<PAGE>
NUVEEN
Municipal
Bond Funds
February 28, 1998
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
California
California
Insured
<PAGE>
Dear Shareholder
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
Over the past 12 months, the Nuveen California Municipal Bond Funds have
performed well, rewarding investors with dependable tax-free income and
attractive returns. As of February 28, 1998, shareholders in the Nuveen
California Municipal Bond Fund's Class A shares were receiving an annualized
tax-free current yield on net asset value of 4.19%, while investors in the
Nuveen California Insured Municipal Bond Fund's Class A shares were receiving
3.78% annually. To match these yields on an after-tax basis, investors in the
combined 37.4% federal and California state income tax bracket would have had to
earn 6.69% and 6.04%, respectively, from comparable taxable investments.
For the year ended February 28, 1998, the uninsured fund provided Class A
shareholders with a total return on net asset value of 8.87%. The insured fund
provided Class A shareholders with an annual total return of 8.66%. You will
find additional details on the individual performance of each fund on pages 5-6.
Municipal Market Review
The bond market enjoyed a period of solid performance over the past year, as the
benign inflationary environment provided the ideal backdrop for fixed-income
investments, including municipal issues. A shrinking federal deficit and the
inactivity of the Federal Reserve, which has been on hold since its last
interest rate tightening in March 1997, also contributed to the positive
environment for bonds.
Between the end of February 1997 and February 1998, the yield on 30-year
Treasury bonds dropped from 6.80% to 5.92%, and the municipal market followed
suit, as the yield on the Bond Buyer 40 declined from 5.76% to 5.24%. The
relatively tight spread between tax-free municipal bond yields and taxable
Treasury bond yields, combined with municipals' comparatively low volatility and
dependable tax-free income, continue to make these bonds an attractive
investment opportunity.
Meeting Investor Needs
The stable income stream and quality portfolios detailed on the
1
<PAGE>
"We remain committed to providing you with quality investment solutions that
withstand the test of time."
following pages demonstrate that these municipal bond funds have continued to
achieve their investment objectives. In today's market environment, many
investors are seeking conservatively managed investments that enable investors
to strike the proper balance between reward and risk in their portfolios. With
their focus on attractive tax-free income and competitive after-tax total
returns, Nuveen's municipal bond funds can be ideal for the tax-sensitive
investor who wants to build and sustain long-term financial security.
Building Better Portfolios
Nuveen's broad array of insured and traditional municipal bond funds provide a
variety of choices so that investors can select the risk level appropriate to
their individual needs. Our municipal bond funds can also be combined with other
Nuveen investments, creating the foundation for a well-balanced investment
portfolio that offers risk resistance as well as tax efficiency.
As you review the performance of your fund and discuss the results with your
financial adviser, we hope that you continue to think of Nuveen when seeking
quality investment solutions that withstand the test of time. Your adviser can
introduce you to a variety of other Nuveen products and services designed to
round out your portfolio of core investments. These include the Nuveen Growth
and Income Stock Fund, our two balanced funds, which seek capital appreciation
and stability through a blend of equities and Treasury securities or municipal
bonds, and the new Nuveen Rittenhouse Growth Fund, a blue chip equity mutual
fund that provides a tax-efficient approach to building and sustaining wealth.
We encourage you to talk to your financial adviser about our additional products
and services to determine those that can best complement your current Nuveen
investments.
On behalf of everyone at Nuveen, I thank you for your continued confidence in us
and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 15, 1998
2
<PAGE>
Nuveen California Municipal Bond Funds
Portfolio Manager's Comments
Portfolio manager Steve Krupa discusses the performance of the California
Municipal Bond Funds, the California municipal market, and key investment
strategies.
Performance Review
Over the past 12 months, we have enjoyed a bull market in fixed-income
investments, including municipal bonds. New issue and refunding activity took
off, totaling $220 billion nationally by year end -- the third largest volume
ever. This environment afforded opportunities to find value in the essential
services sector, especially among bonds issued by schools and water and sewer
districts.
Nuveen California Municipal Bond Fund
As Tim mentioned in his letter to shareholders, the fund provided Class A
shareholders with an annualized total return on net asset value of 8.87% for the
period ended February 28, 1998. This return is equivalent to a return of 12.04%
for shareholders in the combined 37.4% federal and state tax bracket. This
return trails the 9.72% annual return for the Lehman Brothers California
Municipal Bond Index, which does not incur operating expenses or transaction
costs.
The performance of the fund continues to be influenced by its shorter duration.
Duration measures a fund's price volatility, or reaction to interest rate
movements. In a year that saw municipal bond yields, as measured by the Bond
Buyer 40, fall more than 50 basis points, longer duration funds were more
sensitive to interest rate movements -- both on the upside, and on the downside.
Therefore, funds with longer duration bonds appreciated more in value in this
declining rate environment, but are penalized more during periods of rising
interest rates.
Nearly 20% of the fund's portfolio has been pre-refunded and escrowed with U.S.
Treasury securities, providing price stability and enhanced credit quality.
However, since advance-refunded securities are less affected by interest rate
movements, the fund participated less in the market rally as interest rates
fell.
Nuveen California Insured Municipal Bond Fund
The Nuveen California Insured Municipal Bond Fund posted a total return of 8.66%
on net asset value for the period, recording price changes and reinvested
dividends. During the same period, the Lehman Brothers California Municipal Bond
Index, which does not incur operating expenses or transaction costs, reported a
10.27% total return.
California's Economic
Rebound Continues
California continues its strong economic recovery and is building a more
diversified economy. High technology and service industry jobs are replacing
positions lost in the 1990-94 recession. Although the state's financial
situation is improving, California continues to feel the pressures of mandated
school funding levels (in accordance
3
<PAGE>
"California continues its strong economic recovery and is building a more
diversified economy."
with Proposition 98), mandatory sentencing laws, and a required two-thirds
legislative majority approval for budget passage. The supply of municipal bonds
has been heavy and is expected to continue as the state enjoys rapid economic
and population growth.
Finding Value in Today's Market
In light of the state's high credit ratings, we have increased our exposure to
California general obligation bonds, which are backed by the full faith and
credit of the issuing state or local government. These bonds receive high credit
ratings and, as the credit quality of the issuer is upgraded, prices also tend
to appreciate. The improving economic environment in California has increased
supply, enhancing our opportunities to purchase bonds at attractive levels.
We also selectively added non-rated securities to the portfolio as a way to
increase the funds' yields. With the influx of new issues in the California
market, we have found several opportunities to purchase non-rated bonds with
favorable risk profiles.
Over the past few years, we took advantage of consolidation and deregulation in
the utilities and healthcare sectors to selectively purchase bonds that we
anticipated would add quality, income, and price stability to the portfolio. We
continue to see opportunity in both those sectors. We also find value in
obligations backed by the state.
In healthcare, the bonds we selected for purchase three years ago were issued by
organizations with strong competitive positions and healthy financial operations
that were then being penalized by the turmoil surrounding healthcare reform.
Since that time, spreads have narrowed, and many of these bonds have been pre-
refunded, enhancing the credit quality of the portfolio and ensuring greater
price stability and income.
Strategies for the Future
In the coming months, we will continue to focus on the selection of undervalued
securities that provide attractive income and the opportunity for price
appreciation relative to the market.
4
<PAGE>
Nuveen California Municipal Bond Fund
Performance Overview
As of February 28, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12-Month Dividends (Class A Shares)/1/
<S> <C>
March .0455
April .0455
May .0455
June .0455
July .0455
August .0455
September .0455
October .0455
November .0455
December .0455
January .0455
February .0455
</TABLE>
<TABLE>
<CAPTION>
Top 5 Sectors
<S> <C>
Tax Obligation (Limited) 25%
- --------------------------------------
U.S. Guaranteed 17%
- --------------------------------------
Housing (Multifamily) 15%
- --------------------------------------
Health Care 12%
- --------------------------------------
Housing (Single Family) 11%
- --------------------------------------
</TABLE>
1 The fund paid a capital gains distribution to shareholders in November of
$0.003 per share.
2 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 return figures. Class C Shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
3 Based on SEC yield and a combined federal and state income tax rate of 37.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
4 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A Shares, performance
reflects Class R Shares performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 7/86
- --------------------------------------------------------------------------------
Net Asset Value $10.91 $10.92 $10.92 $ 10.93
- --------------------------------------------------------------------------------
Fund Net Assets ($000) $251,819
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 22.66
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 6.61
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/2/
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 8.87% 4.33% 8.08% 8.36% 8.99%
- --------------------------------------------------------------------------------
5-Year 5.85% 4.94% 5.19% 5.18% 6.16%
- --------------------------------------------------------------------------------
10-Year 7.60% 7.13% 7.02% 6.86% 7.89%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 5.00% 4.79% 4.29% 4.45% 5.22%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 4.19% 4.01% 3.44% 3.63% 4.39%
- --------------------------------------------------------------------------------
Taxable Equivalent
Yield/3/ 6.69% 6.41% 5.50% 5.80% 7.01%
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Index Comparison/4/
Lehman Brothers Nuveen California Nuveen California
Municipal Bond Municipal Bond Municipal Bond
Date Index Fund (NAV) Fund (Offer)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
February 1988 $10,000.00 $10,000.00 $ 9,580.00
February 1989 10,620.34 10,675.77 10,227.38
February 1990 11,708.95 11,698.16 11,206.84
February 1991 12,788.46 12,665.65 12,133.69
February 1992 14,066.52 13,804.91 13,225.10
February 1993 16,002.67 15,652.15 14,994.76
February 1994 16,887.10 16,405.07 15,716.05
February 1995 17,205.76 16,441.75 15,751.20
February 1996 19,107.08 18,142.53 17,380.54
February 1997 20,331.95 19,103.54 18,301.19
February 1998 22,192.00 20,802.00 19,920.00
- --------------------------------------------------------------------------------
</TABLE>
- -Lehman Brothers Municipal Bond Index - $22,192
- -Nuveen California Municipal Bond Fund (NAV) - $20,802
- -Nuveen California Municipal Bond Fund (Offer) - $19,920
Past results are not predictive of future performance.
5
<PAGE>
Nuveen California Insured Municipal Bond Fund
Performance Overview
As of February 28, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12-Month Dividends (Class A Shares)/1/
<S> <C>
March .0450
April .0450
May .0450
June .0450
July .0450
August .0450
September .0450
October .0450
November .0450
December .0450
January .0450
February .0450
</TABLE>
<TABLE>
<CAPTION>
Top 5 Sectors
<S> <C>
Tax Obligation (Limited) 36%
- --------------------------------------
U.S. Guaranteed 23%
- --------------------------------------
Tax Obligation (General) 8%
- --------------------------------------
Housing (Multifamily) 8%
- --------------------------------------
Housing (Single Family) 7%
- --------------------------------------
</TABLE>
1 The fund paid a capital gains distribution to shareholders in November of
$0.003 per share.
2 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 return figures. Class C Shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
3 Based on SEC yield and a combined federal and state income tax rate of 37.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
4 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A Shares, performance
reflects Class R Shares performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 7/86
- --------------------------------------------------------------------------------
Net Asset Value $11.06 $11.06 $10.98 $ 11.04
- --------------------------------------------------------------------------------
Fund Net Assets ($000) $233,950
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 22.65
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 6.13
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/2/
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 8.66% 4.09% 7.82% 7.96% 8.86%
- --------------------------------------------------------------------------------
5-Year 5.78% 4.87% 5.00% 4.94% 6.00%
- --------------------------------------------------------------------------------
10-Year 7.65% 7.18% 7.03% 6.82% 7.89%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 4.88% 4.68% 4.12% 4.32% 5.05%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 3.78% 3.62% 3.03% 3.23% 3.98%
- --------------------------------------------------------------------------------
Taxable Equivalent
Yield/3/ 6.04% 5.78% 4.84% 5.16% 6.36%
- --------------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Index Comparison/4/
Lehman Brothers Nuveen California Nuveen California
Municipal Bond Insured Municipal Bond Insured Municipal Bond
Date Index Fund (NAV) Fund (Offer)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
February 1988 $10,000.00 $10,000.00 $ 9,580.00
February 1989 10,620.34 10,583.84 10,139.32
February 1990 11,708.95 11,558.28 11,072.84
February 1991 12,788.46 12,532.89 12,006.51
February 1992 14,066.52 13,741.79 13,164.64
February 1993 16,002.67 15,773.66 15,111.16
February 1994 16,887.10 16,403.78 15,714.82
February 1995 17,205.76 16,664.41 15,964.50
February 1996 19,107.08 18,384.62 17,612.47
February 1997 20,331.95 19,224.33 18,416.91
February 1998 22,192.00 20,895.00 20,014.00
- --------------------------------------------------------------------------------
</TABLE>
- -Lehman Brothers Municipal Bond Index - $22,192
- -Nuveen California Insured Municipal Bond Fund (NAV) - $20,895
- -Nuveen California Insured Municipal Bond Fund (Offer) - $20,014
Past results are not predictive of future performance.
6
<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, 1998, 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, 1998, 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, 1998, 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 theron in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 15, 1998
7
<PAGE>
<TABLE>
Portfolio of Investments
February 28, 1998
California
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 4.8%
<C> <S> <C> <C> <C>
$ 960,000 California Educational Facilities Authority, Pooled College and 4/07 at 102 Baa2 $1,031,347
University Projects Revenue Bonds, Series 1997B (Southern
California College of Optometry), 6.300%, 4/01/21
985,000 California State Public Works Board, High Technology Facilities No Opt. Call A1 1,112,311
Lease, The Regents of the University of California, San Diego
Facility, 7.375%, 4/01/06
1,500,000 Certificates of Participation, California Statewide Community 12/06 at 105 N/R 1,644,915
Development Authority, San Diego Space and Science Foundation,
Series 1996, 7.500%, 12/01/26
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 Aa3 3,609,760
4,335,000 6.000%, 11/01/21 11/03 at 102 Aa3 4,611,053
- ------------------------------------------------------------------------------------------------------------------------------
Health Care -- 12.5%
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 3,524,850
3,635,000 7.500%, 4/01/22 4/05 at 102 A 4,292,644
3,750,000 California Health Facilities Financing Authority, Insured 8/06 at 102 Aaa 4,064,100
Revenue Bond (Sutter/CHS), 5.875%, 8/15/16
4,000,000 California Health Facilities Financing Authority, Insured 8/08 at 101 Aaa 3,872,880
Revenue Bonds (Sutter Health), Series 1998A, 5.000%, 8/15/37
1,700,000 California Health Facilities Financing Authority, Hospital 1/99 at 102 A+ 1,772,794
Revenue Refunding Bonds (Sutter Health), Series
1989A, 7.000%, 1/01/09
3,380,000 California Health Facilities Financing Authority, Kaiser 12/00 at 102 A+ 3,672,235
Permanente, Revenue Bonds, 1990 Series A, 7.000%, 12/01/10
5,080,000 California Health Facilities Financing Authority, Hospital 5/03 at 102 A- 5,230,470
Revenue Bonds (Downey Community Hospital), Series 1993,
5.750%, 5/15/15
1,755,000 Central Joint Powers Health Financing Authority, Certificates 2/03 at 100 Baa1 1,652,508
of Participation, Series 1993 (Community Hospitals of Central
California), 5.000%, 2/01/23
2,475,000 City of Loma Linda, California, Hospital Revenue Bonds (Loma 12/03 at 102 BBB 2,631,544
Linda University Medical Center Project), Series 1993-A, 6.000%,
12/01/06
840,000 City of Monterey, Hospital Revenue Bonds (Monterey Peninsula 7/98 at 100 A+ 849,122
Hospital Project), Series 1984 A, 7.375%, 7/01/14
- ------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 14.7%
6,570,000 California Housing Finance Agency, Multifamily Housing Revenue 8/04 at 100 Aaa 6,853,561
Bonds II, 1996 Series A, 6.050%, 8/01/27
2,905,000 California Statewide Communities Development Authority, Senior 9/06 at 100 AAA 3,089,468
Lien Multifamily Housing Revenue Bonds (Monte Vista Terrace),
Series 1996A, 6.375%, 9/01/20
3,000,000 City of Duarte, Multifamily Housing Revenue Bonds, 1997 Series A 11/07 at 102 AAA 3,090,990
(Heritage Park Apartments), 5.850%, 5/01/30 (Alternative Minimum
Tax)
4,840,000 The Community Redevelopment Agency of the City of Los Angeles, 6/05 at 105 AAA 5,566,048
California, Multifamily Housing Revenue Refunding Bonds, 1995
Series A (Angelus Plaza Project), 7.400%, 6/15/10
</TABLE>
8
<PAGE>
Portfolio of Investments
February 28, 1998
California -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Housing/Multifamily -- continued
$ 4,500,000 The City of Los Angeles, Multifamily Housing Revenue Bonds 7/07 at 102 AAA $4,634,730
(Earthquake Rehabilitation Project), Series 1997C, 5.900%,
1/01/30 (Alternative Minimum Tax)
740,000 Community Development Agency of the City of Menlo Park, Multifamily 6/98 at 103 Aa 763,303
Housing Revenue Bonds (FHA-Insured Mortgage Loan -- The Gateway
Project), Series 1987A, 8.250%, 12/01/28
3,285,000 City of Riverside, California, Multifamily Housing Revenue Bonds 7/02 at 100 AAA 3,424,251
(Fannie Mae Pass-through Certificate Program/Birchwood Park
Apartment Project), Series 1992A, 6.500%, 1/01/18
4,005,000 City of Riverside, California, Multifamily Housing Revenue Bonds 7/02 at 100 AAA 4,166,922
(Fannie Mae Pass-through Certificate Program/Palm Shadows
Apartments Project), 1992 Series A, 6.500%, 1/01/18
2,080,000 City of Salinas, Housing Facility Refunding Revenue Bonds, Series 7/04 at 102 AAA 2,229,490
1994A (GNMA Collateralized -- Villa Serra Project), 6.500%, 7/20/17
3,000,000 Housing Authority of the County of Santa Cruz, Multifamily Housing 7/00 at 102 AAA 3,204,570
Refunding Revenue Bonds, Series 1990A (Fannie Mae Collateralized),
7.750%, 7/01/23
- ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 10.6%
4,750,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/05 at 102 Aaa 5,27,163
1995 Series F, 5.950%, 8/01/14
2,250,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 2/07 at 102 Aaa 2,376,720
1997 Series B, 6.100%, 2/01/28 (Alternative Minimum Tax)
4,230,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 2/08 at 101 1/2 Aaa 4,198,275
Series B, 5.250%, 2/01/28 (Alternative Minimum Tax) (DD)
3,000,000 California Rural Home Mortgage Finance Authority, Single Family No Opt. Call AAA 3,374,850
Mortgage Revenue Bonds (Mortgage-Backed Securities Program),
1997 Series A, 6.250%, 9/01/29 (Alternative Minimum Tax)
2,200,000 City of Corona (California), Single Family Mortgage Revenue Bonds, 11/06 at 102 Aaa 2,329,360
Series 1996A (Senior), 6.050%, 5/01/27
400,000 City of Corona (California), Single Family Mortgage Revenue Bonds, 11/06 at 102 A 426,212
Series 1996B (Subordinate), 6.300%, 11/01/28
180,000 The City of Los Angeles, 1987 Home Mortgage Revenue Bonds (GNMA No Opt. Call Aaa 195,806
Mortgage-Backed Securities Program), 8.100%, 5/01/17
160,000 County of Los Angeles, Single Family Mortgage Revenue Bonds (GNMA No Opt. Call Aaa 173,229
Mortgage-Backed Securities Program), 1987 Issue A, 8.000%, 3/01/17
5,000,000 County of San Bernardino (California), Single Family Home Mortgage 5/07 at 103 AAA 5,298,100
Revenue Bonds (Mortgage-Backed Securities Program), 1997 Series A,
6.200%, 5/01/21 (Alternative Minimum Tax)
24,670,000 County of San Bernardino (California), Single Family Home Mortgage 5/07 at 22 9/16 AAA 3,303,066
Revenue Bonds (Mortgage-Backed Securities Program), 1997 Series A,
0.000%, 5/01/31 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
Long Term Health Care -- 6.3%
2,500,000 Certificates of Participation, California Statewide Communities 11/04 at 102 A 2,741,925
Development Authority (Solheim Lutheran Home), 6.500%, 11/01/17
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long Term Health Care -- continued
$1,500,000 Insured Certificates of Participation (Channing House), 1/01 at 102 A+ $1,623,630
Series 1991A, ABAG Finance Authority for Nonprofit
Corporations, 7.125%, 1/01/21
9,000,000 Revenue Refunding Certificates of Participation (American 10/07 at 102 BBB 9,278,550
Baptist Homes of the West Facilities Project), Series
1997A, 5.850%, 10/01/27
2,000,000 Certificates of Participation, Insured Health Facility Revenue 2/01 at 102 A 2,133,840
(Sierra Sunrise Lodge), Series 1991A, 6.750%, 2/01/21
- -----------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 0.7%
Petaluma Joint High School District (Sonoma County,
California), General Obligation Bonds, Election of 1992,
Series C, Capital Appreciation Bonds:
4,220,000 0.000%, 8/01/20 8/04 at 38 13/32 AAA 1,141,890
2,080,000 0.000%, 8/01/21 8/04 at 36 1/8 AAA 528,902
- -----------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 25.6%
4,915,000 Certificates of Participation (1991 Financing Project), 9/06 at 102 Aaa 5,309,724
County of Alameda, California, Alameda County Public
Facilities Corporation, 6.000%, 9/01/21
800,000 Blythe Redevelopment Agency, Redevelopment Project No. 1, 11/08 at 102 BBB 821,024
Tax Allocation Refunding Bonds, Series 1997, 5.800%, 5/01/28
7,000,000 Brea Redevelopment Agency (Orange County, California), 1993 8/03 at 102 Aaa 7,214,620
Tax Allocation Refunding Bonds (Redevelopment Project AB),
5.500%, 8/01/17
2,000,000 Carson Redevelopment Agency (California), Redevelopment 10/03 at 102 Baa1 2,092,840
Project Area No. 1, Tax Allocation Bonds, Series 1993,
6.000%, 10/01/16
2,500,000 Fontana Public Financing Authority (San Bernardino County, 9/00 at 102 BBB 2,640,700
California), Tax Allocation Revenue Bonds (North Fontana
Redevelopment Project), 1990 Series A, 7.250%, 9/01/20
2,000,000 Los Angeles County Transportation Commission (California), 7/99 at 102 AA- 2,127,280
Sales Tax Revenue Refunding Bonds, Series 1989-A,
7.400%, 7/01/15
1,260,000 Marysville Community Development Agency, Marysville Plaza 3/02 at 102 Baa 1,377,734
Project, 1992 Tax Allocation Refunding Bonds,
7.250%, 3/01/21
2,080,000 City of Ontario (San Bernardino County, California), 3/98 at 103 N/R 2,171,104
Limited Obligation Improvement Bonds, Assessment District
No. 1000 (California Commerce Center -- Phase III),
8.000%, 9/02/11
4,300,000 Orange County Development Agency, Santa Ana Heights Project 9/03 at 102 Baa 4,536,500
Area, 1993 Tax Allocation Revenue Bonds, 6.125%, 9/01/23
1,645,000 City of Rancho Cucamoga, Assessment District No. 93-1 3/99 at 103 N/R 1,696,373
(Masi Plaza), Limited Obligation Improvement Bonds,
6.250%, 9/02/22
1,410,000 Redding Joint Powers Financing Authority, Lease Revenue 6/03 at 102 A 1,503,483
Bonds (Capital Improvement Projects), Series 1993,
6.250%, 6/01/23
1,000,000 County of Sacramento, Laguna Creek Ranch Community 12/07 at 102 N/R 993,720
Facilities District No. 1, Improvement Area No. 1
Special Tax Refunding Bonds (Laguna Creek Ranch),
5.700%, 12/01/20
2,315,000 Limited Obligation Refunding Bonds, City of Salinas, 9/06 at 103 N/R 2,416,096
Consolidated Refunding District 94-3, Series No. A-181
Monterey County, California, 7.400%, 9/02/09
5,000,000 City and County of San Francisco, Redevelopment Financing 8/03 at 103 A 4,934,400
Authority, 1993 Series C Tax Allocation Revenue Bonds
(San Francisco Redevelopment Projects), 5.125%, 8/01/18
</TABLE>
10
<PAGE>
Portfolio of Investments
February 28, 1998
California -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited -- continued
$ 7,090,000 Redevelopment Agency of the City of San Marcos, Tax Allocation 10/07 at 102 A- $7,496,470
Bonds (1997 Affordable Housing Project), Series 1977A, 6.000%, 10/01/27
(Alternative Minimum Tax)
1,000,000 Certificates of Participation Series 1991, San Mateo County Board 5/99 at 102 A+ 1,050,880
of Education (Administration Building Project), 7.100%, 5/01/21
4,000,000 Shafter Joint Powers Financing Authority Lease, Revenue Bonds, 1/07 at 101 BBB+ 4,257,840
1997 Series A (Community Correctional Facility Acquisition Project),
6.050%, 1/01/17
City of Stockton, Mello-Roos Revenue Bonds, Series 1997A, Community
Facilities District No. 90-2 (Brookside Estates):
880,000 5.850%, 8/01/09 8/05 at 102 N/R 909,577
1,000,000 6.200%, 8/01/15 8/05 at 102 N/R 1,044,180
2,000,000 Taft Public Financing Authority Lease, Revenue Bonds, 1997 Series A 1/07 at 101 BBB+ 2,128,920
(Community Correctional Facility Acquisition Project), 6.050%, 1/01/17
1,100,000 Certificates of Participation (1992 Financing Project), Series B, 11/02 at 102 A3 1,194,798
County of Tulare, Tulare County Public Facilities Corporation,
6.875%, 11/15/12
4,200,000 Certificates of Participation (Capital Improvement Program), 1996 2/06 at 102 Aaa 4,540,116
Series A, County of Tulare, California, 6.000%, 2/15/16
2,000,000 Vallejo Public Financing Authority, 1998 Limited Obligation No Opt. Call N/R 2,008,400
Revenue Bonds (Fairgrounds Drive Assessment District Refinancing),
5.700%, 9/02/11 (WI)
- -----------------------------------------------------------------------------------------------------------------------------------
Transportation -- 6.3%
5,000,000 California Statewide Communities Development Authority, Special 10/07 at 102 Baa3 5,095,350
Facilities Lease Revenue Bonds, 1997 Series A, 5.700%, 10/01/33
(Alternative Minimum Tax)
3,935,000 California Statewide Communities Development Authority, Special 10/07 at 102 Baa3 4,000,164
Facilities Lease Revenue Bonds, 1997 Series A (United Air Lines, Inc.
-- San Francisco International Airport Projects), 5.625%, 10/01/34
(Alternative Minimum Tax)
7,150,000 Foothill/Eastern Transportation Corridor Agency, Toll Road 1/05 at 100 Baa 6,770,550
Revenue Bonds, Series 1995A, 5.000%, 1/01/35
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 17.6%
2,000,000 California Health Facilities Financing Authority, Health Facility 5/00 at 102 Aaa 2,189,300
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 Facility 10/00 at 102 N/R*** 2,211,320
Revenue Bonds (Sisters of Providence), Series 1990, 7.500%, 10/01/10
(Pre-refunded to 10/01/00)
3,000,000 Certificates of Participation, California Statewide Communities 7/04 at 102 Aa*** 3,425,790
Development Authority, St. Joseph Health System Obligated Group,
6.500%, 7/01/15 (Pre-refunded to 7/01/04)
8,470,000 State Public Works Board of the State of California, Lease Revenue 10/02 at 102 Aaa 9,567,712
Bonds (The Trustees of The California State University), 1992 Series A
(Various California State University Projects), 6.700%, 10/01/17
(Pre-refunded to 10/01/02)
2,035,000 Certificates of Participation (1991 Capital Improvement Project), 10/01 at 102 Baa*** 2,300,588
Bella Vista Water District (California), 7.375%, 10/01/17
(Pre-refunded to 10/01/01)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed -- continued
$ 2,000,000 Hospital Revenue Certificates of Participation (Desert Hospital 7/00 at 102 AAA $2,228,340
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 Costa 6/00 at 102 Aaa 2,141,237
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 Costa 12/01 at 102 Aaa 4,409,880
Counties, California), Water System Subordinated Revenue Bonds,
Series 1991, 6.375%, 6/01/21 (Pre-refunded to 12/01/01)
2,505,000 Harbor Department of the City of Los Angeles (California), No Opt. Call AAA 3,191,395
Revenue Bonds, Issue of 1988, 7.600%, 10/01/18
4,595,000 Los Angeles County Public Works Finance Authority, Revenue 10/04 at 102 AA*** 5,176,635
Bonds, Series 1994A (Los Angeles County Regional Park and
Open Space District), 6.125%, 10/01/10 (Pre-refunded to 10/01/04)
1,500,000 Community Facilities District No. 1 of the North City West 9/99 at 102 Aaa 1,619,385
School Facilities Financing Authority, Special Tax Bonds,
Series 1989A, 7.850%, 9/01/19 (Pre-refunded to 9/01/99)
3,500,000 Sacramento Municipal Utility District, Electric Revenue Bonds, 8/98 at 102 Aaa 3,638,880
1988 Series W, 7.875%, 8/15/16 (Pre-refunded to 8/15/98)
2,000,000 Certificates of Participation (1990 Financing Project), Sonoma 7/00 at 102 A+*** 2,194,700
County Office of Education, 7.375%, 7/01/20 (Pre-refunded to
7/01/00)
- ----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 1.9%
2,905,000 Northern California Power Agency, Hydroelectric Project Number 7/98 at 102 A- 2,991,627
One Revenue Bonds, Refunding Series E, 7.150%, 7/01/24
205,000 Sacramento Municipal Utility District (California), Subordinated 5/98 at 100 Baa1 205,684
Electric Revenue Bonds, 1985 Refunding Series, 8.000%, 11/15/10
1,660,000 Salinas Valley Solid Waste Authority, Revenue Bonds, Series 1997, 8/02 at 102 BBB 1,681,197
5.800%, 8/01/27 (Alternative Minimum Tax)
- ----------------------------------------------------------------------------------------------------------------------------------
$ 265,865,000 Total Investments -- (cost $235,598,024) -- 101.0%
=============---------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.1%
$ 400,000 Santa Clara County Transit District, Refunding Equipment Trust VMIG-1 400,000
============= Certificates, Variable Rate Demand Bonds, 4.050%, 6/01/15+
----------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (1.1)% (2,835,390)
----------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $251,818,507
================================================================================================================
</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.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities, which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA-rated securities.
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.
(DD) Security purchased on a delayed delivery basis (note 1).
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
February 28, 1998
California Insured
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations -- 2.1%
$4,500,000 California Educational Facilities Authority, Revenue Bonds 10/06 at 102 Aaa $4,881,825
(University of San Francisco), Series 1996, 6.000%, 10/01/26
- -----------------------------------------------------------------------------------------------------------------------
Health Care -- 6.1%
5,000,000 California Health Facilities Authority, Kaiser Permanente 10/01 at 101 AA 5,103,250
Medical Care Program, Semiannual Tender Revenue Bonds,
1983 Tender Bonds, 5.450%, 10/01/13
8,500,000 California Statewide Communities Development Authority, Sutter 8/02 at 102 Aaa 9,239,415
Health Obligated Group, Certificates of Participation,
6.125%, 8/15/22
- -----------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 8.0%
6,340,000 California Housing Finance Agency, Housing Revenue Bonds 2/02 at 102 Aaa 6,740,815
(Insured), 1991 Series B, 6.850%, 8/01/23
2,545,000 California Housing Finance Agency, Multifamily Housing Revenue 8/04 at 100 Aaa 2,654,842
Bonds II, 1996 Series A, 6.050%, 8/01/27
3,875,000 The Community Redevelopment Agency of the City of Los Angeles, 6/05 at 105 AAA 4,456,289
California, Multifamily Housing Revenue Refunding Bonds,
1995 Series A (Angelus Plaza Project), 7.400%, 6/15/10
2,555,000 City of Napa Mortgage Revenue Refunding Bonds, Series 1992A 7/02 at 102 Aaa 2,714,049
(FHA Insured Mortgage Loan -- Creekside Park Apartments
Project), 6.625%, 7/01/24
2,000,000 City of Napa Mortgage Revenue Refunding Bonds, Series 1994A 7/04 at 101 Aaa 2,143,100
(FHA Insured Mortgage Loan -- Creekside Park II Apartments
Project), 6.625%, 7/01/25
- -----------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 7.4%
4,750,000 California Housing Finance Agency, Single Family Mortgage Bonds 2/07 at 102 Aaa 5,002,130
II, 1997 Series A, 6.050%, 8/01/26 (Alternative Minimum Tax)
1,500,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 2/06 at 102 Aaa 1,584,330
1996 Series E, 6.150%, 8/01/25 (Alternative Minimum Tax)
5,000,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/05 at 102 Aaa 5,291,750
1995 Series F, 5.950%, 8/01/14
5,000,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/07 at 102 Aaa 5,290,950
1997 Series E, 6.100%, 8/01/29 (Alternative Minimum Tax)
180,000 The City of Los Angeles 1987 Home Mortgage Revenue Bonds No Opt.Call Aaa 195,806
(GNMA Mortgage-Backed Securities Program), 8.100%, 5/01/17
60,000 Thousand Oaks Redevelopment Agency (Ventura County, California), 7/98 at 101 Aaa 60,853
Single Family Mortgage Revenue Refunding Bonds, Issue of 1986,
7.900%, 1/01/16
- -----------------------------------------------------------------------------------------------------------------------
Other Revenue -- 0.1%
230,000 California Public Capital Improvements Financing Authority (A 4/98 at 102 Aaa 235,410
Joint Powers Agency), Revenue Bonds (Pooled Projects), Series
1988B, 8.100%, 3/01/18
- -----------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 8.3%
5,000,000 State of California Various Purpose General Obligation Bonds, 4/03 at 102 Aaa 5,132,500
5.500%, 4/01/19
5,000,000 State of California Veterans General Obligation Bonds, 12/03 at 102 Aaa 5,067,900
Series BH, 5.500%, 12/01/24 (Alternative Minimum Tax)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General -- continued
$ 8,000,000 Culver City Unified School District (Los Angeles County, 2/08 at 101 AAA $ 7,899,520
California), General Obligation Bonds, Election of 1996,
Series 1998, 5.125%, 8/01/37 (DD)
3,040,000 Sulphur Springs Union School District (Los Angeles County, No Opt. Call Aaa 1,258,590
California), General Obligation Bonds, Election 1991,
Series A, 0.000%, 9/01/15
- -----------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 36.3%
4,915,000 Certificates of Participation (1991 Financing Project), 9/06 at 102 Aaa 5,309,724
County of Alameda, California, Alameda County Public
Facilities Corporation, 6.000%, 9/01/21
20,000,000 Anaheim Public Financing Authority, Lease Revenue Bonds No Opt. Call Aaa 3,299,600
(Anaheim Public Improvements Project), Senior Lease
Revenue Bonds, 1997 Series C, 0.000%, 9/01/32
1,225,000 Redevelopment Agency of the City of Barstow, Central No Opt. Call Aaa 1,528,286
Redevelopment Project Tax Allocation Bonds, 1994
Series A, 7.000%, 9/01/14
7,005,000 Big Bear Lake Financing Authority (San Bernardino County, 8/05 at 102 Aaa 7,837,334
California), 1995 Tax Allocation Refunding Revenue Bonds,
6.300%, 8/01/25
7,000,000 Chino Unified School District, Certificates of Participation 9/05 at 102 Aaa 7,703,710
(1995 Master Lease Program), 6.125%, 9/01/26
850,000 Redevelopment Agency of the City of Concord, Central Concord 7/98 at 102 Aaa 878,662
Redevelopment Project, Tax Allocation Bonds, Series 1988-2,
7.875%, 7/01/07
3,865,000 Fallbrook Sanitary District (San Diego County, California), 2/01 at 100 Aaa 4,102,582
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 2,717,725
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, California, 9/04 at 102 Aaa 3,331,170
Certificates of Participation, Series of 1994, 6.250%, 9/01/12
1,000,000 La Quinta Redevelopment Agency, La Quinta Redevelopment Project No Opt. Call Aaa 1,270,060
Tax Allocation Refunding Bonds, Series 1994 (Project Area
No. 1), 7.300%, 9/01/12
2,000,000 Los Angeles County Metropolitan Transportation Authority 7/03 at 100 Aaa 1,954,080
(California), Proposition A, Sales Tax Revenue Refunding Bonds,
Series 1993-A, 5.000%, 7/01/21
5,000,000 Los Angeles County Transportation Commission (California), 7/02 at 102 Aaa 5,467,500
Proposition C Sales Tax Revenue Bonds, Second Senior Bonds,
Series 1992-A, 6.250%, 7/01/13
7,040,000 Norwalk Community Facilities Financing Authority (Los Angeles 9/05 at 102 Aaa 7,684,794
County, California), Tax Allocation Refunding Revenue Bonds,
1995 Series A, 6.050%, 9/01/25
2,500,000 City of Oakland, California, Special Refunding Revenue Bonds 8/98 at 102 Aaa 2,589,875
(Pension Financing), 1988 Series A, 7.600%, 8/01/21
8,500,000 County of Orange, California, 1996 Recovery Certificates of 7/06 at 102 Aaa 9,207,965
Participation, Series A, 6.000%, 7/01/26
3,160,000 Palm Desert Redevelopment Agency, Tax Allocation Revenue Bonds, 9/04 at 102 Aaa 3,511,108
1996 Series A (Desert Rose Project Refunding), 6.100%, 9/01/16
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 3,879,216
2,500,000 6.250%, 12/01/21 12/04 at 101 Aaa 2,760,125
</TABLE>
14
<PAGE>
Portfolio of Investments
February 28, 1998
California Insured -- continued
<TABLE>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited -- continued
$ 1,750,000 County of Riverside Asset Leasing Corporation, Leasehold 6/12 at 101 Aaa $ 1,912,435
Revenue Bonds, 1997 Series B (County of Riverside Hospital
Project), 5.700%, 6/01/16
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 2,563,943
1,000,000 6.750%, 7/01/24 7/04 at 102 Aaa 1,136,800
2,250,000 Redevelopment Agency of the City of San Jose, Merged Area 2/04 at 102 Aaa 2,120,738
Redevelopment Project, Tax Allocation Bonds, Series 1993,
4.750%, 8/01/24
2,000,000 Southern California Rapid Transit District, Certificates of 1/01 at 102 1/2 Aaa 2,225,220
Participation (Workers' Compensation Funding Program),
7.500%, 7/01/05
- ----------------------------------------------------------------------------------------------------------------------------
Transportation -- 4.6%
9,000,000 Airports Commission, City and County of San Francisco, 5/06 at 101 Aaa 9,308,790
California, San Francisco International Airport, Second
Series Revenue Bond, Issue 13B, 5.625%, 5/01/21
(Alternative Minimum Tax)
San Joaquin Hills Transportation Corridor Agency, Toll Road
Refunding Revenue Bonds, Series 1997A:
500,000 5.375%, 1/15/29 1/07 at 102 Aaa 511,345
980,000 5.250%, 1/15/30 1/07 at 102 Aaa 983,165
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 23.4%
1,000,000 California Educational Facilities Authority, Revenue Bonds 11/00 at 102 Aaa 1,104,200
(Pepperdine University), Series 1990, 7.200%, 11/01/15
(Pre-refunded to 11/01/00)
5,000,000 State Public Works Board of the State of California, Lease 9/00 at 102 Aaa 5,472,600
Revenue Bonds (Department of Corrections), 1990 Series A
(State Prison--Madera County), 7.000%, 9/01/09
(Pre-refunded to 9/01/00)
7,000,000 City of Big Bear Lake, California, 1992 Water Revenue 4/02 at 102 Aaa 7,745,080
Refunding Bonds, 6.375%, 4/01/22 (Pre-refunded to 4/01/02)
3,525,000 Brea Public Financing Authority (Orange County, California), 8/01 at 102 Aaa 3,908,203
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 of 5/01 at 102 Aaa 3,316,830
Participation (1991 Ebbetts Pass Water System Improvements
Project), 6.900%, 5/01/16 (Pre-refunded to 5/01/01)
500,000 Cotati-Rohnert Park Unified School District (Sonoma County, 8/99 at 102 Aaa 546,140
California), General Obligation Bonds, Election 1990,
Series B, 9.000%, 8/01/06 (Pre-refunded to 8/01/99)
2,000,000 East Bay Municipal Utility District (Alameda and Contra Costa 6/00 at 102 Aaa 2,196,140
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, California), 7/01 at 102 Aaa 2,195,600
Water and Sewer Revenue Certificates of Participation, Series
1991, 6.500%, 7/01/20 (Pre-refunded to 7/01/01)
2,000,000 The City of Los Angeles (California), Los Angeles Convention 8/00 at 102 Aaa 2,186,500
and Exhibition Center Certificates of Participation, 1990
Series, 7.000%, 8/15/21 (Pre-refunded to 8/15/00)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed -- continued
$ 9,500,000 Modesto Irrigation District Financing Authority, Domestic 9/02 at 102 Aaa $10,490,850
Water Project Revenue Bonds, Series 1992A, 6.125%, 9/01/19
(Pre-refunded to 9/01/02)
2,500,000 Mt. Diablo Hospital District, Insured Hospital Revenue Bonds, 12/00 at 102 Aaa 2,816,550
1990 Series A, 8.000%, 12/01/11 (Pre-refunded to 12/01/00)
2,000,000 Mt. Diablo Unified School District, Community Facilities District 8/00 at 102 Aaa 2,186,560
No. 1, Special Tax Bonds, Series 1990 (Contra Costa County,
California), 7.050%, 8/01/20 (Pre-refunded to 8/01/00)
2,000,000 Redevelopment Agency of the City of Pittsburg, California, 8/01 at 103 Aaa 2,256,720
Los Medanos Community Development Project, Tax Allocation
Bonds, Series 1991, 7.150%, 8/01/21 (Pre-refunded to 8/01/01)
3,000,000 Sacramento Municipal Utility District, Electric Revenue 9/01 at 102 Aaa 3,304,440
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 Revenue 3/02 at 102 Aaa 2,763,624
Bonds (Limited Tax Bonds), 1992
Series A, 6.000%, 3/01/10
2,000,000 San Diego Regional Building Authority, Lease Revenue Bonds, 1/00 at 102 Aaa 2,160,659
Series 1990A (San Miguel Consolidated Fire Protection
District Project), 7.250%, 1/01/20 (Pre-refunded to 1/01/00)
- -----------------------------------------------------------------------------------------------------------------------------------
Utilities -- 1.4%
3,000,000 City of Shasta Lake 1996-2 Certificates of Participation, 4/05 at 102 Aaa 3,251,339
6.000%, 4/01/16
- -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- 2.3%
5,000,000 City of Vallejo Refunding Revenue Bonds, 1996 Series A (Water 5/06 at 102 Aaa 5,370,049
Improvement Project), 5.875%, 5/01/26
- -----------------------------------------------------------------------------------------------------------------------------------
$ 235,990,000 Total Investments -- (cost $213,570,326) -- 100.0% 234,021,360
- -----------------------------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.6%
$ 500,000 Orange County Irvine Coast Assessment District No. 88-1, VMIG-1 $ 500,000
Variable Rate Demand Bonds, 3.600%, 9/02/18+
800,000 City of Santa Ana, Multi-Modal Interchangeable Rate Health A-1 800,000
Facility Revenue Bonds (Town and Country Manor Project),
Series 1990, Variable Rate Demand Bonds, 3.600%, 10/01/20+
- -----------------------------------------------------------------------------------------------------------------------------------
$ 1,300,000 Total Temporary Investments -- 0.6% 1,300,000
=============----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- (0.6)% (1,371,294)
-----------------------------------------------------------------------------------------------------------------
Net Assets -- 100% $233,950,066
=================================================================================================================
</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.
