<PAGE>
As filed with the Securities and Exchange Commission on June 28, 2000.
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. 6 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 6 [X]
(Check appropriate box or boxes)
Nuveen 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 (a)(1)
to paragraph (b) [_] 75 days after filing pursuant to
paragraph (a)(2)
[_] 60 days after filing pursuant [_] on (date) pursuant to paragraph
to paragraph (a)(1) (a)(2) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously 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
Part A-Prospectuses For:
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Connecticut Municipal Bond Fund
Nuveen New Jersey Municipal Bond Fund
Nuveen New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
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>
PART A--PROSPECTUS
NUVEEN MULTISTATE TRUST II
333 West Wacker Drive
Chicago, Illinois 60606
<PAGE>
N U V E E N
Investments
Municipal Bond
Funds
PROSPECTUS JUNE 28, 2000
Dependable, tax-free income to help you keep more of what you earn.
INVEST WELL
LOOK AHEAD
LEAVE YOU MARK (SM)
[PHOTO APPEARS HERE]
Connecticut
New Jersey
New York
New York Insured
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction................................................................. 1
Nuveen Connecticut Municipal Bond Fund....................................... 2
Nuveen New Jersey Municipal Bond Fund........................................ 4
Nuveen New York Municipal Bond Fund.......................................... 6
Nuveen New York Insured Municipal Bond Fund.................................. 8
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds........................................................ 10
What Securities We Invest In................................................. 11
How We Select Investments.................................................... 13
What the Risks Are........................................................... 14
How We Manage Risk........................................................... 14
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of
your account.
What Share Classes We Offer.................................................. 16
How to Reduce Your Sales Charge.............................................. 18
How to Buy Shares............................................................ 18
Systematic Investing......................................................... 19
Systematic Withdrawal........................................................ 20
Special Services............................................................. 20
How to Sell Shares........................................................... 21
Section 4 General Information
This section summarizes the funds' distribution policies and other general
information.
Dividends, Distributions and Taxes.......................................... 23
Distribution and Service Plans.............................................. 24
Net Asset Value............................................................. 25
Fund Service Providers...................................................... 25
Section 5 Financial Highlights
This section provides the funds' financial performance
for the past five years...................................................... 26
Appendix Additional State Information............................... 30
We have used the icons
below throughout this
prospectus to make it
easy for you to find the
type of information
you need.
Investment
Strategy
Risks
Fees, Charges
and Expenses
Shareholder
Instructions
Performance and
Current Portfolio
Information
<PAGE>
Section 1 The Funds June 28, 2000
Nuveen Connecticut Municipal Bond Fund
Nuveen New Jersey Municipal Bond Fund
Nuveen New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
Introduction
- - --------------------------------------------------------------------------------
This prospectus is intended to provide important information to help you
evaluate whether one of the Nuveen Mutual Funds listed above may be right for
you. Please read it carefully before investing and keep it for future reference.
- - --------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
- - --------------------------------------------------------------------------------
Section 1 The Funds 1
<PAGE>
Nuveen Connecticut Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are
rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by
independent rating agencies. The fund may buy non-rated municipal bonds if the
fund's investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return. The fund seeks to limit risk by buying investment
grade quality bonds in a variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Connecticut bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.1 11.5 8.9 12.3 -6.2 16.6 4.2 8.8 5.8 -3.8
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.70% and -5.59%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
Average Annual Total Returns for
the Periods Ending December 31, 1999
Class 1 Year 5 Year 10 Year
- - ------------------------------------------------------------------
Class A (Offer) -7.87% 5.21% 5.65%
Class B -8.29% 5.20% 5.61%
Class C -4.37% 5.51% 5.50%
Class R -3.60% 6.27% 6.18%
- - ------------------------------------------------------------------
LB Market Benchmark/2/ -2.06% 6.91% 6.89%
Lipper Peer Group/3/ -3.75% 5.99% 6.11%
2 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- - --------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - --------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - --------------------------------------------------------------------------
Exchange Fees None None None None
- - --------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - --------------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
Management Fees .54% .54% .54% .54%
- - --------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - --------------------------------------------------------------------------
Other Expenses .14% .15% .14% .14%
- - --------------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Gross+ .88% 1.64% 1.43% .68%
- - --------------------------------------------------------------------------
+After Expense Reimbursements
-----------------------------------------------------------------
Expense Reimbursements (.01%) (.01%) (.01%) (.01%)
-----------------------------------------------------------------
Total Annual Fund Operating
Expenses--Net .87% 1.63% 1.42% .67%
-----------------------------------------------------------------
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 506 $ 562 $ 146 $ 69 $ 506 $ 167 $ 146 $ 69
- - ---------------------------------------------------------------------------------------
3 Years $ 689 $ 836 $ 452 $ 218 $ 689 $ 517 $ 452 $ 218
- - ---------------------------------------------------------------------------------------
5 Years $ 887 $1,006 $ 782 $ 379 $ 887 $ 892 $ 782 $ 379
- - ---------------------------------------------------------------------------------------
10 Years $1,459 $1,741 $1,713 $ 847 $1,459 $1,741 $1,713 $ 847
- - ---------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
Average Effective Maturity 18.28 years
- - ---------------------------------------------------
Average Duration 8.08
- - ---------------------------------------------------
Weighted Average Credit Quality AA
- - ---------------------------------------------------
Number of Issues 144
- - ---------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 50%
- - ---------------------------------------------------
AA 27%
- - ---------------------------------------------------
A 11%
- - ---------------------------------------------------
BBB/NR 10%
- - ---------------------------------------------------
Other 2%
- - ---------------------------------------------------
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE ]
Tax Tax Education
U.S. Obligation Obligation/ and Civic
Guaranteed Limited General Organizations Healthcare Other
14% 16% 11% 16% 12% 31%
1. Class A total returns reflect actual performance for all periods; Class B,
C and R total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class A performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 2.55%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper Connecticut Municipal Debt Category. Returns assume reinvestment
of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 3
<PAGE>
Nuveen New Jersey Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in New Jersey bonds. The fund is non-diversified, and may invest more
of its assets in a single issuer than a diversified fund. Greater concentration
may increase risk. As with any mutual fund investment, loss of money is a risk
of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
seven years as well as annualized fund and index returns for the one- and
five-year and since inception periods ending December 31, 1999. This information
is intended to help you assess the variability of fund returns over the past
seven years (and consequently, the potential rewards and risks of a fund
investment). Past performance is not necessarily an indication of future
performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ----
12.4% -4.4% 14.9% 3.6% 8.9% 5.4% -3.7%
During the seven years ending December 31, 1999, the highest and lowest
quarterly returns were 5.55% and -4.95%, respectively for the quarters ending
3/31/95 and 3/31/94. The bar chart and highest/ lowest quarterly returns do not
reflect sales charges, which would reduce returns, while the average annual
return table does.
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Since
Class 1 Year 5 Year Inception
- - ----------------------------------------------------------
Class A (Offer) -7.77% 4.73% 5.01%
Class B -8.09% 4.67% 4.83%
Class C -4.21% 4.96% 4.88%
Class R -3.48% 5.85% 5.83%
- - ----------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.30%
Lipper
Peer Group/3/ -4.42% 5.66% 5.45%
4 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- - -----------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - -----------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - -----------------------------------------------------------
Exchange Fees None None None None
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - -----------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
<CAPTION>
Share Class A B C R
- - -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- - -------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - -------------------------------------------------------------------------
Other Expenses .24% .24% .24% .24%
- - -------------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Gross+ .99% 1.74% 1.54% .79%
- - -------------------------------------------------------------------------
+After Expense Reimbursements
-----------------------------------------------------------------
Expense Reimbursements (.08%) (.07%) (.07%) (.08%)
-----------------------------------------------------------------
Total Annual Fund Operating
Expenses--Net .91% 1.87% 1.47% .71%
-----------------------------------------------------------------
Net expenses reflect a voluntary expense limitation by the fund's
investment adviser, that may be modified or discontinued without notice
at the adviser's discretion.
</TABLE>
The following example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds. The
example assumes you invest $10,000 in the fund for the time periods indicated
and then either redeem or do not redeem your shares at the end of a period. The
example assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. Your actual costs may be higher
or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 517 $ 572 $ 157 $ 81 $ 517 $ 177 $ 157 $ 81
- - ---------------------------------------------------------------------------------------
3 Years $ 722 $ 866 $ 486 $ 252 $ 722 $ 548 $ 486 $ 252
- - ---------------------------------------------------------------------------------------
5 Years $ 944 $1,058 $ 839 $ 439 $ 944 $ 944 $ 839 $ 439
- - ---------------------------------------------------------------------------------------
10 Years $1,582 $1,853 $1,834 $ 978 $1,582 $1,853 $1,834 $ 978
- - ---------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
Average Effective Maturity 18.44 years
- - --------------------------------------------------
Average Duration 9.23
- - --------------------------------------------------
Weighted Average Credit Quality AA
- - --------------------------------------------------
Number of Issues 119
- - --------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 63%
- - --------------------------------------------------
AA 11%
- - --------------------------------------------------
A 8%
- - --------------------------------------------------
BBB/NR 15%
- - --------------------------------------------------
Other 3%
- - --------------------------------------------------
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Healthcare 10%
Other 37%
Tax Obligation/Limited 20%
Long-Term Care 9%
Tax Obligation/General 9%
Transportation 15%
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 2.99%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper New Jersey
Municipal Debt Index, a managed index that represents the average
annualized returns of the 30 largest funds in the Lipper New Jersey
Municipal Debt Category. Returns assume reinvestment of dividends and do
not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules.
Section 1 The Funds 5
<PAGE>
Nuveen New York Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are
rated investment grade (AAA/Aaa to BBB/Baa) at the time of purchase by
independent rating agencies. The fund may buy non-rated municipal bonds if the
fund's investment adviser judges them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in New York bonds. As with any mutual fund investment, loss of money
is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- - ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
3.8% 13.6% 10.1% 12.7% -6.5% 17.6% 4.0% 9.3 6.4 -3.0
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 7.07% and -5.20%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
- - ----------------------------------------------------------
Class A (Offer) -7.04% 5.75% 6.10%
Class B -7.41% 5.71% 5.99%
Class C -3.43% 6.05% 5.88%
Class R -2.78% 6.88% 6.84%
- - ----------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -4.96% 5.82% 6.13%
6 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
Share Class A B C R/5/
- - ---------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - ---------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - ---------------------------------------------------------------------
Exchange Fees None None None None
- - ---------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - ---------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- - -------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
- - -------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - -------------------------------------------------------------------------
Other Expenses .15% .16% .15% .15%
- - -------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-DGross+ .89% 1.65% 1.44% .69%
- - -------------------------------------------------------------------------
+After Expense Reimbursements
--------------------------------------------------------------------
Expense Reimbursements (.29%) (.33%) (.29%) (.28%)
--------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Net .60% 1.32% 1.15% .41%
--------------------------------------------------------------------
Net expenses reflect a voluntary expense limitation by the fund's investment
adviser above its contractual obligations, that may be modified or discontinued
at any time.
The following example is intended to help you compare the cost of
investing in the fund with the cost of investing in other mutual funds. The
example assumes you invest $10,000 in the fund for the time periods indicated
and then either redeem or do not redeem your shares at the end of a period. The
example assumes that your investment has a 5% return each year and that the
fund's gross operating expenses remain the same. Your actual costs may be higher
or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 507 $ 563 $ 147 $ 70 $ 507 $ 168 $ 147 $ 70
- - ---------------------------------------------------------------------------------------
3 Years $ 692 $ 839 $ 456 $ 221 $ 692 $ 520 $ 456 $ 221
- - ---------------------------------------------------------------------------------------
5 Years $ 892 $1,011 $ 787 $ 384 $ 892 $ 897 $ 787 $ 384
- - ---------------------------------------------------------------------------------------
10 Years $1,470 $1,752 $1,724 $ 859 $1,470 $1,752 $1,724 $ 859
- - ---------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
Average Effective Maturity 18.71 years
- - ---------------------------------------------------
Average Duration 8.35
- - ---------------------------------------------------
Weighted Average Credit Quality AA-
- - ---------------------------------------------------
Number of Issues 148
- - ---------------------------------------------------
Credit Quality
AAA/U.S. Guaranteed 37%
- - ---------------------------------------------------
AA 12%
- - ---------------------------------------------------
A 33%
- - ---------------------------------------------------
BBB/NR 18%
- - ---------------------------------------------------
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Education
U.S. Tax Obligation and Civic
Guaranteed Limited Organization Utilities Healthcare Other
- - ------------------------------------------------------------------------------
15% 21% 12% 11% 10% 31%
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 3.38%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper New York Municipal
Debt Index, a managed index that represents the average annualized returns
of the 30 largest funds in the Lipper New York Municipal Debt Category.
Returns assume reinvestment of dividends and do not reflect any applicable
sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a
1% CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. Nuveen Advisory has agreed to waive some or all of its fees
or reimburse expenses to prevent total operating expenses (not counting
distribution and service fees) from exceeding 0.75% of the fund's average
daily net assets.
Section 1 The Funds 7
<PAGE>
Nuveen New York Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade. The fund primarily buys insured municipal bonds.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued insured municipal bonds that offer the potential
for above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in New York bonds. As with any mutual fund investment, loss of money
is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or college
funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- - ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
5.0% 13.1% 9.4% 12.8% -6.4% 17.2% 3.2% 7.3% 5.4% -2.8%
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.87% and -5.99%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
Average Annual Total Returns for
the Periods Ending December 31, 1999
Class 1 Year 5 Year 10 Year
- - ---------------------------------------------------------
Class A (Offer) -6.92% 4.95% 5.74%
- - ---------------------------------------------------------
Class B -7.30% 4.91% 5.61%
- - ---------------------------------------------------------
Class C -3.50% 5.24% 5.48%
- - ---------------------------------------------------------
Class R -2.59% 6.10% 6.46%
- - ---------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -3.31% 5.84% 6.29%
8 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund. Shareholder Transaction Expenses4
Paid Directly From Your Investment
Share Class A B C R/5/
- - --------------------------------------------------------------------
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - --------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - --------------------------------------------------------------------
Exchange Fees None None None None
- - --------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - --------------------------------------------------------------------
Annual Fund Operating Expenses/11/
Paid From Fund Assets
Share Class A B C R
- - -------------------------------------------------------------------------
Management Fees .54% .54% .54% .54%
- - -------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - -------------------------------------------------------------------------
Other Expenses .16% .16% .16% .16%
- - -------------------------------------------------------------------------
Total Annual Fund Operating Expenses .90% 1.65% 1.45% .70%
- - -------------------------------------------------------------------------
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 508 $ 563 $ 148 $ 72 $ 508 $ 168 $ 148 $ 72
- - --------------------------------------------------------------------------------------
3 Years $ 695 $ 839 $ 459 $ 224 $ 695 $ 520 $ 459 $224
- - --------------------------------------------------------------------------------------
5 Years $ 898 $1,011 $ 792 $ 390 $ 898 $ 897 $ 792 $390
- - --------------------------------------------------------------------------------------
10 Years $1,481 $1,754 $1,735 $ 871 $1,481 $1,754 $1,735 $871
- - --------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
Average Effective Maturity 16.74 years
- - --------------------------------------------------
Average Duration 7.36
- - --------------------------------------------------
Weighted Average Credit Quality AAA
- - --------------------------------------------------
Number of Issues 143
- - --------------------------------------------------
Credit Quality
Insured 77%
- - --------------------------------------------------
Insured and U.S. Guaranteed 13%
- - --------------------------------------------------
U.S. Guaranteed 10%
- - --------------------------------------------------
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Other 29%
U.S. Guaranteed 23%
Healthcare 15%
Education and Civic Organizations 10%
Tax Obligation/Limited 14%
Housing/Multi-Family 9%
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 3.02%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper New York Insured Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. 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.
Section 1 The Funds 9
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
- - --------------------------------------------------------------------------------
Who Manages the Funds
- - --------------------------------------------------------------------------------
Nuveen Advisory Corp. ("Nuveen Advisory"), the funds' investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Management or NIM. Nuveen Advisory is responsible for the
selection and on-going monitoring of the municipal bonds in the funds'
investment portfolios, managing the funds' business affairs and providing
certain clerical, bookkeeping and other administrative services. The NIM
advisers are located at 333 West Wacker Drive, Chicago, IL 60606.
The NIM advisers are wholly owned subsidiaries of John Nuveen & Co. Incorporated
("Nuveen"). Founded in 1898, Nuveen has been synonymous with investments that
withstand the test of time. Today we provide managed assets and structured
investment products and services to help financial advisors serve the wealth
management needs of individuals and families. Nuveen manages or oversees $71
billion in assets.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of each fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
J. Thomas Futrell has been the portfolio manager for the New Jersey Fund since
July 1998. Mr. Futrell has been a portfolio manager for Nuveen Advisory since
1986, and currently manages investments for ten Nuveen-sponsored investment
companies. Paul L. Brennan has been the portfolio manager for the Connecticut,
New York and New York Insured Funds since August 1999. Mr. Brennan became a
portfolio manager of Flagship Financial Inc. in 1991, and subsequently became an
Assistant Vice President of Nuveen Advisory upon the acquisition of Flagship
Resources Inc. by The John Nuveen Company in January 1997. Mr. Brennan currently
manages investments for sixteen Nuveen-sponsored investment companies.
10 Section 2 How We Manage Your Money
<PAGE>
For the most recent fiscal year, the funds paid the following management fees to
Nuveen Advisory as a percentage of net assets:
Nuveen Connecticut Municipal Bond Fund .54%
- - ---------------------------------------------------------------
Nuveen New Jersey Municipal Bond Fund .50%
- - ---------------------------------------------------------------
Nuveen New York Municipal Bond Fund .27%
- - ---------------------------------------------------------------
Nuveen New York Insured Municipal Bond Fund .54%
- - ---------------------------------------------------------------
- - --------------------------------------------------------------------------------
What Securities We Invest In
- - --------------------------------------------------------------------------------
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal, state and (for the New York funds) local income tax.
Income from these bonds may be subject to the federal alternative minimum tax.
States, local governments and municipalities issue municipal bonds to raise
money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
The funds may invest in inverse floating rate securities, sometimes referred to
as "inverse floaters". Inverse floaters have variable interest rates that move
in the opposite direction from movements in prevailing short-term interest rate
levels-rising when prevailing short-term interest rates fall, and vice versa. In
addition to paying fluctuating income levels, the prices of inverse floaters can
be more volatile than the prices of conventional fixed-rate bonds with
comparable maturities.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the funds may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the funds will buy
Section 2 How We Manage Your Money 11
<PAGE>
maturities, Nuveen Advisory evaluates the comparative yield available on these
bonds. If yield spreads on long-term bonds do not compensate the funds
adequately for the additional interest rate risk the funds must assume, the
funds will buy bonds of relatively shorter maturity. In addition, municipal
bonds in a particular industry may provide higher yields relative to their risk
compared to bonds in other industries. If that occurs, a fund may buy relatively
more bonds from issuers in that industry. In that case, the fund's portfolio
composition would change from time to time.
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment 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 Jersey, New York, and New York
Insured Funds may not invest more than 20% of their net assets in these
territorial municipal bonds.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Insurance
The New York Insured Fund primarily purchases insured municipal bonds. Under
normal market conditions, the New York Insured Fund will invest at least 65% of
its assets in insured municipal bonds, and 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. 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.
Portfolio insurance policies are effective only so long as the fund continues to
own the covered bond, and the price the fund would receive upon sale of such a
bond would not benefit from the insurance. Insurers under master portfolio
insurance policies currently include MBIA Insurance Corp., AMBAC Assurance
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 municipal
bonds and whose claims-paying ability is rated Aaa or AAA by Moody's and S&P.
Insurers are responsible for making their own assessment of the insurability of
a municipal bond.
12 Section 2 How We Manage Your Money
<PAGE>
The New York Insured Fund can invest up to 20% of its net assets in uninsured
municipal bonds that are backed by an escrow account containing sufficient U.S.
Government or U.S. Government agency securities to ensure timely payment of
principal and interest. These bonds are normally regarded as having the credit
characteristics of the underlying U.S. Government-backed securities.
Short-Term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk-Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in taxable
securities, they may not achieve their investment objective. For more
information on eligible short-term investments, see the Statement of Additional
Information.
Delayed-Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. These transactions involve an element of risk
because the value of the security to be purchased may decline before the
settlement date.
- - --------------------------------------------------------------------------------
How We Select Investments
- - --------------------------------------------------------------------------------
Nuveen Advisory selects municipal bonds for the funds based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of each fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to indentify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
Section 2 How We Manage Your Money 13
<PAGE>
- - --------------------------------------------------------------------------------
What the Risks Are
- - --------------------------------------------------------------------------------
Risk is inherent in all investing. Investing in a mutual fund-even the most
conservative-involves risk, including the risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Credit risk: Each fund is subject to credit risk. Credit risk is the risk that
an issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market
conditions.
Interest rate risk: Because the funds invest in fixed-income securities, the
funds are subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from a fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate. Also, if a
fund invests in inverse floating rate securities, whose income payments vary
inversely with changes in short-term market rates, the fund's income may
decrease if short-term interest rates rise.
State Concentration risk: Because the funds primarily purchase municipal bonds
from a specific state, each 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. See "Appendix--Additional State Information." 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 Funds, which are diversified funds.
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of a fund's assets can decline as can the value
of the fund's distributions.
- - --------------------------------------------------------------------------------
How We Manage Risk
- - --------------------------------------------------------------------------------
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
14 Section 2 How We Manage Your Money
<PAGE>
bonds they purchase, and by diversifying their investment portfolios
geographically within a state as well as across different industry sectors. The
New York Insured Fund also limits investment risk by primarily buying insured
municipal bonds.
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
As diversified funds, the New York and 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).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
Section 2 How We Manage Your Money 15
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different
combination of sales charges, fees, eligibility requirements and
other features. Your financial advisor can help you determine which
class is best for you. We offer a number of services for your
convenience. Please see the Statement of Additional Information for
further details.
- - --------------------------------------------------------------------------------
What Share Classes We Offer
- - --------------------------------------------------------------------------------
Class A Shares
You can buy Class A shares at the offering price, which is the net
asset value per plus an up-front sales charge. You may qualify for a
reduced sales charge, or the sales charge may be waived, as described
in "How to Reduce Your Sales Charge." Class A shares are also subject
to an annual service fee of .20% of the fund's average daily net
assets which compensates your financial advisor for providing on-
going service to you. Nuveen retains the up-front sales charge and
the service fee on accounts with no authorized dealer of record. The
up-front Class A sales charge for all funds described in the
prospectus is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
---------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
---------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
---------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
---------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
---------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset
value without an up-front sales charge. Nuveen pays authorized
dealers of record on these share purchases a sales commission of 100%
of the first $2.5 million, plus .50% of the next $2.5 million, plus
.25% of the amount over $5.0 million. If you redeem your shares
within 18 months of purchase, you may have to pay a Contingent
Deferred Sales Charge (CDSC) of 1% of either your purchase price or
your redemption proceeds, whichever is lower. You do not have to pay
this CDSC if your financial advisor has made arrangements with Nuveen
and agrees to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net
asset value per share without any up-front sales charge so that the
full amount of your purchase is invested in the fund. However, you
will pay annual distribution and service fees of .95% of the funds'
average daily net assets. The annual .20% service fee compensates
your financial advisor for providing on-going service to you. Nuveen
retains the service and distribution fees on accounts with no
authorized dealer of record. The annual .75% distribution fee
compensates Nuveen for paying your financial advisor a 4% up-front
sales commission, which includes an advance of the first year's
service fee. If you sell your shares within six years of purchase,
you will normally have to pay a CDSC, based on either your purchase
price or what you sell your shares for, whichever amount is lower,
according to the following schedule. You do not pay a CDSC on any
Class B shares you purchase by reinvesting dividends.
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
Class B shares automatically convert to Class A shares eight years
after you buy them so that the distribution fees you pay over the life
of your investment are limited. You will continue to pay an annual
service fee on any converted Class B shares.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 Over 6
------
CDSC 5% 4% 4% 3% 2% 1% None
----
-------------------------------------------------------------------------------------
</TABLE>
Class C Shares
You can buy Class C shares at the offering price, which is the net
asset value per share without any up-front sales charge so that the
full amount of your purchase is invested in the fund. However, you
will pay annual distribution and service fees of .75%. The annual .20%
service fee compensates your financial advisor for providing on-going
service to you. Nuveen retains the service and distribution fees on
accounts with no authorized dealer of record. The annual .55% of the
fund's average daily net assets distribution fee reimburses Nuveen for
paying your financial advisor an on-going sales commission. Nuveen
advances the first year's service and distribution fees. If you sell
your shares within 12 months of purchase, you will normally have to
pay a 1% CDSC based on your purchase or sale price, whichever is
lower. You do not pay a CDSC on any Class C shares you purchase by
reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at
the net asset value on the day of purchase. In order to qualify, you
must be eligible under one of the programs described in "How to Reduce
Your Sales Charge" (below) or meet certain other purchase size
criteria. Class R shares are not subject to sales charges or ongoing
service or distribution fees. Class R shares have lower on-going
expenses than the other classes.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
- - --------------------------------------------------------------------------------
How to Reduce Your Sales Charge
- - --------------------------------------------------------------------------------
We offer a number of ways to reduce or eliminate the up-front sales
charge on Class A shares or to qualify to purchase Class R shares.
<TABLE>
<CAPTION>
<S> <C> <C>
Class A Sales Charge Reductions Class A Sales Charge Waivers Class R Eligibility
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
. Letter of intent or Exchange-Traded directors of Nuveen or
. Group purchase Fund reinvestment employees of authorized dealers
. Certain employees and . Bank trust departments
directors of Nuveen or
employees of authorized dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares may
be purchased through registered investment advisers, certified
financial planners and registered broker-dealers who charge asset-
based or comprehensive "wrap" fees for their services. Please refer to
the Statement of Additional Information for detailed program
descriptions and eligibility requirements. Additional information is
available from your financial advisor or by calling (800) 257-8787.
Your financial advisor can also help you prepare any necessary
application forms. You or your financial advisor must notify Nuveen at
the time of each purchase if you are eligible for any of these
programs. The funds may modify or discontinue these programs at any
time.
- - --------------------------------------------------------------------------------
How to Buy Shares
- - --------------------------------------------------------------------------------
Fund shares may be purchased on any business day, which is any day the
New York Stock Exchange is open for business and normally ends at 4
p.m. New York time. Generally, the Exchange is closed on weekends and
national holidays. The share price you pay will depend on when Nuveen
receives your order. Orders received before the close of trading on a
business day will receive that day's closing share price, otherwise
you will receive the next business day's price.
Through a Financial Advisor
You may buy shares through your financial advisor, who can handle all
the details for you, including opening a new account. Financial
advisors can also help you review your financial needs and formulate
long-term investment goals and objectives. In addition, financial
advisors generally can help you develop a customized financial plan,
select investments and monitor and review your portfolio on an on-
going basis to help assure your investments continue to meet your
needs as circumstances change. Financial advisors are paid for on-
going investment advice and services either from fund sales charges
and fees or by charging you a separate fee in lieu of a sales charge.
If you do not have a financial advisor, call (800) 257-8787 and Nuveen
can refer you to one in your area.
By Mail
You may open an account and buy shares by mail by completing the
enclosed application and mailing it along with your checks to: Nuveen
Investor Services, P.O. Box 5186, Bowling Green Station, New York, NY
10274-5186. No third party checks will be accepted.
18 Section 3 How You Can Buy and Sell Shares
<PAGE>
Investment Minimums
The minimum initial investment is $3,000 ($50 through systematic
investment plan accounts) and may be lower for accounts opened through
certain fee-based programs. Subsequent investments must be in amounts
of $50 or more. The funds reserve the right to reject purchase orders
and to waive or increase the minimum investment requirements.
- - --------------------------------------------------------------------------------
Systematic Investing
- - --------------------------------------------------------------------------------
Systematic investing allows you to make regular investments through
automatic deductions from your bank account, directly from your
paycheck or from exchanging shares from another mutual fund account.
The minimum automatic deduction is $50 per month. There is no charge
to participate in each fund's systematic investment plan. You can stop
the deductions at any time by notifying the fund in writing. To do
this, simply complete the appropriate section of the account
application form or submit an Account Update Form.
From Your Bank Account
You can make systematic investments of $50 or more per month by
authorizing us to draw preauthorized checks on your bank account.
From Your Paycheck
With your employer's consent, you can make systematic investments of
$25 or more per pay period (meeting the monthly minimum of $50) by
authorizing your employer to deduct monies from your paycheck.
Systematic Exchanging
You can make systematic investments by authorizing Nuveen to exchange
shares from one Nuveen mutual fund account into another identically
registered Nuveen account of the same share class.
The chart below illustrates the benefits of systematic investing based
on a $3,000 initial investment and subsequent monthly investments of
$100 over 20 years. The example assumes you earn a return of 4%, 5% or
6% annually on your investment and that you reinvest all dividends.
These annual returns do not reflect past or projected fund
performance.
[CHART APPEARS HERE]
Section 3 How You Can Buy and Sell Shares 19
<PAGE>
One of the benefits of systematic investing is dollar cost averaging.
Because you regularly invest a fixed amount of money over a period of
years regardless of the share price, you buy more shares when the
price is low and fewer shares when the price is high. As a result, the
average share price you pay should be less than the average share
price of fund shares over the same period. To be effective, dollar
cost averaging requires that you invest over a long period of time,
and does not assure that you will profit.
- - --------------------------------------------------------------------------------
Systematic Withdrawal
- - --------------------------------------------------------------------------------
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 receive a check, have the monies
transferred directly into your bank account (see "Special Services--
Fund Direct" 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
concurrent purchases of Class A, B or C shares because you may
unnecessarily pay a sales charge or CDSC on these purchases.
- - --------------------------------------------------------------------------------
Special Services
- - --------------------------------------------------------------------------------
To help make your investing with us easy and efficient, we offer you
the following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at
any time for an appropriate class of another Nuveen mutual fund
available in your state. Your exchange must meet the minimum purchase
requirements of the fund into which you are exchanging. You may have
to pay a sales charge when exchanging shares that you purchased
without a sales charge for shares that are sold with a sales charge.
Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use a fund for
short-term trading. Because excessive exchanges may interfere with
portfolio management, raise fund operating expenses or otherwise have
an inverse affect on other shareholders, each fund reserves the right
to revise or suspend the exchange privilege, limit the amount or
number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon
60 days' notice. Because an exchange is treated for tax purposes as a
purchase and sale, and any gain may be subject to tax, you should
consult your tax advisor about the tax consequences of exchanging your
shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to your
bank account, transfer money electronically between these accounts,
and perform a variety of account transactions, including purchasing
shares by telephone and investing through a systematic investment
plan. You also may have dividends,
20 Section 3 How You Can Buy and Sell Shares
<PAGE>
distributions, redemption payments or systematic withdrawal plan
payments sent directly to your bank account. Your financial advisor
can help you complete the forms for these services, or you can call
Nuveen at (800) 257-8787 for copies of the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your
redemption proceeds up to one year later without incurring any
additional charges. You may only reinvest into the same share class
you redeemed. If you paid a CDSC, we will refund your CDSC and
reinstate your holding period. You may use this reinstatement
privilege only once for any redemption.
- - --------------------------------------------------------------------------------
How to Sell Shares
- - --------------------------------------------------------------------------------
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and
procedures to confirm the identity of callers, it will not be liable
for losses resulting from following telephone instructions it
reasonably believes to be genuine. Also you should verify your trade
confirmations immediately upon receipt.
You may sell (redeem) your shares on any business day. You will
receive the share price next determined after the fund has received
your properly completed redemption request. Your redemption request
must be received before the close of trading for you to receive that
day's price. If you are selling shares purchased recently with a
check, you will not receive your redemption proceeds until your check
has cleared. This may take up to ten days from your purchase date.
While the funds do not charge a redemption fee, you may be assessed a
CDSC, if applicable. 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, 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 described in the Statement of Additional Information.
Through Your Financial Advisor
You may sell your shares through your financial advisor who can
prepare the necessary documentation. Your financial advisor may charge
for this service.
By Telephone
If you have authorized telephone redemption privileges, you can redeem
your shares by calling (800) 257-8787. Telephone redemptions are not
available if you own shares in certificate form and may not exceed
$50,000. Checks will be only be issued to you as the shareholder of
record and mailed to your address of record. If you have established
Fund Direct privileges, you may have redemption proceeds transferred
electronically to your bank account. We will normally mail your check
the next business day.
Section 3 How You Can Buy and Sell Shares 21
<PAGE>
By Mail
You can sell your shares at any time by sending a written request to
the appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186,
Bowling Green Station, New York, NY 10274-5186. 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 to whom you want your redemption proceeds
paid (if other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other
than the address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
We will normally mail your check the next business day, but in no
event more than seven days after we receive your request. If you
purchased your shares by check, your redemption proceeds will not be
mailed until your check has cleared. Guaranteed signatures are
required if you are redeeming more than $50,000, you want the check
payable to someone other than the shareholder of record or you want
the check sent to another address (or the address of 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 a fund. A notary public cannot provide a
signature guarantee.
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size
requirements. The funds reserve the right to liquidate your account
upon 30 days' written notice if the value of your account falls below
an established minimum. The funds presently have set a minimum balance
of $100 unless you have an active Nuveen Defined Portfolio
reinvestment account. You will not be assessed a CDSC on an
involuntary redemption.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual
conditions that make cash payment unwise and for the protection of
existing shareholders, the funds may pay all or a portion of your
redemption proceeds in securities or other fund assets. Although it is
unlikely that your shares would be redeemed in-kind, you would
probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that
sale.
22 Section 3 How You Can Buy and Sell Shares
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the
funds, this section includes important details about how the funds
make distributions to shareholders. We discuss some other fund
policies, as well.
- - --------------------------------------------------------------------------------
Dividends, Distributions and Taxes
- - --------------------------------------------------------------------------------
The funds pay tax-free dividends monthly and any taxable capital
gains or other taxable distributions once a year in December. The
funds declare dividends monthly to shareholders of record as of the
ninth of each month, payable the first business day of the following
month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund
shares unless you request otherwise. You may request to have your
dividends paid to you by check, deposited directly into your bank
account, paid to a third party, sent to an address other than your
address of record or reinvested in shares of another Nuveen mutual
fund. For further information, contact your financial advisor or call
Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest primarily in municipal bonds from a
particular state, the regular monthly dividends you, as a taxpayer in
that state, receive will be exempt from regular federal, state and
(for the New York funds) local income tax. 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
capital gains are taxable at the same rate 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.
Early in each year, you will receive a ment detailing the amount and
nature of all dividends and capital gains that you were paid during
the prior year. If you hold your investment at the firm where you
purchased your fund shares, you will receive the statement from that
firm. If you hold your shares directly at the fund, Nuveen will send
you the statement. The tax status of your dividends is the same
whether you reinvest your dividends or elect to receive them in cash.
If you receive social security or railroad retirement benefits, you
should consult your tax advisor about how an investment in the fund
may affect the taxation of your benefits.
Section 4 General Information 23
<PAGE>
Please note that if you do not furnish the fund with your correct
Social Security number or employer identification number, federal law
requires the fund to withhold federal income tax from your
distributions and redemption proceeds, currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax
advisor for more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable
dividend is commonly known as "buying the dividend." The entire
dividend may be taxable to you even though a portion of the dividend
effectively represents a return of your purchase price. Similarly, if
you 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 capital gain even though it reflects tax-free income
earned but not yet distributed by the fund.
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 federal 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 federal tax-free yields and tax rates:
Taxable Equivalent Of Tax-Free Yields
To Equal a Tax-Free Yield of:
-----------------------------------------------------------
4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket: A Taxable Investment Would Need to Yield:
-----------------------------------------------------------
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
-----------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
-----------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
-----------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
-----------------------------------------------------------
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 advisor.
- - --------------------------------------------------------------------------------
Distribution and Service Plans
- - --------------------------------------------------------------------------------
Nuveen serves as the selling agent and distributor of the funds'
shares. In this capacity, Nuveen manages the offering of the funds'
shares and is responsible for all sales and promotional activities. In
order to reimburse Nuveen for its costs in connection with these
activities, including compensation paid to authorized dealers, each
fund has adopted a distribution and service plan in accordance with
Rule 12b-1 under the Investment Company Act of 1940. (See "How to
Choose a Share Class" for a description of the distribution and
service fees paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares
primarily for providing compensation to authorized dealers, including
Nuveen, in connection with the distribution of shares. Nuveen uses the
service fee for Class A, Class B, and Class C shares to compensate
authorized dealers, including Nuveen, for providing on-going account
24 Section 4 General Information
<PAGE>
services to Authorized Dealers, including Nuveen, for providing
account services to shareholders. These services may include
establishing and maintaining shareholder accounts, answering
shareholder inquiries, and providing other personal services to
shareholders. These fees also compensate Nuveen for other expenses,
including printing and distributing prospectuses to persons other than
shareholders, the expenses of preparing, printing, and distributing
advertising and sales literature and reports to shareholders used in
connection with the sale of shares. Because these fees are paid out of
the fund's assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more than paying
other types of sales charges.
Nuveen periodically undertakes sales promotion programs with
authorized dealers and may pay them the full applicable sales charge
as a commission. In addition, Nuveen may provide support at its own
expense to authorized dealers in connection with sales meetings,
seminars, prospecting seminars and other events at which Nuveen
presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties.
The Statement of Additional Information contains further information
about these programs.
- - --------------------------------------------------------------------------------
Net Asset Value
- - --------------------------------------------------------------------------------
The price you pay for your shares is based on the fund's net asset
value per share which is determined as of the close of trading
(normally 4:00 p.m. New York time) on each day the New York Stock
Exchange is open for business. Net asset value is calculated for each
class by taking the market value of the class' total assets, including
interest or dividends accrued but not yet collected, less all
liabilities, and dividing by the total number of shares outstanding.
The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of
Trustees or its delegate.
In determining net asset value, expenses are accrued and applied daily
and securities and other assets for which market quotations are
available are valued at market value. The prices of municipal bonds
are provided by a pricing service and based on the mean between the
bid and asked price. When price quotes are not readily available
(which is usually the case for municipal securities), the pricing
service establishes fair market value based on prices of comparable
municipal bonds.
- - --------------------------------------------------------------------------------
Fund Service Providers
- - --------------------------------------------------------------------------------
The custodian of the assets of the funds is The Chase Manhattan Bank,
4 New York Plaza, New York, NY 10004-2413. Chase also provides certain
accounting services to the funds. The funds' transfer, shareholder
services and dividend paying agent, Chase Global Funds Services
Company, P.O. Box 5186, New York, NY 10274-5186, performs bookkeeping,
data processing and administrative services for the maintenance of
shareholder accounts.
Section 4 General Information 25
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand a fund's
financial performance for the past 5 years. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned on an investment in a fund
(assuming reinvestment of all dividends and distributions). This information has
been audited by Arthur Andersen LLP, whose report, along with the funds'
financial statements, are included in the SAI and annual report, which is
available upon request.
- - --------------------------------------------------------------------------------
Nuveen Connecticut Municipal Bond Fund
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
- - ----------------------------------------------------------------------------------------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return (a)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (7/87)**
2000 $10.90 $.53 $ (.94) $ (.41) $ (.53) $ -- $ (.53) $ 9.96 (3.84)%
- - ----------------------------------------------------------------------------------------------------------
1999 10.85 .53 .06 .59 (.54) -- (.54) 10.90 5.51
1998 10.51 .56 .34 .90 (.56) -- (.56) 10.85 8.75
1997 (c) 10.23 .42 .28 .70 (.42) -- (.42) 10.51 6.96
1996 (d) 10.38 .57 (.14) .43 (.58) -- (.58) 10.23 4.18
1995 (d) 10.17 .58 .22 .80 (.59) -- (.59) 10.38 8.21
Class B (2/97)
2000 10.88 .45 (.94) (.49) (.45) -- (.45) 9.94 (4.57)
1999 10.83 .46 .05 .51 (.46) -- (.46) 10.88 4.77
1998 10.51 .48 .32 .80 (.48) -- (.48) 10.83 7.76
1997 (e) 10.53 .04 (.02) .02 (.04) -- (.04) 10.51 .19
Class C (10/93)**
2000 10.88 .47 (.93) (.46) (.47) -- (.47) 9.95 (4.31)
1999 10.83 .48 .05 .53 (.48) -- (.48) 10.88 4.94
1998 10.49 .50 .34 .84 (.50) -- (.50) 10.83 8.17
1997 (c) 10.22 .38 .27 .65 (.38) -- (.38) 10.49 6.43
1996 (d) 10.36 .52 (.14) .38 (.52) -- (.52) 10.22 3.71
1995 (d) 10.16 .53 .20 .73 (.53) -- (.53) 10.36 7.53
Class R (2/97)
2000 10.93 .55 (.94) (.39) (.55) -- (.55) 9.99 (3.63)
1999 10.87 .56 .06 .62 (.56) -- (.56) 10.93 5.83
1998 10.51 .58 .36 .94 (.58) -- (.58) 10.87 9.17
1997 (e) 10.55 .01 (.05) (.04) -- -- -- 10.51 (.38)
- - ----------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Ending Net to Average Average Turnover
February 28/29, Assets (000) Net Assets (b) Net Assets (b) Rate
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (7/87)**
2000 $196,416 .88% 5.09% 22%
- - ------------------------------------------------------------------------------
1999 220,721 .86 4.92 7
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
Class B (2/97)
2000 15,931 1.64 4.37 22
1999 11,223 1.61 4.17 7
1998 3,713 1.52 4.43 12
1997 (e) 102 1.12* 7.08* 20
Class C (10/93)**
2000 16,181 1.43 4.54 22
1999 16,198 1.41 4.37 7
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
Class R (2/97)
2000 1,337 .68 5.31 22
1999 979 .66 5.13 7
1998 590 .57 5.38 12
1997 (e) -- -- 10.97* 20
- - ------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the nine months ended February 28, 1997,
reflects the financial highlights of the predecessor fund, Flagship
Connecticut Double Tax Exempt.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .87%, 1.63%, 1.42% and .67% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.10%, 4.38%, 4.55% and 5.32% for classes A, B, C and R,
respectively.
(c) For the nine months ended February 28.
(d) For the fiscal year ended May 31.
(e) From commencement of class operations as noted.
26 Section 5 Financial Highlights
<PAGE>
- - --------------------------------------------------------------------------------
Nuveen New Jersey Municipal Bond Fund
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions Ratios/Supplemental Data
- - ----------------------------------------------------------------------------------------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return (a)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $ 10.60 $ .49 $ (.87) $ (.38) $ (.49) $ -- $ (.49) $ 9.73 (3.67)%
- - ----------------------------------------------------------------------------------------------------------
1999 10.61 .53 (.01) .52 (.53) -- (.53) 10.60 5.00
1998 10.26 .55 .36 .91 (.56) -- (.56) 10.61 9.06
1997 (c) 10.22 .05 .04 .09 (.05) -- (.05) 10.26 .85
1997 (d) 10.40 .48 (.15) .33 (.51) -- (.51) 10.22 3.31
1996 (d) 9.73 .51 .69 1.20 (.53) -- (.53) 10.40 12.63
Class B (2/97)
2000 10.60 .41 (.88) (.47) (.41) -- (.41) 9.72 (4.51)
1999 10.61 .45 (.01) .44 (.45) -- (.45) 10.60 4.23
1998 10.26 .48 .35 .83 (.48) -- (.48) 10.61 8.25
1997 (c) 10.22 .05 .03 .08 (.04) -- (.04) 10.26 .78
Class C (9/94)**
2000 10.58 .43 (.88) (.45) (.43) -- (.43) 9.70 (4.29)
1999 10.59 .47 (.01) .46 (.47) -- (.47) 10.58 4.48
1998 10.25 .50 .34 .84 (.50) -- (.50) 10.59 8.40
1997 (c) 10.20 .04 .05 .09 (.04) -- (.04) 10.25 .90
1997 (d) 10.38 .41 (.16) .25 (.43) -- (.43) 10.20 2.53
1996 (d) 9.71 .44 .68 1.12 (.45) -- (.45) 10.38 11.80
Class R (12/91)**
2000 10.60 .51 (.87) (.36) (.51) -- (.51) 9.73 (3.47)
1999 10.62 .55 (.02) .53 (.55) -- (.55) 10.60 5.13
1998 10.27 .58 .35 .93 (.58) -- (.58) 10.62 9.29
1997 (c) 10.23 .05 .04 .09 (.05) -- (.05) 10.27 .86
1997 (d) 10.41 .49 (.14) .35 (.53) -- (.53) 10.23 3.55
1996 (d) 9.74 .55 .68 1.23 (.56) -- (.56) 10.41 12.88
- - ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
- - --------------------------------------------------------------------------------
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Ending Net to Average Average Turnover
February 28/29, Assets (000) Net Assets (b) Net Assets (b) Rate
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/94)**
2000 $46,235 .93% 4.80% 26%
- - --------------------------------------------------------------------------------
1999 53,442 .66 4.98 10
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
Class B (2/97)
2000 13,681 1.69 4.06 26
1999 11,368 1.39 4.25 10
1998 2,981 1.36 4.57 16
1997 (c) 74 1.27* 6.21* --
Class C (9/94)**
2000 10,007 1.48 4.26 26
1999 10,290 1.21 4.43 10
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
Class R (12/91)**
2000 40,058 .73 5.00 26
1999 46,033 .47 5.17 10
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
- - --------------------------------------------------------------------------------
</TABLE>
* Annualized.
** Information included prior to the one month ended February 28, 1997,
reflects the financial highlights of the predecessor fund, Nuveen New Jersey
Tax-Free Value.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .91%, 1.67%, 1.47% and .71% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 4.82%, 4.08%, 4,27% and 5.02% for classes A, B, C and R,
respectively.
(c) For the one month ended February 28.
(d) For the fiscal year ended January 31.
