C 182,286 1,861,710 56,488 573,759
Class R 418,474 4,270,400 440,121 4,461,592
Shares issued in the reorganization of
Nuveen New Jersey:
Class A --- --- --- ---
Class B N/A N/A N/A N/A
Class C --- --- --- ---
Class R --- --- --- ---
Shares issued in the reorganization of
Flagship New Jersey:
Class A --- --- --- ---
Class B N/A N/A N/A N/A
Class C --- --- --- ---
Class R --- --- --- ---
Shares issued to shareholders due to
reinvestment of distributions:
Class A 49,041 499,709 17,820 181,529
Class B N/A N/A N/A N/A
Class C 4,353 44,287 1,638 16,615
Class R 168,605 1,720,235 154,754 1,567,807
- ----------------------------------------------------------------------------------------------------
1,621,470 16,529,101 1,436,163 14,558,986
- ----------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (201,249) (2,042,963) (40,094) (406,168)
Class B N/A N/A N/A N/A
Class C (33,320) (335,344) (3,290) (32,865)
Class R (550,089) (5,594,450) (500,152) (5,070,204)
- ----------------------------------------------------------------------------------------------------
(784,658) (7,972,757) (543,536) (5,509,237)
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) 836,812 $ 8,556,344 892,627 $ 9,049,749
====================================================================================================
</TABLE>
* Nuveen New Jersey was reorganized into Nuveen Flagship New Jersey and
ceased to exist after the close of business on January 31, 1997 (see
note 1 of the Notes to Financial Statements).
N/A -- Nuveen New Jersey was not authorized to issue Class B Shares. Nuveen
Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1 of the
Notes to Financial Statements) did not issue Class C Shares and was not
authorized to issue Class R Shares.
34
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Nuveen Flagship New Jersey Nuveen Flagship New Jersey Intermediate*
------------------------------- ----------------------------------------------------
One month ended Nine months ended Year ended
2/28/97 2/28/97 5/31/96
------------------------------- ----------------------------------------------------
Shares Amount Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A 39,089 $ 402,796 29,384 $ 300,959 105,150 $ 1,086,130
Class B 6,006 61,899 N/A N/A N/A N/A
Class C 8,563 88,093 --- --- --- ---
Class R 29,727 306,882 --- --- N/A N/A
Shares issued in the
reorganization
of Nuveen
New Jersey:
Class A 1,671,230 17,071,934 --- --- --- ---
Class B --- --- N/A N/A N/A N/A
Class C 255,888 2,610,879 --- --- --- ---
Class R 4,195,136 42,905,272 --- --- N/A N/A
Shares issued in the
reorganization
of Flagship
New Jersey:
Class A 1,056,994 10,797,401 --- --- --- ---
Class B --- --- N/A N/A N/A N/A
Class C --- --- --- --- --- ---
Class R --- --- --- --- N/A N/A
Shares issued to
shareholders due
to reinvestment
of distributions:
Class A --- --- 17,041 174,134 25,702 265,262
Class B --- --- N/A N/A N/A N/A
Class C --- --- --- --- --- ---
Class R --- --- --- --- N/A N/A
--------- ---------- ------ ------- ------- ---------
7,262,633 74,245,156 46,425 475,093 130,852 1,351,392
--------- ---------- ------ ------- ------- ---------
Shares redeemed:
Class A (51,537) (530,506) (185,962) (1,905,553) (209,872) (2,165,321)
Class B --- --- N/A N/A N/A N/A
Class C (1,062) (10,935) --- --- --- ---
Class R (74,385) (766,589) --- --- N/A N/A
--------- ---------- ------ ------- ------- ---------
(126,984) (1,308,030) (185,962) (1,905,553) (209,872) (2,165,321)
--------- ---------- ------- --------- ------- ---------
Net increase (decrease) 7,135,649 $72,937,126 (139,537) $(1,430,460) (79,020) $ (813,929)
========= ========== ======= ========= ======= =========
</TABLE>
* Nuveen Flagship New Jersey Intermediate information included for the year
ended May 31, 1996, reflects the financial information of Flagship New
Jersey Intermediate (see note 1 of the Notes to Financial Statements).
N/A -- Nuveen New Jersey was not authorized to issue Class B Shares. Nuveen
Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1 of the
Notes to Financial Statements) did not issue Class C Shares and was not
authorized to issue Class R Shares.
35
<PAGE>
Notes to Financial Statements - continued
3. Distributions to Shareholders
On March 7, 1997, the Nuveen Flagship Funds declared dividend distributions from
their tax-exempt net investment income which were paid on April 1, 1997, to
shareholders of record on March 7, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
New Jersey New Jersey Intermediate
- -----------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0465 $.0421
Class B .0401 N/A
Class C .0418 .0374
Class R .0483 .0438
=============================================================================
N/A - Nuveen Flagship New Jersey Intermediate is not authorized to issue
Class B Shares.
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
Nuveen Nuveen Flagship New Jersey
New Jersey New Jersey Intermediate
------------------------------------------------------------
Year ended One month ended Nine months ended
1/31/97 2/28/97 2/28/97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases
Investments in municipal securities $14,065,387 $ --- $ 817,828
Investments in municipal securities in the
reorganization of Nuveen New Jersey --- 58,667,900 ---
Investments in municipal securities in the
reorganization of Flagship New Jersey --- 10,232,563 ---
Temporary municipal investments 16,400,000 400,000 ---
Temporary municipal investments in the
reorganization of Nuveen New Jersey --- 1,600,000 ---
Sales
Investments in municipal securities 5,905,125 --- 2,109,785
Temporary municipal investments 14,800,000 400,000 ---
========================================================================================================================
</TABLE>
The identified cost of investments owned for the federal income tax purposes was
the same as the cost for financial reporting purposes for the periods covered by
this report.
36
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
The Nuveen Flagship Funds had unused capital loss carryforwards
available for federal income tax purposes to be applied against
future capital gains, if any. If not applied, the carryovers will
expire as follows:
<TABLE>
<CAPTION>
Nuveen Nuveen Flagship
Flagship New Jersey
New Jersey* Intermediate
----------------------------
2/28/97 2/28/97
- --------------------------------------------------------------------------
<S> <C> <C>
Expiration year:
2002 $170,150 $ ---
2003 424,626 198,683
2004 116,050 ---
- --------------------------------------------------------------------------
Total $710,826 $198,683
==========================================================================
</TABLE>
* Due to the reorganization of Nuveen New Jersey and Flagship New
Jersey into Nuveen Flagship New Jersey (see note 1 of the Notes
to Financial Statements), Nuveen New Jersey and Flagship New
Jersey had net capital losses from investment transactions of
$576,597 and $134,229, respectively, which were carried forward
into Nuveen Flagship New Jersey, as permitted under applicable
tax regulations.
<TABLE>
<CAPTION>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
were as follows:
Nuveen Flagship
Nuveen Nuveen Flagship New Jersey
New Jersey New Jersey Intermediate
-----------------------------------------------
1/31/97 2/28/97 2/28/97
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
Appreciation $1,859,073 $2,464,264 $363,882
Depreciation (297,571) (213,783) (1,888)
- -------------------------------------------------------------------------------
Net unrealized appreciation $1,561,502 $2,250,481 $361,994
===============================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser,
each Fund pays to the Adviser an annual management fee, payable
monthly, at the rates set forth below which are based upon the
average daily net asset value of each Fund:
<TABLE>
<CAPTION>
Average Daily Net Asset Value 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 net assets over $2 billion .4750 of 1
- -------------------------------------------------------------
</TABLE>
Prior to the reorganization (see note 1 of the Notes to Financial
Statements) Nuveen Flagship New Jersey Intermediate paid a
management fee of .50 of 1%.
37
<PAGE>
Notes to Financial Statements - continued
From inception of Nuveen New Jersey on December 13, 1991, through
January 31, 1997, the Adviser waived part of its management fees or
reimbursed certain expenses of the Fund in order to limit total
expenses to .75 of 1% of the average daily net asset value of each
class excluding any 12b-1 fees applicable to Class A and Class C
Shares. From inception of Nuveen Flagship New Jersey on February 1,
1997, through July 31, 1997, the Adviser has agreed to waive part
of its management fees or reimburse certain expenses of the Fund in
order to limit total expenses to .75 of 1% of the average daily net
asset value of each class, excluding any 12b-1 fees applicable to
Class A, Class B and Class C Shares. In addition, the Adviser may
also voluntarily reimburse additional expenses from time to time,
which may be terminated at any time at its discretion.
The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office
facilities. The Trust pays no compensation directly to its Trustees
who are affiliated with the Adviser or to its officers, all of whom
receive remuneration for their services to the Trust from the
Adviser.
During the fiscal year ended January 31, 1997, for Nuveen New
Jersey, the Distributor received 12b-1 distribution and service
fees, substantially all of which were paid to compensate authorized
dealers for providing services to shareholders relating to their
investments. The Distributor also collected approximately $203,300
of sales charge on purchases, of which $184,300 was paid out as
concessions to authorized dealers.
During the one month ended February 28, 1997, for Nuveen Flagship
New Jersey, the Distributor compensated authorized dealers directly
with approximately $1,900 in commission advances on Class B and
Class C Share sales. Class B and Class C Shares purchased are
subject to a contingent deferred sales charge to be received by the
Distributor if the shares are redeemed within a specified period of
purchase. For the period February 1, 1997, through February 28,
1997, the Distributor received approximately $100 in such
contingent deferred sales charges. The Distributor also received
12b-1 distribution and service fees, substantially all of which
were paid to compensate authorized dealers for providing services
to shareholders relating to their investments. In addition, the
Distributor collected approximately $3,000 of sales charge on
purchases, of which $2,900 was paid out as concessions to
authorized dealers.
During the nine months ended February 28, 1997, for Nuveen Flagship
New Jersey Intermediate, the Distributor and its predecessor
(Flagship Funds Inc., a wholly-owned subsidiary of Flagship
Resources Inc.) collected 12b-1 service fees, substantially all of
which was paid to compensate authorized dealers for providing
services to shareholders relating to their investments.
Additionally, the Distributor collected approximately $6,300 of
sales charge on purchases of which $5,000 was paid out as
concessions to authorized dealers.
38
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
7. Composition of Net Assets
There were an unlimited number of $.01 par value shares authorized.
Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Nuveen Flagship
Nuveen Flagship New Jersey
New Jersey New Jersey Intermediate
---------------------------------------------
1/31/97 2/28/97 2/28/97
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital paid-in $61,608,174 $71,781,229 $6,847,574
Balance of undistributed net
investment income --- 577 33
Accumulated net realized gain (loss)
from investment transactions (581,591) (715,865) (198,683)
Net unrealized appreciation or
depreciation of investments 1,561,502 2,250,481 361,994
- ----------------------------------------------------------------------------------
Net assets $62,588,085 $73,316,422 $7,010,918
==================================================================================
</TABLE>
8. Investment Composition
The Funds invest in municipal securities which include general
obligation, escrowed and revenue bonds. The revenue sources by
municipal purpose for these investments, expressed as a percent of
total investments, were as follows:
<TABLE>
<CAPTION>
Nuveen Nuveen Flagship
Nuveen Flagship New Jersey
New Jersey New Jersey Intermediate
------------------------------------------------
1/31/97 2/28/97 2/28/97
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Bonds:
Health Care Facilities 15% 15% 16%
Pollution Control 9 10 15
Housing Facilities 14 14 --
Educational Facilities 5 5 11
Transportation 10 9 4
Water/Sewer Facilities 4 5 5
Lease Rental Facilities 3 3 5
Electric Utilities 4 4 4
Other 10 9 11
General Obligation Bonds 16 17 29
Escrowed Bonds 10 9 --
- ----------------------------------------------------------------------------------
100% 100% 10%
==================================================================================
</TABLE>
39
<PAGE>
Notes to Financial Statements - continued
Certain long-term and intermediate-term investments owned by the
Funds are covered by insurance issued by several private insurers
or are backed by an escrow or trust containing U.S. Government or
U.S. Government agency securities, either of which ensure the
timely payment of principal and interest in the event of default
(40% for Nuveen New Jersey, 42% for Nuveen Flagship New Jersey and
41% for Nuveen Flagship New Jersey Intermediate). Such insurance or
escrow, however, does not guarantee the market value of the
municipal securities or the value of the Funds' shares.
All of the temporary investments in short-term municipal securities
have credit enhancements (letters of credit, guarantees or
insurance) issued by third-party domestic or foreign banks or other
institutions.
For additional information regarding each investment security,
refer to the Portfolio of Investments of each Fund.
40
<PAGE>
Financial Highlights
41
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Operating Performance Less distributions
-------------------------- ----------------------------
Net
Net realized & Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Nuveen Flagship beginning investment from investment from capital end of asset
New Jersey** of period income++ investments income gains period value+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
One month ended 2/28/97 $10.220 $.046 $ .041 $(.047) $ - $10.260 .85%
Year ended 1/31,
1997 10.400 .478 (.148) (.510) - 10.220 3.31
1996 9.730 .519 .685 (.534) - 10.400 12.63
9/6/94 to 1/31/95 10.030 .205 (.209) (.210) (.086) 9.730 .02
Class B
One month ended 2/28/97 10.220 .049 .031 (.040) - 10.260 .78
Class C
One month ended 2/28/97 10.200 .042 .050 (.042) - 10.250 .90
Year ended 1/31,
1997 10.380 .410 (.158) (.432) - 10.200 2.53
1996 9.710 .443 .683 (.456) - 10.380 11.80
9/12/94 to 1/31/95 9.770 .159 (.050) (.169) - 9.710 1.16
Class R
One month ended 2/28/97 10.230 .048 .040 (.048) - 10.270 .86
Year ended 1/31,
1997 10.410 .491 (.137) (.534) - 10.230 3.55
1996 9.740 .551 .677 (.558) - 10.410 12.88
1995 10.710 .524 (.886) (.522) (.086) 9.740 (3.27)
1994 9.960 .513 .810 (.513) (.060) 10.710 13.60
1993 9.525 .445 .431 (.441) - 9.960 9.36
12/13/91 to 1/31/92 9.525 - - - - 9.525 -
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 44.
42
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A
One month ended 2/28/97 $27,879 1.01%* 5.43%* .55%* 5.89%* -%*
Year ended 1/31,
1997 17,072 1.13 4.85 1.00 4.98 10
1996 10,661 1.25 4.85 1.00 5.10 39
9/6/94 to 1/31/95 2,741 1.31* 5.03* 1.00* 5.34* 32
Class B
One month ended 2/28/97 74 1.77* 5.71* 1.27* 6.21* -
One month ended 2/28/97 2,712 1.56* 4.89* 1.10* 5.35* -
Year ended 1/31,
1997 2,611 1.88 4.09 1.75 4.22 10
1996 1,065 1.96 4.16 1.75 4.37 39
9/12/94 to 1/31/95 464 2.00* 4.37* 1.75* 4.62* 32
Class R
One month ended 2/28/97 42,651 .81* 5.63* .35* 6.09* -
Year ended 1/31,
1997 42,905 .89 5.10 .75 5.24 10
1996 43,304 .98 5.20 .75 5.43 39
1995 39,582 .89 5.18 .75 5.32 32
1994 36,462 .98 4.61 .75 4.84 52
1993 16,208 1.43* 4.28* .75* 4.96* 9
12/13/91 to 1/31/92 15 - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
43
<PAGE>
Financial Highlights - continued
<TABLE>
<CAPTION>
Operating Performance Less distributions
--------------------- -----------------------------
Net
Net realized & Distributions Net Total
asset unrealized from tax- asset return
Nuveen Flagship value Net gain (loss) exempt net Distributions value on net
New Jersey beginning investment from investment from capital end of asset
Intermediate** of period income++ investments income gains period value+
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Nine months ended 2/28/97 $10.140 $.378 $ .162 $(.380) $ - $10.300 5.41%
Year ended 5/31,
1996 10.250 .510 (.110) (.510) - 10.140 3.89
1995 10.040 .500 .220 (.510) - 10.250 7.42
1994 10.150 .530 (.100) (.520) (.020)*** 10.040 4.27
9/16/92 to 5/31/93 9.700 .340 .450 (.340) - 10.150 11.07
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Nuveen Flagship New Jersey information included prior to the one month
ended February 28, 1997, reflects the financial highlights of Nuveen New
Jersey. Nuveen Flagship New Jersey Intermediate information included
prior to the nine months ended February 28, 1997, reflects the financial
highlights of Flagship New Jersey Intermediate.
*** The amounts shown reflect distributions in excess of capital gains.
+ Total Return on Net Asset Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any, and
changes in net asset value per share. The total returns shown for Class
A Shares do not include the effect of applicable sales charge on
purchases. The total returns shown for Class B and Class C Shares do not
include the effect of applicable contingent deferred sales charges.
Class R Shares are not subject to any sales charge on purchases or
contingent deferred sales charges.
++ Reflects the waiver of certain management fees and reimbursement of
certain other expenses by the Adviser (see note 6 of the Notes to
Financial Statements).
44
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental data
- ---------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
period end of reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7,011 1.93%* 3.69%* .68%* 4.94%* 11%
8,318 1.71 3.79 .60 4.90 17
9,217 1.81 3.92 .69 5.04 35
9,321 1.81 3.45 .16 5.10 27
5,649 2.70* 2.54* .40* 4.84* 29
=================================================================================
</TABLE>
45
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Multistate Tax-Free Trust and
Nuveen Flagship Multistate Trust II:
We have audited the accompanying statement of net assets of Nuveen
Multistate Tax-Free Trust (a Massachusetts business trust
comprising the Nuveen New Jersey Tax-Free Value Fund), including
the portfolio of investments, as of January 31, 1997, and the
related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in
the period then ended and the financial highlights for the periods
indicated thereon and we have audited the accompanying statements
of net assets for the Nuveen Flagship Multistate Trust II (a
Massachusetts business trust comprising the Nuveen Flagship New
Jersey and New Jersey Intermediate Funds), including the portfolios
of investments, as of February 28, 1997, and the related statements
of operations, changes in net assets and financial highlights for
the periods indicated thereon, except for the financial statements
and financial highlights for the Nuveen Flagship New Jersey
Intermediate Bond Fund for the years ended May 31, 1996 and prior
which were audited by other auditors whose report dated July 3,
1996, expressed an unqualified opinion on those financial
statements and financial highlights. These financial statements and
financial highlights are the responsibility of the Funds'
management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securites owned
by the Nuveen New Jersey Tax-Free Value Fund as of January 31,
1997, and by the Nuveen Flagship New Jersey and New Jersey
Intermediate Municipal Bond Funds as of February 28, 1997, by
correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the net
assets of each of the respective funds constituting the Nuveen
Multistate Tax-Free Trust as of January 31, 1997, and the Nuveen
Flagship Multistate Trust II as of February 28, 1997, the results
of their operations, the changes in their net assets, and the
financial highlights for the periods indicated above, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 21, 1997
46
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Shareholder Meeting Report
Nuveen New Jersey
On January 10, 1997, the Nuveen New Jersey Tax-Free Value
Fund held a Special Meeting of Shareholders. At that meeting,
shareholders approved the following matters:
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(1) Election of the Fund's
Board of Trustees:
- --------------------------------------------------------------------------------------------
(A) Bremner For 883,908 139,347 2,859,654
Withhold 4,755 - 43,708
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(B) Brown For 883,908 139,347 2,861,911
Withhold 4,755 - 41,451
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(C) Dean For 883,908 139,347 2,861,911
Withhold 4,755 - 41,451
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(D) Impellizzeri For 883,908 139,347 2,861,537
Withhold 4,755 - 41,825
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(E) Rosenheim For 883,533 139,347 2,861,461
Withhold 5,130 - 41,901
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(F) Sawers For 883,908 139,347 2,861,539
Withhold 4,755 - 41,823
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(G) Schneider For 883,908 139,347 2,861,911
Withhold 4,755 - 41,451
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(H) Schwertfeger For 883,908 139,347 2,861,539
Withhold 4,755 - 41,823
---------------------------------------------------------
Total 888,663 139,347 2,903,362
- --------------------------------------------------------------------------------------------
(2) Fund Reorganization For 661,399 110,803 2,562,193
Against 16,695 - 56,043
Abstain 18,620 16,793 91,716
---------------------------------------------------------
Total 696,714 127,596 2,709,952
- --------------------------------------------------------------------------------------------
Broker Non Votes 191,949 11,751 193,410
---------------------------------------------------------
</TABLE>
47
<PAGE>
Shareholder Meeting Report
Flagship New Jersey
On January 10, 1997, the Flagship New Jersey Double Tax
Exempt Fund held a Special Meeting of Shareholders. At that
meeting, shareholders approved the following matters:
<TABLE>
<CAPTION>
For Withhold Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Elections of the Fund's
Board of Trustees:
(A) Bremner 974,673 10,500 985,173
(B) Brown 974,673 10,500 985,173
(C) Dean 974,673 10,500 985,173
(D) Impellizzeri 974,673 10,500 985,173
(E) Rosenheim 974,673 10,500 985,173
(F) Sawers 974,673 10,500 985,173
(G) Schneider 974,673 10,500 985,173
(H) Schwertfeger 974,673 10,500 985,173
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Broker
For Against Abstain Total Non-Votes
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2 Advisory Agreement was reached as follows: 884,640 3,705 26,950 915,295 69,878
3 12b-1 Plan was reached as follows: 806,758 19,083 89,454 915,295 69,878
4 Reorganization was reached as follows: 573,140 5,682 20,665 599,487 385,686
- ---------------------------------------------------------------------------------------------------------
</TABLE>
48
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Shareholder Meeting Report
Flagship New Jersey Intermediate
On January 10, 1997, the Flagship New Jersey Intermediate Tax
Exempt Fund held a Special Meeting of Shareholders. At that
meeting, shareholders approved the following matters:
<TABLE>
<CAPTION>
Broker
For Against Abstain Total Non-Votes
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Approval of a new investment advisory
agreement with Nuveen Advisory Corp.
was reached as follows: 509,069 22,791 11,345 543,205 46,731
2 Approval of an Agreement and Plan of
Reorganization and the transaction
contemplated thereby was reached as follows: 387,801 15,046 13,933 416,780 173,156
3 Approve certain changes to the Trust's
investment objective and fundamental policies
was reached as follows:
(A) Investment Objective 386,586 28,647 1,547 416,780 173,156
(B) Investment Assets 386,586 28,647 1,547 416,780 173,156
(C) Type of Securities 386,586 28,647 1,547 416,780 173,156
(D) Borrowing 386,586 28,647 1,547 416,780 173,156
(E) Pledges 386,586 28,647 1,547 416,780 173,156
(F) Senior Securities 386,586 28,647 1,547 416,780 173,156
(G) Underwriting 386,586 28,647 1,547 416,780 173,156
(H) Real Estate 386,586 28,647 1,547 416,780 173,156
(I) Commodities 386,586 28,647 1,547 416,780 173,156
(J) Loans 386,586 28,647 1,547 416,780 173,156
(K) Short Sales/Margin Purchases 384,586 28,647 3,547 416,780 173,156
(L) Put and Call Options 384,586 28,647 3,547 416,780 173,156
(M) Industry Concentration 386,586 28,647 1,547 416,780 173,156
(N) Affiliate Purchases 384,586 28,647 3,547 416,780 173,156
(O) Investment Companies 386,586 28,647 1,547 416,780 173,156
4 12b-1 Fees 503,511 28,349 11,345 543,205 46,731
- -------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
Shareholder Meeting Report
Flagship New Jersey Intermediate
-- continued
<TABLE>
<CAPTION>
For Withhold Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
5 Approval of the Trustees to the Board of
Trustees of the Fund was reached as follows:
(A) Bremner 571,080 18,856 589,936
(B) Brown 571,080 18,856 589,936
(C) Dean 571,080 18,856 589,936
(D) Impellizzeri 571,080 18,856 589,936
(E) Rosenheim 571,080 18,856 589,936
(F) Sawers 571,080 18,856 589,936
(G) Schneider 571,080 18,856 589,936
(H) Schwertfeger 571,080 18,856 589,936
- --------------------------------------------------------------------------------
</TABLE>
50
<PAGE>
Nuveen Municipal Bond Funds
Annual Report
Shareholder Information
NUVEEN FAMILY OF MUTUAL FUNDS
Nuveen offers a variety of funds designed to
help you reach your financial goals. The funds
below are grouped by investment objectives.
GROWTH AND INCOME FUNDS
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
MUNICIPAL BOND FUNDS
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
1. Long-term, insured long-term, intermediate-term
and limited-term portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
To purchase additional shares of your Nuveen
Municipal Bond Fund, contact your financial adviser.
If you would like to add to your current investment
on a monthly or semi-annual basis, you can sign up
for Nuveen's systematic investing program, which
allows you to invest a fixed dollar amount every
month automatically.
You can also invest automatically through dividend
reinvestment. By reinvesting your fund's dividends
back into the fund, you give your investment the
added growth potential of long-term compounding.
For more information on the service options listed
above, call your adviser, or Nuveen at (800) 621-7227.
51
<PAGE>
Fund Information
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Margaret K. Rosenheim
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, New York 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Shareholder Services, Inc.
Nuveen Investor Services
P.O. Box 5330
Denver, Colorado 80217-5330
(800) 621-7227
LEGAL COUNSEL
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
52
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
JOHN NUVEEN, SR.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized municipal research departments
in the industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products -- including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, individual managed account services, and cash management
products.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
[NUVEEN LOGO]
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VAN-2-1.97
<PAGE>
NUVEEN
Municipal
Bond Funds
February 28, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF COUPLE APPEARS HERE]
New York
<PAGE>
Contents
2 Dear Shareholder
4 Answering Your Questions
6 New York Overview
8 New York Insured Overview
11 Financial Section
51 Shareholder Meeting Results
52 Shareholder Information
53 Fund Information
1
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
It is my pleasure to report to you on the performance of the Nuveen Flagship New
York Municipal Bond Fund and the Nuveen New York Insured Municipal Bond Fund,
and to welcome new investors to our family of investments. Both of these funds
rewarded investors during the fiscal year with consistent performance,
delivering attractive tax-free income while also preserving your capital. At the
same time, the funds added a measure of stability to investor portfolios
containing more volatile equity funds.
As of the fiscal year end, investors in the Nuveen Flagship New York Municipal
Bond Fund's A shares were receiving dividends providing an annualized tax-free
current yield on net asset value of 4.61%, while investors in the Nuveen New
York Insured Municipal Bond Fund's A shares were receiving 4.38% annually. To
receive these yields on an after-tax basis, investors in the 40.5% federal and
state income tax bracket would have had to receive 7.75% and 7.36%,
respectively, from comparable taxable investments.
Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you. In January we acquired Flagship
Resources Inc., a respected manager of municipal bond mutual funds, based in
Dayton, Ohio. This added 19 mutual funds to the Nuveen family, giving investors
an expanded array of tax-free investment solutions for their personal
portfolios. As we increase our product offerings, we now offer you more
flexibility to purchase fund shares according to your specific circumstances
through expanded pricing options.
2
<PAGE>
"Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you."
In January, the Nuveen New York Tax-Free Value Fund merged with the Flagship New
York Tax-Exempt Fund to reduce operating expenses and to benefit shareholders.
The combined fund's fiscal year end will now be February 28. The next report for
the New York funds will be the semiannual report dated August 31, 1997.
Nuveen also has created new equity and balanced funds to help investors keep
more of what they have earned. In November we launched the Nuveen Growth and
Income Stock Fund, a fund that seeks to provide superior stock market
performance with moderated risk. Last month we introduced two new balanced
mutual funds, each designed to provide investors an attractive combination of
long-term growth potential and current income.
Nuveen prides itself on helping more than 1.3 million investors maintain the
lifestyle they currently enjoy by providing quality investment solutions with
reduced risk. Thank you for your continued confidence in Nuveen and our family
of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 1997
3
<PAGE>
Answering Your Questions
[PHOTO OF TOM SPALDING APPEARS HERE]
Tom Spalding, head of Nuveen's portfolio management team, talks about the
municipal bond market and offers insights into factors that affected fund
performance over the past year.
What key economic factors affected these funds during the past year?
In the last 12 months, the bond market -- despite some fluctuations -- was
relatively stable compared with recent years. Following a strong start to the
year, a succession of mixed reports affecting interest rate and inflation
forecasts caused investors to view the markets with alternating enthusiasm and
uncertainty. In the third quarter of 1996, evidence of an economic slowdown, the
strong U.S. dollar, and lack of inflationary pressures combined to allay
investor fears, sparking a rally in bonds that continued through the post-
election period.
Throughout the year, stock market euphoria focused investors' attention on
stocks and brought record amounts of new money into stock funds, bypassing the
bond market. Some investors, concerned about a possible correction in the stock
market, decided to take their profits, but adopted a wait-and-see attitude about
investing capital gains, electing to go with short-term vehicles until a clearer
picture of market trends emerged. These events affected demand for bond issues
of all types in the last year.
Given this market environment, how did the funds perform?
Both the New York Municipal Bond Fund and the New York Insured Municipal Bond
Fund rewarded investors with total returns on net asset value for the period,
recording price changes and reinvested dividends of 5.08% and 4.02%,
respectively. During the same period, the Lehman Brothers Municipal Bond Index,
which does not incur operating expenses or transaction costs, reported a 5.51%
total return.
What strategies did you employ to add value?
The fluctuations of 1996 created specific inefficiencies in the market, enabling
Nuveen to uncover and take advantage of price discrepancies to improve fund
portfolios. For example, we were able to enhance the durability of the funds'
dividends by
4
<PAGE>
"We believe we will continue to find value in the municipal market over the next
12 months, giving prudent investors the attractive tax-free income they seek,
while limiting the volatility inherent in an uncertain market."
purchasing bonds with longer call protection. These bonds were less in demand as
interest rates began to rise in 1996, creating a value investing opportunity.
These bonds then appreciated in value more than other bonds as rates moved down
during the year.
What is the current status of New York's municipal market?
1997 is proving to be an eventful year in the New York municipal marketplace.
Deregulation in both the health care and electric utility industries is expected
to lead to lower costs and various realignments in relative credit quality. Most
prominent in this development is the proposed partial takeover of Long Island
Lighting's assets by the State of New York, which would sell $7.2 billion in
tax-exempt bonds. The sale would be the largest municipal bond issue in United
States history, and is expected to have dramatic effects upon the New York bond
market. Major ratings changes included an upgrade to the Metropolitan
Transportation Authority's Transit Facility Revenue Bonds, and a long overdue
downgrade for the City of Syracuse General Obligation Bonds. Many challenges lie
ahead for New York bondholders, including the long term effects of welfare
reform and lingering economic problems in upstate and western New York cities.
What is the current economic outlook?
A look at the current environment shows continued economic growth characterized
by low unemployment, increased manufacturing and construction activity, and lack
of price pressure at the consumer and producer levels. Although inflation
remains at the same subdued levels it has exhibited over the past six years, the
strength of the current economic expansion encouraged the Federal Reserve to
make a preemptive strike against inflation's potential return. It raised short-
term interest rates by 0.25% at the end of March. While the bond market had
already anticipated and discounted much of the impact of this tightening, the
Fed's action set off a decline in the equity market that -- in combination with
the attractive yields currently available -- increased interest in municipal
bonds on the part of investors looking to move out of stocks. We believe we will
continue to find value in the municipal market over the next 12 months, giving
prudent investors the attractive tax-free income they seek, while limiting the
volatility inherent in an uncertain market.
5
<PAGE>
New York
Overview
[PIE CHART APPEARS HERE]
Credit Quality
NR 1%
AAA 29%
AA 12%
A 12%
BB 1%
BBB 45%
[PIE CHART APPEARS HERE]
Diversification
Lease Rental 20%
Educational Facilities 16%
Transportation 3%
General Obligations 12%
Other 8%
Health Care Facilities 7%
Escrowed Bonds 11%
Water and Sewer 3%
Housing Facilities 20%
<TABLE>
<CAPTION>
Fund Highlights
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Share Class A B C R
Inception Date 9/94 2/97 9/94 12/86
Net Asset Value (NAV) $10.53 $10.53 $10.56 $ 10.55
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Total Net Assets ($000) $228,362
Average Weighted Maturity (years) 21.1
Duration (years) 7.5
- ----------------------------------------------------------------------------------
Annualized Total Return(1)
- ----------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
1-Year 5.07% 0.66% 4.26% 4.31% 5.26%
5-Year 7.32% 6.40% 6.62% 6.65% 7.63%
10-Year 6.99% 6.53% 6.27% 6.26% 7.28%
- ----------------------------------------------------------------------------------
Tax-Free Yields
- ----------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.39% 5.16% 4.64% 4.84% 5.58%
SEC 30-Day Yld 4.61% 4.42% 3.66% 3.86% 4.86%
Taxable Equiv Yld(2) 7.75% 7.43% 6.15% 6.49% 8.17%
- ----------------------------------------------------------------------------------
</TABLE>
1 Class R Share returns are actual. Class A, B and C Share returns are actual
for the period since class inception; returns prior to class inception are
Class R Share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
Shares have a (4.2% maximum sales charge. Class B Shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not reflected in
the total returns. Class C Shares have a 1% CDSC for redemptions within one
year, which is not reflected in the 1-year total return.
2 Based on the SEC yield and on a combined federal and state income tax rate of
40.5%; represents the income needed from a taxable investment necessary to
equal the income of the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Flagship New York Municipal Bond Fund
February 28, 1997 Annual Report
*The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.20%) and all ongoing
fund expenses.
Index Comparison*
[GRAPH APPEARS HERE]
[PLOT POINTS TO COME]
- --Lehman Brothers Municipal Bond Index $20,863
- --Nuveen Flagship New York Municipal Bond Fund (NAV) $19,641
- --Nuveen Flagship New York Municipal Bond Fund (Offer) $18,816
Past Performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
[PLOT POINTS TO COME]
In December 1996, shareholders received a capital gains distribution of $0.043
per share.
7
<PAGE>
New York Insured
Overview
Credit Quality
[PIE CHART APPEARS HERE]
AA 1%
AAA 99%
Diversification
[PIE CHART APPEARS HERE]
Other 6%
Health Care Facilities 9%
Water and Sewer 10%
Escrowed Bonds 17%
Lease Rental 2%
Educational Facilities 10%
Transportation 10%
General Obligations 16%
Housing Facilities 20%
Fund Highlights
=======================================================
Share Class A B C R
Inception Date 9/94 2/97 9/94 12/86
Net Asset Value (NAV) $10.50 $10.50 $10.48 $10.49
- -------------------------------------------------------
- -------------------------------------------------------
Total Net Assets ($000) $358,459
Average Weighted Maturity (years) 21.3
Duration (years) 7.0
- -------------------------------------------------------
Annualized Total Return/1/
=======================================================
Share Class A(NAV) A(Offer) B C R
1-Year 4.02% -0.35% 3.17% 3.06% 4.15%
5-Year 6.95% 6.03% 6.19% 6.17% 7.20%
10-Year 6.65% 6.09% 5.90% 5.87% 6.91%
- --------------------------------------------------------
Tax-Free Yields
========================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 4.97% 4.76% 4.23% 4.41% 5.15%
SEC 30-day Yld 4.38% 4.20% 3.60% 3.80% 4.58%
Taxable Equiv
Yld/2/ 7.36% 7.06% 6.05% 6.39% 7.70%
- --------------------------------------------------------
/1/ Class R Share returns are actual. Class A, B and C Share returns are actual
for the period since class inception; returns prior to class inception are
Class R Share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A Shares have a 4.2% maximum sales charge. Class B Shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the total returns. Class C Shares have a 1% CDSC for
redemptions within one year, which is not reflected in the 1-year total
return.
/2/ Based on the SEC yield and on a combined federal and state income tax rate
of 40.5%; represents the income needed from a taxable investment necessary
to equal the income of the Nuveen fund on an after-tax basis.
8
<PAGE>
Nuveen Flagship New York Insured Municipal Bond Fund
February 28, 1997 Annual Report
Index Comparison*
[GRAPH CHART APPEARS HERE]
[PLOT POINTS TO COME]
- --- Lehman Brothers Municipal Bond Index $20,863
- --- Nuveen New York Insured Municipal Bond Fund (NAV) $19,038
- --- Nuveen New York Insured Municipal Bond Fund (Offer) $18,238
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
[PLOT POINTS TO COME]
* The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.50%) and all
ongoing fund expenses.
9
<PAGE>
Financial Section
Contents
12 Portfolio of Investments
34 Statement of Net Assets
35 Statement of Operations
36 Statement of Changes in Net Assets
37 Notes to Financial Statements
45 Financial Highlights
11
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship New York
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
$ 500,000 Certificates of Participation, The State of New York, 9/97 at 102 Baa1 $ 519,645
Commissioner of the Office of Mental Health of the
State of New York, 8.300%, 9/01/12
500,000 Dormitory Authority of the State of New York, Hospital 2/98 at 102 AAA 524,460
Revenue Bonds, Long Island Jewish Medical Center
(FHA-Insured Mortgage), Series 1988, 7.750%, 8/15/27
500,000 Dormitory Authority of the State of New York, City 7/98 at 102 Baa1 535,650
University Refunding Bonds, 1988B Issue,
8.200%, 7/01/13
750,000 Dormitory Authority of the State of New York, GNMA 2/99 at 102 AAA 805,448
Collateralized Revenue Bonds (Park Ridge Housing, Inc.
Project), Series 1989, 7.850%, 2/01/29
2,135,000 Dormitory Authority of the State of New York, United 2/00 at 102 AAA 2,297,409
Health Services, Inc., FHA-Insured Mortgage Revenue
Bonds, Series 1989, 7.350%, 8/01/29
1,000,000 Dormitory Authority of the State of New York, City 7/00 at 102 Aaa 1,123,240
University System Consolidated Revenue Bonds, Series
1990A, 7.625%, 7/01/20 (Pre-refunded to 7/01/00)
2,000,000 Dormitory Authority of the State of New York, State 5/00 at 102 Baa1 2,172,300
University Educational Facilities Revenue Bonds,
Series 1990A, 7.400%, 5/15/01
400,000 Dormitory Authority of the State of New York, 8/01 at 102 AA 442,160
Menorah Campus, Inc., FHA-Insured Mortgage
Revenue Bonds, Series 1991, 7.400%, 2/01/31
245,000 Dormitory Authority of the State of New York, Iroquois 2/01 at 102 AA-- 262,976
Nursing, Insured Revenue Bonds, Series 1991,
7.000%, 2/01/15
750,000 Dormitory Authority of the State of New York, City No Opt. Call Baa1 870,653
University System Consolidated, Second General
Resolution Revenue Bonds, Series 1990C,
7.500%, 7/01/10
2,250,000 Dormitory Authority of the State of New York, 4/97 at 115 20/32 Baa1 2,626,223
Judicial Facilities Lease Revenue Bonds, (Suffolk
County Issue), Series 1991A, 9.500%, 4/15/14
250,000 Dormitory Authority of the State of New York, 7/01 at 102 Baa1 282,053
Department of Health Revenue Bonds, Veterans
Home, Series 1990, 7.250%, 7/01/21
500,000 Dormitory Authority of the State of New York, Revenue 7/01 at 102 Baa1 544,985
Bonds, State University Athletic Facility Issue,
Series 1991, 7.250%, 7/01/21
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Fund
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$300,000 Dormitory Authority of the State of New York, State of 7/01 at 102 Baa1 $ 343,818
New York Department of Education, Revenue Bonds,
Series 1991, 7.750%, 7/01/21
(Pre-refunded to 7/01/01)
985,000 Dormitory Authority of the State of New York, Dormitory 7/04 at 102 Baa1 1,172,968
Revenue Bonds, State University Issue, Series X,
7.400%, 7/01/24
2,000,000 Dormitory Authority of the State of New York, State No Opt. Call Baa1 2,014,800
University Educational Facilities, Revenue Bonds,
Series 1993A, 5.500%, 5/15/08
1,500,000 Dormitory Authority of the State of New York, City No Opt. Call Baa1 1,525,005
University System Consolidated Second General
Resolution Revenue Bonds, Series 1993A,
5.750%, 7/01/07
1,375,000 Dormitory Authority of the State of New York, University 7/04 at 102 A1 1,341,574
of Rochester, Strong Memorial Hospital Revenue
Bonds, Series 1994, 5.500%, 7/01/21
2,225,000 Dormitory Authority of the State of New York, Court 5/03 at 101 1/2 Baa1 2,128,836
Facilities Lease Revenue Bonds, (The City of
New York Issue), Series 1993A, 5.700%, 5/15/22
Dormitory Authority of the State of New York, State
University Education Facilities, Revenue Bonds,
Series 1993B:
1,125,000 5.250%, 5/15/09 No Opt.Call Baa1 1,103,063
1,000,000 5.250%, 5/15/19 No Opt. Call Baa1 931,120
1,000,000 Dormitory Authority of the State of New York, State 7/04 at 102 Baa1 1,018,650
University Educational Facilities, Revenue Bonds,
Series 1994B, 6.250%, 7/01/24
2,225,000 Dormitory Authority of the State of New York, City No Opt. Call Baa1 2,237,215
University Refunding Bonds, 1993C Issue,
5.750%, 7/01/12
2,100,000 Dormitory Authority of the State of New York, University 7/04 at 102 A1 2,271,360
of Rochester, Revenue Bonds, Series 1994A,
6.500%, 7/01/19
Dormitory Authority of the State of New York, Revenue
Bonds, Upstate Community Colleges, Series 1995A:
2,195,000 6.500%, 7/01/07 No Opt. Call Baa1 2,363,488
1,000,000 6.250%, 7/01/25 7/05 at 102 Baa1 1,020,120
2,000,000 Dormitory Authority of the State of New York, Nursing 7/05 at 102 Aa3 2,005,240
Homes Revenue Bonds, (Letter of Credit Secured),
1995 Issue A, 5.750%, 7/01/17
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Nuveen Flagship New York -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 Dormitory Authority of the State of New York, City No Opt. Call Baa1 $1,477,290
University System Consolidated Revenue Bonds, Second
General Resolution Revenue Bonds, Series 1995A,
5.625%, 7/01/16
1,500,000 Dormitory Authority of the State of New York, 7/05 at 102 Baa1 1,607,760
Department of Health of the State of New York,
Revenue Bonds, Series 1995, 6.625%, 7/01/24
2,500,000 Dormitory Authority of the State of New York, W.K. 8/06 at 102 AAA 2,542,375
Nursing Home Corporation, FHA-Insured Mortgage
Revenue Bonds, Series 1996, 5.950%, 2/01/16
2,000,000 Dormitory Authority of the State of New York, Bishop 7/06 at 102 Aa 2,038,560
Henry R. Hucles Nursing Home, Inc., Revenue Bonds,
Series 1996, 6.000%, 7/01/24
1,000,000 Dormitory Authority of the State of New York, NYACK No Opt. Call Baa 1,019,960
Hospital, Revenue Bonds, Series 1996, 6.000%, 7/01/06
1,620,000 Dormitory Authority of the State of New York, Cooper Union, 7/06 at 102 Aaa 1,557,419
Insured Revenue Bonds, Series 1996, 5.375%, 7/01/20
3,000,000 New York Local Government Assistance Corporation, 4/04 at 100 A 2,684,670
Series 1993B, Refunding Bonds, 5.000%, 4/01/23
2,000,000 New York Medical Care Facilities Finance Agency, 2/02 at 100 Aaa 1,895,800
Mental Health Services Facilities Improvement Revenue
Bonds, 1992 Series A, 5.500%, 8/15/21
1,250,000 New York State Energy Research and Development 6/02 at 102 Ba1 1,338,188
Authority, Electric Facilities Revenue Bonds, (Long Island
Lighting Company Project), 1989 Series A,
7.150%, 9/01/19 (Alternative Minimum Tax)
500,000 New York State Energy Research and Development 1/03 at 102 Ba1 531,035
Authority, Electric Facilities Revenue Bonds, (Long Island
Lighting Company Project), 1992 Series D,
6.900%, 8/01/22 (Alternative Minimum Tax)
350,000 New York State Energy Research and Development 1/00 at 101 A1 374,980
Authority, Electric Facilities Revenue Bonds, Series
1991A, (Consolidated Edison Company of New York, Inc.
Project), 7.500%, 1/01/26 (Alternative Minimum Tax)
1,500,000 New York State Energy Research and Development 7/05 at 102 Aaa 1,563,525
Authority, Facilities Refunding Revenue Bonds, Series
1995, (Consolidated Edison Company of New York, Inc.
Project), 6.100%, 8/15/20
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,545,000 New York State Environmental Facilities Corporation, 3/03 at 101 Baa1 $ 1,528,206
State Park Infrastructure Special Obligation Bonds,
Series 1993A, 5.750%, 3/15/13
2,250,000 New York State Finance Agency, Housing Project Mortgage 5/06 at 102 Aaa 2,307,443
Revenue Bonds, 1996 Series A Refunding,
6.125%, 11/01/20
200,000 New York State Housing Finance Agency, State University No Opt. Call Aaa 250,842
Construction Refunding Bonds, 1986 Series A,
8.000%, 5/01/11
New York State Housing Finance Agency, Insured
Multi-Family Housing Revenue Bonds, 1992 Series A:
1,650,000 6.950%, 8/15/12 8/02 at 102 Aa 1,758,669
500,000 7.000%, 8/15/22 8/02 at 102 Aa 529,715
1,000,000 New York State Housing Finance Agency, Multi-Family 2/04 at 102 Aa 1,044,910
Housing Revenue Bonds (Secured Mortgage Program),
1994 Series C, 6.450%, 8/15/14
1,000,000 New York State Housing Finance Agency, Health 5/06 at 101 1/2 BBB+ 1,025,280
Facilities Revenue Bonds (New York City), 1996
Series A Refunding, 6.000%, 11/01/08
New York State Housing Finance Agency, Health Facilities
Revenue Bonds (New York City), 1990 Series A Refunding:
1,660,000 8.000%, 11/01/08 (Pre-refunded to 11/01/00) 11/00 at 102 Aaa 1,897,114
340,000 8.000%, 11/01/08 11/00 at 102 BBB+ 379,552
2,990,000 New York State Housing Finance Agency, Service Contract 9/03 at 102 Baa1 2,957,648
Obligation Revenue Bonds, 1993 Series C Refunding,
5.875%, 9/15/14
4,250,000 New York State Housing Finance Agency, Service Contract 9/03 at 102 Baa1 3,945,148
Obligation Revenue Bonds, 1993 Series A,
5.500%, 9/15/22
2,000,000 New York State Housing Finance Agency, Service Contract 9/05 at 102 Baa1 2,060,280
Obligation Revenue Bonds, 1995 Series A,
6.375%, 9/15/15
990,000 New York State Medical Care Facilities Finance Agency, 8/97 at 102 Aa 1,025,709
Hospital and Nursing Home Insured Mortgage Revenue
Bonds, 1987 Series A, 8.000%, 2/15/27
(Pre-refunded to 8/15/97)
995,000 New York State Medical Care Facilities Finance Agency, 8/98 at 102 AAA 1,068,670
Albany Medical Center Hospital Project Revenue Bonds,
1987 Series A, 8.000%, 2/15/28
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship New York -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 985,000 New York State Medical Care Facilities Finance Agency, 8/99 at 102 Aa $ 1,052,246
Hospital and Nursing Home Insured Mortgage Revenue
Bonds, 1989 Series B, 7.350%, 2/15/29
1,000,000 New York State Medical Care Facilities Finance Agency, 8/98 at 102 AAA 1,074,820
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1988 Series C, 7.700%, 2/15/22
(Pre-refunded to 8/15/98)
1,250,000 New York State Medical Care Facilities Finance Agency, 2/98 at 102 AAA 1,328,788
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1987 Series A, 8.300%, 2/15/22
(Pre-refunded to 2/15/98)
2,250,000 New York State Medical Care Facilities Finance Agency, 8/97 at 102 Aaa 2,340,450
Hospital Insured Mortgage Revenue Bonds,
1987 Series A Refunding, 8.000%, 2/15/25
(Pre-refunded to 8/15/97)
500,000 New York State Medical Care Facilities Finance Agency, 8/01 at 102 Aa 547,110
Hospital and Nursing Home Insured Mortgage
Revenue Bonds, 1991 Series A, 7.450%, 8/15/31
2,000,000 New York State Medical Care Facilities Finance Agency, 8/02 at 102 AAA 2,059,440
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1992 Series B, 6.200%, 8/15/22
1,470,000 New York State Medical Care Facilities Finance Agency, 2/03 at 102 AAA 1,587,556
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1992 Series D, 6.450%, 2/15/09
110,000 New York State Medical Care Facilities Finance Agency, 2/98 at 102 Baa1 115,533
Mental Health Services Facilities Improvement Revenue
Bonds, 1988 Series A, 7.700%, 2/15/18
1,460,000 New York State Medical Care Facilities Finance Agency, 2/01 at 102 Aaa 1,651,815
Mental Health Services Facilities Improvement Revenue
Bonds, 1991 Series A, 7.500%, 2/15/21
(Pre-refunded to 2/15/01)
New York State Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement Revenue
Bonds, 1990 Series A:
20,000 7.750%, 2/15/20 (Pre-refunded to 2/15/00) 2/00 at 102 Aaa 22,327
30,000 7.750%, 2/15/20 2/00 at 102 Baa1 32,943
1,500,000 New York State Medical Care Facilities Finance Agency, 2/04 at 102 Aaa 1,393,830
Mental Health Services Facilities Improvement Revenue
Bonds, 1994 Series A, 5.250%, 8/15/23
</TABLE>
16
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 2,500,000 New York State Medical Care Facilities Finance Agency, 2/04 at 102 AAA $ 2,582,300
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1994 Series A, 6.200%, 2/15/21
1,500,000 New York State Medical Care Facilities Finance Agency, 8/04 at 102 Baa1 1,577,280
Mental Health Services Facilities Improvement Revenue
Bonds, 1994 Series E, 6.500%, 8/15/24
1,000,000 New York State Medical Care Facilities Finance Agency, 11/05 at 102 Aa 1,058,810
Health Center Projects Revenue Bonds (Secured
Mortgage Program), 1995 Series A, 6.375%, 11/15/19
1,250,000 New York State Medical Care Facilities Agency, New York 2/05 at 102 Baa 1,307,250
Downtown Hospital Secured Hospital Revenue Bonds,
1995 Series A, 6.700%, 2/15/12
1,000,000 New York State Medical Care Facilities Finance Agency, 2/05 at 102 Aa 1,020,540
FHA-Insured Mortgage Project Revenue Bonds,
1995 Series B, 6.100%, 2/15/15
2,455,000 New York State Medical Care Facilities Finance Agency, 8/04 at 102 AAA 2,594,935
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1994 Series C, 6.400%, 8/15/14
New York State Medical Care Facilities Finance Agency,
New York Hospital FHA-Insured Mortgage Revenue
Bonds, 1994 Series A (AMBAC Insured Series):
1,000,000 6.750%, 8/15/14 2/05 at 102 Aaa 1,105,340
1,000,000 6.800%, 8/15/24 2/05 at 102 Aaa 1,113,390
New York State Medical Care Facilities Finance Agency
Brookdale Hospital Medical Center Secured Hospital
Revenue Bonds, 1995 Series A:
1,000,000 6.400%, 2/15/01 No Opt. Call Baa 1,038,480
2,700,000 6.800%, 8/15/12 2/05 at 102 Baa 2,843,613
New York State Medical Care Facilities Finance Agency,
Hospital Insured Mortgage Revenue Bonds, 1994 Series
A Refunding:
3,000,000 5.500%, 8/15/24 2/04 at 102 Aaa 2,871,090
2,915,000 5.375%, 2/15/25 2/04 at 102 Aaa 2,746,426
1,000,000 New York State Urban Development Corporation, Section 1/02 at 102 Aaa 1,097,570
236 Revenue Bonds, Series 1992A, 6.750%, 1/01/26
1,100,000 New York State Urban Development Corporation, Project 1/98 at 102 Baa1 1,159,829
Revenue Bonds (Syracuse University Center for Science
and Technology), Series 1987, 7.875%, 1/01/17
(Pre-refunded to 1/01/98)
</TABLE>
17
<PAGE>
Portfolio of Investments
Nuveen Flagship New York -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,000,000 New York State Urban Development Corporation, 1/00 at 102 Aaa $1,105,930
Correctional Capital Facilities Revenue Bonds, Series 1,
7.500%, 1/01/20 (Pre-refunded to 1/01/00)
2,000,000 New York State Urban Development Corporation, Project 1/01 at 102 Baa1 2,271,540
Revenue Bonds, (Clarkson Center for Advanced Materials
Processing Loan) Series 1990, 7.800%, 1/01/20
(Pre-refunded to 1/01/01)
2,900,000 New York State Urban Development Corporation, State 4/01 at 102 Aaa 3,295,125
Facilities Revenue Bonds, Series 1991, 7.500%, 4/01/20
(Pre-refunded to 4/01/01)
1,000,000 New York State Urban Development Corporation, Project 1/03 at 102 Baa1 999,380
Revenue Bonds, (Cornell Center for Theory and Simulation
in Science and Engineering Grant), Series 1993,
6.000%, 1/01/14
5,090,000 New York State Urban Development Corporation, 1/03 at 102 Baa1 4,831,784
Correctional Capital Facilities Revenue Bonds, 1993
Refunding Series, 5.500%, 1/01/15
1,750,000 New York State Development Corporation, No Opt. Call Baa1 1,731,065
State Facilities Revenue Bonds, 1995 Refunding Series,
5.700%, 4/01/20
1,000,000 New York State Urban Development Corporation, Project 1/06 at 102 Baa1 1,017,620
Revenue Bonds, (Onondaga County Convention Center),
Refunding Series 1995, 6.250%, 1/01/20
4,000,000 New York State Urban Development Corporation, 1/07 at 102 Baa1 3,889,440
Correctional Capital Facilities Revenue Bonds, Series 7,
5.700%, 1/01/16
380,000 State of New York Mortgage Agency, Mortgage 4/98 at 102 Aa 394,280
Revenue Bonds, Ninth Series E, 8.100%, 10/01/17
250,000 State of New York Mortgage Agency, Homeowner 2/01 at 102 Aa 265,738
Mortgage Revenue Bonds, Series MM-1,
7.950%, 10/01/21 (Alternative Minimum Tax)
1,500,000 State of New York Mortgage Agency, Homeowner 9/04 at 102 Aa 1,610,160
Mortgage Revenue Bonds, Series 43, 6.450%, 10/01/17
595,000 State of New York Mortgage Agency, Homeowner 4/01 at 102 Aa 628,915
Mortgage Revenue Bonds, 1991 Series UU, 7.750%,
10/01/23 (Alternative Minimum Tax)
1,000,000 State of New York Mortgage Agency, Homeowner 3/05 at 102 Aa 1,047,920
Mortgage Revenue Bonds, 1995 Series 46, 6.600%,
10/01/19 (Alternative Minimum Tax)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 250,000 State of New York Municipal Bond Bank Agency, 9/01 at 102 BBB+ $ 268,345
Special Program Bonds, (City of Buffalo), 1991 Series A,
6.875%, 3/15/06
250,000 State of New York Municipal Bond Bank Agency, 9/01 at 102 A+ 269,305
Special Program Revenue Bonds, (City of Rochester),
1991 Series A, 6.750%, 3/15/11
300,000 State of New York, Serial Bonds, Series 1991, 7.300%, 3/01 at 102 A 337,221
3/01/12 (Pre-refunded to 3/01/01)
1,500,000 Albany County Airport Authority, Airport Revenue Bonds, 12/07 at 102 Aaa 1,440,600
Series 1997, 5.500%, 12/15/19 (Alternative
Minimum Tax)
300,000 Albany Housing Authority, City of Albany, New York, 10/05 at 102 Baa1 300,144
Limited Obligation Bonds, Series 1995,
5.850%, 10/01/07
500,000 City of Albany Industrial Development Agency, Lease No Opt. Call N/R 552,370
Revenue Bonds, (The New York State Assembly Building
Project), 1991 Series A-1, 7.750%, 1/01/10
500,000 Albany Parking Authority, Aggregate Principal Amount, 9/01 at 102 A 544,280
(Green and Hudson Garage Project), Parking Revenue
Refunding Bonds, (Letter of Credit Secured),
Series 1991A, 7.150%, 9/15/16
1,500,000 Albany Parking Authority, Aggregate Principal Amount, No Opt. Call Baa1 442,740
Parking Revenue Refunding Bonds, Series 1992A,
0.000%, 11/01/17
2,100,000 Town of Babylon Industrial Development Agency, (New 7/98 at 103 Aaa 2,290,701
York), Resource Recovery Revenue Bonds, Series 1985,
(Ogden Martin Systems of Babylon, Inc. Project),
8.500%, 1/01/19 (Pre-refunded to 7/01/98)
1,000,000 City of Batavia Housing Authority, Tax-Exempt Mortgage 7/01 at 102 Aaa 1,023,840
Revenue Refunding Bonds, Series 1994A, (Washington
Towers -- FHA-Insured Mortgage), 6.500%, 1/01/23
1,750,000 Town of Brookhaven, Industrial Development Agency, 3/03 at 102 BBB 1,825,933
1993 Civic Facility Revenue Bonds, (Dowling College/
The National Aviation and Transportation Center Civic
Facility), 6.750%, 3/01/23
2,000,000 Certificates of Participation, The State of New York, The No Opt. Call Baa1 2,081,940
City University of New York, (John Jay College of
Criminal Justice Project Refunding), 6.000%, 8/15/06
2,470,000 Dutchess County Industrial Development Agency, Civic 11/03 at 102 A 2,669,428
Facility Revenue Bonds, (The Bard College Project)
Series 1992, 7.000%, 11/01/17
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship New York -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,600,000 County of Franklin Industrial Development Agency, Lease 11/02 at 102 BBB-- $1,702,592
Revenue Bonds, (County Correctional Facility Project),
Series 1992, 6.750%, 11/01/12
700,000 Town of Hempstead Industrial Development Agency, 10/99 at 102 Aa2 740,222
Civic Facility Revenue Bonds, (United Cerebral Palsy
Association of Nassau County, Inc. Civic Facility
Project--1989 Series), 7.500%, 10/01/09
2,500,000 Housing New York Corporation, Senior Revenue 11/03 at 102 AA 2,330,900
Refunding Bonds, Series 1993, 5.000%, 11/01/13
750,000 Jefferson County Industrial Development Agency, 11/02 at 102 Baa1 806,340
Multi-Modal Interchangeable Rate, Solid Waste
Disposal Revenue Bonds, (Champion International
Corporation Project), Series 1990, 7.200%, 12/01/20
(Alternative Minimum Tax)
1,000,000 Metropolitan Transportation Authority, Commuter 7/02 at 102 Aaa 1,057,380
Facilities Revenue Bonds, Series 1992B,
6.250%, 7/01/17
1,000,000 Metropolitan Transportation Authority, Commuter 7/04 at 101 1/2 Aaa 1,082,110
Facilities Revenue Bonds, Series 1994A,
6.375%, 7/01/18
1,000,000 Metropolitan Transportation Authority (New York), 7/00 at 102 Aaa 1,119,380
Commuter Facilities 1987 Service Contract Bonds,
Series 3, 7.500%, 7/01/16 (Pre-refunded to 7/01/00)
4,000,000 Metropolitan Transportation Authority (New York), 7/03 at 101 1/2 Baa1 3,887,160
Transit Facilities Service Contract Bonds, Series P,
5.750%, 7/01/15
1,025,000 Metropolitan Transportation Authority, Transit Facilities 7/02 at 102 Aaa 1,123,861
Revenue Bonds, Series J, 6.500%, 7/01/18
1,000,000 Metropolitan Transportation Authority, Transit Facilities 7/06 at 102 Aaa 1,044,460
Revenue Bonds, Series A, 6.100%, 7/01/21
1,000,000 City of Rochelle, Industrial Development Agency, Civic 7/02 at 102 BBB-- 1,038,070
Facility Revenue Bonds, (College of New Rochelle
Project -- 1992 Series), 6.625%, 7/01/12
2,000,000 The City of New York, General Obligation Bonds, Fiscal 2/02 at 101 1/2 Baa1 2,217,580
1992 Series B, 7.500%, 2/01/06
45,000 The City of New York, General Obligation Bonds, Fiscal 8/02 at 101 1/2 Aaa 49,481
1992 Series C, Fixed Rate Bonds, Subseries C1,
6.625%, 8/01/13
1,000,000 The City of New York, General Obligation Bonds, Fiscal 8/04 at 101 Baa1 1,075,530
1995 Series B, 7.000%, 8/15/16
</TABLE>
20
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 40,000 The City of New York, General Obligation Bonds, Fiscal 11/01 at 101 1/2 Baa1 $ 45,536
1991 Series F, Tax-Exempt Bonds, 8.250%, 11/15/19
The City of New York, General Obligation Bonds, Fiscal
1996 Series G:
2,000,000 5.750%, 2/01/17 2/06 at 101 1/2 Baa1 1,916,460
2,500,000 5.750%, 2/01/20 2/06 at 101 1/2 Baa1 2,388,150
1,000,000 The City of New York, General Obligation Bonds, Fiscal 2/06 at 101 1/2 Baa1 956,190
1996 Series F, 5.750%, 2/01/19
1,750,000 The City of New York, General Obligation Bonds, Fiscal 11/06 at 101 1/2 Baa1 1,747,270
1997, Series D, Tax-Exempt Bonds, 5.875%, 11/01/11
2,000,000 The City of New York, General Obligation Bonds, Fiscal 8/06 at 101 1/2 Baa1 1,960,640
1997, Series E, 6.000%, 8/01/26
2,835,000 The City of New York, General Obligation Bonds, Fiscal 10/07 at 101 Baa1 2,778,980
1997, Series G, 6.000%, 10/15/26
1,000,000 New York City, Health and Hospitals Corporation, 2/03 at 102 Baa 999,610
Health System Bonds, 1993 Series A, 6.300%, 2/15/20
2,000,000 New York City Housing Development Corporation, Multi- 4/03 at 102 AAA 2,089,080
Family Mortgage Revenue Bonds, (FHA-Insured
Mortgage Loan), 1993 Series A, 6.550%, 10/01/15
1,250,000 New York City Housing Development Corporation, Multi- 6/01 at 102 AAA 1,327,500
Unit Mortgage Refunding Bonds, (FHA-Insured
Mortgage Loans), 1991 Series A, 7.350%, 6/01/19
1,500,000 New York City, Municipal Water Finance Authority 6/01 at 101 1/2 Aaa 1,714,275
(New York), Water and Sewer System Revenue
Bonds, Fiscal 1991 Series C, 7.750%, 6/15/20
(Pre-refunded to 6/15/01)
2,000,000 New York City Municipal Water Finance Authority, Water 6/02 at 100 A 1,902,840
and Sewer Revenue Bonds, Fiscal 1993 Series A,
5.500%, 6/15/20
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds,
Fiscal 1996 Series A:
4,000,000 6.000%, 6/15/23 6/05 at 101 A 4,068,720
1,000,000 5.500%, 6/15/23 6/05 at 100 A 955,140
220,000 New York City Industrial Development Agency, Civic 11/01 at 102 AAA 235,979
Facility Revenue Bonds, (Federation Protestant Welfare)
Series 1991, 6.950%, 11/01/11
5,345,000 New York City Industrial Development Agency, Civic Facility 7/02 at 102 AA 5,664,471
Revenue Bonds, (1992 The Lighthouse, Inc. Project),
6.500%, 7/01/22
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship New York -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York City Industrial Development Agency, Civic
Facility Revenue Bonds, (College of New Rochelle Project),
Series 1995:
$1,000,000 6.200%, 9/01/10 9/05 at 102 Baa $1,028,450
1,000,000 6.300%, 9/01/15 9/05 at 102 Baa 1,004,180
2,000,000 New York City Industrial Development Agency, Special 1/04 at 102 A 2,006,560
Facility Revenue Bonds, Series 1994, (Terminal One
Group Association, L.P. Project), 6.125%, 1/01/24
(Alternative Minimum Tax)
2,345,000 Newark -- Wayne Community Hospital, Inc., Hospital 9/03 at 102 N/R 2,283,350
Revenue Improvement and Refunding Bonds, Series
1993A, 7.600%, 9/01/15
750,000 Onondaga County Resource Recovery Agency, System 5/02 at 102 Baa 784,987
Revenue Bonds, (Development Costs -- 1992 Series),
7.000%, 5/01/15 (Alternative Minimum Tax)
1,000,000 Orangetown Housing Authority (Rockland County, New 10/00 at 102 A 1,130,330
York), Housing Facilities Revenue Bonds (Orangetown
Senior Housing Center -- 1990 Series), 7.600%, 4/01/30
(Pre-refunded to 10/01/00)
South Orangetown Central School District, Rockland County,
New York, Serial General Obligation Bonds, Series 1990:
390,000 6.875%, 10/01/08 No Opt. Call A 449,626
390,000 6.875%, 10/01/09 No Opt. Call A 449,583
3,515,000 Suffolk County, Industrial Development Agency, Civic 6/04 at 102 BBB 3,653,736
Facility Revenue Bonds, (Dowling College Civic
Facility), Series 1994, 6.625%, 6/01/24
1,000,000 Suffolk County Industrial Development Agency, Civic 12/06 at 102 Baa 1,029,810
Facility Revenue Refunding Bonds, (Dowling College
Civic Facility), Series 1996, 6.700%, 12/01/20
2,000,000 34th Street Partnership, Inc., 34th Street Business 1/03 at 102 A1 1,900,760
Improvement District, Capital Improvement Bonds,
Series 1993, 5.500%, 1/01/23
500,000 Triborough Bridge and Tunnel Authority, Convention Center No Opt. Call Baa1 570,090
Project Bonds, Series E, 7.250%, 1/01/10
2,000,000 Triborough Bridge and Tunnel Authority (New York), 1/01 at 102 A1 2,202,820
Special Obligation Refunding Bonds, Series 1991B,
7.100%, 1/01/10
2,000,000 Triborough Bridge and Tunnel Authority, Special Obligation 1/01 at 102 Aaa 2,202,820
Refunding Bonds, Series 1991B, 7.100%, 1/01/10
22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,100,000 UFA Development Corporation, Utica, New York, FHA- 7/04 at 102 Aa $ 2,107,265
Insured Mortgage Revenue Bonds, Series 1993, (Loretto-
Utica Project), 5.950%, 7/01/35
2,000,000 New York City Industrial Development Agency, Civic 12/02 at 102 BBB- 2,072,820
Facility Revenue Bonds, (1992 Jewish Board of Family
and Children's Services, Inc. Project),
6.750%, 12/15/12
1,500,000 Commonwealth of Puerto Rico, Public Improvement 7/06 at 101 1/2 A 1,427,894
Bonds of 1996, (General Obligation Bonds),
5.400%, 7/01/25
1,000,000 Puerto Rico Electric Power Authority, Power Revenue 7/05 at 102 Baa1 965,870
Refunding Bonds, Series Z, 5.500%, 7/01/16
- --------------------------------------------------------------------------------------------------------------------
$221,330,000 Total Investments -- (cost $214,237,189) -- 99.3% 226,651,520
==============------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.7% 1,710,646
------------------------------------------------------------------------------------------------------
Net Assets -- 100% $228,362,166
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Summary of Ratings** -- Portfolio of Investments
Standard Number Market Market
& Poor's Moody's of Securities Value Percent
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AAA Aaa 43 $ 65,606,344 29%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 21 27,576,516 12
A+ A1 6 8,360,799 4
A, A- A, A2, A3 12 18,626,292 8
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 67 101,776,626 45
BB+, BB, BB- Ba1, Ba, Ba2, Ba3 2 1,869,223 1
Non-rated Non-rated 2 2,835,720 1
----------------------------------------------------------------------------------------------------
TOTAL 153 $226,651,520 100%
====================================================================================================
</TABLE>
* Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
** Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year)
and prices of the earliest optional call or redemption.
There may be other call provisions at varying prices at
later dates.
N/R Investment is not rated.
See accompanying notes to financial statements.