+ 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.
(DD) Security purchased on a delayed delivery basis (note 1).
See accompanying notes to financial statements.
16
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
February 28, 1998
California
California Insured
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value (note 1) $254,253,897 $234,021,360
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 400,000 1,300,000
Cash 31,520 152,174
Receivables:
Interest 4,092,311 3,675,938
Investments sold 5,000 3,405,000
Shares sold 57,278 15,082
Other assets 4,519 77,542
- -------------------------------------------------------------------------------------------
Total assets 258,844,525 242,647,096
- -------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased 6,246,479 7,902,906
Shares redeemed 14,155 71,061
Accrued expenses:
Management fees (note 6) 105,125 97,898
12b-1 distribution and service fees (notes 1 and 6) 8,099 9,046
Other 2,787 46,726
Dividends payable 649,373 569,393
- -------------------------------------------------------------------------------------------
Total liabilities 7,026,018 8,697,030
- -------------------------------------------------------------------------------------------
Net assets (note 7) $251,818,507 $233,950,066
===========================================================================================
Class A Shares (note 1)
Net assets $ 29,125,193 $ 36,202,689
Shares outstanding 2,668,559 3,273,816
Net asset value and redemption price per share $ 10.91 $ 11.06
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.39 $ 11.54
===========================================================================================
Class B Shares (note 1)
Net assets $ 2,323,809 $ 2,966,919
Shares outstanding 212,810 268,155
Net asset value, offering and redemption price per share $ 10.92 $ 11.06
===========================================================================================
Class C Shares (note 1)
Net assets $ 4,060,873 $ 3,226,359
Shares outstanding 372,023 293,782
Net asset value, offering and redemption price per share $ 10.92 $ 10.98
===========================================================================================
Class R Shares (note 1)
Net assets $216,308,632 $191,554,099
Shares outstanding 19,785,184 17,354,939
Net asset value, offering and redemption price per share $ 10.93 $ 11.04
===========================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended February 28, 1998
California
California Insured
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $14,455,362 $13,289,987
- -----------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,309,287 1,239,386
12b-1 service fees -- Class A (notes 1 and 6) 48,663 64,074
12b-1 distribution and service fees -- Class B (notes 1 and 6) 9,832 10,854
12b-1 distribution and service fees -- Class C (notes 1 and 6) 12,835 17,984
Shareholders' servicing agent fees and expenses 170,025 154,203
Custodian's fees and expenses 67,602 65,792
Trustees' fees and expenses (note 6) 5,151 4,439
Professional fees 26,836 25,374
Shareholders' reports -- printing and mailing expenses 80,013 67,463
Federal and state registration fees 3,040 1,352
Portfolio insurance expense -- 20,135
Other expenses 14,046 12,725
- -----------------------------------------------------------------------------------------
Total expenses 1,747,330 1,683,781
- -----------------------------------------------------------------------------------------
Net investment income 12,708,032 11,606,206
- -----------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 1,652,819 397,413
Net change in unrealized appreciation or depreciation
of investments 6,514,334 7,234,230
- -----------------------------------------------------------------------------------------
Net gain from investments 8,167,153 7,631,643
- -----------------------------------------------------------------------------------------
Net increase in net assets from operations $20,875,185 $19,237,849
=========================================================================================
See accompanying notes to financial statements.
</TABLE>
18
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
California California Insured
-----------------------------------------------------
Year ended Year ended Year ended Year ended
2/28/98 2/28/97 2/28/98 2/28/97
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 12,708,032 $ 12,366,634 $ 11,606,206 $ 11,661,339
Net realized gain (loss) from investment
transactions (notes 1 and 4) 1,652,819 169,342 397,413 (196,727)
Net change in unrealized appreciation or
depreciation of investments 6,514,334 27,943 7,234,230 (1,102,480)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 20,875,185 12,563,919 19,237,849 10,362,132
- ----------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (1,232,871) (850,904) (1,598,341) (1,112,015)
Class B (42,742) -- (46,050) --
Class C (75,261) (33,408) (105,246) (49,035)
Class R (11,366,137) (11,568,807) (9,978,502) (10,458,018)
From accumulated net realized gains from
investment transactions:
Class A (87,570) -- (252) --
Class B (5,059) -- (11) --
Class C (6,498) -- (22) --
Class R (740,517) -- (1,447) --
- ----------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (13,556,655) (12,453,119) (11,729,871) (11,619,068)
- ----------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 20,926,474 21,474,243 21,520,216 25,329,867
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 8,485,646 7,567,054 6,962,594 6,819,379
- ----------------------------------------------------------------------------------------------------------------
29,412,120 29,041,297 28,482,810 32,149,246
- ----------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (20,738,805) (23,108,724) (26,910,270) (29,955,249)
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 8,673,315 5,932,573 1,572,540 2,193,997
- ----------------------------------------------------------------------------------------------------------------
Net increase in net assets 15,991,845 6,043,373 9,080,518 937,061
Net assets at the beginning of year 235,826,662 229,783,289 224,869,548 223,932,487
- ----------------------------------------------------------------------------------------------------------------
Net assets at the end of year $251,818,507 $235,826,662 $233,950,066 $224,869,548
- ----------------------------------------------------------------------------------------------------------------
Balance of undistributed net investment
income at end of year $ 47,491 $ 56,470 $ 54,485 $ 176,418
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
19 See accompanying notes to financial statements.
<PAGE>
Notes to Financial Statements
February 28, 1998
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 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 ("Nuveen"), 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 tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
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 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 valued at amortized
cost, which approximates market value.
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 have extended settlement periods. 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 the when-issued and delayed delivery purchase commitments. At
February 28, 1998, California and California Insured had when-issued and delayed
delivery purchase commitments of $6,246,479 and $7,902,906, 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 on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income and 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 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
20
<PAGE>
Notes to Financial Statements--continued
February 28, 1998
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 Funds. Net realized capital gain and market discount
distributions are subject to federal taxation.
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 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 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 offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge 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 one year of purchase. Class R Shares are
not subject to any sales charge 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, 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, 1998.
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, which presently only
includes 12b-1 distribution and service fees, 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.
21
<PAGE>
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
California
---------------------------------------------------------
Year ended 2/28/98 Year ended 2/28/97
---------------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 915,709 $ 9,841,798 834,264 $ 8,711,708
Class B 212,762 2,283,446 -- --
Class C 296,470 3,221,754 41,611 437,417
Class R 518,547 5,579,476 1,174,955 12,325,118
Shares issued to shareholders due to
reinvestment of distributions:
Class A 69,581 747,090 43,465 455,861
Class B 2,378 25,787 -- --
Class C 5,538 59,609 2,382 24,945
Class R 712,546 7,653,160 675,181 7,086,248
- ------------------------------------------------------------------------------------------------
2,733,531 29,412,120 2,771,858 29,041,297
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (260,273) (2,797,462) (135,750) (1,422,346)
Class B (2,330) (25,080) -- --
Class C (24,707) (263,332) (13,949) (144,511)
Class R (1,648,255) (17,652,931) (2,059,535) (21,541,867)
- ------------------------------------------------------------------------------------------------
(1,935,565) (20,738,805) (2,209,234) (23,108,724)
- ------------------------------------------------------------------------------------------------
Net increase 797,966 $ 8,673,315 562,624 $ 5,932,573
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
California Insured
---------------------------------------------------------
Year ended 2/28/98 Year ended 2/28/97
---------------------------------------------------------
Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 994,327 $ 10,714,535 1,300,597 $ 13,757,024
Class B 270,416 2,948,439 -- --
Class C 157,741 1,703,167 91,768 972,104
Class R 570,721 6,154,075 1,001,613 10,600,739
Shares issued to shareholders due to
reinvestment of distributions:
Class A 79,157 857,036 52,994 563,347
Class B 776 8,517 -- --
Class C 6,626 71,396 3,107 32,774
Class R 558,410 6,025,645 587,632 6,223,258
- ------------------------------------------------------------------------------------------------
2,638,174 28,482,810 3,037,711 32,149,246
- ------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (378,368) (4,074,693) (378,089) (4,026,630)
Class B (3,037) (33,002) -- --
Class C (32,339) (350,263) (30,587) (320,023)
Class R (2,084,046) (22,452,312) (2,426,927) (25,608,596)
- ------------------------------------------------------------------------------------------------
(2,497,790) (26,910,270) (2,835,603) (29,955,249)
- ------------------------------------------------------------------------------------------------
Net increase 140,384 $ 1,572,540 202,108 $ 2,193,997
================================================================================================
</TABLE>
22
<PAGE>
Notes to Financial Statements -- continued
February 28, 1998
3. Distributions to Shareholders
On March 9, 1998, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid April 1, 1998, to shareholders of
record on March 9, 1998, as follows:
California California Insured
-----------------------------------------------------------------
Dividend per share:
Class A $.0455 $.0450
Class B .0390 .0380
Class C .0405 .0395
Class R .0475 .0465
=================================================================
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended
February 28, 1998, were as follows:
California California Insured
-----------------------------------------------------------------
Purchases:
Investments in municipal $120,035,444 $62,473,386
securities
Temporary municipal
investments 60,630,000 41,857,000
Sales:
Investments in municipal
securities 108,092,638 58,076,411
Temporary municipal
investments 61,230,000 41,157,000
=================================================================
At February 28, 1998, 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, 1998, California Insured had an unused capital loss carryforward
of $128,884 available for federal income tax purposes to be applied against
future capital gains, if any. If not applied, the carryforward will expire in
the year 2005.
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1998, were as follows:
California California Insured
-----------------------------------------------------------------
Gross unrealized:
appreciation $18,666,448 $20,451,034
depreciation (10,575) --
-----------------------------------------------------------------
Net unrealized appreciation $18,655,873 $20,451,034
=================================================================
23
<PAGE>
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 management fee compensates the Advisor for overall investment advisory and
administrative services, and general office facilities. The trust pays no
compensation directly to those of 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 or its affiliates.
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, B and 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.
During the fiscal year ended February 28, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $272,400 and $309,600
for California and California Insured, respectively, of which approximately
$234,100 and $264,200, 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, 1998, the Distributor compensated
authorized dealers directly with approximately $124,000 and $131,500 in
commission advances at the time of purchase for California and California
Insured, respectively. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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. During the fiscal year
ended February 28, 1998, the Distributor retained approximately $19,100 and
$21,800 in such 12b-1 fees for California and California Insured, respectively.
The remaining 12b-1 fees charged to the Fund were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained approximately $200 and $2,200 of
CDSC on share redemptions for California and California Insured, respectively,
during the fiscal year ended February 28, 1998.
7. Composition of Net Assets
At February 28, 1998, the Funds 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 $232,897,933 $213,585,792
Balance of undistributed net investment income 47,491 54,485
Accumulated net realized gain (loss) from investment transactions 217,210 (141,245)
Net unrealized appreciation of investments 18,655,873 20,451,034
--------------------------------------------------------------------------------------------------------
Net assets $251,818,507 $233,950,066
========================================================================================================
</TABLE>
24
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
------------------------- ---------------------------
Net
CALIFORNIA Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ended beginning investment from investment from capital end of asset
February 28/29, of period income (a) investments income gains period value (b)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1998 $10.58 $.55 $ .37 $(.55) $(.04) $10.91 8.87%
1997 10.58 .55 (.01) (.54) -- 10.58 5.29
1996 10.10 .55 .47 (.54) -- 10.58 10.36
1995 (c) 10.21 .27 (.03) (.28) (.07) 10.10 2.52
Class B (3/97)
1998 (c) 10.56 .46 .41 (.47) (.04) 10.92 8.39
Class C (9/94)
1998 10.58 .49 .38 (.49) (.04) 10.92 8.36
1997 10.58 .47 (.01) (.46) -- 10.58 4.53
1996 10.10 .47 .47 (.46) -- 10.58 9.53
1995 (c) 10.04 .22 .13 (.22) (.07) 10.10 3.71
Class R (7/86)
1998 10.61 .57 .36 (.57) (.04) 10.93 8.99
1997 10.60 .57 .01 (.57) -- 10.61 5.67
1996 10.13 .58 .46 (.57) -- 10.60 10.54
1995 10.74 .58 (.53) (.59) (.07) 10.13 .78
1994 10.85 .60 (.05) (.60) (.06) 10.74 5.08
1993 10.14 .63 .71 (.63) -- 10.85 13.66
1992 (d) 9.92 .43 .22 (.43) -- 10.14 6.61
1991 (e) 9.79 .64 .13 (.64) -- 9.92 8.16
1990 (e) 9.85 .64 (.06) (.64) -- 9.79 6.14
1989 (e) 9.24 .65 .61 (.65) -- 9.85 14.12
========================================================================================================================
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
(d) For the eight months ended February 29.
(e) For the fiscal year ended June 30.
25
<PAGE>
<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 (a) ment (a) rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 29,125 .90% 5.11% .90% 5.11% 45%
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
2,324 1.66* 4.31* 1.66* 4.31* 45
4,061 1.45 4.56 1.45 4.56 45
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
216,309 .70 5.31 .70 5.31 45
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
================================================================================================
</TABLE>
26
<PAGE>
Financial Highlights -- continued
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
------------------------- ---------------------------
Net
CALIFORNIA INSURED Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ended beginning investment from investment from capital end of asset
February 28/29, of period income (a) investments income gains period value (b)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1998 $10.70 $.54 $ .36 $(.54) $ - $11.06 8.66%
1997 10.76 .55 (.08) (.53) - 10.70 4.57
1996 10.25 .53 .51 (.53) - 10.76 10.32
1995 (c) 10.22 .26 .07 (.27) (.03) 10.25 3.33
Class B (3/97)
1998 (c) 10.67 .45 .40 (.46) - 11.06 8.13
Class C (9/94)
1998 10.63 .47 .35 (.47) - 10.98 7.96
1997 10.67 .46 (.05) (.45) - 10.63 3.99
1996 10.15 .45 .51 (.44) - 10.67 9.67
1995 (c) 10.06 .21 .13 (.22) (.03) 10.15 3.45
Class R (7/86)
1998 10.68 .56 .36 (.56) - 11.04 8.86
1997 10.74 .56 (.07) (.55) - 10.68 4.81
1996 10.23 .56 .50 (.55) - 10.74 10.63
1995 10.67 .56 (.41) (.56) (.03) 10.23 1.68
1994 10.85 .56 (.10) (.56) (.08) 10.67 4.27
1993 10.01 .58 .88 (.58) (.04) 10.85 15.05
1992 (d) 9.65 .40 .36 (.40) - 10.01 7.99
1991 (e) 9.48 .60 .18 (.61) - 9.65 8.43
1990 (e) 9.63 .61 (.15) (.61) - 9.48 4.93
1989 (e) 9.02 .61 .61 (.61) - 9.63 13.97
========================================================================================================================
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
(d) For the eight months ended February 29.
(e) For the fiscal year ended June 30.
27
<PAGE>
<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 (a) ment (a) rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 36,203 .90% 4.93% .90% 4.93% 26%
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
2,967 1.66* 4.16* 1.66* 4.16* 26
3,226 1.45 4.37 1.45 4.37 26
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
191,554 .70 5.14 .70 5.14 26
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
================================================================================================
</TABLE>
28
<PAGE>
Building Better Portfolios with Nuveen
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
Mutual Funds
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
Unit Trusts
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA-rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
Nuveen Family
of Mutual Funds
Nuveen offers a variety
of funds designed
to help you reach
your financial goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth
and Income
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Tax-Free
Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
29
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
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.
Independent Public
Accountants
Arthur Andersen LLP
Chicago, IL
30
<PAGE>
[PHOTO OF JOHN NUVEEN, SR. APPEARS HERE]
John Nuveen, Sr.
Serving Investors for Generations
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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time -- with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 621-7227 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN 1898/1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
NUVEEN
Municipal
Bond Fund
February 28, 1998
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Connecticut
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Dear Shareholder
Wealth takes a lifetime to build. Once achieved, it should be preserved.
Over the past 12 months, the Nuveen Flagship Connecticut Municipal Bond Fund
performed well, rewarding investors with attractive tax-free income and above-
market returns. For the year ended February 28, 1998, the fund's Class A shares
posted a total return on net asset value of 8.75%, outpacing its Lipper peer
group average of 8.56% for the Connecticut municipal bond fund category.
Although the fund experienced a modest dividend reduction in January, it
continues to provide a competitive after-tax yield. As of February 28, 1998, the
Class A shares were generating a yield on net asset value of 4.19%, which is
equivalent to an after-tax yield of 6.36% for investors in the combined 34.1%
federal and state income tax bracket. For shareholders in higher tax brackets,
the tax-adjusted yields are even more attractive. You will find additional
details on the performance of the fund on page 4.
The Year in Review
Over the past year, the bond market enjoyed a period of solid performance, as
the benign inflationary environment provided the ideal backdrop for fixed-income
investments, including municipal issues. A shrinking federal deficit and the
inactivity of the Federal Reserve, which has been on hold since its last
interest rate increase in March 1997, also contributed to the positive
environment for bonds.
Between the end of February 1997 and February 1998, the yield on 30-year
Treasury bonds dropped from 6.80% to 5.92%, and the municipal market followed
suit, as the yield on the Bond Buyer 40 declined from 5.76% to 5.24%. The
relatively tight spread between tax-free municipal bond yields and taxable
Treasury bond yields, combined with municipals' comparatively low volatility and
dependable tax-free income, continue to make these investments an attractive
opportunity.
1
<PAGE>
"With their focus on consistent, above-market performance and moderated risk,
Nuveen funds can be ideal for investors who want to build and sustain long-term
financial security."
Meeting Investor Needs
The generally stable income stream and attractive returns detailed on the
following pages demonstrate that the Nuveen Flagship Connecticut Municipal Bond
Fund has continued to successfully pursue its investment objectives. In today's
market environment, many investors are seeking conservatively managed
investments that enable them to strike the proper balance between risk and
reward in their portfolios. With their focus on consistent, above-market
performance and moderated risk, Nuveen funds can be ideal for investors who want
to build and sustain long-term financial security. Each of the funds-equity,
balanced and fixed-income--is managed with the same conservative approach that
emphasizes in-depth research, quality investments and careful monitoring.
Building Better Portfolios
As you review the performance of your fund and discuss the results with your
financial adviser, we hope that you continue to think of Nuveen when seeking
quality investment solutions. Your adviser can introduce you to a variety of
other Nuveen products and services designed to round out your portfolio of core
investments. This includes the new Nuveen Rittenhouse Growth Fund, a blue chip
equity mutual fund that provides a tax-efficient approach to building and
sustaining wealth. We encourage you to talk to your financial adviser about our
additional products and services to determine those that can best complement
your current Nuveen investments.
On behalf of everyone at Nuveen, I thank you for your continued confidence in us
and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 15, 1998
2
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
Portfolio Manager's Comments
Portfolio manager Rick Huber discusses the performance of the fund, the
municipal bond market, and key investment strategies.
Performance Review
The annual total return on net asset value for Class A shares was 8.75%,
providing a taxable equivalent total return of 11.55% for investors in the 34.1%
combined federal and state income tax bracket. The fund also outpaced the
average one-year return for its peer group, the Lipper Connecticut Municipal
Bond Fund category.
State Growth Continues
The high credit ratings that Moody's and Standard & Poor's have assigned to
Connecticut's long-term general obligation debt (Aa3 and AA-) recognize the
state's diverse economic base and solid financial position. The state is finally
seeing steady signs of economic growth. As of October 1997, the state had
recovered 64% of the total jobs lost during the 1991-92 recession. This stronger
economy has generated higher-than-anticipated general fund revenues, enabling
the state to reduce its general fund deficit to the lowest amount in ten years.
Employment growth and development plans spurred by casinos are expected to
continue to fuel Connecticut's economic growth over the next few years.
The electric utility industry remains volatile in the wake of deregulation. A
key state House committee passed a comprehensive reform bill, which should break
the deadlock over stranded costs that prevented an earlier bill from passing in
1997. However, a number of obstacles remain, given that the 1998 bill must go
before four different committees before it makes it to the House floor.
Finding Value in the Market
While municipal supply nationwide was plentiful during the year, supply in the
Connecticut municipal market was quite limited. Much of the issuance in the
state was in the health care and long-term care sectors, which explains the
fund's heavy weighting in these areas. To take advantage of the supply that was
available during the year, we leveraged our strong relationships with many
issuers and institutions, which gave us more opportunities to purchase bonds in
this tight supply environment.
New purchases for the fund have been in bonds at the higher end of the credit
quality spectrum. With the difference in yields on higher and lower rated bonds
at such historically narrow levels, we feel that AAA and AA bonds offer the best
values. We are also finding value in bonds with 10-15 year maturities, as well
as longer-maturity bonds with favorable coupon rates and good call protection.
In managing the fund, we also kept tax-efficiency at the forefront, being
careful to avoid excessive capital gains payments. Whenever we sell a higher-
yielding bond that has appreciated in value, we realize a gain, but must
reinvest the proceeds at today's lower interest rates and must also distribute
the profits to shareholders as a capital gain. Given the tax consequences of
realizing capital gains and the impact that reinvesting at lower interest rates
would have on the dividend, we continued to hold many of our profitable, higher-
yielding securities throughout the year.
Strategies for the Future
An ongoing strategy is to help sustain the fund's dividend by maintaining good
call protection in the portfolio. This means that we avoid having a large
percentage of bonds vulnerable to being called away from the portfolio at any
one time. Good call protection helps cushion the fund against shorter-term
interest rate volatility.
If credit spreads widen, we will seek to support the dividend by purchasing
lower-rated, higher-yielding securities when possible. In the tight supply
environment of the Connecticut municipal market, this is often accomplished
through private placements. The small issues and limited issues offered through
private placements tend to provide more attractive yields for the level of risk
assumed and better overall values.
3
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
Performance Overview
As of February 28, 1998
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------------------------
12-Month Dividends (Class A Shares)
- -----------------------------------
<S> <C>
March 0.0465
April 0.0465
May 0.0465
June 0.0465
July 0.0465
August 0.0465
September 0.0465
October 0.0465
November 0.0465
December 0.0465
January 0.045
February 0.045
- -----------------------------------
</TABLE>
- ---------------------------------------
Top 5 Sectors
- ---------------------------------------
Tax Obligation (Limited) 19%
Education and Civic Organizations 17%
Utilities 14%
Health Care 14%
Housing (Single Family) 9%
- ---------------------------------------
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 return figures. Class B shares automatically convert to Class A shares
eight years after purchase. Class C shares have a 1% CDSC for redemptions
within one year which is not reflected in the one-year total return.
2 Based on SEC yield and a combined federal and state income tax rate of 34.1%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
Portfolio Statistics
- -------------------------------------------------------------------------------------
Share Class A B C R
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 7/87 2/97 10/93 2/97
Net Asset Value $10.85 $10.83 $10.83 $10.87
Fund Net Assets ($000) $232,325
Average Weighted Maturity (Years) 19.51
Average Weighted Duration (Years) 6.16
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
- -------------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 8.75% 4.19% 7.76% 8.17% 9.17%
5-Year 5.97% 5.07% 5.32% 5.36% 6.06%
10-Year 7.63% 7.17% 7.16% 7.02% 7.67%
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
Tax-Free Yields
- -------------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- -------------------------------------------------------------------------------------
Distribution Rate 4.98% 4.77% 4.27% 4.43% 5.19%
SEC 30-Day Yield 4.19% 4.01% 3.44% 3.64% 4.39%
Taxable Equivalent Yield/2/ 6.36% 6.08% 5.22% 5.52% 6.66%
- -------------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Lehman Brothers Nuveen Flagship CT Nuveen Flagship CT
Municipal Bond Municipal Bond Fund Municipal Bond Fund
Date Index (NAV) (Offer)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
2/88 $10,000.00 $10,000.00 $ 9,580.00
2/89 10,620.34 10,653.31 10,205.87
2/90 11,708.95 11,630.34 11,141.86
2/91 12,788.46 12,407.35 11,886.24
2/92 14,066.52 13,637.19 13,064.43
2/93 16,002.67 15,606.39 14,950.92
2/94 16,887.10 16,402.54 15,713.63
2/95 17,205.76 16,527.68 15,833.52
2/96 19,107.08 18,190.15 17,426.16
2/97 20,331.95 19,184.88 18,379.11
2/98 22,192.00 20,861.00 19,984.00
- --------------------------------------------------------------------------------
</TABLE>
- --Lehman Brothers Municipal Bond Index-$22,192
- --Nuveen Flagship Connecticut Municipal Bond Fund (NAV)--$20,861
- --Nuveen Flagship Connecticut Municipal Bond Fund (Offer)--$19,984
Past results are not predictive of future performance.
<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, 1998, and the related statement of operations for the year
then ended, the statements of changes in net assets and the financial highlights
for each of the two years in the period 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 Fund's
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, 1998, 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, 1998,
the results of its operations for the year then ended and the changes in its net
assets and the financial highlights for the periods subsequent to May 31, 1996,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 15, 1998
5
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship Connecticut
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Education and Civic Organizations -- 17.3%
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 $ 1,059,940
2,000,000 5.750%, 3/01/26 3/06 at 101 AAA 2,119,620
250,000 State of Connecticut Health and Educational Facilities Authority, 7/99 at 102 BBB+ 259,398
Revenue Bonds, Fairfield University Issue, Series F, 6.900%, 7/01/14
8,285,000 State of Connecticut Health and Educational Facilities Authority, 7/03 at 103 BBB- 8,466,607
Revenue Bonds, Quinnipiac College Issue, Series D, 6.000%, 7/01/23
State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Sacred Heart University Issue, Series B:
500,000 5.700%, 7/01/16 7/03 at 102 BBB- 503,535
2,200,000 5.800%, 7/01/23 7/03 at 102 BBB- 2,208,932
1,000,000 State of Connecticut Health and Educational Facilities Authority, 5/02 at 102 AAA 1,070,620
Revenue Bonds, Yale University, 5.929%, 6/10/30
4,000,000 State of Connecticut Health and Educational Facilities Authority, 7/04 at 102 AAA 4,373,000
Revenue Bonds, Trinity College Issue, Series D, 6.125%, 7/01/24
2,000,000 State of Connecticut Health and Educational Facilities Authority, 7/04 at 101 1/2 AAA 2,159,980
Revenue Bonds, The Loomis Chaffee School Issue, Series B, 6.000%,
7/01/25
2,500,000 State of Connecticut Health and Educational Facilities Authority, 7/05 at 101 AAA 2,551,300
Revenue Bonds, Kent School Issue, Series B, 5.400%, 7/01/23
2,240,000 State of Connecticut Health and Educational Facilities Authority, 11/05 at 102 AAA 2,256,150
Revenue Bonds, Connecticut State University System Issue,
Series A, 5.125%, 11/01/15
1,600,000 State of Connecticut Health and Educational Facilities Authority, 7/06 at 102 AAA 1,702,432
Revenue Bonds, Trinity College Issue, Series E, 5.875%, 7/01/26
1,435,000 State of Connecticut Health and Educational Facilities Authority, 7/06 at 101 AAA 1,480,590
Revenue Bonds, The Loomis Chaffee School Issue, Series C, 5.500%,
7/01/26
2,000,000 State of Connecticut Health and Educational Facilities Authority, 7/07 at 102 AAA 2,047,600
Revenue Bonds, Suffield Academy Issue, Series A, 5.400%, 7/01/27
Connecticut Higher Education Supplemental Loan Authority, Revenue Bonds
(Family Education Loan Program), 1991 Series A:
410,000 7.000%, 11/15/05 11/01 at 102 A 444,575
3,935,000 7.200%, 11/15/10 11/01 at 102 A 4,269,436
1,760,000 Connecticut Higher Education Supplemental Loan Authority, Revenue Bonds 11/04 at 102 A1 1,891,261
(Family Education Loan Program), 1994 Series A, 6.300%, 11/15/10
1,320,000 Connecticut Higher Education Supplemental Loan Authority, Revenue Bonds 11/04 at 102 A1 1,422,142
(Family Education Loan Program), 1996 Series A, 6.350%, 11/15/11
- -----------------------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 0.4%
1,000,000 Town of Sprague, Connecticut, Environmental Improvement Revenue Bonds, 10/07 at 102 A- 1,035,750
1997 Series A (International Paper Company Project), 5.700%, 10/01/21
</TABLE>
6
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship Connecticut -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care -- 13.8%
$ 2,600,000 State of Connecticut Health and Educational 7/00 at 102 AAA $2,798,198
Facilities Authority, Revenue Bonds, Bristol
Hospital Issue, Series A, 7.000%, 7/01/20
1,750,000 State of Connecticut Health and Educational 7/00 at 102 AAA 1,883,403
Facilities Authority, Revenue Bonds, Waterbury
Hospital Issue, Series B, 7.000%, 7/01/20
900,000 State of Connecticut Health and Educational 7/01 at 102 AAA 974,799
Facilities Authority, Revenue Bonds, Hospital
of Raphael Issue, Series D, 6.625%, 7/01/14
3,500,000 State of Connecticut Health and Educational 7/02 at 102 AAA 3,858,820
Facilities Authority, Revenue Bonds, Middlesex
Hospital Issue, Series G, 6.250%, 7/01/12
2,000,000 State of Connecticut Health and Educational 7/02 at 102 AAA 2,200,500
Facilities Authority, Revenue Bonds, Bridgeport
Hospital Issue, Series A, 6.625%, 7/01/18
4,200,000 State of Connecticut Health and Educational 7/04 at 102 AAA 4,517,940
Facilities Authority, Revenue Bonds, New Britain
General Hospital Issue, Series B, 6.000%, 7/01/24
1,100,000 State of Connecticut Health and Educational 7/02 at 102 A+ 1,166,352
Facilities Authority, Revenue Bonds, The William
W. Backus Hospital Issue, Series C, 6.000%, 7/01/12
1,645,000 State of Connecticut Health and Educational 7/06 at 102 AAA 1,667,685
Facilities 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 3,189,750
1,500,000 5.800%, 7/01/26 7/06 at 102 AAA 1,597,140
3,000,000 State of Connecticut Health and Educational 7/06 at 102 AAA 3,175,230
Facilities Authority, Revenue Bonds, Yale-New
Haven Hospital Issue, Series H, 5.700%, 7/01/25
320,000 State of Connecticut Health and Educational 1/01 at 102 AAA 348,726
Facilities Authority, Revenue Bonds, Capital
Asset Issue, Series C, 7.000%, 1/01/20
2,000,000 State of Connecticut Health and Educational 7/07 at 102 AAA 2,126,740
Facilities Authority, Revenue Bonds, The William
W. Backus Hospital Issue, Series D, 5.750%, 7/01/27
2,250,000 Connecticut Development Authority, Solid Waste 7/05 at 102 AAA 2,618,438
Disposal Facilities Revenue Bonds, Pfizer Inc.
Project, 1994 Series, 7.000%, 7/01/25
- --------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 1.0%
635,000 Connecticut Housing Finance Authority, Housing 11/01 at 102 AA 668,426
Mortgage Finance Program Bonds, 1991 Series A,
Subseries A-2, 7.200%, 11/15/08
1,500,000 New Britain Senior Citizens Housing Development 1/02 at 102 AAA 1,589,970
Corporation, Mortgage Revenue Refunding Bonds,
Series 1992A (FHA Insured Mortgage Loan -- Nathan
Hale Apartments Section 8), 6.875%, 7/01/24
- --------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 9.3%
765,000 Connecticut Housing Finance Authority, Alternative 11/02 at 102 AA 818,405
Minimum Tax Bonds, 6.700%, 11/15/22
1,250,000 Connecticut Housing Finance Authority, Housing 5/03 at 102 AA 1,318,150
Mortgage Finance Program Bonds, 1993 Series A,
6.200%, 5/15/14
2,750,000 Connecticut Housing Finance Authority, Housing 5/04 at 102 AA 2,885,410
Mortgage Finance Program Bonds, 1994 Series A,
6.100%, 5/15/17
1,120,000 Connecticut Housing Finance Authority, Housing 5/04 at 102 AA 1,205,053
Mortgage Finance Program Bonds, 1994 Series B,
Subseries B-2, 6.750%, 5/15/22
</TABLE>
7
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship Connecticut -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family -- continued
$ 1,500,000 Connecticut Housing Finance Authority, Housing 5/05 at 102 AA $ 1,580,865
Mortgage Finance Program Bonds, 1995 Series A,
Subseries A-1, 6.100%, 5/15/17
4,160,000 Connecticut Housing Finance Authority, Housing 11/07 at 102 AA 4,280,515
Mortgage Finance Program Bonds, 1997 Series B,
Subseries B-2, 5.850%, 11/15/28
1,000,000 Connecticut Housing Finance Authority, Housing 11/05 at 102 AA 1,054,860
Mortgage Finance Program Bonds, 1995 Series F,
Subseries F-1, 6.000%, 5/15/17
1,500,000 Connecticut Housing Finance Authority, Housing 5/06 at 102 AA 1,590,165
Mortgage Finance Program Bonds, 1996 Series B,
Subseries B-1, 6.050%, 5/15/18
5,000,000 Connecticut Housing Finance Authority, Housing 11/06 at 102 AA 5,255,900
Mortgage Finance Program Bonds, 1996 Series E,
Subseries E-2, 6.150%, 11/15/27
1,500,000 Connecticut Housing Finance Authority, Housing 11/06 at 102 AA 1,564,920
Mortgage Finance Program Bonds, 1997 Series F,
Subseries F-2, 6.000%, 11/15/27
- --------------------------------------------------------------------------------------------------------------------
Long Term Care -- 6.6%
State of Connecticut Health and Educational
Facilities Authority, Revenue Bonds, Hospital for
Special Care Issue, Series B:
1,000,000 5.375%, 7/01/17 7/07 at 102 BBB 999,330
1,000,000 5.500%, 7/01/27 7/07 at 102 BBB 1,007,900
7,000,000 Connecticut Development Authority, Health Care 9/02 at 102 A2 7,592,410
Project Refunding Bonds (Duncaster, Inc.
