<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 26, 1998.
1933 ACT REGISTRATION NO. 333-14729
1940 ACT REGISTRATION NO. 811-07755
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. ___ [_]
Post-Effective Amendment No. 3 [X]
___
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [X]
___
(Check appropriate box or boxes)
NUVEEN FLAGSHIP MULTISTATE TRUST II
(Exact name of Registrant as Specified in Charter)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (312) 917-7700
Gifford R. Zimmerman, Esq.--Vice President and Secretary
333 West Wacker Drive
Chicago, Illinois 60606
(Name and Address of Agent for Service)
With a copy to:
Thomas S. Harman
Morgan, Lewis & Bockius LLP
1800 M Street, N.W.
Washington, D.C. 20036
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant [_] on (date) pursuant to paragraph
to paragraph (b) on June 29, 1998 (a)(1)
pursuant to paragraph (b) [_] 75 days after filing pursuant to
[_] 60 days after filing pursuant paragraph (a)(2)
to paragraph (a)(1) [_] on (date) pursuant to paragraph
(a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a previ-
ously filed post-effective amendment.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
OF
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FILE NO. 333-14729
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940
FILE NO. 811-07755
This Registration Statement comprises the following papers and contents:
The Facing Sheet
Cross-Reference Sheet
Part A-The Prospectus
Part B-The Statement of Additional Information
Copy of Annual Reports and Semi-Annual Reports to
Shareholders (the financial statements from which are
incorporated by reference into the Statement of Additional
Information)
Part C-Other Information
Signatures
Index to Exhibits
Exhibits
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
----------------
CROSS REFERENCE SHEET
PART A--PROSPECTUS
<TABLE>
<CAPTION>
ITEM IN
PART A OF
FORM N-1A PROSPECTUS LOCATION
---------- -------------------
<S> <C>
1 Cover Page Cover Page
2 Synopsis Expense Information
3 Condensed Financial Information Financial Highlights
4 General Description of Registrant Fund Strategies
5 Management of the Fund General Information
5A Management's Discussion of Fund Incorporated by Reference to Annual and
Performance Semi-Annual Reports to Shareholders; Taxes
and Tax Reporting
6 Capital Stock and Other How to Select a Purchase Option; Taxes and
Securities Tax Reporting
7 Purchase of Securities Being Investing in the Funds
Offered
8 Redemption or Repurchase How to Sell Fund Shares
9 Pending Legal Proceedings Not Applicable
</TABLE>
<PAGE>
PART B--STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
ITEM IN
PART B OF LOCATION IN STATEMENT
FORM N- 1A OF ADDITIONAL INFORMATION
---------- -------------------------
<S> <C>
10 Cover Page Cover Page
11 Table of Contents Cover Page
12 General Information and History Not Applicable
13 Investment Objectives and Investment Policies and Investment
Policies Portfolio
14 Management of the Fund Management
15 Control Persons and Principal Management
Holders of Securities
16 Investment Advisory and Other Investment Adviser and Investment
Services Management Agreement; Portfolio
Transactions Distribution and Service Plan;
Independent Public Accountants and
Custodian
17 Brokerage Allocation and Other Portfolio Transactions
Practices
18 Capital Stock and Other See "How to Select a Purchase Option" and
Securities "Taxes and Tax Reporting" in the Prospectus
19 Purchase, Redemption and Pricing Additional Information on the Purchase and
of Securities Redemption of Fund Shares; Net Asset Value
20 Tax Status Tax Matters
21 Underwriters Additional Information on the Purchase and
Redemption of Fund Shares; See "Investing
in the Funds" and "Fund Service Providers"
in the Prospectus
22 Calculation of Performance Data Performance Information
23 Financial Statements Incorporated by Reference to Annual and
Semi-Annual Reports to Shareholders
</TABLE>
<PAGE>
PART A--PROSPECTUS
NUVEEN FLAGSHIP MULTISTATE TRUST II
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
[NUVEEN LOGO]
Municipal
Bond Funds
June 29, 1998
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Connecticut
New Jersey
New York
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
Nuveen Flagship New Jersey Municipal Bond Fund
Nuveen Flagship New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
JUNE 29, 1998
PROSPECTUS
Overview
The funds listed above are part of the Nuveen Flagship
Multistate Trust II, an open-end investment company.
Each fund seeks to provide high double or triple tax-
free income and preservation of capital through in-
vestments in diversified portfolios of quality munici-
pal bonds whose income is exempt from regular federal,
state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options
which permit you to purchase fund shares in the way
that is best suited to your individual circumstances
and investment needs. For detailed information about
these flexible purchase options, please refer to "How
to Select a Purchase Option" later in this prospectus.
This prospectus contains important information you
should know before investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus by reference. For a free copy, write to Nuveen
or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY.
SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW
2 FUND SUMMARIES AND
FINANCIAL HIGHLIGHTS
FUND STRATEGIES
12 Investment Objective
12 How the Funds Select Investments
13 Risk Reduction Strategies
INVESTING IN THE FUNDS
14 How to Buy Fund Shares
14 How to Select a Purchase Option
16 How to Sell Fund Shares
16 Exchanging Shares
17 Optional Features and Services
DIVIDENDS AND TAXES
18 How the Funds Pay Dividends
18 Taxes and Tax Reporting
19 Taxable Equivalent Yields
GENERAL INFORMATION
19 How to Contact Nuveen
19 Fund Service Providers
20 How the Funds Report Performance
20 How Fund Shares are Priced
20 Organization
APPENDIX
21 Special State Considerations
---
1
<PAGE>
Nuveen Flagship Connecticut Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: July 13, 1987
NET ASSETS: $232 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 4.19% 8.75% 7.76% 8.17% 9.17%
5 Years 5.07% 5.97% 5.32% 5.36% 6.06%
10 Years 7.17% 7.63% 7.16% 7.02% 7.67%
Inception 7.08% 7.51% 7.07% 6.90% 7.55%
</TABLE>
Class A total returns reflect actual performance for all periods; Classes B, C
and R total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class A performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and (in the cases of Classes B and C) fees between the classes. Class B total
returns assume an ongoing investment and do not reflect the imposition of the
CDSC; your returns for the 1 year and 5 year periods would be lower if you re-
deemed at the end of those periods. See Overview of Fund Operating Expenses
and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 19.5
Average Modified Duration 6.2
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA.................50%
AA..................18%
A...................20%
BBB/NR..............12%
INDUSTRY DIVERSIFICATION (TOP 5)
Education and Civic Organizations........17%
Housing (Single Family).................. 9%
Utilities................................14%
Tax Obligation
(Limited)................................19%
Health Care..............................14%
Other....................................27%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions - (1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 0.10% 0.11% 0.11% 0.11%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.85% 1.61% 1.41% 0.66%
Waivers/
Reimbursements (0.07%) (0.09%) (0.08%) (0.09%)
- -------------------------------------------------------------------------------------------------
Total (Net) 0.78% 1.52% 1.33% 0.57%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $55 $14 $6
3 Years $66 $80 $42 $18
5 Years $84 $94 $73 $32
10 Years $135 $161 $160 $71
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION DATE) OPERATING PERFORMANCE LESS DISTRIBUTIONS
----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONNECTICUT
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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)
<CAPTION>
CLASS
(INCEPTION DATE) RATIOS/SUPPLEMENTAL DATA:
-------------------------------------------------
<S> <C> <C> <C> <C>
CONNECTICUT
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS END AFTER AFTER PORTFOLIO
YEAR ENDED OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (7/87)**
1998 $216,436 .78% 5.22% 12%
1997(c) 209,873 .79* 5.41* 20
1996(d) 202,219 .74 5.52 24
1995(d) 203,210 .73 5.84 25
1994(d) 202,607 .65 5.52 30
1993(d) 184,743 .66 5.88 19
1992(d) 141,215 .65 6.30 18
1991(d) 103,552 .67 6.49 19
1990(d) 73,046 .60 6.55 31
1989(d) 48,990 .70 6.62 33
CLASS B (2/97)
1998 3,713 1.52 4.43 12
1997(e) 102 1.12* 7.08* 20
CLASS C (10/93)**
1998 11,586 1.33 4.67 12
1997(c) 7,087 1.34* 4.88* 20
1996(d) 7,243 1.29 4.96 24
1995(d) 5,536 1.28 5.27 25
1994(f) 4,360 1.22* 4.77* 30
CLASS R (2/97)
1998 590 57 5.38 12
1997(e) - - 10.97* 20
</TABLE>
- -------------------------------------------------------------------------------
* Annualized.
** Information included prior to the nine months ended February 28, 1997, re-
flects 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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
The waiver/reimbursement levels shown reflect Nuveen's current undertak-
ing, made in connection with its acquisition of Flagship Resources as de-
scribed in "Fund Service Providers--Investment Adviser," to continue Flag-
ship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
3
<PAGE>
Nuveen Flagship New Jersey Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: December 13, 1991
NET ASSETS: $89 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 4.47% 9.06% 8.25% 8.40% 9.29%
5 Years 5.32% 6.23% 5.50% 5.50% 6.50%
Inception 6.51% 7.28% 6.54% 6.53% 7.55%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and (in the case of Class C) fees between the classes. Class B total returns
assume an ongoing investment and do not reflect the imposition of the CDSC;
your returns for the 1 year and 5 year periods would be lower if you redeemed
at the end of those periods. See Overview of Fund Operating Expenses and
Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 16.9
Average Modified Duration 5.8
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AA 8%
A 15%
BBB/NR 27%
AAA 50%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Other 43%
Utilities 10%
Transportation 10%
U.S. Guaranteed 13%
Health Care 11%
Tax Obligation (General) 13%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.26% 0.27% 0.26% 0.26%
- --------------------------------------------------------------------------------------------------
Total (Gross) 1.01% 1.77% 1.56% 0.81%
Waivers/
Reimbursements (0.41%) (0.41%) (0.40%) (0.41%)
- --------------------------------------------------------------------------------------------------
Total (Net) 0.60% 1.36% 1.16% 0.40%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $48 $54 $12 $4
3 Years $60 $75 $37 $13
5 Years $74 $86 $64 $22
10 Years $114 $143 $141 $51
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent
auditors. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227. Information for the years be-
ginning prior to February 1, 1997 reflects the financial highlights of the
Nuveen New Jersey Tax-Free Value Fund.
<TABLE>
<CAPTION>
CLASS OPERATING PERFORMANCE LESS DISTRIBUTIONS
(INCEPTION DATE) ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW JERSEY
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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 -
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA
(INCEPTION DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS END AFTER AFTER PORTFOLIO
YEAR ENDED OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94) **
1998 $35,782 .60% 5.33% 16%
1997(C) 27,879 .55* 5.89* -
1997(d) 17,072 1.00 4.98 10
1996(d) 10,661 1.00 5.10 39
1995(e) 2,741 1.00* 5.34* 32
CLASS B (2/97)
1998 2,981 1.36 4.57 16
1997(c) 74 1.27* 6.21* -
CLASS C (9/94)**
1998 5,733 1.16 4.77 16
1997(C) 2,712 1.10* 5.35* -
1997(d) 2,611 1.75 4.22 10
1996(d) 1,065 1.75 4.37 39
1995(e) 464 1.75* 4.62* 32
CLASS R (12/91)**
1998 44,817 .40 5.53 16
1997(c) 42,651 .35* 6.09* -
1997(D) 42,905 .75 5.24 10
1996(d) 43,304 .75 5.43 39
1995(d) 39,582 .75 5.32 32
1994(d) 36,462 .75 4.84 52
1993(d) 16,208 .75* 4.96* 9
1992(e) 15 - - -
</TABLE>
- -------------------------------------------------------------------------------
* Annualized.
** Information included prior to the one month ended February 28, 1997, re-
flects 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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen has undertaken, in connection with its acquisition of Flagship Re-
sources as described in "Fund Service Providers--Investment Adviser," to
continue Flagship's general dividend-setting practices.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
5
<PAGE>
Nuveen Flagship New York Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION:
December 22, 1986
NET ASSETS:
$249 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 5.24% 9.84% 9.10% 9.31% 10.11%
5 Years 5.51% 6.43% 5.75% 5.81% 6.74%
10 Years 7.44% 7.91% 7.34% 7.19% 8.20%
Inception 7.13% 7.54% 7.03% 6.81% 7.83%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns assume an ongoing invest-
ment and do not reflect the imposition of the CDSC; your returns for the 1
year and 5 year periods would be lower if you redeemed at the end of those pe-
riods. See Overview of Fund Operating Expenses and Shareholder Transaction Ex-
penses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 21.0
Average Modified Duration 6.5
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA 32%
AA 12%
A 20%
BBB/NR 36%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Health Care 15%
Education and Civic Organizations 12%
Tax Obligation (Limited) 29%
U.S. Guaranteed 13%
Utilities 6%
Other 25%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.16% 0.18% 0.17% 0.16%
- -----------------------------------------------------------------------------------------------
Total (Gross) 0.90% 1.67% 1.46% 0.70%
Waivers/
Reimbursements (0.13%) (0.17%) (0.14%) (0.13%)
- -----------------------------------------------------------------------------------------------
Total (Net) 0.77% 1.50% 1.32% 0.57%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $50 $55 $13 $6
3 Years $66 $79 $42 $18
5 Years $83 $93 $72 $32
10 Years $133 $159 $159 $71
</TABLE>
---
6
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227. Information for the years be-
ginning prior to February 1, 1997 reflects the financial highlights of the
Nuveen New York Tax-Free Value Fund.
<TABLE>
<CAPTION>
OPERATING PERFORMANCE LESS DISTRIBUTIONS
CLASS (INCEPTION DATE) ---------------------- ---------------------
NEW YORK
NET
REALIZED
NET AND DIVIDENDS DISTRIBU- NET
ASSET UNREALIZED FROM TAX- TIONS ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET FROM VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT CAPITAL END OF NET 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
<CAPTION>
RATIOS/SUPPLEMENTAL DATA
CLASS (INCEPTION DATE) -----------------------------------------------------------------
NEW YORK
RATIO OF NET
NET ASSETS RATIO OF EXPENSES INVESTMENT INCOME
END OF TO AVERAGE NET TO AVERAGE NET PORTFOLIO
YEAR ENDED PERIOD (IN ASSETS AFTER ASSETS AFTER TURNOVER
FEBRUARY 28/29, THOUSANDS) REIMBURSEMENT (A) REIMBURSEMENT (A) RATE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)**
1998 $78,038 .77% 5.27% 30%
1997 71,676 .89 5.45 37
1996 15,732 .99 5.31 47
1995(c) 3,189 1.00* 5.87* 29
CLASS B (2/97)
1998 4,311 1.50 4.49 30
1997(c) 124 1.44* 6.07* 37
CLASS C (9/94)**
1998 6,233 1.32 4.71 30
1997 3,965 1.57 4.80 37
1996 646 1.73 4.55 47
1995(c) 86 1.75* 5.16* 29
CLASS R (12/86)**
1998 160,142 .57 5.47 30
1997 152,598 .69 5.57 37
1996 154,776 .74 5.57 47
1995 149,454 .74 5.79 29
1994 146,297 .75 5.33 15
1993 107,146 .75 5.84 12
1992(d) 66,491 .75* 6.27* 16
1991(e) 59,351 .75 6.50 19
1990(e) 44,347 .75 6.65 51
1989(e) 29,040 .75 6.63 85
- -----------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended February 28, 1997, re-
flects 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 year ended November 30.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen has undertaken, in connection with its acquisition of Flagship Re-
sources as described in "Fund Service Providers--Investment Adviser," to
continue Flagship's general dividend-setting practices. Nuveen Advisory
has agreed to waive some or all of its fees or reimburse expenses to pre-
vent total operating expenses (not counting distribution and service fees)
from exceeding 0.75% of the fund's average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
7
<PAGE>
Nuveen New York Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION:
December 22, 1986
NET ASSETS:
$367 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 3.23% 7.76% 6.96% 7.16% 8.04%
5 Years 4.71% 5.62% 4.87% 4.89% 5.88%
10 Years 7.11% 7.57% 6.98% 6.80% 7.84%
Inception 6.57% 6.98% 6.46% 6.21% 7.25%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A, B
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns assume an ongoing invest-
ment and do not reflect the imposition of the CDSC; your returns for the 1
year and 5 year periods would be lower if you refeemed at the end of those pe-
riods. See Overview of Fund Operating Expenses and Shareholder Transaction Ex-
penses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 20.7
Average Modified Duration 5.7
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 27%
Insured 73%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Health Care 18%
Education and Civic Organizations 11%
U.S. Guaranteed 23%
Housing Multifamily 9%
Tax Obligation (Limited) 11%
Other 28%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC)
on Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.14% 0.16% 0.14% 0.14%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.88% 1.65% 1.43% 0.68%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 0.88% 1.65% 1.43% 0.68%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $51 $56 $15 $7
3 Years $69 $84 $45 $22
5 Years $89 $101 $78 $38
10 Years $146 $175 $171 $85
</TABLE>
---
8
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION OPERATING PERFORMANCE LESS DISTRIBUTIONS
DATE) ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW YORK INSURED
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA
DATE) -----------------------------------------------
<S> <C> <C> <C> <C>
NEW YORK INSURED
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS END AFTER AFTER PORTFOLIO
YEAR ENDED OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1998 $ 44,721 .88% 4.98% 17%
1997 35,957 .92 5.04 29
1996 24,747 .93 4.97 17
1995 (c) 7,258 1.05* 5.41* 11
CLASS B (2/97)
1998 5,982 1.65 4.24 17
1997 (c) 1,279 1.64* 5.17* 29
CLASS C (9/94)
1998 2,310 1.43 4.43 17
1997 2,015 1.67 4.28 29
1996 1,369 1.69 4.21 17
1995 (c) 285 1.80* 4.65* 11
CLASS R (12/86)
1998 313,647 .68 5.18 17
1997 319,208 .68 5.28 29
1996 343,348 .67 5.26 17
1995 345,121 .65 5.57 11
1994 388,176 .68 5.11 5
1993 314,877 .73 5.56 6
1992 167,048 .69 6.08 4
1991 80,484 .73 6.46 13
1990 40,372 .85 6.35 30
1989 20,206 .97 6.58 62
</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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen Advisory has agreed to waive some or all of its fees or reimburse
expenses to prevent total operating expenses (not counting distribution
and service fees) from exceeding 0.975% of the fund's average daily net
assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
9
<PAGE>
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital. There
is no assurance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
.. Earn regular monthly tax-free dividends;
.. Preserve investment capital over time;
.. Reduce taxes on investment income;
.. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
.. Pursue an aggressive, high-growth investment strategy;
.. Invest through an IRA or 401k plan;
.. Avoid fluctuations in share price.
HOW THE FUNDS SELECT INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal, state and, in
some cases, local income taxes. Income from these bonds may be subject to the
federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The New York Insured Fund primarily purchases insured municipal bonds. See
"Insurance" below. Under normal market conditions, the Nuveen New York Insured
Fund will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds' in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The New York Fund, New York
Insured Fund and the New Jersey Fund may not invest more than 20% of their net
assets in these territorial municipal bonds. The New York Insured Fund will
invest at least 80% of its net assets in insured municipal bonds or municipal
bonds backed by an escrow or trust account that contains sufficient U.S. gov-
ernment-backed securities to assure timely payment of interest and principal.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to re-
duce this risk, the funds will only purchase leases where the issuer has a
strong incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical--S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects mu-
nicipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. The Connecticut Fund, the New York Fund, the New York Insured Fund, and
the New Jersey Fund are long-term funds and normally maintain a weighted aver-
age portfolio maturity of 15 to 30 years. See "Defensive Investment Strate-
gies" below for further information.
INSURANCE
The New York Insured Fund primarily purchases insured municipal bonds. Insured
municipal bonds are either covered by individual, permanent insurance policies
(obtained either at the time of issuance or subsequently), or covered "while
in fund" under a master portfolio insurance policy
---
10
<PAGE>
purchased by a fund. Insurance guarantees only the timely payment of interest
and principal on the bonds; it does not guarantee the value of either individ-
ual bonds or fund shares.
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of
such a bond would not benefit from the insurance. Insurers under master port-
folio insurance policies currently include MBIA Insurance Corp., AMBAC Assur-
ance Corporation, Financial Security Assurance, Inc., and Financial Guaranty
Insurance Company. The fund's investment adviser may obtain master policies
from other insurers, but only from insurers that specialize in insuring munic-
ipal bonds and whose claims-paying ability is rated Aaa or AAA by Moody's and
S&P. Insurers are responsible for making their own assessment of the insur-
ability of a municipal bond.
The New York Insured Fund can invest up to 20% of its net assets in uninsured
municipal bonds that are backed by an escrow containing sufficient U.S. Gov-
ernment or U.S. Government agency securities to ensure timely payment of prin-
cipal and interest. Such bonds are normally regarded as having the credit
characteristics of the underlying U.S. Government-backed securities.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover rela-
tively low in order to reduce trading costs and the realization of taxable
capital gains. Each fund, however, may make limited short-term trades to take
advantage of market opportunities or reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of
risk because no interest accrues on the bonds prior to settlement and, since
securities are subject to market fluctuation, the value of the bonds at time
of delivery may be less (or more) than cost.
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is
the risk that changes in market interest rates will affect the value of a
fund's investment portfolio. In general, the value of a municipal bond falls
when interest rates rise, and increases when interest rates fall. Credit risk
is the risk that an issuer of a municipal bond is unable to meet its obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal bonds are perceived to carry a greater degree of risk in the issuer's
ability to make interest and principal payments. Municipal bonds with longer
maturities (durations) or lower ratings generally provide higher current in-
come, but are subject to greater price fluctuation due to changes in market
conditions than bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from the economic, political or regula-
tory changes that could adversely affect municipal bond issuers in that state
and therefore the value of the fund's investment portfolio. These risks may be
greater for the Connecticut and New Jersey Funds, which as "non-diversified"
funds may concentrate their investments in municipal bonds of certain issuers
to a greater extent than the New York and New York Insured Funds described in
this prospectus, which are diversified funds.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. Each fund may not have more than:
.. 25% in any one industry sector, such as electric utilities or health care;
.. 10% in borrowings (33% if used to meet redemptions).
As diversified funds, the New York and the New York Insured Funds also may not
have more than:
.. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities
that are exempt from regular federal income tax, although the funds may invest
up to 100% as a temporary defensive measure in response to adverse market con-
ditions. During temporary defensive periods, the weighted average maturity of
a fund's investment portfolio may fall below the defined range described above
under "Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA,
by Moody's or S&P, respectively, or issued by the U.S. government, and that
have a maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the
risk of bond price fluctuations and to preserve capital. These hedging strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securi-
---
11
<PAGE>
ties or on debt securities whose prices, in the opinion of the funds' invest-
ment adviser, correlate with the prices of the funds' investments. The funds,
however, have no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strate-
gies" are fundamental and may not be changed without the approval of a major-
ity of the shareholders of each fund.
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower minimums. The share price
you pay will depend on when Nuveen receives your order: orders received before
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. Eastern time) will receive that day's share price; otherwise you will re-
ceive the next business day's share price.
The Funds have authorized Charles Schwab & Co.'s Mutual Fund Marketplace(R) to
accept purchase and sale orders on their behalf. Schwab may designate finan-
cial advisers to accept purchase and sale orders in its behalf. A Fund will be
deemed to have received a purchase or redemption order when Schwab or a desig-
nated financial adviser accepts that order. The price of the shares you buy or
sell will be the Fund's net asset value next calculated after your order is
accepted.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial ad-
visers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments con-
tinue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed Nuveen application and mailing it along with your check (payable to the
appropriate fund) to the address listed under "How to Contact Nuveen." Sales
charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or in-
crease minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
refer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear
a 0.20% annual service fee which compensates your financial adviser for pro-
viding you with ongoing service.
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12
<PAGE>
The following Class A sales charges and commissions apply:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over -(1) - -(1)
</TABLE>
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. Fee-Based Programs
.. Bank Trust Departments
.. Certain Employees and Directors of Nuveen or Employees of Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class B NAV. There is no initial sales
charge, but Class B shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion of outside counsel or the written assurance of the IRS.
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be as-
sessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR
- -------------------------------------------------------------------------------------
1 2 3 4 5 6 7+
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser an ongoing sales commission. Nuveen advances the first year's service
and distribution fees.
If you redeem your Class C shares within one year of purchase, you may be as-
sessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you would qualify to purchase Class A shares without a sales
charge, under certain of the programs described under "Other Sales Charge Dis-
counts" above or meet certain other purchase size criteria. See the statement
of additional information for more details. There are no sales charges or on-
going distribution or service fees. Class R Shares have lower ongoing expenses
than Class A shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable. You may also redeem shares through Schwab.
See "How To Buy Fund Shares" above.
---
13
<PAGE>
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund will be liable for losses resulting
from unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immedi-
ately verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
.. The fund's name;
.. Your name and account number;
.. The dollar or share amount you wish to redeem;
.. The signature of each owner exactly as it appears on the account;
.. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
.. The address you want your redemption proceeds sent to, if other than to the
address of record;
.. Any certificates you have for the shares; and
.. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares into an identically registered account at any
time for the same class of shares in another Nuveen mutual fund that is avail-
able within your state. You may exchange fund shares by calling (800) 621-7227
or by mailing your written request to Nuveen at the address listed under "How
to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are ex-
changing. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of determin-
ing any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
14---
<PAGE>
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other cir-
cumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or ter-
minate the exchange privilege, limit the amount or number of exchanges, or re-
ject any exchange. You will be notified in the event this happens to the extent
required by law.
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund Di-
rect--Electronic Funds Transfer" below), or directly from your paycheck. To in-
vest regularly from your bank account, simply complete the appropriate section
of the account application. To invest regularly from your paycheck, call Nuveen
for a Payroll Direct Deposit Enrollment form. If you need additional copies of
these forms, or would like assistance completing them, contact your financial
adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to con-
tinue investing in declining as well as rising markets before deciding to in-
vest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. Theses annual returns do not
reflect past or projected fund performance.
THE POWER OF SYSTEMATIC INVESTING
LOGO
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually and may choose to re-
ceive a check, have the monies transferred directly into your bank account (see
"Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must com-
plete the appropriate section of the account application or Account Update Form
to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
---
15
<PAGE>
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds in shares of the same class up to one year later without incurring
any applicable sales charges, and your prior holding period will be reinstat-
ed. You may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of ex-
ercising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial ad-
viser or call Nuveen at (800) 621-7227. You may use Fund Direct to quickly and
conveniently purchase or sell shares by telephone, systematically invest or
withdraw funds, or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request
to have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count application, contact your financial adviser or call Nuveen at (800) 621-
7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from a specific state or in mu-
nicipal bonds whose income is otherwise exempt from regular federal, state and
local income taxes. Consequently, the regular monthly dividends you receive
will be exempt from regular federal, state and, in some cases, local income
taxes. All or a portion of these dividends, however, may be subject to the
federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you
---
16
<PAGE>
sell or exchange fund shares shortly before the record date for a tax-exempt
dividend, a portion of the price you receive may be treated as a taxable capi-
tal gain even though it reflects tax-free income earned but not yet distrib-
uted by the fund.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be tax-
able as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free in-
come is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
Tax-Free Yield
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.38%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time. After August 10, 1998 call (800) 257-8787.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or con-
duct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
(if mailed before August 10, 1998)
Nuveen Mutual Funds
P.O. Box 5330
Denver, CO 80217-5330
(if mailed on or after August 10, 1998)
Nuveen Investor Services
P.O. Box 5186
Bowling Green Station
New York, NY 10274-5186
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume you wish to buy more shares of the class you already own.
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is re-
---
17
<PAGE>
sponsible for the selection and on-going monitoring of the municipal bonds in
each fund's investment portfolio. Nuveen Advisory serves as investment adviser
to investment portfolios with more than $35 billion in municipal assets under
management. The funds' Board of Trustees oversees the activities of Nuveen Ad-
visory, which also include managing the funds' business affairs and providing
certain clerical, bookkeeping and other administrative services. Nuveen, the
principal underwriter of the Fund's shares, is the sponsor of the Nuveen Tax-
Exempt Unit Trust and Nuveen Unit Trusts, registered unit investment trusts.
It is also the principal underwriter for the shares of the Nuveen Exchange-
Traded Funds. Established in 1976, Nuveen Advisory is a wholly-owned subsidi-
ary of John Nuveen & Co. Incorporated, which itself is approximately 78% owned
by the St. Paul Companies, Inc. Effective January 1, 1997, The John Nuveen
Company acquired Flagship Resources Inc., and as part of that acquisition,
Flagship Financial, the adviser to the Flagship Funds, was merged with Nuveen
Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, the outlook for the financial markets in general and the status of the
municipal markets in particular. Day-to-day operation of each fund and the ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Daniel S. Solender is the portfolio manager for the New York Fund, the New
York Insured Fund and the Connecticut Fund. Mr. Solender has managed the New
York funds since September 1994 and the Connecticut Fund since July 1, 1998.
He is an Assistant Vice President of Nuveen Advisory. J. Thomas Futrell is a
Vice President of Nuveen Advisory and the portfolio manager for the New Jersey
Fund, effective July 1, 1998.
THE DISTRIBUTOR
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order
to reimburse Nuveen for its costs in connection with these activities, includ-
ing compensation paid to authorized dealers, each fund has adopted a distribu-
tion and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and Class C shares, Nuveen retains the first year's service
fee on sales of Class B shares and all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. The statement of
additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, will
serve as transfer agent for the New York funds and the New Jersey Fund and
Boston Financial, P.O. Box 8509, Boston, MA 02266-8509 will serve as transfer
agent for the Connecticut Fund. until August 10, 1998. Chase Global Funds
Services Company, P.O. Box 5186, New York, New York 10274-5186 will serve as
transfer agent for each fund after that date.
Nuveen Advisory and the transfer agent rely on computer systems to manage the
fund's investments, process shareholder transactions and provide shareholder
account maintenance. Because of the way computers historically have stored
dates, some of these systems currently may not be able to correctly process
activity occurring in the year 2000. Nuveen Advisory is working with the
fund's service providers to adapt their systems to address this "year 2000 is-
sue." Nuveen Advisory and the fund expect the necessary work to be completed
no later than December 1999, although we can make no assurance with respect to
the systems of the fund's service providers.
HOW THE FUNDS REPORT PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Ex-
18---
<PAGE>
change (normally 4 p.m. Eastern time). The net asset value for a class of fund
shares is computed by calculating the total value of the class' portion of the
fund's portfolio investments and other assets, subtracting any liabilities or
other debts, and dividing by the total number of its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for mu-
nicipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
The Trustees have approved a tax-free reorganization of the New Jersey Inter-
mediate Municipal Bond Fund. That Fund will transfer all of its assets and li-
abilities to the New Jersey Bond Fund in a tax-free exchange. The reorganiza-
tion is subject to certain regulatory approvals and the approval of the Fund's
shareholders. A meeting of the shareholders has been called for August 31,
1998. Further information regarding the proposed reorganization and the share-
holder meeting are contained in a proxy statement that was mailed in June,
1998.
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from a specific state,
each fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
funds. The discussion includes general state tax information related to an in-
vestment in fund shares. Because tax laws are complex and often change, you
should consult your tax adviser about the state tax consequences of a specific
fund investment. See the statement of additional information for further in-
formation.
CONNECTICUT
Connecticut is in the midst of a slow economic recovery from a recession that
began in 1989 and ended in late 1992. Almost 65% of the state's recessionary
employment loss has been recovered and the 1997 unemployment rate was 5.1%.
While Connecticut ranks first among the states in per capita personal income
($36,263 in 1997), there are strong regional disparities in income. Connecti-
cut has the highest tax-supported debt to personal income ratio in the nation,
according to Moody's. Moderate economic growth is expected over the next sev-
eral years.
Fiscal year 1997's general fund surplus allowed for a transfer of $96 million
into the state's budget reserve (or rainy day) fund. This transfer brought the
total balance of the fund to $336.9 million, still $130 million short of the
state's 5% of net general fund appropriations. The largest factor affecting
future revenue estimates is the effect of previously enacted corporate, per-
sonal income, and inheritance tax cuts, which are being phased in. Revenue re-
duction is expected to increase by $400 million from fiscal year 1999 to fis-
cal year 2002. The state's general obligation bonds are rated Aa3 by Moody's
and AA- by S&P.
Tax Treatment:
The Connecticut Fund's regular monthly dividends will not be subject to the
Connecticut personal income tax to the extent they are paid out of income
earned on or capital gains realized from the sale of Connecticut municipal
bonds or out of income earned on obligations of U.S. territories and posses-
sions. The portion of the Connecticut Fund's monthly dividends that is attrib-
utable to income earned on other obligations will be subject to the Connecti-
cut personal income tax. You also will be subject to Connecticut personal in-
come tax to the extent the Connecticut Fund distributes any taxable income or
realized capital gains (other than capital gains on Connecticut municipal
bonds), or if you sell or exchange Connecticut Fund shares and realize a capi-
tal gain on the transaction.
The treatment of corporate shareholders of the Connecticut Fund differs from
that described above. Corporate shareholders should refer to the statement of
additional information for more detailed information and are urged to consult
their tax adviser.
NEW YORK
New York State has historically been one of the wealthiest states in the na-
tion. For decades, however, the State's economy has grown more slowly than
that of the nation as a whole, gradually eroding the State's relative economic
affluence. Statewide, urban centers have experienced significant changes in-
volving migration of the more affluent to the sub -
---
19
<PAGE>
urbs and an influx of generally less affluent residents. Regionally, the older
Northeast cities have suffered because of the relative success that the South
and the West have had in attracting people and business. The State has for
many years had a very high State and local tax burden relative to other
states. The burden of State and local taxation, in combination with the many
other causes of regional economic dislocation, has contributed to the deci-
sions of some businesses and individuals to relocate outside, or not locate
within, the State.
The State's economy remains more reliant on the securities industry than is
the national economy. As a result, the State remains susceptible to downturns
in that industry, which could cause adverse changes in wage and employment
levels. 1997 per capita personal income was $30,752 and the 1997 unemployment
rate was 6.4%.
The State has projected continued moderate economic growth within New York
during 1998 and 1999, although growth rates will lessen gradually during the
course of the two years. Personal income growth is expected to be modest but
below 1997 levels largely because increases in 1998 year-end bonuses are ex-
pected to be lower.
The State expects to end its 1997-98 fiscal year with an operating surplus of
approximately $1.8 billion. The State Legislature enacted the State's 1997-98
fiscal year budget on August 4, 1997, more than four months after the start of
that fiscal year.
As of January 20, 1998, the updated 1997-98 State Financial Plan (the "Plan")
projected total general fund receipts of $35.2 billion and disbursements of
$35.2 billion, representing increases in receipts and disbursements of $2.15
billion and $2.27 billion over 1996-97 fiscal year. The Plan projected a Gen-
eral Fund balance of approximately $465 million at the close of the 1997-98
fiscal year.
The Governor issued a proposed State budget for the 1998-99 fiscal year on
January 20, 1998, which projected a balanced general fund and receipts and
disbursements of $36.22 billion and $36.18 billion, respectively. As of May
11, 1998, the State legislature had not yet enacted, nor had the Governor and
the legislature reached an agreement on, the budget for the 1998-99 fiscal
year commencing on April 1, 1998. The Governor and the State's legislature
have agreed on or proposed a series of short-term stopgap spending measures to
fund state payrolls and advances to certain municipalities and certain state
programs. The delay in the enactment of the budget may negatively affect cer-
tain proposed actions and reduce projected savings.
On June 4, 1997, New York City adopted a 1998 fiscal year budget, which pro-
vided for $33.4 billion in spending. Due to increased tax revenues resulting
from increased Wall Street profits and tourism, New York City has estimated
that it may end the 1998 fiscal year with a surplus of $2.0 billion. On April
24, 1998, the Mayor outlined his proposed $34.1 billion Executive Budget. The
Mayor's proposed budget called for $595 million in additional spending cuts at
City agencies and a continuation of the personal income tax surcharge which is
due to expire. The 1998-99 budget proposal includes several tax reductions in-
cluding the elimination of the City's sales tax on all clothing and shoe pur-
chases under $110.
The Governor and the legislature have not agreed upon the level of State aid
to the City during the 1999 fiscal year and there can be no assurances that
further cuts will not be necessary to close additional budget gaps once a
state budget is adopted. If State or Federal aid in later years is less than
the level projected in the Mayor's proposal, projected savings may be nega-
tively impacted and the Mayor may be required to propose significant addi-
tional spending reductions or tax increases to balance the City's budget for
the 1999 and later fiscal years. If the State, the State Agencies, New York
City, other municipalities or school districts were to suffer serious finan-
cial difficulties jeopardizing their respective access to the public credit
markets, or increasing the risk of a default, the market price of Municipal
Obligations issued by such entities could be adversely affected.
On March 5, 1997, New York Governor George Pataki signed legislation creating
The New York City Transitional Finance Authority, which is authorized to issue
up to $7.5 billion in bonds for capital spending by New York City. The City
had faced limitations on its borrowing capacity after 1998 under the State's
Constitution that would have prevented it from borrowing additional funds, as
a result of the decrease in real estate values within the City. The first is-
suance of TFA debt occurred in October 1997.
Tax Treatment.
The New York Funds' regular monthly dividends will not be subject to New York
state or New York city personal income taxes to the extent they are paid out
of income earned on New York municipal bonds or out of income earned on obli-
gations of U.S. territories and possessions. The portion of the New York
Funds' monthly dividends that is attributable to income earned on other obli-
gations will be subject to the New York state or the New York city personal
income taxes. You also will be subject to New York state and New York city
personal income taxes to the extent the New York Funds distribute any taxable
income or realized capital gains, or if you sell or exchange shares of the New
York Funds and realize a capital gain on the transaction.
The treatment of corporate and unincorporated business shareholders of the New
York Funds differs from that described above. Corporate shareholders should
refer to the statement of additional information for more detailed information
and are urged to consult their tax adviser.
NEW JERSEY
New Jersey has a diversified economic base comprised of various manufacturing,
construction and service industries. New Jersey ranks second among the states
in per cap-
ita personal income which was $32,654 in 1997. While the national recession
adversely affected the State's employment rate, New Jersey's economy has since
been accelerating and 1997 unemployment rate was 5.1%.
---
20
<PAGE>
The 1997 fiscal year audited general fund and available revenues were $17.4
billion against appropriations of $16.4 billion. The general fund surplus to-
taled $281 million in fiscal year 1997. New Jersey's general obligation bonds
are rated Aa1 by Moody's and AA+ by Standard and Poor's.
Tax Treatment.
The New Jersey Fund's regular monthly dividends will not be subject to New Jer-
sey gross income tax to the extent they are paid out of income earned on or
capital gains realized from the sale of New Jersey municipal bonds or U.S. gov-
ernment securities. You will be subject to New Jersey gross income tax, howev-
er, to the extent the New Jersey Fund distributes any taxable income. If you
realize a capital gain on the sale or exchange of shares of the New Jersey
Fund, you will not be subject to New Jersey gross income tax. If you realize a
capital loss on the sale or exchange of shares of the New Jersey Fund, you may
not use the loss to offset other New Jersey taxable capital gains.
The treatment of corporate shareholders of the New Jersey Fund differs from
that described above. Corporate shareholders should refer to the statement of
additional information for more detailed information and are urged to consult
their tax adviser.
---
21
<PAGE>
Nuveen
Family of Mutual Funds
Nuveen offers a variety of mutual funds
designed to help you reach your financial
goals. The funds below are grouped by
investment objective.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227 1. Long-term and insured long-term portfolios.
www.nuveen.com 2. Long-term and limited-term portfolios.
VPR-MS3-6/98
<PAGE>
[NUVEEN LOGO]
Municipal
Bond Funds
June 29, 1998
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
New Jersey
Intermediate
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
JUNE 29, 1998
PROSPECTUS
Overview
The fund listed above is part of the Nuveen Flagship
Multistate Trust II, an open-end investment company.
The fund seeks to provide high double or triple tax-
free income and preservation of capital through in-
vestments in a diversified portfolio of quality munic-
ipal bonds whose income is exempt from regular feder-
al, state and, in some cases, local income taxes.
The fund offers a set of flexible purchase options
which permit you to purchase fund shares in the way
that is best suited to your individual circumstances
and investment needs. For detailed information about
these flexible purchase options, please refer to "How
to Select a Purchase Option" later in this prospectus.
This prospectus contains important information you
should know before investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about the fund in the statement
of additional information which is part of this pro-
spectus by reference. For a free copy, write to Nuveen
or call (800) 621-7227.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY.
SHARES OF THE FUND INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW
DIVIDENDS AND TAXES
2 FUND SUMMARIES AND FINANCIAL HIGHLIGHTS
18 How the Fund Pays Divi-
dends
FUND STRATEGIES
12 Investment Objective 18 Taxes and Tax Reporting
19 Taxable Equivalent Yields
12 How the Fund Selects Investments
13 Risk Reduction StrategiesGENERAL INFORMATION
19 How to Contact Nuveen
INVESTING IN THE FUND
14 How to Buy Fund Shares 19 Fund Service Providers
20 How the Fund Reports Per-
formance
14 How to Select a Purchase Option
16 How to Sell Fund Shares
20 How Fund Shares Are Priced
16 Exchanging Shares
20 Organization
17 Optional Features and Services
APPENDIX
21 Special State Considera-
tions
---
1
<PAGE>
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: September 16, 1992
NET ASSETS: $11 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year 3.78% 7.00% 6.63% 7.34%
5 Years 4.89% 5.53% 5.17% 5.60%
Inception 5.99% 6.58% 6.21% 6.65%
</TABLE>
Class A total returns reflect actual performance for all periods; Classes C
and R total returns reflect Class A performance for all periods, adjusted for
the differences in sales charges and fees between the classes. See Overview of
Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
[BAR CHART APPEARS HERE]
Average Maturity 7.4
Average
Modified Duration 5.1
CREDIT QUALITY
[PIE CHART APPEARS HERE]
BBB/NR 25%
AA 21%
A 17%
AAA 37%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Other 16%
Health Care 21%
Tax Obligation
(Limited) 24%
Tax Obligation
(General) 18%
Industrial Development 14%
Education and Civic
Organizations 7%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Charge on Purchases 3.00%(1) - -
Sales Charge on Reinvested Dividends - - -
Contingent Deferred Sales Charge (CDSC) on Redemptions -(1) 1%(2) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (3)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS C CLASS R
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.75% -
Other Expenses 0.79% 0.73% 0.78%
- -----------------------------------------------------------------------------------------------------
Total (Gross) 1.54% 2.03% 1.33%
Waivers/
Reimbursements (0.90%) (0.84%) (0.87%)
- -----------------------------------------------------------------------------------------------------
Total (Net) 0.64% 1.19% 0.46%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (4)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS C CLASS R
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 Year $36 $12 $5
3 Years $50 $38 $15
5 Years $65 $65 $26
10 Years $107 $144 $58
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS OPERATING PERFORMANCE LESS DISTRIBUTIONS
(INCEPTION DATE) ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NEW JERSEY INTERMEDIATE
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA
(INCEPTION DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
NEW JERSEY INTERMEDIATE
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS END AFTER AFTER PORTFOLIO
YEAR ENDED OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/92)**
1998 $9,369 .64% 4.83% 9%
1997 (c) 7,011 .68* 4.94* 11
1996 (d) 8,318 .60 4.90 17
1995 (d) 9,217 .69 5.04 35
1994 (d) 9,321 .16 5.10 27
1993 (e) 5,649 .40* 4.84* 29
CLASS C (3/97)
1998 (f) 980 1.19* 4.29* 9
CLASS R (3/97)
1998 (f) 198 .46* 4.99* 9
</TABLE>
- -------------------------------------------------------------------------------
* Annualized.
** Information included prior to the nine months ended February 28, 1997, re-
flects 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 ending 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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of .75%
is imposed on redemptions of certain purchases of $1 million or more
within 18 months of purchase. See "How to Select a Purchase Option."
(2) Imposed only on redemptions within 12 months of purchase.
(3) Long-term holders of Class C shares may pay more in distribution fees and
CDSCs than the maximum initial sales charge permitted under National Asso-
ciation of Securities Dealers (NASD) Rules of Fair Practice. The
waiver/reimbursement levels shown reflect Nuveen's current undertaking,
made in connection with its acquisition of Flagship Resources as described
in "Fund Service Providers--Investment Adviser," to continue Flagship's
general dividend-setting practices.
(4) The expenses shown assume that you redeem your shares at the end of each
holding period. If instead you redeemed your shares immediately prior to
the end of each holding period, your expenses would be higher. This exam-
ple does not represent past or future expenses; actual expenses may be
higher or lower.
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3
<PAGE>
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of the fund is to provide you with as high a level of
current interest income exempt from regular federal, state and, in some cases,
local income taxes as is consistent with preservation of capital. There is no
assurance that the fund will achieve its investment objective.
INVESTOR SUITABILITY
The fund is a suitable investment for tax-conscious investors seeking to:
.. Earn regular monthly tax-free dividends;
.. Preserve investment capital over time;
.. Reduce taxes on investment income;
.. Set aside money systematically for retirement, estate planning or college
funding.
The fund is not a suitable investment for individuals seeking to:
.. Pursue an aggressive, high-growth investment strategy;
.. Invest through an IRA or 401k plan;
.. Avoid fluctuations in share price.
HOW THE FUND SELECTS INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The fund invests substantially all of its assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal, state and, in
some cases, local income taxes. Income from these bonds may be subject to the
federal alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
FOCUS ON QUALITY MUNICIPAL BONDS
The fund purchases only quality municipal bonds that are either rated invest-
ment grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the fund's in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes.
The fund may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to re-
duce this risk, the fund will only purchase leases where the issuer has a
strong incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical--S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects mu-
nicipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The ad-
viser then monitors the fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
The fund purchases municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an invest-
ment portfolio with an overall weighted average maturity within a defined
range. The fund maintains a weighted average portfolio maturity of 5 to 10
years.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The fund intends to keep portfolio turnover rela-
tively low in order to reduce trading costs and the realization of taxable
capital gains. The fund, however, may make limited short-term trades to take
advantage of market opportunities or reduce market risk.
DELAYED DELIVERY TRANSACTIONS
The fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of
risk because no interest accrues on the bonds prior to settlement and, since
securities are subject to market fluctuation, the value of the bonds at time
of delivery may be less (or more) than cost.
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4
<PAGE>
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, the fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is
the risk that changes in market interest rates will affect the value of a
fund's investment portfolio. In general, the value of a municipal bond falls
when interest rates rise, and increases when interest rates fall. Credit risk
is the risk that an issuer of a municipal bond is unable to meet its obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal bonds are perceived to carry a greater degree of risk in the issuer's
ability to make interest and principal payments. Municipal bonds with longer
maturities (durations) or lower ratings generally provide higher current in-
come, but are subject to greater price fluctuation due to changes in market
conditions than bonds with shorter maturities or higher ratings, respectively.
Because the fund primarily purchases municipal bonds from a specific state,
the fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio.
The fund limits your investment risk generally by restricting the types and
maturities of municipal bonds it purchases, and by diversifying its investment
portfolios across different industry sectors. The fund should be considered a
long-term investment and may not be suitable for investors with short-term in-
vestment horizons.
INVESTMENT LIMITATIONS
The fund has adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. The fund may not have more than:
.. 25% in any one industry sector, such as electric utilities or health care;
.. 10% in borrowings (33% if used to meet redemptions).
DEFENSIVE INVESTMENT STRATEGIES
The fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, the fund
may invest only up to 20% of net assets in short-term municipal securities
that are exempt from regular federal income tax, although the fund may invest
up to 100% as a temporary defensive measure in response to adverse market con-
ditions. During temporary defensive periods, the weighted average maturity of
the fund's investment portfolio may fall below the defined range described
above under "Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
fund may invest in short-term taxable securities that are rated Aaa or AAA, by
Moody's or S&P, respectively, or issued by the U.S. government, and that have
a maturity of one year or less or have a variable interest rate.
The fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in the opinion of the fund's investment adviser, cor-
relate with the prices of the fund's investments. The fund, however, has no
present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
The fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," and "Risk Reduction Strategies" is funda-
mental and may not be changed without the approval of a majority of the share-
holders of the fund.
INVESTING IN THE FUND
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower minimums. The share price
you pay will depend on when Nuveen receives your order: orders received before
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. Eastern time) will receive that day's share price; otherwise you will re-
ceive the next business day's share price.
The fund has authorized Charles Schwab & Co.'s Mutual Fund Marketplace(R) to
accept purchase and sale orders on its behalf. Schwab may designate financial
advisers to accept purchase and sale orders in its behalf. The fund will be
deemed to have received a purchase or redemption order when Schwab or a desig-
nated financial adviser accepts that order. The price of the shares you buy or
sell will be the fund's net asset value next calculated after your order is
accepted.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial ad-
visers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments con-
tinue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
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5
<PAGE>
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed Nuveen application and mailing it along with your check (payable to the
fund) to the address listed under "How to Contact Nuveen." Sales charges are
not waived when you buy shares by mail.
The fund reserves the right to reject any purchase order and waive or increase
minimum investment requirements. The fund also reserves the right to suspend
the issuance of shares at any time; any suspension, however, will not affect
your ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The fund offers you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
refer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the three available ways to purchase fund shares is called a class of
shares: Class A, Class C and Class R. While each of these classes features
different sales charges, on-going fees and eligibility requirements, each en-
titles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the fund. Please refer to your financial
adviser's sales material for further information. Each class of shares is de-
scribed in more detail below and under "Fund Service Providers--The Distribu-
tor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear
a 0.20% annual service fee which compensates your financial adviser for pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 3.00% 3.09% 2.50%
$50,000-100,000 2.50 2.56 2.00
$100,000-250,000 2.00 2.04 1.50
$250,000-500,000 1.50 1.52 1.25
$500,000-1,000,000 1.25 1.27 1.00
$1,000,000 and over -(1) - -(1)
</TABLE>
(1) Nuveen pays authorized dealers a commission equal to the sum of 0.75% of
the first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.50% of
any amount over $5 million. Unless the authorized dealer waived the com-
mission, you may be assessed a contingent deferred sales charge (CDSC) of
0.75% if you redeem any of your shares within 18 months of purchase.
The CDSC is calculated on the lower of your purchase price or redemption
proceeds.
Nuveen periodically undertakes sales promotion programs with authorized deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain cir-
cumstances, Nuveen may also make ongoing payments to authorized dealers to fa-
cilitate the marketing and administration of new and existing shareholder ac-
counts, including payments for advertising that features the products and
services of both parties. The statement of additional information contains
further information about these programs.
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. Fee-Based Programs
.. Bank Trust Departments
.. Certain Employees and Directors of Nuveen or Employees of Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser
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6
<PAGE>
can also provide and help you prepare the necessary application forms. You or
your financial adviser are responsible for notifying Nuveen about your eligi-
bility for any sales charge reduction or waiver at the time of each purchase.
The fund may modify or discontinue these programs at any time upon written no-
tice to shareholders.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser an ongoing sales commission. Nuveen advances the first year's service
and distribution fees.
If you redeem your Class C shares within one year of purchase, you may be as-
sessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you would qualify to purchase Class A shares without a sales
charge, under certain of the programs described under "Other Sales Charge Dis-
counts" above or meet certain other purchase size criteria. See the statement
of additional information for more details. There are no sales charges or on-
going distribution or service fees. Class R shares have lower ongoing expenses
than Class A shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The fund does not charge any redemption fees, although you will
be assessed a CDSC where applicable. You may also redeem shares through
Schwab. See "How To Buy Fund Shares" above.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund will be liable for losses resulting
from unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immedi-
ately verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
.. The fund's name;
.. Your name and account number;
.. The dollar or share amount you wish to redeem;
.. The signature of each owner exactly as it appears on the account;
.. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
.. The address you want your redemption proceeds sent to, if other than to the
address of record;
.. Any certificates you have for the shares; and
.. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
The fund may suspend redemptions or delay payment on redemptions for more than
seven days (three days for street name accounts) in certain extraordinary cir-
cumstances as described in the statement of additional information.
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7
<PAGE>
OPERATION OF THE CDSC
When you redeem Class A or Class C shares subject to a CDSC, the fund will
first redeem any shares that are not subject to a CDSC or that represent an in-
crease in the value of your fund account due to capital appreciation, and then
redeem the shares you have owned for the longest period of time, unless you ask
the fund to redeem your shares in a different order. No CDSC is imposed on
shares you buy through the reinvestment of dividends and capital gains. The
holding period is calculated on a monthly basis and begins on the first day of
the month in which you buy shares. When you redeem shares subject to a CDSC,
the CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds, deducted from your redemption proceeds, and paid to Nuveen. The CDSC may
be waived under certain special circumstances as described in the statement of
additional information.
ACCOUNT MINIMUMS
From time to time, the fund may establish minimum account size requirements.
The fund reserves the right to liquidate your account upon 30 days written no-
tice if the value of your account falls below an established minimum. The fund
presently has set a minimum balance of $100 unless you have an active unit
trust reinvestment account. You will not be assessed a CDSC on an involuntary
redemption.
EXCHANGING SHARES
You may exchange fund shares into an identically registered account at any time
for the same class of shares in another Nuveen mutual fund that is available
within your state. You may exchange fund shares by calling (800) 621-7227 or by
mailing your written request to Nuveen at the address listed under "How to Con-
tact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are ex-
changing. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of determin-
ing any future CDSC.
Because an exchange is treated for tax purposes as the concurrent sale and pur-
chase of fund shares, you should consult your tax adviser about the tax conse-
quences of any contemplated exchange. The fund reserves the right to limit or
terminate exchange privileges if it believes doing so is in the best interests
of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on fund
shareholders. In order to limit excessive exchange activity and in other cir-
cumstances where the fund's investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or ter-
minate the exchange privilege, limit the amount or number of exchanges, or re-
ject any exchange. You will be notified in the event this happens to the extent
required by law.
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund Di-
rect--Electronic Funds Transfer" below), or directly from your paycheck. To in-
vest regularly from your bank account, simply complete the appropriate section
of the account application. To invest regularly from your paycheck, call Nuveen
for a Payroll Direct Deposit Enrollment form. If you need additional copies of
these forms, or would like assistance completing them, contact your financial
adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to con-
tinue investing in declining as well as rising markets before deciding to in-
vest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. Theses annual returns do not
reflect past or projected fund performance.
THE POWER OF SYSTEMATIC INVESTING
LOGO
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8
<PAGE>
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to re-
ceive payments monthly, quarterly, semi-annually or annually and may choose to
receive a check, have the monies transferred directly into your bank account
(see "Fund Direct--Electronic Funds Transfer" below), paid to a third party or
sent payable to you at an address other than your address of record. You must
complete the appropriate section of the account application or Account Update
Form to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds in shares of the same class up to one year later without incurring
any applicable sales charges, and your prior holding period will be reinstat-
ed. You may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of ex-
ercising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation or the Account Update Form. If you need additional copies of these
forms, or would like assistance completing them, contact your financial ad-
viser or call Nuveen at (800) 621-7227. You may use Fund Direct to quickly and
conveniently purchase or sell shares by telephone, systematically invest or
withdraw funds, or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
DIVIDENDS AND TAXES
HOW THE FUND PAYS DIVIDENDS
The fund pays tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The fund declares dividends on or
about the ninth of each month and generally pays dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The fund automatically reinvests your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request
to have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count application, contact your financial adviser or call Nuveen at (800) 621-
7227.
CALCULATION OF FUND DIVIDENDS
The fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, the fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, C and R shares are determined in the same manner and at
the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
The fund primarily invests in municipal bonds from a specific state or in mu-
nicipal bonds whose income is otherwise exempt from regular federal, state and
local income taxes. Consequently, the regular monthly dividends you receive
will be exempt from regular federal, state and, in some cases, local income
taxes. All or a portion of these dividends, however, may be subject to the
federal alternative minimum tax (AMT).
Although the fund does not seek to realize taxable income or capital gains,
the fund may realize and distribute taxable income or capital gains from time
to time as a result of each fund's normal investment activities. The fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the
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9
<PAGE>
preceding year, including the source of its investment income by state and the
portion of its income that is subject to AMT. You will receive this statement
from the firm where you purchased your fund shares if you hold your investment
in street name; Nuveen will send you this statement if you hold your shares in
registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, a
portion of the price you receive may be treated as a taxable capital gain even
though it reflects tax-free income earned but not yet distributed by the fund.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be tax-
able as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free in-
come is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
Tax-Free Yield
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.38%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time. After August 10, 1998, call (800) 257-8787.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or con-
duct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
(if mailed before August 10, 1998)
Nuveen Mutual Funds
P.O. Box 5330
Denver, CO 80217-5330
(if mailed on or after August 10, 1998)
Nuveen Investor Services
P.O. Box 5186
Bowling Green Station
New York, NY 10274-5186
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the fund and mark
---
10
<PAGE>
clearly on your check which class of shares you are purchasing. If you do not
specify which class of shares you are purchasing, Nuveen will assume you are
buying Class A shares if you are opening a new account; if you are adding to
an existing account, Nuveen will assume you wish to buy more shares of the
class you already own.
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in the fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The fund's Board of Trustees
oversees the activities of Nuveen Advisory, which also includes managing the
fund's business affairs and providing certain clerical, bookkeeping and other
administrative services. Nuveen, the principal underwriter of the Fund's
shares, is the sponsor of the Nuveen Tax-Exempt Unit Trust and Nuveen Unit
Trusts, registered unit investment trusts. It is also the principal under-
writer for the shares of the Nuveen Exchange-Traded Funds. Established in
1976, Nuveen Advisory is a wholly-owned subsidiary of John Nuveen & Co. Incor-
porated, which itself is approximately 78% owned by the St. Paul Companies,
Inc. Effective January 1, 1997, The John Nuveen Company acquired Flagship Re-
sources Inc., and as part of that acquisition, Flagship Financial, the adviser
to the Flagship Funds, was merged with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the fund are
set by the Investment Policy Committee of Nuveen Advisory. The Investment Pol-
icy Committee is comprised of the principal executive officers and portfolio
managers of Nuveen Advisory and meets regularly to review economic conditions,
the outlook for the financial markets in general and the status of the munici-
pal markets in particular. Day-to-day operation of the fund and the execution
of its specific investment strategies is the responsibility of the designated
portfolio manager described below.
J. Thomas Futrell is a Vice President of Nuveen Advisory and the portfolio
manager for the fund.
THE DISTRIBUTOR
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the fund's shares. In this capacity, Nuveen manages the offering of the fund's
shares and is responsible for all sales and promotional activities. In order
to reimburse Nuveen for its costs in connection with these activities, includ-
ing compensation paid to authorized dealers, the fund has adopted a distribu-
tion and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes the fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A and C shares outstanding and annual dis-
tribution fees of 0.55%, on the average daily net assets of Class C shares
outstanding. In order to help compensate Nuveen for the sales commission paid
to financial advisers at the time of sale on sales of Class C shares, Nuveen
retains the first year's service and distribution fees on sales of Class C
shares. Otherwise, Nuveen pays these fees to the broker of record. The state-
ment of additional information contains a detailed description of the plan and
its provisions.
TRANSFER AGENT
The fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, will
serve as transfer agent for the fund until August 10, 1998. Chase Global Funds
Services Company, P.O. Box 5186, New York, New York 10274-5186 will serve as
transfer agent for each fund after that date.
Nuveen Advisory and the transfer agent rely on computer systems to manage the
fund's investments, process shareholder transactions and provide shareholder
account maintenance. Because of the way computers historically have stored
dates, some of these systems currently may not be able to correctly process
activity occurring in the year 2000. Nuveen Advisory is working with the
fund's service providers to adapt their systems to address this "year 2000 is-
sue." Nuveen Advisory and the fund expect the necessary work to be completed
no later than December 1999, although we can make no assurance with respect to
the systems of the fund's service providers.
HOW THE FUND REPORTS PERFORMANCE
The fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The fund may also compare its investment
results to various passive indices or other mutual funds with similar invest-
ment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
---
11
<PAGE>
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets, sub-
tracting any liabilities or other debts, and dividing by the total number of
its shares outstanding.
The prices of municipal bonds in the fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for mu-
nicipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The fund is not required to and does not intend to hold annual meetings.
Shareholders owning ten percent or more of the fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
The Trustees have approved a tax-free reorganization of the New Jersey Inter-
mediate Municipal Bond Fund. That Fund will transfer all of its assets and li-
abilities to the New Jersey Bond Fund in a tax-free exchange. The reorganiza-
tion is subject to certain regulatory approvals and the approval of the Fund's
shareholders. A meeting of the shareholders has been called for August 31,
1998. Further information regarding the proposed reorganization and the share-
holder meeting are contained in a proxy statement that was mailed in June,
1998.
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the fund primarily purchases municipal bonds from a specific state,
the fund also bears investment risk from economic, political or regulatory
changes that could adversely affect municipal bond issuers in that state and
therefore the value of the fund's investment portfolio. The following discus-
sion of special state considerations was obtained from official offering
statements of these issuers and has not been independently verified by the
fund. The discussion includes general state tax information related to an in-
vestment in fund shares. Because tax laws are complex and often change, you
should consult your tax adviser about the state tax consequences of a specific
fund investment. See the statement of additional information for further in-
formation.
NEW JERSEY
New Jersey has a diversified economic base comprised of various manufacturing,
construction and service industries. New Jersey ranks second among the states
in per capita personal income which was $32,654 in 1997. While the national
recession adversely affected the State's employment rate, New Jersey's economy
has since been accelerating and the 1997 unemployment rate was 5.1%.
The 1997 fiscal year audited general fund revenues were $17.4 billion against
appropriations of $16.4 billion. The general fund surplus totaled $281 million
in fiscal year 1997. New Jersey's general obligation bonds are rated Aa1 by
Moody's and AA+ by Standard and Poor's.
Tax Treatment.
The fund's regular monthly dividends will not be subject to New Jersey gross
income tax to the extent they are paid out of income earned on or capital
gains realized from the sale of New Jersey municipal bonds or U.S. government
securities. You will be subject to New Jersey gross income tax, however, to
the extent the New Jersey fund distributes any taxable income. If you realize
a capital gain on the sale or exchange of shares of the fund, you will not be
subject to New Jersey gross income tax. If you realize a capital loss on the
sale or exchange of shares of the fund, you may not use the loss to offset
other New Jersey taxable capital gains.
The treatment of corporate shareholders of the fund differs from that de-
scribed above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information and are urged to consult
their tax adviser.
---
12
<PAGE>
Nuveen
Family of Mutual Funds
Nuveen offers a variety of mutual funds
designed to help you reach your financial
goals. The funds below are grouped by
investment objective.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227 1. Long-term and insured long-term portfolios.
www.nuveen.com 2. Long-term and limited-term portfolios.
<PAGE>
[NUVEEN LOGO]
Municipal
Bond Funds
June 29, 1998
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
California
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
JUNE 29, 1998
PROSPECTUS
Overview
The funds listed above are part of the Nuveen Flagship
Multistate Trust II, an open-end investment company.
Each fund seeks to provide high double or triple tax-
free income and preservation of capital through in-
vestments in diversified portfolios of quality munici-
pal bonds whose income is exempt from regular federal,
state and, in some cases, local income taxes.
Each fund offers a set of flexible purchase options
which permit you to purchase fund shares in the way
that is best suited to your individual circumstances
and investment needs. For detailed information about
these flexible purchase options, please refer to "How
to Select a Purchase Option" later in this prospectus.
This prospectus contains important information you
should know before investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus by reference. For a free copy, write to Nuveen
or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY.
SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW
2 FUND SUMMARIES AND
FINANCIAL HIGHLIGHTS
FUND STRATEGIES
6 Investment Objective
6 How the Funds Select Investments
7 Risk Reduction Strategies
INVESTING IN THE FUNDS
8 How to Buy Fund Shares
8 How to Select a Purchase Option
9 How to Sell Fund Shares
10 Exchanging Shares
10 Optional Features and Services
DIVIDENDS AND TAXES
11 How the Funds Pay Dividends
12 Taxes and Tax Reporting
12 Taxable Equivalent Yields
GENERAL INFORMATION
13 How to Contact Nuveen
13 Fund Service Providers
14 How the Funds Report Performance
14 How Fund Shares are Priced
14 Organization
APPENDIX
14 Special State Considerations
---
1
<PAGE>
Nuveen California Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: July 1, 1986
NET ASSETS: $252 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 4.33% 8.87% 8.08% 8.36% 8.99%
5 Years 4.94% 5.85% 5.19% 5.18% 6.16%
10 Years 7.13% 7.60% 7.02% 6.86% 7.89%
Inception 6.97% 7.36% 6.85% 6.62% 7.65%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns reflect Class R perfor-
mance for all periods, adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and 5 year
periods would be lower if you redeemed at the end of those periods. See Over-
view of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 22.7
Average Modified Duration 6.6
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA 47%
AA 8%
A 19%
BBB/NR 26%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
U.S. Guaranteed 17%
Housing (Single Family) 11%
Housing (Multifamily) 15%
Tax Obligation (Limited) 25%
Health Care 12%
Other 20%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Chargeon Purchases 4.20%(1) - - -
Sales Chargeon Reinvested Dividends - - - -
ContingentDeferred Sales Charge (CDSC)on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54% 0.54%
12b-1 Fees 0.20% 0.95% 0.75% -
Other 0.16% 0.17% 0.16% 0.16%
- ------------------------------------------------------------------------------------------
Total (Gross) 0.90% 1.66% 1.45% 0.70%
Waivers/
Reimbursements - - - -
- ------------------------------------------------------------------------------------------
Total Expenses (Net) 0.90% 1.66% 1.45% 0.70%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $51 $56 $15 $7
3 Years $69 $84 $46 $22
5 Years $90 $102 $79 $39
10 Years $148 $176 $174 $87
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS OPERATING PERFORMANCE LESS DISTRIBUTIONS
(INCEPTION --------------------------------- --------------------------------
DATE)
CALIFORNIA
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
YEAR ENDED VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
FEBRUARY BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET ASSET
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
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA:
(INCEPTION -------------------------------------------------
DATE)
CALIFORNIA
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
YEAR ENDED NET ASSETS END AFTER AFTER PORTFOLIO
FEBRUARY OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1998 $29,125 .90% 5.11% 45%
1997 20,571 .94 5.16 74
1996 12,709 .96 5.27 36
1995(c) 3,146 1.00* 5.81* 32
CLASS B (3/97)
1998(c) 2,324 1.66* 4.31* 45
CLASS C (9/94)
1998 4,061 1.45 4.56 45
1997 1,003 1.67 4.44 74
1996 684 1.71 4.52 36
1995(c) 200 1.75* 5.03* 32
CLASS R (7/86)
1998 216,309 .70 5.31 45
1997 214,253 .70 5.41 74
1996 216,390 .71 5.53 36
1995 208,080 .71 5.83 32
1994 218,430 .73 5.47 19
1993 183,215 .71 6.05 5
1992(d) 133,377 .67* 6.30* -
1991(e) 107,508 .69 6.48 15
1990(e) 78,704 .69 6.51 8
1989(e) 52,048 .75 6.79 22
</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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen Advisory has agreed to waive some or all of its fees or reimburse
expenses to prevent total operating expenses (not counting distribution
and service fees) from exceeding 0.75% of the fund's average daily net as-
sets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
3
<PAGE>
Nuveen California Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: July 1, 1986
NET ASSETS: $234 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 4.09% 8.66% 7.82% 7.96% 8.86%
5 Years 4.87% 5.78% 5.00% 4.94% 6.00%
10 Years 7.18% 7.65% 7.03% 6.82% 7.89%
Inception 6.82% 7.21% 6.70% 6.39% 7.46%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns reflect Class R perfor-
mance for all periods, adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and five
year periods would be lower if you redeemed at the end of those periods. See
Overview of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 22.7
Average Modified Duration 6.1
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 22%
Insured 78%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
U.S. Guaranteed 23%
Tax Obligation (General) 8%
Tax Obligation (Limited) 36%
Housing (Multifamily) 8%
Housing (Single Family) 7%
Other 18%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.54% 0.54% 0.54% 0.54%
12b-1 Fee 0.20% 0.95% 0.75% -
Other 0.16% 0.17% 0.16% 0.16%
- -------------------------------------------------------------------------------------------------
Total (Gross) 0.90% 1.66% 1.45% 0.70%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 0.90% 1.66% 1.45% 0.70%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $51 $56 $15 $7
3 Years $69 $84 $46 $22
5 Years $90 $102 $79 $39
10 Years $148 $176 $174 $87
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS OPERATING PERFORMANCE LESS DISTRIBUTIONS
(INCEPTION DATE) ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CALIFORNIA INSURED
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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
<CAPTION>
CLASS RATIOS/SUPPLEMENTAL DATA
(INCEPTION DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
CALIFORNIA INSURED
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS AFTER AFTER PORTFOLIO
YEAR ENDED END OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1998 $ 36,203 .90% 4.93% 26%
1997 27,598 .94 5.05 51
1996 17,250 .97 5.00 38
1995(c) 4,753 1.05* 5.45* 25
CLASS B (3/97)
1998(c) 2,967 1.66* 4.16* 26
CLASS C (9/94)
1998 3,226 1.45 4.37 26
1997 1,719 1.67 4.32 51
1996 1,040 1.71 4.26 38
1995(c) 222 1.80* 4.69* 25
CLASS R (7/86)
1998 191,554 .70 5.14 26
1997 195,553 .69 5.30 51
1996 205,642 .70 5.29 38
1995 198,928 .70 5.60 25
1994 208,115 .71 5.12 14
1993 168,852 .75 5.72 9
1992(d) 100,933 .64* 5.97* 7
1991(e) 74,551 .68 6.26 29
1990(e) 50,625 .70 6.36 13
1989(e) 35,032 .82 6.52 23
</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 year ending June 30.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen Advisory has agreed to waive some or all of its fees or reimburse
expenses to prevent total operating expenses (not counting distribution
and service fees) from exceeding 0.975% of the fund's average daily net
assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
5
<PAGE>
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level
of current interest income exempt from regular federal and state income taxes
as is consistent with preservation of capital. There is no assurance that the
funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
.. Earn regular monthly tax-free dividends;
.. Preserve investment capital over time;
.. Reduce taxes on investment income;
.. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
.. Pursue an aggressive, high-growth investment strategy;
.. Invest through an IRA or 401k plan;
.. Avoid fluctuations in share price.