23
<PAGE>
Portfolio of Investments
Nuveen New York Insured
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 5,000,000 Dormitory Authority of the State of New York, State 7/05 at 102 Aaa $ 4,714,300
University Dormitory Facilities, Lease Revenue Bonds,
Series 1995A, 5.300%, 7/01/24
1,415,000 Dormitory Authority of the State of New York, College and 12/98 at 102 Aaa 1,525,243
University Revenue Bonds (Pooled Capital Program),
Series 1985, 7.800%, 12/01/05
1,490,000 Dormitory Authority of the State of New York, United 2/00 at 102 AAA 1,603,344
Health Services, Inc., FHA-Insured Mortgage Revenue
Bonds, Series 1989, 7.350%, 8/01/29
1,490,000 Dormitory Authority of the State of New York, Iona College, 7/98 at 102 Aaa 1,594,628
Insured Revenue Bonds, Series 1988, 7.625%, 7/01/09
1,200,000 Dormitory Authority of the State of New York, State 5/00 at 102 Aaa 1,330,044
University Educational Facilities, Revenue Bonds, Series
1989B, 7.250%, 5/15/15 (Pre-refunded to 5/15/00)
1,000,000 Dormitory Authority of the State of New York, United 7/02 at 102 Aaa 1,059,360
Cerebral Palsy Association of Westchester County, Inc.,
Insured Revenue Bonds, Series 1992, 6.200%, 7/01/12
1,000,000 Dormitory Authority of the State of New York, 7/00 at 102 Aaa 1,119,380
Manhattanville College, Insured Revenue Bonds,
Series 1990, 7.500%, 7/01/22
(Pre-refunded to 7/01/00)
6,295,000 Dormitory Authority of the State of New York, City 7/00 at 102 Aaa 7,046,497
University System Consolidated Second General Resolution
Revenue Bonds, Series 1990F, 7.500%, 7/01/20
(Pre-refunded to 7/01/00)
2,500,000 Dormitory Authority of the State of New York, Cooper Union, 7/01 at 102 Aaa 2,823,275
Insured Revenue Bonds, Series 1990, 7.200%, 7/01/20
(Pre-refunded to 7/01/01)
1,200,000 Dormitory Authority of the State of New York, State 5/00 at 102 Aaa 1,321,500
University Educational Facilities Revenue Bonds,
Series 1990C, 7.000%, 5/15/18
(Pre-refunded to 5/15/00)
2,500,000 Dormitory Authority of the State of New York, City 7/00 at 102 Aaa 2,728,675
University System Consolidated Second General Resolution
Revenue Bonds, Series 1990C, 7.000%, 7/01/14
2,000,000 Dormitory Authority of the State of New York, State 5/00 at 102 Aaa 2,138,340
University Educational Facilities Revenue Bonds,
Series 1990A, 6.500%, 5/15/19 (Pre-refunded to 5/15/00)
5,000,000 Dormitory Authority of the State of New York, New York 7/01 at 102 Aaa 5,342,800
University Insured Revenue Bonds,
Series 1991, 6.250%, 7/01/09
</TABLE>
24
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,000,000 Dormitory Authority of the State of New York, Fordham 7/00 at 102 Aaa $ 1,110,190
University, Insured Revenue Bonds, Series 1990,
7.200%, 7/01/15 (Pre-refunded to 7/01/00)
1,800,000 Dormitory Authority of the State of New York, City No Opt. Call Aaa 1,857,114
University System Consolidated Second General
Resolution Revenue Bonds, Series 1993A,
5.750%, 7/01/18
4,640,000 Dormitory Authority of the State of New York, Mount 7/04 at 102 Aaa 4,229,082
Sinai School of Medicine, Insured Revenue Bonds,
Series 1994A, 5.000%, 7/01/21
1,175,000 Dormitory Authority of the State of New York, Mount No Opt. Call Aaa 1,227,840
Sinai School of Medicine, Insured Revenue Bonds,
Series 1995, 5.700%, 7/01/11
1,500,000 Dormitory Authority of the State of New York, Sarah 7/05 at 102 Aaa 1,548,270
Lawrence College, Revenue Bonds, Series 1995,
6.000%, 7/01/24
6,460,000 Dormitory Authority of the State of New York, St. 8/05 at 102 Aaa 6,446,240
Vincent's Hospital and Medical Center of New York,
FHA-Insured Mortgage Revenue Bonds, Series 1995,
5.800%, 8/01/25
3,000,000 Dormitory Authority of the State of New York, City 7/05 at 102 Aaa 2,966,460
University System Consolidated Second General
Resolution Revenue Bonds, Series 1995A, 5.375%,
7/01/14
3,730,000 Dormitory Authority of the State of New York, 2/06 at 102 Aaa 3,701,839
Maimonides Medical Center, FHA-Insured Mortgage
Hospital Revenue Bonds, Series 1996A, 5.750%, 8/01/24
3,280,000 New York Government Assistance Corporation, Series 4/04 at 100 Aaa 2,959,708
1993 B, Refunding Bonds, 5.000%, 4/01/23
New York Medical Care Facilities Finance Agency,
Mental Health Services Facilities Improvement
Revenue Bonds, 1992 Series A:
5,000 6.375%, 8/15/17 (Pre-refunded to 2/15/02) 2/02 at 102 Aaa 5,489
6,145,000 6.375%, 8/15/17 12/02 at 102 Aaa 6,537,112
5,500,000 New York State Energy Research and Development 1/06 at 102 Aaa 5,381,640
Authority, Gas Facilities Revenue Bonds,
1996 Series (The Brooklyn Union Gas Company Project),
5.500%, 1/01/21
2,500,000 New York State Energy Research and Development 10/99 at 103 Aaa 2,740,975
Authority, Pollution Control Revenue Bonds
(Central Hudson Gas & Electric Corporation Project),
1984 Series B, 7.375%, 10/01/14
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,450,000 New York State Environmental Facilities Corporation, 6/00 at 102 Aaa $1,581,907
State Water Pollution Control, Revolving Fund Revenue
Bonds, Series 1990 C (Pooled Loan Issue),
7.200%, 3/15/11
New York State Finance Agency, Housing Project Mortgage
Revenue Bonds, 1996 Series A Refunding:
750,000 5.875%, 11/01/10 5/06 at 102 Aaa 772,553
5,000,000 6.125%, 11/01/20 5/06 at 102 Aaa 5,127,650
2,190,000 New York State Housing Finance Agency, Multi-Family 11/99 at 102 Aaa 2,306,201
Housing Revenue Bonds (AMBAC Insured Program),
1989 Series A, 7.450%, 11/01/28
995,000 New York State Medical Care Facilities Finance Agency, 8/98 at 102 AAA 1,068,670
Albany Medical Center Hospital Project Revenue Bonds,
1987 Series A, 8.000%, 2/15/28
895,000 New York State Medical Care Facilities Finance Agency, 11/98 at 102 Aaa 959,109
St. Francis Hospital Project Revenue Bonds, 1988
Series A, 7.625%, 11/01/21
4,765,000 New York State Medical Care Facilities Finance Agency, 2/99 at 100 Aaa 4,874,261
Secured Hospital Revenue Bonds, 1987 Series A,
7.100%, 2/15/27
1,980,000 New York State Medical Care Facilities Finance Agency, 8/99 at 102 Aa 2,115,175
Hospital and Nursing Home Insured Mortgage Revenue
Bonds, 1989 Series B, 7.350%, 2/15/29
1,500,000 New York State Medical Care Facilities Finance Agency, 2/98 at 102 AAA 1,594,545
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1987 Series A, 8.300%, 2/15/22
(Pre-refunded to 2/15/98)
1,300,000 New York State Medical Care Facilities Finance Agency, 2/00 at 102 Aaa 1,438,970
St. Luke's-Roosevelt Hospital Center FHA-Insured
Mortgage Revenue Bonds, 1989 Series B,
7.450%, 2/15/29 (Pre-refunded to 2/15/00)
3,200,000 New York State Medical Care Facilities Finance Agency, 11/00 at 102 Aaa 3,527,072
North Shore University Hospital, Mortgage Project
Revenue Bonds, 1990 Series A, 7.200%, 11/01/20
New York State Medical Care Facilities Finance Agency,
Hospital and Nursing Home FHA-Insured Mortgage
Revenue Bonds, 1989 Series A:
2,000,000 7.250%, 2/15/24 2/99 at 102 Aaa 2,136,740
1,500,000 7.250%, 2/15/24 2/99 at 102 Aa 1,618,590
1,670,000 New York State Medical Care Facilities Finance Agency, 11/01 at 102 Aaa 1,811,533
Our Lady of Victory Hospital Project Revenue Bonds,
1991 Series A, 6.625%, 11/01/16
</TABLE>
26
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New York State Medical Care Facilities Finance Agency,
Sisters of Charity Hospital of Buffalo Project Revenue
Bonds, 1991 Series A:
$ 500,000 6.600%, 11/01/10 11/01 at 102 Aaa $ 542,955
1,550,000 6.625%, 11/01/18 11/01 at 102 Aaa 1,677,984
1,000,000 New York State Medical Care Facilities Finance Agency, 11/01 at 102 Aaa 1,077,420
Aurelia Osborn Fox Memorial Hospital Project Revenue
Bonds, 1992 Series A, 6.500%, 11/01/19
2,815,000 New York State Medical Care Facilities Finance Agency, 2/02 at 102 Aaa 2,954,793
Mental Health Services Facilities Improvement Revenue
Bonds, 1992 Series B, 6.250%, 8/15/18
3,000,000 New York State Medical Care Facilities Finance Agency, 11/02 at 102 Aaa 3,148,350
South Nassau Communities Hospital Project Revenue
Bonds, 1992 Series A, 6.125%, 11/01/11
6,000,000 New York State Medical Care Facilities Finance Agency, 2/04 at 102 Aaa 5,575,320
Mental Health Services Facilities Improvement Revenue
Bonds, 1994 Series A, 5.250%, 8/15/23
2,500,000 New York State Medical Care Facilities Finance Agency, 11/03 at 102 Aaa 2,651,950
St. Mary's Hospital (Rochester) Mortgage Project
Revenue Bonds, 1994 Series A Refunding,
6.200%, 11/01/14
1,000,000 New York State Medical Care Facilities Finance Agency, 8/04 at 102 Aaa 1,040,700
Mental Health Services Facilities Improvement Revenue
Bonds, 1994 Series D, 6.150%, 2/15/15
7,000,000 New York State Medical Care Facilities Finance Agency, 2/05 at 102 Aaa 7,793,730
New York Hospital FHA-Insured Mortgage Revenue Bonds,
1994 Series A (AMBAC Insured Series), 6.800%, 8/15/24
7,890,000 New York State Medical Care Facilities Finance Agency, 2/05 at 102 Aaa 7,985,232
Montefiore Medical Center FHA-Insured Mortgage
Revenue Bonds, 1995 Series A, 5.750%, 2/15/15
2,000,000 New York State Medical Care Facilities Finance Agency, 2/04 at 102 Aaa 1,867,840
Mental Health Services Facilities Improvement Revenue
Bonds, 1993 Series F Refunding, 5.250%, 2/15/19
5,000,000 New York State Medical Care Facilities Finance Agency, 2/04 at 102 Aaa 4,785,150
Hospital Insured Mortgage Revenue Bonds, 1994
Series A Refunding, 5.500%, 8/15/24
7,300,000 New York State Thruway Authority, General Revenue Bonds, 1/02 at 102 Aaa 7,317,739
Series A, 5.750%, 1/01/19
</TABLE>
27
<PAGE>
Portfolio of Investments
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
New York Urban Development Corporation, Section 236
Revenue Bonds, Series 1992A:
$ 3,850,000 6.700%, 1/01/12 1/02 at 102 Aaa $ 4,229,726
9,650,000 6.750%, 1/01/26 1/02 at 102 Aaa 10,591,551
New York State Urban Development Corporation,
Correctional Facilities Revenue Bonds, Series G:
1,500,000 7.250%, 1/01/14 (Pre-refunded to 1/01/00) 1/00 at 102 Aaa 1,648,950
575,000 7.000%, 1/01/17 (Pre-refunded to 1/01/00) 1/00 at 102 Aaa 628,446
2,000,000 New York State Urban Development Corporation, 1/00 at 102 Aaa 2,211,860
Correctional Capital Facilities Revenue Bonds,
Series 1, 7.500%, 1/01/20 (Pre-refunded to 1/01/00)
4,000,000 New York State Urban Development Corporation Revenue 4/06 at 102 Aaa 3,917,160
Bonds (Sports Facility Assistance Program), 1996
Series A, 5.500%, 4/01/19
2,000,000 Power Authority of the State of New York, General Purpose 1/02 at 102 Aaa 2,180,140
Bonds, Series Z, 6.500%, 1/01/19
60,000 State of New York Mortgage Agency, Mortgage Revenue 1/98 at 102 Aa 60,647
Bonds, Eighth Series D, 8.375%, 10/01/17
390,000 State of New York Mortgage Agency, Mortgage Revenue 4/98 at 102 Aa 404,656
Bonds, Ninth Series E, 8.100%, 10/01/17
3,500,000 State of New York Mortgage Agency, Homeowner 10/03 at 102 Aaa 3,516,345
Mortgage Revenue Bonds, Series 29-C-1,
5.650%, 4/01/15
1,000,000 County of Albany, New York, Public Improvement 9/06 at 101 Aaa 1,011,480
Bonds, Series 1996B, 5.600%, 3/15/15
280,000 Albany, New York, Municipal Water Finance Authority, 12/98 at 102 Aaa 300,510
Water and Sewer System Revenue Bonds, Series
1988A, 7.500%, 12/01/17
2,500,000 Battery Park City Authority, Senior Revenue Refunding 11/03 at 102 Aaa 2,356,925
Bonds, Series 1993A, 5.250%, 11/01/17
2,250,000 Buffalo and Fort Erie Public Bridge Authority, Toll 1/05 at 101 Aaa 2,257,358
Bridge System Revenue Bonds, Series 1995,
5.750%, 1/01/25
1,000,000 City of Buffalo, New York, Refunding Serial Bonds-1991, 1/01 at 101 Aaa 1,061,370
6.150%, 2/01/04
8,385,000 Buffalo Municipal Water Finance Authority, Water System 7/03 at 102 Aaa 8,409,065
Revenue Bonds, Series 1992, 5.750%, 7/01/19
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Camden Central School District, Oneida County, New York,
School District Bonds, 1991:
$ 500,000 7.100%, 6/15/07 No Opt. Call Aaa $ 590,740
600,000 7.100%, 6/15/08 No Opt. Call Aaa 709,974
600,000 7.100%, 6/15/09 No Opt. Call Aaa 710,988
275,000 7.100%, 6/15/10 No Opt. Call Aaa 326,139
1,000,000 Erie County Water Authority, New York, Water Works 12/09 at 100 Aaa 1,112,140
System Revenue Bonds, Series 1990B,
6.750%, 12/01/14
500,000 Greece Central School District, Monroe County, New York, No Opt. Call Aaa 544,755
General Obligation Bonds, School District (Serial)
Bonds, 1992, 6.000%, 6/15/09
Town of Halfmoon, Saratoga County, New York, Public
Improvement Bonds, 1991:
385,000 6.500%, 6/01/09 No Opt. Call Aaa 437,984
395,000 6.500%, 6/01/10 No Opt. Call Aaa 448,803
395,000 6.500%, 6/01/11 No Opt. Call Aaa 449,431
1,350,000 Town of Hempstead Industrial Development Agency, 7/06 at 102 Aaa 1,382,238
Civic Facility Revenue Bonds, (Hofstra University
Project-Series 1996), 5.800%, 7/01/15
4,000,000 Metropolitan Transportation Authority, Commuter Facilities 7/05 at 101 Aaa 3,996,920
Subordinated Revenue Bonds, Series 1995-1, (Grand
Central Terminal Redevelopment Project),
5.700%, 7/04/24
1,000,000 Metropolitan Transportation Authority, Transit Facilities 7/98 at 102 Aaa 1,060,970
Service Contract Bonds, Series L, 7.500%, 7/01/17
10,340,000 Metropolitan Transportation Authority, Transit Facilities 7/02 at 102 Aaa 11,337,293
Revenue Bonds, Series J, 6.500%, 7/01/18
Middle County Central School, District at Centereach
in the Town of Brookhaven, Suffolk Co., N.Y., School
District Bonds, 1991:
475,000 6.900%, 12/15/07 No Opt. Call Aaa 559,693
475,000 6.900%, 12/15/08 No Opt. Call Aaa 560,106
Public Improvement Serial Bonds 1992, County of Monroe,
New York, General Obligation Bonds:
375,000 6.500%, 6/01/15 6/01 at 102 Aaa 412,939
375,000 6.500%, 6/01/16 6/01 at 102 Aaa 412,939
350,000 6.500%, 6/01/17 6/01 at 102 Aaa 385,410
3,725,000 Montgomery, Otsego, Schoharie, Solid Waste Management 1/00 at 103 Aaa 4,128,008
Authority, Solid Waste System Revenue Bonds,
Series 1990, 7.250%, 1/01/14 (Pre-refunded to 1/01/00)
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mount Sinai Union Free School District, Suffolk County,
New York, School District Bonds, 1989:
$1,000,000 7.250%, 2/15/15 (Pre-refunded to 2/15/00) 2/00 at 102 Aaa $ 1,102,570
1,000,000 7.250%, 2/15/17 (Pre-refunded to 2/15/00) 2/00 at 102 Aaa 1,102,570
Mount Sinai Union Free School District, County of Suffolk,
New York, School District Refunding Bonds, 1992:
500,000 6.200%, 2/15/15 No Opt. Call Aaa 548,960
1,035,000 6.200%, 2/15/16 No Opt. Call Aaa 1,133,128
1,500,000 County of Nassau, New York, General Obligation Serial 8/04 at 103 Aaa 1,548,690
Bonds, Serial General Improvement Bonds, Series O,
5.700%, 8/01/13
4,840,000 Nassau County Industrial Development Agency, Civic 8/01 at 102 Aaa 5,320,031
Facility Revenue Bonds (Hofstra University Project-
Series 1991), 6.750%, 8/01/11
1,020,000 City of New Rochelle, Westchester County, New York, 8/04 at 102 Aaa 1,084,097
General Obligations, Public Improvement Bonds,
1994 Series B, 6.200%, 8/15/22
The City of New York, General Obligation Bonds,
Fiscal 1992 Series C, Fixed Rate Bonds, Subseries C-1:
3,000,000 6.250%, 8/01/10 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 Aaa 3,292,290
1,000,000 6.250%, 8/01/10 8/02 at 101 1/2 Aaa 1,054,080
75,000 The City of New York, General Obligation Bonds, 8/02 at 101 1/2 Aaa 82,468
Fiscal 1992 Series C, 6.625%, 8/01/12
2,520,000 The City of New York, General Obligation Bonds, 5/03 at 101 1/2 Aaa 2,562,613
Fiscal 1993 Series E, 5.750%, 5/15/12
The City of New York, General Obligation Bonds,
Fiscal 1990 Series B:
1,300,000 7.000%, 10/01/15 No Opt. Call Aaa 1,378,754
2,000,000 7.000%, 10/01/16 10/99 at 100 Aaa 2,374,340
1,025,000 7.000%, 10/01/17 No Opt. Call Aaa 1,087,095
310,000 7.000%, 10/01/18 No Opt. Call Aaa 329,561
500,000 The City of New York, General Obligation Bonds, 11/97 at 101 1/2 Aaa 522,875
Fiscal 1988 Series A, 8.250%, 11/01/02
(Pre-refunded to 11/01/97)
New York City Health and Hospitals Corporation,
Health System Bonds, 1993 Series A:
2,500,000 5.625%, 2/15/13 2/03 at 102 Aaa 2,511,875
14,980,000 5.750%, 2/15/22 2/03 at 102 Aaa 14,871,695
</TABLE>
30
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$5,000,000 Pass-Through Certificates of New York City, 7/97 at 105 Aaa $5,879,700
Multifamily Housing, Limited Obligation Bonds,
Series 1991A, 6.500%, 2/20/19
1,000,000 New York Municipal Water Finance Authority, Water 6/00 at 101 1/2 Aaa 1,104,200
and Sewer System Revenue Bonds, Fiscal 1991
Series A, 7.250%, 6/15/15 (Pre-refunded to 6/15/00)
3,250,000 New York City Municipal Water Finance Authority, 6/01 at 101 Aaa 3,541,345
Water and Sewer System Revenue Bonds, Fiscal
1992 Series A, 6.750%, 6/15/16
New York City Municipal Water Finance Authority,
Water and Sewer System Revenue Bonds,
Fiscal 1993 Series A:
2,765,000 5.750%, 6/15/18 6/02 at 101 1/2 Aaa 2,763,037
4,650,000 5.500% 6/15/20 6/02 at 100 Aaa 4,452,515
7,000,000 New York City Municipal Water Finance Authority, 6/06 at 101 Aaa 7,023,590
Water and Sewer System Revenue Bonds,
Fiscal 1996 Series B, 5.750%, 6/15/26
1,000,000 New York City Transit Authority, Transit Facilities 1/00 at 102 Aaa 1,104,230
Revenue Bonds, Series 1990 (Livingston Plaza Project),
7.500%, 1/01/20 (Pre-refunded to 1/01/00)
5,750,000 New York City Transit Authority, Transit Facilities 1/03 at 100 Aaa 5,355,435
Refunding Revenue Bonds, Series 1993 (Livingston
Plaza Project), 5.250%, 1/01/20
2,200,000 The Trust for Cultural Resources of The City of New York, 4/01 at 102 Aaa 2,446,312
Revenue Refunding Bonds, Series 1991A (The American
Museum of Natural History), 6.900%, 4/01/21
(Pre-refunded to 4/01/01)
1,000,000 New York City Industrial Development Agency, Civic 11/04 at 102 Aaa 1,084,920
Facility Revenue Bonds (USTA National Tennis Center
Incorporated Project), 6.375%, 11/15/14
1,000,000 New York City Industrial Development Agency, Civic 9/05 at 102 Aaa 1,017,750
Facility Revenue Bonds (New School For Social Research
Project), Series 1995A, 5.750%, 9/01/15
1,590,000 City of Niagara Falls, Niagara County, New York, Public 3/04 at 102 Aaa 1,787,748
Improvement Bonds, 1994, 6.900%, 3/01/21
5,725,000 Niagara Falls Bridge Commission, Toll Bridge System 10/02 at 102 Aaa 6,296,298
Revenue Bonds, Series 1992, 6.125%, 10/01/19
(Pre-refunded to 10/01/02)
</TABLE>
31
<PAGE>
Portfolio of Investments
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Town of North Hempstead, Nassau County, New York,
Public Improvement Bonds, 1991, Series B,
Unlimited Tax:
$ 425,000 6.800%, 6/01/10 (Pre-refunded to 6/01/00) 6/00 at 102 Aaa $ 465,915
425,000 6.800%, 6/01/11 (Pre-refunded to 6/01/00) 6/00 at 102 Aaa 465,915
Town of North Hempstead, Nassau County, New York,
General Obligation Refunding Serial Bonds, Refunding
Serial Bonds-1992, Series B:
1,500,000 6.375%, 4/01/09 No Opt. Call Aaa 1,683,210
1,505,000 6.400%, 4/01/14 No Opt. Call Aaa 1,690,416
NYACK Union Free School District, Rockland County,
New York, School District Serial Bonds 1992:
625,000 6.500%, 4/01/12 4/02 at 102 Aaa 683,319
625,000 6.500%, 4/01/13 4/02 at 102 Aaa 683,319
625,000 6.500%, 4/01/14 4/02 at 102 Aaa 683,319
Rensselaer County, New York, General Obligation
Bonds, Series 1991:
960,000 6.700%, 2/15/13 No Opt. Call Aaa 1,109,750
960,000 6.700%, 2/15/14 No Opt. Call Aaa 1,109,731
960,000 6.700%, 2/15/15 No Opt. Call Aaa 1,108,992
Rondout Valley Central School District at Accord,
Ulster County, New York, General Obligation,
School District Bonds, 1991:
550,000 6.800%, 6/15/06 No Opt. Call Aaa 631,444
550,000 6.850%, 6/15/07 No Opt. Call Aaa 639,595
550,000 6.850%, 6/15/08 No Opt. Call Aaa 640,221
550,000 6.850%, 6/15/09 No Opt. Call Aaa 640,860
550,000 6.850%, 6/15/10 No Opt. Call Aaa 640,843
County of Suffolk, New York, General Obligation
Refunding Bonds, Public Improvement
Refunding Bonds, 1993 Series B:
1,000,000 6.900%, 4/01/01 4/00 at 102 Aaa 1,096,130
600,000 6.150%, 5/01/10 5/03 at 102 Aaa 631,187
1,000,000 Suffolk County Industrial Development Agency (Suffolk 2/04 at 101 Aaa 952,220
County, New York), Suffolk County Southwest Sewer
System Revenue Bonds, Series 1994, 4.750%, 2/01/09
1,800,000 Suffolk County Water Authority, New York, Water System No Opt. Call Aaa 1,783,313
Revenue Bonds, Series 1993 Refunding,
5.100%, 6/01/11
3,700,000 Suffolk County Water Authority, New York Water System 6/03 at 102 Aaa 3,397,043
Revenue Bonds, Series 1994, 5.000%, 6/01/17
</TABLE>
32
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 2,750,000 Triborough Bridge and Tunnel Authority, General Purpose 1/02 at 101 1/2 Aaa $ 2,986,747
Revenue Bonds, Series X, 6.500%, 1/01/19
2,000,000 Triborough Bridge and Tunnel Authority, General Purpose 1/01 at 102 Aaa 2,225,040
Revenue Bonds, Series T, 7.000%, 1/01/20
(Pre-refunded to 1/01/01)
1,175,000 Triborough Bridge and Tunnel Authority, General Purpose 1/01 at 101 1/2 Aaa 1,302,216
Revenue Bonds, Series S, 7.000%, 1/01/21
(Pre-refunded to 1/01/01)
8,650,000 Triborough Bridge and Tunnel Authority, Special Obligation 1/01 at 102 Aaa 9,462,667
Refunding Bonds, Series 1991B, 6.875%, 1/01/15
1,750,000 City of Yonkers, New York, General Obligation 12/00 at 102 Aaa 1,971,427
School Bonds-1990-C, 7.375%, 12/01/09
(Pre-refunded to 12/01/00)
- -----------------------------------------------------------------------------------------------------------------
$337,450,000 Total Investments -- (cost $330,334,640) -- 98.5% 353,214,754
==============---------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Muncipal
Securities -- 0.4%
$ 1,600,000 New York City Industrial Development Agency, Revenue A-1+ 1,600,000
Bonds, Series 1989, Audubon Society, Variable Rate
Demand Bonds, 3.300%, 12/01/14+
==============---------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.1% 3,643,961
---------------------------------------------------------------------------------------------------
Net Assets -- 100% $358,458,715
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Summary of Ratings** -- Portfolio of Investments (Excluding Temporary Investments):
Standard Number Market Market
& Poor's Moody's of Securities Value Percent
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AAA Aaa 140 $349,015,686 99%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 4 4,199,068 1
-----------------------------------------------------------------------------------------------------
Total 144 $353,214,754 100%
=====================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments
in short-term municipal securities, are either covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio
Insurance, or are backed by an escrow or trust containing
sufficient U.S. Government or U.S. Government agency securities,
any of which ensure the timely payment of principal and interest.
* Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or Moody's
rating.
** Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may
be other call provisions at varying prices at later dates.
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a short-
term security. The rate disclosed is that currently in effect.
This rate changes periodically based on market conditions or a
specified market index.
See accompanying notes to financial statements.
33
<PAGE>
Statement of Net Assets
<TABLE>
<CAPTION>
Nuveen Nuveen
Flagship New York
New York Insured
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $226,651,520 $353,214,754
Temporary investments in short-term securities, at
amortized cost (note 1) - 1,600,000
Cash - 393,510
Receivables:
Interest 2,930,095 3,874,925
Shares sold 373,857 823,383
Other assets 49,956 13,026
- --------------------------------------------------------------------------------------------
Total assets 230,005,428 359,919,598
- --------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 725,651 -
Payable for shares redeemed 121,183 192,323
Accrued expenses:
Management fees (note 6) 95,811 148,089
Other 75,129 48,318
Dividends payable 625,488 1,072,153
- --------------------------------------------------------------------------------------------
Total liabilities 1,643,262 1,460,883
- --------------------------------------------------------------------------------------------
Net assets (note 7) $228,362,166 $358,458,715
============================================================================================
Class A Shares (note 1)
Net assets $ 71,675,716 $ 35,956,806
Shares outstanding 6,807,976 3,425,488
Net asset value and redemption price per share $ 10.53 $ 10.50
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.99 $ 10.96
============================================================================================
Class B Shares (note 1)
Net assets $ 123,599 $ 1,279,031
Shares outstanding 11,737 121,801
Net asset value, offering and redemption price per share $ 10.53 $ 10.50
============================================================================================
Class C Shares (note 1)
Net assets $ 3,965,015 $ 2,015,277
Shares outstanding 375,507 192,223
Net asset value, offering and redemption per share $ 10.56 $ 10.48
============================================================================================
Class R Shares (note 1)
Net assets $152,597,836 $319,207,601
Shares outstanding 14,457,474 30,416,779
Net asset value, offering and redemption price per share $ 10.55 $ 10.49
============================================================================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
Statement of Operations
Year ended February 28, 1997
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York* Insured
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $11,047,597 $21,395,728
- --------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 962,093 1,932,218
12b-1 service fees -- Class A (notes 1 and 6). 54,119 73,862
12b-1 distribution and service fees -- Class B (notes 1 and 6) 34 494
12b-1 distribution and service fees -- Class C (notes 1 and 6) 8,973 19,878
Shareholders' servicing agent fees and expenses 147,445 280,518
Custodian's fees and expenses 56,317 75,892
Trustees' fees and expenses (note 6) 1,464 6,623
Professional fees 16,734 32,736
Shareholders' reports -- printing and mailing expenses 56,696 69,169
Federal and state registration fees 3,226 7,411
Portfolio insurance expense -- 11,709
Other expenses 10,214 14,491
- --------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,317,315 2,525,001
Expense reimbursement from investment adviser (note 6) (40,876) --
- --------------------------------------------------------------------------------------------------------
Net expenses 1,276,439 2,525,001
- --------------------------------------------------------------------------------------------------------
Net investment income 9,771,158 18,870,727
- --------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions
(notes 1 and 4) (1,010,261) (1,461,177)
Net change in unrealized appreciation or depreciation
of investments 692,933 (2,674,004)
- --------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (317,328) (4,135,181)
- --------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $9,453,830 $14,735,546
========================================================================================================
* Information represents 11 months of Nuveen New York and one month of Nuveen Flagship New York (see
note 1 of the Notes to Financial Statements).
See accompanying notes to financial statements.
</TABLE>
35
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Nuveen
New York* New York New York Insured
------------------------------------------------------------
Year ended Year ended Year ended Year ended
2/28/97 2/29/96 2/28/97 2/29/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 9,771,158 $ 8,950,610 $ 18,870,727 $ 18,895,145
Net realized gain (loss) from investment
transactions (notes 1 and 4) (1,010,261) 1,772,126 (1,461,177) 973,136
Net change in unrealized appreciation or
depreciation of investments 692,933 5,658,638 (2,674,004) 15,965,392
- ---------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 9,453,830 16,381,374 14,735,546 35,833,673
- ---------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,237,906) (551,771) (1,495,702) (834,291)
Class B (239) N/A (4,068) N/A
Class C (45,573) (18,002) (88,657) (36,998)
Class R (8,581,033) (8,358,840) (17,106,737) (18,227,897)
From accumulated net realized gains
from investment transactions:
Class A (75,072) - - (51,671)
Class B - N/A - N/A
Class C (3,076) - - (2,889)
Class R (571,338) - - (861,604)
In excess of net realized gains from investment transactions:
Class A - - - (4,745)
Class B - N/A - N/A
Class C - - - (265)
Class R - - - (79,130)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (10,514,237) (8,928,613) (18,695,164) (20,099,490)
- ---------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in reorganization
of Flagship New York (note 1) 52,756,095 - - -
Net proceeds from sale of shares 17,906,845 25,994,295 27,322,062 33,178,272
Net asset value of shares issued to shareholders
due to reinvestment of distributions 7,344,275 6,667,727 13,233,860 15,112,959
- ---------------------------------------------------------------------------------------------------------------------------
78,007,215 32,662,022 40,555,922 48,291,231
- ---------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (19,737,885) (21,690,219) (47,601,839) (47,225,300)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions 58,269,330 10,971,803 (7,045,917) 1,065,931
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 57,208,923 18,424,564 (11,005,535) 16,800,114
Net assets at the beginning of year 171,153,243 152,728,679 369,464,250 352,664,136
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $228,362,166 $171,153,243 $358,458,715 $369,464,250
===========================================================================================================================
Balance of undistributed net investment income
at end of year $ 33,225 $ 126,818 $ 235,011 $ 59,448
===========================================================================================================================
</TABLE>
* Information represents 11 months of Nuveen New York and one month of Nuveen
Flagship New York (see note 1 of the Notes to Financial Statements).
N/A -- The Funds were not authorized to issue Class B Shares prior to
February 1, 1997.
See accompanying notes to financial statements.
36
<PAGE>
Notes to Financial Statements
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises the Nuveen Flagship New York Municipal Bond Fund
("Nuveen Flagship New York") and the Nuveen New York Insured Municipal Bond Fund
("Nuveen New York Insured") (collectively the "Funds"), among others. The Trust
was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co., Incorporated, and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Funds, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December
1996.
After the close of business on January 31, 1997, Nuveen New York Tax-Free Value
Fund ("Nuveen New York") and Flagship New York Tax-Exempt Fund ("Flagship New
York") reorganized into Nuveen Flagship New York. Nuveen New York Insured Tax-
Free Value Fund was reorganized into the Trust and renamed Nuveen New York
Insured Municipal Bond Fund. Prior to the reorganization Nuveen New York was a
series of Nuveen Tax-Free Bond Fund, Inc., Flagship New York was a sub-trust of
Flagship Tax Exempt Funds Trust, and Nuveen New York Insured Tax-Free Value Fund
was a series of Nuveen Insured Tax-Free Bond Fund, Inc., each an open-end
management 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.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
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.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. Any securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
February 28, 1997, there were no such purchase commitments in either Fund.
37
<PAGE>
Notes to Financial Statements -- continued
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts after month-end. Net
realized capital gains and/or market discount from investment transactions are
distributed to shareholders not less frequently than annually. Furthermore,
capital gains are distributed only to the extent they exceed available capital
loss carryovers.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute to shareholders all of its
tax-exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount from investment transactions. The
Funds currently consider significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, each Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and New York state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the respective
Funds. All income dividends paid during the fiscal year ended February 28, 1997,
have been designated Exempt Interest Dividends.
Insurance
Nuveen New York Insured invests in municipal securities which are either covered
by insurance or backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities, both of which ensure the timely
payment of principal and interest. Each insured municipal security is covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
Such insurance does not guarantee the market value of the municipal securities
or the value of the Fund's shares. Original Issue Insurance and Secondary Market
Insurance remain in effect as long as the municipal securities covered thereby
remain outstanding and the insurer remains in business, regardless of whether
the Fund ultimately disposes of such municipal securities. Consequently, the
market value of the municipal securities covered by Original Issue Insurance or
Secondary Market Insurance may reflect value attributable to the insurance.
Portfolio Insurance is effective only while the municipal securities are held by
the Fund. Accordingly, neither the prices used in determining the market value
of the underlying municipal securities nor the net asset value of the Fund's
shares include value, if any, attributable to the Portfolio Insurance. Each
policy
38
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
of the Portfolio Insurance does, however, give the Fund the right to obtain
permanent insurance with respect to the municipal security covered by the
Portfolio Insurance policy at the time of its sale.
Flexible Sales Charge Program
Each Fund of the Trust offers Class A, Class B, Class C and Class R Shares.
Class A Shares incur a sales charge on purchases and an annual 12b-1 service
fee. Class B Shares, which were first offered for sale on February 1, 1997, are
sold without a sales charge on purchases but incur annual 12b-1 distribution and
service fees. An investor purchasing Class B Shares agrees to pay a contingent
deferred sales charge ("CDSC") of up to 5% depending upon the length of time the
shares are held (CDSC is reduced to 0% at the end of six years). Class C Shares
are sold without a sales charge on purchases, but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 18 months of purchase.
Class R Shares are not subject to any sales charge on purchases or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 28, 1997.
Expense Allocation
Expenses of the Funds that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares are recorded to the
specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
39
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship New York* Nuveen New York
-------------------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
-------------------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 800,235 $ 8,359,824 1,261,309 $ 13,070,637
Class B 12,680 134,014 N/A N/A
Class C 98,523 1,037,778 53,367 556,433
Class R 801,691 8,375,229 1,182,028 12,367,225
Shares issued in the reorganization
of Flagship New York:
Class A 4,801,915 50,302,455 - -
Class B - - N/A N/A
Class C 233,553 2,453,640 - -
Class R - - - -
Shares issued to shareholders due
to reinvestment of distributions:
Class A 65,006 681,196 34,236 358,186
Class B - - N/A N/A
Class C 2,391 25,145 1,167 12,262
Class R 632,056 6,637,934 603,620 6,297,279
- -----------------------------------------------------------------------------------------------------------
7,448,050 78,007,215 3,135,727 32,662,022
- -----------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (342,219) (3,580,581) (127,601) (1,336,675)
Class B (943) (9,996) N/A N/A
Class C (19,687) (205,801) (2,280) (2,961)
Class R (1,525,270) (15,941,507) (1,956,584) (20,329,583)
- -----------------------------------------------------------------------------------------------------------
(1,888,119) (19,737,885) (2,086,465) (21,690,219)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) 5,559,931 $ 58,269,330 1,049,262 $ 10,971,803
===========================================================================================================
</TABLE>
* Information represents 11 months of Nuveen New York and one month of
Nuveen Flagship New York (see note 1).
N/A - The Funds were not authorized to issue Class B Shares prior to
February 1, 1997.
40
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Nuveen New York Insured
----------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
----------------------------------------------------
Shares Amount Shares Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 1,504,805 $ 15,621,977 1,778,309 $ 18,519,780
Class B 121,801 1,283,684 N/A N/A
Class C 132,904 1,375,391 113,081 1,180,461
Class R 871,126 9,041,010 1,291,786 13,478,031
Shares issued to shareholders due
to reinvestment of distributions:
Class A 100,648 1,049,380 59,314 621,995
Class B - - N/A N/A
Class C 6,232 64,963 2,279 23,992
Class R 1,163,086 12,119,517 1,387,801 14,466,972
- ----------------------------------------------------------------------------------------------
3,900,602 40,555,922 4,632,570 48,291,231
- ----------------------------------------------------------------------------------------------
Shares redeemed:
Class A (512,407) (5,315,448) (220,550) (2,316,785)
Class B - - N/A N/A
Class C (76,002) (797,045) (14,453) (153,831)
Class R (3,991,732) (41,489,346) (4,307,682) (44,754,684)
- ----------------------------------------------------------------------------------------------
(4,580,141) (47,601,839) (4,542,685) (47,225,300)
- ----------------------------------------------------------------------------------------------
Net increase (decrease) (679,539) $ (7,045,917) 89,885 $ 1,065,931
==============================================================================================
</TABLE>
N/A -- The Funds were not authorized to issue Class B Shares prior to
February 1, 1997.
3. Distribution To Shareholders
On March 7, 1997, the Funds declared dividend distributions from their
tax-exempt net investment income which were paid on April 1, 1997, to
shareholders of record on March 7, 1997, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen
New York New York Insured
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0473 $.0435
Class B .0407 .0370
Class C .0426 .0385
Class R .0491 .0450
==============================================================================================
</TABLE>
41
<PAGE>
Notes to Financial Statements -- continued
4. Securities Transactions
Purchases and sales (including maturities) of investments in
municipal securities and temporary municipal investments for the
fiscal year ended February 28, 1997, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship New York* Nuveen New York Insured
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Purchases
Investments in municipal securities $75,485,085 $104,470,242
Temporary municipal investments 15,800,000 41,400,000
Sales
Investments in municipal securities 65,117,474 106,617,170
Temporary municipal investments 19,600,000 46,800,000
==========================================================================================================
</TABLE>
* Information represents 11 months of Nuveen New York and one
month of Nuveen Flagship New York (see note 1).
At February 28, 1997, the identified cost of investments owned for
federal income tax purposes was the same as the cost for financial
reporting purposes for each Fund.
At February 27, 1997, the Funds had unused capital loss
carryforwards available for federal income tax purposes to be
applied against future capital gains, if any. If not applied, the
carryovers will expire as follows:
<TABLE>
<CAPTION>
Nuveen Flagship
New York Nuveen New York Insured
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expiration year:
2004 $1,895,237* --
2005 -- $1,543,769
----------------------------------------------------------------------------------------------------------
Total $1,895,237 $1,543,769
==========================================================================================================
</TABLE>
* Due to the reorganization of Nuveen New York and Flagship New
York (note 1), Nuveen New York and Flagship New York had net
realized losses from investment transactions of $1,010,262 and
$884,975, respectively, which were carried forward by Nuveen
Flagship New York, as permitted under applicable tax regulations.
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of
investments at February 28, 1997, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship New York Nuveen New York Insured
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $12,541,649 $23,074,706
depreciation (127,318) (194,592)
----------------------------------------------------------------------------------------------------------
Net unrealized appreciation $12,414,331 $22,880,114
==========================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trusts' investment management agreement with the Adviser,
each Fund pays an annual management fee, payable monthly, at the
rates set forth below which are based upon the average daily net
asset value of each Fund:
42
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Average daily net asset value Management fee
------------------------------------------------------------------
<S> <C> <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 net assets over $2 billion .4750 of 1
------------------------------------------------------------------
</TABLE>
The Adviser has agreed to waive part of its management fees or
reimburse certain expenses of each Fund in order to limit total
expenses to .75 of 1% of the average daily net asset value of
Nuveen Flagship New York and .975 of 1% of the average daily net
asset value of Nuveen New York Insured, excluding any 12b-1 fees
applicable to Class A, Class B and Class C Shares. The Adviser may
also voluntarily agree to reimburse additional expenses from time
to time, which may be terminated at any time at its discretion.
The management fee compensates the Adviser for overall investment
advisory and administrative services, and general office
facilities. The Trust pays no compensation directly to its Trustees
who are affiliated with the Adviser or to its officers, all of whom
receive remuneration for their services to the Trust from the
Adviser.
The Distributor collected sales charges of approximately $272,100
and $463,700, for Nuveen Flagship New York and Nuveen New York
Insured, respectively, on Class A share purchases, of which
approximately $247,900 and $415,200, respectively, were paid out as
concessions to authorized dealers. The Distributor also received
12b-1 service fees on Class A shares, substantially all of which
were paid to compensate authorized dealers for providing services
to shareholders relating to their investments.
During the fiscal year ended February 28, 1997, for Nuveen New York
Insured, the Distributor compensated authorized dealers directly
with approximately $50,000 in commission advances on Class B and
Class C shares sales. No commissions were advanced during fiscal
year ended February 28, 1997, for Nuveen Flagship New York. Class B
and Class C shares purchased are subject to a CDSC if the shares
are redeemed within a specified period of purchase. Effective
February 1, 1997, any such CDSC is to be retained by the
Distributor to compensate for commissions advanced to authorized
dealers. During the month ended February 28, 1997, no such CDSC was
collected or retained by the Distributor. Also effective February
1, 1997, all 12b-1 service fees collected on Class B shares during
the first year following a purchase, all 12b-1 distribution fees
collected on Class B shares, and all 12b-1 service and distribution
fees on Class C shares during the first year following a purchase
are retained by the Distributor to compensate for commissions
advanced to authorized dealers. Accordingly, for the one month
ended February 28, 1997, the Distributor received and retained all
12b-1 service and distribution fees on Class B and Class C shares.
The 12b-1 service and distribution fees on Class C shares received
by the Distributor for the eleven months ended January 31, 1997,
were substantially all paid to compensate authorized dealers for
providing services to shareholders relating to their investments.
43
<PAGE>
Notes to Financial Statements -- continued
7. Composition of Net Assets
At February 28, 1997, each Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship New York Nuveen New York Insured
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $217,809,898 $336,887,359
Balance of undistributed net
investment income 33,225 235,011
Accumulated net realized gain (loss)
from investment transactions (1,895,288) (1,543,769)
Net unrealized appreciation
of investments 12,414,331 22,880,114
- -------------------------------------------------------------------------------------------
Net assets $228,362,166 $358,458,715
===========================================================================================
</TABLE>
8. Investment Composition
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At February 28, 1997, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship New York Nuveen New York Insured
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue Bonds:
Housing Facilities 20% 20%
Lease Rental Facilities 20 2
Educational Facilities 16 10
Water/Sewer Facilities 3 10
Health Care Facilities 7 9
Transportation 3 10
Other 8 6
General Obligation Bonds 12 16
Escrowed Bonds 11 17
- -------------------------------------------------------------------------------------------
100% 100%
===========================================================================================
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S. Government or U.S. Government agency
securities, both of which ensure the timely payment of principal and interest in
the event of default (23% for Nuveen Flagship New York and 100% for Nuveen New
York Insured). Such insurance or escrow, however, does not guarantee the market
value of the municipal securities or the value of any of the Funds' shares.
All of the temporary investments in short-term municipal securities held by
Nuveen New York Insured have credit enhancements (letters of credit, guarantees
or insurance) issued by third party domestic or foreign banks or other
institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
44
<PAGE>
Financial Highlights
45
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as follows:
<TABLE>
<CAPTION>
Operating Performance Less Distributions
-------------------------- -----------------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
Nuveen Flagship New York** of period income++ investments income gains period value+
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended,
2/28/97*** $10.610 $.588 $(.069) $(.556) $(.043) $10.530 5.07%
2/29/96 10.120 .555 .487 (.552) -- 10.610 10.52
9/6/94 to 2/28/95 10.230 .277 (.067) (.273) (.047) 10.120 2.21
Class B
1 month ended,
2/28/97 10.480 .049 .042 (.041) -- 10.530 .87
Class C
Year ended,
2/28/97*** 10.640 .554 (.111) (.480) (.043) 10.560 4.31
2/29/96 10.110 .478 .528 (.476) -- 10.640 10.13
9/13/94 to 2/28/95 10.110 .231 .038 (.222) (.047) 10.110 2.80
Class R
Year ended,
2/28/97*** 10.640 .586 (.047) (.586) (.043) 10.550 5.26
2/29/96 10.150 .582 .490 (.582) -- 10.640 10.80
Year ended,
2/28/95 10.720 .579 (.529) (.573) (.047) 10.150 .75
2/28/94 10.610 .578 .161 (.580) (.049) 10.720 7.10
2/28/93 9.880 .603 .806 (.598) (.081) 10.610 14.79
3 months ended,
2/29/92 9.820 .163 .053 (.156) -- 9.880 2.21
Year ended,
11/30/91 9.380 .629 .441 (.630) -- 9.820 11.79
11/30/90 9.560 .631 (.181) (.630) -- 9.380 4.92
11/30/89 9.180 .633 .380 (.633) -- 9.560 11.34
11/30/88 8.760 .625 .420 (.625) -- 9.180 12.20
12/10/86 to 11/30/87 9.600 .612 (.840) (.612) -- 8.760 (2.44)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 48.
46
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 71,676 .95% 5.39% .89% 5.45% 37%
15,732 1.02 5.28 .99 5.31 47
3,189 1.56* 5.31* 1.00* 5.87* 29
124 1.65* 5.86* 1.44* 6.07* 37
3,965 1.64 4.73 1.57 4.80 37
646 1.99 4.29 1.73 4.55 47
86 7.97* (1.06)* 1.75* 5.16* 29
152,598 .71 5.55 .69 5.57 37
154,776 .76 5.55 .74 5.57 47
149,454 .74 5.79 .74 5.79 29
146,297 .78 5.30 .75 5.33 15
107,146 .84 5.75 .75 5.84 12
66,491 .75* 6.27* .75* 6.27* 16
59,351 .79 6.46 .75 6.50 19
44,347 .81 6.59 .75 6.65 51
29,040 .98 6.40 .75 6.63 85
14,975 1.09 6.55 .75 6.89 71
8,239 1.38* 5.45* .37* 6.46* 20
- -----------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
Financial Highlights -- continued
Selected data for a share outstanding throughout each period is as
follows.
<TABLE>
<CAPTION>
Operating Performance Less Distributions
------------------------- --------------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
Nuveen New York Insured of period income++ investments income gains period value+
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended,
2/28/97 $10.610 $.549 $(.139) $(.520) $ -- $10.500 4.02%
2/29/96 10.150 .521 .492 (.524) (.029)+++ 10.610 10.19
9/6/94 to 2/28/95 10.160 .253 .037 (.260) (.040) 10.150 3.01
Class B
2/10/97 to 2/28/97 10.530 .027 (.020) (.037) -- 10.500 .07
Class C
Year ended,
2/28/97 10.610 .472 (.159) (.443) -- 10.480 3.06
2/29/96 10.120 .442 .524 (.447) (.029)+++ 10.610 9.71
9/13/94 to 2/28/95 10.030 .207 .133 (.210) (.040) 10.120 3.53
Class R
Year ended,
2/28/97 10.610 .550 (.127) (.543) -- 10.490 4.15
2/29/96 10.150 .548 .495 (.554) (.029)+++ 10.610 10.51
2/28/95 10.630 .555 (.440) (.555) (.040) 10.150 1.37
2/28/94 10.620 .550 .035 (.543) (.032) 10.630 5.57
2/28/93 9.780 .566 .849 (.562) (.013) 10.620 14.96
2/29/92 9.320 .590 .467 (.597) -- 9.780 11.66
2/29/91 9.250 .598 .068 (.596) -- 9.320 7.61
2/28/90 9.060 .596 .190 (.596) -- 9.250 8.75
2/28/89 9.100 .593 (.040) (.593) -- 9.060 6.37
2/29/88 9.830 .606 (.730) (.606) -- 9.100 (.85)
12/10/86 to 2/28/87 9.600 .130 .230 (.130) -- 9.830 3.76
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Nuveen Flagship New York information included prior to the
year ended February 28, 1997, reflects the financial
highlights of Nuveen New York.
*** Information represents 11 months of Nuveen New York and one
month of Nuveen Flagship New York.
+ Total Return on Net Asset Value is the combination of
reinvested dividend income, reinvested capital gains
distributions, if any, and changes in net asset value per
share. The total returns shown for Class A Shares do not
include the effect of applicable sales charge on purchases.
The total returns shown for Class B and Class C Shares do not
include the effect of applicable contingent deferred sales
charges. Class R Shares are not subject to any sales charge on
purchases or contingent deferred sales charges.
++ Reflects the waiver of certain management fees and
reimbursement of certain other expenses by the Adviser, if
applicable (see note 6 of the Notes to Financial Statements).
48
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Ratios/Supplemental Data
- ---------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio to investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 35,957 .92% 5.04% .92% 5.04% 29%
24,747 .93 4.97 .93 4.97 17
7,258 1.13* 5.33* 1.05* 5.41* 11
1,279 1.64* 5.17* 1.64* 5.17* 29
2,015 1.67 4.28 1.67 4.28 29
1,369 1.69 4.21 1.69 4.21 17
285 2.32* 4.13* 1.80* 4.65* 11
319,208 .68 5.28 .68 5.28 29
343,348 .67 5.26 .67 5.26 17
345,121 .65 5.57 .65 5.57 11
388,176 .68 5.11 .68 5.11 5
314,877 .73 5.56 .73 5.56 6
167,048 .69 6.08 .69 6.08 4
80,484 .73 6.46 .73 6.46 13
40,372 .85 6.35 .85 6.35 30
20,206 1.05 6.50 .97 6.58 62
14,078 1.12 6.22 .61 6.73 36
5,177 3.19* 1.78* -- 4.97* --
- --------------------------------------------------------------------------------------
</TABLE>
+++ The amounts shown include distributions in excess of capital gains of
$.0024 per share for the year ended 2/29/96.
49
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust II:
We have audited the accompanying statements of net assets of Nuveen
Flagship Multistate Trust II (comprising the Nuveen Flagship New
York and Nuveen New York Insured Municipal Bond Funds) (a
Massachusetts business trust), including the portfolios of
investments, as of February 28, 1997, and the related statements of
operations for the year then ended, the statements of changes in
net assets for each of the two years in the period then ended and
the financial highlights for the periods indicated thereon. These
financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to
express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of February 28, 1997, by correspondence with the
custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the net
assets of each of the respective funds constituting the Nuveen
Flagship Multistate Trust II, as of February 28, 1997, the results
of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and
the financial highlights for the periods indicated thereon in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
50
<PAGE>
Nuveen Municipal Bonds Fund
February 28, 1997 Annual Report
Shareholder Meeting Report
New York
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- -------------------------------------------------------------------------------
Election of the Fund's
Board of Directors:
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Bremner For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(B) Brown For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(C) Dean For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(D) Impellizzeri For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(E) Rosenheim For 1,405,339 51,346 10,655,254
Withhold 8,645 - 243,668
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(F) Sawers For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(G) Schneider For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
(H) Schwertfeger For 1,405,664 51,346 10,657,279
Withhold 8,320 - 241,643
------------------------------------------------------
Total 1,413,984 51,346 10,898,922
- --------------------------------------------------------------------------------
Reorganization For 1,103,638 45,152 8,582,788
Against 14,192 2,415 285,739
Abstain 57,322 2,612 447,030
------------------------------------------------------
Total 1,175,152 50,179 9,315,557
- --------------------------------------------------------------------------------
Broker Non Votes 238,832 1,167 1,583,365
------------------------------------------------------
</TABLE>
51
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
JOHN NUVEEN, SR.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products -- including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, individual managed account services, and cash management
products.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
[NUVEEN LOGO]
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
<PAGE>
NUVEEN
Municipal
Bond Funds
February 28, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
California
[PHOTO OF COUPLE APPEARS HERE]
<PAGE>
<TABLE>
<CAPTION>
Contents
<S><C>
2 Dear Shareholder
4 Answering Your Questions
6 California Overview
8 California Insured Overview
11 Financial Section
43 Shareholder Meeting Results
47 Shareholder Information
48 Fund Information
</TABLE>
1
<PAGE>
Dear Shareholder
[Photo of Timothy R. Schwertfeger appears here]
It is my pleasure to report to you on the performance of the Nuveen California
Municipal Bond Fund and the Nuveen California Insured Municipal Bond Fund, and
to welcome new investors to our family of investments. Both of these funds
rewarded investors during the fiscal year with consistent performance,
delivering attractive tax-free income while also preserving your capital. At the
same time, the funds added a measure of stability to investor portfolios
containing more volatile equity funds.
As of the fiscal year end, investors in the Nuveen California Municipal Bond
Fund's A shares were receiving dividends providing an annualized tax-free
current yield on net asset value of 4.55%, while investors in the Nuveen
California Insured Municipal Bond Fund's A shares were receiving 4.46% annually.
To receive these yields on an after-tax basis, investors in the 42% federal and
state income tax bracket would have had to receive 7.84% and 7.69%,
respectively, from comparable taxable investments.
Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you. In January we acquired Flagship
Resources Inc., a respected manager of municipal bond mutual funds, based in
Dayton, Ohio. This added 19 mutual funds to the Nuveen family, giving investors
an expanded array of tax-free investment solutions for their personal
2
<PAGE>
"Since our last report,
Nuveen has undertaken
a number of key strategic
steps geared to enhancing
our service to you."
portfolios. As we increase our product offerings, we now offer you more
flexibility to purchase fund shares according to your specific circumstances
through expanded pricing options.
Nuveen also has created new equity and balanced funds to help investors keep
more of what they have earned. In November we launched the Nuveen Growth and
Income Stock Fund, a fund that seeks to provide superior stock market
performance with moderated risk. Last month we introduced two new balanced
mutual funds, each designed to provide investors an attractive combination of
long-term growth potential and current income.
Nuveen prides itself on helping more than 1.3 million investors maintain the
lifestyle they currently enjoy by providing quality investment solutions with
reduced risk. Thank you for your continued confidence in Nuveen and our family
of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 1997
3
<PAGE>
Answering Your Questions
[PHOTO OF TOM SPALDING APPEARS HERE]
Tom Spalding, head of Nuveen's portfolio management team, talks about the
municipal bond market and offers insights into factors that affected fund
performance over the past year.
What key economic factors affected
these funds during the past year?
In the last 12 months, the bond market -- despite some fluctuations -- was
relatively stable compared with recent years. Following a strong start to the
year, a succession of mixed reports affecting interest rate and inflation
forecasts caused investors to view the markets with alternating enthusiasm and
uncertainty. In the third quarter of 1996, evidence of an economic slowdown, the
strong U.S. dollar, and lack of inflationary pressures combined to allay
investor fears, sparking a rally in bonds that continued through the post-
election period.
Throughout the year, stock market euphoria focused investors' attention on
stocks and brought record amounts of new money into stock funds, bypassing the
bond market. Some investors, concerned about a possible correction in the stock
market, decided to take their profits, but adopted a wait-and-see attitude about
investing capital gains, electing to go with short-term vehicles until a clearer
picture of market trends emerged. These events affected demand for bond issues
of all types in the last year.
Given this market environment,
how did the funds perform?
Both the California Municipal Bond Fund and the California Insured Municipal
Bond Fund rewarded investors with solid total returns on net asset value for the
period, recording price changes and reinvested dividends of 5.29% and 4.57%,
respectively. During the same period, the Lehman Brothers Municipal Bond Index,
which does not incur operating expenses or transaction costs, reported a 5.51%
total return.
What strategies did you employ to add value?
The fluctuations of 1996 created specific inefficiencies in the market, enabling
Nuveen to uncover and take advantage of price discrepancies to improve fund
portfolios. For example, we were able to enhance the durability of the funds'
dividends by purchasing bonds with longer call protection. These bonds
4
<PAGE>
"We believe we will continue to find value in the municipal market over the next
12 months, giving prudent investors the attractive tax-free income they seek,
while limiting the volatility inherent in an uncertain market."
were less in demand as interest rates began to rise in 1996, creating a value
investing opportunity. These bonds then appreciated in value more than other
bonds as rates moved down during the year.
What is the current status of California's
municipal market?
In 1996, California's economy grew at an accelerated rate that outpaced that of
the nation as a whole. This strength is reflected in the state's positive
revenue performance, primarily derived from income and sales taxes. Job growth
has been robust, and the real estate market -- both commercial and residential
- -- appears to be recovering. For 1997-98, Governor Wilson has proposed a
balanced state budget that emphasizes corporate tax reduction, educational
funding and welfare reform. Local governments, however, are still assessing the
impact on existing and future bond issues of Proposition 218 (the recently
passed initiative that requires voter approval of local and special taxes). If
approved, additional new voter initiatives and referendums, including a proposal
to require voter approval for all types of debt issued by all governmental
units, could affect growth prospects. Overall, the outlook for the state's
economy is favorable. California's challenge over the next decade will be to
provide an environment that promotes business as well as expansive long-term
growth.
What is the current economic outlook?
A look at the current environment shows continued economic growth characterized
by low unemployment, increased manufacturing and construction activity, and lack
of price pressure at the consumer and producer levels. Although inflation
remains at the same subdued levels it has exhibited over the past six years, the
strength of the current economic expansion encouraged the Federal Reserve to
make a preemptive strike against inflation's potential return. It raised short-
term interest rates by 0.25% at the end of March. While the bond market had
already anticipated and discounted much of the impact of this tightening, the
Fed's action set off a decline in the equity market that -- in combination with
the attractive yields currently available -- increased interest in municipal
bonds on the part of investors looking to move out of stocks. We believe we will
continue to find value in the municipal market over the next 12 months, giving
prudent investors the attractive tax-free income they seek, while limiting the
volatility inherent in an uncertain market.
5
<PAGE>
California
Overview
Credit Quality
[PIE CHART APPEARS HERE]
AA 14%
A 24%
BB 1%
BBB 9%
NR 3%
AAA 49%
- --------------------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
Health Care Facilities 19%
General Obligations 1%
Escrowed Bonds 16%
Water and Sewer 2%
Other 14%
Electric Utilities 6%
Housing Facilities 16%
Educational Facilities 5%
Lease Rental 21%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Highlights
================================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 7/86
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $10.58 N/A $10.58 $10.61
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $235,827
- --------------------------------------------------------------------------------
Average Weighted Maturity (years) 20.8
- --------------------------------------------------------------------------------
Duration (years) 8.0
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 5.29% 0.87% 4.68% 4.53% 5.67%
- --------------------------------------------------------------------------------
5-Year 6.71% 5.80% 6.05% 6.00% 7.05%
- --------------------------------------------------------------------------------
10-Year 6.58% 6.12% 5.87% 5.83% 6.88%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.16% 4.95% 4.41% 4.59% 5.37%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 4.55% 4.36% 3.77% 3.97% 4.74%
- --------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.84% 7.52% 6.50% 6.84% 8.17%
- --------------------------------------------------------------------------------
</TABLE>
1 Class R Share returns are actual. Class A, B and C returns are actual for the
period since class inception; returns prior to class inception are Class R
Share returns adjusted for differences in sales charges and expenses, which
are primarily differences in distribution and service fees. Class A Shares
have a 4.2% maximum sales charge. Class B Shares have a CDSC that begins at 5%
for redemptions during the first year after purchase and declines periodically
to 0% over the following five years, which is not reflected in the total
returns. Class C Shares have a 1% CDSC for redemptions within one year, which
is not reflected in the 1-year total return.
2 Based on the SEC yield and on a combined federal and state income tax rate of
42%; represents the income needed from a taxable investment necessary to equal
the income of the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen California Municipal Bond Fund
February 28, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.20%) and all
ongoing fund expenses.
Index Comparison*
[GRAPH CHART APPEARS HERE]
[PLOT POINTS TO COME]
=== Lehman Brothers Municipal Bond Index $20,863
- --- Nuveen California Municipal Bond Fund (NAV) $18,911
.... Nuveen California Municipal Bond Fund (Offer) $18,116
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
[PLOT POINTS TO COME]
7
<PAGE>
California Insured
Overview
Credit Quality
[PIE CHART APPEARS HERE]
A 3%
AA 2%
AAA 95%
- --------------------------------------------------------------------------------
Diversification
[PIE CHART APPEARS HERE]
Other 23%
Health Care Facilities 8%
Electric Utilities 4%
Escrowed Bonds 18%
Educational 2%
Water and Sewer 9%
General Obligations 5%
Housing Facilities 12%
Lease Rental 19%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fund Highlights
================================================================================
Share Class A B C R
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 7/86
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $10.70 N/A $10.63 $10.68
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $224,870
- --------------------------------------------------------------------------------
Average Weighted Maturity (years) 22.0
- --------------------------------------------------------------------------------
Duration (years) 7.7
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
1-Year 4.57% 0.17% 3.82% 3.99% 4.81%
- --------------------------------------------------------------------------------
5-Year 6.95% 6.03% 6.70% 6.14% 7.18%
- --------------------------------------------------------------------------------
10-Year 6.65% 6.19% 5.89% 5.84% 6.89%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
================================================================================
Share Class A(NAV) A(Offer) B C R
<S> <C> <C> <C> <C> <C>
Dist Rate 5.05% 4.83% 4.30% 4.46% 5.22%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 4.46% 4.27% 3.68% 3.88% 4.65%
- --------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.69% 7.36% 6.34% 6.69% 8.02%
- --------------------------------------------------------------------------------
</TABLE>
1 Class R Share returns are actual. Class A, B and C Shares returns are actual
for the period since class inception; returns prior to class inception are
Class R Share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
Shares have a 4.2% maximum sales charge. Class B Shares have a CDSC that
begins at 5% for redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not reflected in
the total returns. Class C Shares have a 1% CDSC for redemptions within one
year, which is not reflected in the 1-year total return.
2 Based on the SEC yield and on a combined federal and state income tax rate of
42%; represents the income needed from a taxable investment necessary to equal
the income of the Nuveen fund on an after-tax basis.
8
<PAGE>
Nuveen California Insured Municipal Bond Fund
February 28, 1997 Annual Report
* The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.20%) and all
ongoing fund expenses.