Project -- 1992 Series), 6.750%, 9/01/15
Connecticut Development Authority, First Mortgage
Gross Revenue Health Care Project Refunding Bonds
(Church Homes, Inc., Congregational Avery Heights
Project -- 1997 Series):
1,700,000 5.700%, 4/01/12 4/07 at 102 BBB 1,760,724
2,610,000 5.800%, 4/01/21 4/07 at 102 BBB 2,689,527
City of New Haven, Connecticut, Facility Revenue
Bonds (Easter Seal Goodwill Industries
Rehabilitation Center Project -- 1991 Series):
345,000 8.500%, 4/01/01 No Opt. Call N/R 325,925
995,000 8.875%, 4/01/16 4/01 at 102 N/R 937,439
- --------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 7.6%
3,000,000 City of Bridgeport, Connecticut, General Obligation 3/07 at 101 AAA 3,035,010
Bonds, 1997 Series A, 5.250%, 3/01/17
325,000 Town of Canterbury, Connecticut, General Obligation No Opt. Call A 398,655
Bonds, 7.200%, 5/01/09
2,800,000 State of Connecticut, General Obligation Capital No Opt. Call AA- 1,457,008
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- 600,420
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- 1,598,490
Appreciation Bonds (College Savings Plan,
1993 Series A), 0.000%, 6/15/11
Town of Glastonbury, Connecticut, General
Obligation Bonds, Issue of 1988:
200,000 7.200%, 8/15/06 No Opt. Call Aa1 241,362
200,000 7.200%, 8/15/07 No Opt. Call Aa1 244,468
200,000 7.200%, 8/15/08 No Opt. Call Aa1 246,848
Town of Griswold, Connecticut, General Obligation
Bonds, Issue of 1989:
200,000 7.500%, 4/01/02 No Opt. Call AAA 226,590
200,000 7.500%, 4/01/03 No Opt. Call AAA 231,564
200,000 7.500%, 4/01/04 No Opt. Call AAA 235,860
150,000 7.500%, 4/01/05 No Opt. Call AAA 180,192
</TABLE>
8
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship Connecticut -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General -- continued
$ 340,000 City of Middletown, Connecticut, General No Opt. Call AA $ 399,548
Obligation Bonds, 6.900%, 4/15/16
1,250,000 City of New Haven, Connecticut, General Obligation 2/05 at 102 AAA 1,326,325
Bonds, Series 1995, 5.750%, 2/15/14
City of New London, Connecticut, General Obligation
Bonds, Water Department Revenue, Series 20:
120,000 7.300%, 12/01/05 No Opt. Call A+ 143,830
100,000 7.300%, 12/01/07 No Opt. Call A+ 123,107
Town of Old Saybrook, Connecticut, General
Obligation Bonds:
160,000 7.400%, 5/01/08 No Opt. Call A 197,173
160,000 7.400%, 5/01/09 No Opt. Call A 199,035
275,000 6.500%, 2/15/10 No Opt. Call AAA 323,920
270,000 6.500%, 2/15/11 No Opt. Call AAA 318,951
925,000 Town of Oxford, Connecticut, General Obligation 2/00 at 102 AAA 993,746
Bonds, 7.000%, 2/01/09
Town of Plainfield, Connecticut, General
Obligation Bonds:
225,000 7.000%, 9/01/00 No Opt. Call A 239,369
100,000 7.000%, 9/01/01 No Opt. Call A 108,373
100,000 7.100%, 9/01/02 9/01 at 102 A 110,164
310,000 7.100%, 9/01/03 9/01 at 102 A 342,810
100,000 7.200%, 9/01/04 9/01 at 102 A 110,906
335,000 7.250%, 9/01/06 9/01 at 102 A 372,775
335,000 7.300%, 9/01/08 9/01 at 102 A 371,806
155,000 7.300%, 9/01/10 9/01 at 102 A 170,962
City of Torrington, Connecticut, General
Obligation Bonds:
700,000 6.400%, 5/15/11 5/02 at 102 AAA 768,355
680,000 6.400%, 5/15/12 5/02 at 102 AAA 746,402
Town of Winchester, Connecticut, General
Obligation Bonds:
140,000 6.750%, 4/15/06 No Opt. Call A1 163,428
140,000 6.750%, 4/15/07 No Opt. Call A1 165,210
140,000 6.750%, 4/15/08 No Opt. Call A1 166,719
140,000 6.750%, 4/15/09 No Opt. Call A1 167,679
140,000 6.750%, 4/15/10 No Opt. Call A1 168,393
725,000 Town of Woodstock, Connecticut, Special 3/00 at 103 AAA 784,936
Obligation Bonds (Woodstock Academy -- 1990
Issue), 6.900%, 3/01/06
- --------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 18.8%
2,000,000 State of Connecticut Health and Educational 11/04 at 102 AA- 2,186,980
Facilities Authority, Revenue Bonds, Nursing
Home Program Issue, Series 1994 (St. Camillus
Health Center Project), 6.250%, 11/01/18
1,000,000 State of Connecticut Health and Educational 11/04 at 102 AAA 1,105,580
Facilities Authority, Revenue Bonds, Nursing
Home Program Issue, Series 1994 (Sharon Health
Care Project), 6.250%, 11/01/21
5,000,000 State of Connecticut Health and Educational 11/04 at 102 AAA 5,527,900
Facilities Authority, Revenue Bonds, Nursing
Home Program Issue, Series 1994 (Saint Joseph's
Manor Project), 6.250%, 11/01/16
3,695,000 State of Connecticut Health and Educational 11/04 at 102 AAA 4,085,118
Facilities Authority, Revenue Bonds, Nursing
Home Program Issue, Series 1994 (St. Camillus
Health Center Project), 6.250%, 11/01/18
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited - continued
$3,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA $3,316,740
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1994 (The Jewish Home for the Elderly),
6.250%, 11/01/20
State of Connecticut Health and Educational Facilities
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1994 (Highland View Manor, Inc. Project):
1,500,000 7.200%, 11/01/10 11/04 at 102 AAA 1,733,730
4,200,000 7.500%, 11/01/16 11/04 at 102 AAA 4,907,406
State of Connecticut Health and Educational Facilities
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1994 (Wadsworth Glen Health Care Center Project):
1,100,000 7.200%, 11/01/10 11/04 at 102 AAA 1,271,402
1,000,000 7.500%, 11/01/16 11/04 at 102 AAA 1,168,430
2,000,000 State of Connecticut Health and Educational Facilities 11/04 at 102 AAA 2,300,640
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1994, AHF/Hartford, Inc. Project, 7.125%, 11/01/24
4,115,000 State of Connecticut Health and Educational Facilities 11/06 at 102 AA- 4,318,981
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1996 (Abbott Terrace Health Center Project),
5.750%, 11/01/13
4,365,000 State of Connecticut Health and Educational Facilities 11/06 at 102 AA- 4,769,461
Authority, Revenue Bonds, Nursing Home Program Issue,
Series 1996 (3030 Park Fairfield Health Center Project),
6.250%, 11/01/21
1,150,000 State of Connecticut Special Tax Obligation Bonds, No Opt. Call AA- 1,305,354
Transportation Infrastructure Purposes, 1992 Series B,
6.125%, 9/01/12
2,000,000 Puerto Rico Aqueduct and Sewer Authority, Refunding Bonds, 7/06 at 101 1/2 A 1,948,660
Series 1995, Guaranteed by the Commonwealth of Puerto
Rico, 5.000%, 7/01/19
3,500,000 Puerto Rico Public Buildings Authority, Government Facilities 7/07 at 101 1/2 AAA 3,441,550
Revenue Bonds, Series B, Guaranteed by the Commonwealth of
Puerto Rico, 5.000%, 7/01/27
- ----------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 8.7%
3,140,000 State of Connecticut Health and Educational Facilities Authority, 7/03 at 100 AAA 3,629,903
Revenue Bonds, University of Hartford Issue, Series C,
8.000%, 7/01/18 (Pre-refunded to 7/01/03)
100,000 State of Connecticut Health and Educational Facilities Authority, 7/98 at 102 Aaa 103,352
St. Mary's Hospital Issue, Revenue Bonds, Series B, 7.600%,
7/01/03 (Pre-refunded to 7/01/98)
1,300,000 State of Connecticut Health and Educational Facilities Authority, No Opt. Call AAA 1,627,990
Revenue Bonds, Lutheran General Health Care System (Parkside
Lodges Projects), 7.375%, 7/01/19
1,000,000 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 N/R*** 1,093,790
Revenue Bonds, The Taft School Issue, Series A, 7.375%,
7/01/20 (Pre-refunded to 7/01/00)
190,000 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 Aaa 207,955
Revenue Bonds, St. MaryOs Hospital Issue, Series C, 7.375%,
7/01/20 (Pre-refunded to 7/01/00)
5,500,000 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 AAA 5,990,105
Revenue Bonds, Yale-New Haven Hospital Issue, Series F,
7.100%, 7/01/25 (Pre-refunded to 7/01/00)
180,000 State of Connecticut Health and Educational Facilities Authority, 1/01 at 102 AAA 197,509
Revenue Bonds, Capital Asset Issue, Series C, 7.000%, 1/01/20
(Pre-refunded to 1/01/01)
1,605,000 City of New Haven, Connecticut, General Obligation Bonds, Issue of 8/01 at 102 AAA 1,802,672
1991, 7.400%, 8/15/11 (Pre-refunded to 8/15/01)
City of New Haven, Connecticut, General Obligation Bonds, Issue of
1992:
800,000 9.250%, 3/01/02 No Opt. Call AAA 876,368
1,000,000 7.400%, 3/01/12 (Pre-refunded to 3/01/02) 3/02 at 102 AAA 1,135,310
</TABLE>
10
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship Connecticut - continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed-continued
$1,130,000 Town of Stratford, Connecticut, General Obligation Bonds, 3/01 at 102 N/R *** $ 1,250,831
7.300%, 3/01/12 (Pre-refunded to 3/01/01)
City of Waterbury, Connecticut, General Obligation Bonds:
535,000 7.250%, 3/01/02 (Pre-refunded to 3/01/01) 3/01 at 102 N/R *** 591,459
785,000 7.300%, 3/01/05 (Pre-refunded to 3/01/01) 3/01 at 102 N/R *** 868,940
780,000 7.400%, 3/01/06 (Pre-refunded to 3/01/01) 3/01 at 102 N/R *** 865,597
- --------------------------------------------------------------------------------------------------------------------------
Utilities - 13.9%
8,000,000 Bristol Resource Recovery Facility Operating Committee, 7/05 at 102 A 8,816,320
Solid Waste Revenue Refunding Bonds (Ogden Martin Systems
of Bristol, Inc. Project - 1995 Series), 6.500%, 7/01/14
Connecticut Resources Recovery Authority, Bridgeport Resco
Company, L.P. Project Bonds, Series A:
170,000 7.500%, 1/01/04 1/03 at 100 A 174,755
3,085,000 7.625%, 1/01/09 1/03 at 100 A 3,202,539
1,180,000 Connecticut Resources Recovery Authority, Resource Recovery
Revenue Bonds (Wallingsford Resource Recovery Project, 1986
Series A), 7.125%, 11/15/08 11/00 at 100 AA 1,203,624
Connecticut Resources Recovery Authority, 1991 Series One
Subordinated (Wallingsford Resource Recovery Project):
400,000 6.750%, 11/15/03 11/01 at 102 A 432,720
500,000 6.800%, 11/15/04 11/01 at 102 A 539,889
5,250,000 Connecticut Resources Recovery Authority, Corporate Credit 11/02 at 102 A 5,632,514
Bonds/Tax Exempt Interest (American REF-FUEL Company
of Southeastern Connecticut Project), 1992
Series A, 6.450%, 11/15/22
770,000 Connecticut Development Authority, Water Facilities Refunding 6/00 at 102 A+ 826,355
Revenue Bonds (Bridgeport Hydraulic Company Project - 1990
Series), 7.250%, 6/01/20
1,750,000 Connecticut Development Authority, Water Facilities Revenue 4/07 at 102 A+ 1,888,442
Bonds (Bridgeport Hydraulic Company Project - 1995 Series),
6.150%, 4/01/35
9,665,000 Eastern Connecticut Resource Recovery Authority, Solid Waste 1/03 at 102 BBB 9,603,530
Revenue Bonds (Wheelbrator Lisbon Project), Series 1993A,
5.500%, 1/01/20
- --------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 1.4%
2,000,000 Connecticut Development Authority, Water Facilities Revenue 12/03 at 102 AAA 2,255,759
Refunding Bonds (The Connecticut Water Company Project - 1993
Series), 6.650%, 12/15/20
1,000,000 State of Connecticut, Clean Water Fund Revenue Bonds, 1991 1/01 at 102 AAA 1,090,619
Series, 7.000%, 1/01/11
- --------------------------------------------------------------------------------------------------------------------------
$217,510,000 Total Investments - (cost $210,612,746) - 98.8% 229,549,651
============--------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.2% 2,774,858
-----------------------------------------------------------------------------------------------------------
Net Assets - 100% $232,324,509
===========================================================================================================
</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 and Poor's or
Moody's rating.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities, which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
N/R-Investment is not rated.
See accompanying notes to financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
February 28, 1998
Nuveen Flagship Connecticut
- ------------------------------------------------------------------------------------------------
<S> <C>
Assets
Investments in municipal securities, at market value (note 1) $229,549,651
Receivables:
Interest 3,569,242
Investments sold 200,000
Shares sold 348,138
Other assets 52,433
- ------------------------------------------------------------------------------------------------
Total assets 233,719,464
- ------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 157,086
Payable for shares redeemed 150,205
Accrued expenses:
Management fees (note 6) 72,304
12b-1 distribution and service fees (notes 1 and 6) 42,265
Other 24,211
Dividends payable 948,884
- ------------------------------------------------------------------------------------------------
Total liabilities 1,394,955
- ------------------------------------------------------------------------------------------------
Net assets (note 7) $232,324,509
================================================================================================
Class A Shares (note 1)
Net assets $216,436,115
Shares outstanding 19,955,801
Net asset value and redemption price per share $ 10.85
Offering price per share (net asset value per share plus maximum sales charge
of 4.20% of offering price) $ 11.33
================================================================================================
Class B Shares (note 1)
Net assets $ 3,712,565
Shares outstanding 342,894
Net asset value, offering and redemption price per share $ 10.83
================================================================================================
Class C Shares (note 1)
Net assets $ 11,586,314
Shares outstanding 1,070,297
Net asset value, offering and redemption price per share $ 10.83
================================================================================================
Class R Shares (note 1)
Net assets $ 589,515
Shares outstanding 54,226
Net asset value, offering and redemption price per share $ 10.87
================================================================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended February 28, 1998
Nuveen Flagship Connecticut
- -----------------------------------------------------------------------------------
<S> <C>
Investment Income
Tax-exempt interest income (note 1) $13,265,509
- -----------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,204,411
12b-1 service fees - Class A (notes 1 and 6) 420,815
12b-1 distribution and service fees - Class B (notes 1 and 6) 13,123
12b-1 distribution and service fees - Class C (notes 1 and 6) 67,747
Shareholders' servicing agent fees and expenses 106,835
Custodian's fees and expenses 55,952
Trustees' fees and expenses (note 6) 4,183
Professional fees 20,884
Shareholders' reports - printing and mailing expenses 40,291
Federal and state registration fees 1,454
Other expenses 11,316
- -----------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,947,011
Expense reimbursement (note 6) (171,361)
- -----------------------------------------------------------------------------------
Net expenses 1,775,650
- -----------------------------------------------------------------------------------
Net investment income 11,489,859
- -----------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 189,964
Net change in unrealized appreciation or depreciation of investments 6,726,949
- -----------------------------------------------------------------------------------
Net gain from investments 6,916,913
- -----------------------------------------------------------------------------------
Net increase in net assets from operations $18,406,772
===================================================================================
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship
Flagship Connecticut Connecticut
---------------------------------------------------------
Year ended Nine months Year ended
2/28/98 ended 2/28/97* 5/31/96
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operations
Net investment income $ 11,489,859 $ 8,632,172 $ 11,632,542
Net realized gain from investment
transactions (notes 1 and 4) 189,964 576,956 951,483
Net change in unrealized appreciation
or depreciation of investments 6,726,949 5,149,171 (3,913,226)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 18,406,772 14,358,299 8,670,799
- -------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (10,989,264) (8,367,067) (11,371,201)
Class B (59,967) (76) N/A
Class C (419,099) (258,509) (327,137)
Class R (17,894) -- N/A
- -------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (11,486,224) (8,625,652) (11,698,338)
- -------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from sale of shares 25,394,964 13,422,621 17,698,654
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 6,417,815 4,748,942 6,666,728
- -------------------------------------------------------------------------------------------------------------------------
31,812,779 18,171,563 24,365,382
- -------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (23,469,546) (16,305,341) (20,622,363)
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from
Fund share transactions 8,343,233 1,866,222 3,743,019
- -------------------------------------------------------------------------------------------------------------------------
Net increase in net assets 15,263,781 7,598,869 715,480
Net assets at the beginning of year 217,060,728 209,461,859 208,746,379
- -------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $232,324,509 $217,060,728 $209,461,859
=========================================================================================================================
Balance of undistributed net investment
income at end of year $ 10,155 $ 6,520 $ --
=========================================================================================================================
</TABLE>
* Information represents eight months of Flagship Connecticut and
one month of Nuveen Flagship Connecticut (see note 1).
N/A -- Flagship Connecticut was not authorized to issue Class B or
Class R Shares.
See accompanying notes to financial statements.
14
<PAGE>
Notes to Financial Statements
February 28, 1998
Nuveen Flagship Connecticut
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 ("Nuveen"), 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 ("Nuveen Flagship
Connecticut"). 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 tax-free income and preservation of capital
through investments in a diversified portfolio of quality municipal bonds.
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 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 valued at amortized
cost, which approximates market value.
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 have extended settlement periods. 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 the when-issued and delayed delivery purchase commitments. At
February 28, 1998, the Fund had no such outstanding 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.
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
on the first business day after month-end. Net realized capital gains and/or
market discount from investment transactions, if any, are distributed
to shareholders not less frequently than annually. Furthermore, capital gains
are distributed only to the extent they exceed available capital loss
carryforwards.
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
The Fund is a separate taxpayer for federal income tax purposes. The 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 Fund
currently considers significant net realized capital gains
15
<PAGE>
Notes to Financial Statements - continued
February 28, 1998
Nuveen Flagship Connecticut
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 fiscal year ended February 28,
1998, have been designated Exempt Interest Dividends. Net realized capital gain
and market discount distributions are subject to federal taxation.
Flexible Sales Charge Program
The Fund offers Class A, B, C and R Shares. Class A Shares are sold with a sales
charge and incur an annual 12b-1 service fee. Class A Share purchases of $1
million or more are sold at net asset value without an up-front sales charge but
may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge 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 one year of purchase. Class R Shares are
not subject to any sales charge 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, option contracts, and other financial instruments with
similar characteristics. 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 fiscal year ended February 28, 1998.
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, which presently only
includes 12b-1 distribution and service fees, 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.
16
<PAGE>
Notes to Financial Statements -- continued
February 28, 1998
Nuveen Flagship Connecticut
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Flagship
Connecticut Connecticut
---------------------------------------------------------------------------------
Year ended Nine months Year ended
2/28/98 ended 2/28/97* 5/31/96
---------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A 1,537,629 $ 16,474,829 1,140,128 $ 11,872,759 1,453,108 $ 15,066,282
Class B 339,187 3,623,542 9,669 102,050 N/A N/A
Class C 444,025 4,723,004 139,474 1,447,762 253,267 2,632,372
Class R 53,941 573,589 5 50 N/A N/A
Shares issued to shareholders due to
reinvestment of distributions:
Class A 578,075 6,132,935 442,768 4,597,336 624,317 6,491,833
Class B 2,614 28,078 -- -- N/A N/A
Class C 23,910 253,777 14,628 151,606 16,838 174,895
Class R 280 3,025 -- -- N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
2,979,661 31,812,779 1,746,672 18,171,563 2,347,530 24,365,382
- ----------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,133,260) (22,598,891) (1,378,317) (14,350,628) (1,889,024) (19,630,307)
Class B (8,576) (93,295) -- -- N/A N/A
Class C (72,981) (777,360) (187,749) (1,954,713) (95,257) (992,056)
Class R -- -- -- -- N/A N/A
- ----------------------------------------------------------------------------------------------------------------------------------
(2,214,817) (23,469,546) (1,566,066) (16,305,341) (1,984,281) (20,622,363)
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase 764,844 $ 8,343,233 180,606 $ 1,866,222 363,249 $ 3,743,019
==================================================================================================================================
</TABLE>
*Information represents eight months of Flagship Connecticut and one month of
Nuveen Flagship Connecticut (see note 1).
N/A -- Flagship Connecticut was not authorized to issue Class B or Class R
Shares.
3. Distribution to Shareholders
On March 9, 1998, the Fund declared dividend distributions from its tax-exempt
net investment income which were paid on April 1, 1998, to shareholders of
record on March 9, 1998, as follows:
----------------------------------------------------------
Dividends per share:
Class A $ .0450
Class B .0385
Class C .0400
Class R .0470
==========================================================
4. Securities Transactions
Purchases and sales (including maturities) of investments in municipal
securities for the fiscal year ended February 28, 1998, aggregated $32,985,810
and $25,769,793, respectively. Purchases and sales (including maturities) of
temporary municipal investments for the fiscal year ended February 28, 1998,
aggregated $9,000,000 and $9,000,000, respectively.
At February 28, 1998, the identified cost of investments owned for federal
income tax purposes was the same as the cost for financial reporting purposes.
17
<PAGE>
At February 28, 1998, the Fund had an unused capital loss carryforward of
$848,744 available for federal income tax purposes to be applied against future
capital gains, if any. If not applied, the carryforward will expire in the year
2003.
5. Unrealized Appreciation (Depreciation)
At February 28, 1998, net unrealized appreciation aggregated $18,936,905, of
which $19,038,568 related to appreciated securities and $101,663 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:
<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 management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of 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 or its affiliates.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended February 28, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $504,400 of which
approximately $443,300 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, 1998, the Distributor compensated
authorized dealers directly with approximately $199,300 in commission advances
at the time of purchase. To compensate for commissions advanced to authorized
dealers, 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. For the fiscal
year ended February 28, 1998, the Distributor retained approximately $39,600 in
such 12b-1 fees. The remaining 12b-1 fees charged to the Fund were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments. The distributor also collected and retained approximately
$1,800 of CDSC on share redemptions during the fiscal year ended February 28,
1998.
7. Composition of Net Assets
At February 28, 1998, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
<S> <C>
----------------------------------------------------------------------------------
Capital paid-in $214,226,193
Balance of undistributed net investment income 10,155
Accumulated net realized gain (loss) from investment transactions (848,744)
Net unrealized appreciation of investments 18,936,905
----------------------------------------------------------------------------------
Net assets $232,324,509
==================================================================================
</TABLE>
18
<PAGE>
Financial Highlights
Nuveen Flagship Connecticut
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) 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
Year ended beginning investment from investment from capital end of asset
February 28/29, of period income(a) investments income gains period value(b)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (7/87)**
1998 $10.51 $.56 $ .34 $ (.56) $ -- $10.85 8.75%
1997 (c) 10.23 .42 .28 (.42) -- 10.51 6.96
1996 (d) 10.38 .57 (.14) (.58) -- 10.23 4.18
1995 (d) 10.17 .58 .22 (.59) -- 10.38 8.21
1994 (d) 10.66 .59 (.39) (.60) (.09) 10.17 1.70
1993 (d) 10.05 .61 .61 (.61) -- 10.66 12.48
1992 (d) 9.84 .63 .21 (.63) -- 10.05 8.81
1991 (d) 9.64 .63 .20 (.63) -- 9.84 8.97
1990 (d) 9.78 .63 (.13) (.63) (.01) 9.64 5.34
1989 (d) 9.25 .63 .55 (.64) (.01) 9.78 13.36
CLASS B (2/97)
1998 10.51 .48 .32 (.48) -- 10.83 7.76
1997 (e) 10.53 .04 (.02) (.04) -- 10.51 .19
CLASS C (10/93)**
1998 10.49 .50 .34 (.50) -- 10.83 8.17
1997 (c) 10.22 .38 .27 (.38) -- 10.49 6.43
1996 (d) 10.36 .52 (.14) (.52) -- 10.22 3.71
1995 (d) 10.16 .53 .20 (.53) -- 10.36 7.53
1994 (f) 11.06 .33 (.84) (.33) (.06) 10.16 (6.48)*
CLASS R (2/97)
1998 10.51 .58 .36 (.58) -- 10.87 9.17
1997 (e) 10.55 .01 (.05) -- -- 10.51 (.38)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the nine months ended February 28, 1997,
reflects the financial highlights of Flagship Connecticut.
(a) After waiver of certain management fees or reimbursement of expenses,
if applicable, by Nuveen Advisory or its predecessor Flagship
Financial.
(b) Total returns are calculated on net asset value without any sales
charge and are not annualized except where noted.
(c) For the nine months ended February 28.
(d) For the fiscal year ended May 31.
(e) From commencement of class operations as noted.
(f) From commencement of class operations as noted through May 31.
19
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental data
- ---------------------------------------------------------------------------------------------------------------------
Ratio of net Ratio of net
Ratio of investment Ratio of investment
expenses to income to expenses to income to
Net assets average net average net average net average net
end of period assets before assets before assets after assets after Portfolio
(in thousands) reimbursement reimbursement reimbursement (a) reimbursement (a) turnover rate
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$216,436 .85% 5.15% .78% 5.22% 12%
209,873 1.02* 5.18* .79* 5.41* 20
202,219 1.03 5.23 .74 5.52 24
203,210 1.03 5.54 .73 5.84 25
202,607 1.03 5.14 .65 5.52 30
184,743 1.04 5.50 .66 5.88 19
141,215 1.05 5.90 .65 6.30 18
103,552 1.07 6.09 .67 6.49 19
73,046 1.07 6.08 .60 6.55 31
48,990 1.17 6.15 .70 6.62 33
3,713 1.61 4.34 1.52 4.43 12
102 1.59* 6.61* 1.12* 7.08* 20
11,586 1.41 4.59 1.33 4.67 12
7,087 1.57* 4.65* 1.34* 4.88* 20
7,243 1.58 4.67 1.29 4.96 24
5,536 1.58 4.97 1.28 5.27 25
4,360 1.77* 4.22* 1.22* 4.77* 30
590 .66 5.29 .57 5.38 12
-- -- 10.97* -- 10.97* 20
====================================================================================================================
</TABLE>
20
<PAGE>
Building Better Portfolios with Nuveen
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
Mutual Funds
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
Unit Trusts
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred(R)
Nuveen MuniPreferred offers investors a AAA-rated investment with an
attractive tax-free yield for the cash reserves portion of an investment
portfolio. MuniPreferred shares are backed 2-to-1 by the long-term portfolios of
Nuveen dual-class exchange-traded funds and are available for national as well
as a wide variety of state-specific portfolios.
Nuveen Family
of Mutual Funds
Nuveen offers a variety
of funds designed
to help you reach
your financial goals.
Growth
Nuveen Rittenhouse Growth Fund
Growth
and Income
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free
Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
21
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
Boston Financial Data Services
Nuveen Investor Services
P.O. Box 8509
Boston, MA 02266-8509
(800) 225-8530
Legal Counsel
Fried, Frank, Harris,
Shriver & Jacobson
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
22
<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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 225-8530 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
OUR SECOND CENTURY 1898/1998
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com VAN-CT-2.98
<PAGE>
NUVEEN
MUNICIPAL
BONDS FUNDS
FEBRUARY 28, 1998
ANNUAL REPORT
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
[PHOTO APPEARS HERE]
MASSACHUSETTS
MASSACHUSETTS
INSURED
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
DEAR SHAREHOLDER
Wealth takes a lifetime to build. Once achieved, it should be preserved.
Over the past 12 months, the Nuveen Massachusetts Municipal Bond Funds continued
to reward investors with consistent dividends and attractive returns. For the
year ended February 28, 1998, the Massachusetts Fund's Class A shares posted a
total return on net asset value of 7.38%. The Massachusetts Insured Fund
generated a total return on net asset value for Class A shares of 7.04%.
Both funds continued to provide competitive after-tax yields and steady or
increasing dividends. As of February 28, 1998, the Massachusetts Fund was
generating a yield on net asset value of 3.96% for Class A shares, which is
equivalent to an after-tax yield of 6.52% for investors in the 39.3% combined
federal and state income tax bracket. The Massachusetts Insured Fund provided a
yield on net asset value of 3.58% for Class A shares, equaling an after-tax
yield of 5.90% for investors in the 39.3% combined federal and state tax
bracket.
THE YEAR IN REVIEW
Over the past year, the bond market enjoyed a period of solid performance, as
the benign inflationary environment provided the ideal backdrop for fixed-income
investments, including municipal issues. A shrinking federal deficit and the
inactivity of the Federal Reserve, which has been on hold since its last
interest rate increase in March 1997, also contributed to the positive
environment for bonds.
Between the end of February 1997 and February 1998, the yield on 30-year
Treasury bonds dropped from 6.80% to 5.92%, and the municipal market followed
suit, as the yield on the Bond Buyer 40 declined from 5.76% to 5.24%. The
relatively tight spread between tax-free municipal bond yields and taxable
Treasury bond yields, combined with municipals' comparatively low volatility and
dependable tax-free income, continue to make these investments an attractive
opportunity.
____
1
<PAGE>
"With their focus on consistent performance and moderated risk, Nuveen funds can
be ideal for investors who want to build and sustain long-term financial
security."
MEETING INVESTOR NEEDS
The stable income stream and attractive returns detailed on the following pages
demonstrate that the Nuveen Massachusetts Municipal Bond Funds have continued to
successfully pursue their investment objectives. In today's market environment,
many investors are seeking conservatively managed investments that enable them
to strike the proper balance between risk and reward in their portfolios. With
their focus on consistent performance and moderated risk, Nuveen funds can be
ideal for investors who want to build and sustain long-term financial security.
BUILDING BETTER PORTFOLIOS
As you review the performance of your fund and discuss the results with your
financial adviser, we hope that you continue to think of Nuveen when seeking
quality investment solutions. Your adviser can introduce you to a variety of
other Nuveen products and services designed to round out your portfolio of core
investments. This includes the new Nuveen Rittenhouse Growth Fund, a blue chip
equity mutual fund that provides a tax-efficient approach to building and
sustaining wealth. We encourage you to talk to your financial adviser about our
additional products and services to determine those that can best complement
your current Nuveen investments.
On behalf of everyone at Nuveen, I thank you for your continued confidence in us
and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 15, 1998
____
2
<PAGE>
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUNDS
PORTFOLIO MANAGER'S COMMENTS
PORTFOLIO MANAGER STEVE PETERSON DISCUSSES THE PERFORMANCE OF THE MASSACHUSETTS
MUNICIPAL BOND FUNDS, THE MASSACHUSETTS MUNICIPAL MARKET, AND KEY INVESTMENT
STRATEGIES.
PERFORMANCE REVIEW
Municipal new issue and refunding activity took off in 1997, totaling $220
billion nationally by year-end the third largest volume ever. In addition to
heavy national supply, the Massachusetts market also experienced a heavy supply
of municipal bonds over the past year, particularly in the health care sector.
Although demand has remained stable in the state, it has not been sufficient to
catch up to the overwhelming supply.
As Tim mentioned in his letter to shareholders, the Massachusetts Fund provided
Class A shareholders with an annualized total return on net asset value of 7.38%
for the period ended February 28, 1998. This is equivalent to a return of 10.88%
on an after-tax basis for shareholders in the combined 39.3% federal and state
tax bracket. The return on net asset value for the Massachusetts Insured Fund's
Class A shares was 7.04%, equaling a taxable equivalent return of 10.38% for
shareholders in the same tax bracket. The performance of the funds' dividends in
this market environment has been outstanding, given that interest rates have
continually declined over the year. Both funds' Class A Shares have maintained
steady or increasing dividends for extended periods (24 months for the
Massachusetts Fund and 32 months for the Massachusetts Insured Fund).
A large percentage of both portfolios has been pre-refunded and escrowed with
U.S. Treasury securities, providing price stability and enhanced credit quality.
For the Massachusetts Fund, 34 percent of the portfolio was pre-refunded during
the year; for the Massachusetts Insured Fund, 22 percent was pre-refunded.
However, since pre-refunding also means the portfolio is less affected by
interest rate movements, the fund was less able to participate fully in the
market rally as interest rates fell.
The performance of the Massachusetts municipal bond funds continues to be
influenced by the funds' shorter durations. Duration measures a fund's price
volatility, or reaction to interest rate movements. In a year that saw municipal
bond yields, as measured by the Bond Buyer 40, fall more than 50 basis points,
longer duration funds are more sensitive to interest rate movements both on the
upside, and on the downside. Therefore, funds with longer duration bonds
appreciate more in value in declining rate environments, but are penalized more
during periods of rising interest rates.
Both of the Massachusetts funds maintained comparatively short durations. The
Massachusetts Fund had an average weighted duration for the period of 4.84
years, and the Massachusetts Insured Fund's duration was 4.74 years. When
compared with the average duration of the benchmark Lehman Brothers Municipal
Bond Index of 7.20 years, it is apparent that the Massachusetts funds will be
significantly impacted by their shorter durations. While the funds are well-
cushioned from market volatility and are less sensitive to interest rate
changes, the declining interest rate environment hampered the relative total
return performance of these short-duration funds.
____
3
<PAGE>
"In the coming months, we will continue to manage the funds by focusing on the
selection of undervalued securities."
STATE GROWTH CONTINUES
The state's rebounding economy and stronger financial position led to upgrades
for the state's general obligation debt during the last 12 months. Employment
growth in the areas of health care, construction, research, and computer and
business services has driven the state's economic growth. The combination of
better-than-expected tax collections and under-budget expenditures has allowed
the state to strengthen its cash and reserve positions. With already high debt
levels and the uncertainty of timing and availability of future federal highway
funding for the $11 billion Central Artery/Ted Williams Tunnel Project, the
commonwealth will remain challenged in managing its capital needs.
The process of mergers and affiliations of Massachusetts hospitals continues,
resulting in a number of refundings of hospital bonds this year. In the wake of
electric utility deregulation, a consumer group was successful in getting a
sufficient number of signatures to have the repeal of the retail competition
bill placed on the November 1998 ballot. Although municipal utilities are exempt
from this legislation, they have the option of participating in order to seek a
larger customer base.
FINDING VALUE IN TODAY'S MARKET
Over the past year we focused on enhancing the credit quality of the funds. With
credit spreads at historically tight levels, we felt that the funds were not
adequately compensated for taking on the additional risk of lower-rated bonds.
In managing for the longer-term, we feel that as credit spreads widen again, the
higher-rated bonds will appreciate or better maintain their value relative to
lower-rated bonds. By foregoing a small amount of incremental yield in the near-
term by choosing AAA-rated bonds, we anticipate solid price appreciation for
these higher credits in the future.
We also took advantage of the resources of Nuveen's outstanding research staff
to carefully select those bonds that we felt had the potential to be pre-
refunded by their issuers. In an advance refunding, a bond issue is essentially
repaid early and becomes secured by U.S. government or agency securities until
it can be called by the issuer. When bonds in the funds are pre-refunded and
become backed by Treasury bonds, the credit quality and stability of the funds
can improve significantly.
STRATEGIES FOR THE FUTURE
In the coming months, we will continue to manage the funds by focusing on the
selection of under-valued securities that provide attractive income and the
opportunity for price appreciation relative to the market, while maintaining our
objective of high after-tax total return. To achieve these goals, we will
continue to utilize Nuveen's research team to seek out bonds that we believe may
be pre-refunded in the future. We will also look for bonds that compensate the
fund well for taking on additional risk, including housing bonds and AMT bonds,
which are currently out of favor with the overall market. Finally, with the
volatile supply levels in the state, we plan to take advantage of any heavy
supply periods that might temporarily depress bond prices.
____
4
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
Performance Overview
As of February 28, 1998
- ----------------------------------------
12-Month Dividends Class A Shares)
- ----------------------------------------
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
M 0.0425
A 0.0435
M 0.0435
J 0.0435
J 0.0435
A 0.0435
S 0.0435
O 0.0435
N 0.0435
D 0.0435
J 0.0435
F 0.0435
</TABLE>
<TABLE>
- ----------------------------------------
Top 5 Sectors
- ----------------------------------------
<S> <C>
U.S. Guaranteed 39%
Multifamily Housing 15%
Health Care 13%
Tax Obligation (General) 13%
Education and Civic Organizations 9%
- ----------------------------------------
</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 return figures. Class B shares automatically convert to
Class A shares eight years after purchase. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 39.3%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A shares, performance
reflects Class R share performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Statistics
- --------------------------------------------------------------------------------
SHARE CLASS A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 10/94 12/86
Net Asset Value 10.08 $10.10 $10.02 $ 10.05
Fund Net Assets ($000) $84,912
Average Weighted Maturity (Years) 20.35
Average Weighted Duration (Years) 4.84
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Total Return/1/
- --------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
1-Year 7.38% 2.91% 6.82% 6.85% 7.60%
5-Year 5.77% 4.88% 5.01% 4.98% 5.96%
10-Year 7.54% 7.08% 6.92% 6.74% 7.78%
Since Inception 6.49% 6.08% 5.93% 5.69% 6.73%
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Tax-Free Yields
- --------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
Distribution Rate 5.18% 4.96% 4.46% 4.67% 5.37%
SEC 30-Day Yield 3.96% 3.79% 3.21% 3.41% 4.16%
Taxable Equivalent Yield/2/ 6.52% 6.24% 5.29% 5.62% 6.85%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Index Comparison/3/
- --------------------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Nuveen MA Nuveen MA
Municipal Bond Municipal Bond Municipal Bond
Date Index Fund (NAV) Fund (Offer)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
February 1988 $10,000.00 $10,000.00 $ 9,580.00
February 1989 10,620.34 10,673.97 10,225.66
February 1990 11,708.95 11,561.42 11,075.84
February 1991 12,788.46 12,460.12 11,936.80
February 1992 14,066.52 13,722.16 13,145.83
February 1993 16,002.67 15,633.38 14,976.78
February 1994 16,887.10 16,523.36 15,829.38
February 1995 17,205.76 16,786.30 16,081.27
February 1996 19,107.08 18,397.65 17,624.95
February 1997 20,331.95 19,270.84 18,461.46
February 1998 22,192.00 20,694.00 19,824.00
- --------------------------------------------------------------------------------
</TABLE>
- -- Lehman Brothers Municipal Bond Index - $22,192
- -- Nuveen Massachusetts Municipal Bond Fund (NAV) - $20,694
- -- Nuveen Massachusetts Municipal Bond Fund (Offer) - $19,824
Past results are not predictive of future performance.
_____
5
<PAGE>
Nuveen Massachusetts Insured Municipal Bond Fund
Performance Overview
As of February 28, 1998
- -------------------------------------------
12-Month Dividends (Class A Shares)
- -------------------------------------------
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
<S> <C>
March 0.0435
April 0.0435
May 0.0435
June 0.0435
July 0.0435
August 0.0435
September 0.0435
October 0.0435
November 0.0435
December 0.0435
January 0.0435
February 0.0435
- -------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------
Top 5 Sectors
- -------------------------------------------
<S> <C>
U.S. Guaranteed 25%
Tax Obligation (General) 22%
Education and Civic Organizations 18%
Health Care 14%
Multifamily Housing 14%
- -------------------------------------------
</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 return figures. Class B shares automatically convert to
Class A shares eight years after purchase. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 39.3%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A shares, performance
reflects Class R share performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Portfolio Statistics
- --------------------------------------------------------------------------------
SHARE CLASS A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 3/97 9/94 12/86
Net Asset Value $10.57 $10.57 $10.54 $ 10.57
Fund Net Assets ($000) $67,344
Average Weighted Maturity (Years) 19.88
Average Weighted Duration (Years) 4.74
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Annualized Total Return/1/
- --------------------------------------------------------------------------------
SHARE CLASS A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
1-Year 7.04% 2.50% 6.25% 6.45% 7.23%
5-Year 5.38% 4.48% 4.64% 4.64% 5.64%
10-Year 7.24% 6.77% 6.65% 6.46% 7.50%
Since Inception 6.59% 6.19% 6.05% 5.81% 6.86%
- --------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------
Tax-Free Yields
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
Distribution Rate 4.94% 4.73% 4.20% 4.38% 5.11%
SEC 30-Day Yield 3.58% 3.43% 2.83% 3.03% 3.78%
Taxable Equivalent Yield/2/ 5.90% 5.65% 4.66% 4.99% 6.23%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Index Comparison/3/
- --------------------------------------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
Lehman Brothers Nuveen MA Nuveen MA
Municipal Bond Municipal Bond Municipal Bond
Date Index Fund (NAV) Fund (Offer)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
February 1988 $10,000.00 $10,000.00 $ 9,580.00
February 1989 10,620.34 10,559.20 10,115.71
February 1990 11,708.95 11,431.59 10,951.47
February 1991 12,788.46 12,420.39 11,898.73
February 1992 14,066.52 13,573.08 13,003.01
February 1993 16,002.67 15,473.43 14,823.54
February 1994 16,887.10 16,244.41 15,562.14
February 1995 17,205.76 16,481.70 15,789.47
February 1996 19,107.08 18,059.29 17,300.80
February 1997 20,331.95 18,785.35 17,996.37
February 1998 22,191.00 20,694.00 19,824.00
- --------------------------------------------------------------------------------
</TABLE>
- -- Lehman Brothers Municipal Bond Index - $22,192
- -- Nuveen Massachusetts Municipal Bond Fund (NAV) - $20,694
- -- Nuveen Massachusetts Municipal Bond Fund (Offer) - $19,824
Past results are not predictive of future performance.