Section 5 Financial Highlights 27
<PAGE>
- - --------------------------------------------------------------------------------
Nuveen New York Municipal Bond Fund
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
- - ----------------------------------------------------------------------------------------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return (a)
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $ 11.03 $ .58 $ (.85) $ (.27) $ (.57) $ (.02) $ (.59) $ 10.17 (2.44)%
- - ----------------------------------------------------------------------------------------------------------
1999 10.97 .55 .06 .61 (.55) -- (.55) 11.03 5.69
1998 10.53 .57 .44 1.01 (.57) -- (.57) 10.97 9.84
1997 10.61 .59 (.07) .52 (.56) (.04) (.60) 10.53 5.07
1996 10.12 .56 .48 1.04 (.55) -- (.55) 10.61 10.52
Class B (2/97)
2000 11.04 .51 (.86) (.35) (.49) (.02) (.51) 10.18 (3.18)
1999 10.98 .47 .06 .53 (.47) -- (.47) 11.04 4.88
1998 10.53 .49 .45 .94 (.49) -- (.49) 10.98 9.10
1997 (c) 10.48 .05 .04 .09 (.04) -- (.04) 10.53 .87
Class C (9/94)**
2000 11.06 .52 (.85) (.33) (.51) (.02) (.53) 10.20 (2.97)
1999 11.01 .49 .05 .54 (.49) -- (.49) 11.06 5.00
1998 10.56 .51 .45 .96 (.51) -- (.51) 11.01 9.31
1997 10.64 .55 (.11) .44 (.48) (.04) (.52) 10.56 4.31
1996 10.11 .48 .53 1.01 (.48) -- (.48) 10.64 10.13
Class R (12/86)**
2000 11.06 .60 (.84) (.24) (.60) (.02) (.62) 10.20 (2.21)
1999 11.00 .58 .05 .63 (.57) -- (.57) 11.06 5.88
1998 10.55 .59 .45 1.04 (.59) -- (.59) 11.00 10.11
1997 10.64 .59 (.05) .54 (.59) (.04) (.63) 10.55 5.26
1996 10.15 .58 .49 1.07 (.58) -- (.58) 10.64 10.80
- - ----------------------------------------------------------------------------------------------------------
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
- - ------------------------------------------------------------------------
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Ending Net to Average Average Turnover
February 28/29, Assets (000) Net Assets (b) Net Assets (b) Rate
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/94)**
2000 $81,857 .61% 5.49% 19%
- - ------------------------------------------------------------------------
1999 80,549 .79 5.03 28
1998 78,038 .77 5.27 30
1997 71,676 .89 5.45 37
1996 15,732 .99 5.31 47
Class B (2/97)
2000 19,803 1.33 4.81 19
1999 12,121 1.57 4.27 28
1998 4,311 1.50 4.49 30
1997 (c) 124 1.44* 6.07* 37
Class C (9/94)**
2000 10,374 1.16 4.95 19
1999 8,858 1.35 4.47 28
1998 6,233 1.32 4.71 30
1997 3,965 1.57 4.80 37
1996 646 1.73 4.55 47
Class R (12/86)**
2000 138,303 .42 5.67 19
1999 157,209 .59 5.23 28
1998 160,142 .57 5.47 30
1997 152,598 .69 5.57 37
1996 154,776 .74 5.57 47
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended February 28, 1997,
reflects the financial highlights of the predecessor fund, Nuveen New York
Tax-Free Value.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .60%, 1.32%, 1.15% and .41% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.50%, 4.82%, 4.96% and 5.68% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
28 Section 5 Financial Highlights
<PAGE>
- - --------------------------------------------------------------------------------
Nuveen New York Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
- - -----------------------------------------------------------------------------------------------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return (a)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $ 10.73 $ .52 $ (.79) $ (.27) $ (.51) $ -- $ (.51) $ 9.95 (2.50)%
- - -----------------------------------------------------------------------------------------------------------------
1999 10.76 .51 .01 .52 (.52) (.03) (.55) 10.73 4.91
1998 10.50 .53 .26 .79 (.53) -- (.53) 10.76 7.76
1997 10.61 .55 (.14) .41 (.52) -- (.52) 10.50 4.02
1996 10.15 .57 .49 1.01 (.52) (.03)** (.55) 10.61 10.19
Class B (2/97)
2000 10.74 .44 (.79) (.35) (.43) -- (.43) 9.96 (3.26)
1999 10.76 .44 -- .44 (.43) (.03) (.46) 10.74 4.19
1998 10.50 .45 .26 .71 (.45) -- (.45) 10.76 6.96
1997 (c) 10.53 .03 (.02) .01 (.04) -- (.04) 10.50 .07
Class C (9/94)
2000 10.73 .46 (.80) (.34) (.45) -- (.45) 9.94 (3.17)
1999 10.74 .46 .02 .48 (.46) (.03) (.49) 10.73 4.53
1998 10.48 .47 .26 .73 (.47) -- (.47) 10.74 7.16
1997 10.61 .47 (.16) .31 (.44) -- (.44) 10.48 3.06
1996 10.12 .44 .53 .97 (.45) (.03)** (.48) 10.61 9.71
Class R (12/86)
2000 10.74 .54 (.80) (.26) (.53) -- (.53) 9.95 (2.43)
1999 10.76 .53 .02 .55 (.54) (.03) (.57) 10.74 5.18
1998 10.49 .55 .27 .82 (.55) -- (.55) 10.76 8.04
1997 10.61 .55 (.13) .42 (.54) -- (.54) 10.49 4.15
1996 10.15 .55 .49 1.04 (.55) (.03)** (.58) 10.61 10.51
- - -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
- - ------------------------------------------------------------------------------
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Ending Net to Average Average Turnover
February 28/29, Assets (000) Net Assets (b) Net Assets (b) Rate
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/94)
2000 $ 54,364 .90% 5.02% 16%
- - -----------------------------------------------------------------------------
1999 52,448 .92 4.78 16
1998 44,721 .88 4.98 17
1997 35,957 .92 5.04 29
1996 24,747 .93 4.97 17
Class B (2/97)
2000 15,893 1.65 4.28 16
1999 13,374 1.67 4.04 16
1998 5,982 1.65 4.24 17
1997 (c) 1,279 1.64* 5.17* 29
Class C (9/94)
2000 4,627 1.45 4.48 16
1999 4,103 1.47 4.25 16
1998 2,310 1.43 4.43 17
1997 2,015 1.67 4.28 29
1996 1,369 1.69 4.21 17
Class R (12/86)
2000 260,469 .70 5.21 16
1999 301,805 .72 4.98 16
1998 313,647 .68 5.18 17
1997 319,208 .68 5.28 29
1996 343,348 .67 5.26 17
- - -----------------------------------------------------------------------------
</TABLE>
* Annualized.
** The amounts shown include distributions in excess of capital gains of $.0024
per share.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .90%, 1.65%, 1.45% and .70% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.02%, 4.28%, 4.48% and 5.21% for classes A, B, C and R,
respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 29
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from a specific
state, each fund also bears investment risks 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 special state considerations
was obtained from official offering statements of these issuers and
has not been independently verified by the funds. The discussion
includes general state tax information related to an investment in
fund shares. Because tax laws are complex and often change, you should
consult your tax advisor about the state tax consequences of a
specific fund investment. See the Statement of Additional Information
for further information.
Connecticut
Although it continues to lag the nation in job growth, Connecticut's
economy has performed relatively well recently, helping to narrow the
gap with the national economy. The State recently reclaimed the jobs
it lost to the recession of the early 1990's and Connecticut continues
to post the strongest income gains in the country. Once heavily
reliant on the insurance, defense manufacturing, finance and real
estate industries, the State's economy has become more diversified,
benefiting from growth in service sector employment and personal
services, health care, legal services, private education and gaming.
Unemployment has improved and is now below national averages,
registering 2.3% in April 2000 versus the national average of 3.9% for
the same time period. Since 1995, the State has experienced slow,
steady population growth, although it has not yet replaced all of the
residents it lost during the recession of the early 1990's. According
to one report, none of Connecticut's ten fastest growing cities has a
population exceeding 25,000 residents. Connecticut continues to rank
first among states in per capita personal income ($39,167). However,
the State's urban centers continue to struggle with population losses,
above average rates of unemployment, and lower per capita income
levels.
As of June 1, 2000, Moody's, Standard & Poor's, and Fitch affirmed
their Aa3, AA, and AA ratings, respectively, on the State's general
obligation debt. These ratings reflect the State's credit quality
only, and do not indicate the creditworthiness of other tax-exempt
securities in which the fund may invest. Furthermore, it cannot be
assumed that the State of Connecticut will maintain its current credit
ratings.
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 possessions. The portion of the Connecticut
Fund's monthly dividends that is
30 Appendix
<PAGE>
attributable to income earned on other obligations will be subject to
the Connecticut personal income tax. You also will be subject to
Connecticut personal income 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 capital 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 advisor.
New Jersey
New Jersey's economic base remains among the most diverse in the
country. The State's economic growth rates continue to outpace
regional growth rates, although they remain below the national
average. The State has recovered the jobs it lost during the national
recession of the early 1990's, which severely affected New Jersey and
much of the Northeast region. As a result, the State's unemployment
rate has dropped to record low levels registering at 3.8% as of
April 1, 2000, down from 4.3% the previous year. Although its income
growth rate lagged or just equaled the national rate, New Jersey
remains one of the country's wealthiest states, with a per capita
income of $36,106 in 1999, ranking it second among the states in per
capita income.
As of June 1, 2000, New Jersey's general obligation bonds were rated
Aa1 by Moody's, AA+ by Standard and Poor's, and AA+ by Fitch. These
ratings reflect the State's credit quality only, and do not indicate
the creditworthiness of other tax-exempt securities in which the fund
may invest. Furthermore, it cannot be assumed that the State of New
Jersey will maintain its current credit ratings.
Tax Treatment.
The New Jersey 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 dividends attributable to income earned on other
obligations. 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 advisor.
New York
New York State's economy has improved, but continues to lag the nation
in several areas, including job growth and unemployment. The recent
success of the financial sector in New York State has led to a 21%
increase in personal income since 1995, although the State continues
to slightly lag the national average. However, New York State remains
one of the wealthier states in the nation. Per capita personal income
was $33,946 in 1999 and the State's unemployment rate through April
2000 was 4.6%.
Appendix 31
<PAGE>
Through June 1, 2000, New York State was also the largest debt issuer
in the nation.
Overall, the economies of the State, and particularly of New York
City, have benefited from the strong results of the U.S. stock market
and overall financial sector. This sector is, however, more volatile
than some of the other employment sectors. As a result, because the
State and City economies remain more reliant on the securities
industry than is the national economy, both the State and City remain
susceptible to downturns in that industry, which could cause adverse
changes in wage and employment levels. In addition, the benefits of
the expansion in this sector have not been distributed evenly across
the population in New York City; the income gap between the highest
and lowest wage earners in the City has widened to one of the largest
gaps in the nation.
Improvement in the upstate economi es has not been as pronounced as in
downstate areas, like New York City, because many upstate communities
have not participated as fully in the recent economic expansion.
Population and employment growth levels in the upstate counties have
been minimal and have not approached averages of downstate counties.
Employment losses in the manufacturing sector continue to constrain
both population and employment growth in upstate areas.
Upstate and downstate areas have been hampered in part by the State's
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.
As of June 1, 2000, Moody's, Standard & Poor's, and Fitch maintained
ratings of A3, A-, and A+ on the City's general obligation debt,
respectively. As of June 1, 2000, Moody's, Standard & Poor's, and
Fitch maintained ratings of A2, A, and A+ on the State's general
obligation debt, respectively. These ratings reflect the City's and
the State's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the funds may
invest. Furthermore, it cannot be assumed that New York City or the
State of New York will maintain their current credit ratings.
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 obligations of U.S. territories and possessions
that is exempt from federal taxation. The portion of the New York
Funds' monthly dividends that is attributable to income earned on
other obligations will be subject to New York State or 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
advisor.
32 Appendix
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach
your financial goals. The funds below are grouped by investment
objectives.
Growth
International Growth Fund
Innovation Fund
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
Dividend and Growth Fund
Income
Income Fund
Floating Rate Fund/1/
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/2/ Maryland Ohio
Colorado Massachusetts/2/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky New York/2/
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The
Statement of Additional Information ("SAI"), incorporated by reference
into this prospectus, contains detailed information on fund policies
and operation. Call Nuveen at (800) 257-8787 to request a free copy of
the SAI or other fund information; or ask your financial advisor for
copies.
You may also obtain this and other fund information directly from the
Securities and Exchange Commission ("SEC"). The SEC may charge a
copying fee for this information. Visit the SEC on-line at
http://www.sec.gov or in person at the SEC's Public Reference Room in
Washington, D.C. Call the SEC at (800) SEC-0330 for room hours and
operation. You may also request fund information by writing to the
SEC's Public Reference Section, Washington, D.C. 20549. The funds'
Investment Company file number is 811-07755.
1. This is a continuously-offered closed-end interval fund. As such,
redemptions are only available during quarterly repurchase periods.
See fund prospectus for additional information.
2. Long-term and insured long-term portfolios.
NUVEEN
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
N U V E E N
Investments
Municipal Bond
Funds
PROSPECTUS JUNE 28, 2000
Dependable, tax-free income to help you keep more of what you earn.
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK(SM)
[PHOTO APPEARS HERE]
California
California Insured
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
<PAGE>
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment
Strategy
Risks
Fees, Charges
and Expenses
Shareholder
Instructions
Performance and
Current Portfolio
Information
Table of Contents
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction............................................................... 1
Nuveen California Municipal Bond Fund...................................... 2
Nuveen California Insured Municipal Bond Fund.............................. 4
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds...................................................... 6
What Securities We Invest In............................................... 7
How We Select Investments.................................................. 9
What the Risks Are......................................................... 9
How We Manage Risk......................................................... 10
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
What Share Classes We Offer................................................ 11
How to Reduce Your Sales Charge............................................ 12
How to Buy Shares.......................................................... 13
Systematic Investing....................................................... 14
Systematic Withdrawal...................................................... 15
Special Services........................................................... 15
How to Sell Shares......................................................... 16
Section 4 General Information
This section summarizes the funds' distribution policies and other general
information.
Dividends, Distributions and Taxes......................................... 18
Distribution and Service Plans............................................. 19
Net Asset Value............................................................ 20
Fund Service Providers..................................................... 21
Section 5 Financial Highlights
This section provides the funds' financial performance for the past 5
years.................................................................... 22
Appendix Additional State Information.................................... 24
<PAGE>
June 28, 2000
Section 1 The Funds
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
Introduction
- - --------------------------------------------------------------------------------
This prospectus is intended to provide important information
to help you evaluate whether one of the Nuveen Mutual Funds
listed above may be right for you. Please read it carefully
before investing and keep it for future reference.
- - --------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
- - --------------------------------------------------------------------------------
Section 1 The Funds 1
<PAGE>
Nuveen California Municipal Bond Fund
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in California bonds. As with any mutual fund investment, loss of money
is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or
college funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 5.9
1991 10.8
1992 9.0
1993 11.1
1994 -7.0
1995 17.5
1996 4.7
1997 8.4
1998 5.6
1999 -3.2
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 7.09% and -6.03%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
- - ------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -7.26% 5.48% 5.60%
Class B -7.57% 5.46% 5.48%
Class C -3.71% 5.73% 5.36%
Class R -2.96% 6.62% 6.33%
- - ------------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -4.34% 6.45% 6.27%
</TABLE>
2 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
<TABLE>
<CAPTION>
Paid Directly From Your Investment
Share Class A B C R/5/
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - ------------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - ------------------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- - ------------------------------------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
<TABLE>
<CAPTION>
Paid From Fund Assets
Share Class A B C R
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .54% .54% .54% .54%
- - ------------------------------------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - ------------------------------------------------------------------------------------------------------------
Other Expenses .12% .12% .12% .12%
- - ------------------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses--Gross+ .86% 1.61% 1.41% .66%
- - ------------------------------------------------------------------------------------------------------------
After Expense Reimbursements
-------------------------------------------------------------------------------------------------------
Expense Reimbursements (.01%) (.01%) (.01%) (.01%)
-------------------------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses---Net .85% 1.60% 1.40% .65%
-------------------------------------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 504 $ 559 $ 144 $ 67 $ 504 $ 164 $ 144 $ 67
- - -----------------------------------------------------------------------------------------------------------
3 Years $ 683 $ 827 $ 446 $211 $ 683 $ 508 $ 446 $211
- - -----------------------------------------------------------------------------------------------------------
5 Years $ 877 $ 991 $ 771 $368 $ 877 $ 876 $ 771 $368
- - -----------------------------------------------------------------------------------------------------------
10 Years $1,436 $1,710 $1,691 $822 $1,436 $1,710 $1,691 $822
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 20.06 years
- - -----------------------------------------------------------------------------
Average Duration 9.31
- - -----------------------------------------------------------------------------
Weighted Average Credit Quality A
- - -----------------------------------------------------------------------------
Number of Issues 78
- - -----------------------------------------------------------------------------
</TABLE>
Credit Quality
<TABLE>
<S> <C>
AAA/U.S. Guaranteed 34%
- - -----------------------------------------------------------------------------
AA 7%
- - -----------------------------------------------------------------------------
A 15%
- - -----------------------------------------------------------------------------
BBB/NR 44%
- - -----------------------------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Housing/Multi-Family 18%
U.S. Guaranteed 10%
Transporation 9%
Healthcare 13%
Other 25%
Tax Obligation Limited 25%
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 3.09%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper California
Municipal Debt Index, a managed index that represents the average
annualized returns of the 30 largest funds in the Lipper California
Municipal Debt Category. Returns assume reinvestment of dividends and do
not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. Nuveen Advisory has agreed to waive some or all of its fees
or reimburse expenses to prevent total operating expenses (not counting
distribution and service fees) from exceeding 0.75% of the fund's average
daily net assets.
Section 1 The Funds 3
<PAGE>
[LOGO]
Nuveen California Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade. The fund primarily purchases insured municipal
bonds.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued insured municipal bonds that offer the potential
for above-average total return
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in California bonds. As with any mutual fund investment, loss of money
is a risk of investing.
Is This Fund Right For You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or
college funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[CHART APPEARS HERE]
Class A Annual Returns
1990 6.4
1991 11.2
1992 9.1
1993 12.0
1994 -7.0
1995 18.8
1996 4.0
1997 7.9
1998 5.4
1999 -3.9
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 7.93% and -6.51%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
- - -------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -7.95% 5.29% 5.70%
Class B -8.28% 5.27% 5.54%
Class C -4.41% 5.55% 5.38%
Class R -3.73% 6.43% 6.39%
- - -------------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -4.59% 6.30% 6.51%
</TABLE>
4 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
<TABLE>
<CAPTION>
Paid Directly From Your Investment
Share Class A B C R/5/
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - -----------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - -----------------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- - -----------------------------------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
<TABLE>
<CAPTION>
Paid From Fund Assets
Share Class A B C R
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .54% .54% .54% .54%
- - -----------------------------------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - -----------------------------------------------------------------------------------------------------------
Other Expenses .15% .15% .15% .15%
- - -----------------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross + .89% 1.64% 1.44% .69%
- - -----------------------------------------------------------------------------------------------------------
+ After Expense Reimbursements
------------------------------------------------------------------------------------------------------
Expense Reimbursements (.01%) (.01%) (.01%) (.01%)
------------------------------------------------------------------------------------------------------
Total Annual Fund
Operating Expenses---Net .88% 1.63% 1.43% .68%
------------------------------------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - -----------------------------------------------------------------------------------------------------------
1 Year $ 507 $ 562 $ 147 $ 70 $ 507 $ 167 $ 147 $ 70
- - -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3 Years $ 692 $ 836 $ 456 $221 $ 692 $ 517 $ 456 $221
- - -----------------------------------------------------------------------------------------------------------
5 Years $ 892 $1,006 $ 787 $384 $ 892 $ 892 $ 787 $384
- - -----------------------------------------------------------------------------------------------------------
10 Years $1,470 $1,743 $1,724 $859 $1,470 $1,743 $1,724 $859
- - -----------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 20.07 years
- - ----------------------------------------------------------------------------
Average Duration 9.04
- - ----------------------------------------------------------------------------
Weighted Average Credit Quality AAA
- - ----------------------------------------------------------------------------
Number of Issues 62
- - ----------------------------------------------------------------------------
</TABLE>
Credit Quality
<TABLE>
<S> <C>
Insured 79%
- - ----------------------------------------------------------------------------
Insured and U.S. Guaranteed 19%
- - ----------------------------------------------------------------------------
U.S. Guaranteed 2%
- - ----------------------------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[PIE CHART APPEARS HERE]
Healthcare 6%
U.S. Guaranteed 21%
Tax Obligation/General 19%
Housing MultiFamily 8%
Other 16%
Tax Obligation/Limited 30%
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 3.40%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns represent the average annualized returns of the funds in
the Lipper California Insured Municipal Debt Category. Returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a 1%
CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. 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.
Section 1 The Funds 5
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this section includes
a detailed discussion of the adviser's investment and risk management
strategies. For a more complete discussion of these matters, please consult the
Statement of Additional Information.
- - --------------------------------------------------------------------------------
Who Manages the Funds
- - --------------------------------------------------------------------------------
Nuveen Advisory Corp. ("Nuveen Advisory"), the funds' investment adviser,
together with its advisory affiliate, Nuveen Institutional Advisory Corp., offer
premier advisory and investment management services to a broad range of mutual
fund clients. In the Nuveen family, these advisers are commonly referred to as
Nuveen Investment Management or NIM. Nuveen Advisory is responsible for the
selection and on-going monitoring of the municipal bonds in the funds'
investment portfolios, managing the funds' business affairs and providing
certain clerical, bookkeeping and other administrative services. The NIM
advisers are located at 333 West Wacker Drive, Chicago, IL 60606.
The NIM advisers are wholly owned subsidiaries of John Nuveen & Co. Incorporated
("Nuveen"). Founded in 1898, Nuveen has been synonymous with investments that
withstand the test of time. Today we provide managed assets and structured
investment products and services to help financial advisors serve the wealth
management needs of individuals and families. Nuveen manages or oversees $71
billion in assets.
Nuveen Advisory is responsible for execution of specific investment strategies
and day-to-day investment operations. Nuveen Advisory manages each fund using a
team of analysts and portfolio managers that focus on a specific group of funds.
Day-to-day operation of each fund and the execution of its specific investment
strategies is the responsibility of the designated portfolio manager described
below.
William M. Fitzgerald has been the portfolio manager for the California Funds
since July 1998. Mr. Fitzgerald has been a portfolio manager for Nuveen Advisory
since 1990, and currently manages investments for twelve Nuveen-sponsored
investment companies.
For the most recent fiscal year, the funds paid the following management fees to
Nuveen Advisory as a percentage of net assets:
Nuveen California Municipal Bond Fund .54%
- - -------------------------------------------------------------------------------
Nuveen California Insured Municipal Bond Fund .54%
- - -------------------------------------------------------------------------------
6 Section 2 How We Manage Your Money
<PAGE>
- - --------------------------------------------------------------------------------
What Securities We Invest In
- - --------------------------------------------------------------------------------
Each fund's investment objective may not be changed without shareholder
approval. The following investment policies may be changed by the Board of
Trustees without shareholder approval unless otherwise noted in this prospectus
or the Statement of Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest that is exempt
from regular federal and California personal income tax. Income from these bonds
may be subject to the federal alternative minimum tax.
California and its local governments and municipalities issue municipal bonds to
raise money for various public purposes such as building public facilities,
refinancing outstanding obligations and financing general operating expenses.
These bonds include general obligation bonds, which are backed by the full faith
and credit of the issuer and may be repaid from any revenue source, and revenue
bonds, which may be repaid only from the revenue of a specific facility or
source.
The funds may purchase municipal bonds that represent lease obligations. These
carry special risks because the issuer of the bonds may not be obligated to
appropriate money annually to make payments under the lease. In order to reduce
this risk, the funds will only purchase these bonds where the issuer has a
strong incentive to continue making appropriations until maturity.
The funds may invest in inverse floating rate securities, sometimes referred to
as "inverse floaters". Inverse floaters have variable interest rates that move
in the opposite direction from movements in prevailing short-term interest rate
levels - rising when prevailing short-term interest rates fall, and vice versa.
In addition to paying fluctuating income levels, the prices of inverse floaters
can be more volatile than the prices of conventional fixed-rate bonds with
comparable maturities.
In evaluating municipal bonds of different credit qualities or maturities,
Nuveen Advisory takes into account the size of yield spreads. Yield spread is
the additional return the funds may earn by taking on additional credit risk or
interest rate risk. For example, yields on low quality bonds are higher than
yields on high quality bonds because investors must be compensated for incurring
the higher credit risk associated with low quality bonds. If yield spreads do
not provide adequate compensation for the additional risk associated with low
quality bonds, the funds will buy bonds of relatively higher quality. Similarly,
in evaluating bonds of different maturities, Nuveen Advisory evaluates the
comparative yield available on these bonds. If yield spreads on long-term bonds
do not compensate the funds adequately for the additional interest rate risk the
funds must assume, the funds will buy bonds of relatively shorter maturity. In
addition, municipal bonds in a particular industry may provide higher yields
relative to their risk compared to bonds in other industries. If that occurs, a
fund may buy relatively more bonds from issuers in that industry. In that case,
the fund's portfolio composition would change from time to time.
Section 2 How We Manage Your Money 7
<PAGE>
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either rated investment
grade (AAA/Aaa to BBB/Baa) by independent rating agencies at the time of
purchase or are non-rated but judged to be investment grade by the funds'
investment 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.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in pursuit of its
investment objective, but maintains under normal market conditions an investment
portfolio with an overall weighted average portfolio maturity of 15 to 30 years.
Insurance
The California Insured Fund primarily purchases insured municipal bonds. Under
normal market conditions, the California Insured Fund will invest at least 65%
of its assets in insured municipal bonds, and 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. 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.
Portfolio insurance policies are effective only so long as the fund continues to
own the covered bond, and the price the fund would receive upon sale of such a
bond would not benefit from the insurance. Insurers under master portfolio
insurance policies currently include MBIA Insurance Corp., AMBAC Assurance
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 municipal 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 insurability of a municipal
bond.
The California Insured Fund can invest up to 20% of its net assets in uninsured
municipal bonds that are backed by an escrow account containing sufficient U.S.
Government agency securities to ensure timely payment of principal and interest.
These bonds are normally regarded as having the credit characteristics of the
underlying U.S. Government-backed securities.
Short-Term Investments
Under normal market conditions, each fund may invest up to 20% of net assets in
short-term, high quality municipal bonds. See "How We Manage Risk-Hedging and
Other Defensive Investment Strategies." The funds may invest in short-term, high
quality taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in taxable
securities, they may not be able to achieve their investment objective. For more
information on eligible short-term investments, see the Statement of Additional
Information.
8 Section 2 How We Manage Your Money
<PAGE>
Delayed-Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-delivery basis,
paying for or taking delivery of the securities at a later date, normally within
15 to 45 days of the trade. These transactions involve an element of risk
because the value of the security to be purchased may decline before the
settlement date.
- - --------------------------------------------------------------------------------
How We Select Investments
- - --------------------------------------------------------------------------------
Nuveen Advisory selects municipal bonds for the funds based upon its assessment
of a bond's relative value in terms of current yield, price, credit quality and
future prospects. Nuveen Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities available for
purchase, monitor the continued creditworthiness of each fund's municipal
investments, and analyze economic, political and demographic trends affecting
the municipal markets. We utilize these resources to identify municipal bonds
with favorable characteristics we believe are not yet recognized by the market.
We then select those higher-yielding and undervalued municipal bonds that we
believe represent the most attractive values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course of its
investment activities. The proportion of the fund's investment portfolio that is
sold and replaced with new securities during a year is known as the fund's
portfolio turnover rate. The funds intend to keep portfolio turnover relatively
low in order to reduce trading costs and the realization of taxable capital
gains. Each fund, however, may make limited short-term trades to take advantage
of market opportunities or reduce market risk.
- - --------------------------------------------------------------------------------
What the Risks Are
- - --------------------------------------------------------------------------------
Risk is inherent in all investing. Investing in a mutual fund--even the most
conservative--involves risk, including risk that you may receive little or no
return on your investment or even that you may lose part or all of your
investment. Therefore, before investing you should consider carefully the
following risks that you assume when you invest in these funds. Because of these
and other risks, you should consider an investment in any of these funds to be a
long-term investment.
Credit risk: Each fund is subject to credit risk. Credit risk is the risk that
an issuer of a municipal bond will be unable to meet its obligation to make
interest and principal payments due to changing financial or market conditions.
Interest rate risk: Because the funds invest in fixed-income securities, the
funds are subject to interest rate risk. Interest rate risk is the risk that the
value of a fund's portfolio will decline because of rising interest rates.
Interest rate risk is generally lower for shorter-term investments and higher
for longer-term investments.
Income risk: The risk that the income from a fund's portfolio will decline
because of falling market interest rates. This can result when the fund invests
the proceeds from new share sales, or from matured or called bonds, at market
interest rates that are below the portfolio's current earnings rate. Also, if a
fund invests in inverse floating rate securities,
Section 2 How We Manage Your Money 9
<PAGE>
whose income payments vary inversely with changes in short-term market rates,
the fund's income may decrease if short-term interest rates rise.
State Concentration risk: 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 California and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information."
Inflation risk: The risk that the value of assets or income from investments
will be less in the future as inflation decreases the value of money. As
inflation increases, the value of a fund's assets can decline as can the value
of the fund's distributions.
- - --------------------------------------------------------------------------------
How We Manage Risk
- - --------------------------------------------------------------------------------
In pursuit of its investment objective, each fund assumes investment risk,
chiefly in the form of interest rate and credit risk. The funds limit this
investment risk generally by restricting the type and maturities of municipal
bonds they purchase, and by diversifying their investment portfolios
geographically within California as well as across different industry sectors.
The California Insured Fund also limits investment risk by primarily buying
insured municipal bonds.
Investment Limitations
The funds have adopted certain investment limitations (based on total assets)
that cannot be changed without shareholder approval and are designed to limit
your investment risk and maintain portfolio diversification. Each fund may not
have more than:
. 25% in any one industry such as electric utilities or health care.
. 10% in borrowings (33% if used to meet redemptions).
. 5% in securities of any one issuer (except U.S. government securities
or for 25% of each fund's assets).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-term investments
as a temporary defensive measure in response to adverse market conditions, or to
keep cash on hand fully invested. During these periods, the weighted average
maturity of a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to limit the risk
of bond price fluctuations and to preserve capital. These hedging strategies
include using financial futures contracts, options on financial futures, or
options based on either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate with the prices
of the funds' investments. The funds, however, have no present intent to use
these strategies.
10 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different combination of sales
charges, fees, eligibility requirements and other features. Your financial
advisor can help you determine which class is best for you. We offer a number of
services for your convenience. Please see the Statement of Additional
Information for further details.
- - --------------------------------------------------------------------------------
What Share Classes We Offer
- - --------------------------------------------------------------------------------
Class A Shares
You can buy Class A shares at the offering price, which is the net asset value
per share plus an up-front sales charge. You may qualify for a reduced sales
charge, or the sales charge may be waived, as described in "How to Reduce Your
Sales Charge." Class A shares are also subject to an annual service fee of .20%
of the fund's average daily net assets which compensates your financial advisor
for providing on-going service to you. Nuveen retains the up-front sales charge
and the service fee on accounts with no authorized dealer of record. The up-
front Class A sales charge for all funds described in the prospectus is as
follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
- - ---------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
- - ---------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
- - ---------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- - ---------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
- - ---------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset value without
an up-front sales charge. Nuveen pays authorized dealers of record on these
share purchases a sales commission of 1.00% of the first $2.5 million, plus
.50% of the next $2.5 million, plus .25% of the amount over $5.0 million. If
you redeem your shares within 18 months of purchase, you may have to pay a
Contingent Deferred Sales Charge (CDSC) of 1% of either your purchase price
or your redemption proceeds, whichever is lower. You do not have to pay this
CDSC if your financial advisor has made arrangements with Nuveen and agrees
to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .95% of the fund's average daily net assets. The annual .20%
service fee compensates your financial advisor for providing on-going service to
you. Nuveen retains the service and distribution fees on accounts with no
authorized dealer of record. The annual .75% distribution fee compensates Nuveen
for paying your financial advisor a 4% up-front sales commission, which includes
an advance of the first year's service fee. If you sell your shares within six
years of purchase, you will normally have to pay a CDSC based on either your
purchase price or what you sell your shares for, whichever amount is lower,
according to the following schedule. You do not pay a CDSC on any Class B shares
you purchase by reinvesting dividends.
Section 3 How You Can Buy and Sell Shares 11
<PAGE>
Class B shares automatically convert to Class A shares eight years after you buy
them so that the distribution fees you pay over the life of your investment are
limited. You will continue to pay an annual service fee on any converted Class B
shares.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 Over 6
CDSC 5% 4% 4% 3% 2% 1% None
- - -------------------------------------------------------------------------
</TABLE>
Class C Shares
You can buy Class C shares at the offering price, which is the net asset value
per share without any up-front sales charge so that the full amount of your
purchase is invested in the fund. However, you will pay annual distribution and
service fees of .75% of the fund's average daily assets. The annual .20% service
fee compensates your financial advisor for providing on-going service to you.
Nuveen retains the service and distribution fees on accounts with no authorized
dealer of record. The annual .55% distribution fee reimburses Nuveen for paying
your financial advisor an on-going sales commission. Nuveen advances the first
year's service and distribution fees. If you sell your shares within 12 months
of purchase, you will normally have to pay a 1% CDSC based on your purchase or
sale price, whichever is lower. You do not pay a CDSC on any Class C shares you
purchase by reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances, at the net
asset value on the day of purchase. In order to qualify, you must be eligible
under one of the programs described in "How to Reduce Your Sales Charge" (below)
or meet certain other purchase size criteria. Class R shares are not subject to
sales charges or on-going service or distribution fees. Class R shares have
lower on-going expenses than the other classes.
- - --------------------------------------------------------------------------------
How to Reduce Your Sales Charge
- - --------------------------------------------------------------------------------
We offer a number of ways to reduce or eliminate the up-front sales charge on
Class A shares or to qualify to purchase Class R shares.
<TABLE>
<S> <C> <C>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
or Exchange-Traded Fund directors of Nuveen or
. Letter of intent reinvestment employees of authorized
dealers
. Group purchase . Certain employees and
directors of Nuveen or . Bank trust departments
employees of authorized
dealers
. Bank trust departments
</TABLE>
12 Section 3 How You Can Buy and Sell Shares
<PAGE>
In addition, Class A shares at net asset value and Class R shares may be
purchased through registered investment advisers, certified financial planners
and registered broker-dealers who charge asset-based or comprehensive "wrap"
fees for their services. Please refer to the Statement of Additional Information
for detailed program descriptions and eligibility requirements. Additional
information is available from your financial advisor or by calling (800) 257-
8787. Your financial advisor can also help you prepare any necessary application
forms. You or your financial advisor must notify Nuveen at the time of each
purchase if you are eligible for any of these programs. The funds may modify or
discontinue these programs at any time.
- - --------------------------------------------------------------------------------
How to Buy Shares
- - --------------------------------------------------------------------------------
Fund shares may be purchased on any business day, which is any day the New York
Stock Exchange is open for business and normally ends at 4 p.m. New York time.
Generally, the Exchange is closed on weekends and national holidays. The share
price you pay will depend on when Nuveen receives your order. Orders received
before the close of trading on a business day will receive that day's closing
share price, otherwise you will receive the next business day's price.
Through a Financial Advisor
You may buy shares through your financial advisor, who can handle all the
details for you, including opening a new account. Financial advisors can also
help you review your financial needs and formulate long-term investment goals
and objectives. In addition, financial advisors generally can help you develop a
customized financial plan, select investments and monitor and review your
portfolio on an ongoing basis to help assure your investments continue to meet
your needs as circumstances change. Financial advisors are paid for on-going
investment advice and services either from fund sales charges and fees or by
charging you a separate fee in lieu of a sales charge. If you do not have a
financial advisor, call (800) 257-8787 and Nuveen can refer you to one in your
area.
By Mail
You may open an account and buy shares by mail by completing the enclosed
application and mailing it along with your check to: Nuveen Investor Services,
P.O. Box 5186, Bowling Green Station, New York, NY 10274-5186. No third party
checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 through systematic investment plan
accounts) and may be lower for accounts opened through certain fee-based
programs. Subsequent investments must be in amounts of $50 or more. The funds
reserve the right to reject purchase orders and to waive or increase the minimum
investment requirements.
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
- - --------------------------------------------------------------------------------
Systematic Investing
- - --------------------------------------------------------------------------------
Systematic investing allows you to make regular investments through automatic
deductions from your bank account, directly from your paycheck, or from
exchanging shares from another mutual fund account. The minimum automatic
deduction is $50 per month. There is no charge to participate in each fund's
systematic investment plan. You can stop the deductions at any time by notifying
the fund in writing. To participate in systematic investing, simply complete the
appropriate section of the account application form or submit an Account Update
Form.
From Your Bank Account
You can make systematic investments of $50 or more per month by authorizing us
to draw preauthorized checks on your bank account.
From Your Paycheck
With your employer's consent, you can make systematic investments of $25 or more
per pay period (meeting the monthly minimum of $50) by authorizing your employer
to deduct monies from your paycheck.
Systematic Exchanging
You can make systematic investments by authorizing Nuveen to exchange shares
from one Nuveen mutual fund account into another identically registered Nuveen
account of the same share class.
The chart below illustrates the benefits of systematic investing based on a
$3,000 initial investment and subsequent monthly investments of $100 over 20
years. The example assumes you earn a return of 4%, 5% or 6% annually on your
investment and that you reinvest all dividends. These annual returns do not
reflect past or projected fund performance.
[CHART APPEARS HERE]
One of the benefits of systematic investing is dollar cost averaging. Because
you regularly invest a fixed amount of money over a period of years regardless
of the share price, you buy more shares when the price is low and fewer shares
when the price is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same period. To be
effective, dollar cost averaging requires that you invest over a long period of
time, and does not assure that you will profit.
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
- - --------------------------------------------------------------------------------
Systematic Withdrawal
- - --------------------------------------------------------------------------------
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
receive a check, have the monies transferred directly into your bank account
(see "Special Services--Fund Direct" 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 concurrent
purchases of Class A, B or C shares because you may unnecessarily pay a sales
charge or CDSC on these purchases.
- - --------------------------------------------------------------------------------
Special Services
- - --------------------------------------------------------------------------------
To help make your investing with us easy and efficient, we offer you the
following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered account at any time
for an appropriate class of another Nuveen mutual fund available in your state.
Your exchange must meet the minimum purchase requirements of the fund into which
you are exchanging. You may have to pay a sales charge when exchanging shares
that you purchased without a sales charge for shares that are sold with a sales
charge. Please consult the Statement of Additional Information for details.
The exchange privilege is not intended to allow you to use a fund for short-term
trading. Because excessive exchanges may interfere with portfolio management,
raise fund operating expenses or otherwise have an adverse effect on other
shareholders, each fund reserves the right to revise or suspend the exchange
privilege, limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time upon 60 days'
notice. Because an exchange is treated for tax purposes as a purchase and sale,
and any gain may be subject to tax, you should consult your tax advisor about
the tax consequences of exchanging your shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to your bank
account, transfer money electronically between these accounts, and perform a
variety of account transactions, including purchasing shares by telephone and
investing through a systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan payments sent
directly to your bank account. Your financial advisor can help you complete the
forms for these services, or you can call Nuveen at (800) 257-8787 for copies of
the necessary forms.
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your redemption
proceeds up to one year later without incurring any additional charges. You may
only reinvest into the same share class you redeemed. If you paid a CDSC, we
will refund your CDSC and reinstate your holding period. You may use this
reinstatement privilege only once for any redemption.
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
- - --------------------------------------------------------------------------------
How to Sell Shares
- - --------------------------------------------------------------------------------
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and procedures to
confirm the identity of callers, it will not be liable for losses resulting from
following telephone instructions it reasonably believes to be genuine. Also, you
should verify your trade confirmations immediately upon receipt.
You may sell (redeem) your shares on any business day. You will receive the
share price next determined after the fund has received your properly completed
redemption request. Your redemption request must be received before the close of
trading for you to receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption proceeds until your
check has cleared. This may take up to ten days from your purchase date. While
the funds do not charge a redemption fee, you may be assessed a CDSC, if
applicable. 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, 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 described in the Statement of
Additional Information.
Through Your Financial Advisor
You may sell your shares through your financial advisor who can prepare the
necessary documentation. Your financial advisor may charge for this service.
By Telephone
If you have authorized telephone redemption privileges, you can redeem your
shares by calling (800) 257-8787. Telephone redemptions are not available if you
own shares in certificate form and may not exceed $50,000. Checks will only be
issued to you as the shareholder of record and mailed to your address of record.
If you have established Fund Direct privileges, you may have redemption proceeds
transferred electronically to your bank account. We will normally mail your
check the next business day.
By Mail
You can sell your shares at any time by sending a written request to the
appropriate fund, c/o Nuveen Investor Services, P.O. Box 5186, Bowling Green
Station, New York, NY 10274-5186. 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 to whom you want your redemption proceeds paid
(if other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if other
than the address of record);
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
. Any certificates you have for the shares; and
. Any required signature guarantees.
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size requirements.
The funds reserve the right to liquidate your account upon 30 days' written
notice if the value of your account falls below an established minimum. The
funds presently have set a minimum balance of $100 unless you have an active
Nuveen Defined Portfolio reinvestment account. You will not be assessed a CDSC
on an involuntary redemption.
We will normally mail your check the next business day, but in no event more
than seven days after we receive your request. If you purchased your shares by
check, your redemption proceeds will not be mailed until your check has cleared.
Guaranteed signatures are required if you are redeeming more than $50,000, you
want the check payable to someone other than the shareholder of record or you
want the check sent to another address (or the address of 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 a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
The funds generally pay redemption proceeds in cash. Under unusual conditions
that make cash payment unwise and for the protection of existing shareholders,
the funds may pay all or a portion of your redemption proceeds in securities or
other fund assets. Although it is unlikely that your shares would be redeemed
in-kind, you would probably have to pay brokerage costs to sell the securities
distributed to you, as well as taxes on any capital gains from that sale.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the funds, this
section includes important details about how the funds make distributions to
shareholders. We discuss some other fund policies, as well.
- - --------------------------------------------------------------------------------
Dividends, Distributions and Taxes
- - --------------------------------------------------------------------------------
The funds pay tax-free dividends monthly and any taxable capital gains or other
taxable distributions once a year in December. The funds declare dividends
monthly to shareholders of record as of the ninth of each month, payable the
first business day of the following month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional fund shares unless
you request otherwise. You may request to have your dividends paid to you by
check, deposited directly into your bank account, paid to a third party, sent to
an address other than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your financial advisor or
call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest in municipal bonds from California, the regular monthly
dividends you receive will be exempt from regular federal and California
personal income tax. 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 capital 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.
Early in each year, you will receive a statement detailing the amount and nature
of all dividends and capital gains that you were paid during the prior year. If
you hold your investment at the firm where you purchased your fund shares, you
will receive the statement from that firm. If you hold your shares directly at
the fund, Nuveen will send you the statement. The tax status of your dividends
is the same whether you reinvest your dividends or elect to receive them in
cash.
If you receive social security or railroad retirement benefits, you should
consult your tax advisor about how an investment in the fund may affect the
federal taxation of your benefits.
18 Section 4 General Information
<PAGE>
Please note that if you do not furnish the fund with your correct Social
Security number or employer identification number, federal law requires the fund
to withhold federal income tax from your distributions and redemption proceeds,
currently at a rate of 31%.
Please consult the Statement of Additional Information and your tax advisor for
more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable dividend is
commonly known as "buying the dividend." The entire dividend may be taxable to
you even though a portion of the dividend effectively represents a return of
your purchase price. Similarly, if you 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 capital gain even though it reflects tax-
free income earned but not yet distributed by the fund.
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 federal 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 federal tax-free
yields and tax rates:
<TABLE>
<CAPTION>
Taxable Equivalent Of Tax-Free Yields
To Equal a Tax-Free Yield of:
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket: A Taxable Investment Would Need to Yield:
- - ----------------------------------------------------------------------------------------------------
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
- - ----------------------------------------------------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
- - ----------------------------------------------------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
- - ----------------------------------------------------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
The yields and tax rates shown above are hypothetical and do not predict your
actual returns or effective tax rate. For more detailed information, see the
Statement of Additional Information or consult your tax advisor.
- - --------------------------------------------------------------------------------
Distribution and Service Plans
- - --------------------------------------------------------------------------------
Nuveen serves as the selling agent and distributor of the funds' shares. In this
capacity, Nuveen manages the offering of the funds' shares and is responsible
for all sales and promotional activities. In order to reimburse Nuveen for its
costs in connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and service plan in
accordance with Rule 12b-1 under the Investment Company Act of 1940. (See "How
to Choose a Share Class" for a description of the distribution and service fees
paid under this plan.)
Nuveen receives the distribution fee for Class B and Class C shares primarily
for providing compensation to authorized dealers, including Nuveen, in
connection with the distribution of shares. Nuveen uses the service fee for
Class A, Class B, and Class C shares to compensate
Section 4 General Information 19
<PAGE>
authorized dealers, including Nuveen, for providing on-going account services to
shareholders. These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and providing other
personal services to shareholders. These fees also compensate Nuveen for other
expenses, including printing and distributing prospectuses to persons other than
shareholders, and preparing, printing, and distributing advertising and sales
literature and reports to shareholders used in connection with the sale of
shares. Because these fees are paid out of the funds' assets on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
Nuveen periodically undertakes sales promotion programs with authorized dealers
and may pay them the full applicable sales charge as a commission. In addition,
Nuveen may provide support at its own expense to authorized dealers in
connection with sales meetings, seminars, prospecting seminars and other events
at which Nuveen presents its products and services. Under certain circumstances,
Nuveen also will share with authorized dealers up to half the costs of
advertising that features the products and services of both parties. The
Statement of Additional Information contains further information about these
programs.
- - --------------------------------------------------------------------------------
Net Asset Value
- - --------------------------------------------------------------------------------
The price you pay for your shares is based on the fund's net asset value per
share which is determined as of the close of trading (normally 4:00 p.m. New
York time) on each day the New York Stock Exchange is open for business. Net
asset value is calculated for each class by taking the market value of the
class' total assets, including interest or dividends accrued but not yet
collected, less all liabilities, and dividing by the total number of shares
outstanding. The result, rounded to the nearest cent, is the net asset value per
share. All valuations are subject to review by the funds' Board of Trustees or
its delegate.
In determining net asset value, expenses are accrued and applied daily and
securities and other assets for which market quotations are available are valued
at market value. The prices of municipal bonds are provided by a pricing service
and based on the mean between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal securities), the
pricing service establishes fair market value based on prices of comparable
municipal bonds.
20 Section 4 General Information
<PAGE>
- - --------------------------------------------------------------------------------
Fund Service Providers
- - --------------------------------------------------------------------------------
The custodian of the assets of the funds is The Chase Manhattan Bank, 4 New York
Plaza, New York, NY 10004-2413. Chase also provides certain accounting services
to the funds. The funds' transfer, shareholder services and dividend paying
agent, Chase Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative services for the
maintenance of shareholder accounts.
Section 4 General Information 21
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you
understand a fund's financial performance for the past 5
years. Certain information reflects financial results for a
single fund share. The total returns in the table represent
the rate that an investor would have earned on an
investment in a fund (assuming reinvestment of all
dividends and distributions). This information has been
audited by Arthur Andersen LLP, whose report, along with
the funds' financial statements, are included in the SAI
and annual report, which is available upon request.