Index Comparison*
[GRAPH CHART APPEARS HERE]
[PLOT POINTS TO COME]
=== Lehman Brothers Municipal Bond Index $20,863
- --- Nuveen California Insured Municipal Bond Fund (NAV) $19,029
.... Nuveen California Insured Municipal Bond Fund (Offer) $18,229
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
[PLOT POINTS TO COME]
9
<PAGE>
Financial Section
Contents
12 Portfolio of Investments
25 Statement of Net Assets
26 Statement of Operations
27 Statement of Changes in Net Assets
29 Notes to Financial Statements
37 Financial Highlights
42 Report of Independent
Public Accountants
11
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
California
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,150,000 California Educational Facilities Authority Revenue 10/97 at 102 Aa $ 3,262,077
Bonds (University of Southern California Project)
Series 1989 A, 7.200%, 10/01/15
California Health Facilities Financing Authority, Insured
Health Facility Revenue Bonds, (Small Facilities Pooled
Loan Program), 1994 Series B:
3,000,000 7.400%, 4/01/14 4/05 at 102 A 3,433,260
3,635,000 7.500%, 4/01/22 4/05 at 102 A 4,183,558
3,750,000 California Health Facilities Financing Authority, Insured 8/06 at 102 Aaa 3,802,988
Revenue Bond, (Sutter/CHS), 5.875%, 8/15/16
1,700,000 California Health Facilities Financing Authority, Hospital 1/99 at 102 A+ 1,806,590
Revenue Refunding Bonds (Sutter Health),
Series 1989A, 7.000%, 1/01/09
2,000,000 California Health Facilities Financing Authority, Health 5/00 at 102 Aaa 2,228,200
Facility Revenue Bonds, (Health Dimensions,
Incorporated) 1990 Series A, 7.500%, 5/01/15
(Pre-refunded to 5/01/00)
2,000,000 California Health Facilities Financing Authority, Health 10/00 at 102 N/R 2,251,180
Facility Revenue Bonds (Sisters of Providence),
Series 1990, 7.500%, 10/01/10
(Pre-refunded to 10/01/00)
3,380,000 California Health Facilities Financing Authority, Kaiser 12/00 at 102 AA 3,709,415
Permanente, Revenue Bonds, 1990 Series A,
7.000%, 12/01/10
1,750,000 California Health Facilities Financing Authority, Hospital 5/03 at 102 A- 1,712,165
Revenue Bonds, (Downey Community Hospital),
Series 1993, 5.750%, 5/15/15
4,750,000 California Housing Finance Agency Home Mortgage 8/05 at 102 Aaa 4,830,940
Revenue Bonds, 1995 Series F, 5.950%, 8/01/14
6,570,000 California Housing Finance Agency, Multifamily Housing 8/04 at 100 Aaa 6,699,955
Revenue Bonds II, 1996 Series A, 6.050%, 8/01/27
500,000 California Housing Finance Agency Home Mortgage 8/07 at 102 Aaa 505,255
Revenue Bonds, 1996 Series Q, 5.850%, 8/01/16
1,060,000 California State Public Works Board, High Technology No Opt. Call A1 1,148,934
Facilities Lease, The Regents of the University of
California, San Diego Facility, 7.375%, 4/01/06
2,905,000 California Statewide Communities Development Authority, 9/06 at 100 AAA 3,008,302
Senior Lien Multifamily Housing Revenue Bonds,
(Monte Vista Terrace) Series 1996A, 6.375%, 9/01/20
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,720,000 Certificates of Participation, California Statewide 11/06 at 102 A+ $ 7,679,856
Communities Development Authority, California
Lutheran Homes, 5.750%, 11/15/15
2,500,000 Certificates of Participation, California Statewide 11/04 at 102 A 2,626,975
Communities Development Authority, (Solheim
Lutheran Home), 6.500%, 11/01/17
3,000,000 Certificates of Participation, California Statewide 7/04 at 102 Aa 3,239,100
Communities Development Authority, St. Joseph
Health System Obligated Group, 6.500%, 7/01/15
2,350,000 Insured Revenue Certificates of Participation, California 8/07 at 102 A+ 2,352,938
Statewide Communities Development Authority, Fact
Retirement Services, 5.900%, 8/01/21
8,470,000 State Public Works Board of the State of California Lease 10/02 at 102 Aaa 9,598,035
Revenue Bonds, (The Trustees of The California State
University) 1992 Series A, (Various California State
University Project), 6.700%, 10/01/17
(Pre-refunded to 10/01/02)
5,900,000 State of California, Department of Water Resources, 12/03 at 101 Aa 5,456,202
Central Valley Project, Water System Revenue Bonds,
Series M, 5.000%, 12/01/15
1,500,000 Insured Certificates of Participation, (Channing House) 1/01 at 102 A 1,615,425
Series 1991A, 7.125%, 1/01/21
5,000,000 Certificates of Participation, (1991 Financing Project), 9/06 at 102 Aaa 5,185,350
County of Alameda, California, Alameda County
Public Facilities Corporation, 6.000%, 9/01/21
Anaheim Public Financing Authority, Lease Revenue Bonds,
(Anaheim Public Improvements Project), Senior Lease
Revenue Bonds, 1997 Series C:
23,360,000 0.000%, 9/01/29 No Opt. Call Aaa 3,440,227
15,000,000 0.000%, 9/01/33 No Opt. Call Aaa 1,726,650
2,035,000 Certificates of Participation, (1991 Capital Improvement 10/01 at 102 Baa 2,322,464
Project), Bella Vista Water District (California),
7.375%, 10/01/17 (Pre-refunded to 10/01/01)
7,000,000 Brea Redevelopment Agency (Orange County, California), 8/03 at 102 Aaa 6,819,610
1993 Tax Allocation Refunding Bonds (Redevelopment
Project AB), 5.500%, 8/01/17
1,000,000 Carson Redevelopment Agency (California), Redevelopment 10/03 at 102 Baa 1,002,260
Project Area No. 2, Refunding Tax Allocation Bonds,
Series 1993, 6.000%, 10/01/13
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
California -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$2,000,000 Carson Redevelopment Agency (California), Redevelopment 10/03 at 102 Baa1 $ 2,003,180
Project Area No. 1, Tax Allocation Bonds, Series 1993,
6.000%, 10/01/16
1,755,000 Central Joint Powers Health Financing Authority, 2/03 at 100 Baa1 1,470,181
Certificates of Participation, Series 1993 (Community
Hospitals of Central California), 5.000%, 2/01/23
2,000,000 Certificates of Participation, Insured Health Facility 2/01 at 102 A 2,105,760
Revenue, (Sierra Sunrise Lodge) Series 1991A,
6.750%, 2/01/21
2,200,000 City of Corona (California), Single Family Mortgage 11/06 at 102 Aaa 2,231,042
Revenue Bonds, Series 1996A (Senior),
6.050%, 5/01/27
400,000 City of Corona (California), Single Family Mortgage 11/06 at 102 A 408,916
Revenue Bonds, Series 1996B (Subordinate),
6.300%, 11/01/28
2,000,000 Hospital Revenue Certificates of Participation, (Desert 7/00 at 102 AAA 2,277,020
Hospital Corporation Project), Series 1990,
8.100%, 7/01/20 (Pre-refunded to 7/01/00)
1,950,000 East Bay Municipal Utility District (Alameda and Contra 6/00 at 102 Aaa 2,183,981
Costa Counties, California), Water System Subordinated
Revenue Bonds, Series 1990, 7.500%, 6/01/18
(Pre-refunded to 6/01/00)
4,000,000 East Bay Municipal Utility District (Alameda and Contra 12/01 at 102 Aaa 4,434,280
Costa Counties, California), Water System Subordinated
Revenue Bonds, Series 1991, 6.375%, 6/01/21
(Pre-refunded to 12/01/01)
2,500,000 Fontana Public Financing Authority (San Bernadino County, 9/00 at 102 BB+ 2,557,275
California), Tax Allocation Revenue Bonds (North
Fontana Redevelopment Project), 1990 Series A,
7.250%, 9/01/20
2,475,000 City of Loma Linda, California, Hospital Revenue Bonds, 12/03 at 102 BBB 2,531,381
(Loma Linda University Medical Center Project),
Series 1993-A, 6.000%, 12/01/06
5,000,000 The Community Redevelopment Agency of the City of 6/05 at 105 AAA 5,608,250
Los Angeles, California, Multifamily Housing Revenue
Refunding Bonds, 1995 Series A, (Angelus Plaza
Project), 7.400%, 6/15/10
2,505,000 Harbor Department of the City of Los Angeles No Opt. Call AAA 3,152,993
(California), Revenue Bonds, Issue of 1988,
7.600%, 10/01/18
</TABLE>
14
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 255,000 The City of Los Angeles 1987 Home Mortgage Revenue No Opt. Call Aaa $ 272,536
Bonds (GNMA Mortgage-Backed Securities Program),
8.100%, 5/01/17
4,595,000 Los Angeles County Public Works Finance Authority, 10/04 at 102 Aa 4,869,827
Revenue Bonds, Series 1994A, (Los Angeles County
Regional Park and Open Space District),
6.125%, 10/01/10
175,000 County of Los Angeles Single Family Mortgage Revenue No Opt. Call Aaa 186,043
Bonds, (GNMA Mortgage-Backed Securities Program),
1987 Issue A, 8.000%, 3/01/17
2,000,000 Los Angeles County Transportation Commission (California), 7/99 at 102 AA- 2,165,980
Sales Tax Revenue Refunding Bonds, Series 1989-A,
7.400%, 7/01/15
6,500,000 M-S-R Public Power Agency (California), San Juan Project 7/98 at 100 A 6,422,325
Refunding Revenue Bonds, Series 1997H,
5.900%, 7/01/20 (WI)
1,260,000 Marysville Community Development Agency, Marysville 3/02 at 102 Baa 1,356,491
Plaza Project, 1992 Tax Allocation Refunding Bonds,
(Bank Qualified), 7.250%, 3/01/21
740,000 Community Development Agency of the City of Menlo Park, 6/97 at 103 Aa 774,810
Multifamily Housing Revenue Bonds, (FHA-Insured
Mortgage Loan -- The Gateway Project), Series 1987A,
8.250%, 12/01/28
5,000,000 Modesto Irrigation District Financing Authority, Refunding 10/06 at 102 Aaa 5,234,350
Revenue Bonds, Series A, 6.000%, 10/01/15
860,000 City of Monterey, Hospital Revenue Bonds (Monterey 7/97 at 101 A+ 878,413
Peninsula Hospital Project) Series 1984 A,
7.375%, 7/01/14
1,500,000 Community Facilities District No. 1 of the North City West 9/99 at 102 Aaa 1,667,235
School Facilities Financing Authority, Special Tax Bonds,
Series 1989A, 7.850%, 9/01/19 (Pre-refunded to 9/01/99)
2,930,000 Northern California Power Agency, Hydroelectric Project 7/98 at 102 A 3,075,533
Number One Revenue Bonds, Refunding Series E,
7.150%, 7/01/24
2,080,000 City of Ontario, (San Bernadino County, California), Limited 3/97 at 103 N/R 2,160,891
Obligation Improvement Bonds, Assessment District
No. 100C, (California Commerce Center -- Phase III),
8.000%, 9/02/11
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
California -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 4,300,000 Orange County Development Agency, Santa Ana Heights 9/03 at 102 Baa $4,308,428
Project Area, 1993 Tax Allocation Revenue Bonds,
6.125%, 9/01/23
County of Orange, California, 1996 Recovery Certificates
of Participation, Series A:
6,000,000 5.800%, 7/01/16 7/06 at 102 Aaa 6,051,600
2,500,000 5.875%, 7/01/19 7/06 at 102 Aaa 2,539,100
1,430,000 Redding Joint Powers Financing Authority Lease Revenue 6/03 at 102 A 1,439,438
Bonds, (Capital Improvement Projects) Series 1993,
6.250%, 6/01/23
County of Riverside Asset Leasing Corporation,
Leasehold Revenue Bonds, 1997 Series A (County of
Riverside Hospital Project):
16,285,000 0.000%, 6/01/21 No Opt. Call Aaa 3,908,726
9,455,000 0.000%, 6/01/22 No Opt. Call Aaa 2,124,066
13,005,000 0.000%, 6/01/24 No Opt. Call Aaa 2,575,250
7,290,000 County of Riverside, California, Multifamily Housing 7/02 at 100 AAA 7,497,255
Revenue Bonds, (Fannie Mae Pass-Through, Certificate
Program/Birchwood Park Apartment Project),
Series 1992A, 6.500%, 1/01/18
205,000 Sacramento Municipal Utility District (California), 4/97 at 100 Baa1 205,592
Subordinated Electric Revenue Bonds,
1985 Refunding Series, 8.000%, 11/15/10
3,500,000 Sacramento Municipal Utility District, Electric Revenue 8/98 at 102 Aaa 3,777,095
Bonds, 1988 Series W, 7.875%, 8/15/16
(Pre-refunded to 8/15/98)
2,315,000 Limited Obligation Refunding Bonds, City of Salinas, 9/06 at 103 N/R 2,406,489
Consolidated Refunding District 94-3, Series No. A-181
Monterey County, California, 7.400%, 9/02/09
2,080,000 City of Salinas, Housing Facility Refunding Revenue Bonds, 7/04 at 102 AAA 2,171,915
Series 1994A (GNMA Collateralized -- Villa Serra
Project), 6.500%, 7/20/17
2,000,000 City and County of San Francisco, General Obligation 6/04 at 102 Aaa 2,096,300
Bonds, (School District Facilities Improvements),
Series 1996 D, 6.000%, 6/15/14
5,000,000 City and County of San Francisco, Redevelopment Financing 8/03 at 103 A 4,574,500
Authority, 1993 Series C Tax Allocation Revenue Bonds,
(San Francisco Redevelopment Projects),
5.125%, 8/01/18
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 3,070,000 Certificates of Participation, (1993 Seismic Retrofit 6/03 at 102 A $ 3,090,600
Financing Project), City of San Leandro, California,
San Leandro Public Financing Authority,
5.900%, 6/01/1
1,000,000 Certificates of Participation Series 1991, San Mateo 5/99 at 102 A+ 1,060,320
County Board of Education, (Administration Building
Project), 7.100%, 5/01/21
3,000,000 Housing Authority of the County of Santa Cruz, Multifamily 7/00 at 102 AAA 3,217,050
Housing Refunding Revenue Bonds, Series 1990A,
(Fannie Mae Collateralized), 7.750%, 7/01/23
Santa Monica Community College District, Refunding,
Certificates of Participation 1991 Series A:
500,000 5.950%, 2/01/17 2/07 at 102 A 504,865
2,950,000 5.900%, 2/01/27 2/07 at 102 A 2,966,166
4,000,000 Shafter Joint Powers Financing Authority Lease Revenue 1/07 at 101 BBB+ 4,008,000
Bonds 1997 Series A, (Community Correctional Facility
Acquisition Project), 6.050%, 1/01/17
2,000,000 Certificates of Participation, (1990 Financing Project), 7/00 at 102 A+ 2,229,720
Sonoma County Office of Education, 7.375%, 7/01/20
(Pre-refunded to 7/01/00)
2,000,000 Taft Public Financing Authority Lease Revenue Bonds 1997 1/07 at 101 BBB+ 2,004,000
Series A (Community Correctional Facility Acquisition
Project), 6.050%, 1/01/17
1,100,000 Certificates of Participation (1992 Financing Project), 11/02 at 102 A 1,164,008
Series B, County of Tulare, Tulare County Public
Facilities Corporation, 6.875%, 11/15/12
4,200,000 Certificates of Participation (Capital Improvement Program), 2/06 at 102 Aaa 4,355,315
1996 Series A, County of Tulare, California,
6.000%, 2/15/16
The Regents of the University of California,
1993 Refunding Certificates of Participation
(UCLA Central Chiller/Cogeneration Facility):
3,500,000 5.600%, 11/01/20 11/03 at 102 Aa 3,394,824
4,335,000 6.000%, 11/01/21 11/03 at 102 Aa 4,403,362
- -----------------------------------------------------------------------------------------------------------------
$288,685,000 Total Investments -- (cost $221,609,050) -- 99.1% 233,750,588
============-----------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Portfolio of Investments
California -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Temporary Investments in Short-Term Municipal Securities-- 0.4%
$ 500,000 California Pollution Control Financing Authority, Pollution VMIG-1 $ 500,000
Control Revenue Bonds (Shell Oil Company Project),
1991 Series B, Variable Rate Demand Bonds, 3.350%,
10/01/11+
500,000 Irvine Ranch Water District, Consolidated Refunding Bonds, VMIG-1 500,000
Series A, Variable Rate Demand Bonds, 3.250%, 5/01/09+
- ------------------------------------------------------------------------------------------------------------------
$1,000,000 Total Temporary Investments -- 0.4% 1,000,000
===========-------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.5% 1,076,074
----------------------------------------------------------------------------------------------------
Net Assets -- 100% $235,826,662
====================================================================================================
Summary of Ratings** --Portfolio of Investments (excluding temporary investments)
Standard Number of Market Market
& Poor's Moody's Securities Value Percent
----------------------------------------------------------------------------------------------------
AAA Aaa 32 $115,406,914 49%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 9 31,275,597 14
A+ A1 7 17,156,771 7
A, A- A, A2, A3 15 39,323,494 17
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 10 21,211,977 9
BB+, BB, BB- Ba1, Ba, Ba2, Ba3 1 2,557,275 1
Non-rated Non-rated 3 6,818,560 3
----------------------------------------------------------------------------------------------------
Total 77 $233,750,588 100%
====================================================================================================
</TABLE>
* Optional Call Provisions (not covered by the report of
independent public accountants): Dates (month and year) and
prices of the earliest optional call or redemption. There may
be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public
accountants): Using the higher of Standard & Poor's or
Moody's rating.
N/R - Investment is not rated.
(WI) Security purchased on a when-issued basis (see note 1 of the
Notes to Financial Statements).
+ The security has a maturity of more than one year, but has
variable rate and demand features which qualify it as a
short-term security. The rate disclosed is that currently in
effect. This rate changes periodically based on market
conditions or a specified market index.
See accompanying notes to financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Portfolio of Investments
California Insured
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 1,000,000 California Educational Facilities Authority Revenue Bonds 11/00 at 102 Aaa $1,121,800
(Pepperdine University), Series 1990, 7.200%, 11/01/15
(Pre-refunded to 11/01/00)
4,500,000 California Educational Facilities Authority Revenue Bonds 10/06 at 102 Aaa 4,653,630
(University of San Francisco), Series 1996,
6.000%, 10/01/26
5,000,000 California Health Facilities Authority, Kaiser Permanente 10/01 at 101 AA 4,817,400
Medical Care Program, Semiannual Tender Revenue
Bonds, 1983 Tender Bonds, 5.450%, 10/01/13
6,340,000 California Housing Finance Agency, Housing Revenue 2/02 at 102 Aaa 6,685,340
Bonds (Insured), 1991 Series B, 6.850%, 8/01/23
5,000,000 California Housing Finance Agency, Home Mortgage 8/05 at 102 Aaa 5,085,200
Revenue Bonds, 1995 Series F, 5.950%, 8/01/14
5,390,000 California Housing Finance Agency, Home Mortgage 2/07 at 102 Aaa 5,445,032
Revenue Bonds, 1997 Series A, 5.850%, 8/01/16
235,000 California Public Capital Improvements Financing 3/98 at 102 Aaa 247,920
Authority (A Joint Powers Agency), Revenue Bonds
(Pooled Projects), Series 1988B, 8.100%, 3/01/18
8,500,000 California Statewide Communities Development Authority, 8/02 at 102 Aaa 8,709,100
Sutter Health Obligated Group, Certificates of
Participation, 6.125%, 8/15/22
5,000,000 State Public Works Board of the State of California Lease 9/00 at 102 Aaa 5,556,950
Revenue Bonds (Department of Corrections),
1990 Series A, (State Prison -- Madera County),
7.000%, 9/01/09 (Pre-refunded to 9/01/00)
5,000,000 State of California Various Purpose General Obligation 4/03 at 102 Aaa 4,817,250
Bonds, 5.500%, 4/01/19
5,000,000 Certificates of Participation, (1991 Financing Project), 9/06 at 102 Aaa 5,185,350
County of Alameda, California, Alameda County
Public Facilities Corporation, 6.000%, 9/01/21
Anaheim Public Financing Authority, Lease Revenue Bonds,
(Anaheim Public Improvements Project), Senior Lease
Revenue Bonds, 1997 Series C:
20,000,000 0.000%, 9/01/32 No Opt. Call Aaa 2,442,800
25,000,000 0.000%, 9/01/36 No Opt. Call Aaa 2,391,000
1,225,000 Redevelopment Agency of the City of Barstow, Central No Opt. Call Aaa 1,458,338
Redevelopment Project Tax Allocation Bonds,
1994 Series A, 7.000%, 9/01/14
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
California Insured -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 7,005,000 Big Bear Lake Financing Authority (San Bernardino County, 8/05 at 102 Aaa $ 7,593,280
California), 1995 Tax Allocation Refunding Revenue
Bonds, 6.300%, 8/01/25
7,000,000 City of Big Bear Lake, California, 1992 Water Revenue 4/02 at 102 Aaa 7,754,950
Refunding Bonds, 6.375%, 4/01/22
(Pre-refunded to 4/01/02)
3,525,000 Brea Public Financing Authority (Orange County, 8/01 at 102 Aaa 3,974,473
California), 1991 Tax Allocation Revenue Bonds,
Series A (Redevelopment Project AB),
7.000%, 8/01/15 (Pre-refunded to 8/01/01)
3,000,000 Calaveras County Water District (California), Certificates 5/01 at 102 Aaa 3,354,360
of Participation, (1991 Ebbetts Pass Water System
Improvements Project), 6.900%, 5/01/16
(Pre-refunded to 5/01/01)
7,000,000 Chino Unified School District, Certificates of Participation, 9/05 at 102 Aaa 7,297,360
(1995 Master Lease Program), 6.125%, 9/01/26
850,000 Redevelopment Agency of the City of Concord, Central 7/98 at 102 Aaa 905,820
Concord Redevelopment Project, Tax Allocation Bonds,
Series 1988-2, 7.875%, 7/01/07
500,000 Cotati-Rohnert Park Unified School District (Sonoma 8/99 at 102 Aaa 560,155
County, California), General Obligation Bonds,
Election 1990, Series B, 9.000%, 8/01/06
2,000,000 East Bay Municipal Utility District (Alameda and 6/00 at 102 Aaa 2,239,980
Contra Costa Counties, California), Water System
Subordinated Revenue Bonds, Series 1990,
7.500%, 6/01/18 (Pre-refunded to 6/01/00)
2,000,000 Eastern Municipal Water District (Riverside County, 7/01 at 102 Aaa 2,212,820
California), Water and Sewer Revenue Certificates
of Participation, Series 1991, 6.500%, 7/01/20
(Pre-refunded to 7/01/01)
3,865,000 Fallbrook Sanitary District (San Diego County, California) 2/01 at 100 Aaa 4,137,405
1991 Certificates of Participation (Wastewater Facilities
Refunding Project), 6.600%, 2/01/13
2,500,000 Fontana Public Financing Authority (San Bernardino County, 9/00 at 102 Aaa 2,736,250
California), Tax Allocation Revenue Bonds (North
Fontana Redevelopment Project), 1990 Series A,
7.000%, 9/01/10
3,000,000 Gilroy Unified School District, Santa Clara County, 9/04 at 102 Aaa 3,218,820
California, Certificates of Participation, Series 1994,
6.250%, 9/01/12
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,000,000 La Quinta Redevelopment Agency, La Quinta No Opt. Call Aaa $ 1,214,100
Redevelopment Project Tax Allocation Refunding Bonds,
Series 1994 (Project Area No. 1), 7.300%, 9/01/12
4,000,000 The Community Redevelopment Agency of the City of 6/05 at 105 AAA 4,486,600
Los Angeles, California, Multifamily Housing Revenue
Refunding Bonds, 1995 Series A, (Angelus Plaza
Project), 7.400%, 6/15/10
2,000,000 The City of Los Angeles (California) Los Angeles 8/00 at 102 Aaa 2,220,580
Convention and Exhibition Center, Certificates
of Participation, 1990 Series, 7.000%, 8/15/21
(Pre-refunded to 8/15/00)
260,000 The City of Los Angeles 1987 Home Mortgage Revenue No Opt. Call Aaa 277,880
Bonds (GNMA Mortgage-Backed Securities Program),
8.100%, 5/01/17
5,000,000 Los Angeles County Transportation Commission (California), 7/02 at 102 Aaa 5,315,050
Proposition C Sales Tax Revenue Bonds, Second Senior
Bonds, Series 1992-A, 6.250%, 7/01/13
6,500,000 M-S-R Public Power Agency (California), San Juan Project 7/98 at 100 A 6,422,325
Refunding Revenue Bonds, Series 1997H,
5.900%, 7/01/20 (WI)
Modesto Irrigation District Financing Authority, Domestic
Water Project Revenue Bonds, Series 1992A:
9,500,000 6.125%, 9/01/19 9/02 at 102 Aaa 9,816,920
5,750,000 5.500%, 9/01/22 9/02 at 100 Aaa 5,540,240
2,500,000 Mt. Diablo Hospital District, Insured Hospital Revenue 12/00 at 102 Aaa 2,865,400
Bonds, 1990 Series A, 8.000%, 12/01/11
(Pre-refunded to 12/01/00)
2,000,000 Mt. Diablo Unified School District, Community Facilities 8/00 at 102 Aaa 2,221,680
District No. 1, Special Tax Bonds, Series 1990,
(Contra Costa County, California), 7.050%, 8/01/20
2,555,000 City of Napa Mortgage Revenue Refunding Bonds, 7/02 at 102 Aaa 2,660,751
Series 1992A (FHA-Insured Mortgage Loan -- Creekside
Park Apartments Project), 6.625%, 7/01/24
2,000,000 City of Napa Mortgage Revenue Refunding Bonds, 7/04 at 101 Aaa 2,088,900
Series 1994A (FHA-Insured Mortgage Loan -- Creekside
Park II Apartments Project), 6.625%, 7/01/25
7,040,000 Norwalk Community Facilities Financing Authority 9/05 at 102 Aaa 7,325,402
(Los Angeles County, California), Tax Allocation
Refunding Revenue Bonds, 1995 Series A,
6.050%, 9/01/25
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
California Insured -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 2,500,000 City of Oakland, California, Special Refunding Revenue 8/98 at 102 Aaa $ 2,664,650
Bonds, (Pension Financing), 1988 Series A,
7.600%, 8/01/21
4,380,000 County of Orange, California, 1996 Recovery Certificates 7/06 at 102 Aaa 4,417,668
of Participation, Series A, 5.800%, 7/01/16
1,250,000 Palm Desert Redevelopment Agency Project Area No. 1, 5/97 at 101 Aaa 1,270,575
as Amended (Added Territory Only), Subordinated Tax
Allocation Bonds, Issue of 1989, 7.400%, 5/01/09
9,765,000 Palm Desert Redevelopment Agency Tax Allocation 9/04 at 102 Aaa 10,246,903
Revenue Bonds, 1996 Series A (Desert Rose Project
Refunding), 6.100%, 9/01/16
2,000,000 Redevelopment Agency of the City of Pittsburg, 8/01 at 103 Aaa 2,283,120
California, Los Medanos Community Development
Project, Tax Allocation Bonds, Series 1991,
7.150%, 8/01/21 (Pre-refunded to 8/01/01)
2,000,000 Pomona Unified School District, General Obligation 8/11 at 103 Aaa 2,228,220
Refunding Bonds, Series 1997-A, 6.500%, 8/01/19
1,500,000 Port of Oakland, California, Revenue Bonds, 1989 Series B, 5/97 at 102 Aaa 1,539,615
7.250%, 11/01/16 (Pre-refunded to 5/01/97)
County of Riverside, California (1994 Desert Justice
Facility Project), Certificates of Participation:
3,600,000 6.000%, 12/01/17 12/04 at 101 Aaa 3,712,068
2,500,000 6.250%, 12/01/21 12/04 at 101 Aaa 2,650,975
County of Riverside Asset Leasing Corporation,
Leasehold Revenue Bonds, 1997 Series A (County of
Riverside Hospital Project):
17,255,000 0.000%, 6/01/25 No Opt. Call Aaa 3,219,783
700,000 0.000%, 6/01/26 No Opt. Call Aaa 125,097
3,000,000 Sacramento Municipal Utility District, Electric Revenue 9/01 at 102 Aaa 3,328,500
Bonds, 1991 Series Y, 6.500%, 9/01/21
(Pre-refunded to 9/01/01)
2,500,000 San Bernardino County Transportation Authority Sales Tax 3/02 at 102 Aaa 2,709,050
Revenue Bonds (Limited Tax Bonds), 1992 Series A,
6.000%, 3/01/10
2,000,000 San Diego Regional Building Authority Lease Revenue 1/00 at 102 Aaa 2,203,720
Bonds, Series 1990A (San Miguel Consolidated Fire
Protection District Project), 7.250%, 1/01/20
(Pre-refunded to 1/01/00)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Redevelopment Agency of the City and County of
San Francisco Lease Revenue Bonds, Series 1994
(George R. Moscone Convention Center):
$ 2,250,000 6.800%, 7/01/19 7/04 at 102 Aaa $ 2,513,430
1,000,000 6.750%, 7/01/24 7/04 at 102 Aaa 1,119,280
2,250,000 Redevelopment Agency of the City of San Jose, Merged 2/04 at 102 Aaa 1,937,115
Area Redevelopment Project, Tax Allocation Bonds,
Series 1993, 4.750%, 8/01/24
3,000,000 City of Shasta Lake, 1996-2 Certificates of 4/05 at 102 Aaa 3,104,250
Participation, 6.000%, 4/01/16
2,000,000 Southern California Rapid Transit District, 1/01 at 102 1/2 Aaa 2,242,040
Certificates of Participation (Workers' Compensation
Funding Program), 7.500%, 7/01/05
3,040,000 Sulphur Springs Union School District (County of No Opt. Call Aaa 1,068,469
Los Angeles, California), General Obligation Bonds,
Election 1991, Series A, 0.000%, 9/01/15
85,000 Thousand Oaks Redevelopment Agency (Ventura County, 1/99 at 100 Aaa 87,321
California), Single-Family Mortgage Revenue Refunding
Bonds, Issue of 1996, 7.900%, 1/01/16
5,000,000 Tri-City Hospital District, Insured Refunding Revenue 2/06 at 102 Aaa 4,894,300
Bonds, Series 1996A, 5.625%, 2/15/17
5,000,000 City of Vallejo Refunding Revenue Bonds, 1996 Series A 5/06 at 102 Aaa 5,077,300
(Water Improvement Project), 5.875%, 5/01/26
- -----------------------------------------------------------------------------------------------------------------
$268,115,000 Total Investments -- (cost $208,485,256) -- 98.6% 221,702,060
============-----------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.3%
$ 500,000 Certificates of Participation, California Statewide VMIG-1 500,000
Communities Development Authority, Northern
California Retired Officers Community, Variable Rate
Demand Bonds, 3.350%, 6/01/26+
100,000 California Statewide Community Development Authority A-1 100,000
Certificates of Participation Revenue (Sutter Health
Obligation Group), Variable Rate Demand Bonds,
3.350%, 7/01/15+
- -----------------------------------------------------------------------------------------------------------------
$ 600,000 Total Temporary Investments -- 0.3% 600,000
============-----------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.1% 2,567,488
-------------------------------------------------------------------------------------------------
Net Assets -- 100% $224,869,548
=================================================================================================
</TABLE>
23
<PAGE>
Portfolio of Investments
California Insured -- continued
Summary of Ratings** -- Portfolio of Investments (excluding temporary
investments)
<TABLE>
<CAPTION>
Standard Number of Market Market
& Poor's Moody's Securities Value Percent
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AAA Aaa 60 $210,462,335 95%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 1 4,817,400 2
A, A- A, A2, A3 1 6,422,325 3
- --------------------------------------------------------------------------------
TOTAL 62 $221,702,060 100%
================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance, or are backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities, any
of which ensure the timely payment of principal and interest.
* Optional Call Provisions (not covered by the report of independent
public accountants): Dates (month and year) and prices of the earliest
optional call or redemption. There may be other call provisions at
varying prices at later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
(WI) -- Security purchased on a when-issued basis (See note 1 of the Notes to
Financial Statements).
+ The security has a maturity of more than one year, but has variable rate
and demand features which qualify it as a short-term security. The rate
disclosed is that currently in effect. This rate changes periodically
based on market conditions or a specified market index.
24 See accompanying notes to financial statements.
<PAGE>
Statement of Net Assets Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
California California Insured
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities,
at market value (note 1) $233,750,588 $221,702,060
Temporary investments in short-term
municipal securities, at amortized cost (note 1) 1,000,000 600,000
Cash 130,086 77,517
Receivables:
Interest 3,582,870 3,688,694
Shares sold 30,168 367,937
Investments sold 4,659,956 5,669,722
Other assets 5,920 3,567
- ---------------------------------------------------------------------------------------
Total assets 243,159,588 232,109,497
- ---------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 6,537,285 6,537,285
Shares redeemed 5,905 --
Accrued expenses:
Management fees (note 6) 98,704 94,242
Other 49,583 34,589
Dividends payable 641,449 573,833
- ---------------------------------------------------------------------------------------
Total liabilities 7,332,926 7,239,949
- ---------------------------------------------------------------------------------------
Net assets (note 7) $235,826,662 $224,869,548
=======================================================================================
Class A Shares (note 1)
Net assets $ 20,570,726 $ 27,597,970
Shares outstanding 1,943,542 2,578,700
Net asset value and redemption price per share $ 10.58 $ 10.70
Offering price per share (net asset value per
share plus maximum sales charge of 4.20% of
offering price) $ 11.04 $ 11.17
=======================================================================================
Class C Shares (note 1)
Net assets $ 1,002,618 $ 1,719,006
Shares outstanding 94,722 161,754
Net asset value, offering and redemption
price per share $ 10.58 $ 10.63
=======================================================================================
Class R Shares (note 1)
Net assets $214,253,318 $195,552,572
Shares outstanding 20,202,346 18,309,854
Net asset value, offering and redemption
price per share $ 10.61 $ 10.68
=======================================================================================
</TABLE>
25 See accompanying notes to financial statements.
<PAGE>
Statement of Operations
Year ended February 28, 1997
<TABLE>
<CAPTION> California
California Insured
- ---------------------------------------------------------------------------------------
Investment Income
Tax-exempt interest income (note 1) $14,010,701 $13,258,216
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Expenses:
Management fees (note 6) 1,249,684 1,205,656
12b-1 service fees -- Class A (notes 1 and 6) 40,524 54,387
12b-1 distribution and service fees -- Class C
(notes 1 and 6) 7,416 11,151
Shareholders' servicing agent fees and expenses 145,421 136,341
Custodian's fees and expenses 74,272 63,268
Trustees' fees and expenses (note 6) 3,932 3,671
Professional fees 28,854 21,644
Shareholders' reports -- printing and mailing expenses 74,914 62,517
Federal and state registration fees 3,638 3,295
Portfolio insurance expense - 20,487
Other expenses 15,412 14,460
- ---------------------------------------------------------------------------------------
Total expenses 1,644,067 1,596,877
- ---------------------------------------------------------------------------------------
Net investment income 12,366,634 11,661,339
- ---------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
from Investments
Net realized gain (loss) from investment transactions
(notes 1 and 4) 169,342 (196,727)
Net change in unrealized appreciation or depreciation of
investments 27,943 (1,102,480)
- ---------------------------------------------------------------------------------------
Net gain (loss) from investments 197,285 (1,299,207)
- ---------------------------------------------------------------------------------------
Net increase in net assets from operations $12,563,919 $10,362,132
=======================================================================================
See accompanying notes to financial statements.
26
</TABLE>
<PAGE>
Statement of Changes in Net Assets Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
California
----------------------------
Year ended Year ended
2/28/97 2/29/96
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 12,366,634 $ 12,198,392
Net realized gain (loss) from investment transactions
(notes 1 and 4) 169,342 1,855,177
Net change in unrealized appreciation or depreciation
of investments 27,943 8,120,195
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations 12,563,919 22,173,764
- -----------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (850,904) (388,705)
Class C (33,408) (18,278)
Class R (11,568,807) (11,713,501)
- -----------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (12,453,119) (12,120,484)
- -----------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 21,474,243 32,672,342
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 7,567,054 7,452,038
- -----------------------------------------------------------------------------------------
29,041,297 40,124,380
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (23,108,724) (31,819,906)
- -----------------------------------------------------------------------------------------
Net increase in net assets
from fund share transactions 5,932,573 8,304,474
- -----------------------------------------------------------------------------------------
Net increase in net assets 6,043,373 18,357,754
Net assets at the beginning of year 229,783,289 211,425,535
- -----------------------------------------------------------------------------------------
Net assets at the end of year $235,826,662 $229,783,289
=========================================================================================
Balance of undistributed net investment income
at end of year $ 56,470 $ 142,955
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
Statement of Changes in Net Assets -- continued
<TABLE>
<CAPTION>
California Insured
----------------------------
Year ended Year ended
2/28/97 2/29/96
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 11,661,339 $ 11,206,229
Net realized gain (loss) from investment transactions
(notes 1 and 4) (196,727) 764,418
Net change in unrealized appreciation or depreciation
of investments (1,102,480) 9,456,488
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations 10,362,132 21,427,135
- -----------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,112,015) (496,274)
Class C (49,035) (28,991)
Class R (10,458,018) (10,613,497)
- -----------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (11,619,068) (11,138,762)
- -----------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 25,329,867 26,072,923
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 6,819,379 6,709,606
- -----------------------------------------------------------------------------------------
32,149,246 32,782,529
- -----------------------------------------------------------------------------------------
Cost of shares redeemed (29,955,249) (23,041,485)
- -----------------------------------------------------------------------------------------
Net increase in net assets
from fund share transactions 2,193,997 9,741,044
- -----------------------------------------------------------------------------------------
Net increase in net assets 937,061 20,029,417
Net assets at the beginning of year 223,932,487 203,903,070
- -----------------------------------------------------------------------------------------
Net assets at the end of year $224,869,548 $223,932,487
=========================================================================================
Balance of undistributed net investment income
at end of year $ 176,418 $ 134,147
=========================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
Notes to Financial Statements Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises the Nuveen California Municipal Bond Fund
("California") and the Nuveen California Insured Municipal Bond Fund
("California Insured") (collectively, the "Funds"), among others. The Trust was
organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Funds, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December,
1996.
After the close of business on January 31, 1997, California and California
Insured were renamed and reorganized into the Trust. Prior to the
reorganization, California (formerly Nuveen California Tax-Free Value Fund) and
California Insured (formerly Nuveen California Insured Tax-Free Value Fund) were
each a series of the Nuveen California Tax-Free Bond Fund, Inc., an open-end
diversified management investment company.
Each Fund seeks to provide high double tax-free income and preservation of
capital through investments in diversified portfolios of quality municipal bonds
whose income is exempt from regular federal and state income taxes.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
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. Temporary investments in securities that have
variable rate and demand features qualifying them as short-term securities are
traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. Any securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their
29
<PAGE>
Notes to Financial Statements -- continued
purchase commitments. At February 28, 1997, California and California Insured
had outstanding purchase commitments of $6,537,285 and $6,537,285, respectively.
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts after month-end. Net
realized capital gains and/or market discount from investment transactions are
distributed to shareholders not less frequently than annually. Furthermore,
capital gains are distributed only to the extent they exceed available capital
loss carryovers.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary net taxable income from investment
transactions, where applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute all of its tax-exempt net
investment income, in addition to any significant amounts of net realized
capital gains and/or market discount from investment transactions. The Funds
currently consider significant net realized capital gains and/or market discount
as amounts in excess of $.001 per share. Furthermore, each Fund intends to
satisfy conditions which will enable interest from municipal securities, which
is exempt from regular federal and California state personal income taxes, to
retain such tax-exempt status when distributed to the shareholders of the
respective Funds. All income dividends paid during the fiscal year ended
February 28, 1997, have been designated Exempt Interest Dividends.
Insurance
California Insured invests in municipal securities which are either covered by
insurance or backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities, both of which ensure the timely
payment of principal and interest. Each insured municipal security is covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
Such insurance does not guarantee the market value of the municipal securities
or the value of the Fund's shares. Original Issue Insurance and Secondary Market
Insurance remain in effect as long as the municipal securities covered thereby
remain outstanding and the insurer remains in business, regardless of whether
the Fund ultimately disposes of such municipal securities. Consequently, the
market value of the municipal securities cov-
30
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
ered by Original Issue Insurance or Secondary Market Insurance may reflect value
attributable to the insurance. Portfolio Insurance is effective only while the
municipal securities are held by the Fund. Accordingly, neither the prices used
in determining the market value of the underlying municipal securities nor the
net asset value of the Fund's shares include value, if any, attributable to the
Portfolio Insurance. Each policy of the Portfolio Insurance does, however, give
the Fund the right to obtain permanent insurance with respect to the municipal
security covered by the Portfolio Insurance policy at the time of its sale.
Flexible Sales Charge Program
Each Fund of the Trust offers Class A, Class B, Class C and Class R Shares.
Class A Shares incur a sales charge on purchases and an annual 12b-1 service
fee. Class B Shares are sold without a sales charge on purchases but incur
annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a contingent deferred sales charge ("CDSC") of up to 5%
depending upon the length of time the shares are held (CDSC is reduced to 0% at
the end of six years). Class B Shares were first offered for sale on February 1,
1997, however, none were issued and outstanding on February 28, 1997. Class C
Shares are sold without a sales charge on purchases, but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 18 months of purchase.
Class R Shares are not subject to any sales charge on purchases or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 28, 1997.
Expense Allocation
Expenses of each Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares are recorded to the
specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
31
<PAGE>
Notes to Financial Statements -- continued
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
California
-----------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
-----------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 834,264 $ 8,711,708 927,895 $ 9,631,213
Class C 41,611 437,417 50,026 518,671
Class R 1,174,955 12,325,118 2,165,620 22,522,458
Shares issued to shareholders due to
reinvestment of distributions:
Class A 43,465 455,861 16,682 173,826
Class C 2,382 24,945 1,279 13,296
Class R 675,181 7,086,248 700,563 7,264,916
- -----------------------------------------------------------------------------------------------------
2,771,858 29,041,297 3,862,065 40,124,380
- -----------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (135,750) (1,422,346) (54,537) (567,970)
Class C (13,949) (144,511) (6,378) (64,962)
Class R (2,059,535) (21,541,867) (2,990,150) (31,186,974)
- -----------------------------------------------------------------------------------------------------
(2,209,234) (23,108,724) (3,051,065) (31,819,906)
- -----------------------------------------------------------------------------------------------------
Net increase 562,624 $ 5,932,573 811,000 $ 8,304,474
=====================================================================================================
California Insured
-----------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
-----------------------------------------------------
Shares Amount Shares Amount
- -----------------------------------------------------------------------------------------------------
Shares sold:
Class A 1,300,597 $ 13,757,024 1,211,972 $ 12,814,061
Class C 91,768 972,104 89,705 927,664
Class R 1,001,613 10,600,739 1,177,751 12,331,198
Shares issued to shareholders due to
reinvestment of distributions:
Class A 52,994 563,347 23,441 248,069
Class C 3,107 32,774 1,594 16,740
Class R 587,632 6,223,258 614,344 6,444,797
- -----------------------------------------------------------------------------------------------------
3,037,711 32,149,246 3,118,807 32,782,529
- -----------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (378,089) (4,026,630) (95,872) (1,021,240)
Class C (30,587) (320,023) (15,721) (167,154)
Class R (2,426,927) (25,608,596) (2,088,697) (21,853,091)
- -----------------------------------------------------------------------------------------------------
(2,835,603) (29,955,249) (2,200,290) (23,041,485)
- -----------------------------------------------------------------------------------------------------
Net increase 202,108 $ 2,193,997 918,517 $ 9,741,044
=====================================================================================================
</TABLE>
32
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
3. Distributions to Shareholders
On March 7, 1997, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid on April 1, 1997, to shareholders
of record on March 7, 1997, as follows:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0455 $.0450
Class B .0390 .0380
Class C .0405 .0395
Class R .0475 .0465
===============================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended
February 28, 1997, were as follows:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Purchases
Investments in municipal securities $177,229,257 $117,170,710
Temporary municipal investments 86,645,000 57,025,000
Sales
Investments in municipal securities 169,979,896 112,500,716
Temporary municipal investments 86,045,000 64,325,000
===============================================================================
</TABLE>
At February 28, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for each Fund.
At February, 28, 1997, the Funds had unused capital loss carryforwards available
for federal income tax purposes to be applied against future capital gains, if
any. If not applied, the carryovers will expire as follows:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
Expiration year:
<S> <C> <C>
2003 $595,964 $341,931
2005 -- 196,727
- -------------------------------------------------------------------------------
Total $595,964 $538,658
===============================================================================
</TABLE>
33
<PAGE>
Notes to Financial Statements -- continued
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1997, were as follows:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $12,245,340 $13,314,809
depreciation (103,802) (98,005)
- -------------------------------------------------------------------------------
Net unrealized appreciation $12,141,538 $13,216,804
===============================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trusts' investment management agreement with the Adviser, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of each Fund:
<TABLE>
<CAPTION>
Average daily net asset value 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 net assets over $2 billion .4750 of 1
===============================================================================
</TABLE>
The Adviser has agreed to waive part of its management fees or reimburse certain
expenses of each Fund in order to limit total expenses to .75 of 1% of the
average daily net asset value of California and .975 of 1% of the average daily
net asset value of California Insured, excluding any 12b-1 fees applicable to
Class A, Class B and Class C Shares. The Adviser may also voluntarily agree to
reimburse additional expenses from time to time, which may be terminated at any
time at its discretion.
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Distributor collected sales charges of approximately $220,000 and $337,100,
for California and California Insured, respectively, on Class A share purchases,
of which approximately $191,100 and $284,900, respectively, were paid out as
concessions to authorized dealers. The Distributor also received 12b-1 service
fees on Class A shares, substantially all of which were paid to compensate
authorized dealers for providing services to shareholders relating to their
investments.
During the fiscal year ended February 28, 1997, the Distributor compensated
authorized dealers directly with approximately $200 for California and $2,300
for California Insured in commission advances on Class C share sales. Class C
shares purchased are subject to a CDSC if the shares are redeemed within a
specified period of purchase. Effective February 1, 1997, any such CDSC is to be
retained by the Distributor to com-
34
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
pensate for commissions advanced to authorized dealers. During the month ended
February 28, 1997, no such CDSC was collected or retained by the Distributor.
Also effective February 1, 1997, all 12b-1 service and distribution fees on
Class C shares during the first year following a purchase are retained by the
Distributor to compensate for commissions advanced to authorized dealers.
Accordingly, for the one month ended February 28, 1997, the Distributor received
and retained all 12b-1 service and distribution fees on Class C shares. The 12b-
1 service and distribution fees on Class C shares received by the Distributor
for the eleven months ended January 31, 1997, were substantially all paid to
compensate authorized dealers for providing services to shareholders relating to
their investments.
7. Composition of Net Assets
At February 28, 1997, each Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $224,224,618 $212,014,984
Balance of undistributed net
investment income 56,470 176,418
Accumulated net realized gain
(loss) from investment transactions (595,964) (538,658)
Net unrealized appreciation
of investments 12,141,538 13,216,804
- -------------------------------------------------------------------------------
Net assets $235,826,662 $224,869,548
===============================================================================
</TABLE>
35
<PAGE>
Notes to Financial Statements
8. Investment Composition
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At February 28, 1997, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
California California Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue Bonds:
Lease Rental Facilities 21% 19%
Health Care Facilities 19 8
Housing Facilities 16 12
Water/Sewer Facilities 2 9
Electric Utilities 6 4
Educational Facilities 5 2
Other 14 23
General Obligation Bonds 1 5
Escrowed Bonds 16 18
- -------------------------------------------------------------------------------
100% 100%
===============================================================================
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S. Government or U.S. Government agency
securities, either of which ensure the timely payment of principal and interest
in the event of default (42% for California and 100% for California Insured).
Such insurance or escrow, however, does not guarantee the market value of the
municipal securities or the value of any of the Funds' shares.
All of the temporary investments in short-term municipal securities have credit
enhancements (letters of credit, guarantees or insurance) issued by third party
domestic or foreign banks or other institutions.
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
36
<PAGE>
Financial Highlights
37
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for a common share outstanding throughout each period is as follows:
Operating Performance Less Distributions
--------------------------- ------------------------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net Gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
CALIFORNIA of period income++ investments income gains period value+
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended,
2/28/97 $10.580 $.553 $(.015) $(.538) $ - $10.580 5.29%
2/29/96 10.100 .549 .473 (.542) - 10.580 10.36
9/6/94 to 2/28/95 10.210 .270 (.031) (.275) (.074) 10.100 2.52
Class C
Year ended,
2/28/97 10.580 .473 (.012) (.461) - 10.580 4.53
2/29/96 10.100 .470 .474 (.464) - 10.580 9.53
9/12/94 to 2/28/95 10.040 .218 .139 (.223) (.074) 10.100 3.71
Class R
Year ended,
2/28/97 10.600 .568 .009 (.567) - 10.610 5.67
2/29/96 10.130 .575 .467 (.572) - 10.600 10.54
2/28/95 10.740 .582 (.531) (.587) (.074) 10.130 0.78
2/28/94 10.850 .598 (.054) (.596) (.058) 10.740 5.08
2/28/93 10.140 .633 .707 (.626) (.004) 10.850 13.66
8 mos. ended,
2/29/92 9.920 .429 .218 (.427) - 10.140 6.61
Year ended,
6/30/91 9.790 .639 .133 (.642) - 9.920 8.16
6/30/90 9.850 .641 (.058) (.643) - 9.790 6.14
6/30/89 9.240 .649 .610 (.649) - 9.850 14.12
6/30/88 9.280 .647 (.040) (.647) - 9.240 6.87
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 38.
38
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Ratios/Supplemental Data
- ----------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net asset net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 20,571 .94% 5.16% .94% 5.16% 74%
12,709 1.00 5.23 .96 5.27 36
3,146 1.41* 5.40* 1.00* 5.81* 32
1,003 1.67 4.44 1.67 4.44 74
684 1.84 4.39 1.71 4.52 36
200 2.41* 4.37* 1.75* 5.03* 32
214,253 .70 5.41 .70 5.41 74
216,390 .71 5.53 .71 5.53 36
208,080 .71 5.83 .71 5.83 32
218,430 .73 5.47 .73 5.47 19
183,215 .71 6.05 .71 6.05 5
133,377 .67* 6.30* .67* 6.30* --
107,508 .69 6.48 .69 6.48 15
78,704 .69 6.51 .69 6.51 8
52,048 .77 6.77 .75 6.79 22
29,640 .88 6.91 .70 7.09 48
- ----------------------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Financial Highlights -- continued
<TABLE>
<CAPTION>
Operating Performance Less Distributions
------------------------- ----------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
CALIFORNIA INSURED of period income++ investments income gains period value+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended,
2/28/97 $10.760 $.549 $(.078) $(.531) $ -- $10.700 4.57%
2/29/96 10.250 .530 .505 (.525) -- 10.760 10.32
9/6/94 to 2/28/95 10.220 .255 .068 (.265) (.028) 10.250 3.33
Class C
Year ended,
2/28/97 10.670 .462 (.054) (.448) -- 10.630 3.99
2/29/96 10.150 .448 .516 (.444) -- 10.670 9.67
9/12/94 to 2/28/95 10.060 .210 .123 (.215) (.028) 10.150 3.45
Class R
Year ended,
2/28/97 10.740 .561 (.067) (.554) -- 10.680 4.81
2/29/96 10.230 .556 .507 (.553) -- 10.740 10.63
2/28/95 10.670 .559 (.412) (.559) (.028) 10.230 1.68
2/28/94 10.850 .560 (.101) (.556) (.083) 10.670 4.27
2/28/93 10.010 .584 .871 (.579) (.036) 10.850 15.05
8 mos. ended,
2/29/92 9.650 .401 .360 (.401) -- 10.010 7.99
Year ended,
6/30/91 9.480 .600 .176 (.606) -- 9.650 8.43
6/30/90 9.630 .608 (.151) (.607) -- 9.480 4.93
6/30/89 9.020 .607 .610 (.607) -- 9.630 13.97
6/30/88 8.980 .600 .040 (.600) -- 9.020 7.44
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
+ Total Return on Net Asset Value is the combination of reinvested
dividend income, reinvested capital gains distributions, if any,
and changes in net asset value per share. The total returns
shown for Class A Shares do not include the effect of applicable
sales charge on purchases. The total returns shown for Class C
Shares do not include the effect of applicable contingent
deferred sales charges. Class R Shares are not subject to any
sales charge on purchases or contingent deferred sales charges.
++ Reflects the waiver of certain management fees and reimbursement
of certain other expenses by the Adviser, if applicable (see
note 6 of the Notes to Financial Statements).
40
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental Data
--------------------------------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income expenses income
to average to average to average to average
Net assets net assets net assets net assets net assets Portfolio
end of period before before after after turnover
(in thousands) reimbursement reimbursement reimbursement++ reimbursement++ rate
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 27,598 .94% 5.05% .94% 5.05% 51%
17,250 .98 4.99 .97 5.00 38
4,753 1.24* 5.26* 1.05* 5.45* 25
1,719 1.67 4.32 1.67 4.32 51
1,040 1.74 4.23 1.71 4.26 38
222 2.44* 4.05* 1.80* 4.69* 25
195,553 .69 5.30 .69 5.30 51
205,642 .70 5.29 .70 5.29 38
198,928 .70 5.60 .70 5.60 25
208,115 .71 5.12 .71 5.12 14
168,852 .75 5.72 .75 5.72 9
100,933 .64* 5.97* .64* 5.97* 7
74,551 .68 6.26 .68 6.26 29
50,625 .70 6.36 .70 6.36 13
35,032 .82 6.52 .82 6.52 23
22,394 .99 6.60 .82 6.77 31
- -------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust II:
We have audited the accompanying statements of net assets of Nuveen Flagship
Multistate Trust II (comprising the Nuveen California and California Insured
Municipal Bond Funds) (a Massachusetts business trust), including the portfolios
of investments, as of February 28, 1997, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended and the financial highlights for
the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, by correspondence with the custodian and brokers. As to
securities purchased but not received, we requested confirmation from brokers
and, when replies were not received, we carried out other alternative auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of each of the
respective funds constituting the Nuveen Flagship Multistate Trust II, as of
February 28, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods indicated thereon in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
42
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report Shareholder Meeting Report
California Insured
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------------------------------
Election of the Fund's
Board of Directors
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Bremner For 1,699,473 67,335 12,702,581
Withhold 12,029 -- 311,735
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(B) Brown For 1,699,473 67,335 12,705,151
Withhold 12,029 -- 309,165
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(C) Dean For 1,699,473 67,335 12,710,486
Withhold 12,029 -- 303,830
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(D) Impellizzeri For 1,699,473 67,335 12,708,454
Withhold 12,029 -- 305,862
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(E) Rosenheim For 1,699,473 67,335 12,698,647
Withhold 12,029 -- 315,669
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(F) Sawers For 1,699,473 67,335 12,710,486
Withhold 12,029 -- 303,830
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(G) Schneider For 1,699,473 67,335 12,700,377
Withhold 12,029 -- 313,939
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
(H) Schwertfeger For 1,699,473 67,335 12,710,486
Withhold 12,029 -- 303,830
---------------------------------------------------------------------
Total 1,711,502 67,335 13,014,316
- --------------------------------------------------------------------------------------------------------
AMT Bonds For 1,196,804 33,927 9,453,835
Against 53,648 7,807 796,518
Abstain 70,705 6,169 1,078,029
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
---------------------------------------------------------------------
</TABLE>
43
<PAGE>
Shareholder Meeting Report
California Insured -- continued
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illiquid Securities For 1,172,725 32,946 9,109,366
Against 70,952 10,782 979,573
Abstain 77,480 4,175 1,239,443
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
- --------------------------------------------------------------------------------------------------------
Unseasoned Issuers For 1,150,916 32,946 9,037,271
Against 77,137 14,957 1,116,740
Abstain 93,104 -- 1,204,185
---------------------------------------------------------------------
Total 1,321,157 47,903 11,358,196
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,656,120
- --------------------------------------------------------------------------------------------------------
Average Maturity For 1,199,830 36,036 9,700,344
Against 47,534 1,940 403,217
Abstain 73,793 9,927 1,224,821
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
- --------------------------------------------------------------------------------------------------------
Temporary Investments For 1,170,558 34,042 9,488,789
Against 61,671 6,169 605,445
Abstain 88,928 7,692 1,234,148
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
- --------------------------------------------------------------------------------------------------------
Single Bank Limits For 1,182,038 35,055 9,369,628
Against 60,248 3,216 680,285
Abstain 78,871 9,632 1,278,469
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
- --------------------------------------------------------------------------------------------------------
Reorganization For 1,197,021 40,211 9,873,783
Against 36,913 7,692 417,165
Abstain 87,223 -- 1,037,434
---------------------------------------------------------------------
Total 1,321,157 47,903 11,328,382
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 390,345 19,432 1,685,934
---------------------------------------------------------------------
</TABLE>
44
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report Shareholder Meeting Report
California
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------------------------------
Election of the Fund's
Board of Directors
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Bremner For 1,031,953 54,008 14,184,773
Withhold 22,916 -- 449,591
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(B) Brown For 1,031,953 54,008 14,207,809
Withhold 22,916 -- 426,555
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(C) Dean For 1,031,953 54,008 14,208,737
Withhold 22,916 -- 425,627
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(D) Impellizzeri For 1,031,953 54,008 14,177,084
Withhold 22,916 -- 457,280
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(E) Rosenheim For 1,031,846 54,008 14,183,442
Withhold 23,023 -- 450,922
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(F) Sawers For 1,031,953 54,008 14,208,708
Withhold 22,916 -- 425,656
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(G) Schneider For 1,031,953 54,008 14,189,353
Withhold 22,916 -- 445,011
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
(H) Schwertfeger For 1,031,953 54,008 14,206,567
Withhold 22,916 -- 427,797
---------------------------------------------------------------------
Total 1,054,869 54,008 14,634,364
- --------------------------------------------------------------------------------------------------------
AMT Bonds For 723,522 41,541 11,467,724
Against 44,444 -- 725,335
Abstain 60,827 3,074 963,826
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
---------------------------------------------------------------------
</TABLE>
45
<PAGE>
Shareholder Meeting Report
California -- continued
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Grade For 742,042 41,541 11,766,423
Against 41,661 - 490,044
Abstain 45,090 3,074 900,418
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Illiquid Securities For 698,037 41,151 11,067,464
Against 72,236 - 1,016,986
Abstain 58,520 3,074 1,072,435
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Unseasoned Issuers For 696,393 41,541 11,017,036
Against 74,711 - 1,021,511
Abstain 57,689 3,074 1,118,338
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Average Maturity For 705,151 44,615 11,787,136
Against 57,672 - 408,792
Abstain 65,970 - 960,957
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Temporary Investments For 702,539 44,615 11,526,481
Against 51,202 - 631,192
Abstain 75,052 - 999,212
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Single Bank Limits For 691,026 44.615 11,402,332
Against 46,405 - 637,844
Abstain 91,362 - 1,116,709
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
- --------------------------------------------------------------------------------------------------------
Reorganization For 761,596 44,615 11,931,234
Against 19,191 - 401,825
Abstain 48,006 - 823,826
---------------------------------------------------------------------
Total 828,793 44,615 13,156,885
- --------------------------------------------------------------------------------------------------------
Broker Non Votes 226,076 9,393 1,477,479
---------------------------------------------------------------------
</TABLE>
46
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals. The funds below are grouped by investment objectives.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
1. Long-term, insured long-term, intermediate-term
and limited-term portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
47
<PAGE>
Fund Information
Board of Directors
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Margaret K. Rosenheim
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Custodian
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
Transfer Agent,
Shareholder Services and
Dividend Disbursing Agent
Shareholder Services, Inc.
Nuveen Investor Services
P.O. Box 5330
Denver, CO 80217-5330
(800) 621-7227
Legal Counsel
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
Public Accountants
Arthur Andersen LLP
Chicago, Illinois
48
<PAGE>
Serving Investors for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products -- including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, individual managed account services, and cash management
products.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
VAN-CA-2.97
<PAGE>
NUVEEN
Municipal
Bond Funds
February 28, 1997
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO OF COUPLE APPEARS HERE]
Massachusetts
<PAGE>
Contents
2 Dear Shareholder
4 Answering Your Questions
6 Massachusetts Overview
8 Massachusetts Insured Overview
11 Financial Section
43 Shareholder Meeting Results
47 Shareholder Information
48 Fund Information
1
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
It is my pleasure to report to you on the performance of the Nuveen
Massachusetts Municipal Bond Fund and the Nuveen Massachusetts Insured Municipal
Bond Fund, and to welcome new investors to our family of investments. Both of
these funds rewarded investors during the fiscal year with consistent
performance, delivering attractive tax-free income while also preserving your
capital. At the same time, the funds added a measure of stability to investor
portfolios containing more volatile equity funds.
As of the fiscal year end, investors in the Nuveen Massachusetts Municipal Bond
Fund's A shares were receiving tax-free dividends providing an annualized
current yield on net asset value of 4.54%, while investors in the Nuveen
Massachusetts Insured Municipal Bond Fund's A shares were receiving 4.18%
annually. To receive these yields on an after-tax basis, investors in the 43.5%
federal and state income tax bracket would have had to receive 8.04% and 7.40%,
respectively, from comparable taxable investments.
Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you. In January we acquired Flagship
Resources Inc., a respected manager of municipal bond mutual funds, based in
Dayton, Ohio. This added 19 mutual funds to the Nuveen family, giving investors
an expanded array
2
<PAGE>
"Since our last report, Nuveen has undertaken a number of key strategic steps
geared to enhancing our service to you."
of tax-free investment solutions for their personal portfolios. As we increase
our product offerings, we now offer you more flexibility to purchase fund shares
according to your specific circumstances through expanded pricing options.
Nuveen also has created new equity and balanced funds to help investors keep
more of what they have earned. In November we launched the Nuveen Growth and
Income Stock Fund, a fund that seeks to provide superior stock market
performance with moderated risk. Last month we introduced two new balanced
mutual funds, each designed to provide investors an attractive combination of
long-term growth potential and current income.
Nuveen prides itself on helping more than 1.3 million investors maintain the
lifestyle they currently enjoy by providing quality investment solutions with
reduced risk. Thank you for your continued confidence in Nuveen and our family
of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 1997
3
<PAGE>
Answering Your Questions
[PHOTO OF TOM SPALDING APPEARS HERE]
Tom Spalding, head of Nuveen's portfolio management team, talks about the
municipal bond market and offers insights into factors that affected fund
performance over the past year.
What key economic factors affected
these funds during the past year?
In the last 12 months, the bond market -- despite some fluctuations -- was
relatively stable compared with recent years. Following a strong start to the
year, a succession of mixed reports affecting interest rate and inflation
forecasts caused investors to view the markets with alternating enthusiasm and
uncertainty. In the third quarter of 1996, evidence of an economic slowdown, the
strong U.S. dollar, and lack of inflationary pressures combined to allay
investor fears, sparking a rally in bonds that continued through the post-
election period.
Throughout the year, stock market euphoria focused investors' attention on
stocks and brought record amounts of new money into stock funds, bypassing the
bond market. Some investors, concerned about a possible correction in the stock
market, decided to take their profits, but adopted a wait-and-see attitude about
investing capital gains, electing to go with short-term vehicles until a clearer
picture of market trends emerged. These events affected demand for bond issues
of all types in the last year.
Given this market environment,
how did the funds perform?
Both the Massachusetts Municipal Bond Fund and the Massachusetts Insured
Municipal Bond Fund rewarded investors with total returns on net asset value for
the period, recording price changes and reinvested dividends of 4.73% and 4.02%,
respectively. During the same period, the Lehman Brothers Municipal Bond Index,
which does not incur operating expenses or transaction costs, reported a 5.51%
total return.
What strategies did you employ to add value?
The fluctuations of 1996 created specific inefficiencies in the market, enabling
Nuveen to uncover and take advantage of price discrepancies to improve fund
portfolios. For example, we were able to enhance the durability of the funds'
dividends by purchasing bonds with longer call protection. These bonds were less
in demand as interest rates began to rise in 1996, cre-
4
<PAGE>
"We believe we will continue to find value in the municipal market over the next
12 months, giving prudent investors the attractive tax-free income they seek,
while limiting the volatility inherent in an uncertain market."
ating a value investing opportunity. These bonds then appreciated in value more
than other bonds as rates moved down during the year.
What is the current status of Massachusett's
municipal market?
In most sectors, the Massachusetts municipal market continues its rebound from
the recession of the early 1990's. Mutual fund, biotechnology, computer, and
consulting firms continue to be attracted to the Commonwealth, drawn by in part
by its highly educated workforce, and by access to its numerous colleges and
universities. Improvements in the economy have fueled improvements in the
financial performance of the Commonwealth and many of its cities and towns.
Recent years have strained hospitals with lower reimbursement levels from
Medicaid and Medicare, and managed care, which continues to grow rapidly in
Massachusetts, is causing competitive pressures to escalate. To position
themselves for the increasing competitive environment, many Massachusetts
hospitals are consolidating and merging.
Deregulation of Massachusetts' electric utilities is imminent, and could bring
with it potential for volatility. If restructuring legislation is passed without
provisions for stranded cost recovery, Massachusetts Municipal Wholesale
Electric Co. as well as the state's investor owned utilities, would be subject
to competitive pressures that could harm their financial conditions. What is the
current economic outlook?
A look at the current environment shows continued economic growth characterized
by low unemployment, increased manufacturing and construction activity, and lack
of price pressure at the consumer and producer levels. Although inflation
remains at the same subdued levels it has exhibited over the past six years, the
strength of the current economic expansion encouraged the Federal Reserve to
make a preemptive strike against inflation's potential return. It raised short-
term interest rates by 0.25% at the end of March. While the bond market had
already anticipated and discounted much of the impact of this tightening, the
Fed's action set off a decline in the equity market that -- in combination with
the attractive yields currently available -- increased interest in municipal
bonds on the part of investors looking to move out of stocks. We believe we will
continue to find value in the municipal market over the next 12 months, giving
prudent investors the attractive tax-free income they seek, while limiting the
volatility inherent in an uncertain market.
5
<PAGE>
Massachusetts
Overview
<TABLE>
<CAPTION>
CREDIT QUALITY
[PIE CHART APPEARS HERE]
NR 2%
BBB 13%
A 26%
AA 12%
AAA 47%
DIVERSIFICATION
[PIE CHART APPEARS HERE]
Escrowed Bonds 25%
Housing Facilities 20%
Health Care Facilities 19%
Other 2%
Educational Facilities 13%
General Obligations 21%
Fund Highlights
================================================================================
<S> <C> <C> <C> <C> <C>
Share Class A B C R
Inception Date 9/94 3/97 10/94 12/86
Net Asset Value (NAV) $9.89 N/A $9.83 $9.86
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $81,025
Average Weighted Maturity (years) 19.10
Duration (years) 4.8
- --------------------------------------------------------------------------------
Annualized Total Return/1/
================================================================================
Share Class A(NAV) A(Offer) B C R
1-Year 4.73% 0.33% 4.00% 3.90% 4.99%
5-Year 7.03% 6.11% 6.22% 6.18% 7.23%
10-Year 6.42% 5.97% 5.65% 5.60% 6.66%
- --------------------------------------------------------------------------------
Tax-Free Yields
================================================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.16% 4.94% 4.41% 4.64% 5.35%
SEC 30-Day Yld 4.54% 4.35% 3.76% 3.96% 4.73%
Taxable Equiv Yld/2/ 8.04% 7.70% 6.65% 7.01% 8.37%
- --------------------------------------------------------------------------------
</TABLE>
/1/ Class R Share returns are actual. Class A, B and C Share returns are actual
for the period since class inception; returns prior to class inception are
Class R Share returns adjusted for differences in sales charges and
expenses, which are primarily differences in distribution and service fees.
Class A Shares have a 4.2% maximum sales charge. Class B Shares have a CDSC
that begins at 5% for redemptions during the first year after purchase and
declines periodically to 0% over the following five years, which is not
reflected in the total returns. Class C Shares have a 1% CDSC for
redemptions within one year, which is not reflected in the 1-year total
return.
/2/ Based on the SEC yield and on a federal income tax rate of 43.5%; represents
the income needed from a taxable investment necessary to equal the income of
the Nuveen fund on an after-tax basis.
6
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
February 28, 1997 Annual Report
*The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.20%) and all ongoing
fund expenses.
Index Comparison*
[GRAPH CHART APPEARS HERE]
[SET PLOT POINTS TO COME]
- --Lehman Brothers Municipal Bond Index $20,863
- --Nuveen Massachusetts Municipal Bond Fund (NAV) $18,632
- --Nuveen Massachusetts Municipal Bond Fund (Offer) $17,850
Past performance is not predictive of future performance.
Dividend History (A Shares)
[BAR CHART APPEARS HERE]
7
<PAGE>
Massachusetts Insured
Overview
Credit Quality
[PIE CHART APPEARS HERE]
AA 1% A 3%
AAA 96%
Diversification
General Obligations 37%
Health Care Facilities 20%
Housing Facilities 2%
Educational Facilities 20%
Other 2%
Escrowed Bonds 19%
Fund Highlights
- --------------------------------------------------------------------------------
Share Class A B C R
Inception Date 9/94 3/97 9/94 12/86
- --------------------------------------------------------------------------------
Net Asset Value (NAV) $10.38 N/A $10.35 $10.38
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Total Net Assets ($000) $65,493
- --------------------------------------------------------------------------------
Average Weighted Maturity (years) 17.9
- --------------------------------------------------------------------------------
Duration (years) 5.8
- --------------------------------------------------------------------------------
Annualized Total Return/1/
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
1-Year 4.02% -0.35% 3.18% 3.17% 4.16%
- --------------------------------------------------------------------------------
5-year 6.72% 5.81% 5.98% 5.94% 6.99%
- --------------------------------------------------------------------------------
10-year 6.60% 6.15% 5.86% 5.82% 6.87%
================================================================================
Tax-Free Yields
================================================================================
Share Class A(NAV) A(Offer) B C R
Dist Rate 5.03% 4.82% 4.28% 4.46% 5.20%
- --------------------------------------------------------------------------------
SEC 30-Day Yld 4.18% 4.00% 3.40% 3.60% 4.37%
- --------------------------------------------------------------------------------
Taxable Equiv Yld/2/ 7.40% 7.08% 6.02% 6.37% 7.73%
================================================================================
1 Class R Share returns are actual. Class A, B and C Share returns are actual
for the period since class inception; returns prior to class inception are
Class R Share returns adjusted for differences in sales charges and expenses,
which are primarily differences in distribution and service fees. Class A
Shares have 4.2% maximum sales charge. Class B Shares have a CDSC that begins
at 5% for redemptions during the first year after purchase and declines
periodically to 0% over the following five years, which is not reflected in
the total returns. Class C Shares have a 1% CDSC for redemptions within one
year, which is not reflected in the 1-year total return.
2 Based on the SEC yield and on a combined federal and state income tax rate of
43.5%; represents the income needed from a taxable investment necessary to
equal the income of the Nuveen fund on an after-tax basis.
8
<PAGE>
Nuveen Massachusetts Insured Municipal Bond Fund
February 28, 1997 Annual Report
Index Comparison*
[Graph Chart Appears Here]
- --- Lehman Brothers Municipal Bond Index. $20,863
- --- Nuveen Massachusetts Insured Municipal Bond Fund (NAV) $18,954
- --- Nuveen Massachusetts Insured Municipal Bond Fund (Offer) $18,158
* The Index Comparison shows change in value of a $10,000 investment in the A
shares of the Nuveen fund compared with the Lehman Brothers Municipal Bond
Index. The Lehman Municipal Bond Index is comprised of a broad range of
investment-grade municipal bonds, and does not reflect any initial or ongoing
expenses. The Nuveen fund return depicted in the chart reflects the initial
maximum sales charge applicable to A shares at the time (4.20%) and all
ongoing fund expenses.
Dividend History (A Shares)
[Bar Chart Appears Here]
9
<PAGE>
Financial Section
Contents
12 Portfolio of Investments
26 Statement of Net Assets
27 Statement of Operations
28 Statement of Changes in Net Assets
30 Notes to Financial Statements
38 Financial Highlights
42 Report of Independent
Public Accountants
11
<PAGE>
<TABLE>
Portfolio of Investments
Massachusetts
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 250,000 Massachusetts Bay Transportation Authority, General 3/98 at 102 Aaa $ 265,028
Transportation System Bonds, 1988 Series A,
7.750%, 3/01/10 (Pre-refunded to 3/01/98)
1,000,000 Massachusetts Bay Transportation Authority, General 3/01 at 102 Aaa 1,115,110
Transportation System Bonds, 1991 Series A,
7.000%, 3/01/11 (Pre-refunded to 3/01/01)
Massachusetts Educational Loan Authority, Education
Loan Revenue Bonds, Issue C, Series 1985A:
150,000 7.875%, 6/01/03 6/97 at 102 AAA 154,551
1,135,000 7.875%, 6/01/03 6/97 at 100 AAA 1,177,676
1,320,000 Massachusetts Health and Educational Facilities 7/00 at 102 AAA 1,493,527
Authority, Revenue Bonds, Emerson Hospital Issue,
Series C, 8.000%, 7/01/18 (Pre-refunded to 7/01/00)
250,000 Massachusetts Health and Educational Facilities 7/98 at 102 Aaa 268,178
Authority, Revenue Bonds, Mount Auburn Hospital
Issue, Series A, 7.875%, 7/01/18
(Pre-refunded to 7/01/98)
350,000 Massachusetts Health and Educational Facilities 7/97 at 100 Aaa 354,389
Authority Revenue Bonds, Salem Hospital Issue,
Series A, 7.250%, 7/01/09 (Pre-refunded to 7/01/97)
500,000 Massachusetts Health and Educational Facilities 7/99 at 102 1/2 N/R 533,205
Authority, Revenue Bonds, Series 1989, (Cardinal
Cushing General Hospital), 8.875%, 7/01/18
1,180,000 Massachusetts Health and Educational Facilities 7/00 at 101 1/2 Baa 1,324,255
Authority, Revenue Bonds, Suffolk University Issue,
Series A, 8.125%, 7/01/20 (Pre-refunded to 7/01/00)
500,000 Massachusetts Health and Educational Facilities 7/98 at 102 Aaa 537,405
Authority, Revenue Bonds, Newton-Wellesley Hospital
Issue, Series C, 8.000%, 7/01/18
(Pre-refunded to 7/01/98)
500,000 Massachusetts Health and Educational Facilities 8/97 at 102 AA 518,655
Authority, Revenue Bonds, Saint Elizabeth's Hospital
of Boston Issue, (FHA Insured Project), Series B,
7.750%, 8/01/27, (Pre-refunded to 8/01/97)
750,000 Massachusetts Health and Educational Facilities 7/99 at 102 A+ 819,173
Authority, Revenue Bonds, Baystate Medical Center
Issue, Series C, 7.500%, 7/01/20
(Pre-refunded to 7/01/99)
1,000,000 Massachusetts Health and Educational Facilities 7/01 at 102 Aaa 1,091,280
Authority, Revenue Bonds, Boston College Issue,
Series J, 6.625%, 7/01/21
</TABLE>
12
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500,000 Massachusetts Health and Educational Facilities 9/02 at 102 A+ $ 539,160
Authority, Revenue Refunding Bonds, Worcester
Polytechnic Institute Issue, Series E,
6.625%, 9/01/17
495,000 Massachusetts Health and Educational Facilities 7/97 at 102 A 509,885
Authority, Revenue Bonds, Brockton Hospital
Issue, Series B, 8.000% 7/01/07
250,000 Massachusetts Health and Educational Facilities 7/00 at 102 Aaa 274,130
Authority, Revenue Bonds, University Hospital Issue,
Series C, 7.250%, 7/01/10
3,270,000 Massachusetts Health and Educational Facilities 7/01 at 102 A 3,566,883
Authority, Revenue Bonds, Charlton Memorial
Hospital Issue, Series B, 7.250%, 7/01/13
750,000 Massachusetts Health and Educational Facilities 7/02 at 102 Aaa 810,443
Authority, Revenue Bonds, New England Medical Center
Hospitals Issue, Series F, 6.625%, 7/01/25
2,750,000 Massachusetts Health and Educational Facilities 4/02 at 102 A 2,960,650
Authority, Revenue Bonds, New England Deaconess
Hospital Issue, Series D, 6.875%, 4/01/22
1,000,000 Massachusetts Health and Educational Facilities 7/02 at 102 AAA 1,056,550
Authority, Revenue Bonds, Suffolk University Issue,
Series B, 6.350%, 7/01/22
1,000,000 Massachusetts Health and Educational Facilities 11/02 at 102 Aaa 1,117,090
Authority, Revenue Bonds, MetroWest Health, Inc.