-----
6
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
MASSACHUSETTS
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS - 8.9%
Massachusetts Education Loan Authority, Education Loan Revenue
Bonds, Issue C, Series 1985A:
$ 145,000 7.875%, 6/01/03 6/98 at 101 1/2 AAA $ 148,236
1,080,000 7.875%, 6/01/03 6/00 at 100 AAA 1,112,130
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/01 at 102 Aaa 1,089,640
Revenue Bonds, Boston College Issue, Series J, 6.625%, 7/01/21
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/02 at 102 AAA 1,093,670
Revenue Bonds, Suffolk University Issue, Series B, 6.350%, 7/01/22
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds 7/03 at 102 Aa2 494,435
(Whitehead Institute for Biomedical Research 1993
Issue), 5.125%, 7/01/26
2,290,000 Massachusetts Industrial Finance Agency, Revenue and Refunding 7/05 at 102 AAA 2,559,877
Bonds, 1995 Series A (Lesley College Project), 6.300%, 7/01/25
1,000,000 Massachusetts Industrial Finance Agency, Revenue Bonds 3/06 at 102 Aaa 1,033,430
(College of the Holy Cross 1996 Issue), 5.500%, 3/01/20
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 13.0%
500,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 1/2 N/R 534,400
Revenue Bonds, Series 1989 (Cardinal Cushing General Hospital),
8.875%, 7/01/18
495,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 101 A 506,425
Revenue Bonds, Brockton Hospital Issue, Series B, 8.000%, 7/01/07
250,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 102 Aaa 270,845
Revenue Bonds, University Hospital Issue, Series C, 7.250%, 7/01/10
750,000 Massachusetts Health and Educational Facilities Authority, 7/02 at 102 Aaa 826,755
Revenue Bonds, New England Medical Center Hospitals Issue,
Series F, 6.625%, 7/01/25
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/03 at 102 Aaa 1,037,330
Revenue Bonds, Lahey Clinic Medical Center Issue, Series B,
5.625%, 7/01/15
700,000 Massachusetts Health and Educational Facilities Authority, 7/04 at 102 AA+ 755,573
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 2,606,875
2,000,000 6.000%, 2/15/34 2/04 at 102 Aa 2,081,680
2,000,000 Massachusetts Health and Educational Facilities Authority, 5/08 at 102 Aaa 1,926,940
Catholic Health East, Revenue Bonds, Series 1998B, 5.000%, 11/15/28 (WI)
435,000 Massachusetts Industrial Finance Agency, Revenue Bonds (Sturdy 6/99 at 102 A 459,786
Memorial Hospital), Series 1989, 7.900%, 6/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY 14.7%
3,700,000 Massachusetts Housing Finance Agency, Housing Project Revenue 4/03 at 102 A1 3,914,526
Bonds, 6.375%, 4/01/21
1,000,000 Massachusetts Housing Finance Agency, Residential Development 11/02 at 102 Aaa 1,058,210
Bonds, 6.250%, 11/15/14
</TABLE>
____
7
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTIFAMILY - CONTINUED
$1,000,000 Massachusetts Housing Finance Agency, Residential Development 5/02 at 102 Aaa $1,078,300
Bonds, 1992 Series D, 6.875%, 11/15/21
1,000,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage 7/07 at 101 Aaa 1,012,050
Revenue Bonds, 1997 Series C, 5.625%, 7/01/40 (Alternative
Minimum Tax)
2,000,000 Massachusetts Industrial Finance Agency, Assisted Living 12/07 at 102 AAA 2,047,560
Facility Revenue Bonds (Arbors at Living Amherst Project),
GNMA Collateralized Series 1997, 5.950%, 6/20/39 (Alternative
Minimum Tax)
1,000,000 Massachusetts Industrial Finance Agency (FHAInsured Mortgage 1/08 at 102 Aaa 1,048,370
Loan), Hudner Associates Projects, 5.650%, 1/01/23
970,000 Boston-Mount Pleasant Housing Development Corporation, 8/02 at 102 AAA 1,029,529
Multifamily Housing Refunding Revenue Bonds, Series 1992 A,
6.750%, 8/01/23
1,250,000 Somerville Housing Authority, Mortgage Revenue Bonds, Series 5/00 at 102 AAA 1,324,338
1990 (GNMA Collateralized - Clarendon Hill Towers Project),
7.950%, 11/20/30
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 2.1%
500,000 Massachusetts Housing Finance Agency, Single Family Housing 6/01 at 102 Aa 530,965
Revenue Bonds, Series 18, 7.350%, 12/01/16
1,250,000 Massachusetts Housing Finance Agency, Single Family Housing 6/98 at 102 Aa 1,286,575
Revenue Bonds, Series 8, 7.700%, 6/01/17
- ------------------------------------------------------------------------------------------------------------------------------------
LONG TERM CARE - 6.6%
3,285,000 Massachusetts Health and Educational Facilities Authority, 2/07 at 102 Aa2 3,491,364
Revenue Refunding Bonds, Youville Hospital Issue (FHA Insured
Project), Series A, 6.250%, 2/15/41
885,000 Massachusetts Health and Educational Facilities Authority, 7/03 at 102 Aaa 940,994
Revenue Bonds,
Cable Housing and Health Services Issue, Series A, 5.625%, 7/01/13
1,125,000 Massachusetts Industrial Financial Agency, Revenue Bonds, 2/06 at 102 AAA 1,173,656
Heights Crossing
Limited Partnership Issue (FHA Insured Project), Series 1995,
6.000%, 2/01/15 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - 12.7%
City of Attleboro, Massachusetts, General Obligation Bonds:
450,000 6.250%, 1/15/10 1/03 at 102 A3 484,808
450,000 6.250%, 1/15/11 1/03 at 102 A3 482,769
Town of Barnstable, Massachusetts, General Obligation Bonds:
880,000 5.750%, 9/15/13 9/04 at 102 Aa3 936,769
490,000 5.750%, 9/15/14 9/04 at 102 Aa3 519,846
Town of Deerfield, Massachusetts, General Obligation School
Bonds of 1992, School Project Loan, Act of 1948, Unlimited Tax:
420,000 6.200%, 6/15/09 6/02 at 102 A1 458,682
415,000 6.250%, 6/15/10 6/02 at 102 A1 452,487
485,000 City of Holyoke, Massachusetts, General Obligation Bonds, 1991 No Opt. Call Baa 514,629
Series A, 8.000%, 6/01/01
500,000 City of Holyoke, Massachusetts, General Obligation School 8/01 at 102 Baa 564,815
Project Loan, Act of 1948, 7.650%, 8/01/09
</TABLE>
____
8
<PAGE>
Portfolio of Investments
February 28, 1998
Massachusetts continued
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/GENERAL - CONTINUED
$ 750,000 City of Holyoke, Massachusetts, General Obligation Refunding 11/02 at 102 Baa $ 832,350
Bonds, 7.000%, 11/01/08
545,000 City of Lowell, Massachusetts, General Obligation Refunding 12/01 at 103 Baa1 609,577
Bonds, 8.300%, 2/15/05
500,000 Town of Palmer, Massachusetts, General Obligation Refunding 10/03 at 102 Aaa 528,220
Bonds, 5.500%, 10/01/10
425,000 South Essex Sewerage District, Massachusetts, General No Opt. Call Baa1 480,458
Obligation Bonds, 9.000%, 12/01/00
City of Taunton, Massachusetts, General Obligation Bonds
(Electric Loan Act of 1969):
1,465,000 8.000%, 2/01/02 No Opt. Call A3 1,662,028
1,005,000 8.000%, 2/01/03 No Opt. Call A3 1,166,323
1,000,000 City of Worcester, Massachusetts, General Obligation Bonds, 8/02 at 102 BBB+ 1,077,880
6.000%, 8/01/04
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED 1.3%
930,000 Massachusetts Industrial Finance Agency, Library Revenue Bonds 1/05 at 102 Aaa 1,088,054
(Malden Public Library Project), Series 1994, 7.250%, 1/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED 38.8%
1,000,000 Massachusetts Bay Transportation Authority, General 3/01 at 102 Aaa 1,100,920
Transportation System Bonds, 1991 Series A, 7.000%,
3/01/11 (Pre-refunded to 3/01/01)
1,300,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 102 AAA 1,441,492
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 Authority, 7/98 at 102 Aaa 258,613
Revenue Bonds, Mount Auburn Hospital Issue, Series A, 7.875%,
7/01/18 (Pre-refunded to 7/01/98)
1,180,000 Massachusetts Health and Educational Facilities Authority, 7/00 at 101 1/2 N/R*** 1,304,632
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 Authority, 7/98 at 102 Aaa 517,440
Revenue Bonds, NewtonWellesley Hospital Issue, Series C,
8.000%, 7/01/18 (Pre-refunded to 7/01/98)
750,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 A+*** 800,393
Revenue Bonds, Baystate Medical Center Issue, Series C, 7.500%,
7/01/20 (Pre-refunded to 7/01/99)
500,000 Massachusetts Health and Educational Facilities Authority, 9/02 at 102 Aaa 558,630
Revenue Refunding Bonds, Worcester Polytechnic Institute Issue,
Series E, 6.625%, 9/01/17 (Pre-refunded to 9/01/02)
3,270,000 Massachusetts Health and Educational Facilities Authority, 7/01 at 102 A*** 3,648,437
Revenue Bonds, Charlton Memorial Hospital Issue, Series B, 7.250%,
7/01/13 (Pre-refunded to 7/01/01)
3,000,000 Massachusetts Health and Educational Facilities Authority, No Opt. Call AAA 3,019,680
Revenue Bonds, Malden Hospital Issue (FHA Insured Project),
Series A, 5.000%, 8/01/16
2,750,000 Massachusetts Health and Educational Facilities Authority, 4/02 at 102 AAA 3,077,525
Revenue Bonds, New England Deaconess Hospital Issue, Series D,
6.875%, 4/01/22 (Pre-refunded to 4/01/02)
</TABLE>
____
9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED CONTINUED
$1,000,000 Massachusetts Health and Educational Facilities Authority, 11/02 at 102 Aaa $1,117,270
Revenue Bonds, MetroWest Health, Inc. Issue, Series C, 6.500%,
11/15/18 (Pre-refunded to 11/15/02)
250,000 Massachusetts Industrial Finance Agency, Revenue Bonds, College 1/02 at 102 A1*** 274,445
of the Holy Cross-1992 Issue). 6.450%, 1/01/12 (Pre-refunded
to 1/01/02)
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds 10/99 at 103 Aaa 545,210
(Springfield College Project 1989 Issue), 7.800%,
10/01/09 (Pre-refunded to 10/01/99)
1,235,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 7/02 at 102 AAA 1,402,639
Merrimack College Issue, Series 1992, 7.125%,
7/01/12 (Pre-refunded to 7/01/02)
635,000 Massachusetts Port Authority, Revenue Bonds, Series 1982, No Opt. Call Aaa 1,094,137
13.000%, 7/01/13
165,000 Massachusetts State General Obligation Bonds, Consolidated 3/00 at 102 Aaa 178,728
Loan of 1990, Series A, 7.250%, 3/01/09 (Pre-refunded
to 3/01/00)
250,000 Massachusetts Bay Transportation Authority, 12/06 at 100 A*** 311,618
Certificates of Participation, Series 1988, 7.800%,
1/15/14 (Pre-refunded to 12/22/06)
250,000 City of Boston, Massachusetts, General 2/99 at 102 A+*** 264,095
Obligation Bonds, 1989 Series A, 7.700%, 2/01/09
(Pre-refunded to 2/01/99)
1,000,000 City of Boston, Massachusetts, General 7/01 at 102 Aaa 1,101,910
Obligation Bonds, 1991 Series A, 6.750%, 7/01/11
(Pre-refunded to 7/01/01)
1,500,000 City of Boston, Massachusetts, Revenue Bonds, 8/00 at 102 Aaa 1,656,870
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 558,615
Bonds, 1991 Series A (Senior Series), 7.000%,
11/01/18 (Pre-refunded to 11/01/01)
440,000 City of Haverhill, Massachusetts, General 10/01 at 102 BBB*** 497,508
Obligation, Municipal Purpose Loan of 1991 Bonds,
7.500%, 10/15/11 (Pre-refunded to 10/15/01)
250,000 City of Holyoke, Massachusetts, General 6/02 at 103 Aaa 295,764
Obligation Bonds, 8.150%, 6/15/06 (Pre-refunded to
6/15/02)
445,000 City of Lowell, Massachusetts, General 1/01 at 102 Aaa 505,363
Obligation Qualified Bonds, 8.400%, 1/15/09
(Pre-refunded to 1/15/01)
1,000,000 City of Lynn, Massachusetts, General Obligation Bonds, 1/02 at 104 Aaa 1,167,260
7.850%, 1/15/11 (Pre-refunded to 1/15/02)
500,000 Town of Monson, Massachusetts, General Obligation School 10/00 at 102 Aaa 556,310
Project Loan Act of 1948 Bonds, 7.700%, 10/15/10
(Pre-refunded to 10/15/00)
500,000 Town of Palmer, Massachusetts, General Obligation School 10/00 at 102 Aaa 555,670
Project Loan Act of 1948, 1990 Series B, 7.700%, 10/01/10
(Pre-refunded to 10/01/00)
1,130,000 Town of Peabody, Massachusetts, General Obligation Electric Bonds, 8/01 at 102 Aaa 1,253,892
6.950%, 8/01/09 (Pre-refunded to 8/01/01)
2,250,000 Puerto Rico Electric Power Authority, Power Revenue 7/01 at 102 Aaa 2,498,984
Bonds, Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01)
250,000 Town of Sandwich, Massachusetts, Unlimited Tax, General Obligation 11/98 at 102 1/2 Aaa 262,017
Bonds, 7.100%, 11/01/07 (Pre-refunded to 11/01/98)
1,000,000 City of Springfield, Massachusetts, General Obligation School 9/02 at 102 Baa*** 1,135,730
Project Loan Act of 1948, Series B, 7.100%, 9/01/11
(Pre-refunded to 9/01/02)
</TABLE>
____
10
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
MASSACHUSETTS - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES 1.3%
$ 1,000,000 Massachusetts Industrial Finance Agency, Resource Recovery 7/01 at 103 N/R $ 1,128,520
Revenue Bonds (SEMASS Project), Series 1991A, 9.000%,
7/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
$ 77,870,000 Total Investments (cost $77,965,904)-99.4% 84,424,476
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities 0.6% 487,079
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets 100% $ 84,911,555
====================================================================================================================================
</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 and Poor's or Moody's rating.
*** Securities are backed by an escrow or trust containing sufficient U.S.
government or U.S. government agency securities, which ensures the timely
payment of principal and interest. Securities are normally considered to be
equivalent to AAA-rated securities.
N/R Investment is not rated.
(WI) Security purchased on a whenissued basis (note 1).
See accompanying notes to financial statements.
____
11
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
MASSACHUSETTS INSURED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION AND CIVIC ORGANIZATIONS 17.8%
$ 250,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/98 at 102 Aaa $ 260,363
Bonds, Northeastern University Issue, Series B, 7.600%, 10/01/10
1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/01 at 102 Aaa 1,089,640
Bonds, Boston College Issue, Series J, 6.625%, 7/01/21
1,450,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/02 at 100 Aaa 1,542,394
Bonds, Boston University Issue, Series M, 6.000%, 10/01/22
1,600,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/02 at 102 Aaa 1,772,752
Bonds, Northeastern University Issue, Series E, 6.550%, 10/01/22
1,850,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 AAA 2,023,290
Bonds, Suffolk University Issue, Series B, 6.350%, 7/01/22
2,000,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 Aaa 2,173,860
Bonds, Bentley College Issue, Series I, 6.125%, 7/01/17
500,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Brandeis 10/99 at 102 Aaa 530,700
University Issue, 1989 Series C, 6.800%, 10/01/19
1,000,000 Massachusetts Industrial Finance Agency, Revenue Refunding Bonds, 7/01 at 102 Aaa 1,079,610
Mount Holyoke College Issue, Series 1992A, 6.300%, 7/01/13
420,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Babson 10/05 at 102 Aaa 457,699
College Issue, Series 1995A, 5.800%, 10/01/10
1,000,000 Massachusetts Industrial Finance Agency, Revenue Bonds (College 3/06 at 102 Aaa 1,033,430
of the Holy Cross1996 Issue), 5.500%, 3/01/20
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE 14.4%
500,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/00 at 102 Aaa 541,455
Bonds, University Hospital Issue, Series C, 7.250%, 7/01/19
1,500,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 Aaa 1,653,510
Bonds, New England Medical Center Hospitals Issue, Series F,
6.625%, 7/01/25
1,000,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 Aaa 1,097,450
Bonds, South Shore Hospital Issue, Series D, 6.500%, 7/01/22
1,700,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/03 at 102 Aaa 1,763,461
Bonds, Lahey Clinic Medical Center Issue, Series B, 5.625%, 7/01/15
2,000,000 Massachusetts Health and Educational Facilities Authority, Revenue 5/08 at 102 Aaa 1,926,940
Bonds, Catholic Health East, Series 1998B, 5.000%, 11/15/28 (WI)
200,000 Massachusetts Industrial Finance Agency, Revenue Bonds, Harvard 10/98 at 102 Aaa 208,584
Community Health Plan, Inc., Issue 1988 Series B (Refunding Bonds),
7.750%, 10/01/08
2,290,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 1/05 at 102 Aaa 2,540,228
Control Facilities Financing Authority, Hospital Revenue Bonds, 1995
Series A (Hospital Auxilio Mutuo Obligated Group Project), 6.250%,
7/01/16
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY 14.4%
330,000 Massachusetts Housing Finance Agency, Housing Revenue Bonds, 1989 12/99 at 103 Aaa 350,500
Series A, 7.600%, 12/01/16
2,975,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue 1/05 at 102 Aaa 3,256,435
Bonds, 1995 Series A (FHA-Insured Mortgage Loans), 7.350%,
1/01/35 (Alternative Minimum Tax)
</TABLE>
____
12
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
MASSACHUSETTS INSURED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING/MULTIFAMILY CONTINUED
$ 1,000,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue 7/07 at 101 Aaa $1,012,050
Bonds, 1997 Series C, 5.625%, 7/01/40 (Alternative Minimum Tax)
4,290,000 Massachusetts Industrial Finance Agency, Assisted Living Facility 12/07 at 102 AAA 4,392,016
Bonds (Arbors at Living Amherst Project), GNMA Collateralized,
Series 1997, 5.950%, 6/20/39 (Alternative Minimum Tax)
640,000 Massachusetts Industrial Finance Agency (FHA-Insured Mortgage Loan), 1/08 at 102 Aaa 670,957
Hudner Associates Projects, 5.650%, 1/01/23
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY 1.2%
500,000 Massachusetts Housing Finance Agency, Single Family Housing Revenue 6/01 at 102 Aa 530,965
Bonds, Series 18, 7.350%, 12/01/16
250,000 Massachusetts Housing Finance Agency, Single Family Housing Revenue 6/98 at 102 Aa 257,315
Bonds, Series B, 7.700%, 6/01/17
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER REVENUE 0.4%
250,000 Massachusetts Health & Educational Facilities Authority, Revenue 7/99 at 102 Aaa 265,025
Bonds, Capital Asset Program, 7.200%, 7/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL 22.6%
250,000 Massachusetts Bay Transportation Authority, General Transportation 3/00 At 102 Aaa 270,288
System Revenue, 1990 Series A, 7.250%, 3/01/03
250,000 Town of Groveland, Massachusetts, General Obligation Bonds, 6/01 at 102 Aaa 274,938
6.900%, 6/15/07
1,000,000 City of Haverhill, Massachusetts, General Obligation, Hospital 9/01 at 102 Aaa 1,089,520
Refunding Bonds, Series A, 6.700%, 9/01/10
500,000 City of Lawrence, Massachusetts, General Obligation Bonds, No Opt. Call Aaa 640,870
9.750%, 3/15/04
2,625,000 City of Lowell, Massachusetts, General Obligation State 11/03 at 102 Aaa 2,754,570
Qualified Bonds, 5.600%, 11/01/12
1,025,000 City of Lynn, Massachusetts, General Obligation Bonds, No Opt. Call Aaa 1,120,766
6.750%, 1/15/02
1,000,000 Town of Mansfield, Massachusetts, General Obligation Bonds, 1/02 at 102 Aaa 1,110,060
6.700%, 1/15/11
250,000 Town of Methuen, Massachusetts, General Obligation Bonds, 5/00 at 102 Aaa 272,473
7.400%, 5/15/04
1,500,000 Town of Monson, Massachusetts, General Obligation, Unlimited Tax, No Opt. Call Aaa 1,636,440
School Refunding Bond, 5.500%, 10/15/10
300,000 Town of North Andover, Massachusetts, General Obligation Bonds, 9/00 at 103 Aaa 331,536
7.400%, 9/15/10
190,000 Town of Northfield, Massachusetts, General Obligation Bonds, 10/01 at 102 Aaa 207,225
Municipal Purpose Loan of 1992, 6.350%, 10/15/09
1,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1995, 7/05 at 101 1/2 Aaa 1,062,340
General Obligation Bonds, 5.750%, 7/01/24
440,000 Quaboag Regional School District, General Obligation School Bonds 6/02 at 102 Aaa 481,382
of 1991, 6.250%, 6/15/08
City of Salem, Massachusetts, General Obligation Bonds:
500,000 6.800%, 8/15/09 8/01 at 102 Aaa 551,035
900,000 6.000%, 7/15/10 7/02 at 102 Aaa 973,161
220,000 Taunton, Massachusetts, General Obligation Bonds, 6.800%, 9/01/09 9/01 at 103 Aaa 244,578
</TABLE>
____
13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - CONTINUED
<S> <C> <C> <C> <C>
$ 455,000 Town of Wareham, Massachusetts, General Obligation School Bonds, 1/01 at 103 Aaa $ 502,397
7.050%, 1/15/07
215,000 Town of Whately, Massachusetts, General Obligation Bonds, 6.350%, 1/02 at 102 Aaa 234,971
1/15/09
1,210,000 Town of Winchendon, Massachusetts, Unlimited Tax, General 3/03 at 102 Aaa 1,318,343
Obligation Bonds, 6.050%, 3/15/10
160,000 City of Worcester, Massachusetts, General Obligation Bonds, 5/02 at 102 Aaa 179,890
6.900%, 5/15/07
- -------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 2.6%
1,500,000 Massachusetts Industrial Finance Agency, Library Revenue Bonds 1/05 at 102 Aaa 1,754,925
(Malden Public Library Project), Series 1994, 7.250%, 1/01/15
- -------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED - 25.0%
250,000 Massachusetts Bay Transportation Authority, General 3/99 at 102 Aaa 263,373
Transportation System, 1989 Series A, 7.100%, 3/01/13
(Pre-refunded to 3/01/99)
250,000 Massachusetts Bay Transportation Authority, Certificates of 8/00 at 102 Aaa 276,150
Participation, 1990 Series A, 7.650%, 8/01/15
(Pre-refunded to 8/01/00)
300,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 102 Aaa 310,335
Revenue Bonds, Mount Auburn Hospital Issue, Series A,
7.875%, 7/01/18 (Pre-refunded to 7/01/98)
800,000 Massachusetts Health and Educational Facilities Authority, 10/98 at 102 Aaa 834,640
Revenue Bonds, Berkshire Health Systems Issue, Series A,
7.600%, 10/01/14 (Pre-refunded to 10/01/98)
250,000 Massachusetts Health and Educational Facilities Authority, 7/98 at 102 Aaa 258,720
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 Authority, 7/99 at 102 A+*** 533,595
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 274,438
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 551,450
Revenue Bonds, Stonehill College Issue, Series D, 7.700%,
7/01/20 (Pre-refunded to 7/01/00)
500,000 Massachusetts Health and Educational Facilities Authority, 10/01 at 102 Aaa 555,710
Revenue Bonds, Berklee College of Music Issue, Series C,
6.875%, 10/01/21 (Pre-refunded to 10/01/01)
1,000,000 Massachusetts Health and Educational Facilities Authority, 7/01 at 102 AA-*** 1,100,920
Revenue Bonds, Brigham and Woman's Hospital Issue, Series D,
6.750%, 7/01/24 (Pre-refunded to 7/01/01)
250,000 Massachusetts Health and Educational Facilities Authority, 7/99 at 102 Aaa 266,253
Revenue Bonds, Beverly Hospital Issue, Series D, 7.300%,
7/01/19 (Pre-refunded to 7/01/99)
250,000 Massachusetts Industrial Finance Agency, Revenue Bonds, 9/99 at 102 Aaa 267,505
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 403,268
Museum of Science Issue, Series 1989, 7.300%, 11/01/09
(Pre-refunded to 11/01/99)
1,000,000 Massachusetts Port Authority, Revenue Bonds, Series 1982, No Opt. Call Aaa 1,723,050
13.000%, 7/01/13
</TABLE>
____
14
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
MASSACHUSETTS INSURED- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/GENERAL - CONTINUED
<S> <C> <C> <C> <C>
$250,000 Massachusetts State General Obligation Bonds, Consolidated 3/00 at 102 Aaa $ 270,800
Loan of 1990, Series A, 7.250%, 3/01/09
(Pre-refunded to 3/01/00)
340,000 Massachusetts State General Obligation Bonds, Consolidated 6/02 at 100 Aaa 365,204
Loan, Series 1992-A, 6.000%, 6/01/13 (Pre-refunded to 6/01/02)
The Commonwealth of Massachusetts, General Obligation Bonds,
Consolidated Loan of 1992, Series A:
25,000 6.500%, 6/01/08 (Pre-refunded to 6/01/02) 6/02 at 101 Aaa 27,548
860,000 6.000%, 6/01/13 (Pre-refunded to 6/01/02) 6/02 at 100 Aaa 923,752
1,000,000 City of Boston, Massachusetts, General Obligation Bonds, 1991 7/01 at 102 Aaa 1,101,910
Series A, 6.750%, 7/01/11 (Pre-refunded to 7/01/01)
500,000 City of Boston, Massachusetts, Revenue Bonds, Boston City 8/00 at 102 Aaa 552,290
Hospital (FHA-Insured Mortgage), Series A, 7.625%, 2/15/21
(Pre-refunded to 8/15/00)
500,000 City of Fall River, Massachusetts, General Obligation Bonds, 6/01 at 102 Aaa 556,475
7.200%, 6/01/10 (Pre-refunded to 6/01/01)
250,000 City of Holyoke, Massachusetts, General Obligation Bonds, 6/02 at 103 Aaa 295,765
8.150%, 6/15/06 (Pre-refunded to 6/15/02)
450,000 City of Leominster, Massachusetts, General Obligation Bonds, 4/00 at 102 Aaa 490,698
7.500%, 4/01/09 (Pre-refunded to 4/01/00)
250,000 Lynn, Massachusetts, Water and Sewer Commission, General 12/00 at 102 Aaa 275,883
Revenue Bonds, 1990 Series A, 7.250%, 12/01/10
(Pre-refunded to 12/01/00)
500,000 Town of Monson, Massachusetts, General Obligation School 10/00 at 102 Aaa 556,310
Project Loan Act of 1948, 7.700%, 10/15/10
(Pre-refunded to 10/15/00)
North Middlesex Regional School District, School Bonds of 1990:
270,000 7.200%, 6/15/08 (Pre-refunded to 6/15/00) 6/00 at 103 Aaa 297,157
245,000 7.200%, 6/15/09 (Pre-refunded to 6/15/00) 6/00 at 103 Aaa 269,642
270,000 Town of Palmer, Massachusetts, General Obligation School 3/00 at 102 Aaa 292,722
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, School 10/00 at 102 Aaa 277,834
Project Loan Act of 1948, 1990 Series B, 7.700%, 10/01/10
(Pre-refunded to 10/01/00)
250,000 Town of Sandwich, Massachusetts, Unlimited Tax, General 11/98 at 102 1/2 Aaa 262,017
Obligation Bonds, 7.100%, 11/01/07 (Pre-refunded to 11/01/98)
515,000 Southern Berkshire Regional School District, General 4/02 at 102 Aaa 589,521
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 1,294,124
General Obligation School Bonds, 7.000%, 4/15/11
(Pre-refunded to 4/15/02)
250,000 City of Springfield, Massachusetts, Municipal Purpose Loan of 11/98 at 103 Aaa 263,072
1988, General Obligation Bonds, 7.000%, 11/01/07
(Pre-refunded to 11/01/98)
250,000 City of Westfield, Massachusetts, General Obligation Bonds, 12/00 at 102 Aaa 275,600
7.100%, 12/15/08 (Pre-refunded to 12/15/00)
- -------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 2.0%
1,300,000 Massachusetts Municipal Wholesale Electric Company, Power 7/03 at 102 Aaa 1,315,846
Supply System Revenue Bonds, 1993 Series A, 5.000%, 7/01/10
</TABLE>
____
15
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 0.8%
<S> <C> <C> <C> <C>
$500,000 Boston Water and Sewer Commission (A Public Instrumentality 11/98 at 100 Aaa $511,610
of The Commonwealth of Massachusetts), General Revenue Bonds,
1988 Series A (Subordinated Series), 7.250%, 11/01/06
- -------------------------------------------------------------------------------------------------------------------------------
$62,630,000 Total Investments - (cost $63,015,300) - 101.2% 68,127,524
- -------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (1.2)% (783,392)
----------------------------------------------------------------------------------------------------------
Net Assets - 100% $ 67,344,132
----------------------------------------------------------------------------------------------------------
</TABLE>
All of the bonds in the portfolio 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.
*** Securities are backed by an escrow or trust containing
sufficient U S. government or U.S. government agency
securities, which ensures the timely payment of
principal and interest. Securities are normally
considered to be equivalent to AAA-rated securities.
(WI) Security purchased on a when-issued basis (note 1).
See accompanying notes to financial statements
____
16
<PAGE>
STATEMENT OF NET ASSETS
FEBRUARY 28, 1998
<TABLE>
<CAPTION> MASSACHUSETTS
MASSACHUSETTS INSURED
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $84,424,476 $68,127,524
Cash 106,537 208,466
Receivables:
Interest 1,098,983 1,074,693
Investments sold 1,555,181 --
Shares sold 57,861 96,580
Other assets 33,566 588
- -----------------------------------------------------------------------------------------------------
Total assets 87,276,604 69,507,851
- -----------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 1,931,031 1,931,031
Shares redeemed 111,172 3,244
Accrued expenses:
Management fees (note 6) 29,145 28,437
12b-1 distribution and service fees (notes 1 and 6) 2,692 2,569
Other 30,397 6,594
Dividends payable 260,612 191,844
- -----------------------------------------------------------------------------------------------------
Total liabilities 2,365,049 2,163,719
- -----------------------------------------------------------------------------------------------------
Net assets (note 7) $84,911,555 $67,344,132
=====================================================================================================
CLASS A SHARES (NOTE 1)
Net assets $ 9,290,858 $ 8,679,023
Shares outstanding 921,927 821,402
Net asset value and redemption price per share $ 10.08 $ 10.57
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.52 $ 11.03
=====================================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 762,991 $ 665,551
Shares outstanding 75,571 62,960
Net asset value, offering and redemption price per share $ 10.10 $ 10.57
=====================================================================================================
CLASS C SHARES (NOTE 1)
Net assets $ 1,924,122 $ 1,292,953
Shares outstanding 192,048 122,691
Net asset value, offering and redemption price per share $ 10.02 $ 10.54
=====================================================================================================
CLASS R SHARES (NOTE 1)
Net assets $72,933,584 $56,706,605
Shares outstanding 7,258,217 5,364,494
Net asset value, offering and redemption price per share $ 10.05 $ 10.57
=====================================================================================================
</TABLE>
____
17 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
MASSACHUSETTS
MASSACHUSETTS INSURED
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $5,102,872 $3,943,786
- ----------------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 452,951 360,589
12b-1 service fees Class A (notes 1 and 6) 16,106 15,789
12b-1 distribution and service fees Class B (notes 1 and 6) 2,710 1,965
12b-1 distribution and service fees Class C (notes 1 and 6) 10,459 7,520
Shareholders' servicing agent fees and expenses 83,386 64,770
Custodian's fees and expenses 53,917 52,463
Trustees' fees and expenses (note 6) 2,208 1,889
Professional fees 18,303 15,329
Shareholders' reports printing and mailing expenses 38,180 35,883
Federal and state registration fees 1,925 6,544
Portfolio insurance expense -- 4,091
Other expenses 5,771 4,797
- ----------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 685,916 571,629
Expense reimbursement (note 6) (38,925) --
- ----------------------------------------------------------------------------------------------------
Net expenses 646,991 571,629
- ----------------------------------------------------------------------------------------------------
Net investment income 4,455,881 3,372,157
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN FROM INVESTMENTS
Net realized gain from investment transactions (notes 1 and 4) 270,739 221,510
Net change in unrealized appreciation or depreciation
of investments 1,315,343 960,239
- ----------------------------------------------------------------------------------------------------
Net gain from investments 1,586,082 1,181,749
- ----------------------------------------------------------------------------------------------------
Net increase in net assets from operations $6,041,963 $4,553,906
====================================================================================================
</TABLE>
____
18 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
MASSACHUSETTS MASSACHUSETTS INSURED
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
2/28/98 2/28/97 2/28/98 2/28/97
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 4,455,881 $ 4,406,388 $ 3,372,157 $ 3,389,195
Net realized gain (loss) from investment
transactions (notes 1 and 4) 270,739 (167,777) 221,510 60,733
Net change in unrealized appreciation
or depreciation of investments 1,315,343 (361,379) 960,239 (798,332)
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 6,041,963 3,877,232 4,553,906 2,651,596
- ----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (420,405) (288,715) (394,204) (315,950)
Class B (12,202) (7,953) --
Class C (65,022) (34,686) (44,444) (36,606)
Class R (3,950,179) (4,012,721) (2,925,848) (3,022,773)
- ----------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (4,447,808) (4,336,122) (3,372,449) (3,375,329)
- ----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 8,022,615 8,611,315 4,862,078 5,375,981
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 3,144,288 3,046,553 2,388,253 2,394,008
- ----------------------------------------------------------------------------------------------------------------------
11,166,903 11,657,868 7,250,331 7,769,989
- ----------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (8,874,610) (11,875,027) (6,580,186) (7,653,434)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)in net assets
from Fund share transactions 2,292,293 (217,159) 670,145 116,555
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 3,886,448 (676,049) 1,851,602 (607,178)
- ----------------------------------------------------------------------------------------------------------------------
Net assets at the beginning of year 81,025,107 81,701,156 65,492,530 66,099,708
- ----------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $84,911,555 $ 81,025,107 $67,344,132 $65,492,530
======================================================================================================================
Balance of undistributed net investment
income at end of year $ 81,323 $ 73,250 $ 15,079 $ 15,371
======================================================================================================================
</TABLE>
____
19 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
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 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 ("Nuveen"), 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 tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
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 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 valued at amortized
cost, which approximates market value.
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 have extended settlement periods. 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 the when-issued and delayed delivery purchase commitments. At
February 28, 1998, Massachusetts and Massachusetts Insured had outstanding when-
issued purchase commitments of $1,931,031 and $1,931,031, 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
on the first business day after month-end. Net realized capital gains and/or
market discount from investment transactions, if any, are distributed
to shareholders not less frequently than annually. Furthermore, capital gains
are distributed only to the extent they exceed available capital loss
carryforwards.
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.
______
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FEBRUARY 28, 1998
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 Massachusetts state income taxes, to retain
such tax-exempt status when distributed to the shareholders of the Funds. All
income dividends paid during the fiscal year ended February 28, 1998, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
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 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 offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge 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 one year of purchase. Class R Shares are
not subject to any sales charge 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, 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, 1998.
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, which presently only
includes 12b-1 distribution and service fees, 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.
_____
21
<PAGE>
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS
------------------------------------------------------------
YEAR ENDED 2/28/98 YEAR ENDED 2/28/97
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 292,755 $ 2,911,172 323,756 $ 3,174,573
Class B 75,039 748,530 -- --
Class C 104,408 1,031,535 32,272 315,377
Class R 336,646 3,331,378 525,051 5,121,365
Shares issued to shareholders due to reinvestment of distributions:
Class A 26,383 262,341 17,984 176,955
Class B 533 5,354 -- --
Class C 3,865 38,216 2,778 27,179
Class R 286,472 2,838,377 289,935 2,842,419
- ---------------------------------------------------------------------------------------------------------------------------------
1,126,101 11,166,903 1,191,776 11,657,868
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (125,362) (1,245,649) (45,026) (439,590)
Class B (1) (10) -- --
Class C (9,048) (89,159) (6,752) (65,787)
Class R (760,819) (7,539,792) (1,162,473) (11,369,650)
- ---------------------------------------------------------------------------------------------------------------------------------
(895,230) (8,874,610) (1,214,251) (11,875,027)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 230,871 $ 2,292,293 (22,475) $ (217,159)
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MASSACHUSETTS INSURED
------------------------------------------------------------
YEAR ENDED 2/28/98 YEAR ENDED 2/28/97
------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
Shares sold:
<S> <C> <C> <C> <C>
Class A 173,848 $ 1,817,609 288,422 $ 2,958,175
Class B 62,675 658,125 -- --
Class C 37,089 389,926 26,046 266,579
Class R 192,043 1,996,418 209,279 2,151,227
Shares issued to shareholders due to reinvestment of distributions:
Class A 23,296 242,741 17,939 185,295
Class B 285 2,989 -- --
Class C 3,712 38,566 3,250 33,462
Class R 201,982 2,103,957 210,641 2,175,251
- ---------------------------------------------------------------------------------------------------------------------------------
694,930 7,250,331 755,577 7,769,989
- ---------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (94,300) (984,085) (91,941) (944,427)
Class B -- -- -- --
Class C (10,565) (109,299) (4,296) (43,930)
Class R (526,802) (5,486,802) (646,782) (6,665,077)
- ---------------------------------------------------------------------------------------------------------------------------------
(631,667) (6,580,186) (743,019) (7,653,434)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase 63,263 $ 670,145 12,558 $ 116,555
=================================================================================================================================
</TABLE>
* Information represents eight months of Flagship New Jersey Intermediate and
four months of Nuveen Flagship New Jersey Intermediate (note 1).
_____
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
FEBRUARY 28, 1998
3. DISTRIBUTIONS TO SHAREHOLDERS
On March 9, 1998, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid April 1, 1998, to shareholders of
record on March 9, 1998, as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS MASSACHUSETTS INSURED
------------------------------------------------------------------------------------------
Dividend per share:
<S> <C> <C>
Class A $.0435 $.0435
Class B .0375 .0370
Class C .0390 .0385
Class R .0450 .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, 1998, were as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS MASSACHUSETTS INSURED
------------------------------------------------------------------------------------------
Purchases:
<S> <C> <C>
Investments in municipal securities $16,821,625 $17,284,532
Temporary municipal investments 4,300,000 4,300,000
Sales:
Investments in municipal securities 13,839,602 14,905,039
Temporary municipal investments 4,300,000 4,300,000
------------------------------------------------------------------------------------------
</TABLE>
At February 28, 1998, 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, 1998, Massachusetts had unused capital loss carryforwards
available for federal income tax purposes to be applied against future capital
gains, if any. If not applied, the carryforwards will expire as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS
------------------------------------
Expiration year:
<S> <C>
2003 $ 22,054
2004 507,247
2005 156,261
------------------------------------
Total $685,562
------------------------------------
</TABLE>
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1998, were as follows:
<TABLE>
<CAPTION>
MASSACHUSETTS MASSACHUSETTS INSURED
------------------------------------------------------------------------------------------
Gross unrealized:
<S> <C> <C>
appreciation $6,461,576 $5,115,204
depreciation (3,004) (2,980)
------------------------------------------------------------------------------------------
Net unrealized appreciation $6,458,572 $5,112,224
------------------------------------------------------------------------------------------
</TABLE>
_____
23
<PAGE>
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 management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of 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 or its affiliates.
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 Massachusetts and .975 of 1% of the average
daily net asset value of Massachusetts Insured, excluding any 12b-1 fees
applicable to Class A, B and 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.
During the fiscal year ended February 28, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $103,400 and $56,200 for
Massachusetts and Massachusetts Insured, respectively, of which approximately
$90,200 and $48,800, 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, 1998, the Distributor compensated
authorized dealers directly with approximately $38,900 and $29,300, in
commission advances at the time of purchase for Massachusetts and Massachusetts
Insured, respectively. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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. During the fiscal year
ended February 28, 1998, the Distributor retained approximately $7,600 and
$3,300 in such 12b-1 fees for Massachusetts and Massachusetts Insured,
respectively. The remaining 12b-1 fees charged to the Funds were paid to
compensate authorized dealers for providing services to shareholders relating to
their investments. The Distributor also collected and retained approximately
$7,900 of CDSC on share redemptions for Massachusetts during the fiscal year
ended February 28, 1998.
7. COMPOSITION OF NET ASSETS
At February 28, 1998, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
MASSACHUSETTS MASSACHUSETTS INSURED
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $79,057,222 $62,211,985
Balance of undistributed net investment income 81,323 15,079
Accumulated net realized gain (loss) from investment transactions (685,562) 4,844
Net unrealized appreciation of investments 6,458,572 5,112,224
----------------------------------------------------------------------------------------------------------
Net assets $84,911,555 $67,344,132
----------------------------------------------------------------------------------------------------------
</TABLE>
_____
24
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------- ------------------
NET
MASSACHUSETTS NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
FEBRUARY 28/29, OF PERIOD INCOME (A) INVESTMENTS INCOME GAINS PERIOD VALUE (B)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998 $9.89 $.52 $ .19 $(.52) $ -- $10.08 7.38%
1997 9.94 .53 (.07) (.51) -- 9.89 4.73
1996 9.56 .51 .39 (.52) -- 9.94 9.62
1995 (c) 9.54 .25 .03 (.26) -- 9.56 3.05
CLASS B (3/97)
1998 (c) 9.88 .45 .22 (.45) -- 10.10 6.93
CLASS C (10/94)
1998 9.83 .47 .19 (.47) -- 10.02 6.85
1997 9.89 .45 (.08) (.43) -- 9.83 3.90
1996 9.51 .44 .39 (.45) -- 9.89 8.87
1995 (c) 9.28 .19 .25 (.21) -- 9.51 4.86
CLASS R (12/86)
1998 9.86 .54 .19 (.54) -- 10.05 7.60
1997 9.91 .54 (.06) (.53) -- 9.86 4.99
1996 9.54 .54 .38 (.55) -- 9.91 9.80
1995 9.94 .54 (.40) (.54) -- 9.54 1.64
1994 9.91 .54 .04 (.54) (.01) 9.94 5.96
1993 9.21 .56 .70 (.56) -- 9.91 14.21
1992 (d) 9.13 .15 .07 (.14) -- 9.21 2.44
1991 (e) 8.76 .58 .37 (.58) -- 9.13 11.19
1990 (e) 8.90 .59 (.15) (.58) -- 8.76 5.21
1989 (e) 8.60 .59 .30 (.59) -- 8.90 10.62
=============================================================================================================================
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
(d) For the three months ended February 29.
(e) For the fiscal year ended November 30.
_____
25
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
RATIO
RATIO OF NET
RATIO OF OF NET RATIO OF INVESTMENT
EXPENSES INVESTMENT EXPENSES INCOME TO
TO AVERAGE INCOME TO TO AVERAGE AVERAGE
NET ASSETS NET ASSETS AVERAGE 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>
$ 9,291 1.00% 5.20% .95% 5.25% 17%
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
763 1.77* 4.41* 1.70* 4.48* 17
1,924 1.55 4.64 1.50 4.69 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
72,934 .80 5.40 .75 5.45 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
============================================================================================================
</TABLE>
____
26
<PAGE>
FINANCIAL HIGHLIGHTS -- CONTINUED
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
--------------------- ------------------
NET
MASSACHUSETTS NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
FEBRUARY 28/29, OF PERIOD INCOME (A) INVESTMENTS INCOME GAINS PERIOD VALUE (B)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)
1998 $10.38 $.52 $ .19 $(.52) $ -- $10.57 7.04%
1997 10.49 .53 (.12) (.52) -- 10.38 4.02
1996 10.06 .51 .44 (.52) -- 10.49 9.59
1995 (c) 10.03 .25 .04 (.26) -- 10.06 2.99
CLASS B (3/97)
1998 (c) 10.36 .44 .21 (.44) -- 10.57 6.45
CLASS C (9/94)
1998 10.35 .46 .19 (.46) -- 10.54 6.45
1997 10.47 .45 (.13) (.44) -- 10.35 3.17
1996 10.04 .43 .44 (.44) -- 10.47 8.80
1995 (c) 9.91 .20 .14 (.21) -- 10.04 3.52
CLASS R (12/86)
1998 10.38 .54 .19 (.54) -- 10.57 7.23
1997 10.50 .54 (.12) (.54) -- 10.38 4.16
1996 10.06 .54 .44 (.54) -- 10.50 9.99
1995 10.45 .55 (.39) (.55) -- 10.06 1.77
1994 10.44 .54 -- (.53) -- 10.45 5.22
1993 9.65 .55 .79 (.55) -- 10.44 14.28
1992 9.36 .57 .30 (.58) -- 9.65 9.57
1991 9.14 .57 .22 (.57) -- 9.36 8.95
1990 8.96 .57 .18 (.57) -- 9.14 8.52
1989 9.03 .58 (.07) (.58) -- 8.96 5.84
=============================================================================================================================
</TABLE>
* Annualized.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
____
27
<PAGE>
<TABLE>
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
RATIO
RATIO OF NET
RATIO OF OF NET RATIO OF INVESTMENT
EXPENSES INVESTMENT EXPENSES INCOME TO
TO AVERAGE INCOME TO TO AVERAGE AVERAGE
NET ASSETS NET ASSETS AVERAGE 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>
$ 8,679 1.03% 4.98% 1.03% 4.98% 23%
7,459 1.04 5.02 1.04 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
666 1.80* 4.20* 1.80* 4.20* 23
1,293 1.58 4.43 1.58 4.43 23
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
56,707 .83 5.18 .83 5.18 23
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
============================================================================================================
</TABLE>
____
28
<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, 1998, 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, 1998, 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 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 each of the
respective funds constituting the Nuveen Flagship Multistate Trust II, as of
February 28, 1998, 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 15, 1998
____
29
<PAGE>
NUVEEN FAMILY
of Mutual Funds Nuveen offers a variety of funds designed to help you reach your
financial goals.
GROWTH
Nuveen Rittenhouse Growth Fund
GROWTH AND INCOME
Growth and Income Stock Fund Balanced Stock and Bond Fund Balanced Municipal and
Stock Fund
TAX-FREE INCOME
National Funds Long-Term Insured Intermediate-Term Limited Term
STATE FUNDS
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
BUILDING BETTER PORTFOLIOS WITH NUVEEN
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
MUTUAL FUNDS
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
PRIVATE ASSET MANAGEMENT
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
UNIT TRUSTS
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
EXCHANGE-TRADED FUNDS
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MUNIPREFERRED*
Nuveen MuniPreferred offers investors a AAA-rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
____
30
<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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 621-7227 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN
OUR SECOND CENTURY 1898/1998
helping investors sustain the wealth of a lifetime.(TM)
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
NUVEEN
MUNICIPAL
BOND FUNDS
FEBRUARY 28, 1998
Annual Report
DEPENDABLE, TAX-FREE INCOME
TO HELP YOU KEEP MORE OF
WHAT YOU EARN.