Nuveen California Municipal Bond Fund
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
- - ---------------------------------------------------------------------------------------------------------------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return(a)
- - ---------------------------------------------------------------------------------------------------------------------------------
Class A (9/94)
2000 $10.89 $.55 $(.89) $(.34) $(.54) $ -- $(.54) $10.01 (3.12)%
1999 10.91 .54 .03 .57 (.54) (.05) (.59) 10.89 5.28
1998 10.58 .55 .37 .92 (.55) (.04) (.59) 10.91 8.87
1997 10.58 .55 (.01) .54 (.54) -- (.54) 10.58 5.29
1996 10.10 .55 .47 1.02 (.54) -- (.54) 10.58 10.36
Class B (3/97)
2000 10.89 .47 (.89) (.42) (.47) -- (.47) 10.00 (3.93)
1999 10.92 .47 .01 .48 (.46) (.05) (.51) 10.89 4.44
1998 (c) 10.56 .46 .41 .87 (.47) (.04) (.51) 10.92 8.39
Class C (9/94)
2000 10.90 .50 (.90) (.40) (.49) -- (.49) 10.01 (3.74)
1999 10.92 .49 .02 .51 (.48) (.05) (.53) 10.90 4.70
1998 10.58 .49 .38 .87 (.49) (.04) (.53) 10.92 8.36
1997 10.58 .47 (.01) .46 (.46) -- (.46) 10.58 4.53
1996 10.10 .47 .47 .94 (.46) -- (.46) 10.58 9.53
Class R (7/86)
2000 10.91 .57 (.89) (.32) (.57) -- (.57) 10.02 (2.98)
1999 10.93 .56 .03 .59 (.56) (.05) (.61) 10.91 5.50
1998 10.61 .57 .36 .93 (.57) (.04) (.61) 10.93 8.99
1997 10.60 .57 .01 .58 (.57) -- (.57) 10.61 5.67
1996 10.13 .58 .46 1.04 (.57) -- (.57) 10.60 10.54
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
- - -----------------------------------------------------------------------------------------------
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Ending Net to Average Average Turnover
February 28/29, Assets(000) Net Assets(b) Net Assets(b) Rate
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (9/94)
2000 $ 48,560 .86% 5.32% 31%
1999 36,568 .90 4.97 34
1998 29,125 .90 5.11 45
1997 20,571 .94 5.16 74
1996 12,709 .96 5.27 36
Class B (3/97)
2000 10,318 1.61 4.56 31
1999 7,353 1.65 4.23 34
1998 (c) 2,324 1.66* 4.31* 45
Class C (9/94)
2000 15,132 1.41 4.75 31
1999 10,353 1.45 4.43 34
1998 4,061 1.45 4.56 45
1997 1,003 1.67 4.44 74
1996 684 1.71 4.52 36
Class R (7/86)
2000 188,512 .66 5.47 31
1999 220,109 .71 5.16 34
1998 216,309 .70 5.31 45
1997 214,253 .70 5.41 74
1996 216,390 .71 5.53 36
- - -----------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement by the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .85%, 1.60%, 1.40% and .65% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.33%, 4.56%, 4.76% and 5.48% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
22 Section 5 Financial Highlights
<PAGE>
Nuveen California Insured Municipal Bond Fund
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
- - -------------------------------------------------------------------------------------------------------------------------------
Net Realized/ Net Ending
Beginning Invest- Unrealized Invest- Net
Year Ended Net Asset ment Investment ment Capital Asset
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $11.10 $.53 $(.92) $(.39) $(.52) $ -- $(.52) $10.19
1999 11.06 .52 .06 .58 (.53) (.01)** (.54) 11.10
1998 10.70 .54 .36 .90 (.54) -- (.54) 11.06
1997 10.76 .55 (.08) .47 (.53) -- (.53) 10.70
1996 10.25 .53 .51 1.04 (.53) -- (.53) 10.76
Class B (3/97)
2000 11.11 .45 (.92) (.47) (.44) -- (.44) 10.20
1999 11.06 .44 .06 .50 (.44) (.01)** (.45) 11.11
1998 (c) 10.67 .45 .40 .85 (.46) -- (.46) 11.06
Class C (9/94)
2000 11.03 .47 (.91) (.44) (.46) -- (.46) 10.13
1999 10.98 .46 .06 .52 (.46) (.01)** (.47) 11.03
1998 10.63 .47 .35 .82 (.47) -- (.47) 10.98
1997 10.67 .46 (.05) .41 (.45) -- (.45) 10.63
1996 10.15 .45 .51 .96 (.44) -- (.44) 10.67
Class R (7/86)
2000 11.08 .55 (.91) (.36) (.54) -- (.54) 10.18
1999 11.04 .54 .06 .60 (.55) (.01)** (.56) 11.08
1998 10.68 .56 .36 .92 (.56) -- (.56) 11.04
1997 10.74 .56 (.07) .49 (.55) -- (.55) 10.68
1996 10.23 .56 .50 1.06 (.55) -- (.55) 10.74
- - -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Ratios/Supplemental Data
- - ---------------------------------------------------------------------------------------------------
Ratio of Net
Ending Ratio of Investment
Net Expenses to Income to Portfolio
Year Ended Total Assets Average Net Average Net Turnover
February 28/29, Return (a) (000) Assets (b) Assets (b) Rate
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (9/94)
2000 (3.52)% $ 52,014 .89% 5.02% 44%
1999 5.31 47,300 .93 4.72 25
1998 8.66 36,203 .90 4.93 26
1997 4.57 27,598 .94 5.05 51
1996 10.32 17,250 .97 5.00 38
Class B (3/97)
2000 (4.26) 10,909 1.64 4.27 44
1999 4.61 8,825 1.68 3.96 25
1998 (c) 8.13 2,967 1.66* 4.16* 26
Class C (9/94)
2000 (4.03) 6,552 1.44 4.45 44
1999 4.81 6,994 1.48 4.17 25
1998 7.96 3,226 1.45 4.37 26
1997 3.99 1,719 1.67 4.32 51
1996 9.67 1,040 1.71 4.26 38
Class R (7/86)
2000 (3.27) 158,816 .69 5.20 44
1999 5.49 185,428 .74 4.92 25
1998 8.86 191,554 .70 5.14 26
1997 4.81 195,553 .69 5.30 51
1996 10.63 205,642 .70 5.29 38
- - ---------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** The amounts shown include distributions in excess of capital gains of $.003
per share.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement by the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are .88%, 1.63%, 1.43% and .68% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.02%, 4.28%, 4.46% and 5.20% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 23
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from California, each fund
also bears investment risks 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 special
state considerations was obtained from official offering statements of these
issuers and has not been independently verified by the funds. The discussion
includes general state tax information related to an investment in fund shares.
Because tax laws are complex and often change, you should consult your tax
advisor about the state tax consequences of a specific fund investment. See the
Statement of Additional Information for further information.
California
California's economy, the largest in the nation, is undergoing a slow, steady
growth following a recession from mid-1990 to late 1993 in which the
construction, manufacturing and financial services industries were adversely
affected, job losses were severe, and substantial, broad-based revenue
shortfalls affected both the state and local governments. California's economy
has further diversified. During 1998, the strongest gains were in the
construction and services sector. The Asian economic crisis has somewhat
dampened the strength of high-tech manufacturing and exports, but the sector
continues to post strong results for the State's economy. The construction and
services sectors in southern California are more than making up for the decline
in the high-tech sector. The State's 1999 average per capita income was $29,819
and through April 2000, the State's unemployment rate was 4.7%, down from 5.3%
the previous year.
California's general obligation bonds are rated Aa3 by Moody's, AA- by Standard
and Poor's, and AA by Fitch. These ratings reflect the State's credit quality
only, and do not indicate the creditworthiness of other tax-exempt securities in
which the funds may invest. Furthermore, it cannot be assumed that the State of
California will maintain its current credit ratings.
The taxing authority of California's governmental entities is limited due to the
adoption of "Proposition 13" and other amendments to the California
Constitution. Proposition 13, adopted by voters in 1978, limits to 1% of full
cash value the rate of ad valorem property taxes on real property and generally
restricts the reassessment of property to 2% per year, except upon new
construction or change of ownership (subject to a number of exemptions). Because
the basic 1% ad valorem tax levy is applied against the assessed value of
property as of the owner's date of acquisition, the amount of tax on similarly
situated properties varies widely. The state and local governments are also
subject to annual "appropriations limits" imposed by Article XIIIB of the
California Constitution, which limits the state and local governments from
spending the proceeds of tax revenues,
24 Appendix
<PAGE>
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 initiative statute called "Proposition 62" requires
either a majority or 2/3 voter approval for any increase in general or special
taxes. Court decisions had struck down most of Proposition 62, but the
California Supreme Court upheld its constitutionality in September 1995. Many
aspects of the decision, such as whether it applies retroactively, remain
unclear, but its future effect will be to further limit the fiscal flexibility
of many local governments. The complex and ambiguous nature of the foregoing
limitations makes it impossible to fully determine their impact on California
municipal bonds or the ability of the state and local governments to pay debt
service of California municipal bonds.
On November 5, 1996, California voters approved Proposition 218 which added
Articles XIIIC and XIIID to the California Constitution, imposing certain vote
requirements and other limitations on the imposition of new or increased and in
some cases existing taxes, assessments and property-related fees and charges.
Proposition 218 also extends the initiative power to include the reduction or
repeal of any local taxes, assessments, fees and charges. This extension of the
initiative power is not limited to taxes imposed on or after the effective date
of Proposition 218, and could result in the retroactive repeal or reduction in
any existing taxes, assessments, fees or charges. If such a repeal or reduction
occurs in a particular California entity, the financial condition of that entity
may be adversely impacted and rating downgrades and/or defaults may result.
Additionally, the voter approval requirement reduces the financial flexibility
of local governments to deal with fiscal problems by limiting the ability to
increase taxes, assessments, fees or charges. In some cases, this loss of
flexibility may, and in fact has, been cited as the reason for rating
downgrades. No assurances can be given that California entities will be able to
raise taxes to meet future spending requirements. In addition, at this time it
is not clear exactly how a court will interpret Proposition 218.
California's finances have dramatically improved since 1994 and the economy has
further diversified. During 1998, the strongest gains were in the construction
and services sectors. The Asian economic crisis has somewhat dampened the
strength of high-tech manufacturing and exports, but the sector continues to
post strong results for the State's economy. The gains in the construction and
services sectors in southern California exceed the decline in the high-tech
sector. 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 California, its
public authorities or local governments could be adversely affected.
Appendix 25
<PAGE>
Tax Treatment.
The funds' regular monthly dividends will not be subject to California personal
income taxes to the extent they are paid out of income earned on California
municipal obligations or U.S. government securities. You will be subject to
California personal income taxes, however, to the extent the funds distribute
any taxable income or realized capital gains, or if you sell or exchange shares
of the funds and realize capital gain on the transaction.
The treatment of corporate shareholders of the 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
advisor.
26 Appendix
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to help you reach your
financial goals. The funds below are grouped by investment objectives.
Growth
International Growth Fund
Innovation Fund
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
Dividend and Growth Fund
Income
Income Fund
Floating Rate Fund/1/
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona
California/2/
Colorado
Connecticut
Florida
Georgia
Kansas
Kentucky
Louisiana
Maryland
Massachusetts/2/
Michigan
Missouri
New Jersey
New Mexico
New York/2/
North Carolina
Ohio
Pennsylvania
Tennessee
Virginia
Wisconsin
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available to you. The Statement of
Additional Information ("SAI"), incorporated by reference into this prospectus,
contains detailed information on fund policies and operation. Call Nuveen at
(800) 257-8787 to request a free copy of the SAI or other fund information; or
ask your financial advisor for copies.
You may also obtain this and other fund information directly from the Securities
and Exchange Commission ("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at http://www.sec.gov or in person at the
SEC's Public Reference Room in Washington, D.C. Call the SEC at (800) SEC-0330
for room hours and operation. You may also request fund information by writing
to the SEC's Public Reference Section, Washington, D.C. 20549. The funds'
Investment Company file number is 811-07755.
1. This is a continuously-offered closed-end interval fund. As such,
redemptions are only available during quarterly repurchase periods. See
fund prospectus for additional information.
2. Long-term and insured long-term portfolios.
N U V E E N
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
NUVEEN
Investments
MUNICIPAL BOND
FUNDS
PROSPECTUS JUNE 28, 2000
Dependable, tax-free income to help you keep more of what you earn.
INVEST WELL
LOOK AHEAD
LEAVE YOUR MARK(SM)
[Photo appears here]
Massachusetts
Massachusetts Insured
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
<PAGE>
Table of Contents
We have used the icons below throughout this prospectus to make it easy for you
to find the type of information you need.
Investment Strategy
Risks
Fees, Charges and Expenses
Shareholder Instructions
Performance and Current Portfolio Information
Section 1 The Funds
This section provides you with an overview of the funds including investment
objectives, portfolio holdings and historical performance information.
Introduction............................................. 1
Nuveen Massachusetts Municipal Bond Fund................. 2
Nuveen Massachusetts Insured Municipal Bond Fund......... 4
Section 2 How We Manage Your Money
This section gives you a detailed discussion of our investment and risk
management strategies.
Who Manages the Funds.................................... 6
What Securities We Invest In............................. 7
How We Select Investments................................ 9
What the Risks Are....................................... 9
How We Manage Risk....................................... 10
Section 3 How You Can Buy and Sell Shares
This section provides the information you need to move money into or out of your
account.
What Share Classes We Offer.............................. 11
How to Reduce Your Sales Charge.......................... 12
How to Buy Shares........................................ 13
Systematic Investing..................................... 14
Systematic Withdrawal.................................... 15
Special Services......................................... 15
How to Sell Shares....................................... 16
Section 4 General Information
This section summarizes the funds' distribution policies and other general
information.
Dividends, Distributions and Taxes....................... 18
Distribution and Service Plans........................... 19
Net Asset Value.......................................... 20
Fund Service Providers................................... 21
Section 5 Financial Highlights
This section provides the funds' financial
performance for the past five years...................... 22
Appendix Additional State Information.................... 24
<PAGE>
June 28, 2000
Section 1 The Funds
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
- - --------------------------------------------------------------------------------
Introduction
- - --------------------------------------------------------------------------------
This prospectus is intended to provide important information to help
you evaluate whether one of the Nuveen Mutual Funds listed above may
be right for you. Please read it carefully before investing and keep
it for future reference.
- - --------------------------------------------------------------------------------
NOT FDIC OR GOVERNMENT INSURED MAY LOSE VALUE NO BANK GUARANTEE
- - --------------------------------------------------------------------------------
Section 1 The Funds 1
<PAGE>
Nuveen Massachusetts Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued municipal bonds that offer the potential for
above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Massachusetts bonds. The fund is non-diversified, and may invest
more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
Is This Fund Right for You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement,
estate planning or college funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[BAR CHART APPEARS HERE]
Class A Annual Returns
1990 5.1
1991 12.2
1992 9.6
1993 11.8
1994 -5.1
1995 15.6
1996 3.9
1997 7.3
1998 5.5
1999 -3.4
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.48% and-5.19%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table does.
Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
- - -------------------------------------------------------------
Class A (Offer) -7.42% 4.71% 5.62%
Class B -7.86% 4.73% 5.48%
Class C -3.94% 4.96% 5.34%
Class R -3.22% 5.85% 6.31%
- - -------------------------------------------------------------
LB Market
Benchmark/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -4.21% 5.91% 6.31%
2 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
<TABLE>
<CAPTION>
Paid Directly From Your Investment
Share Class A B C R/5/
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - --------------------------------------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - --------------------------------------------------------------------------------------------------------
Exchange Fees None None None None
- - --------------------------------------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
</TABLE>
Annual Fund Operating Expenses/11/
<TABLE>
<CAPTION>
Paid From Fund Assets
Share Class A B C R
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- - --------------------------------------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% --%
- - --------------------------------------------------------------------------------------------------------
Other Expenses .23% .23% .23% .23%
- - --------------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross/+/ .98% 1.73% 1.53% .78%
- - --------------------------------------------------------------------------------------------------------
+After Expense Reimbursements
---------------------------------------------------------------------------------------------------
Expense Reimbursements (.04%) (.04%) (.04%) (.04%)
---------------------------------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Net .94% 1.69% 1.49% .74%
---------------------------------------------------------------------------------------------------
Net expenses reflect a voluntary expense limitation by the fund's
investment adviser above its contractual obligation, that may be
modified or discontinued at any time.
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund has operating
expenses equal to the contractual expense limit (.95%, 1.70%, 1.50%, .75% for
Classes A, B, C and R shares, respectively). Your actual costs may be higher or
lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 513 $ 568 $ 153 $ 77 $ 513 $ 173 $ 153 $ 77
- - ----------------------------------------------------------------------------------------------
3 Years $ 710 $ 854 $ 474 $240 $ 710 $ 536 $ 474 $240
- - ----------------------------------------------------------------------------------------------
5 Years $ 923 $1,037 $ 818 $417 $ 923 $ 923 $ 818 $417
- - ----------------------------------------------------------------------------------------------
10 years $1,537 $1,810 $1,791 $930 $1,537 $1,810 $1,791 $930
- - ----------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How The Fund Is Invested (As of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 17.69 years
- - -----------------------------------------------------------------------
Average Duration 7.53
- - -----------------------------------------------------------------------
Weighted Average Credit Quality AA
- - -----------------------------------------------------------------------
Number of Issues 74
- - -----------------------------------------------------------------------
</TABLE>
Credit Quality
<TABLE>
<S> <C>
AAA/U.S. Guaranteed 52%
- - -----------------------------------------------------------------------
AA 15%
- - -----------------------------------------------------------------------
A 14%
- - -----------------------------------------------------------------------
BBB/NR 19%
- - -----------------------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[Pie chart appears here]
Long-Term Care 13%
Tax Obligation/General 12%
Healthcare 11%
Housing/Multifamily 13%
Other 25%
U.S. Guaranteed 26%
1. Class R total returns reflect actual performance for all periods;
Class A, B and C total returns reflect actual performance for periods
since class inception (see "Financial Highlights" for dates), and
Class R performance for periods prior to class inception, adjusted for
the differences in fees between the classes (see "What are the Costs
of Investing?"). The Class A year-to-date return on net asset value as
of 3/31/00 was 2.56%.
2. Market Benchmark returns reflect the performance of the Lehman
Brothers Municipal Bond Index, an unmanaged index comprised of a broad
range of investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper Massachusetts
Municipal Debt. Index, a managed index that represents the average
annualized returns of the 30 largest funds in the Lipper Massachusetts
Municipal Debt Category. Returns assume reinvestment of dividends and
do not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized
dealers and other firms may charge additional fees for shareholder
transactions or for advisory services. Please see their materials for
details.
5. Class R shares may be purchased only under limited circumstances, or
by specified classes of investors. See "How You Can Buy and Sell
Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more.
See "How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption
proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may
be subject to a contingent deferred sales charge (CDSC) if redeemed
within 18 months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a
CDSC of 5% during the first year, 4% during the second and third years,
3% during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a
1% CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule
12b-1 fees and CDSCs than the economic equivalent of the maximum front-
end sales charge permitted under the National Association of
Securities Dealers Conduct Rules. Nuveen Advisory has agreed to waive
some or all of its fees or reimburse expenses to prevent total
operating expenses (not counting distribution and service fees) from
exceeding 0.75% of the fund's average daily net assets.
Section 1 The Funds 3
<PAGE>
Nuveen Massachusetts Insured
Municipal Bond Fund
- - --------------------------------------------------------------------------------
Fund Overview
- - --------------------------------------------------------------------------------
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.
How the Fund Pursues Its Objective
The fund purchases only quality municipal bonds that are rated investment grade
(AAA/Aaa to BBB/Baa) at the time of purchase by independent rating agencies. The
fund may buy non-rated municipal bonds if the fund's investment adviser judges
them to be investment grade. The fund primarily buys insured municipal bonds.
The fund's investment adviser uses a value-oriented strategy and looks for
higher-yielding and undervalued insured municipal bonds that offer the potential
for above-average total return.
The fund seeks to limit risk by buying investment grade quality bonds in a
variety of industry sectors.
What are the Risks of Investing in the Fund?
The principal risks of investing in the fund are interest rate risk and credit
risk. Interest rate risk is the risk that interest rates will rise, causing bond
prices to fall. Credit risk is the risk that an issuer of a municipal bond will
be unable to make interest and principal payments. In general, lower rated bonds
carry greater credit risk. The fund may bear additional risk because it invests
primarily in Massachusetts bonds. The fund is non-diversified, and may invest
more of its assets in a single issuer than a diversified fund. Greater
concentration may increase risk. As with any mutual fund investment, loss of
money is a risk of investing.
Is This Fund Right for You?
The fund may be a suitable investment for you if you seek to:
. Earn regular monthly tax-free dividends;
. Preserve investment capital over time;
. Reduce taxes on investment income; or
. Set aside money systematically for retirement, estate planning or
college funding.
You should not invest in this fund if you seek to:
. Pursue long term growth;
. Invest through an IRA or 401(k) plan; or
. Avoid fluctuations in share price.
- - --------------------------------------------------------------------------------
How the Fund Has Performed
- - --------------------------------------------------------------------------------
The chart and table below illustrate annual fund returns for each of the past
ten years as well as annualized fund and index returns for the one-, five- and
ten-year periods ending December 31, 1999. This information is intended to help
you assess the variability of fund returns over the past ten years (and
consequently, the potential rewards and risks of a fund investment). Past
performance is not necessarily an indication of future performance.
Total Returns/1/
[Bar Chart Appears Here]
Class A Annual Return
<TABLE>
<S> <C>
1990 6.2%
1991 11.5%
1992 8.9%
1993 11.7%
1994 -5.0%
1995 15.5%
1996 3.3%
1997 6.9%
1998 5.4%
1999 -3.2%
</TABLE>
During the ten years ending December 31, 1999, the highest and lowest quarterly
returns were 6.35% and -5.31%, respectively for the quarters ending 3/31/95 and
3/31/94. The bar chart and highest/lowest quarterly returns do not reflect sales
charges, which would reduce returns, while the average annual return table
does.
<TABLE>
<CAPTION>
Average Annual Total Returns for
the Periods Ending December 31, 1999
------------------------------------
Class 1 Year 5 Year 10 Year
- - ------------------------------------------------------------------
<S> <C> <C> <C>
Class A (Offer) -7.31% 4.51% 5.48%
Class B -7.53% 4.50% 5.34%
Class C -3.69% 4.76% 5.21%
Class R -3.03% 5.65% 6.19%
- - ------------------------------------------------------------------
LB Market
Benchmarket/2/ -2.06% 6.91% 6.89%
Lipper
Peer Group/3/ -4.21% 5.91% 6.31%
</TABLE>
4 Section 1 The Funds
<PAGE>
- - --------------------------------------------------------------------------------
What are the Costs of Investing?
- - --------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
Shareholder Transaction Expenses/4/
Paid Directly From Your Investment
<TABLE>
<CAPTION>
Share Class A B C R/5/
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Maximum Sales Charge Imposed
on Purchases 4.20%/6/ None None None
- - ------------------------------------------------------------------------
Maximum Sales Charge Imposed
on Reinvested Dividends None None None None
- - ------------------------------------------------------------------------
Exchange Fees None None None None
- - ------------------------------------------------------------------------
Deferred Sales Charge/7/ None/8/ 5%/9/ 1%/10/ None
- - ------------------------------------------------------------------------
</TABLE>
Annual Fund Operating Expenses/11/
Paid From Fund Assets
<TABLE>
Share Class A B C R
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Management Fees .55% .55% .55% .55%
- - ------------------------------------------------------------------------
12b-1 Distribution and Service Fees .20% .95% .75% N%
- - ------------------------------------------------------------------------
Other Expenses .27% .26% .26% .27%
- - ------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Gross/+/ 1.02% 1.76% 1.56% .82%
- - ------------------------------------------------------------------------
+ After Expense Reimbursements
- - ------------------------------------------------------------------------
Expense Reimbursements (.02%) (.01%) (.01%) (.02%)
- - ------------------------------------------------------------------------
Total Annual Fund Operating
Expenses-Net 1.00% 1.75% 1.55% .80%
- - ------------------------------------------------------------------------
</TABLE>
The following example is intended to help you compare the cost of investing in
the fund with the cost of investing in other mutual funds. The example assumes
you invest $10,000 in the fund for the time periods indicated and then either
redeem or do not redeem your shares at the end of a period. The example assumes
that your investment has a 5% return each year and that the fund's gross
operating expenses remain the same. Your actual costs may be higher or
lower.
<TABLE>
<CAPTION>
Redemption No Redemption
Share Class A B C R A B C R
- - --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 520 $ 574 $ 159 $ 84 $ 520 $ 179 $ 159 $ 84
- - --------------------------------------------------------------------------------------------
3 Years $ 731 $ 871 $ 493 $ 262 $ 731 $ 554 $ 493 $ 262
- - --------------------------------------------------------------------------------------------
5 Years $ 960 $1,068 $ 850 $ 455 $ 960 $ 954 $ 850 $ 455
- - --------------------------------------------------------------------------------------------
10 years $1,615 $1,878 $1,856 $1,014 $1,615 $1,878 $1,856 $1,014
- - --------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
How the Fund Is Invested (as of 2/29/00)
- - --------------------------------------------------------------------------------
Portfolio Statistics
<TABLE>
<S> <C>
Average Effective Maturity 17.86 years
- - -----------------------------------------------------------------------------
Average Duration 6.56
- - -----------------------------------------------------------------------------
Weighted Average Credit Quality AAA
- - -----------------------------------------------------------------------------
Number of Issues 71
- - -----------------------------------------------------------------------------
</TABLE>
Credit Quality
<TABLE>
<S> <C>
Insured 79%
- - -----------------------------------------------------------------------------
Insured and U.S. Guaranteed 16%
- - -----------------------------------------------------------------------------
U.S. Guaranteed 5%
- - -----------------------------------------------------------------------------
</TABLE>
Sector Diversification (Top 5)
[Pie Chart Appears Here]
<TABLE>
<S> <C>
Other 14%
Healthcare 14%
Housing/Multi-family 13%
Education and Civic Organizations 19%
Tax Obligation/General 19%
U.S. Guaranteed 21%
</TABLE>
1. Class R total returns reflect actual performance for all periods; Class A,
B and C total returns reflect actual performance for periods since class
inception (see "Financial Highlights" for dates), and Class R performance
for periods prior to class inception, adjusted for the differences in fees
between the classes (see "What are the Costs of Investing?"). The Class A
year-to-date return on net asset value as of 3/31/00 was 2.74%.
2. Market Benchmark returns reflect the performance of the Lehman Brothers
Municipal Bond Index, an unmanaged index comprised of a broad range of
investment-grade municipal bonds.
3. Peer Group returns reflect the performance of the Lipper Massachusetts
Municipal Debt Index, a managed index that represents the average
annualized returns of the 30 largest funds in the Lipper Massachusetts
Municipal Debt Category. Returns assume reinvestment of dividends and do
not reflect any applicable sales charges.
4. As a percent of offering price unless otherwise noted. Authorized dealers
and other firms may charge additional fees for shareholder transactions or
for advisory services. Please see their materials for details.
5. Class R shares may be purchased only under limited circumstances, or by
specified classes of investors. See "How You Can Buy and Sell Shares."
6. Reduced Class A sales charges apply to purchases of $50,000 or more. See
"How You Can Buy and Sell Shares."
7. As a percentage of the lesser of purchase price or redemption proceeds.
8. Certain Class A purchases at net asset value of $1 million or more may be
subject to a contingent deferred sales charge (CDSC) if redeemed within 18
months of purchase. See "How You Can Buy and Sell Shares."
9. Class B shares redeemed within six years of purchase are subject to a CDSC
of 5% during the first year, 4% during the second and third years, 3%
during the fourth, 2% during the fifth and 1% during the sixth year.
10. Class C shares redeemed within one year of purchase are subject to a
1% CDSC.
11. Long-term holders of Class B and Class C shares may pay more in Rule 12b-1
fees and CDSCs than the economic equivalent of the maximum front-end sales
charge permitted under the National Association of Securities Dealers
Conduct Rules. 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.
Section 1 The Funds 5
<PAGE>
Section 2 How We Manage Your Money
To help you understand how the funds' assets are managed, this
section includes a detailed discussion of the adviser's
investment and risk management strategies. For a more complete
discussion of these matters, please consult the Statement of
Additional Information.
- - --------------------------------------------------------------------------------
Who Manages the Funds
- - --------------------------------------------------------------------------------
Nuveen Advisory Corp. ("Nuveen Advisory"), the funds' investment
adviser, together with its advisory affiliate, Nuveen
Institutional Advisory Corp., offer premier advisory and
investment management services to a broad range of mutual fund
clients. In the Nuveen family, these advisers are commonly
referred to as Nuveen Investment Management or NIM. Nuveen
Advisory is responsible for the selection and on-going monitoring
of the municipal bonds in the funds' investment portfolios,
managing the funds' business affairs and providing certain
clerical, bookkeeping and other administrative services. The NIM
advisers are located at 333 West Wacker Drive, Chicago, IL 60606.
The NIM advisers are wholly owned subsidiaries of John Nuveen &
Co. Incorporated ("Nuveen"). Founded in 1898, Nuveen has been
synonymous with investments that withstand the test of time.
Today we provide managed assets and structured investment
products and services to help financial advisors serve the wealth
management needs of individuals and families. Nuveen manages or
oversees $71 billion in assets.
Nuveen Advisory is responsible for execution of specific
investment strategies and day-to-day investment operations.
Nuveen Advisory manages each fund using a team of analysts and
portfolio managers that focus on a specific group of funds. Day-
to-day operation of each fund and the execution of its specific
investment strategies is the responsibility of the designated
portfolio manager described below.
J. Thomas Futrell has been the portfolio manager for the
Massachusetts Funds since July 1998. Mr. Futrell has been a
portfolio manager for Nuveen Advisory since 1986, and currently
manages investments for ten Nuveen-sponsored investment
companies.
For the most recent fiscal year, the funds paid the following
management fees to Nuveen Advisory as a percentage of net assets:
Nuveen Massachusetts Municipal Bond Fund .53%
Nuveen Massachusetts Insured Municipal Bond Fund .55%
6 Section 2 How We Manage Your Money
<PAGE>
- - --------------------------------------------------------------------------------
What Securities We Invest In
- - --------------------------------------------------------------------------------
Each fund's investment objective may not be changed without
shareholder approval. The following investment policies may be
changed by the Board of Trustees without shareholder approval
unless otherwise noted in this prospectus or the Statement of
Additional Information.
Municipal Obligations
The funds invest primarily in municipal bonds that pay interest
that is exempt from regular federal and Massachusetts personal
income tax. Income from these bonds may be subject to the federal
alternative minimum tax.
Massachusetts and its local governments and municipalities issue
municipal bonds to raise money for various public purposes such
as building public facilities, refinancing outstanding
obligations and financing general operating expenses. These bonds
include general obligation bonds, which are backed by the full
faith and credit of the issuer and may be repaid from any revenue
source, and revenue bonds, which may be repaid only from the
revenue of a specific facility or source.
The funds may purchase municipal bonds that represent lease
obligations. These carry special risks because the issuer of the
bonds may not be obligated to appropriate money annually to make
payments under the lease. In order to reduce this risk, the funds
will only purchase these bonds where the issuer has a strong
incentive to continue making appropriations until maturity.
The funds may invest in inverse floating rate securities,
sometimes referred to as "inverse floaters." Inverse floaters
have variable interest rates that move in the opposite direction
from movements in prevailing short-term interest rate levels -
rising when prevailing short-term interest rates fall, and vice
versa. In addition to paying fluctuating income levels, the
prices of inverse floaters can be more volatile than the prices
of conventional fixed-rate bonds with comparable maturities.
In evaluating municipal bonds of different credit qualities or
maturities, Nuveen Advisory takes into account the size of yield
spreads. Yield spread is the additional return the funds may earn
by taking on additional credit risk or interest rate risk. For
example, yields on low quality bonds are higher than yields on
high quality bonds because investors must be compensated for
incurring the higher credit risk associated with low quality
bonds. If yield spreads do not provide adequate compensation for
the additional risk associated with low quality bonds, the funds
will buy bonds of relatively higher quality. Similarly, in
evaluating bonds of different maturities, Nuveen Advisory
evaluates the comparative yield available on these bonds. If
yield spreads on long-term bonds do not compensate the funds
adequately for the additional interest rate risk the funds must
assume, the funds will buy bonds of relatively shorter maturity.
In addition, municipal bonds in a particular industry may provide
higher yields relative to their risk compared to bonds in other
industries. If that occurs, a fund may buy relatively more bonds
from issuers in that industry. In that case, the fund's portfolio
composition would change from time to time.
Section 2 How We Manage Your Money
<PAGE>
Quality Municipal Bonds
The funds purchase only quality municipal bonds that are either
rated investment grade (AAA/Aaa to BBB/Baa) by independent rating
agencies at the time of purchase or are non-rated but judged to
be investment grade. 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.
Portfolio Maturity
Each fund buys municipal bonds with different maturities in
pursuit of its investment objective, but maintains under normal
market conditions an investment portfolio with an overall
weighted average portfolio maturity of 15 to 30 years.
Insurance
The Massachusetts Insured Fund primarily purchases insured
municipal bonds. Under normal market conditions, the
Massachusetts Insured Fund will invest at least 65% of its assets
in insured municipal bonds, and 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.
Insured municipal bonds are either covered by individual,
permanent insurances policies (obtained either at the time of
issuance or subsequently), or covered "while in fund" under a
master portfolio insurance policy purchased by a fund. Insurance
guarantees only the timely payment of interest and principal on
the bonds; it does not guarantee the value of either individual
bonds or fund shares.
Portfolio insurance policies are effective only so long as the
fund continues to own the covered bond, and the price the fund
would receive upon sale of such a bond would not benefit from the
insurance. Insurers under master portfolio insurance policies
currently include MBIA Insurance Corp., AMBAC Assurance
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 municipal 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
insurability of a municipal bond.
The Massachusetts Insured Fund can invest up to 20% of its net
assets in uninsured municipal bonds that are backed by an escrow
account containing sufficient U.S. Government or U.S. Government
agency securities to ensure timely payment of principal and
interest. These bonds are normally regarded as having the credit
characteristics of the underlying U.S. Government-backed
securities.
Short-Term Investments
Under normal market conditions, each fund may invest up to 20% of
net assets in short-term, high quality municipal bonds. See "How
We Manage Risk--Hedging and Other Defensive Investment
Strategies." The funds may invest in short-term, high quality
taxable securities if suitable short-term municipal bonds are not
available at reasonable prices and yields. If the funds invest in
taxable securities, they may not achieve their investment
objective. For more information on eligible short-term
investments, see the Statement of Additional Information.
Delayed-Delivery Transactions
The funds may buy or sell securities on a when-issued or delayed-
delivery basis, paying for or taking delivery of the securities
at a later date, normally within 15 to 45 days of the trade.
These transactions involve an
<PAGE>
element of risk because the value of the security to be purchased
may decline before the settlement date.
- - --------------------------------------------------------------------------------
How We Select Investments
- - --------------------------------------------------------------------------------
Nuveen Advisory selects municipal bonds for the funds based upon
its assessment of a bond's relative value in terms of current
yield, price, credit quality and future prospects. Nuveen
Advisory is supported by Nuveen's award-winning team of
specialized research analysts who review municipal securities
available for purchase, monitor the continued creditworthiness of
each fund's municipal investments, and analyze economic,
political and demographic trends affecting the municipal markets.
We utilize these resources to identify municipal bonds with
favorable characteristics we believe are not yet recognized by
the market. We then select those higher-yielding and undervalued
municipal bonds that we believe represent the most attractive
values.
Portfolio Turnover
A fund buys and sells portfolio securities in the normal course
of its investment activities. The proportion of the fund's
investment portfolio that is sold and replaced with new
securities during a year is known as the fund's portfolio
turnover rate. The funds intend to keep portfolio turnover
relatively low in order to reduce trading costs and the
realization of taxable capital gains. Each fund, however, may
make limited short-term trades to take advantage of market
opportunities or reduce market risk.
- - --------------------------------------------------------------------------------
What the Risks Are
- - --------------------------------------------------------------------------------
Risk is inherent in all investing. Investing in a mutual
fund--even the most conservative--involves risk, including risk
that you may receive little or no return on your investment or
even that you may lose part or all of your investment. Therefore,
before investing you should consider carefully the following
risks that you assume when you invest in these funds. Because of
these and other risks, you should consider an investment in any
of these funds to be a long-term investment.
Credit risk: Each fund is subject to credit risk. Credit risk is
the risk that an issuer of a municipal bond will be unable to
meet its obligation to make interest and principal payments due
to changing financial or market conditions.
Interest rate risk: Because the funds invest in fixed-income
securities, the funds are subject to interest rate risk. Interest
rate risk is the risk that the value of a fund's portfolio will
decline because of rising interest rates. Interest rate risk is
generally lower for shorter-term investments and higher for
longer-term investments.
Income risk: The risk that the income from a fund's portfolio
will decline because of falling market interest rates. This can
result when the fund invests the proceeds from new share sales,
or from matured or called bonds, at market interest rates that
are below the portfolio's current earnings rate. Also, if a fund
invests in inverse floating rate securities, whose income
payments vary inversely with changes in short-term market rates,
the fund's income may decrease if short-term interest rates rise.
State Concentration risk: 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
that state and therefore the value of the fund's investment
portfolio. See "Appendix--Additional State Information." These
risks may be greater for the funds, which as "non-diversified"
funds may
<PAGE>
concentrate their investments in municipal bonds of certain
issuers to a greater extent than a diversified fund.
Inflation risk: The risk that the value of assets or income from
investments will be less in the future as inflation decreases the
value of money. As inflation increases, the value of a fund's
assets can decline as can the value of the fund's
distributions.
- - --------------------------------------------------------------------------------
How We Manage Risk
- - --------------------------------------------------------------------------------
In pursuit of its investment objective, each fund assumes
investment risk, chiefly in the form of interest rate and credit
risk. The funds limit this investment risk generally by
restricting the type and maturities of municipal bonds they
purchase, and by diversifying their investment portfolios
geographically within Massachusetts as well as across different
industry sectors. The Massachusetts Insured Fund also limits
investment risk by primarily buying insured municipal bonds.
Investment Limitations
The funds have adopted certain investment limitations (based on
total assets) that cannot be changed without shareholder approval
and are designed to limit your investment risk and maintain
portfolio diversification. Each fund may not have more than:
. 25% in any one industry such as electric utilities or
health care.
. 10% in borrowings (33% if used to meet redemptions).
Hedging and Other Defensive Investment Strategies
Each fund may invest up to 100% in cash equivalents and short-
term investments as a temporary defensive measure in response to
adverse market conditions, or to keep cash on hand fully
invested. During these periods, the weighted average maturity of
a fund's investment portfolio may fall below the defined range
described under "Portfolio Maturity."
Each fund may also use various investment strategies designed to
limit the risk of bond price fluctuations and to preserve
capital. These hedging strategies include using financial futures
contracts, options on financial futures, or options based on
either an index of long-term tax-free securities or on debt
securities whose prices, in Nuveen Advisory's opinion, correlate
with the prices of the funds' investments. The funds, however,
have no present intent to use these strategies.
10 Section 2 How We Manage Your Money
<PAGE>
Section 3 How You Can Buy and Sell Shares
We offer four classes of fund shares, each with a different
combination of sales charges, fees, eligibility requirements and
other features. Your financial advisor can help you determine
which class is best for you. We offer a number of services for
your convenience. Please see the Statement of Additional
Information for further details.
- - --------------------------------------------------------------------------------
What Share Classes We Offer
- - --------------------------------------------------------------------------------
Class A Shares
You can buy Class A shares at the offering price, which is the
net asset value per share plus an up-front sales charge. You may
qualify for a reduced sales charge, or the sales charge may be
waived, as described in "How to Reduce Your Sales Charge." Class
A shares are also subject to an annual service fee of .20% of the
fund's average daily net assets which compensates your financial
advisor for providing on-going service to you. Nuveen retains the
up-front sales charge and the service fee on accounts with no
authorized dealer of record. The up-front Class A sales charge
for all funds described in the prospectus is as follows:
<TABLE>
<CAPTION>
Authorized Dealer
Sales Charge as % of Sales Charge as % of Commission as % of
Amount of Purchase Public Offering Price Net Amount Invested Public Offering Price
<S> <C> <C> <C>
Less than $50,000 4.20% 4.38% 3.70%
- - ----------------------------------------------------------------------------------------------------------------------
$50,000 but less than $100,000 4.00% 4.18% 3.50%
- - ----------------------------------------------------------------------------------------------------------------------
$100,000 but less than $250,000 3.50% 3.63% 3.00%
- - ----------------------------------------------------------------------------------------------------------------------
$250,000 but less than $500,000 2.50% 2.56% 2.00%
- - ----------------------------------------------------------------------------------------------------------------------
$500,000 but less than $1,000,000 2.00% 2.04% 1.50%
- - ----------------------------------------------------------------------------------------------------------------------
$1,000,000 and over --/1/ -- 1.00%/1/
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1. You can buy $1 million or more of Class A shares at net asset
value without an up-front sales charge. Nuveen pays authorized
dealers of record on these share purchases a sales commission
of 1.00% of the first $2.5 million, plus .50% of the next $2.5
million, plus .25% of the amount over $5.0 million. If you
redeem your shares within 18 months of purchase, you may have
to pay a Contingent Deferred Sales Charge (CDSC) of 1% of
either your purchase price or your redemption proceeds,
whichever is lower. You do not have to pay this CDSC if your
financial advisor has made arrangements with Nuveen and agrees
to waive the commission.
Class B Shares
You can buy Class B shares at the offering price, which is the
net asset value per share without any up-front sales charge so
that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of
.95% of the funds' average daily net assets. The annual .20%
service fee compensates your financial advisor for providing on-
going service to you. Nuveen retains the service and distribution
fees on accounts with no authorized dealer of record. The annual
.75% distribution fee compensates Nuveen for paying your
financial advisor a 4% up-front sales commission, which includes
an advance of the first year's service fee. If you sell your
shares within six years of purchase, you will normally have to
pay a CDSC based on either your purchase price or what you sell
your shares for, whichever amount is lower, according to the
following schedule. You do not pay a CDSC on any Class B shares
you purchase by reinvesting dividends.
Section 3 How You Can Buy and Sell Shares 11
<PAGE>
Class B shares automatically convert to Class A shares eight
years after you buy them so that the distribution fees you pay
over the life of your investment are limited. You will continue
to pay an annual service fee on any converted Class B shares.
Years Since Purchase 0-1 1-2 2-3 3-4 4-5 5-6 Over 6
CDSC 5% 4% 4% 3% 2% 1% None
------------------------------------------------------------
Class C Shares
You can buy Class C shares at the offering price, which is the
net asset value per share without any up-front sales charge so
that the full amount of your purchase is invested in the fund.
However, you will pay annual distribution and service fees of
.75% of the fund's average daily net assets. The annual .20%
service fee compensates your financial advisor for providing on-
going service to you. Nuveen retains the service and distribution
fees on accounts with no authorized dealer of record. The annual
.55% distribution fee reimburses Nuveen for paying your financial
advisor an on-going sales commission. Nuveen advances the first
year's service and distribution fees. If you sell your shares
within 12 months of purchase, you will normally have to pay a 1%
CDSC based on your purchase or sale price, whichever is lower.
You do not pay a CDSC on any Class C shares you purchase by
reinvesting dividends.
Class R Shares
You may purchase Class R shares only under limited circumstances,
at the net asset value on the day of purchase. In order to
qualify, you must be eligible under one of the programs described
in "How to Reduce Your Sales Charge" (below) or meet certain
other purchase size criteria. Class R shares are not subject to
sales charges or ongoing service or distribution fees. Class R
shares have lower on-going expenses than the other classes.
- - --------------------------------------------------------------------------------
How to Reduce Your Sales Charge
- - --------------------------------------------------------------------------------
We offer a number of ways to reduce or eliminate the up-front
sales charge on Class A shares or to qualify to purchase Class R
shares.
<TABLE>
<S> <C> <C>
Class A Sales Charge Class A Sales Charge Class R Eligibility
Reductions Waivers
. Rights of accumulation . Nuveen Defined Portfolio . Certain employees and
. Letter of intent or Exchange-Traded directors of Nuveen or
. Group purchase Fund reinvestment employees of authorized
. Certain employees and dealers
directors of Nuveen or . Bank trust departments
employees of authorized
dealers
. Bank trust departments
</TABLE>
In addition, Class A shares at net asset value and Class R shares
may be purchased through registered investment advisers,
certified financial planners and registered broker-dealers who
charge asset-based or comprehensive "wrap" fees for their
services. Please refer to the Statement
12 Section 3 How You Can Buy and Sell Shares
<PAGE>
of Additional Information for detailed program descriptions and
eligibility requirements. Additional information is available
from your financial advisor or by calling (800) 257-8787. Your
financial advisor can also help you prepare any necessary
application forms. You or your financial advisor must notify
Nuveen at the time of each purchase if you are eligible for any
of these programs. The funds may modify or discontinue these
programs at any time.
- - --------------------------------------------------------------------------------
How to Buy Shares
- - --------------------------------------------------------------------------------
Fund shares may be purchased on any business day, which is any
day the New York Stock Exchange is open for business and normally
ends at 4 p.m. New York time. Generally, the Exchange is closed
on weekends and national holidays. The share price you pay will
depend on when Nuveen receives your order. Orders received before
the close of trading on a business day will receive that day's
closing share price, otherwise you will receive the next business
day's price.
Through a Financial Advisor
You may buy shares through your financial advisor, who can handle
all the details for you, including opening a new account.
Financial advisors can also help you review your financial needs
and formulate long-term investment goals and objectives. In
addition, financial advisors generally can help you develop a
customized financial plan, select investments and monitor and
review your portfolio on an ongoing basis to help assure your
investments continue to meet your needs as circumstances change.
Financial advisors are paid for on-going investment advice and
services either from fund sales charges and fees or by charging
you a separate fee in lieu of a sales charge. If you do not have
a financial advisor, call (800) 257-8787 and Nuveen can refer you
to one in your area.
By Mail
You may open an account and buy shares by mail by completing the
enclosed application and mailing it along with your check to:
Nuveen Investor Services, P.O. Box 5186, Bowling Green Station,
New York, NY 10274-5186. No third party checks will be accepted.
Investment Minimums
The minimum initial investment is $3,000 ($50 through systematic
investment plan accounts) and may be lower for accounts opened
through certain fee-based programs. Subsequent investments must
be in amounts of $50 or more. The funds reserve the right to
reject purchase orders and to waive or increase the minimum
investment requirements.
Section 3 How You Can Buy and Sell Shares 13
<PAGE>
- - --------------------------------------------------------------------------------
Systematic Investing
- - --------------------------------------------------------------------------------
Systematic investing allows you to make regular investments
through automatic deductions from your bank account, directly
from your paycheck or from exchanging shares from another mutual
fund account. The minimum automatic deduction is $50 per month.
There is no charge to participate in each fund's systematic
investment plan. You can stop the deductions at any time by
notifying the fund in writing. To do this, simply complete the
appropriate section of the account application form or submit an
Account Update Form.
From Your Bank Account
You can make systematic investments of $50 or more per month by
authorizing us to draw preauthorized checks on your bank account.
From Your Paycheck
With your employer's consent, you can make systematic investments
of $25 or more per pay period (meeting the monthly minimum of
$50) by authorizing your employer to deduct monies from your
paycheck.
Systematic Exchanging
You can make systematic investments by authorizing Nuveen to
exchange shares from one Nuveen mutual fund account into another
identically registered Nuveen account of the same share
class.
The chart below illustrates the benefits of systematic investing
based on a $3,000 initial investment and subsequent monthly
investments of $100 over 20 years. The example assumes you earn a
return of 4%, 5% or 6% annually on your investment and that you
reinvest all dividends. These annual returns do not reflect past
or projected fund performance.
[Chart appears here]
One of the benefits of systematic investing is dollar cost
averaging. Because you regularly invest a fixed amount of money
over a period of years regardless of the share price, you buy
more shares when the price is low and fewer shares when the price
is high. As a result, the average share price you pay should be
less than the average share price of fund shares over the same
period. To be effective, dollar cost averaging requires that you
invest over a long period of time, and does not assure that you
will profit.