HOW THE FUNDS SELECT INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in municipal
bonds that pay interest that is exempt from regular federal and state income
taxes. Income from these bonds may be subject to the federal alternative mini-
mum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The California Insured Fund primarily purchases insured municipal bonds. See
"Insurance" below. Under normal market conditions, the California Insured Fund
will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds' in-
vestment adviser. If suitable municipal bonds from California are not avail-
able at attractive prices and yields, a fund may invest in municipal bonds of
U.S. territories (such as Puerto Rico and Guam) which are exempt from regular
federal, state, and local income taxes. The funds may not invest more than 20%
of their net assets in these territorial municipal bonds. The California In-
sured Fund will invest at least 80% of its net assets in insured municipal
bonds or municipal bonds backed by an escrow or trust account that contains
sufficient U.S. government-backed securities to assure timely payment of in-
terest and principal.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to re-
duce this risk, the funds will only purchase leases where the issuer has a
strong incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical--S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects mu-
nicipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
INSURANCE
The California Insured Fund primarily purchases insured municipal bonds. In-
sured municipal bonds are either covered by individual, permanent insurance
policies (obtained either at the time of issuance or subsequently), or covered
"while in fund" under a master portfolio insurance policy purchased by a fund.
Insurance guarantees only the timely payment of interest and principal on the
bonds; it does not guarantee the value of either individual bonds or fund
shares.
---
6
<PAGE>
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of
such a bond would not benefit from the insurance. Insurers under master port-
folio insurance policies currently include MBIA Insurance Corp., AMBAC Assur-
ance Corporation, Financial Security Assurance, Inc., and Financial Guaranty
Insurance Company. The funds' investment adviser may obtain master policies
from other insurers, but only from insurers that specialize in insuring munic-
ipal bonds and whose claims-paying ability is rated Aaa or AAA by Moody's or
S&P. Insurers are responsible for making their own assessment of the insur-
ability of a municipal bond.
The California Insured Fund can invest up to 20% of its net assets in
uninusured municipal bonds that are backed by an escrow containing sufficient
U.S. Government or U.S. Government agency securities to ensure timely payment
of principal and interest. Such bonds are normally regarded as having the
credit characteristics of the underlying U.S. Government-backed securities.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover rela-
tively low in order to reduce trading costs and the realization of taxable
capital gains. Each fund, however, may make limited short-term trades to take
advantage of market opportunities or reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of
risk because no interest accrues on the bonds prior to settlement and, since
securities are subject to market fluctuation, the value of the bonds at time
of delivery may be less (or more) than cost.
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is
the risk that changes in market interest rates will affect the value of a
fund's investment portfolio. In general, the value of a municipal bond falls
when interest rates rise, and increases when interest rates fall. Credit risk
is the risk that an issuer of a municipal bond is unable to meet its obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal bonds are perceived to carry a greater degree of risk in the issuer's
ability to make interest and principal payments. Municipal bonds with longer
maturities (durations) or lower ratings generally provide higher current in-
come, but are subject to greater price fluctuation due to changes in market
conditions than bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from California, each
fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in the state and
therefore the value of the fund's investment portfolio.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. Each fund may not have more than:
.. 25% in any one industry sector, such as electric utilities or health care;
.. 10% in borrowings (33% if used to meet redemptions).
As diversified funds, the funds also may not have more than:
.. 5% in securities of any one issuer (except U.S. government securities or for
25% of each fund's assets).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities
that are exempt from regular federal income tax, although the funds may invest
up to 100% as a temporary defensive measure in response to adverse market con-
ditions. During temporary defensive periods, the weighted average maturity of
a fund's investment portfolio may fall below the defined range described above
under "Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA,
by Moody's or S&P, respectively, or issued by the U.S. government, and that
have a maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the
risk of bond price fluctuations and to preserve capital. These hedging strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securities or on
debt securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strate-
gies" are fundamental and may not be changed without the approval of a major-
ity of the shareholders of each fund.
---
7
<PAGE>
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower minimums. The share price
you pay will depend on when Nuveen receives your order: orders received before
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. Eastern time) will receive that day's share price; otherwise you will re-
ceive the next business day's share price.
The Funds have authorized Charles Schwab & Co.'s Mutual Fund Marketplace(R) to
accept purchase and sale orders on their behalf. Schwab may designate finan-
cial advisers to accept purchase and sale orders in its behalf. A Fund will be
deemed to have received a purchase or redemption order when Schwab or a desig-
nated financial adviser accepts that order. The price of the shares you buy or
sell will be the Fund's net asset value next calculated after your order is
accepted.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial ad-
visers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments con-
tinue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed Nuveen application and mailing it along with your check (payable to the
appropriate fund) to the address listed under "How to Contact Nuveen." Sales
charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or in-
crease minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear
a 0.20% annual service fee which compensates your financial adviser for pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED DEALER
SALES CHARGE COMMISSION
------------------------------------- -----------------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over -(1) - -(1)
</TABLE>
(1) Nuveen pays Authorized Dealers a commission equal to the sum of 1% (0.75%
and 0.50%, respectively, for Intermediate and Limited Term Funds) of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% (0.50%
for Intermediate Funds) of any amount over $5 million. Unless the Autho-
rized Dealer waived the commission, you may be assessed a contingent de-
ferred sales charge (CDSC) of 1% (0.75% and 0.50%, respectively, for In-
termediate and Limited Term Funds) if you redeem any of your shares within
18 months of purchase. The CDSC is calculated on the lower of your pur-
chase price or redemption proceeds.
Nuveen periodically undertakes sales promotion programs with authorized deal-
ers and may pay them the full applicable
---
8
<PAGE>
sales charge as a commission. In addition, Nuveen may provide support at its
own expense to authorized dealers in connection with sales meetings, seminars,
prospecting seminars and other events at which Nuveen presents its products
and services. Under certain circumstances, Nuveen may also make ongoing pay-
ments to authorized dealers to facilitate the marketing and administration of
new and existing shareholder accounts, including payments for advertising that
features the products and services of both parties. The statement of addi-
tional information contains further information about these programs.
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. Fee-Based Programs
.. Bank Trust Departments
.. Certain Employees and Directors of Nuveen or Employees of Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class B NAV. There is no initial sales
charge, but Class B shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion of outside counsel or the written assurance of the IRS.
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be as-
sessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR
- ---------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7+
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser an ongoing sales commission. Nuveen advances the first year's service
and distribution fees.
If you redeem your Class C shares within one year of purchase, you may be as-
sessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you would qualify to purchase Class A shares without a sales
charge, but only under certain of the programs described under "Other Sales
Charge Discounts" above or meet certain other purchase size criteria. See the
statement of additional information for more details. There are no sales
charges or ongoing distribution or service fees. Class R Shares have lower on-
going expenses than Class A Shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable. You may also redeem shares through Schwab.
See "How To Buy Fund Shares" above.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
---
9
<PAGE>
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund will be liable for losses resulting
from unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immedi-
ately verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
.. The fund's name;
.. Your name and account number;
.. The dollar or share amount you wish to redeem;
.. The signature of each owner exactly as it appears on the account;
.. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
.. The address you want your redemption proceeds sent to, if other than to the
address of record;
.. Any certificates you have for the shares; and
.. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares into an identically registered account at any
time for the same class of shares in another Nuveen mutual fund that is avail-
able within your state of residence. You may exchange fund shares by calling
(800) 621-7227 or by mailing your written request to Nuveen at the address
listed under "How to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are ex-
changing. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of determin-
ing any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on
fund shareholders. In order to limit excessive exchange activity
---
10
<PAGE>
and in other circumstances where the funds' investment adviser believes doing
so would be in the best interests of the fund, each fund reserves the right to
revise or terminate the exchange privilege, limit the amount or number of ex-
changes, or reject any exchange. You will be notified in the event this happens
to the extent required by law.
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund Di-
rect--Electronic Funds Transfer" below), or directly from your paycheck. To in-
vest regularly from your bank account, simply complete the appropriate section
of the account application. To invest regularly from your paycheck, call Nuveen
for a Payroll Direct Deposit Enrollment form. If you need additional copies of
these forms, or would like assistance completing them, contact your financial
adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to con-
tinue investing in declining as well as rising markets before deciding to in-
vest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not re-
flect past or projected fund performance.
The Power of Systematic Investing
[GRAPH APPEARS HERE]
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually, or annually and may choose to re-
ceive a check, have the monies transferred directly into your bank account (see
"Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must com-
plete the appropriate section of the account application or Account Update Form
to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption pro-
ceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. You
may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of exer-
cising your reinstatement privilege.
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account applica-
tion or Account Update Form. If you need additional copies of these forms, or
would like assistance completing them, contact your financial adviser or call
Nuveen at (800) 621-7227. You may use Fund Direct to quickly and conveniently
purchase or sell
---
11
<PAGE>
shares by telephone, systematically invest or withdraw funds, or send dividend
payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on
the ninth of each month and generally pay dividends or about on the first
business day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request
to have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count application, contact your financial adviser or call Nuveen at (800) 621-
7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in municipal bonds from California or in municipal
bonds whose income is otherwise exempt from regular federal and state income
taxes. Consequently, the regular monthly dividends you receive will be exempt
from regular federal and state income taxes. All or a portion of these divi-
dends, however, may be subject to the federal alternative minimum tax (AMT).
More specific state tax information can be found below in the Appendix.
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, a
portion of the price you receive may be treated as a taxable capital gain even
though it reflects tax-free income earned but not yet distributed by the fund.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S.
---
12
<PAGE>
requirements that govern the fund's sources of income, diversification of as-
sets and distribution of earnings to shareholders. Each fund has met these re-
quirements in the past and intends to do so in the future. If a fund failed to
do so, the fund would be required to pay corporate taxes on its earnings and
all your distributions would be taxable as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free in-
come is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
Tax-Free Yield
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.38%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time. After August 10, 1998 call (800) 257-8787.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or con-
duct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
(if mailed before August 10, 1998)
Nuveen Mutual Funds
P.O. Box 5330
Denver, CO 80217-5330
(if mailed on or after August 10, 1998)
Nuveen Investor Services
P.O. Box 5186
Bowling Green Station
New York, NY 10274-5186
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume you wish to buy more shares of the class you already own.
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. Established in 1976, Nuveen Advisory is a wholly-
owned subsidiary of John Nuveen & Co. Incorporated, which itself is approxi-
mately 78% owned by the St. Paul Companies, Inc. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
<TABLE>
- ------------------------------------------
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
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13
<PAGE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, the outlook for the financial markets in general and the status of the
municipal markets in particular. Day-to-day operation of each fund and the ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
Effective July 1, 1998, William M. Fitzgerald, Vice President of Nuveen Advi-
sory, will be portfolio manager of the California funds.
THE DISTRIBUTOR
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order
to reimburse Nuveen for its costs in connection with these activities, includ-
ing compensation paid to authorized dealers, each fund has adopted a distribu-
tion and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and Class C shares, Nuveen retains the first year's service
fee on sales of Class B shares and all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of record. The statement of
additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, will
serve as transfer agent for each fund until August 10, 1998. Chase Global
Funds Services Company, P.O. Box 5186, New York, NY 10274-5186 will serve as
transfer agent for each Fund after that date.
Nuveen Advisory and the transfer agent rely on computer systems to manage the
fund's investments, process shareholder transactions and provide shareholder
account maintenance. Because of the way computers historically have stored
dates, some of these systems currently may not be able to correctly process
activity occurring in the year 2000. Nuveen Advisory is working with the
fund's service providers to adapt their systems to address this "year 2000 is-
sue." Nuveen Advisory and the fund expect the necessary work to be completed
no later than December 1999, although we can make no assurance with respect to
the systems of the fund's service providers.
HOW THE FUNDS REPORT PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets, sub-
tracting any liabilities or other debts, and dividing by the total number of
its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for mu-
nicipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
---
14
<PAGE>
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from California, each
fund also bears investment risk from economic, political or regulatory changes
that could adversely affect municipal bond issuers in the state and therefore
the value of the fund's investment portfolio. The following discussion of spe-
cial state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The dis-
cussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund invest-
ment. See the statement of additional information for further information.
CALIFORNIA
California's economy, the largest in the nation, is undergoing a slow, steady
growth following a recession from mid-1990 to late 1993 in which the construc-
tion, manufacturing and financial services industries were adversely affected,
job losses were severe, and substantial, broad-based revenue shortfalls af-
fected both the state and local governments. The state's 1997 unemployment
rate was 6.3% and average personal income was $26,570. California's general
obligation bonds are rated A1 by Moody's and A+ by Standard and Poor's.
The taxing authority of California's governmental entities is limited due to
the adoption of "Proposition 13" and other amendments to the California Con-
stitution. Proposition 13, adopted by voters in 1978, limits to 1% of full
cash value the rate of ad valorem property taxes on real property and gener-
ally restricts the reassessment of property to 2% per year, except upon new
construction or change of ownership (subject to a number of exemptions). Be-
cause the basic 1% ad valorem tax levy is applied against the assessed value
of property as of the owner's date of acquisition, the amount of tax on simi-
larly situated properties varies widely. The state and local governments are
also subject to annual "appropriations limits" imposed by Article XIIIB of the
California Constitution, which limits the state and local governments from
spending the proceeds of tax revenues, regulatory licenses, user charges or
other fees beyond imposed appropriations limits which are adjusted annually to
reflect changes in cost of living and population. Revenues in excess of the
limitations are measured over a two year cycle. Local governments must return
any excess to taxpayers by rate reductions; the state must refund 50% of any
excess, with the other 50% paid to schools and community colleges. A 1986 ini-
tiative statute called "Proposition 62" requires either a majority or 2/3
voter approval for any increase in general or special taxes. Court decisions
had struck down most of Proposition 62, but the California Supreme Court up-
held its constitutionality in September 1995. Many aspects of the decision,
such as whether it applies retroactively, remain unclear, but its future ef-
fect will be to further limit the fiscal flexibility of many local govern-
ments. The complex and ambiguous nature of the foregoing limitations makes it
impossible to fully determine their impact on California Municipal Obligations
or the ability of the state and local governments to pay debt service on Cali-
fornia Municipal Obligations.
On November 5, 1996, California voters approved Proposition 218 which added
Articles XIIIC and XIIID to the California Constitution, imposing certain vote
requirements and other limitations on the imposition of new or increased and
in some cases existing taxes, assessments and property-related fees and
charges. Proposition 218 also extends the initiative power to include the re-
duction or repeal of any local taxes, assessments, fees and charges. This ex-
tension of the initiative power is not limited to taxes imposed on or after
the effective date of Proposition 218, and could result in the retroactive re-
peal or reduction in any existing taxes, assessments, fees or charges. If such
a repeal or reduction occurs in a particular California entity, the financial
condition of that entity may be adversely impacted and rating downgrades
and/or defaults may result. Additionally, the voter approval requirement re-
duces the financial flexibility of local governments to deal with fiscal prob-
lems by limiting the ability to increase taxes, assessments, fees or charges.
In some cases, this loss of flexibility may, and in fact has, been cited as
the reason for rating downgrades. No assurances can be given that California
entities will be able to raise taxes to meet future spending requirements. In
addition, at this time it is not clear exactly how Proposition 218 will be in-
terpreted by a court.
California is estimated to end its 1996-97 fiscal year with a general fund
surplus of approximately $763 million, of which $312 million is reserved for
economic uncertainties reducing the accumulated budget deficit to approxi-
mately $1.14 billion. As a result of the improved revenues, the state's cash
position has substantially recovered. Only $3 billion of cash flow borrowing
was needed during 1996-97, and about $3 billion is projected for 1997-98, with
no external borrowing over the end of the fiscal year. The Governor's proposed
budget for 1997-98 projects $52.0 billion of revenues and transfers, and $51.7
billion of expenditures, resulting in a budget reserve at June 30, 1998 of
about $580 million. A number of issues related to the 1997-98 budget still
have to be resolved, including additional school funding and the Governor's
proposals for future health and welfare cuts.
California's finances have dramatically improved since 1994 and the economy
has further diversified. However, should the financial condition of California
deteriorate again, its credit ratings could be further reduced, and the market
value and marketability of all outstanding notes and bonds issued by Califor-
nia, its public authorities or local governments could be adversely affected.
Tax Treatment.
The funds' regular monthly dividends will not be subject to California per-
sonal income taxes to the extent they are paid out of income earned on Cali-
fornia municipal obligations or U.S. government securities. You will be sub-
ject to California personal income taxes, however, to the extent the funds dis-
---
15
<PAGE>
tribute any taxable income or realized capital gains, or if you sell or ex-
change shares of the funds and realize capital gain on the transaction.
The treatment of corporate shareholders of the funds differs from that de-
scribed above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information.
---
16
<PAGE>
Nuveen
Family of Mutual Funds
Nuveen offers a variety of mutual funds
designed to help you reach your financial
goals. The funds below are grouped by
investment objective.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227 1. Long-term and insured long-term portfolios.
www.nuveen.com 2. Long-term and limited-term portfolios.
VPR-CA-6-98
<PAGE>
[NUVEEN LOGO]
Municipal
Bond Funds
June 29, 1998
Prospectus
Dependable, tax-free income
to help you keep more of
what you earn.
[PHOTO APPEARS HERE]
Massachusetts
<PAGE>
Investing in Nuveen Mutual Funds
Since our founding in 1898, John Nuveen & Co. has been synonymous with
investments that withstand the test of time. Today, we offer a range of equity
and fixed-income mutual funds designed to suit the unique circumstances and
financial planning needs of mature investors. More than 1.3 million investors
have entrusted Nuveen to help them maintain the lifestyle they currently enjoy.
Value investing -- purchasing quality securities that represent good relative
value -- is the cornerstone of Nuveen's investment philosophy. It is a
disciplined, long-term strategy that offers the potential for above average
returns over time with moderated risk. Successful value investing begins with
in-depth research and a discerning eye for marketplace opportunity. Our team of
investment professionals is backed by the discipline, resources and expertise of
Nuveen's almost a century of investment experience, including one of the most
recognized research departments in the industry.
This prospectus describes in detail the investment objectives, policies and
risks of certain Nuveen municipal bond funds. We invite you to discuss the
contents with your financial adviser, or you may call us at 800-621-7227 for
additional information.
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
JUNE 29, 1998
PROSPECTUS
Overview
The funds listed above are part of the Nuveen Flagship
Multistate Trust II, an open-end investment company.
Each fund seeks to provide high double tax-free income
and preservation of capital through investments in di-
versified portfolios of quality municipal bonds whose
income is exempt from regular federal and state income
taxes.
Each fund offers a set of flexible purchase options
which permit you to purchase fund shares in the way
that is best suited to your individual circumstances
and investment needs. For detailed information about
these flexible purchase options, please refer to "How
to Select a Purchase Option" later in this prospectus.
This prospectus contains important information you
should know before investing. Please read it carefully
and keep it for future reference. You can find more
detailed information about each fund in the statement
of additional information which is part of this pro-
spectus by reference. For a free copy, write to Nuveen
or call (800) 621-7227.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER U.S. GOVERNMENT AGENCY.
SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUD-
ING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVEST-
ED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EX-
CHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPEC-
TUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Contents
1 OVERVIEW
2 FUND SUMMARIES AND
FINANCIAL HIGHLIGHTS
FUND STRATEGIES
6 Investment Objective
6 How the Funds Select Investments
7 Risk Reduction Strategies
INVESTING IN THE FUNDS
8 How to Buy Fund Shares
8 How to Select a Purchase Option
9 How to Sell Fund Shares
10 Exchanging Shares
10 Optional Features and Services
DIVIDENDS AND TAXES
12 How the Funds Pay Dividends
12 Taxes and Tax Reporting
13 Taxable Equivalent Yields
GENERAL INFORMATION
13 How to Contact Nuveen
13 Fund Service Providers
14 How the Funds Report Performance
14 How Fund Shares are Priced
14 Organization
APPENDIX
15 Special State Considerations
---
1
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: December 22, 1986
NET ASSETS: $85 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 2.91% 7.38% 6.82% 6.85% 7.60%
5 Years 4.88% 5.77% 5.01% 4.98% 5.96%
10 Years 7.08% 7.54% 6.92% 6.74% 7.78%
Inception 6.08% 6.49% 5.93% 5.69% 6.73%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns reflect Class R perfor-
mance for all periods, adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your returns for the 1 year and 5
years periods would be lower if you redeemed at the end of those periods. See
Overview of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 20.4
Average Modified Duration 4.8
CREDIT QUALITY
[PIE CHART APPEARS HERE]
AAA 57%
AA 15%
A 18%
BBB/NR 10%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
Housing (Multifamily) 15%
Education and Civic Organizations 9%
U.S. Guaranteed 39%
Tax Obligation (General) 13%
Health Care 13%
Other 11%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.25% 0.27% 0.25% 0.25%
- -------------------------------------------------------------------------------------------------
Total (Gross) 1.00% 1.77% 1.55% 0.80%
Waivers/
Reimbursements (0.05%) (0.07%) (0.05%) (0.05%)
- -------------------------------------------------------------------------------------------------
Total (Net) 0.95% 1.70% 1.50% 0.75%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $51 $57 $15 $8
3 Years $71 $85 $47 $24
5 Years $92 $104 $82 $42
10 Years $154 $181 $179 $93
</TABLE>
---
2
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent au-
ditors. You may find more information about the fund's performance in its an-
nual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION OPERATING PERFORMANCE LESS DISTRIBUTIONS
DATE) ---------------------- --------------------
MASSACHUSETTS
NET
REALIZED DIVIDENDS
NET AND FROM DISTRIBU- NET TOTAL
ASSET UNREAL- TAX-EXEMPT TIONS ASSET RETURN
VALUE NET IZED GAIN NET FROM VALUE ON NET
YEAR ENDED BEGINNING INVESTMENT (LOSS) FROM INVESTMENT 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
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA
DATE) ------------------------------------------------
MASSACHUSETTS
RATIO OF NET
RATIO OF INVESTMENT
EXPENSES TO INCOME TO
AVERAGE NET AVERAGE
NET ASSETS ASSETS NET ASSETS
END OF AFTER AFTER PORTFOLIO
YEAR ENDED PERIOD (IN REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, THOUSANDS) MENT(A) MENT(A) RATE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1998 $ 9,291 .95% 5.25% 17%
1997 7,200 .99 5.24 10
1996 4,290 1.00 5.21 6
1995(c) 1,067 1.00* 5.75* 17
CLASS B (3/97)
1998(C) 763 1.70* 4.48* 17
CLASS C (10/94)
1998 1,924 1.50 4.69 17
1997 913 1.73 4.51 10
1996 638 1.75 4.45 6
1995(c) 147 1.75* 5.11* 17
CLASS R (12/86)
1998 72,934 .75 5.45 17
1997 72,912 .75 5.48 10
1996 76,773 .75 5.49 6
1995 71,568 .75 5.77 17
1994 71,942 .75 5.38 3
1993 53,231 .75 5.91 5
1992(d) 34,470 .71* 6.31* 5
1991(e) 31,150 .75 6.39 19
1990(e) 20,829 .75 6.68 23
1989(e) 15,513 .75 6.64 31
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen Advisory will waive some or all of its fees or reimburse expenses
so that the total operating expenses (not counting distribution and serv-
ice fees) for the fund do not exceed 0.75% of average daily net assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
3
<PAGE>
Nuveen Massachusetts Insured Municipal Bond Fund
PERFORMANCE INFORMATION AS OF 2/28/98
INCEPTION: December 22, 1986
NET ASSETS: $67 million
TOTAL RETURN (ANNUALIZED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS A
(OFFER PRICE) (NAV) CLASS B CLASS C CLASS R
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year 2.50% 7.04% 6.25% 6.45% 7.23%
5 Years 4.48% 5.38% 4.64% 4.64% 5.64%
10 Years 6.77% 7.24% 6.65% 6.46% 7.50%
Inception 6.19% 6.59% 6.05% 5.81% 6.86%
</TABLE>
Class R total returns reflect actual performance for all periods; Classes A
and C total returns reflect actual performance for periods since class incep-
tion (see "Financial Highlights" for dates), and Class R performance for peri-
ods prior to class inception, adjusted for the differences in sales charges
and fees between the classes. Class B total returns reflect Class R perfor-
mance for all periods, adjusted for the differences in sales charges and fees
between the classes. Class B total returns assume an ongoing investment and do
not reflect the imposition of the CDSC; your total returns for the 1 year and
5 year periods would be lower if you redeemed at the end of those periods. See
Overview of Fund Operating Expenses and Shareholder Transaction Expenses.
The fund assumes investment risk in pursuit of its investment objective,
chiefly in the form of interest rate risk and credit risk. The fund limits
this risk by purchasing only certain types and maturities of municipal bonds
and by diversifying its investment portfolio geographically and by industry.
See Risk Reduction Strategies for further information.
MATURITY (YEARS)
Average Maturity 19.9
Average Modified Duration 4.7
CREDIT QUALITY
[PIE CHART APPEARS HERE]
Escrowed 24%
Insured 76%
INDUSTRY DIVERSIFICATION (TOP 5)
[PIE CHART APPEARS HERE]
U.S. Guaranteed 25%
Tax Obligation (General) 22%
Education and Civic Obligations 18%
Multifamily Housing 14%
Health Care 14%
Other 7%
EXPENSE INFORMATION AS OF 2/28/98
SHAREHOLDER TRANSACTION EXPENSES
- -------------------------------------------------------------------------------
(Maximum, as % of Offering Price)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales Charge on Purchases 4.20%(1) - - -
Sales Charge on Reinvested Dividends - - - -
Contingent Deferred Sales Charge (CDSC) on
Redemptions -(1) 5%(2) 1%(3) -
</TABLE>
OVERVIEW OF FUND OPERATING EXPENSES (4)
- -------------------------------------------------------------------------------
(Annual, as % of Average Net Assets)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS R
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees 0.55% 0.55% 0.55% 0.55%
12b-1 Fees 0.20% 0.95% 0.75% -
Other Expenses 0.28% 0.30% 0.28% 0.28%
- -------------------------------------------------------------------------------------------------
Total (Gross) 1.03% 1.80% 1.58% 0.83%
Waivers/
Reimbursements - - - -
- -------------------------------------------------------------------------------------------------
Total (Net) 1.03% 1.80% 1.58% 0.83%
</TABLE>
SUMMARY OF SHAREHOLDER EXPENSES (5)
- -------------------------------------------------------------------------------
The example illustrates the expenses on a hypothetical $1,000 investment in
the fund based on the Total Expenses shown at left, an assumed annual total
return of 5% and reinvestment of all dividends.
<TABLE>
<CAPTION>
HOLDING PERIOD CLASS A CLASS B CLASS C CLASS R
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 Year $52 $58 $16 $8
3 Years $73 $88 $50 $26
5 Years $96 $109 $86 $46
10 Years $163 $191 $188 $103
</TABLE>
---
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights below are excerpted from the fund's latest annual re-
port which has been audited by Arthur Andersen LLP, the fund's independent
auditors. You may find more information about the fund's performance in its
annual report. For a free copy of the fund's latest annual and/or semi-annual
reports, write to Nuveen or call (800) 621-7227.
<TABLE>
<CAPTION>
CLASS
(INCEPTION OPERATING PERFORMANCE LESS DISTRIBUTIONS
DATE) ----------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
MASSACHUSETTS INSURED
<CAPTION>
NET
NET REALIZED AND DIVIDENDS NET
ASSET UNREALIZED FROM TAX- ASSET TOTAL
VALUE NET GAIN (LOSS) EXEMPT NET DISTRIBUTIONS VALUE RETURN ON
YEAR ENDED BEGINNING INVESTMENT FROM INVESTMENT FROM CAPITAL END OF NET 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
<CAPTION>
CLASS
(INCEPTION RATIOS/SUPPLEMENTAL DATA
DATE) -------------------------------------------------
<S> <C> <C> <C> <C>
MASSACHUSETTS INSURED
<CAPTION>
RATIO
OF NET
RATIO OF INVESTMENT
EXPENSES INCOME TO
TO AVERAGE AVERAGE
NET ASSETS NET ASSETS
NET ASSETS END AFTER AFTER PORTFOLIO
YEAR ENDED OF PERIOD REIMBURSE- REIMBURSE- TURNOVER
FEBRUARY 28/29, (IN THOUSANDS) MENT (A) MENT (A) RATE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A (9/94)
1998 $ 8,679 1.03% 4.98% 23%
1997 7,459 1.04 5.02 10
1996 5,291 1.07 4.94 1
1995 (c) 1,956 1.15* 5.34* 10
CLASS B (3/97)
1998 (c) 666 1.80* 4.20* 23
CLASS C (9/94)
1998 1,293 1.58 4.43 23
1997 957 1.78 4.29 10
1996 706 1.81 4.20 1
1995 (c) 338 1.90* 4.58* 10
CLASS R (12/86)
1998 56,707 .83 5.18 23
1997 57,076 .80 5.26 10
1996 60,102 .81 5.21 1
1995 57,137 .79 5.54 10
1994 58,255 .84 5.09 3
1993 47,098 .86 5.47 2
1992 28,189 .72 5.93 5
1991 15,625 .85 6.19 6
1990 8,649 .97 6.17 15
1989 5,404 .97 6.44 41
</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.
NOTES:
(1) The Class A sales charge may be reduced or waived based on the amount of
purchase or for certain eligible categories of investors. A CDSC of 1% is
imposed on redemptions of certain purchases of $1 million or more within
18 months of purchase. See "How to Select a Purchase Option."
(2) CDSC declines to 0% at the end of six years.
(3) Imposed only on redemptions within 12 months of purchase.
(4) Long-term holders of Class B and C shares may pay more in distribution
fees and CDSCs than the maximum initial sales charge permitted under Na-
tional Association of Securities Dealers (NASD) Rules of Fair Practice.
Nuveen Advisory will waive some or all of its fees or reimburse expenses
so that total operating expenses (not counting distribution and service
fees) for the fund do not exceed 0.975% of the fund's average daily net
assets.
(5) The expenses shown assume that you redeem your shares at the end of each
holding period. Class B shares convert to Class A shares after eight
years. If instead you redeemed your shares immediately prior to the end of
each holding period, your expenses would be higher. This example does not
represent past or future expenses; actual expenses may be higher or lower.
---
5
<PAGE>
FUND STRATEGIES
INVESTMENT OBJECTIVE
The investment objective of each fund is to provide you with as high a level
of current interest income exempt from regular federal, state and, in some
cases, local income taxes as is consistent with preservation of capital. There
is no assurance that the funds will achieve their investment objective.
INVESTOR SUITABILITY
The funds are a suitable investment for tax-conscious investors seeking to:
.. Earn regular monthly tax-free dividends;
.. Preserve investment capital over time;
.. Reduce taxes on investment income;
.. Set aside money systematically for retirement, estate planning or college
funding.
The funds are not a suitable investment for individuals seeking to:
.. Pursue an aggressive, high-growth investment strategy;
.. Invest through an IRA or 401k plan;
.. Avoid fluctuations in share price.
HOW THE FUNDS SELECT INVESTMENTS
TAX-FREE MUNICIPAL BONDS
The funds invest substantially all of their assets (at least 80%) in Massachu-
setts municipal bonds that pay interest that is exempt from regular federal
and state income taxes. Income from these bonds may be subject to the federal
alternative minimum tax.
Municipal bonds are either general obligation or revenue bonds and typically
are issued to finance public projects (such as roads or public buildings), to
pay general operating expenses, or to refinance outstanding debt. Municipal
bonds may also be issued for private activities, such as housing, medical and
educational facility construction, or for privately owned industrial develop-
ment and pollution control projects. General obligation bonds are backed by
the full faith and credit, or taxing authority, of the issuer and may be re-
paid from any revenue source; revenue bonds may be repaid only from the reve-
nues of a specific facility or source.
The Massachusetts Insured Fund primarily purchases insured municipal bonds.
See "Insurance" below. Under normal market conditions, the Massachusetts In-
sured Fund will invest at least 65% of its assets in insured municipal bonds.
FOCUS ON QUALITY MUNICIPAL BONDS
The funds purchase only quality municipal bonds that are either rated invest-
ment grade (AAA/Aaa to BBB/Baa) by independent ratings agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds' in-
vestment adviser. If suitable municipal bonds from a specific state are not
available at attractive prices and yields, a fund may invest in municipal
bonds of U.S. territories (such as Puerto Rico and Guam) which are exempt from
regular federal, state, and local income taxes. The funds may not invest more
than 20% of their net assets in these territorial municipal bonds. The Massa-
chusetts Insured Fund will invest at least 80% of its net assets in insured
municipal bonds or municipal bonds backed by an escrow or trust account that
contains sufficient U.S. government-backed securities to assure timely payment
of interest and principal.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to re-
duce this risk, the funds will only purchase leases where the issuer has a
strong incentive to continue making appropriations until maturity.
Bond ratings are furnished by Standard & Poor's Corporation, Fitch Investors
Services, and Moody's Investors Services. The ratings BBB and Baa are not
identical--S&P and Fitch consider bonds rated BBB to have adequate capacity to
pay principal and interest; Moody's considers bonds rated Baa to have some
speculative characteristics. Bond ratings represent the opinions of the rat-
ings agencies; they are not absolute standards of quality.
VALUE INVESTING STRATEGY
The funds' investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer above-average total
return potential. The adviser emphasizes fundamental research and selects mu-
nicipal bonds on the basis of its evaluation of each bond's relative value in
terms of current yield, price, credit quality and future prospects. The ad-
viser then monitors each fund's portfolio to assure that municipal bonds pur-
chased continue to represent over time, in its opinion, the best values avail-
able.
PORTFOLIO MATURITY
Each fund purchases municipal bonds with different maturities in pursuit of
its investment objective, but maintains under normal market conditions an in-
vestment portfolio with an overall weighted average maturity within a defined
range. All of the funds described in this prospectus are long-term funds and
normally maintain a weighted average portfolio maturity of 15 to 30 years. See
"Defensive Investment Strategies" below for further information.
INSURANCE
The Massachusetts Insured Fund primarily purchases insured municipal bonds.
Insured municipal bonds are either covered by individual, permanent insurance
policies (obtained either at the time of issuance or subsequently), or covered
"while in fund" under a master portfolio insurance policy purchased by a fund.
Insurance guarantees only the timely payment of interest and principal on the
bonds; it does not guarantee the value of either individual bonds or fund
shares.
---
6
<PAGE>
Portfolio insurance policies are effective only so long as the fund continues
to own the covered bond, and the price the fund would receive upon sale of
such a bond would not benefit from the insurance. Insurers under master port-
folio insurance policies currently include MBIA Insurance Corp., AMBAC Assur-
ance Corporation, Financial Security Assurance, Inc., and Financial Guaranty
Insurance Company. The fund's investment adviser may obtain master policies
from other insurers, but only from insurers that specialize in insuring munic-
ipal bonds and whose claims-paying ability is rated Aaa or AAA by Moody's or
S&P. Insurers are responsible for making their own assessment of the insur-
ability of a municipal bond.
An insured fund can invest up to 20% of its net assets in uninsured municipal
bonds that are backed by an escrow containing sufficient U.S. Government or
U.S. Government agency securities to ensure timely payment of principal and
interest. Such bonds are normally regarded as having the credit characteris-
tics of the underlying U.S. Government-backed securities.
PORTFOLIO TURNOVER
A fund buys and sells portfolio securities in the normal course of its invest-
ment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover rela-
tively low in order to reduce trading costs and the realization of taxable
capital gains. Each fund, however, may make limited short-term trades to take
advantage of market opportunities or reduce market risk.
DELAYED DELIVERY TRANSACTIONS
Each fund may buy or sell bonds on a when-issued or delayed delivery basis,
making payment or taking delivery at a later date, normally within 15 to 45
days of the trade date. This type of transaction may involve an element of
risk because no interest accrues on the bonds prior to settlement and, since
securities are subject to market fluctuation, the value of the bonds at time
of delivery may be less (or more) than cost.
RISK REDUCTION STRATEGIES
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. Interest rate risk is
the risk that changes in market interest rates will affect the value of a
fund's investment portfolio. In general, the value of a municipal bond falls
when interest rates rise, and increases when interest rates fall. Credit risk
is the risk that an issuer of a municipal bond is unable to meet its obliga-
tion to make interest and principal payments. In general, lower rated munici-
pal bonds are perceived to carry a greater degree of risk in the issuer's
ability to make interest and principal payments. Municipal bonds with longer
maturities (durations) or lower ratings generally provide higher current in-
come, but are subject to greater price fluctuation due to changes in market
conditions than bonds with shorter maturities or higher ratings, respectively.
Because the funds primarily purchase municipal bonds from Massachusetts, each
fund also bears investment risk from the economic, political or regulatory
changes that could adversely affect municipal bond issuers in the state and
therefore the value of the fund's investment portfolio. These risks may be
greater for the Massachusetts and Massachusetts Insured Funds, which as "non-
diversified" funds may concentrate their investments in municipal bonds of
certain issuers to a greater extent than diversified funds.
The funds limit your investment risk generally by restricting the types and
maturities of municipal bonds they purchase, and by diversifying their invest-
ment portfolios across different industry sectors. The funds should be consid-
ered long-term investments and may not be suitable for investors with short-
term investment horizons.
INVESTMENT LIMITATIONS
The funds have adopted certain investment limitations (based on total fund as-
sets) designed to limit your investment risk and maintain portfolio diversifi-
cation. Each fund may not have more than:
.. 25% in any one industry sector, such as electric utilities or health care;
.. 10% in borrowings (33% if used to meet redemptions).
DEFENSIVE INVESTMENT STRATEGIES
Each fund may invest in high quality short-term municipal securities in order
to reduce risk and preserve capital. Under normal market conditions, each fund
may invest only up to 20% of net assets in short-term municipal securities
that are exempt from regular federal income tax, although the funds may invest
up to 100% as a temporary defensive measure in response to adverse market con-
ditions. During temporary defensive periods, the weighted average maturity of
a fund's investment portfolio may fall below the defined range described above
under "Portfolio Maturity."
If suitable short-term municipal investments are not reasonably available, the
funds may invest in short-term taxable securities that are rated Aaa or AAA,
by Moody's or S&P, respectively, or issued by the U.S. government, and that
have a maturity of one year or less or have a variable interest rate.
Each fund may also use various investment strategies designed to limit the
risk of bond price fluctuations and to preserve capital. These hedging strate-
gies include using financial futures contracts, options on financial futures,
or options based on either an index of long-term tax-free securities or on
debt securities whose prices, in the opinion of the funds' investment adviser,
correlate with the prices of the funds' investments. The funds, however, have
no present intent to use these strategies.
FUNDAMENTAL INVESTMENT POLICIES
Each fund's investment objective as well as the policies described above in
"Focus on Quality Municipal Bonds," "Insurance," and "Risk Reduction Strate-
gies" are fundamental and may not be changed without the approval of a major-
ity of the shareholders of each fund.
---
7
<PAGE>
INVESTING IN THE FUNDS
HOW TO BUY FUND SHARES
You may open an account with $3,000 per fund share class and make additional
investments at any time with as little as $50. Reinvestment of Nuveen unit
trust distributions have no purchase minimums. Purchases through sponsors of
fee-based programs meeting certain criteria, as described in the statement of
additional information, may be eligible for lower minimums. The share price
you pay will depend on when Nuveen receives your order: orders received before
the close of regular trading on the New York Stock Exchange (normally 4:00
p.m. Eastern time) will receive that day's share price; otherwise you will re-
ceive the next business day's share price.
The Funds have authorized Charles Schwab & Co.'s Mutual Fund Marketplace(R) to
accept purchase and sale orders on their behalf. Schwab may designate finan-
cial advisers to accept purchase and sale orders in its behalf. A Fund will be
deemed to have received a purchase or redemption order when Schwab or a desig-
nated financial adviser accepts that order. The price of the shares you buy or
sell will be the Fund's net asset value next calculated after your order is
accepted.
BUYING SHARES THROUGH A FINANCIAL ADVISER
You may buy fund shares through your financial adviser, who can handle all the
details for you, including establishing an account with Nuveen. Financial ad-
visers can also help you review your financial needs and formulate long-term
investment goals and objectives. In addition, financial advisers generally can
help you develop a customized financial plan, select investments, and monitor
and review your portfolio on an ongoing basis to assure your investments con-
tinue to meet your needs as circumstances change.
Financial advisers are usually paid either from fund sales charges and fees or
by charging you a separate fee in lieu of a sales charge for ongoing invest-
ment advice and services.
If you do not have a financial adviser, call (800) 621-7227 and Nuveen can re-
fer you to one in your area.
BUYING SHARES BY MAIL
You may also open an account and purchase shares by mail by completing the en-
closed Nuveen application and mailing it along with your check (payable to the
appropriate fund) to the address listed under "How to Contact Nuveen." Sales
charges are not waived when you buy shares by mail.
Each fund reserves the right to reject any purchase order and waive or in-
crease minimum investment requirements. The funds also reserve the right to
suspend the issuance of shares at any time; any suspension, however, will not
affect your ability to redeem shares.
HOW TO SELECT A PURCHASE OPTION
The funds offer you a variety of flexible options when buying shares. Whether
you typically work with a financial adviser on a commission or a fee basis or
prefer to work on a more self-directed basis, you can purchase shares in the
way that is most suited to your individual circumstances and investment needs.
Each of the four available ways to purchase fund shares is called a class of
shares: Class A, Class B, Class C and Class R. While each of these classes
features different sales charges, on-going fees and eligibility requirements,
each entitles you to a share of the same portfolio of municipal bonds.
Selecting the class of shares which is most appropriate for you will depend on
a variety of factors. You should weigh carefully whether you and your finan-
cial adviser work on a commission or fee basis, the types of services that you
will receive, the amount you intend to buy, how long you plan to own your in-
vestment and whether or not you will reinvest dividends. If you compensate
your financial adviser directly, you should consider the fees your financial
adviser charges for investment advice or handling your trades in addition to
any sales charges and fees imposed by the funds. Please refer to your finan-
cial adviser's sales material for further information. Each class of shares is
described in more detail below and under "Fund Service Providers--The Distrib-
utor." Your financial adviser can explain each option and help you determine
which is most appropriate for you, or you can call (800) 621-7227.
BUYING CLASS A SHARES
You may buy Class A shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class A NAV (net asset value) plus a
sales charge based upon the amount of your purchase. Class A shares also bear
a 0.20% annual service fee which compensates your financial adviser for pro-
viding you with ongoing service.
The following Class A sales charges and commissions apply to all funds de-
scribed in this prospectus:
CLASS A SALES CHARGES AND COMMISSIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUTHORIZED
DEALER
SALES CHARGE COMMISSION
------------------------------------------- ----------
AS % OF AS % OF
PUBLIC AS % OF PUBLIC
OFFERING YOUR NET OFFERING
PURCHASE AMOUNT PRICE INVESTMENT PRICE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $50,000 4.20% 4.38% 3.70%
$50,000-100,000 4.00 4.18 3.50
$100,000-250,000 3.50 3.63 3.00
$250,000-500,000 2.50 2.56 2.00
$500,000-1,000,000 2.00 2.04 1.50
$1,000,000 and over -(1) - -(1)
</TABLE>
(1) Nuveen pays Authorized Dealers a commission equal to the sum of 1% (0.75%
and 0.50%, respectively, for Intermediate and Limited Term Funds) of the
first $2.5 million, plus 0.50% of the next $2.5 million, plus 0.25% (0.50%
for Intermediate Funds) of any amount over $5 million. Unless the Autho-
rized Dealer waived the commission, you may be assessed a contingent de-
ferred sales charge (CDSC) of 1% (0.75% and 0.50%, respectively, for In-
termediate and Limited Term Funds) if you redeem any of your shares within
18 months of purchase. The CDSC is calculated on the lower of your pur-
chase price or redemption proceeds.
---
8
<PAGE>
Nuveen periodically undertakes sales promotion programs with authorized deal-
ers and may pay them the full applicable sales charge as a commission. In ad-
dition, Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other
events at which Nuveen presents its products and services. Under certain cir-
cumstances, Nuveen also will share with authorized dealers up to half the
costs of advertising that features the products and services of both parties,
and make ongoing payments to authorized dealers to facilitate the marketing
and administration of new and existing shareholder accounts, including pay-
ments for advertising that features the products and services of both parties.
The statement of additional information contains further information about
these programs.
OTHER SALES CHARGE DISCOUNTS
Nuveen offers a number of programs that enable you to reduce or eliminate the
sales charge on Class A shares:
Sales Charge Reductions
.. Rights of Accumulation
.. Letter of Intent
.. Group Purchase
Sales Charge Waivers
.. Nuveen Unit Trust Reinvestment
.. Purchases using Redemptions from Unrelated Funds
.. Fee-Based Programs
.. Bank Trust Departments
.. Certain Employees and Directors of Nuveen or Employees of Authorized Dealers
Please refer to the statement of additional information for detailed descrip-
tions of these programs. Further information on these programs is also avail-
able through your financial adviser or by calling (800) 621-7227. Your finan-
cial adviser can also provide and help you prepare the necessary application
forms. You or your financial adviser are responsible for notifying Nuveen
about your eligibility for any sales charge reduction or waiver at the time of
each purchase.
The funds may modify or discontinue these programs at any time upon written
notice to shareholders.
BUYING CLASS B SHARES
You may buy Class B shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class B NAV. There is no initial sales
charge, but Class B shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.75% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser a 4% commission at the time of purchase.
Class B shares convert automatically to Class A shares eight years after pur-
chase. Class B shares will convert only if the fund is assured that the con-
version does not generate tax consequences for investors, based upon the opin-
ion of outside counsel or the written assurance of the IRS.
CLASS B CONTINGENT DEFERRED SALES CHARGE
If you redeem Class B shares within six years of purchase, you will be as-
sessed a contingent deferred sales charge (CDSC) based upon the following
schedule:
<TABLE>
<CAPTION>
DURING YEAR
- ---------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7+
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CDSC 5% 4% 4% 3% 2% 1% 0%
</TABLE>
The CDSC is calculated on the lower of your purchase price or redemption pro-
ceeds.
BUYING CLASS C SHARES
You may buy Class C shares at their public offering price on the day of pur-
chase. The price you pay will equal the Class C NAV. There is no initial sales
charge, but Class C shares bear a 0.20% annual service fee which compensates
your financial adviser for providing you with ongoing service, and a 0.55% an-
nual distribution fee which compensates Nuveen for paying your financial ad-
viser an ongoing sales commission. Nuveen advances the first year's service
and distribution fees.
If you redeem your Class C shares within one year of purchase, you may be as-
sessed a CDSC of 1%. The CDSC is calculated on the lower of your purchase
price or redemption proceeds.
BUYING CLASS R SHARES
You may purchase Class R shares at their public offering price on the day of
purchase. The price you pay will equal the Class R NAV. You may purchase Class
R shares only if you would qualify to purchase Class A shares without a sales
charge, under certain of the programs described under "Other Sales Charge Dis-
counts" above or meet certain other purchase size criteria. See the statement
of additional information for more details. There are no sales charges or on-
going distribution or service fees. Class R Shares have lower ongoing expenses
than Class A Shares.
HOW TO SELL FUND SHARES
You may use one of the methods described below to redeem your shares on any
day the New York Stock Exchange is open. You will receive the share price next
determined after Nuveen has received your redemption request in good order.
Your redemption request must be received before the close of trading of the
New York Stock Exchange (normally 4 p.m. Eastern time) for you to receive that
day's price. The funds do not charge any redemption fees, although you will be
assessed a CDSC where applicable. You may also redeem shares through Schwab.
See "How To Buy Shares" above.
SELLING SHARES THROUGH YOUR FINANCIAL ADVISER
You may sell fund shares by contacting your financial adviser who can provide
and help you prepare all the necessary documentation. Your financial adviser
may charge you for this service.
---
9
<PAGE>
SELLING SHARES BY TELEPHONE
Unless you have declined telephone redemption privileges, you may sell fund
shares by calling (800) 621-7227. Your redemption must not exceed $50,000 and
you may not redeem by telephone shares held in certificate form. Checks will
be issued only to the shareholder on record and mailed to the address on rec-
ord. If you have established electronic funds transfer privileges on your ac-
count, you may have redemption proceeds transferred electronically to your
bank account; if you are redeeming $1,000 or more, you may expedite your re-
quest by having your redemption proceeds wired directly into your bank ac-
count. See "Fund Direct--Electronic Funds Transfer" below.
Nuveen, the transfer agent or the fund will be liable for losses resulting
from unauthorized telephone redemptions only if they do not follow reasonable
procedures designed to verify the identity of the caller. You should immedi-
ately verify your trade confirmations when you receive them.
SELLING SHARES BY MAIL
You may sell fund shares by mail by sending a written request to Nuveen at the
address listed below under "How to Contact Nuveen." Your request must include
the following information:
.. The fund's name;
.. Your name and account number;
.. The dollar or share amount you wish to redeem;
.. The signature of each owner exactly as it appears on the account;
.. The name of the person you want your redemption proceeds paid to, if other
than to the shareholder of record;
.. The address you want your redemption proceeds sent to, if other than to the
address of record;
.. Any certificates you have for the shares; and
.. Any required signature guarantees.
Signatures must be guaranteed if you are redeeming more than $50,000, you want
the check payable to someone other than the shareholder on record, or you want
the check sent to another address (or the address on record has been changed
within the last 60 days). Signature guarantees must be obtained from a bank,
brokerage firm or other financial intermediary that is a member of an approved
Medallion Guarantee Program or that is otherwise approved by the fund. A
notary public cannot provide a signature guarantee.
Unless other arrangements are made, checks will be sent to your address on
record. Checks will normally be mailed within one business day, but in no
event more than seven days from receipt of your redemption request. If any
shares were purchased less than 15 days prior to your request, the fund will
not mail your redemption proceeds until the check for your purchase has
cleared, which may take up to 15 days.
Each fund may suspend redemptions or delay payment on redemptions for more
than seven days (three days for street name accounts) in certain extraordinary
circumstances as described in the statement of additional information.
OPERATION OF THE CDSC
When you redeem Class A, Class B, or Class C shares subject to a CDSC, the
fund will first redeem any shares that are not subject to a CDSC or that rep-
resent an increase in the value of your fund account due to capital apprecia-
tion, and then redeem the shares you have owned for the longest period of
time, unless you ask the fund to redeem your shares in a different order. No
CDSC is imposed on shares you buy through the reinvestment of dividends and
capital gains. The holding period is calculated on a monthly basis and begins
on the first day of the month in which you buy shares. When you redeem shares
subject to a CDSC, the CDSC is calculated on the lower of your purchase price
or redemption proceeds, deducted from your redemption proceeds, and paid to
Nuveen. The CDSC may be waived under certain special circumstances as de-
scribed in the statement of additional information.
ACCOUNT MINIMUMS
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days written no-
tice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
unit trust reinvestment account. You will not be assessed a CDSC on an invol-
untary redemption.
EXCHANGING SHARES
You may exchange fund shares into an identically registered account at any
time for the same class of shares in another Nuveen mutual fund that is avail-
able within your state. You may exchange fund shares by calling (800) 621-7227
or by mailing your written request to Nuveen at the address listed under "How
to Contact Nuveen."
You must have owned your fund shares for at least 15 days and your exchange
must meet the minimum purchase requirements of the fund into which you are ex-
changing. No CDSC will be assessed on an exchange, and the holding period of
your investment will be carried over to the new fund for purposes of determin-
ing any future CDSC. You may not exchange Class B shares for shares of a
Nuveen money market fund.
Because an exchange is treated for tax purposes as the concurrent sale and
purchase of fund shares, you should consult your tax adviser about the tax
consequences of any contemplated exchange. Each fund reserves the right to
limit or terminate exchange privileges if it believes doing so is in the best
interests of fund shareholders.
RESTRICTIONS ON MARKET TIMING
The exchange privilege is not intended to permit you to use a fund for short-
term trading. Excessive exchange activity may interfere with portfolio manage-
ment, raise fund operating expenses or otherwise have an adverse effect on
fund
---
10
<PAGE>
shareholders. In order to limit excessive exchange activity and in other cir-
cumstances where the funds' investment adviser believes doing so would be in
the best interests of the fund, each fund reserves the right to revise or ter-
minate the exchange privilege, limit the amount or number of exchanges, or re-
ject any exchange. You will be notified in the event this happens to the extent
required by law.
OPTIONAL FEATURES AND SERVICES
SYSTEMATIC INVESTMENT
Once you have opened an account, you may make regular investments of $50 or
more a month through automatic deductions from your bank account (see "Fund Di-
rect--Electronic Funds Transfer" below), or directly from your paycheck. To in-
vest regularly from your bank account, simply complete the appropriate section
of the account application. To invest regularly from your paycheck, call Nuveen
for a Payroll Direct Deposit Enrollment form. If you need additional copies of
these forms, or would like assistance completing them, contact your financial
adviser or call Nuveen toll-free at (800) 621-7227.
One of the benefits of systematic investing is "dollar cost averaging." Because
you are making fixed payments, you buy fewer shares when the price is high, and
more when the price is low. As a result, the average price you pay will be less
than the average share price of fund shares over this period. Dollar cost aver-
aging does not assure profits or protect against losses in a steadily declining
market. Since dollar cost averaging involves continuous investment regardless
of fluctuating price levels, you should consider your financial ability to con-
tinue investing in declining as well as rising markets before deciding to in-
vest in this way.
Systematic investing may also make you eligible for reduced sales charges on
shares of the fund as well as other Nuveen mutual funds (see "Other Sales
Charge Discounts").
THE POWER OF SYSTEMATIC INVESTING
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not re-
flect past or projected fund performance.
THE POWER OF SYSTEMATIC INVESTING
[GRAPH APPEARS HERE]
SYSTEMATIC WITHDRAWALS
If the value of your fund account is at least $10,000, you may request to have
$50 or more withdrawn automatically from your account. You may elect to receive
payments monthly, quarterly, semi-annually or annually and may choose to re-
ceive a check, have the monies transferred directly into your bank account (see
"Fund Direct--Electronic Funds Transfer" below), paid to a third party or sent
payable to you at an address other than your address of record. You must com-
plete the appropriate section of the account application or Account Update Form
to participate in the fund's systematic withdrawal plan.
You should not establish systematic withdrawals if you intend to make concur-
rent purchases of Class A, B or C shares because you may unnecessarily pay a
sales charge or CDSC on these purchases.
REINSTATEMENT PRIVILEGE
If you redeem fund shares, you may reinvest all or part of your redemption pro-
ceeds in shares of the same class up to one year later without incurring any
applicable sales charges, and your prior holding period will be reinstated. You
may exercise this privilege only once per redemption request.
If you paid a CDSC, your CDSC will be refunded and your holding period rein-
stated. You should consult your tax adviser about the tax consequences of exer-
cising your reinstatement privilege.
---
11
<PAGE>
FUND DIRECT--ELECTRONIC FUNDS TRANSFER
You may arrange to transfer funds electronically between your bank account and
your fund account by completing the appropriate section of the account appli-
cation or Account Update Form. If you need additional copies of these forms,
or would like assistance completing them, contact your financial adviser or
Nuveen at (800) 621-7227. You may use Fund Direct to quickly and conveniently
purchase or sell shares by telephone, systematically invest or withdraw funds,
or send dividend payments directly to your bank account.
In addition, if you have established electronic funds transfer privileges on
your account, you may request that redemption proceeds of $1,000 or more be
sent by Federal Reserve wire directly into your bank account. While you will
generally receive your redemption proceeds more quickly than a regular tele-
phone redemption via Fund Direct, the fund may charge you a fee for this expe-
dited service.
DIVIDENDS AND TAXES
HOW THE FUNDS PAY DIVIDENDS
The funds pay tax-free dividends monthly and any taxable capital gains or
other distributions once a year in December. The funds declare dividends on or
about the ninth of each month and generally pay dividends on the first busi-
ness day of the following month.
PAYMENT AND REINVESTMENT OPTIONS
The funds automatically reinvest your dividends each month in additional fund
shares of the same share class unless you request otherwise. You may request
to have your dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your address of
record or reinvested in shares of the same share class of another Nuveen mu-
tual fund. If you wish to do so, complete the appropriate section of the ac-
count application, contact your financial adviser or call Nuveen at (800) 621-
7227.
CALCULATION OF FUND DIVIDENDS
Each fund pays dividends based upon its past and projected net income in order
to distribute substantially all of its net income each fiscal year.
In order to maintain a more stable monthly dividend, each fund may sometimes
distribute less or more than the amount of net income earned in a particular
period as a result of fluctuations in a fund's net income. Undistributed net
income is included in the fund's share price; similarly, distributions from
previously undistributed net income reduce the fund's share price. This divi-
dend policy is not expected to affect the management of a fund's portfolio.
Dividends for Class A, B, C and R shares are determined in the same manner and
at the same time. Dividends per share will vary based on which class of fund
shares you own, reflecting the different ongoing fees and other expenses of
each class.
TAXES AND TAX REPORTING
The discussion below and in the statement of additional information provides
general tax information related to an investment in fund shares. Because tax
laws are complex and often change, you should consult your tax adviser about
the tax consequences of a specific fund investment.
Each fund primarily invests in Massachusetts municipal bonds or in municipal
bonds whose income is otherwise exempt from regular federal and state income
taxes. Consequently, the regular monthly dividends you receive will be exempt
from regular federal and state income taxes. All or a portion of these divi-
dends, however, may be subject to the federal alternative minimum tax (AMT).
Although the funds do not seek to realize taxable income or capital gains, the
funds may realize and distribute taxable income or capital gains from time to
time as a result of each fund's normal investment activities. Each fund will
distribute in December any taxable income or capital gains realized over the
preceding year. Net short-term gains are taxable as ordinary income. Net long-
term capital gains are taxable as long-term capital gains regardless of how
long you have owned your investment. Taxable dividends do not qualify for a
dividends received deduction if you are a corporate shareholder.
Each year, you will receive a year-end statement that describes the tax status
of dividends paid to you during the preceding year, including the source of
its investment income by state and the portion of its income that is subject
to AMT. You will receive this statement from the firm where you purchased your
fund shares if you hold your investment in street name; Nuveen will send you
this statement if you hold your shares in registered form.
The tax status of your dividends is not affected by whether you reinvest your
dividends or receive them in cash.
BUYING OR SELLING SHARES CLOSE TO A RECORD DATE
If you purchase fund shares shortly before the record date for a taxable divi-
dend, the entire dividend you receive may be taxable to you even though a por-
tion of the dividend effectively represents a return of your purchase price.
This is commonly known as "buying a dividend." Similarly, if you sell or ex-
change fund shares shortly before the record date for a tax-exempt dividend, a
portion of the price you receive may be treated as a taxable capital gain even
though it reflects tax-free income earned but not yet distributed by the fund.
REDEEMING SHARES HELD LESS THAN SIX MONTHS
If you sell or exchange shares that you have owned for less than six months
and you recognized a short-term capital loss when you redeemed your shares,
the loss you can claim will be reduced by the amount of tax-free dividends
paid to you on those shares. Any remaining short-term capital loss will be
treated as long-term capital loss to the extent you also received capital gain
dividends on those shares. You should consult your tax adviser for complete
information about these rules. Please consider the tax consequences carefully
when contemplating a redemption.
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12
<PAGE>
OTHER IMPORTANT TAX INFORMATION
In order to avoid corporate taxation of its earnings and to pay tax-free divi-
dends, each fund must meet certain I.R.S. requirements that govern the fund's
sources of income, diversification of assets and distribution of earnings to
shareholders. Each fund has met these requirements in the past and intends to
do so in the future. If a fund failed to do so, the fund would be required to
pay corporate taxes on its earnings and all your distributions would be tax-
able as ordinary income.
A fund may be required to withhold 31% of certain of your dividends if you
have not provided the fund with your correct taxpayer identification number
(normally your social security number), or if you are otherwise subject to
back-up withholding.
If you receive social security benefits, you should be aware that tax-free in-
come is taken into account in calculating the amount of these benefits that
may be subject to federal income tax.
If you borrow money to buy fund shares, you may not deduct the interest on
that loan. Under I.R.S. rules, fund shares may be treated as having been
bought with borrowed money even if the purchase cannot be traced directly to
borrowed money.
If you are subject to the alternative minimum tax, a portion of your regular
monthly dividends may be taxable.
TAXABLE EQUIVALENT YIELDS
The taxable equivalent yield is the current yield you would need to earn on a
taxable investment in order to equal a stated tax-free yield on a municipal
investment. To assist you to more easily compare municipal investments like
the funds with taxable alternative investments, the table below presents the
taxable equivalent yields for a range of hypothetical tax-free yields and tax
rates:
TAXABLE EQUIVALENT OF TAX-FREE YIELDS
Tax-Free Yield
<TABLE>
<CAPTION>
TAX RATE 4.00% 4.50% 5.00% 5.50% 6.00%
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
36.0% 6.25% 7.03% 7.81% 8.59% 9.38%
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
statement of additional information or consult your tax adviser.
GENERAL INFORMATION
HOW TO CONTACT NUVEEN
GENERAL INFORMATION
If you would like general information about Nuveen Mutual Funds or any other
Nuveen product, call (800) 621-7227 between 7:30 a.m. and 7:00 p.m. Central
time. After August 10, 1998 call (800) 257-8787.
PURCHASES, REDEMPTIONS AND OTHER TRANSACTIONS
If you are calling to purchase or redeem shares, request an exchange or con-
duct other account transactions, call (800) 621-7227 between 7:30 a.m. and
7:00 p.m. Central time. If you are sending a written request to Nuveen, you
should mail your request to the following address:
(if mailed before August 10, 1998)
Nuveen Mutual Funds
P.O. Box 5330
Denver, CO 80217-5330
(if mailed on or after August 10, 1998)
Nuveen Investor Services
P.O. Box 5186
Bowling Green Station
New York, NY 10274-5186
When purchasing fund shares by mail, please be sure to include a check made
out to the name of the fund and mark clearly on your check which class of
shares you are purchasing. If you do not specify which class of shares you are
purchasing, Nuveen will assume you are buying Class A shares if you are open-
ing a new account; if you are adding to an existing account, Nuveen will as-
sume you wish to buy more shares of the class you already own.
FUND SERVICE PROVIDERS
INVESTMENT ADVISER
Nuveen Advisory Corp. ("Nuveen Advisory") serves as the investment adviser to
the funds and in this capacity is responsible for the selection and on-going
monitoring of the municipal bonds in each fund's investment portfolio. Nuveen
Advisory serves as investment adviser to investment portfolios with more than
$35 billion in municipal assets under management. The funds' Board of Trustees
oversees the activities of Nuveen Advisory, which also include managing the
funds' business affairs and providing certain clerical, bookkeeping and other
administrative services. Established in 1976, Nuveen Advisory is a wholly-
owned subsidiary of John Nuveen & Co. Incorporated, which itself is approxi-
mately 78% owned by the St. Paul Companies, Inc. Effective January 1, 1997,
The John Nuveen Company acquired Flagship Resources Inc., and as part of that
acquisition, Flagship Financial, the adviser to the Flagship Funds, was merged
with Nuveen Advisory.
---
13
<PAGE>
For providing these services, Nuveen Advisory is paid an annual management fee
according to the following schedule:
MANAGEMENT FEES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET
VALUE MANAGEMENT FEE
- ------------------------------------------
<S> <C>
For the first $125 million 0.5500%
For the next $125 million 0.5375%
For the next $250 million 0.5250%
For the next $500 million 0.5125%
For the next $1 billion 0.5000%
For assets over $2 billion 0.4750%
</TABLE>
For more information about fees and expenses, see the fund operating expense
tables in the Fund Summaries.
PORTFOLIO MANAGERS
Overall investment management strategy and operating policies for the funds
are set by the Investment Policy Committee of Nuveen Advisory. The Investment
Policy Committee is comprised of the principal executive officers and portfo-
lio managers of Nuveen Advisory and meets regularly to review economic condi-
tions, the outlook for the financial markets in general and the status of the
municipal markets in particular. Day-to-day operation of each fund and the ex-
ecution of its specific investment strategies is the responsibility of the
designated portfolio manager described below.
J. Thomas Futrell is Vice President of Nuveen Advisory and the portfolio man-
ager for the Massachusetts Fund and the Massachusetts Insured Fund, effective
July 1, 1998.
THE DISTRIBUTOR
John Nuveen & Co. Incorporated serves as the selling agent and distributor of
the funds' shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In order
to reimburse Nuveen for its costs in connection with these activities, includ-
ing compensation paid to authorized dealers, each fund has adopted a distribu-
tion and service plan under Rule 12b-1 of the Investment Company Act of 1940.
The plan authorizes each fund to pay Nuveen an annual 0.20% service fee on the
average daily net assets of Class A, B and C shares outstanding and annual
distribution fees of 0.75% and 0.55%, respectively, on the average daily net
assets of Class B and C shares outstanding. In order to help compensate Nuveen
for the sales commission paid to financial advisers at the time of sale on
sales of Class B and Class C shares, Nuveen retains the first year's service
fee on sales of Class B shares and all Class B distribution fees, and retains
the first year's service and distribution fees on sales of Class C shares.
Otherwise, Nuveen pays these fees to the broker of the record. The statement
of additional information contains a detailed description of the plan and its
provisions.
TRANSFER AGENT
Each fund has appointed a transfer agent which is responsible for distributing
dividend payments and providing certain bookkeeping, data processing and other
administrative services in connection with the maintenance of shareholder ac-
counts. Shareholder Services, Inc., P.O. Box 5330, Denver, CO 80217-5330, will
serve as transfer agent for each fund until August 10, 1998. Chase Global
Funds Services Company, P.O. Box 5186, New York, NY 10274-5186 will serve as
transfer agent for each fund after that date.
Nuveen Advisory and the transfer agent rely on computer systems to manage the
fund's investments, process shareholder transactions and provide shareholder
account maintenance. Because of the way computers historically have stored
dates, some of these systems currently may not be able to correctly process
activity occurring in the year 2000. Nuveen Advisory is working with the
fund's service providers to adapt their systems to address this "year 2000 is-
sue." Nuveen Advisory and the fund expect the necessary work to be completed
no later than December 1999, although we can make no assurance with respect to
the systems of the fund's service providers.
HOW THE FUNDS REPORT PERFORMANCE
Each fund may quote its yield and total return in reports to shareholders,
sales literature and advertisements. The funds may also compare their invest-
ment results to various passive indices or other mutual funds with similar in-
vestment objectives. Comparative performance information may include data from
Lipper Analytical Services, Inc., Morningstar, Inc. and other industry publi-
cations. See the statement of additional information for a more detailed dis-
cussion. You may find more information about each fund's performance in its
annual report. Call Nuveen at (800) 621-7227 for a free copy.
HOW FUND SHARES ARE PRICED
The share price for each class of fund shares, also called its net asset value
(NAV), is calculated every business day as of the close of regular trading on
the New York Stock Exchange (normally 4 p.m. Eastern time). The net asset
value for a class of fund shares is computed by calculating the total value of
the class' portion of the fund's portfolio investments and other assets, sub-
tracting any liabilities or other debts, and dividing by the total number of
its shares outstanding.
The prices of municipal bonds in each fund's investment portfolio are provided
by a pricing service approved and supervised by the fund's Board of Trustees.
When price quotes are not readily available (which is usually the case for mu-
nicipal securities), the pricing service establishes fair market value based
on yields or prices of municipal bonds of comparable quality, type of issue,
coupon, maturity and rating, indications of value from securities dealers and
general market conditions.
---
14
<PAGE>
ORGANIZATION
The Trust is an open-end investment company under the Investment Company Act
of 1940, consisting of multiple funds. The shares of each fund are divided
into classes. Each class of shares represents an interest in the same portfo-
lio of investments and the shares of each class have equal rights as to vot-
ing, redemption, dividends and liquidation. However, each class bears differ-
ent sales charges and service fees.
Class C shares purchased before February 1, 1997 convert to Class A shares six
years after purchase, but only if you request conversion. You must submit your
request to SSI no later than the last business day of the 71st month following
the month in which you purchased your shares.
The funds are not required to and do not intend to hold annual meetings.
Shareholders owning ten percent or more of a fund's outstanding shares may
call a special meeting for any purpose, including to elect or remove trustees
or to change fundamental policies.
APPENDIX
SPECIAL STATE CONSIDERATIONS
Because the funds primarily purchase municipal bonds from Massachusetts, each
fund also bears investment risk from economic, political or regulatory changes
that could adversely affect municipal bond issuers in that state and therefore
the value of the fund's investment portfolio. The following discussion of spe-
cial state considerations was obtained from official offering statements of
these issuers and has not been independently verified by the funds. The dis-
cussion includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should consult
your tax adviser about the state tax consequences of a specific fund invest-
ment. See the statement of additional information for further information.
MASSACHUSETTS
Massachusetts is experiencing an economic recovery based largely on growth in
the services, trade, finance, insurance, real estate and construction indus-
tries. Nonetheless, the state's economic growth is expected to lag behind the
rest of the nation until the year 2000 due to restructuring in the computer,
defense and health care sectors of the state's economy.
The state's fiscal 1996 revenues were approximately $17.3 billion against ex-
penditures of $16.9 billion. The fiscal 1997 budget approved by the governor
on June 30, 1996, provides for approximately $17.452 billion in expenditures
against an estimated $17.296 billion in revenues. In February 1997, Massachu-
setts' unemployment rate was 4.0%. In 1997, personal income in Massachusetts
was $31,524 compared to the national average of $25,598. The state's uninsured
general obligation bonds are rated Aa3 by Moody's and AA- by Standard and
Poor's.
Tax Treatment:
The funds' regular monthly dividends will not be subject to Massachusetts per-
sonal income taxes to the extent they are paid out of income earned on Massa-
chusetts municipal bonds or on certain U.S. government obligations that are
exempt from state taxation under Federal law. You will be subject to Massachu-
setts personal income taxes, however, to the extent the funds distribute any
taxable income, or if you sell or exchange fund shares and realize a capital
gain on the transaction.