[PHOTO APPEARS HERE]
NEW JERSEY
NEW JERSEY
INTERMEDIATE
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
Dear Shareholder
Over the past 12 months, the Nuveen Flagship New Jersey Municipal Bond Funds
performed well, rewarding investors with attractive tax-free income and strong
total returns. For the fiscal year ended February 28, 1998, the New Jersey long-
term fund's Class A shares posted a total return on net asset value of 9.06%,
outpacing its Lipper peer group average of 8.41%. The New Jersey intermediate-
term fund also performed well, generating a total return on net asset value for
Class A shares of 7.00%, surpassing its Lipper peer group average of 6.75%.
Although the funds experienced modest dividend reductions during the period,
they continue to provide competitive after-tax yields. As of February 28, 1998,
the long-term fund's Class A shares were generating a yield on net asset value
of 4.89%, which is equivalent to an after-tax yield of 7.57% for investors in
the 35.4% combined federal and state income tax bracket. Class A shares of the
intermediate-term fund were providing a yield on net asset value of 3.96%,
equaling an after-tax yield of 6.13% for investors in the 35.4% combined federal
and state tax bracket.
THE YEAR IN REVIEW
Over the past year, the bond market enjoyed a period of solid performance, as
the benign inflationary environment provided the ideal backdrop for fixed-income
investments, including municipal issues. A shrinking federal deficit and the
inactivity of the Federal Reserve, which has been on hold since its last
interest rate increase in March 1997, also contributed to the positive
environment for bonds.
Between the end of February 1997 and February 1998, the yield on 30-year
Treasury bonds dropped from 6.80% to 5.92%, and the municipal market followed
suit, as the yield on the Bond Buyer 40 declined from 5.76% to 5.24%. The
relatively tight spread between tax-free municipal bond yields and taxable
Treasury bond
_____
1
<PAGE>
"With their focus on consistent, above-market performance and moderated risk,
Nuveen funds can be ideal for investors who want to build and sustain long-term
financial security."
yields, combined with municipals' comparatively low volatility and dependable
tax-free income, continue to make these investments an attractive opportunity.
MEETING INVESTOR NEEDS
The generally stable income stream and attractive returns detailed on the
following pages demonstrate that the Nuveen Flagship New Jersey Municipal Bond
Funds have continued to successfully pursue their investment objectives. In
today's market environment, many investors are seeking conservatively managed
investments that enable them to strike the proper balance between risk and
reward in their portfolios. With their focus on consistent, above-market
performance and moderated risk, Nuveen funds can be ideal for investors who want
to build and sustain long-term financial security.
BUILDING BETTER PORTFOLIOS
As you review the performance of your fund and discuss the results with your
financial adviser, we hope that you continue to think of Nuveen when seeking
quality investment solutions. Your adviser can introduce you to a variety of
other Nuveen products and services designed to round out your portfolio of core
investments. This includes the new Nuveen Rittenhouse Growth Fund, a blue chip
equity mutual fund that provides a tax-efficient approach to building and
sustaining wealth. We encourage you to talk to your financial adviser about our
additional products and services to determine those that can best complement
your current Nuveen investments.
On behalf of everyone at Nuveen, I thank you for your continued confidence in us
and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 15, 1998
_____
2
<PAGE>
Nuveen Flagship New Jersey Municipal Bond Funds
Portfolio Manager Roundtable
Rick Huber and Steve Peterson, portfolio managers of the New Jersey Municipal
Bond Funds, review the past year in the New Jersey municipal market and talk
about fund performance and opportunities to find value.
CAN YOU DESCRIBE THE MUNICIPAL MARKET OVER THE PAST YEAR AND HOW THE FUNDS
PERFORMED IN THIS ENVIRONMENT?
Over the past 12 months, we have enjoyed a bull market in fixed-income
investments, including municipal bonds. New issue and refunding activity took
off, totaling $220 billion nationally in 1997 the third largest volume ever.
Although municipal supply was relatively heavy on a national level, demand
continued to outstrip the limited supply of New Jersey municipal bonds. With the
high state tax and great deal of investor interest given the high levels of per
capita wealth in the state, New Jersey municipal bonds are commanding relatively
high prices and supply continues to be limited.
This strong market contributed to the solid total return performance of the
funds, as many of the bonds in the portfolios appreciated in value. The annual
total return on net asset value for Class A shares of the New Jersey long-term
fund was 9.06%, which is equivalent to an after-tax total return of 12.10% for
investors in the 35.4% combined federal and state income tax bracket. The
intermediate-term fund generated an attractive total return of 7.00%, which is
equivalent to an after-tax total return of 9.74% for investors in the same tax
bracket.
Both funds were well-ranked by Lipper Analytical Services based on their strong
total returns. The long-term fund was ranked in the top quartile of long-term
New Jersey municipal bond funds for the one-year period (13th out of 57 funds).
The intermediate-term fund was ranked in the top third (25 out of 79 funds) of
its peer group, the Lipper Other State Intermediate Municipal Bond Fund
category, for the one-year period, and was ranked number one out of 30 funds for
the five-year period.
The funds also provided very competitive yields. The intermediate fund in
particular provided a very attractive yield given its shorter-term structure.
With a yield on net asset value of 3.96% for Class A shares (as of February 28,
1998), it provides income that is quite competitive with longer-term funds but
carries lower risk. Given its shorter average maturity and duration (compared
with long-term funds), the intermediate fund should be less susceptible to
interest rate fluctuations.
HOW HAS NEW JERSEY'S ECONOMY PERFORMED DURING THE PAST 12 MONTHS?
New Jersey's high credit ratings for general obligation debt recognize the
state's diverse economic base and strong financial management. With corporate
restructurings and downsizings slowing, unemployment figures appear to have
stabilized.
_____
3
<PAGE>
"One of our main goals during the year was to improve the call protection of the
funds, which was a very successful strategy."
Stronger-than-anticipated corporate business and personal income tax receipts
have enabled reserves to build. This larger financial cushion should help ease
the state's burden in funding the $250 million court-mandated increase in
education spending. In addition, the state has set aside funds with the purpose
of keeping solid waste authorities from defaulting on debt service payments,
although the money has not yet been allocated.
A final decision on deregulation of electric utilities in the state is expected
later this year. A phase-in of competition in this arena could begin as early as
October 1998. In the wake of health care deregulation, a number of health care
providers have begun the process of mergers and affiliations that has been
common in other parts of the country.
HOW DID YOU ADD VALUE IN THE CURRENT MARKET?
One of our main goals during the year was to improve the call protection of the
funds, which was a very successful strategy. Only about 10 percent of the long-
term fund's bonds are callable by their issuers in the next three years, which
should help limit the future income volatility of the fund and ensure a more
stable dividend. With most of the bonds in the intermediate-term fund in the 5-
15 year maturity range, none are callable in the next three years, helping
ensure a stable dividend.
Another key strategy over the past year was to increase the yield of the funds.
We have been able to accomplish this through bond "swaps" selling a bond and
purchasing a very similar bond with a higher yield. Nuveen's renowned research
department helps us find higher-yielding bonds that we feel are undervalued by
the market and that have the potential for price appreciation.
WHAT ARE YOUR KEY STRATEGIES FOR THE FUTURE?
A significant amount of the new bond issuance over the past year was in the
health care sector, which explains both funds' relatively heavy weightings in
that area. We plan to diversify into other sectors in the coming year, with a
particular eye toward general obligation and housing bonds. Both of those
sectors presently offer attractive quality bonds at favorable yields, and as the
state's economy continues to improve, we foresee the potential for price
appreciation of the bonds in those areas.
In addition, we will continue to look for bonds that we feel have the potential
to be pre-refunded by their issuers. In an advance refunding, a bond issue is
essentially repaid early and becomes secured by U. S. government or agency
securities until it can be called by the issuer. When bonds in the funds are
pre-refunded and become backed by Treasury bonds, the credit quality and
stability of the funds can improve significantly.
_____
4
<PAGE>
Nuveen Flagship New Jersey Municipal Bond Fund
PERFORMANCE OVERVIEW
As of February 28, 1998
<TABLE>
<CAPTION>
12-Month Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
<S> <C>
- --------------------------
March 0.0465
- --------------------------
April 0.0465
- --------------------------
May 0.0465
- --------------------------
June 0.0465
- --------------------------
July 0.0465
- --------------------------
August 0.0465
- --------------------------
September 0.0465
- --------------------------
October 0.0465
- --------------------------
November 0.0465
- --------------------------
December 0.0465
- --------------------------
January 0.045
- --------------------------
February 0.045
- --------------------------
</TABLE>
<TABLE>
<CAPTION>
Top 5 Sectors
<S> <C>
Tax Obligation (General) 13%
- ----------------------------------
U.S. Guaranteed 13%
- ----------------------------------
Health Care 11%
- ----------------------------------
Utilities 10%
- ----------------------------------
Transportation 10%
- ----------------------------------
</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 return figures. Class B shares automatically convert to
Class A shares eight years after purchase. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 35.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A shares, performance
reflects Class R share performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
Portfolio Statistics
<TABLE>
<CAPTION>
Share Class A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 2/97 9/94 12/91
- --------------------------------------------------------------------------------
Net Asset Value $10.61 $10.61 $10.59 $ 10.62
- --------------------------------------------------------------------------------
Fund Net Assets ($000) $89,314
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 16.92
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 5.79
- --------------------------------------------------------------------------------
</TABLE>
Annualized Total Return/1/
<TABLE>
<CAPTION>
Share Class A(NAV) A(OFFER) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 9.06% 4.47% 8.25% 8.40% 9.29%
- --------------------------------------------------------------------------------
5-Year 6.23% 5.32% 5.50% 5.50% 6.50%
- --------------------------------------------------------------------------------
Since Inception 7.28% 6.51% 6.54% 6.53% 7.55%
- --------------------------------------------------------------------------------
</TABLE>
Tax-Free Yields
<TABLE>
<CAPTION>
Share Class A(NAV) A(OFFER) B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 5.09% 4.87% 4.35% 4.59% 5.31%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 4.89% 4.68% 4.14% 4.34% 5.09%
- --------------------------------------------------------------------------------
Taxable Equivalent Yield/2/ 7.57% 7.24% 6.41% 6.72% 7.88%
- --------------------------------------------------------------------------------
</TABLE>
Index Comparison/3/
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen Flagship
Lehman Brothers New Jersey Municipal New Jersey Municipal
Municipal Bond Index Bond Fund (NAV) Bond Fund (Offer)
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Feb-92 10,000.00 10,000.00 9,580.00
Feb-93 11,376.42 11,268.46 10,794.18
Feb-94 12,005.17 12,035.80 11,527.92
Feb-95 12,231.71 12,198.08 11,680.36
Feb-96 13,583.37 13,332.41 12,764.55
Feb-97 14,454.15 13,979.26 13,385.30
Feb-98 15,776.00 15,245.00 14,602.00
- ----------------------------------------------------------------------------------------
</TABLE>
. Lehman Brothers Municipal Bond Index - $15,776
. Nuveen Flagship New Jersey Municipal Bond Fund (NAV) - $15,245
. Nuveen Flagship New Jersey Municipal Bond Fund (Offer) - $14,602
Past results are not predictive of future performance.
____
5
<PAGE>
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
PERFORMANCE OVERVIEW
As of February 28, 1998
12-Month Dividends (Class A Shares)
[BAR CHART APPEARS HERE]
March .0421
April .0421
May .0421
June .0420
July .0420
August .0420
September .0420
October .0420
November .0420
December .0415
January .0415
February .0415
Top 5 Sectors
Tax Obligation (Limited) 24%
- ----------------------------------------------
Health Care 21%
- ----------------------------------------------
Tax Obligation (General) 18%
- ----------------------------------------------
Industrial Development 14%
- ----------------------------------------------
Education and Civic Organizations 7%
- ----------------------------------------------
PORTFOLIO STATISTICS
<TABLE>
<CAPTION>
SHARES CLASS A B C
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Inception Date 9/92 3/97 3/97
- -----------------------------------------------------------------------------
Net Asset Value $10.50 $10.52 $10.51
- -----------------------------------------------------------------------------
Fund Net Assets ($000) $10,548
- -----------------------------------------------------------------------------
Average Weighted Maturity (Years) 7.38
- -----------------------------------------------------------------------------
Average Weighted Duration (Years) 5.12
- -----------------------------------------------------------------------------
</TABLE>
Annualized Total Return/1/
<TABLE>
SHARE CLASS A(NAV) A(OFFER) C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1-Year 7.00% 3.78% 6.63% 7.34%
- --------------------------------------------------------------------------------
5-Year 5.53% 4.89% 5.17% 5.60%
- --------------------------------------------------------------------------------
Since Inception 6.58% 5.99% 6.21% 6.65%
- --------------------------------------------------------------------------------
</TABLE>
Tax-Free Yields
<TABLE>
SHARE CLASS A(NAV) A(OFFER) C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distribution Rate 4.74% 4.60% 4.22% 4.97%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 3.96% 3.84% 3.39% 4.17%
- --------------------------------------------------------------------------------
Taxable Equivalent Yield2 6.13% 5.94% 5.25% 6.46%
- --------------------------------------------------------------------------------
</TABLE>
Index Companion /3/
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Date Lehman Brothers Lehman Brothers Nuveen Flagship Nuveen Flagship
7 Year Municipal 10 Year Municipal New Jersey Intermediate New Jersey Intermediate
Bond Index Bond Index Municipal Bond Fund (NAV) Municipal Bond Fund (OFFER)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
2/92 $10,082.00 $10,083.40 $10,000.00 $ 9,700.00
- -------------------------------------------------------------------------------------------------------------------------------
2/93 $10,714.75 $10,836.75 $10,416.65 $10,488.75
- -------------------------------------------------------------------------------------------------------------------------------
2/94 $11,188.92 $11,414,98 $11,738.19 $11,383.40
- -------------------------------------------------------------------------------------------------------------------------------
2/95 $11,462.34 $11,647.34 $11,385.60 $11,300.24
- -------------------------------------------------------------------------------------------------------------------------------
2/96 $12,637.16 $13,012.67 $12,811.57 $12,426.54
- -------------------------------------------------------------------------------------------------------------------------------
2/97 $13,295.84 $13,575.88 $13,230.11 $12,832.16
- -------------------------------------------------------------------------------------------------------------------------------
2/98 $14,287.00 $14,934.00 $14,157.00 $13,732.00
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Lehman Brothers 7-Year Municipal Bond Index - $14,287
Lehman Brothers 10-Year Municipal Bond Index - $14,934
Nuveen Flagship New Jersey Intermediate Municap Bond Fund (NAV) - $14,157
Nuveen Flagship New Jersey Intermediate Municap Bond Fund (OFFER) - $13,732
Past results are not predictive of future performance.
1 Class A share returns are actual. Class 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 3.0% maximum sales charge. Class C shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 35.4%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in
Class A shares of the Nuveen fund compared with the Lehman Brothers 7-Year
and 10-Year Municipal Bond Indexes. In the past, the fund's performance was
compared against the Lehman 10-Year Municipal Bond Index. Beginning this
year, we will compare the fund's performance with the Lehman 7-Year Municipal
Bond Index because that index better corresponds to the fund's investment
policies, which require that the fund maintain a weighted average portfolio
maturity of 5-10 years. The Lehman Municipal Bond Indexes are comprised of a
broad range of investment-grade municipal bonds, and do 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 (3.0%) and
all ongoing fund expenses.
____
6
<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 Jersey and New Jersey
Intermediate Funds) (a Massachusetts business trust), including the portfolios
of investments, as of February 28, 1998, and the related statements of
operations for the year then ended, and the statement of 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 securities owned as of
February 28, 1998, by correspondence with the custodian and brokers. 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 the respective
funds constituting the Nuveen Flagship Multistate Trust II as of February 28,
1998, the results of their operations for the year then ended and 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
April 15, 1998
____
7
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CAPITAL GOODS - 7.4%
$ 5,955,000 New Jersey Economic Development Authority, Economic No Opt. Call N/R $6,428,661
Development Bonds (Bridgewater Resources Inc. Project).
1994 Series A, 8.375%, 11/01/04 (Alternative Minimum Tax)
180,000 New Jersey Economic Development Authority, Economic Growth 12/02 at 101 1/2 Aa3 195,242
Bonds, Composite Issue, 1992 Second Series A3, 6.550%, 12/01/07
(Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 3.9%
1,000,000 New Jersey Development Authority, Economic Development Bonds, No Opt. Call N/R 1,261,130
(Yeshiva K'Tana of Passaic1992 Project), 8.000%, 9/15/18
925,000 New Jersey Educational Facilities Authority, Trenton State 7/98 at 100 A+ 927,054
College Issue, Revenue Bonds, Series 1976 D, 6.750%, 7/01/08
835,000 New Jersey Educational Facilities Authority, Princeton University 7/04 at 100 Aaa 903,203
Revenue Bonds, 1994 Series A, 5.875%, 7/01/11
410,000 New Jersey Educational Facilities Authority, Revenue Refunding Bonds, 7/03 at 102 Baa 411,726
(Monmouth College), Series 1993-A, 5.625%, 7/01/13
- ------------------------------------------------------------------------------------------------------------------------------------
FOREST AND PAPER PRODUCTS - 0.3%
250,000 New Jersey Economic Development Authority, Solid Waste Dispsosal 4/02 at 102 Aa2 276,658
Facility Revenue Bonds (Garden State Paper Company, Inc. Project),
Series 1992, 7.125%, 4/01/22 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 10.9%
945,000 New Jersey Health Care Facilities Financing Authority (Intercare 7/98 at 102 A+ 975,060
Health Systems Inc.- JFK Medical Center), Series 1988,
7.625%, 7/01/18
935,000 New Jersey Economic Development Authority, Economic Growth 12/03 at 102 Aa3 981,918
Lease Revenue Bonds, Remarketed 1992 Second Series B,
5.300%, 12/01/07 (Alternative Minimum Tax)
300,000 New Jersey Economic Development Authority, Revenue Bonds 7/04 at 102 Aaa 330,570
(RWJ Health Care Corp. at Hamilton, Obligated Group
Project), Series 1994, 6.250%, 7/01/14
700,000 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/00 at 102 Aaa 753,361
Community Medical Center/Kensington Manor Care Center Issue, Series
E, 7.000%, 7/01/20
400,000 New Jersey Health Care Facilities Financing Authority, Refunding 7/02 at 102 A- 443,508
Revenue Bonds, Atlantic City Medical Center Issue, Series C,
6.800%, 7/01/05
700,000 New Jersey Health Care Facilities Financing Authority, 7/02 at 102 Ba1 752,612
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 275,475
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 215,140
Revenue Bonds, Newark Beth Israel Medical Center Issue,
Series 1994, 6.000%, 7/01/16
250,000 New Jersey Health Care Facilities Financing Authority, 8/04 at 102 AAA 276,213
Refunding Revenue Bonds, Irvington General Hospital
Issue (FHA Insured Mortgage), Series 1994, 6.375%, 8/01/15
1,200,000 New Jersey Health Care Facilities Financing Authority, 7/07 at 102 AAA 1,202,964
Revenue and Refunding Bonds, Holy Name Hospital Issue,
Series 1997, 5.250%, 7/01/20
</TABLE>
______
8
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS* VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH CARE - CONTINUED
$ 1,000,000 New Jersey Health Care Facilities Financing Authority, Revenue 7/07 at 102 Aaa $ 974,400
and Refunding Bonds, AHS Hospital Corporation Issue, Series
1997 A Bonds, 5.000%, 7/01/27
175,000 New Jersey Health Care Facilities Financing Authority, Bayonne 7/04 at 102 Aaa 193,855
Hospital Obligated Revenue Bonds, Series 1994, 6.250%, 7/01/12
1,000,000 Camden County Improvement Authority, Health System Revenue 5/08 at 102 Aaa 969,410
Bonds (Catholic Health East), Series 1998-A, 5.000%,
11/15/28 (WI)
1,000,000 Puerto Rico Industrial,Tourist, Educational, Medical and Environmental 1/05 at 102 Aaa 1,109,270
Control Facilities Financing Authority, Hospital Revenue Bonds,
1995 Series A (Hospital Auxilio Mutuo Obligated Group Project),
6.250%, 7/01/16
250,000 Pollution Control Financing Authority of Union County (New Jersey), No Opt. Call A3 278,355
Pollution Control Revenue Refunding Bonds, American Cyanamid Company
Issue, Series 1994, 5.800%, 9/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/MULTIFAMILY - 9.0%
1,750,000 New Jersey Housing Finance Agency, Special Pledge Revenue 11/98 at 102 A1 1,794,013
Obligations, 1975 Series One, 9.000%, 11/01/18
1,500,000 New Jersey Housing Mortgage Finance Agency, Multi-Family 5/06 at 102 Aaa 1,608,675
Housing Revenue Bonds, 1996 Series A, 6.200%, 11/01/18
(Alternative Minimum Tax)
2,000,000 New Jersey Housing and Mortgage Finance Agency, Multi-Family 5/05 at 102 Aaa 2,127,440
Housing Revenue Bonds, 1995 Series A, 6.000%, 11/01/14
700,000 New Jersey Housing and Mortgage Finance Agency, Housing Revenue 5/02 at 102 A+ 756,147
Bonds, 1992 Series A, 6.950%, 11/01/13
500,000 New Jersey Housing and Mortgage Finance Agency, Housing Revenue 11/02 at 102 A+ 540,460
Refunding Bonds, 1992 Series One, 6.600%, 11/01/14
235,000 Hoboken Housing Finance Corporation, Multifamily Mortgage Revenue Bonds No Opt. Call AA+ 241,004
(Project Uplift-FHA Section 8), 1995-A Refunding, 6.250%, 2/01/24
400,000 The Hudson County Improvement Authority, Multifamily Housing Revenue 6/04 at 100 AAA 429,060
Bonds, Series 1992 A (Conduit Financing - Observer Park Project),
6.900%, 6/01/22 (Alternative Minimum Tax)
500,000 North Bergen Housing Development Corporation (North Bergen, New 9/09 at 100 N/R 513,105
Jersey), Mortgage Revenue Bonds,Series 1978 (FHA Insured
Mortgage Loan - Section 8 Assisted Project), 7.400%, 9/01/20
- ------------------------------------------------------------------------------------------------------------------------------------
HOUSING/SINGLE FAMILY - 6.9%
New Jersey Housing and Mortgage Financing Agency, Home Buyer Revenue
Bonds, 1994 Series K:
250,000 6.300%, 10/01/16 (Alternative Minimum Tax) 7/04 at 102 Aaa 264,933
400,000 6.375%, 10/01/26 (Alternative Minimum Tax) 7/04 at 102 Aaa 423,408
4,000,000 New Jersey Housing and Mortgage Finance Agency, Home Buyer 10/07 at 101 1/2 Aaa 4,182,960
Revenue Bonds, 1997 Series U, 5.700%, 10/01/14 (Alternative
Minimum Tax)
1,175,000 Virgin Islands Housing Finance Authority,Single Family Mortgage 3/05 at 102 AAA 1,250,893
Revenue Refunding Bonds (GNMA Mortgage-Backed Securities Program),
1995 Series A, 6.450%, 3/01/16 (Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL/OTHER - 2.1%
1,135,000 New Jersey Economic Development Authority, Economic Growth Bond, 12/03 at 102 Aa3 1,195,745
Composite Issue 1992 Second Series H, 5.300%, 12/01/07
(Alternative Minimum Tax)
625,000 New Jersey Economic Development Authority, Insured Revenue Bonds 5/05 at 102 Aaa 685,725
(Educational Testing Service Issue), Series 1995B, 6.125%,
5/15/15
</TABLE>
______
9
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/GENERAL -- 12.8%
$ 1,000,000 State of New Jersey, General Obligation Bonds,Series D, No Opt. Call Aa1 $ 1,109,040
5.800%, 2/15/07
200,000 The City of Atlantic, In the County of Atlantic, New Jersey, No Opt. Call A- 212,662
General Obligation General Improvement Bonds, Series 1994,
5.650%, 8/15/04
100,000 County of Atlantic, New Jersey, General Improvement Bonds, 1/04 at 101 Aaa 109,097
6.000%, 1/01/07
250,000 City of East Orange, In the County of Essex, New Jersey, No Opt. Call Aaa 320,218
Fiscal Year Adjustment Bonds (Qualified Under the Municipal
Qualified Bond Act P.L. 1976, c. 38, as Amended), 8.400%,
8/01/06
500,000 The Board of Education of The Township of Hillsborough, in the No Opt. Call AA 561,445
County of Somerset, State of New Jersey, General Obligation
School Purpose Bonds, Series 1992, 5.875%, 8/01/11
2,645,000 Middletown Township Board of Education, General Obligation 8/07 at 100 Aaa 2,794,469
Bonds, Series 1997, School Board Reserve Act, 5.800%,
8/01/21
50,000 The Monmouth County Improvement Authority (Monmouth County, 7/02 at 102 AA+ 55,415
New Jersey), Revenue Bonds, Series 1992 (Howell Township
Board of Education Project), 6.450%, 7/01/08
165,000 Parsippany-Troy Hills Township, General Obligation, Capital No Opt. Call Aa 111,066
Appreciation Bonds, Series 1992, 0.000%, 4/01/07
2,000,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1995 7/05 at 101 1/2 Aaa 2,124,680
(General Obligation Bonds), 5.750%, 7/01/24
550,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1996 7/06 at 101 1/2 A 559,999
(General Obligation Bonds), 5.400%, 7/01/25
2,000,000 Commonwealth of Puerto Rico, Public Improvement Refunding 7/07 at 101 1/2 Aaa 2,055,480
Bonds of 1997 (General Obligation Bonds), 5.375%, 7/01/21
1,100,000 Sparta Township School District, General Obligation Bonds 9/06 at 100 Aaa 1,166,330
(Unlimited Tax), 5.800%, 9/01/18
250,000 The City of Union, In the County of Hudson, State of New No Opt. Call Aaa 292,908
Jersey, General Obligation School Purpose Bonds, Series
1992, 6.375%, 11/01/10
- -----------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED -- 9.4%
300,000 New Jersey Economic Development Authority, State Contract 9/02 at 102 Aaa 324,771
Economic Recovery Bonds, Series 1992-A, 6.000%, 3/15/21
650,000 New Jersey Economic Development Authority, Market Transition 7/04 at 102 Aaa 705,413
Facility Senior Lien Revenue Bonds, Series 1994A,
5.875%, 7/01/11
250,000 New Jersey Sports and Exposition Authority, Convention Center 7/02 at 102 Aaa 273,480
Luxury Tax Bonds, 1992 Series A, 6.250%, 7/01/20
150,000 The County of Bergen Utility Authority, Water Pollution 12/02 at 102 Aaa 163,388
Control System Revenue Bonds, Series 1992-B, 6.000%,
12/15/13
250,000 The Camden County Municipal Utilities Authority (Camden 7/06 at 102 Aaa 250,263
County, New Jersey), County Agreement Sewer Revenue Refunding
Bonds, 1996 Series, 5.125%, 7/15/17
The Essex County Improvement Authority (Essex County, NewJersey),
City of Newark General Obligation Lease Revenue Bonds, Series 1994:
300,000 6.350%, 4/01/07 4/04 at 102 Baa1 325,476
450,000 6.600%, 4/01/14 4/04 at 102 Baa1 491,324
500,000 The Essex County Improvement Authority (Essex County, New 12/02 at 102 Baa1 537,960
Jersey), County Guaranteed Pooled Revenue Bonds, Series 1992A,
6.500%, 12/01/12
1,460,000 The Board of Education of the Borough of Little Ferry, Bergen No Opt. Call N/R 1,540,052
County, New Jersey, Certificates of Participation, 6.300%,
1/15/08
</TABLE>
____
10
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY -- CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/LIMITED -- CONTINUED
$ 1,000,000 The State of New Jersey, as Lessee, and The Mercer County No Opt. Call Aa $ 1,001,320
Improvement Authority, as Lessor, Relating to the Richard
J. Hughes Justice Complex, 6.050%, 1/01/13
2,350,000 The Ocean County Utilities Authority (New Jersey), Wastewater 5/98 at 100 Aaa 2,349,812
Revenue Bonds, Refunding Series 1987, 5.000%, 1/01/14
170,000 Puerto Rico Aqueduct and Sewer Authority, Refunding Bonds, 7/06 at 101 1/2 A 167,278
Series 1995, Guaranteed by the Commonwealth of Puerto Rico,
5.000%, 7/01/15
225,000 Puerto Rico Commonwealth Highway Authority, Highway Revenue 7/00 at 100 A 233,530
Bonds, Series 1990-Q, 6.000%, 7/01/20 Transportation 9.4%
- -----------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION -- 9.4%
1,750,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, Series No Opt. Call Baa1 2,013,743
1991 C, 6.500%, 1/01/08
1,415,000 The Delaware River and Bay Authority, Revenue Bonds, Series 1/04 at 102 Aaa 1,389,502
1993, 5.000%, 1/01/17
100,000 Parking Authority of the City of Hoboken, County of Hudson, 3/02 at 102 Baa1 107,140
New Jersey, Parking General Revenue Refunding Bonds,
Series 1992A, 6.625%, 3/01/09
125,000 The Port Authority of New York and New Jersey, Consolidated 10/04 at 101 Aaa 138,125
Bonds, Ninety-Sixth Series, 6.600%, 10/01/23 (Alternative
Minimum Tax)
200,000 The Port Authority of New York and New Jersey, Consolidated 6/05 at 101 AA- 210,960
Bonds, One Hundredth Series, 5.750%, 12/15/20
200,000 The Port Authority of New York and New Jersey, Consolidated 7/04 at 101 AA- 215,222
Bonds, Ninety-Fifth Series, 5.875%, 7/15/09 (Alternative
Minimum Tax)
4,100,000 The Port Authority of New York and New Jersey Special Project 12/07 at 100 Aaa 4,318,694
Bonds, Series 6, JFKInternational Air Terminal LLC Project,
5.750%, 12/01/25 (Alternative Minimum Tax)
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. GUARANTEED 12.7%
200,000 New Jersey Economic Development Authority, Lease Rental 3/02 at 102 Aaa 223,438
Bonds, 1992 Series (Liberty State Park Project), 6.800%,
3/15/22 (Pre-refunded to 3/15/02)
1,780,000 New Jersey Health Care Facilities Financing Authority, No Opt. Call Aaa 2,144,740
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*** 2,371,714
Revenue Bonds, Series 1990-E (Kennedy Memorial Hospital),
8.375%, 7/01/10 (Pre-refunded to 7/01/01)
3,000,000 New Jersey Health Care Facilities Financing Authority, 7/99 at 102 A-*** 3,201,570
Revenue Bonds, Newton Memorial Hospital Issue, Series A,
7.500%, 7/01/19 (Pre-refunded to 7/01/99)
25,000 New Jersey Health Care Facilities Financing Authority, 7/04 at 102 Aaa 28,099
Bayonne Hospital Obligated Group, Revenue Bonds, Series 1994,
6.250%, 7/01/12 (Pre-refunded to 7/01/04)
290,000 New Jersey Turnpike Authority, Turnpike Revenue Bonds, 1984 No Opt. Call AAA 340,559
Series, 10.375%, 1/01/03
100,000 The Essex County Improvement Authority (Essex County, New 12/04 at 102 Aaa 116,947
Jersey), General Obligation Lease Revenue Bonds, Series 1994
(County Jail and Youth House Projects), 6.900%, 12/01/14
(Pre-refunded to 12/01/04)
300,000 The Township of North Bergen (Hudson County, New Jersey), 8/02 at 102 Aaa 334,311
Fiscal Year Adjustment General Obligation Bonds, Series 1992,
6.500%, 8/15/12 (Pre-refunded to 8/15/02)
60,000 Puerto Rico Highway and Transportation Authority, Highway 7/02 at 101 1/2 AAA 66,889
Revenue Bonds (Series T), 6.625%, 7/01/18 (Pre-refunded
to 7/01/02)
1,875,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/01 at 102 Aaa 2,082,488
Series P, 7.000%, 7/01/21 (Pre-refunded to 7/01/01)
</TABLE>
____
11
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GUARANTEED - CONTINUED
$ 100,000 University of Medicine and Dentistry of New Jersey, Series E, 12/01 at 102 AA-*** $ 110,162
6.500%, 12/01/18 (Pre-refunded to 12/01/01)
300,000 The Wanaque Borough Sewerage Authority (Passaic County, New 12/02 at 102 Baa1*** 341,574
Jersey), Sewer Revenue Bonds (Series 1992), 7.000%, 12/01/21
(Pre-refunded to 12/01/02)
- ------------------------------------------------------------------------------------------------------------------------------------
UTILITIES - 9.9%
1,000,000 Pollution Control Financing Authority of Camden County No Opt. Call B2 1,006,340
(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 Financing Authority of Camden County 12/01 at 102 B2 2,690,626
(Camden County, New Jersey), Solid Waste Disposal and
Resource Recovery System Revenue Bonds, Series 1991 D,
7.250%, 12/01/10
790,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, No Opt. Call Baa1 936,924
Series P, 7.000%, 7/01/07
200,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, 7/02 at 101 1/2 Baa1 215,390
Series R, 6.250%, 7/01/17
Puerto Rico Electric Power Authority, Power Revenue Bonds,
Series T:
2,000,000 5.500%, 7/01/20 7/04 at 100 Baa1 2,035,160
250,000 6.375%, 7/01/24 7/04 at 102 Baa1 277,904
1,500,000 Puerto Rico Electric Power Authority, Power Revenue Refunding 7/05 at 100 Baa1 1,493,894
Bonds, Series Z, 5.250%, 7/01/21
195,000 The Union County Utilities Authority (New Jersey), Solid 6/02 at 102 BB 195,980
Waste System Revenue Bonds, 1991 Series A, 7.100%, 6/15/06
(Alternative Minimum Tax)
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 1.2%
100,000 New Jersey Economic Development Authority, Water Facilities 6/03 at 102 Aaa 102,150
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 Facilities 3/04 at 102 Aaa 160,454
Revenue Refunding Bonds (Hackensack Water Company Project
-1994 Series B), 5.900%, 3/01/24 (Alternative Minimum Tax)
200,000 New Jersey Wastewater Treatment Trust, Wastewater Treatment 4/04 at 102 Aa 223,243
Bonds, Series 1994A, 6.500%, 4/01/14
250,000 The Hoboken-Union City-Weehawken Sewerage Authority (New 8/02 at 102 Aaa 273,310
Jersey), Sewer Revenue Bonds (Refunding Series 1992),
6.200%, 8/01/19
200,000 North Jersey District Water Supply Commission of the State of 7/03 at 102 Aaa 216,653
New Jersey, Wanaque South Project, Revenue Refunding Bonds,
Series 1993, 6.000%, 7/01/21
75,000 The Wanaque Valley Regional Sewerage Authority (Passaic 9/03 at 102 Baa 78,226
County, New Jersey), Sewer Revenue Bonds (1993 Series A),
6.125%, 9/01/22
- ------------------------------------------------------------------------------------------------------------------------------------
$80,435,000 Total Investments (cost $80,464,531) 95.9% 85,648,360
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
____
12
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT DESCRIPTION RATINGS** VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TEMPORARY INVESTMENTS IN SHORT-TERM MUNICIPAL SECURITIES - 3.5%
$ 800,000 New Jersey Economic Development Authority, Industrial Development, A-1 $ 800,000
Variable Rate Demand Bonds, 3.300%, 4/01/19+
800,000 Port Authority of New York and New Jersey, Versatile Structure VMIG-1 800,000
Obligations, Series 6, 3.550%, 12/01/17+ (Alternative
Minimum Tax)
1,500,000 Union County Industrial Pollution Control Financing Authority, A-1+ 1,500,000
Pollution Control Revenue Refunding, Exxon Project,
Series 1989, Variable Rate Demand Bonds, 3.200%, 10/01/24+
- -------------------------------------------------------------------------------------------------------------------------
$ 3,100,000 Total Temporary Investments - 3.5% 3,100,000
- -------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.6% 565,431
----------------------------------------------------------------------------------------------------
Net Assets - 100% $ 89,313,791
====================================================================================================
* 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.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities, which ensures the timely payment of
principal and interest. Securities are normally
considered to be equivalent to AAA rated securities.
N/R- Investment is not rated.
(WI) Security purchased on a when-issued basis (see note 1).
+ 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.
</TABLE>
____
13 See accompanying notes to financial statements.
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONSUMER CYCLICAL - 2.0%
$ 200,000 New Jersey Economic Development Authority, Economic Development No Opt. Call Aa3 $ 211,144
Refunding Bonds (Burlington Coat Factory Warehouse of New
Jersey, Inc. - 1995 Project), 5.400%, 9/01/03
- ------------------------------------------------------------------------------------------------------------------------------------
EDUCATION AND CIVIC ORGANIZATIONS - 6.5%
140,000 New Jersey Educational Facilities Authority, Seton Hall University 7/01 at 102 A- 150,731
Project Revenue Bonds, 1991 Series, Project D, 6.600%, 7/01/02
330,000 New Jersey Higher Educational Facilities Authority, Higher No Opt. Call BBB+ 339,210
Educational Facilities Revenue Bonds, Saint Peter's College
Issue 1992 Series B, 6.000%, 7/01/99
100,000 New Jersey Educational Facilities Authority, Stevens Institute of 7/02 at 102 A- 109,720
Technology Issue Revenue Bonds, 1992 Series A, 6.400%, 7/01/03
85,000 Higher Education Assistance Authority (State of New Jersey), 7/02 at 102 A+ 89,236
Student Loan Revenue Bonds, 1992, Series A, Loan Program, 6.000%,
1/01/06
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH CARE - 20.2%
200,000 New Jersey Health Care Facilities Financing Authority, Revenue 7/04 at 102 AAA 218,540
Bonds, Newark Beth Israel Medical Center Issue, Series 1994,
5.800%, 7/01/07
100,000 New Jersey Health Care Facilities Financing Authority, Revenue 7/02 at 102 AAA 108,660
Bonds, West Jersey Health System, Series 1992, 6.000%, 7/01/07
250,000 New Jersey Health Care Facilities Financing Authority, Revenue No Opt. Call AAA 266,370
Bonds, Monmouth Medical Center Issue, Series C, 5.700%, 7/01/02
250,000 New Jersey Health Care Facilities Financing Authority, Revenue 7/04 at 102 AAA 275,443
Bonds, Dover General Hospital and Medical Center Issue, Series
1994, 5.900%, 7/01/05
New Jersey Health Care Facilities Financing Authority, Revenue and
Refunding Bonds, Capital Health System Obligated Group, Series 1997:
500,000 4.600%, 7/01/03 No Opt. Call A- 503,385
485,000 5.125%, 7/01/12 7/08 at 101 A- 479,631
250,000 New Jersey Health Care Facilities Financing Authority, Bayonne 7/04 at 102 AAA 280,563
Hospital Obligated Group, Revenue Bonds, Series 1994, 6.400%,
7/01/07
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL/OTHER - 13.5%
250,000 New Jersey Economic Development Authority, District Heating and 12/03 at 102 BBB- 269,375
Cooling Revenue Bonds (Trigen-Trenton Project), 1993 Series B,
6.100%, 12/01/04
150,000 New Jersey Economic Development Authority, Electric Energy No Opt. Call N/R 153,084
Facility Revenue Bonds (Vineland Cogeneration Limited
Partnership Project) Series 1992, 6.750%, 6/01/99
470,000 New Jersey Economic Development Authority, Economic Growth Bonds 6/99 at 102 Aa3 488,325
Composite Issue, 1992 Series A Through Series Z, 5.800%, 6/01/01
480,000 New Jersey Economic Development Authority, Insured Revenue Bonds No Opt. Call AAA 512,309
(Educational Testing Service Issue), Series 1995B, 5.500%, 5/15/05
</TABLE>
____
14
<PAGE>
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1998
NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE - CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX OBLIGATION/GENERAL - 17.3%
$ 100,000 The Board of Education of the City of Atlantic, Atlantic 12/02 at 102 AAA $ 109,852
County, New Jersey, School Bonds, Series 1992, 6.000%,
12/01/06
100,000 County of Camden, New Jersey, General Obligation Refunding No Opt. Call AAA 105,656
Bonds, Series 1992, 5.500%, 6/01/02
275,000 Government of Guam, General Obligation Bonds, Series 1993A, 4.900%, 11/03 at 102 BBB 279,067
11/15/04
200,000 Government of Guam, General Obligation Bonds, Series 1993A,
5.150%, 11/15/07 11/03 at 102 BBB 205,104
400,000 Jersey City General Obligation, 6.500%, 2/15/02 No Opt. Call AA 435,420
100,000 The Monmouth County Improvement Authority (Monmouth 7/02 at 102 AA+ 109,057
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, 3/00 at 101 1/2 AAA 104,237
New Jersey, General Obligation Bonds, School Bonds,
5.800%, 3/01/06
200,000 State of New Jersey, General Obligation Refunding Bonds No Opt. Call AA+ 162,696
(Series D), 0.000%, 2/15/03
185,000 The Board of Education of the City of Perth Amboy in the County No Opt. Call AAA 205,317
of Middlesex, New Jersey, School Bonds, 6.200%, 8/01/04
100,000 The Township of Woodbridge in the County of Middlesex, State of 8/02 at 102 A1 109,226
New Jersey, Fiscal Year Adjustment Bonds, Series 1992, 6.150%,
8/15/06
- ------------------------------------------------------------------------------------------------------------------------------------
TAX OBLIGATION/LIMITED - 23.1%
250,000 The City of Atlantic, New Jersey Municipal Utilities Authority, 5/02 at 102 A- 262,998
Water System, Revenue Refunding Bonds, Series 1993, 5.650%,
5/01/07
320,000 The Essex County Improvement Authority (Essex County, New 4/04 at 102 BBB+ 347,174
Jersey), City of Newark General Obligation Lease Revenue
Bonds, Series 1994, 6.350%, 4/01/07
250,000 Mercer County Improvement Authority, Solid Waste, 0.000%, No Opt. Call Aa 193,478
4/01/04
300,000 Middlesex County Utilities Authority (in the County 12/07 at 101 AAA 303,708
of Middlesex, New Jersey), Sewer Revenue Refunding Bonds,
Series 1997A, 5.000%, 12/01/12
550,000 Monmouth County Improvement Authority, Governmental Loan 12/08 at 101 AAA 560,252
Revenue Bonds, Series 1993, 5.000%, 12/01/11
300,000 New Jersey Economic Development Authority, Market Transition No Opt. Call AAA 344,001
Facility Senior Lien Revenue Bonds, Series 1994A, 7.000%,
7/01/04
100,000 New Jersey Sports and Exposition Authority, Convention Center 7/02 at 102 AAA 108,660
Luxury Tax Bonds, 1992 Series A, 6.000%, 7/01/07
300,000 The Ocean County Utilities Authority (New Jersey), 1/07 at 102 Aa2 310,917
Wastewater Revenue Bonds, Refunding Series 1997,
5.000%, 1/01/09
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.3%
330,000 Parking Authority of the City of Hoboken, County of No Opt. Call Baa1 341,458
Hudson, New Jersey, Parking General Revenue Refunding
Bonds, Series 1992A, 5.850%, 3/01/00
200,000 The Port Authority of New York and New Jersey Consolidated Bonds, 7/04 at 101 AA- 214,324
Ninety-Fifty Series, 5.500%, 7/15/05
100,000 South Jersey Transportation Authority, Transportation System 11/02 at 102 AAA 108,347
Revenue Bonds, 1992 Series B (Tax Exempt), 5.900%, 11/01/06
</TABLE>
____
15
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OPTIONAL CALL MARKET
AMOUNT DESCRIPTION PROVISIONS* RATINGS** VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITIES - 5.8%
$ 300,000 The Port Authority of New York and New Jersey, Special No Opt. Call N/R $ 341,634
Project Bonds, Series 4, KIAC Partners Project, 7.000%,
10/01/07
250,000 Puerto Rico Electric Power Authority, Power Revenue Refunding No Opt. Call BBB+ 264,515
Bonds, Series Q, 5.900%, 7/01/01
- ------------------------------------------------------------------------------------------------------------------------------------
WATER AND SEWER - 1.0%
100,000 North Jersey District Water Supply Commission of the State of New 7/03 at 102 AAA 108,458
Jersey, Wanaque South Project, Revenue Refunding Bonds,
Series 1993, 5.700%, 7/01/05
- ------------------------------------------------------------------------------------------------------------------------------------
$ 9,650,000 Total Investments - (cost $9,578,879)- 95.7% 10,091,282
- ------------------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 4.3% 456,972
----------------------------------------------------------------------------------------------------------------
Net Assets 100% $ 10,548,254
================================================================================================================
* 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.
