<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
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<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
[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
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>
[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
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A value investing approach -- purchasing securities of strong companies and
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Nuveen's investment philosophy. It is a careful, long-term strategy that offers
the potential for attractive returns with moderated risk. Successful value
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To meet the unique circumstances and financial planning needs of mature
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