The treatment of corporate shareholders of the funds differs from that de-
scribed above. Corporate shareholders should refer to the statement of addi-
tional information for more detailed information and are urged to consult
their tax adviser.
---
15
<PAGE>
Nuveen
Family of Mutual Funds
Nuveen offers a variety of mutual funds
designed to help you reach your financial
goals. The funds below are grouped by
investment objective.
Growth
Nuveen Rittenhouse Growth Fund
Growth and Income
European Value Fund
Growth and Income Stock Fund
Balanced Stock and Bond Fund
Balanced Municipal and Stock Fund
Tax-Free Income
National Municipal Bond Funds
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/1/ Maryland Ohio
Colorado Massachusetts/1/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky/2/ New York/1/
NUVEEN
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 621-7227 1. Long-term and insured long-term portfolios.
www.nuveen.com 2. Long-term and limited-term portfolios.
VPR-MA-6-98
<PAGE>
JUNE 29, 1998
NUVEEN FLAGSHIP MULTISTATE TRUST II
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectus of
the Nuveen Flagship Multistate Trust II dated June 29, 1998. The Prospectus may
be obtained without charge from certain securities representatives, banks, and
other financial institutions that have entered into sales agreements with John
Nuveen & Co. Incorporated, or from the Funds, by mailing a written request to
the Funds, c/o John Nuveen & Co. Incorporated, 333 West Wacker Drive, Chicago,
Illinois 60606 or by calling (800) 621-7227.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-44
Investment Adviser and Investment Management Agreement..................... S-55
Portfolio Transactions..................................................... S-57
Net Asset Value............................................................ S-57
Tax Matters................................................................ S-58
Performance Information.................................................... S-66
Additional Information on the Purchase and Redemption of Fund Shares....... S-75
Distribution and Service Plan.............................................. S-82
Independent Public Accountants and Custodian............................... S-84
Financial Statements....................................................... S-84
Appendix A--Ratings of Investments......................................... A-1
Appendix B--Description of Hedging Techniques.............................. B-1
</TABLE>
The audited financial statements for each Fund's most recent fiscal year
appear in the Funds' Annual Reports. The Annual Reports accompany this
Statement of Additional Information.
<PAGE>
INVESTMENT POLICIES AND INVESTMENT PORTFOLIO
INVESTMENT POLICIES
The investment objective and certain fundamental investment policies of each
Fund are described in the Prospectus. Each of the Funds, as a fundamental
policy, may not, without the approval of the holders of a majority of the
shares of that Fund:
(1) Invest in securities other than Municipal Obligations and short-term
securities, as described in the Prospectus. Municipal Obligations are
municipal bonds that pay interest that is exempt from regular federal,
state and, in some cases, local income taxes.
(2) Invest more than 5% of its total assets in securities of any one
issuer, except this limitation shall not apply to securities of the United
States Government, and to the investment of 25% of such Fund's assets. This
limitation shall apply only to the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the California Municipal Bond Fund, and
the California Insured Municipal Bond Fund.
(3) Borrow money, except from banks for temporary or emergency purposes
and not for investment purposes and then only in an amount not exceeding
(a) 10% of the value of its total assets at the time of borrowing or (b)
one-third of the value of the Fund's total assets including the amount
borrowed, in order to meet redemption requests which might otherwise
require the untimely disposition of securities. While any such borrowings
exceed 5% of such Fund's total assets, no additional purchases of
investment securities will be made by such Fund. If due to market
fluctuations or other reasons, the value of the Fund's assets falls below
300% of its borrowings, the Fund will reduce its borrowings within 3
business days. To do this, the Fund may have to sell a portion of its
investments at a time when it may be disadvantageous to do so.
(4) Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by subparagraph (2) above, it may pledge securities
having a market value at the time of pledge not exceeding 10% of the value
of the Fund's total assets.
(5) Issue senior securities as defined in the Investment Company Act of
1940, except to the extent such issuance might be involved with respect to
borrowings described under item (3) above or with respect to transactions
involving futures contracts or the writing of options within the limits
described in the Prospectus and this Statement of Additional Information.
(6) Underwrite any issue of securities, except to the extent that the
purchase or sale of Municipal Obligations in accordance with its investment
objective, policies and limitations, may be deemed to be an underwriting.
(7) Purchase or sell real estate, but this shall not prevent any Fund
from investing in Municipal Obligations secured by real estate or interests
therein or foreclosing upon and selling such security.
(8) Purchase or sell commodities or commodities contracts or oil, gas or
other mineral exploration or development programs, except for transactions
involving futures contracts within the limits described in the Prospectus
and this Statement of Additional Information.
(9) Make loans, other than by entering into repurchase agreements and
through the purchase of Municipal Obligations or temporary investments in
accordance with its investment objective, policies and limitations.
S-2
<PAGE>
(10) Make short sales of securities or purchase any securities on margin,
except for such short-term credits as are necessary for the clearance of
transactions.
(11) Write or purchase put or call options, except to the extent that the
purchase of a stand-by commitment may be considered the purchase of a put,
and except for transactions involving options within the limits described
in the Prospectus and this Statement of Additional Information.
(12) Invest more than 25% of its total assets in securities of issuers in
any one industry; provided, however, that such limitations shall not be
applicable to Municipal Obligations issued by governments or political
subdivisions of governments, and obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(13) Purchase or retain the securities of any issuer other than the
securities of the Fund if, to the Fund's knowledge, those trustees of the
Trust, or those officers and directors of Nuveen Advisory Corp. ("Nuveen
Advisory"), who individually own beneficially more than 1/2 of 1% of the
outstanding securities of such issuer, together own beneficially more than
5% of such outstanding securities.
In addition, each Fund, as a non-fundamental policy, may not invest more than
15% of its net assets in "illiquid" securities, including repurchase agreements
maturing in more than seven days.
For the purpose of applying the limitations set forth in paragraph (2) above,
an issuer shall be deemed the sole issuer of a security when its assets and
revenues are separate from other governmental entities and its securities are
backed only by its assets and revenues. Similarly, in the case of a non-
governmental user, such as an industrial corporation or a privately owned or
operated hospital, if the security is backed only by the assets and revenues of
the non-governmental user, then such non-governmental user would be deemed to
be the sole issuer. Where a security is also backed by the enforceable
obligation of a superior or unrelated governmental entity or other entity
(other than a bond insurer), it shall also be included in the computation of
securities owned that are issued by such governmental or other entity.
Where a security is guaranteed by a governmental entity or some other
facility, such as a bank guarantee or letter of credit, such a guarantee or
letter of credit would be considered a separate security and would be treated
as an issue of such government, other entity or bank. Where a security is
insured by bond insurance, it shall not be considered a security issued or
guaranteed by the insurer; instead the issuer of such security will be
determined in accordance with the principles set forth above. The foregoing
restrictions do not limit the percentage of the Fund's assets that may be
invested in securities insured by any single insurer.
The foregoing restrictions and limitations, as well as a Fund's policies as
to ratings of portfolio investments, will apply only at the time of purchase of
securities, and the percentage limitations will not be considered violated
unless an excess or deficiency occurs or exists immediately after and as a
result of an acquisition of securities, unless otherwise indicated.
The foregoing fundamental investment policies, together with the investment
objective of each Fund, cannot be changed without approval by holders of a
"majority of the Fund's outstanding voting shares." As defined in the
Investment Company Act of 1940, this means the vote of (i) 67% or more of the
Fund's shares present at a meeting, if the holders of more than 50% of the
Fund's shares are present or represented by proxy, or (ii) more than 50% of the
Fund's shares, whichever is less.
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end
management series investment company organized as a Massachusetts business
trust on July 1, 1996. Each of the Funds is an open-end management investment
company organized as a series of the Nuveen Flagship Multistate Trust II. The
Trust is an open-end management series company under SEC Rule 18f-2. Each Fund
is a separate series issuing its own
S-3
<PAGE>
shares. The Trust currently has ten series: the Nuveen Flagship New York
Municipal Bond Fund (formerly the Nuveen New York Tax-Free Value Fund, a series
of the Nuveen Tax-Free Bond Fund, Inc.); the Nuveen New York Insured Municipal
Bond Fund (formerly the Nuveen New York Insured Tax-Free Value Fund, a series
of the Nuveen Insured Tax-Free Bond Fund, Inc.); the Nuveen Flagship New Jersey
Municipal Bond Fund (formerly the Nuveen New Jersey Tax-Free Value Fund, a
series of the Nuveen Multistate Tax-Free Trust); the Nuveen Flagship New Jersey
Intermediate Municipal Bond Fund (formerly the Flagship New Jersey Intermediate
Tax Exempt Fund, as a series of the Flagship Tax Exempt Funds Trust); the
Nuveen California Municipal Bond Fund (formerly the Nuveen California Tax-Free
Value Fund, a series of the Nuveen California Tax-Free Fund, Inc.); the Nuveen
California Insured Municipal Bond Fund (formerly the Nuveen California Insured
Tax-Free Value Fund, a series of the Nuveen California Tax-Free Fund, Inc.);
the Nuveen Flagship Connecticut Municipal Bond Fund (formerly the Flagship
Connecticut Double Tax Exempt Fund, a series of the Flagship Tax Exempt Funds
Trust); the Nuveen Massachusetts Municipal Bond Fund (formerly the Nuveen
Massachusetts Tax-Free Value Fund, a series of the Nuveen Tax-Free Bond Fund,
Inc.); and the Nuveen Massachusetts Insured Municipal Bond Fund (formerly the
Nuveen Massachusetts Insured Tax-Free Value Fund, a series of the Nuveen
Insured Tax-Free Bond Fund, Inc.). The Nuveen Flagship California Intermediate
Municipal Bond Fund has also been organized as a series of the Trust, but has
issued no shares to date. Certain matters under the Investment Company Act of
1940 which must be submitted to a vote of the holders of the outstanding voting
securities of a series company shall not be deemed to have been effectively
acted upon unless approved by the holders of a majority of the outstanding
voting securities of each Fund affected by such matter.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of a trust may, under
certain circumstances, be held personally liable as partners for its
obligations. However, the Declaration of Trust contains an express disclaimer
of shareholder liability for acts or obligations of the Trust and requires that
notice of this disclaimer be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of Trust
further provides for indemnification out of the assets and property of the
Trust for all loss and expense of any shareholder personally liable for the
obligations of the Trust. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance existed and the Trust itself were unable to meet its
obligations. The Trust believes the likelihood of these circumstances is
remote.
PORTFOLIO SECURITIES
As described in the Prospectus, each of the Funds invests substantially all
of its assets (at least 80%) in a portfolio of Municipal Obligations free from
regular federal, state and, in some cases, local income tax in each Fund's
respective state, which generally will be Municipal Obligations issued within
the Fund's respective state. In general, Municipal Obligations include debt
obligations issued by states, cities and local authorities to obtain funds for
various public purposes, including construction of a wide range of public
facilities such as airports, bridges, highways, hospitals, housing, mass
transportation, schools, streets and water and sewer works. Industrial
development bonds and pollution control bonds that are issued by or on behalf
of public authorities to finance various privately-rated facilities are
included within the term Municipal Obligations if the interest paid thereon is
exempt from federal income tax.
The investment assets of each Fund will consist of (1) Municipal Obligations
which are rated at the time of purchase within the four highest grades (Baa or
BBB or better) by Moody's Investors Service, Inc. ("Moody's"), by Standard and
Poor's Corporation ("S&P") or by Fitch Investors Service, Inc. ("Fitch"), (2)
unrated Municipal Obligations which, in the opinion of Nuveen Advisory, have
credit characteristics equivalent to bonds rated within the four highest grades
by Moody's, S&P or Fitch, and (3) temporary investments as described
S-4
<PAGE>
below, the income from which may be subject to state income tax or to both
federal and state income taxes. See Appendix A for more information about
ratings by Moody's, S&P, and Fitch.
As described in the Prospectus, each Fund may invest in Municipal Obligations
that constitute participations in a lease obligation or installment purchase
contract obligation (hereafter collectively called "lease obligations") of a
municipal authority or entity. Although lease obligations do not constitute
general obligations of the municipality for which the municipality's taxing
power is pledged, a lease obligation is ordinarily backed by the municipality's
covenant to budget for, appropriate and make the payments due under the lease
obligation. However, certain lease obligations contain "non-appropriation"
clauses which provide that the municipality has no obligation to make lease or
installment purchase payments in future years unless money is appropriated for
such purpose on a yearly basis. Although nonappropriation lease obligations are
secured by the leased property, disposition of the property in the event of
foreclosure might prove difficult. A Fund will seek to minimize the special
risks associated with such securities by only investing in those
nonappropriation leases where Nuveen Advisory has determined that the issuer
has a strong incentive to continue making appropriations and timely payment
until the security's maturity. Some lease obligations may be illiquid under
certain circumstances. Lease obligations normally provide a premium interest
rate which along with regular amortization of the principal may make them
attractive for a portion of the assets of the Funds.
Obligations of issuers of Municipal Obligations are subject to the provisions
of bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors. In addition, the obligations of such issuers may become subject to
the laws enacted in the future by Congress, state legislatures or referenda
extending the time for payment of principal and/or interest, or imposing other
constraints upon enforcement of such obligations or upon municipalities to levy
taxes. There is also the possibility that, as a result of legislation or other
conditions, the power or ability of any issuer to pay, when due, the principal
of and interest on its Municipal Obligations may be materially affected.
INSURANCE
Each insured Municipal Obligation held by the Nuveen New York Insured
Municipal Bond Fund, the Nuveen California Insured Municipal Bond Fund, and the
Nuveen Massachusetts Insured Municipal Bond Fund (the "Funds") will either be
(1) covered by an insurance policy applicable to a specific security and
obtained by the issuer of the security or a third party at the time of original
issuance ("Original Issue Insurance"), (2) covered by an insurance policy
applicable to a specific security and obtained by the Fund or a third party
subsequent to the time of original issuance ("Secondary Market Insurance"), or
(3) covered by a master municipal insurance policy purchased by the Funds
("Portfolio Insurance"). The Funds currently maintain a policy of Portfolio
Insurance with MBIA Insurance Corporation, AMBAC Assurance Corporation,
Financial Security Assurance, Inc., and Financial Guaranty Insurance Company,
and may in the future obtain other policies of Portfolio Insurance, depending
on the availability of such policies on terms favorable to the Fund. However,
the Funds may determine not to obtain such policies and to emphasize
investments in Municipal Obligations insured under Original Issue Insurance or
Secondary Market Insurance. In any event, the Funds will only obtain policies
of Portfolio Insurance issued by insurers whose claims-paying ability is rated
Aaa by Moody's Investors Service, Inc. ("Moody's") or AAA by Standard & Poor's
Corporation ("S&P"). The Funds currently intend to obtain insurance polices
only from mono-line insurers specializing in insuring municipal debt. Municipal
Obligations covered by Original Issue Insurance or Secondary Market Insurance
are themselves typically assigned a rating of Aaa or AAA, as the case may be,
by virtue of the Aaa or AAA claims-paying ability of the insurer and would
generally be assigned a lower rating if the ratings were based primarily upon
the credit characteristics of the issuer without regard to the insurance
feature. By way or contrast, the ratings, if any, assigned to Municipal
Obligations insured under Portfolio Insurance will be based primarily upon the
credit characteristics of the issuers without regard to the insurance feature,
and will generally carry a
S-5
<PAGE>
rating that is below Aaa or AAA. While in the portfolio of a Fund, however, a
Municipal Obligation backed by Portfolio Insurance will effectively be of the
same quality as a Municipal Obligation issued by an issuer of comparable credit
characteristics that is backed by Original Issue Insurance or Secondary Market
Insurance.
The Funds' policy of investing in Municipal Obligations insured by insurers
whose claims-paying ability is rated Aaa or AAA will apply only at the time of
the purchase of a security, and a Fund will not be required to dispose of
securities in the event Moody's or S&P, as the case may be, downgrades its
assessment of the claims-paying ability of a particular insurer or the credit
characteristics of a particular issuer. In this connection, it should be noted
that in the event Moody's or S&P or both should down grade its assessment of
the claims-paying ability of a particular insurer, it could also be expected to
downgrade the ratings assigned to Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance issued by such insurer, and
Municipal Obligations insured under Portfolio Insurance issued by such insurer
would also be of reduced quality in the portfolio of the Fund. Moody's and S&P
continually assess the claims-paying ability of insurers and the credit
characteristics of issuers, and there can be no assurance that they will not
downgrade their assessments subsequent to the time a Fund purchases securities.
In addition to insured Municipal Obligations, a Fund may invest in Municipal
Obligations that are entitled to the benefit of an escrow or trust account
which contains securities issued or guaranteed by the U.S. Government or U.S.
Government agencies, backed by the full faith and credit of the United States,
and sufficient in amount to ensure the payment of interest and principal on the
original interest payment and maturity dates ("collateralized obligations").
These collateralized obligations generally will not be insured and will
include, but are not limited to, Municipal Obligations that have been (1)
advance refunded where the proceeds of the refunding have been used to purchase
U.S. Government or U.S. Government agency securities that are placed in escrow
and whose interest or maturing principal payments, or both, are sufficient to
cover the remaining scheduled debt service on the Municipal Obligations, and
(2) issued under state or local housing finance programs which use the issuance
proceeds to fund mortgages that are then exchanged for U.S. Government or U.S.
Government agency securities and deposited with a trustee as security for the
Municipal Obligations. These collateralized obligations are normally regarded
as having the credit characteristics of the underlying U.S. Government or U.S.
Government agency securities. Collateralized obligations will not constitute
more than 20% of a Fund's assets.
Each insured Municipal Obligation in which a Fund invests will be covered by
Original Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
There is no limitation on the percentage of a Fund's assets that may be
invested in Municipal Obligations insured by any given insurer.
Original Issue Insurance. Original Issue Insurance is purchased with respect
to a particular issue of Municipal Obligations by the issuer thereof or a third
party in conjunction with the original issuance of such Municipal Obligations.
Under such insurance, the insurer unconditionally guarantees to the holder of
the Municipal Obligation the timely payment of principal and interest on such
obligation when and as such payments shall become due but shall not be paid by
the issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption (other than
acceleration by reason of a mandatory sinking fund payment), default or
otherwise, the payments guaranteed may be made in such amounts and at such
times as payments of principal would have been due had there not been such
acceleration. The insurer is responsible for such payments less any amounts
received by the holder from any trustee for the Municipal Obligation issuers or
from any other source. Original Issue Insurance does not guarantee payment on
an accelerated basis, the payment of any redemption premium (except with
respect to certain premium payments in the case of certain small issue
industrial development and pollution control Municipal Obligations), the value
of the shares of the Fund, the market value of Municipal Obligations, or
payments of any tender purchase price upon the tender of the Municipal
Obligations. Original Issue Insurance also does not insure against nonpayment
S-6
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of principal of or interest on Municipal Obligations resulting from the
insolvency, negligence or any other act or omission of the trustee or other
paying agent for such obligations.
In the event that interest on or principal of a Municipal Obligation covered
by insurance is due for payment but is unpaid by the issuer thereof, the
applicable insurer will make payments to its fiscal agent (the "Fiscal Agent")
equal to such unpaid amounts of principal and interest not later than one
business day after the insurer has been notified that such nonpayment has
occurred (but not earlier than the date such payment is due). The Fiscal Agent
will disburse to the Fund the amount of principal and interest which is then
due for payment but is unpaid upon receipt by the Fiscal Agent of (i) evidence
of the Fund's right to receive payment of such principal and interest and (ii)
evidence, including any appropriate instruments of assignment, that all of the
rights to payment of such principal or interest then due for payment shall
thereupon vest in the insurer. Upon payment by the insurer of any principal or
interest payments with respect to any Municipal Obligations, the insurer shall
succeed to the rights of a Fund with respect to such payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether a Fund ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Secondary Market Insurance. Subsequent to the time of original issuance of a
Municipal Obligation, a Fund or a third party may, upon the payment of a single
premium, purchase insurance on such Municipal Obligation. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and remains in effect as long as the Municipal
Obligation covered thereby remain outstanding, the holder of such Municipal
Obligation does not voluntarily relinquish the Secondary Market Insurance and
the insurer remains in business, regardless of whether the Fund ultimately
disposes of such Municipal Obligation.
One of the purposes of acquiring Secondary Market Insurance with respect to a
particular Municipal Obligation would be to enable a Fund to enhance the value
of such Municipal Obligation. A Fund, for example, might seek to purchase a
particular Municipal Obligation and obtain Secondary Market Insurance with
respect thereto if, in the opinion of Nuveen Advisory, the market value of such
Municipal Obligation, as insured, would exceed the current value of the
Municipal Obligation without insurance plus the cost of the Secondary Market
Insurance. Similarly, if a Fund owns but wishes to sell a Municipal Obligation
that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance with respect thereto if, in the opinion of Nuveen
Advisory, the net proceeds of a sale by the Fund of such obligation, as
insured, would exceed the current value of such obligation plus the cost of the
Secondary Market Insurance.
Portfolio Insurance. Portfolio Insurance guarantees the payment of principal
and interest on specified eligible Municipal Obligations purchased by a Fund.
Except as described below, Portfolio Insurance generally provides the same type
of coverage as is provided by Original Issue Insurance or Secondary Market
Insurance. Municipal Obligations insured under one Portfolio Insurance policy
would generally not be insured under any other policy purchased by a Fund. A
Municipal Obligation is eligible for coverage under a policy if it meets
certain requirements of the insurer. Portfolio Insurance is intended to reduce
financial risk, but the cost thereof and compliance with investment
restrictions imposed under the policy will reduce the yield to shareholders of
a Fund.
If a Municipal Obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then such Municipal Obligation is not required to
be additionally insured under any policy of Portfolio Insurance that a Fund may
purchase. All premiums respecting Municipal Obligations covered by Original
Issue
S-7
<PAGE>
Insurance or Secondary Market Insurance are paid in advance by the issuer or
other party obtaining the insurance.
Portfolio Insurance policies are effective only as to Municipal Obligations
owned by and held by a Fund, and do not cover Municipal Obligations for which
the contract for purchase fails. A "when-issued" Municipal Obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the
issue of such "when-issued" Municipal Obligation. In determining whether to
insure Municipal Obligations held by a Fund, an insurer will apply its own
standards, which correspond generally to the standards it has established for
determining the insurability of new issues of Municipal Obligations. See
"Original Issue Insurance" above.
Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as a Fund is in existence, the Municipal Obligations covered by
the policy continue to be held by the Fund, and the Fund pays the premiums for
the policy. Each insurer will generally reserve the right at any time upon 90
days' written notice to a Fund to refuse to insure any additional securities
purchased by the Fund after the effective date of such notice. The Board of
Trustees will generally reserve the right to terminate each policy upon seven
days' written notice to an insurer if it determines that the cost of such
policy is not reasonable in relation to the value of the insurance to the Fund.
Each Portfolio Insurance policy will terminate as to any Municipal Obligation
that has been redeemed from or sold by a Fund on the date of such redemption or
the settlement date of such sale, and an insurer shall not have any liability
thereafter under a policy as to any such Municipal Obligation, except that if
the date of such redemption or the settlement date of such sale occurs after a
record date and before the related payment date with respect to any such
Municipal Obligation, the policy will terminate as to such Municipal Obligation
on the business day immediately following such payment date. Each policy will
terminate as to all Municipal Obligations covered thereby on the date on which
the last of the covered Municipal Obligations mature, are redeemed or are sold
by a Fund.
One or more policies of Portfolio Insurance may provide a Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
Municipal Obligation that is to be sold by the Fund. The Fund would exercise
the right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such Municipal
Obligation. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a Municipal Obligation only if, in the opinion of
Nuveen Advisory, upon such exercise the net proceeds from the sale by the Fund
of such obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance.
The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date
of purchase by the Fund and will not be increased or decreased for any change
in the creditworthiness of such obligation unless such obligation is in default
as to payment or principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by the Fund.
Each Fund generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated BBB) that are not
in default. In certain circumstances, however, Nuveen Advisory may determine
that an alternative value for the insurance, such as the difference between the
market value of the defaulted security and either its par value or the market
value of securities of a similar nature that are not in default or in
significant risk of default, is more appropriate. To the extent that the Fund
holds such defaulted securities, it may be limited in its ability to manage its
investment portfolio and to purchase other
S-8
<PAGE>
Municipal Obligations. Except as described above with respect to securities
covered by Portfolio Insurance that are in default or subject to significant
risk of default, the Funds will not place any value on the insurance in valuing
the Municipal Obligations that it holds.
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by a Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by a
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance generally will remain in effect as long as Municipal Obligations
covered thereby are outstanding, such insurance may enhance the marketability
of such securities, even when such securities are in default or in significant
risk of default, but the exact effect, if any, on marketability cannot be
estimated. Accordingly, the Funds may determine to retain or, alternatively, to
sell Municipal Obligations covered by Original Issue Insurance or Secondary
Market Insurance that are in default or in significant risk of default.
Premiums for a Portfolio Insurance policy are paid monthly, and are adjusted
for purchases and sales of Municipal Obligations covered by the policy during
the month. The yield on a Fund is reduced to the extent of the insurance
premiums it pays. Depending upon the characteristics of the Municipal
Obligations held by a Fund, the annual premium rate for policies of Portfolio
Insurance is estimated to range from .15% to .30% of the value of the Municipal
Obligations covered under the policy. Because the majority of the Municipal
Obligations in the Funds were not covered by policies of Portfolio Insurance
during the year ended February 28, 1997, premium expenses as a percentage of
the value of Municipal Obligations held by the Funds for such period were .00%.
Set forth below is information about the various municipal bond insurers with
whom the Funds currently maintain policies of Portfolio Insurance.
AMBAC ASSURANCE CORPORATION
Ambac Assurance Corporation ("Ambac Assurance") is a Wisconsin-domiciled
stock insurance corporation regulated by the Office of the Commissioner of
Insurance of the State of Wisconsin and licensed to do business in 50 states,
the District of Columbia, the Territory of Guam and the Commonwealth of Puerto
Rico, with admitted assets of approximately $2,968,000,000 (unaudited) and
statutory capital of approximately $1,715,000,000 (unaudited) as of March 31,
1998. Statutory capital consists of Ambac Assurance's policyholders' surplus
and statutory contingency reserve. Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc., Moody's Investors Service and
Fitch IBCA, Inc. have each assigned a triple-A financial strength rating to
Ambac Assurance.
Ambac Assurance has obtained a ruling from the Internal Revenue Service to
the effect that the insuring of an obligation by Ambac Assurance will not
affect the treatment for federal income tax purposes of interest on such
obligation and that insurance proceeds representing maturing interest paid by
Ambac Assurance under policy provisions substantially identical to those
contained in its municipal bond insurance policy shall be treated for federal
income tax purposes in the same manner as if such payments were made by the
issuer of the Bonds.
Ambac Assurance makes no representation regarding the Bonds or the
advisability of investing in the Bonds and makes no representation regarding,
nor has it participated in the presentation of, the Official Statement other
than the information supplied by Ambac Assurance and presented under the
heading "AMBAC Assurance Corporation".
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FINANCIAL SECURITY ASSURANCE INC. ("FINANCIAL SECURITY")
Financial Security is a monoline insurance company incorporated under the
laws of the State of New York. Financial Security is licensed to engage in the
financial guaranty insurance business in all 50 states, the District of
Columbia and Puerto Rico.
Financial Security is a wholly owned subsidiary of Financial Security
Assurance Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company.
Major shareholders of Holdings include Fund American Enterprise Holdings, Inc.,
U S WEST Capital Corporation and The Tokio Marine and Fire Insurance Co., Ltd.
No shareholder is obligated to pay any debts of or any claims against Financial
Security. Financial Security is domiciled in the State of New York and is
subject to regulation by the State of New York Insurance Department. As of
March 31, 1998, the total policyholders' surplus and contingency reserves and
the total unearned premium reserve, respectively, of Financial Security and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $503,683,000 (unaudited) and $808,603,000
(unaudited), the total shareholders' equity and the total unearned premium
reserve, respectively, of Financial Security and its consolidated subsidiaries
were, in accordance with generally accepted accounting principles,
approximately $923,047,000 (unaudited) and $428,157,000 (unaudited). Copies of
Financial Security's financial statements may be obtained by writing to
Financial Security at 350 Park Avenue, New York, New York 10022, Attention:
Communications Department. Financial Security's telephone number is (212) 826-
0100. Financial Security's financial statements are included as exhibits to the
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filed with the
Securities and Exchange Commission by Holdings and may be reviewed at Holdings'
website:www.fsa.com.
MBIA INSURANCE CORPORATION ("MBIA")
The Insurer is the principal operating subsidiary of MBIA Inc., a New York
Stock Exchange listed company. MBIA Inc. is not obligated to pay the debts of
or claims against the Insurer. The Insurer is domiciled in the State of New
York and licensed to do business in and subject to regulation under the laws of
all 50 states, the District of Columbia, the Commonwealth of Puerto Rico, the
Commonwealth of the Northern Mariana Islands, the Virgin Islands of the United
States and the Territory of Guam. The Insurer has two European branches, one in
the Republic of France and the other in the Kingdom of Spain. New York has laws
prescribing minimum capital requirements, limiting classes and concentrations
of investments and requiring the approval of policy rates and forms. State laws
also regulate the amount of both the aggregate and individual risks that may be
insured, the payment of dividends by the Insurer, changes in control and
transactions among affiliates. Additionally, the Insurer is required to
maintain contingency reserves on its liabilities in certain amounts and for
certain periods of time.
As of December 31, 1997 the Insurer had admitted assets of $5.3 billion
(audited), total liabilities of $3.5 billion (audited), and total capital and
surplus of $1.8 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of March 31, 1998, the Insurer had admitted assets of $5.4
billion (unaudited), total liabilities of $3.6 billion (unaudited), and total
capital and surplus of $1.8 billion (unaudited) determined in accordance with
statutory accounting practices prescribed or permitted by insurance regulatory
authorities.
Furthermore, copies of the Insurer's year end financial statements prepared
in accordance with statutory accounting practices are available without charge
from the Insurer. A copy of the Annual Report on Form 10-K of MBIA Inc. is
available from the Insurer or the Securities and Exchange Commission. The
address of the Insurer is 113 King Street, Armonk, New York 10504. The
telephone number of the Insurer is (914) 273-4545.
The Insurer's policy unconditionally and irrevocably guarantees to the Nuveen
Insured Municipal Bond Fund the full and complete payment required to be made
by or on behalf of the issuer to the applicable paying agent or its successor
of an amount equal to (i) the principal of (either at the stated maturity or by
advancement of maturity pursuant to a mandatory sinking fund payment) and
interest on, the Municipal Obligations as such
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payments shall become due but shall not be so paid (except that in the event of
any acceleration of the due date of such principal by reason of mandatory or
optional redemption or acceleration resulting from default or otherwise, other
than any advancement of maturity pursuant to a mandatory sinking fund payment,
the payments guaranteed by the Insurer's policy shall be made in such amounts
and at such times as such payments of principal would have been due had there
not been any such acceleration) and (ii) the reimbursement of any such payment
which is subsequently recovered from the Fund pursuant to a final judgment by a
court of competent jurisdiction that such payment constitutes an avoidable
preference to the Fund within the meaning of any applicable bankruptcy law (a
"Preference").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Municipal Obligation. The
Insurer's policy does not, under any circumstance, insure against loss relating
to: (i) optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. The Insurer's policy
also does not insure against nonpayment of principal of or interest on the
Municipal Obligations resulting from the insolvency, negligence or any other
act or omission of any paying agent for the Municipal Obligations.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, the Insurer guarantees the full
and complete payments required to be made by or on behalf of an issuer of such
bonds if there occurs pursuant to the terms of the bonds an event which results
in the loss of the tax-exempt status of interest on such bonds, including
principal, interest or premium payments payable thereon, if any, as and when
required to be made by or on behalf of the issuer pursuant to the terms of such
bonds.
When the Insurer receives from the paying agent or the Fund, (1) telephonic
or telegraphic notice (subsequently confirmed in writing by registered or
certified mail), or (2) written notice by registered or certified mail, that a
required payment of any insured amount which is then due has not been made, the
Insurer on the due date of such payment or within one business day after
receipt of notice of such nonpayment, whichever is later, will make a deposit
of funds, in an account with State Street Bank and Trust Company, N.A., in New
York, New York, or its successor, sufficient for the payment of any such
insured amounts which are then due. Upon presentment and surrender of such
Municipal Obligations or presentment of such other proof of ownership of the
Municipal Obligations, together with any appropriate instruments of assignment
to evidence the assignment of the insured amounts due on the Municipal
Obligations as are paid by the Insurer, and appropriate instruments to effect
the appointment of the Insurer as agent for the Fund in any legal proceeding
related to payment of insured amounts on Municipal Obligations, such
instruments being in a form satisfactory to State Street Bank and Trust
Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to the
Fund or the paying agent payment of the insured amounts due on such Municipal
Obligations, less any amount held by the paying agent for the payment of such
insured amounts and legally available therefor.
FINANCIAL GUARANTY INSURANCE COMPANY ("FINANCIAL GUARANTY")
The Portfolio Insurance Policy is non-cancellable except for failure to pay
the premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments prior to maturity of Insured Bonds during the
month. In the event of a sale of any Insured Bond by the Fund or payment
thereof prior to maturity, the Portfolio Insurance policy terminates as to such
Insured Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be
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unpaid by reason of nonpayment by the issuer of the Insured Bonds. The term
"due for payment" means, when referring to the principal of an Insured Bond,
its stated maturity date or the date on which it shall have been called for
mandatory sinking fund redemption and does not refer to any earlier date on
which payment is due by reason of call for redemption (other than by mandatory
sinking fund redemption), acceleration or other advancement of maturity and
means, when referring to interest on an Insured Bond, the stated date for
payment of interest. In addition, the Portfolio Insurance Policy covers
nonpayment by the issuer that results from any payment of principal or interest
made by such issuer on the Insured Bond to the Fund which has been recovered
from the Fund or its shareholders pursuant to the United States Bankruptcy Code
by a trustee in bankruptcy in accordance with a final, nonappealable order of a
court having competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or interest due for payment thereupon shall vest in Financial
Guaranty. Upon such disbursement, Financial Guaranty shall become the owner of
the Insured Bond, appurtenant coupon or right to payment of principal or
interest on such Insured Bond and shall be fully subrogated to all of the
Trustee's rights thereunder, including the right to payment, thereof.
In determining whether to insure municipal securities held in the Fund,
Financial Guaranty will apply its own standards which are not necessarily the
same as the criteria used in regard to the selection of securities by the Fund.
Certain of the municipal securities insured under the Portfolio Insurance
Policy may also be insured under an insurance policy obtained by the issuer of
such municipal securities. The premium for any insurance policy or policies
obtained by an issuer or Insured Bonds has been paid in advance by such issuer
and any such policy or policies are non-cancellable and will continue in force
so long as the Insured Bonds so insured are outstanding. Financial Guaranty has
also agreed, if requested by the Funds on or before the fifth day preceding the
1st day of any month, to insure to maturity Insured Bonds sold by the Trustee
during the month immediately following such request of the Funds. The premium
for any such insurance to maturity provided by Financial Guaranty is paid by
the Fund and any such insurance is non-cancellable and will continue in force
so long as the Bonds so insured are outstanding.
Financial Guaranty is a wholly-owned subsidiary of FGIC Corporation (the
"Corporation"), a Delaware holding company. The Corporation is a subsidiary of
General Electric Capital Corporation. Financial Guaranty is a monoline
financial guaranty insurer domiciled in the State of New York and subject to
regulation by the State of New York Insurance Department. As of March 31, 1998,
the total capital and surplus of Financial Guaranty was $1,267,900,134.
Financial Guaranty prepares financial statements on the basis of both statutory
accounting principles and generally accepted accounting principles. Copies of
such financial statements may be obtained by writing to Financial Guaranty at
115 Broadway, New York, New York 10006, Attention: Communications Department
(telephone number: (212) 312-3000) or to the New York State Insurance
Department at 25 Beaver Street, New York, New York 10004-2319, Attention:
Financial Condition Property/Casualty Bureau (telephone number: (212) 480-
5187).
The policies of insurance obtained by the Fund from Financial Guaranty and
the negotiations in respect thereof represent the only relationship between
Financial Guaranty and the Fund. Otherwise neither Financial Guaranty nor its
parent, FGIC Corporation, or any affiliate thereof has any significant
relationship, direct or indirect, with the Fund or the Board of Trustees of the
Fund.
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The above municipal bond insurers have insurance claims-paying ability
ratings of AAA from S&P and Aaa from Moody's. Financial Guaranty also has an
insurance claims-paying ability rating of AAA from Fitch.
An S&P insurance claims-paying ability rating is an assessment of an
operating insurance company's financial capacity to meet obligations under an
insurance policy in accordance with its terms. An insurer with an insurance
claims-paying ability rating of AAA has the highest rating assigned by S&P.
Capacity to honor insurance contracts is adjudged by S&P to be extremely strong
and highly likely to remain so over a long period of time. A Moody's insurance
claims-paying ability rating is an opinion of the ability of an insurance
company to repay punctually senior policyholder obligations and claims. An
insurer with an insurance claims-paying ability rating of Aaa is adjudged by
Moody's to be of the best quality. In the opinion of Moody's, the policy
obligations of an insurance company with an insurance claims-paying ability
rating of Aaa carry the smallest degree of credit risk and, while the financial
strength of these companies is likely to change, such changes as can be
visualized are most unlikely to impair the company's fundamentally strong
position.
An insurance claims-paying ability rating by S&P or Moody's does not
constitute an opinion on any specific contract in that such an opinion can only
be rendered upon the review of the specific insurance contract. Furthermore, an
insurance claims-paying ability rating does not take into account deductibles,
surrender or cancellation penalties or the timeliness of payment, nor does it
address the ability of a company to meet nonpolicy obligations (i.e., debt
contracts).
The assignment of ratings by S&P or Moody's to debt issues that are fully or
partially supported by insurance policies, contracts or guarantees is a
separate process form the determination of claims-paying ability ratings. The
likelihood of a timely flow of funds from the insurer to the trustee for the
bondholders is a key element in the rating determination for such debt issues.
S&P's and Moody's ratings are not recommendations to buy, sell or hold the
Municipal Obligations insured by policies issued by AMBAC Assurance, Financial
Security, MBIA or Financial Guaranty and such ratings may be subject to
revision or withdrawal at any time by the rating agencies. Any downward
revision or withdrawal of either or both ratings may have an adverse effect on
the market price of the Municipal Obligations insured by policies issued by
AMBAC Assurance, Financial Security, MBIA or Financial Guaranty.
S&P's ratings of AMBAC Assurance, Financial Security, MBIA and Financial
Guaranty should be evaluated independent of Moody's ratings. Any further
explanation as to the significance of the ratings may be obtained only from the
applicable rating agency. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
PORTFOLIO TRADING AND TURNOVER
The Funds will make changes in their investment portfolio from time to time
in order to take advantage of opportunities in the municipal market and to
limit exposure to market risk. The Funds may also engage to a limited extent in
short-term trading consistent with their investment objective. Securities may
be sold in anticipation of market decline or purchased in anticipation of
market rise and later sold. In addition, a security may be sold and another of
comparable quality purchased at approximately the same time to take advantage
of what Nuveen Advisory believes to be a temporary disparity in the normal
yield relationship between the two securities. Each Fund may make changes in
its investment portfolio in order to limit its exposure to changing market
conditions. Changes in a Fund's investments are known as "portfolio turnover."
While it is impossible to predict future portfolio turnover rates, the annual
portfolio turnover rate for each of the Funds is generally not expected to
exceed 75%. However, each Fund reserves the right to make changes in its
investments whenever it deems such action advisable and, therefore, a Fund's
annual portfolio turnover rate may exceed 75% in particular years depending
upon market conditions.
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The portfolio turnover rates for the 1997 and 1998 fiscal year-ends of the
Funds were:
<TABLE>
<CAPTION>
FISCAL
YEAR
1997 1998
---- ----
<S> <C> <C>
Nuveen Flagship New York Municipal Bond Fund.................... 37% 30%
Nuveen New York Insured Municipal Bond Fund..................... 29% 17%
Nuveen Flagship New Jersey Municipal Bond Fund.................. 10%* 16%
Nuveen Flagship New Jersey Intermediate Municipal Bond Fund..... 11% 9%
Nuveen California Municipal Bond Fund........................... 74% 45%
Nuveen California Insured Municipal Bond Fund................... 51% 26%
Nuveen Flagship Connecticut Municipal Bond Fund................. 20% 12%
Nuveen Massachusetts Municipal Bond Fund........................ 10% 17%
Nuveen Massachusetts Insured Municipal Bond Fund................ 10% 23%
</TABLE>
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* For the fiscal year ended January 31, 1997. For the period February 1 to
February 28, 1997, the portfolio turnover rate was 0%.
WHEN-ISSUED SECURITIES
Each Fund may purchase and sell Municipal Obligations on a when-issued or
delayed delivery basis. When-issued and delayed delivery transactions arise
when securities are purchased or sold with payment and delivery beyond the
regular settlement date. (When-issued transactions normally settle within 15-45
days.) On such transactions the payment obligation and the interest rate are
fixed at the time the buyer enters into the commitment. The commitment to
purchase securities on a when-issued or delayed delivery basis may involve an
element of risk because the value of the securities is subject to market
fluctuation, no interest accrues to the purchaser prior to settlement of the
transaction, and at the time of delivery the market value may be less than
cost. At the time a Fund makes the commitment to purchase a Municipal
Obligation on a when-issued or delayed delivery basis, it will record the
transaction and reflect the amount due and the value of the security in
determining its net asset value. Likewise, at the time a Fund makes the
commitment to sell a Municipal Obligation on a delayed delivery basis, it will
record the transaction and include the proceeds to be received in determining
its net asset value; accordingly, any fluctuations in the value of the
Municipal Obligation sold pursuant to a delayed delivery commitment are ignored
in calculating net asset value so long as the commitment remains in effect. The
Funds will maintain designated readily marketable assets at least equal in
value to commitments to purchase when-issued or delayed delivery securities,
such assets to be segregated by the Custodian specifically for the settlement
of such commitments. The Funds will only make commitments to purchase Municipal
Obligations on a when-issued or delayed delivery basis with the intention of
actually acquiring the securities, but the Funds reserve the right to sell
these securities before the settlement date if it is deemed advisable. If a
when-issued security is sold before delivery any gain or loss would not be tax-
exempt. The Funds commonly engage in when-issued transactions in order to
purchase or sell newly-issued Municipal Obligations, and may engage in delayed
delivery transactions in order to manage its operations more effectively.
SPECIAL CONSIDERATIONS RELATING TO MUNICIPAL OBLIGATIONS OF DESIGNATED STATES
As described in the Prospectus, except for investments in temporary
investments, each of the Funds will invest substantially all of its assets (at
least 80%) in municipal bonds that are exempt from federal and state tax in
that state ("Municipal Obligations"), generally Municipal Obligations issued in
its respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public
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authorities in the states of currently offered Funds. This information was
obtained from official statements of issuers located in the respective states
as well as from other publicly available official documents and statements. The
Funds have not independently verified any of the information contained in such
statements and documents. The information below is intended only as a general
summary, and is not intended as a discussion of any specific factor that may
affect any particular obligation or issuer.
FACTORS PERTAINING TO NEW YORK
Except to the extent the New York Municipal Bond Fund and the New York
Insured Municipal Bond Fund (the "New York Funds") invest in temporary
investments, the New York Funds will invest substantially all of their assets
in New York Municipal Obligations. The New York Funds are therefore susceptible
to political, economic or regulatory factors affecting New York State and
governmental bodies within New York State. Some of the more significant events
and conditions relating to the financial situation in New York are summarized
below. The following information provides only a brief summary of the complex
factors affecting the financial situation in New York, is derived from sources
that are generally available to investors and is believed to be accurate. It is
based on information drawn from official statements and prospectuses issued by,
and other information reported by, the State of New York (the "State"), by its
various public bodies (the "Agencies"), and by other entities located within
the State, including the City of New York (the "City"), in connection with the
issuance of their respective securities.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on State or local government
finances generally, will not adversely affect the market value of New York
Municipal Obligations held in the portfolio of the New York Funds or the
ability of particular obligors to make timely payments of debt service on (or
relating to) those obligations.
(1) The State: The State has historically been one of the wealthiest states
in the nation. For decades, however, the State economy has grown more slowly
than that of the nation as a whole, gradually eroding the State's relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an influx
of generally less affluent residents. Regionally, the older Northeast cities
have suffered because of the relative success that the South and the West have
had in attracting people and business. The State has for many years had a very
high State and local tax burden relative to other states. The burden of State
and local taxation, in combination with the many other causes of regional
economic dislocation, has contributed to the decisions of some businesses and
individuals to relocate outside, or not locate within, the State.
Slowdown of Regional Economy. A national recession commenced in mid-1990. The
downturn continued throughout the State's 1990-91 fiscal year and was followed
by a period of weak economic growth during the 1991 and 1992 calendar years.
For calendar year 1993, the economy grew faster than in 1992, but still at a
very moderate rate as compared to other recoveries. Moderate economic growth
continued in calendar year 1994. Economic growth slowed within New York during
1995 and 1996. Personal income and employment growth in the State improved in
1997, although at lower levels than in the national economy. The State has
forecasted continued moderate growth in 1998 and 1999, although growth rates
are expected to lessen gradually during the course of the two years. The
State's economic growth continues to lag behind the nation's, due in part to
restructuring in the healthcare, social service and banking sectors and
continued spending restraint in government. Many uncertainties exist in
forecasts of both the national and State economies and there can be no
assurance that the State's economy will perform at a level sufficient to meet
the State's projections of receipts and disbursements.
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1998-99 Fiscal Year. The Governor issued a proposed Executive Budget for the
1998-99 fiscal year (the "Proposed Budget") on January 20, 1998, which
projected a balanced general fund and receipts and disbursements of $36.22
billion and $36.18 billion, respectively. As of May 11, 1998, the State
legislature had not yet enacted, nor had the Governor and the legislature
reached an agreement on, the budget for the 1998-99 fiscal year, which
commenced on April 1, 1998. The Governor and the State's legislature have
agreed on or proposed a series of short-term stopgap spending measures to fund
state payrolls and advances to certain municipalities and certain state
programs. The delay in the enactment of the budget may negatively affect
certain proposed actions and reduce projected savings.
As compared to the 1997-98 Financial Plan, the governor's budget proposes
year-to-year in general fund spending of 2.89 percent. Current law and
programmatic requirements are primarily responsible for the year-to-year growth
in general fund spending. New spending is partially offset by reductions in
capital projects transfers due to the financing of a certain program from
resources available in 1997-98, welfare assistance savings, lower spending in
certain areas and lower transfers.
The Proposed Budget and the 1998-99 Financial Plan may be impacted negatively
by uncertainties relating to the economy and tax collections. In particular,
should the national economy grow more slowly than forecasted by the State,
revenues received by the State would be adversely affected. In addition,
proposed retroactive changes to the federal tax treatment of capital gains
would flow through to the State and could significantly reduce tax receipts.
1997-98 Fiscal Year. The State is projecting that it will end the 1997-98
fiscal year with a $1.8 billion cash surplus. Almost all of the surplus was
derived from higher-than-expected tax receipts, reflecting continued growth in
the State's economy and another strong year in the financial markets.
Future Fiscal Years. There can be no assurance that the State will not face
substantial potential budget gaps in the future resulting from a significant
disparity between tax revenues projected from a lower recurring receipts base
and the spending required to maintain State programs at current levels. To
address any potential budgetary imbalance, the State may need to take
significant actions to align recurring receipts and disbursements. The
Governor's budget for fiscal year 1998-99 projects that the State will end
1998-99 with a closing balance in the general fund of $500 million and faces
budget gaps of $1.5 billion and $3.75 billion that may need to be closed for
fiscal years 1999-2000 and 2000-01, respectively.
Indebtedness. As of March 31, 1997, the total amount of State general
obligation debt stood at $4.7 billion.
The Governor's budget for fiscal year 1998-99 projects approximately $2.5
billion of borrowings by the state for capital purposes. The projections of the
State regarding its borrowings for any fiscal year are subject to change if
actual receipts fall short of State projections or if other circumstances
require.
In June 1990, legislation was enacted creating the New York Local Government
Assistance Corporation ("LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
Corporation is authorized to issue up to $4.7 billion in bonds plus amounts
necessary to fund a capital reserve, costs of issuance and, in certain cases,
capitalized interest. As of March 31, 1996, LGAC had issued all of its
authorization. Any issuance of bonds by the Corporation in the future will be
for refunding purposes only.
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Financing of capital programs by other public authorities of the State is
also obtained from lease-purchase and contractual-obligation financing
arrangements (nonvoter approved), the debt service for which is paid from State
appropriations. As of March 31, 1997, there were $20.8 billion of such other
financing arrangements outstanding and additional financings of this nature by
public authorities including LGAC. In addition, certain agencies had issued and
have outstanding approximately $3.3 billion of "moral obligation financings" as
of March 31, 1997, which are to be repaid from project revenues. There has
never been a default on moral obligation debt of the State.
Ratings. In connection with the March 1998 State issuance of general
obligation bonds, Moody's rating of the State's general obligation bonds stood
at A2 and S&P's rating stood at A. On August 28, 1997, S&P upgraded its rating
on the State's general obligation bonds form A- to A.
Previously, Moody's lowered its rating to A on June 6, 1990, its rating
having been A1 since May 27, 1986. S&P lowered its rating from A to A- on
January 13, 1992. S&P's previous ratings were A from March 1990 to January
1992, AA- from August 1987 to March 1990 and A+ from November 1982 to August
1987.
(2) The City and the Municipal Assistance Corporation ("MAC"): The City
accounts for approximately 40% of the State's population and personal income,
and the City's financial health affects the State in numerous ways.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other actions,
the State Legislature (i) created MAC to assist with long-term financing for
the City's short-term debt and other cash requirements and (ii) created the
State Financial Control Board (the "Control Board") to review and approve the
City's budgets and four-year financial plans (the financial plans also apply to
certain City-related public agencies).
Economic activity in the City has experienced periods of growth and recession
and can be expected to experience periods of growth and recession in the
future. Changes in the economic activity in the City, particularly employment,
per capita personal income and retail sales, may have an impact on the City.
Overall, the City's economic improvement accelerated significantly in fiscal
year 1997. Much of the increase can be traced to the performance of the
securities industry, but the City's economy also produced gains in the retail
trade sector, the hotel and tourism industry, and business services, with
private sector employment higher than previously forecasted. The City's current
Financial Plan assumes that, after strong growth in 1997-1998, moderate
economic growth will exist through calendar year 2002, with moderating job
growth and wage increases. However, there can be no assurance that the economic
projections assumed in the Financial Plan will occur or that the tax revenues
projected in the Financial Plan to be received in the amounts anticipated.
Fiscal Year 1999 and the 1998-2002 Financial Plan. On January 29, 1998, the
Mayor released his preliminary $34.3 billion budget for fiscal year 1999. The
Mayor announced on April 24, 1998 that the preliminary budget for the 1999
fiscal year will be modified to utilize the incurred surplus from the 1998
fiscal year to reduce sales taxes, increase spending on certain programs and to
repay a portion of the City's debt.
On April 24, 1998, the Mayor also announced revisions to the proposed 1998-
2002 Financial Plan (the "Plan"), which now projects budget gaps of $1.5
billion, $2.1 billion and $1.6 billion for fiscal years 2000, 2001 and 2002,
respectively. The City Comptroller and State Comptroller have each stated that
the fiscal year 1999 budget includes moderate revenue risks. The State
Comptroller has projected budget gaps for fiscal years 2000, 2001 and 2002 that
are each in excess of the City's estimate.
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An extended delay by the State in adopting its 1998-99 fiscal year budget or
the failure of the State legislature to extend the income tax surcharge would
negatively impact upon the City's financial condition and ability to close
budget gaps for fiscal years 1999 and thereafter.
Given the foregoing, there can be no assurance that the City will continue to
maintain a balanced budget during fiscal year 1999 or thereafter, or that it
can maintain a balanced budget without additional tax or other revenue
increases or reductions in City services, which could adversely affect the
City's economic base.
Pursuant to State law, the City prepares a four-year annual financial plan,
which is reviewed and revised on a quarterly basis and which includes the
City's capital, revenue and expense projections. The City is required to submit
its financial plans to review bodies, including the Control Board. If the City
were to experience certain adverse financial circumstances, including the
occurrence or the substantial likelihood and the imminence of the occurrence of
an annual operating deficit of more than $100 million or the loss of access to
the public credit markets to satisfy the City's capital and seasonal financial
requirements, the Control Board would be required by State law to exercise
certain powers, including prior approval of City financial plans, proposed
borrowings and certain contracts.
The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its
1998-99 fiscal year or subsequent years, such developments could result in
reductions in projected State aid to the City. In addition, there can be no
assurance that State budgets for the 1999-2000 or future fiscal years will be
adopted by the April 1 statutory deadline and that there will not be adverse
effects on the City's cash flow and additional City expenditures as a result of
such delays.
The City projections set forth in the Plan are based on various assumptions
and contingencies which are uncertain and which may not materialize. Changes in
major assumptions could significantly affect the City's ability to balance its
budget as required by State law and to meet its annual cash flow and financing
requirements. Such assumptions and contingencies include the timing of any
regional and local economic recovery, the absence of wage increases in excess
of the increases assumed in its financial plan, employment growth, provision of
State and Federal aid and mandate relief, State legislative approval of future
State budgets, levels of education expenditures as may be required by State
law, adoption of future City budgets by the New York City Council, approval by
the Governor or the State Legislature and the cooperation of MAC with respect
to various other actions proposed in the Plan and changes in federal tax law.
The City's ability to maintain a balanced operating budget is dependent on
whether it can identify additional expenditure reductions and action by the
State legislature to achieve balanced operating budgets for fiscal year 1999
and thereafter. Any such proposed expenditure reductions will be difficult to
implement because of their size and the substantial expenditure reductions
already imposed on City operations in recent years.
Attaining a balanced budget is also dependent upon the City's ability to
market its securities successfully in the public credit markets. The City's
four-year capital plan contemplates capital spending of $25.5 billion through
the 2002 fiscal year, which will be financed through issuance of general
obligation bonds, Transitional Finance Authority Bonds, Water Authority Revenue
Bonds and Covered Organization obligations, and will be used primarily to
reconstruct and rehabilitate the City's infrastructure and physical assets and
to make capital investments. A significant portion of such bond financing is
used to reimburse the City's general fund for capital expenditures already
incurred. In addition, the City issues revenue and tax anticipation notes to
finance its
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seasonal working capital requirements. The terms and success of projected
public sales of City general obligation bonds and notes will be subject to
prevailing market conditions at the time of the sale, and no assurance can be
given that the credit markets will absorb the projected amounts of public bond
and note sales. In addition, future developments concerning the City and public
discussion of such developments, the City's future financial needs and other
issues may affect the market for outstanding City general obligation bonds and
notes. If the City were unable to sell its general obligation bonds and notes,
it would be prevented from meeting its planned operating and capital
expenditures.
On March 5, 1997, New York Governor George Pataki signed legislation creating
The New York City Transitional Finance Authority, which beginning in fiscal
year 1998 is authorized to issue up to $7.5 billion in bonds for capital
spending by the City. Absent creation of this authority, the City would have
faced limitations on its borrowing capacity after 1998 under the State's
Constitution. As of May 11, 1998, the Authority had issued $2.15 billion in
bonds. The bonds are secured by a primary lien on the City's personal income
tax receipts as well as a secondary lien on sales tax receipts.
The City is a defendant in a significant number of lawsuits and is subject to
numerous claims and investigations, including, but not limited to, actions
commenced and claims asserted against the City arising out of alleged
constitutional violations, torts, breaches of contracts, and other violations
of law and condemnation proceedings. While the ultimate outcome and fiscal
impact, if any, on the proceedings and claims are not currently predictable,
adverse determinations in certain of them might have a material adverse effect
upon the City's ability to carry out its financial plan. As of June 30, 1997,
the City estimated its potential future liability on outstanding claims to be
$3.5 billion.
In April 1996, certain unions, elected officials and others filed an action
in the Supreme Court of the State of New York, County of New York, against the
Mayor which asserted that the City failed to subsidize HHC at the minimum
funding levels required for the 1994 through 1997 fiscal years. On July 15,
1997, the Court permitted the plaintiffs to amend the complaint and seek an
order requiring the City to pay to HHC at least $949 million, $931 million and
$831 million for the 1994, 1995 and 1996 fiscal years, respectively, and an
amount to be determined by the Court for the 1997 fiscal year. The Court denied
plaintiff's motion to preliminarily enjoin the defendant from further reducing
the City's subsidy to HHC for the 1996 and 1997 fiscal years from the amount
originally budgeted for the 1996 fiscal year.
Fiscal Year 1998. New York City adopted its 1998 fiscal year budget in June
1997, which provided for spending of $33.4 billion. Due to increased tax
revenues resulting from increased profits on Wall Street and tourism, the City
expects to end fiscal year 1998 with a surplus of $2.0 billion.
Fiscal Years 1991 through 1997. The City achieved balanced operating results
in accordance with generally accepted accounting principles for fiscal years
1991 through 1997. The City was required to close substantial budget gaps in
these fiscal years in order to maintain balanced operating results.
Ratings. As of May 11, 1998, Moody's S&P, and Fitch rate the City's
outstanding general obligation bonds A3, BBB+, and A-, respectively. On
February 3, 1998, S&P placed its BBB+ rating of City bonds on Creditwatch with
positive implications. Moody's rating of City bonds was revised in February
1998 to A3 from Baal.
As of December 31, 1997, the City MAC and TFA had, respectively, $26.6
billion and $3.6 billion and $2.15 billion of outstanding net long-term and
short-term indebtedness.
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(3) The State Agencies: Certain Agencies of the State have faced substantial
financial difficulties which could adversely affect the ability of such
Agencies to make payments of interest on, and principal amounts of, their
respective bonds. The difficulties have in certain instances caused the State
(under so-called "moral obligation" provisions, which are non-binding statutory
provisions for State appropriations to maintain various debt service reserve
funds) to appropriate funds on behalf of the Agencies. Moreover, it is expected
that the problems faced by these Agencies will continue and will require
increasing amounts of State assistance in future years. Failure of the State to
appropriate necessary amounts or to take other action to permit those Agencies
having financial difficulties to meet their obligations could result in a
default by one or more of the Agencies. Such default, if it were to occur,
would be likely to have a significant adverse affect on investor confidence in,
and therefore the market price of, obligations of the defaulting Agencies. In
addition, any default in payment on any general obligation of any Agency whose
bonds contain a moral obligation provision could constitute a failure of
certain conditions that must be satisfied in connection with Federal guarantees
of City and MAC obligations and could thus jeopardize the City's long-term
financing plans.
As of March 31, 1997, the State reported that its public benefit corporations
had an aggregate of $36.9 billion of outstanding debt, some of which was State-
supported and State-related debt.
(4) State Litigation: The State is a defendant in numerous legal proceedings
pertaining to matters incidental to the performance of routine governmental
operations. Such litigation includes, but is not limited to, claims asserted
against the State arising from alleged torts, alleged breaches of contracts,
condemnation proceedings and other alleged violations of State and Federal
laws. Included in the State's outstanding litigation are a number of cases
challenging the constitutionality or the adequacy and effectiveness of a
variety of significant social welfare programs primarily involving the State's
mental hygiene programs. Adverse judgments in these matters generally could
result in injunctive relief coupled with prospective changes in patient care
which could require substantial increased financing of the litigated programs
in the future.
The State is also engaged in a variety of claims wherein significant monetary
damages are sought. Actions commenced by several Indian nations claim that
significant amounts of land were unconstitutionally taken from the Indians in
violation of various treaties and agreements during the eighteenth and
nineteenth centuries. The claimants seek recovery of approximately six million
acres of land, as well as compensatory and punitive damages.
(5) Other Municipalities: Certain localities in addition to New York City
could have financial problems leading to requests for additional State
assistance. The potential impact on the State of such actions by localities is
not included in projections of State receipts and expenditures in the State's
1998-99 fiscal year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by the State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the
Governor or the State Legislature to assist Yonkers could result in allocation
of State resources in amounts that cannot yet be determined.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. In December 1995,
in reaction to continuing financial problems, the Troy Municipal Assistance
Corp., which was created in 1995, imposed a 1996 budget plan upon
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Troy, New York. Such revenue bonds have not to date been refinanced. A similar
municipal assistance corporation has also been established for Newburgh. In
addition, several other New York cities, including Utica, Rome, Schenectady,
Syracuse and Niagara Falls have faced continuing budget deficits, as federal
and state aid and local tax revenues have declined while government expenses
have increased. The financial problems being experienced by the State's smaller
urban centers place additional strains upon the State's financial condition.
Certain proposed Federal expenditure reductions could reduce, or in some
cases eliminate, Federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities to
increase local revenues to sustain those expenditures. Federal welfare reform
legislation may increase the local burden for welfare benefits. In addition,
proposed changes in the treatment of capital gains for federal income tax
purposes could reduce the receipts of the State and City. If the State, New
York City or any of the Agencies were to suffer serious financial difficulties
jeopardizing their respective access to the public credit markets, the
marketability of notes and bonds issued by localities within the State,
including notes or bonds in the Fund, could be adversely affected. Localities
also face anticipated and potential problems resulting from certain pending
litigation, judicial decisions, and long-range economic trends. The longer-
range potential problems of declining urban population, increasing
expenditures, and other economic trends could adversely affect certain
localities and require increasing State assistance in the future.
(6) Other Issuers of New York Municipal Obligations. There are a number of
other state agencies, instrumentalities and political subdivisions of the State
that issue Municipal Obligations, some of which may be conduit revenue
obligations payable from payments from private borrowers. These entities are
subject to various economic risks and uncertainties, and the credit quality of
the securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the State.
FACTORS PERTAINING TO NEW JERSEY
Except to the extent the New Jersey Municipal Bond Fund and the New Jersey
Intermediate Municipal Bond Fund (the "New Jersey Funds") invest in temporary
investments, the New Jersey Funds will invest substantially all of their assets
in New Jersey Municipal Obligations. The New Jersey Funds are therefore
susceptible to political, economic or regulatory factors affecting New Jersey
and governmental bodies within New Jersey. The following information provides
only a brief summary of the complex factors affecting the financial situation
in New Jersey, is derived from sources that are generally available to
investors and is believed to be accurate. It is based in part on information
obtained from various State and local agencies in New Jersey or contained in
Official Statements for various New Jersey Municipal Obligations. There can be
no assurance that current or future statewide or regional economic
difficulties, and the resulting impact on State or local government finances
generally, will not adversely affect the market value of New Jersey Obligations
in the Funds or the ability of particular obligors to make timely payments of
debt service on (or relating to) those obligations.
The State and Its Economy. The State is the ninth largest state in population
and the fifth smallest in land area. With an average of 1,094 people per square
mile, it is the most densely populated of all the states. The State's economic
base is diversified, consisting of a variety of manufacturing, construction and
service industries, supplemented by rural areas with selective commercial
agriculture. Historically, New Jersey's average per capita income has been well
above the national average, and in 1997 the State ranked second among the
states in per capita personal income ($32,654).
The New Jersey Economic Policy Council, a statutory arm of the New Jersey
Department of Commerce and Economic Development, has reported in New Jersey
Economic Indicators, a monthly publication of the New Jersey Department of
Labor, Division of Labor Market and Demographic Research, that in 1988 and 1989
employment in New Jersey's manufacturing sector failed to benefit from the
export boom experienced by many
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Midwest states and the State's service sectors, which had fueled the State's
prosperity since 1982, lost momentum. In the meantime, the prolonged fast
growth in the State in the mid 1980s resulted in a tight labor market
situation, which has led to relatively high wages and housing prices. This
means that, while the incomes of New Jersey residents are relatively high, the
State's business sector has become more vulnerable to competitive pressures.
The onset of the national recession (which officially began in July 1990
according to the National Bureau of Economic Research) caused an acceleration
of New Jersey's job losses in construction and manufacturing. In addition, the
national recession caused an employment downturn in such previously growing
sectors as wholesale trade, retail trade, finance, utilities and trucking and
warehousing. Reflecting the downturn, the rate of unemployment in the State
rose from a low of 3.6% during the first quarter of 1989 to an estimated 6.6%
in April 1996, which is greater than the national average of 5.4% in April
1996. Improvement has been slow, with New Jersey's unemployment rate dropping
to 5.1% in March 1998 versus the natural average of 4.7%.
Going forward, moderate growth is expected to continue through fiscal year
1998. New Jersey's economy has recently benefitted from newly emerging
information-based fields attracted by the State's high technology labor
resources. Meanwhile, corporate restructuring in such fields as chemicals,
telecommunications and financial services has abated. Total employment is
expected to grow at an average rate of 0.8% through calendar year 1999.
Debt Service. The primary method for State financing of capital projects is
through the sale of the general obligation bonds of the State. These bonds are
backed by the full faith and credit of the State tax revenues and certain other
fees are pledged to meet the principal and interest payments and if provided,
redemption premium payments, if any, required to repay the bonds. General
obligation debt must be approved by voter referendum and is used primarily to
finance various environmental, transportation, correctional and institutional
projects. As of June 30, 1997, the state's outstanding general obligation debt
totaled $3.4 billion. The debt service obligation for such outstanding
indebtedness was $447 million in fiscal year 1997.
New Jersey's Budget and Appropriation System. The State operates on a fiscal
year beginning July 1 and ending June 30. The State closed recent fiscal years
with surpluses in the general fund (the fund into which all State revenues not
otherwise restricted by statute are deposited and from which appropriations are
made) of $761 million in 1992, $937 million in 1993, $926 million in 1994, $569
million in 1995, $442 million in 1996 and $281 million in 1997. It is estimated
that fiscal year 1998 will end with a surplus of $269 million.
In order to provide additional revenues to balance future budgets, to
redistribute school aid and to contain real property taxes, on June 27, 1990,
and July 12, 1990, Governor Florio signed into law legislation which was
estimated to raise approximately $2.8 billion in additional taxes (consisting
of $1.5 billion in sales and use taxes and $1.3 billion in income taxes), the
biggest tax hike in New Jersey history. There can be no assurance that receipts
and collections of such taxes will meet such estimates.
The first part of the tax hike took effect on July 1, 1990, with the increase
in the State's sales and use tax rate from 6.0% to 7.0% and the elimination of
exemptions for certain products and services not previously subject to the tax,
such as telephone calls, disposable paper products (which has since been
reinstated), soaps and detergents, janitorial services, alcoholic beverages and
cigarettes. At the time of enactment, it was projected that these taxes would
raise approximately $1.5 billion in additional revenue. Projections and
estimates of receipts from sales and use taxes, however, have been subject to
variance in recent fiscal years.
The second part of the tax hike took effect on January 1, 1991, in the form
of an increased state income tax on individuals. At the time of enactment, it
was projected that this increase would raise approximately $1.3 billion in
additional income taxes to fund a new school aid formula, a new homestead
rebate program and state assumption of welfare and social services costs.
Projections and estimates of receipts from income taxes, however,
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have also been subject to variance in recent fiscal years. Under the
legislation, income tax rates increased from their previous range of 2.0% to
3.5% to a new range of 2.0% to 7.0%, with the higher rates applying to married
couples with incomes exceeding $70,000 who file joint returns, and to
individuals filing single returns with incomes of more than $35,000.
The Florio administration had contended that the income tax package would
help reduce local property tax increases by providing more state aid to
municipalities. Under the income tax legislation the State assumed
approximately $289.0 million in social services costs that previously were paid
by counties and municipalities and funded by property taxes. In addition, under
the new formula for funding school aid, an extra $1.1 billion was proposed to
be sent by the State to school districts beginning in 1991, thus reducing the
need for property tax increases to support education programs.
Effective July 1, 1992, the State's sales and use tax rate decreased from 7%
to 6%. Effective January 1, 1994, an across-the-board 5% reduction in the
income tax rates was enacted and effective January 1, 1995, further reductions
ranging from 1% up to 10% in income tax rates took effect.
As part of the Fiscal Year 1996 Budget, the State enacted several additional
tax cuts. For the Gross Income Tax, a 15 percent reduction of personal income
tax rates became effective on January 1, 1996. This cut was in addition to the
tax rate reductions that were implemented during Fiscal Year 1994 and Fiscal
Year 1995. Effective April 1, 1996, yellow pages advertisements were exempt
from the State's Sales Tax. Effective July 1, 1996, a reduction in the
Corporation Business Tax rate from 9.0 percent to 7.5 percent applied to those
corporations that have an allocated net income of $100,000 or less. Also
effective July 1, 1996, corporations' sales were double weighted in calculating
receipt factors in determining a multistate corporation's New Jersey State
Corporation Business Tax liability.
During June, 1997 the Pension Security Plan was passed which enacted various
reform measures including a major provision fully funding the State's $3.2
billion unfunded pension liability as well as the projected $1 billion unfunded
liability by bringing assets to full market value, recognizing surplus assets
within the normal contribution accounts and issuing $2.75 billion of pension
obligation bonds to refinance the remaining State liability at low interest
rates. Amortization of the pension obligation bonds will occur through 2019 at
a cost of $10.3 billion. This restructuring allows the State to save $47.5
billion over the 2020-56 period originally set up in the prior pension policy.
The Pension Security Plan also reallocates surplus assets to reduce the State's
normal contribution by $601 million for fiscal years 1997 and 1998.
On July 12, 1994, the New Jersey Supreme Court declared the State's Quality
Education Act of 1990 unconstitutional and gave the Chief Executive and the
Legislature until Fiscal Year 1998 to achieve "substantial equivalence" between
spending on pupils in poor urban districts and spending on their counterparts
in wealthy suburban districts. Fiscal Year 1998 marks the implementation of a
new school funding formula specified by the Comprehensive Education Improvement
and Financing Act of 1996. State school aid will total $5.3 billion, a net
increase of nearly $438 million. However, late in 1997, the State Supreme Court
found that the new law still provided insufficient funding and recommended that
the State increase annual funding by $312 million.