</TABLE>
____
16 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF NET ASSETS
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NUVEEN NUVEEN FLAGSHIP
FLAGSHIP NEW JERSEY
NEW JERSEY INTERMEDIATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in municipal securities, at market value (note 1) $85,648,360 $10,091,282
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 3,100,000 --
Cash 98,018 376,660
Receivables:
Fund manager (note 6) 2,355 1,528
Interest 1,260,234 127,630
Shares sold 711,636 --
Other assets 1,293 412
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 90,821,896 10,597,512
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Payables:
Investments purchased 982,789 --
Shares redeemed 277,692 --
Accrued expenses:
12b-1 distribution and service fees (notes 1 and 6) 10,164 1,691
Other 523 28,331
Dividends payable 236,937 19,236
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,508,105 49,258
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets (note 7) $89,313,791 $10,548,254
====================================================================================================================================
CLASS A SHARES (NOTE 1)
Net assets $35,781,610 $ 9,369,439
Shares outstanding 3,372,763 892,572
Net asset value and redemption price per share $ 10.61 $ 10.50
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% and 3.00%, respectively,
of offering price) $ 11.08 $ 10.82
====================================================================================================================================
CLASS B SHARES (NOTE 1)
Net assets $ 2,981,475 $ N/A
Shares outstanding 280,980 N/A
Net asset value, offering and redemption price per share $ 10.61 $ N/A
====================================================================================================================================
CLASS C SHARES (NOTE 1)
Net assets $ 5,733,240 $ 980,413
Shares outstanding 541,173 93,182
Net asset value, offering and redemption price per share $ 10.59 $ 10.52
====================================================================================================================================
CLASS R SHARES (NOTE 1)
Net assets $44,817,466 $ 198,402
Shares outstanding 4,220,367 18,885
Net asset value, offering and redemption price per share $ 10.62 $ 10.51
====================================================================================================================================
N/A Nuveen Flagship New Jersey Intermediate is not authorized to issue Class B Shares.
</TABLE>
____
17 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
TEAR ENDED FEBRUARY 28, 1998
<TABLE>
<CAPTION>
NUVEEN NUVEEN FLAGSHIP
FLAGSHIP NEW JERSEY
NEW JERSEY INTERMEDIATE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Tax-exempt interest income (note 1) $4,767,676 $436,628
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Management fees (note 6) 442,250 43,869
12b-1 service fees Class A (notes 1 and 6) 62,042 15,264
12b-1 distribution and service fees Class B (notes 1 and 6) 13,006 N/A
12b-1 distribution and service fees Class C (notes 1 and 6) 32,738 1,522
Shareholders' servicing agent fees and expenses 80,512 5,130
Custodian's fees and expenses 51,842 27,967
Trustees' fees and expenses (note 6) 2,071 869
Professional fees 21,995 14,813
Shareholders' reports printing and mailing expenses 39,028 5,315
Federal and state registration fees 6,302 843
Organizational expenses (note 1) -- 6,856
Other expenses 5,160 823
- ------------------------------------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 756,946 123,271
Expense reimbursement (note 6) (325,469) (71,152)
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses 431,477 52,119
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 4,336,199 384,509
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENTS
Net realized gain (loss) from investment transactions (notes 1 and 4) (222,985) 3,620
Net change in unrealized appreciation or depreciation
of investments 2,933,349 150,409
- ------------------------------------------------------------------------------------------------------------------------------------
Net gain from investments 2,710,364 154,029
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $7,046,563 $538,538
====================================================================================================================================
N/A--Nuveen Flagship New Jersey Intermediate is not authorized to issue Class B Shares.
</TABLE>
____
18 See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN
NEW JERSEY NEW JERSEY*
----------------------------------------------------
YEAR ENDED ONE MONTH ENDED YEAR ENDED
2/28/98 2/28/97 1/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 4,336,199 $ 337,937 $ 3,029,152
Net realized gain (loss) from investment transactions (notes 1 and 4) (222,985) -- (98,679)
Net change in unrealized appreciation or depreciation of investments 2,933,349 328,719 (891,352)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 7,046,563 666,656 2,039,121
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (1,643,900) (125,569) (704,372)
Class B (60,466) (49) N/A
Class C (207,627) (10,843) (82,289)
Class R (2,422,933) (200,899) (2,250,619)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (4,334,926) (337,360) (3,037,280)
- ------------------------------------------------------------------------------------------------------------------------------------
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 20,831,468 859,670 14,264,870
Net proceeds from shares issued to shareholders due
to reinvestment of distributions 2,802,902 -- 2,264,231
- ------------------------------------------------------------------------------------------------------------------------------------
23,634,370 74,245,156 16,529,101
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (10,348,638) (1,308,030) (7,972,757)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions 13,285,732 72,937,126 8,556,344
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 15,997,369 73,266,422 7,558,185
Net assets at the beginning of year 73,316,422 50,000 55,029,900
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $ 89,313,791 $73,316,422 $62,588,085
====================================================================================================================================
Balance of undistributed net investment income at end of year $ 1,850 $ 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).
N/A Nuveen New Jersey was not authorized to issue Class B Shares.
____
19 See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
FLAGSHIP
NUVEEN FLAGSHIP NEW JERSEY
NEW JERSEY INTERMEDIATE INTERMEDIATE
----------------------------------------------------
YEAR ENDED NINE MONTHS ENDED YEAR ENDED
2/28/98 2/28/97* 5/31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Net investment income $ 384,509 $ 280,866 $ 447,320
Net realized gain (loss) from investment transactions (notes 1 and 4) 3,620 35,472 12,478
Net change in unrealized appreciation or depreciation of investments 150,409 90,246 (98,145)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 538,538 406,584 361,653
- ------------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1)
From undistributed net investment income:
Class A (369,157) (282,787) (446,648)
Class B N/A N/A N/A
Class C (8,122) -- N/A
Class R (7,005) -- N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (384,284) (282,787) (446,648)
- ------------------------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 2)
Net proceeds from sale of shares 4,229,931 300,959 1,086,130
Net proceeds from share issued to shareholders due
to reinvestment of distributions 229,957 174,134 265,262
- ------------------------------------------------------------------------------------------------------------------------------------
4,459,888 475,093 1,351,392
- ------------------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (1,076,806) (1,905,553) (2,165,321)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions 3,383,082 (1,430,460) (813,929)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 3,537,336 (1,306,663) (898,924)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the beginning of year 7,010,918 8,317,581 9,216,505
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $10,548,254 $ 7,010,918 $ 8,317,581
====================================================================================================================================
Balance of undistributed net investment income at end of year $ 258 $ 33 $ 1,954
====================================================================================================================================
</TABLE>
* Information represents eight months of Flagship New Jersey Intermediate and
one month of Nuveen Flagship New Jersey Intermediate (see note 1).
N/A - Nuveen Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1) did not issue
Class C Shares and was not authorized to issue Class R Shares.
____
20 See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998
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 New Jersey Municipal Bond Fund and the
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund (the "Funds"), among
others. The Trust was organized as a Massachusetts business trust on July 1,
1996.
The John Nuveen Company ("Nuveen"), 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 New Jersey Double Tax Exempt Fund
("Flagship New Jersey") reorganized into Nuveen Flagship New Jersey Municipal
Bond Fund ("Nuveen Flagship New Jersey"). Flagship New Jersey Intermediate Tax
Exempt Fund ("Flagship New Jersey Intermediate") was reorganized into the Trust
and renamed Nuveen Flagship New Jersey Intermediate Municipal Bond Fund ("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 January 31 fiscal year
end and Flagship New Jersey had a May 31 fiscal year end 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 tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
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 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 valued at amortized
cost, which approximates market value.
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 have extended settlement periods. 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 the when-issued and delayed delivery purchase commitments. At
February 28, 1998, Nuveen Flagship New Jersey had an outstanding when-issued
purchase commitment of $982,789. Nuveen Flagship New Jersey Intermediate had no
such outstanding 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.
Dividends and Distributions to Shareholders
Tax-exempt net investment income is declared as a dividend monthly and payment
is made or credited to shareholders accounts on the first business day after
month-end. Net realized capital gains and/or market discount from investment
transactions, if any, are distributed to shareholders not less frequently than
annually. Furthermore, capital gains are distributed only to the extent they
exceed available capital loss carryforwards.
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.
_____
21
<PAGE>
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
exempt from regular federal and New Jersey state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All income
dividends paid during the fiscal year ended February 28, 1998, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
Flexible Sales Charge Program
Each Fund offers Class A, C and R Shares. Nuveen Flagship New Jersey also offers
Class B Shares. Class A Shares are sold with a sales charge and incur an annual
12b-1 service fee. Class A Share purchases of $1 million or more are sold at net
asset value without an up-front sales charge but may be subject to a 1%
contingent deferred sales charge ("CDSC") if redeemed within 18 months of
purchase. Class B Shares are sold without a sales charge but incur annual 12b-1
distribution and service fees. An investor purchasing Class B Shares agrees to
pay a CDSC of up to 5% depending upon the length of time the shares are held by
the investor (CDSC is reduced to 0% at the end of six years). Class B Shares
convert to Class A Shares eight years after purchase. Class C Shares are sold
without a sales charge 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 one year of purchase. Class R Shares are not subject to any
sales charge 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, 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, 1998.
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, which presently only
includes 12b-1 distribution and service fees, 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.
Organizational Expenses
The organizational expenses incurred on behalf of Nuveen Flagship New Jersey
Intermediate (approximately $32,200) will be reimbursed to the Adviser on a
straight-line basis over a period of three years beginning June 1, 1996. As of
February 28, 1998, $14,876 has been reimbursed.
_____
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
FEBRUARY 28, 1998
2. FUND SHARES
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NEW JERSEY NUVEEN NEW JERSEY*
----------------------------------------------------------------------------------
YEAR ENDED 2/28/98 ONE MONTH ENDED 2/28/97 YEAR ENDED 1/31/97
----------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued in the reorganization
of Nuveen New Jersey:
Class A -- $ -- 1,671,230 $17,071,934 -- $ --
Class B -- -- -- -- N/A N/A
Class C -- -- 255,888 2,610,879 -- --
Class R -- -- 4,195,136 42,905,272 -- --
Shares issued in the reorganization of
Flagship New Jersey:
Class A -- -- 1,056,994 10,797,401 -- --
Class B -- -- -- -- N/A N/A
Class C -- -- -- -- -- --
Class R -- -- -- -- -- --
Shares sold:
Class A 1,075,954 11,229,962 39,089 402,796 798,711 8,132,760
Class B 272,258 2,840,031 6,006 61,899 N/A N/A
Class C 312,192 3,236,991 8,563 88,093 182,286 1,861,710
Class R 338,039 3,524,484 29,727 306,882 418,474 4,270,400
Shares issued to shareholders due to
reinvestment of distributions:
Class A 91,399 950,346 -- -- 49,041 499,709
Class B 1,672 17,562 -- -- N/A N/A
Class C 12,365 128,765 -- -- 4,353 44,287
Class R 164,047 1,706,229 -- -- 168,605 1,720,235
- ------------------------------------------------------------------------------------------------------------------------------------
2,267,926 23,634,370 7,262,633 74,245,156 1,621,470 16,529,101
- ------------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (511,590) (5,328,382) (51,537) (530,506) (201,249) (2,042,963)
Class B (180) (1,846) -- -- N/A N/A
Class C (47,998) (501,403) (1,062) (10,935) (33,320) (335,344)
Class R (433,419) (4,517,007) (74,385) (766,589) (550,089) (5,594,450)
- ------------------------------------------------------------------------------------------------------------------------------------
(993,187) (10,348,638) (126,984) (1,308,030) (784,658) (7,972,757)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 1,274,739 $ 13,285,732 7,135,649 $72,937,126 836,812 $ 8,556,344
====================================================================================================================================
</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).
N/A Nuveen New Jersey was not authorized to issue Class B Shares.
_____
23
<PAGE>
<TABLE>
<CAPTION>
FLAGSHIP NEW
NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE JERSEY INTERMEDIATE
-------------------------------------------------------------------------------
YEAR ENDED 2/28/98 NINE MONTHS ENDED 2/28/97* YEAR ENDED 5/31/96
-------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A 294,336 $ 3,066,576 29,384 $ 300,959 105,150 $ 1,086,130
Class B N/A N/A N/A N/A N/A N/A
Class C 92,688 970,924 -- -- N/A N/A
Class R 18,865 192,431 -- -- N/A N/A
Shares issued to shareholders due to reinvestment of
distributions:
Class A 21,672 224,545 17,041 174,134 25,702 265,262
Class B N/A N/A N/A N/A N/A N/A
Class C 494 5,171 -- -- N/A N/A
Class R 23 241 -- -- N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
428,078 4,459,888 46,425 475,093 130,852 1,351,392
- ------------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (104,138) (1,076,777) (185,962) (1,905,553) (209,872) (2,165,321)
Class B N/A N/A N/A N/A N/A N/A
Class C -- -- -- -- N/A N/A
Class R (3) (29) -- -- N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
(104,141) (1,076,806) (185,962) (1,905,553) (209,872) (2,165,321)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) 323,937 $ 3,383,082 (139,537) $(1,430,460) (79,020) $ (813,929)
====================================================================================================================================
</TABLE>
* Information represents eight months of Flagship New Jersey Intermediate and
one month of Nuveen Flagship New Jersey Intermediate (note 1).
N/A Nuveen Flagship New Jersey Intermediate is not authorized to issue Class B
Shares and prior to February 1, 1997, its predecessor (see note 1) did not issue
Class C Shares and was not authorized to issue Class R Shares.
3. DISTRIBUTIONS TO SHAREHOLDERS
On March 9, 1998, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid April 1, 1998, to shareholders of
record on March 9, 1998, as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP
NEW JERSEY NEW JERSEY INTERMEDIATE
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0450 $.0415
Class B .0385 N/A
Class C .0405 .0370
Class R .0470 .0435
======================================================================================================================
</TABLE>
N/A Nuveen Flagship New Jersey Intermediate is not authorized to
issue Class B Shares.
_____
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
FEBRUARY 28, 1998
4. SECURITIES TRANSACTIONS
Purchases and sales (including maturities) of investments in municipal
securities and temporary municipal investments for the fiscal year ended
February 28, 1998, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP
NEW JERSEY NEW JERSEY INTERMEDIATE
---------------------------------------------------------------------------------
<S> <C> <C>
Purchases:
Investments in municipal securities $23,644,603 $3,463,483
Temporary municipal investments 17,600,000 1,300,000
Sales:
Investments in municipal securities 11,686,079 740,694
Temporary municipal investments 16,100,000 1,300,000
=================================================================================
</TABLE>
At February 28, 1998, 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, 1998, 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 carryforwards will expire as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP
NEW JERSEY NEW JERSEY INTERMEDIATE
-----------------------------------------------------------------------------------
<S> <C> <C>
Expiration year:
2002 $170,409 $ --
2003 424,626 195,063
2004 116,050 --
2006 216,928 --
-----------------------------------------------------------------------------------
Total $928,013 $195,063
===================================================================================
</TABLE>
5. UNREALIZED APPRECIATION (DEPRECIATION)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1998, were as follows:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP
NEW JERSEY NEW JERSEY INTERMEDIATE
------------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $5,354,741 $519,365
depreciation (170,912) (6,962)
------------------------------------------------------------------------
Net unrealized appreciation $5,183,829 $512,403
========================================================================
</TABLE>
_____
25
<PAGE>
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 management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of 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 or its affiliates.
The Adviser may voluntarily reimburse expenses from time to time, which may be
terminated at any time at its discretion.
During the fiscal year ended February 28, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $242,400 and $16,700 for
Nuveen Flagship New Jersey and Nuveen Flagship New Jersey Intermediate,
respectively, of which approximately $209,700 and $13,200, 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, 1998, the Distributor compensated
authorized dealers directly with approximately $154,700 and $31,900 in
commission advances at the time of purchase for Nuveen Flagship New Jersey and
Nuveen Flagship New Jersey Intermediate, respectively. To compensate for
commissions advanced to authorized dealers, all 12b-1 service fees collected on
Class B Shares for Nuveen Flagship New Jersey during the first year following a
purchase, all 12b-1 distribution fees collected on Class B Shares for Nuveen
Flagship New Jersey, and all 12b-1 service and distribution fees on Class C
Shares during the first year following a purchase are retained by the
Distributor. For the fiscal year ended February 28, 1998, the Distributor
retained approximately $36,100 and $1,500 in such 12b-1 fees for Nuveen Flagship
New Jersey and Nuveen Flagship New Jersey Intermediate, respectively. The
remaining 12b-1 fees charged to the Funds were paid to compensate authorized
dealers for providing services to shareholders relating to their investments.
The Distributor also collected and retained approximately $400 of CDSC on share
redemptions for Nuveen Flagship New Jersey during the fiscal year ended February
28, 1998.
7. COMPOSITION OF NET ASSETS
At February 28, 1998, the Funds had an unlimited number of $.01 par value per
shares authorized. Net assets consisted of:
<TABLE>
<CAPTION>
NUVEEN FLAGSHIP NUVEEN FLAGSHIP
NEW JERSEY NEW JERSEY INTERMEDIATE
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $85,067,176 $10,230,656
Balance of undistributed net investment income 1,850 258
Accumulated net realized gain (loss) from investment transactions (939,064) (195,063)
Net unrealized appreciation of investments 5,183,829 512,403
--------------------------------------------------------------------------------------------------------------
Net assets $89,313,791 $10,548,254
==============================================================================================================
</TABLE>
_____
26
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- ------------------------
NET
NUVEEN FLAGSHIP NEW JERSEY NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
FEBRUARY 28/29, OF PERIOD INCOME (A) INVESTMENTS INCOME GAINS PERIOD VALUE (B)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/94)**
1998 $10.26 $.55 $ .36 $(.56) $ -- $10.61 9.06%
1997 (c) 10.22 .05 .04 (.05) -- 10.26 .85
1997 (d) 10.40 .48 (.15) (.51) -- 10.22 3.31
1996 (d) 9.73 .51 .69 (.53) -- 10.40 12.63
1995 (e) 10.03 .21 (.21) (.21) (.09) 9.73 .02
CLASS B (2/97)
1998 10.26 .48 .35 (.48) -- 10.61 8.25
1997 (c) 10.22 .05 .03 (.04) -- 10.26 .78
CLASS C (9/94)**
1998 10.25 .50 .34 (.50) -- 10.59 8.40
1997 (c) 10.20 .04 .05 (.04) -- 10.25 .90
1997 (d) 10.38 .41 (.16) (.43) -- 10.20 2.53
1996 (d) 9.71 .44 .68 (.45) -- 10.38 11.80
1995 (e) 9.77 .16 (.05) (.17) -- 9.71 1.16
CLASS R (12/91)**
1998 10.27 .58 .35 (.58) -- 10.62 9.29
1997 (c) 10.23 .05 .04 (.05) -- 10.27 .86
1997 (d) 10.41 .49 (.14) (.53) -- 10.23 3.55
1996 (d) 9.74 .55 .68 (.56) -- 10.41 12.88
1995 (d) 10.71 .52 (.88) (.52) (.09) 9.74 (3.27)
1994 (d) 9.96 .51 .81 (.51) (.06) 10.71 13.60
1993 (d) 9.53 .45 .42 (.44) -- 9.96 9.36
1992 (e) 9.53 -- -- -- -- 9.53 --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** Information included prior to the one month ended February 28,
1997, reflects the financial highlights of Nuveen New Jersey.
(a) After waiver of certain management fees or reimbursement of
expenses, if any, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) For the one month ended February 28.
(d) For the fiscal year ended January 31.
(e) From commencement of class operations as noted through January
31.
____
27
<PAGE>
<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
END OF BEFORE BEFORE AFTER AFTER PORTFOLIO
PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (A) MENT (A) RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$35,782 1.01% 4.92% .60% 5.33% 16%
27,879 1.01* 5.43* .55* 5.89* --
17,072 1.13 4.85 1.00 4.98 10
10,661 1.25 4.85 1.00 5.10 39
2,741 1.31* 5.03* 1.00* 5.34* 32
2,981 1.77 4.16 1.36 4.57 16
74 1.77* 5.71* 1.27* 6.21* --
5,733 1.56 4.37 1.16 4.77 16
2,712 1.56* 4.89* 1.10* 5.35* --
2,611 1.88 4.09 1.75 4.22 10
1,065 1.96 4.16 1.75 4.37 39
464 2.00* 4.37* 1.75* 4.62* 32
44,817 .81 5.12 .40 5.53 16
42,651 .81* 5.63* .35* 6.09* --
42,905 .89 5.10 .75 5.24 10
43,304 .98 5.20 .75 5.43 39
39,582 .89 5.18 .75 5.32 32
36,462 .98 4.61 .75 4.84 52
16,208 1.43* 4.28* .75* 4.96* 9
15 -- -- -- -- --
- -------------------------------------------------------------------------------------------------
</TABLE>
____
28
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
CLASS (INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
------------------------- ----------------------
NUVEEN FLAGSHIP NET
NEW JERSEY INTERMEDIATE NET REALIZED AND DIVIDENDS NET TOTAL
ASSET UNREALIZED FROM TAX- ASSET RETURN
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE ON NET
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF ASSET
FEBRUARY 28/29, OF PERIOD INCOME (A) INVESTMENTS INCOME GAINS PERIOD VALUE (B)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A (9/92)**
1998 $10.30 $.50 $ .20 $(.50) $ -- $10.50 7.00%
1997 (c) 10.14 .38 .16 (.38) -- 10.30 5.41
1996 (d) 10.25 .51 (.11) (.51) -- 10.14 3.89
1995 (d) 10.04 .50 .22 (.51) -- 10.25 7.42
1994 (d) 10.15 .53 (.10) (.52) (.02)*** 10.04 4.27
1993 (e) 9.70 .34 .45 (.34) -- 10.15 11.07*
CLASS C (3/97)
1998 (f) 10.28 .45 .24 (.45) -- 10.52 6.84
CLASS R (3/97)
1998 (f) 10.28 .52 .24 (.53) -- 10.51 7.55
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the nine months ended February
28, 1997, reflects the financial highlights of Flagship New
Jersey Intermediate.
*** The amount shown reflects a distribution in excess of capital
gains.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory or its predecessor
Flagship Financial.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized except where noted.
(c) For the nine months ended February 28.
(d) For the fiscal year ended May 31.
(e) From commencement of operations as noted through May 31.
(f) From commencement of class operations as noted.
____
29
<PAGE>
<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
END OF BEFORE BEFORE AFTER AFTER PORTFOLIO
PERIOD REIMBURSE- REIMBURSE- REIMBURSE- REIMBURSE- TURNOVER
(IN THOUSANDS) MENT MENT MENT (A) MENT (A) RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$9,369 1.54% 3.93% .64% 4.83% 9%
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
980 2.03* 3.45* 1.19* 4.29* 9
198 1.33* 4.12* .46* 4.99* 9
- ------------------------------------------------------------------------------------------------
</TABLE>
____
30
<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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 621-7227 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
Nuveen
our second century 1898/1998
helping investors sustain the wealth of a lifetime./TM/
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
NUVEEN
Municipal Bond Funds
February 28, 1998
Annual Report
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
New York
New York
Insured
<PAGE>
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
Wealth takes a lifetime to build. Once achieved, it should be preserved.
Dear Shareholder
Over the past 12 months, the Nuveen New York Municipal Bond Funds have performed
well, rewarding investors with dependable tax-free income and attractive
returns. As of February 28, 1998, shareholders in the Nuveen Flagship New York
Municipal Bond Fund's Class A shares were receiving an annualized tax-free
current yield on net asset value of 4.58%, while investors in the Nuveen New
York Insured Municipal Bond Fund's Class A shares were receiving 3.73% annually.
To match these yields on an after-tax basis, investors in the combined 35.7%
federal and New York state income tax bracket would have had to earn 7.12% and
5.80%, respectively, from comparable taxable investments. For shareholders in
higher tax brackets, these tax-adjusted yields are even more attractive.
For the year ended February 28, 1998, the uninsured fund provided Class A
shareholders with a total return on net asset value of 9.84%. The insured fund
provided Class A shareholders with an annual total return of 7.76%. You will
find additional details on the individual performance of each fund on pages 3-6.
Municipal Market Review
The bond market enjoyed a period of solid performance over the past year, as the
benign inflationary environment provided the ideal backdrop for fixed-income
investments, including municipal issues. A shrinking federal deficit and the
inactivity of the Federal Reserve, which has been on hold since its last
interest rate tightening in March 1997, also contributed to the positive
environment for bonds.
Between the end of February 1997 and February 1998, the yield on 30-year
Treasury bonds dropped from 6.80% to 5.92%, and the municipal market followed
suit, as the yield on the Bond Buyer 40 declined from 5.76% to 5.24%. The
relatively tight spread between tax-free municipal bond yields and taxable
Treasury bond yields, combined with municipal's comparatively low volatility and
dependable tax-free income, continue to make these bonds an attractive
investment opportunity for investors in higher tax brackets.
1
<PAGE>
Meeting Investor Needs
The stable income stream and quality portfolios detailed on the following pages
demonstrate that these municipal bond funds have continued to achieve their
investment objectives. In today's market environment, many investors are seeking
conservatively managed investments that strike the proper balance between reward
and risk in their portfolios. With their focus on attractive tax-free income and
competitive after-tax total returns, Nuveen's municipal bond funds can be ideal
for the tax-sensitive investor who wants to build and sustain long-term
financial security.
Building Better Portfolios
Nuveen's broad array of insured and traditional municipal bond funds provide a
variety of choices so that investors can select the risk level appropriate to
their individual needs. Our municipal bond funds can also be combined with other
Nuveen investments, creating the foundation for a well-balanced investment
portfolio that offers risk resistance as well as tax efficiency.
As you review the performance of your fund and discuss the results with your
financial adviser, we hope that you continue to think of Nuveen when seeking
quality investment solutions that withstand the test of time. Your adviser can
introduce you to a variety of other Nuveen products and services designed to
round out your portfolio of core investments. These include the Nuveen Growth
and Income Stock Fund, our two balanced funds, which seek capital appreciation
and stability through a blend of equities and Treasury securities or municipal
bonds, and the new Nuveen Rittenhouse Growth Fund, a blue chip equity mutual
fund that provides a tax-efficient approach to building and sustaining wealth.
We encourage you to talk to your financial adviser about our additional products
and services to determine those that can best complement your current Nuveen
investments.
On behalf of everyone at Nuveen, I thank you for your continued confidence in us
and our family of investments.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 15, 1998
2
<PAGE>
Nuveen New York Municipal Bond Funds
Portfolio Manager's Comments
Portfolio manager Dan Solender discusses the performance of the New York
Municipal Bond Funds, the New York municipal market, and key investment
strategies.
Performance Review
Over the past 12 months, we have enjoyed a bull market in fixed-income
investments, including municipal bonds. New issue and refunding activity took
off, totaling $220 billion nationally in 1997--the third largest volume ever.
This pace continued into the beginning of 1998. In New York, supply was
particularly heavy as many large issuers such as New York City took advantage of
low rates to refund outstanding bonds.
This environment--with an abundant supply of bonds from a wide range of
issuers--created many opportunities for the funds. We selectively purchased new
issues and monitored the secondary market for investments arising as other
investors sold bonds to pay for their new issue purchases. Investment strategies
included extending duration, increasing call protection when the cost was
minimal and for the uninsured fund, taking advantage of opportunities when
credit spreads temporarily widened. Sectors that were particularly attractive at
times during the year were state agency lease obligations and federally enhanced
healthcare bonds.
The composition of the uninsured fund changed somewhat during the year. Credit
quality improved as our exposure to BBB-rated bonds decreased from 45% to 35%.
The reasons were twofold: First, credit spreads (the incremental yield for
purchasing bonds rated lower than AAA) narrowed, leading to fewer attractive BBB
investment opportunities. And second, New York City and some New York State
agency bonds were upgraded from the BBB category to A. As a result, the
weighting in A-rated bonds rose from 12% to 20%. At the end of the year the
sectors with the highest weightings in the uninsured fund were tax obligations
and healthcare bonds. In the insured fund, the heaviest weightings were in U.S.
guaranteed securities and healthcare bonds.
Nuveen Flagship New York
Municipal Bond Fund
The annual total return on net asset value for Class A shares of the fund was
9.84% for the period ended February 28, 1998. This return is equivalent to a
return of 12.92% for shareholders in the combined 35.7% federal and state tax
bracket. This return matches the annual return for the Lehman Brothers New York
Municipal Bond Index.
The fund's strong performance can be attributed to its heavy weighting in New
York State Agency and New York City bonds, which benefited from both the
tightening of credit spreads and their rating upgrades during the year. Also,
several of the fund's holding were refunded during the year leading to increases
in the prices of those bonds.
Nuveen New York Insured
Municipal Bond Fund
The Nuveen New York Insured Municipal Bond Fund posted a total return of 7.76%
on net asset value for the period, besting the Lipper peer group average of
7.71%. During the same period, the Lehman Brothers New York Insured Municipal
Bond Index,
3
<PAGE>
"Over the past 12 months, we have enjoyed a bull market in fixed-income
investments, including municipal bonds."
which does not incur operating expenses or transaction costs, reported a 9.31%
total return.
Certain types of bonds performed well for the fund during the year, including
some discount bonds which perform well as rates decrease, and bonds with sinking
funds which were purchased at attractive prices. Also, as with the uninsured
fund, this fund held several bonds which were refunded during the year. Still,
its duration was somewhat on the short side, reducing the volatility of share
prices but also limiting total return as rates fell.
New York Market Recap
The past twelve months have been a great stretch for New York. Both the city and
the state economies performed exceedingly well creating budget surpluses.
Additionally, both attained rating upgrades and strong market acceptance for
their new issues. One new issuer, New York City's Transitional Finance
Authority, which was created during 1997 as the city was close to reaching the
debt limit for its general obligation bonds, brought bonds to market twice and
helped the city to borrow at exceptionally low rates. Many other issuers,
including state agencies, universities and local municipalities, also refunded
outstanding bonds throughout the year. Overall new issue supply in New York was
extremely heavy during 1997 totaling $28 billion, which was 31 percent higher
than 1996. Through the first months of 1998, the strong pace has continued.
Looking forward to the rest of 1998, the New York market will continue to garner
a lot of attention. Of particular interest will be the new issues of the Long
Island Power Authority. This entity is being created to address the continuing
deregulation of the utility industry and as a response to high-cost utility
generators. The amount of its new issues is expected to be in excess of $7
billion and is anticipated to occur during the spring. Also, if interest rates
continue to remain low, we should see more outstanding bonds being refunded as
issuers reach thresholds at which the savings are large enough to justify the
transaction costs.
Investment Strategies
Although the current low interest rate environment makes portfolio management
more challenging, we will find value as we continue to monitor the market. In
the current market this means watching for supply and demand imbalances as new
issues are brought to the market, looking for bonds in the BBB or non-rated
categories when we are adequately compensated for the credit risk, and
purchasing bond structures that will provide not only yield but also superior
total return potential.
One sector we currently find attractive is health care, which must be approached
through selective purchases since it is still going through major changes. We
will also look to some of the smaller new issues that can often provide
attractive investments with lesser market attention.
4
<PAGE>
Nuveen Flagship New York Municipal Bond Fund
<TABLE>
<CAPTION>
Performance Overview
As of February 28, 1998
5
- --------------------------------------------------------------------------------
Portfolio Statistics
- --------------------------------------------------------------------------------
Share Class A B C R
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 2/97 9/94 12/86
- --------------------------------------------------------------------------------
Net Asset Value $10.97 $10.98 $11.01 $11.00
- --------------------------------------------------------------------------------
Fund Net Assets ($000) $248,724
- --------------------------------------------------------------------------------
Average Weighted Maturity (Years) 21.02
- --------------------------------------------------------------------------------
Average Weighted Duration (Years) 6.50
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Annualized Total Return/1/
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
1-Year 9.84% 5.24% 9.10% 9.31% 10.11%
- --------------------------------------------------------------------------------
5-Year 6.43% 5.51% 5.75% 5.81% 6.74%
- --------------------------------------------------------------------------------
10-Year 7.91% 7.44% 7.34% 7.19% 8.20%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Tax-Free Yields
- --------------------------------------------------------------------------------
Share Class A(NAV) A(Offer) B C R
- --------------------------------------------------------------------------------
Distribution Rate 5.20% 4.98% 4.43% 4.63% 5.35%
- --------------------------------------------------------------------------------
SEC 30-Day Yield 4.58% 4.39% 3.83% 4.03% 4.79%
- --------------------------------------------------------------------------------
Taxable Equivalent Yield/2/ 7.12% 6.83% 5.96% 6.27% 7.45%
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Index Comparison/3/
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Date Lehman Brothers Nuveen Flagship NY Nuveen Flagship NY
Municipal Bond Municipal Bond Municipal Bond Fund
Index Fund (NAV) (Offer)
<S> <C> <C> <C>
Feb-88 10,000.00 10,000.00 9,580.00
- --------------------------------------------------------------------------------
Feb-89 10,620.34 10,625.14 10,178.89
- --------------------------------------------------------------------------------
Feb-90 11,708.95 11,498.46 11,015.52
- --------------------------------------------------------------------------------
Feb-91 12,788.46 12,253.17 11,738.54
- --------------------------------------------------------------------------------
Feb-92 14,066.52 13,687.07 13,112.21
- --------------------------------------------------------------------------------
Feb-93 16,002.67 15,669.17 15,011.06
- --------------------------------------------------------------------------------
Feb-94 16,887.10 16,741.67 16,038.52
- --------------------------------------------------------------------------------
Feb-95 17,205.76 16,774.95 16,070.40
- --------------------------------------------------------------------------------
Feb-96 19,107.08 18,540.93 17,762.21
- --------------------------------------------------------------------------------
Feb-97 20,331.95 19,485.83 18,667.42
- --------------------------------------------------------------------------------
Feb-98 22,192.00 21,406.00 20,505.00
- --------------------------------------------------------------------------------
</TABLE>
- - Lehman Brothers Municipal Bond Index - $22,192
- - Nuveen Flagship New York Municipal Bond Fund (NAV) - $21,406
- - Nuveen Flagship New York Municipal Bond Fund (Offer) - $20,505
Past results are not predictive of future performance.
<TABLE>
- ----------------------------------------------------------------------------------
12-Month Dividends (Class A Shares)
- ----------------------------------------------------------------------------------
[bar graphs appears here]
[plot points]
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
.0473 .0473 .0473 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475 .0475
Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb.
</TABLE>
Top 5 Sectors
- --------------------------------------------------------------------------------
Tax Obligation (Limited) 29%
- --------------------------------------------------------------------------------
Health Care 15%
- --------------------------------------------------------------------------------
U.S. Guaranteed 13%
- --------------------------------------------------------------------------------
Education and Civic Organizations 12%
- --------------------------------------------------------------------------------
Utilities 6%
- --------------------------------------------------------------------------------
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 return figures. Class C Shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 35.7%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A shares, performance
reflects Class R shares performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
5
<PAGE>
Nuveen New York Insured Municipal Bond Fund
Performance Overview
As of February 28, 1998
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
12-Month Dividends (Class A Shares)
<S> <C>
March .0435
April .0445
May .0445
June .0445
July .0445
August .0445
September .0445
October .0445
November .0445
December .0445
January .0445
February .0445
</TABLE>
<TABLE>
<CAPTION>
Top 5 Sectors
<S> <C>
U.S. Guaranteed 23%
- --------------------------------------
Health Care 18%
- --------------------------------------
Education and Civic Organizations 11%
- --------------------------------------
Tax Obligation (Limited) 11%
- --------------------------------------
Housing (Multifamily) 9%
- --------------------------------------
</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 return figures. Class C Shares have a 1% CDSC for
redemptions within one year which is not reflected in the one-year total
return.
2 Based on SEC yield and a combined federal and state income tax rate of 35.7%.
Represents the yield on a taxable investment necessary to equal the yield of
the Nuveen fund on an after-tax basis.
3 The Index Comparison shows the change in value of a $10,000 investment in the
Class 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 (4.20%) and all ongoing fund
expenses. For periods prior to inception of Class A shares, performance
reflects Class R shares performance adjusted for differences in expenses,
which are primarily differences in distribution and service fees.
<TABLE>
<CAPTION>
Portfolio Statistics
Share Class A B C R
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inception Date 9/94 2/97 9/94 12/86
- --------------------------------------------------------------------------
Net Asset Value $10.76 $10.76 $10.74 $10.76
- --------------------------------------------------------------------------
Fund Net Assets ($000) $366,660
- --------------------------------------------------------------------------
Average Weighted Maturity (Years) 20.66
- --------------------------------------------------------------------------
Average Weighted Duration (Years) 5.67
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Annualized Total Return/1/
Share Class A(NAV) A(Offer) B C R
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1-Year 7.76% 3.23% 6.96% 7.16% 8.04%
- ------------------------------------------------------------
5-Year 5.62% 4.71% 4.87% 4.89% 5.88%
- ------------------------------------------------------------
10-Year 7.57% 7.11% 6.98% 6.80% 7.84%
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Tax-Free Yields
Share Class A(NAV) A(Offer) B C R
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distribution Rate 4.96% 4.76% 4.18% 4.41% 5.13%
- ----------------------------------------------------------------------------
SEC 30-Day Yield 3.73% 3.57% 2.98% 3.18% 3.93%
- ----------------------------------------------------------------------------
Taxable Equivalent Yield/2/ 5.80% 5.55% 4.63% 4.95% 6.11%
- ----------------------------------------------------------------------------
</TABLE>
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Index Comparison/3/
Nuveen Flagship Nuveen Flagship
Lehman Brothers New York Insured New York Insured
Municipal Bond Municipal Bond Municipal Bond
Date Index Fund (NAV) Fund (Offer)
- -----------------------------------------------------------------
<S> <C> <C> <C>
Feb-88 $10,000.00 $10,000.00 $ 9,580.00
Feb-89 10,620.34 10,611.07 10,165.40
Feb-90 11,708.95 11,509.44 11,026.05
Feb-91 12,788.46 12,350.91 11,832.17
Feb-92 14,066.52 13,755.95 13,178.20
Feb-93 16,002.67 15,776.30 15,113.69
Feb-94 16,887.10 16,616.90 15,918.99
Feb-95 17,205.76 16,793.49 16,088.16
Feb-96 19,107.08 18,509.09 17,726.92
Feb-97 20,331.95 19,252.87 18,444.25
Feb-98 22,192.00 20,742.00 19,869.00
- -----------------------------------------------------------------
</TABLE>
- -Lehman Brothers Municipal Bond Index - $22,192
- -Nuveen New York Insured Municipal Bond Fund (NAV) - $20,742
- -Nuveen New York Insured Municipal Bond Fund (Offer) - $19,869
Past results are not predictive of future performance.