Issue, Series C, 6.500%, 11/15/18
(Pre-refunded to 11/15/02)
885,000 Massachusetts Health and Educational Facilities 7/03 at 102 Aaa 893,726
Authority, Revenue Bonds, Cable Housing and Health
Services Issue, Series A, 5.625%, 7/01/13
Massachusetts Health and Educational Facilities
Authority, Revenue Bonds, Lahey Clinic Medical Center
Issue, Series B:
1,000,000 5.625%, 7/01/15 7/03 at 102 Aaa 992,570
1,000,000 5.375%, 7/01/23 7/03 at 102 Aaa 929,540
800,000 Massachusetts Health and Educational Facilities 7/04 at 102 Aaa 753,072
Authority, Revenue Bonds, New England Medical Center
Hospitals, Series 1993-G1, 5.375%, 7/01/24
</TABLE>
13
<PAGE>
Portfolio of Investments
Massachusetts -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 700,000 Massachusetts Health and Educational Facilities 7/04 at 102 Aa $ 724,353
Authority, Revenue Bonds (Daughters of Charity
National Health System--The Carney Hospital),
Series D, 6.100%, 7/01/14
Massachusetts Health and Educational Facilities
Authority, Revenue Refunding Bonds, Youville Hospital
Issue, (FHA Insured Project) Series B:
2,500,000 6.000%, 2/15/25 2/04 at 102 Aa 2,517,150
2,000,000 6.000%, 2/15/34 2/04 at 102 Aa 2,009,700
3,700,000 Massachusetts Housing Finance Agency, 4/03 at 102 A1 3,813,923
Housing Project Revenue Bonds, 6.375%, 4/01/21
1,000,000 Massachusetts Housing Finance Agency, 11/02 at 102 Aaa 1,026,940
Residential Development Bonds, 6.250%, 11/15/14
1,000,000 Massachusetts Housing Finance Agency, 5/02 at 102 Aaa 1,049,910
Residential Development Bonds, 1992 Series D,
6.875%, 11/15/21
500,000 Massachusetts Housing Finance Agency, 6/01 at 102 Aa 530,030
Single Family Housing Revenue Bonds, Series 18,
7.350%, 12/01/16
1,250,000 Massachusetts Housing Finance Agency, 6/98 at 102 Aa 1,312,888
Single Family Housing Revenue Bonds, Series 8,
7.700%, 6/01/17
1,440,000 Massachusetts Industrial Finance Agency, Pollution 8/03 at 102 Baa2 1,413,072
Control Revenue Bonds, 1993 Series, (Eastern Edison
Company Project), 5.875%, 8/01/08
955,000 Massachusetts Industrial Finance Agency, Library 1/05 at 102 Aaa 1,096,779
Revenue Bonds, (Malden Public Library Project)
Series 1994, 7.250%, 1/01/15
1,000,000 Massachusetts Industrial Finance Agency, Resource 7/01 at 103 N/R 1,113,380
Recovery Revenue Bonds (SEMASS Project),
Series 1991A, 9.000%, 7/01/15
250,000 Massachusetts Industrial Finance Agency Revenue Bonds, 1/02 at 102 A1 275,413
College of the Holy Cross -- 1992 Issue, 6.450%,
1/01/12 (Pre-refunded to 1/01/02)
455,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 6/99 at 102 A- 487,141
(Sturdy Memorial Hospital), Series 1989, 7.900%, 6/01/09
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 10/99 at 103 Aaa 559,565
(Springfield College Project -- 1989 Issue)
7.800%, 10/01/09
</TABLE>
14
<PAGE>
15
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,335,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 7/02 at 102 BBB- $1,439,584
Merrimack College Issue, Series 1992, 7.125%, 7/01/12
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 7/03 at 102 Aa 459,550
(Whitehead Institute for Biomedical Research --
1993 Issue), 5.125%, 7/01/26
2,290,000 Massachusetts Industrial Finance Agency, Revenue and 7/05 at 102 AAA 2,435,621
Refunding Bonds, 1995 Series A, (Lesley College Project),
6.300%, 7/01/25
1,250,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 10/98 at 102 A 1,338,150
Harvard Community Health Plan, Inc., Issue 1988
Series B (Refunding Bonds), 8.125%, 10/01/17
1,000,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 3/06 at 102 Aaa 977,670
(College of the Holy Cross -- 1996 Issue),
5.500%, 3/01/20
500,000 Massachusetts Port Authority, Revenue Refunding Bonds, 7/98 at 100 Aa 504,095
Series 1978, 7.125%, 7/01/12
635,000 Massachusetts Port Authority, Revenue Refunding Bonds, No Opt. Call Aaa 1,078,344
Series 1982, 13.000%, 7/01/13
165,000 Massachusetts General Obligation Bonds, Consolidated 3/00 at 102 Aaa 181,970
Loan of 1990 Series A, 7.250%, 3/01/09
(Pre-refunded to 3/01/00)
715,000 The Commonwealth of Massachusetts, General Obligation 2/03 at 102 A1 720,212
Refunding Bonds, 1993 Series A, 5.500%, 2/01/11
250,000 The Massachusetts Bay Transportation Authority, 12/06 at 100 A- 296,170
Certificates of Participation, Series 1988,
7.800%, 1/15/14
City of Attleboro, Massachusetts, General Obligation Bonds:
450,000 6.250%, 1/15/10 1/03 at 102 A 471,317
450,000 6.250%, 1/15/11 1/03 at 102 A 469,854
Town of Barnstable, Massachusetts, General Obligation
Bonds:
880,000 5.750%, 9/15/13 9/04 at 102 Aa 901,727
490,000 5.750%, 9/15/14 9/04 at 102 Aa 500,266
250,000 City of Boston, Massachusetts, General Obligation Bonds, 2/99 at 102 A+ 271,875
1989 Series A, 7.700%, 2/01/09 (Pre-refunded to 2/01/99)
1,000,000 City of Boston, Massachusetts, General Obligation Bonds, 7/01 at 102 Aaa 1,110,750
1991 Series A, 6.750%, 7/01/11
</TABLE>
15
<PAGE>
Portfolio of Investments
Massachusetts -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 City of Boston, Massachusetts, Revenue Bonds, 8/00 at 102 Aaa $1,686,585
Boston City Hospital (FHA Insured Mortgage), Series A,
7.625%, 2/15/21 (Pre-refunded to 8/15/00)
500,000 Boston Water and Sewer Commission, General Revenue 11/01 at 102 Aaa 563,755
Bonds, 1991 Series A (Senior Series), 7.000%, 11/01/18
(Pre-refunded to 11/01/01)
985,000 Boston-Mount Pleasant Housing Development Corporation, 8/02 at 102 AAA 1,025,690
Multifamily Housing Refunding Revenue Bonds,
Series 1992A, 6.750%, 8/01/23
1,000,000 Dartmouth Housing Development Corporation, Multifamily 1/98 at 103 AAA 1,037,370
Housing Refunding Revenue Bonds, Series 1989,
(Crossroads Apartments), FNMA Collateral,
7.375%, 7/01/24
Town of Deerfield, Massachusetts, General Obligation
School Bonds of 1992, School Project Loan, Act of 1948,
Bank-Qualified Unlimited Tax:
420,000 6.200%, 6/15/09 6/02 at 102 A1 449,933
415,000 6.250%, 6/15/10 6/02 at 102 A1 443,730
525,000 City of Haverhill, Massachusetts, General Obligation, 10/01 at 102 Baa 582,015
Municipal Purpose Loan of 1991 Bonds,
7.500%, 10/15/11
250,000 City of Holyoke, Massachusetts, General Obligation 6/02 at 103 Aaa 298,773
Bonds, 8.150%, 6/15/06
590,000 City of Holyoke, Massachusetts, General Obligation No Opt. Call Baa 634,415
Bonds, 1991 Series A, 8.000%, 6/01/01
500,000 City of Holyoke, Massachusetts, General Obligation 8/01 at 102 Baa 556,335
School Project Loan, Act of 1948, 7.650%, 8/01/09
750,000 City of Holyoke, Massachusetts, General Obligation 11/02 at 102 Baa 818,805
Refunding Bonds, 7.000%, 11/01/08
445,000 City of Lowell, Massachusetts, General Obligation Qualified 1/01 at 102 Aaa 516,160
Bonds, 8.400%, 1/15/09 (Pre-refunded to 1/15/01)
545,000 City of Lowell, Massachusetts, General Obligation No Opt. Call Baa1 642,517
Qualified Bonds, 8.300%, 2/15/05
1,000,000 City of Lynn, Massachusetts, General Obligation Bonds, 1/02 at 104 Aaa 1,179,540
7.850%, 1/15/11 (Pre-refunded to 1/15/02)
500,000 Town of Monson, Massachusetts, General Obligation 10/00 at 102 Aaa 566,470
School Project Loan, Act of 1948 Bonds, 7.700%,
10/15/10 (Pre-refunded to 10/15/00)
16
</TABLE>
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 500,000 Town of Palmer, Massachusetts, General Obligation, 10/00 at 102 Aaa $ 565,915
School Project Loan, Act of 1948, 1990
Series B, 7.700%, 10/01/10 (Pre-refunded to 10/01/00)
500,000 Town of Palmer, Massachusetts, General Obligation 10/03 at 102 Aaa 509,050
Refunding Bonds, 5.500%, 10/01/10
1,130,000 City of Peabody, Massachusetts, General Obligation 8/00 at 100 Aaa 1,227,237
Electric Bonds, 6.950%, 8/01/09
250,000 Town of Sandwich, Massachusetts, Unlimited Tax, 11/98 at 102 1/2 Aaa 269,320
General Obligation Bonds, 7.100%, 11/01/07
(Pre-refunded to 11/01/98)
1,250,000 Somerville Housing Authority, Mortgage Revenue Bonds, 5/00 at 102 AAA 1,327,413
Series 1990 (GNMA Collaterized -- Clarendon Hill
Towers Project), 7.950%, 11/20/30
425,000 South Essex Sewerage District, Massachusetts, No Opt. Call Baa1 492,635
General Obligation Bonds, 9.000%, 12/01/00
1,000,000 City of Springfield, Massachusetts, General Obligation 9/02 at 102 Baa 1,139,200
School Project Loan, Act of 1948 Bonds, Series B,
7.100%, 9/01/11 (Pre-refunded to 9/01/02)
City of Taunton, Massachusetts, General Obligation
(Electric Loan, Act of 1969) Bonds:
1,465,000 8.000%, 2/01/02 No Opt. Call A 1,674,583
1,005,000 8.000%, 2/01/03 No Opt. Call A 1,167,407
250,000 University of Lowell Building Authority (Massachusetts), 11/97 at 102 A1 261,212
Facilities Bonds, Fourth Series A, (General Obligation
Bonds), 7.400%, 11/01/07
500,000 University of Massachusetts Building Authority, Project 5/98 at 102 A+ 531,274
Revenue Bonds, Series 1988-A, (General Obligation
Bonds), 7.500%, 5/01/14
1,000,000 City of Worcester, Massachusetts, General Obligation 8/02 at 102 BBB+ 1,060,710
Bonds, 6.000%, 8/01/04
1,000,000 Puerto Rico Aqueduct and Sewer Authority, Revenue Bonds, 7/98 at 102 AAA 1,074,630
Series 1988A, 7.875%, 7/01/17 (Pre-refunded to 7/01/98)
2,250,000 Puerto Rico Electric Power Authority, 7/01 at 102 Aaa 2,531,722
Power Revenue Bonds,
Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01)
- -----------------------------------------------------------------------------------------------------------------------------------
$74,445,000 Total Investments -- (cost $74,834,701) -- 98.7% 79,977,931
=====================--------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.3% 1,047,176
--------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $81,025,107
==============================================================================================================
</TABLE>
17
<PAGE>
Portfolio of Investments
Massachusetts -- continued
Summary of Ratings**--Portfolio of Investments
<TABLE>
<CAPTION>
Standard Number of Market Market
& Poor's Moody's Securities Value Percent
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AAA Aaa 41 $37,181,444 47%
AA+, AA, AA- Aa1, Aa, Aa2, Aa3 10 9,978,414 12
A+ A1 10 8,125,905 10
A,A- A, A2, A3 10 12,942,040 16
BBB+, BBB, BBB- Baa1, Baa, Baa2, Baa3 11 10,103,543 13
Non-rated Non-rated 2 1,646,585 2
- ------------------------------------------------------------------------------------------
Total 84 $79,977,931 100%
==========================================================================================
* Optional Call Provisions (not covered by the report of independent public accountants):
Dates (month and year) and prices of the earliest optional call or redemption. There
may be other call provisions at varying prices at later dates.
** Ratings (not covered by the report of independent public accountants): Using the
higher of Standard & Poor's or Moody's rating.
N/R -- Investment is not rated.
18 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments Nuveen Municipal Bond Funds
Massachusetts Insured February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 250,000 Massachusetts Bay Transportation Authority, 3/00 at 102 Aaa $ 272,960
General Transportation System Revenue, 1990 Series A,
7.250%, 3/01/03
250,000 Massachusetts Bay Transportation Authority, 3/99 at 102 Aaa 269,840
General Transportation System 1989 Series A,
7.100%, 3/01/13 (Pre-refunded to 3/01/99)
1,000,000 Massachusetts Bay Transportation Authority, 3/02 at 100 Aaa 1,001,930
General Transportation System Bonds, 1992 Series A,
5.750%, 3/01/22
250,000 Massachusetts Bay Transportation Authority, 8/00 at 102 Aaa 281,360
Certificates of Participation, 1990 Series A,
7.650%, 8/01/15 (Pre-refunded to 8/01/00)
450,000 Massachusetts Health and Educational Facilities Authority, 7/97 at 102 Aaa 465,291
Revenue Bonds, St. Luke's Hospital of New Bedford Issue,
Series B, 7.750%, 7/01/13 (Pre-refunded to 7/01/97)
200,000 Massachusetts Health and Educational Facilities Authority, 7/97 at 102 Aaa 207,038
Revenue Bonds, South Shore Hospital Issue, Series B,
8.125%, 7/01/17 (Pre-refunded to 7/01/97)
300,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 102 Aaa 321,813
Revenue Bonds, Mount Auburn Hospital Issue, Series A,
7.875%, 7/01/18 (Pre-refunded to 7/01/98)
750,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 102 Aaa 801,908
Revenue Bonds, Lahey Clinic Medical Center Issue,
Series A, 7.600%, 7/01/08 (Pre-refunded to 7/01/98)
800,000 Massachusetts Health and Educational Facilities Authority, 10/98 at 102 Aaa 861,872
Revenue Bonds, Berkshire Health Systems Issue,
Series A, 7.600%, 10/01/14 (Pre-refunded to 10/01/98)
750,000 Massachusetts Health and Educational Facilities Authority, 7/97 at 100 Aaa 759,405
Revenue Bonds, Salem Hospital Issue, Series A,
7.250%, 7/01/09 (Pre-refunded to 7/01/97)
250,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 Aaa 268,950
Revenue Bonds, Capital Asset Program,
7.200%, 7/01/09
500,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 102 Aaa 548,260
Revenue Bonds, University Hospital Issue, Series C,
7.250%, 7/01/19
250,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 102 Aaa 268,703
Revenue Bonds, Newton-Wellesley Hospital Issue,
Series C, 8.000%, 7/01/18 (Pre-refunded to 7/01/98)
----
19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Massachusetts Insured -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$ 250,000 Massachusetts Health and Educational Facilities Authority, 10/98 at 102 Aaa $ 267,480
Revenue Bonds, Northeastern University Issue, Series B,
7.600%, 10/01/10
500,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 A+ 546,115
Revenue Bonds, Baystate Medical Center Issue, Series C
7.500%, 7/01/20 (Pre-refunded to 7/01/99)
250,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 102 Aaa 279,263
Revenue Bonds, South Shore Hospital Issue, Series C,
7.500%, 7/01/20 (Pre-refunded to 7/01/00)
500,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 102 Aaa 562,275
Revenue Bonds, Stonehill College Issue, Series D,
7.700%, 7/01/20 (Pre-refunded to 7/01/00)
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/01 at 102 Aaa 1,091,280
Revenue Bonds, Boston College Issue, Series J,
6.625%, 7/01/21
500,000 Massachusetts Health and Educational Facilities Authority, 10/01 at 102 Aaa 553,480
Revenue Bonds, Berklee College of Music Issue,
Series C, 6.875%, 10/01/21
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/01 at 102 A1 1,076,480
Revenue Bonds, Brigham and Women's Hospital Issue,
Series D, 6.750%, 7/01/24
250,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 Aaa 272,600
Revenue Bonds, Beverly Hospital Issue, Series D,
7.300%, 7/01/19 (Pre-refunded to 7/01/99)
1,500,000 Massachusetts Health and Educational Facilities Authority, 7/02 at 102 Aaa 1,620,885
Revenue Bonds, New England Medical Center Hospitals
Issue, Series F, 6.625%, 7/01/25
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/02 at 102 Aaa 1,079,700
Revenue Bonds, South Shore Hospital Issue, Series D,
6.500%, 7/01/22
1,450,000 Massachusetts Health and Educational Facilities Authority, 10/02 at 100 Aaa 1,479,174
Revenue Bonds, Boston University Issue, Series M,
6.000%, 10/01/22
1,600,000 Massachusetts Health and Educational Facilities Authority, 10/02 at 102 Aaa 1,752,496
Revenue Bonds, Northeastern University Issue, Series E,
6.550%, 10/01/22
2,000,000 Massachusetts Health and Educational Facilities Authority, 7/02 at 102 Aaa 2,073,880
Revenue Bonds, Bentley College Issue, Series I,
6.125%, 7/01/17
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 1,700,000 Massachusetts Health and Educational Facilities Authority, 7/03 at 102 Aaa $ 1,687,369
Revenue Bonds, Lahey Clinic Medical Center Issue,
Series B, 5.625%, 7/01/15
4,375,000 Massachusetts Health and Educational Facilities Authority, 7/04 at 102 Aaa 4,118,363
Revenue Bonds, New England Medical Center Hospitals,
Series 1993-G1, 5.375%, 7/01/24
340,000 Massachusetts Housing Finance Agency, Housing Revenue 12/99 at 103 Aaa 359,098
Bonds, 1989 Series A, 7.600%, 12/01/16
500,000 Massachusetts Housing Finance Agency, Single Family 6/01 at 102 Aa 530,030
Housing Revenue Bonds, Series 18, 7.350%, 12/01/16
250,000 Massachusetts Housing Finance Agency, Single Family 6/98 at 102 Aa 262,578
Housing Revenue Bonds, Series 8, 7.700%, 6/01/17
1,545,000 Massachusetts Industrial Finance Agency, Library Revenue 1/05 at 102 Aaa 1,774,371
Bonds, (Malden Public Library Project), Series 1994,
7.250%, 1/01/15
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 10/99 at 102 Aaa 537,165
Brandeis University Issue, 1989 Series C,
6.800%, 10/01/19
200,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 10/98 at 102 Aaa 214,184
Harvard Community Health Plan, Inc. Issue,
1988 Series B (Refunding Bonds), 7.750%, 10/01/08
250,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 9/99 at 102 Aaa 273,768
Milton Academy Issue, Series A, 7.250%, 9/01/19
(Pre-refunded to 9/01/99)
375,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 11/99 at 102 Aaa 412,594
Museum of Science Issue, Series 1989, 7.300%,
11/01/09 (Pre-refunded to 11/01/99)
1,000,000 Massachusetts Industrial Finance Agency, Revenue 7/01 at 102 Aaa 1,064,410
Refunding Bonds, Mount Holyoke College Issue,
Series 1992A, 6.300%, 7/01/13
420,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 10/05 at 102 Aaa 438,665
Babson College Issue, Series 1995A, 5.800%, 10/01/10
Massachusetts Industrial Finance Agency,
Revenue Bonds, (College of the Holy Cross -- 1996 Issue):
2,500,000 5.500%, 3/01/16 3/06 at 102 Aaa 2,475,300
1,000,000 5.500%, 3/01/20 3/06 at 102 Aaa 977,670
1,300,000 Massachusetts Municipal Wholesale Electric Company, 7/03 at 102 Aaa 1,253,304
Power Supply System Revenue Bonds, 1993 Series A,
5.000%, 7/01/10
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
Massachusetts Insured -- continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$1,000,000 Massachusetts Port Authority, Revenue Bonds, No Opt. Call Aaa $ 1,698,180
Series 1982, 13.000%, 7/01/13
250,000 Massachusetts General Obligation Bonds, Consolidated 3/00 at 102 Aaa 275,713
Loan of 1990, Series A, 7.250%, 3/01/09
(Pre-refunded to 3/01/00)
Massachusetts General Obligation Bonds, Consolidated
Loan Series 1992-A:
25,000 6.500%, 6/01/08 6/02 at 101 Aaa 26,936
340,000 6.000%, 6/01/13 (Pre-refunded to 6/01/02) 6/02 at 100 Aaa 364,687
860,000 6.000%, 6/01/13 6/02 at 100 Aaa 885,843
1,000,000 City of Boston, Massachusetts, General Obligation Bonds, 7/01 at 102 Aaa 1,110,750
1991 Series A, 6.750%, 7/01/11
500,000 City of Boston, Massachusetts, Revenue Bonds, Boston 8/00 at 102 Aaa 562,195
City Hospital (FHA-Insured Mortgage), Series A,
7.625%, 2/15/21 (Pre-refunded to 8/15/00)
500,000 Boston Water and Sewer Commission, (A Public 11/98 at 100 Aaa 524,085
Instrumentality of The Commonwealth of Massachusetts),
General Revenue Bonds,1988 Series A,
(Subordinated Series), 7.250%, 11/01/06
500,000 City of Fall River, Massachusetts, General Obligation 6/01 at 102 Aaa 563,065
Bonds, 7.200%, 6/01/10
250,000 Town of Groveland, Massachusetts, General Obligation 6/01 at 102 Aaa 275,713
Bonds, 6.900%, 6/15/07
1,000,000 City of Haverhill, Massachusetts, General Obligation, 9/01 at 102 Aaa 1,087,890
Hospital Refunding Bonds, Series A, 6.700%, 9/01/10
250,000 City of Holyoke, Massachusetts, General Obligation Bonds, 6/02 at 103 Aaa 298,773
8.150%, 6/15/06
450,000 City of Leominster, Massachusetts, General Obligation 4/00 at 102 Aaa 499,901
Bonds, 7.500%, 4/01/09
2,625,000 City of Lowell, Massachusetts, General Obligation State 11/03 at 102 Aaa 2,647,733
Qualified Bonds, 5.600%, 11/01/12
1,025,000 City of Lynn, Massachusetts, General Obligation Bonds, No Opt. Call Aaa 1,124,230
6.750%, 1/15/02
250,000 Lynn, Massachusetts, Water and Sewer Commission, 12/00 at 102 Aaa 280,278
General Revenue Bonds, 1990 Series A,
7.250%, 12/01/10 (Pre-refunded to 12/01/00)
1,000,000 Town of Mansfield, Massachusetts, General Obligation 1/02 at 102 Aaa 1,099,200
Bonds, 6.700%, 1/15/11
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 250,000 Town of Methuen, Massachusetts, General Obligation 5/00 at 102 Aaa $ 275,185
Bonds, 7.400%, 5/15/04
500,000 Town of Monson, Massachusetts, General Obligation 10/00 at 102 Aaa 566,470
School Project Loan, Act of 1948 Bonds,
7.700%, 10/15/10 (Pre-funded to 10/15/00)
1,500,000 Town of Monson, Massachusetts, General Obligation, No Opt. Call Aaa 1,545,675
Bank-Qualified Unlimited Tax, School Refunding Bonds,
5.500%, 10/15/10
300,000 Town of North Andover, Massachusetts, General 9/00 at 103 Aaa 334,908
Obligation Bonds, 7.400%, 9/15/10
North Middlesex Regional School District, School Bonds
of 1990:
270,000 7.200%, 6/15/08 6/00 at 103 Aaa 298,239
245,000 7.200%, 6/15/09 6/00 at 103 Aaa 270,625
250,000 City of Northampton, Massachusetts, General Obligation 3/03 at 102 Aaa 251,755
Bonds, Bank-Qualified, 5.300%, 3/01/10
190,000 Town of Northfield, Massachusetts, General Obligation 10/01 at 102 Aaa 203,617
Bonds, Municipal Purpose Loan of 1992, Bank-Qualified,
6.350%, 10/15/09
270,000 Town of Palmer, Massachusetts, General Obligation, 3/00 at 102 Aaa 298,148
School Bonds of 1990, Series A, School Project
Loan of 1948, 7.300%, 3/01/10, (Pre-refunded
to 3/01/00)
250,000 Town of Palmer, Massachusetts, General Obligation, 10/00 at 102 Aaa 282,958
School Project Loan, Act of 1948, 1990 Series B,
7.700%, 10/01/10, (Pre-refunded to 10/01/00)
1,000,000 Town of Palmer, Massachusetts, General Obligation 10/03 at 102 Aaa 1,018,100
Refunding Bonds, 5.500%, 10/01/10
440,000 Quaboag Regional School District, General Obligation 6/02 at 102 Aaa 474,298
School Bonds of 1991, Bank Qualified,
6.250%, 6/15/08
City of Salem, Massachusetts, General Obligation Bonds:
500,000 6.800%, 8/15/09 8/01 at 102 Aaa 550,910
900,000 6.000%, 7/15/10 7/02 at 102 Aaa 946,701
250,000 Town of Sandwich, Massachusetts, Unlimited Tax, 11/98 at 102 1/2 Aaa 269,320
General Obligation Bonds, 7.100%, 11/01/07
(Pre-refunded to 11/01/98)
</TABLE>
23
<PAGE>
Portfolio of Investments
Massachusetts Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
$ 515,000 Southern Berkshire Regional School District, General 4/02 at 102 Aaa $ 594,650
Obligation School Bonds, Unlimited Tax, 7.500%,
4/15/07 (Pre-refunded to 4/15/02)
1,145,000 Southern Berkshire Regional School District, Massachusetts, 4/02 at 102 Aaa 1,294,502
General Obligation School Bonds, 7.000%, 4/15/11
250,000 City of Springfield, Massachusetts, Municipal Purpose 11/98 at 103 Aaa 270,092
Loan of 1988 (General Obligation Bonds), 7.000%,
11/01/07
220,000 Taunton, Massachusetts, General Obligation Bonds, 9/01 at 103 Aaa 244,353
6.800%, 9/01/09
455,000 Town of Wareham, Massachusetts, General Obligation 1/01 at 103 Aaa 504,494
School Bonds, 7.050%, 1/15/07
250,000 City of Westfield, Massachusetts, General Obligation 12/00 at 102 Aaa 279,272
Bonds, 7.100%, 12/15/08 (Pre-refunded to 12/15/00)
215,000 Town of Whately, Massachusetts, General Obligation 1/02 at 102 Aaa 231,427
Bonds, 6.350%, 1/15/09
1,210,000 Town of Winchendon, Massachusetts, Unlimited Tax, 3/03 at 102 Aaa 1,281,377
General Obligation Bonds, 6.050%, 3/15/10
160,000 City of Worcester, Massachusetts, General Obligation 5/02 at 102 Aaa 180,711
Bonds, 6.900%, 5/15/07
1,000,000 Commonwealth of Puerto Rico, Public Improvement 7/05 at 101 1/2 Aaa 1,013,530
Bonds of 1995 (General Obligation Bonds),
5.750%, 7/01/24
2,290,000 Puerto Rico Industrial, Tourist, Educational, 1/05 at 102 Aaa 2,441,391
Medical and Environmental Control Facilities
Financing Authority, Hospital Revenue Bonds,
1995 Series A, (Hospital Auxilio Mutuo
Obligated Group Project), 6.250%, 7/01/16
- -----------------------------------------------------------------------------------------------------------------
$ 60,705,000 Total Investments -- (cost $60,459,202) -- 98.7% 64,611,187
- -----------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 1.3% 881,343
- -----------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $65,492,530
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
Nuveen Flagship Municipal Bond Fund
February 28, 1997 Annual Report
3. Distributions to Shareholders
On March 7, 1997, the Fund declared dividend distributions from its tax-exempt
net investment income which were paid on April 1, 1997, to shareholders of
record on March 7, 1997, as follows:
Nuveen Flagship
Connecticut
- --------------------------------------------------------------------------------
Dividend per share:
Class A $.0465
Class B .0400
Class C .0418
Class R .0482
================================================================================
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the nine months (8 months of Flagship Connecticut and 1 month of
Nuveen Flagship Connecticut -- see note 1) ended February 28, 1997, aggregated
$44,342,792 and $42,098,112, respectively.
At February 28, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for the Fund.
The Fund had unused capital loss carryforwards of $1,022,275 available for
federal income tax purposes to be applied against future capital gains, if any.
If not applied, the carryovers will expire on February 28, 2003.
5. Unrealized Appreciation (Depreciation)
At February 28, 1997, net unrealized appreciation aggregated $12,209,956, of
which $12,363,825 related to appreciated securities and $153,869 related to
depreciated securities.
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, the Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of the Fund:
Average daily net asset value Management fee
- --------------------------------------------------------------------------------
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 net assets over $2 billion .4750 of 1
================================================================================
- ----
25
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
Year Ended February 28, 1997
Massachusetts
Massachusetts Insured
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $79,977,931 $64,611,187
Cash 229,502 67,579
Receivables:
Interest 1,138,529 1,058,067
Shares sold 2,747 9,576
Other assets 3,421 1,150
- --------------------------------------------------------------------------------------------
Total assets 81,352,130 65,747,559
- --------------------------------------------------------------------------------------------
Liabilities
Payable for shares redeemed 1,482 -
Accrued expenses:
Management fees (note 6) 34,297 27,759
Other 35,452 27,724
Dividends payable 255,792 199,546
- --------------------------------------------------------------------------------------------
Total liabilities 327,023 255,029
- --------------------------------------------------------------------------------------------
Net assets (note 7) $81,025,107 $65,492,530
============================================================================================
Class A Shares (note 1)
Net assets $ 7,200,027 $ 7,459,247
Shares outstanding 728,151 718,558
Net asset value and redemption price per share $ 9.89 $ 10.38
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.32 $ 10.84
Class C Shares (note 1)
Net assets $ 912,849 $ 957,247
Shares outstanding 92,823 92,455
Net asset value, offering and redemption price per share $ 9.83 $ 10.35
============================================================================================
Class R Shares (note 1)
Net assets $72,912,231 $57,076,036
Shares outstanding 7,395,918 5,497,271
Net asset value, offering and redemption price per share $ 9.86 $ 10.38
============================================================================================
26 See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations Nuveen Municipal Bond Funds
Year ended February 28, 1997 February 28, 1997 Annual Report
Massachusetts
Massachusetts Insured
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $ 5,033,807 $ 3,930,898
- --------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 444,464 356,539
12b-1 service fees -- Class A (notes 1 and 6) 13,857 15,491
12b-1 distribution and service fees -- Class C (notes 1 and 6) 7,619 8,380
Shareholders' servicing agent fees and expenses 72,964 60,562
Custodian's fees and expenses 44,638 43,179
Trustees' fees and expenses (note 6) 2,104 2,596
Professional fees 16,832 22,333
Shareholders' reports -- printing and mailing expenses 28,745 16,819
Federal and state registration fees 3,770 6,128
Portfolio insurance expenses -- 4,858
Other expenses 6,206 4,818
- --------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 641,199 541,703
Expense reimbursement from investment adviser (note 6) (13,780) --
- --------------------------------------------------------------------------------------------------
Net expenses 627,419 541,703
- --------------------------------------------------------------------------------------------------
Net investment income 4,406,388 3,389,195
- --------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions
(notes 1 and 4) (167,777) 60,733
Net change in unrealized appreciation or depreciation
of investments (361,379) (798,332)
- --------------------------------------------------------------------------------------------------
Net gain (loss) from investments (529,156) (737,599)
- --------------------------------------------------------------------------------------------------
Net increase in net assets from operations $ 3,877,232 $ 2,651,596
==================================================================================================
</TABLE>
27 See accompanying notes to financial statements.
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Massachusetts
-----------------------------------------
Year ended 2/28/97 Year ended 2/29/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 4,406,388 $ 4,246,614
Net realized gain (loss) from investment transactions
(notes 1 and 4) (167,777) (217,900)
Net change in unrealized appreciation or depreciation of
investments (361,379) 3,250,694
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 3,877,232 7,279,408
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (288,715) (139,213)
Class C (34,686) (11,360)
Class R (4,012,721) (4,149,329)
- ----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,336,122) (4,299,902)
- ----------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 8,611,315 11,759,700
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 3,046,553 3,045,590
- ----------------------------------------------------------------------------------------------------------
11,657,868 14,805,290
- ----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (11,875,027) (8,865,984)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions (217,159) 5,939,306
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (676,049) 8,918,812
Net assets at the beginning of year 81,701,156 72,782,344
- ----------------------------------------------------------------------------------------------------------
Net assets at the end of year $81,025,107 $81,701,156
==========================================================================================================
Balance of undistributed net investment income at end of year $ 73,250 $ 2,984
==========================================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Massachusetts Insured
-----------------------------------------
Year ended 2/28/97 Year ended 2/29/96
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operations
Net investment income $ 3,389,195 $ 3,277,512
Net realized gain (loss) from investment transactions
(notes 1 and 4) 60,733 12,456
Net change in unrealized appreciation or depreciation of
investments (798,332) 2,682,527
- ----------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 2,651,596 5,972,495
- ----------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (315,950) (174,644)
Class C (36,606) (22,692)
Class R (3,022,773) (3,106,193)
- ----------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (3,375,329) (3,303,529)
- ----------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 5,375,981 7,343,297
Net proceeds from shares issued to shareholders due to
reinvestment of distributions 2,394,008 2,309,778
- ----------------------------------------------------------------------------------------------------------
7,769,989 9,653,075
- ----------------------------------------------------------------------------------------------------------
Cost of shares redeemed (7,653,434) (5,653,409)
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share
transactions 116,555 3,999,666
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (607,178) 6,668,632
Net assets at the beginning of year 66,099,708 59,431,076
- ----------------------------------------------------------------------------------------------------------
Net assets at the end of year $65,492,530 $66,099,708
==========================================================================================================
Balance of undistributed net investment income at end of year $ 15,371 $ 1,505
==========================================================================================================
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
Nuveen Flagship Multistate Trust II (the "Trust") is an open-end management
investment company registered under the Investment Company Act of 1940, as
amended. The Trust comprises the Nuveen Massachusetts Municipal Bond Fund
("Massachusetts") and the Nuveen Massachusetts Insured Municipal Bond Fund
("Massachusetts Insured") (collectively, the "Funds"), among others. The Trust
was organized as a Massachusetts business trust on July 1, 1996.
The John Nuveen Company, parent of John Nuveen & Co. Incorporated and Nuveen
Advisory Corp., respectively, the distributor ("Distributor") and investment
advisor ("Adviser") of the Funds, entered into an agreement under which Nuveen
acquired Flagship Resources Inc. and after the close of business on January 31,
1997, consolidated their respective mutual fund businesses. This agreement was
approved at a meeting by the shareholders of the Flagship Funds in December,
1996.
After the close of business on January 31, 1997, Massachusetts and Massachusetts
Insured were renamed and reorganized into the Trust. Prior to the
reorganization, Massachusetts (formerly Nuveen Massachusetts Tax-Free Value
Fund) was a series of the Nuveen Tax-Free Bond Fund, Inc., and Massachusetts
Insured (formerly Nuveen Massachusetts Insured Tax-Free Value Fund) was a series
of the Nuveen Insured Tax-Free Bond Fund, Inc., each an open-end diversified
management investment company.
Each Fund seeks to provide high double tax-free income and preservation of
capital through investments in diversified portfolios of quality municipal bonds
whose income is exempt from regular federal and state income taxes.
The following is a summary of significant accounting policies followed by the
Funds in the preparation of their financial statements in accordance with
generally accepted accounting principles.
Securities Valuation
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. Temporary investments in securities that have
variable rate and demand features qualifying them as short-term securities are
traded and valued at amortized cost.
Securities Transactions
Securities transactions are recorded on a trade date basis. Realized gains and
losses from such transactions are determined on the specific identification
method. Securities purchased or sold on a when-issued or delayed delivery basis
may be settled a month or more after the transaction date. Any securities so
purchased are subject to market fluctuation during this period. The Funds have
instructed the custodian to segregate assets in a separate account with a
current value at least equal to the amount of their purchase commitments. At
February 28, 1997, there were no such purchase commitments in either Fund.
30
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Interest Income
Interest income is determined on the basis of interest accrued, adjusted for
amortization of premiums and accretion of discounts on long-term debt securities
when required for federal income tax purposes.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or reinvestment is credited to shareholder accounts after month-end. Net
realized capital gains and/or market discount from investment transactions are
distributed to shareholders not less frequently than annually. Furthermore,
capital gains are distributed only to the extent they exceed available capital
loss carryovers.
Distributions to shareholders of tax-exempt net investment income, net realized
capital gains and/or market discount are recorded on the ex-dividend date. The
amount and timing of distributions are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. Accordingly, temporary over-distributions as a result of these
differences may occur and will be classified as either distributions in excess
of net investment income, distributions in excess of net realized gains and/or
distributions in excess of net ordinary taxable income from investment
transactions, where applicable.
Income Taxes
Each Fund is a separate taxpayer for federal income tax purposes. Each Fund
intends to comply with the requirements of the Internal Revenue Code applicable
to regulated investment companies and to distribute to shareholders all of its
tax-exempt net investment income, in addition to any significant amounts of net
realized capital gains and/or market discount from investment transactions. The
Funds currently consider significant net realized capital gains and/or market
discount as amounts in excess of $.001 per share. Furthermore, each Fund intends
to satisfy conditions which will enable interest from municipal securities,
which is exempt from regular federal and Massachusetts state income taxes, to
retain such tax-exempt status when distributed to the shareholders of the
respective Funds. All income dividends paid during the fiscal year ended
February 28, 1997, have been designated Exempt Interest Dividends.
Insurance
Massachusetts Insured invests in municipal securities which are either covered
by insurance or backed by an escrow or trust account containing sufficient U.S.
Government or U.S. Government agency securities, both of which ensure the timely
payment of principal and interest. Each insured municipal security is covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
Such insurance does not guarantee the market value of the municipal securities
or the value of the Fund's shares. Original Issue Insurance and Secondary Market
Insurance remain in effect as long as the municipal securities covered thereby
remain outstanding and the insurer remains in business, regardless of whether
the Fund ultimately disposes of such municipal securities. Consequently, the
market value of the municipal securities covered by Original Issue Insurance or
Secondary Market Insurance may reflect value attributable to the insurance.
Portfolio Insurance is effective only while the municipal securities are held by
the Fund. Accordingly, neither the prices used in determining the market value
of the underlying municipal securities nor the net asset value of the Fund's
shares include value, if any, attributable to the Portfolio Insurance. Each
policy
31
<PAGE>
Notes to Financial Statements -- continued
of the Portfolio Insurance does, however, give the Fund the right to obtain
permanent insurance with respect to the municipal security covered by the
Portfolio Insurance policy at the time of its sale.
Flexible Sales Charge Program
Each Fund of the Trust offers Class A, Class B, Class C and Class R Shares.
Class A Shares incur a sales charge on purchases and an annual 12b-1 service
fee. Class B Shares are sold without a sales charge on purchases but incur
annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a contingent deferred sales charge ("CDSC") of up to 5%
depending upon the length of time the shares are held (CDSC is reduced to 0% at
the end of six years). Class B Shares were first offered for sale on February 1,
1997, however, none were issued and outstanding on February 28. 1997. Class C
Shares are sold without a sales charge on purchases, but incur annual 12b-1
distribution and service fees. An investor purchasing Class C Shares agrees to
pay a CDSC of 1% if Class C Shares are redeemed within 18 months of purchase.
Class R Shares are not subject to any sales charge on purchases or 12b-1
distribution or service fees. Class R Shares are available for purchases of over
$1 million and in other limited circumstances.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 28, 1997.
Expense Allocation
Expenses of each Fund that are not directly attributable to a specific class of
shares are prorated among the classes based on the relative net assets of each
class. Expenses directly attributable to a class of shares are recorded to the
specific class.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period.
32
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Massachusetts
-------------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
-------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 323,756 $ 3,174,573 356,285 $ 3,487,963
Class C 32,272 315,377 51,779 510,754
Class R 525,051 5,121,365 795,556 7,760,983
Shares issued to shareholders due to
reinvestment of distributions:
Class A 17,984 176,955 7,663 75,540
Class C 2,778 27,179 775 7,603
Class R 289,935 2,842,419 303,251 2,962,447
- --------------------------------------------------------------------------------------------------------
1,191,776 11,657,868 1,515,309 14,805,290
- --------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (45,026) (439,590) (44,057) (436,265)
Class C (6,752) (65,787) (3,523) (33,924)
Class R (1,162,473) (11,369,650) (857,146) (8,395,795)
- --------------------------------------------------------------------------------------------------------
(1,214,251) (11,875,027) (904,726) (8,865,984)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) (22,475) $ (217,159) 610,583 $ 5,939,306
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Massachusetts Insured
-------------------------------------------------------
Year ended Year ended
2/28/97 2/29/96
-------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 288,422 $ 2,958,175 339,891 $ 3,509,564
Class C 26,046 266,579 34,914 359,914
Class R 209,279 2,151,227 337,797 3,473,819
Shares issued to shareholders due to
reinvestment of distributions:
Class A 17,939 185,295 10,031 104,279
Class C 3,250 33,462 1,987 20,520
Class R 210,641 2,175,251 211,766 2,184,979
- --------------------------------------------------------------------------------------------------------
755,577 7,769,989 936,386 9,653,075
- --------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (91,941) (944,427) (40,197) (415,735)
Class C (4,296) (43,930) (3,095) (32,222)
Class R (646,782) (6,665,077) (503,288) (5,205,452)
- --------------------------------------------------------------------------------------------------------
(743,019) (7,653,434) (546,580) (5,653,409)
- --------------------------------------------------------------------------------------------------------
Net increase (decrease) 12,558 $ 116,555 389,806 $ 3,999,666
========================================================================================================
</TABLE>
33
<PAGE>
Notes to Financial Statements -- continued
3. Distributions to Shareholders
On March 7, 1997, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid on April 1, 1997, to shareholders
of record on March 7, 1997, as follows:
<TABLE>
<CAPTION>
Massachusetts Massachusetts Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0425 $.0435
Class B .0365 .0370
Class C .0380 .0385
Class R .0440 .0450
===============================================================================
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended
February 28, 1997, were as follows:
<TABLE>
<CAPTION>
Massachusetts Massachusetts Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Purchases
Investments in municipal securities $ 9,997,786 $7,890,010
Temporary municipal investments 7,500,000 5,900,000
Sales
Investments in municipal securities 7,541,775 6,237,884
Temporary municipal investments 10,100,000 7,400,000
===============================================================================
</TABLE>
At February 28, 1997, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes
for each Fund.
At February 28, 1997, the Funds had unused capital loss carryforwards available
for federal income tax purposes to be applied against future capital gains, if
any. If not applied, the carryovers will expire as follows:
<TABLE>
<CAPTION>
Massachusetts Massachusetts Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Expiration Year:
1999 $ - $ 17,645
2003 275,030 172,689
2004 507,247 27,409
2005 156,261 -
- -------------------------------------------------------------------------------
Total $938,538 $217,743
===============================================================================
</TABLE>
34
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1997, were as follows:
Massachusetts Massachusetts Insured
- ------------------------------------------------------------------------------
Gross unrealized:
appreciation $5,164,904 $4,151,985
depreciation (21,674) -
- -----------------------------------------------------------------------------
Net unrealized appreciation $5,143,230 $4,151,985
- -----------------------------------------------------------------------------
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net asset value of each Fund:
Average daily net asset value Management fee
- ------------------------------------------------------------------
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 net assets over $2 billion .4750 of 1
- ------------------------------------------------------------------
The Adviser has agreed to waive part of its management fees or reimburse certain
expenses of each Fund in order to limit total expenses to .75 of 1% of the
average daily net assets value of Massachusetts and .975 of 1% of the average
daily net asset value of Massachusetts Insured, excluding any 12b-1 fees
applicable to Class A, Class B and Class C Shares. The Adviser may also
voluntarily agree to reimburse additional expenses from time to time, which may
be terminated at any time at its discretion.
The management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to its Trustees who are affiliated with the Adviser or to
its officers, all of whom receive remuneration for their services to the Trust
from the Adviser.
The Distributor collected sales charges of approximately $107,000 and $79,100,
for Massachusetts and Massachusetts Insured, respectively, on Class A share
purchases, of which approximately $98,300 and $68,000, respectively, were paid
out as concessions to authorized dealers. The Distributor also received 12b-1
service fees on Class A shares, substantially all of which were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments.
During the fiscal year ended February 28, 1997, the Distributor compensated
authorized dealers directly with approximately $200 for Massachusetts and $300
for Massachusetts Insured in commission advances on Class C share sales. Class C
shares purchased are subject to a CDSC if the shares are redeemed within a
specified period of purchase. Effective February 1, 1997, any such CDSC is to be
retained by the Distributor to compensate for commissions advanced to authorized
dealers. During the month ended February 28, 1997, no such CDSC was collected or
retained by the
35
<PAGE>
Notes to Financial Statements -- continued
Distributor. Also effective February 1, 1997, all 12b-1 service and distribution
fees on Class C shares during the first year following a purchase are retained
by the Distributor to compensate for commissions advanced to authorized dealers.
Accordingly, for the one month ended February 28, 1997, the Distributor received
and retained all 12b-1 service and distribution fees on Class C shares. The
12b-1 service and distribution fees on Class C shares received by the
Distributor for the eleven months ended January 31, 1997, were substantially all
paid to compensate authorized dealers for providing services to shareholders
relating to their investments.
7. Composition of Net Assets
At February 28, 1997, each Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
Massachusetts Massachusetts Insured
- -------------------------------------------------------------------------------
Capital paid-in $76,764,929 $61,542,917
Balance of undistributed net
investment income 73,250 15,371
Accumulated net realized gain (loss)
from investment transactions (956,302) (217,743)
Net unrealized appreciation
of investments 5,143,230 4,151,985
- -------------------------------------------------------------------------------
Net assets $81,025,107 $65,492,530
- -------------------------------------------------------------------------------
36
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
8. Investment Composition
Each Fund invests in municipal securities which include general obligation,
escrowed and revenue bonds. At February 28, 1997, the revenue sources by
municipal purpose for these investments, expressed as a percent of total
investments, were as follows:
<TABLE>
<CAPTION>
Massachusetts Massachusetts Insured
- -------------------------------------------------------------------------------
<S> <C> <C>
Revenue Bonds:
Health Care Facilities 19% 20%
Educational Facilities 13 20
Housing Facilities 20 2
Other 2 2
General Obligation Bonds 21 37
Escrowed Bonds 25 19
- -------------------------------------------------------------------------------
100% 100%
- -------------------------------------------------------------------------------
</TABLE>
Certain long-term and intermediate-term investments owned by the Funds are
either covered by insurance issued by several private insurers or are backed by
an escrow or trust containing U.S. Government or U.S. Government agency
securities, either of which ensure the timely payment of principal and interest
in the event of default (43% for Massachusetts and 100% for Massachusetts
Insured). Such insurance or escrow, however, does not guarantee the market value
of the municipal securities or the value of any of the Funds' shares (see note
1).
For additional information regarding each investment security, refer to the
Portfolio of Investments of each Fund.
37
<PAGE>
Financial Highlights
<TABLE>
<CAPTION>
Selected data for a share outstanding throughout each period is as follows:
Operating Performance Less Distributions
--------------------- ------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
MASSACHUSETTS of period income++ investments income gains Period value+
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended,
2/28/97 $9.940 $.528 $(.073) $(.505) $ --- $9.890 4.73%
2/29/96 9.560 .513 .388 (.521) --- 9.940 9.62
9/6/94 to 2/28/95 9.540 .254 .025 (.259) --- 9.560 3.05
Class C
Year ended,
2/28/97 9.890 .451 (.077) (.434) --- 9.830 3.90
2/29/96 9.510 .437 .392 (.449) --- 9.890 8.87
10/5/94 to 2/28/95 9.280 .188 .254 (.212) --- 9.510 4.86
Class R
Year ended,
2/28/97 9.910 .538 (.060) (.528) --- 9.860 4.99
2/29/96 9.540 .537 .378 (.545) --- 9.910 9.80
2/28/95 9.940 .541 (.403) (.538) --- 9.540 1.64
2/28/94 9.910 .543 .038 (.541) (.010) 9.940 5.96
2/28/93 9.210 .563 .704 (.563) (.004) 9.910 14.21
3 months ended, 2/29/92 9.130 .146 .077 (.143) --- 9.210 2.44
Year ended,
11/30/91 8.760 .577 .375 (.582) --- 9.130 11.19
11/30/90 8.900 .587 (.144) (.583) --- 8.760 5.21
11/30/89 8.600 .587 .300 (.587) --- 8.900 10.62
11/30/88 8.250 .581 .350 (.581) --- 8.600 11.56
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See notes on page 40.
38
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- -----------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7,200 1.01% 5.22% .99% 5.24% 10%
4,290 1.17 5.04 1.00 5.21 6
1,067 1.87* 4.88* 1.00* 5.75* 17
913 1.74 4.50 1.73 4.51 10
638 2.24 3.96 1.75 4.45 6
147 3.40* 3.46* 1.75* 5.11* 17
72,912 .77 5.46 .75 5.48 10
76,773 .82 5.42 .75 5.49 6
71,568 .77 5.75 .75 5.77 17
71,942 .81 5.32 .75 5.38 3
53,231 .87 5.79 .75 5.91 5
34,470 .71* 6.31* .71* 6.31* 5
31,150 .77 6.37 .75 6.39 19
20,829 .85 6.58 .75 6.68 23
15,513 1.09 6.30 .75 6.64 31
9,485 1.24 6.25 .75 6.74 55
- -----------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
Financial Highlights - continued
<TABLE>
<CAPTION>
Operating Performance Less Distributions
--------------------------- -----------------------------
Net
Net realized and Dividends Net Total
asset unrealized from tax asset return
value Net gain (loss) exempt net Distributions value on net
beginning investment from investment from capital end of asset
MASSACHUSETTS INSURED of period income++ investments income gains period value+
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
Year ended, $ 10.490 $.527 $(.120) $(.517) $ - $ 10.380 4.02%
2/28/97 10.060 .512 .433 (.515) - 10.490 9.59
2/29/97 10.030 .249 .039 (.258) - 10.060 2.99
9/6/94 to 2/28/95
Class C
Year ended,
2/28/97 10.470 .449 (.129) (.440) - 10.350 3.17
2/29/96 10.040 .434 .435 (.439) - 10.470 8.80
9/12/94 to 2/28/95 9.910 .202 .137 (.209) - 10.040 3.52
Class R
Year ended
2/28/97 10.500 .544 (.124) (.540) - 10.380 4.16
2/29/96 10.060 .538 .445 (.543) - 10.500 9.99
2/28/95 10.450 .545 .386 (.549) - 10.060 1.77
2/28/94 10.440 .537 - (.527) - 10.450 5.22
2/28/93 9.650 .551 .784 (.545) - 10.440 14.28
2/29/92 9.360 .570 .301 (.581) - 9.650 9.57
2/28/91 9.140 .568 .219 (.567) - 9.360 8.95
2/28/90 8.960 .571 .178 (.569) - 9.140 8.52
2/28/89 9.030 .576 (.070) (.576) - 8.960 5.84
2/29/88 9.540 .582 (.510) (.582) - 9.030 1.14
====================================================================================================================================
* Annualized.
+ Total Return on Net Asset Value is the combination of reinvested dividend
income, reinvested capital gains distributions, if any, and changes in net
asset value per share. The total returns shown for Class A Shares do not
include the effect of applicable sales charge on purchases. The total
returns shown for Class C Shares do not include the effect of applicable
contingent deferred sales charges. Class R Shares are not subject to any
sales charge on purchases or contingent deferred sales charges.
++ Reflects the waiver of certain management fees and reimbursement of certain
other expenses by the Adviser, if applicable (see note 6 of the Notes to
Financial Statements).
40
</TABLE>
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
<TABLE>
<CAPTION>
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
Ratio Ratio
of net of net
Ratio of investment Ratio of investment
expenses income to expenses income to
to average average to average average
net assets net assets net assets net assets
Net assets before before after after Portfolio
end of period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment++ ment++ rate
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 7,459 1.04% 5.02% 104% 5.02% 10%
5,291 1.09 4.92 1.07 4.94 1
1,956 1.36* 5.13* 1.15* 5.34* 10
957 1.78 4.29 1.78 4.29 10
706 1.81 4.20 1.81 4.20 1
338 2.07* 4.41* 1.90* 4.58* 10
57,076 .80 5.26 .80 5.26 10
60,102 .81 5.21 .81 5.21 1
57,137 .79 5.54 .79 5.54 10
58,255 .84 5.09 .84 5.09 3
47,098 .86 5.47 .86 5.47 2
28,189 .72 5.93 .72 5.93 5
15,625 .85 6.19 .85 6.19 6
8,649 1.20 5.94 .97 6.17 15
5,404 1.87 5.54 .97 6.44 41
4,895 1.75 5.37 .59 6.53 42
- --------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
Report of Independent Public Accountants
To the Board of Trustees and Shareholders of
Nuveen Flagship Multistate Trust II:
We have audited the accompanying statement of net assets of Nuveen Flagship
Multistate Trust II (comprising the Nuveen Massachusetts and Massachusetts
Insured Municipal Bond Funds) (a Massachusetts business trust), including the
portfolios of investments, as of February 28, 1997, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended and the financial highlights
for the periods indicated thereon. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and the financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
February 28, 1997, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the net assets of each of the
respective funds constituting the Nuveen Flagship Multistate Trust II, as of
February 28, 1997, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods indicated thereon in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 11, 1997
42
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Shareholder Meeting Report
Massachusetts
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------
Election of the Fund's
Board of Directors
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Bremner For 476,409 63,314 5,088,135
Withhold 4,499 -- 104,687
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(B) Brown For 476,409 63,314 5,092,823
Withhold 4,499 -- 99,999
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(C) Dean For 476,409 63,314 5,092,823
Withhold 4,499 -- 99,999
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(D) Impellizzeri For 476,409 63,314 5,091,322
Withhold 4,499 -- 101,500
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(E) Rosenheim For 476,409 63,314 5,085,392
Withhold 4,499 -- 107,430
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(F) Sawers For 476,409 63,314 5,092,823
Withhold 4,499 -- 99,999
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(G) Schneider For 476,409 63,314 5,088,135
Withhold 4,499 -- 104,687
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
(H) Schwertfeger For 476,409 63,314 5,092,823
Withhold 4,499 -- 99,999
------------------------------------------------------
Total 480,908 63,314 5,192,822
- --------------------------------------------------------------------------------
Div vs. Non-Div For 305,953 55,354 4,379,770
Against 9,017 291 150,934
Abstain 32,612 5,536 236,021
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
- --------------------------------------------------------------------------------
AMT Bonds For 304,223 52,197 4,185,267
Against 1,941 5,536 273,576
Abstain 41,418 3,448 307,882
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
------------------------------------------------------
</TABLE>
43
<PAGE>
Shareholder Meeting Report
Massachusetts -- continued
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Grade For 315,887 59,857 4,411,039
Against 2,276 -- 78,933
Abstain 29,419 1,324 276,753
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
- --------------------------------------------------------------------------------
Illiquid Securities For 285,440 52,197 3,958,641
Against 19,926 5,536 458,823
Abstain 42,216 3,448 349,261
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,067
- --------------------------------------------------------------------------------
Unseasoned Issuers For 298,882 54,321 3,982,363
Against 10,316 5,536 324,293
Abstain 38,384 1,324 460,069
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
- --------------------------------------------------------------------------------
Average Maturity For 306,129 59,857 4,393,301
Against 178 -- 57,952
Abstain 41,275 1,324 315,472
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
- --------------------------------------------------------------------------------
Temporary Investments For 300,638 59,857 4,296,326
Against 2,784 -- 135,716
Abstain 44,160 1,324 334,383
------------------------------------------------------
Total 347,582 61,181 4,766,425
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,397
- --------------------------------------------------------------------------------
Single Bank Limits For 299,388 54,321 4,132,821
Against 2,038 -- 273,335
Abstain 46,156 6,860 360,269
------------------------------------------------------
Total 347,582 61,181 4,766,425
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,397
- --------------------------------------------------------------------------------
Reorganization For 310,281 60,890 4,419,155
Against 1,818 -- 73,301
Abstain 35,483 291 274,269
------------------------------------------------------
Total 347,582 61,181 4,766,725
- --------------------------------------------------------------------------------
Broker Non Votes 133,326 2,133 426,097
------------------------------------------------------
</TABLE>
44
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Shareholder Meeting Report
Massachusetts Insured
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------
Election of the Fund's
Board of Directors
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
(A) Bremner For 447,354 47,619 3,591,154
Withhold 1,954 -- 104,096
------------------------------------------------------
Total 449,308 47,619 3,965,250
- --------------------------------------------------------------------------------
(B) Brown For 449,283 47,619 3,600,977
Withhold 25 -- 94,273
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(C) Dean For 449,283 47,619 3,600,977
Withhold 25 -- 94,273
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(D) Impellizzeri For 447,354 47,619 3,591,154
Withhold 1,954 -- 104,096
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(E) Rosenheim For 449,283 47,619 3,600,977
Withhold 25 -- 94,273
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(F) Sawers For 449,283 47,619 3,600,977
Withhold 25 -- 94,273
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(G) Schneider For 447,354 47,619 3,591,154
Withhold 1,954 -- 104,096
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
(H) Schwertfeger For 449,283 47,619 3,600,253
Withhold 25 -- 94,997
------------------------------------------------------
Total 449,308 47,619 3,695,250
- --------------------------------------------------------------------------------
Div vs. Non-Div For 346,271 43,509 2,730,275
Against 9,759 1,975 268,330
Abstain 6,309 2,015 190,626
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
AMT Bonds For 341,255 47,499 2,732,303
Against 1,853 -- 212,712
Abstain 19,231 -- 244,216
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
------------------------------------------------------
</TABLE>
45
<PAGE>
Shareholder Meeting Report
Massachusetts Insured -- continued
<TABLE>
<CAPTION>
A Shares C Shares R Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment Grade For 348,019 45,236 2,827,878
Against 1,140 2,263 144,318
Abstain 13,180 -- 217,035
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Illiquid Securities For 330,225 46,501 2,615,512
Against 12,305 998 295,493
Abstain 19,809 -- 278,226
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Unseasoned Issuers For 323,061 45,524 2,606,584
Against 19,112 1,975 307,384
Abstain 20,166 -- 275,263
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Average Maturity For 343,769 47,499 2,797,573
Against 8,773 -- 138,445
Abstain 9,797 -- 253,213
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Temporary Investments For 334,348 45,236 2,725,729
Against 8,435 1,265 213,371
Abstain 19,556 998 250,131
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Single Bank Limits For 333,305 44,259 2,672,286
Against 10,365 3,240 237,709
Abstain 18,669 -- 279,236
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
- --------------------------------------------------------------------------------
Reorganization For 349,505 47,499 2,897,403
Against 6,626 -- 117,171
Abstain 6,208 -- 174,657
------------------------------------------------------
Total 362,339 47,499 3,189,231
- --------------------------------------------------------------------------------
Broker Non Votes 86,969 120 506,019
------------------------------------------------------
</TABLE>
46
<PAGE>
Nuveen Municipal Bond Funds
February 28, 1997 Annual Report
Shareholder Information
Nuveen Family of Mutual Funds
Nuveen offers a variety of funds designed to help you reach your financial
goals. The funds below are grouped by investment objectives.
Growth and Income Funds
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Municipal Bond Funds
National Funds/1/
State Funds
Alabama Michigan
Arizona Missouri
California/2/ New Jersey/3/
Colorado New Mexico
Connecticut New York/2/
Florida/3/ North Carolina
Georgia Ohio
Kansas Pennsylvania
Kentucky/4/ South Carolina
Louisiana Tennessee
Maryland Virginia
Massachusetts/2/ Wisconsin
1. Long-term, insured long-term, intermediate-term
and limited-term portfolios.
2. Long-term and insured long-term portfolios.
3. Long-term and intermediate-term portfolios.
4. Long-term and limited-term portfolios.
To purchase additional shares of your Nuveen Municipal Bond Fund, contact your
financial adviser. If you would like to add to your current investment on a
monthly or semi-annual basis, you can sign up for Nuveen's systematic investing
program, which allows you to invest a fixed dollar amount every month
automatically.
You can also invest automatically through dividend reinvestment. By reinvesting
your fund's dividends back into the fund, you gain the added growth potential of
long-term compounding.
For more information on any of these service options call your adviser, or
Nuveen at (800) 621-7227.
47
<PAGE>
Fund Information
BOARD OF DIRECTORS
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Margaret K. Rosenheim
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
FUND MANAGER
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
CUSTODIAN
The Chase Manhattan Bank
4 New York Plaza
New York, NY 10004-2413
TRANSFER AGENT,
SHAREHOLDER SERVICES AND
DIVIDEND DISBURSING AGENT
Shareholder Services, Inc.
Nuveen Investor Services
P.O. Box 5330
Denver, CO 80217-5330
(800) 621-7227
LEGAL COUNSEL
Fried, Frank, Harris, Shriver
& Jacobson
Washington, D.C.
PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Chicago, Illinois
48
<PAGE>
Serving Investors
for Generations
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a broad range of
investments designed for mature investors whose portfolios are the principal
source of their ongoing financial security. More than 1.3 million investors have
entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
A value investing approach -- purchasing securities of strong companies and
communities that represent good long-term value -- is the cornerstone of
Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
investing begins with in-depth research and a discerning eye for marketplace
opportunity. Nuveen's team of investment professionals is backed by the
discipline, resources and expertise of almost a century of investment
experience, including one of the most recognized research departments in the
industry.
To meet the unique circumstances and financial planning needs of mature
investors, Nuveen offers a wide array of taxable and tax-free investment
products -- including equity and fixed-income mutual funds, unit trusts,
exchange-traded funds, individual managed account services, and cash management
products.
To find out more about how Nuveen investment products and services can help you
preserve your financial security, talk with your financial adviser, or call us
at (800) 621-7227 for more information, including a prospectus where applicable.
Please read that information carefully before you invest.
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227
<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. Filed as Exhibit 1(a) to Regis-
trant's Registration Statement on Form N-1A (File No. 333-14729) and
incorporated herein by reference thereto.
1(b). Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest dated October 11, 1996. Filed as Ex-
hibit 1(b) to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
1(c). Certificate for the Establishment and Designation of Classes dated
July 10, 1996. Filed as Exhibit 1(c) to Registrant's Registration
Statement on Form N-1A (File No. 333-14729) and incorporated herein
by reference thereto.
2. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Registra-
tion Statement on Form N-1A (File No. 333-14729) and incorporated
herein by reference thereto.
3. Not applicable.
4. Specimen certificates of Shares of each Fund. Filed as Exhibit 4 to
Registrant's Registration Statement on Form N-1A (File No. 333-14729)
and incorporated herein by reference thereto.
5. Investment Management Agreement between Registrant and Nuveen Advi-
sory Corp.
5(a). Renewal of Investment Management Agreement dated May 20, 1997.
6. Distribution Agreement between Registrant and John Nuveen & Co. In-
corporated.
7. Not applicable.
8. Custodian Agreement between Registrant and Chase Manhattan Bank.
9(a). Transfer Agency and Service Agreement between Registrant and State
Street Bank and Trust Company.
9(b). Transfer Agency Agreement between Registrant and Shareholder Servic-
es, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11(a). Consent of Arthur Andersen LLP, Independent Public Accountants.
11(b). Consent of Deloitte & Touche, Independent Public Accountants.
12. Not applicable.
13. Not applicable.
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. Filed as
Exhibit 15 to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Exhibit 18
to Registrant's Registration Statement on Form N-1A (File No. 333-
14729) and incorporated herein by reference thereto.
99(a). Original Powers of Attorney for the Trustees authorizing, among oth-
ers, Gifford R. Zimmerman and Larry W. Martin to execute the Regis-
tration 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. Filed as Ex-
hibit 99(b) to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
At June 3, 1997:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Flagship New York Municipal Bond Fund
<S> <C>
Class A Shares......................................... 1,735
Class B Shares......................................... 20
Class C Shares......................................... 90
Class R Shares......................................... 4,888
Nuveen New York Insured Municipal Bond Fund
Class A Shares......................................... 1,629
Class B Shares......................................... 17
Class C Shares......................................... 75
Class R Shares......................................... 8,847
Nuveen Flagship New Jersey Municipal Bond Fund
Class A Shares......................................... 1,280
Class B Shares......................................... 14
Class C Shares......................................... 130
Class R Shares......................................... 1,903
Nuveen Flagship New Jersey Intermediate Municipal Bond
Fund
Class A Shares......................................... 179
Class C Shares......................................... 2
Class R Shares......................................... 5
Nuveen California Municipal Bond Fund
Class A Shares......................................... 882
Class B Shares......................................... 7
Class C Shares......................................... 42
Class R Shares......................................... 4,941
Nuveen California Insured Municipal Bond Fund
Class A Shares......................................... 1,052
Class B Shares......................................... 13
Class C Shares......................................... 74
Class R Shares......................................... 4,386
Nuveen Flagship Connecticut Municipal Bond Fund
Class A Shares......................................... 3,909
Class B Shares......................................... 15
Class C Shares......................................... 191
Class R Shares......................................... 8
Nuveen Massachusetts Municipal Bond Fund
Class A Shares......................................... 540
Class B Shares......................................... 3
Class C Shares......................................... 41
Class R Shares......................................... 2,504
Nuveen Massachusetts Insured Municipal Bond Fund
Class A Shares......................................... 436
Class B Shares......................................... 4
Class C Shares......................................... 26
Class R Shares......................................... 1,855
</TABLE>
C-2
<PAGE>
ITEM 27: INDEMNIFICATION
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 Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. 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 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 and Director 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 President and 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 Flagship
Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., and Nuveen Investment Trust.
Nuveen also acts as depositor and principal underwriter of the Nuveen Tax-
Exempt Unit Trust, and Nuveen Unit Trusts, registered unit investment trusts.
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 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 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, 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 and Director President and Trustee
333 West Wacker Drive
Chicago, IL 60606
Bruce P. Bedford Executive Vice President None
333 West 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
Richard P. Davis Vice President None
One South Main Street
Dayton, OH 45402
Clifton L. Fenton Vice President None
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>
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, IL 60606
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
19900 MacArthur Blvd.
Irvine, CA 92612
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
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, 4 New York Plaza, New York, New York 10004 maintains
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.
(d) The Registrant agrees to call a meeting of shareholders for the purpose of
voting upon the question of the removal of any trustee or trustees when re-
quested to do so in writing by the record holders of at least 10% of the Reg-
istrant's outstanding shares and to assist the shareholders in communications
with other shareholders as required by section 16(c) of the Act.
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 26TH DAY OF
JUNE, 1997.
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 June 26, 1997
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board )
and Trustee (Principal )
Executive Officer) )
)
Anthony T. Dean President and Trustee ) /s/ Gifford R. Zimmerman
} By____________________________
Lawrence H. Brown Trustee ) Gifford R. Zimmerman
) Attorney-in-Fact
Anne E. Impellizzeri Trustee )
) June 26, 1997
Margaret K. Rosenheim Trustee )
)
Peter R. Sawers Trustee )
Robert P. Bremner Trustee
William J. Schneider Trustee
</TABLE>
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, GIFFORD R. ZIMMERMAN
AND LARRY W. MARTIN 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 FILED AS AN
EXHIBIT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
5. Investment Management Agreement between Registrant
and Nuveen Advisory Corp.
5(a). Renewal of Investment Management Agreement dated May
20, 1997.
6. Distribution Agreement between Registrant and John
Nuveen & Co. Incorporated.
8. Custodian Agreement between Registrant and Chase Man-
hattan Bank.
9(a). Transfer Agency and Service Agreement between Regis-
trant and State Street Bank and Trust Company.
9(b). Transfer Agency Agreement between Registrant and
Shareholder Services, Inc.
10. Opinion of Fried, Frank, Harris, Shriver & Jacobson.
11(a). Consent of Arthur Andersen LLP, Independent Public
Accountants.
11(b). Consent of Deloitte & Touche LLP, Independent Public
Accountants.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
99(a). Original Powers of Attorney for the Trustees autho-
rizing, among others, Gifford R. Zimmerman and Larry
W. Martin 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.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
<PAGE>
Exhibit 5
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
AGREEMENT made as of the 1st day of February, 1997, by and between NUVEEN
FLAGSHIP MULTISTATE TRUST II, a Massachusetts business trust (the "Fund"), and
NUVEEN ADVISORY CORP., a Delaware corporation (the "Adviser").