In October of 1997, the Supreme Court declined to hear appeals regarding the
unconstitutionality of the State's flow control legislation and thus opened the
State's solid waste market of competition. New Jersey's solid waste facilities
have approximately $1.5 billion of debt outstanding and have faced rating
downgrades since 1996 as a result of the federal court ruling that the State's
flow control legislation was illegal. The State has taken several actions in
order to help New Jersey counties raise more money to pay off their debt,
including the imposition of an environmental investment charge on either trash
haulers or businesses or residences that generate the trash and the inclusion
of $20 million in FY97 and FY98 budgets. A legislative proposal to provide a
more large-scale county bailout has not yet been approved.
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The State's fiscal year 1998 revenue projections are based on moderate
overall economic growth. Total general fund and available revenues are
projected to be $17.3 billion. Included in the revenue forecast is a reduction
of residential property taxes paid by homeowners and tenants, and a refundable
tax credit for property taxpayers. Effective January 1, 1997, 75% of a
homeowner's, tenant's, or property taxpayer's property taxes, not in excess of
$7,500, can be deducted. Fiscal 1998 also provides for changes in the rate for
S Corporations to 2%, or one-half percent for S Corporations with $100,000 or
less annual income. Total appropriations for fiscal 1998 total $16.8 billion.
Litigation. The State is a party in numerous legal proceedings pertaining to
matters incidental to the performance of routine governmental operations. Such
litigation includes, but is not limited to, claims asserted against the State
arising from alleged torts, alleged breaches of contracts, condemnation
proceedings and other alleged violations of State and Federal laws. Included in
the State's outstanding litigation are cases challenging the following: the
funding of teachers' pension funds, the adequacy of Medicaid reimbursement for
hospital services, the hospital assessment authorized by the Health Care Reform
Act of 1992, various provisions, and the constitutionality, of the Fair
Automobile Insurance Reform Act of 1990, the State's role in a consent order
concerning the construction of a resource facility in Passaic County, actions
taken by the Bureau of Securities against an individual, the State's actions
regarding alleged chromium contamination of State-owned property in Hudson
County, the issuance of emergency redirection orders and a draft permit by the
Department of Environmental Protection and Energy, refusal of the State to
share with Camden County federal funding the State recently received for
disproportionate share hospital payments made to county psychiatric facilities,
the State's failure to reimburse certain hospitals' charity care costs, and the
constitutionality of annual A-901 hazardous and solid waste licensure renewal
fees collected by the Department of Environmental Protection and Energy.
Adverse judgments in these and other matters could have the potential for
either a significant loss of revenue or a significant unanticipated expenditure
by the State.
At any given time, there are various numbers of claims and cases pending
against the State, State agencies and employees seeking recovery of monetary
damages that are primarily paid out of the fund created pursuant to the New
Jersey Tort Claims Act. In addition, at any given time, there are various
numbers of contract claims against the State and State agencies seeking
recovery of monetary damages. The State is unable to estimate its exposure for
these claims.
Debt Ratings. For many years prior to 1991, both Moody's and S&P had rated
New Jersey general obligation bonds Aaa and AAA, respectively. On July 3, 1991,
however, S&P downgraded New Jersey general obligation bonds to AA+. On June 4,
1992, S&P placed New Jersey general obligation bonds on CreditWatch with
negative implications, citing as its principal reason for its caution the
denial by the federal government of New Jersey's request for $450 million in
retroactive Medicaid payments for psychiatric hospitals. These funds were
critical to closing a $1 billion gap in the State's $15 billion budget for
fiscal year 1992 which ended on June 30, 1992. Under New Jersey state law, the
gap in the budget must be closed before the new budget year began on July 1,
1992. S&P suggested the State could close fiscal year 1992's budget gap and
help fill fiscal year 1993's hole by a reversion of $700 million of pension
contributions to its general fund under a proposal to change the way the State
calculates its pension liability.
On July 6, 1992, S&P reaffirmed its AA+ rating for New Jersey general
obligation bonds and removed the debt from its CreditWatch list, although it
stated that New Jersey's long-term financial outlook was negative. S&P was
concerned that the State was entering fiscal year 1993 with only a $26 million
surplus and remained concerned about whether the State economy would recover
quickly enough to meet lawmakers' revenue projections. It also remained
concerned about the recent federal ruling leaving in doubt how much the State
was due in retroactive Medicaid reimbursements and a ruling by a federal judge,
now on appeal, of the State's method for paying for uninsured hospital
patients. However, on July 27, 1994, S&P announced that it was
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changing the State's outlook from negative to stable due to a brightening of
the State's prospects as a result of Governor Whitman's effort to trim spending
and cut taxes, coupled with an improving economy. S&P reaffirmed its AA+ rating
at the same time. On July 1, 1996, S&P reaffirmed the State's long-term
ratings.
On August 24, 1992, Moody's downgraded New Jersey general obligation bonds to
Aa1, stating that the reduction reflected a developing pattern of reliance on
nonrecurring measures to achieve budgetary balance, four years of financial
operations marked by revenue shortfalls and operating deficits, and the
likelihood that serious financial pressures would persist. On August 5, 1994,
and again on August 18, 1995 Moody's reaffirmed its Aa1 rating, citing on the
positive side New Jersey's broad-based economy, high income levels, history of
maintaining a positive financial position and moderate (albeit rising) debt
ratios, and, on the negative side, a continued reliance on one-time revenues
and a dependence on pension-related savings to achieve budgetary balance. On
May 1, 1996, Moody's reaffirmed the State's long-term ratings.
FACTORS PERTAINING TO CALIFORNIA
Except to the extent the California Municipal Bond Fund and the California
Insured Municipal Bond Fund (the "California Funds") invest in temporary
investments, the California Funds will invest substantially all of their assets
in California Municipal Obligations. The Funds are therefore susceptible to
political, economic or regulatory factors affecting issuers of California
Municipal Obligations.
These include the possible adverse effects of certain California
constitutional amendments, legislative measures, voter initiatives and other
matters that are described below. The following information provides only a
brief summary of the complex factors affecting the financial situation in
California (the "State") and is derived from sources that are generally
available to investors and is believed to be accurate. No independent
verification has been made of the accuracy or completeness of any of the
following information. It is based in part on information obtained from various
State and local agencies in California or contained in Official Statements for
various California Municipal Obligations.
During the early 1990's, California experienced significant financial
difficulties, which reduced its credit standing, but the State's finances have
improved since 1994. The ratings of certain related debt of other issuers for
which California has an outstanding lease purchase, guarantee or other
contractual obligation (such as for state-insured hospital bonds) are generally
linked directly to California's rating. Should the financial condition of
California deteriorate again, its credit ratings could be further reduced, and
the market value and marketability of all outstanding notes and bonds issued by
California, its public authorities or local governments could be adversely
affected.
Economic Overview
Total personal income in the State, at an estimated $800 billion in 1996,
accounts for almost 13% of all personal income in the nation. Total employment
is over 15.6 million, the majority of which is in the service, trade and
manufacturing sectors.
Unemployment has declined dramatically from its 10% recession peak and is
rapidly approaching the national level. Economic indicators show a steady and
strong recovery underway in California since the start of 1994, particularly in
the export-related industries, services, electronics, entertainment and
tourism. The recovery in export-related industries has been dampened somewhat
by the economic crisis in Asia.
Constitutional Limitations on Taxes, Other Charges and Appropriations
Limitation on Property Taxes. Certain California Municipal Obligations may be
obligations of issuers which rely in whole or in part, directly or indirectly,
on ad valorem property taxes as a source of revenue. The
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taxing powers of California local governments and districts are limited by
Article XIIIA of the California Constitution, enacted by the voters in 1978 and
commonly known as "Proposition 13." Briefly, Article XIIIA limits to 1% of full
cash value the rate of ad valorem property taxes on real property and generally
restricts the reassessment of property to 2% per year, except upon new
construction or change of ownership (subject to a number of exemptions). Taxing
entities may, however, raise ad valorem taxes above the 1% limit to pay debt
service on voter-approved bonded indebtedness.
Under Article XIIIA, the basic 1% ad valorem tax levy is applied against the
assessed value of property as of the owner's date of acquisition (or as of
March 1, 1975, if acquired earlier), subject to certain adjustments. This
system has resulted in widely varying amounts of tax on similarly situated
properties. Several lawsuits have been filed challenging the acquisition-based
assessment system of Proposition 13, but it was upheld by the U.S. Supreme
Court in 1992.
Article XIIIA prohibits local governments from raising revenues through ad
valorem property taxes above the 1% limit; it also requires voters of any
governmental unit to give two-thirds approval to levy any "special tax." Court
decisions, however, allowed a non-voter approved levy of "general taxes" which
were not dedicated to a specific use.
Limitation on Other Taxes, Fees and Charges. On November 5, 1996, the voters
of the State approved Proposition 218, called the "Right to Vote on Taxes Act."
Proposition 218 added Articles XIIIC and XIIID to the State Constitution, which
contain a number of provisions affecting the ability of local agencies to levy
and collect both existing and future taxes, assessments, fees and charges.
Article XIIIC requires that all new or increased local taxes be submitted to
the electorate before they become effective. Taxes for general governmental
purposes require a majority vote and taxes for specific purposes require a two-
thirds vote. Further, any general purpose tax which was imposed, extended or
increased without voter approval after December 31, 1994 must be approved by a
majority vote within two years.
Article XIIID contains several new provisions making it generally more
difficult for local agencies to levy and maintain "assessments" for municipal
services and programs. Article XIIID also contains several new provisions
affecting "fees" and "charges", defined for purposes of Article XIIID to mean
"any levy other than an ad valorem tax, a special tax, or an assessment,
imposed by a [local government] upon a parcel or upon a person as an incident
of property ownership, including a user fee or charge for a property related
service." All new and existing property related fees and charges must conform
to requirements prohibiting, among other things, fees and charges which
generate revenues exceeding the funds required to provide the property related
service or are used for unrelated purposes. There are new notice, hearing and
protest procedures for levying or increasing property related fees and charges,
and, except for fees or charges for sewer, water and refuse collection services
(or fees for electrical and gas service, which are not treated as "property
related" for purposes of Article XIIID), no property related fee or charge may
be imposed or increased without majority approval by the property owners
subject to the fee or charge or, at the option of the local agency, two-thirds
voter approval by the electorate residing in the affected area.
In addition to the provisions described above, Article XIIIC removes
limitations on the initiative power in matters of local taxes, assessments,
fees and charges. Consequently, local voters could, by future initiative,
repeal, reduce or prohibit the future imposition or increase of any local tax,
assessment, fee or charge. It is unclear how this right of local initiative may
be used in cases where taxes or charges have been or will be specifically
pledged to secure debt issues.
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The interpretation and application of Proposition 218 will ultimately be
determined by the courts with respect to a number of matters, and it is not
possible at this time to predict with certainty the outcome of such
determinations. Proposition 218 is generally viewed as restricting the fiscal
flexibility of local governments, and for this reason, some ratings of
California cities and counties have been, and others may be, reduced.
Appropriations Limits. The State and its local governments are subject to an
annual "appropriations limit" imposed by Article XIIIB of the California
Constitution, enacted by the voters in 1979 and significantly amended by
Propositions 98 and 111 in 1988 and 1990, respectively. Article XIIIB prohibits
the State or any covered local government from spending "appropriations subject
to limitation" in excess of the appropriations limit imposed. "Appropriations
subject to limitation" are authorizations to spend "proceeds of taxes," which
consist of tax revenues and certain other funds, including proceeds from
regulatory licenses, user charges or other fees, to the extent that such
proceeds exceed the cost of providing the product or service, but "proceeds of
taxes" exclude most State subventions to local governments. No limit is imposed
on appropriations of funds which are not "proceeds of taxes," such as
reasonable user charges or fees, and certain other non-tax funds, including
bond proceeds.
Among the expenditures not included in the Article XIIIB appropriations limit
are (1) the debt service cost of bonds issued or authorized prior to January 1,
1979, or subsequently authorized by the voters, (2) appropriations arising from
certain emergencies declared by the Governor, (3) appropriations for certain
capital outlay projects, (4) appropriations by the State of post-1989 increases
in gasoline taxes and vehicle weight fees, and (5) appropriations made in
certain cases of emergency.
The appropriations limit for each year is adjusted annually to reflect
changes in cost of living and population, and any transfers of service
responsibilities between government units. The definitions for such adjustments
were liberalized in 1990 to follow more closely growth in the State's economy.
"Excess" revenues are measured over a two year cycle. Local governments must
return any excess to taxpayers by rate reductions. The State must refund 50% of
any excess, with the other 50% paid to schools and community colleges. With
more liberal annual adjustment factors since 1988, and depressed revenues since
1990 because of the recession, few governments are currently operating near
their spending limits, but this condition may change over time. Local
governments may by voter approval exceed their spending limits for up to four
years. During fiscal year 1986-87, State receipts from proceeds of taxes
exceeded its appropriations limit by $1.1 billion, which was returned to
taxpayers. Since that year, appropriations subject to limitation have been
under the State limit. State appropriations were $7.0 billion under the limit
for fiscal year 1996-97.
Because of the complex nature of Articles XIIIA, XIIIB, XIIIC and XIIID of
the California Constitution, the ambiguities and possible inconsistencies in
their terms, and the impossibility of predicting future appropriations or
changes in population and cost of living, and the probability of continuing
legal challenges, it is not currently possible to determine fully the impact of
these Articles on California Municipal Obligations or on the ability of the
State or local governments to pay debt service on such California Municipal
Obligations. It is not possible, at the present time, to predict the outcome of
any pending litigation with respect to the ultimate scope, impact or
constitutionality of these Articles, or the impact of any such determinations
upon State agencies or local governments, or upon their ability to pay debt
service on their obligations. Future initiatives or legislative changes in laws
or the California Constitution may also affect the ability of the State or
local issuers to repay their obligations.
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Obligations of the State of California
Under the California Constitution, debt service on outstanding general
obligation bonds is the second charge to the General Fund after support of the
public school system and public institutions of higher education. Under the
California Constitution, debt service on outstanding general obligation bonds
is the second charge to the General Fund after support of the public school
system and public institutions of higher education. As of June 30, 1997, the
State had outstanding approximately $17.95 billion of long-term general
obligation bonds, plus $781 million of general obligation commercial paper
which will be refunded by long-term bonds in the future, and $6.1 billion of
lease-purchase debt supported by the State General Fund. The State also had
about $7.5 billion of authorized and unissued general obligation bonds. In FY
1996-97, debt service on general obligation bonds and lease purchase bonds was
approximately 5.0% of General Fund revenues.
Recent Financial Results
The principal sources of General Fund revenues in 1996-97 were the California
personal income tax (27% of total revenues), the sales and use tax (24%) and
bank and corporation taxes (7%). The State maintains a Special Fund for
Economic Uncertainties (the "SFEU"), derived from General Fund revenues, as a
reserve to meet cash needs of the General Fund, but which is required to be
replenished as soon as sufficient revenues are available. During the 1997
fiscal year the SFEU was fully depleted. However, the robust economy should
afford the State the ability to appropriate funds to the SFEU in the near term.
General. Throughout the 1980's, State spending increased rapidly as the State
population and economy also grew rapidly, including increased spending for many
assistance programs to local governments, which were constrained by Proposition
13 and other laws. The largest State program is assistance to local public
school districts. In 1988, an initiative (Proposition 98) was enacted which
(subject to suspension by a two-thirds vote of the Legislature and the
Governor) guarantees local school districts and community college districts a
minimum share of State General Fund revenues (currently about 35%).
Since the start of the 1990-91 fiscal year, the State has faced adverse
economic, fiscal, and budget conditions. The economic recession seriously
affected State tax revenues. It also caused increased expenditures for health
and welfare programs. Since the start of the 1990-91 fiscal year, the State has
faced adverse economic, fiscal and budget conditions. The economic recession
seriously affected State tax revenues. It also caused increased expenditures
for health and welfare programs. As a result of the strengthening State
economy, General Fund revenue growth is now outpacing the costs associated with
many of the larger programs supported by the General Fund. However, the State
will face additional challenges in coming years by the expected need to
substantially increase capital and operating funds for State infrastructure
needs, as well as corrections resulting from a "Three Strikes" law enacted in
1994.
Recent Budgets. As a result of these factors, among others, from the late
1980's until 1992-93, the State had a period of nearly chronic budget
imbalance, with expenditures exceeding revenues in four out of six years, and
the State accumulated and sustained a budget deficit in the budget reserve, the
SFEU approaching $2.8 billion at its peak at June 30, 1993. Starting in the
1990-91 Fiscal Year and for each year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance and to close large "budget gaps" which were identified. The Legislative
and Governor eventually agreed on a number of different steps to produce Budget
Acts in the Years 1991-92 to 1995-96 (although not all of these actions were
taken in each year):
.. significant cuts in health and welfare program expenditures;
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.. transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on lo-
cal government;
.. transfer of about $3.6 billion in annual local property tax revenues from
cities, counties, redevelopment agencies and some other districts to local
school districts, thereby reducing state funding for schools;
.. reduction in growth of support for higher education programs, coupled with
increases in student fees;
.. revenue increases (particularly in the 1992-92 Fiscal Year budget), most of
which were for a short duration;
.. increased reliance on aid from the federal government to offset the costs
of incarcerating, educating and providing health and welfare services to
undocumented aliens (although these efforts have produced much less federal
aid than the State Administration had requested); and
.. various one-time adjustment and accounting changes.
Despite these budget actions, the effects of the recession led to large
unanticipated deficits in the SFEU, as compared to projected positive balances.
By the start of the 1993-94 Fiscal Year, the accumulated deficit was so large
(almost $2.8 billion) that it was impractical to budget to retire it in one
year, so a two-year program was implemented, using the issuance of revenue
anticipation warrants to carry a portion of the deficit over the end of the
fiscal year. When the economy failed to recover sufficiently in 1993-94, a
second two-year plan was implemented in 1994-95, to carry the final retirement
of the deficit into 1995-96.
The combination of stringent budget actions cutting State expenditures, and
the turnaround of the economy by late 1993, finally led to the restoration of
positive financial results. While General Fund revenues and expenditures were
essentially equal in FY 1992-93 (following two years of excess expenditures
over revenues), the General Fund had positive operating results in FY 1993-94,
1994-95, and 1995-96 which have reduced the accumulated budget deficit to about
$70 million as of June 30, 1996.
A consequence of the accumulated budget deficits in the early 1990's,
together with other factors such as disbursement of funds to local school
districts "borrowed" from future fiscal years and hence not shown in the annual
budget, was to significantly reduce the State's cash resources available to pay
its ongoing obligations. When the Legislature and the Governor failed to adopt
a budget for the 1992-93 Fiscal Year by July 1, 1992, which would have allowed
the State to carry out its normal annual cash flow borrowing to replenish its
cash reserves, the State Controller was forced to issue approximately $3.8
billion of registered warrants ("IOUs") over a 2-month period to pay a variety
of obligations representing prior years' or continuing appropriations, and
mandates from court orders.
The State's cash condition became so serious that from late spring 1992 until
1995, the State had to rely on issuance of short term notes which matured in a
subsequent fiscal year to finance its ongoing deficit, and pay current
obligations. With the repayment of the last of these deficit notes in April,
1996, the State does not plan to rely further on external borrowing across
fiscal years, but will continue its normal cash flow borrowings during a fiscal
year.
The 1997-98 Budget Act was signed by the Governor on August 18, 1997,
together with related implementating bills. The total budget package authorized
State expenditures of $67.2 billion. This total spending includes $52.8 billion
from the General Fund (an 8 percent increase from 1996-97) and $14.4 billion
from special funds (a 6.1 percent increase). The 1997-98 Budget Act included
significant increases in education spending and a major reform to the State's
welfare program. In other areas, the budget includes relatively few
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new initiatives and fairly limited changes to program funding. This was due to
the decision to repay the Public Employee's Retirement System (PERS) $1.2
billion. The repayment resulted from a court ruling which declared
unconstitutional the General Fund's deferral of State contributions to the
retirement fund in the early 1990s.
The following are principal features of the 1997-98 Budget Act:
1. No tax cuts were included in the final budget. The Legislature rejected the
Governor's proposal for a reduction in personal and corporate income tax
rates.
2. Major increases in K-12 education. The budget would use the increased fund-
ing to expand the class size reduction program to a fourth grade and signif-
icantly increase local revenue limit funding.
3. The University of California, California State University and California
Community Colleges would receive additional funding with no fee increases.
4. A major welfare reform program CalWORKs (California Work Opportunity and Re-
sponsibility to Kids Program) was funded. It includes time limits on aid for
adults, participation requirements for adults, expanded child care and job
training service, and various county fiscal incentives.
5. The budget funded inmate caseload and contains no money for new prisons. In
addition, the budget assumed $94 million more in federal funds than the
amount in the Governor's budget to offset the State's cost of supervising
undocumented felons.
The Department of Finance has reported that, based on stronger than expected
revenues during the first nine months of the 1997-98 fiscal year, reflecting
the continued strength of the State's economic recovery, General Fund revenues
are $301 million above projections.
Proposed 1998-99 Budget. On January 9, 1998, the Governor released his
proposed budget for FY 1998-99. Assuming continuing strength in the economy,
the Governor projects General Fund revenues (including transfers) to be $55.4
billion and proposes expenditures to be $55.4 billion, to leave a budget
reserve in the SFEU of $296 million at June 30, 1999. The Governor proposed
further programs emphasizing education, public safety, and economic
development.
Although the State's strong economy is producing record revenues to the State
government, the State's budget continues to be under stress from mandated
spending on education, a rising prison population, and social needs of a
growing population with many immigrants. These factors which limit State
spending growth also put pressure on local governments. There can be no
assurances that, if economic conditions weaken, or other factors intercede, the
State will not experience budget gaps in the future.
Bond Rating
The ratings on California's long-term general obligation bonds were reduced
in the early 1990s from "AAA" levels which had existed prior to the recession.
In 1997, Fitch raised their rating of California's general obligation bonds,
which as of May 1998, were assigned ratings of "A+" by Standard & Poor's, "A1"
by Moody's and "AA-" from Fitch.
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There can be no assurance that such ratings will be maintained in the future.
It should be noted that the creditworthiness of obligations issued by local
California issuers may be unrelated to the creditworthiness of obligations
issued by the State of California, and that there is no obligation on the part
of the State to make payment on such local obligations in the event of default.
Legal Proceedings
The State is involved in certain legal proceedings (described in the State's
recent financial statements) that, if decided against the State, may require
the State to make significant future expenditures or may substantially impair
revenues. Trial courts have recently entered tentative decisions or injunctions
which would overturn several parts of the state's recent budget compromises.
The matters covered by these lawsuits include reductions in welfare payments
and the use of certain cigarette tax funds for health costs. All of these cases
are subject to further proceedings and appeals, and if California eventually
loses, the final remedies may not have to be implemented in one year.
Obligations of Other Issuers
Other Issuers of California Municipal Obligations
There are a number of state agencies, instrumentalities and political
subdivisions of the State that issue Municipal Obligations, some of which may
be conduit revenue obligations payable from payments from private borrowers.
These entities are subject to various economic risks and uncertainties, and the
credit quality of the securities issued by them may vary considerably from the
credit quality of obligations backed by the full faith and credit of the State.
State Assistance. Property tax revenues received by local governments
declined more than 50% following passage of Proposition 13. Subsequently, the
California Legislature enacted measures to provide for the redistribution of
the State's General Fund surplus to local agencies, the reallocation of certain
State revenues to local agencies and the assumption of certain governmental
functions by the State to assist municipal issuers to raise revenues. Total
local assistance from the State's General Fund was budgeted at approximately
75% of General Fund expenditures in recent years, including the effect of
implementing reductions in certain aid programs. To reduce State General Fund
support for school districts, the 1992-93 and 1993-94 Budget Acts caused local
governments to transfer $3.9 billion of property tax revenues to school
districts, representing loss of the post-Proposition 13 "bailout" aid. Local
governments have in return received greater revenues and greater flexibility to
operate health and welfare programs. To the extent the State should be
constrained by its Article XIIIB appropriations limit, or its obligation to
conform to Proposition 98, or other fiscal considerations, the absolute level,
or the rate of growth, of State assistance to local governments may continue to
be reduced. Any such reductions in State aid could compound the serious fiscal
constraints already experienced by many local governments, particularly
counties. At least one rural county (Butte) publicly announced that it might
enter bankruptcy proceedings in August 1990, although such plans were put off
after the Governor approved legislation to provide additional funds for the
county. Other counties have also indicated that their budgetary condition is
extremely grave. Los Angeles County, the largest in the State, was forced to
make significant cuts in services and personnel, particularly in the health
care system, in order to balance its budget in 1995-96 and 1996-97. Los Angeles
County's debt was downgraded by Moody's and S&P in the summer of 1995. Orange
County, which emerged from Federal Bankruptcy Court protection in June 1996,
has significantly reduced county services and personnel, and faces strict
financial conditions following large investment fund losses in 1994 which
resulted in bankruptcy.
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Counties and cities may face further budgetary pressures as a result of
changes in welfare and public assistance programs, which were to be enacted by
June, 1997 in order to comply with federal welfare reform law. It is not yet
known what the overall impact will be on local government finances.
Assessment Bonds. California Municipal Obligations which are assessment bonds
may be adversely affected by a general decline in real estate values or a
slowdown in real estate sales activity. In many cases, such bonds are secured
by land which is undeveloped at the time of issuance but anticipated to be
developed within a few years after issuance. In the event of such reduction or
slowdown, such development may not occur or may be delayed, thereby increasing
the risk of a default on the bonds. Because the special assessments or taxes
securing these bonds are not the personal liability of the owners of the
property assessed, the lien on the property is the only security for the bonds.
Moreover, in most cases the issuer of these bonds is not required to make
payments on the bonds in the event of delinquency in the payment of assessments
or taxes, except from amounts, if any, in a reserve fund established for the
bonds.
California Long Term Lease Obligations. Based on a series of court decisions,
certain long-term lease obligations, though typically payable from the general
fund of the State or a municipality, are not considered "indebtedness"
requiring voter approval. Such leases, however, are subject to "abatement" in
the event the facility being leased is unavailable for beneficial use and
occupancy by the municipality during the term of the lease. Abatement is not a
default, and there may be no remedies available to the holders of the
certificates evidencing the lease obligation in the event abatement occurs. The
most common cases of abatement are failure to complete construction of the
facility before the end of the period during which lease payments have been
capitalized and uninsured casualty losses to the facility (e.g., due to
earthquake). In the event abatement occurs with respect to a lease obligation,
lease payments may be interrupted (if all available insurance proceeds and
reserves are exhausted) and the certificates may not be paid when due.
Litigation is brought from time to time which challenges the constitutionality
of such lease arrangements.
Other Considerations
The repayment of industrial development securities secured by real property
may be affected by California laws limiting foreclosure rights of creditors.
Securities backed by healthcare and hospital revenues may be affected by
changes in State regulations governing cost reimbursements to health care
providers under Medi-Cal (the State's Medicaid program), including risks
related to the policy of awarding exclusive contracts to certain hospitals.
Limitations on ad valorem property taxes may particularly affect "tax
allocation" bonds issued by California redevelopment agencies. Such bonds are
secured solely by the increase in assessed valuation of a redevelopment project
area after the start of redevelopment activity. In the event that assessed
values in the redevelopment project decline (e.g., because of a major natural
disaster such as an earthquake), the tax increment revenue may be insufficient
to make principal and interest payments on these bonds. Both Moody's and S&P
suspended ratings on California tax allocation bonds after the enactment of
Articles XIIIA and XIIIB, and only resumed such ratings on a selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
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The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-raising
measures or which either would further limit or, alternatively, would increase
the abilities of state and local governments to impose new taxes or increase
existing taxes. It is not possible, at present, to predict the extent to which
any such legislation will be enacted. Nor is it possible, at present, to
determine the impact of any such legislation on California Municipal
Obligations in which the Fund may invest, future allocations of state revenues
to local governments or the abilities of state or local governments to pay the
interest on, or repay the principal of, such California Municipal Obligations.
Substantially all of California is within an active geologic region subject
to major seismic activity. Northern California in 1989 and Southern California
in 1994 experienced major earthquakes causing billions of dollars in damages.
The federal government provided more than $13 billion in aid for both
earthquakes, and neither event is expected to have any long-term negative
economic impact. Any California Municipal Obligation in the Fund could be
affected by an interruption of revenues because of damaged facilities, or,
consequently, income tax deductions for casualty losses or property tax
assessment reductions. Compensatory financial assistance could be constrained
by the inability of (i) an issuer to have obtained earthquake insurance
coverage at reasonable rates; (ii) an insurer to perform on its contracts of
insurance in the event of widespread losses; or (iii) the federal or State
government to appropriate sufficient funds within their respective budget
limitations.
FACTORS PERTAINING TO CONNECTICUT
Except to the extent the Connecticut Municipal Bond Fund (the "Connecticut
Fund") invests in temporary investments, the Connecticut Fund will invest
substantially all of its net assets in Connecticut Municipal Obligations. The
Connecticut Fund is therefore susceptible to political, economic or regulatory
factors affecting issuers of Connecticut Municipal Obligations. The following
briefly summarizes the current financial situation of the State of Connecticut
(the "State"). It is derived from sources that are generally available to
investors and is based in part on information obtained from various agencies in
sources that are generally available to investors and is based in part on
information obtained from various agencies in Connecticut. There can be no
assurance that current or future statewide or regional economic difficulties,
and the resulting impact on State or local government finances generally, will
not adversely affect the market value of Connecticut Obligations in the Fund or
the ability of particular obligors to make timely payments of debt service on
(or relating to) those obligations.
Connecticut's economy, historically based on the insurance, defense
manufacturing, finance and real estate industries, is slowly recovering from
one of the most severe recessions in the country which was due in part to
reductions in defense spending and the downsizing of the foregoing industries.
Statistics show that Connecticut has recovered from almost 65% of its
recessionary employment loss with small business fueling much of the growth in
the services, wholesale, and retail trade industries. Unemployment has been
declining steadily since the recovery reaching 5.1% in 1997 and 3.8% in
February 1998 versus a national rate of 4.9% and 4.6%, respectively. The
State's urban centers, however, still struggle with above average rates of
unemployment. Casinos are expected to continue to attract tourists and
contribute to the state's slow but steady economic growth. While Connecticut
ranks first among the states in per capita personal income ($36,263 in 1997),
there are strong regional disparities in income. According to statistics
contained In January 1998's Comptroller Report, the ten municipalities with the
lowest per capita income levels have an average per capita income that is 3.5
times lower than the top 10 municipalities. Connecticut has the highest tax-
supported debt to personal income ratio in the nation. These large and growing
debt levels are expected to limit the state's future financial flexibility.
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Despite larger than anticipated levels of appropriations, Connecticut's
growing economy generated enough revenues to close fiscal year 1997 with a
general fund surplus of $252 million. Overall government operations closed
fiscal year 1997 with a $95 million deficit, its lowest level in 10 years.
Fiscal year 1997's general funds surplus allowed for a transfer of $96 million
into the state's budget reserve (or rainy day) fund. This transfer brought the
total balance of the fund to $336.9 million, still $130 million short of the
state's 5% of net general fund appropriations. The adopted budget for fiscal
1998 anticipates general fund revenues and expenditures equal to $9.3 billion.
Recent comptroller reports have revised general fund revenues/expenditures and
now project a general fund surplus of $405 million for fiscal year 1998. For
fiscal year 1999, the adopted budget anticipates general fund revenues and
expenditures equal to $9.5 billion. The State expects that continued economic
growth will continue to drive revenues above expectations. The state's general
obligation bonds are rated Aa3 by Moody's and AA- by S&P.
FACTORS PERTAINING TO MASSACHUSETTS
Except to the extent the Massachusetts Municipal Bond Fund and the
Massachusetts Insured Municipal Bond Fund (the "Massachusetts Funds") invest in
temporary investments, the Massachusetts Funds will invest substantially all of
their net assets in Massachusetts Municipal Obligations. The Massachusetts
Funds are therefore susceptible to political, economic or regulatory factors
affecting issuers of Massachusetts Municipal Obligations. Without intending to
be complete, the following briefly summarizes the current financial situation,
as well as some of the complex factors affecting the financial situation, in
the Commonwealth of Massachusetts (the "Commonwealth"). It is derived from
sources that are generally available to investors and is based in part on
information obtained from various agencies in Massachusetts. No independent
verification has been made of the accuracy or completeness of the following
information.
There can be no assurance that current or future statewide or regional
economic difficulties, and the resulting impact on Commonwealth or local
government finances generally, will not adversely affect the market value of
Massachusetts Obligations in the Funds or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
1998 Fiscal Year Budget. The budget for 1998 provides for total expenditures
and appropriations of approximately $18.8 billion, a 2.8% increase over FY97
expenditures. The budget incorporates tax cuts valued by the Dept of Revenue at
$61 million and provides for an accelerated pension funding schedule.
Supplemental appropriations have been approved for FY98 in the amount of
approximately $94.0 million, including transfer of $34.8 million to the
Massachusetts Water Pollution Abatement Trust for state revolving fund
programs. Estimated budgeted revenues and other revenue sources are projected
to reach $20.0 billion, up 3.5% over fiscal 1997 level. Tax revenues are
projected to reach $13.2 billion, a mere 2.3% increase over fiscal 1997 level
as a result of tax cuts. A surplus of $116 million is expected at fiscal year
end.
Tax law changes effective in FY98 will: increase anticipated revenues by $19
million from miscellaneous fees to be collected as a result of the convention
center legislation approved on November 17, 1997, reduce tax revenues by an
estimated $25 million as a result of the exemption of military pensions from
state income tax, which was approved by Acting Governor Cellucci on November 6,
1997, and reduce tax revenues by an estimated $140 million as a result of a
change in sales tax payment schedule.
Under legislation enacted in 1996, Franklin County government terminated on
July 1, 1997. Legislation approved by Governor Weld on July 11, 1997 abolished
Middlesex County government on that day and provided for the abolition of
county government in Hampden and Worcester Counties on July 1, 1998. These
Counties' debt and liabilities will be assumed by the Commonwealth and
amortized over a period of up to 25 years from assessments on the cities and
towns within the County.
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On October 20, 1997, Acting Governor Cellucci announced that the Department
of Revenue will issue regulations changing the payment schedules for
approximately 15,000 sales, meals and room occupancy taxpayers that pay over
$25,000 in tax per year. Under the new simplified rules, beginning January 1,
1998, these taxpayers will be required to file a tax return and make a tax
payment on the 20th of each month for taxable sales made during the preceding
month. Under the old rules, affected taxpayers were required to forward tax
payments on the 27th of each month for taxable sales made from the 23rd of the
preceding month to the 22nd of the current month, as well as file a quarterly
tax return. While these new regulations will not affect the amount of tax owed,
the Department of Revenue estimates that the Commonwealth will realize a
reduction in fiscal 1998 revenues of $120 million to $160 million, which has
been incorporated into the January 16, 1998 revenue estimates. This reduction
will be a one-time event.
On November 17, 1997, the Legislature overrode Acting Governor Cellucci's
vote to enact legislation authorizing the Commonwealth to issue special
obligation convention center bonds secured by a pledge of certain taxes related
to tourism and conventions, including a 2.75% convention center financing fee
imposed by the legislation on hotel room occupancy in four Massachusetts
cities.
The fiscal 1998 budget is based on numerous spending and revenue estimates
the achievement of which cannot be assured.
1997 FISCAL YEAR
Revenues exceeded expenditures for the 7th consecutive year. Budgeted
revenues and other sources totaled $19.3 billion, up 11.6% over FY96. Total
revenues exceeded total expenditures by $281.8 million. Tax revenues grew 6.8%
to $12.9 billion. During the fiscal year, legislation was enacted and approved
to raise statutory ceiling on State's Stabilization (or Rainy Day) fund from 5%
of tax revenues to 5% of total budgetary income. As a result, the Stabilization
fund balance now stands at $799.3 million.
During FY97, the legislature mandated several transfers to be charged to
FY97, including: $229.8 million to a Capital Investment Trust Fund to finance
certain specified capital expenditures, $100 million to the Stabilization Fund
(in addition to the $134.3 million transfer required by state finance law),
$128 million to a Caseload Increase Mitigation Fund to finance Dept of
Transitional Assistance programs in the even caseloads increase beyond what is
budgeted, and $20.2 million to the Massachusetts Water Pollution Abatement
Trust for state capitalization grants for the state revolving fund programs.
On March 11, 1997, the Legislature's Committee on Counties approved
legislation that would abolish Middlesex County government immediately upon
final approval of the legislation and transfer its functions to the
Commonwealth. The county's debts and liabilities which are in force on July 1,
1997 would be assumed by the Commonwealth and amortized over a period of up to
25 years from assessments on the cities and towns within the county. The
legislation would also bar the sale of public property to satisfy judgments
against the county. The legislation is now being considered by the House
Committee on Ways and Means.
On March 12, 1997, the Legislature's Committee on Transportation approved
legislation to establish a Metropolitan Highway System, in substantially the
form in which it had been filed by the Governor on January 6, 1997. A provision
in the legislation added by the committee would mandate a new "asset assesment
study" to determine, within one year, whether the Massachusetts Port Authority
could afford to contribute as much as $300 million toward the cost of the Ted
Williams Tunnel/Central Artery project, rather than the $200 million
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contribution proposed by the Governor and contemplated by the legislation. The
study is to be conducted by the Executive Office for Administration and
Finance, the State Auditor, the Division of Capital Planning and Operations and
the Port Authority. The legislation approved by the Transportation Committee
does not authorize any additional state spending for the project. The
Governor's proposals for additional spending authorizations are contained in a
transportation bond bill which is still being considered by the committee. The
bill approved by the Transportation Committee has been scheduled in both the
House of Representatives and Senate for expedited debate and enactment on March
13, 1997.
1996 Fiscal Year. Budgeted revenues and other sources, including non-tax
revenues, collected in fiscal 1996 were approximately $17.328 billion,
approximately $944 million or 5.7% above fiscal 1995 revenues of approximately
$16.387 billion. Fiscal 1996 tax revenue collections were approximately $12.049
billion, approximately $365 million above the Department of Revenue's revised
financial year 1996 tax revenue estimate of $11.684 billion and $886 million,
or 7.9% above fiscal 1995 tax revenues of $11.163 billion.
Budgeted expenditures and other uses of funds in fiscal 1996 were
approximately $16.881 billion, approximately $630.6 million or 3.9% above
fiscal 1995 budgeted expenditures and uses of $16.251 billion. The Commonwealth
ended fiscal 1996 with an operating gain of approximately $446.4 million and an
ending fund balance of approximately $1.172 billion.
On August 8, 1996, the Governor approved legislation making two changes in
the apportionment formula for the business corporations tax payable by certain
mutual fund service corporations. Effective January 1, 1997, the legislation
changes the computation of the sales factor. Instead of sourcing sales from the
state where the seller bears the cost of performing the services relating to
the sale, the corporations will source sales to the state of domicile of the
ultimate consumer of the service. Effective July 1, 1997, the legislation
changes the current three-factor formula to a single sales factor formula, just
as the November, 1995 legislation did for certain federal defense contractors
and, over time, for manufacturing firms. The new law requires the affected
corporations to increase their numbers of employees by 5% per year for five
years, subject to exceptions for adverse economic conditions affecting the
stock market or the amount of assets under their management. The Department of
Revenue estimates that the changes will result in a revenue reduction of
approximately $10 million in fiscal 1997 and approximately $30 million to $53
million on an annualized basis thereafter, starting in fiscal 1998.
On August 9, 1996, the Governor signed legislation providing tax credit to
shippers that pay federal harbor maintenance taxes on cargo passing through
Massachusetts ports. The Department of Revenue estimates that there will be no
impact on revenues in fiscal 1997 as a result of this tax credit, and that the
annualized revenue loss will be approximately $3 million to $4 million,
beginning in fiscal 1998.
The Executive Office for Administration and Finance is currently evaluating
the impact of the federal welfare reform legislation enacted on August 22, 1996
on the Commonwealth's spending and revenue associated with public assistance
programs. Current estimates indicate no fiscal 1997 spending impact associated
with the passage of the federal reform. While current estimates also indicate
an $86.3 million increase in federal revenues for the Commonwealth in fiscal
1997, this has not yet been incorporated into the Commonwealth's estimates for
fiscal 1997 federal revenues.
1995 Fiscal Year. Budgeted revenues and other sources, including non-tax
revenues, collected in fiscal 1995 were approximately $16.387 billion,
approximately $837 million, or 5.4%, above fiscal 1994 revenues of
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$15.550 billion. Fiscal 1995 tax revenues collections were approximately
$11.163, billion approximately $12 million above the Department of Revenue's
revised fiscal year 1995 tax revenue estimate of $10.151 billion and $556
million, or 5.2%, above fiscal year tax revenues of $10.607 billion.
Budgeted expenditures and other uses of funds in fiscal 1995 were
approximately $16.251 billion, approximately $728 million, or 4.7%, above
fiscal 1994 budgeted expenditures and uses of $15.523 billion. The Commonwealth
ended fiscal 1995 with an operating gain of $137 million and an ending fund
balance of $726 million.
On November 8, 1994, the voters in the statewide general election approved an
initiative petition that would slightly increase the portion of the gasoline
tax revenue credited to the Highway Fund, one of the Commonwealth's three major
budgetary funds, prohibit the transfer of money from the Highway Fund to other
funds for non-highway purposes and not permit including the Highway Fund
balance in the computation "consolidated net surplus" for purposes of state
finance laws. The initiative petition also provides that no more than 15% of
gasoline tax revenues may be used for mass transportation purposes, such as
expenditures related to the Massachusetts Bay Transit Authority. The Executive
Office of Administration and Finance is analyzing the effect, if any, this
initiative petition, which became law on December 8, 1994, may have on the
fiscal 1995 budget and it currently does not expect it to have any materially
adverse impact. This is not a constitutional amendment and is subject to
amendment or repeal by the Legislature, which may also, notwithstanding the
terms of the petition, appropriate moneys from the Highway Fund in such amounts
and for such purposes as it determines, subject only to a constitutional
restriction that such moneys be used for highways or mass transit purposes. The
Legislature has twice postponed the effective date of the provision that would
exclude Highway Fund balance from the computation of "consolidated net
surplus." The most recent postponement changed the effective date of the
provision to July 1, 1998.
1994 Fiscal Year. Fiscal 1994 tax revenue collections were approximately
$10.607 billion, $87 million below the Department of Revenue's fiscal year 1994
tax revenue estimate of $10.694 billion and $677 million above fiscal 1993 tax
revenues of $9.930 billion. Budgeted revenues and other sources, including non-
tax revenues, collected in fiscal 1994 were approximately $15.550 billion. To-
tal revenues and other sources increased by approximately 5.7% from fiscal 1993
to fiscal 1994 while tax revenues increased by 6.8% for the same period. Bud-
geted expenditures and other uses of funds in fiscal 1994 were approximately
$15.523 billion, which is $826.5 million or approximately 5.6% higher than fis-
cal 1993 budgeted expenditures and other uses.
As of June 30, 1994, the Commonwealth showed a year-end cash position of
approximately $757 million, as compared to a projected position of $599
million.
In June, 1993, the Legislature adopted and the Governor signed into law
comprehensive education reform legislation. This legislation required an
increase in expenditures for education purposes above fiscal 1993 base spending
of $1.288 billion of approximately $175 million in fiscal 1994. The Executive
Office for Administration and Finance expects the annual increases in
expenditures above the fiscal 1993 base spending of $1.288 billion to be
approximately $396 million in fiscal 1995, $625 million in fiscal 1996 and $868
million in fiscal 1997. Additional annual increases are also expected in later
fiscal years. The fiscal 1995 budget as signed by the Governor includes $896
million in appropriations to satisfy this legislation.
1993 Fiscal Year. The Commonwealth's budgeted expenditures and other uses
were approximately $14.696 billion in fiscal 1993, which is approximately
$1.280 billion or 9.6% higher than fiscal 1992
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expenditures and other uses. Final fiscal 1993 budgeted expenditures were $23
million lower than the initial July 1992 estimates of fiscal 1993 budgeted
expenditures. Budgeted revenues and other sources for fiscal 1993 totalled
approximately $14.710 billion, including tax revenues of $9.930 billion. Total
revenues and other sources increased by approximately 6.9% from fiscal 1992 to
fiscal 1993, while tax revenues increased by 4.7% for the same period. Overall,
fiscal 1993 ended with a surplus of revenues and other sources over
expenditures and other uses of $13.1 million and aggregate ending fund balances
in the budgeted operating funds of the Commonwealth of approximately $562.5
million. After payment in full of the distribution of local aid to the
Commonwealth's cities and towns ("Local Aid") and the retirement of short term
debt, the Commonwealth showed a year end cash position of approximately $622.2
million, as compared to a projected position of $485.1 million.
1992 Fiscal Year. The Commonwealth's budgeted expenditures and other uses
were approximately $13.4 billion in fiscal 1992, which is $238.7 million or
1.7% lower than fiscal 1991 budgeted expenditures. Final fiscal 1992 budgeted
expenditures were $300 million more than the initial July 1991 estimates of
budgetary expenditures, due in part to increases in certain human services
programs, including an increase of $268.7 million for the Medicaid program and
$50.0 million for mental retardation consent decree requirements. Budgeted
revenues and other sources for fiscal 1992 totalled approximately $13.7 billion
(including tax revenues of approximately $9.5 billion), reflecting an increase
of approximately 0.7% from fiscal 1991 to 1992 and an increase of 5.4% in tax
revenues for the same period. Overall, fiscal 1992 is estimated to have ended
with an excess of revenues and other sources over expenditures and other uses
of $312.3 million. After payment in full of Local Aid in the amount of $514.0
million due on June 30, 1992, retirement of the Commonwealth's outstanding
commercial paper (except for approximately $50 million of bond anticipation
notes) and certain other short term borrowings, as of June 30, 1992, the end of
fiscal 1992, the Commonwealth showed a year-end cash position of approximately
$731 million, as compared with the Commonwealth's cash balance of $182.3
million at the end of fiscal 1991.
Employment. Reversing a trend of relatively low unemployment during the early
and mid 1980's, the Massachusetts unemployment rate beginning in 1990 increased
significantly to where the Commonwealth's unemployment rate exceeded the
national unemployment rate. During 1990, the Massachusetts unemployment rate
increased from 4.5% in January to 6.1% in July to 6.7% in August. During 1991,
the Massachusetts unemployment rate averaged 9.0% while the average United
States unemployment rate was 6.7%. The Massachusetts unemployment rate during
1992 averaged 8.5% while the average United States unemployment rate was 7.4%.
Since 1993, the average monthly unemployment rate has declined steadily. The
Massachusetts unemployment rate in November 1997 was 3.9%, as compared with the
United States unemployment rate of 4.6% for the same period. Other factors
which may significantly and adversely affect the employment rate in the
Commonwealth include reductions in federal government spending on defense-
related industries. Due to this and other considerations, there can be no
assurance that unemployment in the Commonwealth will not increase in the
future.
Debt Ratings. S&P currently rates the Commonwealth's uninsured general
obligation bonds at AA-. At the same time, S&P currently rates state and agency
notes at SP1. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its S&P rating, with its decline beginning in May 1989, when S&P
lowered its rating on the Commonwealth's general obligation bonds and other
Commonwealth obligations from AA+ to AA and continuing a series of further
reductions until March 1992, when the rating was affirmed at BBB.
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Moody's currently rates the Commonwealth's uninsured general obligation bonds
at Aa3. From 1989 through 1992, the Commonwealth had experienced a steady
decline in its rating by Moody's since May 1989. In May 1989, Moody's lowered
its rating on the Commonwealth's notes from MIG-1 to MIG-2, and its rating on
the Commonwealth's commercial paper from P-1 to P-2. On June 21, 1989, Moody's
reduced the Commonwealth's general obligation rating from Aa to A. On November
15, 1989, Moody's reduced the rating on the Commonwealth's general obligations
from A to Baa1, and on March 9, 1990, Moody's reduced the rating of the
Commonwealth's general obligation bonds from Baa1 to Baa.
There can be no assurance that these ratings will continue.
In recent years, the Commonwealth and certain of its public bodies and
municipalities have faced serious financial difficulties which have affected
the credit standing and borrowing abilities of Massachusetts and its respective
entities and may have contributed to higher interest rates on debt obligations.
The continuation of, or an increase in, such financial difficulties could
result in declines in the market values of, or default on, existing obligations
including Massachusetts Obligations in the Fund. Should there be during the
term of the Fund a financial crisis relating to Massachusetts, its public
bodies or municipalities, the market value and marketability of all outstanding
bonds issued by the Commonwealth and its public authorities or municipalities
including the Massachusetts Obligations in the Fund and interest income to the
Fund could be adversely affected.
Total Bond and Note Liabilities. The total general obligation bond
indebtedness of the Commonwealth (including Dedicated Income Tax Debt and
Special Obligation Debt) as of April 1, 1998 was approximately $10.349 billion.
The total bond and note liabilities of the Commonwealth as of April 1, 1998,
including guaranteed bond and contingent liabilities was approximately $14.526
billion.
Debt Service. During the 1980's, capital expenditures were increased
substantially, which has had a short term impact on the cash needs of the
Commonwealth and also accounts for a significant rise in debt service during
that period. In November, 1988, the Executive Office for Administration and
Finance established an administrative limit on state-financed capital spending
in the Capital Projects Funds of $925 million per fiscal year. Capital
expenditures were $694.1 million, $575.9 million, $760.6 million, $902.2
million, $908.5 million and $956.3 million in fiscal 1992, fiscal 1993, fiscal
1994, fiscal 1995, fiscal 1996 and fiscal 1997, respectively. Commonwealth-
financed capital expenditures are projected to be approximately $1.05 billion
in fiscal 1998.
The growth of capital expenditures during the 1980's accounts for the
significant rise in annual debt service expenditures since fiscal 1989.
Payments for debt service on Commonwealth general obligation bonds and notes in
fiscal 1992 were $898.3 million, representing a 4.7% decrease from $942.3
million in fiscal 1991, which resulted from a $261 million one-time reduction
achieved through the issuance of refunding bonds in September and October,
1991. Debt service expenditures for fiscal 1993, fiscal 1994, fiscal 1995,
fiscal 1996 and fiscal 1997 were $1.140 billion, $1.149 billion, $1.231
billion, $1.184 billion, and $1.275 billion, respectively, and are projected to
be $1.224 billion for fiscal 1998. The amounts noted represent debt service
payments on Commonwealth debt (including Fiscal Recovery Bonds and special
obligation bonds). The amounts noted do not include debt service contract
assistance payments to the Massachusetts Bay Transportation Authority ($302.6
million projected in fiscal 1998), the Massachusetts Convention Center ($24.6
million projected in fiscal 1998), the Massachusetts Government Land Bank ($6
million projected in fiscal 1998) and the Massachusetts Water Pollution
Abatement Trust (up to $46 mm in each fiscal year) and grants to municipalities
under the school building assistance program to defray a portion of the debt
service costs on local school bonds ($187.3 million projected in fiscal 1998).
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In January 1990, legislation was passed to impose a limit on debt service
beginning in fiscal 1991, providing that no more than 10% of the total
appropriations in any fiscal year may be expended for payment of interest and
principal on general obligation debt (excluding the Fiscal Recovery Bonds). The
percentage of total appropriations expended from the budgeted operating funds
for debt service for fiscal 1997 is 5.7%, which is projected to rise to 6.3% in
fiscal 1998.
Certain Liabilities. Among the material future liabilities of the
Commonwealth are significant unfunded general liabilities of its retirement
systems and a program to fund such liabilities; a program whereby, starting in
1978, the Commonwealth began assuming full financial responsibility for all
costs of the administration of justice within the Commonwealth; continuing
demands to raise aggregate aid to cities, towns, schools and other districts
and transit authorities above current levels; and Medicaid expenditures which
have increased each year since the program was initiated. The Commonwealth has
signed consent decrees to continue improving mental health care and programs
for the mentally retarded in order to meet federal standards, including those
governing receipt of federal reimbursements under various programs, and the
parties in those cases have worked cooperatively to resolve the disputed
issues.
As a result of comprehensive legislation approved in January, 1988, the
Commonwealth is required to fund future pension liabilities currently and to
amortize the Commonwealth's unfunded liabilities over 30 years. The funding
schedule must provide for annual payments in each of the ten years ending
fiscal 1998 which are at least equal to the total estimated pay-as-you-go
pension costs in each year. As a result of this requirement, the funding
requirements for fiscal 1996, 1997 and 1998 are estimates to be increased to
approximately $1.007 billion, $1.061 billion and $1.065 billion, respectively.
Litigation. The Commonwealth is engaged in various lawsuits involving
environmental and related laws, including an action brought on behalf of the
U.S. Environmental Protection Agency alleging violations of the Clean Water Act
and seeking to enforce the clean-up of Boston Harbor. The MWRA, successor in
liability to the Metropolitan District Commission, has assumed primary
responsibility for developing and implementing a court-approved plan for the
construction of the treatment facilities necessary to achieve compliance with
federal requirements. Under the Clean Water Act, the Commonwealth may be liable
for costs of compliance in these or any other Clean Water cases if the MWRA or
a municipality is prevented from raising revenues necessary to comply with a
judgment. The MWRA currently projects that the total cost of construction of
the treatment facilities required under the court's order is approximately
$3.142 billion in current dollars, with approximately $901 million to be spent
on or after June 30, 1997.
The Department of Public Welfare has been sued for the alleged unlawful
denial of personal care attendant services to certain disabled Medicaid
recipients. The Superior Court has denied the plaintiff's motion for
preliminary injunction and has also denied the plaintiff's motion for class
certification. If the plaintiffs were to prevail on their claims and the
Commonwealth were required to provide all of the services sought by the
plaintiffs to all similarly situated persons, it would substantially increase
the annual cost to the Commonwealth if these services are eventually required.
The Department of Public Welfare currently estimates this increase to be as
much as $200 million per year.
There are also actions pending in which recipients of human services
benefits, such as welfare recipients, the mentally retarded, the elderly, the
handicapped, children, residents of state hospitals and inmates of corrections
institutions, seek expanded levels of services and benefits and in which
providers of services to such recipients challenge the rates at which they are
reimbursed by the Commonwealth. To the extent that such actions result in
judgments requiring the Commonwealth to provide expanded services or benefits
or pay increased rates, additional operating and capital expenditures might be
needed to implement such judgments.
40
<PAGE>
In 1995, the Spaulding Rehabilitation Hospital ("Spaulding") filed an action
to enforce an agreement to acquire its property by eminent domain in connection
with the Central Artery/Third Harbor Tunnel Project. On 3-13-98, the Superior
Court entered judgement for the Commonwealth & dismissed the complaint.
The Commonwealth faces an additional potential liability of approximately $75
million to $135 million in connection with a taking by the Massachusetts
Highway Department related to the relocation of Northern Avenue in Boston.
In Massachusetts Wholesalers of Malt Beverages v. Commonwealth (Suffolk
Superior Court No. 90-1523), associations of bottlers challenged the 1990
amendments to the bottle bill which escheat abandoned deposits to the
Commonwealth. Plaintiffs claimed a taking; the Commonwealth argued a legitimate
regulation of abandoned amounts. In March, 1993, the Supreme Judicial Court
upheld the amendments except for the initial funding requirement, which the
Court upheld severable. In August, 1994, the Superior Court ruled that the
Commonwealth is liable for certain amounts (plus interest) as a result of the
Supreme Judicial Court's decision. The actual amount will be determined in
further proceedings. In February, 1996, the Commonwealth settled all remaining
issues with one group of plaintiffs, the Massachusetts Soft Drink Association.
Payments to that group will total approximately $7 million. The Legislature
appropriated the funds necessary for these payments in its final supplemental
budget for fiscal 1996. Litigation with the other group of plaintiffs, the
Massachusetts Wholesalers of Malt Beverages, is still pending. The remaining
potential liability is approximately $50 million.
In the First National Bank of Boston v. Commission of Revenue (Appellate Tax
Board No. F232249), the First National Bank of Boston challenges the
constitutionality of the former version of the Commonwealth's bank excise tax.
In 1992, several pre-1992 petitions filed by the bank, which raised the same
issues, were settled prior to a board decision. The bank has now filed claims
with respect to 1993 and 1994. The bank claims that the tax violated the
Commerce Clause of the United States Constitution by including its worldwide
income without apportionment. The Commonwealth's potential liability is $128
million.
In State Street Bank and Trust Company v. Commissioner of Revenue (Appellate
Tax Board Nos. F215497, F232152, F233019 and F233948), State Street Bank and
Trust Company has raised the same claims as the First National Bank of Boston,
outlined above. State Street Bank also claims that it is entitled to
alternative apportionment under the bank excise tax. The Department of Revenue
estimated that the amount of the abatement could have totaled $158 mm. On 2-19-
98, the case was settled for $8.7 million.
In National Association of Government Employees v. Commonwealth, the Superior
Court declared that a line item in the Commonwealth's general appropriations
act for fiscal 1994 that increased the state employees' percentage share of
their group health insurance premiums from 10% to 15% violated the terms of
several collective bargaining agreements, and therefore was invalid under the
United States Constitution as regards employees covered by the agreements. On
February 9, 1995, the Supreme Judicial Court vacated the Superior Court's
decision and declared that the fiscal 1994 line item did not violate the
contracts clause. In June, 1995, the United States Supreme Court denied the
plaintiff's writ of certiorari. Several other unions have filed a companion
suit asserting that the premium increase similarly violated other collective
bargaining agreements. The latter suit is in its initial stages. Prior to the
Supreme Judicial Court's decision the Commonwealth's aggregate liability is
estimated to be approximately $32 million.
A variety of other civil suits pending against the Commonwealth may also
affect its future liabilities. There include challenges to the Commonwealth's
allocation of school aid under Section 9C of Chapter 29 of the General Laws and
to adopt a state employee furlough program. No prediction is possible as to the
ultimate outcome of these proceedings.
S-41
<PAGE>
On March 22, 1995, the Supreme Judicial Court held in Perini Corporation v.
Commission of Revenues that certain deductions from the net worth measure of
the Massachusetts corporate excise tax violate the Commerce Clause of the
United States Constitution. On October 2, 1995, the United States Supreme Court
denied the Commonwealth's petition for writ of certiorari. The Department of
Revenue estimates that tax revenues in the amount of $40 to $55 million may be
abated as a result of the Supreme Judicial Court's decision.
On May 13, 1996, the Court entered an order for judgment and memorandum
concerning relief for tax years ending on or after January 1, 1996. A final
ruling was entered on June 6, 1996. The Department of Revenue is continuing to
analyze the final fiscal impact of the ruling, to date, it has paid
approximately $11 million in accordance with the judgment.
Many factors, in addition to those cited above, have or may have a bearing
upon the financial condition of the Commonwealth, including social and economic
conditions, many of which are not within the control of the Commonwealth.
Expenditure and Tax Limitation Measures. Limits have been established on
state tax revenues by legislation approved by the Governor on October 25, 1986
and by an initiative petition approved by the voters on November 4, 1986. The
Executive Office for Administration and Finance currently estimates that state
tax revenues will not reach the limit imposed by either the initiative petition
or the legislative enactment in fiscal 1992.
Proposition 2 1/2, passed by the voters in 1980, led to large reductions in
property taxes, the major source of income for cities and towns and large
increases in state aid to offset such revenue losses. According to the
Executive Office for Administration and Finance, all of the 351 cities and
towns have now achieved a property tax level of no more than 2.5% of full
property values. Under the terms of Proposition 2 1/2, the property tax levy
can now be increased annually for all cities and towns, almost all by 2.5% of
the prior fiscal year's tax levy plus 2.5% of the value of new properties and
of significant improvements to property. Legislation has also been enacted
providing for certain local option taxes. A voter initiative petition approved
at the statewide general election in November, 1990 further regulates the
distribution of Local Aid of no less than 40% of collections from individual
income taxes, sales and use taxes, corporate excise taxes, and the balance of
the state lottery fund. If implemented in accordance with its terms (including
appropriation of the necessary funds), the petition as approved would shift
several hundred million dollars to direct Local Aid.
Other Tax Measures. To provide revenue to pay debt service on both the
deficit and Medicaid-related borrowings and to fund certain direct Medicaid
expenditures, legislation was enacted imposing an additional tax on certain
types of personal income for 1989 and 1990 taxable years at rates of 0.375% and
0.75%, respectively, effectively raising the tax rate of 1989 from 5% to 5.375%
and for 1990 to 5.75%. Recent legislation has effectively further increased tax
rates to 5.95% for tax year 1990 to 6.25% for tax year 1991 and returning to
5.95% for tax year 1992 and subsequent tax years. The tax is applicable to all
personal income except income derived from dividends, capital gains,
unemployment compensation, alimony, rent, interest, pensions, annuities and
IRA/Keogh distributions. The income tax rate on other interest (excluding
interest on obligations of the United States and of the Commonwealth and its
subdivisions), dividends and net capital gains (after a 50% reduction) was
increased from 10% to 12% for tax year 1990 and subsequent years, by recently
enacted legislation.
As part of Acting Governor Celluci's fiscal 1999 budget recommendations, he
proposed a reduction in the tax rate on "Part B" personal income (so-called
"earned" income) from the current level of 5.95% to 5% over
S-42
<PAGE>
three calendar years. The rate would be reduced to 5.6% effective January 1,
1999, 5.3% effective January 1, 2000 and 5% effective January 1, 2001. The
Executive Office for Administration and Finance estimates that the static
revenue impact of these changes would be a reduction in personal income tax
collections of approximately $206 million in fiscal 1999, $616 million in
fiscal 2000, $1.035 billion in fiscal 2001 and $1.292 billion in fiscal 2002,
at which time the rate reduction would be fully implemented. The Acting
Governor also proposed a reduction in the tax rate on "Part A" personal income
(so-called "unearned" income) from 12% to 5% over five years. The Executive
Office for Administration and Finance estimates that the static revenue impact
of these changes would be a reduction in personal income tax collections of
approximately $30 million in fiscal 1999, $101 million in fiscal 2000, $173
million in fiscal 2001, $249 million in fiscal 2002, $327 million in fiscal
2003 and $372 million in fiscal 2004, at which time the rate reduction would be
fully implemented. See "1999 fiscal year." On March 12, 1998 the House of
Representatives approved legislation that would reduce the rate on Part A and
Part B income, and raise the rate on capital gains income, to 5.7%, as well as
raising the age of the children's exemption to age 18 and raising the amount of
the exemption from $1,200 to $2,400.
Estate Tax Revisions. The fiscal 1993 budget included legislation which
gradually phases out the current Massachusetts estate tax and replaces it with
a "sponge tax" in 1997. The "sponge tax" is based on the maximum amount of the
credit for state taxes allowed for federal estate tax purposes. The estate tax
is phased out by means of annual increases in the basic exemption from the
current $200,000 level. The exemption is increased to $300,000 for 1993,
$400,000 for 1994, $500,000 for 1995 and $600,000 for 1996. In addition, the
legislation included a full marital deduction starting July 1, 1994.
Other Issuers of Massachusetts Obligations. There are a number of state
agencies, instrumentalities and political subdivisions of the Commonwealth that
issue Municipal Obligations, some of which may be conduit revenue obligations
payable from payments from private borrowers. These entities are subject to
various economic risks and uncertainties, and the credit quality of the
securities issued by them may vary considerably from the credit quality of
obligations backed by the full faith and credit of the Commonwealth. The brief
summary above does not address, nor does it attempt to address, any
difficulties and the financial situations of those other issuers of
Massachusetts Obligations.
HEDGING AND OTHER DEFENSIVE ACTIONS
Each Fund may periodically engage in hedging transactions. Hedging is a term
used for various methods of seeking to preserve portfolio capital value of
offsetting price changes in one investment through making another investment
whose price should tend to move in the opposite direction. It may be desirable
and possible in various market environments to partially hedge the portfolio
against fluctuations in market value due to interest rate fluctuations by
investment in financial futures and index futures as well as related put and
call options on such instruments. Both parties entering into an index or
financial futures contract are required to post an initial deposit of 1% to 5%
of the total contract price. Typically, option holders enter into offsetting
closing transactions to enable settlement in cash rather than take delivery of
the position in the future of the underlying security. Each Fund will only sell
covered futures contracts, which means that the Fund segregates assets equal to
the amount of the obligations.
These transactions present certain risks. In particular, the imperfect
correlation between price movements in the futures contract and price movements
in the securities being hedged creates the possibility that losses on the hedge
by a Fund may be greater than gains in the value of the securities in such
series, portfolio. In addition, futures and options markets may not be liquid
in all circumstances. As a result, in volatile markets, a Fund may not be able
to close out the transaction without incurring losses substantially greater
than the initial deposit. Finally, the potential daily deposit requirements in
futures contracts create an ongoing greater potential financial
S-43
<PAGE>
risk than do options transactions, where the exposure is limited to the cost of
the initial premium. Losses due to hedging transactions will reduce yield. Net
gains, if any, from hedging and other portfolio transactions will be
distributed as taxable distributions to shareholders.
No Fund will make any investment (whether an initial premium or deposit or a
subsequent deposit) other than as necessary to close a prior investment if,
immediately after such investment, the sum of the amount of its premiums and
deposits would exceed 5% of such series' net assets. Each series will invest in
these instruments only in markets believed by the investment adviser to be
active and sufficiently liquid. For further information regarding these
investment strategies and risks presented thereby, see Appendix B to this
Statement of Additional Information.
Each Fund reserves the right for liquidity or defensive purposes (such as
thinness in the market for municipal securities or an expected substantial
decline in value of long-term obligations), to temporarily invest up to 20% of
its assets in obligations issued or guaranteed by the U.S. Government and its
agencies or instrumentalities, including up to 5% in adequately collateralized
repurchase agreements relating thereto. Interest on each instrument is taxable
for Federal income tax purposes and would reduce the amount of tax-free
interest payable to shareholders.
TEMPORARY INVESTMENTS
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable "temporary investments."
Temporary investments will not exceed 20% of a Fund's assets except when made
for defensive purposes. The Funds will invest only in taxable temporary
investments that are either U.S. Government securities or are rated within the
highest grade by Moody's, S&P, or Fitch and mature within one year from the
date of purchase or carry a variable or floating rate of interest. See Appendix
A for more information about ratings by Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
S-44
<PAGE>
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
Certain Municipal Obligations may carry variable or floating rates of
interest whereby the rate of interest is not fixed, but varies with changes in
specified market rates or indices, such as a bank prime rate or a tax-exempt
money market index.
While these various types of notes as a group represent the major portion of
the tax-exempt note market, other types of notes are occasionally available in
the marketplace and the Fund may invest in such other types of notes to the
extent permitted under its investment objective, policies and limitations. Such
notes may be issued for different purposes and may be secured differently from
those mentioned above.
The Funds may also invest in the following taxable temporary investments:
U.S. Government Direct Obligations are issued by the United States
Treasury and include bills, notes and bonds.
--Treasury bills are issued with maturities of up to one year. They are
issued in bearer form, are sold on a discount basis and are payable at
par value at maturity.
--Treasury notes are longer-term interest bearing obligations with
original maturities of one to seven years.
--Treasury bonds are longer-term interest-bearing obligations with
original maturities from five to thirty years.
U.S. Government Agencies Securities--Certain federal agencies have been
established as instrumentalities of the United States Government to supervise
and finance certain types of activities. These agencies include, but are not
limited to, the Bank for Cooperatives, Federal Land Banks, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal National Mortgage Association,
Government National Mortgage Association, Export-Import Bank of the United
States, and Tennessee Valley Authority. Issues of these agencies, while not
direct obligations of the United States Government, are either backed by the
full faith and credit of the United States or are guaranteed by the Treasury or
supported by the issuing agencies' right to borrow from the Treasury. There can
be no assurance that the United States Government itself will pay interest and
principal on securities as to which it is not legally so obligated.
Certificates of Deposit (CDs)--A certificate of deposit is a negotiable
interest bearing instrument with a specific maturity. CDs are issued by banks
in exchange for the deposit of funds and normally can be traded in the
secondary market, prior to maturity. The Fund will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
S-45
<PAGE>
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-46
<PAGE>
MANAGEMENT
The management of the Trust, including general supervision of the duties
performed for the Funds under the Investment Management Agreement, is the
responsibility of its Board of Trustees. The Trust currently has eight
trustees, two of whom are "interested persons" (as the term "interested
persons" is defined in the Investment Company Act of 1940) and six of whom are
"disinterested persons." The names and business addresses of the trustees and
officers of the Trust and their principal occupations and other affiliations
during the past five years are set forth below, with those trustees who are
"interested persons" of the Trust indicated by an asterisk.
<TABLE>
- --------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH FUND DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 49 Chairman of the Board Chairman since July 1,
333 West Wacker Drive and Director 1996 of The John Nuveen
Chicago, IL 60606 Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., prior
thereto Executive Vice
President and Director
of The John Nuveen
Company and John Nuveen
& Co. Incorporated;
Director of Nuveen
Advisory Corp. (since
1992) and Nuveen
Institutional Advisory
Corp.; Chairman and
Director (since January
1997) of Nuveen Asset
Management, Inc.;
Director (since 1996) of
Institutional Capital
Corporation.
- --------------------------------------------------------------------------------
Anthony T. Dean* 53 President and President since July 1,
333 West Wacker Drive Director 1996 of The John Nuveen
Chicago, IL 60606 Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp.; prior
thereto, Executive Vice
President and
Director of The John
Nuveen Company, John
Nuveen & Co.
Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp. (since
October 1992); President
and Director (since
January 1997) of Nuveen
Asset Management, Inc.;
Chairman and Director
(since 1997) of
Rittenhouse Financial
Services, Inc.