6
<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, 1998, 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, 1998, by correspondence with the custodian and brokers. 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, 1998, 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 15, 1998
7
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
February 28, 1998
Nuveen Flagship New York
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations -- 11.6%
$ 500,000 Dormitory Authority of the State of New York, 7/98 at 102 Baa1 $ 517,465
City University Refunding Bonds, 1988B Issue,
8.200%, 7/01/13
2,000,000 Dormitory Authority of the State of New York, 5/00 at 102 A- 2,174,300
State University Educational Facilities Revenue
Bonds, Series 1990A, 7.400%, 5/15/01
750,000 Dormitory Authority of the State of New York, No Opt. Call Baa1 921,878
City University System, Second General
Resolution Revenue Bonds, Series 1990C,
7.500%, 7/01/10
500,000 Dormitory Authority of the State of New York, 7/01 at 102 Baa1 550,335
Revenue Bonds, State University Athletic
Facility Issue, Series 1991, 7.250%, 7/01/21
2,000,000 Dormitory Authority of the State of New York, No Opt. Call A- 2,151,180
State University Educational Facilities Revenue
Bonds, Series 1993A, 5.500%, 5/15/08
1,500,000 Dormitory Authority of the State of New York, No Opt. Call Baa1 1,622,625
City University System, Second General
Resolution Revenue Bonds, Series 1993A,
5.750%, 7/01/07
Dormitory Authority of the State of New York,
State University Educational Facilities Revenue
Bonds, Series 1993B:
1,125,000 5.250%, 5/15/09 No Opt. Call A- 1,183,894
1,000,000 5.250%, 5/15/19 No Opt. Call A- 1,031,060
2,100,000 Dormitory Authority of the State of New York, 7/04 at 102 A1 2,337,636
University 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 2,492,642
1,000,000 6.250%, 7/01/25 7/05 at 102 Baa1 1,085,370
1,750,000 Town of Brookhaven, Industrial Development 3/03 at 102 BBB 1,891,173
Agency, 1993 Civic Facility Revenue Bonds
(Dowling College/The National Aviation and
Transportation Center Civic Facility),
6.750%, 3/01/23
2,470,000 Dutchess County, Industrial Development 11/03 at 102 A 2,759,459
Agency, Civic Facility Revenue Bonds
(the Bard College Project), Series 1992,
7.000%, 11/01/17
1,000,000 City of Rochelle, Industrial Development 7/02 at 102 Baa2 1,078,810
Agency, Civic Facility Revenue Bonds
(College of New Rochelle Project - 1992
Series), 6.625%, 7/01/12
215,000 New York City Industrial Development Agency, 11/01 at 102 AAA 233,574
Civic Facility Revenue Bonds (Federation
Protestant Welfare), Series 1991, 6.950%,
11/01/11
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 Baa2 1,092,130
1,000,000 6.300%, 9/01/15 9/05 at 102 Baa2 1,052,570
3,515,000 Suffolk County, Industrial Development Agency, 6/04 at 102 BBB 3,716,972
Civic Facility Revenue Bonds (Dowling College
Civic Facility), Series 1994, 6.625%, 6/01/24
1,000,000 Suffolk County, Industrial Development Agency, 12/06 at 102 BBB 1,076,160
Civic Facility Revenue Refunding Bonds
(Dowling College Civic Facility), Series 1996,
6.700%, 12/01/20
- --------------------------------------------------------------------------------------------------------------------
Forest and Paper Products -- 0.3%
750,000 Jefferson County Industrial Development Agency, 11/02 at 102 Baa1 831,465
Multi-Modal Interchangeable Rate, Solid Waste
Disposal Revenue Bonds (Champion International
Corporation Project), Series 1990, 7.200%,
12/01/20 (Alternative Minimum Tax)
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
February 28, 1998
Nuveen Flagship New York - continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care - 14.9%
$ 500,000 Dormitory Authority of the State of New York, 2/00 at 100 AAA $ 511,295
Hospital Revenue Bonds, Long Island Jewish
Medical Center (FHA Insured Mortgage),
Series 1988, 7.750%, 8/15/27
1,000,000 Dormitory Authority of the State of New York, No Opt. Call Baa 1,082,710
NYACK Hospital, Revenue Bonds, Series 1996,
6.000%, 7/01/06
3,300,000 Dormitory Authority of the State of New York, 2/07 at 102 AAA 3,521,232
Menorah Campus, Inc., FHA-Insured Mortgage
Nursing Home Revenue Bonds, Series 1997,
5.950%, 2/01/17
2,250,000 Dormitory Authority of the State of New York, 2/07 at 102 Aaa 2,371,590
The Rosalind and Joseph Gurwin Jewish Geriatric
Center of Long Island, Inc., FHA-Insured Mortgage
Nursing Home Revenue Bonds, Series 1997, 5.700%,
2/01/37
2,000,000 Dormitory Authority of the State of New York, 2/08 at 101 Aaa 1,929,920
The New York and Presbyterian Hospital,
FHA-Insured Mortgage Hospital Revenue Bonds,
Series 1998, 5.000%, 8/01/32
3,000,000 Dormitory Authority of the State of New York, 2/08 at 101 1/2 Baa1 2,996,070
Secured Hospital Revenue Refunding Bonds,
Series 1998, 5.300%, 2/15/20
375,000 New York State Medical Care Facilities Finance 8/99 at 100 Aa 383,636
Agency, Hospital and Nursing Home Insured
Mortgage Revenue Bonds, 1987 Series A, 8.000%,
2/15/27
995,000 New York State Medical Care Facilities Finance 8/98 at 102 AAA 1,032,104
Agency, Albany Medical Center Hospital Project
Revenue Bonds, 1987 Series A, 8.000%, 2/15/28
965,000 New York State Medical Care Facilities Finance 8/99 at 102 AA 1,026,934
Agency, Hospital and Nursing Home, Insured
Mortgage Revenue Bonds, 1989 Series B, 7.350%,
2/15/29
495,000 New York State Medical Care Facilities Finance 8/01 at 102 AA 545,322
Agency, 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 8/02 at 102 AAA 2,127,880
Agency, Hospital and Nursing Home, FHA-Insured
Mortgage Revenue Bonds, 1992 Series B, 6.200%,
8/15/22
1,440,000 New York State Medical Care Facilities Finance 2/03 at 102 AAA 1,591,546
Agency, Hospital and Nursing Home, FHA-Insured
Mortgage Revenue Bonds, 1992 Series D, 6.450%,
2/15/09
2,500,000 New York State Medical Care Facilities Finance 2/04 at 102 AAA 2,691,650
Agency, Hospital and Nursing Home, FHA-Insured
Mortgage Revenue Bonds, 1994 Series A, 6.200%,
2/15/21
1,000,000 New York State Medical Care Facilities Finance 11/05 at 102 Aa 1,115,040
Agency, Health Center Projects Revenue Bonds
(Secured Mortgage Program), 1995 Series A,
6.375%, 11/15/19
1,000,000 New York State Medical Care Facilities Finance 2/05 at 102 AA 1,070,480
Agency, FHA-Insured Mortgage Project Revenue
Bonds, 1995 Series B, 6.100%, 2/15/15
2,410,000 New York State Medical Care Facilities Finance 8/04 at 102 AAA 2,637,866
Agency, Hospital and Nursing Home, FHA-Insured
Mortgage Revenue Bonds, 1994 Series C, 6.400%,
8/15/14
1,000,000 New York State Medical Care Facilities Finance No Opt. Call BBB+ 1,054,010
Agency, Brookdale Hospital Medical Center,
Secured Hospital Revenue Bonds, 1995 Series A,
6.400%, 2/15/01
1,000,000 New York City, Health and Hospitals Corporation, 2/03 at 102 BBB- 1,052,550
Health System Bonds, 1993 Series A, 6.300%,
2/15/20
5,345,000 New York City Industrial Development Agency, 7/02 at 102 AA 5,744,753
Civic Facility Revenue Bonds (1992 The
Lighthouse, Inc. Project), 6.500%, 7/01/22
2,285,000 Newark-Wayne Community Hospital, Inc., Hospital 9/03 at 102 N/R 2,473,056
Revenue Improvement and Refunding Bonds,
Series 1993A, 7.600%, 9/01/15
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Transportation -- 3.9%
$ 500,000 Albany Parking Authority, Aggregate Principal Amount (Green and Hudson 9/01 at 102 A $ 540,735
Garage Project), Parking Revenue Refunding Bonds, Series 1991A,
7.150%, 9/15/16
4,000,000 Metropolitan Transportation Authority, Commuter Facilities Revenue Bonds, 707 at 101 1/2 Aaa 4,260,640
Series 1997A, 5.750%, 7/01/21
1,000,000 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds, 7/06 at 102 Aaa 1,108,850
Series A, 6.100%, 7/01/21
2,000,000 New York City Industrial Development Agency, Special Facility Revenue Bonds, 1/04 at 102 A 2,121,720
Series 1994 (Terminal One Group Association, L.P. Project), 6.125%, 1/01/24
(Alternative Minimum Tax)
1,500,000 The Port Authority of New York and New Jersey, Special Project Bonds Series 6, 12/07 at 100 Aaa 1,580,010
JFK International Air Terminal LLC Project, 5.750%, 12/01/25 (Alternative
Minimum Tax)
- ----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 13.1%
2,135,000 Dormitory Authority of the State of New York, United Health Services, Inc., 2/00 at 102 AAA 2,311,522
FHA-Insured Mortgage Revenue Bonds, Series 1989, 7.350%, 8/01/29
(Pre-refunded to 2/01/00)
1,000,000 Dormitory Authority of the State of New York, City University System 7/00 at 102 Aaa 1,099,810
Consolidated Revenue Bonds, Series 1990A, 7.625%, 7/01/20
(Pre-refunded to 7/01/00)
400,000 Dormitory Authority of the State of New York, Menorah Campus, Inc., 8/01 at 102 AAA 449,648
FHA-Insured Mortgage Revenue Bonds, Series 1991, 7.400%, 2/01/31
(Pre-refunded to 8/01/01)
250,000 Dormitory Authority of the State of New York, Department of Health Revenue 7/01 at 102 Baa1*** 278,768
Bonds, Veterans Home, Series 1990, 7.250%, 7/01/21
(Pre-refunded to 7/01/01)
300,000 Dormitory Authority of the State of New York, State of New York Department of 7/01 at 102 Baa1*** 339,162
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 Revenue Bonds, 7/04 at 102 Aaa 1,173,105
State University Issue, Series X, 7.400%, 7/01/24 (Pre-refunded to 7/01/04)
200,000 New York State Housing Finance Agency, State University Construction No Opt. Call Aaa 257,862
Refunding Bonds, 1986 Series A, 8.000%, 5/01/11
1,660,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds 11/00 at 102 Aaa 1,861,939
(New York City), 1990 Series A Refunding, 8.000%, 11/01/08
(Pre-refunded to 11/01/00)
1,000,000 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 8/98 at 102 AAA 1,038,830
Home, FHA-Insured Mortgage Revenue Bonds, 1988 Series C, 7.700%,
2/15/22 (Pre-refunded to 8/15/98)
1,460,000 New York State Medical Care Facilities Finance Agency, Mental Health Sevices 2/01 at 102 Aaa 1,626,455
Facilities Improvement Revenue Bonds, 1991 Series A, 7.500%, 2/15/21
(Pre-refunded to 2/15/01)
50,000 New York State Medical Care Facilities Finance Agency, Mental Health Services 2/00 at 102 Aaa 54,566
Facilities Improvement Revenue Bonds, 1990 Series A, 7.750%, 2/15/20
(Pre-refunded to 2/15/00)
</TABLE>
10
<PAGE>
<TABLE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship New York--continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed -- continued
$1,250,000 New York State Medical Care Facilities Agency, New York Downtown Hospital, 2/05 at 102 BBB+*** $1,444,650
Secured Hospital Revenue Bonds, 1995 Series A, 6.700%, 2/15/12
(Pre-refunded to 2/15/05)
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 (Pre-refunded to 2/15/05) 2/05 at 102 Aaa 1,161,980
1,000,000 6.800%, 8/15/24 (Pre-refunded to 2/15/05) 2/05 at 102 Aaa 1,164,700
2,700,000 New York State Medical Care Facilities Finance Agency, Hospital Medical 2/05 at 102 BBB+*** 3,135,807
Center, Secured Hospital Revenue Bonds, Series 1995-A, 6.800%, 8/15/12
(Pre-refunded to 2/15/05)
1,000,000 New York State Urban Development Corporation, Correctional Capital 1/00 at 102 Aaa 1,083,420
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 Revenue Bonds 1/01 at 102 Baa1*** 2,233,680
(Clarkson Center), Series 1990, 7.800%, 1/01/20 (Pre-refunded to 1/01/01)
2,900,000 New York State Urban Development Corporation, State Facilities Revenue 4/01 at 102 Aaa 3,243,389
Bonds, Series 1991, 7.500%, 4/01/20 (Pre-refunded to 4/01/01)
300,000 State of New York, Serial Bonds, Series 1991, 7.300%, 3/01/12 3/01 at 102 A*** 332,891
(Pre-refunded 3/01/01)
1,000,000 Metropolitan Transportation Authority, Commuter Facilities Revenue Bonds, 7/02 at 102 Aaa 1,103,790
Series 1992B, 6.250%, 7/01/17 (Pre-refunded to 7/01/02)
1,000,000 Metropolitan Transportation Authority, Commuter Facilities Revenue Bonds, 7/04 at 101 1/2 Aaa 1,131,790
Series 1994A, 6.375%, 7/01/18 (Pre-refunded to 7/01/04)
1,000,000 Metropolitan Transportation Authority (New York), Commuter Facilities, 1987 7/00 at 102 Aaa 1,099,170
Service Contract Bonds, Series 3, 7.500%, 7/01/16 (Pre-refunded to 7/01/00)
1,025,000 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds, 7/02 at 102 Aaa 1,141,490
Series J, 6.500%, 7/01/18 (Pre-refunded to 7/01/02)
415,000 The City of New York, General Obligation Bonds, Fiscal 1995 Series B, 7.000%, 8/04 at 101 Aaa 482,984
8/15/16 (Pre-refunded to 8/15/04)
550,000 The City of New York, General Obligation Bonds, Fiscal 1992 Series B, 2/02 at 101 1/2 A3*** 623,463
7.500%, 2/01/06 (Pre-refunded to 2/01/02)
1,500,000 New York City Municipal Water Finance Authority (New York), Water 6/01 at 101 1/2 Aaa 1,691,640
and Sewer System Revenue Bonds, Fiscal 1991 Series C, 7.750%, 6/15/20
(Pre-refunded to 6/15/01)
1,000,000 Orangetown Housing Authority (Rockland County, New York), Housing Facilities 10/00 at 102 A*** 1,111,000
Revenue Bonds (Orangetown Senior Housing Center-1990 Series),
7.600%, 4/01/30 (Pre-refunded to 10/01/00)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Housing/Multifamily -- 4.9%
$ 750,000 Dormitory Authority of the State of New York, GNMA Collateralized Revenue 2/99 at 102 AAA $ 787,568
Bonds (Park Ridge Housing, Inc. Project), Series 1989, 7.850%, 2/01/29
2,250,000 New York State Housing Finance Agency, Housing Project Mortgage Revenue Bonds, 5/06 at 102 Aaa 2,434,860
1996 Series A Refunding, 6.125%, 11/01/20
New York State Housing Finance Agency, Insured Multi-Family Mortgage
Housing Revenue Bonds, 1992 Series A:
1,650,000 6.950%, 8/15/12 8/02 at 102 AA 1,780,367
500,000 7.000%, 8/15/22 8/02 at 102 AA 535,330
1,000,000 New York State Housing Finance Agency, Multi-Family Housing Revenue Bonds 2/04 at 102 Aa2 1,064,570
(Secured Mortgage Program), 1994 Series C, 6.450%, 8/15/14
1,000,000 New York State Urban Development Corporation, Section 236 Revenue Bonds, 1/02 at 102 Aaa 1,101,750
Series 1992A, 6.750%, 1/01/26
1,000,000 City of Batavia Housing Authority, Tax-Exempt Mortgage Revenue Refunding 7/01 at 102 Aaa 1,044,730
Bonds, Series 1994A (Washington Towers -- FHA-Insured Mortgage),
6.500%, 1/01/23
2,000,000 New York City Housing Development Corporation, Multi-Family Mortgage 4/03 at 102 AAA 2,131,620
Revenue Bonds (FHA Insured Mortgage Loan), 1993 Series A,
6.550%, 10/01/15
1,250,000 New York City Housing Development Corporation, Multi-Unit Mortgage 6/01 at 102 AAA 1,331,250
Refunding Bonds (FHA Insured Mortgage Loan), 1991 Series A,
7.350%, 6/01/19
- ----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family -- 1.6%
380,000 State of New York Mortgage Agency, Mortgage Revenue Bonds, Ninth Series E, 4/98 at 102 Aaa 388,219
8.100%, 10/01/17
250,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 2/01 at 102 Aa2 269,658
Series MM-1, 7.950%, 10/01/21 (Alternative Minimum Tax)
1,500,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 9/04 at 102 Aa2 1,620,450
Series 43, 6.450%, 10/01/17
595,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 4/01 at 102 Aa2 633,348
1991 Series UU, 7.750%, 10/01/23 (Alternative Minimum Tax)
1,000,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 3/05 at 102 Aa2 1,083,530
1995 Series 46, 6.600%, 10/01/19 (Alternative Minimum Tax)
- ----------------------------------------------------------------------------------------------------------------------------------
Long Term Care -- 5.3%
2,000,000 Dormitory Authority of the State of New York, Bishop Henry R. Hucles Nursing 7/06 at 102 Aa2 2,151,480
Home, Inc., Revenue Bonds, Series 1996, 6.000%, 7/01/24
650,000 Town of Hempstead Industrial Development Agency, Civic Facility Revenue 10/99 at 102 Aa2 687,538
Bonds (United Cerebral Palsy Association of Nassau County, Inc., Civic Facility
Project-1989 Series), 7.500%, 10/01/09
245,000 Dormitory Authority of the State of New York, Iroquis Nursing Home Insured Revenue 2/01 at 102 AA- 264,440
Bonds, Series 1991, 7.000%, 2/01/15
2,500,000 Dormitory Authority of the State of New York, W.K. Nursing Home Corporation, 8/06 at 102 AAA 2,659,700
FHA-Insured Mortgage Revenue Bonds, Series 1996, 5.950%, 2/01/16
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Portfolio of Investments
February 28, 1998
Nuveen Flagship New York - continued
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long Term Care - continued
$5,000,000 Syracuse Housing Authority (Syracuse, New York), 2/08 at 102 AAA $5,232,250
FHA-Insured Mortgage Revenue Bonds (Loretto
Rest Residential Health Care Facility Project),
Series 1997A, 5.800%, 8/01/37
2,100,000 UFA Development Corporation, Utica, New York, 7/04 at 102 Aa2 2,208,842
FHA-Insured Mortgage Revenue Bonds, Series
1993 (Loretto-Utica Project), 5.950%, 7/01/35
- --------------------------------------------------------------------------------------------------------------------
Other Revenue - 1.0%
2,225,000 Dormitory Authority of the State of New York, No Opt. Call Baa1 2,412,078
City University Refunding Bonds, 1993C Issue,
5.750%, 7/01/12
- --------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 4.8%
45,000 The City of New York, General Obligation Bonds, 8/02 at 101 1/2 Aaa 49,735
Fiscal 1992 Series C, Fixed Rate Bonds,
Subseries C1, 6.625%, 8/01/13
40,000 The City of New York, General Obligation Bonds, 11/01 at 101 1/2 A3 45,541
Fiscal 1991 Series F, 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 A3 2,085,960
2,500,000 5.750%, 2/01/20 2/06 at 101 1/2 A3 2,605,475
1,000,000 The City of New York, General Obligation Bonds, 2/06 at 101 1/2 A3 1,042,980
Fiscal 1996 Series F, 5.750%, 2/01/19
1,750,000 The City of New York, General Obligation Bonds, 11/06 at 101 1/2 A3 1,872,413
Fiscal 1997 Series D, 5.875%, 11/01/11
585,000 The City of New York, General Obligation Bonds, 8/04 at 101 A3 676,342
Fiscal 1995 Series B, 7.000%, 8/15/16
1,000,000 The City of New York, General Obligation Bonds, 8/07 at 101 A3 1,010,600
Fiscal 1998 Series D, 5.375%, 8/01/17
1,450,000 The City of New York, General Obligation Bonds, 2/02 at 101 1/2 A3 1,622,652
Fiscal 1992 Series B, 7.500%, 2/01/06
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 467,536
390,000 6.875%, 10/01/09 No Opt. Call A 470,781
- --------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 28.2%
2,250,000 Dormitory Authority of the State of New York, 4/14 at 115 21/32 Baa1 2,625,638
Judicial Facilities Lease Revenue Bonds
(Suffolk County Issue), Series 1991A,
9.500%, 4/15/14
2,225,000 Dormitory Authority of the State of New York, 5/03 at 101 1/2 Baa1 2,282,961
Court Facilities Lease Revenue Bonds (The
City of New York Issue), Series 1993A,
5.700%, 5/15/22
1,000,000 Dormitory Authority of the State of New York, 7/04 at 102 Baa1 1,077,810
State University Educational Facilities,
Revenue Bonds, Series 1994B, 6.250%, 7/01/24
2,900,000 Dormitory Authority of the State of New York, 7/04 at 102 Baa1 2,930,682
State Department of Health of the State of
New York, Revenue Bonds, Series 1994, 5.500%,
7/01/23
1,500,000 Dormitory Authority of the State of New York, 7/05 at 102 Baa1 1,688,820
State 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, 2/07 at 102 A- 2,577,350
Mental Health Services Facilities
Improvement, Revenue Bonds, Series 1997B,
5.625%, 2/15/21
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited -- continued
$ 3,000,000 New York Local Government Assistance Corporation, Series 1993 B, 4/04 at 100 A+ $ 2,899,980
Refunding Bonds, 5.000%, 4/01/23
3,500,000 New York Local Government Assistance Corporation (A Public Benefit 4/03 at 102 Aaa 3,420,130
Corporation of the State of New York), Series 1993C Refunding
Bonds, 5.000%, 4/01/21
2,000,000 New York Medical Care Facilities Finance Agency, Mental Health Services 2/02 at 100 Aaa 2,027,640
Facilities Improvement Revenue Bonds, 1992 Series A, 5.500%, 8/15/21
1,545,000 New York State Environmental Facilities Corporation, State Park 3/03 at 101 Baa1 1,606,028
Infrastructure Special Obligation Bonds, Series 1993 A, 5.750%, 3/15/13
340,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds 11/00 at 102 BBB+ 375,537
(New York City), 1990 Series A Refunding, 8.000%, 11/01/08
1,000,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds 5/06 at 101 1/2 BBB+ 1,092,610
(New York City), 1996 Series A Refunding, 6.000%, 11/01/08
2,990,000 New York State Housing Finance Agency, Service Contract Obligation Revenue 9/03 at 102 Baa1 3,143,178
Bonds, 1993 Series C Refunding, 5.875%, 9/15/14
2,000,000 New York State Housing Finance Agency, Service Contract Obligation Revenue 9/05 at 102 Baa1 2,198,660
Bonds, 1995 Series A, 6.375%, 9/15/15
110,000 New York State Medical Care Facilities Finance Agency, Mental Health Services 2/00 at 100 A- 112,507
Facilities Improvement Revenue Bonds, 1988 Series A, 7.700%, 2/15/18
1,500,000 New York State Medical Care Facilities Finance Agency, Mental Health Services 8/04 at 102 A- 1,644,780
Facilities Improvement Revenue Bonds, 1994 Series E, 6.500%, 8/15/24
5,090,000 New York State Urban Development Corporation, Correctional Capital Facilities 1/03 at 102 Baa1 5,161,973
Revenue Bonds, 1993 Refunding Series, 5.500%, 1/01/15
7,500,000 New York State Urban Development Corporation, Correctional Capital Facilities 1/04 at 102 Baa1 7,401,225
Revenue Bonds, 1993A Refunding Series, 5.250%, 1/01/21
1,000,000 New York State Urban Development Corporation, Project Revenue Bonds 1/06 at 102 Baa1 1,083,590
(Onondaga County Convention Center), Refunding Series 1995,
6.250%, 1/01/20
250,000 State of New York Municipal Bond Bank Agency, Special Program Bonds (City of 9/01 at 102 BBB+ 271,905
Buffalo), 1991 Series A, 6.875%, 3/15/06
250,000 State of New York Municipal Bond Bank Agency, Special Program Revenue 9/01 at 102 A+ 273,133
Bonds (City of Rochester), 1991 Series A, 6.750%, 3/15/11
300,000 Albany Housing Authority, City of Albany, New York, Limited Obligation Bonds, 10/05 at 102 Baa1 309,375
Series 1995, 5.850%, 10/01/07
485,000 City of Albany Industrial Development Agency, Lease Revenue Bonds (The New No Opt. Call N/R 562,581
York State Assembly Building Project), 1991 Series A-1, 7.750%, 1/01/10
1,500,000 Albany Parking Authority, Aggregate Principal Amount, Parking Revenue No Opt. Call Baa1 544,140
Refunding Bonds, Series 1992A, 0.000%, 11/01/17
1,600,000 County of Franklin Industrial Development Agency, Lease Revenue Bonds (County 11/02 at 102 BBB- 1,749,888
Correctional Facility Project), Series 1992, 6.750%, 11/01/12
2,500,000 Housing New York Corporation, Senior Revenue Refunding Bonds, Series 1993, 11/03 at 102 AA 2,444,050
5.000%, 11/01/13
4,000,000 Metropolitan Transportation Authority (New York), Transit Facilities Service 7/03 at 101 1/2 Baa1 4,130,120
Contract Bonds, Series P, 5.750%, 7/01/15
</TABLE>
14
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen Flagship New York -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited -- continued
$ 2,000,000 Metropolitan Transportation Authority, Commuter Facilities Revenue Bonds, 7/07 at 101 Baa1 $ 2,005,740
1998 Series B, 5.375%, 7/01/21
3,500,000 New York City Transitional Finance Authority, Future Tax Secured 8/07 at 101 AA 3,394,965
Bonds, Fiscal 1998 Series A, 5.000%, 8/15/27
2,000,000 34th Street Partnership, Inc., 34th Street Business Improvement 1/03 at 102 A1 2,021,420
District, Capital Improvement Bonds, Series 1993, 5.500%, 1/01/23
500,000 Triborough Bridge and Tunnel Authority, Convention Center No Opt. Call Baa1 599,595
Project Bonds, Series E, 7.250%, 1/01/10
Triborough Bridge and Tunnel Authority (New York), Special
Obligation Refunding Bonds, Series 1991B:
2,000,000 7.100%, 1/01/10 1/01 at 102 A1 2,192,200
2,000,000 7.000%, 1/01/10 1/01 at 102 Aaa 2,188,800
2,000,000 New York City Industrial Development Agency, Civic Facility 12/02 at 102 BBB 2,152,660
Revenue Bonds (1992 Jewish Board of Family and Children's Services, Inc.
Project), 6.750%, 12/15/12
- ------------------------------------------------------------------------------------------------------------------------------------
Utilities -- 5.4%
1,250,000 New York State Energy Research and Development Authority, 6/02 at 102 BB+ 1,364,274
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 Authority, Electric Facilities 1/03 at 102 BB+ 544,774
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 Authority, Electric Facilities 1/00 at 101 A1 371,836
Revenue Bonds Series 1991 (Consolidated Edison Company of New York, Inc.
Project), 7.500%, 1/01/26 (Alternative Minimum Tax)
2,435,000 New York State Energy Research and Development Authority, Adjustable Rate 7/05 at 102 Aaa 2,646,917
Pollution Control Revenue Bonds (New York State Electric and Gas Corporation
Project), 1987 Series A, 6.150%, 7/01/26 (Alternative Minimum Tax)
1,000,000 New York State Energy Research and Development Authority, Refunding Revenue 10/03 at 102 A1 1,005,210
Bonds, Series 1993 C (Consolidated Edison Company of New York, Inc. Project),
5.375%, 9/15/22 (Alternative Minimum Tax)
1,500,000 New York State Energy Research and Development Authority, 7/05 at 102 Aaa 1,642,514
Facilities Refunding Revenue Bonds, Series 1995 (Consolidated Edison
Company of New York, Inc. Project), 6.100%, 8/15/20
4,000,000 New York City Industrial Development Agency, Industrial Development Revenue 10/08 at 102 BBB- 4,116,120
Bonds (Brooklyn Navy Yard Cogeneration Partners, L.P. Project), Series 1997,
5.650%, 10/01/28 (Alternative Minimum Tax)
750,000 Onondaga County Resource Recovery Agency, System Revenue Bonds (Development 5/02 at 102 Baa 812,820
Costs-1992 Series), 7.000%, 5/01/15 (Alternative Minimum Tax)
1,000,000 Puerto Rico Electric Power Authority, Power Revenue Refunding 7/05 at 102 Baa1 1,027,120
Bonds, Series Z, 5.500%, 7/01/16
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 3.5%
New York City, New York, Municipal Water Finance
Authority, Water and Sewer System Revenue Bonds,
Fiscal 1996 Series A:
$ 1,000,000 5.500%, 6/15/23 6/05 at 100 A2 $ 1,021,600
1,500,000 6.000%, 6/15/25 6/05 at 101 A2 1,674,690
2,750,000 New York City, New York, Municipal Water Finance 6/07 at 101 A2 2,696,622
Authority, Water and Sewer Revenue Refunding
Bonds, Series 1998-A, 5.125%, 6/15/21
10,000,000 New York City, New York, Municipal Water Finance No Opt. Call A2 3,176,000
Authority, Water and Sewer System Revenue
Bonds, Fiscal 1998 Series D, 0.000%, 6/15/20
- ----------------------------------------------------------------------------------------------------------------------------
$238,175,000 Total Investments - (cost $223,650,121) - 98.5% 245,115,569
================------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities - 0.4%
$ 1,000,000 New York State Energy Research and Development P-1 1,000,000
================ Authority, Pollution Control,
Niagara Mohawk Power Corporation, Variable Rate
Demand Bonds, 3.650%, 3/01/27+
---------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.1% 2,608,782
---------------------------------------------------------------------------------------------------------
Net Assets - 100% $248,724,351
=========================================================================================================
</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.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities, which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
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.