WITNESSETH
----------
In consideration of the mutual covenants hereinafter contained, it is hereby
agreed by and between the parties hereto as follows:
1. The Fund hereby employs the Adviser to act as the investment adviser for, and
to manage the investment and reinvestment of the assets of each of the Fund's
series as set forth on Exhibit A attached hereto (the "Portfolios") or as may
exist from time to time in accordance with the Fund's investment objective and
policies and limitations relating to such Portfolio, and to administer the
Fund's affairs to the extent requested by and subject to the supervision of the
Board of Trustees of the Fund for the period and upon the terms herein set
forth. The investment of the assets of each Portfolio shall be subject to the
Fund's policies, restrictions and limitations with respect to securities
investments as set forth in the Fund's registration statement on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 covering the
Fund's Portfolios' shares of beneficial interest, including the Prospectus and
Statement of Additional Information forming a part thereof, all as filed with
the Securities and Exchange Commission and as from time to time amended, and all
applicable laws and the
<PAGE>
regulations of the Securities and Exchange Commission relating to the management
of registered open-end, management investment companies.
The Adviser accepts such employment and agrees during such period to render such
services, to furnish office facilities and equipment and clerical, bookkeeping
and administrative services (other than such services, if any, provided by the
Fund's custodian, transfer agent and shareholder service agent, and the like)
for the Fund, to permit any of its officers or employees to serve without
compensation as trustees or officers of the Fund if elected to such positions,
and to assume the obligations herein set forth for the compensation herein
provided. The Adviser shall, for all purposes herein provided, be deemed to be
an independent contractor and, unless otherwise expressly provided or
authorized, shall have no authority to act for nor represent the Fund in any
way, nor otherwise be deemed an agent of the Fund.
2. For the services and facilities described in Section 1, the Fund will pay to
the Adviser, at the end of each calendar month, an investment management fee
related to each of the Fund's Portfolios. For each Portfolio, calculated
separately, the fees shall be computed at the rate of:
Rate Net Assets
------ ----------
.5500% For the first $125 million
.5375% For the next $125 million
.5250% For the next $250 million
.5125% For the next $500 million
.5000% For the next $1 billion
.4750% For assets over $2 billion
2
<PAGE>
For the month and year in which this Agreement becomes effective, or terminates,
and for any month and year in which a Portfolio is added or eliminated from the
Fund, there shall be an appropriate proration on the basis of the number of days
that the Agreement shall have been in effect, or the Portfolio shall have
existed, during the month and year, respectively. The services of the Adviser to
the Fund under this Agreement are not to be deemed exclusive, and the Adviser
shall be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
3. In addition to the services and facilities described in Section 1, the
Adviser shall assume and pay, but only to the extent hereinafter provided, the
following expenses related to the Nuveen California Municipal Bond Fund, Nuveen
California Insured Municipal Bond Fund, Nuveen Massachusetts Municipal Bond
Fund, Nuveen Massachusetts Insured Municipal Bond Fund, Nuveen Flagship New York
Municipal Bond Fund and Nuveen New York Insured Municipal Bond Fund Portfolios
only: (x) any expenses for services rendered by a custodian for the safekeeping
of those Portfolio's securities or property, for keeping its books of account,
for calculating the net asset value of the Portfolios as provided in the
Declaration of Trust of the Fund, and any other charges of the custodian; and
(y) the cost and expenses of the Portfolios; operations, including compensation
of the trustees, transfer, dividend disbursing and shareholder service agent
expenses, legal fees, expenses of independent accountants, costs of share
certificates, expenses of preparing, printing and distributing reports to
shareholders and governmental agencies, and all fees payable to Federal, State,
or other governmental agencies on account of the registration of securities
issued by the Portfolios, filing of corporate
3
<PAGE>
documents or otherwise. Notwithstanding the foregoing, the Adviser shall not be
obligated to assume or pay interest, taxes, fees incurred in acquiring and
disposing of portfolio securities or extraordinary expenses of the Portfolios.
The Portfolios shall not incur any obligation for management or administrative
expenses which the Portfolio intends the Adviser to assume and pay hereunder
without first obtaining the written approval of the Adviser.
The foregoing enumerated expenses for the Nuveen California Municipal Bond
Fund, Nuveen California Insured Municipal Bond Fund, Nuveen Massachusetts
Municipal Bond Fund, Nuveen Massachusetts Insured Municipal Bond Fund, Nuveen
Flagship New York Municipal Bond Fund and Nuveen New York Insured Municipal Bond
Fund Portfolios are hereby assumed by the Adviser to the extent they, together
with the Adviser's fee payable hereunder (but excluding interest, taxes, fees
incurred in acquiring and disposing of portfolio securities and extraordinary
expenses), exceed during any fiscal year: (a) .75 of 1% of each Portfolio's
average net assets for such year for Nuveen California Municipal Bond Fund,
Nuveen Massachusetts Municipal Bond Fund and Nuveen Flagship New York Municipal
Bond Fund; or (b) .975 of 1% of each Portfolio's average net assets for such
year for Nuveen California Insured Municipal Bond Fund, Nuveen Massachusetts
Insured Municipal Bond Fund and Nuveen New York Insured Municipal Bond Fund. To
the extent they do not exceed such percentages, such expenses shall be properly
chargeable to those Portfolios. If, at the end of any month, the expenses of the
Portfolios properly chargeable to the income account on a year-to-date basis
shall exceed the appropriate percentage of average new assets, the payment to
the Adviser for that month shall be reduced and, if necessary, the Adviser shall
assume and
4
<PAGE>
pay expenses pursuant hereto so that the total year-to-date net expense will not
exceed such percentage. As of the end of the Portfolios' fiscal year the
foregoing computation and assumption of expenses shall be readjusted, if
necessary, so that the expenses assumed and paid by the Adviser, if any, are
such, and the aggregate compensation payable to the Adviser related to each
Portfolio for the year, (otherwise equal to the percentage set forth in Section
2 hereof of the average net asset value as determined and described herein
throughout the fiscal year) is diminished as may be necessary, so that the total
amount of expenses of each Portfolio borne by the Fund shall not exceed the
applicable expense limitation.
The net asset value of each Portfolio shall be calculated as provided in the
Declaration of Trust of the Fund. On each day when net asset value is not
calculated, the net asset value of a share of beneficial interest of a Portfolio
shall be deemed to be the net asset value of such share as of the close of
business on the last day on which such calculation was made for the purpose of
the foregoing computations.
4. Regardless of any of the above provisions, the Adviser guarantees that the
total expenses of each Portfolio in any fiscal year, exclusive of taxes,
interest, brokerage commissions, and extraordinary expenses such as litigation
costs, shall not exceed, and the Adviser undertakes to pay or refund to the
Portfolio any amount up to but not greater than the aggregate fees received by
the Adviser under this Agreement for such fiscal year, the limitation imposed by
any jurisdiction in which the Fund continues to offer and sell shares of the
Portfolio after exceeding such limitation. Except as otherwise agreed to by the
Fund or the Adviser or unless otherwise
5
<PAGE>
required by the law or regulation of any state, any reimbursement by the Adviser
to a Portfolio under this section shall not exceed the management fee payable to
the Adviser by a Portfolio under this Agreement.
5. The Adviser shall arrange for officers or employees of the Adviser to serve,
without compensation from the Fund, as trustees, officers or agents of the Fund,
if duly elected or appointed to such positions, and subject to their individual
consent and to any limitations imposed by law.
6. Subject to applicable statutes and regulations, it is understood that
officers, trustees, or agents of the Fund are, or may be, interested in the
Adviser as officers, directors, agents, shareholders or otherwise, and that the
officers, directors, shareholders and agents of the Adviser may be interested
in the Fund otherwise than as trustees, officers or agents.
7. The Adviser shall not be liable for any loss sustained by reason of the
purchase, sale or retention of any security, whether or not such purchase, sale
or retention shall have been based upon the investigation and research made by
any other individual, firm or corporation, if such recommendation shall have
been selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the Adviser
in the performance of its obligations and duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement.
6
<PAGE>
8. The Adviser currently manages other investment accounts and funds, including
those with investment objectives similar to the Fund, and reserves the right to
manage other such accounts and funds in the future. Securities considered as
investments for a Portfolio of the Fund may also be appropriate for other
Portfolios or for other investment accounts and funds that may be managed by the
Adviser. Subject to applicable laws and regulations, the Adviser will attempt to
allocate equitably portfolio transactions among the Fund's Portfolios and the
portfolios of its other investment accounts and funds purchasing securities
whenever decisions are made to purchase or sell securities by a Portfolio and
another fund's portfolio or one or more of such other accounts or funds
simultaneously. In making such allocations, the main factors to be considered by
the Adviser will be the respective investment objectives of the Fund Portfolio
or Portfolios purchasing such securities and such other accounts and funds, the
relative size of portfolio holdings of the same or comparable securities, the
availability of cash for investment by the Fund Portfolios and such other
accounts and funds, the size of investment commitments generally held by the
Fund Portfolios and such accounts and funds, and the opinions of the persons
responsible for recommending investments to the Fund and such other accounts and
funds.
9. This Agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and shall continue in
force from year to year thereafter, but only as long as such continuance is
specifically approved, at least annually, in the manner required by the
Investment Company Act of 1940.
7
<PAGE>
This Agreement shall automatically terminate in the event of its assignment, and
may be terminated at any time without the payment of any penalty by the Fund or
by the Adviser upon sixty (60) days' written notice to the other party. The Fund
may effect termination by action of the Board of Trustees, or, with respect to
any Fund Portfolio, by vote of a majority of the outstanding voting securities
of that Portfolio, accompanied by appropriate notice.
This Agreement may be terminated, at any time, without the payment of any
penalty, by the Board of Trustees of the Fund, or, with respect to any Fund
Portfolio, by vote of a majority of the outstanding voting securities of that
Portfolio, in the event that it shall have been established by a court of
competent jurisdiction that the Adviser, or any officer or director of the
Adviser, has taken any action which results in a breach of the covenants of the
Adviser set forth herein.
Termination of this Agreement shall not affect the right of the Adviser to
receive payments on any unpaid balance of the compensation, described in
Section 2, earned prior to such termination.
10. If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule, or otherwise, the remainder shall not be thereby
affected.
8
<PAGE>
11. The Adviser and its affiliates reserve the right to grant, at any time, the
use of the name "Nuveen" or the name "Flagship", or any approximation or
abbreviation thereof, to any other investment company or business enterprise.
Upon termination of this Agreement by either party, or by its terms, the Fund
shall thereafter refrain from using any name of the Fund which includes "Nuveen"
or "Flagship" or any approximation or abbreviation thereof, or is sufficiently
similar to such name as to be likely to cause confusion with such name, and
shall not allude in any public statement or advertisement to the former
association.
12. Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as such
other party may designate for receipt of such notice.
13. The Fund's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts. This Agreement is executed on behalf of the Fund
by the Fund's officers as officers and not individually and the obligations
imposed upon the Fund by this Agreement are not binding upon any of the Fund's
Trustees, officers or shareholders individually but are binding only upon the
assets and property of the Fund.
9
<PAGE>
IN WITNESS WHEREOF, the Fund and the Adviser have caused this Agreement to
be executed on the day and year above written.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By: /s/ Gifford R. Zimmerman
-------------------------------
Vice President
Attest: /s/ Karen L. Healy
-------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ J. Thomas Futrell
---------------------
Vice President
Attest: /s/ Larry Martin
-------------------
Assistant Secretary
10
<PAGE>
Exhibit A
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
Nuveen New York Insured Municipal Bond Fund
11
<PAGE>
EXHIBIT 5(a)
NUVEEN FLAGSHIP MULTISTATE TRUST II
-----------------------------------
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
------------------------------------------
This Agreement made this 20th day of May, 1997 by and between Nuveen Flagship
Multistate Trust II, a Massachusetts business trust ( the "Fund"), and Nuveen
Advisory Corp., a Delaware corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of reviewing
the Agreement, have approved the Agreement and its continuance until August 1,
1998 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By: /s/ Gifford R. Zimmerman
---------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- ---------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ J. Thomas Futrell
---------------------------------
Vice President
ATTEST:
/s/ Larry Martin
- ---------------------------
Assistant Secretary
<PAGE>
EXHIBIT 6
DISTRIBUTION AGREEMENT
----------------------
AGREEMENT made as of the 1st day of February, 1997 between NUVEEN FLAGSHIP
MULTISTATE TRUST II, a business trust organized under the laws of the
Commonwealth of Massachusetts (the "Fund"), and JOHN NUVEEN & CO. INCORPORATED,
a Delaware corporation (the "Underwriter").
WITNESSETH
----------
in consideration of the mutual covenants hereinafter contained, it is
hereby agreed by and between the parties hereto as follows:
1. The Fund hereby appoints the Underwriter its agent for the distribution
of shares of beneficial interest, par value $.01 per share, including such
series or classes of shares as may now or hereafter be authorized (the
"Shares"), in jurisdictions wherein Shares may legally be offered for sale;
provided, however, that the Fund, in its absolute discretion, may: (a) issue or
sell Shares directly to holders of Shares of the Fund upon such terms and
conditions and for such consideration, if any, as it may determine, whether in
connection with the distribution of subscription or purchase rights, the payment
or reinvestment of dividends or distributions, or otherwise; and (b) issue or
sell Shares at net asset value in connection with merger or consolidation with,
or acquisition of the assets of, other investment companies or similar
companies.
2. The Underwriter hereby accepts appointment as agent for the distribution of
the Shares and agrees that it will use its best efforts to sell such part of the
authorized Shares remaining unissued as from time to time shall be effectively
registered under the Securities Act of 1933 ("Securities Act"), at prices
determined as hereinafter provided and on terms hereinafter set forth, all
subject to applicable Federal and State laws and regulations and to the
Declaration of Trust of the Fund.
3. The Fund agrees that it will use its best efforts to keep effectively
registered under the Securities Act for sale, as herein contemplated, such
Shares as the Underwriter shall reasonably request and as the Securities and
Exchange Commission shall permit to be so registered.
4. Notwithstanding any other provision hereof, the Fund may terminate,
suspend, or withdraw the offering of the Shares, or Shares of any series or
class, whenever, in its sole discretion, it deems such action to be desirable.
5. The Underwriter shall sell Shares to, or through, brokers, dealers, banks or
other qualified financial intermediaries (hereinafter referred to as "dealers"),
or others, in such manner not inconsistent with the provisions hereof and the
then effective Registration Statement of the Fund under the Securities Act (and
related Prospectus and Statement of Additional Information) as the Underwriter
may determine from time to time, provided that no dealer, or other person,
shall be appointed nor authorized to act as agent of the Fund without the prior
consent of the Fund. The Underwriter shall have the right to enter into
agreements with brokers, dealers and banks (referred to herein as "dealers") of
its choice for the sale of Shares and fix therein the portion of
<PAGE>
the sales charge which may be allocated to such dealers; provided that the Fund
shall approve the form of such agreements and shall evidence such approval by
filing said form and any amendments thereto as attachments to this Agreement,
which shall be filed as an exhibit to the Fund's currently effective
registration statement under the Securities Act. Shares sold to dealers shall
be for resale by such dealers only at the public offering price(s) set forth in
the Fund's then current Prospectus. The current forms of such agreements are
attached hereto as Exhibits 1, 2 and 3.
6. Shares offered for sale, or sold by the Underwriter, shall be so offered or
sold at a price per Share determined in accordance with the then current
Prospectus relating to the sale of Shares except as departure from such prices
shall be permitted by the rules and regulations of the Securities and Exchange
Commission. Any public offering price shall be the net asset value per Share
plus a sales charge of not more than 4.75% of such public offering price. Shares
may be sold at net asset value without a sales charge to such class or classes
of investors or in such class or classes of transactions as may be permitted
under applicable rules of the Securities and Exchange Commission and as
described in the then current Prospectus of the Fund. The net asset value per
Share of each series or class shall be calculated in accordance with the
Declaration of Trust of the Fund and shall be determined in the manner, and at
the time, set forth in the then current Prospectus of the Fund relating to such
Shares.
7. The price the Fund shall receive for all Shares purchased from the Fund
shall be the net asset value used in determining the public offering price
applicable to the sale of such Shares. The excess, if any, of the sales price
over the net asset value of Shares sold by the Underwriter as agent shall be
retained by the Underwriter as a commission for its services hereunder. Out of
such commission, the Underwriter may allow commissions or concessions to dealers
in such amounts as the Underwriter shall determine from time to time. Except as
may be otherwise determined by the Underwriter and the Fund from time to time,
such commissions or concessions shall be uniform to all dealers.
8. The Underwriter shall issue and deliver, or cause to be issued and
delivered, on behalf of the Fund such confirmations of sales made by it as
agent, pursuant to this Agreement, as may be required. At, or prior to, the
time of issuance of Shares, the Underwriter will pay, or cause to be paid, to
the Fund the amount due the Fund for the sale of such Shares. Certificates
shall be issued, or Shares registered on the transfer books of the Fund, in such
names and denominations as the Underwriter may specify.
9. The Fund will execute any and all documents, and furnish any and all
information, which may be reasonably necessary in connection with the
qualification of the Shares for sale (including the qualification of the Fund as
a dealer, where necessary or advisable) in such states as the Underwriter may
reasonably request (it being understood that the Fund shall not be required,
without its consent, to comply with any requirement which, in its opinion, is
unduly burdensome).
2
<PAGE>
10. The Fund will furnish to the Underwriter, from time to time, such
information with respect to the Fund and the Shares as the Underwriter may
reasonably request for use in connection with the sale of Shares. The
Underwriter agrees that it will not use or distribute, nor will it authorize
dealers or others to use, distribute or disseminate, in connection with the sale
of such Shares, any statements other than those contained in the Fund's current
Prospectus and Statement of Additional Information, except such supplemental
literature or advertising as shall be lawful under Federal and State securities
laws and regulations, and that it will furnish the Fund with copies of all such
material.
11. The Underwriter shall order Shares from the Fund only to the extent that it
shall have received purchase orders therefor. The Underwriter will not make, nor
authorize any dealers or others, to make: (a) any short sale of Shares; or (b)
any sale of Shares to any officer or trustee of the Fund, nor to any officer or
trustee of the Underwriter, or of any corporation or association furnishing
investment advisory, managerial, or supervisory services to the Fund, nor to any
such corporation or association, unless such sales are made in accordance with
the then current Prospectus relating to the sale of such Shares.
12. In selling Shares for the account of the Fund, the Underwriter will in all
respects conform to the requirements of all Federal and State laws and the Rules
of Fair Practice of the National Association of Securities Dealers, Inc.
relating to such sales, and will indemnify and save harmless the Fund from any
damage or expense on account of any wrongful act by the Underwriter or any
employee, representative, or agent of the Underwriter. The Underwriter will
observe and be bound by all the provisions of the Declaration of Trust of the
Fund (and of any fundamental policies adopted by the Fund pursuant to the
Investment Company Act of 1940, notice of which shall have been given by the
Fund to the Underwriter) which at the time in any way require, limit, restrict,
prohibit or otherwise regulate any action on the part of the Underwriter.
13. The Underwriter will require each dealer to conform to the provisions
hereof and of the Registration Statement (and related Prospectus) at the time in
effect under the Securities Act with respect to the public offering price of
the Shares, and neither the Underwriter nor any such dealer shall withhold the
placing of purchase orders so as to make a profit thereby.
14. The Fund will pay, or cause to be paid, expenses (including the fees and
disbursements of its own counsel) of any registration of Shares under the
Securities Act, expenses of qualifying or continuing the qualification of the
Shares for sale and, in connection therewith, of qualifying or continuing the
qualification of the Fund as a dealer or broker under the laws of such states as
may be designated by the Underwriter under the conditions herein specified, and
expenses incident to the issuance of the Shares such as the cost of Share
certificates, issue taxes, and fees of the transfer and shareholder service
agent. The Underwriter will pay, or cause to be paid, all expenses (other than
expenses which any dealer may bear pursuant to any agreement with the
Underwriter) incident to the sale and distribution of the Shares issued or sold
hereunder, including, without limiting the generality of the foregoing, all: (a)
expenses of printing and distributing any Prospectus and Statement of
Additional Information and of preparing, printing
3
<PAGE>
and distributing or disseminating any other literature, advertising and selling
aids in connection with such offering of the Shares for sale (except that such
expenses need not include expenses incurred by the Fund in connection with the
preparation, printing and distribution of any report or other communication to
holders of Shares in their capacity as such), and (b) expenses of advertising in
connection with such offering. No transfer taxes, if any, which may be payable
in connection with the issue or delivery of Shares sold as herein contemplated,
or of the certificates for such Shares, shall be borne by the Fund, and the
Underwriter will indemnify and hold harmless the Fund against liability for all
such transfer taxes.
15. This agreement shall continue in effect until August 1, 1997, unless and
until terminated by either party as hereinafter provided, and will continue from
year to year thereafter, but only so long as such continuance is specifically
approved, at least annually, in the manner required by the Investment Company
Act of 1940. Either party hereto may terminate this agreement on any date by
giving the other party at least six months' prior written notice of such
termination, specifying the date fixed therefor. Without prejudice to any other
remedies of the Fund in any such event, the Fund may terminate this agreement at
any time immediately upon any failure of fulfillment of any of the obligations
of the Underwriter hereunder.
Without prejudice to any other remedies of the Fund in any such event, the Fund
may terminate this Agreement at any time immediately upon any failure of
fulfillment of any of the obligations of the Underwriter hereunder.
16. This agreement shall automatically terminate in the event of its
assignment.
17. Any notice under this agreement shall be in writing, addressed, and
delivered or mailed, postage pre-paid, to the other party at such address as
such other party may designate for the receipt of such notice.
18. The Declaration of Trust of the Fund on file with the Secretary of State of
the Commonwealth of Massachusetts was executed on behalf of the Fund by the
initial trustees of the Fund and not individually, and any obligation of the
Fund shall be binding only upon the assets of the Fund (or applicable series
thereof) and shall not be binding upon any trustee, officer or shareholder of
the Fund. Neither the authorization of any action by the trustees or
shareholders of the Fund nor the execution of this agreement on behalf of the
Fund shall impose any liability upon any Trustee, officer or shareholder of the
Fund.
4
<PAGE>
IN WITNESS WHEREOF, the Fund and the Underwriter have each caused this Agreement
to be executed on its behalf as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By: /s/ Gifford R. Zimmerman
-------------------------------
Vice President
Attest: /s/ Karen L. Healy
-------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By: /s/ Larry Martin
---------------------
Vice President
Attest: /s/ Morrison C. Warren
----------------------
Assistant Secretary
5
<PAGE>
Exhibit 1 NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone: 312 917 7700
NUVEEN MUTUAL FUNDS
Dealer Distribution and
Shareholder Servicing Agreement
As principal underwriter of shares of the various Nuveen non-money market open-
end mutual funds, and of the shares of any future such funds (collectively, the
"Funds"), we invite you to join a selling group for the distribution of shares
of common stock of the Funds (the "Shares"). As exclusive agent of the Funds, we
offer to sell you Shares on the following terms:
1. In all sales of Shares to the public you shall act as dealer for your own
account, and in no transaction shall you have any authority to act as agent
for any Fund, for us or for any other member of the Selling Group.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares, we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing. Additional instructions may be forwarded to you from time to
time. All orders are subject to acceptance or rejection by us in our sole
discretion.
3. You may offer and sell Shares to your customers only at the public offering
price determined in the manner described in the current Prospectus of the
appropriate Fund. Shares will be offered at a public offering price based
upon the net asset value of such Shares plus, with respect to certain
class(es) of Shares, a sales charge from which you shall receive a discount
equal to a percentage of the applicable offering price as provided in the
Prospectus. You may receive a distribution fee and/or a service fee with
respect to certain class(es) of Shares for which such fees are applicable,
as provided in the applicable Prospectus, which distribution fee and/or
service fee shall be payable for such periods and at such intervals as are
from time to time specified by us. Your placement of an order for Shares
after the date of any notice of such amendment shall conclusively evidence
your agreement to be bound thereby.
Reduced sales charges may also be available as a result of a cumulative
discount or pursuant to a letter of intent. Further information as to such
reduced sales charges, if any, is set forth in the appropriate Fund
Prospectus. You agree to advise us promptly as to the amounts of any sales
made by you to the public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us;
b) That you will purchase Shares from us only to cover purchase orders
already received from your customers, or for your own bona fide
investment; and
c) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding.
d) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
6. Payment for Shares ordered from us shall be in New York clearing house funds
and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O.Box 5330, Denver, Colorado 80217-5330, within three business days after
our acceptance of your order. If such payment is not received, we reserve
the right, without notice, forthwith to cancel the sale or, at our option,
to cause the Fund to redeem the Shares ordered, in which case we may hold
you responsible for any loss, including loss of profit, suffered by us as a
result of your failure to make such payment. If any Shares confirmed to you
under the terms of this agreement are repurchased by the issuing Fund or by
us as agent for the Fund, or are tendered for repurchase, within seven
business days after the date of
6
<PAGE>
our confirmation of the original purchase order, you shall promptly refund
to us the full discount, commission, or other concession, if any, allowed or
paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or any
Fund except those contained in the applicable current Prospectus and printed
information subsequently issued by the appropriate Fund or by us as
information supplemental to such Prospectus. You agree that you will not
offer or sell any Shares except under circumstances that will result in
compliance with the applicable Federal and state securities laws and that in
connection with sales and offers to sell Shares you will furnish to each
person to whom any such sale or offer is made a copy of the then current
Prospectus for the appropriate Fund (as the amended or supplemented) and
will not furnish to any persons any information relating to Shares which is
inconsistent in any respect with the information contained in the then
current Prospectus or cause any advertisement to be published in any
newspaper or posted in any public place without our consent and the consent
of the appropriate Fund. You shall be responsible for any required filing of
such advertising.
9. All sales will be made subject to our receipt of Shares from the appropriate
Fund. We reserve the right, in our discretion, without notice, to modify,
suspend or withdraw entirely the offering of any Shares, and upon notice to
change the price, sales charge, or dealer discount or to modify, cancel or
change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities dealer and a member in good standing of the National
Association of Securities Dealers, Inc. and agree to comply with all
applicable state and Federal laws, rules and regulations applicable to
transactions hereunder and to the Rules of Fair Practice of the National
Association of Securities Dealers, Inc., including specifically Section 26,
Article III thereof. You likewise agree that you will not offer to sell
Shares in any state or other jurisdiction in which they may not lawfully be
offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and maintenance
of shareholder accounts and records, processing purchase and redemption
transactions, answering routine inquiries regarding the Funds, and such
other services as may be agreed upon from time to time and as may be
permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall immediately
inform the Funds or us of all written complaints received by you from Fund
shareholders relating to the maintenance of their accounts and shall
promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds from
time to time in effect, and, in the event of a conflict, the terms of the
Prospectuses shall control. References herein to the "Prospectus" of a Fund
shall mean the prospectus and statement of additional information of such
Fund as from time to time in effect. Any changes, modifications or additions
reflected in any such Prospectus shall be effective on the date of such
Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
- -------------------------------------------------------------------------------
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
<TABLE>
<CAPTION>
<S> <C>
Firm___________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Month Day Year
Authorized Signature___|_________________________________________________________________________________________|__|__|__|__|__|__|
Print Name of__________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
Address________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|
City___________________|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|__Zip__|___|___|___|___|___|
Tax ID Number__________|___|___|___|___|___|___|___|___|___|___|___|____NASD___|___|___|___|___|___|___|___|___|___|___|___|___|___|
</TABLE>
The above agreement shall be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please return the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois 60606-
1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 2)
- ------------------------------------------------
Nuveen Mutual Funds
----------------------
CUSIP QUOTRON
Number Symbol
- -----------------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- -----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Funds, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax
Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax
Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax
Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NACCX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal
Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term
Municipal Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- ------------------------------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate
Municipal Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
Exhibit 2 [LOGO OF NUVEEN]
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917 7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Version for Bank-Affiliated Broker-Dealers)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money market open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all purposes
your customers and not customers of John Nuveen & Co. Incorporated. We shall
execute transactions for each of your customers only upon your
authorization, it being understood in all cases that (a) you are acting as
agent for the customer; (b) the transactions are without recourse against
you by the customer; (c) as between you and the customer, the customer will
have full beneficial ownership of the securities; (d) each transaction is
initiated solely upon the order of the customer; and (e) each transaction is
for the account of the customer and not for your account.
2. Orders received from you shall be accepted by us only at the public offering
price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in our
sole discretion.
3. Members of the general public, including your customers, may purchase Shares
only at the public offering price determined in the manner described in the
current Prospectus of the appropriate Fund. Shares will be offered at a
public offering price based upon the net asset value of such Shares plus,
with respect to certain class(es) of Shares, a sales charge which, together
with the amount of that sales charge to be retained by banks or bank-
affiliated broker-dealers acting as agent for their customers, is set forth
in the Prospectus. You may receive a distribution fee and/or a service fee
with respect to certain class(es) of Shares for which such fees are
applicable, as provided in the applicable Prospectus, which distribution fee
and/or service fee shall be payable for such periods and at such intervals
as are from time to time specified by us. Your placement of an order for
Shares after the date of any notice of such amendment shall conclusively
evidence your agreement to be bound thereby. Reduced sales charges may also
be available as a result of a cumulative discount or pursuant to a letter of
intent. Further information as to such reduced sales charges, if any, is set
forth in the appropriate Fund Prospectus. You agree to advise us promptly as
to the amounts of any sales made by or through you to the public qualifying
for reduced sales charges.
4. By accepting this Agreement, you agree:
a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding; and
c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares, attached
hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payment is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of the then current Prospectus
for the appropriate Fund (as amended or supplemented) and will not furnish
to any persons any information relating to Shares which is inconsistent in
any respect with the information contained in the then current Prospectus
or cause any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the appropriate
Fund. You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a registered securities broker-dealer and a member in good standing of the
National Association of Securities Dealers, Inc. and agree to comply with
all state and Federal laws, rules and regulations applicable to
transactions hereunder and with the Rules of Fair Practice of the NASD,
including specifically Section 26 of Article III thereof. You likewise
agree that you will not offer to sell Shares in any state or other
jurisdiction in which they may not lawfully be offered for sale. We agree
to advise you currently of the identity of those states and jurisdictions
in which the Shares may lawfully be offered for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior distribution agreement with respect to
the Funds.
John Nuveen & Co. Incorporated
| |
John Nuveen | |
Authorized Signature | |
_______________________________________________________________________________
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Month Day Year
Authorized Signature | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Print Name of | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
Address | | | | | | | | | | | | | | | |
- --------------------------------------------------------------------------------
City | | | | | | | | | | |Zip | | | | |
- --------------------------------------------------------------------------------
Tax ID Number | | | | | | | | | | NASD | | | | |
- --------------------------------------------------------------------------------
The above agreement should be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please return the completed agreement to :
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois
60606-1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee; Class B Shares, which are subject to an asset-based sales charge, a service
fee, and a declining contingent deferred sales charge ("CDSC"); and Class C
Shares, which are subject to an asset-based sales charge, a service fee, and a
12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the Funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 2)
- ----------------------------------------------
Nuveen Mutual Funds
--------------------
CUSIP Quotron
Number Symbol
- ------------------------------------------------------------------
Nuveen Tax-Free Money Market Funds
<S> <C> <C>
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfolio 670637602 NTFXX
- ------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y403 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax-Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax-Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax-Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FTCTX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L658 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal Bond Fund 67065L864 FIFAX - - 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond Fund 67065R887 FLKAX - - 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MD Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- -----------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
-------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate Municipal Bond Fund 67056N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen Flagship NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
<PAGE>
Exhibit 3
NUVEEN
John Nuveen & Co. Incorporated
Investment Bankers
333 West Wacker Drive
Chicago, Illinois 60606-1286
Telephone 312 917-7700
NUVEEN MUTUAL FUNDS
Distribution and Shareholder
Servicing Agreement
(Bank Version)
As principal underwriter of shares of common stock (the "Shares") of the various
Nuveen non-money marker open-end mutual funds and any future such funds
(collectively, the "Funds"), we offer to make available Shares for purchase by
your customers on the following terms:
1. In all sales of Shares to the public you shall act as agent for your
customers, and in no transaction shall you have any authority to act as
agent for any Fund or for us. The customers in question are for all
purposes your customers and not customers of John Nuveen & Co.
Incorporated. We shall execute transactions for each of your customers only
upon your authorization, it being understood in all cases that (a) you are
acting as agent for the customer; (b) the transactions are without recourse
against you by the customer; (c) as between you and the customer, the
customer will have full beneficial ownership of the securities; (d) each
transaction is initiated solely upon the order of the customer; and (e)
each transaction is for the account of the customer and not for your
account.
2. Orders received from you shall be accepted by us only at the public
offering price applicable to each order, as established by the then current
Prospectus of the appropriate Fund, subject to the discounts provided in
such Prospectus. Upon receipt from you of any order to purchase Shares we
shall confirm to you in writing or by wire to be followed by a confirmation
in writing, and we shall concurrently send to your customer a letter
confirming such order, together with a copy of the appropriate Fund's
current Prospectus. Additional instructions may be forwarded to you from
time to time. All orders are subject to acceptance or rejection by us in
our sole discretion.
3. Members of the general public, including your customers, may purchase
Shares only at the public offering price determined in the manner described
in the current Prospectus of the appropriate Fund. Shares will be offered
at a public offering price based upon the net asset value of such Shares
plus, with respect to certain class(es) of Shares, a sales charge which,
together with the amount of that sales charge to be retained by banks
acting as agent for their customers, is set forth in the Prospectus. You
may receive a distribution fee and/or a service fee with respect to
certain class(es) for Shares for which such fees are applicable, as
provided in the applicable Prospectus, which distribution fee and/or
service fee shall be payable for such periods and at such intervals as are
from time to time specified by us. Your placement of an order for Shares
after the date of any notice of such amendment shall conclusively evidence
your agreement to be bound thereby. Reduced sales charges may also be
available as a result of a cumulative discount or pursuant to a letter of
intent. Further information as to such reduced sales charges, if any, is
set forth in the appropriate Fund Prospectus. You agree to advise us
promptly as to the amounts of any sales made by or through you to the
public qualifying for reduced sales charges.
4. By accepting this Agreement, you agree:
(a) That you will purchase Shares only from us, and only to cover purchase
orders already received from your customers;
(b) That you will not withhold placing with us orders received from your
customers so as to profit yourself as a result of such withholding;
and
(c) That, with respect to the sale of Shares of Funds that offer multiple
classes of Shares, you will comply with the terms of the Policies and
Procedures with Respect to Sales of Multiple Classes of Shares,
attached hereto as Exhibit A.
5. We will not accept from you any conditional orders for Shares.
<PAGE>
6. Payment for Shares ordered from us shall be in New York clearing house
funds and must be received by the Funds' agent, Shareholder Services, Inc.,
P.O. Box 5330, Denver, Colorado 80217-5330, within three business days
after our acceptance of your order. If such payment is not received, we
reserve the right, without notice, forthwith to cancel the sale or, at our
option, to cause the Fund to redeem the Shares ordered, in which case we
may hold you responsible for any loss, including loss of profit, suffered
by us as result of your or your customer's failure to make such payment. If
any Shares confirmed to you or your customer under the terms of this
agreement are repurchased by the issuing Fund or by us as agent for the
Fund, or are tendered for repurchase, within seven business days after the
date of our confirmation of the original purchase order, you shall promptly
refund to us the full discount, commission, or other concession, if any,
allowed or paid to you on such Shares.
7. Shares sold hereunder shall be available in book-entry form on the books of
Shareholder Services, Inc. unless other instructions have been given.
8. No person is authorized to make any representations concerning Shares or
any Fund except those contained in the applicable current Prospectus and
printed information issued by the appropriate Fund or by us as information
supplemental to such Prospectus. You agree that you will not offer or sell
any Shares except under circumstances that will result in compliance with
the applicable Federal and state securities laws and that in connection
with sales and offers to sell Shares you will furnish to each person to
whom any such sale or offer is made a copy of the then current Prospectus
for the appropriate Fund (as amended or supplemented) and will not furnish
to any persons any information relating to Shares which is inconsistent in
any respect with the information contained in the then current Prospectus
or cause any advertisement to be published in any newspaper or posted in
any public place without our consent and the consent of the appropriate
Fund. You shall be responsible for any required filing of such advertising.
9. All sales will be made subject to our receipt of Shares from the
appropriate Fund. We reserve the right, in our discretion, without notice,
to modify, suspend or withdraw entirely the offering of any Shares, and
upon notice to change the price, sales charge, or dealer discount or to
modify, cancel or change the terms of this agreement.
10. Your acceptance of this agreement constitutes a representation that you are
a bank as defined in Section 3(a)(6) of the Securities Exchange Act of
1934, as amended, and are duly authorized to engage in the transactions to
be performed hereunder. You hereby agree to comply with all applicable
state and Federal laws, rules and regulations applicable to transactions
hereunder. You likewise agree that you will not make Shares available in
any state or other jurisdiction in which they may not lawfully be offered
for sale.
11. You shall provide such office space and equipment, telephone facilities,
personnel and literature distribution as is necessary or appropriate for
providing information and services to your customers. Such services and
assistance may include, but not be limited to, establishment and
maintenance of shareholder accounts and records, processing purchase and
redemption transactions, answering routine inquiries regarding the Funds,
and such other services as may be agreed upon from time to time and as may
be permitted by applicable statute, rule, or regulation. You shall perform
these services in good faith and with reasonable care. You shall
immediately inform the Funds or us of all written complaints received by
you from Fund shareholders relating to the maintenance of their accounts
and shall promptly answer all such complaints.
12. All communications to us should be sent to 333 W. Wacker Drive, Chicago,
Illinois 60606. Any notice to you shall be duly given if mailed or
telegraphed to you at the address specified by you below.
13. This Agreement shall be construed in accordance with the laws of the State
of Illinois. This Agreement is subject to the Prospectuses of the Funds
from time to time in effect, and, in the event of a conflict, the terms of
the Prospectuses shall control. References herein to the "Prospectus" of a
Fund shall mean the prospectus and statement of additional information of
such Fund as from time to time in effect. Any changes, modifications or
additions reflected in any such Prospectus shall be effective on the date
of such Prospectus (or supplement thereto) unless specified otherwise. This
Agreement shall supersede any prior dealer distribution agreement with
respect to the Funds.
John Nuveen & Co. Incorporated
John Nuveen
Authorized Signature
<PAGE>
We have read the foregoing agreement and accept and agree to the terms and
conditions therein.
Firm_____|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|_____|
Month Day Year
Authorized Signature ____________________________________|___|_______|_________|
Print Name of _|___|___|___|___|___|___|___|___|_____|___|___|___|___|___|_____|
Address _|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|___|_____|
City_|___|___|___|___|___|___|___|___|___|___|___|___|ZIP |__|___|___|___|_____|
Tax ID Number _|___|___|___|___|___|___|___| NASD _|___|___|___|___|___|___|___|
The above agreement should be executed in duplicate and both copies returned to
us for signature. We will return a fully executed copy to you for your files.
Please turn the completed agreement to:
John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago, Illinois
60606-1286
<PAGE>
Exhibit A to Nuveen Mutual Funds
Dealer Distribution and
Shareholder Servicing Agreement
Policies and Procedures With Respect to
Sales of Multiple Classes of Funds
The Nuveen non-money market open-end mutual funds (the "Funds") have one or more
of the following classes of shares generally available to the public: Class A
Shares, which are normally subject to an up-front sales charge and a service
fee: Class B Shares, which are subject to an asset-based sales charge, a
service fee, and a declining contingent deferred sales charge ("CDSC"); and
Class C Shares, which are subject to an asset-based sales charge, a service fee,
and a 12-month CDSC, it is important for an investor to choose the method of
purchasing shares which best suits his or her particular circumstances. To
assist investors in these decisions, John Nuveen & Co. Incorporated, underwriter
for the Nuveen Mutual Funds, has instituted the following policies with respect
to orders for Fund shares. These policies apply to each Authorized Dealer which
distributes Fund shares.
1. Purchase orders for a single purchaser equal to or exceeding $1,000,000
should be placed only for Class A shares, unless such purchase for Class B
or Class C Shares has been reviewed and approved by the Authorized Dealer's
appropriate supervisor.
2. Any purchase order for less than $1,000,000 may be for Class A, Class B or
Class C Shares in light of the relevant facts and circumstances, including:
a) the specific purchase order dollar amount;
b) the length of time the investor expects to hold his or her Shares;
c) whether the investor expects to reinvest dividends; and
d) any other relevant circumstances such as the availability of purchases
under a letter of intent, a combined discount or a cumulative discount,
as described in the Prospectus for the Fund, and any anticipated changes
in the funds net asset value per share.
There are instances when one method of purchasing Shares may be more appropriate
than the other. For example, investors who would qualify for a significant
discount from the maximum sales load on Class A Shares might determine that
payment of such a reduced up-front sales charge is preferable to the payment of
a higher ongoing distribution fee on Class B or Class C Shares. On the other
hand, investors who prefer not to pay an up-front sales charge may wish to defer
the sales charge by purchasing Class B or Class C Shares. Those who plan to
redeem their shares within 5 years might consider Class C Shares, particularly
if they do not expect to reinvest dividends in additional shares. Note that, if
an investor anticipates redeeming Class B Shares within a short period of time
such as one year, that investor may bear higher distribution expenses than if
Class A Shares had been purchased. In addition, investors who intend to hold
their shares for a significantly long time may not wish to bear the higher
ongoing-asset-based sales charges of Class B or Class C Shares, irrespective of
the fact that the CDSC that would apply to a redemption of Class B Shares is
reduced over time and is ultimately eliminated, and that the CDSC that would
apply to a redemption of Class C Shares is relatively short in duration and
small in amount.
Appropriate supervisory personnel within your organization must ensure that all
employees receiving investor inquiries about the purchase of shares of the Funds
advise the investor of the available pricing structures offered by the Funds and
the impact of choosing one method over another, including breakpoints and the
availability of letters of intent, combined purchases and cumulative discounts.
In some instances it may be appropriate for a supervisory person to discuss a
purchase with the investor.
These policies are effective immediately with respect to any order for the
purchase of shares of the Funds.
October 4, 1996
<PAGE>
Exhibit A (Page 2)
- ------------------
Nuveen Mutual Funds
<TABLE>
<CAPTION>
-------------------
CUSIP Quotron
Number Symbol
- ---------------------------------------------------------------
<S> <C> <C>
Nuveen Tax-Free Money Market Funds
Nuveen Tax-Exempt Money Market Fund, Inc. 670634104 NUVXX
Nuveen Tax-Free Reserves, Inc. 670639103 NRFXX
Nuveen CA Tax-Free Money Market Fund-
Service Portfolio 67062D303 NCTXX
Distribution Portfolio 67062D402 NCTXX
Institutional Portfolio 67062D501 NCTXX
Nuveen MA Tax-Free Money Market Fund-
Service Portfolio 670637107 NMAXX
Distribution Portfolio 670637206 NMAXX
Institutional Portfolio 670637305 NMAXX
Nuveen NY Tax-Free Money Market Fund-
Service Portfolio 670637404 NTFXX
Distribution Portfolio 670637503 NTFXX
Institutional Portfoflio 670637602 NTFXX
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
A SHARE B SHARE C SHARE R SHARE
-------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Mutual Funds
Nuveen Growth and Income Stock Fund 67064Y503 # 67064Y602 # 67064Y701 # 67064Y800 #
Nuveen Balanced Stock and Bond Fund 67064Y107 # 67064Y206 # 67064Y305 # 67064Y404 #
Nuveen Balanced Municipal and Stock Fund 67064Y883 # 67064Y875 # 67064Y867 # 67064Y859 #
Nuveen Flagship Utility Fund 33841G108 FUIAX - - 33841G306 FLUCX - -
Golden Rainbow Fund 33841G207 GLRBX - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
Municipal Mutual Funds
Nuveen Municipal Bond Fund, Inc. 67065Q202 NMBAX 67065Q103 # 67065Q301 # 67065Q400 NUVBX
Nuveen Insured Municipal Bond Fund 67065Q509 NMBIX 67065Q608 # 67065Q707 # 67065Q806 NITNX
Nuveen Flagship All-American Tax Exempt Fund 67065Q889 FLAAX 67065Q871 # 67065Q863 FAACX 67065Q855 #
Nuveen Flagship Limited Term Tax Exempt Fund 67065Q848 FLTDX - - 67065Q830 FLTCX 67065Q822 #
Nuveen Flagship Intermediate Tax Exempt Fund 67065Q814 FINTX - - 67065Q798 FINCX 67065Q780 #
Nuveen Flagship AL Municipal Bond Fund 67065P105 FABTX 67065P204 # 67065P303 # 67065P402 #
Nuveen Flagship AZ Municipal Bond Fund 67065L104 FAZTX 67065L203 # 67065L302 FAZCX 67065L401 NMARX
Nuveen CA Municipal Bond Fund 67065N100 NCAAX* 67065N209 # 67065N308 # 67065N407 NCSPX
Nuveen CA Insured Municipal Bond Fund 67065N506 NCAIX* 67065N605 # 67065N704 # 67065N803 NCIBX
Nuveen Flagship CO Municipal Bond Fund 67065L609 FCOTX 67065L500 # 67065L807 # 67065L880 #
Nuveen Flagship CT Municipal Bond Fund 67065N886 FCTTX 67065N878 # 67065N860 FCTCX 67065N852 #
Nuveen Flagship FL Municipal Bond Fund 67065L708 FLOTX 67065L858 # 67065L641 NFLCX 67065L872 NMFLX
Nuveen Flagship FL Intermediate Municipal Bond Fund 67065L864 FIFAX - # 67065L856 FIFCX 67065L849 #
Nuveen Flagship GA Municipal Bond Fund 67065P501 FGATX 67065P600 # 67065P709 FGACX 67065P808 #
Nuveen Flagship KS Municipal Bond Fund 67065R101 FKSTX 67065R200 # 67065R309 # 67065R408 #
Nuveen Flagship KY Municipal Bond Fund 67065R507 FKYTX 67065R606 # 67065R705 FKYCX 67065R804 #
Nuveen Flagship KY Limited Term Municipal Bond Fund 67065R887 FLKAX - # 67065R879 FLKCX 67065R861 #
Nuveen Flagship LA Municipal Bond Fund 67065P881 FTLAX 67065P873 # 67065P865 FTLCX 67065P857 #
Nuveen MO Municipal Bond Fund 67065L831 NMDAX* 67065L823 # 67065L815 # 67065L799 NMMDX
Nuveen MA Municipal Bond Fund 67065N845 NMAAX* 67065N837 # 67065N829 # 67065N811 NBMAX
Nuveen MA Insured Municipal Bond Fund 67065N795 NMAIX* 67065N787 # 67065N779 # 67065N761 NIMAX
Nuveen Flagship MI Municipal Bond Fund 67065R853 FMITX 67065R846 # 67065R838 FLMCX 67065R820 NMMIX
Nuveen Flagship MO Municipal Bond Fund 67065R812 FMOTX 67065R796 # 67065R788 FMOCX 67065R770 #
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Effective February 1, 1997
<PAGE>
<TABLE>
<CAPTION>
Exhibit A (Page 3)
- ------------------------------------------------
Nuveen Mutual Funds
A SHARE B SHARE C SHARE R SHARE
--------------------------------------------------------------------------------------
CUSIP Quotron CUSIP Quotron CUSIP Quotron CUSIP Quotron
Number Symbol Number Symbol Number Symbol Number Symbol
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Mutual Funds (cont.)
Nuveen Flagship NJ Municipal Bond Fund 67065N753 NNJAX 67065N746 # 67065N738 NNJCX 67065N720 NMNJX
Nuveen Flagship NJ Intermediate
Municipal Bond Fund 67065N712 FNJIX - - 67065N696 # 67065N688 #
Nuveen Flagship NM Municipal Bond Fund 67065L781 FNMTX 67065L773 # 67065L765 # 67065L757 #
Nuveen Flagship NY Municipal Bond Fund 67065N670 NNYAX* 67065N662 # 67065N654 NNYCX 67065N647 NTNYX
Nuveen NY Insured Municipal Bond Fund 67065N639 NNYIX* 67065N621 # 67065N613 # 67065N597 NINYX
Nuveen Flagship NC Municipal Bond Fund 67065P840 FLNCX 67065P832 # 67065P824 FCNCX 67065P816 #
Nuveen Flagship OH Municipal Bond Fund 67065R762 FOHTX 67065R754 # 67065R747 FOHCX 67065R739 NXOHX
Nuveen Flagship PA Municipal Bond Fund 67065L740 FPNTX 67065L732 # 67065L724 FPNCX 67065L716 NBPAX
Nuveen Flagship SC Municipal Bond Fund 67065P790 FLSCX 67065P782 # 67065P774 # 67065P766 #
Nuveen Flagship TN Municipal Bond Fund 67065P758 FTNTX 67065P741 # 67065P733 FTNCX 67065P725 #
Nuveen Flagship VA Municipal Bond Fund 67065L690 FVATX 67065L682 # 67065L674 FVACX 67065L666 NMVAX
Nuveen Flagship WI Municipal Bond Fund 67065R721 FWIAX 67065R713 # 67065R697 # 67065R689 #
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
# Will receive a supplemental listing when the number of class shareholder
accounts is 300 or when the class asset base reaches $1 million.
NOTE: A Quotron Symbol requires 1,000 shareholder accounts or $25 million in
assets.
*Denotes supplemental listing only
Effective February 1, 1997
<PAGE>
EXHIBIT 8
TABLE OF CONTENTS
Page
----
1. Appointment 1
2. Delivery of Documents 1
3. Definitions 3
4. Delivery and Registrations of the Property 4
5. Voting Rights 5
6. Receipt and Disbursement of Money 5
6A. Advances By Custodian 7
7. Receipt and Delivery of Securities 8
8. Use of Securities Depository or the Book Entry System 9
9. Segregated Account 11
10. Instructions Consistent With The Declaration, etc. 12
11. Transactions Not Requiring Instructions, 15
Collections of Income and Other Payments 15
Miscellaneous Transactions 16
12. Transactions Requiring Instructions 16
13. Purchase of Securities 19
14. Sale of Securities 20
15. Not In Use 20
16. Records 20
17. Cooperation with Accountants 21
18. Reports to Fund Independent Public Accountants 21
19. Confidentiality 21
20. Equipment Failures 22
21. Right to Receive Advice 22
22. Compliance with Governmental Rules and Regulations 23
23. Compensation 23
24. Indemnification 23
25. Responsibility of Chase Manhattan Bank 25
26. Collection of Income 26
27. Ownership Certificates for Tax Purposes 26
28. Effective Period; Terminations and Amendment 27
29. Successor Custodian 28
30. Notices 29
31. Further Actions 29
32. Amendments 29
33. Additional Funds 29
34. Miscellaneous 30
35. Declaration of Trust 30
<PAGE>
CUSTODY AGREEMENT
-----------------
THIS AGREEMENT is made as of the 1st day of February, 1997 by and between
NUVEEN FLAGSHIP MULTISTATE TRUST II (the "Fund"), and THE CHASE MANHATTAN BANK.
WITNESSETH
WHEREAS, the Fund is authorized to issue shares in separate series, with
each such series representing interest in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund currently has ten authorized series, those series listed
on Appendix A which will be covered by this Contract (such series together with
all other series subsequently established by the Fund and made subject to this
Contract in accordance with paragraph 33, being herein referred to as the
"Fund(s)":
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained it is agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints The Chase Manhattan Bank to act as
custodian of its portfolio securities, cash and other property on the terms set
forth in this Agreement. The Chase Manhattan Bank accepts such appointment and
agrees to furnish the services herein set forth in return for the compensation
as provided in Section 23 of this Agreement.
2. Delivery of Documents. The Fund has furnished The Chase Manhattan Bank
with copies property certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Trustees authorizing the appointment
of The Chase Manhattan Bank as Custodian of the portfolio securities, cash and
other property of the Fund and approving this Agreement;
1
<PAGE>
(b) Incumbency and signature certificates identifying and containing the
signatures of the Fund's officers and/or the persons authorized to sign Proper
Instructions, as hereinafter defined, on behalf of the Fund;
(c) The Fund's Declaration of Trust filed with the State of Massachusetts
and all amendments thereto (such Declaration of Trust as currently in effect and
from time to time, be amended, are herein called the "Declaration");
(d) The Fund's By-Laws and all amendments thereto (such By-Laws, as
currently in effect and as they shall from time to time be amended, are herein
called the "By-Laws"),
(e) Resolutions of the Fund's Board of Trustees appointing the investment
advisor of the Fund and resolutions of the Fund's Board of Trustees and the
Fund's Shareholders approving the proposed Investment Advisory Agreement between
the Fund and the advisor (the "Advisory Agreement");
(f) The Advisory Agreement.
(g) The Fund's Registration Statement on Form N-1A under the 1940 Act and
the Securities Act of 1933, as amended ("the 1933 Act") as filed with the SEC;
and
(h) The Fund's most recent prospectus and statement of additional
information including all amendments and supplements thereto (the "Prospectus").
Upon request the Fund will furnish The Chase Manhattan Bank with copies of
all amendments of or supplements to the foregoing, if any. The Fund will also
furnish The Chase Manhattan Bank upon request with a copy of the opinion of
counsel for the Fund with respect to the validity of the Shares and the status
of such Shares under the 1933 Act filed with the SEC, and any other applicable
federal law or regulation.
2
<PAGE>
3. Definitions.
-----------
(a) "Authorized Person". As used in this Agreement, the term "Authorized
Person" means the Fund's President, Treasurer and any other person, whether or
not any such person is an officer or employee of the Fund, duly authorized by
the Board of Trustees of the Fund to give Proper Instructions on behalf of the
Fund as set forth in resolutions of the Fund's Board of Trustees.
(b) "Book-Entry System". As used in this Agreement, the term "Book-Entry
System" means a book-entry system authorized by the U.S. Department of Treasury,
its successor or successors and its nominee or nominees.
(c) "Proper Instructions". Proper Instructions as used herein means a
writing signed or initialed by two or more persons as the Board of Trustees
shall have from time to time authorized. Each such writing shall set forth the
specific transaction or type of transaction involved, including a specific
statement of the purpose for which such action is requested. Oral instructions
will be considered Proper Instructions if The Chase Manhattan Bank reasonably
believes them to have been given by a person authorized to give such
instructions with respect to the transaction involved. The Fund shall cause all
such oral instructions to be confirmed in writing. Upon receipt of a certificate
of the Secretary or an Assistant Secretary as to the authorization by the Board
of Trustees of the Fund accompanied by a detailed description of procedures
approved by the Board of Trustees, Proper Instructions may include
communications effected directly between electro-mechanical or electronic
devices provided that the Board of Trustees and The Chase Manhattan Bank are
satisfied that such procedures afford adequate safeguards for the Fund's assets.
For purposes of this Section, Proper Instructions shall include instructions
received by The Chase Manhattan Bank pursuant to any three-party agreement which
requires a segregated asset account in accordance with Section 9.
(d) "Property". The term "Property", as used in this Agreement, means:
3
<PAGE>
(i) any and all securities and other property of the Fund which the
Fund may from time to time deposit, or cause to be deposited, with The
Chase Manhattan Bank or which The Chase Manhattan Bank may from time
to time hold for the Fund;
(ii) all income in respect of any such securities or other property;
(iii) all proceeds of the sales of any of such securities or other
properties; and
(iv) all proceeds of the sale of securities issued by the Fund,
which are received by The Chase Manhattan Bank from time to time from
or on behalf of the Fund.
(e) "Securities Depository". As used in this Agreement, the term
"Securities Depository" shall mean The Depository Trust Company, a clearing
agency registered with the SEC or its successor or successors and its nominee or
nominees; and shall also mean any other registered clearing agency, its
successor or successors specifically identified in a certified copy of a
resolution of the Company's Board of Trustees approving deposits by The Chase
Manhattan Bank therein.
4. Delivery and Registration of the Property. The Fund will deliver or
cause to be delivered to The Chase Manhattan Bank all securities and all moneys
owned by it, including payments of interest, principal and capital distributions
and cash received for the issuance of its Shares, at any time during the period
of this Agreement, except for securities and monies to be delivered to any
subcustodian appointed pursuant to Section 7 hereof. The Chase Manhattan Bank
will not be responsible for such securities and such monies until actually
received by it. All securities delivered to The Chase Manhattan Bank or to any
such subcustodian (other than in bearer form) shall be registered in the name of
the Fund or in the name of a nominee of the Fund or in the name of The Chase
Manhattan Bank or any nominee of The Chase Manhattan Bank (with or without
indication of fiduciary
4
<PAGE>
status) or in the name of any subcustodian or any nominee of such subcustodian
appointed pursuant to Paragraph 7 hereof or shall be properly endorsed and in
form for transfer satisfactory to The Chase Manhattan Bank.
5. Voting Rights. With respect to all securities, however registered, it is
understood that the voting and other rights and powers shall be exercised by the
Fund. The Chase Manhattan Bank's only duty shall be to mail for delivery on the
next business day to the Fund any documents received, including proxy statements
and offering circulars, with any proxies for securities registered in a nominee
name executed by such nominee. Where warrants, options, tenders or other
securities have fixed expiration dates, the Fund understands that in order for
The Chase Manhattan Bank to act, The Chase Manhattan Bank must receive the
Fund's instructions at its offices in New York, addressed as The Chase Manhattan
Bank may from time to time request, by no later than noon (NY City time) at
least one business day prior to the last scheduled date to act with respect
thereto (or such earlier date or time as The Chase Manhattan Bank may reasonably
notify the Fund). Absent The Chase Manhattan Bank's timely receipt of such
instructions, such instruments will expire without liability to The Chase
Manhattan Bank.
6. Receipt and Disbursement of Money.
(a) The Chase Manhattan Bank shall open and maintain a custody account for
the Fund, subject only to draft or order by The Chase Manhattan Bank acting
pursuant to the terms of this Agreement, and shall hold in such account, subject
to the provisions hereof, all cash received by it from or for the Fund other
than cash maintained by the Fund in a bank account established and used in
accordance with Rule 17f-3 under the 1940 Act. Funds held by The Chase Manhattan
Bank for the Fund may be deposited by it to its credit at The Chase Manhattan
Bank in the Banking Department of The Chase Manhattan Bank or in such other
banks or trust companies as it may in its discretion deem necessary or
desirable; provided,
5
<PAGE>
however, that every such bank or trust company shall be qualified to act as a
custodian under the 1940 Act, and that each such bank or trust company shall be
approved by vote of a majority of the Board of Trustees of the Fund. Such funds
shall be deposited by The Chase Manhattan Bank in its capacity as Custodian and
shall be withdrawable by The Chase Manhattan Bank only in that capacity.
(b) Upon receipt of Proper Instructions (which may be continuing
instructions as deemed appropriate by the parties) The Chase Manhattan Bank
shall make payments of cash to, or for the account of, the Fund from such cash
only (i) for the purchase of securities, options, futures contracts or options
on futures contracts for the Fund as provided in Section 13 hereof; (ii) in the
case of a purchase of securities effected through a Book-Entry System or
Securities Depository, in accordance with the conditions set forth in Section 8
hereof; (iii) in the case of repurchase agreements entered into between the Fund
and The Chase Manhattan Bank, or another bank, or a broker-dealer which is a
member of The National Association of Securities Dealers, Inc. ("NASD"), either
(a) against delivery of the securities either in certificate form or through an
entry crediting The Chase Manhattan Bank's account at the Federal Reserve Bank
with such securities or (b) against delivery of the receipt evidencing purchase
by the Fund of securities owned by The Chase Manhattan Bank along with written
evidence of the agreement by The Chase Manhattan Bank to repurchase such
securities from the Fund; (iv) for transfer to a time deposit account of the
Fund in any bank, whether domestic or foreign; such transfer may be effected
prior to receipt of a conformation from a broker and/or the applicable bank
pursuant to Proper Instructions from the Fund; (v) for the payment of dividends
or other distributions on shares declared pursuant to the governing documents of
the Fund, or for the payment of interest, taxes, administration, distribution or
advisory fees or expenses which are to be borne by the Fund under the terms of
this Agreement, any Advisory Agreement, or any
6
<PAGE>
administration agreement; (vi) for payments in connection with the conversion,
exchange or surrender of securities owned or subscribed to by the Fund and held
by or to be delivered to The Chase Manhattan Bank; (vii) to a subcustodian
pursuant to Section 7 hereof; (viii) for such common expenses incurred by the
Fund in the ordinary course of its business, including but not limited to
printing and mailing expenses, legal fees, accountants fees, exchange fees; or
(ix) for any other proper purpose, but only upon receipt of, in addition to
Proper Instructions, a certified copy of a resolution of the Board of Trustees
or of the Executive Committee of the Fund signed by an officer of the Fund and
certified by its Secretary or an Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which such payment is to be made,
declaring such purpose to be a proper purpose, and naming the person or persons
to whom such payment is to be made.
(c) The Chase Manhattan Bank is hereby authorized to endorse and collect
all checks, drafts or other orders for the payment of money received as
custodian for the Fund.
6A. Advances by Custodian. The Custodian may from time to time agree to
advance cash to the Fund, without interest, for the fund's other proper
corporate purposes. If the Custodian advances cash for any purpose, the Fund
shall and hereby does grant to the Custodian a security interest in Fund
securities equal in value to the amount of the cash advance but in no event
shall the value of securities in which a security interest has been granted
exceed 20% of the value of the Fund's total assets at the time of the pledge;
should the Fund fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to reasonably dispose of any securities
in which it has a security interest to the extent necessary to obtain
reimbursement.
7
<PAGE>
7. Receipt and Delivery of Securities.
(a) Except as provided by Section 8 hereof, The Chase Manhattan Bank shall
hold and physically segregate all securities and noncash Property received by it
for the Fund. All such securities and non-cash Property are to be held or
disposed of by The Chase Manhattan Bank for the Fund pursuant to the terms of
this Agreement. In the absence of Proper Instructions accompanied by a
certified resolution authorizing the specific transaction by the Fund's Board,
The Chase Manhattan Bank shall have no power or authority to withdraw, deliver,
assign, hypothecate, pledge or otherwise dispose of any such securities and
investments, except in accordance with the express terms provided for in this
Agreement. In no case may any Trustee, officer, employee or agent of the Fund
withdraw any securities. In connection with its duties under this Section 7, The
Chase Manhattan Bank may, at its own expense, enter into subcustodian agreements
with other banks or trust companies for the receipt of certain securities and
cash to be held by The Chase Manhattan Bank for the account of the Fund pursuant
to this Agreement; provided that each such bank or trust company has an
aggregate capital, surplus and undivided profits, as shown by its last published
report, of not less than twenty million dollars ($20,000,000) and that such bank
or trust company agrees with The Chase Manhattan Bank to comply with all
relevant provisions of the 1940 Act and applicable rules and regulations
thereunder. The Chase Manhattan Bank will be liable for acts or omissions of any
subcustodian. The Chase Manhattan Bank shall employ sub-custodians upon receipt
of Proper Instructions, but only in accordance with an applicable vote by the
Board of Trustees of the Fund.
(b) Promptly after the close of business on each day The Chase Manhattan
Bank shall furnish the Fund with confirmations and a summary of all transfers to
or from the account of the Fund during said day. Where securities are
transferred to the account of the Fund established at a Securities Depository or
Book Entry
8
<PAGE>
System pursuant to Section 8 hereof, The Chase Manhattan Bank shall also by
book-entry or otherwise identify as belonging to such Fund the quantity of
securities in a fungible bulk of securities registered in the name of The Chase
Manhattan Bank (or its nominee) or shown in The Chase Manhattan Bank's account
on the books of a Securities Depository or Book-Entry System. At least monthly
and from time to time, The Chase Manhattan Bank shall furnish the Fund with a
detailed statement of the Property held for the Fund under this Agreement.
8. Use of Securities Depository or Book-Entry System. The Fund shall
deliver to The Chase Manhattan Bank a certified resolution of the Board of
Trustees of the Fund approving, authorizing and instructing The Chase Manhattan
Bank on a continuous and ongoing basis until instructed to the contrary by
Proper Instructions actually received by The Chase Manhattan Bank (i) to deposit
in a Securities Depository or Book-Entry System all securities of the Fund
eligible for deposit therein and (ii) to utilize a Securities Depository or
Book-Entry System to the extent possible in connection with the performance of
its duties hereunder, including without limitation settlements of purchases and
sales of securities by the Fund, and deliveries and returns of securities
collateral in connection with borrowings. Without limiting the generality of
such use, it is agreed that the following provisions shall apply thereto:
(a) Securities and any cash of the Fund deposited in a Securities
Depository or Book-Entry System will at all times (1) be represented in an
account of The Chase Manhattan Bank in the Securities Depository or Book-Entry
System (the "Account") and (2) be segregated from any assets and cash controlled
by The Chase Manhattan Bank in other than a fiduciary or custodian capacity but
may be commingled with other assets held in such capacities. The Chase Manhattan
Bank will effect payment for securities and receive and deliver securities in
accordance with accepted industry practices as set forth in (b) below, unless
the Fund has given
9
<PAGE>
The Chase Manhattan Bank Proper Instructions to the contrary. The records of The
Chase Manhattan Bank with respect to securities of the Fund maintained in a
Securities Depository or Book Entry System shall identify by book entry those
securities belonging to the Fund.
(b) The Chase Manhattan Bank shall pay for securities purchased for the
account of the Fund upon (i) receipt of advice from the Securities Depository or
Book Entry System that such securities have been transferred to the Account, and
(ii) the making of an entry on the records of The Chase Manhattan Bank to
reflect such payment and transfer for the account of the Fund. Upon receipt of
Proper Instructions, The Chase Manhattan Bank shall transfer securities sold for
the account of the Fund upon (i) receipt of advice from the Securities
Depository or Book Entry System that payment for such securities has been
transferred to the Account, and (ii) the making of an entry on the records of
The Chase Manhattan Bank to reflect such transfer and payment for the account of
the Fund. Copies of all advices from the Securities Depository or Book Entry
System of transfers of securities for the account of the Fund shall identify the
Fund, be maintained for the Fund by The Chase Manhattan Bank and be provided to
the Fund as its request. Upon request, The Chase Manhattan Bank shall furnish
the Fund confirmation of each transfer to or from the account of the Fund in the
form of a written advice or notice and shall furnish to the Fund copies of daily
transaction sheets reflecting each day's transactions in a Securities Depository
or Book Entry System for the account of the Fund.
(c) The Chase Manhattan Bank shall provide the Fund with any report
obtained by The Chase Manhattan Bank on the Securities Depository or Book Entry
System's accounting system, internal accounting control and procedures for
safeguarding securities deposited in the Securities Depository or Book Entry
System;
10
<PAGE>
(d) All Books and records maintained by The Chase Manhattan Bank which
relate to the Fund participation in a Securities Depository or Book-Entry System
will at all times during The Chase Manhattan Bank's regular business hours be
open to the inspection of the Fund's duly authorized employees or agents, and
the Fund will be furnished with all information in respect of the services
rendered to it as it may require.
(e) Anything to the contrary in this Agreement notwithstanding, The Chase
Manhattan Bank shall be liable to the Fund for any loss or damage to the Fund
resulting from any negligence, misfeasance or misconduct of The Chase Manhattan
Bank or any of its agents or of any of its or their employees in connection with
its or their use of the Securities Depository or Book Entry Systems or from
failure of The Chase Manhattan Bank or any such agent to enforce effectively
such rights as it may have against such Securities Depository or Book Entry
System; at the election of the Fund, it shall be entitled to be subrogated to
the rights of The Chase Manhattan Bank with respect to any claim against the
Securities Depository or Book Entry System or any other person which The Chase
Manhattan Bank may have as a consequence of any such loss or damage if and to
the extent that the Fund has not been made whole for any such loss or damage.
9. Segregated Account. The Chase Manhattan Bank shall upon receipt of
Proper Instructions establish and maintain a segregated account or accounts for
and on behalf of the Fund, into which account or accounts may be transferred
cash and/or securities, including securities maintained in an account by The
Chase Manhattan Bank pursuant to Section 8 hereof, (i) in accordance with the
provisions of any agreement among the Fund, The Chase Manhattan Bank and a
broker dealer registered under the Securities and Exchange Act of 1934 and
member of the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The Options
Clearing
11
<PAGE>
Corporation and of any registered national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or government securities in connection with options purchased, sold or written
by the Fund or commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of segregated accounts by registered investment
companies and (iv) for other proper corporate purposes, but only, in the case of
clause (iv), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board of Trustees or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
10. INSTRUCTIONS CONSISTENT WITH THE DECLARATION, ETC.
(a) Unless otherwise provided in this Agreement, The Chase Manhattan Bank
shall act only upon Proper Instructions. The Chase Manhattan Bank may assume
that any Proper Instructions received hereunder are not in any way inconsistent
with any provision of the Declaration or By-Laws or any vote or resolution of
the Fund's Board of Trustees or any committee thereof. The Chase Manhattan Bank
shall be entitled to rely upon any Proper Instructions actually received by The
Chase Manhattan Bank pursuant to this Agreement. The Fund agrees that The Chase
Manhattan Bank shall incur no liability in acting in good faith upon Proper
Instructions given to The Chase Manhattan Bank, except to the extent such
liability was incurred as a result of The Chase Manhattan Bank's negligence or
willful misconduct. In accord with instructions from the Fund, as
12
<PAGE>
required by accepted industry practice or as The Chase Manhattan Bank may elect
in effecting the execution of Fund instructions, advances of cash or other
Property made by The Chase Manhattan Bank, arising from the purchase, sale,
redemption, transfer or other disposition of Property of the Fund, or in
connection with the disbursement of funds to any party, or in payment of fees,
expenses, claims or liabilities owned to The Chase Manhattan Bank by the Fund,
or to any other party which has secured judgment in a court of law against
the Fund which creates an overdraft in the accounts or over-delivery of
Property, shall be deemed a loan by The Chase Manhattan Bank to the Fund,
payable on demand, bearing interest at such rate customarily charged by The
Chase Manhattan Bank for similar loans.