- --------------------------------------------------------------------------------
Robert P. Bremner 57 Director Private Investor and
3725 Huntington Street, N.W. Management Consultant.
Washington, D.C. 20015
- --------------------------------------------------------------------------------
Lawrence H. Brown 63 Director Retired (August 1989) as
201 Michigan Avenue Senior Vice President of
Highwood, IL 60040 The Northern Trust
Company
- --------------------------------------------------------------------------------
Anne E. Impellizzeri 65 Director President and Chief
3 West 29th Street Executive Officer of
New York, NY 10001 Blanton-Peale,
Institutes of Religion
and Health (since
December 1990).
- --------------------------------------------------------------------------------
</TABLE>
S-47
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH FUND DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------------
<C> <C> <C> <S>
Peter R. Sawers 65 Director Adjunct Professor of
22 The Landmark Business and Economics,
Northfield, IL 60093 University of Dubuque,
Iowa; Adjunct Professor,
Lake Forest Graduate
School of Management,
Lake Forest, Illinois.
- -------------------------------------------------------------------------------------
William J. Schneider 53 Director Senior Partner, Miller-
4000 Miller-Valentine Ct. Valentine Partners, Vice
P.O. Box 744 President, Miller-
Dayton, OH 45401 Valentine Realty, Inc.
- -------------------------------------------------------------------------------------
Judith M. Stockdale 50 Director Executive Director,
35 E. Wacker Drive Gaylord and Dorothy
Suite 2600 Donnelley Foundation
Chicago, IL 60601 (since 1994); prior
thereto, Executive
Director, Great Lakes
Protection Fund (from
1990 to 1994).
- --------------------------------------------------------------------------------
Bruce P. Bedford 58 Executive Vice President Executive Vice President
333 West Wacker Drive of John Nuveen & Co.
Chicago, IL 60606 Incorporated, Nuveen
Advisory Corp. and
Nuveen
Institutional Advisory
Corp. (since January
1997); prior thereto,
Chairman and CEO of
Flagship Resources Inc.
and Flagship Financial
Inc. and the Flagship
funds.
- --------------------------------------------------------------------------------
Alan G. Berkshire 37 Vice President and Vice President and
333 West Wacker Drive Assistant Secretary General Counsel (since
Chicago, IL 60606 September 1997) and
Secretary (since May
1998) of The John Nuveen
Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., prior
thereto, Partner in the
law firm of Kirkland &
Ellis.
- --------------------------------------------------------------------------------
Michael S. Davern 41 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 January 1997); prior
thereto, Vice President
and Portfolio Manager of
Flagship Financial.
- -------------------------------------------------------------------------------------
Lorna C. Ferguson 53 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated; Vice
President (since January
1998) of Nuveen Advisory
Corp. and Nuveen
Institutional Advisory
Corp.
- -------------------------------------------------------------------------------------
William M. Fitzgerald 34 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since
Chicago, IL 60606 December 1995);
Assistant Vice President
of Nuveen Advisory Corp.
(from September 1992 to
December 1995), prior
thereto Assistant
Portfolio Manager of
Nuveen Advisory Corp.
- -------------------------------------------------------------------------------------
Kathleen M. Flanagan 51 Vice President Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated.
- -------------------------------------------------------------------------------------
Stephen D. Foy 44 Vice President and Controller Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated.
- -------------------------------------------------------------------------------------
</TABLE>
S-48
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH FUND DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
J. Thomas Futrell 42 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.
Chicago, IL 60606
- -------------------------------------------------------------------------------
Richard A. Huber 35 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since January
Chicago, IL 60606 1997); prior thereto, Vice
President and Portfolio
Manager of Flagship Financial.
- -------------------------------------------------------------------------------
Steven J. Krupa 40 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.
Chicago, IL 60606
- -------------------------------------------------------------------------------
Anna R. Kucinskis 52 Vice President Vice President of John Nuveen
333 West Wacker Drive & Co. Incorporated.
Chicago, IL 60606
- -------------------------------------------------------------------------------
Larry W. Martin 46 Vice President and Vice President, Assistant
333 West Wacker Drive Assistant Secretary Secretary and Assistant
Chicago, IL 60606 General Counsel of John Nuveen
& Co. Incorporated; Vice
President and Assistant
Secretary of Nuveen Advisory
Corp.; Vice President and
Assistant Secretary of Nuveen
Institutional Advisory Corp.;
Assistant Secretary of The
John Nuveen Company.
- -------------------------------------------------------------------------------
Edward F. Neild, IV 32 Vice President Vice President (since
333 West Wacker Drive September 1996), previously
Chicago, IL 60606 Assistant Vice President
(since December 1993) of
Nuveen Advisory Corp.,
Portfolio Manager prior
thereto; Vice President (since
September 1996), previously
Assistant Vice President
(since May 1995) of Nuveen
Institutional Advisory Corp.,
Portfolio Manager prior
thereto.
- -------------------------------------------------------------------------------
Walter K. Parker 49 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. (since January
Chicago, IL 60606 1997); prior thereto, Vice
President and Portfolio
Manager (since July 1994) of
Flagship Financial; Portfolio
Manager and CIO Trust Investor
for PNC Bank.
- -------------------------------------------------------------------------------
Stephen S. Peterson 40 Vice President Vice President (since
333 West Wacker Drive September 1997), previously
Chicago, IL 60606 Assistant Vice President
(since September 1996) of
Nuveen Advisory Corp.,
Portfolio Manager prior
thereto.
- -------------------------------------------------------------------------------
Stuart W. Rogers 42 Vice President Vice President of John Nuveen
333 West Wacker Drive & Co. Incorporated.
Chicago, IL 60606
- -------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 46 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory Corp.;
Chartered Financial Analyst.
- -------------------------------------------------------------------------------
</TABLE>
S-49
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND PRINCIPAL OCCUPATIONS
NAME AND ADDRESS AGE OFFICES WITH FUND DURING PAST FIVE YEARS
- -------------------------------------------------------------------------------
<C> <C> <C> <S>
H. William Stabenow 63 Vice President and Vice President and Treasurer of
333 West Wacker Drive Treasurer The John Nuveen Company, John
Chicago, IL 60606 Nuveen & Co. Incorporated, Nuveen
Advisory Corp. and Nuveen
Institutional Advisory Corp.
- -------------------------------------------------------------------------------
William S. Swanson 32 Vice President Vice President of John Nuveen &
333 West Wacker Drive Co. Incorporated (since October
Chicago, IL 60606 1997), prior thereto, Assistant
Vice President (since September
1996); formerly, Associate of
John Nuveen & Co. Incorporated.
- -------------------------------------------------------------------------------
Jan E. Terbrueggen 42 Vice President Vice President Nuveen Advisory
333 West Wacker Drive Corp. (since January 1997);
Chicago, IL 60606 prior thereto, Vice President and
Portfolio Manager of Flagship
Financial.
- -------------------------------------------------------------------------------
Gifford R. Zimmerman 41 Vice President and Vice President, Assistant
333 West Wacker Drive Secretary Secretary and Associate General
Chicago, IL 60606 Counsel formerly Assistant
General Counsel of John Nuveen &
Co. Incorporated; Vice President
and Assistant Secretary of Nuveen
Advisory Corp.; Vice President
and Assistant Secretary of Nuveen
Institutional Advisory Corp.
</TABLE>
- --------------------------------------------------------------------------------
Anthony Dean, Timothy Schwertfeger and Peter R. Sawers serve as members of
the Executive Committee of the Board of Trustees. The Executive Committee,
which meets between regular meetings of the Board of Trustees, is authorized to
exercise all of the powers of the Board of Trustees.
The trustees of the Trust are directors or trustees, as the case may be, of
42 Nuveen open-end funds and 52 Nuveen closed-end funds advised by Nuveen
Advisory Corp.
The following table sets forth compensation paid by the Trust to each of the
trustees of the Trust and the total compensation paid to each trustee during
the fiscal year ended February 28, 1998. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
TOTAL
AGGREGATE COMPENSATION
COMPENSATION FROM TRUST AND
FROM THE SERIES FUND COMPLEX
NAME OF TRUSTEE OF THIS TRUST PAID TO TRUSTEES
--------------- --------------- ----------------
<S> <C> <C>
Robert P. Bremner........................ $5,438 $58,780
Lawrence H. Brown........................ $5,713 $76,000
Anne E. Impellizzeri..................... $5,428 $71,750
Margaret K. Rosenheim.................... $3,686(1) $47,405(2)
Peter R. Sawers.......................... $5,428 $71,750
William S. Schneider..................... $5,438 $58,780
Judith M. Stockdale...................... $2,601(3) $32,000(3)
</TABLE>
- --------
(1) Includes $358 in interest accrued on deferred compensation from prior
years; former director, retired July, 1997.
(2) Includes $1,655 in interest accrued on deferred compensation from prior
years; former director, retired July, 1997.
(3) First payment was in July, 1997.
Each trustee who is not affiliated with Nuveen or Nuveen Advisory receives a
fee. The Trust requires no employees other than its officers, all of whom are
compensated by Nuveen.
S-50
<PAGE>
The officers and directors of each Fund, in the aggregate, own less than 1%
of the shares of the Fund.
The following table sets forth the percentage ownership of each person, who,
as of May 26, 1998, owns of record, or is known by Registrant to own of record
or beneficially 5% or more of any class of a Fund's shares.
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen New York Insured Municipal
Bond Fund BHC Securities Inc. 15.30%
Class A Shares................... FAO 70015729
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103N
Nuveen New York Insured Municipal
Bond Fund Donaldson Lufkin Jenrette 16.77
Class C Shares................... Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
PaineWebber for the Benefit of 10.55%
Morgan F Kelly
Rose Moran-Kelly JT TEN
19 Honeyhollow Road
Queensbury, NV 12804-9117
Prudential Securities FBO 8.11
Laurie D Wax Ttee, Irrevocable
Trust of 1995 UA JTD 05/02/95,
FBO Laurie D Wax
Via Di Monteronald, 14 6N
Ruth Preston & 7.96
Sara P. Costello &
Patricia N. Kohl
JT TEN WROS NOT TC
2 Middleton Rd.
Greenport, NY 11944-1115
Debra Arizzi 7.90
9725 92nd St
Ozone Park, NY 11416-2214
</TABLE>
S-51
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen New York Insured
Municipal Bond Fund BHC Securities Inc. 23.96
Class R Shares............ FAO 70001770
Attn: Mutual Funds
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
Nuveen Flagship New Jersey
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 13.93
Class A Shares............ for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship New Jersey
Municipal Bond Fund William G. Osborne 20.12
Class C Shares............ % Aurachem Corp.
South 3R & Somerset St.
PO Box 471
Harrison, NJ 07029-0471
Alvin H. Frankel Agent for 7.32%
Louise I. Grill
U/POA DTD Jun 17 94
601 Haddon Ave
Collingswood, NJ 08108-3703
Donaldson Lufkin Jenrette 5.33
Securities Corporation Inc
PO Box 2052
Jersey City, NJ 07303-9998
Nuveen Flagship New Jersey
Intermediate Municipal Merrill Lynch, Pierce, Fenner & Smith 22.65
Bond Fund Class A Shares.. for the sole benefit of its customers
Attn Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen California Municipal
Bond Fund NFSC FEBO # OFP-002135 18.87
Class C Shares............ Michele Chiapella
103 Northwood Commons
Chico, CA 95926
</TABLE>
S-52
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Thomas K. Larson & 9.83
Melanie P. Larson
JT TEN WROS NOT TC
142 Via Novella
Aptos, CA 95003-5841
Paul R. Hoeber 9.62
611 Bay St. Apt. 4
San Francisco, CA 94133-1619
Charlotte H. Feo Tr 9.50
UA DEC 06 79
Charlotte H. Feo Family Trust
530 Galleon Way
Seal Beach, CA 90740-5939
John C. MacGregor-Scott Tr 9.24
UA JUN 22 87
MacGregor-Scott Rev Fam Trust
720 W Camino Real Ave.
Arcadia, CA 91007-7839
David Neil Daniels & 5.05
Judy Curry Daniels Trs
UA JAN 13 94
Daniels Revocable Trust
305 Tioga Ct
Palo Alto, CA 94306-4543
Nuveen California Municipal Bond
Fund J. Andrew Kitzman & 9.62%
Class A Shares.................... Hazel Lloyd Kitzman COTR
UA JUL 02 82
Kitzman Family Trust
10558 Grandview Dr., #4063
La Mesa, CA 91941-6905
Nuveen California Municipal Bond
Fund Smith Barney Shearson 5.16
Class R Shares.................... 00119601999
388 Greenwich Street
New York, NY 10013
Nuveen California Insured Municipal
Bond Fund John Hancock Clearing Corp 5.29
Class A Shares.................... 1 World Financial Center
200 Liberty St.
New York, NY 10281-1003
</TABLE>
S-53
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen California Insured
Municipal Bonds Funds NFSC FEBO #042-626996 30.08
Class C Shares............ Fleming Trust
William E. Fleming
U/A 04/20/93
7057 Blackhawk Rd P.O. Box 908
Forest Hill, CA 95631
Mildred H. Hachtowski TR 9.99
UA Sep 14 95
Hachtowski Family Trust
3045 Rita Ct
Napa, CA 94558-3317
BA Investment Services Inc. 7.54
FBO 406912971
189 Berry St.
3rd Floor #2640
San Francisco CA 94104
Prudential Securities FBO 5.60
Alan R Josefsberg &
Vickie Josefsberg Jt Ten
2700 N. Cahuenga Blvd. East
Unit 1301
Hollywood, CA 90068-2139
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 25.48%
Class A Shares............ for the sole benefit of its customers
Attn; Fund Administration
4800 Deer Lake Dr E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund John H. Germain TR. 33.97
Class B Shares............ Isabel Germain Trust
U/A DTD 10-16-95
96 Four Mile Rd.
West Hartford, CT 06107-2703
PaineWebber FBO 23.39
Josephine F. Smith
57 Arnold Way
West Hartford, CT 06119-1207
US Clearing Corp. 12.40
FBO 952-13798-L9
26 Broadway
New York, NY 10004-1798
</TABLE>
S-54
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Sidney Fagan & 8.75
Lois Fagan JT Ten
856 East Broadway
Milford, CT 06460-6217
Smith Barney Inc. 8.20
00136200806
388 Greenwich Street
New York, NY 10013-2375
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 35.18
Class C Shares............ for the sole benefit of its customers
Attn: Fund Administration
4800 Deer Lake Dr E Fl 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Smith Barney Inc. 99.85
Class R Shares............ 00138430250
388 Greenwich Street
New York, NY 10013-2375
Nuveen Massachusetts
Municipal Bond Fund NFSC FEBO #006-166235 9.18%
Class A Shares............ Richard J. and Joy S. Gilbert TR
Joanne G. Arnold TTEE
c/o Richard J. Gilbert
20 Winchester Drive
Lexington, MA 02173
Donaldson Lufkin Jenrette 6.00
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303-9998
Smith Barney Inc. 5.77
00162105158
388 Greenwich Street
New York, New York 10013
Nuveen Massachusetts
Municipal Bond Fund Hudson L. Matson 26.86
Class C Shares............ 39 Griggs Rd.
Sutton, MA 01590-1015
Richard Doucette 6.55
363 Farrwood Dr.
Bradford, MA 01835-8400
</TABLE>
S-55
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
Wheat First FBO A/C 2591-6003 5.96
Jane W. Curran
4 Lawler Dr.
Easthampton, MA 01027-9715
Mary H. Melville 5.72
4 Paul Revere Rd.
Worcester MA 01609-1210
Charles G. Allen, Jr. Tr. 5.34
UA MAR 05 54
UW Flora A. Generess
FBO Charles G. Allen Jr. Et al
221 James St. #65
Barre, MA 01005-8805
Emily Pelczarski Cust 5.31
FBO Brian Pelczarski
Unif Trans Min Act MA
8 Coram St
Taunton, MA 02780-2512
Emily Pelczarski Cust 5.26%
FBO Laurie Pelczarski
Unif Trans Min Act MA
8 Coram St
Taunton, MA 02780-2512
Irene J. Majko 5.22
134 Brook St
Wellesley, MA 02181-6630
Nuveen Massachusetts Insured
Municipal Bond Fund Gerald W. Mahoney & 8.20
Class A Shares................... Elaine Mahoney Tr
UA 10/05/94
Mahoney Rev. Trust
162 Oakland St.
Fall River, MA 02720-6114
Nuveen Massachusetts Insured
Municipal Bond Fund Raymond James & Assoc Inc. 16.57
Class C Shares................... for Elite Acct # 50099466
FAO George A. D'Auteuil Sr. &
Pauline T. D'Auteuil JT/WROS
9 Church St.
Millbury, MA 01527-3134
Ruth Biller 16.26
51 Oak Rd.
Canton, MA 02021-2625
</TABLE>
S-56
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE
NAME OF FUND AND CLASS NAME AND ADDRESS OF OWNER OF OWNERSHIP
- ---------------------- ------------------------- ------------
<S> <C> <C>
John Sullivan 14.60
6 Margaret St.
Boston, MA 02113-2523
Rose E. Frisch 14.25
3 Hillside Pl.
Cambridge, MA 02140-3617
PaineWebber for the Benefit of 5.97
John J. Brodbine TTEE
Ralph L. Cunningham Trust
DTD 4/27/89
27 School St
Boston, MA 02108-4303
Magdalene S. Kapuscienski &
Gene S. Kapuscienski 5.21
JT TEN WROS NOT TC
15 D Country Club Lane
Milford, MA 01757
Nuveen Massachusetts Insured
Municipal Bond Fund NFSC FEBO # 006-133914 5.10%
Class R Shares................... Robert L. Varney
Janet N. Varney
9 Almira Rd
South Yarmouth, MA 02664
</TABLE>
S-57
<PAGE>
INVESTMENT ADVISER AND INVESTMENT
MANAGEMENT AGREEMENT
Nuveen Advisory Corp. acts as investment adviser for and manages the
investment and reinvestment of the assets of each of the Funds. Nuveen Advisory
also administers the Trust's business affairs, provides office facilities and
equipment and certain clerical, bookkeeping and administrative services, and
permits any of its officers or employees to serve without compensation as
trustees or officers of the Trust if elected to such positions. See "Fund
Service Providers" in the Prospectus.
Pursuant to an investment management agreement between Nuveen Advisory and
the Trust, each of the Funds has agreed to pay an annual management fee at the
rates set forth below:
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FEE MANAGEMENT FEE
- --------------------------------- --------------
<S> <C>
For the first $125 million....................................... .5500 of 1%
For the next $125 million........................................ .5375 of 1%
For the next $250 million........................................ .5250 of 1%
For the next $500 million........................................ .5125 of 1%
For the next $1 billion.......................................... .5000 of 1%
For assets over $2 billion....................................... .4750 of 1%
</TABLE>
Nuveen Advisory has agreed to waive all or a portion of its management fee or
reimburse certain expenses of the California, California Insured,
Massachusetts, Massachusetts Insured, New York and New York Insured Municipal
Bond Funds in order to prevent total operating expenses (including Nuveen
Advisory's fee, but excluding interest, taxes, fees incurred in acquiring and
disposing of portfolio securities, any asset-based distribution or service fees
and, to the extent permitted, extraordinary expenses) in any fiscal year from
exceeding .75 (.975 for insured Funds) of 1% of average daily net asset value
of any class of shares of those Funds.
Nuveen Advisory has voluntarily agreed to waive some or all of its fees or
reimburse expenses to prevent total operating expenses (not counting
distribution and service fees) for the year ended July 31, 1997 from exceeding
0.75% of average daily net assets of the New Jersey Fund. For the New Jersey,
New Jersey Intermediate, Connecticut, and New York Funds, Nuveen Advisory has
committed through at least 1998 to continue Flagship's general dividend-setting
practices.
For the last three fiscal years, the New Jersey Municipal Bond Fund paid net
management fees to Nuveen Advisory as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF EXPENSE FEE WAIVERS AND EXPENSE
REIMBURSEMENT PAID TO NUVEEN REIMBURSEMENTS
ADVISORY FOR THE YEAR ENDED FOR THE YEAR ENDED
------------------------------- ------------------------
1/31/96 2/28/97* 2/28/98 1/31/96 2/28/97* 2/28/98
--------- ---------- ---------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund.............. 152,929 249,860 $ 116,781 115,121 105,204 325,469
</TABLE>
*For the thirteen month period ended February 28, 1997.
For the last three fiscal years, the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the California Municipal Bond Fund, the
California Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
and the Massachusetts Insured Municipal Bond Fund paid net management fees to
Nuveen Advisory as follows:
S-58
<PAGE>
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE REIMBURSEMENT PAID TO FEE WAIVERS AND EXPENSE
NUVEEN ADVISORY FOR THE YEAR REIMBURSEMENTS
ENDED FOR THE YEAR ENDED
----------------------------- -----------------------
2/29/96 2/28/97 2/28/98 2/29/96 2/28/97 2/28/98
--------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New York Municipal Bond
Fund.................... 852,809 921,217 956,215 29,700 40,876 317,918
New York Insured
Municipal Bond Fund..... 1,940,010 1,932,218 1,929,254 0 -- --
California Municipal Bond
Fund.................... 1,199,571 1,249,684 1,309,287 3,302 -- --
California Insured
Municipal Bond Fund..... 1,156,993 1,205,656 1,239,386 1,695 -- --
Massachusetts Municipal
Bond Fund............... 366,859 430,684 414,026 59,879 13,780 38,925
Massachusetts Insured
Municipal Bond Fund..... 346,952 356,539 360,589 788 -- --
</TABLE>
For the last three fiscal years, the New Jersey Intermediate Municipal Bond
Fund and the Connecticut Municipal Bond Fund paid net management fees to
Flagship Financial, predecessor to Nuveen Advisory, and beginning on 2/1/97, to
Nuveen Advisory, as follows:
<TABLE>
<CAPTION>
MANAGEMENT FEES NET OF
EXPENSE REIMBURSEMENT PAID FEE WAIVERS AND EXPENSE
TO FLAGSHIP FINANCIAL FOR REIMBURSEMENTS
THE YEAR ENDED FOR THE YEAR ENDED
-------------------------- ------------------------
5/31/96 2/28/97* 2/28/98 5/31/96 2/28/97* 2/28/98
------- -------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Municipal Bond Fund....... 0 0 -- 101,996 71,304 71,152
Connecticut Municipal Bond
Fund...................... 421,811 440,411 1,033,050 636,447 367,429 171,361
</TABLE>
*For the nine month period ended February 28, 1997.
In addition to the management fee of Nuveen Advisory, each Fund pays all
other costs and expenses of its operations and a portion of the Trust's general
administrative expenses allocated in proportion to the net assets of each Fund.
Nuveen Advisory is a wholly owned subsidiary of John Nuveen & Co.
Incorporated ("Nuveen"), the Funds' principal underwriter. In 1961, Nuveen
began sponsoring the Nuveen Tax-Exempt Unit Trust and since that time has
issued more than $37 billion in taxable and tax-exempt unit trusts, including
over $12 billion in tax-exempt insured unit trusts. In addition, Nuveen open-
end and closed-end funds held approximately $38 billion in securities under
management as of the date of this Statement. Over 1.3 million individuals have
invested to date in Nuveen's funds and trusts. Founded in 1898, Nuveen is a
subsidiary of The John Nuveen Company which, in turn, is approximately 78%
owned by The St. Paul Companies, Inc. ("St. Paul"). St. Paul is located in St.
Paul, Minnesota and is principally engaged in providing property-liability
insurance through subsidiaries. Effective January 1, 1997, The John Nuveen
Company acquired Flagship Resources Inc., and as part of that acquisition,
Flagship Financial, the adviser to the Flagship Funds, was merged with Nuveen
Advisory.
Nuveen Advisory's portfolio managers call upon the resources of Nuveen's
Research Department. The Nuveen Research Department reviews more than $100
billion in municipal bonds every year.
The Funds, the other Nuveen funds, Nuveen Advisory, and other related
entities have adopted a code of ethics which essentially prohibits all Nuveen
fund management personnel, including Nuveen fund portfolio managers, from
engaging in personal investments which compete or interfere with, or attempt to
take advantage of, a Fund's anticipated or actual portfolio transactions, and
is designed to assure that the interests of Fund shareholders are placed before
the interests of Nuveen personnel in connection with personal investment
transactions.
S-59
<PAGE>
PORTFOLIO TRANSACTIONS
Nuveen Advisory, in effecting purchases and sales of portfolio securities for
the account of each Fund, will place orders in such manner as, in the opinion
of management, will offer the best price and market for the execution of each
transaction. Portfolio securities will normally be purchased directly from an
underwriter or in the over-the-counter market from the principal dealers in
such securities, unless it appears that a better price or execution may be
obtained elsewhere. Portfolio securities will not be purchased from Nuveen or
its affiliates except in compliance with the Investment Company Act of 1940.
The Funds expect that all portfolio transactions will be effected on a
principal (as opposed to an agency) basis and, accordingly, do not expect to
pay any brokerage commissions. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
from dealers will include the spread between the bid and asked price. Given the
best price and execution obtainable, it will be the practice of the Funds to
select dealers which, in addition, furnish research information (primarily
credit analyses of issuers and general economic reports) and statistical and
other services to Nuveen Advisory. It is not possible to place a dollar value
on information and statistical and other services received from dealers. Since
it is only supplementary to Nuveen Advisory's own research efforts, the receipt
of research information is not expected to reduce significantly Nuveen
Advisory's expenses. While Nuveen Advisory will be primarily responsible for
the placement of the business of the Funds, the policies and practices of
Nuveen Advisory in this regard must be consistent with the foregoing and will,
at all times, be subject to review by the Board of Trustees.
Nuveen Advisory reserves the right to, and does, manage other investment
accounts and investment companies for other clients, which may have investment
objectives similar to the Funds. Subject to applicable laws and regulations,
Nuveen Advisory will attempt to allocate equitably portfolio transactions among
the Funds and the portfolios of its other clients purchasing or selling
securities whenever decisions are made to purchase or sell securities by a Fund
and one or more of such other clients simultaneously. In making such
allocations the main factors to be considered will be the respective investment
objectives of the Fund and such other clients, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment by the Fund and such other clients, the size of investment
commitments generally held by the Fund and such other clients and opinions of
the persons responsible for recommending investments to the Fund and such other
clients. While this procedure could have a detrimental effect on the price or
amount of the securities available to a Fund from time to time, it is the
opinion of the Board of Trustees that the benefits available from Nuveen
Advisory's organization will outweigh any disadvantage that may arise from
exposure to simultaneous transactions.
Under the Investment Company Act of 1940, the Funds may not purchase
portfolio securities from any underwriting syndicate of which Nuveen is a
member except under certain limited conditions set forth in Rule 10f-3. The
Rule sets forth requirements relating to, among other things, the terms of an
issue of Municipal Obligations purchased by a Fund, the amount of Municipal
Obligations which may be purchased in any one issue and the assets of a Fund
which may be invested in a particular issue. In addition, purchases of
securities made pursuant to the terms of the Rule must be approved at least
quarterly by the Board of Trustees, including a majority of the trustees who
are not interested persons of the Trust.
NET ASSET VALUE
As stated in the Prospectus, the net asset value of the shares of the Funds
will be determined separately for each class of those Funds' shares by The
Chase Manhattan Bank, the Funds' custodian, as of the close of trading
(normally 4:00 p.m. Eastern Time) on each day on which the New York Stock
Exchange (the "Exchange") is
S-60
<PAGE>
normally open for trading. The Exchange is not open for trading on New Year's
Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. The net asset value per share of a
class of shares of a Fund will be computed by dividing the value of the Fund's
assets attributable to the class, less the liabilities attributable to the
class, by the number of shares of the class outstanding.
In determining net asset value for the Funds, each Fund's custodian utilizes
the valuations of portfolio securities furnished by a pricing service approved
by the trustees. Securities for which quotations are not readily available
(which constitute a majority of the securities held by the Funds) are valued at
fair value as determined by the pricing service using methods which include
consideration of the following: yields or prices of municipal bonds of
comparable quality, type of issue, coupon, maturity and rating; indications as
to value from dealers; and general market conditions. The pricing service may
employ electronic data processing techniques and/or a matrix system to
determine valuations. The procedures of the pricing service and its valuations
are reviewed by the officers of the Trust under the general supervision of the
Board of Trustees.
TAX MATTERS
FEDERAL INCOME TAX MATTERS
The following discussion of federal income tax matters is based upon the
advice of Morgan, Lewis & Bockius LLP, counsel to the Trust.
Each Fund intends to qualify under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code") for tax treatment as a regulated investment
company. In order to qualify as a regulated investment company, a Fund must
satisfy certain requirements relating to the source of its income,
diversification of its assets, and distributions of its income to shareholders.
First, a Fund must derive at least 90% of its annual gross income (including
tax-exempt interest) from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock or
securities, foreign currencies or other income (including but not limited to
gains from options and futures) derived with respect to its business of
investing in such stock or securities (the "90% gross income test"). Second, a
Fund must derive less than 30% of its annual gross income from the sale or
other disposition of any of the following which was held for less than three
months: (i) stock or securities and (ii) certain options, futures, or forward
contracts (the "short-short test"). Third, a Fund must diversify its holdings
so that, at the close of each quarter of its taxable year, (i) at least 50% of
the value of its total assets is comprised of cash, cash items, United States
Government securities, securities of other regulated investment companies and
other securities limited in respect of any one issuer to an amount not greater
in value than 5% of the value of a Fund's total assets and to not more than 10%
of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the total assets is invested in the securities of any one
issuer (other than United States Government securities and securities of other
regulated investment companies) or two or more issuers controlled by a Fund and
engaged in the same, similar or related trades or businesses.
As a regulated investment company, a Fund will not be subject to federal
income tax in any taxable year for which it distributes at least 90% of the sum
of (i) its "investment company taxable income" (which includes dividends,
taxable interest, taxable original issue discount and market discount income,
income from securities lending, net short-term capital gain in excess of long-
term capital loss, and any other taxable income other than "net capital gain"
(as defined below) and is reduced by deductible expenses) and (ii) its net tax-
exempt interest (the excess of its gross tax-exempt interest income over
certain disallowed deductions). A Fund may retain for investment its net
capital gain (which consists of the excess of its net long-term capital gain
over its short-term capital loss). However, if a Fund retains any net capital
gain or any investment company taxable income, it will be subject to tax at
regular corporate rates on the amount retained. If a Fund retains any capital
gain, such Fund may
S-61
<PAGE>
designate the retained amount as undistributed capital gains in a notice to its
shareholders who, if subject to federal income tax on long-term capital gains,
(i) will be required to include in income for federal income tax purposes, as
long-term capital gain, their shares of such undistributed amount, and (ii)
will be entitled to credit their proportionate shares of the tax paid by such
Fund against their federal income tax liabilities if any, and to claim refunds
to the extent the credit exceeds such liabilities. For federal income tax
purposes, the tax basis of shares owned by a shareholder of the Fund will be
increased by an amount equal under current law to 65% of the amount of
undistributed capital gains included in the shareholder's gross income. Each
Fund intends to distribute at least annually to its shareholders all or
substantially all of its net tax-exempt interest and any investment company
taxable income and net capital gain.
Treasury regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain, i.e., the excess of
net long-term capital gain over net short-term capital loss for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or part of any net capital loss, any
net long-term capital loss or any net foreign currency loss incurred after
October 31 as if they had been incurred in the succeeding year.
Each Fund also intends to satisfy conditions (including requirements as to
the proportion of its assets invested in Municipal Obligations) that will
enable it to designate distributions from the interest income generated by
investments in Municipal Obligations, which is exempt from regular federal
income tax when received by such Fund, as exempt-interest dividends.
Shareholders receiving exempt-interest dividends will not be subject to regular
federal income tax on the amount of such dividends. Insurance proceeds received
by a Fund under any insurance policies in respect of scheduled interest
payments on defaulted Municipal Obligations will be excludable from federal
gross income under Section 103(a) of the Code. In the case of non-appropriation
by a political subdivision, however, there can be no assurance that payments
made by the insurer representing interest on "non-appropriation" lease
obligations will be excludable from gross income for federal income tax
purposes. See "Investment Policies and Investment Portfolio; Portfolio
Securities."
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses,
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<PAGE>
cause adjustments in the holding periods of a Fund's securities, convert long-
term capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
Because the taxable portion of a Fund's investment income consists primarily
of interest, none of its dividends, whether or not treated as exempt-interest
dividends, is expected to qualify under the Internal Revenue Code for the
dividends received deductions for corporations.
Prior to purchasing shares in a Fund, the impact of dividends or
distributions which are expected to be or have been declared, but not paid,
should be carefully considered. Any dividend or distribution declared shortly
after a purchase of such shares prior to the record date will have the effect
of reducing the per share net asset value by the per share amount of the
dividend or distribution.
Although dividends generally will be treated as distributed when paid,
dividends declared in October, November or December, payable to shareholders of
record on a specified date in one of those months and paid during the following
January, will be treated as having been distributed by a Fund (and received by
the shareholders) on December 31.
The redemption or exchange of the shares of a Fund normally will result in
capital gain or loss to the shareholders. Generally, a shareholder's gain or
loss will be long-term gain or loss if the shares have been held for more than
one year. Present law taxes both long- and short-term capital gains of
corporations at the rates applicable to ordinary income. For non-corporate
taxpayers, however, net capital gains (i.e., the excess of net long-term
capital gain over net short-term capital loss) will be taxed at a maximum
marginal rate of 28%, while short-term capital gains and other ordinary income
will be taxed at a maximum marginal rate of 39.6%. Because of the limitations
on itemized deductions and the deduction for personal exemptions applicable to
higher income taxpayers, the effective tax rate may be higher in certain
circumstances.
All or a portion of a sales charge paid in purchasing shares of a Fund cannot
be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to
the extent shares of a Fund or another fund are subsequently acquired without
payment of a sales charge pursuant to the reinvestment or exchange privilege.
Any disregarded portion of such charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Moreover, losses
recognized by a shareholder on the redemption or exchange of shares of a Fund
held for six months or less are disallowed to the extent of any distribution of
exempt-interest dividends received with respect to such shares and, if not
disallowed, such losses are treated as long-term capital losses to the extent
of any distributions of long-term capital gains made with respect to such
shares. In addition, no loss will be allowed on the redemption or exchange of
shares of a Fund if the shareholder purchases other shares of such Fund
(whether through reinvestment of distributions or otherwise) or the shareholder
acquires or enters into a contract or option to acquire securities that are
substantially identical to shares of a Fund within a period of 61 days
beginning 30 days before and ending 30 days after such redemption or exchange.
If disallowed, the loss will be reflected in an adjustment to the basis of the
shares acquired.
It may not be advantageous from a tax perspective for shareholders to redeem
or exchange shares after tax-exempt income has accrued but before the record
date for the exempt-interest dividend representing the distribution of such
income. Because such accrued tax-exempt income is included in the net asset
value per share (which equals the redemption or exchange value), such a
redemption could result in treatment of the portion of the sales or redemption
proceeds equal to the accrued tax-exempt interest as taxable gain (to the
extent the redemption or exchange price exceeds the shareholder's tax basis in
the shares disposed of) rather than tax-exempt interest.
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In order to avoid a 4% federal excise tax, a Fund must distribute or be
deemed to have distributed by December 31 of each calendar year at least 98% of
its taxable ordinary income for such year, at least 98% of the excess of its
realized capital gains over its realized capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year) and 100% of
any taxable ordinary income and the excess of realized capital gains over
realized capital losses for the prior year that was not distributed during such
year and on which such Fund paid no federal income tax. For purposes of the
excise tax, a regulated investment company may reduce its capital gain net
income (but not below its net capital gain) by the amount of any net ordinary
loss for the calendar year. The Funds intend to make timely distributions in
compliance with these requirements and consequently it is anticipated that they
generally will not be required to pay the excise tax.
If in any year a Fund should fail to qualify under Subchapter M for tax
treatment as a regulated investment company, the Fund would incur a regular
corporate federal income tax upon its income for that year (other than interest
income from Municipal Obligations), and distributions to its shareholders would
be taxable to shareholders as ordinary dividend income for federal income tax
purposes to the extent of the Fund's available earnings and profits.
Because the Funds may invest in private activity bonds, the interest on which
is not federally tax-exempt to persons who are "substantial users" of the
facilities financed by such bonds or "related persons" of such "substantial
users," the Funds may not be an appropriate investment for shareholders who are
considered either a "substantial user" or a "related person" within the meaning
of the Code. For additional information, investors should consult their tax
advisers before investing in a Fund.
Federal tax law imposes an alternative minimum tax with respect to both
corporations and individuals. Interest on certain Municipal Obligations, such
as bonds issued to make loans for housing purposes or to private entities (but
not for certain tax-exempt organizations such as universities and non-profit
hospitals), is included as an item of tax preference in determining the amount
of a taxpayer's alternative minimum taxable income. To the extent that a Fund
receives income from Municipal Obligations subject to the alternative minimum
tax, a portion of the dividends paid by it, although otherwise exempt from
federal income tax, will be taxable to shareholders to the extent that their
tax liability is determined under the alternative minimum tax regime. The Funds
will annually supply shareholders with a report indicating the percentage of
Fund income attributable to Municipal Obligations subject to the federal
alternative minimum tax.
In addition, the alternative minimum taxable income for corporations is
increased by 75% of the difference between an alternative measure of income
("adjusted current earnings") and the amount otherwise determined to be the
alternative minimum taxable income. Interest on all Municipal Obligations, and
therefore all distributions by the Funds that would otherwise be tax-exempt, is
included in calculating a corporation's adjusted current earnings.
Tax-exempt income, including exempt-interest dividends paid by a Fund, will
be added to the taxable income of individuals receiving social security or
railroad retirement benefits in determining whether a portion of that benefit
will be subject to federal income tax.
The Code provides that interest on indebtedness incurred or continued to
purchase or carry shares of any Fund is not deductible. Under rules used by the
IRS for determining when borrowed funds are considered used for the purpose of
purchasing or carrying particular assets, the purchase of shares of a Fund may
be considered to have been made with borrowed funds even though such funds are
not directly traceable to the purchase of shares.
The Funds are required in certain circumstances to withhold 31% of taxable
dividends and certain other payments paid to non-corporate holders of shares
who have not furnished to the Funds their correct taxpayer
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identification number (in the case of individuals, their social security
number) and certain certifications, or who are otherwise subject to backup
withholding.
The foregoing is a general and abbreviated summary of the provisions of the
Code and Treasury Regulations presently in effect as they directly govern the
taxation of the Fund and its shareholders. For complete provisions, reference
should be made to the pertinent Code sections and Treasury Regulations. The
Code and Treasury Regulations are subject to change by legislative or
administrative action, and any such change may be retroactive with respect to
Fund transactions. Shareholders are advised to consult their own tax advisers
for more detailed information concerning the federal taxation of the Funds and
the income tax consequences to their shareholders.
STATE TAX MATTERS
The discussion of tax treatment is based on the assumptions that the Funds
will qualify under Subchapter M of the Code as regulated investment companies
that they will satisfy the conditions which will cause distributions to qualify
as exempt-interest dividends to shareholders when distributed as intended, and
that each Fund will distribute all interest and dividends it receives to its
shareholders. Unless otherwise noted, shareholders in each Fund will not be
subject to state income taxation on distributions that are attributable to
interest earned on the municipal obligations issued by that state or its
subdivisions, or on obligations of the United States. Shareholders generally
will be required to include capital gain distributions in their income for
state tax purposes. In some states, interest on indebtedness incurred or
continued to purchase or carry Fund shares is not deductible. The tax
discussion summarizes general state tax laws which are currently in effect and
are subject to change by legislative or administrative action; any such changes
may be retroactive with respect to the applicable Fund's transactions.
Investors should consult a tax adviser for more detailed information about
state taxes to which they may be subject.
NEW YORK
The following is a general, abbreviated summary of certain provisions of the
applicable New York tax law as presently in effect as it directly governs the
taxation of resident individual, corporate, and unincorporated business
shareholders of the New York Funds. This summary does not address the taxation
of other shareholders nor does it discuss any local taxes, other than New York
City taxes, that may be applicable. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to New York Fund transactions.
The following is based on the assumptions that the New York Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause New York Funds' distributions
to qualify as exempt-interest dividends to shareholders, and that they will
distribute all interest and dividends they receive to the New York Funds'
shareholders.
The New York Funds will be subject to the New York State corporate franchise
tax and the New York City general corporation tax only if they have a
sufficient nexus with New York State or New York City. If they are subject to
such taxes, they do not expect to pay a material amount of either tax.
Distributions by the New York Funds that are attributable to interest on any
obligation of New York and its political subdivisions or to interest on
obligations of U.S. territories and possessions that are exempt from state
taxation under federal law will not be subject to the New York State personal
income tax or the New York City personal income or unincorporated business
taxes. Distributions by the New York Funds that are attributable to interest on
obligations of the United States or its instrumentalities. All other
distributions, including distributions attributable to interest on obligations
of the United States or its instrumentalities and distributions attributable to
capital gains, will be subject to the New York State personal income tax and
the New York City personal income and unincorporated business taxes.
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All distributions from the New York Funds, regardless of source, will
increase the taxable base of shareholders subject to the New York State
franchise tax or the New York City general corporation tax.
Gain from the sale, exchange, or other disposition of shares of the New York
Funds will be subject to the New York State personal income and franchise taxes
and the New York City personal income, unincorporated business, and general
corporation taxes.
Shares of the New York Funds may be subject to the New York State estate tax
if owned by a New York decedent at the time of death.
NEW JERSEY
The following is a general, abbreviated summary of certain provisions of the
applicable New Jersey tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the New Jersey
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local taxes that may be applicable. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to transactions of the New Jersey Funds.
The following is based on the assumptions that the New Jersey Funds will
qualify under Subchapter M of the Code as regulated investment companies and
under New Jersey law as qualified investment funds, that they will satisfy the
conditions which will cause New Jersey Funds' distributions to qualify as
exempt-interest dividends to shareholders, and that they will distribute all
interest and dividends they receive to the New Jersey Funds' shareholders.
The New Jersey Funds will be subject to the New Jersey corporation business
tax or the New Jersey corporation income tax only if they have a sufficient
nexus with New Jersey. If they are subject to either tax, the New Jersey Funds
do not expect to pay a material amount of either tax.
Distributions by the New Jersey Funds that are attributable to interest or
gains on any obligation of New Jersey or its political subdivisions or to
interest or gains on obligations of the United States, its territories,
possessions, or instrumentalities that are exempt from state taxation under
federal law will not be subject to the New Jersey gross income tax. All other
distributions will be subject to the New Jersey gross income tax.
All distributions from the New Jersey Funds, regardless of source, will
increase the taxable base of shareholders subject to the New Jersey corporation
business tax or the New Jersey corporation income tax.
Gain on the sale, exchange, or other disposition of shares of the New Jersey
Funds will not be subject to the New Jersey gross income tax. Conversely,
losses from such transactions may not be used to offset New Jersey taxable
gains. Gains from such transactions will be subject to the New Jersey
corporation income tax.
Shares of the New Jersey Funds may be subject to the New Jersey inheritance
tax or the New Jersey estate tax if owned by a New Jersey decedent at the time
of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning New Jersey state and local tax matters.
CALIFORNIA
The following is a general, abbreviated summary of certain provisions of the
applicable California tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the California
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local taxes that may be applicable. These provisions are
subject to change by legislative or administrative action, and any such change
may be retroactive with respect to transactions of the California Funds.
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<PAGE>
The following is based on the assumptions that the California Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of the
California Funds to qualify as exempt-interest dividends to shareholders, and
that they will distribute all interest and dividends they receive to the
California Funds' shareholders.
The California Funds will be subject to the California corporate franchise
and corporation income tax only if they have a sufficient nexus with
California. If they are subject to the California franchise or corporation
income tax, the California Funds do not expect to pay a material amount of such
tax.
Distributions by the California Funds that are attributable to interest on
any obligation of California and its political subdivisions or to interest on
obligations of the United States, its territories, possessions or
instrumentalities that are exempt from state taxation under federal law will
not be subject to the California personal income tax. All other distributions,
including distributions attributable to capital gains, will be subject to the
California personal income tax.
All distributions of California Funds to corporate shareholders, regardless
of source, will be subject to the California corporate franchise tax.
Gain on the sale, exchange, or other disposition of shares of the California
Funds will be subject to the California personal income and corporate franchise
taxes.
Shares of the California Funds may be subject to the California estate tax if
held by a California decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning California tax matters.
CONNECTICUT
The following is a general, abbreviated summary of certain provisions of the
applicable Connecticut tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Connecticut Fund. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to Connecticut Fund
transactions.
The following is based on the assumptions that the Connecticut Fund will
qualify under Subchapter M of the Code as a regulated investment company, that
it will satisfy the conditions which will cause Connecticut Fund distributions
to qualify as exempt-interest dividends to shareholders, and that it will
distribute all interest and dividends it receives to the Connecticut Fund's
shareholders.
The Connecticut Fund will be subject to the Connecticut corporation business
tax only if it has a sufficient nexus with Connecticut. If it is subject to
that tax, it does not expect to pay a material amount of such tax.
Distributions from the Connecticut Fund that are attributable to interest or
gain on any obligation of Connecticut and its political subdivisions
("Connecticut Obligations") or to interest on obligations of U.S. territories
and possessions that are exempt from state taxation under federal law will not
be subject to the Connecticut personal income tax. All other distributions,
including distributions attributable to interest on obligations of the United
States or instrumentalities and distributions attributable to capital gain
(other than capital gain on Connecticut Obligations), will be subject to the
Connecticut personal income tax.
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All distributions from the Connecticut Fund, regardless of source, will be
subject to the Connecticut corporation business tax, but corporate shareholders
may be permitted a dividends received deduction for a portion of Connecticut
Fund distributions received.
Gain on the sale, exchange, or other disposition of shares of the Connecticut
Fund will be subject to the Connecticut personal income tax and the Connecticut
corporation business tax.
Shares of the Connecticut Fund may be subject to the Connecticut succession
tax, the Connecticut transfer tax, and the Connecticut estate tax if owned by,
or subject to a general power of appointment by, a Connecticut decedent at the
time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Connecticut and local tax matters.
MASSACHUSETTS
The following is a general, abbreviated summary of certain provisions of the
applicable Massachusetts tax law as presently in effect as it directly governs
the taxation of resident individual and corporate shareholders of the
Massachusetts Funds. This summary does not address the taxation of other
shareholders nor does it discuss any local taxes that may be applicable. These
provisions are subject to change by legislative or administrative action, and
any such change may be retroactive with respect to the Massachusetts Funds'
transactions.
The following is based on the assumptions that the Massachusetts Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of the
Massachusetts Funds to qualify as exempt-interest dividends to shareholders,
and that they will distribute all interest and dividends they receive to the
Massachusetts Funds' shareholders.
The Massachusetts Funds are not subject to the Massachusetts corporate excise
tax, the Massachusetts franchise tax, or the Massachusetts income tax.
Distributions by the Massachusetts Funds that qualify, for federal income tax
purposes, either as exempt-interest dividends or as capital gain dividends, and
that are attributable to interest or gain from the sale or exchange of certain
obligations of Massachusetts and its political subdivisions, agencies and
instrumentalities will not be subject to the Massachusetts personal income tax.
In addition, distributions by the Massachusetts Funds that are attributable to
interest on obligations of the United States exempt from state income taxation
under federal law will not be subject to the Massachusetts personal income tax.
All other distributions will be subject to the Massachusetts personal income
tax.
Distributions by the Massachusetts Funds, regardless of source, are subject
to the Massachusetts corporate excise tax.
Gain on the sale, exchange, or other disposition of shares of the
Massachusetts Funds will be subject to the Massachusetts personal income and
corporate excise tax.
Shares of the Massachusetts Funds may be subject to the Massachusetts estate
tax if owned by a Massachusetts decedent at the time of death.
Shareholders are advised to consult with their own tax advisers for more
detailed information concerning Massachusetts state and local tax matters.
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PERFORMANCE INFORMATION
The historical investment performance of the Funds may be shown in the form
of "yield," "taxable equivalent yield," "average annual total return,"
"cumulative total return" and "taxable equivalent total return" figures, each
of which will be calculated separately for each class of shares.
In accordance with a standardized method prescribed by rules of the
Securities and Exchange Commission ("SEC"), yield is computed by dividing the
net investment income per share earned during the specified one month or 30-day
period by the maximum offering price per share on the last day of the period,
according to the following formula:
Yield=2[(a-b +1)/6/ -1]
cd
In the above formula, a = dividends and interest earned during the period; b
= expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. In the case of Class A shares, the maximum offering price
includes the current maximum front-end sales charge.
In computing yield, the Funds follow certain standardized accounting
practices specified by SEC rules. These practices are not necessarily
consistent with those that the Funds use to prepare their annual and interim
financial statements in conformity with generally accepted accounting
principles. Thus, yield may not equal the income paid to shareholders or the
income reported in a Fund's financial statements.
Taxable equivalent yield is computed by dividing that portion of the yield
which is tax-exempt by the remainder of (1 minus the stated combined federal
and state income tax rate, taking into account the deductibility of state taxes
for federal income tax purposes) and adding the product to that portion, if
any, of the yield that is not tax exempt.
The taxable equivalent yields quoted below are based upon (1) the stated
combined federal and state income tax rates and (2) the yields for the 30-day
period quoted in the left-hand column.
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1998
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund
Class A Shares............... 4.68% 43.4% 8.27%
Class B Shares............... 4.14% 43.4% 7.31%
Class C Shares............... 4.34% 43.4% 7.67%
Class R Shares............... 5.09% 43.4% 8.99%
New York Municipal Bond Fund**
Class A Shares............... 4.27% 43.7% 7.58%
Class B Shares............... 3.71% 43.7% 6.59%
Class C Shares............... 3.91% 43.7% 6.94%
Class R Shares............... 4.66% 43.7% 8.28%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1998
------------------------------------------
COMBINED FEDERAL TAXABLE
YIELD AND STATE TAX RATE* EQUIVALENT YIELD
----- ------------------- ----------------
<S> <C> <C> <C>
New York Insured Municipal
Bond Fund**
Class A Shares.............. 3.55% 43.7% 6.31%
Class B Shares.............. 2.96% 43.7% 5.26%
Class C Shares.............. 3.16% 43.7% 5.61%
Class R Shares.............. 3.91% 43.7% 6.94%
California Municipal Bond Fund
Class A Shares.............. 4.00% 45.2% 7.30%
Class B Shares.............. 3.42% 45.2% 6.24%
Class C Shares.............. 3.62% 45.2% 6.61%
Class R Shares.............. 4.37% 45.2% 7.97%
California Insured Municipal
Bond Fund
Class A Shares.............. 3.60% 45.2% 6.57%
Class B Shares.............. 3.01% 45.2% 5.49%
Class C Shares.............. 3.21% 45.2% 5.86%
Class R Shares.............. 3.96% 45.2% 7.23%
Massachusetts Municipal Bond
Fund
Class A Shares.............. 3.78% 46.8% 7.11%
Class B Shares.............. 3.19% 46.8% 6.00%
Class C Shares.............. 3.40% 46.8% 6.39%
Class R Shares.............. 4.15% 46.8% 7.80%
Massachusetts Insured
Municipal Bond Fund
Class A Shares.............. 3.41% 46.8% 6.41%
Class B Shares.............. 2.81% 46.8% 5.28%
Class C Shares.............. 3.01% 46.8% 5.66%
Class R Shares.............. 3.76% 46.8% 7.07%
New Jersey Intermediate
Municipal Bond Fund
Class A Shares.............. 3.83% 43.4% 6.77%
Class C Shares.............. 3.38% 43.4% 5.97%
Class R Shares.............. 4.15% 43.4% 7.33%
Connecticut Municipal Bond
Fund
Class A Shares.............. 4.00% 42.3% 6.93%
Class B Shares.............. 3.42% 42.3% 5.93%
Class C Shares.............. 3.62% 42.3% 6.27%
Class R Shares.............. 4.38% 42.3% 7.59%
</TABLE>
- --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
** Reflects a combined federal, state and New York City tax rate.
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For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen UITs, or the maximum public
offering price). The distribution rate differs from yield and total return and
therefore is not intended to be a complete measure of performance. Distribution
rate may sometimes differ from yield because a Fund may be paying out more than
it is earning and because it may not include the effect of amortization of bond
premiums to the extent such premiums arise after the bonds were purchased.
The distribution rates as of the period quoted, based on the maximum public
offering price then in effect for the Funds, and assuming the imposition of the
maximum sales charge for Class A Shares, were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
-------------------------------
DISTRIBUTION RATES
-------------------------------
CLASS A CLASS B CLASS C CLASS R
------- ------- ------- -------
<S> <C> <C> <C> <C>
New Jersey Municipal Bond Fund........... 4.87% 4.35% 4.59% 5.31%
New York Municipal Bond Fund............. 4.98% 4.43% 4.63% 5.35%
New York Insured Municipal Bond Fund..... 4.76% 4.18% 4.41% 5.13%
California Municipal Bond Fund .......... 4.79% 4.29% 4.45% 5.22%
California Insured Municipal Bond Fund... 4.68% 4.12% 4.32% 5.05%
Massachusetts Municipal Bond Fund........ 4.96% 4.46% 4.67% 5.37%
Massachusetts Insured Municipal Bond
Fund..................................... 4.73% 4.20% 4.38% 5.11%
New Jersey Intermediate Bond Fund........ 4.60% N/A 4.22% 4.97%
Connecticut Municipal Bond Fund.......... 4.77% 4.27% 4.43% 5.19%
</TABLE>
Average annual total return quotation is computed in accordance with a
standardized method prescribed by SEC rules. The average annual total return
for a specific period is found by taking a hypothetical, $1,000 investment
("initial investment") in Fund shares on the first day of the period, reducing
the amount to reflect the maximum sales charge, and computing the "redeemable
value" of that investment at the end of the period. The redeemable value is
then divided by the initial investment, and this quotient is taken to the Nth
root (N representing the number of years in the period) and 1 is subtracted
from the result, which is then expressed as a percentage. The calculation
assumes that all income and capital gains distributions have been reinvested in
Fund shares at net asset value on the reinvestment dates during the period.
Total returns for the oldest class of each fund reflect actual performance
for all periods. For other classes, total returns reflect actual performance
for periods since class inception, and the oldest class's performance for
periods prior to inception, adjusted for the differences in sales charges and
fees between the classes.
S-71
<PAGE>
The inception dates for each class of the Funds' shares are as follows:
<TABLE>
<CAPTION>
INCEPTION DATES
------------------
<S> <C>
New Jersey Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 26, 1991
New York Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
New York Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
California Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 1, 1986
California Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... July 1, 1986
Massachusetts Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
Massachusetts Insured Municipal Bond Fund
Class A Shares....................................... September 6, 1994
Class B Shares....................................... February 1, 1997
Class C Shares....................................... September 6, 1994
Class R Shares....................................... December 10, 1986
New Jersey Intermediate Municipal Bond Fund
Class A Shares....................................... September 16, 1992
Class C Shares....................................... February 1, 1997
Class R Shares....................................... February 1, 1997
Connecticut Municipal Bond Fund
Class A Shares....................................... July 13, 1987
Class B Shares....................................... February 1, 1997
Class C Shares....................................... October 4, 1993
Class R Shares....................................... February 1, 1997
</TABLE>
S-72
<PAGE>
The annual total return figures for the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund, the
Massachusetts Insured Municipal Bond Fund, the California Municipal Bond Fund,
the California Insured Municipal Bond Fund and the Connecticut Municipal Bond
Fund, including the effect of the maximum sales charge for Class A shares, and
applicable CDSC for Class B Shares, for the one-year, five-year, and ten-year
periods ended February 28, 1998 and for the period from inception through
February 28, 1998, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
-----------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM INCEPTION
ENDED ENDED ENDED THROUGH
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1998 1998 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 5.24% 5.51% 7.44% 7.13%
Class B Shares........ 5.10% 5.59% 7.34% 7.03%
Class C Shares........ 9.31% 5.81% 7.19% 6.81%
Class R Shares........ 10.11% 6.74% 8.20% 7.83%
New York Insured
Municipal Bond Fund
Class A Shares........ 3.23% 4.71% 7.11% 6.57%
Class B Shares........ 2.96% 4.70% 6.98% 6.46%
Class C Shares........ 7.16% 4.89% 6.80% 6.21%
Class R Shares........ 8.04% 5.88% 7.84% 7.25%
Massachusetts Municipal
Bond Fund
Class A Shares........ 2.91% 4.88% 7.08% 6.08%
Class B Shares........ 2.82% 4.84% 6.92% 5.93%
Class C Shares........ 6.85% 4.98% 6.74% 5.69%
Class R Shares........ 7.60% 5.96% 7.78% 6.73%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ 2.50% 4.48% 6.77% 6.19%
Class B Shares........ 2.25% 4.48% 6.65% 6.05%
Class C Shares........ 6.45% 4.64% 6.46% 5.81%
Class R Shares........ 7.23% 5.64% 7.50% 6.86%
California Municipal
Bond Fund
Class A Shares........ 4.33% 4.94% 7.13% 6.97%
Class B Shares........ 4.08% 5.02% 7.02% 6.85%
Class C Shares........ 8.36% 5.18% 6.86% 6.62%
Class R Shares........ 8.99% 6.16% 7.89% 7.65%
California Insured
Municipal Bond Fund
Class A Shares........ 4.09% 4.87% 7.18% 6.82%
Class B Shares........ 3.82% 4.83% 7.03% 6.70%
Class C Shares........ 7.96% 4.94% 6.82% 6.39%
Class R Shares........ 8.86% 6.00% 7.89% 7.46%
Connecticut Municipal
Bond Fund
Class A Shares........ 4.19% 5.07% 7.17% 7.08%
Class B Shares........ 3.76% 5.15% 7.16% 7.07%
Class C Shares........ 8.17% 5.36% 7.02% 6.90%
Class R Shares........ 9.17% 6.06% 7.67% 7.55%
</TABLE>
S-73
<PAGE>
The annual total return figures for the New Jersey Municipal Bond Fund, the
New Jersey Intermediate Bond Fund, and the Connecticut Municipal Bond Fund,
including the effect of the maximum sales charge for Class A Shares, including
the effect of the maximum sales charge for Class A Shares, and applicable CDSC
for Class B Shares, for the one-year and five-year periods (as applicable)
ended February 28, 1998, and for the period since inception through February
28, 1998, respectively, were as follows:
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURNS
-----------------------------------------------------
ONE YEAR FIVE YEARS FROM INCEPTION
ENDED ENDED THROUGH
FEBRUARY 28, 1998 FEBRUARY 28, 1998 FEBRUARY 28, 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ 4.47% 5.32% 6.51%
Class B Shares........ 4.25% 5.33% 6.54%
Class C Shares........ 8.40% 5.50% 6.53%
Class R Shares........ 9.29% 6.50% 7.55%
New Jersey Intermediate
Municipal Bond Fund
Class A Shares........ 3.78% 4.89% 5.99%
Class C Shares........ 6.63% 5.17% 6.21%
Class R Shares........ 7.34% 5.60% 6.65%
</TABLE>
Calculation of cumulative total return is not subject to a prescribed
formula. Cumulative total return for a specific period is calculated by first
taking a hypothetical initial investment in Fund shares on the first day of the
period, deducting (in some cases) the maximum sales charge, and computing the
"redeemable value" of that investment at the end of the period. The cumulative
total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains distributions by the Fund have been
reinvested at net asset value on the reinvestment dates during the period.
Cumulative total return may also be shown as the increased dollar value of the
hypothetical investment over the period. Cumulative total return calculations
that do not include the effect of the sales charge would be reduced if such
charge were included.
S-74
<PAGE>
The cumulative total return figures for the New York Municipal Bond Fund, the
New York Insured Municipal Bond Fund, the Massachusetts Municipal Bond Fund,
the Massachusetts Insured Municipal Bond Fund, the California Municipal Bond
Fund, the California Insured Municipal Bond Fund, and the Connecticut Municipal
Bond Fund, including the effect of the maximum sales charge for the Class A
Shares, and applicable CDSC for Class B Shares, for the one-year, five-year and
ten-year periods ended February 28, 1998, and for the period since inception
February 28, 1998, using the performance of the oldest class for periods prior
to the inception of the newer classes, as described above, respectively, were
as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
---------------------------------------------------
ONE YEAR FIVE YEARS TEN YEARS FROM
ENDED ENDED ENDED INCEPTION
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1998 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ 5.24% 30.76% 105.05% 116.02%
Class B Shares........ 5.10% 31.22% 103.10% 113.93%
Class C Shares........ 9.31% 32.60% 100.20% 108.91%
Class R Shares........ 10.11% 38.57% 119.91% 132.36%
New York Insured
Municipal Bond Fund
Class A Shares........ 3.23% 25.88% 98.69% 103.81%
Class B Shares........ 2.96% 25.83% 96.32% 101.43%
Class C Shares........ 7.16% 26.97% 93.04% 96.13%
Class R Shares........ 8.04% 33.08% 112.62% 118.74%
Massachusetts Municipal
Bond Fund
Class A Shares........ 2.91% 26.87% 98.24% 93.54%
Class B Shares........ 2.82% 26.69% 95.18% 90.43%
Class C Shares........ 6.85% 27.50% 92.07% 85.74%
Class R Shares........ 7.60% 33.60% 111.56% 107.16%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ 2.50% 24.49% 92.58% 95.72%
Class B Shares........ 2.25% 24.48% 90.46% 92.99%
Class C Shares........ 6.45% 25.44% 86.99% 88.18%
Class R Shares........ 7.23% 31.54% 106.09% 110.01%
California Municipal
Bond Fund
Class A Shares ....... 4.33% 27.25% 99.20% 119.45%
Class B Shares........ 4.08% 27.76% 97.17% 116.58%
Class C Shares........ 8.36% 28.74% 94.13% 111.10%
Class R Shares........ 8.99% 34.84% 113.68% 136.25%
California Insured
Municipal Bond Fund
Class A Shares ....... 4.09% 26.84% 100.14% 115.79%
Class B Shares........ 3.82% 26.61% 97.31% 112.95%
Class C Shares........ 7.96% 27.26% 93.37% 105.86%
Class R Shares........ 8.86% 33.83% 113.73% 131.33%
Connecticut Municipal
Bond Fund
Class A Shares........ 4.19% 28.08% 99.84% 106.91%
Class B Shares........ 3.76% 28.57% 99.70% 106.74%
Class C Shares........ 8.17% 29.81% 97.15% 103.36%
Class R Shares........ 9.17% 34.18% 109.42% 116.81%
</TABLE>
S-75
<PAGE>
The cumulative total return figures for the New Jersey Municipal Bond Fund
and the New Jersey Intermediate Municipal Bond Fund and the Connecticut
Municipal Bond Fund, including the effect of the maximum sales charge for the
Class A Shares, and applicable CDSC for Class B Shares, for the one-year and
five-year periods (as applicable) ended February 28, 1998, and for the period
since inception through February 28, 1998, respectively, using the performance
of the oldest class for periods prior to the inception of the newer classes, as
described above, were as follows:
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURNS
---------------------------------------------------
FROM
ONE YEAR FIVE YEARS TEN YEARS INCEPTION
ENDED ENDED ENDED THROUGH
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1998 1998 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ 4.47% 29.60% N/A 46.02%
Class B Shares........ 4.25% 29.67% N/A 46.21%
Class C Shares........ 8.40% 30.72% N/A 46.19%
Class R Shares........ 9.29% 37.01% N/A 54.77%
New Jersey Intermediate
Municipal Bond Fund
Class A Shares........ 3.78% 26.97% N/A 37.35%
Class C Shares........ 6.63% 28.65% N/A 38.87%
Class R Shares........ 7.34% 31.32% N/A 42.01%
</TABLE>
Calculation of taxable equivalent total return is also not subject to a
prescribed formula. Taxable equivalent total return for a specific period is
calculated by first taking a hypothetical initial investment in Fund shares on
the first day of the period, computing the total return for each calendar year
in the period in the manner described above, and increasing the total return
for each such calendar year by the amount of additional income that a taxable
fund would need to have generated to equal the income on an after-tax basis, at
a specified income tax rate (usually the highest marginal federal tax rate),
calculated as described above under the discussion of "taxable equivalent
yield." The resulting amount for the calendar year is then divided by the
initial investment amount to arrive at a "taxable equivalent total return
factor" for the calendar year. The taxable equivalent total return factors for
all the calendar years are then multiplied together and the result is then
annualized by taking its Nth root (N representing the number of years in the
period) and subtracting 1, which provides a taxable equivalent total return
expressed as a percentage.
Using the 46.8% maximum combined marginal federal and state tax rate for
1998, the annual taxable equivalent total return for the Massachusetts
Municipal Bond Fund's shares for the five-year period ended February 28, 1998
with respect to the Class R shares was 10.90%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% (3.00% for New Jersey Intermediate) of the
offering price. This current maximum sales charge will typically be used for
purposes of calculating performance figures. Yield, returns and net asset value
of each class of shares of the Funds will fluctuate. Factors affecting the
performance of the Funds include general market conditions, operating expenses
and investment management. Any additional fees charged by a securities
representative or other financial services firm would reduce returns described
in this section. Shares of the Funds are redeemable at net asset value, which
may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes
S-76
<PAGE>
such as the Lehman Brothers Municipal Bond Index and the Salomon Brothers High
Grade Corporate Bond Index and (2) other fixed income or municipal bond mutual
funds or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or publications may rank mutual funds over different periods of time
by means of aggregate, average, year-by-year, or other types of total return
and performance figures. Any given performance quotation or performance
comparison should not be considered as representative of the performance of the
Funds for any future period.
Each Fund may from time to time in its advertising and sales materials
compare its current yield or total return with the yield or total return on
taxable investments such as corporate or U.S. Government bonds, bank
certificates of deposit (CDs) or money market funds. These taxable investments
have investment characteristics that differ from those of the Funds. U. S.
Government bonds, for example, are long-term investments backed by the full
faith and credit of the U.S. Government, and bank CDs are generally short-term,
FDIC-insured investments, which pay fixed principal and interest but are
subject to fluctuating rollover rates. Money market funds are short-term
investments with stable net asset values, fluctuating yields and special
features enhancing liquidity.
There are differences and similarities between the investments which the
Funds may purchase and the investments measured by the indexes and reporting
services which are described herein. The Consumer Price Index is generally
considered to be a measure of inflation. The CDA Mutual Fund-Municipal Bond
Index is a weighted performance average of other mutual funds with a federally
tax-exempt income objective. The Salomon Brothers High Grade Corporate Bond
Index is an unmanaged index that generally represents the performance of high
grade long-term taxable bonds during various market conditions. The Lehman
Brothers Municipal Bond Index is an unmanaged index that generally represents
the performance of high grade intermediate and long-term municipal bonds during
various market conditions. Lipper calculates municipal bond fund averages based
on average maturity and credit quality. Morningstar rates mutual funds by
overall risk-adjusted performance, investment objectives, and assets. Lipper,
Morningstar, Wiesenberger and CDA are widely recognized mutual fund reporting
services whose performance calculations are based upon changes in net asset
value with all dividends reinvested and which do not include the effect of any
sales charges. The market prices and yields of taxable and tax-exempt bonds
will fluctuate. The Funds primarily invest in investment grade Municipal
Obligations in pursuing their objective of as high a level of current interest
income which is exempt from federal and state income tax as is consistent, in
the view of the Funds' management, with preservation of capital.
The Funds may also compare their taxable equivalent total return performance
to the total return performance of taxable income funds such as treasury
securities funds, corporate bond funds (either investment grade or high yield),
or Ginnie Mae funds. These types of funds, because of the character of their
underlying securities, differ from municipal bond funds in several respects.
The susceptibility of the price of treasury bonds to credit risk is far less
than that of municipal bonds, but the price of treasury bonds tends to be
slightly more susceptible to change resulting from changes in market interest
rates. The susceptibility of the price of investment grade corporate bonds and
municipal bonds to market interest rate changes and general credit changes is
similar. High yield bonds are subject to a greater degree of price volatility
than municipal bonds resulting from changes in market interest rates and are
particularly susceptible to volatility from credit changes. Ginnie Mae bonds
are generally subject to less price volatility than municipal bonds from credit
concerns, due primarily to the fact that the timely payment of monthly
installments of principal and interest are backed by the full faith and credit
of the U.S. Government, but Ginnie Mae bonds of equivalent coupon and maturity
are generally more susceptible to price volatility resulting from market
interest rate changes. In addition, the
S-77
<PAGE>
volatility of Ginnie Mae bonds due to changes in market interest rates may
differ from municipal bonds of comparable coupon and maturity because bonds of
the sensitivity of Ginnie Mae prepayment experience to change in interest
rates.
ADDITIONAL INFORMATION ON THE PURCHASE AND REDEMPTION OF FUND SHARES
As described in the Prospectus, the Funds provide you with alternative ways
of purchasing Fund shares based upon your individual investment needs and
preferences.
Each class of shares of a Fund represents an interest in the same portfolio
of investments. Each class of shares is identical in all respects except that
each class bears its own class expenses, including distribution and
administration expenses, and each class has exclusive voting rights with
respect to any distribution or service plan applicable to its shares. As a
result of the differences in the expenses borne by each class of shares, net
income per share, dividends per share and net asset value per share will vary
among a Fund's classes of shares.
Shareholders of each class will share expenses proportionately for services
that are received equally by all shareholders. A particular class of shares
will bear only those expenses that are directly attributable to that class,
where the type or amount of services received by a class varies from one class
to another. For example, class-specific expenses generally will include
distribution and service fees.
The minimum initial investment is $3,000 per fund share class, and may be
lower for accounts opened through fee-based programs for which the program
sponsor has established a single master account with the fund's transfer agent
and performs all sub-accounting services related to that account.
REDUCTION OR ELIMINATION OF UP-FRONT SALES CHARGE ON CLASS A SHARES AND CLASS R
SHARE PURCHASE ELIGIBILITY
Rights of Accumulation. You may qualify for a reduced sales charge on a
purchase of Class A Shares of any Fund if the amount of your purchase, when
added to the value that day of all of your prior purchases of shares of any
Fund or of another Nuveen Mutual Fund, or Nuveen exchange-traded fund, or units
of a Nuveen unit trust, on which an up-front sales charge or ongoing
distribution fee is imposed, or is normally imposed, falls within the amounts
stated in the Class A Sales Charges and Commissions table in "How to Select a
Purchase Option" in the Prospectus. You or your financial adviser must notify
Nuveen or the Fund's transfer agent of any cumulative discount whenever you
plan to purchase Class A Shares of a Fund that you wish to qualify for a
reduced sales charge.