See accompanying notes to financial statements
16
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen New York Insured--continued
<TABLE>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations--11.0%
$5,000,000 Dormitory Authority of the State of New York, State University 7/05 at 102 Aaa $5,047,350
Dormitory Facilities, Lease Revenue Bonds, Series 1995A,
5.300%, 7/01/24
1,265,000 Dormitory Authority of the State of New York, College and 12/98 at 102 Aaa 1,321,950
University Revenue (Pooled Capital Program), Series 1985,
7.800%, 12/01/05
2,500,000 Dormitory Authority of the State of New York, City University 7/00 at 102 Aaa 2,702,250
System, Consolidated Second General Resolution Revenue Bonds,
Series 1990C, 7.000%, 7/01/14
5,000,000 Dormitory Authority of the State of New York, New York 7/01 at 102 Aaa 5,419,750
University, Insured Revenue Bonds, Series 1991,
6.250%, 7/01/09
4,640,000 Dormitory Authority of the State of New York, Mount Sinai 7/04 at 102 Aaa 4,515,045
School of Medicine, Insured Revenue Bonds, Series 1994A,
5.000%, 7/01/21
5,000,000 Dormitory Authority of the State of New York, City University 7/03 at 100 Aaa 4,887,800
System, Consolidated Revenue Bonds, Series 1993F, 5.000%,
7/01/20
1,500,000 Dormitory Authority of the State of New York, Sarah Lawrence 7/05 at 102 Aaa 1,627,485
College, Revenue Bonds, Series 1995, 6.000%, 7/01/24
2,000,000 Dormitory Authority of the State of New York, City University 7/05 at 102 Aaa 2,035,880
System, Consolidated Third General Resolution Revenue Bonds,
1995 Series 1, 5.375%, 7/01/25
2,500,000 Dormitory Authority of the State of New York, Siena College, 7/07 at 102 Aaa 2,662,900
Insured Revenue Bonds, Series 1997, 5.750%, 7/01/26
1,350,000 Town of Hempstead Industrial Development Agency, Civic Facility 7/06 at 102 Aaa 1,457,366
Revenue Bonds (Hofstra University Project--Series 1996),
5.800%, 7/01/15
4,840,000 Nassau County Industrial Development Agency, Civic Facility 8/01 at 102 Aaa 5,305,802
Revenue Bonds (Hofstra University Project--Series 1991),
6.750%, 8/01/11
1,000,000 New York City Industrial Development Agency, Civic Facility 11/04 at 102 Aaa 1,114,180
Revenue Bonds (USTA National Tennis Center Incorporated
Project), 6.375%, 11/15/14
1,000,000 New York City Industrial Development Agency, Civic Facility 9/05 at 102 Aaa 1,069,490
Revenue Bonds (New School For Social Research Project),
Series 1995A, 5.750%, 9/01/15
1,145,000 New York City Industrial Development Agency, Civic Facility 6/07 at 102 Aaa 1,202,708
Revenue Bonds (Anti-Defamation League Foundation Project),
Series 1997A, 5.600%, 6/01/17
- ---------------------------------------------------------------------------------------- ------------- ----- ------
Health Care--18.0%
6,460,000 Dormitory Authority of the State of New York, St. Vincent's 8/05 at 102 Aaa 6,839,460
Hospital and Medical Center of New York, FHA-Insured Mortgage
Revenue Bonds, Series 1995, 5.800%, 8/01/25
3,730,000 Dormitory Authority of the State of New York, Maimonides 2/06 at 102 Aaa 3,946,676
Medical Center, FHA-Insured Mortgage Hospital Revenue Bonds,
Series 1996A, 5.750%, 8/01/24
3,000,000 Dormitory Authority of the State of New York, Millard Fillmore 8/04 at 105 Aaa 3,055,050
Hospitals, FHA-Insured Mortgage Hospital Revenue Bonds, Series
1997, 5.375%, 2/01/17
5,000,000 Dormitory Authority of the State of New York, The New York and 2/08 at 101 Aaa 4,824,800
Presbyterian Hospital, FHA-Insured Mortgage Hospital Revenue
Bonds, Series 1998, 5.000%, 8/01/32
995,000 New York State Medical Care Facilities Finance Agency, Albany 8/98 at 102 AAA 1,032,104
Medical Center Hospital Project Revenue Bonds, 1987 Series A,
8.000%, 2/15/28
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<C> <S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Health Care -- continued
$ 895,000 New York State Medical Care Facilities Finance Agency, St. Francis Hospital 11/98 at 102 Aaa $ 935,042
Project Revenue Bonds, 1988 Series A, 7.625%, 11/01/21
1,945,000 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 8/99 at 102 AA 2,069,830
Home Insured Mortgage Revenue Bonds, 1989 Series B, 7.350%, 2/15/29
3,200,000 New York State Medical Care Facilities Finance Agency, North Shore 11/00 at 102 Aaa 3,488,352
University Hospital, Mortgage Project Revenue Bonds, 1990 Series A,
7.200%, 11/01/20
2,000,000 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 2/99 at 102 Aaa 2,107,540
Home, FHA-Insured Mortgage Revenue Bonds, 1989 Series A, 7.250%, 2/15/24
1,670,000 New York State Medical Care Facilities Finance Agency, Our Lady of Victory 11/01 at 102 Aaa 1,821,436
Hospital Project Revenue Bonds, 1991 Series A, 6.625%, 11/01/16
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 546,350
1,550,000 6.625%, 11/01/18 11/01 at 102 Aaa 1,690,554
1,000,000 New York State Medical Care Facilities Finance Agency, Aurelia Osborn Fox 11/01 at 102 Aaa 1,086,490
Memorial Hospital Project Revenue Bonds, 1992 Series A, 6.500%, 11/01/19
3,000,000 New York State Medical Care Facilities Finance Agency, South Nassau 11/02 at 102 Aaa 3,278,730
Communities Hospital Project Revenue Bonds, 1992 Series A, 6.125%, 11/01/11
2,500,000 New York State Medical Care Facilities Finance Agency, St. Mary's Hospital 11/03 at 102 Aaa 2,745,550
(Rochester), Mortgage Project Revenue Bonds, 1994 Series A Refunding,
6.200%, 11/01/14
7,890,000 New York State Medical Care Facilities Finance Agency, Montefiore Medical 2/05 at 102 Aaa 8,371,763
Center, FHA-Insured Mortgage Revenue Bonds, 1995 Series A, 5.750%, 2/15/15
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 2,623,125
14,980,000 5.750%, 2/15/22 2/03 at 102 Aaa 15,633,727
- ----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily -- 9.1%
New York State Finance Agency, Housing Project Mortgage Revenue Bonds,
1996 Series A Refunding:
5,750,000 6.100%, 11/01/15 5/06 at 102 Aaa 6,234,495
5,000,000 6.125%, 11/01/20 5/06 at 102 Aaa 5,410,800
645,000 New York State Housing Finance Agency, Multifamily Housing Revenue Bonds 11/99 at 102 Aaa 676,728
(AMBAC Insured Program), 1989 Series A, 7.450%, 11/01/28
New York State Urban Development Corporation, Section 236 Revenue Bonds,
Series 1992A:
3,850,000 6.700%, 1/01/12 1/02 at 102 Aaa 4,239,312
9,650,000 6.750%, 1/01/26 1/02 at 102 Aaa 10,631,888
5,000,000 Pass-Through Certificates of New York City HDC Multifamily Housing, Limited 11/03 at 100 Aaa 6,010,250
Obligation Bonds, Series 1991A, 6.500%, 2/20/19
</TABLE>
18
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- -----------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Housing/Single Family -- 1.1%
$ 60,000 State of New York Mortgage Agency, Mortgage Revenue Bonds, Eighth 1/00 at 100 Aaa $ 60,544
Series D, 8.375%, 10/01/17
390,000 State of New York Mortgage Agency, Mortgage Revenue Bonds, Ninth 4/98 at 102 Aaa 398,436
Series E, 8.100%, 10/01/17
3,500,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 10/03 at 102 Aaa 3,624,215
Series 29-C-1, 5.650%, 4/01/15
- -----------------------------------------------------------------------------------------------------------------------------
Long Term Care -- 0.9%
1,000,000 Dormitory Authority of the State of New York, United Cerebral 7/02 at 102 Aaa 1,091,120
Palsey Association of Westchester County, Inc., Insured
Revenue Bonds, Series 1992, 6.200%, 7/01/12
Dormitory Authority of the State of New York, Sarah Neuman Nursing
Home, FHA-Insured Mortgage Nursing Home Revenue Bonds, Series 1997:
1,000,000 5.375%, 8/01/17 8/07 at 102 Aaa 1,018,350
1,000,000 5.450%, 8/01/27 8/07 at 102 Aaa 1,024,760
- -----------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General -- 7.4%
1,000,000 City of Buffalo, New York, Refunding Serial Bonds-1991, 1/01 at 101 Aaa 1,064,180
6.150%, 2/01/04
Camden Central School District, Oneida County, New York,
School District (Serial) Bonds, 1991:
500,000 7.100%, 6/15/07 No Opt. Call Aaa 602,420
600,000 7.100%, 6/15/08 No Opt. Call Aaa 731,568
600,000 7.100%, 6/15/09 No Opt. Call Aaa 736,650
275,000 7.100%, 6/15/10 No Opt. Call Aaa 339,446
500,000 Greece Central School District, Monroe County, New York, General No Opt. Call Aaa 566,540
Obligation Bonds, School District (Serial) Bonds, 1992,
6.000%, 6/15/09
Town of Halfmoon, Saratoga County, New York, Public Improvement
(Serial) Bonds, 1991:
385,000 6.500%, 6/01/09 No Opt. Call Aaa 455,216
395,000 6.500%, 6/01/10 No Opt. Call Aaa 468,585
395,000 6.500%, 6/01/11 No Opt. Call Aaa 469,505
Middle Country Central School, District at Centereach in the
Town of Brookhaven, Suffolk County, N.Y., School District
(Serial) Bonds, 1991:
475,000 6.900%, 12/15/07 No Opt. Call Aaa 575,339
475,000 6.900%, 12/15/08 No Opt. Call Aaa 578,598
Mount Sinai Union Free School District, County of Suffolk,
New York, School District Refunding (Serial) Bonds, 1992:
500,000 6.200%, 2/15/15 No Opt. Call Aaa 577,440
1,035,000 6.200%, 2/15/16 No Opt. Call Aaa 1,194,504
1,500,000 County of Nassau, New York, General Obligation Serial Bonds, 8/04 at 103 Aaa 1,622,355
Serial General Improvement Bonds, Series O, 5.700%, 8/01/13
1,020,000 City of New Rochelle, Westchester County, New York, General 8/04 at 102 Aaa 1,125,580
Obligation Bonds, Public Improvement Bonds, 1994 Series B,
6.200%, 8/15/22
1,000,000 The City of New York, General Obligation Bonds, Fiscal 1992 8/02 at 101 1/2 Aaa 1,089,820
Series C, Fixed Rate Bonds, Subseries C-1, 6.250%, 8/01/10
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ----------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/General -- continued
$ 75,000 The City of New York, General Obligation Bonds, Fiscal 1992 8/02 at 101 1/2 Aaa $ 82,892
Series C, 6.625%, 8/01/12
1,590,000 City of Niagara Falls, Niagara County, New York, Public 3/04 at 102 Aaa 1,810,644
Improvement (Serial) Bonds, 1994, 6.900%, 3/01/21
Town of North Hempstead, Nassau County, New York, General
Obligation Refunding Serial Bonds, 1992 Series B:
1,500,000 6.375%, 4/01/09 No Opt. Call Aaa 1,745,595
1,505,000 6.400%, 4/01/14 No Opt. Call Aaa 1,772,770
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 686,588
625,000 6.500%, 4/01/13 4/02 at 102 Aaa 686,588
625,000 6.500%, 4/01/14 4/02 at 102 Aaa 685,844
Rensselaer County, New York, General Obligation Serial Bonds,
Series 1991:
960,000 6.700%, 2/15/13 No Opt. Call Aaa 1,158,883
960,000 6.700%, 2/15/14 No Opt. Call Aaa 1,161,792
960,000 6.700%, 2/15/15 No Opt. Call Aaa 1,163,760
Rondout Valley Central School District at Accord, Ulster
County, New York, General Obligation, School District
(Serial) Bonds, 1991:
550,000 6.800%, 6/15/06 No Opt. Call Aaa 644,078
550,000 6.850%, 6/15/07 No Opt. Call Aaa 652,911
550,000 6.850%, 6/15/08 No Opt. Call Aaa 659,934
550,000 6.850%, 6/15/09 No Opt. Call Aaa 663,839
550,000 6.850%, 6/15/10 No Opt. Call Aaa 666,771
600,000 County of Suffolk, New York, General Obligation Refunding (Serial) 5/03 at 102 Aaa 651,798
Bonds, Public Improvement Refunding Bonds, 1993 Series B,
6.150%, 5/01/10
- ----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited -- 10.9%
2,500,000 Dormitory Authority of the State of New York, Mental Health Services 8/07 at 101 Aaa 2,475,550
Facilities Improvement Revenue Bonds, Series 1997D, 5.125%, 8/15/27
2,300,000 Empire Development Corporation, New York State Urban 1/06 at 102 Aaa 2,342,964
Development Corporation, Correctional Capital Facilities Revenue
Bonds, Series 6, 5.375%, 1/01/25
3,280,000 New York Local Government Assistance Corporation 4/04 at 100 Aaa 3,201,936
(A Public Benefit Corporation of the State of New York), Series 1993 B,
Refunding Bonds, 5.000%, 4/01/23
2,000,000 New York Local Government Assistance Corporation (A Public Benefit 4/03 at 102 Aaa 1,954,360
Corporation of the State of New York), Series 1993C Refunding Bonds,
5.000%, 4/01/21
6,145,000 New York State Medical Care Facilities Finance Agency, Mental 12/02 at 102 Aaa 6,690,307
Health Services Facilities, Improvement Revenue Bonds, 1992 Series A,
6.375%, 8/15/17
2,815,000 New York State Medical Care Facilities Finance Agency, Mental 2/02 at 102 Aaa 3,052,136
Health Services Facilities, Improvement Revenue Bonds, 1992 Series B,
6.250%, 8/15/18
1,000,000 New York State Medical Care Facilities Finance Agency, Mental 8/04 at 102 Aaa 1,088,990
Health Services Facilities, Improvement Revenue Bonds, 1994 Series D,
6.150%, 2/15/15
2,000,000 New York State Medical Care Facilities Finance Agency, Mental 2/04 at 102 Aaa 1,997,440
Health Services Facilities, Improvement Revenue Bonds, 1993 Series F
Refunding, 5.250%, 2/15/19
</TABLE>
20
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen New York Insured -- continued
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited -- continued
$4,000,000 New York State Urban Development Corporation Revenue Bonds (Sports 4/06 at 102 Aaa $4,137,560
Facility Assistance Program), 1996 Series A, 5.500%, 4/01/19
2,500,000 Battery Park City Authority, Senior Revenue Refunding Bonds, 11/03 at 102 Aaa 2,517,075
Series 1993A, 5.250%, 11/01/17
1,000,000 Metropolitan Transportation Authority, Transit Facilities Service 7/98 at 102 Aaa 1,032,450
Contract Bonds, Series L, 7.500%, 7/01/17
8,650,000 Triborough Bridge and Tunnel Authority, Special Obligation Refunding 1/01 at 102 Aaa 9,397,879
Bonds, Series 1991B, 6.875%, 1/01/15
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation -- 7.4%
7,300,000 New York State Thruway Authority, General Revenue Bonds, Series A, 1/02 at 102 Aaa 7,615,287
5.750%, 1/01/19
2,250,000 Buffalo and Fort Erie Public Bridge Authority, Toll Bridge System 1/05 at 101 Aaa 2,369,363
Revenue Bonds, Series 1995, 5.750%, 1/01/25
4,000,000 Metropolitan Transportation Authority, Commuter Facilities 7/05 at 101 Aaa 4,205,560
Subordinated Revenue Bonds, Series 1995-1 (Grand Central Terminal
Redevelopment Project), 5.700%, 7/01/24
3,000,000 Metropolitan Transportation Authority, Commuter Facilities Revenue 7/07 at 101 1/2 Aaa 3,195,480
Bonds, Series 1997A, 5.750%, 7/01/21
3,500,000 Metropolitan Transportation Authority, Commuter Facilities Revenue 7/07 at 101 Aaa 3,428,915
Bonds, Series 1997E, 5.000%, 7/01/21
3,000,000 The Port Authority of New York and New Jersey, Special Project Bonds, 12/07 at 100 Aaa 3,160,020
Series 6, JFK International Air Terminal LLC Project, 5.750%, 12/01/25
(Alternative Minimum Tax)
2,750,000 Triborough Bridge and Tunnel Authority, General Purpose Revenue Bonds, 1/02 at 101 1/2 Aaa 2,994,035
Series X, 6.500%, 1/01/19
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed -- 22.8%
1,490,000 Dormitory Authority of the State of New York, United Health Services, 2/00 at 102 AAA 1,613,193
Inc., FHA-Insured Mortgage Revenue Bonds, Series 1989, 7.350%, 8/01/29
(Pre-refunded to 2/01/00)
1,200,000 Dormitory Authority of the State of New York, State University 5/00 at 102 Aaa 1,307,712
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, Manhattanville College, 7/00 at 102 Aaa 1,099,170
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 University System, 7/00 at 102 Aaa 6,919,275
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, Insured 7/01 at 102 Aaa 2,791,300
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 University 5/00 at 102 Aaa 1,301,400
Educational Facilities Revenue Bonds, Series 1990C, 7.000%, 5/15/18
(Pre-refunded to 5/15/00)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. Guaranteed -- continued
$2,000,000 Dormitory Authority of the State of New York, State University 5/00 at 100 Aaa $ 2,112,080
Educational Facilities, Revenue Bonds, Series 1990A, 6.500%, 5/15/19
(Pre-refunded to 5/15/00)
1,000,000 Dormitory Authority of the State of New York, Fordham University, 7/00 at 102 Aaa 1,092,510
Insured Revenue Bonds, Series 1990, 7.200%, 7/01/15
(Pre-refunded to 7/01/00)
5,000 New York Medical Care Facilities Finance Agency, Mental Health 2/02 at 102 Aaa 5,501
Services Facilities Improvement Revenue Bonds, 1992
Series A, 6.375%, 8/15/17 (Pre-refunded to 2/15/02)
1,500,000 New York State Medical Care Facilities Finance Agency, Hospital 2/99 at 102 AA*** 1,580,280
and Nursing Home, FHA-Insured Mortgage Revenue Bonds, 1989
Series A, 7.250%, 2/15/24 (Pre-refunded to 2/15/99)
1,300,000 New York State Medical Care Facilities Finance Agency, St. 2/00 at 102 Aaa 1,410,630
Luke's-Roosevelt Hospital Center, FHA-Insured Mortgage Revenue Bonds,
1989 Series B, 7.450%, 2/15/29 (Pre-refunded to 2/15/00)
7,000,000 New York State Medical Care Facilities Finance Agency, New York 2/05 at 102 Aaa 8,152,900
Hospital, FHA-Insured Mortgage Revenue Bonds, 1994 Series A,
6.800%, 8/15/24 (Pre-refunded to 2/15/05)
1,500,000 New York State Urban Development Corporation, Correctional Capital 1/00 at 102 Aaa 1,618,530
Facilities Revenue Bonds, Series G, 7.250%, 1/01/14
(Pre-refunded to 1/01/00)
2,000,000 New York State Urban Development Corporation, Correctional Capital 1/00 at 102 Aaa 2,166,840
Facilities Revenue Bonds, Series 1, 7.500%, 1/01/20
(Pre-refunded to 1/01/00)
575,000 New York State Urban Development Corporation, Correctional Capital 1/00 at 102 Aaa 617,901
Facilities Revenue Bonds, Series G, 7.000%, 1/01/17
1,295,000 Power Authority of the State of New York, General Purpose Bonds, 1/02 at 102 Aaa 1,429,266
Series Z, 6.500%, 1/01/19 (Pre-refunded to 1/01/02)
1,000,000 Erie County Water Authority (New York), Water Works System Revenue 12/09 at 100 Aaa 1,179,630
Bonds, Series 1990B, 6.750%, 12/01/14
10,340,000 Metropolitan Transportation Authority, Transit Facilities Revenue 7/02 at 102 Aaa 11,515,141
Bonds, Series J, 6.500%, 7/01/18 (Pre-refunded to 7/01/02)
Public Improvement Serial Bonds 1992, County of Monroe, New York,
General Obligation Bonds:
375,000 6.500%, 6/01/15 (Pre-refunded to 6/01/01) 6/01 at 102 Aaa 410,141
375,000 6.500%, 6/01/16 (Pre-refunded to 6/01/01) 6/01 at 102 Aaa 410,141
350,000 6.500%, 6/01/17 (Pre-refunded to 6/01/01) 6/01 at 102 Aaa 382,799
3,725,000 Montgomery, Otsego, Schoharie, Solid Waste Management Authority, 1/00 at 103 Aaa 4,054,067
Solid Waste System Revenue Bonds, Series 1990, 7.250%, 1/01/14
(Pre-refunded to 1/01/00)
Mount Sinai Union Free School District, Suffolk County, New York,
School District (Serial) Bonds, 1989:
1,000,000 7.250%, 2/15/15 (Pre-refunded to 2/15/00) 2/00 at 102 Aaa 1,082,540
1,000,000 7.250%, 2/15/17 (Pre-refunded to 2/15/00) 2/00 at 102 Aaa 1,082,540
3,000,000 The City of New York, General Obligation Bonds, Fiscal 1992 8/02 at 101 1/2 Aaa 3,303,300
Series C, Fixed Rate Bonds, 6.250%, 8/01/10
(Pre-refunded to 8/01/02)
2,000,000 The City of New York, General Obligation Bonds, Fiscal 1990 10/99 at 100 Aaa 2,099,280
Series B, 7.000%, 10/01/16
</TABLE>
22
<PAGE>
Portfolio of Investments
February 28, 1998
Nuveen New York Insured--continued
<TABLE>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed -- continued
$1,300,000 The City of New York, General Obligation Bonds, Fiscal 1990 10/99 at 100 Aaa $1,364,532
Series B, 7.000%, 10/01/15
The City of New York, General Obligation Bonds, Fiscal 1990
Series B:
1,025,000 7.000%, 10/01/17 10/99 at 100 Aaa 1,075,881
310,000 7.000%, 10/01/18 10/99 at 100 Aaa 325,388
1,000,000 New York City Municipal Water Finance Authority, Water and 6/00 at 101 1/2 Aaa 1,087,700
Sewer System Revenue Bonds, Fiscal 1991 Series A, 7.250%,
6/15/15 (Pre-refunded to 6/15/00)
2,000,000 New York City Municipal Water Finance Authority, Water and 6/01 at 101 Aaa 2,186,820
Sewer Revenue Bonds, Fiscal 1992 Series A, 6.750%,
6/15/16 (Pre-refunded to 6/15/01)
1,000,000 New York City Transit Authority, Transit Facilities Revenue 1/00 at 102 Aaa 1,083,420
Bonds, Series 1990 (Livingston Plaza Project), 7.500%,
1/01/20 (Pre-refunded to 1/01/00)
2,200,000 The Trust for Cultural Resources of The City of New York, 4/01 at 102 Aaa 2,422,992
Revenue Refunding Bonds, Series 1991A (The American Museum
of Natural History), 6.900%, 4/01/21 (Pre-refunded to 4/01/01)
5,725,000 Niagara Falls Bridge Commission, Toll Bridge System Revenue 10/02 at 102 Aaa 6,314,732
Bonds, Series 1992, 6.125%, 10/01/19 (Pre-refunded to 10/01/02)
Town of North Hempstead, Nassau County, New York, Public
Improvement (Serial) Bonds, 1991, Series B, Unlimited Tax:
425,000 6.800%, 6/01/10 (Pre-refunded to 6/01/00) 6/00 at 102 Aaa 459,773
425,000 6.800%, 6/01/11 (Pre-refunded to 6/01/00) 6/00 at 102 Aaa 459,773
1,000,000 County of Suffolk, New York, General Obligation Refunding 4/00 at 102 Aaa 1,079,290
(Serial) Bonds, Public Improvement Refunding Bonds, 1993
Series B, 6.900%, 4/01/01 (Pre-refunded to 4/01/00)
2,000,000 Triborough Bridge and Tunnel Authority, General Purpose 1/01 at 102 Aaa 2,196,260
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 1,285,050
Revenue Bonds, Series S, 7.000%, 1/01/21 (Pre-refunded
to 1/01/01)
1,750,000 City of Yonkers, New York, General Obligation School Bonds 12/00 at 102 Aaa 1,941,240
1990-C, 7.375%, 12/01/09 (Pre-refunded to 12/01/00)
- ------------------------------------------------------------------------------------------------------------------------------
Utilities--0.9%
2,500,000 New York Energy Research and Development Authority, Pollution 10/99 at 103 Aaa 2,692,850
Control Revenue Bonds (Central Hudson Gas and Electric
Corporation Project), 1984 Series B, 7.375%, 10/01/14
705,000 Power Authority of the State of New York, General Purpose 1/02 at 102 Aaa 769,240
Bonds, Series Z, 6.500%, 1/01/19
- ------------------------------------------------------------------------------------------------------------------------------
Water and Sewer--8.9%
1,450,000 New York State Environmental Facilities Corporation, State Water 6/00 at 102 Aaa 1,557,314
Pollution Control, Revolving Fund Revenue Bonds, Series 1990 C
(Pooled Loan Issue), 7.200%, 3/15/11
280,000 Albany, New York, Municipal Water Finance Authority, Water and 12/98 at 102 Aaa 293,198
Sewer System Revenue Bonds, Series 1988A, 7.500%, 12/01/17
23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount Description Provisions* Ratings** Value
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Water and Sewer -- continued
$ 8,385,000 Buffalo Municipal Water Finance Authority, Water System 7/03 at 102 Aaa $ 8,824,876
Revenue Bonds, Series 1992, 5.750%, 7/01/19
1,250,000 New York City Municipal Water Finance Authority, Water and 6/01 at 101 Aaa 1,354,850
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 2,880,217
4,650,000 5.500%, 6/15/20 6/02 at 100 Aaa 4,727,794
7,000,000 New York City Municipal Water Finance Authority, Water and 6/06 at 101 Aaa 7,444,990
Sewer System Revenue Bonds, Fiscal 1996 Series B,
5.750%, 6/15/26
1,000,000 New York City Municipal Water Finance Authority, Water and 6/07 at 101 Aaa 979,700
Sewer System Revenue Bonds, Fiscal 1998 Series D,
5.000%, 6/15/21
1,000,000 Suffolk County Industrial Development Agency (Suffolk County, 2/04 at 101 Aaa 1,005,220
New York), Suffolk County Southwest Sewer System Revenue
Bonds, Series 1994, 4.750%, 2/01/09
3,700,000 Suffolk County Water Authority, New York, New York, Water 6/03 at 102 Aaa 3,641,280
System Revenue Bonds, Series 1994, 5.000%, 6/01/17
- ------------------------------------------------------------------------------------------------------------------------
$336,865,000 Total Investments -- (cost $329,859,207) -- 98.4% 361,029,620
============------------------------------------------------------------------------------------------------------------
Temporary Investments in Short-Term Municipal Securities -- 0.9%
$ 1,000,000 The City of New York, General Obligation Bonds, Fiscal VMIG-1 1,000,000
1995 Series B, Variable Rate Demand Bonds, 3.600%, 8/15/05+
700,000 New York City Industrial Development Agency, Revenue Bonds, A-1+ 700,000
Series 1989 Audubon Society -- Variable Rate Demand Bonds,
3.650%, 12/01/14+
1,500,000 Dormitory Authority of the State of New York, Cornell University VMIG-1 1,500,000
Revenue Bonds, Series 1990B, Variable Rate Demand Bonds,
3.650%, 7/01/25+
- ------------------------------------------------------------------------------------------------------------------------
$ 3,200,000 Total Temporary Investments -- 0.9% 3,200,000
============------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 0.7% 2,430,358
---------------------------------------------------------------------------------------------------------
Net Assets -- 100% $366,659,978
=========================================================================================================
</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.
*** Securities are backed by an escrow or trust containing
sufficient U.S. government or U.S. government agency
securities, which ensures the timely payment of principal
and interest. Securities are normally considered to be
equivalent to AAA rated securities.
+ 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.
24
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
February 28, 1998
Nuveen Flagship Nuveen New York
New York Insured
- -----------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Investments in municipal securities, at market value (note 1) $245,115,569 $361,029,620
Temporary investments in short-term municipal securities,
at amortized cost, which approximates market value (note 1) 1,000,000 3,200,000
Cash 245,430 666,717
Receivables:
Interest 2,901,498 3,981,564
Shares sold 338,215 170,008
Other assets 62,025 185,847
- -----------------------------------------------------------------------------------------------------
Total assets 249,662,737 369,233,756
- -----------------------------------------------------------------------------------------------------
Liabilities
Payables:
Investments purchased -- 981,542
Shares redeemed 193,869 291,575
Accrued expenses:
Management fees (note 6) 22,507 150,967
12b-1 distribution and service fees (notes 1 and 6) 18,377 12,065
Other 55,681 70,912
Dividends payable 647,952 1,066,717
- -----------------------------------------------------------------------------------------------------
Total liabilities 938,386 2,573,778
- -----------------------------------------------------------------------------------------------------
Net assets (note 7) $248,724,351 $366,659,978
=====================================================================================================
Class A Shares (note 1)
Net assets $ 78,038,462 $ 44,720,864
Shares outstanding 7,113,543 4,158,049
Net asset value and redemption price per share $ 10.97 $ 10.76
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 11.45 $ 11.23
=====================================================================================================
Class B Shares (note 1)
Net assets $ 4,311,083 $ 5,982,005
Shares outstanding 392,685 556,042
Net asset value, offering and redemption price per share $ 10.98 $ 10.76
=====================================================================================================
Class C Shares (note 1)
Net assets $ 6,232,738 $ 2,309,737
Shares outstanding 566,319 214,989
Net asset value, offering and redemption price per share $ 11.01 $ 10.74
=====================================================================================================
Class R Shares (note 1)
Net assets $160,142,068 $313,647,372
Shares outstanding 14,555,495 29,159,816
Net asset value, offering and redemption price per share $ 11.00 $ 10.76
=====================================================================================================
</TABLE>
See accompanying notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations
Year ended February 28, 1998
Nuveen Flagship Nuveen New York
New York Insured
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income
Tax-exempt interest income (note 1) $14,147,980 $21,023,934
- ------------------------------------------------------------------------------------------------------
Expenses
Management fees (note 6) 1,274,133 1,929,254
12b-1 service fees -- Class A (notes 1 and 6) 146,006 79,903
12b-1 distribution and service fees -- Class B (notes 1 and 6) 18,117 27,910
12b-1 distribution and service fees -- Class C (notes 1 and 6) 37,940 16,700
Shareholders' servicing agent fees and expenses 180,465 299,519
Custodian's fees and expenses 68,593 82,552
Trustees' fees and expenses (note 6) 6,807 7,225
Professional fees 8,774 16,485
Shareholders' reports -- printing and mailing expenses 83,413 71,770
Federal and state registration fees 16,939 2,792
Portfolio insurance expense -- 9,714
Other expenses 11,242 23,035
- ------------------------------------------------------------------------------------------------------
Total expenses before expense reimbursement 1,852,429 2,566,859
Expense reimbursement (note 6) (317,918) --
- ------------------------------------------------------------------------------------------------------
Net expenses 1,534,511 2,566,859
- ------------------------------------------------------------------------------------------------------
Net investment income 12,613,469 18,457,075
- ------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain from Investments
Net realized gain from investment transactions (notes 1 and 4) 661,126 619,011
Net change in unrealized appreciation or depreciation
of investments 9,051,117 8,290,299
- ------------------------------------------------------------------------------------------------------
Net gain from investments 9,712,243 8,909,310
- ------------------------------------------------------------------------------------------------------
Net increase in net assets from operations $22,325,712 $27,366,385
======================================================================================================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Nuveen Flagship New York Nuveen New York Insured
--------------------------------------------------------
Year ended Year ended Year ended Year ended
2/28/98 2/28/97* 2/28/98 2/28/97
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations
Net investment income $ 12,613,469 $ 9,771,158 $ 18,457,075 $ 18,870,727
Net realized gain (loss) from investment transactions
(notes 1 and 4) 661,126 (1,010,261) 619,011 (1,461,177)
Net change in unrealized appreciation or depreciation
of investments 9,051,117 692,933 8,290,299 (2,674,004)
- --------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from operations 22,325,712 9,453,830 27,366,385 14,735,546
- --------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders (note 1)
From undistributed net investment income:
Class A (3,875,640) (1,237,906) (2,006,721) (1,495,702)
Class B (83,036) (239) (123,259) (4,068)
Class C (239,478) (45,573) (99,554) (88,657)
Class R (8,443,262) (8,581,033) (16,348,358) (17,106,737)
From accumulated net realized gains from
investment transactions:
Class A -- (75,072) -- --
Class B -- -- -- --
Class C -- (3,076) -- --
Class R -- (571,338) -- --
- --------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (12,641,416) (10,514,237) (18,577,892) (18,695,164)
- --------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions (note 2)
Net proceeds from shares issued in the reorganization
of Flagship New York (note 1) -- 52,756,095 -- --
Net proceeds from sale of shares 30,298,985 17,906,845 28,258,045 27,322,062
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 7,761,760 7,344,275 13,010,796 13,233,860
- --------------------------------------------------------------------------------------------------------------------------
38,060,745 78,007,215 41,268,841 40,555,922
- --------------------------------------------------------------------------------------------------------------------------
Cost of shares redeemed (27,382,856) (19,737,885) (41,856,071) (47,601,839)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
from Fund share transactions 10,677,889 58,269,330 (587,230) (7,045,917)
- --------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 20,362,185 57,208,923 8,201,263 (11,005,535)
Net assets at the beginning of year 228,362,166 171,153,243 358,458,715 369,464,250
- --------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $248,724,351 $228,362,166 $366,659,978 $358,458,715
==========================================================================================================================
Balance of undistributed net investment
income at end of year $ 5,278 $ 33,225 $ 114,194 $ 235,011
==========================================================================================================================
</TABLE>
* Information represents 11 months of Nuveen New York and one month of Nuveen
Flagship New York (see note 1).
See accompanying notes to financial statements.
27
<PAGE>
Notes to Financial Statements
February 28, 1998
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 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 ("Nuveen"), 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 ("Nuveen New York Insured") was reorganized into the Trust and
renamed Nuveen New York Insured Municipal Bond Fund. Prior to these
reorganizations, Nuveen New York was a series of the Nuveen Tax-Free Bond Fund,
Inc., Flagship New York was a sub-trust of the Flagship Tax Exempt Funds Trust,
and Nuveen New York Insured was a series of Nuveen Insured Tax-Free Bond Fund,
Inc., each an open-end management investment company.
Each Fund seeks to provide high tax-free income and preservation of capital
through investments in diversified portfolios of quality municipal bonds.
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 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 valued at amortized
cost, which approximates market value.
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 have extended settlement periods. 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 the when-issued and delayed delivery purchase commitments. At
February 28, 1998, the Funds had no such outstanding 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.
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 on the first
business day after month-end. Net realized capital gains and/or market discount
from investment transactions, if any, are distributed to shareholders not less
frequently than annually. Furthermore, capital gains are distributed only to the
extent they exceed available capital loss carryforwards.
Distributions to shareholders of tax-exempt net investment income and 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.
28
<PAGE>
Notes to Financial Statements -- continued
February 28, 1998
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 New York state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All income
dividends paid during the fiscal year ended February 28, 1998, have been
designated Exempt Interest Dividends. Net realized capital gains and market
discount distributions are subject to federal taxation.
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 of the Portfolio Insurance does, however, gives 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 offers Class A, B, C and R Shares. Class A Shares are sold with a
sales charge and incur an annual 12b-1 service fee. Class A Share purchases of
$1 million or more are sold at net asset value without an up-front sales charge
but may be subject to a 1% contingent deferred sales charge ("CDSC") if redeemed
within 18 months of purchase. Class B Shares are sold without a sales charge but
incur annual 12b-1 distribution and service fees. An investor purchasing Class B
Shares agrees to pay a CDSC of up to 5% depending upon the length of time the
shares are held by the investor (CDSC is reduced to 0% at the end of six years).
Class B Shares convert to Class A Shares eight years after purchase. Class C
Shares are sold without a sales charge 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 one year of purchase. Class R Shares are
not subject to any sales charge 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, 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, 1998.
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, which presently only
includes 12b-1 distribution and service fees, 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.
29
<PAGE>
<TABLE>
<CAPTION>
2. Fund Shares
Transactions in Fund shares were as follows:
Nuveen Flagship New York
------------------------------------------------------
Year ended 2/28/98 Year ended 2/28/97*
------------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the reorganization of Flagship New York:
Class A -- $ -- 4,801,915 $50,302,455
Class B -- -- -- --
Class C -- -- 233,553 2,453,640
Class R -- -- -- --
Shares sold:
Class A 1,192,340 12,830,429 800,235 8,359,824
Class B 400,533 4,306,773 12,680 134,014
Class C 254,474 2,741,394 98,523 1,037,778
Class R 963,440 10,420,389 801,691 8,375,229
Shares issued to shareholders due to reinvestment of distributions:
Class A 152,051 1,627,414 65,006 681,196
Class B 3,386 36,761 -- --
Class C 9,491 102,142 2,391 25,145
Class R 558,993 5,995,443 632,056 6,637,934
- --------------------------------------------------------------------------------------------------------------------------------
3,534,708 38,060,745 7,448,050 78,007,215
- --------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,038,824) (11,085,975) (342,219) (3,580,581)
Class B (22,971) (250,548) (943) (9,996)
Class C (73,153) (789,011) (19,687) (205,801)
Class R (1,424,412) (15,257,322) (1,525,270) (15,941,507)
- --------------------------------------------------------------------------------------------------------------------------------
(2,559,360) (27,382,856) (1,888,119) (19,737,885)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase 975,348 $ 10,677,889 5,559,931 $ 58,269,330
================================================================================================================================
* Information represents 11 months of Nuveen New York and one month of Nuveen
Flagship New York (see note 1).
Nuveen New York Insured
----------------------------------------------------
Year ended 2/28/98 Year ended 2/28/97
----------------------------------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------------------------------------------------------------
Shares sold:
Class A 1,218,422 $12,894,251 1,504,805 $ 15,621,977
Class B 440,390 4,686,122 121,801 1,283,684
Class C 36,490 382,197 132,904 1,375,391
Class R 970,440 10,295,475 871,126 9,041,010
Shares issued to shareholders due to reinvestment of distributions:
Class A 124,699 1,317,874 100,648 1,049,380
Class B 2,936 31,367 -- --
Class C 6,978 73,631 6,232 64,963
Class R 1,097,334 11,587,924 1,163,086 12,119,517
- --------------------------------------------------------------------------------------------------------------------------------
3,897,689 41,268,841 3,900,602 40,555,922
- --------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (610,560) (6,423,983) (512,407) (5,315,448)
Class B (9,085) (96,502) -- --
Class C (20,702) (219,749) (76,002) (797,045)
Class R (3,324,737) (35,115,837) (3,991,732) (41,489,346)
- --------------------------------------------------------------------------------------------------------------------------------
(3,965,084) (41,856,071) (4,580,141) (47,601,839)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (67,395) $ (587,230) (679,539) $(7,045,917)
================================================================================================================================
</TABLE>
30
<PAGE>
Notes to Financial Statements -- continued
February 28, 1998
3. Distributions to Shareholders
On March 9, 1998, the Funds declared dividend distributions from their tax-
exempt net investment income which were paid April 1, 1998, to shareholders of
record on March 9, 1998, as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York Insured
----------------------------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0475 $.0445
Class B .0405 .0375
Class C .0425 .0395
Class R .0490 .0460
============================================================================
</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, 1998, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York Insured
-------------------------------------------------------------------------------
<S> <C> <C>
Purchases:
Investments in municipal securities $77,460,357 $59,963,155
Temporary municipal investments 29,600,000 39,300,000
Sales:
Investments in municipal securities 68,790,806 61,051,548
Temporary municipal investments 28,600,000 37,700,000
===============================================================================
</TABLE>
At February 28, 1998, 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, 1998, 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 carryforwards will expire as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York Insured
-------------------------------------------------------------------
<S> <C> <C>
Expiration year:
2004 $1,234,100 $ -
2005 - 924,758
-------------------------------------------------------------------
Total $1,234,100 $924,758
===================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 28, 1998, were as follows:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York Insured
--------------------------------------------------------------------
<S> <C> <C>
Gross unrealized:
appreciation $21,577,351 $31,222,332
depreciation (111,903) (51,919)
--------------------------------------------------------------------
Net unrealized appreciation $21,465,448 $31,170,413
====================================================================
</TABLE>
31
<PAGE>
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:
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 management fee compensates the Adviser for overall investment advisory and
administrative services, and general office facilities. The Trust pays no
compensation directly to those of 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 or its affiliates.
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, B and 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.
During the fiscal year ended February 28, 1998, the Distributor collected sales
charges on purchases of Class A Shares of approximately $366,500 and $307,800
for Nuveen Flagship New York and Nuveen New York Insured, respectively, of which
approximately $306,800 and $259,600, 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, 1998, the Distributor compensated
authorized dealers directly with approximately $192,800 and $209,000, in common
advances at the time of purchase for Nuveen Flagship New York and Nuveen New
York Insured, respectively. To compensate for commissions advanced to authorized
dealers, all 12b-1 service fees collected on Class B Shares during the first
year following a purchase, all 12b-1 distribution fees 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. During the fiscal year
ended February 28, 1998, the Distributor retained approximately $42,500 and
$33,500 in such 12b-1 fees for Nuveen Flagship New York and Nuveen New York
Insured, respectively. The remaining 12b-1 fees charged to the Funds were paid
to compensate authorized dealers for providing services to shareholders relating
to their investments. The Distributor also collected and retained approximately
$13,400 and $3,800 of CDSC on share redemptions for Nuveen Flagship New York and
Nuveen New York Insured, respectively, during the fiscal year ended February
28, 1998.
7. Composition of Net Assets
At February 28, 1998, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Nuveen Flagship Nuveen New York
New York Insured
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $228,487,725 $336,300,129
Balance of undistributed net investment income 5,278 114,194
Accumulated net realized gain (loss) from investment transactions (1,234,100) (924,758)
Net unrealized appreciation of investments 21,465,448 31,170,413
------------------------------------------------------------------------------------------------------
Net assets $248,724,351 $366,659,978
======================================================================================================
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share outstanding throughout each period is as
follows:
Class (Inception date) Operating performance Less distributions
------------------------ ---------------------------
Net
NUVEEN FLAGSHIP NEW YORK Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ended beginning investment from investment from capital end of asset
February 28/29, of period income (a) investments income gains period value(b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
1998 $10.53 $.57 $ .44 $(.57) $ -- $10.97 9.84%
1997 10.61 .59 (.07) (.56) (.04) 10.53 5.07
1996 10.12 .56 .48 (.55) -- 10.61 10.52
1995 (c) 10.23 .28 (.07) (.27) (.05) 10.12 2.21
Class B (2/97)
1998 10.53 .49 .45 (.49) -- 10.98 9.10
1997 (c) 10.48 .05 .04 (.04) -- 10.53 .87
Class C (9/94)**
1998 10.56 .51 .45 (.51) -- 11.01 9.31
1997 10.64 .55 (.11) (.48) (.04) 10.56 4.31
1996 10.11 .48 .53 (.48) -- 10.64 10.13
1995 (c) 10.11 .23 .04 (.22) (.05) 10.11 2.80
Class R (12/86)**
1998 10.55 .59 .45 (.59) -- 11.00 10.11
1997 10.64 .59 (.05) (.59) (.04) 10.55 5.26
1996 10.15 .58 .49 (.58) -- 10.64 10.80
1995 10.72 .58 (.53) (.57) (.05) 10.15 .75
1994 10.61 .58 .16 (.58) (.05) 10.72 7.10
1993 9.88 .60 .81 (.60) (.08) 10.61 14.79
1992 (d) 9.82 .16 .06 (.16) -- 9.88 2.21
1991 (e) 9.38 .63 .44 (.63) -- 9.82 11.79
1990 (e) 9.56 .63 (.18) (.63) -- 9.38 4.92
1989 (e) 9.18 .63 .38 (.63) -- 9.56 11.34
=====================================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended February
28, 1997, reflects the financial highlights of Nuveen New York.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
(d) For the three months ended February 29.
(e) For the fiscal year ended November 30.
33
<PAGE>
<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
end of before before after after Portfolio
period reimburse- reimburse- reimburse- reimburse- turnover
(in thousands) ment ment ment (a) ment (a) rate
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 78,038 .90% 5.14% .77% 5.27% 30%
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
4,311 1.67 4.32 1.50 4.49 30
124 1.65* 5.86* 1.44* 6.07* 37
6,233 1.46 4.57 1.32 4.71 30
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
160,142 .70 5.34 .57 5.47 30
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
========================================================================================
</TABLE>
34
<PAGE>
Financial Highlights -- continued
Selected data for a share outstanding throughout each period is as
follows:
<TABLE>
<CAPTION>
Class (Inception date) Operating performance Less distributions
-------------------------- ---------------------------
Net
NUVEEN NEW YORK INSURED Net realized and Dividends Net Total
asset unrealized from tax- asset return
value Net gain (loss) exempt net Distributions value on net
Year ended beginning investment from investment from capital end of asset
February 28/29, of period income (a) investments income gains period value(b)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
1998 $10.50 $.53 $ .26 $(.53) $ -- $10.76 7.76%
1997 10.61 .55 (.14) (.52) -- 10.50 4.02
1996 10.15 .52 .49 (.52) (.03)** 10.61 10.19
1995 (c) 10.16 .25 .04 (.26) (.04) 10.15 3.01
Class B (2/97)
1998 10.50 .45 .26 (.45) -- 10.76 6.96
1997 (c) 10.53 .03 (.02) (.04) -- 10.50 .07
Class C (9/94)
1998 10.48 .47 .26 (.47) -- 10.74 7.16
1997 10.61 .47 (.16) (.44) -- 10.48 3.06
1996 10.12 .44 .53 (.45) (.03)** 10.61 9.71
1995 (c) 10.03 .21 .13 (.21) (.04) 10.12 3.53
Class R (12/86)
1998 10.49 .55 .27 (.55) -- 10.76 8.04
1997 10.61 .55 (.13) (.54) -- 10.49 4.15
1996 10.15 .55 .49 (.55) (.03)** 10.61 10.51
1995 10.63 .56 (.44) (.56) (.04) 10.15 1.37
1994 10.62 .55 .03 (.54) (.03) 10.63 5.57
1993 9.78 .57 .84 (.56) (.01) 10.62 14.96
1992 9.32 .59 .47 (.60) -- 9.78 11.66
1991 9.25 .60 .07 (.60) -- 9.32 7.61
1990 9.06 .60 .19 (.60) -- 9.25 8.75
1989 9.10 .59 (.04) (.59) -- 9.06 6.37
===================================================================================================================================
</TABLE>
* Annualized.
** The amounts shown include distribution in excess of capital
gains of $.0024 per share.
(a) After waiver of certain management fees or reimbursement of
expenses, if applicable, by Nuveen Advisory.
(b) Total returns are calculated on net asset value without any
sales charge and are not annualized.
(c) From commencement of class operations as noted.
35
<PAGE>
<TABLE>
<CAPTION>
Ratios/Supplemental data
- -------------------------------------------------------------------------------------------------------
Ratio of net
Ratio of investment Ratio of Ratio of net
expenses to income to expenses to investment income
Net assets average net average net average net to average net Portfolio
end of period assets before assets before assets after net assets after turnover
(in thousands) reimbursement reimbursement reimbursement (a) reimbursement (a) rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 44,721 .88% 4.98% .88% 4.98% 17%
24,747 .92 5.04 .92 5.04 29
7,258 .93 4.97 .93 4.97 17
1,279 1.13* 5.33* 1.05* 5.41* 11
5,982 1.65 4.24 1.65 4.24 17
1,279 1.64* 5.17* 1.64* 5.17* 29
2,310 1.43 4.43 1.43 4.43 17
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
313,647 .68 5.18 .68 5.18 17
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
=======================================================================================================
</TABLE>
36
<PAGE>
Building Better Portfolios with Nuveen
Reducing the impact of taxes and moderating risk are important goals for many
risk-sensitive investors seeking to build better portfolios. For these
investors, a tax-efficient, risk-resistant investment portfolio often forms the
foundation of a carefully crafted financial plan for building and sustaining
wealth. Nuveen is committed to providing investors and their financial advisers
with a range of products and investment tools to help build better portfolios.
Mutual Funds
Nuveen Mutual Funds offer investors access to the Nuveen family of premier
advisers, including Nuveen Advisory Corp., Institutional Capital Corp. and
Rittenhouse Financial Services. Our equity, balanced and income funds seek to
provide consistent performance, time-tested strategies to reduce risk and
experienced, professional management.
Private Asset Management
Rittenhouse Financial Services and Nuveen Asset Management offer comprehensive,
customized investment management solutions to investors with assets of $250,000
or more. A range of actively managed growth, balanced and municipal income-
oriented portfolios are available, all based upon a disciplined investment
philosophy.
Unit Trusts
Nuveen Unit Trusts are fixed portfolios of quality securities that are a
convenient, attractive alternative to purchasing individual securities. They
provide low-cost diversification to reduce risk, experienced, professional
security selection and surveillance, and daily liquidity at that day's net asset
value for quick access to your assets.
Exchange-Traded Funds
Nuveen Exchange-Traded Funds offer investors actively managed portfolios of
investment-grade quality municipal bonds. The fund shares are listed and traded
on the New York and American stock exchanges. Exchange-traded funds provide the
investment convenience, price visibility and liquidity of common stocks.
MuniPreferred (R)
Nuveen MuniPreferred offers investors a AAA-rated investment with an attractive
tax-free yield for the cash reserves portion of an investment portfolio.
MuniPreferred shares are backed 2-to-1 by the long-term portfolios of Nuveen
dual-class exchange-traded funds and are available for national as well as a
wide variety of state-specific portfolios.
Nuveen Family
of Mutual Funds
Nuveen offers a variety
of funds designed
to help you reach your
financial goals.
Growth
Nuveen Rittenhouse
Growth Fund
Growth and Income
Growth and
Income Stock Fund
Balanced Stock
and Bond Fund
Balanced Municipal
and Stock Fund
Tax-Free Income
National Funds
Long-Term
Insured
Intermediate-Term
Limited-Term
State Funds
Alabama
Arizona
California
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts
Michigan
Missouri
New Jersey
New Mexico
New York
North Carolina
Ohio
Pennsylvania
South Carolina
Tennessee
Virginia
Wisconsin
37
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
Anthony T. Dean
Anne E. Impellizzeri
Peter R. Sawers
William J. Schneider
Timothy R. Schwertfeger
Judith M. Stockdale
Fund Manager
Nuveen Advisory Corp.
333 West Wacker Drive
Chicago, IL 60606
Transfer Agent and
Shareholder Services
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.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
38
<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 risk-sensitive individuals seeking to build and sustain
wealth. In fact, more than 1.3 million investors have trusted Nuveen to help
them maintain the lifestyle they currently enjoy.
The cornerstone of Nuveen's investment philosophy is a commitment to disciplined
long-term investment strategies focused on providing consistent, attractive
performance over time - with moderated risk. We emphasize quality securities
carefully chosen through in-depth research, and we follow those securities
closely over time to ensure that they continue to meet our exacting standards.
Whether your focus is long-term growth, dependable current income or sustaining
accumulated wealth, Nuveen offers a wide variety of products and services to
help meet your unique circumstances and financial planning needs. Our equity,
balanced, and income funds, along with our unit trusts and private asset
management, can form the foundation of a tax-efficient and risk-resistant
portfolio.
Talk with your financial adviser to learn more about how Nuveen investment
products and services can help you build and sustain your long-term financial
security. Or call us at (800) 621-7227 for more information, including a
prospectus where applicable. Please read that information carefully before you
invest.
NUVEEN 1898 1998
OUR SECOND CENTURY
helping investors sustain the wealth of a lifetime.(TM)
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