(b) The Fund agrees that test arrangements, authentication methods or other
security devices to be used with respect to instructions which the Fund may give
by telephone, telex, TWX, facsimile transmission, bank wire or other
teleprocess, or through an electronic instruction system, shall be processed in
accordance with terms and conditions for the use of such arrangements, methods
or devices as The Chase Manhattan Bank may put into effect and modify from time
to time. The Fund shall safeguard any test keys, identification codes or other
security devices which The Chase Manhattan Bank makes available to the Fund and
agrees that the Fund shall be responsible for any loss, liability or damage
incurred by The Chase Manhattan Bank or by the Fund as a result of The Chase
Manhattan Bank's acting in accordance with instructions from any unauthorized
person using the proper security device except to the extent such loss,
liability or damage was incurred as a result of The Chase Manhattan Bank's
negligence or willful misconduct. The Chase Manhattan Bank may electronically
record, but shall not be obligated to so record, any instructions given by
telephone and any other telephone discussions with respect to the Fund. In the
event that the Fund uses The Chase Manhattan Bank's Asset Management system or
any successor electronic
13
<PAGE>
communications or information system, the Fund agrees that The Chase Manhattan
Bank is not responsible for the consequences of the failure of that system to
perform for any reason, beyond the reasonable control of The Chase Manhattan
Bank, or the failure of any communications carrier, utility, or communications
network. In the event that system is inoperable, the Fund agrees that it will
accept the communication of transaction instructions by telephone, facsimile
transmission on equipment compatible to The Chase Manhattan Bank's facsimile
receiving equipment or by letter, at no additional charge to the Fund.
(c) The Chase Manhattan Bank shall transmit promptly to the Fund all
written information (including, without limitation, pendency of calls and
maturities of securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund and the maturity
of futures contracts purchased or sold by the Fund) received by The Chase
Manhattan Bank from issuers of the securities being held for the Fund. With
respect to tender or exchange offers, The Chase Manhattan Bank shall transmit
promptly by facsimile to the Fund all written information received by The Chase
Manhattan Bank from issuers of the securities whose tender or exchange is sought
and from the party (or his agents) making the tender or exchange offer. If the
Fund desires to take action with respect to any tender offer, exchange offer or
any other similar transaction, the Fund shall notify The Chase Manhattan Bank at
least three business days prior to the date on which The Chase Manhattan Bank is
to take such action or upon the date such notification is first received by the
Fund, if later. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of such
property, The Chase Manhattan Bank is authorized to allot the called portion to
the respective beneficial holders of the Property in such manner deemed to be
fair and equitable by The Chase Manhattan Bank in its sole discretion.
14
<PAGE>
11. Transactions Not Requiring Instructions. The Chase Manhattan Bank is
authorized to take the following action without Proper Instructions:
(a) Collection of Income and Other Payments. The Chase Manhattan Bank
shall:
(i) collect and receive on a timely basis for the account of the
Fund, all income and other payments and distributions, including
(without limitation) stock dividends, rights, warrants and similar
items, included or to be included in the Property of the Fund, and
promptly advise the Fund of such receipt and shall credit such income,
as collected, to the Fund. From time to time, The Chase Manhattan Bank
may elect, but shall not be obligated, to credit the account with
interest, dividends or principal payments on payable or contractual
settlement date, in anticipation of receiving same from a payor,
central depository, broker or other agent employed by the Fund or The
Chase Manhattan Bank. Any such crediting and posting shall be at the
Fund's sole risk, and The Chase Manhattan Bank shall be authorized to
reverse any such advance posting in the event it does not receive good
funds from any such payor, central depository, broker or agent of the
Customer. The Chase Manhattan Bank agrees to promptly notify the Fund
of the reversal of any such advance posting.
(ii) endorse and deposit for collection in the name of the Fund,
checks, drafts, or other orders for the payment of money on the same
day as received;
(iii) receive and hold for the account of the Fund all
securities received by the Fund as a result of a stock dividend, share
split-up or reorganization, merger, recapitalization, readjustment or
other rearrangement or distribution of rights or similar securities
issued
15
<PAGE>
with respect to any portfolio securities of the Fund held by The Chase
Manhattan Bank hereunder;
(iv) present for payment and collect the amount payable upon all
securities which may mature or be called, redeemed or retired, or
otherwise become payable on the date such securities become payable;
(v) take any action which may be necessary and proper in
connection with the collection and receipt of such income and other
payments and the endorsement for collection of checks, drafts and
other negotiable instruments;
(vi) to effect an exchange of the securities where the par value
is changed, and to surrender securities at maturity or upon an earlier
call for redemption, or when securities otherwise become payable,
against payment therefore in accordance with accepted industry
practice. If any Property registered in the name of a nominee of The
Chase Manhattan Bank is called for partial redemption by the issuer of
such property, The Chase Manhattan Bank is authorized to allot the
called portion to the respective beneficial holders of the Property in
such manner deemed to be fair and equitable by The Chase Manhattan
Bank in its sole discretion.
(b) Miscellaneous Transactions. The Chase Manhattan Bank is authorized to
deliver or cause to be delivered Property against payment or other consideration
or written receipt therefor for examination by a dealer selling for the account
of the Fund in accordance with street delivery custom.
12. Transactions Requiring Instructions. In addition to the actions
requiring Proper Instructions set forth herein, upon receipt of Proper
Instructions and not otherwise, The Chase Manhattan Bank, directly or through
the use of a Securities Depository or Book Entry System, shall:
16
<PAGE>
(a) Execute and deliver to such persons as may be designated in such
Proper Instructions, proxies, consents, authorizations, and any other
instruments whereby the authority of the Fund as owner of any securities may be
exercised;
(b) Deliver any securities held for the Fund against receipt of other
securities or cash issued or paid in connection with the liquidation,
reorganization, refinancing, merger, consolidation or recapitalization of any
issuer of securities or corporation, or the exercise of any conversion
privilege;
(c) Deliver any securities held for the Fund to any protective committee,
reorganization committee or other person in connection with the reorganization,
refinancing, merger, consolidation, recapitalization or sale of assets of any
issues of securities or corporation, against receipt of such certificates of
deposit, interim receipts or other instruments or documents, and cash, if any,
as may be issued to it to evidence such delivery;
(d) Make such transfers or exchanges of the assets of the Fund and take
such other steps as shall be stated in said instructions to be for the purpose
of effectuating any duly authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of the Fund;
(e) Release securities belonging to the Fund to any bank or trust company
for the purpose of pledge or hypothecation to secure any loan incurred by the
Fund; provided, however, that securities shall be released only upon payment to
The Chase Manhattan Bank of the monies borrowed, or upon receipt of adequate
collateral as agreed upon by the Fund and The Chase Manhattan Bank which may be
in the form of cash or obligations issued by the U.S. government, its agencies
or instrumentalities, except that in the cases where additional collateral is
required to secure a borrowing already made, subject to proper prior
authorization, further securities may be released for that purpose; and pay such
loan upon re-delivery to it
17
<PAGE>
of the securities pledged or hypothecated therefore and upon surrender of the
note or notes evidencing the loan; and
(f) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a broker-dealer registered under
the Securities Exchange Act of 1934 (the "Exchange Act") and a member of The
National Association of Securities Dealers, Inc. ("NASD"), relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange, or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions by the Funds;
(g) Deliver securities in accordance with the provisions of any agreement
among the Fund, The Chase Manhattan Bank and a Futures Commission Merchant
registered under the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any Contract Market, or
any similar organization or organizations, regarding account deposits in
connection with transactions by the Fund; and
(h) Deliver securities against payment or other consideration or written
receipt therefore for transfer of securities into the name of the Fund or The
Chase Manhattan Bank or a nominee of either, or for exchange or securities for a
different number of bonds, certificates, or other evidence, representing the
same aggregate face amount or number of units bearing the same interest rate,
maturity date and call provisions, if any; provided that, in any such case, the
new securities are to be delivered to The Chase Manhattan Bank;
(i) Exchange securities in temporary form for securities in definitive
form;
(j) Surrender, in connection with their exercise, warrants, rights or
similar securities, provided that in each case, the new securities and cash, if
any, are to be delivered to The Chase Manhattan Bank;
18
<PAGE>
(k) Deliver securities upon receipt of payment in connection with any
repurchase agreement related to such securities entered into by the Fund;
(l) Deliver securities pursuant to any other proper corporate purpose, but
only upon receipt of, in addition to Proper Instructions, a certified copy of a
resolution of the Board of Trustees or other Executive Committee signed by an
officer of the Funds and certified by the Secretary or an Assistant Secretary,
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
13. Purchase of Securities. Promptly after each purchase of securities,
options, futures contracts or options on futures contracts by the investment
advisor, the Fund shall deliver to The Chase Manhattan Bank (as Custodian)
Proper Instructions specifying with respect to each such purchase: (a) the name
of the issuer and the title of the securities, (b) the number of shares of the
principal amount purchased and accrued interest, if any, (c) the dates of
purchase and settlement, (d) the purchase price per unit, (e) the total amount
payable upon such purchase, (f) the name of the person from whom or the broker
through whom the purchase was made, and (g) the Fund name. The Chase Manhattan
Bank shall upon receipt of securities purchased by or for the Fund registered in
the name of the Fund or in the name of a nominee of The Chase Manhattan Bank or
of the Fund or in proper form for transfer or upon receipt of evidence of title
to options, futures contracts or options on futures contracts purchased by the
Fund, pay out of the moneys held for the account of the Fund the total amount
payable to the person from whom or the broker through whom the purchase was
made, provided that the same conforms to the total amount payable as set forth
in such Proper Instructions. Except as specifically stated otherwise in this
Agreement, in any and every case where payment for purchase of securities for
the account of the Fund is made by
19
<PAGE>
The Chase Manhattan Bank in advance of receipt of the securities purchased in
the absence of specific written instructions from the Fund to so pay in advance,
The Chase Manhattan Bank shall be absolutely liable to the Fund for such
securities to the same extent as if the securities had been received by The
Chase Manhattan Bank.
14. Sale of Securities. Promptly after each sale of securities by the Fund
at the instruction of the investment advisor, the Fund shall deliver to The
Chase Manhattan Bank (as Custodian) Proper Instructions, specifying with respect
to each such sale; (a) the name of the issuer and the title of the security, (b)
the number of shares or principal amount sold, and accrued interest, if any, (c)
the date of sale, (d) the sale price per unit, (e) the total amount payable to
the Fund upon such sale, (f) the name of the broker through whom or the person
to whom the sale was made and (g) the Fund name. The Chase Manhattan Bank shall
deliver the securities upon receipt of the total amount payable to the Fund upon
such sale, provided that the same conforms to the total amount payable as set
forth in such Proper Instructions. Subject to the foregoing. The Chase Manhattan
Bank may accept payment in such form as shall be satisfactory to it, and may
deliver securities and arrange for payment in accordance with the customs
prevailing among dealers in securities.
15. Not In Use.
16. Records. The books and records pertaining to the Fund which are in the
possession of The Chase Manhattan Bank shall be the property of the Fund. Such
books and records shall be prepared and maintained as required by the 1940 Act,
as amended, and other applicable securities laws and rules and regulations. The
Fund, or the Fund's authorized representative, shall have access to such books
and records at all times during The Chase Manhattan Bank's normal business
hours, and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the fund, copies of any such books and
records at all times during The Chase Manhattan Bank's normal business hours,
and such books and records shall be surrendered to the Fund promptly upon
request. Upon reasonable request of the Fund, copies of any such books and
records
20
<PAGE>
shall be provided by The Chase Manhattan Bank to the Fund or the Fund's
authorized representative at the Fund's expense.
17. Cooperation with Accountants. The Chase Manhattan Bank shall cooperate
with the Fund's independent certified public accountants and shall take all
reasonable action in the performance of its obligations under this Agreement to
assure that the necessary information is made available to such accountants for
the expression of their unqualified opinion, including but not limited to the
opinion included in the Fund's Form N-1A, Form N-SAR and other reports to the
Securities and Exchange Commission and with respect to any other requirement of
such Commission.
18. Reports to Fund by Independent Public Accountants. The Chase
Manhattan Bank shall provide the Fund, at such times as the Fund may reasonably
require, with reports by independent public accountants on the accounting
system, internal accounting control and procedures for safeguarding securities,
futures contracts and options on futures contracts, including securities
deposited and/or maintained in a Securities Depository or Book Entry System,
relating to the services provided by The Chase Manhattan Bank under this
Contract; such reports, shall be of sufficient scope and in sufficient detail,
as may reasonably be required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such examination, and, if there
are no such inadequacies, the reports shall so state.
19. Confidentiality. The Chase Manhattan Bank agrees on behalf of itself
and its employees to treat confidentially and as the proprietary information of
the Fund all records and other information relative to the Fund and its prior,
present or potential Shareholders and relative to the advisors and its prior,
present or potential customers, and not to use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after
21
<PAGE>
prior notification to and approval in writing by the Fund, which approval
shall not be unreasonably withheld and may not be withheld where The Chase
Manhattan Bank may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Fund. Nothing contained
herein, however, shall prohibit The Chase Manhattan Bank from advertising or
soliciting the public generally with respect to other products or services,
regardless of whether such advertisement or solicitation may include prior,
present or potential Shareholders of the Fund.
20. Equipment Failures. In the event of equipment failures beyond The
Chase Manhattan Bank's control, The Chase Manhattan Bank shall, at no
additional expense to the Fund, take reasonable steps to minimize service
interruptions but shall not have liability with respect thereto. The Chase
Manhattan Bank shall enter into and shall maintain in effect with appropriate
parties one or more agreements making reasonable provisions for back up
emergency use of electronic data processing equipment to the extent appropriate
equipment is available.
21. Right to Receive Advice.
(a) Advice of Fund. If The Chase Manhattan Bank shall be in doubt as to
any action to be taken or omitted by it, it may request, and shall receive, from
the Fund clarification or advice.
(b) Advice of Counsel. If The Chase Manhattan Bank shall be in doubt as
to any question of law involved in any action to be taken or omitted by The
Chase Manhattan Bank, it may request advice at its own cost from counsel of its
own choosing (who may be counsel for the Fund or The Chase Manhattan Bank, at
the option of The Chase Manhattan Bank).
(c) Conflicting Advice. In case of conflict between directions or advice
received by The Chase Manhattan Bank pursuant to sub-paragraph (a) of this
22
<PAGE>
paragraph and advice received by The Chase Manhattan Bank pursuant to
subparagraph (b) of this paragraph, The Chase Manhattan Bank shall be entitled
to rely on and follow the advice received pursuant to the latter provision
alone.
(d) Protection of The Chase Manhattan Bank. The Chase Manhattan Bank shall
be protected in any action or inaction which it takes or omits to take in
reliance on any directions or advice received pursuant to subparagraphs (a) or
(b) of this section which The Chase Manhattan Bank, after receipt of any such
directions or advice, in good faith believes to be consistent with such
directions or advice. However, nothing in this paragraph shall be construed as
imposing upon The Chase Manhattan Bank any obligation (i) to seek such
directions or advice, or (ii) to act in accordance with such directions or
advice when received, unless, under the terms of another provision of this
Agreement, the same is a condition to The Chase Manhattan Bank's properly taking
or omitting to take such action. Nothing in this subsection shall excuse The
Chase Manhattan Bank when an action or omission on the part of The Chase
Manhattan Bank constitutes willful misfeasance, bad faith, negligence or
reckless disregard by The Chase Manhattan Bank of its duties under this
Agreement. 22. Compliance with Governmental Rules and Regulations. The Fund
assumes full responsibility for insuring that the contents of each Prospectus of
the Fund complies with all applicable requirements of the 1933 Act, the 1940
Act, and any laws, rules and regulations of governmental authorities having
jurisdiction.
23. Compensation. As compensation for the services rendered by The Chase
Manhattan Bank during the term of this Agreement, the Fund will pay to The Chase
Manhattan Bank, in addition to reimbursement of its out-of-pocket expenses,
monthly fees as outlined in Exhibit A.
24. Indemnification. The Fund, as sole owner of the Property, agrees to
indemnify and hold harmless The Chase Manhattan Bank and its nominees from all
23
<PAGE>
taxes, charges, expenses, assessments, claims, and liabilities (including,
without limitation, liabilities arising under the 1933 Act, the Securities
Exchange Act of 1934, the 1940 Act, and any state and foreign securities and
blue sky laws, all as or to be amended from time to time) and expenses,
including (without limitation) attorney's fees and disbursements (hereafter
"liabilities and expenses"), arising directly or indirectly from any action or
thing which The Chase Manhattan Bank takes or does or omits to take or do (i) at
the request or on the direction of or in reliance on the advice of the Fund, or
(ii) upon Proper Instructions, provided, that neither The Chase Manhattan Bank
nor any of its nominees or sub-custodians shall be indemnified against any
liability to the Fund or to its Shareholders (or any expenses incident to such
liability) arising out of (x) The Chase Manhattan Bank's or such nominee's or
sub-custodian's own willful misfeasance, bad faith, negligence or reckless
disregard of its duties under this Agreement or any agreement between The Chase
Manhattan Bank and any nominee or subcustodian or (y) The Chase Manhattan Bank's
own negligent failure to perform its duties under this Agreement. The Chase
Manhattan Bank similarly agrees to indemnify and hold harmless the Fund from all
liabilities and expenses arising directly or indirectly from The Chase Manhattan
Bank's or such nominee's or sub-custodian's willful misfeasance, bad faith,
negligence or reckless disregard in performing its duties under this agreement.
In the event of any advance of cash for any purpose made by The Chase Manhattan
Bank resulting from orders or Proper Instructions of the Fund, or in the event
that The Chase Manhattan Bank or its nominee or subcustodian shall incur or be
assessed any taxes, charges, expenses, assessments, claims or liabilities in
connection with the performance of this Agreement, except such as may arise from
its or its nominee's or sub-custodian's own negligent action, negligent failure
to act, willful misconduct, or reckless disregard, the Fund shall
24
<PAGE>
promptly reimburse The Chase Manhattan Bank for such advance of cash or such
taxes, charges, expenses, assessments claims or liabilities.
25. Responsibility of The Chase Manhattan Bank. In the performance of its
duties hereunder, The Chase Manhattan Bank shall be obligated to exercise care
and diligence and to act in good faith to insure the accuracy and completeness
of all services performed under this Agreement. The Chase Manhattan Bank shall
be responsible for its own negligent failure or that of any subcustodian it
shall appoint to perform its duties under this Agreement but to the extent that
duties, obligations and responsibilities are not expressly set forth in this
Agreement, The Chase Manhattan Bank shall not be liable for any act or omission
which does not constitute willful misfeasance, bad faith, or negligence on the
part of The Chase Manhattan Bank or such subcustodian or reckless disregard of
such duties, obligations and responsibilities. Without limiting the generality
of the foregoing or of any other provision of this Agreement, The Chase
Manhattan Bank in connection with its duties under this Agreement shall, so long
as and to the extent it is in the exercise of reasonable care, not be under any
duty or obligation to inquire into and shall not be liable for or in respect of
(a) the validity or invalidity or authority or lack thereof of any advice,
direction, notice or other instrument which conforms to the applicable
requirements of this Agreement, if any, and which The Chase Manhattan Bank
believes to be genuine, (b) the validity of the issue of any securities
purchased or sold by the Fund, the legality of the purchase or sale thereof or
the propriety of the amount paid or received therefor, (c) the legality of the
issue or sale of any Shares, or the sufficiency of the amount to be received
therefore, (d) the legality of the redemption of any Shares, or the propriety of
the amount to be paid therefor, (e) the legality of the declaration or payment
of any dividend or distribution on Shares, of (f) delays or errors or loss of
data occurring by reason of circumstances beyond The Chase Manhattan Bank's
control, including acts of civil
25
<PAGE>
or military authority, national emergencies, labor difficulties, fire,
mechanical breakdown (except as provided in Section 20), flood or catastrophe,
acts of God, insurrection, war, riots, or failure of the mail, transportation,
communication or power supply.
26. Collection of Income. The Chase Manhattan Bank shall collect on a
timely basis all income and other payments with respect to registered securities
held hereunder to which the Fund shall be entitled either by law or pursuant to
custom in the securities business, and shall collect on a timely basis all
income and other payments with respect to bearer securities if, on the date of
payment by the issuer, such securities are held by The Chase Manhattan Bank or
its agent thereof and shall credit such income, as collected, to the Fund's
custodian account. Without limiting the generality of the foregoing, The Chase
Manhattan Bank shall detach and present for payment all coupons and other income
items requiring presentation as and when they become due and shall
collect interest when due on securities held hereunder. Income due the Fund on
securities loaned pursuant to the provisions of Section 9 shall be the
responsibility of the Fund. The Chase Manhattan Bank will have no duty or
responsibility in connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which the Fund is properly
entitled.
27. Ownership Certificates for Tax Purposes. The Chase Manhattan Bank
shall execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with receipt of income or other payments
with respect to securities of the Fund held by it and in connection with
transfers of securities.
26
<PAGE>
28. Effective Period; Termination and Amendment.
-------------------------------------------
This Agreement shall become effective as of its execution, shall continue
in full force and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and may be
terminated by either party by an instrument in writing delivered or mailed,
postage prepaid to the other party, such termination to take effect not sooner
than thirty (30) days after the date of such delivery or mailing; provided,
however that The Chase Manhattan Bank shall not act under Section 8 hereof in
the absence of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has approved the
initial use of a particular Securities Depository or Book Entry System, as
required by Rule 17f-4 under the Investment Company Act of 1940, as amended;
provided further, however, that the Fund shall not amend or terminate this
Agreement in contravention of any applicable federal or state regulations, or
any provision of the Declaration of Trust, and further provided, that the Fund
may at any time by action of its Board of Trustees (i) substitute another bank
or trust company for The Chase Manhattan Bank by giving notice as described
above to The Chase Manhattan Bank, or (ii) immediately terminate this Agreement
in the event of the appointment of a conservator or receiver for The Chase
Manhattan Bank by the Comptroller of the Currency or upon the happening of a
like event at the direction of an appropriate regulatory agency or court of
competent jurisdiction.
Upon termination of the Agreement, the Fund shall pay to The Chase
Manhattan Bank such compensation as may be due as of the date of such
termination and shall likewise reimburse The Chase Manhattan Bank for its costs,
expenses and disbursements.
27
<PAGE>
29. Successor Custodian
If a successor custodian shall be appointed by the Board of Trustees of the
Fund, The Chase Manhattan Bank shall, upon termination, deliver to such
successor custodian at the office of the custodian, duly endorsed and in the
form for transfer, all securities then held by it hereunder and shall transfer
to an account of the successor custodian all of the Fund's securities held in a
Securities Depository or Book Entry System.
If no such successor custodian shall be appointed, The Chase Manhattan Bank
shall, in like manner, upon receipt of a certified copy of a vote of the Board
of Trustees of the Fund, deliver at the office of the Custodian and transfer
such securities, funds and other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Board of Trustees shall have been delivered to
The Chase Manhattan Bank on or before the date when such termination shall
become effective, then The Chase Manhattan Bank shall have the right to deliver
to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing
business in New York, New York, of its own selection, having an aggregate
capital, surplus, and undivided profits, as shown by its last published report,
of not less than $25,000,000, all securities, funds and other properties held by
The Chase Manhattan Bank and all instruments held by The Chase Manhattan
relative thereto and all other property held by it under this Agreement and to
transfer to an account of such successor custodian all of the Fund's securities
held in any Securities Depository or Book Entry System. Thereafter, such bank or
trust company shall be the successor of the Custodian under this Contract.
In the event that securities, funds and other properties remain in the
possession of The Chase Manhattan Bank after the date of termination hereof
owing to failure of the Fund to procure the certified copy of the vote referred
to or of
28
<PAGE>
the Board of Trustees to appoint a successor custodian, The Chase Manhattan Bank
shall be entitled to fair compensation for its services during such period as
The Chase Manhattan Bank retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the duties and
obligations of The Chase Manhattan Bank shall remain in full force and effect.
30. Notices. All notices and other communications (collectively referred
to as "Notice" or "Notices") in this section hereunder shall be in writing and
shall be first sent by telegram, cable, telex, or facsimile sending device and
thereafter by overnight mail for delivery on the next business day. Notices
shall be addressed (a) if to The Chase Manhattan Bank, at The Chase Manhattan
Bank's address, 4 New York Plaza, 3rd Floor, New York, New York, 10004,
facsimile number (212) 623-8997; (b) if to the Fund, at the address of the Fund
Attention: Controller, facsimile number (312) 917-8049; or (c) if to neither of
the foregoing, at such other address as shall have been notified to the sender
of any such Notice or other communication. Notices sent by overnight mail shall
be deemed to have been given the next business day. Notices sent by messenger
shall be deemed to have been given on the day delivered, and notices sent by
confirming telegram, cable, telex or facsimile sending device shall be deemed to
have been given immediately. All postage, cable, telegram, telex and facsimile
sending device charges arising from the sending of a Notice hereunder shall be
paid by the sender.
31. Further Actions. Each party agrees to perform such further acts and
execute such further documents as are necessary to effectuate the purposes
hereof.
32. Amendments. This Agreement or any part hereof may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of such change or waiver is sought.
33. Additional Funds. In the event that the Fund establishes one or more
series of Shares in addition to the series listed on Appendix A, with respect to
which
29
<PAGE>
it desires to have the Custodian render services as custodian under the terms
hereof, it shall so notify the Custodian in writing, and if the Custodian agrees
in writing to provide such services, such series of Shares shall become a Fund
hereunder.
34. Miscellaneous. This Agreement embodies the entire Agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement shall be deemed to be a contract made in New York and
governed by New York law. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise the remainder of
this Agreement shall not be affected thereby. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors.
35. Declaration of Trust. The Fund's Declaration of Trust is on file with
the Secretary of the Commonwealth of Massachusetts. This agreement is executed
on behalf of the Fund by the Fund's officers as officers and not individually
and the obligations imposed upon the Fund by this Agreement are not binding upon
any of the Fund's Trustees, officers or shareholders individually but are
binding only upon the assets and property of the Fund.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their officers designated below as of the day and year first above
written.
THE CHASE MANHATTAN BANK
Attest: /s/ Thomas V. DiBella By: /s/ Peter C. Arrighetti
---------------------------- ----------------------------
THOMAS V. DIBELLA PETER C. ARRIGHETTI
VICE PRESIDENT SENIOR VICE PRESIDENT
NUVEEN FLAGSHIP MULTISTATE
TRUST II
Attest: /s/ Gifford R. Zimmerman By: /s/ O. Walter Renfftlen
---------------------------- ----------------------------
GIFFORD R. ZIMMERMAN O. WALTER RENFFTLEN
ASSISTANT GENERAL COUNSEL VICE PRESIDENT &
CONTROLLER
31
<PAGE>
Appendix A
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
Nuveen New York Insured Municipal Bond Fund
32
<PAGE>
EXHIBIT A
---------
CUSTODY SERVICE FEE
-------------------
Administration and Maintenance Fee
- ----------------------------------
.01375% (1 3/8 Basis Points) on first $10 billion
.00875% (7/8 Basis Point) on second $10 billion
.0075% (3/4 Basis Point) on third $10 billion
.005% (1/2 Basis Point) on remainder
Transaction Fees
- ----------------
$15.00 Per Book Entry Transaction
$25.00 Per Physical Transaction
$35.00 Per Future Contract or Option wire
$8.00 Per outgoing Wire Transfer for ETFs
$5.00 Per incoming and outgoing Wire Transfer
for Open End and Money Market Funds
NOTES:
1. Schedule should be applied to total assets for all Exchange Traded funds,
Open End Load Funds, and Money Market Funds.
2. Add $5.00 per book entry transaction and physical transaction if Custody
inputs trades.
BALANCES
--------
1. During each month, daily net overdrafts are offset by daily net cash
balances dollar for dollar with no penalty or charge for daily net
overdrafts.
2. At the end of each month, the net overdraft for the month incurs an
overdraft charge computed as follows:
The negative net cumulative balance plus 10% reserves multiplied by
the average monthly Fed Funds rate divided by 365 days.
3. Net credit balance at month end carries forward and is eligible for offset
with overdrafts in the next month. The carry forward net credit balance
incurs a 10% reduction. Carry forward balances expire at the end of each
portfolio's fiscal year end for "fully invested funds"; for new funds not
fully invested, the credit balance carries forward until the fund becomes
fully invested. Each series of the Fund will use its best efforts to keep
its cumulative balances at each calendar quarter end below $50 million.
4. Nuveen Institutional Advisory Corp. or Nuveen Advisory Corp. will be
responsible for promptly advising The Chase Manhattan Bank of the date a
new fund becomes fully invested.
5. Effective January 1, 1996, FDIC charges will be no longer applied to the
portfolios.
6. Overdrafts are permissible only as a means of compensating for positive
balances.
7. Due to FDIC capitalization requirements, overdrafts are not permissible on
June 30th and December 31st.
<PAGE>
EXHIBIT 9(a)
TRANSFER AGENCY AND SERVICE AGREEMENT
between
NUVEEN FLAGSHIP MULTISTATE TRUST II
and
STATE STREET BANK AND TRUST COMPANY
1C-Domestic Trust/Series
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Terms of Appointment; Duties of the Bank...................... 1
2. Fees and Expenses............................................. 3
3. Representations and Warranties of the Bank.................... 4
4. Representations and Warranties of the Fund.................... 4
5. Wire Transfer Operating Guidelines............................ 5
6. Data Access and Proprietary Information....................... 6
7. Indemnification............................................... 8
8. Standard of Care.............................................. 9
9. Covenants of the Fund and the Bank............................ 9
10. Termination of Agreement...................................... 10
11. Additional Funds.............................................. 10
12. Assignment.................................................... 10
13. Amendment..................................................... 11
14. Massachusetts Law to Apply.................................... 11
15. Force Majeure................................................. 11
16. Consequential Damages......................................... 11
17. Merger of Agreement........................................... 11
18. Limitations of Liability of the Trustees
or Shareholders............................................... 11
19. Counterparts.................................................. 11
20. Reproduction of Documents..................................... 12
</TABLE>
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of February, 1997, by and between NUVEEN
FLAGSHIP MULTISTATE TRUST II, a Massachusetts business trust, having its
principal office and place of business at, 333 West Wacker Drive, Chicago,
Illinois 60606 (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of business at
225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets; and
WHEREAS, the Fund intends to initially offer shares in nine series, the
following of which will be covered by this Agreement, Nuveen Flagship
Connecticut Municipal Bond Fund (such series, together with all other series
subsequently established by the Fund and made subject to this Agreement in
accordance with Article 11, being herein referred to as a "Portfolio", and
collectively as the "Portfolios");
WHEREAS, the Fund on behalf of the Portfolio desires to appoint the Bank as its
transfer agent, dividend disbursing agent and agent in connection with certain
other activities, and the Bank desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
1. Terms of Appointment; Duties of the Bank
1.1 Subject to the terms and conditions set forth in this Agreement, the Fund,
on behalf of the Portfolio, hereby employs and appoints the Bank to act as,
and the Bank agrees to act as its transfer agent for the Fund's authorized
and issued shares of its beneficial interest, $.01 par value, ("Shares"),
dividend disbursing agent and agent in connection with any accumulation,
open-account or similar plans provided to the shareholders of each of the
respective Portfolio of the Fund ("Shareholders") and set out in the
currently effective prospectus and statement of additional information
("prospectus") of the Fund on behalf of the applicable Portfolio, including
without limitation any periodic investment plan or periodic withdrawal
program.
1.2 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund on behalf of each of the Portfolio, as
applicable and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares, and
promptly
1
<PAGE>
deliver payment and appropriate documentation thereof to the
Custodian of the Fund authorized pursuant to the Declaration of
Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof to
the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with broker-
dealers authorized by the Fund who shall thereby be deemed to be
acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies paid to it
by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof upon
receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund on behalf of the applicable Portfolio;
(viii) Issue replacement certificates for those certificates alleged to
have been lost, stolen or destroyed upon receipt by the Bank of
indemnification satisfactory to the Bank and protecting the Bank
and the Fund, and the Bank at its option, may issue replacement
certificates in place of mutilated stock certificates upon
presentation thereof and without such indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain pursuant
to SEC Rule 17Ad-10(e) a record of the total number of shares of
the Fund which are authorized, based upon data provided to it by
the Fund, and issued and outstanding. The Bank shall also provide
the Fund on a regular basis with the total number of shares which
are authorized and issued and outstanding and shall have no
obligation, when recording the issuance of shares, to monitor the
issuance of such shares or to take cognizance of any laws
relating to the issue or sale of such Shares, which functions
shall be the sole responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of the
services set forth in the
2
<PAGE>
above paragraph (a), the Bank shall: (i) perform the customary
services of a transfer agent, dividend disbursing agent, custodian of
certain retirement plans and, as relevant, agent in connection with
accumulation, open-account or similar plans (including without
limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies,
receiving and tabulating proxies, mailing Shareholder reports and
prospectuses to current Shareholders, withholding taxes on U.S.
resident and non-resident alien accounts, preparing and filing U.S.
Treasury Department Forms 1099 and other appropriate forms required
with respect to dividends and distributions by federal authorities for
all Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in
Shareholder accounts, preparing and mailing activity statements for
Shareholders, and providing Shareholder account information and (ii)
provide a system which will enable the Fund to monitor the total
number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in writing those
transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of the Bank for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of such
transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services in
Section 1 may be established from time to time by agreement between
the Fund on behalf of each Portfolio and the Bank per the attached
service responsibility schedule. The Bank may at times perform only a
portion of these services and the Fund or its agent may perform these
services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the Fund
(i.e., escheatment services) which may be agreed upon in writing
between the Fund and the Bank.
2. Fees and Expenses
2.1 For the performance by the Bank pursuant to this Agreement, the Fund agrees
on behalf of each of the Portfolios to pay the Bank an annual maintenance
fee for each Shareholder account as set out in the initial fee schedule
attached hereto. Such fees and out-of-pocket expenses and advances
identified under Section 2.2 below may be changed from time to time subject
to mutual written agreement between the Fund and the Bank.
2.2 In addition to the fee paid under Section 2.1 above, the Fund agrees on
behalf of each of the Portfolios to reimburse the Bank for out-of-pocket
expenses, including but not limited
3
<PAGE>
to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In
addition, any other expenses incurred by the Bank at the request or with
the consent of the Fund, will be reimbursed by the Fund on behalf of the
applicable Portfolio.
2.3 The Fund agrees on behalf of each of the Portfolios to pay all fees and
reimbursable expenses within five days following the receipt of the
respective billing notice. Postage for mailing of dividends, proxies, Fund
reports and other mailings to all shareholder accounts shall be advanced to
the Bank by the Fund at least seven (7) days prior to the mailing date of
such materials.
3. Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.1 It is a trust company duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts.
3.2 It is duly qualified to carry on its business in The Commonwealth of
Massachusetts.
3.3 It is empowered under applicable laws and by its Charter and By-Laws to
enter into and perform this Agreement.
3.4 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.5 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
4. Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.1 It is a business trust duly organized and existing and in good standing
under the laws of the Commonwealth of Massachusetts.
4.2 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.3 All corporate proceedings required by said Declaration of Trust and By-Laws
have been taken to authorize it to enter into and perform this Agreement.
4.4 It is an open-end and diversified management investment company registered
under the Investment Company Act of 1940, as amended.
4
<PAGE>
4.5 A registration statement under the Securities Act of 1933, as amended on
behalf of each of the Portfolios is currently effective and will remain
effective, and appropriate state securities law filings have been made and
will continue to be made, with respect to all Shares of the Fund being
offered for sale.
5. Wire Transfer Operating Guidelines/Articles 4A of the Uniform Commercial
Code
5.1 The Bank is authorized to promptly debit the appropriate Fund account(s)
upon the receipt of a payment order in compliance with the selected
security procedure (the "Security Procedure") chosen for funds transfer and
in the amount of money that the Bank has been instructed to transfer. The
Bank shall execute payment orders in compliance with the Security Procedure
and with the Fund instructions on the execution date provided that such
payment order is received by the customary deadline for processing such a
request, unless the payment order specifies a later time. All payment
orders and communications received after this the customary deadline will
be deemed to have been received the next business day.
5.2 The Fund acknowledges that the Security Procedure it has designated on the
Fund Selection Form was selected by the Fund from security procedures
offered by the Bank. The Fund shall restrict access to confidential
information relating to the Security Procedure to authorized persons as
communicated to the Bank in writing. The Fund must notify the Bank
immediately if it has reason to believe unauthorized persons may have
obtained access to such information or of any change in the Fund's
authorized personnel. The Bank shall verify the authenticity of all Fund
instructions according to the Security procedure.
5.3 The Bank shall process all payment order on the basis of the account number
contained in the payment order. In the event of a discrepancy between any
name indicated on the payment order and the account number, the account
number shall take precedence and govern.
5.4 The Bank reserves the right to decline to process or delay the processing
of a payment order which (a) is in excess of the collected balance in the
account to be charged at the time of the Bank's receipt of such payment
order; (b) if initiating such payment order would cause the Bank, in the
Bank's sole judgement, to exceed any volume, aggregate dollar, network,
time, credit or similar limits which are applicable to the Bank; or (c) if
the Bank, in good faith, is unable to satisfy itself that the transaction
has been properly authorized.
5.5 The Bank shall use reasonable efforts to act on all authorized requests to
cancel or amend payment orders received in compliance with the Security
Procedure provided that such requests are received in a timely manner
affording the Bank reasonable opportunity to act. However, the Bank assumes
no liability if the request for amendment or cancellation cannot be
satisfied.
5
<PAGE>
5.6 The Bank shall assume no responsibility for failure to detect any erroneous
payment order provided that the Bank complies with the payment order
instructions as received and the Bank complies with the Security Procedure.
The Security Procedure is established for the purpose of authenticating
payment orders only and not for the detection of errors in payment orders.
5.7 The Bank shall assume no responsibility for lost interest with respect to
the refundable amount of any unauthorized payment order, unless the Bank
is notified of the unauthorized payment order within thirty (30) days or
notification by the Bank of the acceptance of such payment order. In no
event (including failure to execute a payment order) shall the Bank be
liable for special, indirect or consequential damages, even if advised of
the possibility of such damages.
5.8 When the Fund initiates or receives Automated Clearing House credit and
debit entries pursuant to these guidelines and the rules of the National
Automated Clearing House Association and the New England Clearing House
Association, the Bank will act as an Originating Depository Financial
Institution and/or receiving depository Financial Institution, as the case
may be, with respect to such entries. Credits given by the Bank with
respect to an ACH credit entry are provisional until the Bank receives
final settlement for such entry from the Federal Reserve Bank. If the Bank
does not receive such final settlement, the Fund agrees that the Bank shall
receive a refund of the amount credited to the Fund in connection with such
entry, and the party making payment to the Fund via such entry shall not be
deemed to have paid the amount of the entry.
5.9 Confirmation of Bank's execution of payment orders shall ordinarily be
provided within twenty four (24) hours notice of which may be delivered
through the Bank's proprietary information systems, or by facsimile or
call-back. Fund must report any objections to the execution of an order
within thirty (30) days.
6. Data Access and Proprietary Information
6.1 The Fund acknowledges that the data bases, computer programs, screen
formats, report formats, interactive design techniques, and documentation
manuals furnished to the Fund by the Bank as part of the Fund's ability to
access certain Fund-related data ("Customer Data") maintained by the Bank
on data bases under the control and ownership of the Bank or other third
party ("Data Access Services") constitute copyrighted, trade secret, or
other proprietary information (collectively, "Proprietary Information") of
substantial value to the Bank or other third party. In no event shall
Proprietary Information be deemed Customer Data. The Fund agrees to treat
all Proprietary Information as proprietary to the Bank and further agrees
that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, the Fund agrees for itself and its employees and agents:
(a) to access Customer Data solely from locations as may be designated in
writing by the Bank and solely in accordance with the Bank's
applicable user documentation;
<PAGE>
(b) to refrain from copying or duplicating in any way the Proprietary
Information;
(c) to refrain from obtaining unauthorized access to any portion of the
Proprietary Information, and if such access is inadvertently obtained,
to inform in a timely manner of such fact and dispose of such
information in accordance with the Bank's instructions;
(d) to refrain from causing or allowing the data acquired hereunder from
being retransmitted to any other computer facility or other location,
except with the prior written consent of the Bank;
(e) that the Fund shall have access only to those authorized transactions
agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to protect
at the Bank's expense the rights of the Bank in Proprietary
Information at common law, under federal copyright law and under other
federal or state law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Section 6. The obligations of this Section shall
survive any earlier termination of this Agreement.
6.2 If the Fund notifies the Bank that any of the Data Access Services do not
operate in material compliance with the most recently issued user
documentation for such services, the Bank shall endeavor in a timely manner
to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible
for the contents of such data and the Fund agrees to make no claim against
the Bank arising out of the contents of such third-party data, including,
but not limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL
COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH
ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS
ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
6.3 If the transactions available to the Fund include the ability to originate
electronic instructions to the Bank in order to (i) effect the transfer or
movement of cash or Shares or (ii) transmit Shareholder information or
other information, then in such event the Bank shall be entitled to rely on
the validity and authenticity of such instruction without undertaking any
further inquiry as long as such instruction is undertaken in conformity
with security procedures established by the Bank from time to time.
7. Indemnification
7.1 The Bank shall not be responsible for, and the Fund shall on behalf of the
applicable Portfolio indemnify and hold the Bank harmless from and against,
any and all losses,
<PAGE>
damages, costs, charges, counsel fees, payments, expenses and liability
arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful misconduct which
arise out of the breach of any representation or warranty of the Fund
hereunder.
(c) The reliance on or use by the Bank or its agents or subcontractors of
information, records, documents or services which (i) are received by
the Bank or its agents or subcontractors, and (ii) have been prepared,
maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer
agent or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests of the Fund on behalf
of the applicable Portfolio.
(e) The offer or sale of Shares in violation of any requirement under the
federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
such Shares in such state.
(f) The negotiations and processing of checks made payable to prospective
or existing Shareholders tendered to the Bank for the purchase of
Shares, such checks are commonly known as "third party checks."
7.2 At any time the Bank may apply to any officer of the Fund for instructions,
and may consult with legal counsel with respect to any matter arising in
connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the Fund on behalf of the applicable
Portfolio for any action taken or omitted by it in reliance upon such
instructions or upon the opinion of such counsel. The Bank, its agents and
subcontractors shall be protected and indemnified in acting upon any paper
or document, reasonably believed to be genuine and to have been signed by
the proper person or persons, or upon any instruction, information, data,
records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means
authorized by the Fund, and shall not be held to have notice of any change
of authority of any person, until receipt of written notice thereof from
the Fund. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officers
of the Fund, and the proper countersignature of any former transfer agent
or former registrar, or of a co-transfer agent or co-registrar.
<PAGE>
7.3 In order that the indemnification provisions contained in this Section 7
shall apply, upon the assertion of a claim for which the Fund may be
required to indemnify the Bank, the Bank shall promptly notify the Fund of
such assertion, and shall keep the Fund advised with respect to all
developments concerning such claim. The Fund shall have the option to
participate with the Bank in the defense of such claim or to defend against
said claim in its own name or in the name of the Bank. The Bank shall in no
case confess any claim or make any compromise in any case in which the Fund
may be required to indemnify the Bank except with the Fund's prior written
consent.
8. Standard of Care
8.1 The Bank shall at all times act in good faith and agrees to use its best
efforts within reasonable limits to insure the accuracy of all services
performed under this Agreement, but shall be liable for loss or damage due
to errors only if said errors are caused by its negligence, bad faith, or
willful misconduct or that of its employees and otherwise shall not be held
responsible or liable.
8.2 If the Fund suffers a loss for which the Bank is liable under section 8.1
hereunder the Bank's obligation to the Fund shall include the Fund's
counsel fees and expenses directly arising out of or attributable to such
liability.
9. Covenants of the Fund and the Bank
9.1 The Fund shall on behalf of each of the Portfolios promptly furnish to the
Bank the following:
(a) A certified copy of the resolution of the Board of Trustees of the
Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
9.2 The Bank hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms
and devices.
9.3 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the Investment Fund Act of 1940, as amended, and
the Rules thereunder, the Bank agrees that all such records prepared or
maintained by the Bank relating to the services to be performed by the Bank
hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Section and Rules, and will be
surrendered promptly to the Fund on and in accordance with its request.
9
<PAGE>
9.4 The Bank and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement
shall remain confidential, and shall not be voluntarily disclosed to any
other person, except as may be required by law.
9.5 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Bank will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the
Shareholder records to any person whenever it is advised by its counsel
that it may be held liable for the failure to exhibit the Shareholder
records to such person.
10. Termination of Agreement
10.1 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
10.2 Should the Fund exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be
borne by the Fund on behalf of the applicable Portfolio(s). Additionally,
the Bank reserves the right to charge for any other reasonable expenses
associated with such termination and/or a charge equivalent to the average
of three (3) months' fees.
11. Additional Funds
In the event that the Fund establishes one or more series of Shares in
addition to the Portfolio with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide
such services, such series of Shares shall become a Portfolio hereunder.
12. Assignment
12.1 Except as provided in Section 12.3 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
12.2 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
12.3 The Bank may, without further consent on the part of the Fund, subcontract
for the performance hereof with (i) Boston Financial Data Services, Inc.,
a Massachusetts corporation ("BFDS") which is duly registered as a
transfer agent pursuant to Section 17A(c)(2) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(2)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(2) or (iii) a
BFDS affiliate; provided, however, that the Bank shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as
it is for its own acts and omissions.
10
<PAGE>
13. Amendment
This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Board of
Trustees of the Fund.
14. Massachusetts Law to Apply
This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of The Commonwealth of
Massachusetts.
15. Force Majeure
In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
16. Consequential Damages
Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any
consequential damages arising out of any act or failure to act hereunder.
17. Merger of Agreement
This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject matter
hereof whether oral or written.
18. Limitations of Liability of the Trustees and Shareholders
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of The Commonwealth of Massachusetts, and notice is hereby given
that this instrument is executed on behalf of the Trustees of the Trust as
Trustees and not individually and that the obligations of this instrument
are not binding upon any of the Trustees or Shareholders individually but
are binding only upon the assets and property of the Fund.
19. Counterparts
This Agreement may be executed by the parties hereto on any number of
counterparts, and all of said counterparts taken together shall be deemed
to constitute one and the same instrument.
11
<PAGE>
20. Reproduction of Documents
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties
hereto each agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative
proceeding, whether or not the original is in existence and whether or not
such reproduction was made by a party in the regular course of business,
and that any enlargement, facsimile or further reproduction shall likewise
be admissible in evidence
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
officers, as of the day and year first above written.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By: /s/ Anna Kucinskis
--------------------
ATTEST:
/s/ Gifford R. Zimmerman
- ------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
--------------------------
Executive Vice President
ATTEST:
/s/ Steven Cesso
- ------------------------
13
<PAGE>
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
1. Receives orders for the purchase of Shares. X X
2. Issue Shares and hold Shares in Shareholders X
accounts.
3. Receive redemption requests. X X
4. Effect transactions 1-3 above directly with X X
broker-dealers.
5. Pay over monies to redeeming Shareholders. X
6. Effect transfers of Shares. X
7. Prepare and transmit dividends and distributions. X
8. Issue Replacement Certificates. X
9. Reporting of abandoned property. X
10. Maintain records of account. X
11. Maintain and keep a current and accurate control X
book for each issue of securities.
12. Mail proxies. X
13. Mail Shareholder reports. X
14. Mail prospectuses to current Shareholders. X X
15. Withhold taxes on U.S. resident and non-resident X
alien accounts.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Service Performed Responsibility
- ----------------- --------------
Bank Fund
---- ----
<S> <C> <C>
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation X
statements for Shareholders.
18. Provide Shareholder account information. X
19. Blue sky reporting. X
* Such services are more fully described in Section 1.2 (a), (b) and (c) of
the Agreement.
</TABLE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
BY: /s/ Anna Kucinskis
_______________________________
ATTEST:
/s/ Gifford R. Zimmerman
___________________________________
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
_______________________________
Executive Vice President
ATTEST:
/s/ Steven Cesso
____________________________________
15
<PAGE>
STATE STREET BANK AND TRUST COMPANY
Fee Information for Services as
Plan, Transfer and Dividend Disbursing Agent
NUVEEN FLAGSHIP MUNICIPAL TRUST
NUVEEN FLAGSHIP MULTISTATE TRUST I
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN FLAGSHIP MULTISTATE TRUST III
NUVEEN FLAGSHIP MULTISTATE TRUST IV
General - Fees are based on annual per shareholder account charges for account
maintenance plus out-of-pocket expenses. Annual maintenance charges for various
kinds of mutual funds are given below. There is a minimum charge of $1,000.00
per fund or class of shares. This minimum will be waived for the six-month
period, February 1, 1997 through July 31, 1997.
Annual Maintenance Charges - Fees are billable on a monthly basis at the rate of
1/12 of the annual fee. A charge is made for an account in the month that an
account opens or closes.
Type (A) Fund 0-$75 million in assets $13.50
Type (B) Fund $75-$150 million in assets $15.50
Type (C) Fund Over $150 million in assets $16.50
The per account maintenance fee will be adjusted annually based on each fund's
assets as of the first day of June. Multiple classes of shares will be billed as
a separate Fund.
Other Fees - The following features will each be assessed an additional charge
as an add-on to the annual per account rate if they are present:
12B-1 $ 5.50 per account*
Manually entered share and maintenance transactions $ 1.00 each
Closed Accounts per account, per month $ 0.10
Disaster Recovery/Emergency backup per account
serviced, per year $ 0.25
* This fee will be reduced to $4.50 for the six-month period, February 1, 1997
through July 31, 1997.
Out-of-Pocket Expenses - Out-of-pocket expenses include but are not limited to:
Confirmation statements, postage, forms, ACH, telephone, microfilm, microfiche,
proxy tabulation, checkwriting and other expenses incurred at the specific
direction of the Fund.
<PAGE>
NUVEEN FLAGSHIP MUNICIPAL TRUST STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST I STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST II STATE STREET BANK AND TRUST CO.
By: /s/ Anna Kucinskis By: /s/ Ronald E. Logue
------------------------------- ----------------------------------
Title: Vice President Title: Executive Vice President
---------------------------- -------------------------------
Date: 3/24/97 Date: March 20, 1997
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST III STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
NUVEEN FLAGSHIP MULTISTATE TRUST IV STATE STREET BANK AND TRUST CO.
By: By:
------------------------------- ----------------------------------
Title: Title:
---------------------------- -------------------------------
Date: Date:
----------------------------- --------------------------------
<PAGE>
EXHIBIT 9(b)
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
This agreement is made as of the 31st day of January, 1997, between NUVEEN
FLAGSHIP MULTISTATE TRUST II, a Massachusetts business trust having its
principal office and place of business at 333 West Wacker Drive, Chicago,
Illinois 60606, on behalf of the eight series named NUVEEN CALIFORNIA MUNICIPAL
BOND FUND, NUVEEN CALIFORNIA INSURED 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 NEW YORK INSURED MUNICIPAL BOND FUND and NUVEEN
FLAGSHIP NEW YORK MUNICIPAL BOND FUND, (hereinafter referred to as the "Fund"),
and SHAREHOLDER SERVICES, INC., a Colorado corporation having its place of
business at 3410 South Galena Street, Denver, Colorado 80231 (hereinafter
referred to as the "Transfer Agent").
In consideration of the mutual promises hereinafter set forth, the parties
hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have
the following meanings:
1.1 "Approved Institution" shall mean a broker-dealer, broker, bank or
other entity named in a Certificate, as hereinafter defined, and having
account(s) in the Trust or the Distributor or an agent it appoints, in each case
acting on behalf of the Fund for the benefit of its clients. From time to time
the Fund may amend a previously delivered Certificate by delivering to the
Transfer Agent a Certificate naming an additional entity as an Approved
Institution or deleting any entity named as an Approved Institution in a
previously delivered Certificate.
1.2 "Business Day" shall mean each day on which the New York Stock
Exchange is open for trading.
1.3 "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the Transfer
Agent by the Fund and which is signed by any Officer, as hereinafter defined,
and actually received by the Transfer Agent. "Certificate" shall also include
any notice submitted to the Transfer Agent by electronic or telephone
transmission, reasonably believed by the Transfer Agent to be genuine and to
have been properly made, signed or authorized by an Officer.
1.4 "Computer Tape" shall mean any computer/electromagnetic tape or
transmission transmitted by an Approved Institution, via a remote terminal or
other similar link, into a data processing, storage, or collection system or
similar system (the "System"), located on the Transfer
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Agent's premises. For purposes of Section 5.1, such Computer Tape shall be
deemed to have been furnished at such times as are agreed upon from time to time
by the Transfer Agent and Fund only if the information reflected thereon was
input into the system at such times as are agreed upon from time to time by the
Transfer Agent and the Fund.
1.5 "Custodian" shall mean, with respect to the Fund, Chase Manhattan Bank
of New York as custodian under the terms and conditions of the Custody Agreement
between the Custodian and the Fund, or in any case any successor(s) to such
Custodian performing similar functions for or on behalf of the Fund.
1.6 "Direct Accounts" means accounts registered in the name(s) of
shareholders other than Approved Institutions.
1.7 "Distributor" shall mean John Nuveen & Co. Incorporated (hereinafter
referred to as "Nuveen & Co."), as distributor under the terms and conditions of
the Distributor's Contract between the Fund and Nuveen & Co., wherein Nuveen &
Co. has the exclusive right to sell shares of the Fund to investors against
orders therefor at net asset value, or any successor(s) to Nuveen & Co.
performing a similar function for or on behalf of the Fund.
1.8 "Effective Date" shall mean January 31, 1997 or the date the Fund
begins operations.
1.9 "Series" shall mean each individual portfolio of the Fund covered by
this agreement, if any, each being a separate portfolio of securities and other
assets, interests in which are represented by a separate series of the Fund's
shares, and such terms shall include any other such portfolio that may be
created for which the Transfer Agent agrees to act as transfer agent pursuant to
Article 10 of this Agreement.
1.10 "Officer" shall mean the Fund's Chairman of the Board, President, any
Vice President, Secretary, any Assistant Secretary, Treasurer, any Assistant
Treasurer and any other person duly authorized by the Board of Trustees of the
Fund to execute or give any Certificate on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time.
1.11 "Prospectus" shall mean the most current Fund prospectus and statement
of additional information relating to the Shares, actually received by the
Transfer Agent from the Fund and shall include to the extent applicable, shares
designated as comprising any and all classes or any series of the Fund.
1.12 "Shares" shall mean full or fractional shares comprising all or any
part of each series representing the beneficial interest in the Fund and shall
include to the extent applicable, shares designated as comprising any and all
classes of any series of the Fund.
ARTICLE 2
APPOINTMENT OF TRANSFER AGENT
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2.1 The Fund hereby constitutes and appoints the Transfer Agent as
transfer agent of the Shares of the Fund and as dividend disbursing agent for
the Fund during the term of this Agreement.
2.2 The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform the duties hereinafter set
forth.
2.3 In connection with such appointment, upon or prior to executing this
Agreement, the Fund shall deliver to the Transfer Agent such of the following as
have not already been furnished to the Transfer Agent:
(a) A copy of the Declaration of Trust of the Fund and all amendments
thereto certified by the Secretary of the Fund;
(b) A copy of the By-Laws of the Fund certified by the Secretary of the
Fund;
(c) A copy of resolutions of the Board of Trustees of the Fund, certified
by the Secretary of the Fund, authorizing the execution of this Transfer Agency
Agreement;
(d) A Certificate signed by the Secretary of the Fund specifying the names
and specimen signatures of the Officers of the Fund;
(e) Specimen Share certificates for Shares of each series of the Fund in
the form approved by the Board of Trustees of the Fund, together with a
certificate signed by the Secretary of the Fund as to such approval;
(f) Copies of the most recently filed Post-Effective Amendment to the
Fund's Registration Statement, filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and under the Investment Company
Act of 1940, as amended, together with any applications for exemptive relief
from any of the provisions of such laws filed by the Fund and the record of any
formal action of the Securities and Exchange Commission with respect to all such
applications; and
(g) Opinion of Counsel for the Fund to the effect that (1) beneficial
interest in each Fund is divided into an unlimited number of shares of
beneficial interest, (2) the issue and sale of the Fund's authorized but
unissued Shares have been duly authorized under Massachusetts law, (3) the
outstanding Shares are fully paid and non-assessable and (4) upon the issue and
sale of any authorized and unissued Shares and upon receipt of the authorized
consideration therefor in an amount not less than either the Shares' net asset
value or par value, if any, established and in force at the time of their sale,
the Fund Shares so issued will be validly issued, fully paid and non-assessable.
2.4 The Fund shall either (a) furnish the Transfer Agent with sufficient
supplies of blank share certificates in the form approved from time to time by
the Board of Trustees of the Fund, and from time to time will renew such
supplies upon request of the Transfer Agent, or (b) authorize the Transfer Agent
to itself create laser-printed Share certificates in the form approved by the
Board of Trustees of the Fund. Any such blank Share certificates shall be
properly signed, by facsimile or otherwise, by authorized Officers and, if
required, shall bear the seal of the Fund or a facsimile thereof.
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Notwithstanding the death, resignation or removal of any Officer authorized to
sign such Share certificates, the Transfer Agent may continue to countersign and
issue Share certificates bearing such Officer's signature until otherwise
directed by the Fund. The Fund agrees to indemnify and exonerate, save and hold
the Transfer Agent harmless, from and against any and all claims or demands that
may be asserted against the Transfer Agent with respect to the genuineness of
any Share certificate supplied to the Transfer Agent by the Fund pursuant to
this Agreement.
ARTICLE 3
AUTHORIZATION AND ISSUANCE OF SHARES
3.1 The Transfer Agent shall maintain records of accounts evidencing
ownership of Shares as provided in this Agreement and in the Fund's Prospectus
and, subject to the terms and conditions of this Agreement, when requested shall
countersign, record, issue, and deliver certificates for Shares both upon
original issue and transfer. Evidence of the ownership of Shares shall be
maintained on the Transfer Agent's records in book (uncertificated) form, or, if
requested by an Approved Institution (or the Distributor or its agent acting on
behalf of such Approved Institution) or shareholder, share certificates shall be
issued, subject to the provisions of Article 5 hereof, to evidence the ownership
of Shares.
3.2 Prior to the issuance of any Shares pursuant to Share splits and prior
to any reduction in the number of Shares outstanding, the Fund shall deliver the
following documents to the Transfer Agent:
(a) A copy of the resolution(s) adopted by the Board of Trustees of the
Fund and/or the shareholders of the relevant Fund, certified by the Secretary of
the Fund, authorizing such issuance of additional Shares of such Fund or such
reduction, as the case may be;
(b) In the case of the issuance of Shares, an opinion of counsel for the
Fund with respect to matters set forth in Section 2.3(g) hereof as to such
shares; and
(c) Such additional documents as the Transfer Agent may reasonable
request.
ARTICLE 4
RECAPITALIZATION OR CAPITAL ADJUSTMENT
4.1 In the case of any Share split, recapitalization or other capital
adjustment, the Transfer Agent will, in the case of accounts represented by
uncertificated Shares, cause the account records to be adjusted, as necessary,
to reflect the number of Shares held for the account of each such shareholder as
a result of such adjustment, or, in the case of Shares represented by
certificates, will, if so instructed by the Fund, issue revised Share
certificates in exchange for, or upon transfer of, outstanding Share
certificates in the old form, in either case upon receiving:
(a) A Certificate authorizing the issuance of revised Share certificates
and any other action required to be taken by the Transfer Agent in connection
with any such split, recapitalization or other capital adjustment;
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(b) A copy of any amendment to the Declaration of Trust of the Fund,
certified by the Secretary of the Fund, with respect to the adjustment;
(c) Specimen Share certificates in the revised form approved by the Board
of Trustees of the Fund;
(d) An opinion of counsel for the Fund with respect to the matters set
forth in Article 2, Section 2.3(g) hereof as to such Shares; and
(e) Such additional documents as the Transfer Agent may reasonably
request.
4.2. The Fund shall either (a) furnish the Transfer Agent with a sufficient
supply of blank Share certificates in any new form authorized in connection with
any such Share split, recapitalization or other capital adjustment, and from
time to time will replenish such supply upon the request of the Transfer Agent,
or (b) authorize the Transfer Agent to itself create laser-printed Share
certificates in the form approved by the Board of Trustees of the Fund. Any such
blank Share certificates shall be properly signed by authorized Officers and, if
required, shall bear the Fund's seal or facsimile thereof.
ARTICLE 5
ISSUANCE, REDEMPTION, AND TRANSFER OF SHARES
5.1. (a) On each Business Day, the Transfer Agent shall accept, at such
time as are agreed upon from time to time by the Transfer Agent and the Fund,
(i) purchase orders received by the Transfer Agent directly from an Approved
Institution (or the Distributor or its agent acting on behalf of such Approved
Institution) or an individual investor, (ii) redemption requests either received
from a shareholder, whether or not an Approved Institution (or the Distributor
or its agent acting on behalf of such Approved Institution), or contained in a
Certificate, and (iii) requests for exchanges of the Fund's Shares of a given
class for Shares of another fund received from a shareholder, whether or not an
Approved Institution (or the Distributor or its agent acting on behalf of such
Approved Institution), or contained in a Certificate, provided that (1) such
purchase order, exchange request or redemption request, as the case may be, is
in conformity with the Fund's purchase, exchange, and redemption procedures, as
applicable, described in the Prospectus, and (2) if such type of purchase order,
exchange request, or redemption request is not described in the Prospectus in
effect upon the commencement date of the Agreement, the Transfer Agent has
agreed to accept and act as to such order or request. Upon receipt on any
Business Day of any check drawn or endorsed to the Transfer Agent, the Fund or
the Distributor for the purchase of Shares, or any payment made by Automated
Clearing House or Federal Funds wire, the Transfer Agent shall deposit such
check or payment in the bank account established by the Fund or the Distributor
for the collection of such amounts and shall wire such amounts to the Fund's
Custodian on the next Business Day. The Transfer Agent shall have no
responsibility hereunder for the Fund's compliance with states securities
registration laws ("Blue Sky laws") relating to such purchase orders, except to
the extent that the Transfer Agent will maintain records in a manner that will
enable the Fund's to monitor the total number of Shares of the Fund sold in each
state and shall provide the Fund reports as to such sales as specified in
Appendix B to this agreement.
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(b) On each Business Day, the Transfer Agent shall also accept, at
such times as are agreed upon from time to time by the Transfer Agent and the
Fund, a Computer Tape consistent in all respects with the Transfer Agent's tape
layout package, as amended from time to time, which is believed by the Transfer
Agent to be furnished by or on behalf of any Approved Institution, setting forth
data as to purchases, redemptions and exchanges of Shares irrespective of
whether payment of the purchase price accompanies such computer tape. The
Transfer Agent may rely on the data on such Computer Tapes as accurate, and
shall not be responsible hereunder for errors in such Computer Tapes furnished
to it hereunder, unless caused by the Transfer Agent's own negligence, bad faith
or willful misconduct.
(c) On each Business Day, the Fund shall provide or cause to be
provided to the Transfer Agent, at such time as the parties hereto shall agree,
the net asset value per share for the Fund and such other information as the
Transfer Agent may reasonably request.
5.2 On the Business Day following each Business Day, at such time as the
Transfer Agent and the Fund shall agree, an authorized employee of the Transfer
Agent shall confirm the following information by summary sheet transmitted by
electronic or other electromagnetic means to an authorized employee or agent of
the Fund (or by such other form as shall be agreed upon from time to time by the
Fund and the Transfer Agent):
(a) The total dollar amount to be applied toward the purchase of
Shares of the Fund and the number of Shares of the Fund purchased on such prior
Business Day, computed by aggregating the amounts so specified in (i) the
purchase orders received by the Transfer Agent on such prior Business Day from
individual investors and (ii) all Computer Tapes described in Section 5.1 (b)
timely received by the Transfer Agent with respect to such prior Business Day;
(b) The total dollar value and number of Shares of the Fund redeemed
on such prior Business Day, computed by aggregating the amounts so specified in
(i) the redemption requests received by the Transfer Agent directly on the
preceding Business Day from shareholders, and (ii) all Computer Tapes described
in Section 5.1(b) relating to such prior Business Day; and
(c) The total dollar value and number of Shares of the Fund to be
exchanged for Shares of another fund and the number of Shares of such other fund
to be issued in such exchanges on such prior Business Day, and the total dollar
value and number of shares of the Fund to be issued in exchange for shares of
another fund on such prior business day (if not included in 5.2(a) above)
computed by aggregating the amounts represented by any exchange requests
received directly by the Transfer Agent from shareholders and the amounts
specified in all Computer Tapes described in Section 5.1(b) relating to such
prior Business Day.
5.3 Following each Business Day, the Transfer Agent will (on a day on
which banks in Denver, Colorado, Chicago, Illinois and New York, New York are
open for business but in any event on or prior to the Fifth Business Day
following such Business Day) advise the Distributor of the amount of cash
necessary to be wired to the Custodian, representing purchased orders for
appropriate Fund's Shares received by the Transfer Agent as to such Business
Day, as set forth in Section 5.1 above. As to each Business Day, the Transfer
Agent will advise the Fund of the amount of cash representing exchange orders
received by the Transfer Agent as to such Business Day, such advice to be given
on the next Business Day.
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5.4. As to each Business Day, the Transfer Agent shall issue to, and
redeem from, the accounts specified in a purchase order, redemption request, or
exchange request received by the Transfer Agent in proper form in accordance
with the Prospectus and, when required by the Prospectus, properly endorsed by
the record owner thereof with the record owner's or owners' signature(s)
guaranteed by a U.S. commercial bank or U.S. trust company, a member of a
national securities exchange, a foreign bank with a U.S. correspondent bank or a
federally-chartered savings and loan association, or shall issue to, and/or
redeem from, the accounts specified in a Computer Tape received by the Transfer
Agent from an Approved Institution, the appropriate number of full and
fractional Shares based on the net asset value per Share of the relevant series
of the relevant Funds specified in an advice received as to such Business Day
from the Fund. Notwithstanding the foregoing, if a redemption specified in a
redemption request received directly by the Transfer Agent or in a Computer Tape
is for a dollar value of Shares in excess of the dollar value of uncertificated
Shares in the specified account plus the dollar value of certificated Shares in
the specified account for which the Transfer Agent has received the tender of a
Share certificate or certificates in proper form as described above, the
Transfer Agent shall not effect such redemption in whole or part. In such case
involving a Computer Tape, the Transfer Agent shall orally or by electronic or
other electromagnetic means advise both the Fund and the Approved Institution
(or the Distributor or its agent if acting on behalf of such Approved
Institution) which supplied such Computer Tape of such discrepancy. In such case
involving a direct shareholder, the Transfer Agent shall, within five (5)
business days, notify such shareholder directly, orally or in writing.
5.5. The Transfer Agent shall, as of each Business Day specified in a
Certificate described in Section 6.1, issue Shares of the Fund, based on the net
asset value per Share of the Fund specified in an advice received from the Fund
to such Business Day, in connection with a reinvestment of a dividend or
distribution on Shares of the Fund.
5.6. On each Business Day, the Transfer Agent shall advise the Fund by
computer/electromagnetic tape specifying, with respect to the immediately
preceding Business Day: the total number of Shares of the Fund (including
fractional Shares) issued and outstanding at the opening of business on such
day; the total number of Shares of the Fund sold on such day, pursuant to
Section 5.2; the total number of Shares of the Fund redeemed or exchanged on
such day; the total number of Shares of the Fund, if any, sold on such day
pursuant to preceding Section 5.4, and the total number of Shares of the Fund
issued and outstanding at the close of business on such day. Unless the Fund or
its agent shall advise the Transfer Agent of any error in the information
contained in such computer/electromagnetic tape (the "Initial Tape") prior to
the transmission of the next computer/electromagnetic tape by the Transfer
Agent, the Transfer Agent shall be deemed to have fulfilled its responsibilities
hereunder with respect to the accuracy of the data on subsequent
computer/electromagnetic tapes submitted to the Fund that are based, in whole or
in part upon any inaccurate data from the Initial Tape.
5.7. In connection with each purchase, exchange and redemption of Shares
other than pursuant to a Computer Tape submitted by an Approved Institution (or
by the Distributor or its agent acting on behalf of such Approved Institution),
the Transfer Agent shall send to the shareholder such statements as are
described in the Prospectus or as otherwise reasonably instructed in writing by
the Funds. If the Prospectus indicates that certificates for Shares are
available, and if specifically requested in writing by any shareholder, or if
otherwise required hereunder, the Transfer Agent will countersign, issue and
mail
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to such shareholder, at the address set forth in the records of the Transfer
Agent, a Share certificate for any full Shares requested.