Letter of Intent. You may qualify for a reduced sales charge on a purchase of
Class A Shares of any Fund if you plan to purchase Class A Shares of Nuveen
Mutual Funds over the next 13 months and the total amount of your purchases
would, if purchased at one time, qualify you for one of the reduced sales
charges shown in the Class A Sales Charges and Commissions table in "How to
Select a Purchase Option" in the Prospectus. In order to take advantage of this
option, you must complete the applicable section of the Application Form or
sign and deliver either to an Authorized Dealer or to the Fund's transfer agent
a written Letter of Intent in a form acceptable to Nuveen. A Letter of Intent
states that you intend, but are not obligated, to purchase over the next 13
months a stated total amount of Class A Shares that would qualify you for a
reduced sales charge shown above. You may count shares of a Nuveen Mutual Fund
that you already own on which you paid an up-front sales charge or an ongoing
distribution fee and any Class B or C Shares of a Nuveen Mutual Fund that you
purchase over the next 13 months towards completion of your investment program,
but you will receive a reduced sales charge only on new Class A Shares you
purchase with a sales charge over the 13 months. You
S-78
<PAGE>
cannot count towards completion of your investment program Class A Shares that
you purchase without a sales charge through investment of distributions from a
Nuveen Mutual Fund or a Nuveen Unit Trust or otherwise.
By establishing a Letter of Intent, you agree that your first purchase of
Class A Shares of a Fund following execution of the Letter of Intent will be at
least 5% of the total amount of your intended purchases. You further agree that
shares representing 5% of the total amount of your intended purchases will be
held in escrow pending completion of these purchases. All dividends and capital
gains distributions on Class A Shares held in escrow will be credited to your
account. If total purchases, less redemptions, prior to the expiration of the
13 month period equal or exceed the amount specified in your Letter of Intent,
the Class A Shares held in escrow will be transferred to your account. If the
total purchases, less redemptions, exceed the amount specified in your Letter
of Intent and thereby qualify for a lower sales charge than the sales charge
specified in your Letter of Intent, you will receive this lower sales charge
retroactively, and the difference between it and the higher sales charge paid
will be used to purchase additional Class A Shares on your behalf. If the total
purchases, less redemptions, are less than the amount specified, you must pay
Nuveen an amount equal to the difference between the amounts paid for these
purchases and the amounts which would have been paid if the higher sales charge
had been applied. If you do not pay the additional amount within 20 days after
written request by Nuveen or your financial adviser, Nuveen will redeem an
appropriate number of your escrowed Class A Shares to meet the required
payment. By establishing a Letter of Intent, you irrevocably appoint Nuveen as
attorney to give instructions to redeem any or all of your escrowed shares,
with full power of substitution in the premises.
You or your financial adviser must notify Nuveen or the Fund's transfer agent
whenever you make a purchase of Fund shares that you wish to be covered under
the Letter of Intent option.
Reinvestment of Nuveen Unit Trust Distributions. You may purchase Class A
Shares without an up-front sales charge by reinvestment of distributions from
any of the various unit trusts sponsored by Nuveen. There is no initial or
subsequent minimum investment requirement for such reinvestment purchases.
Group Purchase Programs. If you are a member of a qualified group, you may
purchase Class A Shares of any Fund or of another Nuveen Mutual Fund at the
reduced sales charge applicable to the group's purchases taken as a whole. A
"qualified group" is one which has previously been in existence, has a purpose
other than investment, has ten or more participating members, has agreed to
include Fund sales publications in mailings to members and has agreed to comply
with certain administrative requirements relating to its group purchases.
Under any group purchase program, the minimum initial investment in Class A
Shares of any particular Fund or portfolio for each participant is $3,000 and,
the minimum monthly investment in Class A Shares of any particular Fund or
portfolio by each participant in the program is $50. No certificates will be
issued for any participant's account. All dividends and other distributions by
a Fund will be reinvested in additional Class A Shares of the same Fund. No
participant may utilize a systematic withdrawal program.
To establish a group purchase program, both the group itself and each
participant must fill out special application materials, which the group
administrator may obtain from the group's financial adviser, by calling Nuveen
toll-free (800) 621-7227 (after August 10, 1998, call (800) 257-8787).
Reinvestment of Redemption Proceeds from Unaffiliated Funds. You may also
purchase Class A Shares at net asset value without a sales charge if the
purchase takes place through a broker-dealer and represents the reinvestment of
the proceeds of the redemption of shares of one or more registered investment
companies not affiliated with Nuveen. You must provide appropriate
documentation that the redemption occurred not more than one year prior to the
reinvestment of the proceeds in Class A Shares, and that you either paid an up-
front sales charge or were subject to a contingent deferred sales charge in
respect of the redemption of such shares of such other investment company.
S-79
<PAGE>
Special Sales Charge Waivers. Class A Shares of a Fund may be purchased at
net asset value without a sales charge, and may be purchased, by the following
categories of investors:
. investors purchasing $1,000,000 or more;
. officers, trustees and former trustees of the Nuveen and Flagship Funds;
. bona fide, full-time and retired employees and directors of Nuveen, any
parent company of Nuveen, and subsidiaries thereof, or their immediate
family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
. any eligible employer-sponsored qualified defined contribution retirement
plan. Eligible plans are those with at least 25 employees and which
either (a) make an initial purchase of one or more Nuveen mutual funds
aggregating $500,000 or more; or (b) execute a Letter of Intent to
purchase in the aggregate $500,000 or more of fund shares. Nuveen will
pay Authorized Dealers a sales commission on such purchases equal to 1%
of the first $2.5 million, plus 0.50% of the next $2.5 million, plus 2.5%
of any amount purchased over $5.0 million. For this category of investors
a contingent deferred sales charge of 1% will be assessed on redemptions
within 18 months of purchase, unless waived. Municipal bond funds are not
a suitable investment for individuals investing in retirement plans.
Holders of Class C Shares acquired on or before January 31, 1997 can convert
those shares to Class A Shares of the same fund at the shareholder's
affirmative request six years after the date of purchase. Holders of Class C
Shares must submit their request to the transfer agent no later than the last
business day of the 71st month following the month in which they purchased
their shares. Holders of Class C Shares purchased after that date will not have
the option to convert those shares to Class A Shares.
Any Class A Shares purchased pursuant to a special sales charge waiver must
be acquired for investment purposes and on the condition that they will not be
transferred or resold except through redemption by the Funds. You or your
financial adviser must notify Nuveen or the Fund's transfer agent whenever you
make a purchase of Class A Shares of any Fund that you wish to be covered under
these special sales charge waivers.
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members
S-80
<PAGE>
(i.e., their spouses, parents, children, grandparents, grandchildren, parents-
in-law, sons- and daughters-in-law, siblings, a sibling's spouse, and a
spouse's siblings); or (3) all purchases made through a group purchase program
as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $2.5 million or more and for purchases using dividends and capital
gains distributions on Class R Shares. Class R Shares also are available for
the following categories of investors:
. officers, trustees and former trustees of the Nuveen and Flagship Funds
and their immediate family members or trustees/directors of any fund
sponsored by Nuveen, any parent company of Nuveen and subsidiaries
thereof and their immediate family members;
. bona fide, full-time and retired employees and directors of Nuveen, any
parent company of Nuveen, and subsidiaries thereof, or their immediate
family members;
. any person who, for at least 90 days, has been an officer, director or
bona fide employee of any Authorized Dealer, or their immediate family
members;
. officers and directors of bank holding companies that make Fund shares
available directly or through subsidiaries or bank affiliates, or their
immediate family members;
. bank or broker-affiliated trust departments investing funds over which
they exercise exclusive discretionary investment authority and that are
held in a fiduciary, agency, advisory, custodial or similar capacity;
. investors purchasing on a periodic fee, asset-based fee or no transaction
fee basis through a broker-dealer sponsored mutual fund purchase program;
. clients of investment advisers, financial planners or other financial
intermediaries that charge periodic or asset-based fees for their
services.
Any shares purchased by investors falling within any of the first four
categories listed above must be acquired for investment purposes and on the
condition that they will not be transferred or resold except through redemption
by the Fund.
In addition, purchasers of Nuveen unit investment trusts may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers had elected to reinvest distributions in
Nuveen Fund shares (before June 13, 1995 for Nuveen Municipal Bond Fund
shares). Shareholders may exchange their Class R Shares of any Nuveen Fund into
Class R Shares of any other Nuveen Fund.
The reduced sales charge programs may be modified or discontinued by the
Funds at any time.
If you are eligible to purchase either Class R Shares or Class A Shares
without a sales charge at net asset value, you should be aware of the
differences between these two classes of shares. Class A Shares are subject to
an annual service fee to compensate Authorized Dealers for providing you with
ongoing account services. Class R Shares are not subject to a distribution or
service fee and, consequently, holders of Class R Shares may not receive the
sale types or levels of services from Authorized Dealers. In choosing between
Class A Shares and Class R Shares, you should weigh the benefits of the
services to be provided by Authorized Dealers against the annual service fee
imposed upon the Class A Shares.
For more information about the purchase of Class A Shares or reduced sales
charge programs, or to obtain the required application forms, call Nuveen toll-
free at (800) 621-7227 (after August 10, 1998, call (800) 257-8787).
S-81
<PAGE>
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
Class A Shares are normally redeemed at net asset value, without any
Contingent Deferred Sales Charge ("CDSC"). However, in the case of Class A
Shares purchased at net asset value on or after July 1, 1996 because the
purchase amount exceeded $1 million, where the Authorized Dealer did not waive
the sales commission, a CDSC of 1% is imposed on any redemption within 18
months of purchase. In the case of Class B Shares redeemed within six years of
purchase, a CDSC is imposed, beginning at 5% for redemptions within the first
year, declining to 4% for redemptions within years two and three, and declining
by 1% each year thereafter until disappearing after the sixth year. Class C
Shares are redeemed at net asset value, without any CDSC, except that a CDSC of
1% is imposed upon redemption of Class C Shares that are redeemed within 12
months of purchase.
In determining whether a CDSC is payable, a Fund will first redeem shares not
subject to any charge, or that represent an increase in the value of a Fund
account due to capital appreciation, and then will redeem shares held for the
longest period, unless the shareholder specifies another order. No CDSC is
charged on shares purchased as a result of automatic reinvestment of dividends
or capital gains paid. In addition, no CDSC will be charged on exchanges of
shares into another Nuveen Mutual Fund or Nuveen money market fund. You may not
exchange Class B Shares for shares of a Nuveen money market fund. The holding
period is calculated on a monthly basis and begins the first day of the month
in which the order for investment is received. The CDSC is calculated based on
the lower of the redeemed shares' cost or net asset value at the time of the
redemption and is deducted from the redemption proceeds. Nuveen receives the
amount of any CDSC shareholders pay. If Class A or Class C Shares subject to a
CDSC are exchanged for shares of a Nuveen money market fund, the CDSC would be
imposed on the subsequent redemption of those money market shares, and the
period during which the shareholder holds the money market fund shares would be
counted in determining the remaining duration of the CDSC. The Fund may elect
not to so count the period during which the shareholder held the money market
fund shares, in which event the amount of any applicable CDSC would be reduced
in accordance with applicable SEC rules by the amount of any 12b-1 plan
payments to which those money market funds shares may be subject.
The CDSC may be waived or reduced under the following six special
circumstances: 1) redemptions within one year following the death or
disability, as defined in Section 72(m)(7) of the Internal Revenue Code of
1986, as amended, of a shareholder; 2) in whole or in part for redemptions of
shares by shareholders with accounts in excess of specified breakpoints that
correspond to the breakpoints under which the up-front sales charge on Class A
Shares is reduced pursuant to Rule 22d-1 under the Act; 3) redemptions of
shares purchased under circumstances or by a category of investors for which
Class A Shares could be purchased at net asset value without a sales charge; 4)
in connection with the exercise of a reinstatement privilege whereby the
proceeds of a redemption of a Fund's shares subject to a sales charge are
reinvested in shares of certain Funds within a specified number of days; 5) in
connection with the exercise of a Fund's right to redeem all shares in an
account that does not maintain a certain minimum balance or that the applicable
board has determined may have material adverse consequences to the shareholders
of such Fund; and 6) redemptions made pursuant to a Fund's systematic
withdrawal plan, up to 12% of the current market value. If a Fund waives or
reduces the CDSC, such waiver or reduction would be uniformly applied to all
Fund shares in the particular category. In waiving or reducing a CDSC, the
Funds will comply with the requirements of Rule 22d-1 of the Investment Company
Act of 1940, as amended.
GENERAL MATTERS
The Funds may encourage registered representatives and their firms to help
apportion their assets among bonds, stocks and cash, and may seek to
participate in programs that recommend a portion of their assets be invested in
tax-free, fixed income securities.
S-82
<PAGE>
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the prospectus, Nuveen may from time to time make
additional reallowances only to certain authorized dealers who sell or are
expected to sell certain minimum amounts of shares of the Nuveen mutual funds
during specified time periods.
To help advisers and investors better understand and most efficiently use the
Funds to reach their investment goals, the Funds may advertise and create
specific investment programs and systems. For example, this may include
information on how to use the Funds to accumulate assets for future education
needs or periodic payments such as insurance premiums. The Funds may produce
software or additional sales literature to promote the advantages of using the
Funds to meet these and other specific investor needs.
The Funds have authorized one or more brokers to accept on their behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Funds' behalf.
The Funds will be deemed to have received a purchase or redemption order when
an authorized broker or, if applicable, a broker's authorized designee accepts
the order. Customer orders received by such broker (or their designee) will be
priced at the Funds' net asset value next computed after they are accepted by
an authorized broker (or their designee). Orders accepted by an authorized
broker (or their designee) before the close of regular trading on the New York
Stock Exchange will receive that day's share price; orders accepted after the
close of trading will receive the next business day's share price.
Exchanges of shares of a Fund for shares of a Nuveen money market fund may be
made on days when both funds calculate a net asset value and make shares
available for public purchase. Shares of the Nuveen money market funds may be
purchased on days on which the Federal Reserve Bank of Boston is normally open
for business. In addition to the holidays observed by the Fund, the Nuveen
money market funds observe and will not make fund shares available for purchase
on the following holidays: Martin Luther King's Birthday, Columbus Day and
Veterans Day.
In addition, you may exchange Class R Shares of any Fund for Class A Shares
of the same Fund without a sales charge if the current net asset value of those
Class R Shares is at least $3,000 or you already own Class A Shares of that
Fund.
Each Fund may suspend the right of redemption, or delay payment to redeeming
shareholders for more than seven days, when the New York Stock Exchange is
closed (not including customary weekend and holiday closings); when trading in
the markets a Fund normally uses is restricted, or the SEC determines that an
emergency exists so that trading of a Fund's portfolio securities or
determination of a Fund's net asset value is not reasonably practical; or the
SEC by order permits the suspension of the right of redemption or the delay in
payment to redeeming shareholders for more than seven days.
Shares will be registered in the name of the investor or the investor's
financial adviser. A change in registration or transfer of shares held in the
name of a financial adviser may only be made by an order in good form from the
financial adviser acting on the investor's behalf. Share certificates will only
be issued upon written request to the Funds' transfer agent. No share
certificates will be issued for fractional shares.
For more information on the procedure for purchasing shares of a Fund and on
the special purchase programs available thereunder, see "How to Buy Fund
Shares" in the Prospectus.
Nuveen serves as the principal underwriter of the shares of the Funds
pursuant to a "best efforts" arrangement as provided by a distribution
agreement with the Nuveen Flagship Multistate Trust II, dated February 1, 1997
and last renewed on July 31, 1997 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Trust appointed Nuveen to be its agent for the
distribution of the Funds' shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial
intermediaries
S-83
<PAGE>
(collectively referred to as "Dealers"), or others, in a manner consistent with
the then effective registration statement of the Trust. Pursuant to the
Distribution Agreement, Nuveen, at its own expense, finances certain activities
incident to the sale and distribution of the Funds' shares, including printing
and distributing of prospectuses and statements of additional information to
other than existing shareholders, the printing and distributing of sales
literature, advertising and payment of compensation and giving of concessions
to Dealers. Nuveen receives for its services the excess, if any, of the sales
price of the Funds' shares less the net asset value of those shares, and
reallows a majority or all of such amounts to the Dealers who sold the shares;
Nuveen may act as such a Dealer. Nuveen also receives compensation pursuant to
a distribution plan adopted by the Trust pursuant to Rule 12b-1 and described
herein under "Distribution and Service Plan." Nuveen receives any CDSCs imposed
on redemptions of Shares.
The following table sets forth the aggregate amount of underwriting
commissions with respect to the sale of Fund shares and the amount thereof
retained by Nuveen, (or Flagship Financial, Inc. which Nuveen acquired on
January 1, 1998) for each of the Funds for the last three fiscal years. All
figures are to the nearest thousand.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997* JANUARY 31, 1996
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMSSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Fund......... 242 33 206 19 241 16
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997 FEBRUARY 29, 1996
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMSSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New York Fund........... 367 60 244 24 272 33
New York Insured Fund... 308 48 394 49 450 71
California Fund......... 272 38 209 31 221 33
California Insured Fund. 310 45 338 52 357 56
Massachusetts Fund...... 103 13 99 9 96 12
Massachusetts Insured
Fund................... 56 7 79 11 113 14
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, 1998 FEBRUARY 28, 1997** MAY 31, 1996
------------------------ ------------------------ ------------------------
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT AMOUNT OF AMOUNT
UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY UNDERWRITING RETAINED BY
COMMSSIONS NUVEEN COMMISSIONS NUVEEN COMMISSIONS NUVEEN
FUND ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Intermediate
Fund................... 17 4 6 1 19 4
Connecticut Fund........ 504 61 127 18 349 47
</TABLE>
- --------
*For the thirteen month period ended February 28, 1997.
**For the nine month period ended February 28, 1997.
S-84
<PAGE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
The service fee applicable to Class A Shares, Class B Shares and Class C
Shares under each Fund's Plan will be payable to Authorized Dealers in
connection with the provision of ongoing account services to shareholders.
These services may include establishing and maintaining shareholder accounts,
answering shareholder inquiries and providing other personal services to
shareholders.
Each Fund may spend up to .20 of 1% per year of the average daily net assets
of Class A Shares as a service fee under the Plan applicable to Class A Shares.
Each Fund may spend up to .75 of 1% per year of the average daily net assets of
Class B Shares as a distribution fee and up to .20 of 1% per year of the
average daily net assets of Class B Shares as a service fee under the Plan
applicable to Class B Shares. Each Fund may spend up to .55 of 1% per year of
the average daily net assets of Class C Shares as a distribution fee and up to
..20 of 1% per year of the average daily net assets of Class C Shares as a
service fee under the Plan applicable to Class C Shares.
For the fiscal year ended February 28, 1998, 100% of service fees and
distribution fees were paid out as compensation to Authorized Dealers. Prior to
February 1, 1997, the service fee for the New York Municipal Bond Fund, the New
York Insured Municipal Bond Fund, the New Jersey Municipal Bond Fund, the
California Municipal Bond Fund, the California Insured Municipal Bond Fund, the
Massachusetts Municipal Bond Fund, and the Massachusetts Insured Municipal Bond
Fund was .25% for both Class A and Class C Shares and the distribution fee was
..75% for Class C Shares. Thereafter, the service fee for the Class A and Class
C Shares was .20% and the distribution fee for the Class C Shares was .55%. For
the period from June 1, 1996 to January 31, 1997, the service fee for the New
Jersey Intermediate Fund and the Connecticut Municipal Bond Fund Class C Shares
was .20% and the distribution fee was .20% for the Class A Shares and .75% for
the Class C Shares; thereafter, the fees were the same as the aforementioned
Funds.
S-85
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION PAID TO
AUTHORIZED DEALERS FOR
END OF FISCAL 1998
----------------------
<S> <C>
New York Municipal Bond Fund
Class A................................................ $146,006
Class B................................................ $ 18,117
Class C................................................ $ 37,940
New York Insured Municipal Bond Fund
Class A................................................ $ 79,903
Class B................................................ $ 27,910
Class C................................................ $ 16,700
New Jersey Municipal Bond Fund
Class A................................................ $ 62,042
Class B................................................ $ 13,006
Class C................................................ $ 32,738
New Jersey Intermediate Municipal Bond Fund
Class A................................................ $ 15,264
Class C................................................ $ 1,522
California Municipal Bond Fund
Class A................................................ $ 48,663
Class B................................................ $ 9,832
Class C................................................ $ 12,835
California Insured Municipal Bond Fund
Class A................................................ $ 64,074
Class B................................................ $ 10,854
Class C................................................ $ 17,984
Connecticut Municipal Bond Fund
Class A................................................ $420,815
Class B................................................ $ 13,123
Class C................................................ $ 67,747
Massachusetts Municipal Bond Fund
Class A................................................ $ 16,106
Class B................................................ $ 2,710
Class C................................................ $ 10,459
Massachusetts Insured Municipal Bond Fund
Class A................................................ $ 15,789
Class B................................................ $ 1,965
Class C................................................ $ 7,520
</TABLE>
Under each Fund's Plan, the Fund will report quarterly to the Board of
Trustees for its review all amounts expended per class of shares under the
Plan. The Plan may be terminated at any time with respect to any class of
shares, without the payment of any penalty, by a vote of a majority of the
trustees who are not "interested persons" and who have no direct or indirect
financial interest in the Plan or by vote of a majority of the outstanding
voting securities of such class. The Plan may be renewed from year to year if
approved by a vote of the Board of Trustees and a vote of the non-interested
trustees who have no direct or indirect financial interest in the Plan cast in
person at a meeting called for the purpose of voting on the Plan. The Plan may
be continued
S-86
<PAGE>
only if the trustees who vote to approve such continuance conclude, in the
exercise of reasonable business judgment and in light of their fiduciary duties
under applicable law, that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan may not be amended to increase
materially the cost which a class of shares may bear under the Plan without the
approval of the shareholders of the affected class, and any other material
amendments of the Plan must be approved by the non-interested trustees by a
vote cast in person at a meeting called for the purpose of considering such
amendments. During the continuance of the Plan, the selection and nomination of
the non-interested trustees of the Trust will be committed to the discretion of
the non-interested trustees then in office.
INDEPENDENT PUBLIC ACCOUNTANTS AND CUSTODIAN
Arthur Andersen LLP, independent public accountants, 33 West Monroe Street,
Chicago Illinois 60603 has been selected as auditors for all of the Funds. In
addition to audit services, the auditors will provide consultation and
assistance on accounting, internal control, tax and related matters. The
financial statements incorporated by reference elsewhere in this Statement of
Additional Information and the information for prior periods set forth under
"Financial Highlights" in the Prospectus have been audited by the auditors as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of that firm in giving that report.
The custodian of the Funds' assets is The Chase Manhattan Bank, 4 New York
Plaza, New York 10004. The custodian performs custodial, fund accounting,
portfolio accounting, shareholder, and transfer agency services.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports; each is included herein by reference. The
Annual Reports accompany this Statement of Additional Information.
S-87
<PAGE>
APPENDIX A
RATINGS OF INVESTMENTS
The four highest ratings of Moody's for Municipal Obligations are Aaa, Aa, A
and Baa. Municipal Obligations rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to Municipal Obligations which are of
"high quality by all standards," but as to which margins of protection or other
elements make long-term risks appear somewhat greater than in Aaa rated
Municipal Obligations. The Aaa and Aa rated Municipal Obligations comprise what
are generally known as "high grade bonds." Municipal Obligations that are rated
A by Moody's possess many favorable investment attributes and are considered
upper medium grade obligations. Factors giving security to principal and
interest of A rated Municipal Obligations are considered adequate, but elements
may be present, which suggest a susceptibility to impairment sometime in the
future. Municipal Obligations rated Baa by Moody's are considered medium grade
obligations (i.e., they are neither highly protected nor poorly secured). Such
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Moody's bond rating symbols may contain numerical
modifiers of a generic rating classification. The modifier 1 indicates that the
bond ranks at the high end of its category; the modifier 2 indicates a mid-
range ranking; and the modifier 3 indicates that the issue ranks in the lower
end of its general rating category.
The four highest ratings of S&P for Municipal Obligations are AAA, AA, A and
BBB. Municipal Obligations rated AAA have a strong capacity to pay principal
and interest. The rating of AA indicates that capacity to pay principal and
interest is very strong and such bonds differ from AAA issues only in small
degree. The category of A describes bonds which have a strong capacity to pay
principal and interest, although such bonds are somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions. The
BBB rating is the lowest "investment grade" security rating by S&P. Municipal
Obligations rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas such bonds normally exhibit adequate protection
parameters, adverse economic conditions are more likely to lead to a weakened
capacity to pay principal and interest for bonds in this category than for
bonds in the A category.
The four highest ratings of Fitch for Municipal Obligations are AAA, AA, A
and BBB. Municipal Obligations rated AAA are considered to be investment grade
and of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal, which is unlikely to be affected
by reasonably foreseeable events. Municipal Obligations rated AA are considered
to be investment grade and of very high quality. The obligor's ability to pay
interest and repay principal is very strong, although not quite as strong as
bonds rated "AAA." Because Municipal Obligations rated in the "AAA" and "AA"
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated "F-1+." Municipal
Obligations rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Municipal
Obligations rated BBB are considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
The "Other Corporate Obligations" category of temporary investments are
corporate (as opposed to municipal) debt obligations rated AAA by S&P or Aaa by
Moody's. Corporate debt obligations rated AAA by S&P have an extremely strong
capacity to pay principal and interest. The Moody's corporate debt rating of
Aaa is comparable to that set forth above for Municipal Obligations.
A-1
<PAGE>
Subsequent to its purchase by a Fund, an issue may cease to be rated or its
rating may be reduced below the minimum required for purchase by such Fund.
Neither event requires the elimination of such obligation from a Fund's
portfolio, but Nuveen Advisory will consider such an event in its determination
of whether the Fund should continue to hold such obligation.
A-2
<PAGE>
APPENDIX B
DESCRIPTION OF HEDGING TECHNIQUES
Set forth below is additional information regarding the various Fund's
defensive hedging techniques and use of repurchase agreements.
FUTURES AND INDEX TRANSACTIONS
Financial Futures. A financial future is an agreement between two parties to
buy and sell a security for a set price on a future date. They have been
designed by boards of trade which have been designated "contracts markets" by
the Commodity Futures Trading Commission ("CFTC").
The purchase of financial futures is for the purpose of hedging a Fund's
existing or anticipated holdings of long-term debt securities. When a Fund
purchases a financial future, it deposits in cash or securities an "initial
margin" of between 1% and 5% of the contract amount. Thereafter, the Fund's
account is either credited or debited on a daily basis in correlation with the
fluctuation in price of the underlying future or other requirements imposed by
the exchange in order to maintain an orderly market. The Fund must make
additional payments to cover debits to its account and has the right to
withdraw credits in excess of the liquidity, the Fund may close out its
position at any time prior to expiration of the financial future by taking an
opposite position. At closing a final determination of debits and credits is
made, additional cash is paid by or to the Fund to settle the final
determination and the Fund realizes a loss or gain depending on whether on a
net basis it made or received such payments.
The sale of financial futures is for the purpose of hedging a Fund's existing
or anticipated holdings of long-term debt securities. For example, if a Fund
owns long-term bonds and interest rates were expected to increase, it might
sell financial futures. If interest rates did increase, the value of long-term
bonds in the Fund's portfolio would decline, but the value of the Fund's
financial futures would be expected to increase at approximately the same rate
thereby keeping the net asset value of the Fund from declining as much as it
otherwise would have.
Among the risks associated with the use of financial futures by the Funds as
a hedging device, perhaps the most significant is the imperfect correlation
between movements in the price of the financial futures and movements in the
price of the debt securities which are the subject of the hedge.
Thus, if the price of the financial future moves less or more than the price
of the securities which are the subject of the hedge, the hedge will not be
fully effective. To compensate for this imperfect correlation, the Fund may
enter into financial futures in a greater dollar amount than the dollar amount
of the securities being hedged if the historical volatility of the prices of
such securities has been greater than the historical volatility of the
financial futures. Conversely, the Fund may enter into fewer financial futures
if the historical volatility of the price of the securities being hedged is
less than the historical volatility of the financial futures.
The market prices of financial futures may also be affected by factors other
than interest rates. One of these factors is the possibility that rapid changes
in the volume of closing transactions, whether due to volatile markets or
movements by speculators, would temporarily distort the normal relationship
between the markets in the financial future and the chosen debt securities. In
these circumstances as well as in periods of rapid and large price movements.
The Fund might find it difficult or impossible to close out a particular
transaction.
B-1
<PAGE>
Options on Financial Futures. The Funds may also purchase put or call options
on financial futures which are traded on a U.S. Exchange or board of trade and
enter into closing transactions with respect to such options to terminate an
existing position. Currently, options can be purchased with respect to
financial futures on U.S. Treasury Bonds on The Chicago Board of Trade. The
purchase of put options on financial futures is analogous to the purchase of
put options by a Fund on its portfolio securities to hedge against the risk of
rising interest rates. As with options on debt securities, the holder of an
option may terminate his position by selling an option of the same Fund. There
is no guarantee that such closing transactions can be effected.
INDEX CONTRACTS
Index Futures. A tax-exempt bond index which assigns relative values to the
tax-exempt bonds included in the index is traded on the Chicago Board of Trade.
The index fluctuates with changes in the market values of all tax-exempt bonds
included rather than a single bond. An index future is a bilateral agreement
pursuant to which two parties agree to take or make delivery of an amount of
cash--rather than any security--equal to specified dollar amount times the
difference between the index value at the close of the last trading day of the
contract and the price at which the index future was originally written. Thus,
an index future is similar to traditional financial futures except that
settlement is made in cash.
Index Options. The Funds may also purchase put or call options on U.S.
Government or tax-exempt bond index futures and enter into closing transactions
with respect to such options to terminate an existing position. Options on
index futures are similar to options on debt instruments except that an option
on an index future gives the purchaser the right, in return for the premium
paid, to assume a position in an index contract rather than an underlying
security at a specified exercise price at any time during the period of the
option. Upon exercise of the option, the delivery of the futures position by
the writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance of the writer's futures margin account
which represents the amount by which the market price of the index futures
contract, at exercise, is less than the exercise price of the option on the
index future.
Bond index futures and options transactions would be subject to risks similar
to transactions in financial futures and options thereon as described above. No
series will enter into transactions in index or financial futures or related
options unless and until, in the Adviser's opinion, the market for such
instruments has developed sufficiently.
REPURCHASE AGREEMENTS
A Fund may invest temporarily up to 5% of its assets in repurchase
agreements, which are agreements pursuant to which securities are acquired by
the Fund from a third party with the understanding that they will be
repurchased by the seller at a fixed price on an agreed date. These agreements
may be made with respect to any of the portfolio securities in which the Fund
is authorized to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into repurchase
agreements with (i) member banks of the Federal Reserve System having total
assets in excess of $500 million and (ii) securities dealers, provided that
such banks or dealers meet the creditworthiness standards established by the
Fund's board of trustees ("Qualified Institutions"). The Adviser will monitor
the continued creditworthiness of Qualified Institutions, subject to the
oversight of the Fund's board of trustees.
The use of repurchase agreements involves certain risks. For example, if the
seller of securities under a repurchase agreement defaults on its obligation to
repurchase the underlying securities, as a result of its
B-2
<PAGE>
bankruptcy or otherwise, the Fund will seek to dispose of such securities,
which action could involve costs or delays. If the seller becomes insolvent and
subject to liquidation or reorganization under applicable bankruptcy or other
laws, the Fund's ability to dispose of the underlying securities may be
restricted. Finally, it is possible that the Fund may not be able to
substantiate its interest in the underlying securities. To minimize this risk,
the securities underlying the repurchase agreement will be held by the
custodian at all times in an amount at least equal to the repurchase price,
including accrued interest. If the seller fails to repurchase the securities,
the Fund may suffer a loss to the extent proceeds from the sale of the
underlying securities are less than the repurchase price.
The resale price reflects the purchase price plus an agreed upon market rate
of interest which is unrelated to the coupon rate or date of maturity of the
purchased security. The collateral is marked to market daily. Such agreements
permit the Fund to keep all its assets earning interest while retaining
"overnight" flexibility in pursuit of investments of a longer-term nature.
B-3
<PAGE>
VAI-MS2
<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
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
<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
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>
PART C--OTHER INFORMATION
ITEM 24: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements:
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional Information through incorporation
by reference to each Fund's most recent Annual and Semi-Annual Reports:
Portfolio of Investments
Statement of Net Assets
Statement of Operations
Statement of Changes in Net Assets
Report of Independent Public Accountants
(b) Exhibits:
<TABLE>
<C> <S>
1(a). Declaration of Trust of Registrant. Filed as Exhibit 1(a) to Regis-
trant's Registration Statement on Form N-1A (File No. 333-14729) and
incorporated herein by reference thereto.
1(b). Amended and Restated Establishment and Designation of Series of
Shares of Beneficial Interest dated October 11, 1996. Filed as Ex-
hibit 1(b) to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
1(c). Certificate for the Establishment and Designation of Classes dated
July 10, 1996. Filed as Exhibit 1(c) to Registrant's Registration
Statement on Form N-1A (File No. 333-14729) and incorporated herein
by reference thereto.
1(d). Incumbency Certificate.
2. By-Laws of Registrant. Filed as Exhibit 2 to Registrant's Registra-
tion Statement on Form N-1A (File No. 333-14729) and incorporated
herein by reference thereto.
3. Not applicable.
4. Specimen certificates of Shares of each Fund. Filed as Exhibit 4 to
Registrant's Registration Statement on Form N-1A (File No. 333-14729)
and incorporated herein by reference thereto.
5. Investment Management Agreement between Registrant and Nuveen Advi-
sory Corp. Filed as Exhibit 5 to Registrant's Registration Statement
on Form N-1A (File No. 333-14729) and incorporated herein by refer-
ence thereto.
5(a). Renewal of Investment Management Agreement dated May 5, 1998.
6. Distribution Agreement between Registrant and John Nuveen & Co. In-
corporated. Filed as Exhibit 6 to Registrant's Registration Statement
on Form N-1A (File No. 333-14729) and incorporated herein by refer-
ence thereto.
6(a). Renewal of Distribution Agreement dated July 31, 1997.
7. Not applicable.
8. Custodian Agreement between Registrant and Chase Manhattan Bank.
Filed as Exhibit 8 to Post-Effective Amendment No.1 to Registrant's
Registration Statement on Form N-1A (file No.333-14729) and incorpo-
rated herein by reference thereto.
9(a). Transfer Agency Agreement between Registrant and Shareholder Servic-
es, Inc.
9(b). Transfer Agency Agreement between Registrant and Boston Financial
Data Services.
10. Opinion of Morgan, Lewis & Bockius LLP.
11. Consent of Arthur Andersen LLP, Independent Public Accountants.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Plan of Distribution and Service Pursuant to Rule 12b-1 for the Class
A Shares, Class B Shares and Class C Shares of each Fund. Filed as
Exhibit 15 to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
18. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Exhibit 18
to Registrant's Registration Statement on Form N-1A (File No. 333-
14729) and incorporated herein by reference thereto.
99(a). Original Power of Attorney for Judith M. Stockdale authorizing, among
others, Gifford R. Zimmerman and Larry W. Martin to execute the Reg-
istration Statement on her behalf as one of the Registrant's Direc-
tors. Original Powers of Attorney for all of Registrant's other Di-
rectors authorizing, among others, Gifford R. Zimmerman and Larry W.
Martin to execute the Registration Statement were filed as Exhibit
99(a) to Registrant's Registration Statement on Form N-1A (File No.
333-14729) and is incorporated herein by reference thereto.
99(b). Certified copy of Resolution of Board of Trustees authorizing the
signing of the names of trustees and officers on the Registrant's
Registration Statement pursuant to power of attorney.
99(c). Code of Ethics and Reporting Requirements. Filed as Exhibit 99(c) to
Post-Effective Amendment No.1 to Registrant's Registration Statement
on Form N-1A (File No. 333-14729) and incorporated herein by refer-
ence thereto.
</TABLE>
C-1
<PAGE>
ITEM 25: PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not applicable.
ITEM 26: NUMBER OF HOLDERS OF SECURITIES
As of May 26, 1998:
<TABLE>
<CAPTION>
NUMBER OF
TITLE OF SERIES RECORD HOLDERS
--------------- --------------
Nuveen Flagship New York Municipal Bond Fund
<S> <C>
Class A Shares......................................... 1,756
Class B Shares......................................... 85
Class C Shares......................................... 105
Class R Shares......................................... 4,442
Nuveen New York Insured Municipal Bond Fund
Class A Shares......................................... 1,675
Class B Shares......................................... 92
Class C Shares......................................... 69
Class R Shares......................................... 7,995
Nuveen Flagship New Jersey Municipal Bond Fund
Class A Shares......................................... 1,338
Class B Shares......................................... 74
Class C Shares......................................... 169
Class R Shares......................................... 1,751
Nuveen Flagship New Jersey Intermediate Municipal Bond
Fund
Class A Shares......................................... 181
Class C Shares......................................... 18
Class R Shares......................................... 11
Nuveen California Municipal Bond Fund
Class A Shares......................................... 957
Class B Shares......................................... 54
Class C Shares......................................... 82
Class R Shares......................................... 4,507
Nuveen California Insured Municipal Bond Fund
Class A Shares......................................... 1,074
Class B Shares......................................... 58
Class C Shares......................................... 116
Class R Shares......................................... 3,950
Nuveen Flagship Connecticut Municipal Bond Fund
Class A Shares......................................... 4,483
Class B Shares......................................... 99
Class C Shares......................................... 260
Class R Shares......................................... 24
Nuveen Massachusetts Municipal Bond Fund
Class A Shares......................................... 584
Class B Shares......................................... 31
Class C Shares......................................... 50
Class R Shares......................................... 2,264
Nuveen Massachusetts Insured Municipal Bond Fund
Class A Shares......................................... 439
Class B Shares......................................... 12
Class C Shares......................................... 33
Class R Shares......................................... 1,708
</TABLE>
C-2
<PAGE>
ITEM 27: INDEMNIFICATION
Section 4 of Article XII of Registrant's Amended and Restated Declaration of
Trust provides as follows:
Subject to the exceptions and limitations contained in this Section 4, every
person who is, or has been, a Trustee, officer, employee or agent of the Trust,
including persons who serve at the request of the Trust as directors, trustees,
officers, employees or agents of another organization in which the Trust has an
interest as a shareholder, creditor or otherwise (hereinafter referred to as a
"Covered Person"), shall be indemnified by the Trust to the fullest extent
permitted by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or proceeding in
which he becomes involved as a party or otherwise by virtue of his being or
having been such a Trustee, director, officer, employee or agent and against
amounts paid or incurred by him in settlement thereof.
No indemnification shall be provided hereunder to a Covered Person:
(a) against any liability to the Trust or its Shareholders by reason of a
final adjudication by the court or other body before which the proceeding
was brought that he engaged in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his office;
(b) with respect to any matter as to which he shall have been finally
adjudicated not to have acted in good faith in the reasonable belief that
his action was in the best interests of the Trust; or
(c) in the event of a settlement or other disposition not involving a final
adjudication (as provided in paragraph (a) or (b)) and resulting in a
payment by a Covered Person, unless there has been either a determination
that such Covered Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office by the court or other body approving the settlement
or other disposition or a reasonable determination, based on a review of
readily available facts (as opposed to a full trial-type inquiry), that he
did not engage in such conduct:
(i) by a vote of a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees then in
office act on the matter); or
(ii) by written opinion of independent legal counsel.
The rights of indemnification herein provided may be insured against by
policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Covered Person may now or hereafter be entitled,
shall continue as to a person who has ceased to be such a Covered Person and
shall inure to the benefit of the heirs, executors and administrators of such a
person. Nothing contained herein shall affect any rights to indemnification to
which Trust personnel other than Covered Persons may be entitled by contract or
otherwise under law.
Expenses of preparation and presentation of a defense to any claim, action,
suit or proceeding subject to a claim for indemnification under this Section 4
shall be advanced by the Trust prior to final disposition thereof upon receipt
of an undertaking by or on behalf of the recipient to repay such amount if it
is ultimately determined that he is not entitled to indemnification under this
Section 4, provided that either:
(a) such undertaking is secured by a surety bond or some other appropriate
security or the Trust shall be insured against losses arising out of any
such advances; or
(b) a majority of the Disinterested Trustees acting on the matter (provided
that a majority of the Disinterested Trustees then in office act on the
matter) or independent legal counsel in a written opinion shall determine,
based upon a review of the readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4, a "Disinterested Trustee" is one (x) who is not an
Interested Person of the Trust (including, as such Disinterested Trustee,
anyone who has been exempted from being an Interested Person by any rule,
regulation or order of the Commission), and (y) against whom none of such
actions, suits or other proceedings or another action, suit or other proceeding
on the same or similar grounds is then or has been pending.
As used in this Section 4, the words "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits, proceedings (civil, criminal,
administrative or other, including appeals), actual or threatened; and the word
"liability" and "expenses" shall include without limitation, attorneys' fees,
costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
----------------
The trustees and officers of the Registrant are covered by an Investment Trust
Errors and Omission policy in the aggregate amount of $20,000,000 (with a
maximum deductible of $500,000) against liability and expenses of claims of
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith,
C-3
<PAGE>
gross negligence and willful disregard of duty (i.e., where the insured did not
act in good faith for a purpose he or she reasonably believed to be in the best
interest of Registrant or where he or she shall have had reasonable cause to
believe this conduct was unlawful).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the officers, trustees or controlling persons of the
Registrant pursuant to the Declaration of Trust of the Registrant or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by an officer or trustee or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such officer, trustee or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
ITEM 28: BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Nuveen Advisory Corp. serves as investment adviser to the following open-end
management type investment companies: Nuveen Flagship Multistate Trust I,
Nuveen Flagship Multistate Trust II, Nuveen Flagship Multistate Trust III,
Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Flagship
Admiral Funds Inc., Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free
Money Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund, Inc., and Nuveen
Tax-Free Reserves, Inc. It also serves as investment adviser to the following
closed-end management type investment companies: Nuveen Municipal Value Fund,
Inc., Nuveen California Municipal Value Fund, Inc., Nuveen New York Municipal
Value Fund, Inc., Nuveen Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund, Inc., Nuveen Performance Plus Municipal Fund, Inc., Nuveen
California Performance Plus Municipal Fund, Inc., Nuveen New York Performance
Plus Municipal Fund, Inc., Nuveen Municipal Advantage Fund, Inc., Nuveen
Municipal Market Opportunity Fund, Inc., Nuveen California Municipal Market
Opportunity Fund, Inc., Nuveen Investment Quality Municipal Fund, Inc., Nuveen
California Investment Quality Municipal Fund, Inc., Nuveen New York Investment
Quality Municipal Fund, Inc., Nuveen Insured Quality Municipal Fund, Inc.,
Nuveen Florida Investment Quality Municipal Fund, Nuveen New Jersey Investment
Quality Municipal Fund, Inc., Nuveen Pennsylvania Investment Quality Municipal
Fund, Nuveen Select Quality Municipal Fund, Inc., Nuveen California Select
Quality Municipal Fund, Inc., Nuveen New York Select Quality Municipal Fund,
Inc., Nuveen Quality Income Municipal Fund, Inc., Nuveen Insured Municipal
Opportunity Fund, Inc., Nuveen Florida Quality Income Municipal Fund, Nuveen
Michigan Quality Income Municipal Fund, Inc., Nuveen Ohio Quality Income
Municipal Fund, Inc., Nuveen Texas Quality Income Municipal Fund, Nuveen
California Quality Income Municipal Fund, Inc., Nuveen New York Quality Income
Municipal Fund, Inc., Nuveen Premier Municipal Income Fund, Inc., Nuveen
Premier Insured Municipal Income Fund, Inc. Nuveen Premium Income Municipal
Fund 2, Inc., Nuveen Insured California Premium Income Municipal Fund, Inc.,
Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen Select
Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund, Inc.,
Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan Premium
Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal Fund,
Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured California
Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium Income
Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, and Nuveen Insured Premium Income Municipal Fund 2. Nuveen
Advisory Corp. has no other clients or business at the present time. The
principal business address for all of these investment companies is 333 West
Wacker Drive, Chicago, Illinois 60606.
For a description of other business, profession, vocation or employment of a
substantial nature in which any director or officer, other than Timothy R.
Schwertfeger and Anthony T. Dean, of the investment adviser has engaged during
the last two years for his account or in the capacity of director, officer,
employee, partner or trustee, see the descriptions under "Management" in the
Statement of Additional Information.
Timothy R. Schwertfeger is Chairman and Director of Nuveen Advisory Corp., the
investment adviser. Mr. Schwertfeger has, during the last two years, been
Chairman and formerly Executive Vice President and Director of the John Nuveen
Company, John Nuveen & Co. Incorporated, and Nuveen Institutional Advisory
Corp.; Chairman and Director (since January 1997) of Nuveen Asset Management,
Inc.; Director (since 1996) of Institutional Capital Corporation. Anthony T.
Dean is President and Director of Nuveen Advisory Corp., the investment
adviser. Mr. Dean has, during the last two years, been Executive Vice President
and Director of The John Nuveen Company and John Nuveen & Co. Incorporated; and
Director of Nuveen Institutional Advisory Corp.; President and Director (since
January 1997) of Nuveen Asset Management, Inc.; Chairman and Director of
Rittenhouse Financial Services, Inc.
C-4
<PAGE>
ITEM 29: PRINCIPAL UNDERWRITERS
(a) John Nuveen & Co., Incorporated ("Nuveen") acts as principal underwriter to
the following open-end management type investment companies:Nuveen Flagship
Multistate Trust I, Nuveen Flagship Multistate Trust II, Nuveen Flagship
Multistate Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship
Municipal Trust, Nuveen California Tax-Free Fund, Inc., Nuveen Tax-Free Money
Market Fund, Inc., Nuveen Tax-Exempt Money Market Fund Inc., Nuveen Tax-Free
Reserves, Inc., Flagship Admiral Funds Inc., Nuveen Investment Trust and Nuveen
Investment Trust II. Nuveen also acts as depositor and principal underwriter of
the Nuveen Tax-Exempt Unit Trust, and Nuveen Unit Trusts, registered unit
investment trusts. Nuveen has also served or is serving as co-managing
underwriter to the following closed-end management type investment companies:
Nuveen Municipal Value Fund, Inc., Nuveen California Municipal Value Fund,
Inc., Nuveen New York Municipal Value Fund, Inc., Nuveen Municipal Income Fund,
Inc., Nuveen Premium Income Municipal Fund, Inc., Nuveen Performance Plus
Municipal Fund, Inc., Nuveen California Performance Plus Municipal Fund, Inc.,
Nuveen New York Performance Plus Municipal Fund, Inc., Nuveen Municipal
Advantage Fund, Inc., Nuveen Municipal Market Opportunity Fund, Inc., Nuveen
California Municipal Market Opportunity Fund, Inc., Nuveen Investment Quality
Municipal Fund, Inc., Nuveen California Investment Quality Municipal Fund,
Inc., Nuveen New York Investment Quality Municipal Fund, Inc., Nuveen Insured
Quality Municipal Fund, Inc., Nuveen Florida Investment Quality Municipal Fund,
Nuveen New Jersey Investment Quality Municipal Fund, Inc., Nuveen Pennsylvania
Investment Quality Municipal Fund, Nuveen Select Quality Municipal Fund, Inc.,
Nuveen California Select Quality Municipal Fund, Inc., Nuveen New York Select
Quality Municipal Fund, Inc., Nuveen Quality Income Municipal Fund, Inc.,
Nuveen Insured Municipal Opportunity Fund, Inc., Nuveen Florida Quality Income
Municipal Fund, Nuveen Michigan Quality Income Municipal Fund, Inc., Nuveen
Ohio Quality Income Municipal Fund, Inc., Nuveen Texas Quality Income Municipal
Fund, Nuveen California Quality Income Municipal Fund, Inc., Nuveen New York
Quality Income Municipal Fund, Inc., Nuveen Premier Municipal Income Fund,
Inc., Nuveen Premier Insured Municipal Income Fund, Inc., Nuveen Premium Income
Municipal Fund 2, Inc., Nuveen Insured California Premium Income Municipal
Fund, Inc., Nuveen Insured New York Premium Income Municipal Fund, Inc., Nuveen
Select Maturities Municipal Fund, Nuveen Arizona Premium Income Municipal Fund,
Inc., Nuveen Insured Florida Premium Income Municipal Fund, Nuveen Michigan
Premium Income Municipal Fund, Inc., Nuveen New Jersey Premium Income Municipal
Fund, Inc., Nuveen Premium Income Municipal Fund 4, Inc., Nuveen Insured
California Premium Income Municipal Fund 2, Inc., Nuveen Pennsylvania Premium
Income Municipal Fund 2, Nuveen Maryland Premium Income Municipal Fund, Nuveen
Massachusetts Premium Income Municipal Fund, Nuveen Virginia Premium Income
Municipal Fund, Nuveen Washington Premium Income Municipal Fund, Nuveen
Connecticut Premium Income Municipal Fund, Nuveen Georgia Premium Income
Municipal Fund, Nuveen Missouri Premium Income Municipal Fund, Nuveen North
Carolina Premium Income Municipal Fund, Nuveen California Premium Income
Municipal Fund, Nuveen Insured Premium Income Municipal Fund 2, Nuveen Select
Tax-Free Income Portfolio, Nuveen Select Tax-Free Income Portfolio 2, Nuveen
Insured California Select Tax-Free Income Portfolio, Nuveen Insured New York
Select Tax-Free Income Portfolio and Nuveen Select Tax-Free Income Portfolio 3.
(b)
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- -----------------------------------------------------------------------------
<S> <C> <C>
Timothy R. Schwertfeger Chairman of the Board, Chairman of the Board
333 West Wacker Drive Chief Executive Officer and Director
Chicago, Illinois 60606 and Director
Anthony T. Dean President and Director President and Director
333 West Wacker Drive
Chicago, Illinois 60606
John P. Amboian Executive Vice President None
333 West Wacker Drive and Chief Financial Officer
Chicago, IL 60606
Bruce P. Bedford Executive Vice President Executive Vice President
333 West Wacker Drive
Chicago, IL 60606
William Adams IV Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Alan G. Berkshire Vice President Vice President and
333 West Wacker Drive and Secretary Assistant Secretary
Chicago, IL 60606
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND
NAME AND PRINCIPAL POSITIONS AND OFFICES OFFICES
BUSINESS ADDRESS WITH UNDERWRITER WITH REGISTRANT
- -------------------------------------------------------------------------------
<S> <C> <C>
Clifton L. Fenton Vice President None
333 West Wacker Drive
Chicago, IL 60606
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, Illinois 60606
Stephen D. Foy Vice President Vice President and
333 West Wacker Drive Controller
Chicago, Illinois 60606
Michael G. Gaffney Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Anna R. Kucinskis Vice President Vice President
333 West Wacker Drive
Chicago, Illinois 60606
Robert B. Kuppenheimer Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Larry W. Martin Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Assistant Secretary
Chicago, Illinois 60606
Thomas C. Muntz Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Stuart W. Rogers Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Bradford W. Shaw, Jr. Vice President None
333 West Wacker Drive Chicago, Illi-
nois 60606
H. William Stabenow Vice President Vice President and
333 West Wacker Drive and Treasurer Treasurer
Chicago, Illinois 60606
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Gifford R. Zimmerman Vice President and Vice President and
333 West Wacker Drive Assistant Secretary Secretary
Chicago, Illinois 60606
</TABLE>
(c) Not applicable.
ITEM 30: LOCATION OF ACCOUNTS AND RECORDS
Nuveen Advisory Corp., 333 West Wacker Drive, Chicago, Illinois 60606,
maintains the Declaration of Trust, By-Laws, minutes of trustees and
shareholder meetings and contracts of the Registrant and all advisory material
of the investment adviser.
The Chase Manhattan Bank, 4 New York Plaza, New York, New York 10004 maintains
all general and subsidiary ledgers, journals, trial balances, records of all
portfolio purchases and sales, and all other required records not maintained by
Nuveen Advisory Corp., Shareholder Services, Inc., Boston Financial, or Chase
Global Funds Services Company.
C-6
<PAGE>
Until August 10, 1998, Shareholder Services, Inc., P.O. Box 5330, Denver,
Colorado 80217-5330 and Boston Financial Data Services, 225 Franklin Street,
Boston, Massachusetts 02106 will maintain all the required records in their
capacity as transfer, dividend paying, and shareholder service agents for the
Funds. After August 10, 1998, Chase Global Funds Services Company,
P.O. Box 5186, New York, New York 10274-5186, will maintain the same records in
the same capacity for the Funds.
ITEM 31: MANAGEMENT SERVICES
Not applicable.
ITEM 32: UNDERTAKINGS
(a) Not applicable.
(b) Not applicable.
(c) The Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest Annual Report to Sharehold-
ers upon request and without charge.
(d) The Registrant agrees to call a meeting of shareholders for the purpose of
voting upon the question of the removal of any trustee or trustees when re-
quested to do so in writing by the record holders of at least 10% of the Reg-
istrant's outstanding shares and to assist the shareholders in communications
with other shareholders as required by section 16(c) of the Act.
C-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE INVESTMENT
COMPANY ACT OF 1940, THE REGISTRANT CERTIFIES THAT THIS REGISTRATION STATEMENT
MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS UNDER PARAGRAPH (B) OF RULE 485
UNDER THE SECURITIES ACT OF 1933 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF ILLINOIS, ON THE 25TH DAY OF
JUNE, 1998.
NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ Stephen D. Foy
-------------------------------
Stephen D. Foy Vice President and June 25, 1998
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Anthony T. Dean President and Trustee
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
</TABLE>
/s/ Gifford R. Zimmerman
By____________________________
Gifford R. Zimmerman
Attorney-in-Fact
June 25, 1998
AN ORIGINAL POWER OF ATTORNEY AUTHORIZING, AMONG OTHERS, GIFFORD R. ZIMMERMAN
AND LARRY W. MARTIN TO EXECUTE THIS REGISTRATION STATEMENT, AND AMENDMENTS
THERETO, FOR JUDITH M. STOCKDALE HAS BEEN EXECUTED AND IS FILED AS AN EXHIBIT
TO THIS REGISTRATION STATEMENT. AN ORIGINAL POWER OF ATTORNEY FOR EACH OF THE
OTHER OFFICERS AND DIRECTORS OF THE REGISTRANT HAS BEEN EXECUTED AND IS
INCORPORATED BY REFERENCE IN THIS REGISTRATION STATEMENT.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
1(d). Incumbency Certificate.
5(a). Renewal of Investment Management Agreement dated May
5, 1998.
6(a). Renewal of Transfer Agent dated July 31, 1997.
9(a). Transfer Agency Agreement between Registrant and
Shareholder Services, Inc.
9(b). Transfer Agency Agreement between Boston Financial
Data Services.
10. Opinion of Morgan, Lewis & Bockius LLP.
11. Consent of Arthur Andersen LLP, Independent Public
Accountants.
16. Schedule of Computation of Performance Figures.
17. Financial Data Schedule.
99(a). Original Power of Attorney for Judith M. Stockdale
authorizing, among others, Gifford R. Zimmerman and
Larry W. Martin to execute the Registration Statement
on her behalf as one of the Registrant's Directors.
99(b). Certified copy of Resolution of Board of Trustees au-
thorizing the signing of the names of trustees and
officers on the Registrant's Registration Statement
pursuant to power of attorney.
</TABLE>
<PAGE>
EXHIBIT 1(d)
INCUMBENCY CERTIFICATE
NUVEEN FLAGSHIP MULTISTATE TRUST II
On May 20, 1997, the Board of Trustees of the above-named Massachusetts business
trust adopted resolutions that increased the size of the Board to nine (9)
members effective July 1, 1997, and appointed the following individual as a
trustee to fill the newly created vacancy:
Judith M. Stockdale
Gaylord and Dorothy Donnelley Foundation
35 East Wacker Drive
Suite 2600
Chicago, Illinois 60601
Mrs. Margaret K. Rosenheim, a trustee of the Fund since its inception, will be
retiring from the Board of Trustees effective July 30, 1997 and, as of that
date, eight (8) trustees shall constitute the Fund's full Board of Trustees.
Effective July 30, 1997, the following individuals shall constitute all of the
Trustees of the Fund:
Timothy R. Schwertfeger
333 West Wacker Drive
Chicago, Illinois 60606
Anthony T. Dean
333 West Wacker Drive
Chicago, Illinois 60606
Peter R. Sawers
22 The Landmark
Northfield, Illinois 60093
Lawrence H. Brown
201 Michigan Avenue
Highwood, Illinois 60040
Anne E. Impellizzeri
3 West 29th Street
New York, New York 10001
<PAGE>
Robert P. Bremner
3725 Huntington Street
Washington, D.C. 20015
William J. Schneider
Senior Partner
Miller-Valentine Group
P.O. Box 744
Dayton, Ohio 45401
Judith M. Stockdale
Gaylord and Dorothy Donnelley Foundation
35 East Wacker Drive
Suite 2600
Chicago, Illinois 60601
NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman
-------------------------------
By: Gifford R. Zimmerman
Vice President
and Assistant Secretary
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
In accordance with Article V, Section 2 of the Declaration of Trust of
Nuveen Flagship Municipal Trust (the "Trust"), effective January 1, 1997, the
size of the Trust's Board of Trustees has been changed to eight (8) in number,
and the following persons constitute all of the Trustees of the Trust:
Robert P. Bremner
3725 Huntington Street, N.W.
Washington, D.C. 20015
Lawrence H. Brown
201 Michigan Avenue
Highwood, Illinois 60040
Anthony T. Dean
333 West Wacker Dr.
Chicago, Illinois 60606
Margaret K. Rosenheim
969 East 60th Street
Chicago, Illinois 60637
Peter R. Sawers
22 The Landmark
Northfield, Illinois 60093
Anne E. Impellizzeri
3 West 29th Street
New York, New York 10001
Timothy R. Schwertfeger
333 West Wacker Drive
Chicago, Illinois 60606
William J. Schneider
4000 Miller-Valentine Court
P.O. Box 744
Dayton, Ohio 45401
NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman
-------------------------------
By: Gifford R. Zimmerman
Vice President and Assistant
Secretary
<PAGE>
EXHIBIT 5(a)
NUVEEN FLAGSHIP MULTISTATE TRUST II
-----------------------------------
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
------------------------------------------
This Agreement made this 5th day of May, 1998 by and between Nuveen Flagship
Multistate Trust II, a Massachusetts business trust ( the "Fund"), and Nuveen
Advisory Corp., a Delaware corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1998 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of reviewing
the Agreement, have approved the Agreement and its continuance until August 1,
1999 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1999 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By: /s/ Gifford R. Zimmerman
---------------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- ---------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By: /s/ Edward F. Neild
---------------------------------
Vice President
ATTEST:
/s/ Larry W. Martin
- ---------------------------
Assistant Secretary
<PAGE>
EXHIBIT 6(a)
Renewal of Distribution Agreement
---------------------------------
This Agreement made this 31st day of July, 1997 by and between Nuveen Flagship
Multislate Trust II, a Massachusetts business trust (the "Fund"), and John
Nuveen & Co. Incorporated, a Delaware corporation (the "Underwriter");
WHEREAS, the parties hereto are the contracting parties under that certain
Distribution Agreement (the "Agreement") pursuant to which the Underwriter acts
as agent for the distribution of shares of the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940;
WHEREAS, the Board of Trustees of the Fund, at a meeting called for the purpose
of reviewing the Agreement has approved the Agreement and its continuance until
August 1. 1998 in the manner required by the Investment Company Act of 1940;
NOW THERFORE, in consideration of the manual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
NUVEEN FLAGSHIP MULTISTATE TRUST II
By:/s/ Gifford R. Zimmerman
------------------------
Vice President
ATTEST:
/s/ Karen L. Healy
- -------------------
Assistant Secretary
JOHN NUVEEN & CO. INCORPORATED
By:/s/ Anna R. Kucinskis
------------------
Vice President
ATTEST:
/s/ Larry Martin
- -------------------
Assistant Secretary
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
This agreement is made as of the 1st day of July, 1997, between NUVEEN
FLAGSHIP MULTISTATE TRUST II, a Massachusetts business trust having its
principal office and place of business at 333 West Wacker Drive, Chicago,
Illinois 60606, on behalf of the eight series named NUVEEN CALIFORNIA MUNICIPAL
BOND FUND, NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND, NUVEEN MASSACHUSETTS
MUNICIPAL BOND FUND, NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND, NUVEEN
FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND, NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE
MUNICIPAL BOND FUND, NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND and NUVEEN
FLAGSHIP NEW YORK INSURED MUNICIPAL BOND FUND (hereinafter referred to as the
"Fund"), and SHAREHOLDER SERVICES, INC., a Colorado corporation having its place
of business at 6803 South Tucson Way, Englewood, Colorado 80112 (hereinafter
referred to as the "Transfer Agent").
In consideration of the mutual promises hereinafter set forth, the parties
hereto covenant and agree as follows:
ARTICLE 1
DEFINITIONS
Whenever used in this Agreement, the following words and phrases shall have
the following meanings:
1.1 "Approved Institution" shall mean a broker-dealer, broker, bank or
other entity named in a Certificate, as hereinafter defined, and having
account(s) in the Trust or the Distributor or an agent it appoints, in each case
acting on behalf of the Fund for the benefit of its clients. From time to time
the Fund may amend a previously delivered Certificate by delivering to the
Transfer Agent a Certificate naming an additional entity as an Approved
Institution or deleting any entity named as an Approved Institution in a
previously delivered Certificate.
1.2 "Business Day" shall mean each day on which the New York Stock
Exchange is open for trading.
1.3 "Certificate" shall mean any notice, instruction, or other instrument
in writing, authorized or required by this Agreement to be given to the Transfer
Agent by the Fund and which is signed by any Officer, as hereinafter defined,
and actually received by the Transfer Agent. "Certificate" shall also include
any notice submitted to the Transfer Agent by electronic or telephone
transmission, reasonably believed by the Transfer Agent to be genuine and to
have been properly made, signed or authorized by an Officer.
1.4 "Computer Tape" shall mean any computer/electromagnetic tape or
transmission transmitted by an Approved Institution, via a remote terminal or
other similar link, into a data processing, storage, or collection system or
similar system (the "System"), located on the Transfer Agent's premises. For
purposes of Section 5.1, such Computer Tape shall be deemed to have been
furnished at such times as are agreed upon from time to time by the Transfer
Agent and Fund only if the information reflected thereon was input into the
system at such times as are agreed upon from time
<PAGE>
to time by the Transfer Agent and the Fund.
1.5 "Custodian" shall mean, with respect to the Fund, Chase Manhattan Bank
of New York as custodian under the terms and conditions of the Custody Agreement
between the Custodian and the Fund, or in any case any successor(s) to such
Custodian performing similar functions for or on behalf of the Fund.
1.6 "Direct Accounts" means accounts registered in the name(s) of
shareholders other than Approved Institutions.
1.7 "Distributor" shall mean John Nuveen & Co. Incorporated (hereinafter
referred to as "Nuveen & Co."), as distributor under the terms and conditions of
the Distributor's Contract between the Fund and Nuveen & Co., wherein Nuveen &
Co. has the exclusive right to sell shares of the Fund to investors against
orders therefor at net asset value, or any successor(s) to Nuveen & Co.
performing a similar function for or on behalf of the Fund.
1.8 "Effective Date" shall mean July 1, 1997 or the date the Fund begins
operations.
1.9 "Series" shall mean each individual portfolio of the Fund, if any,
each being a separate portfolio of securities and other assets, interests in
which are represented by a separate series of the Fund's shares, and such terms
shall include any other such portfolio that may be created for which the
Transfer Agent agrees to act as transfer agent pursuant to Article 10 of this
Agreement.
1.10 "Officer" shall mean the Fund's Chairman of the Board, President, any
Vice President, Secretary, any Assistant Secretary, Treasurer, any Assistant
Treasurer and any other person duly authorized by the Board of Trustees of the
Fund to execute or give any Certificate on behalf of the Fund and named in the
Certificate annexed hereto as Appendix A, as such Certificate may be amended
from time to time.
1.11 "Prospectus" shall mean the most current Fund prospectus and statement
of additional information relating to the Shares, actually received by the
Transfer Agent from the Fund and shall include to the extent applicable, shares
designated as comprising any and all classes of any series of the Fund.
1.12 "Shares" shall mean full or fractional shares comprising all or any
part of each series representing the beneficial interest in the Fund and shall
include to the extent applicable, shares designated as comprising any and all
classes of any series of the Fund.
ARTICLE 2
APPOINTMENT OF TRANSFER AGENT
2.1 The Fund hereby constitutes and appoints the Transfer Agent as
transfer agent of all the Shares of the Fund and as dividend disbursing agent
for the Fund during the term of this Agreement.
2.2 The Transfer Agent hereby accepts appointment as transfer agent and
dividend disbursing agent and agrees to perform the duties hereinafter set
forth.
2.3. In connection with such appointment, upon or prior to executing this
Agreement, the Fund shall deliver to the Transfer Agent such of the following as
have not already been furnished to the
<PAGE>
Transfer Agent:
(a) A copy of the Declaration of Trust of the Fund and all amendments
thereto certified by the Secretary of the Fund;
(b) A copy of the By-Laws of the Fund certified by the Secretary of the
Fund;
(c) A copy of resolutions of the Board of Trustees of the Fund, certified
by the Secretary of the Fund, authorizing the execution of this Transfer Agency
Agreement;
(d) A Certificate signed by the Secretary of the Fund specifying the names
and specimen signatures of the Officers of the Fund;
(e) Specimen Share certificates for Shares of each series of the Fund in
the form approved by the Board of Trustees of the Fund, together with a
certificate signed by the Secretary of the Fund as to such approval;
(f) Copies of the most recently filed Post-Effective Amendment to the
Fund's Registration Statement, filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, and under the Investment Company
Act of 1940, as amended, together with any applications for exemptive relief
from any of the provisions of such laws filed by the Fund and the record of any
formal action of the Securities and Exchange Commission with respect to all such
applications; and
(g) Opinion of Counsel for the Fund to the effect that (1) beneficial
interest in each Fund is divided into an unlimited number of shares of
beneficial interest, (2) the issue and sale of the Fund's authorized but
unissued Shares have been duly authorized under Massachusetts law, (3) the
outstanding Shares are fully paid and non-assessable and (4) upon the issue and
sale of any authorized and unissued Shares and upon receipt of the authorized
consideration therefor in an amount not less than either the Shares' net asset
value or par value, if any, established and in force at the time of their sale,
the Fund Shares so issued will be validly issued, fully paid and non-assessable.
2.4. The Fund shall either (a) furnish the Transfer Agent with sufficient
supplies of blank share certificates in the form approved from time to time by
the Board of Trustees of the Fund, and from time to time will renew such
supplies upon request of the Transfer Agent, or (b) authorize the Transfer Agent
to itself create laser-printed Share certificates in the form approved by the
Board of Trustees of the Fund. Any such blank Share certificates shall be
properly signed, by facsimile or otherwise, by authorized Officers and, if
required, shall bear the seal of the Fund or a facsimile thereof.
Notwithstanding the death, resignation or removal of any Officer authorized to
sign such Share certificates, the Transfer Agent may continue to countersign and
issue Share certificates bearing such Officer's signature until otherwise
directed by the Fund. The Fund agrees to indemnify and exonerate, save and hold
the Transfer Agent harmless, from and against any and all claims or demands that
may be asserted against the Transfer Agent with respect to the genuineness of
any Share certificate supplied to the Transfer Agent by the Fund pursuant to
this Agreement.
ARTICLE 3
AUTHORIZATION AND ISSUANCE OF SHARES
3.1. The Transfer Agent shall maintain records of accounts evidencing
ownership of Shares
<PAGE>
as provided in this Agreement and in the Fund's Prospectus and, subject to the
terms and conditions of this Agreement, when requested shall countersign,
record, issue, and deliver certificates for Shares both upon original issue and
transfer. Evidence of the ownership of Shares shall be maintained on the
Transfer Agent's records in book (uncertificated) form, or, if requested by an
Approved Institution (or the Distributor or its agent acting on behalf of such
Approved Institution) or shareholder, share certificates shall be issued,
subject to the provisions of Article 5 hereof, to evidence the ownership of
Shares.
3.2. Prior to the issuance of any Shares pursuant to Share splits and prior
to any reduction in the number of Shares outstanding, the Fund shall deliver the
following documents to the Transfer Agent:
(a) A copy of the resolution(s) adopted by the Board of Trustees of the
Fund and/or the shareholders of the relevant Fund, certified by the Secretary of
the Fund, authorizing such issuance of additional Shares of such Fund or such
reduction, as the case may be;
(b) In the case of the issuance of Shares, an opinion of counsel for the
Fund with respect to matters set forth in Section 2.3(g) hereof as to such
shares; and
(c) Such additional documents as the Transfer Agent may reasonably
request.
ARTICLE 4
RECAPITALIZATION OR CAPITAL ADJUSTMENT
4.1. In the case of any Share split, recapitalization or other capital
adjustment, the Transfer Agent will, in the case of accounts represented by
uncertificated Shares, cause the account records to be adjusted, as necessary,
to reflect the number of Shares held for the account of each such shareholder as
a result of such adjustment, or, in the case of Shares represented by
certificates, will, if so instructed by the Fund, issue revised Share
certificates in exchange for, or upon transfer of, outstanding Share
certificates in the old form, in either case upon receiving:
(a) A Certificate authorizing the issuance of revised Share certificates
and any other action required to be taken by the Transfer Agent in connection
with any such split, recapitalization or other capital adjustment;
(b) A copy of any amendment to the Declaration of Trust of the Fund,
certified by the Secretary of the Fund, with respect to the adjustment;
(c) Specimen Share certificates in the revised form approved by the Board
of Trustees of the Fund;
(d) An opinion of counsel for the Fund with respect to the matters set
forth in Article 2, Section 2.3(g) hereof as to such Shares; and
(e) Such additional documents as the Transfer Agent may reasonably
request.