5.8. In computing the redemption proceeds to be paid to any shareholder or
to an account for an Approved Institution, the Transfer Agent shall first
compute the amount of any withholding for federal income taxes for which the
Transfer Agent has the responsibility under this Agreement to calculate such
withholding, in such manner as the Fund and the Transfer Agent shall agree from
time to time in conformity with instructions provided by the Fund to the
Transfer Agent. The Transfer Agent shall also compute any withholding for
federal income taxes for which the Transfer Agent has such responsibility at the
time of any exchange of a Fund's shares for another fund's shares. In the case
of a redemption of Shares directly by a shareholder of record and not by means
of a Computer Tape submitted by an Approved Institution (or by the Distributor
or its agent acting on behalf of such Approved Institution), upon deposit of
moneys in a redemption account by the relevant Custodian against which the
Transfer Agent is authorized by the Fund to draw checks in connection with a
redemption of Shares of the Fund, the Transfer Agent shall cancel the redeemed
Shares and after making appropriate deduction for any withholding of taxes
required of it by this Agreement or applicable law, make payment of (i) the
redemption proceeds to the order of the shareholder, and (ii) any tax withheld
to the Internal Revenue Service, in accordance with the Fund's redemption and
payment procedures described in the Prospectus or as otherwise reasonably
described in a written instruction from the Fund. In the case of an exchange of
Shares directly by a shareholder of record and not by means of a Computer Tape
submitted by an Approved Institution (or the Distributor or its agent acting on
behalf of such Approved Institution), upon deposit of moneys in an account by
the relevant Custodian against which the Transfer Agent is authorized by the
Fund to draw checks in connection with an exchange of Shares of a fund, the
Transfer Agent shall cancel the exchanged Shares, and withhold and pay taxes
required under this Agreement and applicable law. In the case of a redemption of
Shares pursuant to a Computer Tape, the Transfer Agent shall, on the next
Business Day, send the Fund a Computer Tape setting forth the amount of
redemption proceeds due each Approved Institution. If such Approved Institution
(or the Distributor or its agent acting on behalf of such Approved Institution)
has previously furnished the Transfer Agent withholding instructions with
respect to such redemption or any exchange of Shares pursuant to a Computer
Tape, the Transfer Agent shall include in the Computer Tape furnished to the
Fund information as to the amount of such withholding.
5.9. The Transfer Agent shall not be required to issue Shares of any fund
(other than with respect to the reinvestment of dividends or distributions on
shares owned by an existing shareholder if so stated in the Certificate) after
it has received a Certificate stating that the sale of Shares of that fund has
been suspended or discontinued.
5.10. The Transfer Agent shall not be responsible for any payment of any
original issue or other taxes required to be paid by the Fund in connection with
the issuance of any Shares.
5.11. The Transfer Agent shall not be responsible for issuing or effecting
any "stop transfer" or other similar order or restrictions on any Shares held in
the name of an Approved Institution. In the case of Shares registered in the
name of a shareholder other than an Approved Institution as to which a "stop
transfer" or other similar order or restriction applies, the Transfer Agent will
adhere to the terms of such stop transfer or similar order, except that it may
rely on a Certificate to effect a redemption, exchange or transfer of such
Shares, notwithstanding such stop order or restriction.
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5.12. The Transfer Agent shall accept (a) a Computer Tape which is
furnished by or on behalf of any Approved Institution (or the Distributor or its
agent acting on behalf of such Approved Institution) and represented to be
instructions with respect to the transfer of Shares from one account of such
Approved Institution to another such account, and (b) as to Shares standing
directly in the name of a shareholder other than an Approved Institution,
transfer instructions in proper form in accordance with the Fund's Prospectus
and the Transfer Agent's rules described herein, and shall effect the transfer
specified in said Computer Tape or transfer instructions, provided any necessary
documents or Share certificates have been tendered to the Transfer Agent.
5.13. (a) Except as otherwise provided in sub-paragraph (b) of this
Section 5.13 and in Section 5.14, Shares will be transferred, exchanged or
redeemed other than pursuant to Computer Tapes from an Approved Institution (or
the Distributor on its agent acting on behalf of such Approved Institution) upon
presentation to the Transfer Agent of endorsed Share certificates or, in the
case of uncertificated Shares, instructions endorsed in proper form in
accordance with the Prospectus as stated in Section 5.4, accompanied by such
documents as the Transfer Agent reasonably deems necessary to evidence the
authority of the person making such transfer, exchange or redemption, and
bearing satisfactory evidence of the payment of transfer taxes. In the case of
small estates, where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate small estates affidavit under applicable law
or with a surety bond, and without further approval of the Fund, transfer or
redeem Shares registered in the name of a decedent if the current market value
of the Shares being redeemed or transferred does not exceed such amount as may
from time to time be prescribed by the applicable state statutes and
regulations. The Transfer Agent reserves the right to refuse to transfer,
exchange or redeem Shares until it is reasonably satisfied that the endorsement
on the Share certificate or instructions is valid and genuine, and for that
purpose it will require, unless otherwise instructed by an Officer, a signature
guarantee as stated in Section 5.4 of this Agreement. The Transfer Agent also
reserves the right to refuse to transfer, exchange or redeem Shares until it is
reasonably satisfied that the requested transfer, exchange or redemption is
legally authorized, or until it is reasonably satisfied that there is no basis
to any claims adverse to such transfer, exchange or redemption. The Transfer
Agent may, in effecting transfers, exchanges and redemptions of Shares, rely
upon those provisions of the Uniform Act for the simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities.
(b) Notwithstanding the foregoing or any other provision contained
in this Agreement to the contrary, the Transfer Agent shall be fully protected
by the Fund in requiring any instructions, documents, assurances, endorsements
or guarantees, including, without limitation, any signature guarantees,
in connection with a redemption, exchange or transfer of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be consistent
with the transfer, exchange and redemption procedures described in the
Prospectus, or in any instructions or certificates provided to the Transfer
Agent by the Fund.
5.14. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be expected to require, as a condition to
any transfer, redemption or exchange of any Shares pursuant to a Computer Tape,
any documents, including, without limitation, any documents of the kind
described in Section 5.13(a) to evidence the authority of the person requesting
the transfer, exchange or redemption and/or payment of any transfer taxes, and
shall be fully protected in acting in accordance with the applicable provisions
of this Agreement.
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5.15. Nothing contained in this Agreement shall constitute any agreement
or representation by the Transfer Agent to permit, or to agree to permit, any
Approved Institution to input information into the System, although the Transfer
Agent may, with the Fund's written permission, permit access to the System by an
Approved Institution to retrieve data or information as to such Approved
Institution's accounts.
ARTICLE 6
DIVIDENDS AND DISTRIBUTIONS
6.1. The Fund shall furnish to the Transfer Agent a Certificate either (i)
setting forth with respect to each series of the Fund the date of the
declaration of a dividend or distribution, the date of accrual or payment
thereof, as the case may be, the record date of which shareholders entitled to
payment or accrual, as the case may be, shall be determined, the amount per
Share of such dividend or distribution for each series of the Fund, the payment
date on which all previously accrued and unpaid dividends are to be paid, and
the total amount, if any, payable by the Transfer Agent with respect to such
dividend or distribution on such payment date, or (ii) stating that the
declaration of dividends and distributions shall be on a daily or other periodic
basis and containing information of the type set forth in subsection (i) hereof.
6.2. Upon the payment date specified in the relevant Certificate, the
Transfer Agent shall, in the case of a cash dividend or distribution, advise the
Fund (by telephone or other electronic transmission) of the amount of cash
necessary to make the payment of the dividend or distribution to the
shareholders of record as of such payment date, including the amounts to be paid
to Approved Institutions. The Fund shall be responsible for having the
appropriate Custodian transfer a sufficient amount of cash to a dividend
disbursement account maintained by the Fund for the relevant Series against
which the Transfer Agent shall cause checks, ACH or federal funds wire payment
to be drawn to the order of such shareholders or Approved Institutions in
payment of the dividend. The Transfer Agent shall not be liable for any improper
payments made in accordance with a Certificate described in Section 6.1. If the
Transfer Agent shall not receive from the appropriate Custodian sufficient cash
to make payments of any cash dividend or distribution to shareholders of the
Fund as of the record date, the Transfer Agent shall, upon notifying the Fund,
withhold payment to all shareholders of record as of the record date until
sufficient cash is provided to the Transfer Agent unless otherwise instructed by
the Fund by a Certificate and acceptable to the Transfer Agent. In the case of
dividends or distributions reinvested in additional Shares of a series of the
Fund, the Transfer Agent shall follow the procedures set forth in Section 5.5.
6.3. The Transfer Agent shall in no way be responsible for the
determination of the rate or form of dividends or capital gain distributions due
shareholders.
6.4. The Transfer Agent shall, upon request of the Fund, file such
appropriate information returns concerning the payment of dividends and capital
gain distributions and redemptions with the proper Federal, state and local
authorities as are required by law to be filed by the Fund but shall in no way
be responsible for the collection or withholding of taxes due on such dividends
or distributions or on redemption proceeds due shareholders, except and only
to the extent required of it by applicable law for accounts of shareholders
other than Approved Institutions. If any amount is to be withheld from any
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dividend or distribution paid to, or exchange or redemption proceeds or other
cash distribution from, the account of an Approved Institution, such Approved
Institution (or the Distributor or its agent acting on behalf of such Approved
Institution) may advise the Transfer Agent of the amount to be withheld
therefrom, and if such advice is provided in a timely manner to the Transfer
Agent, the Transfer Agent will provide a separate check for such amount to the
Approved Institution, which shall be responsible for the proper application of
such withheld amounts.
ARTICLE 7
CONCERNING THE FUND
7.1. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign or give Share certificates or
Certificates, together with a specimen signature of each new Officer.
7.2. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent in a timely manner the Fund's currently effective Prospectus,
copies of any exemptive relief obtained by the Fund under applicable securities
laws and copies of any amendments to the Fund; Declaration of Trust, By-Laws and
any other documents to be furnished by the Fund under this Agreement to enable
the Transfer Agent to carry out its duties hereunder, and, for purposes of this
Agreement, the Transfer Agent shall not be deemed to have notice of any
information contained in such Prospectus, exemptive relief or other document
until it is actually received by the Transfer Agent.
7.3. The Transfer Agent has been advised by the Fund and agrees that the
Fund's Declaration of Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and that this Agreement has been executed by the
officers of the Fund, as officers and not individually. The obligations of the
Agreement are not binding upon the Trustees, officers or shareholders of the
Fund individually but are binding only upon the assets and property of the Fund
or a particular series of Shares. The Transfer Agent agrees to look only to the
assets of the Fund or a particular series of Shares for payment under such
Agreement and that the shareholders, Trustees and officers shall not be liable
therefore.
ARTICLE 8
CONCERNING THE TRANSFER AGENT
8.1. Subject to the standard of care set forth in Section 8.4, the Transfer
Agent shall not be liable and shall be fully protected in acting upon any
Computer Tape, Certificate, oral instructions, writing or document reasonably
believed by it to be genuine and to have been signed (in the case of written
instructions or documents) or made by the proper person or persons and shall not
be held to have any notice of any change of authority of any person until
receipt of written notice thereof from the Fund or such person. Subject to the
standard of care set forth in Section 8.4, the Transfer Agent shall be similarly
protected in processing Share certificates which it reasonably believes to bear
the proper manual or facsimile signatures of the Officers of the Fund and the
proper countersignature of the Transfer Agent or any prior transfer agent.
11
<PAGE>
8.2. The Transfer Agent covenants that it shall carry out its
responsibilities under this Agreement in accordance and compliance with the
provisions of applicable laws and regulations governing its operation as a
transfer agent.
8.3. The Transfer Agent shall keep and maintain on behalf of the Fund such
records which the Fund or the Transfer Agent is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rule 31a-1 under the Investment Company Act of 1940, relating
to the maintenance of records in connection with the services to be provided
hereunder. The Transfer Agent agrees to make such records available for
inspection by the Trust at reasonable times and otherwise to keep confidential
all records and other information relative to the Fund and its shareholders,
except when the Transfer Agent reasonably believes it has been requested to
divulge such information by duly-constituted authorities or court process, or
requested by a shareholder with respect to information concerning an account as
to which such shareholder has either a legal or beneficial interest or when
requested by the Fund, the shareholder, or the dealer of record as to such
account.
8.4. (a) The Transfer Agent shall not be liable for any loss or damage,
including, without limitation, attorneys' fees, expenses and court costs,
resulting from the Transfer Agent's actions or omissions to act under or in
connection with this Agreement and its duties and responsibilities hereunder,
except for any loss or damage arising out of its own failure to act in good
faith, or its negligence or willful misfeasance.
(b) The Transfer Agent shall, provided such coverage is readily
available to the Transfer Agent at reasonable rates and upon reasonable terms
and conditions, maintain an insurance policy or surety bond, in the face amount
of $10 million per covered transaction against losses suffered by the Transfer
Agent in excess of the policy deductibles arising from errors or omission on the
part of the Transfer Agent in carrying out its responsibilities under this
Agreement and other agreements. The Transfer Agent shall upon request, furnish
promptly to the Fund copies of all insurance policies maintained pursuant to
this Section 8.4(b) that have not previously been furnished to the Fund.
(c) Any costs or losses incurred by the Fund for the processing of
any purchase, redemption, exchange or other share transactions at a price per
share other than the price per share applicable to the effective date of the
transaction (the foregoing being generally referred to herein as "as of"
transactions) will be handled in the following manner:
1. For each calendar year, if all "as of" transactions for the year
resulting from the actions or inactions of the Transfer Agent,
taken in the aggregate, result in a net loss to the Fund ("net
loss"), Transfer Agent will reimburse the Fund for such net loss,
except to the extent that such net loss may be offset by
application of a "net benefit" to the Fund carried over from prior
calendar years pursuant to sub-paragraph 2 immediately below.
2. For each calendar year, if all "as of" transactions for the year
resulting from the actions or inactions of the Transfer Agent,
taken in the aggregate, result in a net benefit to the Fund ("net
benefit"), the Fund shall not reimburse the Transfer Agent for the
amount of such net benefit; however, any "net benefit" for any
calendar year may be used to offset, in whole or in part, any "net
loss" suffered by the Fund in any future calendar year so as to
reduce the amount by which the
12
<PAGE>
Transfer Agent shall be required to reimburse the Fund for such
"net loss" in such year pursuant to sub-paragraph 1 immediately
above.
3. Any "net loss" for which the Transfer Agent reimburses the Fund in
any calendar year shall not be carried over into future years so
as to offset any "net benefit" in such future years.
8.5 The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent and its officers, directors, employees and agents (hereinafter
the Transfer Agent and such persons are referred to as "Indemnitees") from and
against any and all liabilities or losses arising from claims or demands
(whether with or without basis in fact or law), and from any and all expenses
(including, without limitation, reasonable attorney's fees, expenses and court
costs associated with defending against such claims and demands,) of any nature
which any Indemnitee may sustain or incur or which may be asserted against any
Indemnitee by any person arising out of or in any manner related to any action
taken or omitted to be taken by the Transfer Agent in good faith and without
negligence or willful misconduct in reasonable reliance upon (i) any provision
of this Agreement; (ii) the Prospectus; (iii) any instruction or order
including, without limitation, any Computer Tape reasonably believed by the
Transfer Agent to have been received from an Approved Institution (or the
Distributor or its agent acting on behalf of such Approved Institution); (iv)
any instrument or order reasonably believed by the Transfer Agent to be genuine
and to be signed, countersigned or executed by any duly authorized Officer, (v)
any Certificate or other instructions of an Officer, (vi) any opinion of legal
counsel for the Fund; (vii) any records or data supplied by the Fund's prior
transfer agent; or (viii) any order of any court, arbitration panel or other
judicial entity.
8.6 At any time the Transfer Agent may apply to an Officer of the Fund for
written instructions with respect to any matters arising in connection with the
Transfer Agent's duties and obligations under this Agreement, and the Transfer
Agent shall not be liable for any action taken or omitted by it in good faith
and without negligence or willful misconduct in accordance with such written
instructions. The Transfer Agent may consult with counsel to the Fund, at the
expense of the Fund and shall be fully protected with respect to anything done
or omitted by it in good faith and without negligence or willful misfeasance in
accordance with the advice or opinion of counsel to the Fund. Such application
by the Transfer Agent for written instructions from an Officer of the Fund may,
at the option of the Transfer Agent, set forth in writing any action proposed to
be taken or omitted by the Transfer Agent with respect to its duties or
obligations under this Agreement and the date on and/or after which such action
shall be taken, and the Transfer Agent shall not be liable (other than for its
bad faith, negligence or willful misfeasance) for any action taken or omitted in
accordance with a proposal included in any such application on or after the date
specified therein unless, prior to taking or omitting any such action, the
Transfer Agent has received written instructions in response to such application
specifying the action to be taken or omitted.
8.7 Any report, confirmation or other document furnished to the Fund or to
an Approved Institution as part of the Transfer Agent's responsibilities under
this Agreement shall be deemed final and conclusive on the 8th Business Day
after such report, confirmation or document has been furnished to the Fund or
Approved Institution, as the case may be, and the Transfer Agent shall not be
liable to the Fund or such Approved Institution under this Agreement as to any
error or omission in such report, confirmation or document that is not reported
to the Transfer Agent within such 7-day period.
13
<PAGE>
8.8. The Transfer Agent shall deliver Share certificates by courier or by
certified or registered mail to the shareholder's address in the records of the
Transfer Agent. The Transfer Agent shall advise the Fund of any Share
certificates returned as undeliverable after being transmitted by courier or
mailed as herein provided for.
8.9. The Transfer Agent may issue new Share certificates in place of Share
certificates represented to have been lost, stolen, or destroyed upon receiving
instructions satisfactory to the Transfer Agent. If the Transfer Agent receives
written notification from the owner of the lost, destroyed, or stolen Share
certificate within a reasonable time after the owner has notice of such loss,
destruction or theft, the Transfer Agent shall issue a replacement Share
certificate upon receipt of an affidavit or affidavits of loss or nonreceipt
and an indemnity agreement executed by the registered owner or his legal
representative, and supported (a) in the case of a certificate having a value at
the time of replacement of less than $100, by a fixed penalty surety bond for
twice the then-current market value of Shares represented by said certificate
and (b) in the case of a certificate having a value at time of replacement of
$100 or more, by an open penalty bond, in form satisfactory to the Transfer
Agent or (c) by such other documentation or reasonable assurances in a
particular case as may be set forth in a Certificate. If the Fund receives such
written notification from the owner of the lost, destroyed or stolen Share
certificate within a reasonable time after the owner has notice of it, the Fund
shall promptly notify the Transfer Agent. The Transfer Agent may issue new Share
certificates in exchange for, and upon surrender of, mutilated Share
certificates.
8.10. The Transfer Agent will supply shareholder lists to the Fund from
time to time upon receiving a request therefor from an Officer of the Fund.
8.11. At the request of an Officer, the Transfer Agent will address and
mail such appropriate notices to shareholders as to the Fund may direct, at the
Fund's expense.
8.12. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the sufficiency
of the amount to be received therefor, or the authority of an Approved
Institution or of the Fund, as the case may be, to request such sale or
issuance;
(b) The legality of a transfer, exchange or of a redemption of any
Shares by an Approved Institution, the propriety of the amount to be paid
therefor, or the authority of an Approved Institution to request such transfer,
exchange or redemption;
(c) The legality of the declaration of any dividend or capital gains
distribution by the Fund, or the legality of the issue of any Shares in payment
of any Share dividend or distribution; or
(d) The legality of any recapitalization or readjustment of the
Shares.
8.13. The Transfer Agent shall be entitled to receive, and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Appendix B hereto, (i) its
reasonable out-of-pocket expenses (including without limitation legal
14
<PAGE>
expenses, court costs, and attorney's fees associated with litigation or
arbitration) incurred in connection with this Agreement and its performance
hereunder and (ii) such compensation as is specified in Appendix C hereto as
such fees may be amended from time to time by agreement in writing by the
Transfer Agent and the Fund.
8.14. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
8.15. The Transfer Agent shall indemnify and exonerate, save and hold
harmless the Fund, and its officers, directors, employee and agents, from and
against any and all liabilities or losses arising from claims and demands
(whether with or without basis in fact or law), and from any and all expenses
(including, without limitation, reasonable attorney's fees, expenses and court
costs), of any nature which the Fund or any officer, director, employee or agent
may sustain or incur or which may be asserted against them by any person arising
out of or in any manner related to the Transfer Agent's failure to comply with
the terms of this Agreement or which arise out of the Transfer Agent's
negligence or willful misconduct provided, however, that the Transfer Agent
shall not indemnify and exonerate, save and hold harmless, the Fund, its
officers, directors, employees, and agents for anything arising out of or in any
manner related to the Fund's failure to comply with the terms of this Agreement
or which arises out of the Fund's, or any officer's, director's, employee's or
agent's (other than the Transfer Agent) negligence or willful misconduct or the
Transfer Agent's reliance on information or instructions received from, or
issued on behalf of, the Fund.
ARTICLE 9
TERMINATION
9.1. The initial term of this Agreement shall commence on the Effective
Date and shall continue through June 30, 1997 (the "Initial Term") unless
earlier terminated pursuant to Section 9.2. Therefore, unless earlier terminated
by either party at the end of the Initial Term upon at least 90 days' prior
written notice, this Agreement shall continue from day to day thereafter (such
period shall be referred to as the "Renewal Term"), until either of the parties
hereto terminates this Agreement by giving at least 6 months' prior written
notice to the other party, whereupon this Agreement shall terminate
automatically upon the expiration of the 6-month period specified in the written
notice. In the event such notice of termination is given by the Fund, it shall
be accompanied by a copy of a resolution of the Board of Trustees of the Fund,
certified by the Secretary or any Assistant Secretary, electing to terminate
this Agreement. In the event such notice is given by the Transfer Agent, the
Fund shall, on or before the termination date, deliver to the Transfer Agent a
copy of a resolution of its Board of Trustees certified by the Secretary or any
Assistant Secretary designating a successor transfer agent or transfer agents.
In the absence of such designation by the Fund, the Transfer Agent may designate
a successor transfer agent. If the Fund fails to designate a successor transfer
agent, the Fund shall, upon the date specified for termination of this Agreement
and delivery of the records maintained hereunder, be deemed to be its own
transfer agent and the Transfer Agent shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement.
15
<PAGE>
9.2 Notwithstanding Section 9.1 hereof, this Agreement may be terminated
at any time by the Fund upon not less than 60 days' written notice from the Fund
to the Transfer Agent notifying the Transfer Agent: (i) if a majority of the
Trustees who are not "interested persons" (as that term is defined in the
Investment Company Act of 1940) upon completion of the procedures set forth
below have reasonably made a specific finding that the Transfer Agent has failed
on a continuing basis to perform its duties pursuant to this Agreement in a
satisfactory manner consistent with then current industry standards and
practices or (ii) if there is instituted or pending an action or proceeding by
or before any court or governmental, administrative or regulatory agency against
or involving the parties hereto, their affiliates, the Trustees of the Fund or
any of them and challenging the making of this Agreement or alleging that any
material term of the Agreement is contrary to law or any governmental agency has
threatened in writing to commence such an action or proceeding. Prior to any
termination pursuant to clause (i), the Board of Trustees of the Fund shall
provide the Transfer Agent with a written statement of the specific aspects of
the Transfer Agent's performance of its duties that are unsatisfactory, the
specific incident or incidents giving rise to the Board of Trustees' conclusion
and any written material that the Board of Trustees' relied upon in making such
a determination. The Transfer Agent shall have 30 days to respond to such
written statement. If no response is made, or if, after reasonable consideration
of the response of the Transfer Agent, such response is unsatisfactory to the
Board of Trustees, then the Board of Trustees of the Fund may terminate the
Agreement pursuant to clause (i) thereof. For purposes of making a finding as
contemplated by clause (i) above, the Transfer Agent shall be, absent unusual
circumstances, conclusively presumed to have failed on a continuing basis to
perform its duties pursuant to this Agreement in a satisfactory manner
consistent with the industry standards and practices prevailing on the date of
this Agreement if any of the following should occur:
(1) The Transfer Agent through its fault is unable (more than once in
a twelve-month period) to process daily activity for any two successive Business
Days and to confirm information generated by such activity by the fourth
Business Day following the later of such two Business Days. (For example,
assuming no holidays, daily activity on a Monday and Tuesday is not confirmed by
the following Monday.)
(2) The Transfer Agent through its fault is unable (more than two
times in any twelve-month period) to provide system access to personnel of an
Approved Institution for six hours between 9:00 a.m. and 5:00 p.m. Chicago time
on three successive Business Days.
(3) The Transfer Agent through its fault is unable (more than twice
in any one year) to create and mail dividend checks within four Business Days
after the Fund's payable date (assuming that the required information has been
furnished to the Transfer Agent on the record date).
(4) The Transfer Agent through its fault is unable to instruct
various financial institutions on daily money movements from and to the Funds'
Custodians for two successive Business Days by the Fourth Business Day following
the later of such two Business Days. (For this purpose, instructions based on
reasonable estimates are treated as fulfilling the Transfer Agent's obligations
hereunder.)
(5) The Transfer Agent through its fault is unable (more than twice
in any twelve-month period) to transmit dividend activity to an Approved
Institution within five Business Days from the relevant Fund's payable date.
16
<PAGE>
For purposes of the foregoing, an event described in any of the foregoing
clauses 1 through 5 shall be deemed not to have occurred if the Transfer Agent's
inability to perform is a result, directly or indirectly of faulty or inadequate
performance by service provider including, but not limited to, telephone
companies, pricing services, Nuveen & Co., Approved Institutions, and banks
other than the Transfer Agent and its agents and employees or a result, directly
or indirectly, of other events out of the Transfer Agent's reasonable control.
Also for the purposes of the foregoing, if the Transfer Agent processes
transactions or instructions (as the case may be) as required hereunder within
the time periods indicated but more than 10% of the transactions, checks or
instructions, as the case may be, are inaccurate in any material respect, and
are not corrected within the requisite time then the Transfer Agent shall be
deemed to have been unable to perform the relevant service within the requisite
time.
9.3. In the event of termination of this Agreement, the Transfer Agent
will facilitate transfer of the records maintained by it hereunder and cooperate
with such successor transfer agent as may be designated pursuant to the
provisions of Section 9.1 hereof with respect to delivery of such records and
assumption by such successor transfer agent of its duties. In the event the Fund
or the Transfer Agent terminates the Transfer Agency Agreement at any time, the
Fund shall be responsible for the payment of fees and expenses of the Transfer
Agent relating to the conversion to the new Transfer Agent.
ARTICLE 10
ADDITIONAL SERIES
10.1. In the event that the Fund establishes one or more Series in
addition to the Series named herein with respect to which it desires to have the
Transfer Agent render services as transfer agent under the terms hereof, it
shall so notify the Transfer Agent in writing at least 60 days in advance of the
sale of Shares of such Series and shall deliver to the Transfer Agent the
documents listed in Section 2.3 with respect to such Series. Unless the Transfer
Agent declines in writing within a reasonable time to provide such services, the
Shares of such Series shall be subject to this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1. The Fund agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Transfer Agent
hereunder, it shall advise the Transfer Agent of such proposed change at least
30 days prior to the intended date of the same, and shall proceed with such
change only if it shall have received the written consent of the Transfer Agent
hereto, and shall have received and agreed to the schedule of charges, if any,
specified by the Transfer Agent necessary to effect such change.
11.2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its
17
<PAGE>
office at 333 West Wacker Drive, Chicago, Illinois 60606, Attention: Mr. Stuart
Rogers, or at such other place as the Fund may from time to time designate in
writing.
11.3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent, Attention: President, mailed or delivered to it
at its office at 3410 South Galena Street, Denver, Colorado 80231, with a copy
to be sent to Andrew J. Donohue at Oppenheimer Funds, Inc. Two World Trade
Center, New York, NY 10048 or at such other place as the Transfer Agent may from
time to time designate in writing.
11.4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties.
11.5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund or the Transfer Agent without
the written consent of the other party. A change of ownership of the Transfer
Agent as a result of an internal reorganization of the Transfer Agent, its
parent corporation or affiliates shall not be deemed to be an "assignment"
hereunder. A change in "control" (as defined under the Investment Company Act of
1940) of the Transfer Agent's parent corporation shall not be deemed an
"assignment" hereunder. A sale of a controlling interest in the capital stock or
of all or substantially all of the assets of the Transfer Agent to a third party
unaffiliated with the Transfer Agent or its parent corporation shall be deemed
to be an "assignment" hereunder.
11.6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to agreements to be wholly
performed in that state.
11.7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
11.8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
11.9. Neither the Fund nor the Transfer Agent will be liable or
responsible hereunder for delays or errors by reason of circumstances reasonably
beyond its control, including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood, catastrophe, acts of God, insurrection, war, riots, or failure of
transportation, communication or power supply.
11.10. The Fund shall establish and maintain such bank accounts, with such
bank or banks as are selected by the Fund, as are necessary so that the Transfer
Agent may perform the services to be provided hereunder. To the extent that
performance of such services shall require the Transfer Agent directly to
disburse amounts for payments of dividends, redemption proceeds or other
purposes, the Fund shall provide such bank or banks with all instructions and
authorizations necessary to evidence the Transfer Agent's authority to effect
such transactions.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the day
and year first above written.
Attest: NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman,
VP and Assistant Secretary By: /s/ Anna Kucinskis, VP
- ---------------------------------- -----------------------------------
Name Title Name Title
Attest: SHAREHOLDER SERVICES, INC.
/s/ Kathryn L. Kluck, AVP By: /s/ Virginia A. Klein
- ---------------------------------- -----------------------------------
Name Title Virginia A. Klein, Senior Vice
President
19
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix A
Officer's Certificate
I, _______________________, the Secretary of Nuveen Flagship Multistate
Trust II, a Massachusetts business trust (the "Fund"), do hereby certify that:
The following individuals have been duly authorized by the Trustees of the
Fund in conformity with the Fund's Declaration of Trust and By-Laws to execute
any Certificate, instruction, notice or other instrument, including an amendment
to Appendix B to this Agreement, or to give oral instructions on behalf of the
Fund, and the signatures set forth opposite their respective names are their
true and correct signatures.
<TABLE>
<CAPTION>
Name Title Signature
- ---- ----- ---------
<S> <C> <C>
- ------------------------ Chairman ------------------------------
- ------------------------ President ------------------------------
- ------------------------ Secretary ------------------------------
- ------------------------ Trustee ------------------------------
- ------------------------ Vice President ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
- ------------------------ --------------- ------------------------------
</TABLE>
------------------------------, Secretary
Name
20
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix B
Transfer Agent Services
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- ---------
<S> <C>
New Account Set-Ups Process new sales applications. Place telephone calls to
account representatives as needed to clarify instructions
for new account set-ups.
Purchases - New and Subsequent Process mailed-in, lockbox, bank wire, list billing, ACH,
and telephone payments as received. Coordinate and balance
UIT reinvestment payments.
Transfers Negotiate and process all transfer requests.
Exchanges - Mail and Telephone Negotiate and process exchange requests. Record telephone
exchange requests.
Redemptions - Mail and Telephone Negotiate and process mailed in, ACH and telephone
redemption requests. Record telephone redemption requests.
Wire Order Purchases and Redemptions Process wire order purchases and redemptions for designated
settlement period accepted on recorded telephone lines and via
NSCC FUND/SERV. Process purchases and redemptions for same day
wire settlement.
Account Maintenance Process all written and telephone maintenance. For address
(Address Changes, Dividend Option changes, prepare and mail a notice of the address change to
Changes, Name Changes, Broker or the former address.
Dealer Changes, etc.)
Certificate Issuances Issue certificates as requested by shareholders.
Telephone Services Provide efficient handling of all incoming shareholder and
broker/dealer telephone calls. Make outgoing clarification
calls/coordination with Chase on UIT/ETF consolidations.
Provide timely problem resolution for all servicing calls.
Provide automated trend reporting.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- --------
<S> <C>
Correspondence with Shareholders Respond to all shareholder and broker/
and Broker/Dealers dealer written inquiries. Document all
correspondence affecting shareholder
accounts on the Shareholder Accounting
System.
Shareholder Confirms Prepare and mail confirmations of daily
(Daily/Monthly/Quarterly/Annual) account activity. Prepare and mail
monthly, quarterly, and annual
confirmations as directed by the fund.
Dealer Confirms Prepare and mail weekly dealer
confirmations listing activity on client
accounts as directed by the Fund.
Distribution Disbursements Prepare and mail cash distribution
checks. Process reinvested distributions.
Commission Statements Provide bimonthly commission statements
listing each purchase and the portion of
the sales charge paid to the
broker/dealer.
Commission Checks Provide bimonthly commission checks to
broker/dealers.
Daily Transmission of Reports Transmit daily transaction activity
reports, balancing reports, and sales
information via telephone lines to a
printer at Nuveen.
Fund Summary Sheets Prepare daily reports that summarize by
type of transaction all capital stock
activity for each fund. Transmit/download
wire/capital stock activity information
to Chase.
Sales Reporting Provide daily, weekly, monthly,
quarterly, and annual reports of sales
information.
12b-1 Reporting Complete 12b-1 processing including
calculating the 12b-1 payment amounts and
sending checks to the broker/dealer home
offices. Provide a listing broken down by
sales representative within each branch.
Invalid Taxpayer Identification Mail Forms W-9 as required to validate
Number Solicitation and Backup taxpayer identification numbers;
Withholding institute backup withholding as required
by IRS regulations, and timely send all
notices.
Regulatory Reporting Compute, prepare, and mail all necessary
reports to shareholders, federal, and/or
state authorities (Forms 1099-DIV,
1099-B, and 1042S).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- --------
<S> <C>
Front-End Imaging of Documents Front-end Image all incoming documents.
Cost Basis Reporting Provide cost basis information as
available to shareholders annually for
use in determining capital gains and
losses.
Blue Sky Reporting Provide monthly report of purchases and
redemptions by state.
Financial Reporting Mailings Provide mail handling for 2 financial
reports per fund per year to Nuveen
shareholders.
Prospectus Mailings Provide mail handling for 1 prospectus
per fund per year to Nuveen shareholders.
Proxy Solicitation and Tabulation Perform 1 proxy solicitation and
tabulation per fund per year.
Networking Accounts Provide transmission and appropriate
services for each network level.
Cash Availability Transmit mutual fund activity to
designated entity on a daily basis for
cash availability purposes.
Commission/12b-1 Balancing Provide balancing reports for commission
and 12b-1 payments.
</TABLE>
3
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix C
Fee Schedule
The Transfer Agent will provide the transfer agent services listed on
Appendix B for the Fund at the rates set forth below:
Annual Transfer Agent Fees:
Annual-Per-Account Fees*
First 150,000 Accounts** $ 19.25 per account
Next 100,000 Accounts** $ 18.75 per account
Next 50,000 Accounts** $ 18.25 per account
Over 300,000 Accounts** $ 17.75 per account
Out-Of-Pocket-Expenses:
Out-of-pocket expenses may be incurred by either the Fund or the Transfer
Agent and are not included in the annual Transfer Agent Fees. Those
out-of-pocket expenses directly incurred by the Transfer Agent will be billed to
the Fund on a monthly basis. These out-of-pocket expenses include, but are not
limited to, the printing of forms, envelopes, postage and proxy solicitation
fees for the shareholder mailings, costs of abandoned property reports or
searches for missing or inactive shareholders, equipment and system access
costs, microfilm, telephone line and usage charges, overnight express mail
charges, check signature plates and stamps, and programmer/analyst and testing
technician time beyond that agreed to in writing. Bank charges and earnings
credit will be billed directly to the Fund by United Missouri Bank (or other
banks). The Transfer Agent may require the prior payment of anticipated
out-of-pocket expenses, from time to time.
- ---------------
* Payable on a monthly basis for each non-retirement plan account in existence
at the end of the month. Retirement Plan accounts may be subject to a separate
fee schedule to be negotiated.
** The determination of the number of accounts for purposes of determining the
per account fee shall be based on all Nuveen Funds using the same fee schedule
and shall be allocated on a Fund by Fund basis in a manner determined by the
Transfer Agent based on the number of accounts in each fund.
These fees are valid until June 30, 1997, after which they are subject to
change, from time to time.
The Transfer Agent shall, from time to time, but no more frequently than
monthly, send an invoice to the Fund itemizing the compensation and expense
reimbursement. The Fund shall pay such invoice (except to the extent that the
amount thereof is in dispute) by wire not later than 30 days after receipt of
the invoice.
4
<PAGE>
Exhibit 10
June 26, 1997
Nuveen Flagship Multistate Trust II (202) 639-7065
333 West Wacker Drive
Chicago, Illinois 60606
RE: Registration Statements on Form N-1A under the Securities
Act of 1933 for Nuveen Flagship Multistate Trust II (File No.
333-14729)
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Multistate Trust II, a
Massachusetts voluntary association (commonly known as a business trust) (the
"Trust"), in connection with the above-referenced Registration Statement on Form
N-1A (as amended, the "Registration Statement"), which relates to the Class A
Shares, Class B Shares, Class C Shares and Class R Shares, par value $.01 per
share, of each of the following series of the Trust: Nuveen Flagship New York
Municipal Bond Fund, Nuveen New York Insured Municipal Bond Fund, Nuveen
Flagship New Jersey 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 and Nuveen
Massachusetts Insured Municipal Bond Fund, and the Class A Shares, Class C
Shares and Class R Shares, par value $.01 per share, (collectively, the
"Shares") of the Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
(collectively, the "Series"). This opinion is being delivered to you in
connection with the Trust's filing of Post-Effective Amendment No. 1 to the
Registration Statement (the "Amendment") to be filed with the Securities and
Exchange Commission on or about June 26, 1997 pursuant to Rule 485(b) of the
Securities Act of 1933 (the "1933 Act"). With your permission, all assumptions
and statements of reliance herein have been made without any independent
investigation or verification on our part except to the extent otherwise
expressly stated, and we express no opinion with respect to the subject matter
or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence of the Trust:
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all
amendments thereto (the "Declaration");
(c) a certificate executed by Karen L. Healy, an Assistant Secretary of
the Trust, certifying as to, and attaching copies of, the Declaration
and the By-Laws, as amended (the "By-Laws"), and certain resolutions
adopted by the Board of the Trustees of the Trust authorizing the
issuance of the Shares; and
(d) a printer's proof, dated June 24, 1997, of the Amendment.
<PAGE>
Nuveen Flagship Multistate Trust II
June 26, 1997
In our capacity as counsel to the Trust, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinions, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Trust. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Trust's
Declaration and By-Laws, and for the consideration described in the Registration
Statement, will be legally issued, fully paid and non-assessable, except that,
as set forth in the Registration Statement, shareholders of the Trust may, under
certain circumstances, be held personally liable for the obligations.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Thomas S. Harman
--------------------------------------
Thomas S. Harman
-2-
<PAGE>
Exhibit 11(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 21, 1997, and to all references to our Firm included in or made a
part of this registration statement of Nuveen Flagship Multistate Trust II
(comprising the Nuveen Flagship New Jersey Municipal Bond Fund and the Nuveen
Flagship New Jersey Intermediate Municipal Bond Fund).
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 23, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 11, 1997, and to all references to our Firm included in or made a
part of this registration statement of Nuveen Flagship Multistate Trust II
(comprising the Nuveen California, Nuveen California Insured, Nuveen Flagship
Connecticut, Nuveen Massachusetts, Nuveen Massachusetts Insured, Nuveen Flagship
New York and Nuveen New York Insured Municipal Bond Funds).
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 23, 1997
<PAGE>
EXHIBIT 11(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 1 to Registration
Statement under the Securities Act of 1933, filed under Registration Statement
No. 333-14729, of our reports dated July 3, 1996, relating to the Nuveen
Flagship New Jersey Intermediate Municipal Bond Fund (formerly Flagship New
Jersey Intermediate Tax Exempt Fund) and the Nuveen Flagship Connecticut
Municipal Bond Fund (formerly Flagship Connecticut Double Tax Exempt
Fund), incorporated by reference in the Statement of Additional Information and
to the reference to us under the caption "Independent Public Accountants and
Custodian", in such Registration Statement.
DELOITTE & TOUCHE LLP
Dayton, OH
June 23, 1997
<PAGE>
EXHIBIT 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
A - 6
YIELD = 2 [ ( B / 1 - 1
----- ) ]
CD
Where:
A = dividends and interest(degrees) 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.
D= the maximum offering price per share on the last day of the period.
- --------
*The maximum sales charge in effect during the periods shown was 4.20%.
(degrees)Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium
or (2) issued at a discount where the current market discount is less
than the then-remaining portion of the original issue discount, it is
necessary to first compute the yield to maturity (YTM). The YTM is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (plus accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of
the obligation (plus accrued interest) is used in lieu of the market
value of the obligation (plus accrued interest) in computing the yield to
maturity (YTM). The YTM is then divided by 360 and the quotient is multi-
plied by the adjusted original issue basis of the obligation (plus ac-
crued interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-
est is used in lieu of the yield to maturity. The coupon rate is then di-
vided by 360 and the quotient is multiplied by the par value of the obli-
gation.
B. Yield Calculations
1. New York Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 97,670.47 - 6
Yield = 2[ ( $ 16,841.64] + 1 - 1
-------------------------- ) ]
[ 2,025,379.39 X 10.97]
= 4.41%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 4,462.71 - 6
Yield = 2[ ( $ 1,369.95] + 1 - 1
-------------------------- ) ]
[ 92,267.53 X 10.51]
= 3.86%$
1
<PAGE>
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 703,487.82 - 6
Yield = 2[ ( $ 90,269.35] + 1 - 1
-------------------------- ) ]
[ 14,551,347.99 X 10.50]
= 4.86%$
2. New York Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 150,472.06 - 6
Yield = 2[ ( $ 25,202.14] + 1 - 1
-------------------------- ) ]
[ 3,304,004.12 X 10.96]
= 4.19%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 8,913.23 - 6
Yield = 2[ ( $ 2,464.37] + 1 - 1
-------------------------- ) ]
[ 195,973.55 X 10.48]
= 3.80%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 1,390,790.48 - 6
Yield = 2[ ( $179,388.72] + 1 - 1
-------------------------- ) ]
[ 30,547,515.46 X 10.49]
= 4.58%$
3. New Jersey Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 80,570.69 - 6
Yield = 2[ ( $ 13,728.99] + 1 - 1
-------------------------- ) ]
[ 1,643,079.81 X 10.70]
= 4.61%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 11,940.91 - 6
Yield = 2[ ( $ 3,581.96] + 1 - 1
-------------------------- ) ]
[ 243,892.53 X 10.20]
= 4.07%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 206,046.99 - 6
Yield = 2[ ( $ 26,349.35] + 1 - 1
-------------------------- ) ]
[ 4,196,854.23 X 10.23]
= 5.08%$
2
<PAGE>
4. New Jersey Intermediate Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 30,382.96 - 6
Yield = 2[ ( $ 3,602.92] + 1 - 1
-------------------------- ) ]
[ 707,184.49 X 10.59]
= 4.33%$
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
N/A
5. California Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 91,333.55 - 6
Yield = 2[ ( $ 15,152.33] + 1 - 1
-------------------------- ) ]
[ 1,922,314.41 X 11.04]
= 4.35%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 4,306.59 - 6
Yield = 2[ ( $ 1,158.49] + 1 - 1
-------------------------- ) ]
[ 90,640.86 X 10.58]
= 3.97%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 962,146.06 - 6
Yield = 2[ ( $123,724.36] + 1 - 1
-------------------------- ) ]
[ 20,209,324.62 X 10.61]
= 4.74%$
6. California Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 120,151.44 - 6
Yield = 2[ ( $ 20,097.15] + 1 - 1
-------------------------- ) ]
[ 2,547,782.18 X 11.17]
= 4.26%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
3
<PAGE>
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 7,211.78 - 6
Yield = 2[ ( $ 1,965.11] + 1 - 1
-------------------------- ) ]
[ 154,013.29 X 10.63]
= 3.88%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 863,681.09 - 6
Yield = 2[ ( $111,659.17] + 1 - 1
-------------------------- ) ]
[ 18,352,070.34 X 10.68]
= 4.65%$
7. Connecticut Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 979,926.89 - 6
Yield = 2[ ( $144,804.67] + 1 - 1
-------------------------- ) ]
[ 20,120,787.81 X 10.91]
= 4.61%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 30,817.24 - 6
Yield = 2[ ( $ 7,531.03] + 1 - 1
-------------------------- ) ]
[ 632,768.71 X 10.44]
= 4.27%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
N/A
8. Massachusetts Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 32,068.00 - 6
Yield = 2[ ( $ 5,563.86] + 1 - 1
-------------------------- ) ]
[ 717,589.06 X 10.32]
= 4.33%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 4,131.88 - 6
Yield = 2[ ( $ 1,140.18] + 1 - 1
-------------------------- ) ]
[ 92,951.19 X 9.83]
= 3.96%$
4
<PAGE>
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 330,816.43 - 6
Yield = 2[ ( $ 45,161.72] + 1 - 1
-------------------------- ) ]
[ 7,424,898.38 X 9.86]
= 4.73%$
9. Massachusetts Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1997, for the Class A
Shares of the Fund:
[$ 32,332.33 - 6
Yield = 2[ ( $ 6,403.88] + 1 - 1
-------------------------- ) ]
[ 725,321.42 X 10.84]
= 3.99%$
The following is the 30-day yield as of February 28, 1997, for the Class B
Shares of the Fund:
N/A
The following is the 30-day yield as of February 28, 1997, for the Class C
Shares of the Fund:
[$ 4,018.76 - 6
Yield = 2[ ( $ 1,229.48] + 1 - 1
-------------------------- ) ]
[ 90,389.79 X 10.35]
= 3.60%$
The following is the 30-day yield as of February 28, 1997, for the Class R
Shares of the Fund:
[$ 245,697.62 - 6
Yield = 2[ ( $ 39,101.83] + 1 - 1
-------------------------- ) ]
[ 5,510,865.91 X 10.38]
= 4.37%$
5
<PAGE>
II. TAXABLE EQUIVALENT YIELD
A. Taxable Equivalent Yield Formula
The Taxable Equivalent Yield Formula is as follows:
Tax Exempt Yield
Taxable Equivalent -------------------------------------
Yield = (1 - combined federal and state in-
come tax rate)
B. Taxable Equivalent Yield Calculations
Based on combined federal and state income tax rates of 43.5% for New Jersey
and New Jersey Intermediate, 43.5% for New York and New York Insured, 45.0% for
California and California Insured, 47.0% for Massachusetts and Massachusetts
Insured, and 42.5% for Connecticut, the Taxable Equivalent Yields for the Class
A Shares, Class B Shares, Class C Shares and Class R Shares, where applicable,
for the 30-day period ended February 28, 1997, are as follows:
Class A Shares Class B Shares Class C Shares Class R Shares
--------------- --------------- --------------- ---------------
New York 4.41% 3.86% 4.86%
Municipal -------
Bond Fund: = 7.81% N/A ------- = 6.83% ------- =
1 - 1 - 1 - 8.60%
.435 .435 .435
4.19% 3.80% 4.58%
New York -------
Insured ------- -------
Municipal 1 - = 7.42% N/A 1 - = 6.73% 1 - =
Bond Fund: .435 .435 .435 8.11%
4.61% 4.07% 5.08%
New Jersey -------
Municipal N/A ------- -------
Bond Fund: = 8.16%
1 - = 7.20% =
.435 1 - 1 - 8.99%
.435 .435
New Jersey 4.33% n/a n/a
Intermediate -------
Municipal = 7.66% N/A ------- -------
Bond Fund: = n/a = n/a
1 -
.435 n/a n/a
California 4.35% 3.97% 4.74%
Municipal -------
Bond Fund: = 7.91% N/A ------- -------
= 7.22% =
1 - 8.62%
.450 1 - 1 -
.450 .450
4.26% 3.88% 4.65%
California -------
Insured = 7.75% N/A ------- -------
Municipal = 7.05% =
Bond Fund: 1 - 8.45%
.450 1 - 1 -
.450 .450
4.61% 4.27% n/a
Connecticut -------
Municipal N/A ------- -------
Bond Fund: = 8.02%
1 - = 7.43% = n/a
.425 1 - n/a
.425
Massachusetts 4.33% 3.96% 4.73%
Municipal -------
Bond Fund: = 8.17% N/A ------- -------
= 7.47% =
1 - 8.92%
.470 1 - 1 -
.470 .470
3.99% 3.60% 4.37%
Massachusetts-------
Insured N/A ------- -------
Municipal = 7.53%
Bond Fund: 1 - = 6.79% =
.470 1 - 1 - 8.25%
.470 .470
6
<PAGE>
III. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate is as follows:
Distribution Rate = 12 X most recent tax-exempt income dividend per share
-----------------------------------------------------
share price
B. Distribution Rate Calculations
1. New York Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the New York Fund.
Class A Distribution Rate = 12 X $.0473
-----------
$10.99
= 5.16%
Class B Distribution Rate = 12 X $.0407
-----------
$10.53
= 4.64%
Class C Distribution Rate = 12 X $.0426
-----------
$10.56
= 4.84%
Class R Distribution Rate = 12 X $.0491
-----------
$10.55
= 5.58%
2. New York Insured Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the New York Insured Fund.
Class A Distribution Rate = 12 X $.0435
-----------
$10.96
= 4.76%
Class B Distribution Rate = 12 X $.0370
-----------
$10.50
= 4.23%
Class C Distribution Rate = 12 X $.0385
-----------
$10.48
= 4.41%
Class R Distribution Rate = 12 X $.0450
-----------
$10.49
= 5.15%
7
<PAGE>
3. New Jersey Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the New Jersey Fund.
Class A Distribution Rate = 12 X $.0465
-----------
$10.71
= 5.21%
Class B Distribution Rate = 12 X $.0401
-----------
$10.26
= 4.69%
Class C Distribution Rate = 12 X $.0418
-----------
$10.25
= 4.89%
Class R Distribution Rate = 12 X $.0483
-----------
$10.27
= 5.64%
4. New Jersey Intermediate Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the New Jersey Intermediate Fund.
Class A Distribution Rate = 12 X $.0421
-----------
$10.62
= 4.76%
Class C Distribution Rate = N/A
Class R Distribution Rate = N/A
5. California Municipal Bond Fund
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the California Fund:
Class A Distribution Rate = 12 X $.0455
-----------
$11.04
= 4.95%
Class B Distribution Rate = N/A
Class C Distribution Rate = 12 X $.0405
-----------
$10.58
= 4.59%
Class R Distribution Rate = 12 X $.0475
-----------
$10.61
= 5.37%
8
<PAGE>
6. California Insured Municipal Bond Fund
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the California Insured Fund:
Class A Distribution Rate = 12 X $.0450
-----------
$11.17
= 4.83%
Class B Distribution Rate = N/A
Class C Distribution Rate = 12 X $.0395
-----------
$10.63
= 4.46%
Class R Distribution Rate = 12 X $.0465
-----------
$10.68
= 5.22%
7. Connecticut Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the Connecticut Fund.
Class A Distribution Rate = 12 X $.0465
-----------
$10.97
= 5.09%
Class B Distribution Rate = 12 X $.0400
-----------
$10.51
= 4.57%
Class C Distribution Rate = 12 X $.0418
-----------
$10.49
= 4.78%
Class R Distribution Rate = N/A
9
<PAGE>
8. Massachusetts Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the Massachusetts Fund.
Class A Distribution Rate = 12 X $.0425
-----------
$10.32
= 4.94%
Class B Distribution Rate = N/A
Class C Distribution Rate = 12 X $.0380
-----------
$9.83
= 4.64%
Class R Distribution Rate = 12 X $.0440
-----------
$9.86
= 5.35%
9. Massachusetts Insured Municipal Bond Fund:
The following is the distribution rate as of February 28, 1997, based on the
maximum public offering price for the Massachusetts Insured Fund.
Class A Distribution Rate = 12 X $.0435
-----------
$10.84
= 4.82%
Class B Distribution Rate = N/A
Class C Distribution Rate = 12 X $.0385
-----------
$10.35
= 4.46%
Class R Distribution Rate = 12 X $.0450
-----------
$10.38
= 5.20%
IV. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
ERV /1//N
T = --- -1
P
Where: T=average annual total return.
P=a hypothetical initial payment of $1,000.
N=number of years.
ERV=ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10-year (or fractional portion thereof)
periods at the end of such 1, 5 or 10-year (or fractional portion
thereof) periods.
10
<PAGE>
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A, Class B,
Class C, and Class R Shares of the Funds for the period since inception and for
the 1, 5, and 10-year (where applicable) periods ended February 28, 1997, in-
cluding the current maximum sales charge. For all of the Funds except for the
Connecticut Municipal Bond Fund and the New Jersey Intermediate Municipal Bond
Fund, Class A, Class B, and Class C total returns reflect actual performance
for the periods since class inception and Class R performance for the periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes. For the Connecticut Fund, Class B, Class C, and Class
R total returns reflect actual performance for the periods since class incep-
tion and Class A performance for the periods prior to class inception, adjusted
for the differences in sales charges and fees between the classes. For the New
Jersey Intermediate Fund, Class C and Class R total returns reflect Class A
performance for all periods, adjusted for the differences in sales charges and
fees between the classes.
ANNUAL CLASS A TOTAL RETURNS INCLUDING CURRENT MAXIMUM SALES CHARGE OF 4.20%:
1. New York Municipal Bond Fund
$1,007 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.67%
( $1,000 ) ----
----
$1,364 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.40%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,882
= -1 = 6.53%
( ------- ) ----
$1,000 ----
D. Inception through February 28, 1997$1,966 /1/10.188/
=
------- -1 = 6.86%
( $1,000 ) ----
----
2. New York Insured Municipal Bond Fund
$ 997 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = -0.35%
( $1,000 ) ------
------
/1/5/
B. 5 years ended February 28, 1997 $1,340
= -1 = 6.03%
( ------- ) ----
$1,000 ----
C. 10 years ended February 28, 1997 $1,824 /1/10/
=
------- -1 = 6.19%
( $1,000 ) ----
----
$1,891 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.46%
( $1,000 ) ----
----
3. New Jersey Municipal Bond Fund
$1,005 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.45%
( $1,000 ) ----
----
B. 5 years ended February 28, 1997 $1,339 /1/5/
=
( ------- ) -1 = 6.02%
$1,000 ----
----
$1,339 /1/5.000/
C. Inception through February 28, 1997-------
= -1 = 6.02%
( $1,000 ) ----
----
4. New Jersey Intermediate Municipal Bond Fund
$ 992 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = -0.79%
( $1,000 ) -------
-------
11
<PAGE>
$1,267 /1/4/.452/
B. Inception through February 28, 1997-------
= -1 = 5.47%
( $1,000 ) -----
-----
5. California Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,009 -1 = 0.87%
( ------- ) ----
----
$1,000
B. 5 years ended February 28, 1997 $1,326 /1/5/
=
------- -1 = 5.80%
( $1,000 ) ----
----
$1,812 /1/10/
C. 10 years ended February 28, 1997 ------- -1 = 6.12%
=
( $1,000 ) ----
----
$2,015 /1/10.664/
D. Inception through February 28, 1997-------
= -1 = 6.79%
( $1,000 ) ----
----
6. California Insured Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,002 /1/1/
( ------- ) -1 = 0.18%
$1,000 ----
----
$1,340 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.03%
( $1,000 ) ----
----
$1,823 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 6.19%
( $1,000 ) ----
----
/1/10.664/
D. Inception through February 28, 1997$1,986
= -1 = 6.64%
( ------- ) ----
$1,000 ----
7. Connecticut Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,010 /1/1/
------- -1 = 1.04%
( $1,000 ) ----
----
$1,348 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.15%
( $1,000 ) ----
----
C. Inception through February 28, 1997$1,903 /1/9.632/
=
( ------- ) -1 = 6.91%
$1,000 ----
----
8. Massachusetts Municipal Bond Fund
$1,003 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.33%
( $1,000 ) ----
----
$1,345 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.11%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,785
= -1 = 5.97%
( ------- ) ----
----
$1,000
D. Inception through February 28, 1997$1,802 /1/10.188/
=
------- -1 = 5.95%
( $1,000 ) ----
----
12
<PAGE>
9. Massachusetts Insured Municipal Bond Fund
$ 997 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = -0.35%
( $1,000 ) ------
------
$1,326 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 5.81%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,816
= -1 = 6.15%
( ------- ) ----
----
$1,000
D. Inception through February 28, 1997$1,828 /1/10.188/
=
------- -1 = 6.10%
( $1,000 ) ----
----
ANNUAL CLASS B TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,003 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.30%
( $1,000 ) -----
-----
B. 5 years ended February 28, 1997 $1,368 /1/5/
=
( ------- ) -1 = 6.47%
$1,000 -----
-----
$1,864 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 6.43%
( $1,000 ) -----
-----
/1/10.188/
D. Inception through February 28, 1997$1,948
= -1 = 6.76%
( ------- ) -----
-----
$1,000
2. New York Insured Municipal Bond Fund
A. 1 year ended February 28, 1997= $ 992 /1/1/
------- -1 = -0.79%
( $1,000 ) ------
------
/1/5/
B. 5 years ended February 28, 1997 $1,340
= -1 = 6.03%
( ------- ) -----
-----
$1,000
C. 10 years ended February 28, 1997 $1,801 /1/10/
=
------- -1 = 6.06%
( $1,000 ) -----
-----
$1,869 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.33%
( $1,000 ) -----
-----
3. New Jersey Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,001 /1/1/
( ------- ) -1 = 0.12%
$1,000 -----
-----
$1,341 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.04%
( $1,000 ) -----
-----
$1,341 /1/5.000/
C. Inception through February 28, 1997-------
= -1 = 6.04%
( $1,000 ) -----
-----
13
<PAGE>
4. California Municipal Bond Fund
$1,007 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.67%
( $1,000 ) -----
-----
$1,331 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 5.89%
( $1,000 ) -----
-----
C. 10 years ended February 28, 1997 $1,794 /1/10/
=
------- -1 = 6.02%
( $1,000 ) -----
-----
$1,989 /1/10.664/
D. Inception through February 28, 1997= -------
-1 = 6.66%
( $1,000 ) -----
-----
5. California Insured Municipal Bond Fund
$ 998 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = -0.16%
( $1,000 ) ------
------
B. 5 years ended February 28, 1997 $1,339 /1/5/
=
( ------- ) -1 = 6.01%
$1,000 -----
-----
$1,796 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 6.03%
( $1,000 ) -----
-----
/1/10.664/
D. Inception through February 28, 1997= $1,960
-1 = 6.51%
( ------- ) -----
-----
$1,000
6. Connecticut Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,009 /1/1/
------- -1 = 0.88%
( $1,000 ) -----
-----
/1/5/
B. 5 years ended February 28, 1997 $1,358
= -1 = 6.32%
( ------- ) -----
-----
$1,000
C. Inception through February 28, 1997= $1,901 /1/9.632/
------- -1 = 6.90%
( $1,000 ) -----
-----
7. Massachusetts Municipal Bond Fund
$1,000 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 0.04%
( $1,000 ) -----
-----
B. 5 years ended February 28, 1997 $1,343 /1/5/
=
( ------- ) -1 = 6.07%
$1,000 -----
-----
$1,759 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 5.81%
( $1,000 ) -----
-----
D. Inception through February 28, 1997= $1,773 /1/10.188/
( ------- ) -1 = 5.79%
$1,000 -----
-----
14
<PAGE>
8. Massachusetts Insured Municipal Bond Fund
$ 992 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = -0.78%
( $1,000 ) ------
------
/1/5/
B. 5 years ended February 28, 1997 $1,327
= -1 = 5.82%
( ------- ) -----
-----
$1,000
C. 10 years ended February 28, 1997 $1,793 /1/10/
=
------- -1 = 6.01%
( $1,000 ) -----
-----
D. Inception through February 28, 1997$1,803 /1/10.188/
=
( ------- ) -1 = 5.96%
$1,000 -----
-----
ANNUAL CLASS C TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,043 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 4.31%
( $1,000 ) ----
----
$1,380 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.65%
( $1,000 ) ----
----
C. 10 years ended February 28, 1997 $1,835 /1/10/
=
( ------- ) -1 = 6.26%
$1,000 ----
----
$1,913 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.58%
( $1,000 ) ----
----
2. New York Insured Municipal Bond Fund
$1,031 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 3.06%
( $1,000 ) ----
----
B. 5 years ended February 28, 1997 $1,349 /1/5/
=
( ------- ) -1 = 6.17%
$1,000 ----
----
$1,768 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 5.87%
( $1,000 ) ----
----
$1,830 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.11%
( $1,000 ) ----
----
3. New Jersey Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,042 -1 = 4.18%
( ------- ) ----
----
$1,000
B. 5 years ended February 28, 1997 $1,350 /1/5/
=
------- -1 = 6.19%
( $1,000 ) ----
----
$1,350 /1/5.000/
C. Inception through February 28, 1997-------
= -1 = 6.19%
( $1,000 ) ----
----
15
<PAGE>
4. New Jersey Intermediate Municipal Bond Fund
$1,032 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 3.21%
( $1,000 ) -----
-----
$1,302 /1/4.452/
B. Inception through February 28, 1997-------
= -1 = 6.11%
( $1,000 ) -----
-----
5. California Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,045 -1 = 4.53%
( ------- ) ----
----
$1,000
B. 5 years ended February 28, 1997 $1,338 /1/5/
=
------- -1 = 6.00%
( $1,000 ) ----
----
$1,762 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 5.83%
( $1,000 ) ----
----
/1/10.664/
D. Inception through February 28, 1997$1,950
= -1 = 6.46%
( ------- ) ----
----
$1,000
6. California Insured Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,040 /1/1/
------- -1 = 3.99%
( $1,000 ) ----
----
$1,347 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.14%
( $1,000 ) ----
----
$1,764 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 5.84%
( $1,000 ) ----
----
D. Inception through February 28, 1997$1,912 /1/10.664/
=
( ------- ) -1 = 6.27%
$1,000 ----
----
7. Connecticut Municipal Bond Fund
$1,049 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 4.89%
( $1,000 ) -----
-----
$1,366 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.43%
( $1,000 ) -----
-----
/1/9.632/
C. Inception through February 28, 1997$1,880
= -1 = 6.77%
( ------- ) -----
-----
$1,000
8. Massachusetts Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,039 /1/1/
------- -1 = 3.90%
( $1,000 ) ----
----
$1,349 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 6.18%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,725
= -1 = 5.60%
( ------- ) ----
----
$1,000
D. Inception through February 28, 1997$1,738 /1/10.188/
=
------- -1 = 5.58%
( $1,000 ) ----
----
16
<PAGE>
9. Massachusetts Insured Municipal Bond Fund
$1,032 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 3.17%
( $1,000 ) ----
----
$1,335 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 5.95%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,761
= -1 = 5.82%
( ------- ) ----
----
$1,000
D. Inception through February 28, 1997$1,770 /1/10.188/
=
------- -1 = 5.76%
( $1,000 ) ----
----
ANNUAL CLASS R TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,053 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 5.26%
( $1,000 ) ----
----
/1/5/
B. 5 years ended February 28, 1997 $1,445
= -1 = 7.63%
( ------- ) ----
----
$1,000
C. 10 years ended February 28, 1997 $2,019 /1/10/
=
------- -1 = 7.28%
( $1,000 ) ----
----
$2,110 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 7.61%
( $1,000 ) ----
----
2. New York Insured Municipal Bond Fund
$1,042 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 4.15%
( $1,000 ) ----
----
B. 5 years ended February 28, 1997 $1,416 /1/5/
=
( ------- ) -1 = 7.21%
$1,000 ----
----
$1,951 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 6.91%
( $1,000 ) ----
----
$2,025 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 7.17%
( $1,000 ) ----
----
3. New Jersey Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,051 -1 = 5.09%
( ------- ) ----
----
$1,000
B. 5 years ended February 28, 1997 $1,416 /1/5/
=
------- -1 = 7.21%
( $1,000 ) ----
----
$1,416 /1/5.000/
C. Inception through February 28, 1997-------
= -1 = 7.21%
( $1,000 ) ----
----
4. New Jersey Intermediate Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,036 -1 = 3.56%
( ------- ) -----
$1,000 -----
B. Inception through February 28, 1997$1,323 /1/4.452/
=
------- -1 = 6.49%
( $1,000 ) -----
-----
17
<PAGE>
5. California Municipal Bond Fund
$1,057 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 5.67%
( $1,000 ) ----
----
$1,406 /1/5/
B. 5 years ended February 28, 1997 -------
= -1 = 7.06%
( $1,000 ) ----
----
/1/10/
C. 10 years ended February 28, 1997 $1,945
= -1 = 6.88%
( ------- ) ----
$1,000 ----
D. Inception through February 28, 1997$2,168 /1/10.664/
=
------- -1 = 7.52%
( $1,000 ) ----
----
6. California Insured Municipal Bond Fund
$1,048 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 4.81%
( $1,000 ) ----
----
/1/5/
B. 5 years ended February 28, 1997 $1,414
= -1 = 7.18%
( ------- ) ----
$1,000 ----
C. 10 years ended February 28, 1997 $1,948 /1/10/
=
------- -1 = 6.89%
( $1,000 ) ----
----
$2,125 /1/10.664/
D. Inception through February 28, 1997-------
= -1 = 7.33%
( $1,000 ) ----
----
7. Connecticut Municipal Bond Fund
$1,055 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 5.46%
( $1,000 ) -----
-----
B. 5 years ended February 28, 1997 $1,406 /1/5/
=
( ------- ) -1 = 7.06%
$1,000 -----
-----
$1,986 /1/9.632/
C. Inception through February 28, 1997-------
= -1 = 7.38%
( $1,000 ) -----
-----
8. Massachusetts Municipal Bond Fund
$1,050 /1/1/
A. 1 year ended February 28, 1997= ------- -1 = 4.99%
( $1,000 ) ----
----
/1/5/
B. 5 years ended February 28, 1997 $1,418
= -1 = 7.24%
( ------- ) ----
$1,000 ----
C. 10 years ended February 28, 1997 $1,906 /1/10/
------- -1 = 6.66%
( $1,000 ) ----
----
$1,925 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.64%
( $1,000 ) ----
----
9. Massachusetts Insured Municipal Bond Fund
/1/1/
A. 1 year ended February 28, 1997= $1,042 -1 = 4.16%
( ------- ) ----
$1,000 ----
B. 5 years ended February 28, 1997 $1,402 /1/5/
=
------- -1 = 6.99%
( $1,000 ) ----
----
$1,944 /1/10/
C. 10 years ended February 28, 1997 -------
= -1 = 6.87%
( $1,000 ) ----
----
$1,959 /1/10.188/
D. Inception through February 28, 1997-------
= -1 = 6.82%
( $1,000 ) ----
----
18
<PAGE>
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T -------
= P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
inception of the Fund or at the first day of a specified 1-year, 5-
year or 10-year period.
B. Cumulative Total Return Calculation
The following are the cumulative total returns for Class A, Class B, Class C,
and Class R Shares of the Funds for the periods from inception and for the 1, 5
and 10-year (where applicable) periods ended February 28, 1997, assuming no im-
position of sales charges. For all of the Funds except the Connecticut Munici-
pal Bond Fund and the New Jersey Intermediate Fund, Class A, Class B, and Class
C total returns reflect actual performance for the periods since class incep-
tion and Class R performance for periods prior to class inception, adjusted for
the differences in sales charges and fees between the classes. For the Connect-
icut Fund, Class B, Class C, and Class R total returns reflect actual perfor-
mance for the periods since class inception and Class A performance for periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes. For the New Jersey Intermediate Fund, Class C and
Class R total returns reflect Class A performance for all periods, adjusted for
the differences in sales charges and fees between the classes.
CUMULATIVE CLASS A TOTAL RETURNS INCLUDING CURRENT MAXIMUM SALES CHARGES OF
4.20%:
1. New York Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,007 - = 0.67%
( $1,000 ) ----
-------------- ----
$1,000
B. 5 years ended February 28, 1997 $1,364 -
= $1,000 = 36.38%
( ) ------
-------------- ------
$1,000
C. 10 years ended February 28, 1997 $1,882 -
= $1,000 = 88.24%
( ) ------
-------------- ------
$1,000
D. Inception through February 28, 1997 $1,966 -
= $1,000 = 96.65%
( ) ------
-------------- ------
$1,000
2. New York Insured Municipal Bond Fund
A. 1 year ended February 28, 1997= $ 997 - =-0.35%
( $1,000 ) ------
-------------- ------
$1,000
B. 5 years ended February 28, 1997 $1,340 -
= $1,000 = 34.04%
( ) ------
-------------- ------
$1,000
C. 10 years ended February 28, 1997 $1,824 -
= $1,000 = 82.39%
( ) ------
-------------- ------
$1,000
D. Inception through February 28, 1997 $1,891 -
= $1,000 = 89.12%
( ) ------
-------------- ------
$1,000
3. New Jersey Municipal Bond Fund
A. 1 year ended February 28, 1997= $1,005 - = 0.45%
( $1,000 ) ----
-------------- ----
$1,000
B. 5 years ended February 28, 1997 $1,339 -
= $1,000 = 33.92%
( ) ------
-------------- ------
$1,000
19
<PAGE>
$1,339 -
C. Inception through February 28, 1997 $1,000
= = 33.92%
( -------------- ) ------
------
$1,000
4. New Jersey Intermediate Municipal Bond Fund
$ 992 -
A. 1 year ended February 28, 1997= $1,000 = -0.79%
( -------------- ) -------
$1,000 -------
$1,267 -
B. Inception through February 28, 1997 $1,000
= = 26.74%
( -------------- ) ------
------
$1,000
5. California Municipal Bond Fund
$1,009 -
A. 1 year ended February 28, 1997= $1,000 = 0.87%
( -------------- ) ----
----
$1,000
$1,326 -
B. 5 years ended February 28, 1997 $1,000
= = 32.58%
( -------------- ) ------
------
$1,000
$1,812 -
C. 10 years ended February 28, 1997 $1,000
= = 81.17%
( -------------- ) ------
------
$1,000
$2,015 -
D. Inception through February 28, 1997 $1,000
= = 101.55%
( -------------- ) -------
-------
$1,000
6. California Insured Municipal Bond Fund
$1,002 -
A. 1 year ended February 28, 1997= $1,000 = 0.18%
( -------------- ) ----
----
$1,000
$1,340 -
B. 5 years ended February 28, 1997 $1,000
= = 34.04%
( -------------- ) ------
------
$1,000
$1,823 -
C. 10 years ended February 28, 1997 $1,000
= = 82.30%
( -------------- ) ------
------
$1,000
$1,986 -
D. Inception through February 28, 1997 $1,000
= = 98.57%
( -------------- ) ------
------
$1,000
7. Connecticut Municipal Bond Fund
$1,010 -
A. 1 year ended February 28, 1997= $1,000 = 1.04%
( -------------- ) ----
----
$1,000
$1,348 -
B. 5 years ended February 28, 1997 $1,000
= = 34.75%
( -------------- ) ------
$1,000 ------
$1,903 -
C. Inception through February 28, 1997 $1,000
= = 90.26%
( -------------- ) ------
------
$1,000
8. Massachusetts Municipal Bond Fund
$1,003 -
A. 1 year ended February 28, 1997= $1,000 = 0.33%
( -------------- ) ----
----
$1,000
$1,345 -
B. 5 years ended February 28, 1997 $1,000
= = 34.54%
( -------------- ) ------
------
$1,000
$1,785 -
C. 10 years ended February 28, 1997 $1,000
= = 78.50%
( -------------- ) ------
$1,000 ------
$1,802 -
D. Inception through February 28, 1997 $1,000
= = 80.22%
( -------------- ) ------
$1,000 ------
20
<PAGE>
9. Massachusetts Insured Municipal Bond Fund
$ 997 -
A. 1 year ended February 28, 1997= $1,000 = -0.35%
( -------------- ) ------
$1,000 ------
$1,326 -
B. 5 years ended February 28, 1997 $1,000
= = 32.62%
( -------------- ) ------
$1,000 ------
$1,816 -
C. 10 years ended February 28, 1997 $1,000
= = 81.58%
( -------------- ) ------
$1,000 ------
$1,828 -
D. Inception through February 28, 1997 $1,000
= = 82.83%
( -------------- ) ------
$1,000 ------
CUMULATIVE CLASS B TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,003 -
A. 1 year ended February 28, 1997= $1,000 = 0.30%
( -------------- ) ----
$1,000 ----
$1,368 -
B. 5 years ended February 28, 1997 $1,000
= = 36.81%
( -------------- ) ------
$1,000 ------
$1,864 -
C. 10 years ended February 28, 1997 $1,000
= = 86.41%
( -------------- ) ------
$1,000 ------
$1,948 -
D. Inception through February 28, 1997 $1,000
= = 94.76%
( -------------- ) ------
$1,000 ------
2. New York Insured Municipal Bond Fund
$ 992 -
A. 1 year ended February 28, 1997= $1,000 = -0.79%
( -------------- ) ------
$1,000 ------
$1,340 -
B. 5 years ended February 28, 1997 $1,000
= = 34.04%
( -------------- ) ------
$1,000 ------
$1,801 -
C. 10 years ended February 28, 1997 $1,000
= = 80.13%
( -------------- ) ------
$1,000 ------
$1,869 -
D. Inception through February 28, 1997 $1,000
= = 86.93%
( -------------- ) ------
$1,000 ------
3. New Jersey Municipal Bond Fund
$1,001 -
A. 1 year ended February 28, 1997= $1,000 = 0.12%
( -------------- ) ----
$1,000 ----
$1,341 -
B. 5 years ended February 28, 1997 $1,000
= = 34.07%
( -------------- ) ------
$1,000 ------
$1,341 -
C. Inception through February 28, 1997 $1,000
= = 34.07%
( -------------- ) ------
$1,000 ------
4. California Municipal Bond Fund
$1,007 -
A. 1 year ended February 28, 1997= $1,000 = 0.67%
( -------------- ) ----
$1,000 ----
$1,331 -
B. 5 years ended February 28, 1997 $1,000
= = 33.13%
( -------------- ) ------
$1,000 ------
$1,794 -
C. 10 years ended February 28, 1997 $1,000
= = 79.40%
( -------------- ) ------
$1,000 ------
$1,989 -
D. Inception through February 28, 1997 $1,000
= = 98.94%
( -------------- ) ------
$1,000 ------
21
<PAGE>
5. California Insured Municipal Bond Fund
$ 998 -
A. 1 year ended February 28, 1997= $1,000 = -0.16%
( -------------- ) ------
------
$1,000
$1,339 -
B. 5 years ended February 28, 1997 $1,000
= = 33.89%
( -------------- ) ------
------
$1,000
$1,796 -
C. 10 years ended February 28, 1997 $1,000
= = 79.64%
( -------------- ) ------
------
$1,000
$1,960 -
D. Inception through February 28, 1997 $1,000
= = 95.98%
( -------------- ) ------
------
$1,000
6. Connecticut Municipal Bond Fund
$1,009 -
A. 1 year ended February 28, 1997= $1,000 = 0.88%
( -------------- ) ----
----
$1,000
$1,358 -
B. 5 years ended February 28, 1997 $1,000
= = 35.84%
( -------------- ) ------
------
$1,000
$1,901 -
C. Inception through February 28, 1997 $1,000
= = 90.10%
( -------------- ) ------
------
$1,000
7. Massachusetts Municipal Bond Fund
$1,000 -
A. 1 year ended February 28, 1997= $1,000 = 0.04%
( -------------- ) ----
----
$1,000
$1,343 -
B. 5 years ended February 28, 1997 $1,000
= = 34.34%
( -------------- ) ------
------
$1,000
$1,759 -
C. 10 years ended February 28, 1997 $1,000
= = 75.88%
( -------------- ) ------
------
$1,000
$1,773 -
D. Inception through February 28, 1997 $1,000
= = 77.34%
( -------------- ) ------
------
$1,000
8. Massachusetts Insured Municipal Bond Fund
$ 992 -
A. 1 year ended February 28, 1997= $1,000 = -0.78%
( -------------- ) ------
------
$1,000
$1,327 -
B. 5 years ended February 28, 1997 $1,000
= = 32.71%
( -------------- ) ------
------
$1,000
$1,793 -
C. 10 years ended February 28, 1997 $1,000
= = 79.30%
( -------------- ) ------
------
$1,000
$1,803 -
D. Inception through February 28, 1997 $1,000
= = 80.29%
( -------------- ) ------
------
$1,000
CUMULATIVE CLASS C TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,043 -
A. 1 year ended February 28, 1997= $1,000 = 4.31%
( -------------- ) ----
----
$1,000
$1,380 -
B. 5 years ended February 28, 1997 $1,000
= = 38.00%
( -------------- ) ------
------
$1,000
$1,835 -
C. 10 years ended February 28, 1997 $1,000
= = 83.46%
( -------------- ) ------
------
$1,000
$1,913 -
D. Inception through February 28, 1997 $1,000
= = 91.30%
( -------------- ) ------
$1,000 ------
22
<PAGE>
2. New York Insured Municipal Bond Fund
$1,031 -
A. 1 year ended February 28, 1997= $1,000 = 3.06%
( -------------- ) ----
----
$1,000
$1,349 -
B. 5 years ended February 28, 1997 $1,000
= = 34.87%
( -------------- ) ------
------
$1,000
$1,768 -
C. 10 years ended February 28, 1997 $1,000
= = 76.83%
( -------------- ) ------
------
$1,000
$1,830 -
D. Inception through February 28, 1997 $1,000
= = 83.02%
( -------------- ) ------
$1,000 ------
3. New Jersey Municipal Bond Fund
$1,042 -
A. 1 year ended February 28, 1997= $1,000 = 4.18%
( -------------- ) ----
----
$1,000
$1,350 -
B. 5 years ended February 28, 1997 $1,000
= = 35.00%
( -------------- ) ------
------
$1,000
$1,350 -
C. Inception through February 28, 1997 $1,000
= = 35.00%
( -------------- ) ------
$1,000 ------
4. New Jersey Intermediate Municipal Bond Fund
$1,032 -
A. 1 year ended February 28, 1997= $1,000 = 3.21%
( -------------- ) ----
----
$1,000
$1,302 -
B. Inception through February 28, 1997 $1,000
= = 30.23%
( -------------- ) ------
------
$1,000
5. California Municipal Bond Fund
$1,045 -
A. 1 year ended February 28, 1997= $1,000 = 4.53%
( -------------- ) ----
----
$1,000
$1,338 -
B. 5 years ended February 28, 1997 $1,000
= = 33.83%
( -------------- ) ------
------
$1,000
$1,762 -
C. 10 years ended February 28, 1997 $1,000
= = 76.16%
( -------------- ) ------
------
$1,000
$1,950 -
D. Inception through February 28, 1997 $1,000
= = 95.01%
( -------------- ) ------
------
$1,000
6. California Insured Municipal Bond Fund
$1,040 -
A. 1 year ended February 28, 1997= $1,000 = 3.99%
( -------------- ) ----
$1,000 ----
$1,347 -
B. 5 years ended February 28, 1997 $1,000
= = 34.68%
( -------------- ) ------
$1,000 ------
$1,764 -
C. 10 years ended February 28, 1997 $1,000
= = 76.45%
( -------------- ) ------
$1,000 ------
$1,912 -
D. Inception through February 28, 1997 $1,000
= = 91.25%
( -------------- ) ------
$1,000 ------
23
<PAGE>
7. Connecticut Municipal Bond Fund
$1,049 -
A. 1 year ended February 28, 1997= $1,000 = 4.89%
( -------------- ) ----
$1,000 ----
$1,366 -
B. 5 years ended February 28, 1997 $1,000
= = 36.59%
( -------------- ) ------
$1,000 ------
$1,880 -
C. Inception through February 28, 1997 $1,000
= = 88.01%
( -------------- ) ------
$1,000 ------
8. Massachusetts Municipal Bond Fund
$1,039 -
A. 1 year ended February 28, 1997= $1,000 = 3.90%
( -------------- ) ----
$1,000 ----
$1,349 -
B. 5 years ended February 28, 1997 $1,000
= = 34.94%
( -------------- ) ------
$1,000 ------
$1,725 -
C. 10 years ended February 28, 1997 $1,000
= = 72.50%
( -------------- ) ------
$1,000 ------
$1,738 -
D. Inception through February 28, 1997 $1,000
= = 73.84%
( -------------- ) ------
$1,000 ------
9. Massachusetts Insured Municipal Bond Fund
$1,032 -
A. 1 year ended February 28, 1997= $1,000 = 3.17%
( -------------- ) ----
$1,000 ----
$1,335 -
B. 5 years ended February 28, 1997 $1,000
= = 33.47%
( -------------- ) ------
$1,000 ------
$1,761 -
C. 10 years ended February 28, 1997 $1,000
= = 76.08%
( -------------- ) ------
$1,000 ------
$1,770 -
D. Inception through February 28, 1997 $1,000
= = 76.96%
( -------------- ) ------
$1,000 ------
CUMULATIVE CLASS R TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,053 -
A. 1 year ended February 28, 1997= $1,000 = 5.26%
( -------------- ) ----
$1,000 ----
$1,445 -
B. 5 years ended February 28, 1997 $1,000
= = 44.45%
( -------------- ) ------
$1,000 ------
$2,019 -
C. 10 years ended February 28, 1997 $1,000
= = 101.88%
( -------------- ) ------
$1,000 ------
$2,110 -
D. Inception through February 28, 1997 $1,000
= = 111.03%
( -------------- ) ------
$1,000 ------
24
<PAGE>
2. New York Insured Municipal Bond Fund
$1,042 -
A. 1 year ended February 28, 1997= $1,000 = 4.15%
( -------------- ) ----
$1,000 ----
$1,416 -
B. 5 years ended February 28, 1997 $1,000
= = 41.60%
( -------------- ) ------
$1,000 ------
$1,951 -
C. 10 years ended February 28, 1997 $1,000
= = 95.13%
( -------------- ) ------
$1,000 ------
$2,025 -
D. Inception through February 28, 1997 $1,000
= = 102.46%
( -------------- ) ------
$1,000 ------
3. New Jersey Municipal Bond Fund
$1,051 -
A. 1 year ended February 28, 1997= $1,000 = 5.09%
( -------------- ) ----
$1,000 ----
$1,416 -
B. 5 years ended February 28, 1997 $1,000
= = 41.61%
( -------------- ) ------
$1,000 ------
$1,416 -
C. Inception through February 28, 1997 $1,000
= = 41.61%
( -------------- ) ------
$1,000 ------
4. New Jersey Intermediate Municipal Bond Fund
$1,036 -
A. 1 year ended February 28, 1997= $1,000 = 3.56%
( -------------- ) ----
$1,000 ----
$1,323 -
B. Inception through February 28, 1997 $1,000
= = 32.30%
( -------------- ) ------
$1,000 ------
5. California Municipal Bond Fund
$1,057 -
A. 1 year ended February 28, 1997= $1,000 = 5.67%
( -------------- ) ----
$1,000 ----
$1,406 -
B. 5 years ended February 28, 1997 $1,000
= = 40.61%
( -------------- ) ------
$1,000 ------
$1,945 -
C. 10 years ended February 28, 1997 $1,000
= = 94.52%
( -------------- ) ------
$1,000 ------
$2,168 -
D. Inception through February 28, 1997 $1,000
= = 116.76%
( -------------- ) ------
$1,000 ------
6. California Insured Municipal Bond Fund
$1,048 -
A. 1 year ended February 28, 1997= $1,000 = 4.81%
( -------------- ) ----
$1,000 ----
$1,414 -
B. 5 years ended February 28, 1997 $1,000
= = 41.44%
( -------------- ) ------
$1,000 ------
$1,948 -
C. 10 years ended February 28, 1997 $1,000
= = 94.78%
( -------------- ) ------
$1,000 ------
$2,125 -
D. Inception through February 28, 1997 $1,000
= = 112.51%
( -------------- ) ------
$1,000 ------
25
<PAGE>
7. Connecticut Municipal Bond Fund
$1,055 -
A. 1 year ended February 28, 1997= $1,000 = 5.46%
( -------------- ) ----
$1,000 ----
$1,406 -
B. 5 years ended February 28, 1997 $1,000
= = 40.65%
( -------------- ) ------
$1,000 ------
$1,986 -
C. Inception through February 28, 1997 $1,000
= = 98.60%
( -------------- ) ------
$1,000 ------
8. Massachusetts Municipal Bond Fund
$1,050 -
A. 1 year ended February 28, 1997= $1,000 = 4.99%
( -------------- ) ----
$1,000 ----
$1,418 -
B. 5 years ended February 28, 1997 $1,000
= = 41.80%
( -------------- ) ------
$1,000 ------
$1,906 -
C. 10 years ended February 28, 1997 $1,000
= = 90.57%
( -------------- ) ------
$1,000 ------
$1,925 -
D. Inception through February 28, 1997 $1,000
= = 92.53%
( -------------- ) ------
$1,000 ------
9. Massachusetts Insured Municipal Bond Fund
$1,042 -
A. 1 year ended February 28, 1997= $1,000 = 4.16%
( -------------- ) ----
$1,000 ----
$1,402 -
B. 5 years ended February 28, 1997 $1,000
= = 40.20%
( -------------- ) ------
$1,000 ------
$1,944 -
C. 10 years ended February 28, 1997 $1,000
= = 94.40%
( -------------- ) ------
$1,000 ------
$1,959 -
D. Inception through February 28, 1997 $1,000
= = 95.86%
( -------------- ) ------
$1,000 ------
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's taxable equivalent total return for a specific period is calcu-
lated by first taking a hypothetical initial investment in the Fund's shares on
the first day of the period, computing the Fund's total return for each fiscal
year in the period according to the above formula, and increasing the total re-
turn for each such fiscal year by the amount of additional income that a tax-
able fund would need to have generated to equal the income of the Fund on an
after-tax basis, at a specified tax rate (usually the highest marginal federal
or combined federal and state tax rate), calculated pursuant to the formula
presented above under "taxable equivalent yield." The resulting amount for the
fiscal year is then divided by the initial investment amount to arrive at a
"taxable equivalent total return factor" for the fiscal year. The taxable
equivalent total return factors for all the fiscal years in the period 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 pro-
vides a taxable equivalent total return expressed as a percentage.
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class R Shares of
the Massachusetts Municipal Bond Fund for the five-year period ended February
28, 1997 are set forth on the following pages assuming a combined federal and
state income tax rate of 47.0% based on 1997 rates.
26
<PAGE>
Fund Name: Nuveen Massachusetts Municipal Bond Fund Class R
Since 02/29/92
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02/29/92 9.21 1,086 $10,000.00
03/31/92 9.19 0.0475 $51.574 $ -- $51.574 $ 51.574 1,091 $10,029.75 9.21
04/30/92 9.23 0.0475 $51.840 $ -- $51.840 $103.415 1,097 $10,125.19 9.24
05/31/92 9.29 0.0475 $52.107 $ -- $52.107 $155.522 1,103 $10,243.11 9.29
06/30/92 9.40 0.0475 $52.373 $ -- $52.373 $207.895 1,108 $10,416.72 9.41
07/31/92 9.69 0.0475 $52.638 $ -- $52.638 $260.533 1,114 $10,790.88 9.66
08/31/92 9.51 0.0465 $51.783 $ -- $51.783 $312.315 1,119 $10,642.16 9.52
09/30/92 9.54 0.0465 $52.036 $ -- $52.036 $364.351 1,124 $10,727.71 9.55
10/31/92 9.34 0.0465 $52.289 $ -- $52.289 $416.640 1,130 $10,555.10 9.34
11/30/92 9.51 0.0465 $52.550 $ -- $52.550 $469.190 1,136 $10,799.77 9.51
12/31/92 9.58 0.0465 0.0039 $52.806 $ 4.429 $57.235 $521.996 1,142 $10,936.50 9.58
01/31/93 9.62 0.0465 $53.084 $ -- $53.084 $575.081 1,147 $11,035.19 9.63
02/28/93 9.91 0.0465 $53.341 $ -- $53.341 $628.421 $557.3 1,209 $11,977.86 9.92
03/31/93 9.73 0.0465 $56.203 $ -- $56.203 $ 56.203 1,214 $11,816.44 9.74
04/30/93 9.80 0.0450 $54.650 $ -- $54.650 $110.852 1,220 $11,956.05 9.81
05/31/93 9.83 0.0450 $54.900 $ -- $54.900 $165.753 1,226 $12,047.55 9.83
06/30/93 9.97 0.0450 $55.152 $ -- $55.152 $220.904 1,231 $12,274.28 9.97
07/31/93 9.94 0.0450 $55.400 $ -- $55.400 $276.305 1,237 $12,292.75 9.94
08/31/93 10.12 0.0450 $55.651 $ -- $55.651 $331.956 1,242 $12,570.95 10.13
09/30/93 10.20 0.0450 $55.898 $ -- $55.898 $387.854 1,248 $12,726.17 10.21
10/31/93 10.18 0.0450 0.0102 $56.145 $12.726 $68.871 $443.999 1,254 $12,770.16 10.17
11/30/93 10.04 0.0450 $56.450 $ -- $56.450 $500.449 1,260 $12,650.93 10.05
12/31/93 10.16 0.0450 $56.702 $ -- $56.702 $557.151 1,266 $12,858.84 10.16
01/31/94 10.26 0.0450 $56.954 $ -- $56.954 $614.105 1,271 $13,042.41 10.25
02/28/94 9.94 0.0440 $55.932 $ -- $55.932 $670.037 $594.2 1,337 $13,286.40 9.93
03/31/94 9.51 0.0440 $58.813 $ -- $58.813 $ 58.813 1,343 $12,771.45 9.35
04/30/94 9.49 0.0440 $59.090 $ -- $59.090 $117.903 1,349 $12,803.87 9.46
05/31/94 9.54 0.0445 $60.039 $ -- $60.039 $177.942 1,355 $12,931.43 9.53
06/30/94 9.46 0.0445 $60.320 $ -- $60.320 $238.262 1,362 $12,883.31 9.46
07/31/94 9.55 0.0445 $60.603 $ -- $60.603 $298.865 1,368 $13,066.30 9.58
08/31/94 9.53 0.0445 $60.885 $ -- $60.885 $359.750 1,375 $13,099.75 9.54
09/30/94 9.33 0.0445 $61.169 $ -- $61.169 $420.919 1,381 $12,886.01 9.33
10/31/94 9.13 0.0455 $62.842 $ -- $62.842 $483.760 1,388 $12,672.76 9.11
11/30/94 8.90 0.0455 $63.156 $ -- $63.156 $546.916 1,395 $12,416.38 8.94
12/31/94 9.12 0.0455 $63.477 $ -- $63.477 $610.393 1,402 $12,786.78 9.12
01/31/95 9.32 0.0455 $63.794 $ -- $63.794 $674.187 1,409 $13,130.72 9.36
02/28/95 9.54 0.0455 $64.104 $ -- $64.104 $738.291 $654.7 1,484 $14,156.48 9.58
03/31/95 9.58 0.0455 $67.518 $ -- $67.518 $ 67.518 1,491 $14,283.21 9.60
04/30/95 9.57 0.0455 $67.838 $ -- $67.838 $135.356 1,498 $14,336.21 9.56
05/31/95 9.79 0.0455 $68.161 $ -- $68.161 $203.516 1,505 $14,733.94 9.79
06/30/95 9.67 0.0455 $68.477 $ -- $68.477 $271.994 1,512 $14,621.82 9.67
07/31/95 9.68 0.0455 $68.800 $ -- $68.800 $340.793 1,519 $14,705.88 9.66
08/31/95 9.73 0.0455 $69.124 $ -- $69.124 $409.917 1,526 $14,850.68 9.77
09/30/95 9.75 0.0455 $69.446 $ -- $69.446 $479.363 1,533 $14,950.44 9.78
10/31/95 9.84 0.0455 $69.769 $ -- $69.769 $549.132 1,540 $15,158.00 9.87
11/30/95 9.95 0.0455 $70.090 $ -- $70.090 $619.222 1,547 $15,397.33 9.98
12/31/95 9.99 0.0450 $69.636 $ -- $69.636 $688.858 1,554 $15,528.87 9.99
01/31/96 10.00 0.0450 $69.950 $ -- $69.950 $758.808 1,561 $15,614.36 10.00
02/29/96 9.91 0.0450 $70.265 $ -- $70.265 $829.073 $735.2 1,642 $16,276.88 9.94
03/31/96 9.76 0.0440 $72.269 $ -- $72.269 $ 72.269 1,650 $16,102.70 9.77
04/30/96 9.70 0.0440 $72.594 $ -- $72.594 $144.863 1,657 $16,076.31 9.70
05/31/96 9.69 0.0440 $72.923 $ -- $72.923 $217.786 1,665 $16,132.66 9.69
06/30/96 9.73 0.0440 $73.255 $ -- $73.255 $291.041 1,672 $16,272.51 9.73
07/31/96 9.76 0.0440 $73.586 $ -- $73.586 $364.627 1,680 $16,396.04 9.79
08/31/96 9.74 0.0440 $73.917 $ -- $73.917 $438.543 1,688 $16,436.43 9.73
09/30/96 9.81 0.0440 $74.251 $ -- $74.251 $512.794 1,695 $16,628.73 9.82
10/31/96 9.85 0.0440 $74.584 $ -- $74.584 $587.378 1,703 $16,771.05 9.86
11/30/96 9.92 0.0440 $74.916 $ -- $74.916 $662.294 1,710 $16,965.15 9.92
12/31/96 9.86 0.0440 $75.249 $ -- $75.249 $737.543 1,718 $16,937.78 9.86
01/31/97 9.83 0.0440 $75.584 $ -- $75.584 $813.127 1,726 $16,966.57 9.84
02/28/97 9.86 0.4400 $75.944 $ -- $75.944 $889.071 $788.4 1,814 $17,883.60 9.85
Tax Rate 47.00%
Load 0.00%
Past Year: Total Return 9.84%
5.0021 Years: Total Return 78.84%
Annualized 12.33%
</TABLE>
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 091
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 203025
<INVESTMENTS-AT-VALUE> 215235
<RECEIVABLES> 4352
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219594
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2533
<TOTAL-LIABILITIES> 2533
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205883
<SHARES-COMMON-STOCK> 19973
<SHARES-COMMON-PRIOR> 20094
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12210
<NET-ASSETS> 217061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1109
<OTHER-INCOME> 0
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 1005
<REALIZED-GAINS-CURRENT> 79
<APPREC-INCREASE-CURRENT> 1027
<NET-CHANGE-FROM-OPS> 2111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 936
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 94
<NUMBER-OF-SHARES-REDEEMED> 254
<SHARES-REINVESTED> 39
<NET-CHANGE-IN-ASSETS> 149
<ACCUMULATED-NII-PRIOR> (35)
<ACCUMULATED-GAINS-PRIOR> (1141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146
<AVERAGE-NET-ASSETS> 211425
<PER-SHARE-NAV-BEGIN> 10.450
<PER-SHARE-NII> .050
<PER-SHARE-GAIN-APPREC> .057
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> .601
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 092
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 203025
<INVESTMENTS-AT-VALUE> 215235
<RECEIVABLES> 4352
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219594
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2533
<TOTAL-LIABILITIES> 2533
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205883
<SHARES-COMMON-STOCK> 10
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12210
<NET-ASSETS> 217061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1109
<OTHER-INCOME> 0
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 1005
<REALIZED-GAINS-CURRENT> 79
<APPREC-INCREASE-CURRENT> 1027
<NET-CHANGE-FROM-OPS> 2111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 149
<ACCUMULATED-NII-PRIOR> (35)
<ACCUMULATED-GAINS-PRIOR> (1141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146
<AVERAGE-NET-ASSETS> 34
<PER-SHARE-NAV-BEGIN> 10.530
<PER-SHARE-NII> .037
<PER-SHARE-GAIN-APPREC> (.017)
<PER-SHARE-DIVIDEND> (.040)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 1.123
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 093
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 203025
<INVESTMENTS-AT-VALUE> 215235
<RECEIVABLES> 4352
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219594
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2533
<TOTAL-LIABILITIES> 2533
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205883
<SHARES-COMMON-STOCK> 675
<SHARES-COMMON-PRIOR> 658
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12210
<NET-ASSETS> 217061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1109
<OTHER-INCOME> 0
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 1005
<REALIZED-GAINS-CURRENT> 79
<APPREC-INCREASE-CURRENT> 1027
<NET-CHANGE-FROM-OPS> 2111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 28
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 16
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 149
<ACCUMULATED-NII-PRIOR> (35)
<ACCUMULATED-GAINS-PRIOR> (1141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146
<AVERAGE-NET-ASSETS> 6984
<PER-SHARE-NAV-BEGIN> 10.440
<PER-SHARE-NII> .047
<PER-SHARE-GAIN-APPREC> .045
<PER-SHARE-DIVIDEND> (.042)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> 1.148
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 094
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 203025
<INVESTMENTS-AT-VALUE> 215235
<RECEIVABLES> 4352
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 219594
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2533
<TOTAL-LIABILITIES> 2533
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205883
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1039)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12210
<NET-ASSETS> 217061
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1109
<OTHER-INCOME> 0
<EXPENSES-NET> 104
<NET-INVESTMENT-INCOME> 1005
<REALIZED-GAINS-CURRENT> 79
<APPREC-INCREASE-CURRENT> 1027
<NET-CHANGE-FROM-OPS> 2111
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 149
<ACCUMULATED-NII-PRIOR> (35)
<ACCUMULATED-GAINS-PRIOR> (1141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.550
<PER-SHARE-NII> .013
<PER-SHARE-GAIN-APPREC> (.053)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 70484
<INVESTMENTS-AT-VALUE> 72734
<RECEIVABLES> 1203
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 622
<TOTAL-LIABILITIES> 622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71781
<SHARES-COMMON-STOCK> 2717
<SHARES-COMMON-PRIOR> 1671
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (716)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2250
<NET-ASSETS> 73316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 364
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 338
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 329
<NET-CHANGE-FROM-OPS> 667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 126
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2767
<NUMBER-OF-SHARES-REDEEMED> 52
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 73266
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (582)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51
<AVERAGE-NET-ASSETS> 27978
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> .041
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> .55
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 072
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 70484
<INVESTMENTS-AT-VALUE> 72734
<RECEIVABLES> 1203
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 622
<TOTAL-LIABILITIES> 622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71781
<SHARES-COMMON-STOCK> 7
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (716)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2250
<NET-ASSETS> 73316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 364
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 338
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 329
<NET-CHANGE-FROM-OPS> 667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 73266
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (582)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51
<AVERAGE-NET-ASSETS> 25
<PER-SHARE-NAV-BEGIN> 10.22
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> .031
<PER-SHARE-DIVIDEND> .040
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.26
<EXPENSE-RATIO> 1.27
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 073
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 70484
<INVESTMENTS-AT-VALUE> 72734
<RECEIVABLES> 1203
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 622
<TOTAL-LIABILITIES> 622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71781
<SHARES-COMMON-STOCK> 265
<SHARES-COMMON-PRIOR> 256
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (716)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2250
<NET-ASSETS> 73316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 364
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 338
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 329
<NET-CHANGE-FROM-OPS> 667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 264
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 73266
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (582)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51
<AVERAGE-NET-ASSETS> 26667
<PER-SHARE-NAV-BEGIN> 10.20
<PER-SHARE-NII> .042
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> .042
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.25
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 074
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 70484
<INVESTMENTS-AT-VALUE> 72734
<RECEIVABLES> 1203
<ASSETS-OTHER> 2
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 73939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 622
<TOTAL-LIABILITIES> 622
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71781
<SHARES-COMMON-STOCK> 4152
<SHARES-COMMON-PRIOR> 4195
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (716)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2250
<NET-ASSETS> 73316
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 364
<OTHER-INCOME> 0
<EXPENSES-NET> 26
<NET-INVESTMENT-INCOME> 338
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 329
<NET-CHANGE-FROM-OPS> 667
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 201
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4225
<NUMBER-OF-SHARES-REDEEMED> 74
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 73266
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (582)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51
<AVERAGE-NET-ASSETS> 42920
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> .040
<PER-SHARE-DIVIDEND> .048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> NUVEEN NEW JERSEY INTERMEDIATE CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 6838
<INVESTMENTS-AT-VALUE> 7200
<RECEIVABLES> 94
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7307
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 296
<TOTAL-LIABILITIES> 296
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6848
<SHARES-COMMON-STOCK> 681
<SHARES-COMMON-PRIOR> 704
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (199)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 362
<NET-ASSETS> 7011
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 33
<OTHER-INCOME> 0
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 32
<REALIZED-GAINS-CURRENT> 3
<APPREC-INCREASE-CURRENT> 18
<NET-CHANGE-FROM-OPS> 53
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 29
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1
<NUMBER-OF-SHARES-REDEEMED> 24
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (216)
<ACCUMULATED-NII-PRIOR> 3
<ACCUMULATED-GAINS-PRIOR> (201)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8
<AVERAGE-NET-ASSETS> 7160
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> .026
<PER-SHARE-DIVIDEND> .042
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.30
<EXPENSE-RATIO> 0.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> NEW YORK MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 214237
<INVESTMENTS-AT-VALUE> 226652
<RECEIVABLES> 3304
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 1643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217810
<SHARES-COMMON-STOCK> 6808
<SHARES-COMMON-PRIOR> 2029
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12414
<NET-ASSETS> 228362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1179
<OTHER-INCOME> 0
<EXPENSES-NET> 95
<NET-INVESTMENT-INCOME> 1084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1109
<NET-CHANGE-FROM-OPS> 2193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 324
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 81
<NUMBER-OF-SHARES-REDEEMED> 104
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53549
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1010
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136
<AVERAGE-NET-ASSETS> 72216
<PER-SHARE-NAV-BEGIN> 10.48
<PER-SHARE-NII> 0.078
<PER-SHARE-GAIN-APPREC> 0.019
<PER-SHARE-DIVIDEND> 0.047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 0.660
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> NEW YORK MUNI FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 214237
<INVESTMENTS-AT-VALUE> 226652
<RECEIVABLES> 3304
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 1643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217810
<SHARES-COMMON-STOCK> 12
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12414
<NET-ASSETS> 228362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1179
<OTHER-INCOME> 0
<EXPENSES-NET> 95
<NET-INVESTMENT-INCOME> 1084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1109
<NET-CHANGE-FROM-OPS> 2193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1010
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136
<AVERAGE-NET-ASSETS> 47
<PER-SHARE-NAV-BEGIN> 10.48
<PER-SHARE-NII> .049
<PER-SHARE-GAIN-APPREC> .042
<PER-SHARE-DIVIDEND> 0.041
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.53
<EXPENSE-RATIO> 1.430
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 053
<NAME> NEW YORK MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 214237
<INVESTMENTS-AT-VALUE> 226652
<RECEIVABLES> 3304
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 1643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217810
<SHARES-COMMON-STOCK> 376
<SHARES-COMMON-PRIOR> 93
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12414
<NET-ASSETS> 228362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1179
<OTHER-INCOME> 0
<EXPENSES-NET> 95
<NET-INVESTMENT-INCOME> 1084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1109
<NET-CHANGE-FROM-OPS> 2193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 53459
<NUMBER-OF-SHARES-REDEEMED> 5
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 54
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1010
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136
<AVERAGE-NET-ASSETS> 3694
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .078
<PER-SHARE-GAIN-APPREC> .015
<PER-SHARE-DIVIDEND> .043
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.56
<EXPENSE-RATIO> 1.220
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 054
<NAME> NEW YORK MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 214237
<INVESTMENTS-AT-VALUE> 226652
<RECEIVABLES> 3304
<ASSETS-OTHER> 49
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 230005
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1643
<TOTAL-LIABILITIES> 1643
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 217810
<SHARES-COMMON-STOCK> 14457
<SHARES-COMMON-PRIOR> 14537
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1896)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12414
<NET-ASSETS> 228362
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1179
<OTHER-INCOME> 0
<EXPENSES-NET> 95
<NET-INVESTMENT-INCOME> 1084
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 1109
<NET-CHANGE-FROM-OPS> 2193
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 712
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36
<NUMBER-OF-SHARES-REDEEMED> 117
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 53459
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1010
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 96
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136
<AVERAGE-NET-ASSETS> 153502
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> 0.051
<PER-SHARE-GAIN-APPREC> .048
<PER-SHARE-DIVIDEND> 0.049
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.55
<EXPENSE-RATIO> 0.460
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by reference
to such documents.
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> NUVEEN NEW YORK INSURED MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 331935
<INVESTMENTS-AT-VALUE> 354815
<RECEIVABLES> 4698
<ASSETS-OTHER> 406
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1460
<TOTAL-LIABILITIES> 1460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336547
<SHARES-COMMON-STOCK> 3425
<SHARES-COMMON-PRIOR> 3241
<ACCUMULATED-NII-CURRENT> 235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 83
<ACCUM-APPREC-OR-DEPREC> 22880
<NET-ASSETS> 358459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1765
<OTHER-INCOME> 0
<EXPENSES-NET> 194
<NET-INVESTMENT-INCOME> 1571
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 1549
<NET-CHANGE-FROM-OPS> 3310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 144
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 200
<NUMBER-OF-SHARES-REDEEMED> 25
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 3222
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> (1733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 83
<GROSS-ADVISORY-FEES> 148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194
<AVERAGE-NET-ASSETS> 34826
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> .049
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by reference
to such documents.
</LEGEND>
<SERIES>
<NUMBER> 062
<NAME> NUVEEN NEW YORK INSURED MUNI BOND FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 331935
<INVESTMENTS-AT-VALUE> 354815
<RECEIVABLES> 4698
<ASSETS-OTHER> 406
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1460
<TOTAL-LIABILITIES> 1460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336547
<SHARES-COMMON-STOCK> 122
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 83
<ACCUM-APPREC-OR-DEPREC> 22880
<NET-ASSETS> 358459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1765
<OTHER-INCOME> 0
<EXPENSES-NET> 194
<NET-INVESTMENT-INCOME> 1571
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 1549
<NET-CHANGE-FROM-OPS> 3310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 122
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3222
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> (1733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 83
<GROSS-ADVISORY-FEES> 148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194
<AVERAGE-NET-ASSETS> 999
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> .042
<PER-SHARE-GAIN-APPREC> (.035)
<PER-SHARE-DIVIDEND> .037
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> 1.63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by reference
to such documents.
</LEGEND>
<SERIES>
<NUMBER> 063
<NAME> NUVEEN NEW YORK INSURED MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 331935
<INVESTMENTS-AT-VALUE> 354815
<RECEIVABLES> 4698
<ASSETS-OTHER> 406
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1460
<TOTAL-LIABILITIES> 1460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336547
<SHARES-COMMON-STOCK> 192
<SHARES-COMMON-PRIOR> 199
<ACCUMULATED-NII-CURRENT> 235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 83
<ACCUM-APPREC-OR-DEPREC> 22880
<NET-ASSETS> 358459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1765
<OTHER-INCOME> 0
<EXPENSES-NET> 194
<NET-INVESTMENT-INCOME> 1571
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 1549
<NET-CHANGE-FROM-OPS> 3310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 9
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3222
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> (1733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 83
<GROSS-ADVISORY-FEES> 148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194
<AVERAGE-NET-ASSETS> 2058
<PER-SHARE-NAV-BEGIN> 10.43
<PER-SHARE-NII> .038
<PER-SHARE-GAIN-APPREC> .049
<PER-SHARE-DIVIDEND> .037
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.48
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by reference
to such documents.
</LEGEND>
<SERIES>
<NUMBER> 064
<NAME> NUVEEN NEW YORK INSURED MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 331935
<INVESTMENTS-AT-VALUE> 354815
<RECEIVABLES> 4698
<ASSETS-OTHER> 406
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 359919
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1460
<TOTAL-LIABILITIES> 1460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336547
<SHARES-COMMON-STOCK> 30417
<SHARES-COMMON-PRIOR> 30579
<ACCUMULATED-NII-CURRENT> 235
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 83
<ACCUM-APPREC-OR-DEPREC> 22880
<NET-ASSETS> 358459
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1765
<OTHER-INCOME> 0
<EXPENSES-NET> 194
<NET-INVESTMENT-INCOME> 1571
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 1549
<NET-CHANGE-FROM-OPS> 3310
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1375
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37
<NUMBER-OF-SHARES-REDEEMED> 292
<SHARES-REINVESTED> 93
<NET-CHANGE-IN-ASSETS> 3222
<ACCUMULATED-NII-PRIOR> 195
<ACCUMULATED-GAINS-PRIOR> (1733)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 83
<GROSS-ADVISORY-FEES> 148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 194
<AVERAGE-NET-ASSETS> 321413
<PER-SHARE-NAV-BEGIN> 10.44
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> .049
<PER-SHARE-DIVIDEND> .045
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.49
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> NUVEEN CAL MUNI BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 222609
<INVESTMENTS-AT-VALUE> 234751
<RECEIVABLES> 8273
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 243160
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 796
<TOTAL-LIABILITIES> 7333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 224225
<SHARES-COMMON-STOCK> 1944
<SHARES-COMMON-PRIOR> 1907
<ACCUMULATED-NII-CURRENT> 56
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (596)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12142
<NET-ASSETS> 235827
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1191
<OTHER-INCOME> 0
<EXPENSES-NET> 131
<NET-INVESTMENT-INCOME> 1060
<REALIZED-GAINS-CURRENT> 568
<APPREC-INCREASE-CURRENT> 278
<NET-CHANGE-FROM-OPS> 1906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 88
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 43
<NUMBER-OF-SHARES-REDEEMED> 11
<SHARES-REINVESTED> 5
<NET-CHANGE-IN-ASSETS> 1284
<ACCUMULATED-NII-PRIOR> 46
<ACCUMULATED-GAINS-PRIOR> (1161)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131
<AVERAGE-NET-ASSETS> 20428
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> .030
<PER-SHARE-DIVIDEND> .046
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> NUVEEN CAL MUNI BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 222609
<INVESTMENTS-AT-VALUE> 234751
<RECEIVABLES> 8273
<ASSETS-OTHER> 136
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 243160
<PAYABLE-FOR-SECURITIES> 6537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 796
<TOTAL-LIABILITIES> 7333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 224225
<SHARES-COMMON-STOCK> 95
<SHARES-COMMON-PRIOR> 81
<ACCUMULATED-NII-CURRENT> 56
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (596)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12142
<NET-ASSETS> 235827
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1191
<OTHER-INCOME> 0
<EXPENSES-NET> 131
<NET-INVESTMENT-INCOME> 1060
<REALIZED-GAINS-CURRENT> 568
<APPREC-INCREASE-CURRENT> 278
<NET-CHANGE-FROM-OPS> 1906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1284
<ACCUMULATED-NII-PRIOR> 46
<ACCUMULATED-GAINS-PRIOR> (1161)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131
<AVERAGE-NET-ASSETS> 970
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> .026
<PER-SHARE-DIVIDEND> .041
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.58
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> NUVEEN CAL MUNI BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 222609
<INVESTMENTS-AT-VALUE> 234751
<RECEIVABLES> 8273
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<TOTAL-ASSETS> 243160
<PAYABLE-FOR-SECURITIES> 6537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 796
<TOTAL-LIABILITIES> 7333
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 224225
<SHARES-COMMON-STOCK> 20202
<SHARES-COMMON-PRIOR> 20212
<ACCUMULATED-NII-CURRENT> 56
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (596)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12142
<NET-ASSETS> 235827
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1191
<OTHER-INCOME> 0
<EXPENSES-NET> 131
<NET-INVESTMENT-INCOME> 1060
<REALIZED-GAINS-CURRENT> 568
<APPREC-INCREASE-CURRENT> 278
<NET-CHANGE-FROM-OPS> 1906
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 958
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 72
<NUMBER-OF-SHARES-REDEEMED> 138
<SHARES-REINVESTED> 56
<NET-CHANGE-IN-ASSETS> 1284
<ACCUMULATED-NII-PRIOR> 46
<ACCUMULATED-GAINS-PRIOR> (1161)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 99
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 131
<AVERAGE-NET-ASSETS> 215076
<PER-SHARE-NAV-BEGIN> 10.57
<PER-SHARE-NII> .048
<PER-SHARE-GAIN-APPREC> .040
<PER-SHARE-DIVIDEND> .048
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> NUVEEN CAL INSURED MUNI BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 209085
<INVESTMENTS-AT-VALUE> 222302
<RECEIVABLES> 9726
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 232109
<PAYABLE-FOR-SECURITIES> 6537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 703
<TOTAL-LIABILITIES> 7240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212015
<SHARES-COMMON-STOCK> 2579
<SHARES-COMMON-PRIOR> 2521
<ACCUMULATED-NII-CURRENT> 176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (539)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13217
<NET-ASSETS> 224869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1099
<OTHER-INCOME> 0
<EXPENSES-NET> 125
<NET-INVESTMENT-INCOME> 974
<REALIZED-GAINS-CURRENT> 258
<APPREC-INCREASE-CURRENT> 744
<NET-CHANGE-FROM-OPS> 1976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 115
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 105
<NUMBER-OF-SHARES-REDEEMED> 53
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 1264
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (797)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125
<AVERAGE-NET-ASSETS> 27378
<PER-SHARE-NAV-BEGIN> 10.65
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> .045
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.70
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> NUVEEN CAL INSURED MUNI BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 209085
<INVESTMENTS-AT-VALUE> 222302
<RECEIVABLES> 9726
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 232109
<PAYABLE-FOR-SECURITIES> 6537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 703
<TOTAL-LIABILITIES> 7240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212015
<SHARES-COMMON-STOCK> 162
<SHARES-COMMON-PRIOR> 148
<ACCUMULATED-NII-CURRENT> 176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (539)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13217
<NET-ASSETS> 224869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1099
<OTHER-INCOME> 0
<EXPENSES-NET> 125
<NET-INVESTMENT-INCOME> 974
<REALIZED-GAINS-CURRENT> 258
<APPREC-INCREASE-CURRENT> 744
<NET-CHANGE-FROM-OPS> 1976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1264
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (797)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125
<AVERAGE-NET-ASSETS> 1647
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .040
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> .040
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.63
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> NUVEEN CAL INSURED MUNI BOND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 209085
<INVESTMENTS-AT-VALUE> 222302
<RECEIVABLES> 9726
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 232109
<PAYABLE-FOR-SECURITIES> 6537
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 703
<TOTAL-LIABILITIES> 7240
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 212015
<SHARES-COMMON-STOCK> 18310
<SHARES-COMMON-PRIOR> 18357
<ACCUMULATED-NII-CURRENT> 176
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (539)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13217
<NET-ASSETS> 224869
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1099
<OTHER-INCOME> 0
<EXPENSES-NET> 125
<NET-INVESTMENT-INCOME> 974
<REALIZED-GAINS-CURRENT> 258
<APPREC-INCREASE-CURRENT> 744
<NET-CHANGE-FROM-OPS> 1976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 852
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 50
<NUMBER-OF-SHARES-REDEEMED> 145
<SHARES-REINVESTED> 48
<NET-CHANGE-IN-ASSETS> 1264
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (797)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 94
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 125
<AVERAGE-NET-ASSETS> 196628
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .046
<PER-SHARE-GAIN-APPREC> .051
<PER-SHARE-DIVIDEND> .047
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.68
<EXPENSE-RATIO> 0.69
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> MASSACHUSETTS MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 74835
<INVESTMENTS-AT-VALUE> 79978
<RECEIVABLES> 1143
<ASSETS-OTHER> 231
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81352
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76765
<SHARES-COMMON-STOCK> 728
<SHARES-COMMON-PRIOR> 704
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (956)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5143
<NET-ASSETS> 81025
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 421
<OTHER-INCOME> 0
<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 373
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 238
<NET-CHANGE-FROM-OPS> 631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 30
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 93
<ACCUMULATED-NII-PRIOR> 61
<ACCUMULATED-GAINS-PRIOR> (969)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50
<AVERAGE-NET-ASSETS> 7112
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> .028
<PER-SHARE-DIVIDEND> .043
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.89
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> MASSACHUSETTS MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 74835
<INVESTMENTS-AT-VALUE> 79978
<RECEIVABLES> 1143
<ASSETS-OTHER> 231
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81352
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76765
<SHARES-COMMON-STOCK> 93
<SHARES-COMMON-PRIOR> 93
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (956)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5143
<NET-ASSETS> 81025
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 421
<OTHER-INCOME> 0
<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 373
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 238
<NET-CHANGE-FROM-OPS> 631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 2
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 93
<ACCUMULATED-NII-PRIOR> 61
<ACCUMULATED-GAINS-PRIOR> (969)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50
<AVERAGE-NET-ASSETS> 915
<PER-SHARE-NAV-BEGIN> 9.80
<PER-SHARE-NII> .040
<PER-SHARE-GAIN-APPREC> .028
<PER-SHARE-DIVIDEND> .038
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.83
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 034
<NAME> MASSACHUSETTS MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 74835
<INVESTMENTS-AT-VALUE> 79978
<RECEIVABLES> 1143
<ASSETS-OTHER> 231
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81352
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 327
<TOTAL-LIABILITIES> 327
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76765
<SHARES-COMMON-STOCK> 7396
<SHARES-COMMON-PRIOR> 7438
<ACCUMULATED-NII-CURRENT> 73
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (956)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5143
<NET-ASSETS> 81025
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 421
<OTHER-INCOME> 0
<EXPENSES-NET> 48
<NET-INVESTMENT-INCOME> 373
<REALIZED-GAINS-CURRENT> 20
<APPREC-INCREASE-CURRENT> 238
<NET-CHANGE-FROM-OPS> 631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 327
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20
<NUMBER-OF-SHARES-REDEEMED> 85
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> 93
<ACCUMULATED-NII-PRIOR> 61
<ACCUMULATED-GAINS-PRIOR> (969)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50
<AVERAGE-NET-ASSETS> 73261
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> .029
<PER-SHARE-DIVIDEND> .044
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.86
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> NUVEEN MASSACHUSETTS INSURED MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 60459
<INVESTMENTS-AT-VALUE> 64611
<RECEIVABLES> 1068
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 255
<TOTAL-LIABILITIES> 255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61543
<SHARES-COMMON-STOCK> 719
<SHARES-COMMON-PRIOR> 725
<ACCUMULATED-NII-CURRENT> 115
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4152
<NET-ASSETS> 65493
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 331
<OTHER-INCOME> 0
<EXPENSES-NET> 44
<NET-INVESTMENT-INCOME> 287
<REALIZED-GAINS-CURRENT> 115
<APPREC-INCREASE-CURRENT> 187
<NET-CHANGE-FROM-OPS> 589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11
<NUMBER-OF-SHARES-REDEEMED> 20
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 37
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> (333)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44
<AVERAGE-NET-ASSETS> 7543
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .044
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> .044
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-NSAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 043
<NAME> NUVEEN MASSACHUSETTS INSURED MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 60459
<INVESTMENTS-AT-VALUE> 64611
<RECEIVABLES> 1068
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 255
<TOTAL-LIABILITIES> 255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61543
<SHARES-COMMON-STOCK> 92
<SHARES-COMMON-PRIOR> 90
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4152
<NET-ASSETS> 65493
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 331
<OTHER-INCOME> 0
<EXPENSES-NET> 44
<NET-INVESTMENT-INCOME> 287
<REALIZED-GAINS-CURRENT> 115
<APPREC-INCREASE-CURRENT> 187
<NET-CHANGE-FROM-OPS> 589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 37
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> (333)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44
<AVERAGE-NET-ASSETS> 938
<PER-SHARE-NAV-BEGIN> 10.31
<PER-SHARE-NII> .038
<PER-SHARE-GAIN-APPREC> .041
<PER-SHARE-DIVIDEND> .039
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.35
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 044
<NAME> NUVEEN MASSACHUSETTS INSURED MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> FEB-28-1997
<INVESTMENTS-AT-COST> 60459
<INVESTMENTS-AT-VALUE> 64611
<RECEIVABLES> 1068
<ASSETS-OTHER> 69
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65748
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 255
<TOTAL-LIABILITIES> 255
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61543
<SHARES-COMMON-STOCK> 5497
<SHARES-COMMON-PRIOR> 5519
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (217)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4152
<NET-ASSETS> 65493
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 331
<OTHER-INCOME> 0
<EXPENSES-NET> 44
<NET-INVESTMENT-INCOME> 287
<REALIZED-GAINS-CURRENT> 115
<APPREC-INCREASE-CURRENT> 187
<NET-CHANGE-FROM-OPS> 589
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 248
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10
<NUMBER-OF-SHARES-REDEEMED> 50
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> 37
<ACCUMULATED-NII-PRIOR> 11
<ACCUMULATED-GAINS-PRIOR> (333)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 28
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 44
<AVERAGE-NET-ASSETS> 57311
<PER-SHARE-NAV-BEGIN> 10.33
<PER-SHARE-NII> .045
<PER-SHARE-GAIN-APPREC> .050
<PER-SHARE-DIVIDEND> .045
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ Timothy R. Schwertfeger
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ Anthony T. Dean
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ Lawrence H. Brown
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) her true and lawful attorney-in-fact and agent, for her 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 order to effectuate the same as fully to all intents and purposes
as she 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 30th day of January, 1997.
/s/ Anne E. Impellizzeri
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) her true and lawful attorney-in-fact and agent, for her 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 order to effectuate the same as fully to all intents and purposes
as she 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 30th day of January, 1997.
/s/ Margaret K. Rosenheim
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ Peter R. Sawers
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ Robert P. Bremner
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN 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 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 30th day of January, 1997.
/s/ William J. Schneider
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 30th day of January, 1997, 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, Gifford R. Zimmerman, hereby certifies, on behalf of Nuveen
Flagship Multistate Trust II (the "Fund"), (1) that he is the duly elected,
qualified and acting Assistant Secretary of the Fund, and that as such Assistant
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 January 30, 1997, and (3)
that said resolution has not been amended or rescinded and remains in full force
and effect.
June 17, 1997
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Assistant 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, Bruce P.
Bedford, Larry W. Martin, Gifford R. Zimmerman, and Thomas S. Harman, 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, 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.
<PAGE>
EXHIBIT 99(c)
NUVEEN UNIT TRUSTS
NUVEEN MUTUAL FUNDS
NUVEEN EXCHANGE-TRADED FUNDS
NUVEEN ADVISORY CORP.
NUVEEN INSTITUTIONAL ADVISORY CORP.
NUVEEN ASSET MANAGEMENT INC.
JOHN NUVEEN & CO. INCORPORATED
----------------------------
Standards and Procedures
Regarding
Conflicts of Interest
----------------------------
Code of Ethics
And
Reporting Requirements
The Securities and Exchange Commission, in Investment Company Act Release No.
11421, has adopted Rule 17j-1 "to provide guidance to investment companies as to
the minimum standards of conduct appropriate for persons who have access to
information regarding the purchase and sale of portfolio securities by
investment companies." The Rule requires registered investment companies, their
investment advisers and their principal underwriters to adopt codes of ethics
and reporting requirements to guard against violations of the standards set
forth in the Rule and the principles provided below and to establish guidelines
for the conduct of persons who (1) may obtain material non-public information
concerning securities held by or considered for purchase or sale by any series
of the Nuveen Unit Trusts (the "Trusts") or by any of the Nuveen-sponsored
registered management investment companies (the "Funds") or non-management
investment company clients ("Clients") to which Nuveen Advisory Corp., Nuveen
Asset Management Inc. or Nuveen Institutional Advisory Corp. act as investment
advisers or (2) may make any recommendation or participate in the determination
of which recommendation shall be made concerning the purchase or sale of any
securities by a Trust, Fund or Client. The equity Funds advised pursuant to
subadvisory agreements with non-controlled advisers ("Subadvised Funds")
acknowledge that, in lieu of being subject to this Code of Ethics, all employees
and other persons affiliated with such subadvisers shall be subject to the
subadviser's Code of Ethics. In addition, due to limited access to information
regarding the subadvisers' portfolio activities concerning equity securities,
Nuveen personnel who are access persons of the Subadvised Funds shall not be
required to preclear any transactions solely for being access persons of such
Funds. This Code of Ethics (the "Code") consists of six sections--1. Statement
of General Principles; 2. Definitions; 3. Exempted Transactions; 4.
Prohibitions; 5. Reporting Requirements; and 6. Sanctions.
<PAGE>
2
I. Statement of General Principles
The Code is based upon the principle that the officers, directors and
employees of a Fund, Nuveen Advisory Corp., Nuveen Institutional Advisory
Corp., Nuveen Asset Management Inc. and John Nuveen & Co. Incorporated owe
a fiduciary duty to, among others, the unitholders and shareholders of the
Trusts and Funds and the Clients, to conduct their personal securities
transactions in a manner which does not interfere with Trust, Fund or
Client portfolio transactions or otherwise take unfair advantage of their
relationship to the Trusts, Funds or Clients. In accordance with this
general principle, persons covered by the Code must: (1) place the
interests of unitholders and shareholders of the Trusts and Funds and the
Clients first; (2) execute personal securities transactions in compliance
with the Code; (3) avoid any actual or potential conflict of interest and
any abuse of their positions of trust and responsibility; and (4) not take
inappropriate advantage of their positions. It bears emphasis that
technical compliance with the Code's procedures will not automatically
insulate from scrutiny trades which show a pattern of abuse of the
individual's fiduciary duties to the Trust, Fund or Client. In addition, a
violation of the general principles of the Code may constitute a punishable
violation.
II. Definitions
As used herein:
(1) "Access person" shall mean:
(a) Any director, officer or advisory person of any Fund or Trust or
of Nuveen Advisory Corp., Nuveen Institutional Advisory Corp. or
Nuveen Asset Management Inc.
(b) Any director or officer of John Nuveen & Co. Incorporated who in
the ordinary course of his business makes, participates in or
obtains information regarding the purchase or sale of securities
for the Funds, Trusts or Clients or whose functions or duties as
part of the ordinary course of his business relate to the making
of any recommendation to such Fund, Trust or Client regarding the
purchase or sale of securities.
A list of access persons of all entities other than the Flagship
Utility Income Fund ("Utility Fund") is attached as Exhibit A. A list
of persons deemed to be access persons of the Utility Fund is attached
as Exhibit B ("Utility Fund Access Persons").
<PAGE>
3
For purposes of this section "advisory person" shall mean:
(a) Any employee of a Fund, of Nuveen Advisory Corp., of Nuveen
Institutional Advisory Corp., of Nuveen Asset Management Inc. or of
John Nuveen & Co. Incorporated who, in connection with his or her
regular functions or duties, makes, participates in, or obtains
information, regarding the purchase or sale of a security by a Trust,
Fund or Client or whose functions relate to the making of any
recommendations with respect to such purchases or sales; and
(b) Any director or officer of John Nuveen & Co. Incorporated who obtains
information concerning recommendations made to such Trust, Fund or
Client with respect to the purchase or sale of a security.
(2) A security is "being considered for purchase or sale" when a
recommendation to purchase or sell a security has been made and
communicated and, with respect to the person making the recommendation,
when such person considers making such recommendation.
(3) Beneficial ownership shall be interpreted in accordance with the definition
set forth in Rule 16a-1(a)(2) under the Securities Exchange Act of 1934.
Section 16a-1(a)(2) specifies that a person will be deemed to be the
"beneficial owner" of securities that such individual, directly or
indirectly, through any contract, arrangement, understanding, relationship
or otherwise has or shares in the opportunity to profit or share in any
profit derived from a transaction in the subject security. In addition, a
person will be deemed to be the beneficial owner of securities:
(a) held by members of such person's immediate family sharing the same
household;
(b) held by a general or limited partnership for which such person is a
general partner;
(c) held in a trust:
(i) of which such person is trustee and the trustee or members of
his or her immediate family have a pecuniary interest in the
trust;
(ii) in which such person has a vested beneficial interest or shares
in investment control with the trustee;
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4
(iii) of which such person is settlor and which the settlor has
the power to revoke the trust without consent of the
beneficiaries; or
(iv) certain other trusts as set forth in Rule 16a-1(a)(2)
under the Securities Exchange Act of 1934.
A person will not be deemed to be the beneficial owner of
securities held in the portfolio of a registered investment
company solely by reason of his or her ownership of shares or
units of such registered investment company.
(4) "Security" shall mean any stock, bond, debenture, evidence of
indebtedness or in general any other instrument defined to be a
security in Section 2(a)(36) of the Investment Company Act of 1940
except that it shall not include securities issued by the Government
of the United States, short term debt securities which are "government
securities" within the meaning of Section 2(a)(16) of the Investment
Company Act of 1940, bankers' acceptances, bank certificates of
deposit, commercial paper and shares of registered open-end
investment companies.
(5) "Purchase of sale of a security" shall include any transaction in
which a beneficial interest in a security is acquired or disposed of,
including but not limited to the writing of an option to purchase or
sell a security or the cancellation of a good-until-canceled order.
(6) "Control" shall have the same meaning as set forth in Section 2(a) (9)
of the Investment Company Act of 1940.
(7) "Investment personnel" shall mean any employee of Nuveen Advisory
Corp., Nuveen Institutional Advisory Corp., Nuveen Asset Management
Inc. or John Nuveen and Co. Incorporated who acts as a portfolio
manager or as an analyst or trader who provides information or advice
to the portfolio manager or who helps execute the portfolio manager's
decisions. A list of investment personnel of all entities other than
the Utility Fund is included in Exhibit A. A list of persons deemed to
be investment personnel of the Utility Fund is included in Exhibit B.
Investment personnel are also access persons by definition.
(8) "Portfolio manager" shall mean any employee of Nuveen Advisory Corp.,
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
John Nuveen & Co. Incorporated who is entrusted with the direct
responsibility and authority to make investment decisions affecting a
Trust, Fund or Client. A list of portfolio managers of all entities
other than the Utility Fund is included in Exhibit A. A list
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5
of persons deemed to be portfolio managers of the Utility Fund is
included in Exhibit B. Portfolio managers are also investment
personnel and access persons by definition.
(9) "Utility Fund Eligible Securities" shall include preferred and common
stock of companies in the public utilities industry, such as companies
principally engaged in the production, transmission or distribution of
electric energy, gas, water, or communications services or in solid
waste disposal.
III. Exempted Transactions
The prohibitions of Section IV of this Code shall not apply to:
(1) Purchases or sales affecting any account over which the party involved
has no direct or indirect influence or control;
(2) Purchases or sales which are non-volitional on the part of either the
party involved or a Trust, Fund or Client;
(3) Purchases which are part of an automatic dividend reinvestment plan.
(4) Purchases effected upon the exercise or rights issued by an issuer pro
rata to all holders of a class of its securities, to the extent such
rights were acquired from such issuer, and sales of such rights so
acquired.
IV. Prohibitions
(1) Unless such transaction is exempted above or is previously cleared in
the manner described in paragraph (9) below, no access person shall
purchase or sell the following securities for his or her own account
or for any account in which he or she has any beneficial ownership:
(a) securities offered in a private placement;
(b) shares of The John Nuveen Company;
(c) municipal securities (other than variable rate securities with
reset periods of 6 months or less);
(d) shares of a Nuveen-sponsored exchange-traded fund (excluding
preferred shares of those funds); or
(e) Utility fund Eligible Securities (for Utility Fund Access Persons
only).
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6
The purchase of securities identified in paragraph (1)(a) by
investment personnel must also comply with paragraph (4) below.
Directors of the Funds who are not "interested persons" of the Funds
are not subject to the prohibition of subparagraph (a) above and are
only subject to subparagraphs (c) and (e) to the extent such
director purchases or sells a security that he knows, or reasonably
should have known, is being considered for purchase or sale by a
Trust, Fund or Client. Individuals who are only non-interested
directors of the Nuveen open-end Funds shall not be subject to the
prohibition of subparagraph (d) above.
(2) No portfolio manager shall execute a securities transaction on a day
during which a Trust, Fund or Client that is managed or surveyed by
the company he is employed by has a pending "buy" or "sell" order in
that same security until that order is executed or withdrawn.
However, this prohibition shall not apply to securities transactions
involving a security held by a Fund and invested and managed under a
subadvisory agreement unless the portfolio manager knows, or
reasonably should have known, that the Fund has a pending "buy" or
"sell" order involving such security. No other access person shall
execute a securities transaction on a day during which a Trust, Fund
or Client has a pending "buy" or "sell" order in that same security
until that order is executed or withdrawn if that person knows, or
reasonably should have known, an order is pending. In addition, only
Utility Fund Access Persons shall be subject to the restrictions
imposed by this paragraph for securities held or considered for
purchase by Utility Fund. Trades made in violation of this
prohibition shall be unwound or, if that is impractical, any profits
realized must be disgorged to a charitable organization.
(3) Investment personnel shall not purchase any securities in an initial
public offering other than an offering of securities issued by
municipal or United States government entities.
(4) Unless such transaction is previously approved in the manner
described in paragraph (10) below and the criteria set forth in that
paragraph are followed, investment personnel shall not purchase any
security in a private placement.
(5) Investment personnel shall not profit in the purchase and sale, or
sale and purchase, of the same (or equivalent) security within 60
calendar days if such security is a municipal security or shares
issued by a Nuveen-sponsored exchange-traded fund. In addition,
Utility Fund investment personnel shall not profit in such purchases
or sales or sales and purchases of the same (or equivalent) security
within 60 calendar days is such security is a Utility Fund Eligible
Security. Trades made in violation of this prohibition shall be
unwound or, if that is impractical, any profits realized must be
disgorged to a charitable organization.
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7
(6) Investment personnel shall not accept any gift or other thing of
material value from any person or entity that does business with or
on behalf of a Trust, Fund or Client. For purposes of this
prohibition the term "material value" shall have the same meaning
expressed in Rule 2830 of the National Association of Securities
Dealers, Inc.'s Conduct Rules.
(7) Unless such service is previously cleared in the manner described in
paragraph (11) below and the criteria set forth in that paragraph are
followed, investment personnel shall not serve as board members or
other decision-makers for entities that issue municipal securities.
In addition, Utility Fund investment personnel shall not serve as a
board member or decision-maker for a company that issues Utility Fund
Eligible Securities without preclearance.
(8) No portfolio manager of a Trust, Fund or Client shall purchase or
sell any security within seven calendar days before or after the
Trust, Fund or Client he surveys or manages trades or considers to
purchase or sell such security. This prohibition shall not apply to
securities invested and managed under a subadvisory agreement. Trades
made in violation of this prohibition should be unwound or, if that
is impractical, any profits realized must be disgorged to a
charitable organization.
(9) An access person may request clearance of a transaction otherwise
prohibited by paragraph (1) above prior to the placement of any order
in connection therewith by submitting a written or oral request for
clearance to the General Counsel of John Nuveen & Co. Incorporated or
his designee. Unless specifically exempted herein, no such
transaction may be effected without the prior clearance of the
transaction. Clearance may be reflected in a written or an electronic
report. Clearance shall be valid for three business days. Clearance
shall not be granted for municipal security limit orders.
(10) Investment personnel may request approval of a transaction otherwise
prohibited by paragraph (4) above prior to the placement of any order
in connection therewith by submitting a written request for approval
to the General Counsel of John Nuveen & Co. Incorporated or his
designee. Unless specifically exempted herein, no such transaction
may be effected without the prior clearance of the transaction.
Clearance may be reflected in a written or an electronic report. Any
approval shall be valid for three business days. Transactions may be
approved only if the party clearing the transaction takes into
account, among other factors, whether the investment opportunity
should be reserved for a Trust, Fund or Client and whether the
opportunity is being offered to an individual by virtue of his or her
position. In addition, investment personnel who receive authorization
to purchase securities in
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8
a private placement have an affirmative duty to disclose that
position to the General Counsel or his designee if he or she plays a
role in a Trust's, Fund's or Client's subsequent investment decision
regarding the same issuer. Once such disclosure is made, the General
Counsel or his designee shall assemble a commission of investment
personnel with no personal interest in the issuer involved to
independently review the Trust's, Fund's or Client's investment
decision.
(11) Investment personnel may request clearance of service otherwise
prohibited by paragraph (7) above, prior to acceptance of any such
position, by submitting a written request for clearance to the
General Counsel of John Nuveen & Co. Incorporated or his designee.
Such request shall state the position sought, the reason service is
desired and any possible conflicts of interest known at the time of
the request. No such position may be accepted without prior
clearance. Clearance may be reflected in a written or an electronic
report. Service may be cleared only if the party clearing the
transaction determines that service in that capacity would not be
inconsistent with the interests of the Trusts, Funds or Clients.
In addition, investment personnel who receive authorization to
serve in such a capacity must be isolated through "Chinese Wall"
procedures from those making investment decisions regarding
securities issued by the entity involved.
V. Reporting Requirements
(1) Every access person (other than directors of a Fund who are not
"interested persons" of such Fund) shall report to the Legal
Department of John Nuveen & Co. Incorporated details of each
transaction by reason of which he or she acquires any direct or
indirect beneficial ownership of any security (as defined in
Section II herein). Notwithstanding the foregoing, an access person
need not make a report pursuant hereto where such report would
duplicate information recorded pursuant to Rules 204-2(a)(12) or
204-2(a)(13) under the Investment Advisers Act of 1940. In addition
to the reporting requirement expressed above, access persons (other
than directors who are not "interested persons") shall authorize
the Legal Department to direct their broker or brokers to supply to
the Legal Department, on a timely basis, duplicate copies of
confirmations of all securities transactions and copies of periodic
statements for all securities accounts involving securities in
which such access person acquires or disposes of direct or indirect
beneficial ownership. Such duplicate confirmations and periodic
statements received during the prescribed period shall satisfy the
reporting requirements set forth in this paragraph. Also, trades
executed through Nuveen or in an account in which Nuveen is the
broker of record shall be deemed to have been reported for purposes
of this paragraph. Notwithstanding the provisions of this
paragraph, a report shall
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9
not be required for purchases and sales in any account over which
the party involved does not have direct or indirect influence or
control.
(2) Every director of a Fund who is not an "interested person" of such
Fund shall be required to report the details of each transaction
with respect to which such director knew or, in the ordinary course
of fulfilling his or her official duties as a director of the Fund,
should have known that during the 15 day period immediately
preceding or after the date of the transaction in a security by the
director such security is or was purchased or sold by the Fund or
such purchase or sale by the Fund is or was considered by the Fund
or its investment adviser.
(3) Every report required to be made pursuant to paragraphs 1 and 2 of
this Section (other than duplicate copies of confirmations and
periodic statements) shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which the
report relates was effected, and shall contain the following
information:
(a) the date of the transaction, the title and the number of
shares, or principal amount of each security involved;
(b) the nature of the transaction (i.e., purchase, sale or any
other type of acquisition or disposition);
(c) the price at which the transaction was effected; and
(d) the name of the broker, dealer or bank with or through whom
the transaction was effected.
Any such report may contain a statement that the report shall not be
construed as an admission by the person making such report that he
or she has or disposed of any direct or indirect beneficial
ownership in the security to which the report relates.
(4) The reporting requirements established pursuant to paragraphs 1 and
2 of this Section (other than duplicate copies of confirmations and
periodic statements) shall apply only to transactions by an access
person in securities in which such access person has, or by reason
of such transaction acquires or disposes of, any direct or indirect
beneficial ownership in the security.
(5) Investment personnel shall disclose to the General Counsel of John
Nuveen & Co. Incorporated all personal securities holdings within 10
days of commencement of employment as an investment person and shall
continue to disclose such holdings on an annual basis.
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VI. Sanctions
Upon discovery of a violation of this Code, including either
violations of the enumerated provisions or the general principles
provided, any Fund, Nuveen Advisory Corp., Nuveen Institutional
Advisory Corp., Nuveen Asset Management Inc. or John Nuveen & Co.
Incorporated may impose such sanctions as it deems appropriate,
including, inter alia, a letter of censure or suspension or
termination of the employment of the violator. All material violations
of this Code and any sanctions imposed with respect thereto shall be
reported periodically to the board of directors of the management
investment company with respect to securities of which the violation
occurred, or to the Executive Committee of John Nuveen & Co.
Incorporated if the violation was with respect to securities of any
series of the Nuveen Unit Trusts, or to the board of directors of
Nuveen Institutional Advisory Corp., Nuveen Asset Management Inc. or
Nuveen Advisory Corp. with respect to securities of non-management
investment company clients advised by these entities.
Revised December 31, 1996