4.2. The Fund shall either (a) furnish the Transfer Agent with a sufficient
supply of blank Share certificates in any new form authorized in connection with
any such Share split, recapitalization or other capital adjustment, and from
time to time will replenish such supply upon the request of the
<PAGE>
Transfer Agent, or (b) authorize the Transfer Agent to itself create laser-
printed Share certificates in the form approved by the Board of Trustees of the
Fund. Any such blank Share certificates shall be properly signed by authorized
Officers and, if required, shall bear the Fund's seal or facsimile thereof.
ARTICLE 5
ISSUANCE, REDEMPTION, AND TRANSFER OF SHARES
5.1. (a) On each Business Day, the Transfer Agent shall accept, at such
time as are agreed upon from time to time by the Transfer Agent and the Fund,
(i) purchase orders received by the Transfer Agent directly from an Approved
Institution (or the Distributor or its agent acting on behalf of such Approved
Institution) or an individual investor, (ii) redemption requests either received
from a shareholder, whether or not an Approved Institution (or the Distributor
or its agent acting on behalf of such Approved Institution), or contained in a
Certificate, and (iii) requests for exchanges of the Fund's Shares of a given
class for Shares of another fund received from a shareholder, whether or not an
Approved Institution (or the Distributor or its agent acting on behalf of such
Approved Institution), or contained in a Certificate, provided that (1) such
purchase order, exchange request or redemption request, as the case may be, is
in conformity with the Fund's purchase, exchange, and redemption procedures, as
applicable, described in the Prospectus, and (2) if such type of purchase order,
exchange request, or redemption request is not described in the Prospectus in
effect upon the commencement date of the Agreement, the Transfer Agent has
agreed to accept and act as to such order or request. Upon receipt on any
Business Day of any check drawn or endorsed to the Transfer Agent, the Fund or
the Distributor for the purchase of Shares, or any payment made by Automated
Clearing House or Federal Funds wire, the Transfer Agent shall deposit such
check or payment in the bank account established by the Fund or the Distributor
for the collection of such amounts and shall wire such amounts to the Fund's
Custodian on the next Business Day. The Transfer Agent shall have no
responsibility hereunder for the Fund's compliance with states securities
registration laws ("Blue Sky laws") relating to such purchase orders, except to
the extent that the Transfer Agent will maintain records in a manner that will
enable the Fund to monitor the total number of Shares of the Fund sold in each
state and shall provide the Fund reports as to such sales as specified in
Appendix B to this Agreement.
(b) On each Business Day, the Transfer Agent shall also accept, at
such times as are agreed upon from time to time by the Transfer Agent and the
Fund, a Computer Tape consistent in all respects with the Transfer Agent's tape
layout package, as amended from time to time, which is believed by the Transfer
Agent to be furnished by or on behalf of any Approved Institution, setting forth
data as to purchases, redemptions and exchanges of Shares irrespective of
whether payment of the purchase price accompanies such computer tape. The
Transfer Agent may rely on the data on such Computer Tapes as accurate, and
shall not be responsible hereunder for errors in such Computer Tapes furnished
to it hereunder, unless caused by the Transfer Agent's own negligence, bad faith
or willful misconduct.
(c) On each Business Day, the Fund shall provide or cause to be
provided to the Transfer Agent, at such time as the parties hereto shall agree,
the net asset value per share for the Fund and such other information as the
Transfer Agent may reasonably request.
5.2. On the Business Day following each Business Day, at such time as the
Transfer Agent and the Fund shall agree, an authorized employee of the Transfer
Agent shall confirm the following information by summary sheet transmitted by
electronic or other electromagnetic means to an
<PAGE>
authorized employee or agent of the Fund (or by such other form as shall be
agreed upon from time to time by the Fund and the Transfer Agent):
(a) The total dollar amount to be applied toward the purchase of
Shares of the Fund and the number of Shares of the Fund purchased on such prior
Business Day, computed by aggregating the amounts so specified in (i) the
purchase orders received by the Transfer Agent on such prior Business Day from
individual investors and (ii) all Computer Tapes described in Section 5.1(b)
timely received by the Transfer Agent with respect to such prior Business Day;
(b) The total dollar value and number of Shares of the Fund redeemed
on such prior Business Day, computed by aggregating the amounts so specified in
(i) the redemption requests received by the Transfer Agent directly on the
preceding Business Day from shareholders, and (ii) all Computer Tapes described
in Section 5.1(b) relating to such prior Business Day; and
(c) The total dollar value and number of Shares of the Fund to be
exchanged for Shares of another fund and the number of Shares of such other fund
to be issued in such exchanges on such prior Business Day, and the total dollar
value and number of shares of the Fund to be issued in exchange for shares of
another fund on such prior business day (if not included in 5.2(a) above)
computed by aggregating the amounts represented by any exchange requests
received directly by the Transfer Agent from shareholders and the amounts
specified in all Computer Tapes described in Section 5.1(b) relating to such
prior Business Day.
5.3. Following each Business Day, the Transfer Agent will (on a day on
which banks in Denver, Colorado, Chicago, Illinois and New York, New York are
open for business but in any event on or prior to the Fifth Business Day
following such Business Day) advise the Distributor of the amount of cash
necessary to be wired to the Custodian, representing purchase orders for
appropriate Fund's Shares received by the Transfer Agent as to such Business
Day, as set forth in Section 5.1 above. As to each Business Day, the Transfer
Agent will advise the Fund of the amount of cash representing exchange orders
received by the Transfer Agent as to such Business Day, such advice to be given
on the next Business Day.
5.4. As to each Business Day, the Transfer Agent shall issue to, and redeem
from, the accounts specified in a purchase order, redemption request, or
exchange request received by the Transfer Agent in proper form in accordance
with the Prospectus and, when required by the Prospectus, properly endorsed by
the record owner thereof with the record owner's or owners' signature(s)
guaranteed by a U.S. commercial bank or U.S. trust company, a member of a
national securities exchange, a foreign bank with a U.S. correspondent bank or a
federally-chartered savings and loan association, or shall issue to, and/or
redeem from, the accounts specified in a Computer Tape received by the Transfer
Agent from an Approved Institution, the appropriate number of full and
fractional Shares based on the net asset value per Share of the relevant series
of the relevant Funds specified in an advice received as to such Business Day
from the Fund. Notwithstanding the foregoing, if a redemption specified in a
redemption request received directly by the Transfer Agent or in a Computer Tape
is for a dollar value of Shares in excess of the dollar value of uncertificated
Shares in the specified account plus the dollar value of certificated Shares in
the specified account for which the Transfer Agent has received the tender of a
Share certificate or certificates in proper form as described above, the
Transfer Agent shall not effect such redemption in whole or part. In such case
involving a Computer Tape, the Transfer Agent shall orally or by electronic or
other electromagnetic means advise both the Fund and the Approved Institution
(or the Distributor or its agent if acting on behalf of such Approved
Institution) which supplied such Computer Tape of such discrepancy. In such
<PAGE>
case involving a direct shareholder, the Transfer Agent shall, within five (5)
business days, notify such shareholder directly, orally or in writing.
5.5. The Transfer Agent shall, as of each Business Day specified in a
Certificate described in Section 6.1, issue Shares of the Fund, based on the net
asset value per Share of the Fund specified in an advice received from the Fund
to such Business Day, in connection with a reinvestment of a dividend or
distribution on Shares of the Fund.
5.6. On each Business Day, the Transfer Agent shall advise the Fund by
computer/electromagnetic tape specifying, with respect to the immediately
preceding Business Day: the total number of Shares of the Fund (including
fractional Shares) issued and outstanding at the opening of business on such
day; the total number of Shares of the Fund sold on such day, pursuant to
Section 5.2; the total number of Shares of the Fund redeemed or exchanged on
such day; the total number of Shares of the Fund, if any, sold on such day
pursuant to preceding Section 5.4, and the total number of Shares of the Fund
issued and outstanding at the close of business on such day. Unless the Fund or
its agent shall advise the Transfer Agent of any error in the information
contained in such computer/electromagnetic tape (the "Initial Tape") prior to
the transmission of the next computer/electromagnetic tape by the Transfer
Agent, the Transfer Agent shall be deemed to have fulfilled its responsibilities
hereunder with respect to the accuracy of the data on subsequent
computer/electromagnetic tapes submitted to the Fund that are based, in whole or
in part upon any inaccurate data from the Initial Tape.
5.7. In connection with each purchase, exchange and redemption of Shares
other than pursuant to a Computer Tape submitted by an Approved Institution (or
by the Distributor or its agent acting on behalf of such Approved Institution),
the Transfer Agent shall send to the shareholder such statements as are
described in the Prospectus or as otherwise reasonably instructed in writing by
the Funds. If the Prospectus indicates that certificates for Shares are
available, and if specifically requested in writing by any shareholder, or if
otherwise required hereunder, the Transfer Agent will countersign, issue and
mail to such shareholder, at the address set forth in the records of the
Transfer Agent, a Share certificate for any full Shares requested.
5.8. In computing the redemption proceeds to be paid to any shareholder or
to an account for an Approved Institution, the Transfer Agent shall first
compute the amount of any withholding for federal income taxes for which the
Transfer Agent has the responsibility under this Agreement to calculate such
withholding, in such manner as the Fund and the Transfer Agent shall agree from
time to time in conformity with instructions provided by the Fund to the
Transfer Agent. The Transfer Agent shall also compute any withholding for
federal income taxes for which the Transfer Agent has such responsibility at the
time of any exchange of a Fund's shares for another fund's shares. In the case
of a redemption of Shares directly by a shareholder of record and not by means
of a Computer Tape submitted by an Approved Institution (or by the Distributor
or its agent acting on behalf of such Approved Institution), upon deposit of
moneys in a redemption account by the relevant Custodian against which the
Transfer Agent is authorized by the Fund to draw checks in connection with a
redemption of Shares of the Fund, the Transfer Agent shall cancel the redeemed
Shares and after making appropriate deduction for any withholding of taxes
required of it by this Agreement or applicable law, make payment of (i) the
redemption proceeds to the order of the shareholder, and (ii) any tax withheld
to the Internal Revenue Service, in accordance with the Fund's redemption and
payment procedures described in the Prospectus or as otherwise reasonably
described in a written instruction from the Fund. In the case of an exchange of
Shares directly by a shareholder of record and not by means of a Computer Tape
submitted by an Approved Institution (or the Distributor or its
<PAGE>
agent acting on behalf of such Approved Institution), upon deposit of moneys in
an account by the relevant Custodian against which the Transfer Agent is
authorized by the Fund to draw checks in connection with an exchange of Shares
of a fund, the Transfer Agent shall cancel the exchanged Shares, and withhold
and pay taxes required under this Agreement and applicable law. In the case of a
redemption of Shares pursuant to a Computer Tape, the Transfer Agent shall, on
the next Business Day, send the Fund a Computer Tape setting forth the amount of
redemption proceeds due each Approved Institution. If such Approved Institution
(or the Distributor or its agent acting on behalf of such Approved Institution)
has previously furnished the Transfer Agent withholding instructions with
respect to such redemption or any exchange of Shares pursuant to a Computer
Tape, the Transfer Agent shall include in the Computer Tape furnished to the
Fund information as to the amount of such withholding.
5.9. The Transfer Agent shall not be required to issue Shares of any fund
(other than with respect to the reinvestment of dividends or distributions on
shares owned by an existing shareholder if so stated in the Certificate) after
it has received a Certificate stating that the sale of Shares of that fund has
been suspended or discontinued.
5.10. The Transfer Agent shall not be responsible for the payment of any
original issue or other taxes required to be paid by the Fund in connection with
the issuance of any Shares.
5.11. The Transfer Agent shall not be responsible for issuing or effecting
any "stop transfer" or other similar order or restrictions on any Shares held in
the name of an Approved Institution. In the case of Shares registered in the
name of a shareholder other than an Approved Institution as to which a "stop
transfer" or other similar order or restriction applies, the Transfer Agent will
adhere to the terms of such stop transfer or similar order, except that it may
rely on a Certificate to effect a redemption, exchange or transfer of such
Shares, notwithstanding such stop order or restriction.
5.12. The Transfer Agent shall accept (a) a Computer Tape which is
furnished by or on behalf of any Approved Institution (or the Distributor or its
agent acting on behalf of such Approved Institution) and represented to be
instructions with respect to the transfer of Shares from one account of such
Approved Institution to another such account, and (b) as to Shares standing
directly in the name of a shareholder other than an Approved Institution,
transfer instructions in proper form in accordance with the Fund's Prospectus
and the Transfer Agent's rules described herein, and shall effect the transfer
specified in said Computer Tape or transfer instructions, provided that any
necessary documents or Share certificates have been tendered to the Transfer
Agent.
5.13. (a) Except as otherwise provided in sub-paragraph (b) of this Section
5.13 and in Section 5.14, Shares will be transferred, exchanged or redeemed
other than pursuant to Computer Tapes from an Approved Institution (or the
Distributor on its agent acting on behalf of such Approved Institution) upon
presentation to the Transfer Agent of endorsed Share certificates or, in the
case of uncertificated Shares, instructions endorsed in proper form in
accordance with the Prospectus as stated in Section 5.4, accompanied by such
documents as the Transfer Agent reasonably deems necessary to evidence the
authority of the person making such transfer, exchange or redemption, and
bearing satisfactory evidence of the payment of transfer taxes. In the case of
small estates, where no administration is contemplated, the Transfer Agent may,
when furnished with an appropriate small estates affidavit under applicable law
or with a surety bond, and without further approval of the Fund, transfer or
redeem Shares registered in the name of a decedent if the current market value
of the Shares being redeemed or transferred does not exceed such amount as may
from time to time be prescribed by the applicable state statutes and
regulations. The Transfer Agent reserves the right to refuse to transfer,
<PAGE>
exchange or redeem Shares until it is reasonably satisfied that the endorsement
on the Share certificate or instructions is valid and genuine, and for that
purpose it will require, unless otherwise instructed by an Officer, a signature
guarantee as stated in Section 5.4 of this Agreement. The Transfer Agent also
reserves the right to refuse to transfer, exchange or redeem Shares until it is
reasonably satisfied that the requested transfer, exchange or redemption is
legally authorized, or until it is reasonably satisfied that there is no basis
to any claims adverse to such transfer, exchange or redemption. The Transfer
Agent may, in effecting transfers, exchanges and redemptions of Shares, rely
upon those provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, applicable to the transfer of securities.
(b) Notwithstanding the foregoing or any other provision contained in
this Agreement to the contrary, the Transfer Agent shall be fully protected by
the Fund in requiring any instructions, documents, assurances, endorsements or
guarantees, including, without limitation, any signature guarantees, in
connection with a redemption, exchange or transfer of Shares whenever the
Transfer Agent reasonably believes that requiring the same would be consistent
with the transfer, exchange and redemption procedures described in the
Prospectus, or in any instructions or certificates provided to the Transfer
Agent by the Fund.
5.14. Notwithstanding any provision contained in this Agreement to the
contrary, the Transfer Agent shall not be expected to require, as a condition to
any transfer, redemption or exchange of any Shares pursuant to a Computer Tape,
any documents, including, without limitation, any documents of the kind
described in Section 5.13(a) to evidence the authority of the person requesting
the transfer, exchange or redemption and/or the payment of any transfer taxes,
and shall be fully protected in acting in accordance with the applicable
provisions of this Agreement.
5.15. Nothing contained in this Agreement shall constitute any agreement or
representation by the Transfer Agent to permit, or to agree to permit, any
Approved Institution to input information into the System, although the Transfer
Agent may, with the Fund's written permission, permit access to the System by an
Approved Institution to retrieve data or information as to such Approved
Institution's accounts.
ARTICLE 6
DIVIDENDS AND DISTRIBUTIONS
6.1. The Fund shall furnish to the Transfer Agent a Certificate either (i)
setting forth with respect to each series of the Fund the date of the
declaration of a dividend or distribution, the date of accrual or payment
thereof, as the case may be, the record date as of which shareholders entitled
to payment or accrual, as the case may be, shall be determined, the amount per
Share of such dividend or distribution for each series of the Fund, the payment
date on which all previously accrued and unpaid dividends are to be paid, and
the total amount, if any, payable by the Transfer Agent with respect to such
dividend or distribution on such payment date, or (ii) stating that the
declaration of dividends and distributions shall be on a daily or other periodic
basis and containing information of the type set forth in subsection (i) hereof.
6.2. Upon the payment date specified in the relevant Certificate, the
Transfer Agent shall, in the case of a cash dividend or distribution, advise the
Fund (by telephone or other electronic transmission) of the amount of cash
necessary to make the payment of the dividend or distribution to the
shareholders of record as of such payment date, including the amounts to be paid
to Approved Institutions. The Fund shall be responsible for having the
appropriate Custodian transfer a sufficient
<PAGE>
amount of cash to a dividend disbursement account maintained by the Fund for the
relevant Series against which the Transfer Agent shall cause checks, ACH or
federal funds wire payment to be drawn to the order of such shareholders or
Approved Institutions in payment of the dividend. The Transfer Agent shall not
be liable for any improper payments made in accordance with a Certificate
described in Section 6.1. If the Transfer Agent shall not receive from the
appropriate Custodian sufficient cash to make payments of any cash dividend or
distribution to shareholders of the Fund as of the record date, the Transfer
Agent shall, upon notifying the Fund, withhold payment to all shareholders of
record as of the record date until sufficient cash is provided to the Transfer
Agent unless otherwise instructed by the Fund by a Certificate and acceptable to
the Transfer Agent. In the case of dividends or distributions reinvested in
additional Shares of a series of the Fund, the Transfer Agent shall follow the
procedures set forth in Section 5.5.
6.3. The Transfer Agent shall in no way be responsible for the
determination of the rate or form of dividends or capital gain distributions due
shareholders.
6.4. The Transfer Agent shall, upon request of the Fund, file such
appropriate information returns concerning the payment of dividends and capital
gain distributions and redemptions with the proper Federal, state and local
authorities as are required by law to be filed by the Fund but shall in no way
be responsible for the collection or withholding of taxes due on such dividends
or distributions or on redemption proceeds due shareholders, except and only to
the extent required of it by applicable law for accounts of shareholders other
than Approved Institutions. If any amount is to be withheld from any dividend or
distribution paid to, or exchange or redemption proceeds or other cash
distribution from, the account of an Approved Institution, such Approved
Institution (or the Distributor or its agent acting on behalf of such Approved
Institution) may advise the Transfer Agent of the amount to be withheld
therefrom, and if such advice is provided in a timely manner to the Transfer
Agent, the Transfer Agent will provide a separate check for such amount to the
Approved Institution, which shall be responsible for the proper application of
such withheld amounts.
ARTICLE 7
CONCERNING THE FUND
7.1. The Fund shall promptly deliver to the Transfer Agent written notice
of any change in the Officers authorized to sign or give Share certificates or
Certificates, together with a specimen signature of each new Officer.
7.2. It shall be the sole responsibility of the Fund to deliver to the
Transfer Agent in a timely manner the Fund's currently effective Prospectus,
copies of any exemptive relief obtained by the Fund under applicable securities
laws and copies of any amendments to the Fund; Declaration of Trust, By-Laws and
any other documents to be furnished by the Fund under this Agreement to enable
the Transfer Agent to carry out its duties hereunder, and, for purposes of this
Agreement, the Transfer Agent shall not be deemed to have notice of any
information contained in such Prospectus, exemptive relief or other document
until it is actually received by the Transfer Agent.
7.3 The Transfer Agent has been advised by the Fund and agrees that the
Fund's Declaration of Trust is on file with the Secretary of State of the
Commonwealth of Massachusetts and that this Agreement has been executed by the
officers of the Fund, as officers and not individually. The obligations of the
Agreement are not binding upon the Trustees, officers or shareholders of the
Fund individually but are binding only upon the assets and property of the Fund
or a particular series of Shares. The Transfer Agent agrees to look only to the
assets of the Fund or a particular series of
<PAGE>
Shares for payment under such Agreement and that the shareholders, Trustees and
officers shall not be liable therefore.
ARTICLE 8
CONCERNING THE TRANSFER AGENT
8.1. Subject to the standard of care set forth in Section 8.4, the
Transfer Agent shall not be liable and shall be fully protected in acting upon
any Computer Tape, Certificate, oral instructions, writing or document
reasonably believed by it to be genuine and to have been signed (in the case of
written instructions or documents) or made by the proper person or persons and
shall not be held to have any notice of any change of authority of any person
until receipt of written notice thereof from the Fund or such person. Subject to
the standard of care set forth in Section 8.4, the Transfer Agent shall be
similarly protected in processing Share certificates which it reasonably
believes to bear the proper manual or facsimile signatures of the Officers of
the Fund and the proper countersignature of the Transfer Agent or any prior
transfer agent.
8.2. The Transfer Agent covenants that it shall carry out its
responsibilities under this Agreement in accordance and compliance with the
provisions of applicable laws and regulations governing its operation as a
transfer agent.
8.3. The Transfer Agent shall keep and maintain on behalf of the Fund such
records which the Fund or the Transfer Agent is, or may be, required to keep and
maintain pursuant to any applicable statutes, rules and regulations, including
without limitation Rule 31a-1 under the Investment Company Act of 1940, relating
to the maintenance of records in connection with the services to be provided
hereunder. The Transfer Agent agrees to make such records available for
inspection by the Trust at reasonable times and otherwise to keep confidential
all records and other information relative to the Fund and its shareholders,
except when the Transfer Agent reasonably believes it has been requested to
divulge such information by duly-constituted authorities or court process, or
requested by a shareholder with respect to information concerning an account as
to which such shareholder has either a legal or beneficial interest or when
requested by the Fund, the shareholder, or the dealer of record as to such
account.
8.4 (a) The Transfer Agent shall not be liable for any loss or damage,
including, without limitation, attorneys' fees, expenses and court costs,
resulting from the Transfer Agent's actions or omissions to act under or in
connection with this Agreement and its duties and responsibilities hereunder,
except for any loss or damage arising out of its own failure to act in good
faith, or its negligence or willful misfeasance.
(b) The Transfer Agent shall, provided such coverage is readily
available to the Transfer Agent at reasonable rates and upon reasonable terms
and conditions, maintain an insurance policy or surety bond, in the face amount
of $10 million per covered transaction against losses suffered by the Transfer
Agent in excess of the policy deductibles arising from errors or omission on the
part of the Transfer Agent in carrying out its responsibilities under this
Agreement and other agreements. The Transfer Agent shall upon request, furnish
promptly to the Fund copies of all insurance policies maintained pursuant to
this Section 8.4(b) that have not previously been furnished to the Fund.
(c) Any costs or losses incurred by the Fund for the processing of
any purchase, redemption, exchange or other share transactions at a price per
share other than the price per share
<PAGE>
applicable to the effective date of the transaction (the foregoing being
generally referred to herein as "as of" transactions) will be handled in the
following manner:
1. For each calendar year, if all "as of" transactions for the year
resulting from the actions or inactions of the Transfer Agent,
taken in the aggregate, result in a net loss to the Fund ("net
loss"), Transfer Agent will reimburse the Fund for such net loss,
except to the extent that such net loss may be offset by
application of a "net benefit" to the Fund carried over from
prior calendar years pursuant to sub-paragraph 2 immediately
below.
2. For each calendar year, if all "as of" transactions for the year
resulting from the actions or inactions of the Transfer Agent,
taken in the aggregate, result in a net benefit to the Fund ("net
benefit"), the Fund shall not reimburse the Transfer Agent for
the amount of such net benefit; however, any "net benefit" for
any calendar year may be used to offset, in whole or in part, any
"net loss" suffered by the Fund in any future calendar year so as
to reduce the amount by which the Transfer Agent shall be
required to reimburse the Fund for such "net loss" in such year
pursuant to sub-paragraph 1 immediately above.
3. Any "net loss" for which the Transfer Agent reimburses the Fund
in any calendar year shall not be carried over into future years
so as to offset any "net benefit" in such future years.
8.5 The Fund shall indemnify and exonerate, save and hold harmless the
Transfer Agent and its officers, directors, employees and agents (hereinafter
the Transfer Agent and such persons are referred to as "Indemnitees") from and
against any and all liabilities or losses arising from claims or demands
(whether with or without basis in fact or law), and from any and all expenses
(including, without limitation, reasonable attorney's fees, expenses and court
costs associated with defending against such claims and demands,) of any nature
which any Indemnitee may sustain or incur or which may be asserted against any
Indemnitee by any person arising out of or in any manner related to any action
taken or omitted to be taken by the Transfer Agent in good faith and without
negligence or willful misconduct in reasonable reliance upon (i) any provision
of this Agreement; (ii) the Prospectus; (iii) any instruction or order
including, without limitation, any Computer Tape reasonably believed by the
Transfer Agent to have been received from an Approved Institution (or the
Distributor or its agent acting on behalf of such Approved Institution); (iv)
any instrument or order reasonably believed by the Transfer Agent to be genuine
and to be signed, countersigned or executed by any duly authorized Officer, (v)
any Certificate or other instructions of an Officer, (vi) any opinion of legal
counsel for the Fund; (vii) any records or data supplied by the Fund's prior
transfer agent; or (viii) any order of any court, arbitration panel or other
judicial entity.
8.6. At any time the Transfer Agent may apply to an Officer of the Fund for
written instructions with respect to any matters arising in connection with the
Transfer Agent's duties and obligations under this Agreement, and the Transfer
Agent shall not be liable for any action taken or omitted by it in good faith
and without negligence or willful misconduct in accordance with such written
instructions. The Transfer Agent may consult with counsel to the Fund, at the
expense of the Fund and shall be fully protected with respect to anything done
or omitted by it in good faith and without negligence or willful misfeasance in
accordance with the advice or opinion of counsel to the Fund. Such application
by the Transfer Agent for written instructions from an Officer of the Fund may,
at the option of the Transfer Agent, set forth in writing any action proposed to
be taken or
<PAGE>
omitted by the Transfer Agent with respect to its duties or obligations under
this Agreement and the date on and/or after which such action shall be taken,
and the Transfer Agent shall not be liable (other than for its bad faith,
negligence or willful misfeasance) for any action taken or omitted in accordance
with a proposal included in any such application on or after the date specified
therein unless, prior to taking or omitting any such action, the Transfer Agent
has received written instructions in response to such application specifying the
action to be taken or omitted.
8.7. Any report, confirmation or other document furnished to the Fund or to
an Approved Institution as part of the Transfer Agent's responsibilities under
this Agreement shall be deemed final and conclusive on the 8th Business Day
after such report, confirmation or document has been furnished to the Fund or
Approved Institution, as the case may be, and the Transfer Agent shall not be
liable to the Fund or such Approved Institution under this Agreement as to any
error or omission in such report, confirmation or document that is not reported
to the Transfer Agent within such 7-day period.
8.8. The Transfer Agent shall deliver Share certificates by courier or by
certified or registered mail to the shareholder's address in the records of the
Transfer Agent. The Transfer Agent shall advise the Fund of any Share
certificates returned as undeliverable after being transmitted by courier or
mailed as herein provided for.
8.9. The Transfer Agent may issue new Share certificates in place of Share
certificates represented to have been lost, stolen, or destroyed upon receiving
instructions satisfactory to the Transfer Agent. If the Transfer Agent receives
written notification from the owner of the lost, destroyed, or stolen Share
certificate within a reasonable time after the owner has notice of such loss,
destruction or theft, the Transfer Agent shall issue a replacement Share
certificate upon receipt of an affidavit or affidavits of loss or nonreceipt and
an indemnity agreement executed by the registered owner or his legal
representative, and supported (a) in the case of a certificate having a value at
the time of replacement of less than $100, by a fixed penalty surety bond for
twice the then-current market value of Shares represented by said certificate
and (b) in the case of a certificate having a value at time of replacement of
$100 or more, by an open penalty bond, in form satisfactory to the Transfer
Agent or (c) by such other documentation or reasonable assurances in a
particular case as may be set forth in a Certificate. If the Fund receives such
written notification from the owner of the lost, destroyed or stolen Share
certificate within a reasonable time after the owner has notice of it, the Fund
shall promptly notify the Transfer Agent. The Transfer Agent may issue new Share
certificates in exchange for, and upon surrender of, mutilated Share
certificates.
8.10. The Transfer Agent will supply shareholder lists to the Fund from
time to time upon receiving a request therefor from an Officer of the Fund.
8.11. At the request of an Officer, the Transfer Agent will address and
mail such appropriate notices to shareholders as to the Fund may direct, at the
Fund's expense.
8.12. Notwithstanding any of the foregoing provisions of this Agreement,
the Transfer Agent shall be under no duty or obligation to inquire into, and
shall not be liable for:
(a) The legality of the issue or sale of any Shares, the sufficiency
of the amount to be received therefor, or the authority of an Approved
Institution or of the Fund, as the case may be, to request such sale or
issuance;
(b) The legality of a transfer, exchange or of a redemption of any
Shares by an
<PAGE>
Approved Institution, the propriety of the amount to be paid therefor, or the
authority of an Approved Institution to request such transfer, exchange or
redemption;
(c) The legality of the declaration of any dividend or capital gains
distribution by the Fund, or the legality of the issue of any Shares in payment
of any Share dividend or distribution; or
(d) The legality of any recapitalization or readjustment of the
Shares.
8.13. The Transfer Agent shall be entitled to receive, and the Fund hereby
agrees to pay to the Transfer Agent for its performance hereunder, including its
performance of the duties and functions set forth in Appendix B hereto, (i) its
reasonable out-of-pocket expenses (including without limitation legal expenses,
court costs, and attorney's fees associated with litigation or arbitration)
incurred in connection with this Agreement and its performance hereunder and
(ii) such compensation as is specified in Appendix C hereto as such fees may be
amended from time to time by agreement in writing by the Transfer Agent and the
Fund.
8.14. The Transfer Agent shall have no duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied in this
Agreement against the Transfer Agent.
8.15. The Transfer Agent shall indemnify and exonerate, save and hold
harmless the Fund, and its officers, directors, employees and agents, from and
against any and all liabilities or losses arising from claims and demands
(whether with or without basis in fact or law), and from any and all expenses
(including, without limitation, reasonable attorney's fees, expenses and court
costs), of any nature which the Fund or any officer, director, employee or agent
may sustain or incur or which may be asserted against them by any person arising
out of or in any manner related to the Transfer Agent's failure to comply with
the terms of this Agreement or which arise out of the Transfer Agent's
negligence or willful misconduct provided, however, that the Transfer Agent
shall not indemnify and exonerate, save and hold harmless, the Fund, its
officers, directors, employees, and agents for anything arising out of or in any
manner related to the Fund's failure to comply with the terms of this Agreement
or which arises out of the Fund's, or any officer's, director's, employee's or
agent's (other than the Transfer Agent) negligence or willful misconduct or the
Transfer Agent's reliance on information or instructions received from, or
issued on behalf of, the Fund.
ARTICLE 9
TERMINATION
9.1. The initial term of this Agreement shall commence on the Effective
Date and shall continue through June 5, 1998 (the "Initial Term") unless earlier
terminated pursuant to Section 9.2. Thereafter, this Agreement shall continue
from day to day thereafter (such period shall be referred to as the "Renewal
Term"), until either of the parties hereto terminates this Agreement by giving
at least 30 days prior written notice to the other party, whereupon this
Agreement shall terminate automatically upon the earlier of the expiration of
the 30 day period specified in the written notice or on August 1, 1998. For
every business day which the Agreement continues past June 30, 1998, the Fund
shall pay to the Transfer Agent a daily processing fee of $5,000. This daily
processing fee is in addition to any other fees payable under this Agreement and
it is agreed by the Fund and the transfer Agent that this daily processing fee
is not a penalty but is a reasonable estimate of the expenses that would be
incurred by the Transfer Agent in continuing to offer the Fund the services
provided for under this Agreement.
<PAGE>
In no event shall the term of this Agreement, including any "Renewal Term"
continue past August 1, 1998. In the event such notice of termination is given
by the Fund, it shall be accompanied by a copy of a resolution of the Board of
Trustees of the Fund, certified by the Secretary or any Assistant Secretary,
electing to terminate this Agreement. In the event such notice is given by the
Transfer Agent, the Fund shall, on or before the termination date, deliver to
the Transfer Agent a copy of a resolution of its Board of Trustees certified by
the Secretary or any Assistant Secretary designating a successor transfer agent
or transfer agents. In the absence of such designation by the Fund, the Transfer
Agent may designate a successor transfer agent. If the Fund fails to designate a
successor transfer agent, the Fund shall, upon the date specified for
termination of this Agreement and delivery of the records maintained hereunder,
be deemed to be its own transfer agent and the Transfer Agent shall thereby be
relieved of all duties and responsibilities pursuant to this Agreement.
9.2 Notwithstanding Section 9.1 hereof, this Agreement may be terminated
at any time by the Fund upon not less than 60 days' written notice from the Fund
to the Transfer Agent notifying the Transfer Agent: (i) if a majority of the
Trustees who are not "interested persons" (as that term is defined in the
Investment Company Act of 1940) upon completion of the procedures set forth
below have reasonably made a specific finding that the Transfer Agent has failed
on a continuing basis to perform its duties pursuant to this Agreement in a
satisfactory manner consistent with then current industry standards and
practices or (ii) if there is instituted or pending an action or proceeding by
or before any court or governmental, administrative or regulatory agency against
or involving the parties hereto, their affiliates, the Trustees of the Fund or
any of them and challenging the making of this Agreement or alleging that any
material term of the Agreement is contrary to law or any governmental agency has
threatened in writing to commence such an action or proceeding. Prior to any
termination pursuant to clause (i), the Board of Trustees of the Fund shall
provide the Transfer Agent with a written statement of the specific aspects of
the Transfer Agent's performance of its duties that are unsatisfactory, the
specific incident or incidents giving rise to the Board of Trustees' conclusion
and any written material that the Board of Trustees' relied upon in making such
a determination. The Transfer Agent shall have 30 days to respond to such
written statement. If no response is made, or if, after reasonable consideration
of the response of the Transfer Agent, such response is unsatisfactory to the
Board of Trustees, then the Board of Trustees of the Fund may terminate the
Agreement pursuant to clause (i) thereof. For purposes of making a finding as
contemplated by clause (i) above, the Transfer Agent shall be, absent unusual
circumstances, conclusively presumed to have failed on a continuing basis to
perform its duties pursuant to this Agreement in a satisfactory manner
consistent with the industry standards and practices prevailing on the date of
this Agreement if any of the following should occur:
(1) The Transfer Agent through its fault is unable (more than
once in a twelve-month period) to process daily activity for any two successive
Business Days and to confirm information generated by such activity by the
fourth Business Day following the later of such two Business Days. (For example,
assuming no holidays, daily activity on a Monday and Tuesday is not confirmed by
the following Monday.)
(2) The Transfer Agent through its fault is unable (more than
two times in any twelve-month period) to provide system access to personnel of
an Approved Institution for six hours between 9:00 a.m. and 5:00 p.m. Chicago
time on three successive Business Days.
(3) The Transfer Agent through its fault is unable (more than
twice in any one year) to create and mail dividend checks within four Business
Days after the Fund's payable date (assuming that the required information has
been furnished to the Transfer Agent on the record date).
<PAGE>
(4) The Transfer Agent through its fault is unable to instruct
various financial institutions on daily money movements from and to the Funds'
Custodians for two successive Business Days by the Fourth Business Day following
the later of such two Business Days. (For this purpose, instructions based on
reasonable estimates are treated as fulfilling the Transfer Agent's obligations
hereunder.)
(5) The Transfer Agent through its fault is unable (more than
twice in any twelve-month period) to transmit dividend activity to an Approved
Institution within five Business days from the relevant Fund's payable date.
For purposes of the foregoing, an event described in any of the foregoing
clauses 1 through 5 shall be deemed not to have occurred if the Transfer Agent's
inability to perform is a result, directly or indirectly of faulty or inadequate
performance by service provider including, but not limited to, telephone
companies, pricing services, Nuveen & Co., Approved Institutions, and banks
other than the Transfer Agent and its agents and employees or a result, directly
or indirectly, of other events out of the Transfer Agent's reasonable control.
Also for the purposes of the foregoing, if the Transfer Agent processes
transactions or instructions (as the case may be) as required hereunder within
the time periods indicated but more than 10% of the transactions, checks or
instructions, as the case may be, are inaccurate in any material respect, and
are not corrected within the requisite time then the Transfer Agent shall be
deemed to have been unable to perform the relevant service within the requisite
time.
9.3. In the event the Fund or the Transfer Agent terminates the Transfer
Agency Agreement at any time, the Fund shall be responsible for the payment of
any and all additional fees and expenses of the Transfer Agent relating to the
conversion to the new Transfer Agent. Included in these expenses will be any
travel/entertainment expenses incurred by the Transfer Agent related to
preparation for the conversion that exceed $2,000 in the aggregate per month.
Upon termination of this Agreement, the Transfer Agent will facilitate transfer
of the records maintained by it hereunder and cooperate with such successor
transfer agent as may be designated pursuant to the provisions of Section 9.1
hereof with respect to delivery of such records and assumption by such successor
transfer agent of its duties. The records will be delivered to the successor
transfer agent in the format in which they are maintained and all shareholder
records currently maintained in the ORIN computer system or on imaging discs
will be delivered in either their current format or at the expense of the Fund
will be converted into another format acceptable to the Fund and Transfer Agent.
The Fund must request the conversion of the imaging files to another acceptable
format on or before January 1, 1998 in order to allow the Transfer Agent
sufficient time to convert the records. If no such request is made on or before
that date, the shareholder records will be delivered in the format in which they
are currently stored by the Transfer Agent. The Fund shall be responsible for
any and all expenses related to the delivery of all records and, if applicable,
the conversion of the shareholder records from their current format to any other
format as elected by the Fund.
Upon termination of the Transfer Agency Agreement, the Transfer Agent shall
assist the Fund in transferring any bank accounts currently existing for the
payment of dividends and distributions or redemption of shares of the Fund to
the successor transfer agent. If the Fund elects not to transfer those accounts,
the Transfer Agent shall maintain the accounts for a period of 12 months from
termination of this Agreement and then close the accounts and return any
remaining monies in those accounts to the Fund. The Fund shall be responsible
for keeping sufficient funds in those accounts to clear any outstanding checks
and the Transfer Agent shall have no responsibility for any checks that do
<PAGE>
not clear that account for any reason.
Upon the termination of the Transfer Agency Agreement and for a period of three
(3) months thereafter, the Transfer Agent shall identify a specific person to
help interpret records for the Fund or the successor transfer agent. All
requests from the Fund or the successor transfer agent shall be directed to that
person. The Fund shall be responsible for any and all expenses related to such
assistance.
Upon termination of the Transfer Agency Agreement, the Fund and/or the successor
transfer agent shall be responsible for any and all regulatory and/or tax
reporting that may be required for the calendar year during which the
termination of the Agreement occurs. The Transfer Agent will account to the
successor transfer agent or the Fund for any withholding liability accrued for
any taxes withheld during any prior of that year in which it acted as transfer
agent for the Fund, including but not limited to TEFRA.
ARTICLE 10
ADDITIONAL SERIES
10.1. In the event that the Fund establishes one or more Series in
addition to the Series named herein with respect to which it desires to have the
Transfer Agent render services as transfer agent under the terms hereof, it
shall so notify the Transfer Agent in writing at least 60 days in advance of the
sale of Shares of such Series and shall deliver to the Transfer Agent the
documents listed in Section 2.3 with respect to such Series. Unless the Transfer
Agent declines in writing within a reasonable time to provide such services, the
Shares of such Series shall be subject to this Agreement.
ARTICLE 11
MISCELLANEOUS
11.1. The Fund agrees that prior to effecting any change in the Prospectus
which would increase or alter the duties and obligations of the Transfer Agent
hereunder, it shall advise the Transfer Agent of such proposed change at least
30 days prior to the intended date of the same, and shall proceed with such
change only if it shall have received the written consent of the Transfer Agent
hereto, and shall have received and agreed to the schedule of charges, if any,
specified by the Transfer Agent necessary to effect such change.
11.2. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Fund shall be sufficiently given if addressed
to the Fund and mailed or delivered to it at its office at 333 West Wacker
Drive, Chicago, Illinois 60606, Attention: Mr. Stuart Rogers, or at such other
place as the Fund may from time to time designate in writing.
11.3. Any notice or other instrument in writing, authorized or required by
this Agreement to be given to the Transfer Agent shall be sufficiently given if
addressed to the Transfer Agent, Attention: President, and mailed or delivered
to it at its office at 6803 South Tucson Way, Englewood, Colorado 80112, with a
copy to be sent to Andrew J. Donohue at OppenheimerFunds, Inc. Two World Trade
Center, New York, NY 10048 or at such other place as the Transfer Agent may from
time to time designate in writing.
<PAGE>
11.4. This Agreement may not be amended or modified in any manner except
by a written agreement executed by both parties.
11.5. This Agreement shall extend to and shall be binding upon the parties
hereto, and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund or the Transfer Agent without
the written consent of the other party. A change of ownership of the Transfer
Agent as a result of an internal reorganization of the Transfer Agent, its
parent corporation or affiliates shall not be deemed to be an "assignment"
hereunder. A change in "control" (as defined under the Investment Company Act of
1940) of the Transfer Agent's parent corporation shall not be deemed an
"assignment" hereunder. A sale of a controlling interest in the capital stock or
of all or substantially all of the assets of the Transfer Agent to a third party
unaffiliated with the Transfer Agent or its parent corporation shall be deemed
to be an "assignment" hereunder.
11.6. This Agreement shall be governed by and construed in accordance with
the laws of the State of Colorado applicable to agreements to be wholly
performed in that state.
11.7. This Agreement may be executed in any number of counterparts each of
which shall be deemed to be an original; but such counterparts shall, together,
constitute only one instrument.
11.8. The provisions of this Agreement are intended to benefit only the
Transfer Agent and the Fund, and no rights shall be granted to any other person
by virtue of this Agreement.
11.9. Neither the Fund nor the Transfer Agent will be liable or
responsible hereunder for delays or errors by reason of circumstances reasonably
beyond its control, including, without limitation, acts of civil or military
authority, national emergencies, labor difficulties, fire, mechanical breakdown,
flood, catastrophe, acts of God, insurrection, war, riots, or failure of
transportation, communication or power supply.
11.10. The Fund shall establish and maintain such bank accounts, with
such bank or banks as are selected by the Fund, as are necessary so that the
Transfer Agent may perform the services to be provided hereunder. To the extent
that performance of such services shall require the Transfer Agent directly to
disburse amounts for payments of dividends, redemption proceeds or other
purposes, the Fund shall provide such bank or banks with all instructions and
authorizations necessary to evidence the Transfer Agent's authority to effect
such transactions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, thereunto duly authorized, as of the day
and year first above written.
Attest: NUVEEN FLAGSHIP MULTISTATE TRUST II
/s/ Gifford R. Zimmerman Asst. Secy By: /s/ Anna Kucinskis VP
- ------------------------------------- ---------------------------------
Name Title Name Title
Attest: SHAREHOLDER SERVICES, INC.
/s/ Kathryn L. Kluck AVP By: /s/ Barbara Hennigar President
- ------------------------------------- ---------------------------------
Name Title Barbara Hennigar, President
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix A
Officer's Certificate
I, ____________________________, the Secretary of NUVEEN FLAGSHIP
MULTISTATE TRUST II, a Massachusetts business trust (the "Fund"), do hereby
certify that:
The following individuals have been duly authorized by the Trustees of the
Fund in conformity with the Fund's Declaration of Trust and By-Laws to execute
any Certificate, instruction, notice or other instrument, including an amendment
to Appendix B to this Agreement, or to give oral instructions on behalf of the
Fund, and the signatures set forth opposite their respective names are their
true and correct signatures.
<TABLE>
<CAPTION>
Name Title Signature
- ---- ----- ---------
<S> <C> <C>
Chairman
- ----------------------- ----------------------------
President
- ----------------------- ----------------------------
Secretary
- ----------------------- ----------------------------
Trustee
- ----------------------- ----------------------------
Vice President
- ----------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
- ---------------------------------------- ----------------------------
</TABLE>
, Secretary
--------------------------------
Name
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix B
Transfer Agent Services
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- --------
<S> <C>
New Account Set-Ups Process new sales applications. Place
telephone calls to account representatives
as needed to clarify instructions for new
account set-ups.
Purchases - New and Subsequent Process mailed-in, lockbox, bank wire,
list billing, ACH, and telephone payments
as received. Coordinate and balance UIT
reinvestment payments.
Transfers Negotiate and process all transfer
requests.
Exchanges - Mail and Telephone Negotiate and process exchange requests.
Record telephone exchange requests.
Redemptions - Mail and Telephone Negotiate and process mailed in, ACH and
telephone redemption requests. Record
telephone redemption requests.
Wire Order Purchases and Redemptions Process wire order purchases and
redemptions for designated settlement
period accepted on recorded telephone
lines and via NSCC FUND/SERV. Process
purchases and redemptions for same day
wire settlement.
Account Maintenance Process all written and telephone
(Address Changes, Dividend Option maintenance. For address changes, prepare
Changes, Name Changes, Broker or and mail a notice of the address change to
Dealer Changes, etc.) the former address.
Certificate Issuances Issue certificates as requested by
shareholders.
Telephone Services Provide efficient handling of all incoming
shareholder and broker/dealer telephone
calls. Make outgoing clarification
calls/coordination with Chase on UIT/ETF
consolidations. Provide timely problem
resolution for all servicing calls.
Provide automated trend reporting.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- --------
<S> <C>
Correspondence with Shareholders Respond to all shareholder and broker/dealer written inquiries.
and Broker/Dealers Document all correspondence affecting shareholder accounts on the
Shareholder Accounting System.
Shareholder Confirms Prepare and mail confirmations of daily account activity.
(Daily/Monthly/Quarterly/Annual) Prepare and mail monthly, quarterly, and annual confirmations as
directed by the fund.
Dealer Confirms Prepare and mail weekly dealer confirmations listing activity on
client accounts as directed by the Fund.
Distribution Disbursements Prepare and mail cash distribution checks. Process reinvested
distributions.
Commission Statements Provide bimonthly commission statements listing each purchase and
the portion of the sales charge paid to the broker/dealer.
Commission Checks Provide bimonthly commission checks to broker/dealers.
Daily Transmission of Reports Transmit daily transaction activity reports, balancing reports,
and sales information via telephone lines to a printer at Nuveen.
Fund Summary Sheets Prepare daily reports that summarize by type of transaction all
capital stock activity for each fund. Transmit/download
wire/capital stock activity information to Chase.
Sales Reporting Provide daily, weekly, monthly, quarterly, and annual reports
of sales information.
12b-1 Reporting Complete 12b-1 processing including calculating the 12b-1
payment amounts and sending checks to the broker/dealer home
offices. Provide a listing broken down by sales representative
within each branch.
Invalid Taxpayer Identification Mail Forms W-9 as required to validate taxpayer identification
Number Solicitation and numbers; institute backup withholding as required by IRS
Backup Withholding regulations, and timely send all notices.
Regulatory Reporting Compute, prepare, and mail all necessary reports to shareholders,
federal, and/or state authorities (Forms 1099-DIV, 1099-B, and 1042S).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Service: SSI Will:
- ------- --------
<S> <C>
Front-End Imaging of Documents Front-end Image all incoming documents.
Cost Basis Reporting Provide cost basis information as available to shareholders
annually for use in determining capital gains and losses.
Blue Sky Reporting Provide monthly report of purchases and redemptions by state.
Financial Reporting Mailings Provide mail handling for 2 financial reports per fund per year
to Nuveen shareholders.
Prospectus Mailings Provide mail handling for 1 prospectus per fund per year to
Nuveen shareholders.
Proxy Solicitation and Tabulation Perform 1 proxy solicitation and tabulation per fund per year.
Networking Accounts Provide transmission and appropriate services for each network level.
Cash Availability Transmit mutual fund activity to designated entity on a daily basis
for cash availability purposes
Commission/12b-1 Balancing Provide balancing reports for commission and 12b-1 payments.
</TABLE>
<PAGE>
NUVEEN FLAGSHIP MULTISTATE TRUST II
TRANSFER AGENCY AGREEMENT
Appendix C
Fee Schedule
The Transfer Agent will provide the transfer agent services listed on Appendix B
for the Fund at the rates set forth below:
Annual Transfer Agent Fees:
- --------------------------
From July 1, 1997 through termination
Annual-Per-Account Fees *
------------------------
First 150,000 Accounts** $ 21.70 per account
Next 100,000 Accounts** $ 21.10 per account
Next 50,000 Accounts** $ 20.50 per account
Over 300,000 Accounts** $ 20.00 per account
Out-Of-Pocket Expenses:
- ----------------------
Out-of-pocket expenses may be incurred by either the Fund or the Transfer
Agent and are not included in the annual Transfer Agent Fees. Those out-of-
pocket expenses directly incurred by the Transfer Agent will be billed to the
Fund on a monthly basis. These out-of-pocket expenses include, but are not
limited to, the printing of forms, envelopes, postage and proxy solicitation
fees for the shareholder mailings, costs of abandoned property reports or
searches for missing or inactive shareholders, equipment and system access
costs, microfilm, telephone line and usage charges, overnight express mail
charges, check signature plates and stamps, and programmer/analyst and testing
technician time beyond that agreed to in writing. Bank charges and earnings
credit will be billed directly to the Fund by United Missouri Bank (or other
banks). The Transfer Agent may require the prior payment of anticipated out-of-
pocket expenses, from time to time.
- -----------------
* Payable on a monthly basis for each non-retirement plan account in existence
at the end of the month. Retirement Plan accounts may be subject to a separate
fee schedule to be negotiated.
** The determination of the number of accounts for purposes of determining the
per account fee shall be based on all Nuveen Funds using the same fee schedule
and shall be allocated on a Fund by Fund basis in a manner determined by the
Transfer Agent based on the number of accounts in each fund.
The Transfer Agent shall, from time to time, but no more frequently than
monthly, send an invoice to the Fund itemizing the compensation and expense
reimbursement. The Fund shall pay such invoice (except to the extent that the
amount thereof is in dispute) by wire not later than 30 days after receipt of
the invoice.
<PAGE>
Exhibit 10
June 25, 1998
Nuveen Flagship Multistate Trust II (202) 467-7662
333 West Wacker Drive
Chicago, Illinois 60606
RE: Registration Statement on Form N-1A under the Securities Act of
1933 (File No. 333-14729)
Ladies and Gentlemen:
We have acted as counsel for Nuveen Flagship Multistate Trust II, a
Massachusetts business trust (the "Fund"), in connection with the above-
referenced Registration Statement on Form N-1A (as amended, the "Registration
Statement"), which relates to the Fund's shares of beneficial interest, par
value $0.01 (the "Shares"). This opinion is being delivered to you in connection
with the Fund's filing of Post-Effective Amendment No. 3 to the Registration
Statement (the "Amendment") with the Securities and Exchange Commission pursuant
to Rule 485(b) of the Securities Act of 1933 (the "1933 Act"). With your
permission, all assumptions and statements of reliance herein have been made
without any independent investigation or verification on our part except to the
extent otherwise expressly stated, and we express no opinion with respect to the
subject matter or accuracy of such assumptions or items relied upon.
In connection with this opinion, we have reviewed, among other things,
executed copies of the following documents:
(a) a certificate of the Secretary of State of the Commonwealth of
Massachusetts as to the existence and good standing of the Fund:
(b) copies, certified by the Secretary of State of the Commonwealth of
Massachusetts, of the Trust's Declaration of Trust and of all
amendments thereto (the "Declaration");
(c) a certificate executed by Karen L. Healy, an Assistant Secretary of
the Trust, certifying as to, and attaching copies of, the Declaration
and the By-Laws, as amended (the "By-Laws"), and certain resolutions
adopted by the Board of the Trustees of the Trust authorizing the
issuance of the Shares; and
(d) a printer's proof, dated June 22, 1998, of the Amendment.
<PAGE>
Nuveen Flagship Multistate Trust II
June 25, 1998
In our capacity as counsel to the Fund, we have examined the originals, or
certified, conformed or reproduced copies, of all records, agreements,
instruments and documents as we have deemed relevant or necessary as the basis
for the opinions hereinafter expressed. In all such examinations, we have
assumed the legal capacity of all natural persons executing documents, the
genuineness of all signatures, the authenticity of all original or certified
copies, and the conformity to original or certified copies of all copies
submitted to us as conformed or reproduced copies. As to various questions of
fact relevant to such opinions, we have relied upon, and assume the accuracy of,
certificates and oral or written statements of public officials and officers or
representatives of the Fund. We have assumed that the Registration Statement,
as filed with the Securities and Exchange Commission, will be in substantially
the form of the printer's proof referred to in paragraph (d) above.
Based upon, and subject to, the limitations set forth herein, we are of the
opinion that the Shares, when issued and sold in accordance with the Fund's
Declaration and By-Laws, and for the consideration described in the Registration
Statement, will be legally issued, fully paid and non-assessable under the laws
of the Commonwealth of Massachusetts.
The opinion expressed herein is limited to the laws of the Commonwealth of
Massachusetts.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving this consent, we do not admit that we are in
the category of persons whose consent is required under Section 7 of the 1933
Act.
Very truly yours,
/s/ MORGAN, LEWIS & BOCKIUS LLP
--------------------------------------
MORGAN, LEWIS & BOCKIUS LLP
-2-
<PAGE>
Exhibit 11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 15, 1998, and to all references to our Firm included in or made a
part of this registration statement of Nuveen Flagship Multistate Trust II.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
June 23, 1998
<PAGE>
Exhibit 16
SCHEDULE OF COMPUTATION OF PERFORMANCE FIGURES*
I. YIELD
A. Yield Formula
Yield is computed according the following formula:
A - B 6
YIELD = 2 [ (----- / 1) - 1 ]
CD
Where: A = dividends and interest(degrees) earned during the period.
B = expenses accrued for the period (net of reimbursements).
C = the average daily number of shares outstanding during the period that
were entitled to receive dividends.
D = the maximum offering price per share on the last day of the period.
- --------
*The maximum sales charge in effect during the periods shown was 4.20%.
(3.00% for New Jersey Intermediate).
(degrees)Interest earned on tax-exempt obligations is determined as follows:
A. In the case of a tax-exempt obligation (1) with a current market premium
or (2) issued at a discount where the current market discount is less
than the then-remaining portion of the original issue discount, it is
necessary to first compute the yield to maturity (YTM). The YTM is then
divided by 360 and the quotient is multiplied by the market value of the
obligation (plus accrued interest).
B. In the case of a tax-exempt obligation issued at a discount where the
current market discount is in excess of the then-remaining portion of the
original issue discount, the adjusted original issue discount basis of
the obligation (plus accrued interest) is used in lieu of the market
value of the obligation (plus accrued interest) in computing the yield to
maturity (YTM). The YTM is then divided by 360 and the quotient is multi-
plied by the adjusted original issue basis of the obligation (plus ac-
crued interest).
C. In the case of a tax-exempt obligation issued without original issue
discount and having a current market discount, the coupon rate of inter-
est is used in lieu of the yield to maturity. The coupon rate is then di-
vided by 360 and the quotient is multiplied by the par value of the obli-
gation.
B. Yield Calculations
1. New York Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 319,954.62 - $35,402.48] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 7,040,824.20 x $ 11.45]
= 4.27%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 16,947.09 - $ 4,397.41] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 372,702.05 x $ 10.98]
= 3.71%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 25,492.85 - $ 5,606.68] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 559,142.94 x $ 11.01]
= 3.91%
1
<PAGE>
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 656,968.26 - $46,581.11] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 14,416,037.12 x $ 11.00]
= 4.66%
2. New York Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 169,402.77- $33,649.72] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 4,113,358.45 x $ 11.23]
= 3.55%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 21,530.34 - $ 7,749.94] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 552,655.26 x $ 10.76]
= 2.96%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 8,845.62 - $ 2,803.06] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 214,998.81 x $ 10.74]
= 3.16%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 1,398,364.96 - $386,484.09] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 20,095,845.10 x $ 10.76]
= 3.91%
3. New Jersey Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 155,167.83 - $13,906.46] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 3,298,731.03 x $ 11.08]
= 4.68%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 12,423.51 - $ 2,834.62] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 264,062.87 x $ 10.61]
= 4.14%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 25,237.84 - $ 4,847.05] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 537,225.72 x $ 10.59]
= 4.34%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 199,070.09 - $10,539.49] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 4,227,732.17 x $ 10.62]
= 5.09%
2
<PAGE>
4. New Jersey Intermediate Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 34,459.31 - $ 4,465.35] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 875,560.64 x $ 10.82]
= 3.83%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 2,045.17 - $ 514.31] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 52,099.69 x $ 10.52]
= 3.38%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 726.01 - $ 62.25] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 18,405.16 x $ 10.51]
= 4.15%
5. California Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 122,105.12 - $22,425.29] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 2,650,472.37 x $ 11.39]
= 4.00%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 9,664.28 - $ 1,189.29] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 209,644.55 x $ 10.92]
= 3.42%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 15,226.54 - $ 4,432.90] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 330,531.06 x $ 10.92]
= 3.62%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 914,583.28 - $132,268.89] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 19,818,662.76 x $ 10.93]
= 4.37%
6. California Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 139,689.08 - $ 28,103.94] 6
Yield = 2[ (------------------------------ + 1) - 1]
[ 3,243,274.04 x $ 11.54]
= 3.60%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 10,503.38 - $ 3,782.82] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 243,731.05 x $ 11.06]
= 3.01%
3
<PAGE>
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 12,453.03 - $ 3,956.26] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 291,118.89 x $ 10.98]
= 3.21%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 747,145.81 - $118,654.45] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 17,380.056.00 x $ 11.04]
= 3.96%
7. Connecticut Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 879,861.52 - $ 134,463.27]
Yield = 2[ (------------------------------- + 1) - 1]
[ 19,923,384.81 x $ 11.33]
= 4.00%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 13,887.15 - $ 4,228.44] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 314,988.08 x $ 10.83]
= 3.42%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 46,035.18 - $12,155.61] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 1,044,367.52 x $ 10.83]
= 3.62%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 2,371.20 - $ 266.34] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 53,568.52 x $ 10.87]
= 4.38%
8. Massachusetts Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 37,283.43 - $ 7,209.06] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 914,671.85 x $ 10.52]
= 3.78%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 2,837.15 - $ 981.67] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 69,470.68 x $ 10.10]
= 3.19%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 7,668.19 - $ 2,341.10] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 189,200.67 x $ 10.02]
= 3.40%
4
<PAGE>
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 295,697.25 - $45,137.94] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 7,275,477.26 x $ 10.05]
= 4.15%
9. Massachusetts Insured Municipal Bond Fund
The following is the 30-day yield as of February 28, 1998, for the Class A
Shares of the Fund:
[$ 32,548.21 - $ 7,490.00] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 804,985.85 x $ 11.03]
= 3.41%
The following is the 30-day yield as of February 28, 1998, for the Class B
Shares of the Fund:
[$ 2,544.43 - 996.19] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 62,894.05 x $ 10.57]
= 2.81%
The following is the 30-day yield as of February 28, 1998, for the Class C
Shares of the Fund:
[$ 4,888.45 - $ 1,703.65] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 121,212.61 x $ 10.54]
= 3.01%
The following is the 30-day yield as of February 28, 1998, for the Class R
Shares of the Fund:
[$ 217,474.79 - $40,684.48] 6
Yield = 2[ (----------------------------- + 1) - 1]
[ 5,376,400.55 x $ 10.57]
= 3.76%
5
<PAGE>
II. TAXABLE EQUIVALENT YIELD
A. Taxable Equivalent Yield Formula
The Taxable Equivalent Yield Formula is as follows:
Tax Exempt Yield
Taxable Equivalent Yield = -------------------------------
(1 - combined federal and state
income tax rate)
B. Taxable Equivalent Yield Calculations
Based on combined federal and state income tax rates of 43.4% for New Jersey and
New Jersey Intermediate, 43.7% for New York and New York Insured, 45.2% for
California and California Insured, 46.8% for Massachusetts and Massachusetts
Insured, and 42.3% for Connecticut, the Taxable Equivalent Yields for the Class
A Shares, Class B Shares, Class C Shares and Class R Shares, where applicable,
for the 30-day period ended February 28, 1998, are as follows:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares Class R Shares
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
New York 4.27% 3.71% 3.91% 4.66%
Municipal ------- = 7.58% ------- = 6.59% ------- = 6.94% ------- = 8.28%
Bond Fund: 1-.437 1-.437 1-.437 1-.437
New York 3.55% 2.96% 3.16% 3.91%
Insured ------- = 6.31% ------- = 5.26% ------- = 5.61% ------- = 6.94%
Municipal 1-.437 1-.437 1-.437 1-.437
Bond Fund:
New Jersey 4.68% 4.14% 4.34% 5.09%
Municipal ------- = 8.27% ------- = 7.31% ------- = 7.67% ------- = 8.99%
Bond Fund: 1-.434 1-.434 1-.434 1-.434
New Jersey 3.83% 3.38% 4.15%
Intermediate ------- = 6.77% N/A ------- = 5.97% ------- = 7.33%
Municipal 1-.434 1-.434 1-.434
Bond Fund:
California 4.00% 3.42% 3.62% 4.37%
Municipal ------- = 7.30% ------- = 6.24% ------- = 6.61% ------- = 7.97%
Bond Fund: 1-.452 1-.452 1-.452 1-.452
California 3.60% 3.01% 3.21% 3.96%
Insured ------- = 6.57% ------- = 5.49% ------- = 5.86% ------- = 7.23%
Municipal 1-.452 1-.452 1-.452 1-.452
Bond Fund:
Connecticut 4.00% 3.42% 3.62% 4.38%
Municipal ------- = 6.93% ------- = 5.93% ------- = 6.27% ------- = 7.59%
Bond Fund: 1-.423 1-.423 1-.423 1-.423
Massachusetts 3.78% 3.19% 3.40% 4.15%
Municipal ------- = 7.11% ------- = 6.00% ------- = 6.39% ------- = 7.80%
Bond Fund: 1-.468 1-.468 1-.468 1-.468
Massachusetts 3.41% 2.81% 3.01% 3.76%
Insured ------- = 6.41% ------- = 5.28% ------- = 5.66% ------- = 7.07%
Municipal 1-.468 1-.468 1-.468 1-.468
Bond Fund:
</TABLE>
6
<PAGE>
III. DISTRIBUTION RATE
A. Distribution Rate Formula
The formula for calculation of distribution rate is as follows:
Distribution Rate = 12 X most recent tax-exempt income dividend per share
-----------------------------------------------------
share price
B. Distribution Rate Calculations
1. New York Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the New York Fund.
Class A Distribution Rate = 12 X $.0475
-----------
$11.45
= 4.98%
Class B Distribution Rate = 12 X $.0405
-----------
$10.98
= 4.43%
Class C Distribution Rate = 12 X $.0425
-----------
$11.01
= 4.63%
Class R Distribution Rate = 12 X $.0490
-----------
$11.00
= 5.35%
2. New York Insured Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the New York Insured Fund.
Class A Distribution Rate = 12 X $.0445
-----------
$11.23
= 4.76%
Class B Distribution Rate = 12 X $.0375
-----------
$10.76
= 4.18%
Class C Distribution Rate = 12 X $.0395
-----------
$10.74
= 4.41%
Class R Distribution Rate = 12 X $.0460
-----------
$10.76
= 5.13%
7
<PAGE>
3. New Jersey Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the New Jersey Fund.
Class A Distribution Rate = 12 X $.0450
-----------
$11.08
= 4.87%
Class B Distribution Rate = 12 X $.0385
-----------
$10.61
= 4.35%
Class C Distribution Rate = 12 X $.0405
-----------
$10.59
= 4.59%
Class R Distribution Rate = 12 X $.0470
-----------
$10.62
= 5.31%
4. New Jersey Intermediate Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the New Jersey Intermediate Fund.
Class A Distribution Rate = 12 X $.0415
-----------
$10.82
= 4.60%
Class C Distribution Rate = 12 X $.0370
-----------
$10.52
= 4.22%
Class R Distribution Rate = 12 X $.0435
-----------
$10.51
= 4.97%
5. California Municipal Bond Fund
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the California Fund:
Class A Distribution Rate = 12 X $.0455
-----------
$11.39
= 4.79%
Class B Distribution Rate = 12 X $.0390
-----------
$10.92
= 4.29%
Class C Distribution Rate = 12 X $.0405
-----------
$10.92
= 4.45%
Class R Distribution Rate = 12 X $.0475
-----------
$10.93
= 5.22%
8
<PAGE>
6. California Insured Municipal Bond Fund
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the California Insured Fund:
Class A Distribution Rate = 12 X $.0450
-----------
$11.54
= 4.68%
Class B Distribution Rate = 12 X $.0380
-----------
$11.06
= 4.12%
Class C Distribution Rate = 12 X $.0395
-----------
$10.98
= 4.32%
Class R Distribution Rate = 12 X $.0465
-----------
$11.04
= 5.05%
7. Connecticut Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the Connecticut Fund.
Class A Distribution Rate = 12 X $.0450
-----------
$11.33
= 4.77%
Class B Distribution Rate = 12 X $.0385
-----------
$10.83
= 4.27%
Class C Distribution Rate = 12 X $.0400
-----------
$10.83
= 4.43%
Class A Distribution Rate = 12 X $.0470
-----------
$10.87
= 5.19%
9
<PAGE>
8. Massachusetts Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the Massachusetts Fund.
Class A Distribution Rate = 12 X $.0435
-----------
$10.52
= 4.96%
Class B Distribution Rate = 12 X $.0375
-----------
$10.10
= 4.46%
Class C Distribution Rate = 12 X $.0390
-----------
$10.02
= 4.67%
Class R Distribution Rate = 12 X $.0450
-----------
$10.05
= 5.37%
9. Massachusetts Insured Municipal Bond Fund:
The following is the distribution rate as of February 28, 1998, based on the
maximum public offering price for the Massachusetts Insured Fund.
Class A Distribution Rate = 12 X $.0435
-----------
$11.03
= 4.73%
Class B Distribution Rate = 12 X $.0370
-----------
$10.57
= 4.20%
Class C Distribution Rate = 12 X $.0385
-----------
$10.54
= 4.38%
Class R Distribution Rate = 12 X $.0450
-----------
$10.57
= 5.11%
IV. AVERAGE ANNUAL TOTAL RETURN
A. Average Annual Total Return Formula
Average Annual Total Return is computed according to the following formula:
ERV /1/N/
T = --- -1
P
Where: T=average annual total return.
P=a hypothetical initial payment of $1,000.
N=number of years.
ERV=ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10-year (or fractional portion thereof)
periods at the end of such 1, 5 or 10-year (or fractional portion
thereof) periods.
10
<PAGE>
B. Average Annual Total Return Calculations
The following are the average annual total returns for Class A, Class B,
Class C, and Class R Shares of the Funds for the period since inception and for
the 1, 5, and 10-year (where applicable) periods ended February 28, 1998, in-
cluding the current maximum sales charge. For all of the Funds except for the
Connecticut Municipal Bond Fund and the New Jersey Intermediate Municipal Bond
Fund, Class A, Class B, and Class C total returns reflect actual performance
for the periods since class inception and Class R performance for the periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes. For the Connecticut Fund, Class B, Class C, and Class
R total returns reflect actual performance for the periods since class incep-
tion and Class A performance for the periods prior to class inception, adjusted
for the differences in sales charges and fees between the classes. For the New
Jersey Intermediate Fund, Class C and Class R total returns reflect Class A
performance for all periods, adjusted for the differences in sales charges and
fees between the classes.
ANNUAL CLASS A TOTAL RETURNS INCLUDING CURRENT MAXIMUM SALES CHARGE OF 4.20%:
1. New York Municipal Bond Fund
$1,052 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 5.24%
$1,000 ----
----
$1,308 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 5.51%
$1,000 ----
----
$2,050 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.44%
$1,000 ----
----
$2,160 /1/11.187/
D. Inception through February 28, 1998 = ( ------- ) -1 = 7.13%
$1,000 ----
----
2. New York Insured Municipal Bond Fund
$1,032 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = -3.23%
$1,000 ------
------
$1,259 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 4.71%
$1,000 ----
----
$1,987 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.11%
( $1,000 ) ----
----
$2,038 /1/11.187/
D. Inception through February 28, 1998 = ( ------- ) -1 = 6.57%
$1,000 ----
----
3. New Jersey Municipal Bond Fund
$1,045 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 4.47%
$1,000 ----
----
$1,296 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 5.32%
$1,000 ----
----
$1,460 /1/6.000/
C. Inception through February 28, 1998 = ( ------- ) -1 = 6.51%
$1,000 ----
----
4. New Jersey Intermediate Municipal Bond Fund
$1,038 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 3.78%
$1,000 ----
----
11
<PAGE>
$1,270 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 4.89%
$1,000 ----
----
$1,373 /1/5.451/
C. Inception through February 28, 1998 = ( ------- ) -1 = 5.99%
$1,000 ----
----
5. California Municipal Bond Fund
$1,043 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 4.33%
$1,000 ----
----
$1,273 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 4.94%
$1,000 ----
----
$1,992 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.13%
$1,000 ----
----
$2,194 /1/11.663/
D. Inception through February 28, 1998 = ( ------- ) -1 = 6.97%
$1,000 ----
----
6. California Insured Municipal Bond Fund
$1,041 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 4.09%
$1,000 ----
----
$1,268 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 4.87%
$1,000 ----
----
$2,001 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.18%
$1,000 ----
----
$2,158 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.82%
----
----
7. Connecticut Municipal Bond Fund
$1,042 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 4.19%
$1,000 ----
----
$1,281 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 5.07%
$1,000 ----
----
$1,998 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.17%
$1,000 ----
----
$2,069 /1/10.631/
D. Inception through February 28, 1998 = ( ------- ) -1 = 7.08%
$1,000 ----
----
8. Massachusetts Municipal Bond Fund
$1,029 /1/1/
A. 1 year ended February 28, 1998 = ( ------- ) -1 = 2.91%
$1,000 ----
----
$1,269 /1/5/
B. 5 years ended February 28, 1998 = ( ------- ) -1 = 4.88%
$1,000 ----
----
$1,982 /1/10/
C. 10 years ended February 28, 1998 = ( ------- ) -1 = 7.08%
$1,000 ----
----
$1,935 /1/11.187/
D. Inception through February 28, 1998 = ( ------- ) -1 = 6.08%
$1,000 ----
----
12
<PAGE>
9. Massachusetts Insured Municipal Bond Fund
$1,025 /1/1/
A. 1 year ended February 28, 1998 = (--------) -1 =2.50%
$1,000 ----
----
$1,245 /1/5/
B. 5 years ended February 28, 1998 = (--------) -1 =4.48%
$1,000 ----
----
$1,926 /1/10/
C. 10 years ended February 28, 1998 = (--------) -1 =6.77%
$1,000 ----
----
$1,957 /1/11.187/
D. Inception through February 28, 1998 = (--------) -1 =6.19%
$1,000 ----
----
ANNUAL CLASS B TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,051 /1/1/
A. 1 year ended February 28, 1998 = (--------) -1 =5.10%
$1,000 ----
----
$1,312 /1/5/
B. 5 years ended February 28, 1998 = (--------) -1 =5.59%
$1,000 ----
----
$2,031 /1/10/
C. 10 years ended February 28, 1998 = (--------) -1 =7.34%
$1,000 ----
----
$2,139 /1/11.187/
D. Inception through February 28, 1998 = (--------) -1 =7.03%
$1,000 ----
----
2. New York Insured Municipal Bond Fund
$1,030 /1/1/
A. 1 year ended February 28, 1998 = (--------) -1 =2.96%
$1,000 ----
----
$1,258 /1/5/
B. 5 years ended February 28, 1998 = (--------) -1 =4.70%
$1,000 ----
----
$1,963 /1/10/
C. 10 years ended February 28, 1998 = (--------) -1 =6.98%
$1,000 ----
----
$2,014 /1/11.187
D. Inception through February 28, 1998 = (--------) -1 =6.46%
$1,000 ----
----
3. New Jersey Municipal Bond Fund
$1,043 /1/1/
A. 1 year ended February 28, 1998 = (--------) -1 =4.25%
$1,000 ----
----
B. 5 years ended February 28, 1998 $1,297 /1/5/
= (--------) -1 =5.33%
$1,000 ----
----
C. Inception through February 28, 1998 $1,462 /1/6.001/
= (--------) -1 =6.54%
$1,000 ----
----
13
<PAGE>
4. California Municipal Bond Fund
$1,041 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 4.08%
-----
-----
$1,278 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.02%
-----
-----
$1,972 /1/10/
C. 10 years ended February 28, 1997 = ( ------- )
$1,000 -1 = 7.02%
-----
-----
$2,166 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.85%
-----
-----
5. California Insured Municipal Bond Fund
$1,038 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 3.82%
-----
-----
$1,266 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 4.83%
-----
-----
$1,973 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.03%
-----
-----
$2,130 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.70%
-----
-----
6. Connecticut Municipal Bond Fund
$1,038 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 3.76%
-----
-----
$1,286 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.15%
-----
-----
$1,997 /1/10/
C. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 7.16%
-----
-----
$2,067 /1/10.631/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 7.07%
-----
-----
7. Massachusetts Municipal Bond Fund
$1,028 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 2.82%
-----
-----
$1,267 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 4.84%
-----
-----
$1,952 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.92%
-----
-----
$1,904 /1/11.187/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 5.93%
-----
-----
14
<PAGE>
8. Massachusetts Insured Municipal Bond Fund
$1,023 /1/1/
A. 1 year ended February 28, 1998 =(------) -1=2.25%
$1,000 ----
----
$1,245 /1/5/
B. 5 years ended February 28, 1998 =(------) -1=4.48%
$1,000 ----
----
$1,905 /1/10/
C. 10 years ended February 28, 1998 =(------) -1=6.65%
$1,000 ----
----
$1,930 /1/11.187
D. Inception through February 28, 1998 =(------) -1=6.05%
$1,000 ----
----
ANNUAL CLASS C TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,093 /1/1/
A. 1 year ended February 28, 1998 =(------) -1=9.31%
$1,000 ----
----
$1,326 /1/5/
B. 5 years ended February 28, 1998 =(------) -1=5.81%
$1,000 ----
----
$2,002 /1/10/
C. 10 years ended February 28, 1998 =(------) -1=7.19%
$1,000 ----
----
$2,089 /1/11.187/
D. Inception through February 28, 1998 =(------) -1=6.81%
$1,000 ----
----
2. New York Insured Municipal Bond Fund
$1,072 /1/1/
A. 1 year ended February 28, 1998 =(------) -1=7.16%
$1,000 ----
----
$1,270 /1/5/
B. 5 years ended February 28, 1998 =(------) -1=4.89%
$1,000 ----
----
$1,930 /1/10/
C. 10 years ended February 28, 1998 =(------) -1=6.80%
$1,000 ----
----
$1,961 /1/11.187/
D. Inception through February 28, 1998 =(------) -1=6.21%
$1,000 ----
----
3. New Jersey Municipal Bond Fund
$1,084 /1/1/
A. 1 year ended February 28, 1998 =(------) -1=8.40%
$1,000 ----
----
$1,307 /1/6/
B. 5 years ended February 28, 1998 =(------) -1=5.50%
$1,000 ----
----
$1,462 /1/6.001/
C. Inception through February 28, 1998 =(------) -1=6.53%
$1,000 ----
----
15
<PAGE>
4. New Jersey Intermediate Municipal Bond Fund
$1,066 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.63%
-----
-----
$1,287 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.17%
-----
-----
$1,389 /1/5.451/
C. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.21%
-----
-----
5. California Municipal Bond Fund
$1,084 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 8.36%
-----
-----
$1,287 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.18%
-----
-----
$1,941 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.86%
-----
-----
$2,111 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.62%
-----
-----
6. California Insured Municipal Bond Fund
$1,080 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.96%
-----
-----
$1,273 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 4.94%
-----
-----
$1,934 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.82%
-----
-----
$2,059 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.39%
-----
-----
7. Connecticut Municipal Bond Fund
$1,082 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 8.17%
-----
-----
$1,298 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.36%
-----
-----
$1,972 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.02%
-----
-----
$2,034 /1/10.631/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.90%
-----
-----
8. Massachusetts Municipal Bond Fund
$1,069 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.85%
-----
-----
$1,275 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 4.98%
-----
-----
$1,921 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.74%
-----
-----
$1,857 /1/11.187/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 5.69%
-----
-----
16
<PAGE>
9. Massachusetts Insured Municipal Bond Fund
$1,065 /1/1/
A. 1 year ended February 28, 1998= (-------) -1 = 6.45%
$1,000 ----
----
$1,254 /1/5/
B. 5 years ended February 28, 1998= (-------) -1 = 4.64%
$1,000 ----
----
C. 10 years ended February 28, 1998= $1,870 /1/10/
(-------) -1 = 6.46%
$1,000 ----
----
$1,882 /1/11.187/
D. Inception through February 28, 1998= (-------) -1 = 5.81%
$1,000 ----
----
ANNUAL CLASS R TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,101 /1/1/
A. 1 year ended February 28, 1998= (-------) -1 = 10.11%
$1,000 -----
-----
$1,386 /1/5/
B. 5 years ended February 28, 1998= (-------) -1 = 6.74%
$1,000 ----
----
$2,199 /1/10/
C. 10 years ended February 28, 1998= (-------) -1 = 8.20%
$1,000 ----
----
$2,324 /1/11.187/
D. Inception through February 28, 1998= (-------) -1 = 7.83%
$1,000 ----
----
2. New York Insured Municipal Bond Fund
$1,080 /1/1/
A. 1 year ended February 28, 1998= (-------) -1 = 8.04%
$1,000 ----
----
$1,331 /1/5/
B. 5 years ended February 28, 1998= (-------) -1 = 5.88%
$1,000 ----
----
$2,126 /1/10/
C. 10 years ended February 28, 1998= (-------) -1 = 7.84%
$1,000 ----
----
$2,187 /1/11.187/
D. Inception through February 28, 1998= (-------) -1 = 7.25%
$1,000 ----
----
3. New Jersey Municipal Bond Fund
$1,093 /1/1/
A. 1 year ended February 28, 1998= (-------) -1 = 9.29%
$1,000 ----
----
$1,370 /1/5/
B. 5 years ended February 28, 1998= (-------) -1 = 6.50%
$1,000 ----
----
$1,548 /1/6.001/
C. Inception through February 28, 1998= (-------) -1 = 7.55%
$1,000 ----
----
4. New Jersey Intermediate Municipal Bond Fund
$1,073 /1/1/
A. 1 year ended February 28, 1998= (-------) -1 = 7.34%
$1,000 ----
----
$1,313 /1/5/
B. Inception through February 28, 1998= (-------) -1 = 5.60%
$1,000 ----
----
$1,420 /1/5.451/
C. Inception through February 28, 1998= (-------) -1 = 6.65%
$1,000 ----
----
17
<PAGE>
5. California Municipal Bond Fund
$1,090 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 8.99%
----
----
$1,348 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.16%
----
----
$2,137 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.89%
----
----
$2,362 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 7.65%
----
----
6. California Insured Municipal Bond Fund
$1,089 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 8.86%
----
----
$1,338 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.00%
----
----
$2,137 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.89%
----
----
$2,313 /1/11.663/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 7.46%
----
----
7. Connecticut Municipal Bond Fund
$1,092 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 9.17%
----
----
$1,342 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 6.06%
----
----
$2,094 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.67%
----
----
$2,168 /1/10.631/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 7.55%
----
----
8. Massachusetts Municipal Bond Fund
$1,076 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.60%
----
----
$1,336 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.96%
----
----
$2,116 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.78%
----
----
$2,072 /1/11.187/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.73%
----
----
9. Massachusetts Insured Municipal Bond Fund
$1,072 /1/1/
A. 1 year ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.23%
----
----
$1,315 /1/5/
B. 5 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 5.64%
----
----
$2,061 /1/10/
C. 10 years ended February 28, 1998 = ( ------- )
$1,000 -1 = 7.50%
----
----
$2,100 /1/11.187/
D. Inception through February 28, 1998 = ( ------- )
$1,000 -1 = 6.86%
----
----
18
<PAGE>
V. CUMULATIVE TOTAL RETURN
A. Cumulative Total Return Formula
Cumulative Total Return is computed according to the following formula:
ERV - P
T = -------
P
Where: T = cumulative total return.
P = a hypothetical initial payment of $1,000.
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
inception of the Fund or at the first day of a specified 1-year, 5-
year or 10-year period.
B. Cumulative Total Return Calculation
The following are the cumulative total returns for Class A, Class B, Class C,
and Class R Shares of the Funds for the periods from inception and for the 1, 5
and 10-year (where applicable) periods ended February 28, 1998, assuming no im-
position of sales charges. For all of the Funds except the Connecticut Munici-
pal Bond Fund and the New Jersey Intermediate Fund, Class A, Class B, and Class
C total returns reflect actual performance for the periods since class incep-
tion and Class R performance for periods prior to class inception, adjusted for
the differences in sales charges and fees between the classes. For the Connect-
icut Fund, Class B, Class C, and Class R total returns reflect actual perfor-
mance for the periods since class inception and Class A performance for periods
prior to class inception, adjusted for the differences in sales charges and
fees between the classes. For the New Jersey Intermediate Fund, Class C and
Class R total returns reflect Class A performance for all periods, adjusted for
the differences in sales charges and fees between the classes.
CUMULATIVE CLASS A TOTAL RETURNS INCLUDING CURRENT MAXIMUM SALES CHARGES OF
4.20%:
1. New York Municipal Bond Fund
$1,052 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 5.24%
$1,000 ====
$1,308 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 30.76%
$1,000 =====
$2,050 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 105.05%
$1,000 ======
$2,160 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 116.02%
$1,000 ======
2. New York Insured Municipal Bond Fund
$1,032 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 3.23%
$1,000 ====
$1,259 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 25.88%
$1,000 =====
$1,987 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 98.69%
$1,000 =====
$2,038 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 103.81%
$1,000 ======
3. New Jersey Municipal Bond Fund
$1,045 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.47%
$1,000 ====
$1,296 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 29.60%
$1,000 =====
$1,460 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 46.02%
$1,000 =====
19
<PAGE>
4. New Jersey Intermediate Municipal Bond Fund:
$1,038 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 3.78%
$1,000 ====
$1,270 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.97%
$1,000 =====
$1,373 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 37.35%
$1,000 =====
5. California Municipal Bond Fund:
$1,043 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.33%
$1,000 ====
$1,273 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 27.25%
$1,000 =====
$1,992 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 99.20%
$1,000 =====
$2,194 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 119.45%
$1,000 ======
6. California Insured Municipal Bond Fund:
$1,041 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.09%
$1,000 ====
$1,268 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.84%
$1,000 =====
$2,001 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 100.14%
$1,000 ======
$2,158 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 115.79%
$1,000 ======
7. Connecticut Municipal Bond Fund:
$1,042 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.19%
$1,000 ====
$1,281 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 28.08%
$1,000 =====
$1,998 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 99.84%
$1,000 =====
$2,069 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 106.91%
$1,000 ======
8. Massachusetts Municipal Bond Fund:
$1,029 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 2.91%
$1,000 ====
$1,269 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.87%
$1,000 =====
$1,982 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 98.24%
$1,000 =====
$1,935 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 93.54%
$1,000 =====
20
<PAGE>
9. Massachusetts Insured Municipal Bond Fund:
$1,025 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 2.50%
$1,000 ====
$1,245 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 24.49%
$1,000 =====
$1,926 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 92.58%
$1,000 =====
$1,957 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 95.72%
$1,000 =====
CUMULATIVE CLASS B TOTAL RETURNS:
1. New York Municipal Bond Fund:
$1,051 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 5.10%
$1,000 ====
$1,312 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 31.22%
$1,000 =====
$2,031 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 103.10%
$1,000 ======
$2,139 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 113.93%
$1,000 ======
2. New York Insured Municipal Bond Fund:
$1,030 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 2.96%
$1,000 ====
$1,258 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 25.83%
$1,000 =====
$1,963 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 96.32%
$1,000 =====
$2,014 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 101.43%
$1,000 ======
3. New Jersey Municipal Bond Fund:
$1,043 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.25%
$1,000 ====
$1,297 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 29.67%
$1,000 =====
$1,462 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 46.21%
$1,000 =====
4. California Municipal Bond Fund:
$1,041 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 4.08%
$1,000 ====
$1,278 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 27.76%
$1,000 =====
$1,972 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 97.17%
$1,000 =====
$2,166 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 116.58%
$1,000 ======
21
<PAGE>
5. California Insured Municipal Bond Fund:
$1,038 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 3.82%
$1,000 ====
$1,266 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.61%
$1,000 =====
$1,973 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 97.31%
$1,000 =====
$2,130 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 112.95%
$1,000 ======
6. Connecticut Municipal Bond Fund:
$1,038 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 3.76%
$1,000 ====
$1,286 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 28.57%
$1,000 =====
$1,997 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 99.70%
$1,000 =====
$2,067 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 106.74%
$1,000 ======
7. Massachusetts Municipal Bond Fund:
$1,028 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 2.82%
$1,000 ====
$1,267 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.69%
$1,000 =====
$1,952 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 95.18%
$1,000 =====
$1,904 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 90.43%
$1,000 =====
8. Massachusetts Insured Municipal Bond Fund:
$1,023 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 2.25%
$1,000 ====
$1,245 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 24.48%
$1,000 =====
$1,905 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 90.46%
$1,000 =====
$1,930 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 92.99%
$1,000 =====
CUMULATIVE CLASS C TOTAL RETURNS:
1. New York Municipal Bond Fund:
$1,093 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 9.31%
$1,000 ====
$1,326 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 32.60%
$1,000 =====
$2,002 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 100.20%
$1,000 ------
22
<PAGE>
$2,089 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 108.91%
$1,000 ======
2. New York Insured Municipal Bond Fund:
$1,072 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 7.16%
$1,000 ====
$1,270 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 26.97%
$1,000 =====
$1,930 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 93.04%
$1,000 =====
$1,961 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 96.13%
$1,000 =====
3. New Jersey Municipal Bond Fund:
$1,084 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.40%
$1,000 ====
$1,307 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 30.72%
$1,000 =====
$1,462 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 46.19%
$1,000 =====
4. New Jersey Intermediate Municipal Bond Fund:
$1,066 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 6.63%
$1,000 ====
$1,287 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 28.65%
$1,000 =====
$1,389 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 38.87%
$1,000 =====
5. California Municipal Bond Fund:
$1,084 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.36%
$1,000 ====
$1,287 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 28.74%
$1,000 =====
$1,941 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 94.13%
$1,000 =====
$2,111 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 111.10%
$1,000 ======
6. California Insured Municipal Bond Fund:
$1,080 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 7.96%
$1,000 ====
$1,273 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 27.26%
$1,000 =====
$1,934 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 93.37%
$1,000 =====
$2,059 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 105.86%
$1,000 ======
23
<PAGE>
7. Connecticut Municipal Bond Fund
$1,082 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.17%
$1,000 ====
$1,298 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 29.81%
$1,000 =====
$1,972 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 97.15%
$1,000 =====
$2,034 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 103.36%
$1,000 ======
8. Massachusetts Municipal Bond Fund
$1,069 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 6.85%
$1,000 ====
$1,275 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 27.50%
$1,000 =====
$1,921 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 92.07%
$1,000 =====
$1,857 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 85.74%
$1,000 =====
9. Massachusetts Insured Municipal Bond Fund
$1,065 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 6.45%
$1,000 ====
$1,254 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 25.44%
$1,000 =====
$1,870 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 86.99%
$1,000
$1,882 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 88.18%
$1,000
CUMULATIVE CLASS R TOTAL RETURNS:
1. New York Municipal Bond Fund
$1,101 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 10.11%
$1,000 =====
$1,386 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 38.57%
$1,000
$2,199 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 119.91%
$1,000 ======
$2,324 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 132.36%
$1,000 ======
24
<PAGE>
2. New York Insured Municipal Bond Fund
$1,080 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.04%
$1,000 ====
$1,331 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 33.08%
$1,000 =====
$2,126 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 112.62%
$1,000 ======
$2,187 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 118.74%
$1,000 ======
3. New Jersey Municipal Bond Fund
$1,093 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 9.29%
$1,000 ====
$1,370 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 37.01%
$1,000 =====
$1,548 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 54.77%
$1,000 =====
4. New Jersey Intermediate Municipal Bond Fund
$1,073 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 7.34%
$1,000 ====
$1,313 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 31.32%
$1,000 =====
$1,420 - $1,000
C. Inception through February 28, 1998 = ( --------------- ) = 42.01%
$1,000 =====
5. California Municipal Bond Fund
$1,090 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.99%
$1,000 ====
$1,348 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 34.84%
$1,000 =====
$2,137 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 113.68%
$1,000 ======
$2,362 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 136.25%
$1,000 ======
6. California Insured Municipal Bond Fund
$1,089 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 8.86%
$1,000 ====
$1,338 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 33.83%
$1,000 =====
$2,137 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 113.73%
$1,000 ======
$2,313 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 131.33%
$1,000 ======
25
<PAGE>
7. Connecticut Municipal Bond Fund
$1,092 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 9.17%
$1,000 ====
$1,342 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 34.18%
$1,000 =====
$2,094 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 109.42%
$1,000 ======
$2,168 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 116.81%
$1,000 ======
8. Massachusetts Municipal Bond Fund
$1,076 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 7.60%
$1,000 ====
$1,336 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 33.60%
$1,000 =====
$2,116 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 111.56%
$1,000 ======
$2,072 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 107.16%
$1,000 ======
9. Massachusetts Insured Municipal Bond Fund
$1,072 - $1,000
A. 1 year ended February 28, 1998 = ( --------------- ) = 7.23%
$1,000 ====
$1,315 - $1,000
B. 5 years ended February 28, 1998 = ( --------------- ) = 31.54%
$1,000 =====
$2,061 - $1,000
C. 10 years ended February 28, 1998 = ( --------------- ) = 106.09%
$1,000 ======
$2,100 - $1,000
D. Inception through February 28, 1998 = ( --------------- ) = 110.01%
$1,000 ======
VI. TAXABLE EQUIVALENT TOTAL RETURN
A. Taxable Equivalent Total Return Formula
Each Fund's taxable equivalent total return for a specific period is calcu-
lated by first taking a hypothetical initial investment in the Fund's shares on
the first day of the period, computing the Fund's total return for each fiscal
year in the period according to the above formula, and increasing the total re-
turn for each such fiscal year by the amount of additional income that a tax-
able fund would need to have generated to equal the income of the Fund on an
after-tax basis, at a specified tax rate (usually the highest marginal federal
or combined federal and state tax rate), calculated pursuant to the formula
presented above under "taxable equivalent yield." The resulting amount for the
fiscal year is then divided by the initial investment amount to arrive at a
"taxable equivalent total return factor" for the fiscal year. The taxable
equivalent total return factors for all the fiscal years in the period are then
multiplied together and the result is then annualized by taking its Nth root (N
representing the number of years in the period) and subtracting 1, which pro-
vides a taxable equivalent total return expressed as a percentage.
B. Taxable Equivalent Total Return Calculations
The taxable equivalent total return calculations for the Class R Shares of
the Massachusetts Municipal Bond Fund for the five-year period ended February
28, 1998 are set forth on the following pages assuming a combined federal and
state income tax rate of 46.8% based on 1998 rates.
26
<PAGE>
Fund Name: Nuveen Massachusetts Municipal Bond Fund Class R
Since 02/28/93
<TABLE>
<CAPTION>
TOTAL PERIOD
NAV INCOME CAP FROM FROM DOLLAR TO DATE TAX ENDING ENDING REINV
PER DATE PER SHARE PER SHARE GAINS INCOME GAINS DIST. T-E INC. SAVINGS SHARES WEALTH NAV
- -------- --------- --------- ----- ------ ----- ------ -------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
02/28/93 9.91 1,009 $10,000.00
03/31/93 9.73 0.0465 $46.922 $-- $46.922 $ 46.922 1,014 $ 9,865.24 9.74
04/30/93 9.80 0.0450 $45.625 $-- $45.625 $ 92.548 1,019 $ 9,981.79 9.81
05/31/93 9.83 0.0450 $45.835 $-- $45.835 $138.383 1,023 $10,058.18 9.83
06/30/93 9.97 0.0450 $46.045 $-- $46.045 $184.427 1,028 $10,247.48 9.97
07/31/93 9.94 0.0450 $46.252 $-- $46.252 $230.680 1,032 $10,262.89 9.94
08/31/93 10.12 0.0450 $46.462 $-- $46.462 $277.141 1,037 $10,495.16 10.13
09/30/93 10.20 0.0450 $46.668 $-- $46.668 $323.809 1,042 $10,624.75 10.21
10/31/93 10.18 0.0450 $46.874 $-- $46.874 $370.683 1,046 $10,650.83 10.17
11/30/93 10.04 0.0450 $47.081 $-- $47.081 $417.765 1,051 $10,551.39 10.05
12/31/93 10.16 0.0450 $47.292 $-- $47.292 $465.057 1,056 $10,724.80 10.16
01/31/94 10.26 0.0450 $47.502 $-- $47.502 $512.558 1,060 $10,877.90 10.25
02/28/94 9.94 0.0440 $46.650 $-- $46.650 $559.208 $491.9 1,114 $11,077.76 9.93
03/31/94 9.51 0.0440 $49.036 $-- $49.036 $ 49.036 1,120 $10,648.42 9.35
04/30/94 9.49 0.0440 $49.267 $-- $49.267 $ 98.303 1,125 $10,675.44 9.46
05/31/94 9.54 0.0445 $50.059 $-- $50.059 $148.362 1,130 $10,781.80 9.53
06/30/94 9.46 0.0445 $50.292 $-- $50.292 $198.655 1,135 $10,741.68 9.46
07/31/94 9.55 0.0445 $50.529 $-- $50.529 $249.184 1,141 $10,894.25 9.58
08/31/94 9.53 0.0445 $50.764 $-- $50.764 $299.947 1,146 $10,922.14 9.54
09/30/94 9.33 0.0445 $51.001 $-- $51.001 $350.948 1,152 $10,743.93 9.33
10/31/94 9.13 0.0455 0.0000 $52.395 $-- $52.395 $403.343 1,157 $10,566.13 9.11
11/30/94 8.90 0.0455 $52.657 $-- $52.657 $456.000 1,163 $10,352.37 8.94
12/31/94 9.12 0.0455 $52.925 $-- $52.925 $508.925 1,169 $10,661.20 9.12
01/31/95 9.32 0.0455 $53.189 $-- $53.189 $562.115 1,175 $10,947.96 9.36
02/28/95 9.54 0.0455 $53.448 $-- $53.448 $615.562 $541.5 1,237 $11,798.86 9.58
03/31/95 9.58 0.0455 $56.273 $-- $56.273 $ 56.273 1,243 $11,904.48 9.60
04/30/95 9.57 0.0455 $56.540 $-- $56.540 $112.813 1,249 $11,948.66 9.56
05/31/95 9.79 0.0455 $56.809 $-- $56.809 $169.623 1,254 $12,280.15 9.79
06/30/95 9.67 0.0455 $57.073 $-- $57.073 $226.696 1,260 $12,186.70 9.67
07/31/95 9.68 0.0455 $57.342 $-- $57.342 $284.038 1,266 $12,256.76 9.66
08/31/95 9.73 0.0455 $57.612 $-- $57.612 $341.649 1,272 $12,377.45 9.77
09/30/95 9.75 0.0455 $57.880 $-- $57.880 $399.530 1,278 $12,460.59 9.78
10/31/95 9.84 0.0455 $58.149 $-- $58.149 $457.679 1,284 $12,633.58 9.87
11/30/95 9.95 0.0455 $58.417 $-- $58.417 $516.097 1,290 $12,833.06 9.98
12/31/95 9.99 0.0450 $58.039 $-- $58.039 $574.135 1,296 $12,942.68 9.99
01/31/96 10.00 0.0450 $58.300 $-- $58.300 $632.436 1,301 $13,013.94 10.00
02/29/96 9.91 0.0450 $58.563 $-- $58.563 $690.999 $607.9 1,368 $13,561.24 9.94
03/31/96 9.76 0.0440 $60.211 $-- $60.211 $ 60.211 1,375 $13,416.12 9.77
04/30/96 9.70 0.0440 $60.483 $-- $60.483 $120.694 1,381 $13,394.13 9.70
05/31/96 9.69 0.0440 $60.757 $-- $60.757 $181.451 1,387 $13,441.08 9.69
06/30/96 9.73 0.0440 $61.033 $-- $61.033 $242.483 1,393 $13,557.59 9.73
07/31/96 9.76 0.0440 $61.309 $-- $61.309 $303.792 1,400 $13,660.52 9.79
08/31/96 9.74 0.0440 $61.584 $-- $61.584 $365.377 1,406 $13,694.17 9.73
09/30/96 9.81 0.0440 $61.863 $-- $61.863 $427.239 1,412 $13,854.39 9.82
10/31/96 9.85 0.0440 $62.140 $-- $62.140 $489.379 1,419 $13,972.96 9.86
11/30/96 9.92 0.0440 $62.417 $-- $62.417 $551.797 1,425 $14,134.67 9.92
12/31/96 9.86 0.0440 $62.694 $-- $62.694 $614.491 1,431 $14,111.88 9.86
01/31/97 9.83 0.0440 $62.974 $-- $62.974 $677.465 1,438 $14,131.85 9.84
02/28/97 9.86 0.0440 $63.255 $-- $63.255 $740.720 $651.6 1,510 $14,890.57 9.85
03/31/97 9.75 0.0440 $66.449 $-- $66.449 $ 66.449 1,517 $14,790.96 9.74
04/30/97 9.76 0.0450 $68.266 $-- $68.266 $134.715 1,524 $14,874.33 9.77
05/31/97 9.82 0.0450 $68.580 $-- $68.580 $203.295 1,531 $15,038.21 9.83
06/30/97 9.86 0.0450 $68.912 $-- $68.912 $272.208 1,538 $15,168.38 9.86
07/31/97 10.00 0.0450 $69.227 $-- $69.227 $341.434 1,546 $15,458.09 9.97
08/31/97 9.90 0.0450 $69.651 $-- $69.561 $410.996 1,553 $15,373.00 9.91
09/30/97 9.94 0.0450 $69.877 $-- $69.877 $480.873 1,560 $15,509.72 9.96
10/31/97 9.96 0.0450 $70.215 $-- $70.215 $551.088 1,567 $15,611.21 9.95
11/30/97 9.96 0.0450 $70.533 $-- $70.533 $621.621 1,575 $15,686.62 9.96
12/31/97 10.04 0.0450 $70.873 $-- $70.873 $692.494 1,582 $15,883.49 10.04
01/31/98 10.07 0.0450 $71.191 $-- $71.191 $763.685 1,589 $16,002.14 10.07
02/28/98 10.05 0.0450 $71.509 $-- $71.509 $835.194 $734.7 1,669 $16,777.39 10.04
Tax Rate 46.80%
Load 0.00%
Past Year: Total Return 12.53%
5.0021 Years: Total Return 67.77%
Annualized 10.90%
</TABLE>
27
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 091
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNI BOND FUND- CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 210613
<INVESTMENTS-AT-VALUE> 229550
<RECEIVABLES> 4117
<ASSETS-OTHER> 52
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1394
<TOTAL-LIABILITIES> 1394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214227
<SHARES-COMMON-STOCK> 19956
<SHARES-COMMON-PRIOR> 19973
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (849)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18937
<NET-ASSETS> 232325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13266
<OTHER-INCOME> 0
<EXPENSES-NET> 1776
<NET-INVESTMENT-INCOME> 11490
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 6727
<NET-CHANGE-FROM-OPS> 18407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10989
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1538
<NUMBER-OF-SHARES-REDEEMED> (2133)
<SHARES-REINVESTED> 578
<NET-CHANGE-IN-ASSETS> 15264
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> (1039)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1947
<AVERAGE-NET-ASSETS> 210348
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.85
<EXPENSE-RATIO> .78
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 092
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNI BOND FUND- CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 210613
<INVESTMENTS-AT-VALUE> 229550
<RECEIVABLES> 4117
<ASSETS-OTHER> 52
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1394
<TOTAL-LIABILITIES> 1394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214227
<SHARES-COMMON-STOCK> 343
<SHARES-COMMON-PRIOR> 10
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (849)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18937
<NET-ASSETS> 232325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13266
<OTHER-INCOME> 0
<EXPENSES-NET> 1776
<NET-INVESTMENT-INCOME> 11490
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 6727
<NET-CHANGE-FROM-OPS> 18407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 339
<NUMBER-OF-SHARES-REDEEMED> (9)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 15264
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> (1039)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1947
<AVERAGE-NET-ASSETS> 1367
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .32
<PER-SHARE-DIVIDEND> (.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 1.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 093
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNI BOND FUND- CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 210613
<INVESTMENTS-AT-VALUE> 229550
<RECEIVABLES> 4117
<ASSETS-OTHER> 52
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1394
<TOTAL-LIABILITIES> 1394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214227
<SHARES-COMMON-STOCK> 1070
<SHARES-COMMON-PRIOR> 675
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (849)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18937
<NET-ASSETS> 232325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13266
<OTHER-INCOME> 0
<EXPENSES-NET> 1776
<NET-INVESTMENT-INCOME> 11490
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 6727
<NET-CHANGE-FROM-OPS> 18407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 419
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 444
<NUMBER-OF-SHARES-REDEEMED> (73)
<SHARES-REINVESTED> 24
<NET-CHANGE-IN-ASSETS> 15264
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> (1039)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1947
<AVERAGE-NET-ASSETS> 9019
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.83
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 094
<NAME> NUVEEN FLAGSHIP CONNECTICUT MUNI BOND FUND- CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 210613
<INVESTMENTS-AT-VALUE> 229550
<RECEIVABLES> 4117
<ASSETS-OTHER> 52
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 233719
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1394
<TOTAL-LIABILITIES> 1394
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 214227
<SHARES-COMMON-STOCK> 54
<SHARES-COMMON-PRIOR> 5
<ACCUMULATED-NII-CURRENT> 10
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (849)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18937
<NET-ASSETS> 232325
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13266
<OTHER-INCOME> 0
<EXPENSES-NET> 1776
<NET-INVESTMENT-INCOME> 11490
<REALIZED-GAINS-CURRENT> 190
<APPREC-INCREASE-CURRENT> 6727
<NET-CHANGE-FROM-OPS> 18407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 54
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 15264
<ACCUMULATED-NII-PRIOR> 7
<ACCUMULATED-GAINS-PRIOR> (1039)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1947
<AVERAGE-NET-ASSETS> 347
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.87
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 071
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 83565
<INVESTMENTS-AT-VALUE> 88748
<RECEIVABLES> 1974
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90822
<PAYABLE-FOR-SECURITIES> 983
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 1508
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85067
<SHARES-COMMON-STOCK> 3373
<SHARES-COMMON-PRIOR> 2717
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (939)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5184
<NET-ASSETS> 89314
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4768
<OTHER-INCOME> 0
<EXPENSES-NET> 432
<NET-INVESTMENT-INCOME> 4336
<REALIZED-GAINS-CURRENT> (223)
<APPREC-INCREASE-CURRENT> 2934
<NET-CHANGE-FROM-OPS> 7047
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1644
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1076
<NUMBER-OF-SHARES-REDEEMED> (512)
<SHARES-REINVESTED> 91
<NET-CHANGE-IN-ASSETS> 15997
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> (716)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757
<AVERAGE-NET-ASSETS> 31005
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> .60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 072
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 83565
<INVESTMENTS-AT-VALUE> 88748
<RECEIVABLES> 1974
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90822
<PAYABLE-FOR-SECURITIES> 983
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 1508
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85067
<SHARES-COMMON-STOCK> 281
<SHARES-COMMON-PRIOR> 7
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (939)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5184
<NET-ASSETS> 89314
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4768
<OTHER-INCOME> 0
<EXPENSES-NET> 432
<NET-INVESTMENT-INCOME> 4336
<REALIZED-GAINS-CURRENT> (223)
<APPREC-INCREASE-CURRENT> 2934
<NET-CHANGE-FROM-OPS> 7047
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 272
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 15997
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> (716)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757
<AVERAGE-NET-ASSETS> 1363
<PER-SHARE-NAV-BEGIN> 10.26
<PER-SHARE-NII> .48
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.61
<EXPENSE-RATIO> 1.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 073
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 83565
<INVESTMENTS-AT-VALUE> 88748
<RECEIVABLES> 1974
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90822
<PAYABLE-FOR-SECURITIES> 983
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 1508
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85067
<SHARES-COMMON-STOCK> 541
<SHARES-COMMON-PRIOR> 265
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (939)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5184
<NET-ASSETS> 89314
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4768
<OTHER-INCOME> 0
<EXPENSES-NET> 432
<NET-INVESTMENT-INCOME> 4336
<REALIZED-GAINS-CURRENT> (223)
<APPREC-INCREASE-CURRENT> 2934
<NET-CHANGE-FROM-OPS> 7047
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 208
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 312
<NUMBER-OF-SHARES-REDEEMED> (48)
<SHARES-REINVESTED> 12
<NET-CHANGE-IN-ASSETS> 15997
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> (716)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757
<AVERAGE-NET-ASSETS> 4362
<PER-SHARE-NAV-BEGIN> 10.25
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .34
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.59
<EXPENSE-RATIO> 1.16
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 074
<NAME> NUVEEN FLAGSHIP NEW JERSEY MUNI BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 83565
<INVESTMENTS-AT-VALUE> 88748
<RECEIVABLES> 1974
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90822
<PAYABLE-FOR-SECURITIES> 983
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 525
<TOTAL-LIABILITIES> 1508
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 85067
<SHARES-COMMON-STOCK> 4220
<SHARES-COMMON-PRIOR> 4152
<ACCUMULATED-NII-CURRENT> 2
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (939)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5184
<NET-ASSETS> 89314
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4768
<OTHER-INCOME> 0
<EXPENSES-NET> 432
<NET-INVESTMENT-INCOME> 4336
<REALIZED-GAINS-CURRENT> (223)
<APPREC-INCREASE-CURRENT> 2934
<NET-CHANGE-FROM-OPS> 7047
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2423
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 338
<NUMBER-OF-SHARES-REDEEMED> (433)
<SHARES-REINVESTED> 164
<NET-CHANGE-IN-ASSETS> 15997
<ACCUMULATED-NII-PRIOR> 1
<ACCUMULATED-GAINS-PRIOR> (716)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 443
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 757
<AVERAGE-NET-ASSETS> 43646
<PER-SHARE-NAV-BEGIN> 10.27
<PER-SHARE-NII> .58
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.58)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.62
<EXPENSE-RATIO> .40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the N-SAR
and the financial statements and is qualified in its entirety by references to
such documents.
</LEGEND>
<SERIES>
<NUMBER> 081
<NAME> NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE MUNI BOND FUND A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 9579
<INVESTMENTS-AT-VALUE> 10091
<RECEIVABLES> 129
<ASSETS-OTHER> 378
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10598
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10231
<SHARES-COMMON-STOCK> 893
<SHARES-COMMON-PRIOR> 681
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (195)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 512
<NET-ASSETS> 10548
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437
<OTHER-INCOME> 0
<EXPENSES-NET> 52
<NET-INVESTMENT-INCOME> 385
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 150
<NET-CHANGE-FROM-OPS> 539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 369
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 294
<NUMBER-OF-SHARES-REDEEMED> (104)
<SHARES-REINVESTED> 22
<NET-CHANGE-IN-ASSETS> 3537
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (199)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 123
<AVERAGE-NET-ASSETS> 7632
<PER-SHARE-NAV-BEGIN> 10.30
<PER-SHARE-NII> .50
<PER-SHARE-GAIN-APPREC> .20
<PER-SHARE-DIVIDEND> (.50)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.50
<EXPENSE-RATIO> .64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the N-SAR
and the financial statements and is qualified in its entirety by references to
such documents.
</LEGEND>
<SERIES>
<NUMBER> 082
<NAME> NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE MUNI BOND FUND C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 9579
<INVESTMENTS-AT-VALUE> 10091
<RECEIVABLES> 129
<ASSETS-OTHER> 378
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10598
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10231
<SHARES-COMMON-STOCK> 93
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (195)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 512
<NET-ASSETS> 10548
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437
<OTHER-INCOME> 0
<EXPENSES-NET> 52
<NET-INVESTMENT-INCOME> 385
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 150
<NET-CHANGE-FROM-OPS> 539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 93
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3537
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (199)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 123
<AVERAGE-NET-ASSETS> 206
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.52
<EXPENSE-RATIO> 1.19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the N-SAR
and the financial statements and is qualified in its entirety by references to
such documents.
</LEGEND>
<SERIES>
<NUMBER> 083
<NAME> NUVEEN FLAGSHIP NEW JERSEY INTERMEDIATE MUNI BOND FUND R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 9579
<INVESTMENTS-AT-VALUE> 10091
<RECEIVABLES> 129
<ASSETS-OTHER> 378
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 10598
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 50
<TOTAL-LIABILITIES> 50
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10231
<SHARES-COMMON-STOCK> 19
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (195)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 512
<NET-ASSETS> 10548
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 437
<OTHER-INCOME> 0
<EXPENSES-NET> 52
<NET-INVESTMENT-INCOME> 385
<REALIZED-GAINS-CURRENT> 4
<APPREC-INCREASE-CURRENT> 150
<NET-CHANGE-FROM-OPS> 539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 3537
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (199)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 123
<AVERAGE-NET-ASSETS> 144
<PER-SHARE-NAV-BEGIN> 10.28
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .24
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.51
<EXPENSE-RATIO> .46
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 051
<NAME> NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 224650
<INVESTMENTS-AT-VALUE> 246116
<RECEIVABLES> 3240
<ASSETS-OTHER> 307
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249663
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 939
<TOTAL-LIABILITIES> 939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228488
<SHARES-COMMON-STOCK> 7114
<SHARES-COMMON-PRIOR> 6808
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1234)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21465
<NET-ASSETS> 248724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14148
<OTHER-INCOME> 0
<EXPENSES-NET> 1535
<NET-INVESTMENT-INCOME> 12613
<REALIZED-GAINS-CURRENT> 662
<APPREC-INCREASE-CURRENT> 9051
<NET-CHANGE-FROM-OPS> 22326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3876
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1192
<NUMBER-OF-SHARES-REDEEMED> (1039)
<SHARES-REINVESTED> 152
<NET-CHANGE-IN-ASSETS> 20362
<ACCUMULATED-NII-PRIOR> 33
<ACCUMULATED-GAINS-PRIOR> (1895)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1852
<AVERAGE-NET-ASSETS> 73003
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> .44
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.97
<EXPENSE-RATIO> .77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 052
<NAME> NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 224650
<INVESTMENTS-AT-VALUE> 246116
<RECEIVABLES> 3240
<ASSETS-OTHER> 307
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249663
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 939
<TOTAL-LIABILITIES> 939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228488
<SHARES-COMMON-STOCK> 393
<SHARES-COMMON-PRIOR> 12
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1234)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21465
<NET-ASSETS> 248724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14148
<OTHER-INCOME> 0
<EXPENSES-NET> 1535
<NET-INVESTMENT-INCOME> 12613
<REALIZED-GAINS-CURRENT> 662
<APPREC-INCREASE-CURRENT> 9051
<NET-CHANGE-FROM-OPS> 22326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 83
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 401
<NUMBER-OF-SHARES-REDEEMED> (23)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 20362
<ACCUMULATED-NII-PRIOR> 33
<ACCUMULATED-GAINS-PRIOR> (1895)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1852
<AVERAGE-NET-ASSETS> 1907
<PER-SHARE-NAV-BEGIN> 10.53
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.98
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 053
<NAME> NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 224650
<INVESTMENTS-AT-VALUE> 246116
<RECEIVABLES> 3240
<ASSETS-OTHER> 307
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249663
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 939
<TOTAL-LIABILITIES> 939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228488
<SHARES-COMMON-STOCK> 566
<SHARES-COMMON-PRIOR> 376
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1234)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21465
<NET-ASSETS> 248724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14148
<OTHER-INCOME> 0
<EXPENSES-NET> 1535
<NET-INVESTMENT-INCOME> 12613
<REALIZED-GAINS-CURRENT> 662
<APPREC-INCREASE-CURRENT> 9051
<NET-CHANGE-FROM-OPS> 22326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 239
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 254
<NUMBER-OF-SHARES-REDEEMED> (73)
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 20362
<ACCUMULATED-NII-PRIOR> 33
<ACCUMULATED-GAINS-PRIOR> (1895)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1852
<AVERAGE-NET-ASSETS> 5059
<PER-SHARE-NAV-BEGIN> 10.56
<PER-SHARE-NII> .51
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.51)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.01
<EXPENSE-RATIO> 1.32
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 054
<NAME> NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 224650
<INVESTMENTS-AT-VALUE> 246116
<RECEIVABLES> 3240
<ASSETS-OTHER> 307
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249663
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 939
<TOTAL-LIABILITIES> 939
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 228488
<SHARES-COMMON-STOCK> 14555
<SHARES-COMMON-PRIOR> 14457
<ACCUMULATED-NII-CURRENT> 5
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1234)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21465
<NET-ASSETS> 248724
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14148
<OTHER-INCOME> 0
<EXPENSES-NET> 1535
<NET-INVESTMENT-INCOME> 12613
<REALIZED-GAINS-CURRENT> 662
<APPREC-INCREASE-CURRENT> 9051
<NET-CHANGE-FROM-OPS> 22326
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8443
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 963
<NUMBER-OF-SHARES-REDEEMED> (1424)
<SHARES-REINVESTED> 559
<NET-CHANGE-IN-ASSETS> 20362
<ACCUMULATED-NII-PRIOR> 33
<ACCUMULATED-GAINS-PRIOR> (1895)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1274
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1852
<AVERAGE-NET-ASSETS> 154172
<PER-SHARE-NAV-BEGIN> 10.55
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> .45
<PER-SHARE-DIVIDEND> (.59)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.00
<EXPENSE-RATIO> .57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 061
<NAME> NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND, INC. CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 333059
<INVESTMENTS-AT-VALUE> 364230
<RECEIVABLES> 4152
<ASSETS-OTHER> 852
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369234
<PAYABLE-FOR-SECURITIES> 982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1592
<TOTAL-LIABILITIES> 2574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336301
<SHARES-COMMON-STOCK> 4158
<SHARES-COMMON-PRIOR> 3425
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31170
<NET-ASSETS> 366660
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21024
<OTHER-INCOME> 0
<EXPENSES-NET> 2567
<NET-INVESTMENT-INCOME> 18457
<REALIZED-GAINS-CURRENT> 619
<APPREC-INCREASE-CURRENT> 8290
<NET-CHANGE-FROM-OPS> 27366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2007
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1218
<NUMBER-OF-SHARES-REDEEMED> (611)
<SHARES-REINVESTED> 125
<NET-CHANGE-IN-ASSETS> 8201
<ACCUMULATED-NII-PRIOR> 235
<ACCUMULATED-GAINS-PRIOR> (1544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1929
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2567
<AVERAGE-NET-ASSETS> 39938
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .53
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> (.53)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.76
<EXPENSE-RATIO> .88
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 062
<NAME> NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND, INC. CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 333059
<INVESTMENTS-AT-VALUE> 364230
<RECEIVABLES> 4152
<ASSETS-OTHER> 852
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369234
<PAYABLE-FOR-SECURITIES> 982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1592
<TOTAL-LIABILITIES> 2574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336301
<SHARES-COMMON-STOCK> 556
<SHARES-COMMON-PRIOR> 122
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31170
<NET-ASSETS> 366660
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21024
<OTHER-INCOME> 0
<EXPENSES-NET> 2567
<NET-INVESTMENT-INCOME> 18457
<REALIZED-GAINS-CURRENT> 619
<APPREC-INCREASE-CURRENT> 8290
<NET-CHANGE-FROM-OPS> 27366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 123
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 440
<NUMBER-OF-SHARES-REDEEMED> (9)
<SHARES-REINVESTED> 3
<NET-CHANGE-IN-ASSETS> 8201
<ACCUMULATED-NII-PRIOR> 235
<ACCUMULATED-GAINS-PRIOR> (1544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1929
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2567
<AVERAGE-NET-ASSETS> 2923
<PER-SHARE-NAV-BEGIN> 10.50
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.76
<EXPENSE-RATIO> 1.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 063
<NAME> NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND, INC. CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 333059
<INVESTMENTS-AT-VALUE> 364230
<RECEIVABLES> 4152
<ASSETS-OTHER> 852
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369234
<PAYABLE-FOR-SECURITIES> 982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1592
<TOTAL-LIABILITIES> 2574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336301
<SHARES-COMMON-STOCK> 215
<SHARES-COMMON-PRIOR> 192
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31170
<NET-ASSETS> 366660
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21024
<OTHER-INCOME> 0
<EXPENSES-NET> 2567
<NET-INVESTMENT-INCOME> 18457
<REALIZED-GAINS-CURRENT> 619
<APPREC-INCREASE-CURRENT> 8290
<NET-CHANGE-FROM-OPS> 27366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 100
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 36
<NUMBER-OF-SHARES-REDEEMED> (21)
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 8201
<ACCUMULATED-NII-PRIOR> 235
<ACCUMULATED-GAINS-PRIOR> (1544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1929
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2567
<AVERAGE-NET-ASSETS> 2226
<PER-SHARE-NAV-BEGIN> 10.48
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .26
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.74
<EXPENSE-RATIO> 1.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 064
<NAME> NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND, INC. CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 333059
<INVESTMENTS-AT-VALUE> 364230
<RECEIVABLES> 4152
<ASSETS-OTHER> 852
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 369234
<PAYABLE-FOR-SECURITIES> 982
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1592
<TOTAL-LIABILITIES> 2574
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 336301
<SHARES-COMMON-STOCK> 29160
<SHARES-COMMON-PRIOR> 30417
<ACCUMULATED-NII-CURRENT> 114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (925)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31170
<NET-ASSETS> 366660
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 21024
<OTHER-INCOME> 0
<EXPENSES-NET> 2567
<NET-INVESTMENT-INCOME> 18457
<REALIZED-GAINS-CURRENT> 619
<APPREC-INCREASE-CURRENT> 8290
<NET-CHANGE-FROM-OPS> 27366
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16348
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 970
<NUMBER-OF-SHARES-REDEEMED> (3325)
<SHARES-REINVESTED> 1097
<NET-CHANGE-IN-ASSETS> 8201
<ACCUMULATED-NII-PRIOR> 235
<ACCUMULATED-GAINS-PRIOR> (1544)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1929
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2567
<AVERAGE-NET-ASSETS> 313404
<PER-SHARE-NAV-BEGIN> 10.49
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.76
<EXPENSE-RATIO> .68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 011
<NAME> NUVEEN CALIFORNIA MUNICIPAL BOND FUND, INC. CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 235998
<INVESTMENTS-AT-VALUE> 254654
<RECEIVABLES> 4155
<ASSETS-OTHER> 36
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 258845
<PAYABLE-FOR-SECURITIES> 6246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780
<TOTAL-LIABILITIES> 7026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232899
<SHARES-COMMON-STOCK> 2669
<SHARES-COMMON-PRIOR> 1944
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18656
<NET-ASSETS> 251819
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14455
<OTHER-INCOME> 0
<EXPENSES-NET> 1747
<NET-INVESTMENT-INCOME> 12708
<REALIZED-GAINS-CURRENT> 1653
<APPREC-INCREASE-CURRENT> 6514
<NET-CHANGE-FROM-OPS> 20875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1233
<DISTRIBUTIONS-OF-GAINS> 88
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 916
<NUMBER-OF-SHARES-REDEEMED> (260)
<SHARES-REINVESTED> 70
<NET-CHANGE-IN-ASSETS> 15992
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> (596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1747
<AVERAGE-NET-ASSETS> 24330
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .55
<PER-SHARE-GAIN-APPREC> .37
<PER-SHARE-DIVIDEND> (.55)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.91
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 012
<NAME> NUVEEN CALIFORNIA MUNICIPAL BOND FUND, INC. CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 235998
<INVESTMENTS-AT-VALUE> 254654
<RECEIVABLES> 4155
<ASSETS-OTHER> 36
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 258845
<PAYABLE-FOR-SECURITIES> 6246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780
<TOTAL-LIABILITIES> 7026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232899
<SHARES-COMMON-STOCK> 213
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18656
<NET-ASSETS> 251819
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14455
<OTHER-INCOME> 0
<EXPENSES-NET> 1747
<NET-INVESTMENT-INCOME> 12708
<REALIZED-GAINS-CURRENT> 1653
<APPREC-INCREASE-CURRENT> 6514
<NET-CHANGE-FROM-OPS> 20875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 43
<DISTRIBUTIONS-OF-GAINS> 5
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 213
<NUMBER-OF-SHARES-REDEEMED> (2)
<SHARES-REINVESTED> 2
<NET-CHANGE-IN-ASSETS> 15992
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> (596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1747
<AVERAGE-NET-ASSETS> 1052
<PER-SHARE-NAV-BEGIN> 10.56
<PER-SHARE-NII> .46
<PER-SHARE-GAIN-APPREC> .41
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 013
<NAME> NUVEEN CALIFORNIA MUNICIPAL BOND FUND, INC. CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 235998
<INVESTMENTS-AT-VALUE> 254654
<RECEIVABLES> 4155
<ASSETS-OTHER> 36
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 258845
<PAYABLE-FOR-SECURITIES> 6246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780
<TOTAL-LIABILITIES> 7026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232899
<SHARES-COMMON-STOCK> 372
<SHARES-COMMON-PRIOR> 95
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18656
<NET-ASSETS> 251819
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14455
<OTHER-INCOME> 0
<EXPENSES-NET> 1747
<NET-INVESTMENT-INCOME> 12708
<REALIZED-GAINS-CURRENT> 1653
<APPREC-INCREASE-CURRENT> 6514
<NET-CHANGE-FROM-OPS> 20875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 75
<DISTRIBUTIONS-OF-GAINS> 6
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296
<NUMBER-OF-SHARES-REDEEMED> (25)
<SHARES-REINVESTED> 6
<NET-CHANGE-IN-ASSETS> 15992
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> (596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1711
<AVERAGE-NET-ASSETS> 1709
<PER-SHARE-NAV-BEGIN> 10.58
<PER-SHARE-NII> .49
<PER-SHARE-GAIN-APPREC> .38
<PER-SHARE-DIVIDEND> (.49)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.92
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the
Form N-SAR and the financial statements and is qualified in its entirety
by references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 014
<NAME> NUVEEN CALIFORNIA MUNICIPAL BOND FUND, INC. CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 235998
<INVESTMENTS-AT-VALUE> 254654
<RECEIVABLES> 4155
<ASSETS-OTHER> 36
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 258845
<PAYABLE-FOR-SECURITIES> 6246
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 780
<TOTAL-LIABILITIES> 7026
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 232899
<SHARES-COMMON-STOCK> 19785
<SHARES-COMMON-PRIOR> 20202
<ACCUMULATED-NII-CURRENT> 47
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 217
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18656
<NET-ASSETS> 251819
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14455
<OTHER-INCOME> 0
<EXPENSES-NET> 1747
<NET-INVESTMENT-INCOME> 12708
<REALIZED-GAINS-CURRENT> 1653
<APPREC-INCREASE-CURRENT> 6514
<NET-CHANGE-FROM-OPS> 20875
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11366
<DISTRIBUTIONS-OF-GAINS> 741
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 519
<NUMBER-OF-SHARES-REDEEMED> (1648)
<SHARES-REINVESTED> 713
<NET-CHANGE-IN-ASSETS> 15992
<ACCUMULATED-NII-PRIOR> 56
<ACCUMULATED-GAINS-PRIOR> (596)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1309
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1747
<AVERAGE-NET-ASSETS> 213608
<PER-SHARE-NAV-BEGIN> 10.61
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.57)
<PER-SHARE-DISTRIBUTIONS> (.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.93
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 021
<NAME> NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 214870
<INVESTMENTS-AT-VALUE> 235321
<RECEIVABLES> 7096
<ASSETS-OTHER> 230
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242647
<PAYABLE-FOR-SECURITIES> 7903
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794
<TOTAL-LIABILITIES> 8697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213586
<SHARES-COMMON-STOCK> 3274
<SHARES-COMMON-PRIOR> 2579
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20451
<NET-ASSETS> 233950
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13290
<OTHER-INCOME> 0
<EXPENSES-NET> 1684
<NET-INVESTMENT-INCOME> 11606
<REALIZED-GAINS-CURRENT> 398
<APPREC-INCREASE-CURRENT> 7234
<NET-CHANGE-FROM-OPS> 19238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1598
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 994
<NUMBER-OF-SHARES-REDEEMED> (378)
<SHARES-REINVESTED> 79
<NET-CHANGE-IN-ASSETS> 9081
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (539)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1684
<AVERAGE-NET-ASSETS> 32036
<PER-SHARE-NAV-BEGIN> 10.70
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 022
<NAME> NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 214870
<INVESTMENTS-AT-VALUE> 235321
<RECEIVABLES> 7096
<ASSETS-OTHER> 230
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242647
<PAYABLE-FOR-SECURITIES> 7903
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794
<TOTAL-LIABILITIES> 8697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213586
<SHARES-COMMON-STOCK> 268
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20451
<NET-ASSETS> 233950
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13290
<OTHER-INCOME> 0
<EXPENSES-NET> 1684
<NET-INVESTMENT-INCOME> 11606
<REALIZED-GAINS-CURRENT> 398
<APPREC-INCREASE-CURRENT> 7234
<NET-CHANGE-FROM-OPS> 19238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 46
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 270
<NUMBER-OF-SHARES-REDEEMED> (3)
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 9081
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (539)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1684
<AVERAGE-NET-ASSETS> 1161
<PER-SHARE-NAV-BEGIN> 10.67
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .40
<PER-SHARE-DIVIDEND> (.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.06
<EXPENSE-RATIO> 1.66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 023
<NAME> NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 214870
<INVESTMENTS-AT-VALUE> 235321
<RECEIVABLES> 7096
<ASSETS-OTHER> 230
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242647
<PAYABLE-FOR-SECURITIES> 7903
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794
<TOTAL-LIABILITIES> 8697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213586
<SHARES-COMMON-STOCK> 294
<SHARES-COMMON-PRIOR> 162
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20451
<NET-ASSETS> 233950
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13290
<OTHER-INCOME> 0
<EXPENSES-NET> 1684
<NET-INVESTMENT-INCOME> 11606
<REALIZED-GAINS-CURRENT> 398
<APPREC-INCREASE-CURRENT> 7234
<NET-CHANGE-FROM-OPS> 19238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 105
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 158
<NUMBER-OF-SHARES-REDEEMED> (32)
<SHARES-REINVESTED> 7
<NET-CHANGE-IN-ASSETS> 9081
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (539)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1684
<AVERAGE-NET-ASSETS> 2398
<PER-SHARE-NAV-BEGIN> 10.63
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .35
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.98
<EXPENSE-RATIO> 1.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 024
<NAME> NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 214870
<INVESTMENTS-AT-VALUE> 235321
<RECEIVABLES> 7096
<ASSETS-OTHER> 230
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 242647
<PAYABLE-FOR-SECURITIES> 7903
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 794
<TOTAL-LIABILITIES> 8697
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 213586
<SHARES-COMMON-STOCK> 17355
<SHARES-COMMON-PRIOR> 18310
<ACCUMULATED-NII-CURRENT> 54
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20451
<NET-ASSETS> 233950
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 13290
<OTHER-INCOME> 0
<EXPENSES-NET> 1684
<NET-INVESTMENT-INCOME> 11606
<REALIZED-GAINS-CURRENT> 398
<APPREC-INCREASE-CURRENT> 7234
<NET-CHANGE-FROM-OPS> 19238
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9979
<DISTRIBUTIONS-OF-GAINS> 1
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 571
<NUMBER-OF-SHARES-REDEEMED> (2084)
<SHARES-REINVESTED> 558
<NET-CHANGE-IN-ASSETS> 9081
<ACCUMULATED-NII-PRIOR> 176
<ACCUMULATED-GAINS-PRIOR> (539)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1239
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1684
<AVERAGE-NET-ASSETS> 192096
<PER-SHARE-NAV-BEGIN> 10.68
<PER-SHARE-NII> .56
<PER-SHARE-GAIN-APPREC> .36
<PER-SHARE-DIVIDEND> (.56)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.04
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 031
<NAME> NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 77966
<INVESTMENTS-AT-VALUE> 84424
<RECEIVABLES> 2712
<ASSETS-OTHER> 141
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87277
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434
<TOTAL-LIABILITIES> 2365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79058
<SHARES-COMMON-STOCK> 922
<SHARES-COMMON-PRIOR> 728
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (686)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6459
<NET-ASSETS> 84912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5103
<OTHER-INCOME> 0
<EXPENSES-NET> 647
<NET-INVESTMENT-INCOME> 4456
<REALIZED-GAINS-CURRENT> 271
<APPREC-INCREASE-CURRENT> 1315
<NET-CHANGE-FROM-OPS> 6042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 420
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 293
<NUMBER-OF-SHARES-REDEEMED> (125)
<SHARES-REINVESTED> 26
<NET-CHANGE-IN-ASSETS> 3886
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> (956)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 453
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 8053
<PER-SHARE-NAV-BEGIN> 9.89
<PER-SHARE-NII> (.52)
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> .52
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.08
<EXPENSE-RATIO> .95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 032
<NAME> NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND- CLASS B
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 77966
<INVESTMENTS-AT-VALUE> 84424
<RECEIVABLES> 2712
<ASSETS-OTHER> 141
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87277
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434
<TOTAL-LIABILITIES> 2365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79058
<SHARES-COMMON-STOCK> 76
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (686)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6459
<NET-ASSETS> 84912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5103
<OTHER-INCOME> 0
<EXPENSES-NET> 647
<NET-INVESTMENT-INCOME> 4456
<REALIZED-GAINS-CURRENT> 271
<APPREC-INCREASE-CURRENT> 1315
<NET-CHANGE-FROM-OPS> 6042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 75
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 1
<NET-CHANGE-IN-ASSETS> 3886
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> (956)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 453
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 290
<PER-SHARE-NAV-BEGIN> 9.88
<PER-SHARE-NII> .45
<PER-SHARE-GAIN-APPREC> .22
<PER-SHARE-DIVIDEND> (.45)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.10
<EXPENSE-RATIO> 1.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 033
<NAME> NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND- CLASS C
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 77966
<INVESTMENTS-AT-VALUE> 84424
<RECEIVABLES> 2712
<ASSETS-OTHER> 141
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87277
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434
<TOTAL-LIABILITIES> 2365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79058
<SHARES-COMMON-STOCK> 192
<SHARES-COMMON-PRIOR> 93
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (686)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6459
<NET-ASSETS> 84912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5103
<OTHER-INCOME> 0
<EXPENSES-NET> 647
<NET-INVESTMENT-INCOME> 4456
<REALIZED-GAINS-CURRENT> 271
<APPREC-INCREASE-CURRENT> 1315
<NET-CHANGE-FROM-OPS> 6042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 65
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 104
<NUMBER-OF-SHARES-REDEEMED> (9)
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 3886
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> (956)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 453
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 1395
<PER-SHARE-NAV-BEGIN> 9.83
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> (.47)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.02
<EXPENSE-RATIO> 1.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the Financial Statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 034
<NAME> NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND- CLASS R
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 77966
<INVESTMENTS-AT-VALUE> 84424
<RECEIVABLES> 2712
<ASSETS-OTHER> 141
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 87277
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434
<TOTAL-LIABILITIES> 2365
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 79058
<SHARES-COMMON-STOCK> 7258
<SHARES-COMMON-PRIOR> 7396
<ACCUMULATED-NII-CURRENT> 81
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (686)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6459
<NET-ASSETS> 84912
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5103
<OTHER-INCOME> 0
<EXPENSES-NET> 647
<NET-INVESTMENT-INCOME> 4456
<REALIZED-GAINS-CURRENT> 271
<APPREC-INCREASE-CURRENT> 1315
<NET-CHANGE-FROM-OPS> 6042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3950
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 337
<NUMBER-OF-SHARES-REDEEMED> (761)
<SHARES-REINVESTED> 286
<NET-CHANGE-IN-ASSETS> 3886
<ACCUMULATED-NII-PRIOR> 73
<ACCUMULATED-GAINS-PRIOR> (956)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 453
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 686
<AVERAGE-NET-ASSETS> 72622
<PER-SHARE-NAV-BEGIN> 9.86
<PER-SHARE-NII> .54
<PER-SHARE-GAIN-APPREC> .19
<PER-SHARE-DIVIDEND> (.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.05
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 041
<NAME> MASSACHUSETTS INSURED MUNICIPAL BOND FUND CLASS A
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 63015
<INVESTMENTS-AT-VALUE> 68128
<RECEIVABLES> 1171
<ASSETS-OTHER> 209
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69508
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 2164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62212
<SHARES-COMMON-STOCK> 821
<SHARES-COMMON-PRIOR> 719
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5112
<NET-ASSETS> 67344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3944
<OTHER-INCOME> 0
<EXPENSES-NET> 572
<NET-INVESTMENT-INCOME> 3372
<REALIZED-GAINS-CURRENT> 222
<APPREC-INCREASE-CURRENT> 960
<NET-CHANGE-FROM-OPS> 4554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 394
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 174
<NUMBER-OF-SHARES-REDEEMED> (94)
<SHARES-REINVESTED> 23
<NET-CHANGE-IN-ASSETS> 1852
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> (218)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 361
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572
<AVERAGE-NET-ASSETS> 7894
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.52
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.03
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 042
<NAME> MASSACHUSETTS INSURED MUNICIPAL BOND FUND CLASS B
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 63015
<INVESTMENTS-AT-VALUE> 68128
<RECEIVABLES> 1171
<ASSETS-OTHER> 209
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69508
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 2164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62212
<SHARES-COMMON-STOCK> 63
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5112
<NET-ASSETS> 67344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3944
<OTHER-INCOME> 0
<EXPENSES-NET> 572
<NET-INVESTMENT-INCOME> 3372
<REALIZED-GAINS-CURRENT> 222
<APPREC-INCREASE-CURRENT> 960
<NET-CHANGE-FROM-OPS> 4554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 63
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1852
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> (218)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 361
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572
<AVERAGE-NET-ASSETS> 210
<PER-SHARE-NAV-BEGIN> 10.36
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 0.21
<PER-SHARE-DIVIDEND> (0.44)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> 1.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 043
<NAME> MASSACHUSETTS INSURED MUNICIPAL BOND FUND CLASS C
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 63015
<INVESTMENTS-AT-VALUE> 68128
<RECEIVABLES> 1171
<ASSETS-OTHER> 209
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69508
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 2164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62212
<SHARES-COMMON-STOCK> 123
<SHARES-COMMON-PRIOR> 92
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5112
<NET-ASSETS> 67344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3944
<OTHER-INCOME> 0
<EXPENSES-NET> 572
<NET-INVESTMENT-INCOME> 3372
<REALIZED-GAINS-CURRENT> 222
<APPREC-INCREASE-CURRENT> 960
<NET-CHANGE-FROM-OPS> 4554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 44
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37
<NUMBER-OF-SHARES-REDEEMED> (11)
<SHARES-REINVESTED> 4
<NET-CHANGE-IN-ASSETS> 1852
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> (218)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 361
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572
<AVERAGE-NET-ASSETS> 1003
<PER-SHARE-NAV-BEGIN> 10.35
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.46)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.54
<EXPENSE-RATIO> 1.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
This schedule contains Summary Financial Information extracted from the Form
N-SAR and the financial statements and is qualified in its entirety by
references to such documents.
</LEGEND>
<SERIES>
<NUMBER> 044
<NAME> MASSACHUSETTS INSURED MUNICIPAL BOND FUND CLASS R
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 63015
<INVESTMENTS-AT-VALUE> 68128
<RECEIVABLES> 1171
<ASSETS-OTHER> 209
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 69508
<PAYABLE-FOR-SECURITIES> 1931
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 233
<TOTAL-LIABILITIES> 2164
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 62212
<SHARES-COMMON-STOCK> 5364
<SHARES-COMMON-PRIOR> 5497
<ACCUMULATED-NII-CURRENT> 15
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5112
<NET-ASSETS> 67344
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3944
<OTHER-INCOME> 0
<EXPENSES-NET> 572
<NET-INVESTMENT-INCOME> 3372
<REALIZED-GAINS-CURRENT> 222
<APPREC-INCREASE-CURRENT> 960
<NET-CHANGE-FROM-OPS> 4554
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2926
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 192
<NUMBER-OF-SHARES-REDEEMED> (527)
<SHARES-REINVESTED> 202
<NET-CHANGE-IN-ASSETS> 1852
<ACCUMULATED-NII-PRIOR> 15
<ACCUMULATED-GAINS-PRIOR> (218)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 361
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 572
<AVERAGE-NET-ASSETS> 56458
<PER-SHARE-NAV-BEGIN> 10.38
<PER-SHARE-NII> 0.54
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> (0.54)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.57
<EXPENSE-RATIO> .83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99(a)
NUVEEN FLAGSHIP MULTISTATE TRUST II
-------------
POWER OF ATTORNEY
-------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a trustee of the above
referenced organization, hereby constitutes and appoints TIMOTHY R.
SCHWERTFEGER, ANTHONY T. DEAN, BRUCE P. BEDFORD, LARRY W. MARTIN, GIFFORD R.
ZIMMERMAN, AND THOMAS S. HARMAN each of them (with full power to each of them to
act alone) his true and lawful attorney-in-fact and agent, for him on his
behalf and in his name, place and stead, in any and all capacities, to sign,
execute and affix his seal thereto and file one or more Registration Statements
on Form N-1A, under the Securities Act of 1933, as amended, and the Investment
Company Act of 1940, as amended, including any amendment or amendments thereto,
with all exhibits, and any and all other documents required to be filed with any
regulatory authority, federal or state, relating to the reorganization, without
limitation, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in order to effectuate the same as fully to all intents and purposes
as he might or could do if personally present, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or any of them, may lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned trustee of the above-referenced organization
has hereunto set his hand this 1st day of July, 1997.
/s/ Judith M. Stockdale
----------------------------------------
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 1st day of July, 1997, personally appeared before me, a Notary Public in
and for said County and State, the person named above who is known to me to be
the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
- --------------------------------
"OFFICIAL SEAL"
VIRGINIA L. CORCORAN
Notary Public, State of Illinois
My Commission Expires 10/26/97
- --------------------------------
/s/ Virginia L. Corcoran
----------------------------------------
My Commission Expires: 10/26/97
<PAGE>
EXHIBIT 99(b)
Certified Resolution
The undersigned, Gifford R. Zimmerman, hereby certifies, on behalf of Nuveen
Flagship Multistate Trust II (the "Fund"), (1) that he is the duly elected,
qualified and acting Secretary of the Fund, and that as such Secretary he has
custody of its corporate books and records, (2) that attached to this
Certificate is a true and correct copy of a resolution duly adopted by the Board
of Trustees of the Fund at a meeting held on January 22, 1998, and (3) that said
resolution has not been amended or rescinded and remains in full force and
effect.
May 21, 1998
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Secretary
<PAGE>
FURTHER RESOLVED, that each member of the Board and officer of the Fund who may
be required to execute the registration statement on Form N-1A, or any
amendment or amendments thereto, be, and each of them hereby is, authorized to
execute a power of attorney appointing Timothy R. Schwertfeger, Anthony T.
Dean, Bruce P. Bedford, Larry W. Martin, Gifford R. Zimmerman, and Thomas S.
Harman, and each of them his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign the registration statement,
and any and all amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite or necessary to be done, as fully to all intents and purposes as
he might or could do in person, and ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