14 Section 3 How You Can Buy and Sell Shares
<PAGE>
- - --------------------------------------------------------------------------------
Systematic Withdrawal
- - --------------------------------------------------------------------------------
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 receive a check,
have the monies transferred directly into your bank account (see
"Special Services-Fund Direct" 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 concurrent purchases of Class A, B or C shares because you
may unnecessarily pay a sales charge or CDSC on these purchases.
- - --------------------------------------------------------------------------------
Special Services
- - --------------------------------------------------------------------------------
To help make your investing with us easy and efficient, we offer
you the following services at no extra cost.
Exchanging Shares
You may exchange fund shares into an identically registered
account at any time for an appropriate class of another Nuveen
mutual fund available in your state. Your exchange must meet the
minimum purchase requirements of the fund into which you are
exchanging. You may have to pay a sales charge when exchanging
shares that you purchased without a sales charge for shares that
are sold with a sales charge. Please consult the Statement of
Additional Information for details.
The exchange privilege is not intended to allow you to use a fund
for short-term trading. Because excessive exchanges may interfere
with portfolio management, raise fund operating expenses or
otherwise have an adverse effect on other shareholders, each fund
reserves the right to revise or suspend the exchange privilege,
limit the amount or number of exchanges, or reject any exchange.
The funds may change or cancel their exchange policy at any time
upon 60 days' notice. Because an exchange is treated for tax
purposes as a purchase and sale, and any gain may be subject to
tax, you should consult your tax advisor about the tax
consequences of exchanging your shares.
Fund Direct(SM)
The Fund Direct Program allows you to link your fund account to
your bank account, transfer money electronically between these
accounts, and perform a variety of account transactions,
including purchasing shares by telephone and investing through a
systematic investment plan. You also may have dividends,
distributions, redemption payments or systematic withdrawal plan
payments sent directly to your bank account. Your financial
advisor can help you complete the forms for these services, or
you can call Nuveen at (800) 257-8787 for copies of the necessary
forms.
Section 3 How You Can Buy and Sell Shares 15
<PAGE>
Reinstatement Privilege
If you redeem fund shares, you may reinvest all or part of your
redemption proceeds up to one year later without incurring any
additional charges. You may only reinvest into the same share
class you redeemed. If you paid a CDSC, we will refund your CDSC
and reinstate your holding period. You may use this reinstatement
privilege only once for any redemption.
- - --------------------------------------------------------------------------------
How to Sell Shares
- - --------------------------------------------------------------------------------
An Important Note About Telephone Transactions
Although Nuveen Investor Services has certain safeguards and
procedures to confirm the identity of callers, it will not be
liable for losses resulting from following telephone instructions
it reasonably believes to be genuine. Also, you should verify
your trade confirmations immediately upon receipt.
You may sell (redeem) your shares on any business day. You will
receive the share price next determined after Nuveen has received
your properly completed redemption request. Your redemption
request must be received before the close of trading for you to
receive that day's price. If you are selling shares purchased
recently with a check, you will not receive your redemption
proceeds until your check has cleared. This may take up to ten
days from your purchase date. While the funds do not charge a
redemption fee, you may be assessed a CDSC, if applicable. 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, 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 described in the Statement
of Additional Information.
Through Your Financial Advisor
You may sell your shares through your financial advisor who can
prepare the necessary documentation. Your financial advisor may
charge for this service.
By Telephone
If you have authorized telephone redemption privileges, you can
redeem your shares by calling (800) 257-8787. Telephone
redemptions are not available if you own shares in certificate
form and may not exceed $50,000. Checks will only be issued to
you as the shareholder of record and mailed to your address of
record. If you have established Fund Direct privileges, you may
have redemption proceeds transferred electronically to your bank
account. We will normally mail your check the next business day.
16 Section 3 How You Can Buy and Sell Shares
<PAGE>
By Mail
You can sell your shares at any time by sending a written request
to the appropriate fund, Nuveen Investor Services, P.O. Box 5186,
Bowling Green Station, New York, NY 10274-5186. 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 to whom you want your redemption
proceeds paid (if other than to the shareholder of record);
. The address where you want your redemption proceeds sent (if
other than the address of record);
. Any certificates you have for the shares; and
. Any required signature guarantees.
We will normally mail your check the next business day, but in no
event more than seven days after we receive your request. If you
purchased your shares by check, your redemption proceeds will not
be mailed until your check has cleared. Guaranteed signatures are
required if you are redeeming more than $50,000, you want the
check payable to someone other than the shareholder of record or
you want the check sent to another address (or the address of
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 a fund. A
notary public cannot provide a signature guarantee.
Redemptions In-Kind
An Important Note About Involuntary Redemption
From time to time, the funds may establish minimum account size
requirements. The funds reserve the right to liquidate your
account upon 30 days' written notice if the value of your account
falls below an established minimum. The funds presently have set
a minimum balance of $100 unless you have an active Nuveen
Defined Portfolio reinvestment account. You will not be assessed
a CDSC on an involuntary redemption.
The funds generally pay redemption proceeds in cash. Under
unusual conditions that make cash payment unwise and for the
protection of existing shareholders, the funds may pay all or a
portion of your redemption proceeds in securities or other fund
assets. Although it is unlikely that your shares would be
redeemed in-kind, you would probably have to pay brokerage costs
to sell the securities distributed to you, as well as taxes on
any capital gains from that sale.
Section 3 How You Can Buy and Sell Shares 17
<PAGE>
Section 4 General Information
To help you understand the tax implications of investing in the
funds, this section includes important details about how the
funds make distributions to shareholders. We discuss some other
fund policies, as well.
- - --------------------------------------------------------------------------------
Dividends, Distributions and Taxes
- - --------------------------------------------------------------------------------
The funds pay tax-free dividends monthly and any taxable capital
gains or other taxable distributions once a year in December. The
funds declare dividends monthly to shareholders of record as of
the ninth of each month, payable the first business day of the
following month.
Payment and Reinvestment Options
The funds automatically reinvest your dividends in additional
fund shares unless you request otherwise. You may request to have
your dividends paid to you by check, deposited directly into your
bank account, paid to a third party, sent to an address other
than your address of record or reinvested in shares of another
Nuveen mutual fund. For further information, contact your
financial advisor or call Nuveen at (800) 257-8787.
Taxes and Tax Reporting
Because the funds invest primarily in municipal bonds from
Massachusetts, the regular monthly dividends you receive will be
exempt from regular federal and Massachusetts personal income
tax. 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 capital 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.
Early in each year, you will receive a statement detailing the
amount and nature of all dividends and capital gains that you
were paid during the prior year. If you hold your investment at
the firm where you purchased your fund shares, you will receive
the statement from that firm. If you hold your shares directly at
the fund, Nuveen will send you the statement. The tax status of
your dividends is the same whether you reinvest your dividends or
elect to receive them in cash.
If you receive social security or railroad retirement benefits,
you should consult your tax advisor about how an investment in
the fund may affect the federal taxation of your benefits.
18 Section 4 General Information
<PAGE>
Please note that if you do not furnish the fund with your correct
Social Security number or employer identification number, federal
law requires the fund to withhold federal income tax from your
distributions and redemption proceeds, currently at a rate of
31%.
Please consult the Statement of Additional Information and your
tax advisor for more information about taxes.
Buying or Selling Shares Close to a Record Date
Buying fund shares shortly before the record date for a taxable
dividend is commonly known as "buying the dividend.O The entire
dividend may be taxable to you even though a portion of the
dividend effectively represents a return of your purchase price.
Similarly, if you 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 capital gain even though it
reflects tax-free income earned but not yet distributed by the
fund.
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
federal 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 federal
tax-free yields and tax rates:
Taxable Equivalent Of Tax-Free Yields
<TABLE>
<CAPTION>
To Equal a Tax-Free Yield of:
- - -------------------------------------------------------------------------------------
4.00% 4.50% 5.00% 5.50% 6.00%
Tax Bracket: A Taxable Investment Would Need to Yield:
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
28.0% 5.56% 6.25% 6.94% 7.64% 8.33%
- - -------------------------------------------------------------------------------------
31.0% 5.80% 6.52% 7.25% 7.97% 8.70%
- - -------------------------------------------------------------------------------------
36.0% 6.25% 7.03% 7.81% 8.59% 9.37%
- - -------------------------------------------------------------------------------------
39.6% 6.62% 7.45% 8.28% 9.11% 9.93%
- - -------------------------------------------------------------------------------------
</TABLE>
The yields and tax rates shown above are hypothetical and do not
predict your actual returns or effective tax rate. For more
detailed information, see the Statement of Additional Information
or consult your tax advisor.
- - --------------------------------------------------------------------------------
Distribution and Service Plans
- - --------------------------------------------------------------------------------
Nuveen serves as the selling agent and distributor of the funds'
shares. In this capacity, Nuveen manages the offering of the
funds' shares and is responsible for all sales and promotional
activities. In order to reimburse Nuveen for its costs in
connection with these activities, including compensation paid to
authorized dealers, each fund has adopted a distribution and
service plan in accordance with Rule 12b-1 under the Investment
Company Act of 1940. (See "How to Choose a Share Class" for a
description of the distribution and service fees paid under this
plan.)
Section 4 General Information 19
<PAGE>
Nuveen receives the distribution fee for Class B and Class C
shares primarily for providing compensation to authorized
dealers, including Nuveen, in connection with the distribution of
shares. Nuveen uses the service fee for Class A, Class B, and
Class C shares to compensate authorized dealers, including
Nuveen, for providing on-going account services to shareholders.
These services may include establishing and maintaining
shareholder accounts, answering shareholder inquiries, and
providing other personal services to shareholders. These fees
also compensate Nuveen for other expenses, including printing and
distributing prospectuses to persons other than shareholders, and
preparing, printing, and distributing advertising and sales
literature and reports to shareholders used in connection with
the sale of shares. Because these fees are paid out of the funds'
assets on an on-going basis, over time these fees will increase
the cost of your investment and may cost you more than paying
other types of sales charges.
Nuveen periodically undertakes sales promotion programs with
authorized dealers and may pay them the full applicable sales
charge as a commission. In addition, Nuveen may provide support
at its own expense to authorized dealers in connection with sales
meetings, seminars, prospecting seminars and other events at
which Nuveen presents its products and services. Under certain
circumstances, Nuveen also will share with authorized dealers up
to half the costs of advertising that features the products and
services of both parties. The Statement of Additional Information
contains further information about these programs.
- - --------------------------------------------------------------------------------
Net Asset Value
- - --------------------------------------------------------------------------------
The price you pay for your shares is based on the fund's net
asset value per share which is determined as of the close of
trading (normally 4:00 p.m. New York time) on each day the New
York Stock Exchange is open for business. Net asset value is
calculated for each class by taking the market value of the
class' total assets, including interest or dividends accrued but
not yet collected, less all liabilities, and dividing by the
total number of shares outstanding. The result, rounded to the
nearest cent, is the net asset value per share. All valuations
are subject to review by the funds' Board of Trustees or its
delegate.
In determining net asset value, expenses are accrued and applied
daily and securities and other assets for which market quotations
are available are valued at market value. The prices of municipal
bonds are provided by a pricing service and based on the mean
between the bid and asked price. When price quotes are not
readily available (which is usually the case for municipal
securities), the pricing service establishes fair market value
based on prices of comparable municipal bonds.
20 Section 4 General Information
<PAGE>
- - --------------------------------------------------------------------------------
Fund Service Providers
- - --------------------------------------------------------------------------------
The custodian of the assets of the funds is The Chase Manhattan
Bank, 4 New York Plaza, New York, NY 10004-2413. Chase also
provides certain accounting services to the funds. The funds'
transfer, shareholder services and dividend paying agent, Chase
Global Funds Services Company, P.O. Box 5186, New York, NY 10274-
5186, performs bookkeeping, data processing and administrative
services for the maintenance of shareholder accounts.
Section 4 General Information 21
<PAGE>
Section 5 Financial Highlights
The financial highlights table is intended to help you understand
a fund's financial performance for the past 5 years. Certain
information reflects financial results for a single fund share.
The total returns in the table represent the rate that an
investor would have earned on an investment in a fund (assuming
reinvestment of all dividends and distributions). This
information has been audited by Arthur Andersen LLP, whose
report, along with the funds' financial statements, are included
in the SAI and annual report, which is available upon
request.
- - --------------------------------------------------------------------------------
Nuveen Massachusetts Municipal Bond Fund
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions
---------------------------------- -----------------------------
Net
Realized/
Beginning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.07 $.50 $(.82) $(.32) $(.49) $ -- $(.49) $ 9.26
1999 10.08 .51 (.01) .50 (.51) -- (.51) 10.07
1998 9.89 .52 .19 .71 (.52) -- (.52) 10.08
1997 9.94 .53 (.07) .46 (.51) -- (.51) 9.89
1996 9.56 .51 .39 .90 (.52) -- (.52) 9.94
Class B (3/97)
2000 10.10 .43 (.83) (.40) (.42) -- (.42) 9.28
1999 10.10 .43 .01 .44 (.44) -- (.44) 10.10
1998 (c) 9.88 .45 .22 .67 (.45) -- (.45) 10.10
Class C (10/94)
2000 10.02 .44 (.82) (.38) (.44) -- (.44) 9.20
1999 10.02 .45 -- .45 (.45) -- (.45) 10.02
1998 9.83 .47 .19 .66 (.47) -- (.47) 10.02
1997 9.89 .45 (.08) .37 (.43) -- (.43) 9.83
1996 9.51 .44 .39 .83 (.45) -- (.45) 9.89
Class R (12/86)
2000 10.05 .52 (.82) (.30) (.51) -- (.51) 9.24
1999 10.05 .52 .01 .53 (.53) -- (.53) 10.05
1998 9.86 .54 .19 .73 (.54) -- (.54) 10.05
1997 9.91 .54 (.06) .48 (.53) -- (.53) 9.86
1996 9.54 .54 .38 .92 (.55) -- (.55) 9.91
<CAPTION>
Class
(Inception
Date) Ratios/Supplemental Data
----------------------------------------------------------------
Ratio
of Net
Ratio of Investment
Expenses Income to Portfolio
Year Ended Total Ending Net to Average Average Turnover
February 28/29, Return (a) Assets (000) Net Assets (b) Net Assets (b) Rate
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (9/94)
2000 (3.21)% $16,814 .96% 5.17% 15%
1999 5.05 15,134 .95 5.01 10
1998 7.38 9,291 .95 5.25 17
1997 4.73 7,200 .99 5.24 10
1996 9.62 4,290 1.00 5.21 6
Class B (3/97)
2000 (4.02) 3,730 1.71 4.42 15
1999 4.40 3,226 1.71 4.29 10
1998 (c) 6.93 763 1.70* 4.48* 17
Class C (10/94)
2000 (3.87) 4,730 1.51 4.62 15
1999 4.62 3,696 1.50 4.48 10
1998 6.85 1,924 1.50 4.69 17
1997 3.90 913 1.73 4.51 10
1996 8.87 638 1.75 4.45 6
Class R (12/86)
2000 (3.03) 66,055 .76 5.35 15
1999 5.36 75,750 .75 5.19 10
1998 7.60 72,934 .75 5.45 17
1997 4.99 72,912 .75 5.48 10
1996 9.80 76,773 .75 5.49 6
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement by the investment adviser, where applicable.
When custodian fee credits are applied, the Ratio of Expenses to Average
Net Assets for 2000 are .94%, 1.69, 1.49% and .74% for classes A, B, C and
R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.19%, 4.44%, 4.64% and 5.37% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
22 Section 5 Financial Highlights
<PAGE>
- - --------------------------------------------------------------------------------
Nuveen Massachusetts Insured Municipal Bond Fond.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Class
(Inception
Date) Investment Operations Less Distributions Ratios/Supplemental Data
----------------------------- --------------------------- ---------------------------------------
Net
Realized/
Beginnning Net Unrealized Net Ending
Net Invest- Invest- Invest- Net
Year Ended Asset ment ment ment Capital Asset Total Endings Net
February 28/29, Value Income Gain (Loss) Total Income Gains Total Value Return (a) Assets (000)
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.59 $.50 $(.81) $(.31) $(.50) $(.01) $(.51) $ 9.77 (2.95)% $11,984
1999 10.57 .51 .02 .53 (.51) N (.51) 10.59 5.09 11,208
1998 10.38 .52 .19 .71 (.52) N (.52) 10.57 7.04 8,679
1997 10.49 .53 (.12) .41 (.52) N (.52) 10.38 4.02 7,459
1996 10.06 .51 .44 .95 (.52) N (.52) 10.49 9.59 5,291
Class B (3/97)
2000 10.59 .43 (.81) (.38) (.42) (.01) (.43) 9.78 (3.59) 1,550
1999 10.57 .43 .02 .45 (.43) N (.43) 10.59 4.32 1,650
1998 (c) 10.36 .44 .21 .65 (.44) N (.44) 10.57 6.45 666
Class C (9/94)
2000 10.56 .45 (.81) (.36) (.44) (.01) (.45) 9.75 (3.43) 1,355
1999 10.54 .45 .02 .47 (.45) N (.45) 10.56 4.51 1,675
1998 10.35 .46 .19 .65 (.46) N (.46) 10.54 6.45 1,293
1997 10.47 .45 (.13) .32 (.44) N (.44) 10.35 3.17 957
1996 10.04 .43 .44 .87 (.44) N (.44) 10.47 8.80 706
Class R (12/86)
2000 10.59 .52 (.80) (.28) (.52) (.01) (.53) 9.78 (2.68) 51,039
1999 10.57 .53 .01 .54 (.52) N (.52) 10.59 5.26 57,281
1998 10.38 .54 .19 .73 (.54) N (.54) 10.57 7.23 56,707
1997 10.50 .54 (.12) .42 (.54) N (.54) 10.38 4.16 57,076
1996 10.06 .54 .44 .98 (.54) N (.54) 10.50 9.99 60,102
<CAPTION>
Class
(Inception
Date)
-------------------------------------------------
Ratio
of Net
Ratio of investment
Expenses Income to Portfolio
Year Ended to Average Average Turnover
February 28/29, Net Assets (b) Net Assets (b) Rate
- - -------------------------------------------------------------------
<S> <C> <C> <C>
Class A (9/94)
2000 1.02% 4.98% 10%
1999 1.01 4.77 11
1998 1.03 4.98 23
1997 1.04 5.02 10
1996 1.07 4.94 1
Class B (3/97)
2000 1.76 4.22 10
1999 1.75 4.03 11
1998 (c) 1.80* 4.20* 23
Class C (9/94)
2000 1.56 4.42 10
1999 1.56 4.22 11
1998 1.58 4.43 23
1997 1.78 4.29 10
1996 1.81 4.20 1
Class R (12/86)
2000 .82 5.17 10
1999 .81 4.97 11
1998 .83 5.18 23
1997 .80 5.26 10
1996 .81 5.21 1
</TABLE>
23
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
When custodian fee credits are applied, the Ratios of Expenses to Average
Net Assets for 2000 are 1.00%, 1.75%, 1.55% and .80% for classes A, B, C
and R, respectively, and the Ratios of Net Investment Income to Average Net
Assets for 2000 are 5.00%, 4.24%, 4.43% and 5.19% for classes A, B, C and
R, respectively.
(c) From commencement of class operations as noted.
Section 5 Financial Highlights 23
<PAGE>
Appendix Additional State Information
Because the funds primarily purchase municipal bonds from Massachusetts,
each fund also bears investment risks 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 special state considerations was obtained from
official offering statements of these issuers and has not been
independently verified by the funds. The discussion includes general state
tax information related to an investment in fund shares. Because tax laws
are complex and often change, you should consult your tax advisor about the
state tax consequences of a specific fund investment. See the Statement of
Additional Information for further information.
Massachusetts
The Massachusetts economy has fully recovered from the recession of the
early 1990's and has grown at a healthy pace. The strongest in New England,
the State's economy has also performed well relative to the national
economy across several indicators. Unemployment is higher than the national
average, registering 4.8% in April 2000 versus the national rate of 3.9%
for the same time period. However, per capita income levels remain high at
approximately $35,733, or 125% of the national average, placing
Massachusetts third among the states for per capita income levels. The
State has also registered strong per capita income growth, outstripping the
national growth rate. The State's economy remains diverse, with
construction, financial services, health care and higher education
continuing to make important contributions to the State's economy. The
service sector is the largest sector in the Massachusetts economy, followed
by wholesale and retail trade, manufacturing, and government employment.
The Massachusetts economy is fairly concentrated in the eastern portion of
the State, with more than 50% of its total population residing in the
metropolitan Boston area. While many of the communities in the eastern
portion of the State have benefited from the economic growth described
above, several areas outside the metropolitan Boston region have not
participated as fully and continue to be hampered by higher unemployment,
lower per capita income and stagnant property values.
In 1983, construction began on the Central Artery/Tunnel Project, which
remains one of the most complex infrastructure projects in the nation. The
project involves the depression and widening of Boston's Central Artery
(Interstate-93), which connects the city's Downtown area to the City of
Cambridge. In addition, the project includes the widening of the Ted
Williams Tunnel, which connects Boston's downtown area to Logan
International Airport and other points.
24 Appendix
<PAGE>
Although the massive Central Artery/Tunnel Project ("The Big Dig" or CA/T)
appears to be on schedule for its projected 2004 completion, the
Massachusetts Turnpike Authority, which serves as lead manager on the
project, disclosed in February, 2000 that the project was $1.4 billion over
its original $11.7 billion budget estimate. On May 18, 2000 Governor
Celluci's proposal to finance the project's shortfall, a $2.4 billion "Big
Dig Bailout" bill anchored primarily by revenues generated through
additional auto registration fees in the Commonwealth, received legislative
approval. Although the Commonwealth has apparently resolved the project's
current budget shortfall, there is no assurance that future cost revisions
will not occur, resulting in additional expenditures by the Commonwealth.
Over a five-year period ending in February 2000, approximately $5.6 billion
of debt obligations had previously been issued for the CA/T Project.
Debt Ratings. On January 14, 2000, S&P affirmed its AA- rating on the
Commonwealth's general obligation debt, but revised its outlook to
"positive" from "stable." On February 15, 2000, Moody's upgraded the
Commonwealth's general obligation rating to Aa2 from Aa3. Both agencies
cited improvements in the State's financial position and continued growth
of the State's diverse tax base in their upgrades. During the same month,
Fitch also affirmed its AA- rating on the Commonwealth. On January 25,
2000, S&P upgraded the City of Boston's general obligation debt ratings to
AA- from A+ based on the City's continued economic growth, illustrated by
strong commercial construction and the City's history of operating
surpluses. These ratings reflect the State's and City's credit quality
only, and do not indicate the creditworthiness of other tax-exempt
securities in which the funds may invest. Furthermore, it cannot be assumed
that either the City of Boston or the Commonwealth will maintain their
current credit ratings.
Tax Treatment.
The funds' regular monthly dividends will not be subject to Massachusetts
personal income taxes to the extent they are paid out of income earned on
Massachusetts municipal bonds or on certain U.S. government obligations
that are exempt from state taxation under Federal law. You will be subject
to Massachusetts 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 described
above. Corporate shareholders should refer to the Statement of Additional
Information for more detailed information and are urged to consult their
tax advisor.
Appendix 25
<PAGE>
Nuveen Mutual Funds
Nuveen offers a variety of mutual funds designed to
help you reach your financial goals. The funds below
are grouped by investment objectives.
Growth
International Growth Fund
Innovation Fund
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
Dividend and Growth Fund
Income
Income Fund
Floating Rate Fund/1/
Tax-Free Income
National Municipal Bond Funds
High Yield
Long-term
Insured Long-term
Intermediate-term
Limited-term
State Municipal Bond Funds
Arizona Louisiana North Carolina
California/2/ Maryland Ohio
Colorado Massachusetts/2/ Pennsylvania
Connecticut Michigan Tennessee
Florida Missouri Virginia
Georgia New Jersey Wisconsin
Kansas New Mexico
Kentucky New York/2/
Cash Reserves
Money Market Fund
Municipal Money Market Fund
California Tax-Exempt Money Market Fund
New York Tax-Exempt Money Market Fund
Several additional sources of information are available
to you. The Statement of Additional Information
("SAI"), incorporated by reference into this
prospectus, contains detailed information on fund
policies and operation. Call Nuveen at (800) 257-8787
to request a free copy of the SAI or other fund
information; or ask your financial advisor for copies.
You may also obtain this and other fund information
directly from the Securities and Exchange Commission
("SEC"). The SEC may charge a copying fee for this
information. Visit the SEC on-line at
http://www.sec.gov or in person at the SEC"s Public
Reference Room in Washington, D.C. Call the SEC at
(800) SEC-0330 for room hours and operation. You may
also request fund information by writing to the SEC"s
Public Reference Section, Washington, D.C. 20549. The
funds' Investment Company file number is 811-07755.
1. This is a continuously-offered closed-end interval
fund. As such, redemptions are only available during
quarterly repurchase periods. See fund prospectus
for additional information.
2. Long-term and insured long-term portfolios.
NUVEEN
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
(800) 257-8787
www.nuveen.com
<PAGE>
June 28, 2000
NUVEEN MULTISTATE TRUST II
Nuveen California Municipal Bond Fund
Nuveen California Insured Municipal Bond Fund
Nuveen Connecticut Municipal Bond Fund
Nuveen New Jersey Municipal Bond Fund
Nuveen New York Municipal Bond Fund
Nuveen New York Insured Municipal Bond Fund
Nuveen Massachusetts Municipal Bond Fund
Nuveen Massachusetts Insured Municipal Bond Fund
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information is not a prospectus. This Statement
of Additional Information should be read in conjunction with the Prospectuses
of the Nuveen Multistate Trust II dated June 28, 2000. The Prospectuses 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) 257-8787.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Investment Policies and Investment Portfolio............................... S-2
Management................................................................. S-37
Investment Adviser and Investment Management Agreement..................... S-48
Portfolio Transactions..................................................... S-50
Net Asset Value............................................................ S-50
Tax Matters................................................................ S-51
Performance Information.................................................... S-59
Additional Information on the Purchase and Redemption of Fund Shares....... S-68
Distribution and Service Plan.............................................. S-75
Independent Public Accountants and Custodian............................... S-77
Financial Statements....................................................... S-77
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.
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(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 Multistate Trust II, formerly 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 Trust. The
Trust is an open-end management series company under SEC Rule 18f-2. Each Fund
is a separate series issuing
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its own shares. The Trust currently has nine series: the Nuveen New York
Municipal Bond Fund (formerly 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 New Jersey Municipal Bond
Fund (formerly 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 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 Connecticut Municipal Bond Fund
(formerly 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 California Intermediate Municipal
Bond Fund (formerly 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 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.
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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.
Investments in Inverse Floating Rate Securities. The Funds may invest in
inverse floating rate municipal securities or "inverse floaters", whose rates
vary inversely to interest rates on a specified index or on another instrument.
Such securities involve special risks as compared to conventional fixed-rate
bonds. Should short-term interest rates rise, a fund's investment in inverse
floaters likely would adversely affect the fund's earnings and distributions to
shareholders. Also, because changes in the interest rate on the other security
or index inversely affect the rate of interest received on an inverse floater,
and because inverse floaters essentially represent a leveraged investment in a
long-term bond, the value of an inverse floater is generally more volatile than
that of a conventional fixed-rate bond having similar credit quality,
redemption provisions and maturity. Although volatile in value, inverse
floaters typically offer the potential for yields substantially exceeding the
yields available on fixed-rate bonds with comparable credit quality, coupon,
call provisions and maturity. The markets for such securities may be less
developed and have less liquidity than the markets for conventional securities.
Each Fund, as a non-fundamental policy that may be changed by the Board of
Trustees, will not invest more than 15% of its total assets in inverse
floaters.
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
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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"). Municipal Obligations covered by
Original Issue Insurance or Secondary Market Insurance are themselves typically
assigned a rating of Aaa or AAA, as the case may be, by virtue of the Aaa or
AAA claims-paying ability of the insurer and would generally be assigned a
lower rating if the ratings were based primarily upon the credit
characteristics of the issuer without regard to the insurance feature. By way
or contrast, the ratings, if any, assigned to Municipal Obligations insured
under Portfolio Insurance will be based primarily upon the credit
characteristics of the issuers without regard to the insurance feature, and
will generally carry a rating that is below Aaa or AAA. While in the portfolio
of a Fund, however, a Municipal Obligation backed by Portfolio Insurance will
effectively be of the same quality as a Municipal Obligation issued by an
issuer of comparable credit characteristics that is backed by Original Issue
Insurance or Secondary Market Insurance.
The Funds' policy of investing in Municipal Obligations insured by insurers
whose claims-paying ability is rated Aaa or AAA will apply only at the time of
the purchase of a security, and a Fund will not be required to dispose of
securities in the event Moody's or S&P, as the case may be, downgrades its
assessment of the claims-paying ability of a particular insurer or the credit
characteristics of a particular issuer. In this connection, it should be noted
that in the event Moody's or S&P or both should down grade its assessment of
the claims-paying ability of a particular insurer, it could also be expected to
downgrade the ratings assigned to Municipal Obligations insured under Original
Issue Insurance or Secondary Market Insurance issued by such insurer, and
Municipal Obligations insured under Portfolio Insurance issued by such insurer
would also be of reduced quality in the portfolio of the Fund. Moody's and S&P
continually assess the claims-paying ability of insurers and the credit
characteristics of issuers, and there can be no assurance that they will not
downgrade their assessments subsequent to the time a Fund purchases securities.
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
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payments shall become due but shall not be paid by the issuer, except that in
the event of any acceleration of the due date of the principal by reason of
mandatory or optional redemption (other than acceleration by reason of a
mandatory sinking fund payment), default or otherwise, the payments guaranteed
may be made in such amounts and at such times as payments of principal would
have been due had there not been such acceleration. The insurer is responsible
for such payments less any amounts received by the holder from any trustee for
the Municipal Obligation issuers or from any other source. Original Issue
Insurance does not guarantee payment on an accelerated basis, the payment of
any redemption premium (except with respect to certain premium payments in the
case of certain small issue industrial development and pollution control
Municipal Obligations), the value of the shares of the Fund, the market value
of Municipal Obligations, or payments of any tender purchase price upon the
tender of the Municipal Obligations. Original Issue Insurance also does not
insure against nonpayment of principal of or interest on Municipal Obligations
resulting from the insolvency, negligence or any other act or omission of the
trustee or other paying agent for such obligations.
In the event that interest on or principal of a Municipal Obligation covered
by insurance is due for payment but is unpaid by the issuer thereof, the
applicable insurer will make payments to its fiscal agent (the "Fiscal Agent")
equal to such unpaid amounts of principal and interest not later than one
business day after the insurer has been notified that such nonpayment has
occurred (but not earlier than the date such payment is due). The Fiscal Agent
will disburse to the Fund the amount of principal and interest which is then
due for payment but is unpaid upon receipt by the Fiscal Agent of (i) evidence
of the Fund's right to receive payment of such principal and interest and (ii)
evidence, including any appropriate instruments of assignment, that all of the
rights to payment of such principal or interest then due for payment shall
thereupon vest in the insurer. Upon payment by the insurer of any principal or
interest payments with respect to any Municipal Obligations, the insurer shall
succeed to the rights of a Fund with respect to such payment.
Original Issue Insurance remains in effect as long as the Municipal
Obligations covered thereby remain outstanding and the insurer remains in
business, regardless of whether a Fund ultimately disposes of such Municipal
Obligations. Consequently, Original Issue Insurance may be considered to
represent an element of market value with respect to the Municipal Obligations
so insured, but the exact effect, if any, of this insurance on such market
value cannot be estimated.
Secondary Market Insurance. Subsequent to the time of original issuance of a
Municipal Obligation, a Fund or a third party may, upon the payment of a single
premium, purchase insurance on such Municipal Obligation. Secondary Market
Insurance generally provides the same type of coverage as is provided by
Original Issue Insurance and remains in effect as long as the Municipal
Obligation covered thereby remain outstanding, the holder of such Municipal
Obligation does not voluntarily relinquish the Secondary Market Insurance and
the insurer remains in business, regardless of whether the Fund ultimately
disposes of such Municipal Obligation.
One of the purposes of acquiring Secondary Market Insurance with respect to a
particular Municipal Obligation would be to enable a Fund to enhance the value
of such Municipal Obligation. A Fund, for example, might seek to purchase a
particular Municipal Obligation and obtain Secondary Market Insurance with
respect thereto if, in the opinion of Nuveen Advisory, the market value of such
Municipal Obligation, as insured, would exceed the current value of the
Municipal Obligation without insurance plus the cost of the Secondary Market
Insurance. Similarly, if a Fund owns but wishes to sell a Municipal Obligation
that is then covered by Portfolio Insurance, the Fund might seek to obtain
Secondary Market Insurance with respect thereto if, in the opinion of Nuveen
Advisory, the net proceeds of a sale by the Fund of such obligation, as
insured, would exceed the current value of such obligation plus the cost of the
Secondary Market Insurance.
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
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Obligations insured under one Portfolio Insurance policy would generally not be
insured under any other policy purchased by a Fund. A Municipal Obligation is
eligible for coverage under a policy if it meets certain requirements of the
insurer. Portfolio Insurance is intended to reduce financial risk, but the cost
thereof and compliance with investment restrictions imposed under the policy
will reduce the yield to shareholders of a Fund.
If a Municipal Obligation is already covered by Original Issue Insurance or
Secondary Market Insurance, then such Municipal Obligation is not required to
be additionally insured under any policy of Portfolio Insurance that a Fund may
purchase. All premiums respecting Municipal Obligations covered by Original
Issue Insurance or Secondary Market Insurance are paid in advance by the issuer
or other party obtaining the insurance.
Portfolio Insurance policies are effective only as to Municipal Obligations
owned by and held by a Fund, and do not cover Municipal Obligations for which
the contract for purchase fails. A "when-issued" Municipal Obligation will be
covered under a Portfolio Insurance policy upon the settlement date of the
issue of such "when-issued" Municipal Obligation. In determining whether to
insure Municipal Obligations held by a Fund, an insurer will apply its own
standards, which correspond generally to the standards it has established for
determining the insurability of new issues of Municipal Obligations. See
"Original Issue Insurance" above.
Each Portfolio Insurance policy will be noncancellable and will remain in
effect so long as a Fund is in existence, the Municipal Obligations covered by
the policy continue to be held by the Fund, and the Fund pays the premiums for
the policy. Each insurer will generally reserve the right at any time upon 90
days' written notice to a Fund to refuse to insure any additional securities
purchased by the Fund after the effective date of such notice. The Board of
Trustees will generally reserve the right to terminate each policy upon seven
days' written notice to an insurer if it determines that the cost of such
policy is not reasonable in relation to the value of the insurance to the Fund.
Each Portfolio Insurance policy will terminate as to any Municipal Obligation
that has been redeemed from or sold by a Fund on the date of such redemption or
the settlement date of such sale, and an insurer shall not have any liability
thereafter under a policy as to any such Municipal Obligation, except that if
the date of such redemption or the settlement date of such sale occurs after a
record date and before the related payment date with respect to any such
Municipal Obligation, the policy will terminate as to such Municipal Obligation
on the business day immediately following such payment date. Each policy will
terminate as to all Municipal Obligations covered thereby on the date on which
the last of the covered Municipal Obligations mature, are redeemed or are sold
by a Fund.
One or more policies of Portfolio Insurance may provide a Fund, pursuant to
an irrevocable commitment of the insurer, with the option to exercise the right
to obtain permanent insurance ("Permanent Insurance") with respect to a
Municipal Obligation that is to be sold by the Fund. The Fund would exercise
the right to obtain Permanent Insurance upon payment of a single, predetermined
insurance premium payable from the proceeds of the sale of such Municipal
Obligation. It is expected that the Fund will exercise the right to obtain
Permanent Insurance for a Municipal Obligation only if, in the opinion of
Nuveen Advisory, upon such exercise the net proceeds from the sale by the Fund
of such obligation, as insured, would exceed the proceeds from the sale of such
obligation without insurance.
The Permanent Insurance premium with respect to each such obligation is
determined based upon the insurability of each such obligation as of the date
of purchase by the Fund and will not be increased or decreased for any change
in the creditworthiness of such obligation unless such obligation is in default
as to payment or principal or interest, or both. In such event, the Permanent
Insurance premium shall be subject to an increase predetermined at the date of
purchase by the Fund.
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Each Fund generally intends to retain any insured securities covered by
Portfolio Insurance that are in default or in significant risk of default and
to place a value on the insurance, which ordinarily will be the difference
between the market value of the defaulted security and the market value of
similar securities of minimum investment grade (i.e., rated BBB) that are not
in default. In certain circumstances, however, Nuveen Advisory may determine
that an alternative value for the insurance, such as the difference between the
market value of the defaulted security and either its par value or the market
value of securities of a similar nature that are not in default or in
significant risk of default, is more appropriate. To the extent that the Fund
holds such defaulted securities, it may be limited in its ability to manage its
investment portfolio and to purchase other Municipal Obligations. Except as
described above with respect to securities covered by Portfolio Insurance that
are in default or subject to significant risk of default, the Funds will not
place any value on the insurance in valuing the Municipal Obligations that it
holds.
Because each Portfolio Insurance policy will terminate as to Municipal
Obligations sold by a Fund on the date of sale, in which event the insurer will
be liable only for those payments of principal and interest that are then due
and owing (unless Permanent Insurance is obtained by the Fund), the provision
for this insurance will not enhance the marketability of securities held by a
Fund, whether or not the securities are in default or in significant risk of
default. On the other hand, since Original Issue Insurance and Secondary Market
Insurance generally will remain in effect as long as Municipal Obligations
covered thereby are outstanding, such insurance may enhance the marketability
of such securities, even when such securities are in default or in significant
risk of default, but the exact effect, if any, on marketability 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 $4,013,000,000 (unaudited) and
statutory capital of approximately $2,402,000,000 (unaudited) as of December
31, 1999. 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, 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.
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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".
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 a wholly owned subsidiary of Financial Security Assurance
Holdings Ltd. ("Holdings"), a New York Stock Exchange listed company. Major
shareholders of Holdings include White Mountains Insurance Group, Inc., XL
Capital Ltd. 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. On March 14, 2000,
Holdings announced that it had entered into a merger agreement pursuant to
which Holdings would become a wholly-owned subsidiary of Dexia, S.A., a
publicly-held Belgian corporation, subject to receipt of shareholder and
regulatory approvals and satisfaction of other closing conditions. Dexia, S.A.,
through its bank subsidiaries, is primarily engaged in the business of public
finance in France, Belgium and other European countries. The shareholders of
Holdings are not liable for the obligations of Financial Security. As of March
31, 2000, 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 $1,340,272,000 and $663,574,000, 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 $1,360,722,000 and
$547,872,000. 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 (the "Company"). The Company 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, 1998 the Insurer had admitted assets of $6.5 billion
(audited), total liabilities of $4.2 billion (audited), and total capital and
surplus of $2.3 billion (audited) determined in accordance with statutory
accounting practices prescribed or permitted by insurance regulatory
authorities. As of December 31, 1999, the Insurer had admitted assets of $7.0
billion (audited), total liabilities of $4.6 billion (audited), and total
capital and surplus of $2.4 billion (audited) 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
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of the Company 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
California Insured Municipal Bond Fund, the Nuveen Massachusetts Insured
Municipal Bond Fund, and the Nuveen New York Insured Municipal Bond Fund the
full and complete payment required to be made by or on behalf of the issuer to
the applicable paying agent or its successor of an amount equal to (i) the
principal of (either at the stated maturity or by advancement of maturity
pursuant to a mandatory sinking fund payment) and interest on, the Municipal
Obligations as such payments shall become due but shall not be so paid (except
that in the event of any acceleration of the due date of such principal by
reason of mandatory or optional redemption or acceleration resulting from
default or otherwise, other than any advancement of maturity pursuant to a
mandatory sinking fund payment, the payments guaranteed by the Insurer's policy
shall be made in such amounts and at such times as such payments of principal
would have been due had there not been any such acceleration) and (ii) the
reimbursement of any such payment which is subsequently recovered from the Fund
pursuant to a final judgment by a court of competent jurisdiction that such
payment constitutes an avoidable preference to the Fund within the meaning of
any applicable bankruptcy law (a "Preference").
The Insurer's policy does not insure against loss of any prepayment premium
which may at any time be payable with respect to any Municipal Obligation. The
Insurer's policy does not, under any circumstance, insure against loss relating
to: (i) optional or mandatory redemptions (other than mandatory sinking fund
redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of Municipal Obligations upon tender thereof; or
(iv) any Preference relating to (i) through (iii) above. The Insurer's policy
also does not insure against nonpayment of principal of or interest on the
Municipal Obligations resulting from the insolvency, negligence or any other
act or omission of any paying agent for the Municipal Obligations.
With respect to small issue industrial development bonds and pollution
control revenue bonds covered by the policy, the Insurer guarantees the full
and complete payments required to be made by or on behalf of an issuer of such
bonds if there occurs pursuant to the terms of the bonds an event which results
in the loss of the tax-exempt status of interest on such bonds, including
principal, interest or premium payments payable thereon, if any, as and when
required to be made by or on behalf of the issuer pursuant to the terms of such
bonds.
When the Insurer receives from the paying agent or the Fund, (1) telephonic
or telegraphic notice (subsequently confirmed in writing by registered or
certified mail), or (2) written notice by registered or certified mail, that a
required payment of any insured amount which is then due has not been made, the
Insurer on the due date of such payment or within one business day after
receipt of notice of such nonpayment, whichever is later, will make a deposit
of funds, in an account with State Street Bank and Trust Company, N.A., in New
York, New York, or its successor, sufficient for the payment of any such
insured amounts which are then due. Upon presentment and surrender of such
Municipal Obligations or presentment of such other proof of ownership of the
Municipal Obligations, together with any appropriate instruments of assignment
to evidence the assignment of the insured amounts due on the Municipal
Obligations as are paid by the Insurer, and appropriate instruments to effect
the appointment of the Insurer as agent for the Fund in any legal proceeding
related to payment of insured amounts on Municipal Obligations, such
instruments being in a form satisfactory to State Street Bank and Trust
Company, N.A., State Street Bank and Trust Company, N.A. shall disburse to the
Fund or the paying agent payment of the insured amounts due on such Municipal
Obligations, less any amount held by the paying agent for the payment of such
insured amounts and legally available therefor.
Financial Guaranty Insurance Company ("Financial Guaranty")
The Portfolio Insurance Policy is non-cancellable except for failure to pay
the premium. The premium rate for each purchase of a security covered by the
Portfolio Insurance Policy is fixed for the life of the Insured Bond. The
insurance premiums are payable monthly by the Fund and are adjusted for
purchases, sales and payments
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prior to maturity of Insured Bonds during the month. In the event of a sale of
any Insured Bond by the Fund or payment thereof prior to maturity, the
Portfolio Insurance policy terminates as to such Insured Bond.
Under the provisions of the Portfolio Insurance Policy, Financial Guaranty
unconditionally and irrevocably agrees to pay to State Street Bank and Trust
Company, or its successor, as its agent (the "Fiscal Agent"), that portion of
the principal of and interest on the Insured Bonds which shall become due for
payment but shall be unpaid by reason of nonpayment by the issuer of the
Insured Bonds. The term "due for payment" means, when referring to the
principal of an Insured Bond, its stated maturity date or the date on which it
shall have been called for mandatory sinking fund redemption and does not refer
to any earlier date on which payment is due by reason of call for redemption
(other than by mandatory sinking fund redemption), acceleration or other
advancement of maturity and means, when referring to interest on an Insured
Bond, the stated date for payment of interest. In addition, the Portfolio
Insurance Policy covers nonpayment by the issuer that results from any payment
of principal or interest made by such issuer on the Insured Bond to the Fund
which has been recovered from the Fund or its shareholders pursuant to the
United States Bankruptcy Code by a trustee in bankruptcy in accordance with a
final, nonappealable order of a court having competent jurisdiction.
Financial Guaranty will make such payments to the Fiscal Agent on the date
such principal or interest becomes due for payment or on the business day next
following the day on which Financial Guaranty shall have received notice of
nonpayment, whichever is later. The Fiscal Agent will disburse the Trustee the
face amount of principal and interest which is then due for payment but is
unpaid by reason of nonpayment by the issuer, but only upon receipt by the
Fiscal Agent of (i) evidence of the Trustee's right to receive payment of the
principal or interest due for payment and (ii) evidence, including any
appropriate instruments of assignment, that all of the rights to payment of
such principal or 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 ("GE Capital"). Neither the Corporation
nor GE Capital is obligated to pay the debts of or the claims against Financial
Guaranty. 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 December 31, 1999, the total capital and surplus of
Financial Guaranty was approximately $1.272 billion. 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).
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<PAGE>
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 Funds or the Board of Trustees of
the Funds.
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
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predict future portfolio turnover rates, the annual portfolio turnover rate for
each of the Funds is generally not expected to exceed 75%. However, each Fund
reserves the right to make changes in its investments whenever it deems such
action advisable and, therefore, a Fund's annual portfolio turnover rate may
exceed 75% in particular years depending upon market conditions.
The portfolio turnover rates for the 1999 and 2000 fiscal year-ends of the
Funds were:
<TABLE>
<CAPTION>
Fiscal
Year
1999 2000
---- ----
<S> <C> <C>
Nuveen New York Municipal Bond Fund............................. 28% 19%
Nuveen New York Insured Municipal Bond Fund..................... 16% 16%
Nuveen New Jersey Municipal Bond Fund........................... 10% 26%
Nuveen California Municipal Bond Fund........................... 34% 31%
Nuveen California Insured Municipal Bond Fund................... 25% 44%
Nuveen Connecticut Municipal Bond Fund.......................... 7% 22%
Nuveen Massachusetts Municipal Bond Fund........................ 10% 15%
Nuveen Massachusetts Insured Municipal Bond Fund................ 11% 10%
</TABLE>
When-Issued or Delayed-Delivery 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 Obligations, generally Municipal Obligations issued in
its respective state. Each Fund is therefore more susceptible to political,
economic or regulatory factors adversely affecting issuers of Municipal
Obligations in its state. Brief summaries of these factors are contained in the
Prospectus. Set forth below is additional information that bears upon the risk
of investing in Municipal Obligations issued by public authorities in the
states of currently offered Funds. This information was obtained
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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 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 increased by 6.5% during 1999 to an
estimated $969 billion, which accounts for almost 13% of all personal income in
the nation. Total employment is over 16 million, the majority of which is in
the service, trade and manufacturing sectors.
Unemployment has declined dramatically from its 10% recession peak and
through the first quarter of this year, the State's 4.7% unemployment rate is
at a 30-year low. Economic indicators show a steady and strong recovery
underway in California since the start of 1994, particularly in export-related
industries, services, electronics, entertainment and tourism. The recovery in
export-related industries has been dampened somewhat by the economic crisis in
Asia, but has been offset by gains in the construction and service sectors.
California's vital high-tech sector, including computer programming and
Internet-related industries remained stable during 1999. The majority of the
nation's supercomputing and Internet research/development continues to occur in
California's Silicon Valley. According to one report, California start-up
companies receive approximately 40% of all U.S. venture capital, which is the
largest infusion of capital within any state in the nation. Furthermore,
another recent study revealed that over a three year period beginning in 1997,
State residents received approximately $68 billion of gains on the exercise of
employee stock options from initial public offerings (IPO) alone. Consequently,
the recent success of the technology sector within the U.S. stock market, has
also been a major stimulus in the recent resurgence of the California economy
in recent years.
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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<PAGE>
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 $4.0 billion under the limit
for fiscal year 1997-98.
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.
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
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education. As of June 30, 1999, the State had outstanding approximately $16
billion of long-term general obligation bonds, and $6.1 billion of lease-
purchase debt supported by the State General Fund. The State also had about
$10.8 billion of authorized and unissued general obligation bonds.
Recent Financial Results
The principal sources of General Fund revenues in 1997-98 were the California
personal income tax (53% of total revenues), the sales and use tax (33%) and
bank and corporation taxes (9%). 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. According to the
Governor's May Budget Revision, California's robust economy is projected to
propel the State's General Fund balance to $3.1 billion by the end of fiscal
year 2000-01, $1.8 billion of which will be allocated to the SFEU.
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 as of June 30, 1993. Starting in the
1990-91 Fiscal Year and for each year thereafter, each budget required
multibillion dollar actions to bring projected revenues and expenditures into
balance and to close large "budget gaps" which were identified. The Legislature
and Governor eventually agreed on a number of different steps to produce Budget
Acts in the Years 1991-92 to 1995-96 (although not all of these actions were
taken in each year):
. significant cuts in health and welfare program expenditures;
. transfers of program responsibilities and some funding sources from the
State to local governments, coupled with some reduction in mandates on 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;
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. 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. Therefore, 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.
The accumulated budget deficits in the early 1990's, together with other
factors such as the disbursement of funds to local school districts "borrowed"
from future fiscal years and hence not shown in the annual budget, resulted in
a significant reduction in 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 the 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.
Proposed 2000-01 Budget. On January 10, 2000, the Governor released his
proposed budget for FY 2000-01. Based on the Governor's May revision, General
Fund revenues (including transfers) are projected to be $73.8 billion and
proposed expenditures to be $78.2 billion, to leave a budget reserve in the
SFEU of $1.8 billion at June 30, 2001. The Governor proposed further programs
emphasizing education, public safety, economic development and transportation
needs within the State.
Although the State's strong economy is producing record revenues for 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.
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Bond Rating
The ratings on California's long-term general obligation bonds were reduced
in the early 1990s from "AAA" levels that had existed prior to the recession.
However, in August 1999, Standard & Poor's upgraded its rating on California's
GO debt to AA- from A+. Fitch soon followed by upgrading its rating to AA from
AA-, earlier this year. As of June 1, 2000, Moody's maintained its Aa3 rating,
however the rating agency's outlook has been changed to Positive from Stable.
These ratings reflect the State's credit quality only, and do not indicate
the creditworthiness of other tax-exempt securities in which the Funds may
invest. Furthermore, there can be no assurance that the State of California
will maintain its current credit ratings.
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 the property tax shift from
counties to school districts, the Controller's ability to make payments within
a State budget, and various other issues. 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 the 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 a 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.
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.
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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 challenging 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
Standard & Poor's suspended ratings on California tax allocation bonds after
the enactment of Articles XIIIA and XIIIB, and only resumed such ratings on a
selective basis.
Proposition 87, approved by California voters in 1988, requires that all
revenues produced by a tax rate increase go directly to the taxing entity which
increased such tax rate to repay that entity's general obligation indebtedness.
As a result, redevelopment agencies (which, typically, are the issuers of tax
allocation securities) no longer receive an increase in tax increment when
taxes on property in the project area are increased to repay voter-approved
bonded indebtedness.
The effect of these various constitutional and statutory changes upon the
ability of California municipal securities issuers to pay interest and
principal on their obligations remains unclear. Furthermore, other measures
affecting the taxing or spending authority of California or its political
subdivisions may be approved or enacted in the future. Legislation has been or
may be introduced which would modify existing taxes or other revenue-
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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. Presently, it is not possible to predict the extent to
which any such legislation will be enacted. Nor is it possible to determine the
impact of any such legislation on California Municipal Obligations in which the
Funds 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 Funds 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 having obtained earthquake insurance coverage
at reasonable rates; (ii) an insurer performing on its contracts of insurance
in the event of widespread losses; or (iii) the federal or State government
appropriating 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.
Economy. Although it continues to lag the nation in job growth, Connecticut's
economy has performed relatively well recently, helping to narrow the gap with
the national economy. The State has recently reclaimed the jobs it lost to the
recession of the early 1990's and Connecticut also continues to post the
strongest income gains in the country. Once heavily reliant on the insurance,
defense manufacturing, finance and real estate industries, the State's economy
has become more diversified, benefiting from growth in service sector
employment in business and personal services, health care, legal services,
private education and gaming. Unemployment has improved and is now below
national averages, registering 2.3% in April 2000 versus the national average
of 3.9% for that same time period. Connecticut also continues to rank first
among states in per capita personal income ($39,167).
Since 1995, the State has experienced slow, steady population growth,
although it has not yet replaced all of the residents it lost during the
recession of the early 1990's. The State's urban centers, however, continue to
struggle with population losses, above average rates of unemployment, and lower
per capita income levels. For example, according to the 2000 State Comptroller
Report, with the exception of Stamford, the State's largest cities (those with
over 100,000 residents) have all experienced a population loss in the 1990's.
That same report states that none of Connecticut's ten fastest growing cities
has a population exceeding 25,000 residents. It also notes that the State's
child poverty rate is rising especially in its urban areas.
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Recent Financial Results. The principal sources of revenue in the State's
General Fund during fiscal year 1999 were personal income tax receipts and
sales tax collections which accounted for 30% and 25% of total General Fund
revenues respectively. The State also achieved a record $169 million General
Fund surplus during fiscal year 1999. Consequently, the State was able to place
$30 million in the State's Rainy Day Fund, and was also able to utilize $41.3
million to retire outstanding debt obligations during fiscal year 1999.
Projected growth in income and sales tax receipts are also expected to propel
the State to a budget surplus of approximately $270.5 million by the end of
fiscal year 2000.
Litigation. The State, its units, and employees are parties to several legal
proceedings which normally occur in government 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. Specifically in May 2000,
the State settled a lawsuit that charged that State Police violated the
Constitutional rights of thousands of people by taping phone calls over a
period ranging from 1978 to 1989. Connecticut's exposure to potential claims is
limited to $12 million, which has been appropriated from the State's June 30,
1999 surplus. There are several other legal proceedings in which the State is
involved, which may be adversely decided against the State. It is unknown what
effect, if any, these possible adverse decisions may have on future State
expenditures or revenue sources of the State.
Ratings. As of June 1, 2000, Moody's Standard & Poor's, and Fitch maintained
Aa3, AA, and AA ratings on the State's general obligation debt.
Two of the three major rating agencies upgraded the general obligation debt
of Bridgeport, the State's largest city. In September 1999, Standard & Poor's
upgraded Bridgeport to BBB from BBB-. Fitch followed in January 2000, by
upgrading the City to A- from BBB. Both agencies cited Bridgeport's improving
financial position and the success of the City's ongoing economic development
efforts, which are expected to stimulate near-term tax base growth. As of June
1, 2000, Moody's maintained its Baa1 rating on the City's general obligation
bonds.
These ratings reflect Bridgeport's and the State's credit quality only, and
do not indicate the creditworthiness of other tax-exempt securities in which
the Fund may invest. Furthermore, there can be no assurance that Bridgeport or
the State of Connecticut will maintain its current credit ratings.
Other Issues of Connecticut Obligations. There are a number of state
agencies, instrumentalities and political subdivisions of the State of
Connecticut 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
of Connecticut. The brief summary above does not address, nor does it attempt
to address, any difficulties and the financial situations of those other
issuers of Connecticut Obligations.
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.
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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.
The Massachusetts economy has fully recovered from the recession of the early
1990's and has grown at a healthy pace. The strongest in New England, the
State's economy has also performed well relative to the national economy across
several indicators. Unemployment remains below the national average,
registering 2.8% in April 2000 versus the national rate of 3.9% for the same
time period. Per capita income levels remain high at approximately $35,733,
125% of the national average, placing Massachusetts third among the states for
per capita income levels. The State has also registered strong per capita
income growth, outstripping the national growth rate. The State's economy
remains diverse, with construction, financial services, health care and higher
education continuing to make important contributions to the State's economy.
The service sector is the largest sector in the Massachusetts economy, followed
by wholesale and retail trade, manufacturing, and government employment.
Recently, employment growth has slowed somewhat, in part because of
tightening labor. The State continues to lose manufacturing employment, but
those losses are being partially offset by gains in the service and
construction sectors. Large public works projects in the Boston area, including
the $13 billion Central Artery Project and the $1.0 billion modernization
program at Logan International Airport, have contributed construction jobs.
The Massachusetts economy is fairly concentrated in the eastern portion of
the State, with more than 50% of its total population residing in the
metropolitan Boston area. Of the 17 Fortune 500 companies located in the State
in 1998, 15 were located in the metropolitan Boston region. While many of the
communities in the eastern portion of the State have benefited from the
economic growth described above, several areas outside the metropolitan Boston
region have not participated as fully and continue to be hampered by higher
unemployment, lower per capita income and stagnant property values.
Massachusetts Health Care Environment: Despite the recent strides of the
overall Massachusetts economy, the Commonwealth's health care sector continues
to operate in an environment surrounded by economic uncertainty. According to a
Massachusetts Hospital Association survey of 53 hospitals, 1999 total profits
for hospitals in the Commonwealth were 0.3% on average, while operating losses
were 3%, on average. In January of this year, Harvard-Pilgrim Health Care of
New England, one of the largest managed care operations in New England and the
nation (over 1.1 million members in the Commonwealth), was placed into
temporary receivership at the request of the Attorney General, after posting
$150 million of operating losses during fiscal year 1999.
However, Harvard-Pilgrim's financial position has reportedly shown signs of
improvement in 2000. In an attempt to help Harvard-Pilgrim maintain its long-
term solvency, the Commonwealth has devised a turnaround business plan for the
troubled health provider. However, through June 1, 2000, the Massachusetts
Supreme Court has yet to officially release the troubled managed care health
provider from receivership status. The future effects of the pending Supreme
Court ruling on the overall Massachusetts health care market and/or future debt
obligations within the health care sector cannot be determined.
Central Artery/Tunnel Project. Although the massive Central Artery/Tunnel
Project ("The Big Dig" or CA/T) appears to be on schedule for its projected
2004 completion, the Massachusetts Turnpike Authority ("MTA"), which serves as
lead manager on the project, disclosed in February, 2000 that the project was
$1.4 billion over its original $11.7 billion budget estimate. On May 18, 2000
Governor Celluci's proposal to finance the project's shortfall, a $2.4 billion
"Big Dig Bailout" bill anchored primarily by revenues generated through
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additional auto registration fees in the Commonwealth, received legislative
approval. Although the Commonwealth has apparently resolved the project's
current budget shortfall, there is no assurance that future cost revisions will
not occur, resulting in additional expenditures by the Commonwealth. Over a
five-year period ending in February 2000, approximately $5.6 billion of debt
obligations had previously been issued for the CA/T Project.
In 1983, construction began on the Central Artery/Tunnel Project, which
remains one of the most complex infrastructure projects in the nation. The
project involves the depression and widening of Boston's Central Artery
(Interstate-93), which connects the city's Downtown area to the City of
Cambridge. In addition, the project includes the widening of the Ted Williams
Tunnel, which connects Boston's downtown area to Logan International Airport
and other points. The Tunnel was opened to commercial traffic in December 1999.
The Tunnel will be open to all traffic once all work is completed, currently
estimated to be in the year 2001. In addition to providing a link to Boston's
airport, the Tunnel will also provide a connection to the Massachusetts
Turnpike.
Recent Financial Results. The Commonwealth's revenues exceeded expenditures
in fiscal year 1999, for the ninth consecutive year. A favorable economic
climate in Massachusetts, as well as a strong national economy during 1999,
propelled the Commonwealth's governmental fund balance to $2.7 billion and its
"Rainy Day" fund balance to $1.4 billion, which represents approximately 7% of
fiscal year 2000 revenue estimates.
2000 Fiscal Year Budget. The budget for 2000 provides for total expenditures
and appropriations of approximately $21.4 billion, a 5.6% increase over fiscal
year 1999 spending. Estimated budgeted revenues and other revenue sources are
expected to reach $20.2 billion, a 3.2% increase over fiscal year 1999
revenues. Revised estimates project tax revenues reaching $15.3 billion, an
increase of 6.9% over fiscal year 1999.
The budget provides for the establishment of a Health Care Security Trust
Fund ("HCSTF"), to which all payments from the national settlement between the
Commonwealth and participating tobacco companies will be credited. Thirty
percent of the settlement payments received by the Commonwealth and 30% of the
investment earnings generated by the HCSTF are to be transferred annually to
the Tobacco Settlement Fund, where they may be used, subject to appropriation,
for health related purposes, including various tobacco awareness programs. The
budget also includes "forward funding" legislation that will substantially
modify the state's funding mechanisms for the Massachusetts Bay Transportation
Authority.
On January 26, 2000 Governor Cellucci filed a supplemental budget valued at
$290.9 million, including $22 million in one-time relief grants and revolving
loans to health care providers, and $15.5 million for snow and ice removal for
State highways. The supplemental budget also includes a transfer of $29.4
million to the Capital Improvement and Investment Trust Fund for improvements
at the Registry of Motor Vehicles and firefighter safety equipment grants.
Fiscal Year 2000 Tax Changes. Fiscal year 2000 revenue projections
incorporate $226 million of proposed tax cuts which would reduce the
Commonwealth's personal income tax rate from 5.95% to 5% over the span of three
years. The fiscal 2000 budget is based on numerous spending and revenue
estimates, the achievement of which cannot be assured.
1999 Fiscal Year Budget. The fiscal year 1999 budget provided for $21.2
billion of spending, a 6% increase over spending during fiscal year 1998. On
January 27, 1999, Governor Celluci also filed a supplemental budget totaling
approximately $190.1 million. The supplemental budget included $22.8 million
for ongoing operations and approximately $167.3 million for one-time
expenditures, including $50 million for road and bridge repairs and $15 million
for Year 2000 compliance initiatives.
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The revenue estimates in the fiscal year 1999 budget were based on projected
tax revenue of $14.4 billion. The budget also included various transfers
including $408.9 million to a Defeasance Trust Fund for the retirement of
certain outstanding Commonwealth debt obligations, $118.6 million to the
Capital Improvement and Investment Trust Fund for various capital expenditures,
and $86 million to a collective bargaining fund.
Fiscal Year 1999 Tax Changes. The Commonwealth's rate that is applied to
interest income was reduced to 5.95% from 12%, at an annualized cost estimated
at $239 million. The Commonwealth also eliminated "pay to play" provisions
which required taxpayers to pay a state tax assessment before appealing a
ruling to the Appellate tax board. The Department of Revenue projects the
reduction in revenue associated with this tax cut at $31 million during fiscal
year 1999.
Debt Ratings. Moody's upgraded the Commonwealth's general obligation debt
from Aa3 to Aa2 on January 13, 2000, citing the Commonwealth's "economic
strength and established track record of fiscal control." In addition, on
January 14, 2000, Standard & Poor's revised its outlook on the Commonwealth's
rating from Stable to Positive, while maintaining its AA- rating. As of June 1,
2000, Fitch rates the Commonwealth's general obligation debt AA-.
Despite the cost overruns that have been associated with the CA/T Project,
the credit ratings of the entities that share the cost burden of the project,
including the MTA and the Massachusetts Port Authority (Massport), have not
been affected. The credit ratings assigned to MTA debt obligations were
maintained at Aa3, AA-, and AA- respectively and Massport ratings were also
maintained at Aa3, AA-, and AA respectively.
These ratings reflect the credit quality of Commonwealth, the MTA, and
Massport, only, and do not indicate the creditworthiness of other tax-exempt
securities in which the Funds may invest. Furthermore, there can be no
assurance that these entities will maintain their current ratings.
In the late 1980's and early 1990's, the Commonwealth and certain of its
public bodies and municipalities faced serious financial difficulties which
affected the credit standing and borrowing abilities of Massachusetts and its
respective entities and may have contributed to higher interest rates on debt
obligations. While many of the financial and economic challenges are being
addressed, difficulties could arise again in the future. Such financial
difficulties could result in declines in the market values of, or default on,
existing obligations including Massachusetts Obligations in the Funds. If a
financial crisis occurs 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 Funds and interest income to the
Funds 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 January 1, 2000 was approximately $11.9 billion.
The total bond and note liabilities of the Commonwealth as of January 1, 2000,
including guaranteed bond and contingent liabilities was approximately $16.3
billion.
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.
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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 estimated to be increased to
approximately $1.007 billion, $1.061 billion and $1.065 billion, respectively.
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
Commonwealth arising from alleged torts, alleged breaches of contracts,
environmental disputes, and other alleged violations of State and Federal laws.
Included in the Commonwealth's outstanding litigation are a number of cases
challenging the Commonwealth's school district financing formulas, as well as
various disputes arising from the Division of Medical Assistance's prepayment
and post-payment review programs. Adverse judgments in these matters generally
could result in the expenditure of the Commonwealth's funds. However, the
Commonwealth is unable to estimate its total exposure to these claims.
Tax Limitation Measures. The State and its cities and towns operate under
certain revenue-raising limitations. Proposition 2 1/2, which was passed by
voters in 1980, restricts the annual increase in property taxes levied by
cities and towns to 2.5% of the prior fiscal year's tax levy plus 2.5% of the
value of new properties and significant improvements to property. Limits on
state tax revenues were approved by voters in 1986. While the State and most of
its municipalities have managed within these constraints in recent years, these
limitations could reduce financial flexibility in the future under different
economic conditions.
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.
Factors Pertaining to New Jersey
Except to the extent the New Jersey Municipal Bond Fund (the "New Jersey
Fund") invests in temporary investments, the New Jersey Fund will invest
substantially all of its assets in New Jersey Municipal Obligations. The New
Jersey Fund is 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 Fund or the ability of particular obligors to
make timely payments of debt service on (or relating to) those obligations.
The State and Its Economy. The State is the ninth largest state in population
and the fifth smallest in land area.
New Jersey's economic base remains among the most diverse in the country. The
State's economic growth rates continue to outpace regional growth rates, but
remain below national averages. The State has recovered the
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jobs it lost during the national recession of the early 1990s, which hit New
Jersey and much of the Northeast region with particular severity. As a result,
the State's unemployment rate has improved, dropping from 5.1% in 1997 to 4.6%
in 1999. Although its income growth rate lagged or just equaled the national
rate, New Jersey remains one of the country's wealthiest states, ranking second
among the states in per capita income, which was $36,106 in 1999.
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 marked the implementation of a
new school funding formula specified by the Comprehensive Education Improvement
and Financing Act of 1996. However, late in 1997, the State Supreme Court found
that the new law still provided insufficient funding. In response, the State
increased its budgeted aid for fiscal 1998 to provide parity aid to affected
districts. On May 21, 1998, the State Supreme Court accepted the State's plan
to use a nationally acclaimed reading-based program called "Success for All"
and other "whole-school reforms" to assure the "thorough and efficient"
education required by the State constitution.
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 to 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.
Although the State of New Jersey has intervened somewhat by creating an
emergency reserve for financially distressed solid waste issuers, concerns
surrounding the overall fiscal health of the sector remain. Specifically, long-
term economic concerns for the Camden County Pollution Control Financing
Authority (CCPCFA) persist. The State has intervened to fund Camden's debt
service shortfalls in the past. However, without future County or State
intervention, Camden's ability to meet future debt service obligations remains
uncertain. New Jersey Governor Christine Whitman has taken the initiative in
drawing up assistance plans for selected debt burdened county pollution control
facilities throughout the State. However, due to the large scale of Camden's
financial difficulties and various other political considerations, neither the
County nor the State have yet to assume a moral obligation for outstanding
CCPCFA debt and the State has not proposed a plan providing long-term financial
assistance to the County.
New Jersey's health care system also continues to operate in an environment
surrounded by uncertainty. While higher health care premiums appear to be
improving the financial position of the majority of the State's managed care
companies, according to a recent rating agency study, 60% of the hospitals in
the State of New Jersey had operating deficits during 1998, a trend which
continued for a number of hospitals through 1999. In November 1998, two New
Jersey HMOs failed, leaving State hospitals and doctors with an estimated $100
million in unpaid debt. Consequently, Governor Whitman recently enacted
legislation in which the State, as well as other New Jersey HMOs, will share
the balance of the unpaid liabilities.
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,
environmental disputes, disputes arising from the alleged disposal of hazardous
waste, and other alleged violations of State and Federal laws. Included in the
State's outstanding litigation are a number of cases challenging New Jersey's
allocation of school district funding, as well as the State's funding of a
highway/tunnel project for Atlantic City's marina district. A number of New
Jersey HMOs also expect to file suit relating to Governor Whitman's HMO bailout
plan, as well. Adverse judgments in these matters generally could result in the
expenditure of State funds.
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However, the State is currently unable to estimate its total exposure to these
claims.
Debt Ratings. As of June 1, 2000, the State's general obligation bonds are
rated Aa1, AA+, and AA+ by Moody's, Standard and Poor's and Fitch,
respectively. These ratings reflect the State's credit quality only, and do not
indicate the creditworthiness of other tax-exempt securities in which the Fund
may invest. Furthermore, there can be no assurance that the State of New Jersey
will maintain its current credit ratings.
Other Issuers of New Jersey 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 of New Jersey. The brief
summary above does not address, nor does it attempt to address, any
difficulties and the financial situations of those other issuers of New Jersey
Obligations.
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: New York State's economy has improved, but continues to lag
the nation in several areas, including job growth and unemployment. The recent
success of the financial sector in New York State has led to a 21% increase in
personal income since 1995, although the State continues to slightly lag the
national average. However, New York State remains one of the wealthier states
in the nation. Per capita personal income was $33,946 in 1999 and the 1999
unemployment rate was 5.2%.
Overall, the economies of the State, and particularly of New York City, have
benefited from the strong results in the financial sector. This sector is,
however, more volatile than some of the other employment sectors. As a result,
because the State and City economies remains more reliant on the financial
industry than is the national economy, both the State and City remain
susceptible to downturns in that industry, which could cause adverse changes in
wage and employment levels. In addition, the benefits of the expansion in this
sector have not been distributed evenly across the population in New York City;
the income gap between the highest and lowest wage earners in the city has
widened to one of the largest gaps in the nation.
Improvement in the upstate economies has not been as pronounced as in
downstate areas, like New York City, because many upstate communities have not
participated as fully in the recent economic expansion. Population and
employment growth levels in the upstate counties have been minimal and have not
approached
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averages of downstate counties. Employment losses in the manufacturing sector
continue to constrain both population and employment growth in upstate areas.
Indebtedness. As of March 31, 1999, the total amount of State general
obligation debt stood at $4.6 billion. The State's general obligation debt is
voter approved.
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. LGAC 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. LGAC has issued all of its authorization. Any issuance of bonds by
LGAC in the future will be for refunding purposes only.
Financing of capital programs by other public authorities of the State is
also obtained from lease-purchase and contractual-obligation financing
arrangements (non-voter approved), the debt service for which is paid from
State appropriations. As of March 31, 1999, there were $24.0 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 $628 million of "moral obligation
financings" as of March 31, 1999, which are to be repaid from project revenues.
There has never been a default on moral obligation debt of the State.
State Budget: As of June 1, 2000, the State had not yet adopted a budget for
its 2001 fiscal year, which began on April 1, 2000. The date of adoption cannot
be determined.
The State has not approved its annual budget in a timely manner in several
years. To provide for the payment of debt service and to prevent the disruption
of essential services, the State has established procedures for approving
necessary funding for key services without a budget in place. Because of the
history of late budgets, these procedures have become fairly institutionalized
and have enabled the State to continue operations without significant
disruption.
State Debt Ratings. As of June 1, 2000, the State's general obligation bonds
were rated A2, A, and A+ by Moody's, Standard & Poor's, and Fitch respectively.
These ratings reflect the State's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the Funds may invest.
Furthermore, it cannot be assumed that New York State will maintain its current
credit ratings.
(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.
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 improved in fiscal year 1998. Much of
the increase can be traced to the performance of the financial 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.
In response to the City's fiscal crisis in 1975, the State took a number of
steps to assist the City in returning to fiscal stability. Among other actions,
the State Legislature (i) created MAC to assist with long-term financing for
the City's short-term debt and other cash requirements and (ii) created the
State Financial Control Board (the "Control Board") to review and approve the
City's budgets and four-year financial plans (the financial plans also apply to
certain City-related public agencies).
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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 to 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, such
developments could result in reductions in projected State aid to the City. In
addition, there can be no assurance that State budgets for 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.
Indebtedness: New York City and related organizations issue debt to fund
capital and other improvements in the City.
New York City general obligation debt: The State Constitution requires the
City to pledge its full faith and credit for the payment of principal and
interest on City term and serial bonds and guaranteed debt. The City's ability
to issue general obligation debt is limited by the New York State Constitution
to 10% of the average of five years' full valuations of taxable real estate.
Municipal Assistance Corporation: Created in 1975, MAC is empowered to issue
and sell bonds and notes and also provides certain oversight of the City's
financial activities. MAC has no taxing power. All outstanding bonds issued by
MAC are general obligations of MAC and do not constitute a debt of the City or
the State. Neither the City nor a credit of the City has any claim to MAC's
revenues and assets. MAC bonds are paid from certain sales and compensating use
taxes, the stock transfer tax and certain per capita aid subject in each case
to appropriation by the State Legislature. Net collections of taxes and per
capita aid are returned to the City by the State after MAC debt service
requirements are met. MAC has issued all of its debt authorization. Any
issuance of bonds by MAC in the future will be for refunding purposes only.
New York City Municipal Water Finance Authority: Established in 1985, the New
York City Municipal Water Finance Authority (MWFA) issues debt to finance the
cost of capital improvements to the City's water distribution and sewage
collection system. Bonds issued by the MWFA are paid from water and sewer fees
and charges.
New York City Transitional Finance Authority: The New York Transitional
Finance Authority (TFA) was created in March 1997 to assist the City in funding
its capital program.
Absent creation of this authority, the City would have faced limitations on
its general obligation borrowing capacity after 1998 under the State's
Constitution. TFA was authorized to issue debt in an aggregate principal amount
of $7.5 billion. TFA has no taxing power. All outstanding bonds issued by TFA
are general obligations of TFA and do not constitute debt of either the City or
the State. Neither the City nor a creditor of the City has any claim to TFA's
revenues and assets. TFA 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.
Sales taxes are only available to TFA after such amounts required by MAC are
deducted and if the amounts of personal income tax revenues fall below
statutorily specified coverage levels. Net collections of taxes not required by
TFA are paid to the City by TFA.
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New York City Tobacco Settlement Asset Securitization Corporation: The New
York City Tobacco Settlement Asset Securitization Corporation ("TSASC") was
created in November 1999 to further assist the City in funding its capital
programs.
TSASC is a special-purpose, bankruptcy-remote, non-for-profit corporation
authorized to issue debt in an aggregate principal amount of $2.5 billion.
TSASC has no taxing power. Bonds, which are issued by TSASC, are secured by
Tobacco Settlement Revenues arising out of the Master Settlement Agreement
between 46 states and the participating cigarette manufacturers. The program
was structured such that forecasted revenues are in excess of annual debt
service requirements, with the residual flowing back to New York City for the
financing of various capital projects. Bonds issued by TSASC are not debt of
the State of New York or the City. Furthermore, neither the revenues nor the
taxing power of New York State or the City is pledged towards debt service
payments.
As of June 30, 1999, the City had $27.4 billion in general obligation debt
outstanding. Related City issuers--MAC, TFA, and MWFA--had $3.8 billion, $4.15
billion, and $9.37 billion in revenue bonds outstanding, respectively. As of
June 1, 2000, $709 million in TSASC debt was outstanding.
Debt Ratings. As of June 1, 2000, Moody's, Standard & Poor's and Fitch rated
the City's general obligation bonds A3, A-, and A, respectively. In addition,
the agencies have rated New York City MAC obligations Aa3, AA, and AA,
respectively. TFA obligations are rated Aa3, AA+, and AA+, respectively. TSASC
obligations have been assigned ratings of Aa3, A, and A+, with higher ratings
assigned to short and/or intermediate maturity ranges of the unique bond issue.
In May 2000, Standard & Poor's, as well as Fitch, upgraded their ratings on
MWFA obligations to AA, citing the Authority's enhanced legal and structural
features, which provide extra protection for bondholders in case of default. As
of June 1, 2000, Moody's has affirmed its Aa3 rating on MWFA obligations.
These ratings reflect the City's credit quality only, and do not indicate the
creditworthiness of other tax-exempt securities in which the Funds may invest.
Furthermore, there can be no assurance that these issuers will maintain their
current credit ratings.
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, 1999,
the City estimated its potential future liability on outstanding claims to be
$3.5 billion.
(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.
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.
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As of March 31, 1999, the State reported that its public benefit corporations
had an aggregate of $47.8 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 legality or the adequacy of a variety of significant social
welfare programs primarily involving the State's Medicaid and mental health
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.
(5) Other Municipalities: Municipalities and school districts have engaged in
substantial short-term and long-term borrowings. Certain localities have
experienced financial problems in the past and have required additional State
assistance. Such requests could occur again in the future, which could impact
the State's financial position. The State has some oversight authority over
some of these localities; 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.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Emergency Financial Control Board for the City of
Yonkers (the "Yonkers Board" or EFCB) by the State in 1984. Consequently, the
State of New York supervised the financial affairs of the City by requiring
that financial plans be submitted to the EFCB on an annual basis. However, in
July 1998, the EFCB voted itself out of existence after the determination that
Yonkers had met the financial conditions to end the emergency period.
In December 1995, in reaction to continuing financial problems, the Troy
Municipal Assistance Corp., which was created in 1995, imposed a 1996 budget
plan upon Troy, New York. A similar municipal assistance corporation has also
been established for Newburgh, and is expected to remain in existence until
2004. In addition, several other New York cities, including Utica, Rome,
Schenectady, Syracuse and Niagara Falls have faced 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 can place additional strains upon the State's financial
condition.
Ongoing budgetary difficulties experienced by Nassau County ("Nassau")
resulted in the State's appointment of National Association of Securities
Dealers (NASD) Chairman and CEO, Frank Zarb as special advisor to the County in
March of 2000. Pending legislative approval from Nassau, the State and Mr. Zarb
have proposed a plan that would create the Nassau Interim Finance Authority
(NIFA). NIFA would serve as a temporary financing mechanism which would aid
Nassau in restructuring its excessive amount of outstanding debt, as well as
provide an estimated $100 million of transitional aid from the State over a 5-
year period. However, state assistance is contingent on Nassau officials
implementing budget balancing actions to close its current budget gap, as well
as the adoption of a balanced four-year financial plan during 2000. The
County's financial difficulties have contributed to several downgrades to its
general obligation debt. On February 17, 2000, Moody's downgraded the County's
general obligation bonds to Baa2 from Baa3, citing the County's ongoing
budgetary concerns. Moody's also placed a negative outlook on Nassau's debt
obligations. In addition, Standard & Poor's has placed the County's general
obligation bond rating on negative creditwatch and has stated that the County's
failure to resolve its current budget gap and the lack of a long-term financial
plan that addresses the County's ongoing fiscal troubles will likely result in
a downgrade, possibly to below investment grade.
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.
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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 tax-exempt entities in 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 State.
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 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.
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Short-Term Securities
The Prospectus discusses briefly the ability of the Funds to invest a portion
of their assets in federally tax-exempt or taxable short-term securities
("temporary investments"). Temporary investments will not exceed 20% of a
Fund's assets except when made for defensive purposes. The Funds will invest
only in taxable temporary investments that are either U.S. Government
securities or are rated within the highest grade by Moody's, S&P, or Fitch and
mature within one year from the date of purchase or carry a variable or
floating rate of interest. See Appendix A for more information about ratings by
Moody's, S&P, and Fitch.
The Funds may invest in the following federally tax-exempt temporary
investments:
Bond Anticipation Notes (BANs) are usually general obligations of state
and local governmental issuers which are sold to obtain interim financing
for projects that will eventually be funded through the sale of long-term
debt obligations or bonds. The ability of an issuer to meet its obligations
on its BANs is primarily dependent on the issuer's access to the long-term
municipal bond market and the likelihood that the proceeds of such bond
sales will be used to pay the principal and interest on the BANs.
Tax Anticipation Notes (TANs) are issued by state and local governments
to finance the current operations of such governments. Repayment is
generally to be derived from specific future tax revenues. Tax anticipation
notes are usually general obligations of the issuer. A weakness in an
issuer's capacity to raise taxes due to, among other things, a decline in
its tax base or a rise in delinquencies, could adversely affect the
issuer's ability to meet its obligations on outstanding TANs.
Revenue Anticipation Notes (RANs) are issued by governments or
governmental bodies with the expectation that future revenues from a
designated source will be used to repay the notes. In general, they also
constitute general obligations of the issuer. A decline in the receipt of
projected revenues, such as anticipated revenues from another level of
government, could adversely affect an issuer's ability to meet its
obligations on outstanding RANs. In addition, the possibility that the
revenues would, when received, be used to meet other obligations could
affect the ability of the issuer to pay the principal and interest on RANs.
Construction Loan Notes are issued to provide construction financing for
specific projects. Frequently, these notes are redeemed with funds obtained
from the Federal Housing Administration.
Bank Notes are notes issued by local government bodies and agencies as
those described above to commercial banks as evidence of borrowings. The
purposes for which the notes are issued are varied but they are frequently
issued to meet short-term working capital or capital-project needs. These
notes may have risks similar to the risks associated with TANs and RANs.
Tax-Exempt Commercial Paper (Municipal Paper) represents very short-term
unsecured, negotiable promissory notes, issued by states, municipalities
and their agencies. Payment of principal and interest on issues of
municipal paper may be made from various sources, to the extent the funds
are available therefrom. Maturities of municipal paper generally will be
shorter than the maturities of TANs, BANs or RANs. There is a limited
secondary market for issues of municipal paper.
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 each 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.
S-35
<PAGE>
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 Funds will only invest in U.S. dollar
denominated CDs issued by U.S. banks with assets of $1 billion or more.
Commercial Paper--Commercial paper is the term used to designate unsecured
short-term promissory notes issued by corporations. Maturities on these issues
vary from a few days to nine months. Commercial paper may be purchased from
U.S. corporations.
Other Corporate Obligations--The Funds may purchase notes, bonds and
debentures issued by corporations if at the time of purchase there is less than
one year remaining until maturity or if they carry a variable or floating rate
of interest.
Repurchase Agreements--A repurchase agreement is a contractual agreement
whereby the seller of securities (U.S. Government or Municipal Obligations)
agrees to repurchase the same security at a specified price on a future date
agreed upon by the parties. The agreed upon repurchase price determines the
yield during a Fund's holding period. Repurchase agreements are considered to
be loans collateralized by the underlying security that is the subject of the
repurchase contract. The Funds will only enter into repurchase agreements with
dealers, domestic banks or recognized financial institutions that in the
opinion of Nuveen Advisory present minimal credit risk. The risk to the Funds
is limited to the ability of the issuer to pay the agreed-upon repurchase price
on the delivery date; however, although the value of the underlying collateral
at the time the transaction is entered into always equals or exceeds the
agreed-upon repurchase price, if the value of the collateral declines there is
a risk of loss of both principal and interest. In the event of default, the
collateral may be sold but a Fund might incur a loss if the value of the
collateral declines, and might incur disposition costs or experience delays in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon the collateral by a Fund may be delayed or limited. Nuveen
Advisory will monitor the value of collateral at the time the transaction is
entered into and at all times subsequent during the term of the repurchase
agreement in an effort to determine that the value always equals or exceeds the
agreed upon price. In the event the value of the collateral declined below the
repurchase price, Nuveen Advisory will demand additional collateral from the
issuer to increase the value of the collateral to at least that of the
repurchase price. Each of the Funds will not invest more than 10% of its assets
in repurchase agreements maturing in more than seven days.
S-36
<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 seven
trustees, one of whom is an "interested person" (as the term "interested
person" 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>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
- - ------------------------------------------------------------------------------------
<C> <C> <C> <S>
Timothy R. Schwertfeger* 3/28/49 Chairman of the Board Chairman since July 1,
333 West Wacker Drive and President 1996 of The John Nuveen
Chicago, IL 60606 Trustee 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; Chairman
and Director of
Rittenhouse Financial
Services Inc. (since
1999); Chief Executive
Officer (since September
1999) of Nuveen Senior
Loan Asset Management
Inc.
- - ------------------------------------------------------------------------------------
Robert P. Bremner 8/22/40 Trustee Private Investor and
3725 Huntington Street, N.W. Management Consultant.
Washington, D.C. 20015
- - ------------------------------------------------------------------------------------
Lawrence H. Brown 7/29/34 Trustee Retired (August 1989) as
201 Michigan Avenue Senior Vice President of
Highwood, IL 60040 The Northern Trust
Company
- - ------------------------------------------------------------------------------------
Anne E. Impellizzeri 1/26/33 Trustee President and Chief
3 West 29th Street Executive Officer of
New York, NY 10001 Blanton-Peale Institutes
of Religion and Health
(since December 1990).
- - ------------------------------------------------------------------------------------
Peter R. Sawers 4/3/33 Trustee 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 9/24/44 Trustee Senior Partner and Chief
4000 Miller-Valentine Ct. Operating Officer,
P.O. Box 744 Miller-Valentine
Dayton, OH 45401 Partners; Vice
President, Miller-
Valentine Group, a
development and contract
company; Member
Community Advisory
Board, National City
Bank, Dayton, Ohio.
</TABLE>
- - --------------------------------------------------------------------------------
S-37
<PAGE>
<TABLE>
- - --------------------------------------------------------------------------------------
<CAPTION>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
- - --------------------------------------------------------------------------------------
<C> <C> <C> <S>
Judith M. Stockdale 12/29/47 Trustee 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).
- - --------------------------------------------------------------------------------
Alan G. Berkshire 12/28/60 Vice President and Senior Vice President
333 West Wacker Drive Assistant Secretary and General Counsel
Chicago, IL 60606 (since September 1997)
and Secretary (since May
1998) of The John Nuveen
Company, John Nuveen &
Co. Incorporated, Nuveen
Advisory Corp. and
Nuveen Institutional
Advisory Corp., Senior
Vice President and
Secretary (since
September 1999) of
Nuveen Senior Loan Asset
Management Inc.; prior
thereto, Partner in the
law firm of Kirkland &
Ellis.
- - --------------------------------------------------------------------------------
Peter H. D'Arrigo 11/28/67 Vice President and Vice President of John
333 West Wacker Drive Treasurer Nuveen & Co.
Chicago, IL 60606 Incorporated (since
January 1999), prior
thereto, Assistant Vice
President (from January
1997); formerly,
Associate of John Nuveen
& Co. Incorporated; Vice
President and Treasurer
(since September 1999)
of Nuveen Senior Loan
Asset Management Inc.;
Chartered Financial
Analyst.
- - --------------------------------------------------------------------------------
Michael S. Davern 6/26/57 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 10/24/45 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 3/2/64 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.
- - --------------------------------------------------------------------------------------
Stephen D. Foy 5/31/54 Vice President and Controller Vice President of John
333 West Wacker Drive Nuveen & Co.
Chicago, IL 60606 Incorporated and (since
May 1998) The John
Nuveen Company, Vice
President (since
September 1999) of
Nuveen Senior Loan Asset
Management Inc.,
Certified Public
Accountant.
- - --------------------------------------------------------------------------------------
J. Thomas Futrell 7/5/55 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.;
Chicago, IL 60606 Chartered Financial
Analyst.
</TABLE>
- - --------------------------------------------------------------------------------
S-38
<PAGE>
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
Date of Positions and Principal Occupations
Name and Address Birth Offices with Fund During Past Five Years
- - -------------------------------------------------------------------------------
<C> <C> <C> <S>
Richard A. Huber 3/26/63 Vice President Vice President of Nuveen
333 West Wacker Drive Institutional Advisory
Chicago, IL 60606 Corp. (since March 1998)
and Nuveen Advisory Corp.
(since January 1997);
prior thereto, Vice
President and Portfolio
Manager of Flagship
Financial, Inc.
- - -------------------------------------------------------------------------------
Steven J. Krupa 8/21/57 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp.
Chicago, IL 60606
- - -------------------------------------------------------------------------------
Larry W. Martin 7/27/51 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 and (since
January 1997) Nuveen Asset
Management Inc.; Vice
President and Assistant
Secretary (since September
1999) of Nuveen Senior
Loan Asset Management Inc.
- - -------------------------------------------------------------------------------
Edward F. Neild, IV 7/7/65 Vice President Vice President (since
333 West Wacker Drive September 1996),
Chicago, IL 60606 previously 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; Chartered
Financial Analyst.
- - -------------------------------------------------------------------------------
Stephen S. Peterson 9/20/57 Vice President Vice President (since
333 West Wacker Drive September 1997),
Chicago, IL 60606 previously Assistant Vice
President (since September
1996), Portfolio Manager
prior thereto of Nuveen
Advisory Corp.; Chartered
Financial Analyst.
- - -------------------------------------------------------------------------------
Thomas C. Spalding, Jr. 7/31/51 Vice President Vice President of Nuveen
333 West Wacker Drive Advisory Corp. and Nuveen
Chicago, IL 60606 Institutional Advisory
Corp.; Chartered Financial
Analyst.
- - -------------------------------------------------------------------------------
Gifford R. Zimmerman 9/9/56 Vice President and Vice President, Assistant
333 West Wacker Drive Secretary Secretary and Associate
Chicago, IL 60606 General Counsel formerly
Assistant General Counsel
of John Nuveen & Co.
Incorporated; Vice
President and Assistant
Secretary of Nuveen
Advisory Corp. and Nuveen
Institutional Advisory
Corp.; Vice President and
Assistant Secretary of The
John Nuveen Company (since
May 1994); Vice President
and Assistant Secretary
(since September 1999) of
Nuveen Senior Loan Asset
Management Inc.; Chartered
Financial Analyst.
</TABLE>
- - --------------------------------------------------------------------------------
Timothy R. 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.
S-39
<PAGE>
The trustees of the Trust are directors or trustees, as the case may be, of
37 Nuveen open-end funds and 54 Nuveen closed-end funds advised by Nuveen
Advisory Corp. Mr. Schwertfeger is a director or trustee, as the case may be,
of 13 Nuveen open-end funds and closed-end funds advised by Nuveen
Institutional Advisory Corp. and two funds advised by Nuveen Senior Loan Asset
Management. None of the independent trustees has ever been a director, officer,
or employee of, or a consultant to, Nuveen Advisory, Nuveen or their
affiliates.
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 29, 2000. The Trust has no retirement or pension
plans. The officers and trustees affiliated with Nuveen serve without any
compensation from the Trust.
<TABLE>
<CAPTION>
Deferred Total Compensation
Aggregate Compensation from Trust and
Compensation Payable from Fund Complex
Name of Trustee from the Trust(1) the Trust(2) Paid to Trustees(3)
--------------- ----------------- ------------ -------------------
<S> <C> <C> <C>
Robert P. Bremner..... $5,291 $ 176 $72,000
Lawrence H. Brown..... $5,892 $ -- $78,750
Anne E. Impellizzeri.. $4,283 $1,231 $72,000
Peter R. Sawers....... $4,298 $1,176 $74,500
William S. Schneider.. $4,283 $1,218 $72,000
Judith M. Stockdale... $5,173 $ 304 $72,000
</TABLE>
- - --------
(1) The compensation paid (but not including amounts deferred) to the
independent trustees for the twelve months ended February 29, 2000 for
services to the Trust.
(2) Pursuant to a deferred compensation agreement with the Trust, deferred
amounts are treated as though an equivalent dollar amount has been invested
in shares of one or more eligible Nuveen Funds. The amounts provided are
the total deferred fees (including the return from the assumed investment
in the eligible Nuveen Funds) payable from the Trust.
(3) Based on the compensation paid (including any amounts deferred) to the
independent trustees for the twelve months ended February 29, 2000 for
services to the open-end and closed-end funds advised by NAC.
Each trustee who is not affiliated with NAC receives a $60,000 annual
retainer for serving as a director or trustee of all funds for which NAC serves
as investment adviser or manager and a $1,000 fee per day plus expenses for
attendance at all meetings held on a day on which a regularly scheduled Board
meeting is held, a $1,000 fee per day plus expenses for attendance in person or
a $500 fee per day plus expenses for attendance by telephone at a meeting held
on a day which no regular Board meeting is held and a $250 fee per day plus
expenses for attendance in person or by telephone at a meeting of the Executive
Committee held solely to declare dividends. The annual retainer, fees and
expenses are allocated among the funds for which NAC serves as investment
adviser or manager on the basis of relative net asset sizes. The Trust requires
no employees other than its officers, all of whom are compensated by NAC or
Nuveen.
The John Nuveen Company (JNC) maintains charitable contributions programs to
encourage the active support and involvement of individuals in the civic
activities of their community. These programs include a matching contributions
program and a direct contributions program. The independent trustees of the
funds managed by NAC are eligible to participate in the charitable
contributions program of JNC. Under the matching program, JNC will match the
personal contributions of a trustee to Section 501(c)(3) organizations up to an
aggregate maximum amount of $10,000 during any calendar year. Under its direct
(non-matching) program, JNC makes contributions to qualifying Section 501(c)(3)
organizations, as approved by the Corporate Contributions Committee of JNC. The
independent trustees are also eligible to submit proposals to the committee
requesting that contributions be made under this program to Section 501(c)(3)
organizations identified by the trustee, in an aggregate amount not to exceed
$5,000 during any calendar year. Any contribution made by JNC under the direct
program is made solely at the discretion of the Corporate Contributions
Committee.
The officers and trustees of each Fund, in the aggregate, own less than 1% of
the shares of the Fund.
S-40
<PAGE>
The following table sets forth the percentage ownership of each person, who,
as of May 31, 2000, 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 Margaret A. Andretta 5.57%
Class A Shares............ 100 Burgevin St.
Kingston, NY 12401
Nuveen New York Insured
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 18.94
Class B Shares............ for the benefit of its customers
Attn: Fund Admn/97NB7
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
NFSC FEBO 0TM-562610 8.92
William M. Donofrio
25 Homer Street
Staten Island, NY 10301
Nuveen New York Insured
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 11.65
Class C Shares............ for the benefit of its customers
Attn: Fund Admn/97GX0
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Henry C. Baigelman 10.39
and Gita H. Baigelman
6544 110th Street
Forest Hills, NY 11375-1845
Cathy A. Chirello 7.52
354 Highland Street
Fulton, NY 13069
Fiserv Securities Inc. 6.84
FAO 27669578
One Commerce Square
2005 Market St., Suite 1200
Philadelphia, PA 19103
Arlene Krasnoff 6.30
21707 82nd Ave.
Queens Village, NY 11427-1103
Nuveen New York Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 20.12
Class A Shares............ for the benefit of its customers
Attn: Fund Admn/97E86
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
</TABLE>
S-41
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen New York Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 19.80%
Class B Shares............ for the benefit of its customers
Attn: Fund Admn/97NH1
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Nuveen New York Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 40.41
Class C Shares............ for the benefit of its customers
Attn: Fund Admn/97G00
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Lewco Securities Corp 8.91
FBO AC W63-263587-6-01
34 Exchange Place 4th Floor
Jersey City, NJ 07311
Nuveen Flagship New Jersey
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 9.04
Class A Shares............ for the benefit of its customers
Attn: Fund Admn/97E82
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Nuveen Flagship New Jersey
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 29.53
Class B Shares............ for the benefit of its customers
Attn: Fund Admn/97NH0
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Nuveen New Jersey Municipal
Bond Fund Merrill Lynch, Pierce, Fenner & Smith 17.69
Class C Shares............ for the benefit of its customers
Attn: Fund Admn/97GX1
4800 Deer Lake Dr. E FL3
Jacksonville, FL 32246-6484
Donaldson Lufkin Jenrette 6.41
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
Nuveen California Municipal
Bond Fund NFSC FEBO Q13-000027 11.56
Class A Shares............ FMTC Personal TR Omnibus Acct.
82 Devonshire Street
Mailzone R18B
Boston, MA 02109
</TABLE>
S-42
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen California Municipal Bond MLPF&S for the benefit of its 14.72%
Fund customers
Class B Shares................. Attn: Fund Admn/97NB2
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
CIBC World Markets Corp 6.96
FBO 024-69829-12
Church Street Station
New York, NY 10008-3484
Nuveen California Municipal Bond
Fund First Union Securities Inc. 26.84
Class C Shares................. AC 7298-6063
111 East Kilbourn Avenue
Milwaukee, WI 53202
MLPF&S for the benefit of its 21.68
customers
Attn: Fund Admn/97GY0
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
Joseph Daou 5.91
Marie Daou TRS
Joseph & Marie Daou Family Trust
U/A 03/11/96
PO Box 676188
Nuveen California Insured
Municipal Bond Fund NFSC FEBO W75-716960 6.09
Class A Shares................. Nitin Kumar
1480 University Avenue
San Jose, CA 95126
Nuveen California Insured 11.50
Municipal Bond Fund MLPF&S for the benefit of its
Class B Shares................. customers
Attn: Fund Admn/97NB3
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
Salomon Smith Barney Inc. 5.60
00155400314
333 West 34th Street--3rd Floor
New York, NY 10001
Nuveen California Insured
Municipal Bond Fund Services 11.42
Class C Shares................. FBO 340185721
10
Seattle, WA 98124-3701
</TABLE>
S-43
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Services 6.86%
FBO 340057691
3rd Floor 12640
San Francisco, CA 94107
Myrtle L. Dreyer 6.09
989 Spencer Avenue
San Jose, CA 95125-1672
Prudential Securities Inc. FBO 5.27
Mr. Don Kellough
3210 Fosca Street
Carlsbad, CA 92009-7829
MLPF&S for the benefit of its 5.22
customers
Attn: Fund Admn/97GY1
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 23.73
Class A Shares............ for the sole benefit of its customers
Attn: Fund Admn/973F5
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 20.37
Class B Shares............ for the sole benefit of its customers
Attn: Fund Admn Sec 97NC1
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Merrill Lynch, Pierce, Fenner & Smith 28.38
Class C Shares............ for the sole benefit of its customers
Attn: Fund Admn Sec 97CM5
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Nuveen Flagship Connecticut
Municipal Bond Fund Philip T. Benard 18.39
Class R Shares............ 105 Macktown Road
Windsor, CT 06095-1425
Norman L. Bell Jr. 16.62
Carol L. Bell
55 Elm Street
Colchester, CT 06415-2144
</TABLE>
S-44
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Elizabeth L. McColgin 12.97%
Elizabeth L. McColgin Trust
U/A 07/30/85
101 Hat Shop Hill Road
Bridgewater, CT 06752
August E. Sapega 6.17
and Margaret S. Sapega
27 Pelham Road
W. Hartford, CT 06107-2717
MLPF&S for the sole benefit of its 5.81
customers
Attn: Fund Admin SEC 97NE9
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
Nuveen Massachusetts
Municipal Bond Fund Robert B. Rogers 5.69
Class A Shares............ Kathleen Rogers
15 Paddock Circle
E Falmouth, MA 02536
Painewebber for the benefit of 7.32
Robert I. Glass
68 Lyman Road
Northampton, MA 01060-4228
Nuveen Massachusetts
Municipal Bond Fund John A. Mellen 5.08
Class B Shares............ and Mary C. Mellen
296 Fall River Ave
Seekonk, MA 02771-5506
Merrill Lynch, Pierce, Fenner & Smith 20.63
for the benefit of its customers
Attn: Fund Admn/97NB5
4800 Deer Lake Dr. E Fl 3
Jacksonville, FL 32246-6484
Lehman Brothers Inc. 8.22
FBO 834-84898-11
PO Box 29198
Brooklyn, NY 11202-9198
Robert W. Baird Co. Inc. 6.05
A C 1623-1478
777 East Wisconsin Avenue
Milwaukee, WI 53202-5391
</TABLE>
S-45
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Nuveen Massachusetts Merrill Lynch, Pierce, Fenner & Smith 10.54%
Municipal Bond Fund for the benefit of its customers
Class C Shares............. Attn: Fund Admn/97GY9
4800 Deer Lake Dr. E FL 3
Jacksonville, FL 32246-6484
Maurice S. Vaughn 14.10
Maurice Samuel Vaughn Living Trust
8008 Sacremento Street
Fair Oaks, CA 95628
Salomon Smith Barney Inc. 6.01
00135358199
333 West 34th Street 3rd Floor
New York, NY 10001
Nuveen Massachusetts Insured
Municipal Bond Fund PaineWebber 5.56
Class A Shares............. for the benefit of Lorraine I. Fields
Apt. 422
Washington, DC 20015-2813
Nuveen Massachusetts Insured
Municipal Bond Fund MLPF&S for the benefit of its 14.45
Class B Shares............. customers
Attn: Fund Admn/97NB6
4800 Deer Lake Drive E FL 3
Jacksonville, FL 32246-6484
Painewebber for the benefit of 7.34
Dorothy Weissberger
85 Towbridge Street
Cambridge, MA 02138-3101
US Clearing Corp. 6.00
FBO 013-12167-15
26 Broadway
New York, NY 10004-1798
Prudential Securities Inc. FBO 5.88
Mrs. Evangeline S. Videtto
38 Rockway Rd.
Peabody, MA 01960-6519
Deborah Gilman 22.66
Stuart Cohen TRS
U/A 03/11/99
280 Newtonville Ave. Apt. 504
Newton, MA 02460
</TABLE>
S-46
<PAGE>
<TABLE>
<CAPTION>
Percentage
Name of Fund and Class Name and Address of Owner of Ownership
- - ---------------------- ------------------------- ------------
<S> <C> <C>
Dean Witter for the benefit of 11.77%
Dwight Dorrell
PO Box 250
Church Street Station
New York, NY 10008-0250
Fiserv Securities Inc. 6.15
FAO 40215211
One Commerce Square
2005 Market Street
Suite 1200
Philadelphia, PA 19103
Nuveen Massachusetts Insured
Municipal Bond Fund Rose E. Frisch 8.65
Class C Shares................... Rose E. Frisch 1997 Rev Trust
U/A 05/07/97
3 Hillside Pl
Cambridge, MA 02140-3617
Kathleen F. Flynn 7.37
44 North Rd.
Hampden, MA 01036-9659
Ruth Biller 9.39
51 Oak Rd.
Canton, MA 02021-2625
Painewebber for the benefit of 7.52
Wayne E. Bugley
8 Ward Street
Southboro, MA 01772-1015
Donaldson Lufkin Jenrette 5.49
Securities Corporation Inc.
PO Box 2052
Jersey City, NJ 07303-9998
John Stobart 6.94
Townhouse 23
Union Wharf
Boston, MA 02109
John Sullivan 8.40
Unit 4
352 Commonwealth Ave.
Boston, MA 02115
</TABLE>
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<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 Assets 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 assets of any
class of shares of those Funds.
For the last three fiscal years, the Funds paid net management fees to Nuveen
Advisory as follows:
<TABLE>
<CAPTION>
Management Fees Net of Fee Waivers and Expense
Expense Reimbursement Paid to Reimbursements from
Nuveen Advisory for the Year Nuveen Advisory for the
Ended Year Ended
----------------------------- -----------------------
2/28/98 2/28/99 2/29/00 2/28/98 2/28/99 2/29/00
--------- --------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New York Municipal Bond
Fund.................... 956,215 1,015,402 670,787 317,918 360,810 711,646
New York Insured
Municipal Bond Fund..... 1,929,254 1,968,107 1,922,386 -- -- --
California Municipal Bond
Fund.................... 1,309,287 1,418,730 1,477,137 -- -- --
California Insured
Municipal Bond Fund..... 1,239,386 1,308,079 1,304,008 -- -- --
Connecticut Municipal
Bond Fund............... 1,033,050 1,215,059 1,316,529 171,361 89,265 --
Massachusetts Municipal
Bond Fund............... 414,026 435,615 509,510 38,925 61,609 20,381
Massachusetts Insured
Municipal Bond Fund..... 360,589 384,603 380,128 -- -- --
</TABLE>
S-48
<PAGE>
<TABLE>
<CAPTION>
Management Fees Net of Fee Waivers and Expense
Expense Reimbursement Reimbursements from
Paid to Nuveen Advisory Nuveen Advisory for the
for the Year Ended Year Ended
----------------------- -----------------------
2/28/98 2/28/99 2/29/00 2/28/98 2/28/99 2/29/00
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Municipal
Bond Fund.............. 116,781 203,446 584,578 325,469 377,595 71,000
</TABLE>
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. Nuveen is sponsor of
the Nuveen Defined Portfolios, registered unit investment trusts, is the
principal underwriter for the Nuveen Mutual Funds, and has served as co-
managing underwriter for the shares of the Nuveen Exchange-Traded Funds. Over
1.3 million individuals have invested to date in Nuveen's funds and trusts.
Founded in 1898, Nuveen brings over a century of expertise to the municipal
bond market. Overall, Nuveen and its affiliates manage or oversee more than $70
billion in assets in a variety of products. 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-49
<PAGE>
PORTFOLIO TRANSACTIONS
Nuveen Advisory is responsible for decisions to buy and sell securities for
the Funds and for the placement of the Funds' securities business, the
negotiation of the prices to be paid for principal trades and the allocation of
its transactions among various dealer firms. Portfolio securities will normally
be purchased directly from an underwriter or in the over-in-the-counter market
from the principal dealers in such securities, unless it appears that a better
price or execution may be obtained through other means. Portfolio securities
will not be purchased from Nuveen or its affiliates except in compliance with
the 1940 Act.
The Funds expect that substantially all portfolio transactions will be
affected on a principal (as opposed to an agency) basis and, accordingly, do
not expect to pay significant amounts of 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. It is the policy of Nuveen Advisory to seek the best execution
under the circumstances of each trade. Nuveen Advisory evaluates price as the
primary consideration, with the financial condition, reputation and
responsiveness of the dealer considered secondarily in determining best
execution. Given the best execution obtainable, it will be Nuveen Advisory
practice 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
received from dealers. Since it is only supplementary to Nuveen Advisory own
research efforts, the receipt of research information is not expected to
significantly reduce Nuveen Advisory 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 may manage other investment accounts and investment companies
for other clients which have investment objectives similar to the Funds.
Subject to applicable laws and regulations, Nuveen Advisory seeks to allocate
portfolio transactions equitably whenever concurrent decisions are made to
purchase or sell securities by the Funds and another advisory account. In
making such allocations the main factors to be considered will be the
respective investment objectives, the relative size of the portfolio holdings
of the same or comparable securities, the availability of cash for investment
and the size of investment commitments generally held. While this procedure
could have a detrimental effect on the price or amount of the securities
available to the Funds from time to time, it is the opinion of the Board of
Trustees that the benefits available from Nuveen Advisory organization will
outweigh any disadvantage that may arise from exposure to simultaneous
transactions.
Under the 1940 Act, 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 that may be purchased
in any one issue and the assets of a Fund that 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 normally open for trading. The Exchange is not
open for trading on New Year's Day, Washington's Birthday,
S-50
<PAGE>
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 market 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 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 net short-term capital loss). However, if a Fund retains any net
capital gain or any investment company taxable income, it will be subject to
tax at regular corporate rates on the amount retained. If a Fund retains any
capital gain, such Fund may designate the retained amount as undistributed
capital gains in a notice to its shareholders who, if subject to federal income
tax on long-term capital gains, (i) will be required to include in income for
federal income tax purposes, as long-term capital gain, their shares of such
undistributed amount, and (ii) will be entitled to credit their
S-51
<PAGE>
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 the difference between the amount of the includible gain on the
tax deemed paid by the shareholder in respect to such shares. 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.
Distributions by a Fund of net interest received from certain taxable
temporary investments (such as certificates of deposit, commercial paper and
obligations of the U.S. Government, its agencies and instrumentalities) and net
short-term capital gains realized by a Fund, if any, will be taxable to
shareholders as ordinary income whether received in cash or additional shares.
If a Fund purchases a Municipal Obligation at a market discount, any gain
realized by the Fund upon sale or redemption of the Municipal Obligation will
be treated as taxable interest income to the extent such gain does not exceed
the market discount, and any gain realized in excess of the market discount
will be treated as capital gains. Any net long-term capital gains realized by a
Fund and distributed to shareholders in cash or additional shares, will be
taxable to shareholders as long-term capital gains regardless of the length of
time investors have owned shares of a Fund. Distributions by a Fund that do not
constitute ordinary income dividends, exempt-interest dividends, or capital
gain dividends will be treated as a return of capital to the extent of (and in
reduction of) the shareholder's tax basis in his or her shares. Any excess will
be treated as gain from the sale of his or her shares, as discussed below.
If a Fund has both tax-exempt and taxable income, it will use the "average
annual" method for determining the designated percentage that is taxable income
and designate the use of such method within 60 days after the end of the Fund's
taxable year. Under this method, one designated percentage is applied uniformly
to all distributions made during the Fund's taxable year. The percentage of
income designated as tax-exempt for any particular distribution may be
substantially different from the percentage of the Fund's income that was tax-
exempt during the period covered by the distribution.
If a Fund engages in hedging transactions involving financial futures and
options, these transactions will be subject to special tax rules, the effect of
which may be to accelerate income to a Fund, defer a Fund's losses, cause
adjustments in the holding periods of a Fund's securities, convert long-term
capital gains into short-term capital gains and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
S-52
<PAGE>
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.
S-53
<PAGE>
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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<PAGE>
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 advisors
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 advisor for more detailed information about
state taxes to which they may be subject.
California
The following is a general, abbreviated summary of certain provisions of the
applicable California tax law as presently in effect as it directly governs the
taxation of resident individual and corporate shareholders of the California
Funds. This summary does not address the taxation of other shareholders nor
does it discuss any local
taxes that may be applicable. These provisions are subject to change by
legislative or administrative action, and any such change may be retroactive
with respect to transactions of the California Funds.
The following is based on the assumptions that the California Funds will
qualify under Subchapter M of the Code as regulated investment companies, that
they will satisfy the conditions which will cause distributions of the
California Funds to qualify as exempt-interest dividends to shareholders, and
that they will distribute all interest and dividends they receive to the
California Funds' shareholders.
The California Funds will 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.
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<PAGE>
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 advisors 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 the United States
or its instrumentalities, 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 that are not exempt from state taxation under federal law
distributions attributable to capital gain (other than capital gain on
Connecticut Obligations), will be subject to the Connecticut personal income
tax.
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 the portion of Connecticut
Fund distributions received that are not exempt-interest dividends or capital
gain dividends.
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
and 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 advisors 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
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<PAGE>
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 advisors for more
detailed information concerning Massachusetts state and local tax matters.
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
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 transactions of the New Jersey Fund.
The following is based on the assumptions that the New Jersey Fund will
qualify under Subchapter M of the Code as a regulated investment company and
under New Jersey law as a qualified investment fund, that it will satisfy the
conditions which will cause the New Jersey Fund's distributions to qualify as
exempt-interest dividends to shareholders, and that they will distribute all
interest and dividends they receive to the New Jersey Fund's shareholders.
The New Jersey Fund will be subject to the New Jersey corporation business
tax or the New Jersey corporation income tax only if it has a sufficient nexus
with New Jersey. If it is subject to either tax, the New Jersey Fund does not
expect to pay a material amount of either tax.
Distributions by the New Jersey Fund that are attributable to interest or
gains on any obligation of New Jersey or its political subdivisions or to
interest or gains on obligations of the United States, its territories,
possessions, or instrumentalities that are exempt from state taxation under
federal law will not be subject to the New Jersey gross income tax. All other
distributions will be subject to the New Jersey gross income tax.
S-57
<PAGE>
All distributions from the New Jersey Fund, 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
Fund 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 advisors for more
detailed information concerning New Jersey state and local tax matters.
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 other state or 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 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.
Individual shareholders of the New York Funds who are subject to New York
State and/or New York City personal income taxation will not be required to
include in their New York adjusted gross income that portion of their exempt-
interest dividends (as determined for federal income tax purposes) which the
New York Funds clearly identify as directly attributable to interest earned on
Municipal Obligations issued by governmental authorities in New York ("New York
Municipal Obligations") and which are specifically exempted from personal
income taxation in New York State or New York City, or interest earned on
obligations of U.S. territories or possessions that is exempt from taxation by
the states pursuant to federal law. Distributions to individual shareholders of
dividends derived from interest that does not qualify as exempt-interest
dividends (as determined for federal income tax purposes), distributions of
exempt-interest dividends (as determined for federal income tax purposes) which
are derived from interest on Municipal Obligations issued by governmental
authorities in states other than New York State, and distributions derived from
interest earned on federal obligations will be included in their New York
adjusted gross income as ordinary income. Distributions to individual
shareholders of the New York Funds of capital gain dividends (as determined for
federal income tax purposes) will be included in their New York adjusted gross
income as long-term capital gains. Distributions to individual shareholders of
the New York Funds of dividends derived from any net income received from
taxable temporary investments and any net short-term capital gains realized by
the New York Funds will be included in their New York adjusted gross income and
taxed at the same rate as ordinary income.
All distributions from the New York Funds, regardless of source, will
increase the taxable base of corporate shareholders subject to the New York
State franchise tax and/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.
S-58
<PAGE>
Shareholders are advised to consult with their own tax advisors for more
detailed information concerning New York and local tax matters.
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 29, 2000
------------------------------------------
Combined Federal Taxable
Yield and State Tax Rate* Equivalent Yield
----- ------------------- ----------------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund
Class A Shares............... 4.86% 43.5% 8.60%
Class B Shares............... 4.33% 43.5% 7.66%
Class C Shares............... 4.53% 43.5% 8.02%
Class R Shares............... 5.27% 43.5% 9.33%
New York Municipal Bond Fund**
Class A Shares............... 6.09% 46.0% 11.28%
Class B Shares............... 5.61% 46.0% 10.39%
Class C Shares............... 5.81% 46.0% 10.76%
Class R Shares............... 6.56% 46.0% 12.15%
</TABLE>
S-59
<PAGE>
<TABLE>
<CAPTION>
As of February 29, 2000
------------------------------------------
Combined Federal Taxable
Yield and State Tax Rate* Equivalent Yield
----- ------------------- ----------------
<S> <C> <C> <C>
New York Insured Municipal
Bond Fund**
Class A Shares.............. 4.39% 46.0% 8.13%
Class B Shares.............. 3.84% 46.0% 7.11%
Class C Shares.............. 4.04% 46.0% 7.48%
Class R Shares.............. 4.79% 46.0% 8.87%
California Municipal Bond Fund
Class A Shares.............. 5.08% 45.0% 9.24%
Class B Shares.............. 4.56% 45.0% 8.29%
Class C Shares.............. 4.76% 45.0% 8.65%
Class R Shares.............. 5.51% 45.0% 10.02%
California Insured Municipal
Bond Fund
Class A Shares.............. 4.51% 45.0% 8.20%
Class B Shares.............. 3.96% 45.0% 7.20%
Class C Shares.............. 4.16% 45.0% 7.56%
Class R Shares.............. 4.91% 45.0% 8.93%
Massachusetts Municipal Bond
Fund
Class A Shares.............. 4.87% 43.0% 8.54%
Class B Shares.............. 4.34% 43.0% 7.61%
Class C Shares.............. 4.54% 43.0% 7.96%
Class R Shares.............. 5.29% 43.0% 9.28%
Massachusetts Insured
Municipal Bond Fund
Class A Shares.............. 4.43% 43.0% 7.77%
Class B Shares.............. 3.88% 43.0% 6.81%
Class C Shares.............. 4.08% 43.0% 7.16%
Class R Shares.............. 4.82% 43.0% 8.46%
Connecticut Municipal Bond
Fund
Class A Shares.............. 4.81% 42.5% 8.37%
Class B Shares.............. 4.28% 42.5% 7.44%
Class C Shares.............. 4.48% 42.5% 7.79%
Class R Shares.............. 5.23% 42.5% 9.10%
</TABLE>
- - --------
* The combined tax rates used in these tables represent the highest or one
of the highest combined tax rates applicable to state taxpayers, rounded
to the nearest .5%; these rates do not reflect the current federal tax
limitations on itemized deductions and personal exemptions, which may
raise the effective tax rate and taxable equivalent yield for taxpayers
above certain income levels.
** Reflects a combined federal, state and New York City tax rate.
S-60
<PAGE>
For additional information concerning taxable equivalent yields, see the
Taxable Equivalent Yields tables in the Prospectus.
The Funds may from time to time in their advertising and sales materials
report a quotation of their current distribution rate. The distribution rate
represents a measure of dividends distributed for a specified period.
Distribution rate is computed by taking the most recent monthly tax-free income
dividend per share, multiplying it by 12 to annualize it, and dividing by the
appropriate price per share (e.g., net asset value for purchases to be made
without a load such as reinvestments from Nuveen Defined Portfolios, 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 29, 2000
-------------------------------
Distribution Rates
-------------------------------
Class A Class B Class C Class R
------- ------- ------- -------
<S> <C> <C> <C> <C>
New Jersey Municipal Bond Fund........... 4.67% 4.07% 4.33% 5.06%
New York Municipal Bond Fund............. 5.65% 5.13% 5.35% 6.12%
New York Insured Municipal Bond Fund..... 4.91% 4.34% 4.53% 5.31%
California Municipal Bond Fund .......... 5.28% 4.80% 4.98% 5.75%
California Insured Municipal Bond Fund... 5.02% 4.47% 4.68% 5.42%
Massachusetts Municipal Bond Fund........ 5.21% 4.66% 4.89% 5.65%
Massachusetts Insured Municipal Bond
Fund..................................... 4.94% 4.36% 4.55% 5.34%
Connecticut Municipal Bond Fund.......... 5.08% 4.53% 4.70% 5.47%
</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-61
<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
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-62
<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 29, 2000 and for the period from inception through
February 29, 2000, respectively, using the performance of the oldest class for
periods prior to the inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
Annual Total Returns
-----------------------------------------------------
One year Five years Ten years From inception
ended ended ended through
February 29, February 29, February 29, February 29,
2000 2000 2000 2000
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ -6.51% 4.74% 6.28% 6.26%
Class B Shares........ -6.87% 4.70% 6.17% 6.18%
Class C Shares........ -2.97% 5.05% 6.06% 5.90%
Class R Shares........ -2.21% 5.86% 7.02% 6.88%
New York Insured
Municipal Bond Fund
Class A Shares........ -6.60% 3.90% 5.85% 5.73%
Class B Shares........ -6.97% 3.85% 5.71% 5.63%
Class C Shares........ -3.17% 4.17% 5.59% 5.34%
Class R Shares........ -2.43% 5.00% 6.55% 6.32%
Massachusetts Municipal
Bond Fund
Class A Shares........ -7.26% 3.73% 5.71% 5.27%
Class B Shares........ -7.69% 3.74% 5.57% 5.14%
Class C Shares........ -3.87% 3.98% 5.42% 4.85%
Class R Shares........ -3.03% 4.85% 6.40% 5.85%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ -6.99% 3.58% 5.57% 5.38%
Class B Shares........ -7.29% 3.56% 5.43% 5.27%
Class C Shares........ -3.43% 3.82% 5.30% 4.98%
Class R Shares........ -2.68% 4.70% 6.28% 5.98%
California Municipal
Bond Fund
Class A Shares........ -7.21% 4.33% 5.68% 6.07%
Class B Shares........ -7.60% 4.28% 5.58% 5.97%
Class C Shares........ -3.74% 4.57% 5.43% 5.68%
Class R Shares........ -2.98% 5.44% 6.40% 6.68%
California Insured
Municipal Bond Fund
Class A Shares........ -7.60% 4.06% 5.81% 5.91%
Class B Shares........ -7.93% 4.03% 5.65% 5.81%
Class C Shares........ -4.03% 4.37% 5.50% 5.47%
Class R Shares........ -3.27% 5.19% 6.50% 6.49%
Connecticut Municipal
Bond Fund
Class A Shares........ -7.90% 4.18% 5.71% 6.05%
Class B Shares........ -8.23% 4.18% 5.67% 6.04%
Class C Shares........ -4.31% 4.50% 5.58% 5.82%
Class R Shares........ -3.63% 5.26% 6.26% 6.48%
</TABLE>
S-63
<PAGE>
The annual total return figures for the New Jersey 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 and five-year periods
ended February 29, 2000, and for the period since inception through February
29, 2000, respectively, using the performance of the oldest class for periods
prior to the inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
Annual Total Returns
-----------------------------------------------------
One year Five years From inception
ended ended through
February 29, 2000 February 29, 2000 February 29, 2000
----------------- ----------------- -----------------
<S> <C> <C> <C>
New Jersey Municipal
Bond Fund
Class A Shares........ -7.68% 3.91% 5.00%
Class B Shares........ -8.17% 3.84% 4.81%
Class C Shares........ -4.29% 4.14% 4.86%
Class R Shares........ -3.47% 5.01% 5.81%
</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.
S-64
<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 29, 2000, and for the period since inception
through February 29, 2000, using the performance of the oldest class for
periods prior to the inception of the newer classes, as described above,
respectively, were:
<TABLE>
<CAPTION>
Cumulative Total Returns
---------------------------------------------------
One year Five years Ten years From
ended ended ended Inception
February 29, February 29, February 29, February 29,
2000 2000 2000 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
New York Municipal Bond
Fund
Class A Shares........ -6.51% 26.05% 83.94% 122.74%
Class B Shares........ -6.87% 25.79% 82.00% 120.58%
Class C Shares........ -2.97% 27.94% 80.06% 112.86%
Class R Shares........ -2.21% 32.96% 97.03% 140.58%
New York Insured
Municipal Bond Fund
Class A Shares........ -6.60% 21.08% 76.49% 108.47%
Class B Shares........ -6.97% 20.77% 74.16% 106.04%
Class C Shares........ -3.17% 22.64% 72.30% 98.52%
Class R Shares........ -2.43% 27.62% 88.64% 124.50%
Massachusetts Municipal
Bond Fund
Class A Shares........ -7.26% 20.08% 74.26% 96.80%
Class B Shares........ -7.69% 20.13% 71.96% 93.64%
Class C Shares........ -3.87% 21.55% 69.59% 86.81%
Class R Shares........ -3.03% 26.73% 86.00% 111.64%
Massachusetts Insured
Municipal Bond Fund
Class A Shares........ -6.99% 19.24% 71.96% 99.63%
Class B Shares........ -7.29% 19.14% 69.69% 96.84%
Class C Shares........ -3.43% 20.59% 67.61% 89.92%
Class R Shares........ -2.68% 25.84% 83.83% 115.15%
California Municipal
Bond Fund
Class A Shares ....... -7.21% 23.64% 73.68% 123.83%
Class B Shares........ -7.60% 23.30% 72.04% 120.91%
Class C Shares........ -3.74% 25.04% 69.75% 112.76%
Class R Shares........ -2.98% 30.31% 86.02% 141.82%
California Insured
Municipal Bond Fund
Class A Shares ....... -7.60% 21.99% 75.88% 119.25%
Class B Shares........ -7.93% 21.86% 73.26% 116.36%
Class C Shares........ -4.03% 23.84% 70.79% 107.06%
Class R Shares........ -3.27% 28.79% 87.73% 136.05%
Connecticut Municipal
Bond Fund
Class A Shares........ -7.90% 22.72% 74.24% 109.92%
Class B Shares........ -8.23% 22.70% 73.51% 109.75%
Class C Shares........ -4.31% 24.59% 72.06% 104.22%
Class R Shares........ -3.63% 29.23% 83.61% 121.12%
</TABLE>
S-65
<PAGE>
The cumulative total return figures for the New Jersey Municipal Bond Fund,
including the effect of the maximum sales charge for the Class A Shares, and
applicable CDSC for Class B Shares, for the one-year and five-year periods
ended February 29, 2000, and for the period since inception through February
29, 2000, respectively, using the performance of the oldest class for periods
prior to the inception of the newer classes, as described above, were:
<TABLE>
<CAPTION>
Cumulative Total Returns
--------------------------------------
From
One year Five years Inception
ended ended through
February 29, February 29, February 29,
2000 2000 2000
------------ ------------ ------------
<S> <C> <C> <C>
New Jersey Municipal Bond Fund
Class A Shares................. -7.68% 21.16% 47.69%
Class B Shares................. -8.17% 20.74% 45.63%
Class C Shares................. -4.29% 22.51% 46.19%
Class R Shares................. -3.47% 27.70% 57.08%
</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 43.0% maximum combined marginal federal and state tax rate for
2000, the annual taxable equivalent total return for the Massachusetts
Municipal Bond Fund's Class R shares for the five-year period ended February
29, 2000 was 8.99%.
Class A Shares of the Funds are sold at net asset value plus a current
maximum sales charge of 4.20% of the offering price. This current maximum sales
charge will typically be used for purposes of calculating performance figures.
Yield, returns and net asset value of each class of shares of the Funds will
fluctuate. Factors affecting the performance of the Funds include general
market conditions, operating expenses and investment management. Any additional
fees charged by a securities representative or other financial services firm
would reduce returns described in this section. Shares of the Funds are
redeemable at net asset value, which may be more or less than original cost.
In reports or other communications to shareholders or in advertising and
sales literature, the Funds may also compare their performance with that of:
(1) the Consumer Price Index or various unmanaged bond indexes such as the
Lehman Brothers Municipal Bond Index and the Salomon Brothers High Grade
Corporate Bond Index and (2) other fixed income or municipal bond mutual funds
or mutual fund indexes as reported by Lipper Analytical Services, Inc.
("Lipper"), Morningstar, Inc. ("Morningstar"), Wiesenberger Investment
Companies Service ("Wiesenberger") and CDA Investment Technologies, Inc.
("CDA") or similar independent services which monitor the performance of mutual
funds, or other industry or financial publications such as Barron's, Changing
Times, Forbes and Money Magazine. Performance comparisons by these indexes,
services or
S-66
<PAGE>
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 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.
S-67
<PAGE>
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 ($50 if you
establish a systematic investment plan), and may be lower for accounts opened
through fee-based programs.
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 advisor 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 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,
Nuveen Exchange-Traded Fund or a Nuveen Defined Portfolio or otherwise.
S-68
<PAGE>
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 Defined Portfolio Distributions. You may purchase
Class A Shares without an up-front sales charge by reinvestment of
distributions from any of the various Defined Portfolios 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 $50,
provided that a group invests at least $3,000 in the Fund 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) 257-8787.
Reinvestment of Redemption Proceeds from Unaffiliated Funds Subject to Merger
or Closure. 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 that are subject to
merger or closure. 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-69
<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 Nuveen may pay Authorized Dealers
on Class A sales of $1.0 million and above up to an additional 0.25% of
the purchase amount.
. 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 that 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 these purchases equal to 1%
of the first $2.5 million, plus 0.50% of the next $2.5 million, plus
0.25% 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.
Also, investors will be able to buy Class A shares at net asset value by
using the proceeds of sales of Nuveen Exchange-Traded fund shares or the
termination/maturity proceeds from Nuveen Defined Portfolios. You must provide
Nuveen appropriate documentation that the fund sale or Defined Portfolio
termination/ maturity occurred not more than one year prior to reinvestment. In
addition, investors also may buy Class A shares at net asset value without a
sales charge by directing their monthly dividends from Nuveen Exchange-Traded
funds.
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 advisor 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.
S-70
<PAGE>
Class A Shares of any Fund may be issued at net asset value without a sales
charge in connection with the acquisition by a Fund of another investment
company. All purchases under the special sales charge waivers will be subject
to minimum purchase requirements as established by the Funds.
In determining the amount of your purchases of Class A Shares of any Fund
that may qualify for a reduced sales charge, the following purchases may be
combined: (1) all purchases by a trustee or other fiduciary for a single trust,
estate or fiduciary account; (2) all purchases by individuals and their
immediate family members (i.e., their spouses, parents, children, grandparents,
grandchildren, parents-in-law, sons- and daughters-in-law, siblings, a
sibling's spouse, and a spouse's siblings); or (3) all purchases made through a
group purchase program as described above.
Class R Share Purchase Eligibility. Class R Shares are available for
purchases of $10 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;
. officers, directors or bona fide employees of any investment advisory
partner of Nuveen that provides sub-advisory services for a Nuveen
product, 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 advisors, 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 five
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 Defined Portfolios may reinvest their
distributions from such unit investment trusts in Class R Shares, if, before
September 6, 1994, such purchasers of Nuveen unit investment trusts 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.
S-71
<PAGE>
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) 257-8787.
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, 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. 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 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 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; 6) involuntary
redemptions caused by operation of law; 7) redemptions in connection with a
payment of account or plan fees; 8) redemptions made pursuant to a Fund's
systematic withdrawal plan, up
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to 1% monthly, 3% quarterly, 6% semiannually or 12% annually of an account's
net asset value depending on the frequency of the plan as designated by the
shareholder; and 9) redemptions of Classes A, B or C Shares if the proceeds are
transferred to an account managed by another Nuveen Adviser and the adviser
refunds the advanced service and distribution fees to Nuveen. 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.
In addition to the types of compensation to dealers to promote sales of fund
shares that are described in the Fund's 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. Promotional support may include providing
sales literature to and holding informational or educational programs for the
benefit of such Authorized Dealers' representatives, seminars for the public,
and advertising and sales campaigns. Nuveen may reimburse a participating
Authorized Dealer for up to one-half of specified media costs incurred in the
placement of advertisements which jointly feature the Authorized Dealer and
Nuveen Funds and Nuveen Defined Portfolios.
Such reimbursement will be based on the number of Nuveen Fund shares sold,
the dollar amounts of such sales, or a combination of the foregoing, during the
prior calendar year according to an established schedule. Any such support or
reimbursement would be provided by Nuveen out of its own assets, and not out of
the assets of the Funds, and will not change the price an investor pays for
shares or the amount that a Fund will receive from such a sale.
To help advisors 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.
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<PAGE>
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.
The Funds have reserved the right to redeem in kind (that is, to pay
redemption requests in cash and portfolio securities, or wholly in portfolio
securities), although the Funds have no present intention to redeem in kind.
The Funds voluntarily have committed to pay in cash all requests for redemption
by any shareholder, limited as to each shareholder during any ninety-day period
to the lesser of $250,000 or 1% of the net asset value of a Fund at the
beginning of the ninety-day period.
Shares will be registered in the name of the investor or the investor's
financial advisor. A change in registration or transfer of shares held in the
name of a financial advisor may only be made by an order in good form from the
financial advisor 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.
A fee of 1% of the current market value of any shares represented by a
certificate will be charged if the certificate is lost, stolen, or destroyed.
The fee is paid to Seaboard Surety Company for issuance of the lost, stolen, or
destroyed certificate.
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 30, 1999 ("Distribution Agreement"). Pursuant to the
Distribution Agreement, the Trust appointed Nuveen to be its agent for the
distribution of the Funds' shares on a continuous offering basis. Nuveen sells
shares to or through brokers, dealers, banks or other qualified financial
intermediaries (collectively referred to as "Dealers"), or others, in a manner
consistent with the then effective registration statement of the Trust.
Pursuant to the Distribution Agreement, Nuveen, at its own expense, finances
certain activities incident to the sale and distribution of the Funds' shares,
including printing and distributing of prospectuses and statements of
additional information to other than existing shareholders, the printing and
distributing of sales literature, advertising and payment of compensation and
giving of concessions to Dealers. Nuveen receives for its services the excess,
if any, of the sales price of the Funds' shares less the net asset value of
those shares, and reallows a majority or all of such amounts to the Dealers who
sold the shares; Nuveen may act as such a Dealer. Nuveen also receives
compensation pursuant to a distribution plan adopted by the Trust pursuant to
Rule 12b-1 and described herein under "Distribution and Service Plan." Nuveen
receives any CDSCs imposed on redemptions of Shares.
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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, 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 29, 2000 February 28, 1999 February 28, 1998
------------------------ ------------------------ ------------------------
Amount of Amount Amount of Amount Amount of Amount
Underwriting Retained By Underwriting Retained By Underwriting Retained By
Commissions Nuveen Commissions Nuveen Commissions Nuveen
Fund ------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
New Jersey Fund......... $ 88 2 186 25 242 33
New York Fund........... $ 94 11 149 23 367 60
New York Insured Fund... $ 99 -- 171 21 308 48
California Fund......... $170 -- 161 21 272 38
California Insured Fund. $117 4 199 32 310 45
Massachusetts Fund...... $ 49 -- 92 9 103 13
Massachusetts Insured
Fund................... $ 35 5 60 10 56 7
Connecticut Fund........ $233 8 343 42 504 61
</TABLE>
DISTRIBUTION AND SERVICE PLAN
The Funds have adopted a plan (the "Plan") pursuant to Rule 12b-1 under the
Investment Company Act of 1940, which provides that Class B Shares and Class C
Shares will be subject to an annual distribution fee, and that Class A Shares,
Class B Shares and Class C Shares will be subject to an annual service fee.
Class R Shares will not be subject to either distribution or service fees.
The distribution fee applicable to Class B and Class C Shares under each
Fund's Plan will be payable to reimburse Nuveen for services and expenses
incurred in connection with the distribution of Class B and Class C Shares,
respectively. These expenses include payments to Authorized Dealers, including
Nuveen, who are brokers of record with respect to the Class B and Class C
Shares, as well as, without limitation, expenses of printing and distributing
prospectuses to persons other than shareholders of the Fund, expenses of
preparing, printing and distributing advertising and sales literature and
reports to shareholders used in connection with the sale of Class B and Class C
Shares, certain other expenses associated with the distribution of Class B and
Class C Shares, and any distribution-related expenses that may be authorized
from time to time by the Board of Trustees.
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.
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<PAGE>
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 29, 2000, 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
Connecticut Municipal Bond Fund Class C Shares was .20% and the distribution
fee was .20% for the Class A Shares and .75% for the Class C Shares;
thereafter, the fees were the same as the aforementioned Funds.
<TABLE>
<CAPTION>
Compensation Paid to
Authorized Dealers for
end of Fiscal 2000
----------------------
<S> <C>
New York Municipal Bond Fund
Class A................................................ $161,150
Class B................................................ $153,449
Class C................................................ $ 69,761
New York Insured Municipal Bond Fund
Class A................................................ $110,560
Class B................................................ $154,721
Class C................................................ $ 32,715
New Jersey Municipal Bond Fund
Class A................................................ $103,268
Class B................................................ $129,126
Class C................................................ $ 79,627
California Municipal Bond Fund
Class A................................................ $ 91,683
Class B................................................ $ 90,893
Class C................................................ $ 86,615
California Insured Municipal Bond Fund
Class A................................................ $100,255
Class B................................................ $103,090
Class C................................................ $ 51,345
Connecticut Municipal Bond Fund
Class A................................................ $418,906
Class B................................................ $134,392
Class C................................................ $129,728
</TABLE>
S-76
<PAGE>
<TABLE>
<CAPTION>
Compensation Paid to
Authorized Dealers for
end of Fiscal 2000
----------------------
<S> <C>
Massachusetts Municipal Bond Fund
Class A................................................ $32,599
Class B................................................ $34,852
Class C................................................ $37,422
Massachusetts Insured Municipal Bond Fund
Class A................................................ $23,576
Class B................................................ $14,883
Class C................................................ $11,790
</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 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.
The Funds' transfer, shareholder services, and dividend paying agent is Chase
Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts 02108.
FINANCIAL STATEMENTS
The audited financial statements for each Fund's most recent fiscal year
appear in the Fund's Annual Reports. The Annual Reports accompany this
Statement of Additional Information.
S-77
<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.
VAI-MS2 6-99
B-3
<PAGE>
ANNUAL REPORT February 29, 2000
Nuveen Investments
NUVEEN MUNICIPAL BOND FUNDS
California
California Insured
[PHOTO APPEARS HERE]
<PAGE>
Fund Information
Board of Trustees Transfer Agent and
Shareholder Services
Robert P. Bremner
Lawrence H. Brown Chase Global Funds Services Company
Anne E. Impellizzeri 73 Tremont Street
Peter R. Sawers Boston, MA 02108
William J. Schneider
Timothy R. Schwertfeger (800) 257-8787
Judith M. Stockdale
Legal Counsel
Fund Manager
Morgan, Lewis &
Nuveen Advisory Corp. Bockius LLP
333 West Wacker Drive Washington, D.C.
Chicago, IL 60606
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective
6 Nuveen California Municipal Bond Fund Spotlight
7 Nuveen California Insured Municipal Bond
Fund Spotlight
8 Portfolio of Investments
15 Statement of Net Assets
16 Statement of Operations
17 Statement of Changes in Net Assets
18 Notes to Financial Statements
23 Financial Highlights
25 Report of Independent Public Accountants
<PAGE>
DEAR
Shareholder,
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
Setting financial goals is an important first step toward building wealth. At
Nuveen Investments, we believe those goals should not be considered ends in
themselves. Rather, you and your financial advisor's focus should be on
realizing your life's dreams -- the things that matter most to you and how you
can make them happen -- or make them better.
Through a well-crafted financial plan, you have the chance to shape future
generations -- to broaden your sphere of influence -- to leave your legacy.
As you develop that plan, you'll want to consider the different ways your
success can benefit others. You may find that you want to create a new set of
goals to achieve this. Working with your financial advisor, you have the ability
to make those dreams a reality -- for yourself and future generations.
A Trusted Resource. As you face some of the most important, lasting decisions
you and your family will make, you'll want to draw upon the support, counsel and
objectivity of a trusted advisor. That's because your financial advisor has the
expertise and access to other professionals who can help you make informed
choices -- choices that affect not only your loved ones today, but those your
legacy will touch in the future.
Your financial advisor can provide sound financial insight, an integrated
approach to your investments and can serve as a knowledgeable friend with your
family's best interest at heart.
Family Wealth Management. Too often, family wealth management is thought of in
one dimension -- as the stewardship of your household's financial resources. At
Nuveen Investments, we think of family wealth management as the map to help you
reach your financial, and your life's, destinations. It's a multi-faceted
strategy to plan for not just your needs, but the needs of future generations.
We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values.
The Economic Environment. You may be reading this report at the suggestion of
your financial advisor. We've prepared the following interview to let you know
what the investment and research management teams have done during your fund's
fiscal period. Before we get to that, I want to briefly report on the economic
environment in which your Nuveen investment performed.
The end of your fund's fiscal period, February 29, 2000, was an important day
in our nation's economic life. It marked the 107th month of continued economic
expansion, the longest period of expansion in history. The only period to rival
that length was the 106-month expansion from February 1961 to December 1969, a
period known best for its military conflicts, domestic unrest and soaring
inflation.
That was then; this is now.
"We are dedicated to
helping you and your
financial advisor
develop a family
wealth management
strategy unique to
you and your goals
and values."
ANNUAL REPORT page 1
<PAGE>
"There's still faith
in the emerging
paradigm, which holds that
improvements in
productivity enable us to have both
economic growth
and low inflation
at the same time."
The vigilant inflationary watch of Federal Reserve Chairman Alan Greenspan,
the growth of the Internet and other technology-related developments and the
globalization of the economy are three reasons for continued economic health.
In their battle to keep inflation at bay, Greenspan's Fed raised interest
rates on February 2, 2000, and again on March 21, 2000. The latest increase
marked the fifth time the Fed has raised the federal funds rate -- the interest
that banks charge each other on overnight loans -- since June 1999.
Municipal bonds continued to serve investors well, in our opinion. At the end
of February 2000, the ratio between long-term municipal bond yields and 30-year
Treasury yields stood at 102%. For investors, this meant that quality long-term
municipal bonds offered yields above those of long-term Treasury bonds -- even
before the tax advantages of municipals were taken into account. Of course,
Treasuries are backed by the full faith and credit of the U.S. government. Even
so, on an after-tax basis, municipal bonds continued to present an exceptionally
attractive investment option relative to Treasuries.
Over the short term, the inflation threat has meant increased price
fluctuations in the equity markets. Part of that is due to the fact that
investors and the various markets have been watching -- and reacting to -- every
announcement concerning economic statistics.
Longer term, we believe there's still faith in the emerging paradigm, which
holds that improvements in productivity enable us to have both economic growth
and low inflation at the same time. The 1960's 106-month expansion that I noted
earlier was fueled by government spending. Today's economy has been fueled by
consumer spending and improved productivity.
What Can You Do? We believe the potential presence of inflation and price swings
in the markets reinforce the importance of working with an advisor, staying
focused on the long term and adhering to your financial plan. With a sound plan
in place, you may be better positioned to weather the markets' ups and downs. As
you pursue your life's dreams, your financial advisor can serve as a valuable
resource in helping you keep market events in perspective while you focus on
your overall financial plan.
For more information on any Nuveen investment, including a prospectus, contact
your financial advisor. Or call Nuveen at (800) 621-7227 or visit our Internet
site at www.nuveen.com. Please read the prospectus carefully before you invest
or send money.
Since 1898, Nuveen has been synonymous with investments that stand the test of
time. We are committed to maintaining that reputation and working with financial
advisors to provide investment solutions that help individuals achieve their
lives dreams. Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 2000
ANNUAL REPORT page 2
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
- - --------------------------------------------------------------------------------
Nuveen California Municipal Bond Fund and Nuveen California Insured Municipal
Bond Fund feature portfolio management by Nuveen Investment Advisory Services, a
team of portfolio managers and research analysts committed to a disciplined,
research-oriented investment strategy. To help you understand the fund's
performance for the fiscal year ended February 29, 2000, we spoke with Portfolio
Manager Bill Fitzgerald of Nuveen Advisory Corp.
Q Over the last year, the nation's economy grew at a healthy clip, continuing
an unprecedented trend of economic expansion. How did the California economy do
over the fund's fiscal year, which ended February 29, 2000?
BILL The economy in California has been very strong on many levels. As of
February 29, 2000, California's unemployment rate is 4.6%, down from 5.5% for
the same period last year. The national unemployment rate is 4.1%. Personal
income grew almost 8%, versus 6% overall for the U.S.
The state of California had its best year ever in revenues during 1999, and to
date, 2000 has been strong as well with officials projecting a $1 billion-plus
budget surplus for April 2000. The state of California was upgraded by bond
rating agency Standard & Poor's in mid-February 1999 from AA- to AA. The state's
debt ratio stood at four percent at the end of 1999.
Construction and real estate have been important drivers of this flourishing
economy; however, it has been the computer/software industry that seems to be
the most powerful driver, and the wealth it has created has been a major force
behind most everything from housing to consumer spending. It has been by far the
fastest-growing industry at an average growth rate of 18%.
The average salary across all jobs -- from janitor on up -- in this sector was
between $80,000 and $100,000, as of the period reported. This of course
contributed to the tight job market, but the upside is it has been attracting
good, quality workers from all over the country.
Q What was the level of state municipal bond supply during the fiscal year?
BILL Issuance was down 21 percent over 1999, which was in line with the rest of
the nation. The higher cost of borrowing due to rising interest rates was a
reason for decreased supply. Demand pretty much stayed consistent with supply
over the year.
Q Of course, the downside to this thriving economy has been rising interest
rates, and the Federal Reserve Board (the Fed) implemented several rate hikes,
as was expected, to help head off any inflationary pressures. How did the two
Nuveen California municipal bond funds perform in this less-than-ideal
environment for municipal bonds?
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's income-oriented funds feature portfolio management by Nuveen Investment
Advisory Services (NIAS). NIAS follows a disciplined, research-driven investment
approach to uncover income securities that combine exceptional relative value
with above-average return potential. Drawing on 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence and trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen California and California Insured Municipal
Bond Funds.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the one-year period ended February 29, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
ANNUAL REPORT page 3
<PAGE>
"We took advantage of rising interest rates to improve call protection and
potentially enhance each fund's income stream."
BILL While this environment allowed us to take some measures to position the
funds for the long term, for the fiscal year ended February 29, 2000, the Nuveen
California Municipal Bond Fund reported a total return of -3.12% for Class A
shares on net asset value. That compares favorably to the Lipper California
Municipal Debt peer group average, which reported a 4.88% loss for the same one-
year period. Over the five-year period, the fund reported a 5.23% gain, compared
to the 4.87% gain for the Lipper peer group for the same period.*
As of February 29, 2000, the fund's SEC 30-day yield was 5.31%. For investors
in the combined 37.5% federal and state income tax bracket, that is equivalent
to a yield of 8.50% on a taxable investment.**
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed..34%
AA................... 7%
A....................15%
BBB/NR...............44%
As a percentage of total bond holdings as of February 29, 2000.
Holdings are subject to change.
Nuveen California Insured Municipal Bond Fund had a total return of -3.52% for
the fiscal year ended February 29, 2000, compared to the Lipper California
Insured Municipal Debt peer group average loss of 4.23%. The five-year period
shows a 4.95% gain for the fund, in line with the 4.96% gain for the Lipper peer
group.*
As of February 29, 2000, the Nuveen California Insured Municipal Bond Fund's
SEC 30-day yield was 4.70%, which is equivalent to a 7.52% yield on a taxable
investment for investors in the combined 37.5% federal and state income tax
bracket.**
Q How did you manage the funds in this challenging environment of rising
interest rates?
BILL A challenging market like this one can still present us with unique
opportunities to restructure the portfolio and position the fund for the long-
term.
We took advantage of rising interest rates to improve call protection and
potentially enhance each fund's income stream. When interest rates are falling,
bond issuers tend to call or redeem their bonds early to lower their repayment
costs, forcing bond investors to reinvest at lower rates. Improving the call
protection helps shield the fund from these early bond calls. Shareholders could
benefit as this strategy would allow the portfolio to hold onto higher-yielding
bonds in a lower-rate environment. We sold out holdings that had less than seven
years of call protection, to improve the average call protection to 10 years.
We also maintained a short duration in the portfolios, which typically works
well amid rising interest rates because as shorter-term bonds mature, we can
reinvest at higher rates (and lower prices).
Other than that, it was a combination of being in what we felt were the right
sectors and participating in a couple of opportune bond issues that were
important to the marketplace. Having the knowledge and market presence of Nuveen
research helped us get a front-row seat with some of these deals.
Q Can you give us some examples of some of these important issues and sectors?
BILL One important issue to the marketplace was the Foothill/Eastern
Transportation Corridor, which supports a toll road project in Southern
California. We purchased this issue at a 5% coupon maturing in 2035, then had
the bonds insured in the
*For the Nuveen California Municipal Bond Fund, the Lipper Peer Group returns
represent the average annualized total return of the 108 funds in the Lipper
California Municipal Debt Funds category for the one-year period ended February
29, 2000, and 78 funds for the five-year period. For the Nuveen California
Insured Municipal Bond Fund the Lipper Peer Group returns represent the 23 funds
in the Lipper California Insured Municipal Debt Funds category for the one-year
period and 20 funds in the category for the five-year period. The returns assume
reinvestment of dividends and do not reflect any applicable sales charges.
**Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The rate
shown is based on the 30-day SEC yield and a combined federal and state income
tax rate of 37.5%.
ANNUAL REPORT page 4
<PAGE>
secondary market once we owned them. This is just one method of insurance we use
for the Nuveen California Insured Municipal Bond Fund, but we also periodically
use this tactic in the other fund to try to enhance returns on an issue, because
bonds that are insured generally are worth more.
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
Top Five Sectors
Tax Obligation (Limited) 25%
-------------------------------------
Housing (Multifamily) 18%
-------------------------------------
Healthcare 13%
-------------------------------------
U.S. Guaranteed 10%
-------------------------------------
Transportation 9%
-------------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
Top Five Sectors
Tax Obligation (Limited) 30%
-------------------------------
U.S. Guaranteed 21%
-------------------------------
Tax Obligation (General) 19%
-------------------------------
Housing (Multifamily) 8%
-------------------------------
Healthcare 6%
-------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
After the Foothill/Eastern Transportation Corridor bonds were insured, the
price increased 10 basis points. They returned 27% over the fiscal year.
Resource recovery bonds made up the best performing sector for the funds,
mainly due to one of the largest holdings in the Nuveen California Municipal
Bond Fund: the California Pollution Control Financing Authority for the CanFibre
of Riverside Project. CanFibre is a company that recycles wood fiber into a
strong fire and water-resistant wood product. As construction of this facility
was completed in May 1999 and it began operation, the prices of the bonds rose
to reflect the positive credit outlook on the project. As of February 29, 2000,
about 5% of the fund's assets were invested in CanFibre. The California Insured
Municipal Bond Fund does not hold these bonds.
The healthcare sector continued to face challenges during the period, the
resulting fallout from the federal Medicare reimbursement cuts in 1997. However,
with our California-based research we were able to identify specific issues with
attractive spreads that did well despite the market: California Health Care
(Cedars-Sinai Medical Center) and Catholic Healthcare West. Both were upgraded
by the rating agencies during the fiscal year, with Cedars-Sinai Medical Center
returning 25% over the fiscal year.
"With no apparent indication that the computer industry will slow down anytime
soon, we look for the state's economy to continue its fast-paced growth through
at least the first half of the fiscal year."
Q What is your outlook for the California economy and the municipal bond market
for the coming fiscal year?
BILL With no apparent indication that the computer industry will slow down
anytime soon, we look for the state's economy to continue its fast-paced growth
through at least the first half of the fiscal year. Even if the stock market
were to fall, the effects wouldn't be felt for a while, in our opinion, because
there are enough built-in gains from the very prevalent stock options, which
would continue to funnel spending into the state for some time.
The California market has been gaining acceptance over the last few years, and
we expect state bonds to do better compared to the rest of the market during the
next fiscal year. We also expect better credit options in the market as well as
stronger liquidity.
We plan to keep healthcare underweighted in both portfolios for now, but we
may increase exposure if interest rates continue to rise and spreads widen.
Since we fully expect the Fed to continue to raise interest rates throughout the
year, we also plan to continue to focus on bonds with a short duration in
keeping with the interest rate environment.
ANNUAL REPORT page 5
<PAGE>
NUVEEN CALIFORNIA MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of shares
outstanding.
SEC Yield A standardized calculation that the Securities and Exchange Commission
requires mutual funds to use when advertising rates of income return. This
standardized rate ensures that investors are comparing "apples to apples" when
comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security to
pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 10.01 $ 10.00 $ 10.01 $ 10.02
- - -----------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0460 $0.0400 $0.0415 $0.0480
- - -----------------------------------------------------------------------------------------------
Fund Symbol NCAAX N/A NCACX NCSPX
- - -----------------------------------------------------------------------------------------------
CUSIP 67065N100 67065N209 67065N308 67065N407
- - -----------------------------------------------------------------------------------------------
Inception Date 9/94 3/97 9/94 7/86
- - -----------------------------------------------------------------------------------------------
* Paid March 1, 2000
</TABLE>
<TABLE>
<CAPTION>
Total Returns (Annualized)+
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -3.12% -7.21% -3.93% -7.60% -3.74% -2.98%
- - -----------------------------------------------------------------------------------------------
1-Year TER* -0.05% -4.27% -1.31% -4.98% -1.02% 0.21%
- - -----------------------------------------------------------------------------------------------
5-Year 5.23% 4.33% 4.44% 4.28% 4.57% 5.44%
- - -----------------------------------------------------------------------------------------------
5-Year TER* 8.37% 7.44% 7.14% 6.98% 7.31% 8.72%
- - -----------------------------------------------------------------------------------------------
10-Year 6.13% 5.68% 5.58% 5.58% 5.43% 6.40%
- - -----------------------------------------------------------------------------------------------
10-Year TER* 9.48% 9.01% 8.58% 8.58% 8.37% 9.91%
- - -----------------------------------------------------------------------------------------------
</TABLE>
+ Class R shares 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. Class C shares have a 1% CDSC
for redemptions within one year, which is not reflected in the one-year total
returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 37.5%.)
<TABLE>
<CAPTION>
Tax-Free Yields
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 5.31% 5.08% 4.56% 4.76% 5.51%
- - -----------------------------------------------------------------------------------------------
Taxable Equivalent Yield 8.50% 8.13% 7.30% 7.62% 8.82%
- - -----------------------------------------------------------------------------------------------
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
LEHMAN NUVEEN NUVEEN
BROTHERS CALIFORNIA CALIFORNIA
MUNICIPAL MUNICIPAL MUNICIPAL
BOND INDEX BOND FUND(Offer) BOND FUND(NAV)
<S> <C> <C> <C>
2/90 $ 10,000 $ 9,580 $ 10,000
2/91 $ 10,922 $ 10,372 $ 10,827
2/92 $ 12,013 $ 11,305 $ 11,801
2/93 $ 13,667 $ 12,819 $ 13,381
2/94 $ 14,422 $ 13,435 $ 14,024
2/95 $ 14,695 $ 13,465 $ 14,056
2/96 $ 16,318 $ 14,860 $ 15,511
2/97 $ 17,364 $ 15,645 $ 16,331
2/98 $ 18,953 $ 17,033 $ 17,780
2/99 $ 20,118 $ 17,932 $ 18,718
2/00 $ 19,696 $ 17,373 $ 18,135
</TABLE>
--Nuveen CA Municipal Bond Fund (Offer) $17,373
--Nuveen CA Municipal Bond Fund (Nav) $18,135
--Lehman Brothers Municipal Bond Index $19,696
Morningstar Rating /TM/ ++
****
Overall rating among 1,678
municipal bond funds as
of 2/29/00
Portfolio Statistics
Total Net Assets $262.5 million
- - --------------------------------
Average Effective
Maturity 20.06 years
- - --------------------------------
Average Duration 9.31
- - --------------------------------
=== Nuveen CA Municipal Bond Fund (Offer) $17,373
=== Nuveen CA Municipal Bond Fund (Nav) $18,135
=== Lehman Brothers Municipal Bond Index $19,895
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.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
++ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
2/29/00 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-
day Treasury bill returns, with appropriate fee adjustments, and a risk
factor that reflects fund performance below 90-day T-bill returns. Class A
shares of the fund received four stars for the three- and five-year periods.
The top 10% of the funds in a broad asset class receive five stars and the
next 22.5% receives four stars. The fund was rated among 1,678 and 1,365
funds for the three- and five-year periods, respectively.
The Nuveen California Municipal Bond Fund's monthly dividends rose during the
fiscal period. The amount differed based on share class. Please see Quick Facts
for the latest dividend paid.
ANNUAL REPORT page 6
<PAGE>
NUVEEN CALIFORNIA INSURED MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
Quick Facts
- - ------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $10.19 $10.20 $10.13 $10.18
- - ------------------------------------------------------------------------------------
February's Declared Dividend* $0.0445 $0.0380 $0.0395 $0.0460
- - ------------------------------------------------------------------------------------
Fund Symbol NCAIX NCABX NCAKX NCIBX
- - ------------------------------------------------------------------------------------
CUSIP 67065N506 67065N605 67065N704 67065N803
- - ------------------------------------------------------------------------------------
Inception Date 9/94 3/97 9/94 7/86
- - ------------------------------------------------------------------------------------
</TABLE>
* Paid March 1, 2000
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------
Total Returns (Annualized)+
- - -------------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -3.52% -7.60% -4.26% -7.93% -4.03% -3.27%
- - -------------------------------------------------------------------------------------------
1-Year TER* -0.62% -4.83% -1.82% -5.50% -1.49% -0.27%
- - -------------------------------------------------------------------------------------------
5-Year 4.95% 4.06% 4.20% 4.03% 4.37% 5.19%
- - -------------------------------------------------------------------------------------------
5-Year TER* 7.97% 7.05% 6.76% 6.61% 6.99% 8.34%
- - -------------------------------------------------------------------------------------------
10-Year 6.27% 5.81% 5.65% 5.65% 5.50% 6.50%
- - -------------------------------------------------------------------------------------------
10-Year TER* 9.47% 8.99% 8.50% 8.50% 8.28% 9.84%
- - -------------------------------------------------------------------------------------------
</TABLE>
+ Class R shares 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 37.5%.)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------
Tax-Free Yields
- - --------------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 4.70% 4.51% 3.96% 4.16% 4.91%
- - --------------------------------------------------------------------------------------------
Taxable Equivalent Yield 7.52% 7.22% 6.34% 6.66% 7.86%
- - --------------------------------------------------------------------------------------------
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
<TABLE>
<CAPTION>
NUVEEN NUVEEN
LEHMAN CALIFORNIA CALIFORNIA
BROTHERS INSURED INSURED
MUNICIPAL MUNICIPAL MUNICIPAL
BOND INDEX BOND FUND BOND FUND
(Offer) (NAV)
<S> <C> <C> <C>
2/90 $ 10,000 $ 9,580 $ 10,000
2/91 $ 10,922 $ 10,388 $ 10,843
2/92 $ 12,013 $ 11,390 $ 11,890
2/93 $ 13,667 $ 13,075 $ 13,648
2/94 $ 14,422 $ 13,599 $ 14,195
2/95 $ 14,695 $ 13,816 $ 14,422
2/96 $ 16,318 $ 15,241 $ 15,909
2/97 $ 17,364 $ 15,937 $ 16,636
2/98 $ 18,953 $ 17,317 $ 18,076
2/99 $ 20,118 $ 18,236 $ 19,036
2/00 $ 19,696 $ 17,595 $ 18,366
</TABLE>
-- Nuveen CA Insured Municipal Bond Fund (Offer) $17,595
-- Nuveen CA Insured Municipal Bond Fund (NAV) $18,366
-- Lehman Brothers Municipal Bond Index $19,696
- - ----------------------------------------
Portfolio Statistics
- - ----------------------------------------
Total Net Assets $228.3 million
- - ----------------------------------------
Average Effective
Maturity 20.07 years
- - ----------------------------------------
Average Duration 9.04
- - ----------------------------------------
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.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
- - --------------------------------------------------------------------------------
Terms To Know
- - --------------------------------------------------------------------------------
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income
investment portfolio. The longer the duration, the greater a portfolio's
sensitivity to changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by
subtracting the fund's liabilities from its assets and dividing by the number of
shares outstanding.
SEC Yield A standardized calculation that the Securities and Exchange
Commission requires mutual funds to use when advertising rates of income return.
This standardized rate ensures that investors are comparing "apples to apples"
when comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security
to pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
The Nuveen California Insured Municipal Bond Fund's monthly dividends rose
during the fiscal period. The amount differed based on share class. Please see
Quick Facts for the latest dividend paid.
ANNUAL REPORT page 7
<PAGE>
Portfolio of Investments
Nuveen California Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 3.8%
$ 960 California Educational Facilities Authority, Pooled College and 4/07 at 102 Baa2 $ 937,949
University Projects Revenue Bonds, Series 1997B (Southern
California College of Optometry), 6.300%, 4/01/21
1,500 California Statewide Community Development Authority, San Diego, 12/06 at 105 N/R 1,538,865
Certificates of Participation, 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 5.600%, 11/01/20 11/03 at 102 Aa3 3,314,885
4,335 6.000%, 11/01/21 11/03 at 102 Aa3 4,311,158
- - -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 13.2%
18,000 California Health Facilities Financing Authority, Revenue Bonds 12/09 at 101 A2 17,116,020
(Cedars-Sinai Medical Center), Series 1999A, 6.125%, 12/01/30
California Health Facilities Financing Authority, Insured Health
Facility Revenue Bonds (Small Facilities Pooled Loan Program),
1994 Series B:
3,000 7.400%, 4/01/14 4/05 at 102 AA- 3,303,090
3,635 7.500%, 4/01/22 4/05 at 102 AA- 4,004,534
3,370 California Health Facilities Financing Authority, Hospital Revenue 5/03 at 102 BBB+ 3,092,683
Bonds (Downey Community Hospital), Series 1993, 5.750%, 5/15/15
3,380 California Health Facilities Financing Authority, Kaiser Permanente 12/00 at 102 A 3,521,419
Revenue Bonds, 1990 Series A, 7.000%, 12/01/10
1,755 Central Joint Powers Health Financing Authority, Certificates of 2/03 at 100 Baa1 1,319,865
Participation, Series 1993 (Community Hospital of Central
California), 5.000%, 2/01/23
2,475 City of Loma Linda, California, Hospital Revenue Bonds (Loma Linda 12/03 at 102 N/R 2,319,224
University Medical Center Project), Series 1993-A, 6.000%, 12/01/06
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 18.1%
8,400 ABAG Finance Authority for Nonprofit Corporations, Multifamily No Opt. Call BBB 8,491,476
Housing Revenue Refunding Bonds (United Dominion/2000 Post Apartments),
2000 Series B, 6.250%, 8/15/30 (Mandatory put 8/15/08)
6,570 California Housing Finance Agency, Multifamily Housing Revenue Bonds 8/06 at 102 AAA 6,465,997
II, 1996 Series A, 6.050%, 8/01/27
California Statewide Communities Development Authority, Apartment
Development Revenue Refunding Bonds (Irvine Apartment Communities,
L.P.), Series 1998A:
7,950 5.250%, 5/15/25 (Mandatory put 5/15/13) 7/08 at 101 BBB 7,362,654
1,500 5.100%, 5/15/25 (Mandatory put 5/15/10) 7/08 at 101 BBB 1,417,560
2,905 California Statewide Communities Development Authority, Senior Lien 6/06 at 100 AAA 2,959,265
Multifamily Housing Revenue Bonds (Monte Vista Terrace), Series 1996A,
6.375%, 9/01/20
4,350 The Community Redevelopment Agency of the City of Los Angeles, 6/05 at 105 AAA 4,753,985
California, Multifamily Housing Revenue Refunding Bonds,
1995 Series A (Angelus Plaza Project), 7.400%, 6/15/10
3,285 City of Riverside, California, Multifamily Housing Revenue Bonds 7/02 at 100 AAA 3,327,147
(Fannie Mae Pass-Through Certificate Program/Birchwood Park
Apartment Project), Series 1992A, 6.500%, 1/01/18
4,005 City of Riverside, California, Multifamily Housing Revenue Bonds 7/02 at 100 AAA 4,056,384
(Fannie Mae Pass-Through Certificate Program/Palm Shadows
Apartments Project), 1992 Series A, 6.500%, 1/01/18
2,000 County of Riverside (California), Mobile Home Park Revenue Bonds 3/09 at 102 N/R 1,798,160
(Bravo Mobile Home Park Project), Series 1999B, 5.900%, 3/20/29
2,080 City of Salinas, California, Housing Facility Refunding Revenue 7/04 at 102 AAA 2,141,027
Bonds, Series 1994A (GNMA Collateralized - Villa Serra Project),
6.500%, 7/20/17
2,000 San Dimas Housing Authority, Mobile Home Park Revenue Bonds 7/08 at 102 N/R 1,731,600
(Charter Oak Mobile Home Estates Acquisition Project),
Series 1998A, 5.700%, 7/01/28
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 3,000 Housing Authority of the County of Santa Cruz, Multifamily Housing 7/00 at 102 AAA $ 3,075,600
Refunding Revenue Bonds, Series 1990A (Fannie Mae Collateralized),
7.750%, 7/01/23
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 4.0%
2,250 California Housing Finance Agency, Home Mortgage Revenue Bonds, 2/07 at 102 AAA 2,240,303
1997 Series B, 6.100%, 2/01/28 (Alternative Minimum Tax)
33,500 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/09 at 31 19/32 AAA 4,955,320
1999 Series F, 0.000%, 2/01/30 (Alternative Minimum Tax)
2,850 California Rural Home Mortgage Finance Authority, Single Family No Opt. Call AAA 3,074,324
Mortgage Revenue Bonds (Mortgage-Backed Securities Program),
1997 Series A, 7.000%, 9/01/29 (Alternative Minimum Tax)
1,950 County of San Bernardino (California), Single Family Home 5/07 at 22 9/16 AAA 274,463
Mortgage Revenue Bonds (Mortgage-Backed Securities Program),
1997 Series A, 0.000%, 5/01/31 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 4.0%
7,000 ABAG Finance Authority for Nonprofit Corporations, Revenue Refunding 10/07 at 102 BBB- 5,744,760
Certificates of Participation (American Baptist Homes of the West
Facilities Project), Series 1997A, 5.850%, 10/01/27
2,500 California Statewide Communities Development Authority, Certificates 11/04 at 102 AA- 2,576,075
of Participation (Solheim Lutheran Home), 6.500%, 11/01/17
2,000 Chico Redevelopment Agency, Insured Certificates of Participation 2/01 at 102 AA- 2,072,260
(Sierra Sunrise Lodge), Series 1991A, Walker Senior Housing
Corporation VII, 6.750%, 2/01/21
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 3.9%
8,500 State of California, Various Purpose General Obligation Bonds, 3/10 at 101 AAA 8,333,315
5.750%, 3/01/27 (WI)
Petaluma Joint High School District (Sonoma County, California),
General Obligation Bonds, Election of 1992, Series C:
4,220 0.000%, 8/01/20 8/04 at 38 13/32 AAA 1,218,441
2,080 0.000%, 8/01/21 8/04 at 36 1/8 AAA 563,555
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 25.3%
4,730 Alameda County Public Facilities Corporation, Certificates of 9/06 at 102 AAA 4,772,144
Participation (1991 Financing Project), 6.000%, 9/01/21
1,365 City of Brea Community Facilities District No. 1997-1, Olinda 3/06 at 102 N/R 1,196,887
Heights Public Improvements, 1998 Special Tax Bonds, 5.875%, 9/01/28
Brentwood Infrastructure Financing Authority, CIFP 98-1 Infrastructure
Revenue Bonds, Series 1998 (Contra Costa County, California):
1,225 5.750%, 9/02/18 3/00 at 103 N/R 1,083,072
2,440 5.875%, 9/02/28 3/00 at 103 N/R 2,112,357
Brentwood Infrastructure Financing Authority, CIFP 99-1 Infrastructure
Revenue Bonds, Series 1999 (Contra Costa County, California):
1,675 6.000%, 9/02/22 3/00 at 103 N/R 1,524,351
1,500 6.000%, 9/02/29 3/00 at 103 N/R 1,340,235
2,000 Carson Redevelopment Agency (California), Redevelopment Project 10/03 at 102 BBB+ 1,965,880
Area No. 1, Tax Allocation Bonds, Series 1993, 6.000%, 10/01/16
1,500 Dinuba Redevelopment Agency, California, Merged City of Dinuba 12/01 at 101 N/R 1,472,670
Redevelopment Project and Dinuba Redevelopment Project No. 2,
As Amended, Subordinated Tax Allocation Refunding Notes,
Issue of 1999A, 6.100%, 12/01/04
2,500 Fontana Public Financing Authority (San Bernardino County, California), 9/00 at 102 BBB 2,536,950
Tax Allocation Revenue Bonds (North Fontana Redevelopment Project),
1990 Series A, 7.250%, 9/01/20
2,000 La Mirada Redevelopment Agency (California), Community Facilities 10/08 at 102 N/R 1,717,940
District No.89-1 (Civic Theatre Project), 1998 Refunding Special
Tax Bonds (Tax Increment Contribution), 5.700%, 10/01/20
1,260 Marysville Community Development Agency (California), Marysville 3/02 at 102 Baa3 1,291,475
Plaza Project, 1992 Tax Allocation Refunding Bonds, 7.250%, 3/01/21
6,240 City of Milpitas, Limited Obligation Improvement Bonds, Local 3/00 at 103 N/R 5,479,906
Improvement District No. 20, 1998 Series A (Santa Clara County,
California), 5.700%, 9/02/18
</TABLE>
9
<PAGE>
Portfolio of Investments
Nuveen California Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
$ 1,590 City of Ontario (San Bernardino County, California), Limited 3/00 at 103 N/R $ 1,649,879
Obligation Improvement Bonds, Assessment District No. 100C
(California Commerce Center Phase III), 8.000%, 9/02/11
2,250 County of Orange, California, Community Facilities District No. 99-1 8/09 at 102 N/R 2,227,928
(Ladera Ranch), Series A of 1999, Special Tax Bonds, 6.700%, 8/15/29
4,300 Orange County Development Agency, Santa Ana Heights Project Area, 9/03 at 102 BBB 4,023,768
1993 Tax Allocation Revenue Bonds (California), 6.125%, 9/01/23
2,000 Community Facilities District No. 88-1 of the City of Poway, California 8/08 at 102 N/R 2,024,600
(Parkway Business Center), Special Tax Refunding Bonds, Series 1998,
6.750%, 8/15/15
1,645 City of Rancho Cucamoga, Assessment District No. 93-1 (Masi Plaza), 3/00 at 103 N/R 1,553,193
Limited Obligation Improvement Bonds, 6.250%, 9/02/22
1,360 Redding Joint Powers Financing Authority, Lease Revenue Bonds 6/03 at 102 A 1,345,870
(Capital Improvement Projects), Series 1993, 6.250%, 6/01/23
1,000 County of Sacramento (California), Laguna Creek Ranch/Elliott Ranch 12/07 at 102 N/R 848,750
Community Facilities District No. 1, Improvement Area No. 1 Special
Tax Refunding Bonds (Laguna Creek Ranch), 5.700%, 12/01/20
2,235 City of Salinas, Limited Obligation Refunding Bonds, Consolidated 3/00 at 103 N/R 2,314,007
Refunding District 94-3, Series No. A-181 Monterey County, California,
7.400%, 9/02/09
5,000 City and County of San Francisco Redevelopment Financing Authority, 8/03 at 103 A 4,462,200
1993 Series C, Tax Allocation Revenue Bonds (San Francisco
Redevelopment Projects), 5.125%, 8/01/18
7,090 Redevelopment Agency of the City of San Marcos, Tax Allocation Bonds 10/07 at 102 A- 6,716,428
(1997 Affordable Housing Project), Series 1977A, 6.000%, 10/01/27
(Alternative Minimum Tax)
4,000 Shafter Joint Powers Financing Authority, Lease Revenue Bonds, 1/07 at 101 A2 4,004,760
1997 Series A (Community Correctional Facility Acquisition Project),
6.050%, 1/01/17
1,000 City of Stockton, Mello-Roos Revenue Bonds, Series 1997A, Community 8/05 at 102 N/R 971,270
Facilities District No. 90-2 (Brookside Estates), 6.200%, 8/01/15
3,475 City of Stockton, Limited Obligation Refunding Improvement Bonds, No Opt. Call N/R 3,176,741
Weber/Sperry Ranches Assessment District, Series 22, 5.650%, 9/02/13
2,000 Taft Public Financing Authority, Lease Revenue Bonds, 1997 Series A 1/07 at 101 A2 2,002,380
(Community Correctional Facility Acquisition Project), 6.050%, 1/01/17
1,100 County of Tulare (California), Certificates of Participation 11/02 at 102 A3 1,186,196
(1992 Financing Project), Series B, Tulare County Public Facilities
Corporation, 6.875%, 11/15/12
1,500 Vallejo Public Financing Authority, 1998 Limited Obligation Revenue Bonds No Opt. Call N/R 1,432,650
(Fairgrounds Drive Assessment District Refinancing), 5.700%, 9/02/11
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 8.9%
Foothill/Eastern Transportation Corridor Agency (California), Toll Road
Revenue Bonds, Series 1995A:
7,150 5.000%, 1/01/35 1/10 at 100 BBB- 5,971,823
11,850 5.000%, 1/01/35 1/10 at 100 AAA 10,182,468
Foothill/Eastern Transportation Corridor Agency (California), Toll
Road Refunding Revenue Bonds, Series 1999:
8,900 0.000%, 1/15/28 1/14 at 101 BBB- 4,433,624
3,000 5.750%, 1/15/40 1/10 at 101 BBB- 2,733,720
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 10.4%
1,500 ABAG Finance Authority for Nonprofit Corporations, Insured Certificates of 1/01 at 102 N/R*** 1,566,555
Participation (Channing House), Series 1991A, 7.125%, 1/01/21
(Pre-refunded to 1/01/01)
2,035 Bella Vista Water District (California), Certificates of Participation 10/01 at 102 Baa*** 2,166,909
(1991 Capital Improvement Project), 7.375%, 10/01/17
(Pre-refunded to 10/01/01)
2,000 California Health Facilities Financing Authority, Health Facility 10/00 at 102 N/R*** 2,079,920
Revenue Bonds (Sisters of Providence), Series 1990, 7.500%, 10/01/10
(Pre-refunded to 10/01/00)
7,500 State Public Works Board of the State of California, Lease Revenue Bonds 10/02 at 102 AAA 8,047,575
(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)
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 2,000 Desert Hospital District, Hospital Revenue Certificates of Participation 7/00 at 102 AAA $ 2,067,640
(Desert Hospital Corporation Project), Series 1990, 8.100%, 7/01/20
(Pre-refunded to 7/01/00)
1,950 East Bay Municipal Utility District (Alameda and Contra Costa Counties, 6/00 at 102 AAA 2,006,453
California), Water System Subordinated Revenue Bonds, Series 1990,
7.500%, 6/01/18 (Pre-refunded to 6/01/00)
4,000 East Bay Municipal Utility District (Alameda and Contra Costa Counties, 12/01 at 102 AAA 4,215,280
California), Water System Subordinated Revenue Bonds, Series 1991,
6.375%, 6/01/21 (Pre-refunded to 12/01/01)
2,505 Harbor Department of the City of Los Angeles (California), No Opt. Call AAA 3,006,877
Revenue Bonds, Issue of 1988, 7.600%, 10/01/18
2,000 Sonoma County Office of Education, Certificates of Participation 7/00 at 102 A+*** 2,062,840
(1990 Financing Project), 7.375%, 7/01/20 (Pre-refunded to 7/01/00)
- - -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 8.8%
12,000 California Pollution Control Financing Authority, Solid Waste Disposal 7/07 at 102 N/R 12,813,240
Revenue Bonds (CanFibre of Riverside Project), Tax-Exempt Series 1997A,
9.000%, 7/01/19 (Alternative Minimum Tax)
3,000 California Statewide Communities Development Authority, Certificates of 12/04 at 102 N/R 2,764,530
Participation Refunding (Rio Bravo Fresno Project), 1999 Series A,
6.300%, 12/01/18
6,645 Merced Irrigation District (California), 1998 Revenue Certificates of 3/03 at 102 N/R 6,088,480
Participation (1998 Electric System Project), 5.800%, 3/01/15
1,660 Salinas Valley Solid Waste Authority, Revenue Bonds, Series 1997, 8/02 at 102 BBB 1,439,530
5.800%, 8/01/27 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 310,480 Total Investments - (cost $268,058,575) - 100.4% 263,495,314
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (0.4)% (973,466)
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $262,521,848
====================================================================================================================
</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.
(WI) Security purchased on a when-issued basis.
See accompanying notes to financial statements.
11
<PAGE>
Portfolio of Investments
Nuveen California Insured Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal
Amount Optional Call Market
(000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care - 6.4%
$ 8,500 California Statewide Communities Development Authority, Sutter 8/02 at 102 AAA $ 8,568,850
Health Obligated Group, Certificates of Participation, 6.125%, 8/15/22
6,000 City of Oakland, California, Insured Revenue Bonds (1800 Harrison 1/10 at 100 AAA 6,019,320
Foundation - Kaiser Permanente), Series 1999A, 6.000%, 1/01/29
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 7.7%
6,340 California Housing Finance Agency, Housing Revenue Bonds 2/02 at 102 AAA 6,532,165
(Insured), 1991 Series B, 6.850%, 8/01/23
2,545 California Housing Finance Agency, Multifamily Housing Revenue 8/06 at 102 AAA 2,504,713
Bonds II, 1996 Series A, 6.050%, 8/01/27
3,480 The Community Redevelopment Agency of the City of Los Angeles, 6/05 at 105 AAA 3,803,188
California, Multifamily Housing Revenue Refunding Bonds,
1995 Series A (Angelus Plaza Project), 7.400%, 6/15/10
2,555 City of Napa, Mortgage Revenue Refunding Bonds, Series 1992A 7/02 at 102 AAA 2,622,784
(FHA-Insured Mortgage Loan - Creekside Park Apartments Project),
6.625%, 7/01/24
2,000 City of Napa, Mortgage Revenue Refunding Bonds, Series 1994A 7/04 at 101 AAA 2,057,100
(FHA-Insured Mortgage Loan - Creekside Park II Apartments Project),
6.625%, 7/01/25
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 6.3%
4,750 California Housing Finance Agency, Single Family Mortgage Bonds II, 2/07 at 102 Aaa 4,715,040
1997 Series A, 6.050%, 8/01/26 (Alternative Minimum Tax)
5,000 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/07 at 102 AAA 4,978,000
1997 Series E, 6.100%, 8/01/29 (Alternative Minimum Tax)
1,420 California Housing Finance Agency, Home Mortgage Revenue Bonds, 2/06 at 102 AAA 1,416,294
1996 Series E, 6.150%, 8/01/25 (Alternative Minimum Tax)
22,755 California Housing Finance Agency, Home Mortgage Revenue Bonds, 8/09 at 31 19/32 AAA 3,365,920
1999 Series F, 0.000%, 2/01/30 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 18.7%
2,000 State of California, General Obligation Bonds, 4.750%, 2/01/24 2/09 at 101 AAA 1,667,920
31,000 State of California, Various Purpose General Obligation Bonds, 3/10 at 101 AAA 30,392,090
5.750%, 3/01/27 (WI)
Golden West Schools Financing Authority (California), 1998 Revenue
Bonds, Series A (School District General Obligation Refunding Program):
1,500 0.000%, 2/01/19 8/13 at 70 15/16 AAA 470,055
2,650 0.000%, 8/01/19 8/13 at 68 9/16 AAA 802,738
2,755 0.000%, 8/01/20 8/13 at 63 27/32 AAA 777,075
1,430 0.000%, 2/01/21 8/13 at 61 11/16 AAA 387,316
2,855 0.000%, 8/01/21 8/13 at 59 5/8 AAA 747,325
6,070 Sacramento City Unified School District (Sacramento County, 7/09 at 102 Aaa 6,106,602
California), General Obligation Bonds, Series 2000A,
6.000%, 7/01/29 (WI)
3,040 Sulphur Springs Union School District (County of Los Angeles, No Opt. Call AAA 1,246,157
California), General Obligation Bonds, Election 1991,
Series A, 0.000%, 9/01/15
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 29.9%
4,730 Alameda County Public Facilities Corporation, Certificates of 9/06 at 102 AAA 4,772,144
Participation (1991 Financing Project), 6.000%, 9/01/21
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount Optional Call Market
(000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
Anaheim Public Financing Authority, Lease Revenue Bonds (Anaheim Public
Improvements Project), Subordinate Lease Revenue Bonds, 1997 Series C:
$ 20,000 0.000%, 9/01/32 No Opt. Call AAA $ 2,745,800
41,885 0.000%, 9/01/35 No Opt. Call AAA 4,764,419
1,225 Redevelopment Agency of the City of Barstow, Central Redevelopment No Opt. Call AAA 1,425,116
Project, Tax Allocation Bonds, 1994 Series A, 7.000%, 9/01/14
7,005 Big Bear Lake Financing Authority (San Bernardino County, 8/05 at 102 AAA 7,212,558
California), 1995 Tax Allocation Refunding Revenue Bonds,
6.300%, 8/01/25
6,990 Chino Unified School District, Certificates of Participation (1995 9/05 at 102 AAA 7,065,282
Master Lease Program), 6.125% 9/01/26
850 Redevelopment Agency of the City of Concord, Central Concord 7/00 at 100 AAA 860,931
Redevelopment Project, Tax Allocation Bonds, Series 1988-2,
7.875%, 7/01/07
3,865 Fallbrook Sanitary District (San Diego County, California), 1991 2/01 at 100 AAA 3,920,927
Certificates of Participation (Wastewater Facilities Refunding
Project), 6.600%, 2/01/13
2,500 Fontana Public Financing Authority (San Bernardino County, 9/00 at 102 AAA 2,584,925
California), Tax Allocation Revenue Bonds (North Fontana Redevelopment
Project), 1990 Series A, 7.000%, 9/01/10
3,000 Gilroy Unified School District, Santa Clara County, California, 9/04 at 102 AAA 3,125,820
Certificates of Participation, Series of 1994, 6.250%, 9/01/12
7,040 Norwalk Community Facilities Financing Authority (Los Angeles 9/05 at 102 AAA 7,098,150
County, California), Tax Allocation Refunding Revenue Bonds,
1995 Series A, 6.050%, 9/01/25
5,120 County of Orange, California, 1996 Recovery Certificates of 7/06 at 102 AAA 5,137,818
Participation, Series A, 6.000%, 7/01/26
14,050 Paramount Redevelopment Agency (Los Angeles County, California), No Opt. Call AAA 2,641,119
Redevelopment Project Area No. 1, Compound Interest Tax Allocation
Refunding Bonds, Issue of 1998, 0.000%, 8/01/26
8,000 Pomona Public Financing Authority (California), 1998 Refunding 2/08 at 102 AAA 6,839,600
Revenue Bonds, Series W (Southwest Pomona Redevelopment Project),
5.000%, 2/01/30
Redevelopment Agency of the City and County of San Francisco, Lease
Revenue Bonds, Series 1994 (George R. Moscone Convention Center):
2,250 6.800%, 7/01/19 7/04 at 102 AAA 2,430,878
1,000 6.750%, 7/01/24 7/04 at 102 AAA 1,072,970
2,250 Redevelopment Agency of the City of San Jose, Merged Area Redevelopment 2/04 at 102 AAA 1,863,000
Project, Tax Allocation Bonds, Series 1993, 4.750%, 8/01/24
16,505 Santa Ana Unified School District (1999 Financing Project), No Opt. Call AAA 2,782,413
Certificates of Participation (Orange County, California), 0.000%,
4/01/29
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 5.5%
6,500 Foothill/Eastern Transportation Corridor Agency (California), Toll 1/10 at 100 AAA 5,585,320
Road Revenue Bonds, Series 1995A, 5.000%, 1/01/35
5,000 Airports Commission of the City and County of San Francisco, 5/06 at 101 AAA 4,767,800
California, San Francisco International Airport, Second Series Revenue
Bond, Issue 13B, 5.625%, 5/01/21 (Alternative Minimum Tax)
2,000 Southern California Rapid Transit District, Certificates of 1/01 at 102 1/2 AAA 2,104,880
Participation (Workers Compensation Funding Program),
7.500%, 7/01/05
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 20.7%
7,000 City of Big Bear Lake, California, 1992 Water Revenue Refunding 4/02 at 102 AAA 7,402,710
Bonds, 6.375%, 4/01/22 (Pre-refunded to 4/01/02)
3,525 Brea Public Financing Authority (Orange County, California), 8/01 at 102 AAA 3,726,278
1991 Tax Allocation Revenue Bonds, Series A (Redevelopment Project
AB), 7.000%, 8/01/15 (Pre-refunded to 8/01/01)
3,000 Calaveras County Water District (California), Certificates of 5/01 at 102 AAA 3,153,450
Participation (1991 Ebbetts Pass Water System Improvements Project),
6.900%, 5/01/16 (Pre-refunded to 5/01/01)
1,000 California Educational Facilities 11/00 at 102 AAA 1,041,460
Authority, Revenue Bonds (Pepperdine University), Series
1990, 7.200%, 11/01/15 (Pre-refunded to 11/01/00)
5,000 State Public Works Board of the State of California, Lease Revenue 9/00 at 102 AAA 5,176,900
Bonds (Department of Corrections), 1990 Series A (State Prison -
Madera County), 7.000%, 9/01/09 (Pre-refunded to 9/01/00)
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen California Insured Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 2,000 Eastern Municipal Water District (Riverside County, California), 7/01 at 102 AAA $ 2,097,380
Water and Sewer Revenue Certificates of Participation, Series 1991,
6.500%, 7/01/20 (Pre-refunded to 7/01/01)
2,000 The City of Los Angeles (California), Los Angeles Convention and 8/00 at 102 AAA 2,068,060
Exhibition Center, Certificates of Participation, 1990 Series,
7.000%, 8/15/21 (Pre-refunded to 8/15/00)
5,000 Los Angeles County Transportation Commission (California), Proposition 7/02 at 102 AAA 5,294,000
C Sales Tax Revenue Bonds, Second Senior Bonds, Series 1992-A,
6.250%, 7/01/13 (Pre-refunded to 7/01/02)
4,500 Modesto Irrigation District Financing Authority, Domestic Water 9/02 at 102 AAA 4,757,220
Project Revenue Bonds, Series 1992A, 6.125%, 9/01/19 (Pre-refunded
to 9/01/02)
2,500 Mt. Diablo Hospital District, Insured Hospital Revenue Bonds, 1990 12/00 at 102 AAA 2,623,400
Series A, 8.000%, 12/01/11 (Pre-refunded to 12/01/00)
2,000 Mt. Diablo Unified School District, Community Facilities District No. 1, 8/00 at 102 AAA 2,066,080
Special Tax Bonds, Series 1990 (Contra Costa County, California),
7.050%, 8/01/20 (Pre-refunded to 8/01/00)
2,000 Redevelopment Agency of the City of Pittsburg, California, Los Medanos 8/01 at 103 AAA 2,137,160
Community Development Project, Tax Allocation Bonds, Series 1991,
7.150%, 8/01/21 (Pre-refunded to 8/01/01)
3,000 Sacramento Municipal Utility District (California), Electric Revenue 9/01 at 102 AAA 3,155,460
Bonds, 1991 Series Y, 6.500%, 9/01/21 (Pre-refunded to 9/01/01)
2,500 San Bernardino County Transportation Authority, Sales Tax Revenue 3/02 at 102 AAA 2,558,600
Bonds (Limited Tax Bonds), 1992 Series A, 6.000%, 3/01/10
- - -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 2.1%
1,910 California Pollution Control Financing Authority, Pollution Control 9/09 at 101 AAA 1,776,701
Refunding Revenue Bonds (Southern California Edison Company), 1999
Series C, 5.450%, 9/01/29
3,000 City of Shasta Lake, 1996-2 Certificates of Participation, 6.000%, 4/05 at 102 AAA 3,028,230
4/01/16
- - -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 2.4%
2,500 The Metropolitan Water District of Southern California, Water Revenue 7/06 at 100 AAA 2,106,600
Refunding Bonds, 1996 Series B, 4.750%, 7/01/21
3,475 Pajaro Valley Water Management Agency (California), Revenue 3/09 at 101 AAA 3,410,711
Certificates of Participation, Series 1999A, 5.750%, 3/01/24
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 336,320 Total Investments - (cost $224,758,794) - 99.7% 227,562,922
===========------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Principal Amortized
Amount (000) Description Ratings** Cost
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Short-Term Investments - 6.6%
$ 7,300 California Statewide Communities Development Authority, Tri-Modal A-1+ 7,300,000
Variable Rate Revenue Refunding Certificates of Participation
(House Ear Institute), 1993 Series A, Variable Rate Demand Bonds,
3.200%, 12/01/18+
2,900 Orange County Improvement Bond Act of 1915, Irvine Coast Assessment VMIG-1 2,900,000
District No. 88-1 Limited Obligation Improvement, Variable Rate Demand
Bonds, 3.200%, 9/02/18+
4,900 Orange County Sanitation District, Certificates of Participation, Variable VMIG-1 4,900,000
Rate Demand Bonds, 3.200%, 8/01/17+
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 15,100 Total Short-Term Investments - (cost $15,100,000) - 6.6% 15,100,000
===========------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - (6.3)% (14,370,584)
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $228,292,338
====================================================================================================================
</TABLE>
All of the bonds in the portfolio, excluding temporary investments in short-term
municipal securities, are either covered by Original Issue Insurance, Secondary
Market Insurance or Portfolio Insurance, or are backed by an escrow or trust
containing sufficient U.S. Government or U.S. Government agency securities, any
of which ensure the timely payment of principal and interest.
* Optional Call Provisions (not covered by the report of independent public
accountants): Dates (month and year) and prices of the earliest optional
call or redemption. There may be other call provisions at varying prices at
later dates.
** Ratings (not covered by the report of independent public accountants):
Using the higher of Standard & Poor's or Moody's rating.
(WI) Security purchased on a when-issued basis.
+ 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.
14
<PAGE>
Statement of Net Assets
February 29, 2000
<TABLE>
<CAPTION>
California
California Insured
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Investments in municipal securities, at market value $263,495,314 $227,562,922
Temporary investments in short-term municipal securities, at amortized cost,
which approximates market value -- 15,100,000
Cash 3,562,477 --
Receivables:
Interest 4,812,013 2,817,251
Investments sold 298,239 21,934,838
Shares sold 68,029 96
Other assets 1,367 110
- - ----------------------------------------------------------------------------------------------------------
Total assets 272,237,439 267,415,217
- - ----------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 1,053,217
Payables:
Investments purchased 8,330,168 36,433,373
Shares redeemed 502,944 811,424
Accrued expenses:
Management fees 112,174 98,462
12b-1 distribution and service fees 22,846 19,998
Other 77,703 97,628
Dividends payable 669,756 608,777
- - ----------------------------------------------------------------------------------------------------------
Total liabilities 9,715,591 39,122,879
- - ----------------------------------------------------------------------------------------------------------
Net assets $262,521,848 $228,292,338
==========================================================================================================
Class A Shares
Net assets $ 48,560,233 $ 52,014,086
Shares outstanding 4,852,336 5,102,944
Net asset value and redemption price per share $ 10.01 $ 10.19
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.45 $ 10.64
==========================================================================================================
Class B Shares
Net assets $ 10,317,964 $ 10,909,397
Shares outstanding 1,031,720 1,069,401
Net asset value, offering and redemption price per share $ 10.00 $ 10.20
==========================================================================================================
Class C Shares
Net assets $ 15,132,099 $ 6,552,387
Shares outstanding 1,511,885 647,013
Net asset value, offering and redemption price per share $ 10.01 $ 10.13
==========================================================================================================
Class R Shares
Net assets $188,511,552 $158,816,468
Shares outstanding 18,810,056 15,602,056
Net asset value, offering and redemption price per share $ 10.02 $ 10.18
==========================================================================================================
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
Statement of Operations
Year Ended February 29, 2000
<TABLE>
<CAPTION>
California
California Insured
- - ------------------------------------------------------------------------------------
<S> <C> <C>
Investment Income $16,737,188 $14,117,880
- - ------------------------------------------------------------------------------------
Expenses
Management fees 1,477,137 1,304,008
12b-1 service fees -- Class A 91,683 100,255
12b-1 distribution and service fees -- Class B 90,893 103,090
12b-1 distribution and service fees -- Class C 86,615 51,345
Shareholders' servicing agent fees and expenses 182,841 160,804
Custodian's fees and expenses 79,601 81,356
Trustees' fees and expenses 5,964 4,881
Professional fees 14,753 12,739
Shareholders' reports - printing and mailing expenses 24,857 46,646
Federal and state registration fees 2,272 1,704
Portfolio insurance expense -- 23,032
Other expenses 10,158 10,172
- - ------------------------------------------------------------------------------------
Total expenses before custodian fee credit 2,066,774 1,900,032
Custodian fee credit (17,150) (20,429)
- - ------------------------------------------------------------------------------------
Net expenses 2,049,624 1,879,603
- - ------------------------------------------------------------------------------------
Net investment income 14,687,564 12,238,277
- - ------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (671,954) (2,150,082)
Change in net unrealized appreciation or depreciation
of investments (22,618,973) (18,494,773)
- - ------------------------------------------------------------------------------------
Net gain (loss) from investments (23,290,927) (20,644,855)
- - ------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ (8,603,363) $ (8,406,578)
====================================================================================
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
California California Insured
-------------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended
2/29/00 2/28/99 2/29/00 2/28/99
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 14,687,564 $ 13,330,413 $ 12,238,277 $ 11,643,242
Net realized gain (loss) from investment transactions (671,954) 1,031,974 (2,150,082) 258,361
Change in net unrealized appreciation or depreciation
of investments (22,618,973) (600,160) (18,494,773) 847,868
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (8,603,363) 13,762,227 (8,406,578) 12,749,471
- - ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (2,397,373) (1,620,887) (2,492,127) (1,920,349)
Class B (428,484) (200,523) (455,617) (263,828)
Class C (530,805) (290,569) (301,363) (221,918)
Class R (11,164,199) (11,079,070) (8,833,909) (9,255,409)
From accumulated net realized gains from investment transactions:
Class A (20,496) (153,240) -- (20,898)
Class B (3,705) (28,610) -- (3,919)
Class C (4,435) (32,763) -- (2,848)
Class R (73,356) (951,059) -- (89,451)
In excess of net realized gains from investment transactions:
Class A -- -- -- (10,300)
Class B -- -- -- (1,931)
Class C -- -- -- (1,404)
Class R -- -- -- (44,092)
- - ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (14,622,853) (14,356,721) (12,083,016) (11,836,347)
- - ------------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 53,669,029 35,479,670 31,862,064 32,926,505
Net proceeds from shares issued to shareholders due
to reinvestment of distributions 8,301,339 8,761,391 6,931,054 6,965,808
- - ------------------------------------------------------------------------------------------------------------------------------------
61,970,368 44,241,061 38,793,118 39,892,313
Cost of shares redeemed (50,606,014) (21,081,364) (38,558,155) (26,208,534)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets from Fund share transactions 11,364,354 23,159,697 234,963 13,683,779
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (11,861,862) 22,565,203 (20,254,631) 14,596,903
Net assets at the beginning of year 274,383,710 251,818,507 248,546,969 233,950,066
- - ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $262,521,848 $274,383,710 $228,292,338 $248,546,969
====================================================================================================================================
Balance of undistributed net investment income at the end of year $ 353,558 $ 186,855 $ 189,752 $ 34,491
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen 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.
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
accounting principles generally accepted in the United States.
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 29, 2000, California and California Insured had when-issued purchase
commitments of $8,330,168 and $36,433,373, respectively.
Investment 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 monthly as a dividend 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 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.
All monthly tax-exempt income dividends paid during the fiscal year ended
February 29, 2000, have been designated Exempt Interest Dividends. Net realized
capital gain and market discount distributions are subject to federal taxation.
18
<PAGE>
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 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 only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 29, 2000.
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.
Custodian Fee Credit
Each Fund has an arrangement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on each Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual
results may differ from those estimates.
19
<PAGE>
Notes to Financial Statements (continued)
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
California
-----------------------------------------------------
Year Ended 2/29/00 Year Ended 2/28/99
------------------------- -------------------------
Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 3,432,125 $ 35,505,654 1,071,388 $ 11,687,908
Class B 513,199 5,394,532 501,459 5,481,597
Class C 772,432 7,884,193 623,022 6,803,964
Class R 466,998 4,884,650 1,052,596 11,506,201
Shares issued to shareholders due to reinvestment of distributions:
Class A 103,305 1,078,310 91,191 997,733
Class B 14,385 149,673 7,826 85,655
Class C 21,661 225,699 12,131 132,788
Class R 654,133 6,847,657 688,652 7,545,215
- - ----------------------------------------------------------------------------------------------------------------------------
5,978,238 61,970,368 4,048,265 44,241,061
- - ----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,039,895) (20,711,423) (474,337) (5,180,644)
Class B (171,297) (1,754,561) (46,662) (508,896)
Class C (232,384) (2,371,152) (57,000) (622,658)
Class R (2,486,309) (25,768,878) (1,351,198) (14,769,166)
- - ----------------------------------------------------------------------------------------------------------------------------
(4,929,885) (50,606,014) (1,929,197) (21,081,364)
- - ----------------------------------------------------------------------------------------------------------------------------
Net increase 1,048,353 $ 11,364,354 2,119,068 $ 23,159,697
============================================================================================================================
California
-----------------------------------------------------
Year Ended 2/29/00 Year Ended 2/28/99
------------------------- -------------------------
Shares Amount Shares Amount
- - ----------------------------------------------------------------------------------------------------------------------------
Shares sold:
Class A 1,721,823 $ 18,028,989 1,478,042 $ 16,416,739
Class B 486,871 5,202,861 559,676 6,191,761
Class C 323,797 3,395,642 396,536 4,367,453
Class R 496,702 5,234,572 537,388 5,950,552
- - ----------------------------------------------------------------------------------------------------------------------------
Shares issued to shareholders due to reinvestment of distributions:
Class A 118,515 1,251,002 92,518 1,026,442
Class B 16,888 177,619 7,358 81,754
Class C 17,583 184,642 14,226 156,701
Class R 502,955 5,317,791 514,952 5,700,911
- - ----------------------------------------------------------------------------------------------------------------------------
3,685,134 38,793,118 3,600,696 39,892,313
- - ----------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (998,979) (10,412,414) (582,791) (6,459,540)
Class B (229,021) (2,375,795) (40,526) (449,360)
Class C (328,644) (3,427,568) (70,267) (773,501)
Class R (2,129,612) (22,342,378) (1,675,268) (18,526,133)
- - ----------------------------------------------------------------------------------------------------------------------------
(3,686,256) (38,558,155) (2,368,852) (26,208,534)
- - ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (1,122) $ 234,963 1,231,844 $ 13,683,779
============================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid April 3, 2000, to shareholders of record on March 9,
2000, as follows:
<TABLE>
<CAPTION>
California California Insured
- - ------------------------------------------------------
<S> <C> <C>
Dividend per share:
Class A $.0460 $.0445
Class B .0400 .0380
Class C .0415 .0395
Class R .0480 .0460
======================================================
</TABLE>
20
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended
February 29, 2000, were as follows:
<TABLE>
<CAPTION>
California California Insured
- - ------------------------------------------------------------------------------------------------------------------------------------
Purchases:
<S> <C> <C>
Long-term municipal securities $ 97,744,554 $104,966,585
Short-term municipal securities 1,000,000 19,200,000
Sales and maturities:
Long-term municipal securities 83,381,541 104,635,504
Short-term municipal securities 1,000,000 6,200,000
====================================================================================================================================
At February 29, 2000, the identified cost of investments owned for federal income tax purposes were as follows:
California California Insured
- - ------------------------------------------------------------------------------------------------------------------------------------
$268,058,575 $240,559,877
====================================================================================================================================
At February 29, 2000, 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:
California California Insured
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expiration Year:
2008 $ 690,434 $ 1,507,433
====================================================================================================================================
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments for federal income tax purposes at February 29, 2000,
were as follows:
California California Insured
- - ------------------------------------------------------------------------------------------------------------------------------------
Gross unrealized:
<S> <C> <C>
appreciation $ 5,051,376 $ 5,652,295
depreciation (9,614,637) (3,549,250)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $(4,563,261) $ 2,103,045
====================================================================================================================================
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with Nuveen Advisory Corp. (the "Adviser"), a wholly owned subsidiary of The John
Nuveen Company, each Fund pays an annual management fee, payable monthly, at the rates set forth below which are based upon the
average daily net assets of each Fund:
Average Daily Net Assets 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 assets of California and .975 of 1% of the average daily net
assets 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 29, 2000, the Distributor collected sales
charges on purchases of Class A Shares of approximately $169,800 and $116,800
for California and California Insured, respectively, of which approximately
$169,800 and $113,100 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.
21
<PAGE>
Notes to Financial Statements (continued)
During the fiscal year ended February 29, 2000, the Distributor compensated
authorized dealers directly with approximately $342,600 and $297,800 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 collected on Class B
Shares, and all 12b-1 service and distribution fees collected on Class C Shares
during the first year following a purchase are retained by the Distributor.
During the fiscal year ended February 29, 2000, the Distributor retained
approximately $118,800 and $112,700 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 $58,600 and $65,700 of CDSC on share redemptions for
California and California Insured, respectively, during the fiscal year ended
February 29, 2000.
7. Composition of Net Assets
At February 29, 2000, the Fund had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
California California Insured
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capital paid-in $267,421,985 $227,506,974
Balance of undistributed net investment income 353,558 189,752
Accumulated net realized gain (loss) from investment transactions (690,434) (2,208,516)
Net unrealized appreciation (depreciation) of investments (4,563,261) 2,804,128
- - -------------------------------------------------------------------------------------------------------
Net assets $262,521,848 $228,292,338
=======================================================================================================
</TABLE>
22
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
---------------------- -------------------
Net
CALIFORNIA Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.89 $.55 $(.89) $(.34) $(.54) $ -- $(.54) $10.01 (3.12)%
1999 10.91 .54 .03 .57 (.54) (.05) (.59) 10.89 5.28
1998 10.58 .55 .37 .92 (.55) (.04) (.59) 10.91 8.87
1997 10.58 .55 (.01) .54 (.54) -- (.54) 10.58 5.29
1996 10.10 .55 .47 1.02 (.54) -- (.54) 10.58 10.36
Class B (3/97)
2000 10.89 .47 (.89) (.42) (.47) -- (.47) 10.00 (3.93)
1999 10.92 .47 .01 .48 (.46) (.05) (.51) 10.89 4.44
1998 (d) 10.56 .46 .41 .87 (.47) (.04) (.51) 10.92 8.39
Class C (9/94)
2000 10.90 .50 (.90) (.40) (.49) -- (.49) 10.01 (3.74)
1999 10.92 .49 .02 .51 (.48) (.05) (.53) 10.90 4.70
1998 10.58 .49 .38 .87 (.49) (.04) (.53) 10.92 8.36
1997 10.58 .47 (.01) .46 (.46) -- (.46) 10.58 4.53
1996 10.10 .47 .47 .94 (.46) -- (.46) 10.58 9.53
Class R (7/86)
2000 10.91 .57 (.89) (.32) (.57) -- (.57) 10.02 (2.98)
1999 10.93 .56 .03 .59 (.56) (.05) (.61) 10.91 5.50
1998 10.61 .57 .36 .93 (.57) (.04) (.61) 10.93 8.99
1997 10.60 .57 .01 .58 (.57) -- (.57) 10.61 5.67
1996 10.13 .58 .46 1.04 (.57) -- (.57) 10.60 10.54
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
---------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
-------------------- -------------------- --------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
CALIFORNIA Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $ 48,560 .86% 5.32% .86% 5.32% .85% 5.33% 31%
1999 36,568 .90 4.97 .90 4.97 .90 4.97 34
1998 29,125 .90 5.11 .90 5.11 .90 5.11 45
1997 20,571 .94 5.16 .94 5.16 .94 5.16 74
1996 12,709 1.00 5.23 .96 5.27 .96 5.27 36
Class B (3/97)
2000 10,318 1.61 4.56 1.61 4.56 1.60 4.56 31
1999 7,353 1.65 4.23 1.65 4.23 1.65 4.23 34
1998 (d) 2,324 1.66* 4.31* 1.66* 4.31* 1.66* 4.31* 45
Class C (9/94)
2000 15,132 1.41 4.75 1.41 4.75 1.40 4.76 31
1999 10,353 1.45 4.43 1.45 4.43 1.45 4.43 34
1998 4,061 1.45 4.56 1.45 4.56 1.45 4.56 45
1997 1,003 1.67 4.44 1.67 4.44 1.67 4.44 74
1996 684 1.84 4.39 1.71 4.52 1.71 4.52 36
Class R (7/86)
2000 188,512 .66 5.47 .66 5.47 .65 5.48 31
1999 220,109 .71 5.16 .71 5.16 .71 5.16 34
1998 216,309 .70 5.31 .70 5.31 .70 5.31 45
1997 214,253 .70 5.41 .70 5.41 .70 5.41 74
1996 216,390 .71 5.53 .71 5.53 .71 5.53 36
======================================================================================================================
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
23
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
------------------------------ ------------------------------------
Net
CALIFORNIA INSURED Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $11.10 $.53 $(.92) $(.39) $(.52) $ -- $(.52) $10.19 (3.52)%
1999 11.06 .52 .06 .58 (.53) (.01)** (.54) 11.10 5.31
1998 10.70 .54 .36 .90 (.54) -- (.54) 11.06 8.66
1997 10.76 .55 (.08) .47 (.53) -- (.53) 10.70 4.57
1996 10.25 .53 .51 1.04 (.53) -- (.53) 10.76 10.32
Class B (3/97)
2000 11.11 .45 (.92) (.47) (.44) -- (.44) 10.20 (4.26)
1999 11.06 .44 .06 .50 (.44) (.01)** (.45) 11.11 4.61
1998 (d) 10.67 .45 .40 .85 (.46) -- (.46) 11.06 8.13
Class C (9/94)
2000 11.03 .47 (.91) (.44) (.46) -- (.46) 10.13 (4.03)
1999 10.98 .46 .06 .52 (.46) (.01)** (.47) 11.03 4.81
1998 10.63 .47 .35 .82 (.47) -- (.47) 10.98 7.96
1997 10.67 .46 (.05) .41 (.45) -- (.45) 10.63 3.99
1996 10.15 .45 .51 .96 (.44) -- (.44) 10.67 9.67
Class R (7/86)
2000 11.08 .55 (.91) (.36) (.54) -- (.54) 10.18 (3.27)
1999 11.04 .54 .06 .60 (.55) (.01)** (.56) 11.08 5.49
1998 10.68 .56 .36 .92 (.56) -- (.56) 11.04 8.86
1997 10.74 .56 (.07) .49 (.55) -- (.55) 10.68 4.81
1996 10.23 .56 .50 1.06 (.55) -- (.55) 10.74 10.63
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class (Inception Date)
Ratios/Supplemental Data
---------------------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
-------------------- -------------------- --------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
CALIFORNIA INSURED Ratio of ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $ 52,014 .89% 5.02% .89% 5.02% .88% 5.02% 44%
1999 47,300 .93 4.72 .93 4.72 .93 4.72 25
1998 36,203 .90 4.93 .90 4.93 .90 4.93 26
1997 27,598 .94 5.05 .94 5.05 .94 5.05 51
1996 17,250 .98 4.99 .97 5.00 .97 5.00 38
Class B (3/97)
2000 10,909 1.64 4.27 1.64 4.27 1.63 4.28 44
1999 8,825 1.68 3.96 1.68 3.96 1.68 3.96 25
1998 (d) 2,967 1.66* 4.16* 1.66* 4.16* 1.66* 4.16* 26
Class C (9/94)
2000 6,552 1.44 4.45 1.44 4.45 1.43 4.46 44
1999 6,994 1.48 4.17 1.48 4.17 1.48 4.17 25
1998 3,226 1.45 4.37 1.45 4.37 1.45 4.37 26
1997 1,719 1.67 4.32 1.67 4.32 1.67 4.32 51
1996 1,040 1.74 4.23 1.71 4.26 1.71 4.26 38
Class R (7/86)
2000 158,816 .69 5.20 .69 5.20 .68 5.20 44
1999 185,428 .74 4.92 .74 4.92 .74 4.92 25
1998 191,554 .70 5.14 .70 5.14 .70 5.14 26
1997 195,553 .69 5.30 .69 5.30 .69 5.30 51
1996 205,642 .70 5.29 .70 5.29 .70 5.29 38
======================================================================================================================
</TABLE>
* Annualized.
** The amounts shown include distributions in excess of capital gains of $.003
per share.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
24
<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 29, 2000, and the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the two years 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 auditing standards generally accepted
in the United States. 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 29, 2000, 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 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 29, 2000, the results of their operations for the year then ended, the
changes in their net assets for each of the two years then ended, and the
financial highlights for the periods indicated thereon in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 14, 2000
25
<PAGE>
SERVING INVESTORS FOR GENERATIONS
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments Since 1898, John Nuveen & Co.
Incorporated has been synonymous with investments that withstand the test of
time. In fact, more than 1.3 million investors have trusted Nuveen to help them
build and sustain the wealth of a lifetime.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. We can help
you build a better, well-diversified portfolio.
Call Your Financial Adviser Today
To find out how the Nuveen Innovation Fund might round out your investment
portfolio, contact your financial adviser today. Or call Nuveen at (800)
257.8787 for more information. Ask your adviser or call for a prospectus which
details risks, fees and expenses. Please read the prospectus carefully before
you invest.
Nuveen Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
ANNUAL REPORT February 29, 2000
NUVEEN
Investments
NUVEEN
MUNICIPAL BOND
FUNDS
Connecticut
Massachusetts
Massachusetts Insured
[PHOTO APPEARS HERE]
<PAGE>
Contents
1 Dear Shareholder
3 From the Portfolio Manager's Perspective
6 Nuveen Flagship Connecticut Municipal Bond
Fund Spotlight
7 From the Portfolio Manager's Perspective
10 Nuveen Massachusetts Municipal Bond Fund Spotlight
11 Nuveen Massachusetts Insured Municipal
Bond Fund Spotlight
12 Portfolio of Investments
26 Statement of Net Assets
27 Statement of Operations
28 Statement of Changes in Net Assets
29 Notes to Financial Statements
33 Financial Highlights
36 Report of Independent Public Accountants
37 Fund Information
<PAGE>
DEAR
Shareholder,
Setting financial goals is an important first step toward building wealth. At
Nuveen Investments, we believe those goals should not be considered ends in
themselves. Rather, you and your financial advisor's focus should be on
realizing your life's dreams -- the things that matter most to you and how you
can make them happen -- or make them better.
Through a well-crafted financial plan, you have the chance to shape future
generations -- to broaden your sphere of influence -- to leave your legacy.
As you develop that plan, you'll want to consider the different ways your
success can benefit others. You may find that you want to create a new set of
goals to achieve this. Working with your financial advisor, you have the ability
to make those dreams a reality -- for yourself and future generations.
A Trusted Resource As you face some of the most important, lasting decisions you
and your family will make, you'll want to draw upon the support, counsel and
objectivity of a trusted advisor. That's because your financial advisor has the
expertise and access to other professionals who can help you make informed
choices -- choices that affect not only your loved ones today, but those your
legacy will touch in the future.
Your financial advisor can provide sound financial insight, an integrated
approach to your investments and can serve as a knowledgeable friend with your
family's best interest at heart.
Family Wealth Management Too often, family wealth management is thought of in
one dimension -- as the stewardship of your household's financial resources. At
Nuveen Investments, we think of family wealth management as the map to help you
reach your financial, and your life's, destinations. It's a multi-faceted
strategy to plan for not just your needs, but the needs of future generations.
We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values.
The Economic Environment You may be reading this report at the suggestion of
your financial advisor. We've prepared the following interview to let you know
what the investment and research management teams have done during your fund's
fiscal period. Before we get to that, I want to briefly report on the economic
environment in which your Nuveen investment performed.
The end of your fund's fiscal period, February 29, 2000, was an important
day in our nation's economic life. It marked the 107th month of continued
economic expansion, the longest period of expansion in history. The only period
to rival that length was the 106-month expansion from February 1961 to December
1969, a period known best for its military conflicts, domestic unrest and
soaring inflation.
That was then; this is now.
[Photo of Timothy R. Schwertfeger appears here]
Timothy R. Schwertfeger
Chairman of the Board
"We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values."
ANNUAL REPORT page 1
<PAGE>
"There's still faith in the emerging paradigm, which holds that improvements in
productivity enable us to have both economic growth and low inflation at the
same time."
The vigilant inflationary watch of Federal Reserve Chairman Alan Greenspan,
the growth of the Internet and other technology-related developments and the
globalization of the economy are three reasons for continued economic health.
In their battle to keep inflation at bay, Greenspan's Fed raised interest
rates on February 2, 2000, and again on March 21, 2000. The latest increase
marked the fifth time the Fed has raised the federal funds rate -- the interest
that banks charge each other on overnight loans -- since June 1999.
Municipal bonds continued to serve investors well, in our opinion. At the
end of February 2000, the ratio between long-term municipal bond yields and
30-year Treasury yields stood at 102%. For investors, this meant that quality
long-term municipal bonds offered yields above those of long-term Treasury
bonds -- even before the tax advantages of municipals were taken into account.
Of course, Treasuries are backed by the full faith and credit of the U.S.
government. Even so, on an after-tax basis, municipal bonds continued to present
an exceptionally attractive investment option relative to Treasuries. Over the
short term, the inflation threat has meant increased price fluctuations in the
equity markets. Part of that is due to the fact that investors and the various
markets have been watching -- and reacting to -- every announcement concerning
economic statistics.
Longer term, we believe there's still faith in the emerging paradigm, which
holds that improvements in productivity enable us to have both economic growth
and low inflation at the same time. The 1960's 106-month expansion that I noted
earlier was fueled by government spending. Today's economy has been fueled by
consumer spending and improved productivity.
What Can You Do? We believe the potential presence of inflation and price swings
in the markets reinforce the importance of working with an advisor, staying
focused on the long term and adhering to your financial plan. With a sound plan
in place, you may be better positioned to weather the markets' ups and downs. As
you pursue your life's dreams, your financial advisor can serve as a valuable
resource in helping you keep market events in perspective while you focus on
your overall financial plan.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Since 1898, Nuveen has been synonymous with investments that stand the test
of time. We are committed to maintaining that reputation and working with
financial advisors to provide investment solutions that help individuals achieve
their lives dreams. Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 2000
ANNUAL REPORT page 2
<PAGE>
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
Nuveen Flagship Connecticut Municipal Bond Fund features portfolio management by
Nuveen Investment Advisory Services, a team of portfolio managers and research
analysts committed to a disciplined, research-oriented investment strategy. To
help you understand the fund's performance for the fiscal year ended February
29, 2000, we spoke with Portfolio Manager Paul Brennan of Nuveen Advisory Corp.
Q During the fund's fiscal year ended February 29, 2000, we saw the national
economy continue its unprecedented trend of expansion, while inflation and
unemployment remained low. Did the Connecticut economy perform consistently with
the U.S.?
PAUL The Connecticut economy experienced moderate growth, with unemployment at a
miniscule 2.4% as of February 29, 2000, compared to the national average of
4.1%. The economy was strong enough to elicit tax rollbacks, and the state
refunded $109 million of sales tax during the fiscal year.
At the writing of this report, Connecticut was the wealthiest state in the
nation, measured by per capita income as of the end of 1998 (1999 figures are
not yet available.) It had ample cash during the fund's fiscal year on hand from
revenues to finance various capital and infrastructure improvement projects. New
issuance, therefore, of municipal bonds in Connecticut was down by 23% over the
fiscal year. The state's debt carries a healthy AA rating from Standard &
Poor's.
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed.....50%
AA......................27%
A.......................11%
BBB/NR..................10%
Other....................2%
As a percentage of total bond holdings as of February 29, 2000.
Holdings are subject to change.
Q The Federal Reserve (the Fed) began its expected series of moves to raise
interest rates to try to cool off the economy. This is typically a challenging
environment for municipal bonds. How did you manage the fund in such an
environment?
PAUL Actually, we saw more opportunities in this market than we have seen in
markets characterized by declining interest rates. This presented us with the
opportunity to try to favorably position the portfolio for the long-term.
For one, yields were much more attractive than at the beginning of 1999, so
over the period we sold out some of the fund's positions in lower-yielding
securities and reinvested at higher yields. We believe that will help strengthen
the dividend-paying capabilities over the long run.
At the same time, we exercised transactions to help improve the funds' tax
efficiency. Selling out certain high-cost positions generated tax losses, which
can be used to help offset current or future realized capital gains.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's income-oriented funds feature portfolio management by Nuveen Investment
Advisory Services (NIAS). NIAS follows a disciplined, research-driven investment
approach to uncover income securities that combine exceptional relative value
with above-average return potential. Drawing on 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence of trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Flagship Connecticut Municipal Bond Fund.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the one-year period ended February 29, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
ANNUAL REPORT page 3
<PAGE>
Market condition also made this an opportune time to improve the call
structure in the portfolios. Favorable call protection reduces exposure to
untimely calls during periods of falling interest rates, so that falling rates
have less of an effect on the fund's dividend. In the rising-rate environment
when early calls were not as much of a risk, call protection was undervalued. We
restructured the portfolios with new positions carrying what we believe to be
very favorable call protection. Thinking long-term helped us prepare the fund
for a future time when it may benefit from call protection.
Q How did the fund perform during the fiscal year ended February 29, 2000?
PAUL While we were able to take advantage of those positioning opportunities,
the fund reported a total return for the fiscal year period of -3.84% for Class
A shares on net asset value. The fund slightly underperformed the Lipper
Connecticut Municipal Debt peer group average, which reported a -3.79% total
return for the same one-year period. Over the five-year period, the fund
reported a 5.07% gain, compared to the 4.83% gain for the Lipper peer group for
the same period.*
As of February 29, 2000, the fund's SEC 30-day yield was 5.03%. For
investors in the combined 34% federal and state income tax bracket, that is
equivalent to a yield of 7.62% on a taxable investment.**
Q With Connecticut being such a small state, and with new issuance supply being
down over the period, how did you find attractive buys?
PAUL Issuance in Connecticut was indeed very small and concentrated in
comparison to issuance in other states, and over the fiscal period that was
amplified by higher interest rates, which tend to discourage borrowing.
Further, many times we are competing with individuals. With issuance at its
lowest level since 1995, it can be very difficult for individuals to have access
to new issues like Nuveen does.
Our research department and market presence puts us in a position as a
major player in the Connecticut municipal bond market. Many times we have been
able to find information on lesser-known issues and negotiate the price of an
issue. It is not unusual for us to buy an entire maturity of a certain issue.
For example, we negotiated directly with underwriters prior to purchasing
bonds issued by the Town of Cheshire and bonds issued by the state on behalf of
Connecticut State University. Our negotiations allowed us to purchase these
bonds at relatively attractive yields and to ensure a purchase of the amount of
the bonds we wanted.
Nuveen's presence can help when we are selling in the secondary market, as
well.
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
Top Five Sectors
Tax Obligation (Limited) 16%
--------------------------------------------
Education and Civic Organizations 16%
--------------------------------------------
U.S. Guaranteed 14%
--------------------------------------------
Healthcare 12%
--------------------------------------------
Tax Obligation (General) 11%
--------------------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
* The Lipper Peer Group returns represent the average annualized total return
of the 28 funds in the Lipper Connecticut Municipal Debt Funds category for
the one-year period ended February 29, 2000, and 20 funds for the five-year
period. The returns assume reinvestment of dividends and do not reflect any
applicable sales charges.
** Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
taxable-equivalent yield shown is based on the 30-day SEC yield and a
combined federal and state income tax rate of 34%.
ANNUAL REPORT page 4
<PAGE>
Q Was diversification also a challenge?
PAUL Very much, but again, our access to the market came in handy to lead us to
a variety of issues. Over the past fiscal year, we were active buying new issues
that added to the fund's diversification.
In addition to the previously mentioned purchases, we further diversified
the fund's holdings by purchasing bonds issued on behalf of Horace Bushnell
Memorial Hall, a new borrower in the Connecticut municipal market. The Bushnell
is a performing arts center located in Hartford. It was founded in 1930 and
draws over 400,000 people annually.
In the long-term care sector, we purchased bonds issued on behalf of the
Mary Wade Home located in New Haven. This purchase, like others throughout the
year, offered a very attractive yield and excellent call protection.
Another tactic we used to improve diversification was purchasing Puerto
Rico bonds, which are tax exempt in Connecticut. Working closely with a regional
broker, we were able to purchase a sizable block of insured Puerto Rico General
Obligation Bonds for the fund, with excellent credit quality and priced at what
we believe was a favorable level.
Q What is your outlook for the fund for the coming months?
PAUL We expect the state's economy to continue its healthy pace, with enough
revenues to hold new issuance down. In our opinion, new issuance will likely be
even less in the next fiscal year. We plan to continue leveraging our access to
the market to search for and negotiate attractively priced bonds offering strong
relative yields. We believe this will enable the fund to continue to produce
competitive and stable tax-exempt dividends.
"We plan to continue leveraging our access to the market to search for and
negotiate attractively priced bonds offering strong relative yields."
ANNUAL REPORT page 5
<PAGE>
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of shares
outstanding.
SEC Yield A standardized calculation that the Securities and Exchange Commission
requires mutual funds to use when advertising rates of income return. This
standardized rate ensures that investors are comparing "apples to apples" when
comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security to
pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
NUVEEN FLAGSHIP CONNECTICUT MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $9.96 $9.94 $9.95 $9.99
- - ---------------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0440 $0.0375 $0.0390 $0.0455
- - ---------------------------------------------------------------------------------------------------
Fund Symbol FCTTX N/A FCTCX N/A
- - ---------------------------------------------------------------------------------------------------
CUSIP 67065N886 67065N878 67065N860 67065N852
- - ---------------------------------------------------------------------------------------------------
Inception Date 7/87 2/97 10/93 2/97
- - ---------------------------------------------------------------------------------------------------
*Paid March 1, 2000
Total Returns (Annualized)+
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
1-Year -3.84% -7.90% -4.57% -8.23% -4.31% -3.63%
- - ---------------------------------------------------------------------------------------------------
1-Year TER* -1.29% -5.45% -2.40% -6.05% -2.05% -0.97%
- - ---------------------------------------------------------------------------------------------------
5-Year 5.07% 4.18% 4.34% 4.18% 4.50% 5.26%
- - ---------------------------------------------------------------------------------------------------
5-Year TER* 7.83% 6.91% 6.75% 6.59% 6.96% 8.09%
- - ---------------------------------------------------------------------------------------------------
10-Year 6.17% 5.71% 5.67% 5.67% 5.58% 6.26%
- - ---------------------------------------------------------------------------------------------------
10-Year TER* 9.15% 8.68% 8.40% 8.40% 8.26% 9.28%
- - ---------------------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
*Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 34%.)
<TABLE>
<CAPTION>
Tax-Free Yields
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 5.03% 4.81% 4.28% 4.48% 5.23%
- - ---------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 7.62% 7.29% 6.48% 6.79% 7.92%
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
NUVEEN NUVEEN
FLAGSHIP FLAGSHIP
LEHMAN CONNECTICUT CONNECTICUT
BROTHERS MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
BOND INDEX (NAV) (Offer)
2/90 $10,000 $10,000 $ 9,580
2/91 $10,922 $10,668 $10,220
2/92 $12,013 $11,725 $11,232
2/93 $13,667 $13,417 $12,854
2/94 $14,422 $14,101 $13,508
2/95 $14,696 $14,209 $13,612
2/96 $16,318 $15,636 $14,980
2/97 $17,364 $16,491 $15,798
2/98 $18,953 $17,934 $17,180
2/99 $20,118 $18,922 $18,127
2/00 $19,696 $18,195 $17,430
- - - Nuveen Flagship Connecticut Bond Fund (Offer) $17,430
- - - Nuveen Flagship Connecticut Bond Fund (NAV) $18,195
- - - Lehman Brothers Municipal Bond Index $19,696
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 Class A shares (4.20%) and all ongoing fund
expenses.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Portfolio Statistics
Total Net Assets $229.9 million
- - ------------------------------------------
Average Effective
Maturity 18.28 years
- - ------------------------------------------
Average Duration 8.08
- - ------------------------------------------
ANNUAL REPORT page 6
<PAGE>
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
- - --------------------------------------------------------------------------------
Nuveen Massachusetts Municipal Bond Fund and Nuveen Massachusetts Insured
Municipal Bond Fund feature portfolio management by Nuveen Investment Advisory
Services, a team of portfolio managers and research analysts committed to a
disciplined, research-oriented investment strategy. To help you understand the
fund's performance for the fiscal year ended February 29, 2000, we spoke with
Portfolio Manager Tom Futrell of Nuveen Advisory Corp.
Q Throughout the fiscal year of Nuveen Massachusetts Municipal Bond Fund and
Nuveen Massachusetts Insured Municipal Bond Fund, which ended February 29, 2000,
the nation as a whole experienced continued strong economic growth. How did the
Massachusetts economy perform compared to that of the rest of the nation?
TOM The Massachusetts economy also remained very strong, with an unemployment
rate of 3.1%, far below the national average of 4.1%. Both the Commonwealth of
Massachusetts and the city of Boston were upgraded by bond rating agencies
during the period.
The flourishing high-tech sector in Massachusetts helped drive the economy to
some extent. Massachusetts has the second largest infusion of venture capital in
the country, after California. A large proportion of the funding has been used
by high-tech/Internet start-up companies in Boston, which should translate into
continued growth in the Commonwealth's technology sector.
The state had some pressure to deal with regarding the Central Artery/Tunnel
Project (also known as the "Big Dig"), backed by a bond issue through the
Massachusetts Bay Transportation Authority (MBTA), in which the Nuveen funds
have a stake. Work on the project continues in the midst of brewing controversy
that arose during December 1999 regarding cost overruns. A federal agency has
launched an inquiry into whether the MBTA intentionally withheld details of cost
overruns for the project. Nevertheless, Massachusetts Governor Paul Celluci has
unveiled a plan to fund the approximately $1.4 billion in overruns through
various sources such as direct payments, toll hikes, and the leveraging of state
funding and federal grants, pending approval by the state legislature.
Q The Federal Reserve (the Fed) began its expected series of moves to raise
interest rates to try to cool off the economy. This is typically a challenging
environment for municipal bonds. How did the fund perform in this environment?
TOM Although this market presented us with some long-term fund positioning
opportunities for the fiscal year ended February 29, 2000, the Nuveen
Massachusetts Municipal Bond Fund reported a total return of -3.21%, and the
Nuveen Massachusetts Insured Municipal Bond Fund had a total return of -2.95%
for Class A shares on net asset value. Even so, both funds' returns bested the
Lipper Massachusetts Municipal Debt peer group average, which reported a 4.42%
loss for the same one-year period.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's income-oriented funds feature portfolio management by Nuveen Investment
Advisory Services (NIAS). NIAS follows a disciplined, research-driven investment
approach to uncover income securities that combine exceptional relative value
with above-average return potential. Drawing on 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence of trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Massachusetts and Massachusetts Insured
Municipal Bond funds.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the one-year period ended February 29, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
ANNUAL REPORT page 7
<PAGE>
For the five-year period ended February 29, 2000, the Massachusetts Fund
reported a 4.62% gain and the Massachusetts Insured Fund had a 4.47% gain,
compared to the 4.59% gain for the Lipper peer group for the same period.*
As of February 29, 2000, the Massachusetts Fund's SEC 30-day yield was 5.08%.
For investors in the combined 35% federal and state income tax bracket, that is
equivalent to a yield of 7.82% on a taxable investment. For the Insured Fund,
the SEC yield was 4.62%, which is equivalent to a 7.11% yield on a taxable
investment.**
Q Which sectors in particular were noteworthy?
TOM The housing sector was very attractive to us for several reasons. First,
bonds in this sector historically have offered additional incremental yield. For
investors seeking income at reasonable prices, housing bonds can be a great
option. Also, the prepays on these bonds have been slower as interest rates have
risen. Prepay simply means the bond issuer pays back the borrowed money before
required to do so. It saves issuers money but is costly to investors.
We bought an issue from West Springfield Multifamily Housing that had an
attractive structure. With tax credits built in and insured by the Government
National Mortgage Association (GNMA), these bonds offered a high level of
security plus an attractive yield (6.50%).
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND
Top Five Sectors
U.S. Guaranteed 26%
-------------------------------
Housing (Multifamily) 13%
-------------------------------
Long-Term Care 13%
-------------------------------
Tax Obligation (General) 12%
-------------------------------
Healthcare 11%
-------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
Top Five Sectors
U.S. Guaranteed 21%
----------------------------------------
Tax Obligation (General) 19%
----------------------------------------
Education and Civic Organizations 19%
----------------------------------------
Healthcare 14%
----------------------------------------
Housing (Multifamily) 13%
----------------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
We believe the value of the higher education sector has decreased in the
market, but there were still opportunities awaiting those with the capabilities
for thorough research. Our research turned up an attractive buy in higher
education, from Massachusetts Development Finance Authority for Curry College.
Located in Milton, this small liberal arts college has been experiencing
positive enrollment trends and solid growth in its continuing education program.
These insured bonds offered an attractive yield for the 30-year maturity, which
was higher than insured bonds of comparable maturities at the time of purchase.
In the Massachusetts Insured portfolio, we found a good value in the secondary
market through Massachusetts Industrial Finance Authority for Western New
England College. Based in Springfield and with 17 other teaching sites, New
England College has had positive enrollment trends, a growing endowment and
sound operations. The bonds offered additional incremental yield.
The healthcare sector continued to struggle. One of the holdings in the
Massachusetts Fund, Harvard Pilgrim Health Care (HPHC), was placed into
temporary receivership in January. Because the bonds are insured, there was no
potential loss of income in the fund since the debt was still being serviced.
HPHC has begun to show signs of improvement and state officials believe the
health plan could function on its own through a rehab plan. With more than one
million residents covered by HPHC, we believe the state insurance commissioner
will be certain it doesn't slip through the cracks.
* The Lipper Peer Group returns represent the average annualized total return
of the 56 funds in the Lipper Massachusetts Municipal Debt Funds category for
the one-year period ended February 29, 2000, and 44 funds for the five-year
period. The returns assume reinvestment of dividends and do not reflect any
applicable sales charges.
** Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
taxable-equivalent yield shown is based on the 30-day SEC yield and a
combined federal and state income tax rate of 35%.
ANNUAL REPORT page 8
<PAGE>
Q Given the difficult market, was municipal bond issuance in Massachusetts down
over the period?
TOM Actually, issuance in Massachusetts was up over the prior year, by 5.6%,
compared to the national supply, which was down 35%. Most of the increase came
over the earlier part of the year; supply slowed down during the third and
fourth calendar quarters primarily because of the higher interest rates and
lower demand.
NUVEEN MASSACHUSETTS MUNICIPAL BOND FUND
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed. 52%
AA.................. 15%
A................... 14%
BBB/NR.............. 19%
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
Q During periods of scarce supply and rising interest rates, how do you find
attractive buys when other investors are facing the same challenge?
TOM It is especially during a market like this, where choices are limited, that
Nuveen's active management, experienced research department and important
relationships with national and state dealers may offer a distinct advantage.
This combination allows us the opportunity to not only identify the attractive
deals that may be lesser-known to other investors, but also to negotiate
structure and be among the first to participate in more widely known issues.
An example of this advantage at work was the Curry College example I just
gave. Another was an issue through Massachusetts Development Finance Authority
for the Massachusetts College of Pharmacy and Allied Health Sciences Bonds.
These bonds offered higher yields than comparable bonds that were in the market
at the same time. Because the Boston-based College of Pharmacy does not issue
bonds often, it is not well known by the municipal market. Fortunately, our
analysis helped us act quickly and purchase a sizable portion of the issue for
the Massachusetts Fund.
Q What was involved in long-term positioning of the Funds during the period?
TOM Amid rising interest rates, we were able to pursue our goal of improving
fund yields. Several of the purchases I mentioned earlier definitely contributed
to that goal, as we sold bonds with lower coupons to reinvest at higher rates.
We also improved the call structure in the portfolios. Good call structure is
important to a fund's total return. Extending the call protection helps reduce
exposure to prepayment and therefore the risk of reinvesting in what may be an
uncertain market. In the rising rate market, we sold out our smaller positions
that were below $1 million with unfavorable call structure. We generated a tax
loss on the sales -- which comes in handy to help offset future realized capital
gains -- then we reinvested in bonds with what we believe to have better call
structure.
Q What is your outlook for the Massachusetts market and the funds?
TOM We expect the Massachusetts economy to continue to be strong. Municipal
bond issuance may level off or decrease with more Fed interest rate hikes a near
certainty in our opinion. We plan to maintain our defensive position for the
funds, watching for opportunities to improve yield and call protection.
"It is especially during a market like this, where choices are limited, that
Nuveen's active management, experienced research department and important
relationships with national and state dealers may offer a distinct advantage."
ANNUAL REPORT page 9
<PAGE>
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of shares
outstanding.
SEC Yield A standardized calculation that the Securities and Exchange Commission
requires mutual funds to use when advertising rates of income return. This
standardized rate ensures that investors are comparing "apples to apples" when
comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security to
pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
The Nuveen Massachusetts Municipal Bond Fund's monthly dividends rose during the
fiscal period. The amount differed based on share class. Please see Quick Facts
for the latest dividend paid.
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $9.26 $9.28 $9.20 $9.24
- - ---------------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0420 $0.0360 $0.0375 $0.0435
- - ---------------------------------------------------------------------------------------------------
Fund Symbol NMAAX N/A NMACX NBMAX
- - ---------------------------------------------------------------------------------------------------
CUSIP 67065N845 67065N837 67065N829 67065N811
- - ---------------------------------------------------------------------------------------------------
Inception Date 9/94 3/97 10/94 12/86
- - ---------------------------------------------------------------------------------------------------
* Paid March 1, 2000
Total Returns (Annualized)+
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
1-Year -3.21% -7.26% -4.02% -7.69% -3.87% -3.03%
- - ---------------------------------------------------------------------------------------------------
1-Year TER* -0.52% -4.68% -1.73% -5.41% -1.47% -0.23%
- - ---------------------------------------------------------------------------------------------------
5-Year 4.62% 3.73% 3.90% 3.74% 3.98% 4.85%
- - ---------------------------------------------------------------------------------------------------
5-Year TER* 7.46% 6.54% 6.33% 6.18% 6.48% 7.81%
- - ---------------------------------------------------------------------------------------------------
10-Year 6.17% 5.71% 5.57% 5.57% 5.42% 6.40%
- - ---------------------------------------------------------------------------------------------------
10-Year TER* 9.18% 8.70% 8.26% 8.26% 8.07% 9.54%
- - ---------------------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares have a 1%
CDSC for redemptions within one year, which is not reflected in the one-year
total returns.
Taxable Equivalent Return (Based on a combined federal and state income tax rate
of 35%.)
<TABLE>
<CAPTION>
Tax-Free Yields
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 5.08% 4.87% 4.34% 4.54% 5.29%
- - ---------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 7.82% 7.49% 6.68% 6.98% 8.14%
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
LEHMAN NUVEEN NUVEEN
BROTHERS MASSACHUSETTS MASSACHUSETTS
MUNICIPAL MUNICIPAL MUNICIPAL
BOND INDEX BOND FUND BOND FUND
(NAV) (OFFER)
2/90 $10,000 $10,000 $ 9,580
2/91 $10,922 $10,778 $10,325
2/92 $12,013 $11,868 $11,370
2/93 $13,667 $13,521 $12,953
2/94 $14,422 $14,293 $13,692
2/95 $14,695 $14,519 $13,909
2/96 $16,318 $15,914 $15,247
2/97 $17,364 $16,668 $15,968
2/98 $18,953 $17,899 $17,147
2/99 $20,118 $18,803 $18,013
2/00 $19,696 $18,199 $17,435
- - - Nuveen Massachusetts Municipal Bond Fund (Offer) $17,435
- - - Nuveen Massachusetts Municipal Bond Fund (NAV) $18,199
- - - Lehman Brothers Municipal Bond Index $19,696
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
maximun sales charge applicable to Class 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 difference in expenses, which are
primarily differences in distribution and service fees.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
++ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A Shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
2/29/00 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-day
Treasury bill returns, with appropriate fee adjustments, and a risk factor
that reflects fund performance below 90-day T-bill returns. The Class A
Shares of the fund received four stars for the three- and five-year periods.
The top 10% of the funds in a broad asset class receive five stars and the
next 22.5% receive four stars. The fund was rated among 1,678 and 1,365 funds
for the three- and five-year periods, respectively.
Morningstar Rating/TM/++
* * * *
Overall rating among 1,678
municipal bond funds as
of 2/29/00
Portfolio Statistics
Total Net Assets $91.3 million
- - -----------------------------------
Average Effective
Maturity 17.69 years
- - -----------------------------------
Average Duration 7.53
- - -----------------------------------
ANNUAL REPORT page 10
<PAGE>
NUVEEN MASSACHUSETTS INSURED MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 9.77 $ 9.78 $ 9.75 $ 9.78
- - ---------------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0420 $0.0355 $0.0370 $0.0435
- - ---------------------------------------------------------------------------------------------------
Fund Symbol NMAIX N/A NMAKX NIMAX
- - ---------------------------------------------------------------------------------------------------
CUSIP 67065N795 67065N787 67065N779 67065N761
- - ---------------------------------------------------------------------------------------------------
Inception Date 9/94 3/97 9/94 12/86
- - ---------------------------------------------------------------------------------------------------
* Paid March 1, 2000
Total Returns (Annualized)+
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
1-Year -2.95% -6.99% -3.59% -7.29% -3.43% -2.68%
- - ---------------------------------------------------------------------------------------------------
1-Year TER* -0.34% -4.49% -1.40% -5.09% -1.14% 0.03%
- - ---------------------------------------------------------------------------------------------------
5-Year 4.47% 3.58% 3.73% 3.56% 3.82% 4.70%
- - ---------------------------------------------------------------------------------------------------
5-Year TER* 7.18% 6.27% 6.03% 5.88% 6.17% 7.53%
- - ---------------------------------------------------------------------------------------------------
10-Year 6.02% 5.57% 5.43% 5.43% 5.30% 6.28%
- - ---------------------------------------------------------------------------------------------------
10-Year TER* 8.87% 8.40% 7.96% 7.96% 7.77% 9.25%
- - ---------------------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 35%.)
<TABLE>
<CAPTION>
Tax-Free Yields
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 4.62% 4.43% 3.88% 4.08% 4.82%
- - ------------------------------------------------------------------------------------------------
Taxable Equivalent Yield 7.11% 6.82% 5.97% 6.28% 7.42%
- - ------------------------------------------------------------------------------------------------
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
NUVEEN NUVEEN
MASSACHUSETTS MASSACHUSETTS
LEHMAN INSURED INSURED
BROTHERS MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
BOND INDEX (NAV) (OFFER)
2/90 $10,000 $10,000 $ 9,580
2/91 $10,922 $10,865 $10,409
2/92 $12,013 $11,875 $11,376
2/93 $13,667 $13,539 $12,970
2/94 $14,422 $14,213 $13,616
2/95 $14,695 $14,422 $13,816
2/96 $16,318 $15,804 $15,140
2/97 $17,364 $16,440 $15,749
2/98 $18,953 $17,598 $16,859
2/99 $20,118 $18,493 $17,717
2/00 $19,696 $17,948 $17,194
- - - Nuveen Massachusetts Insured Municipal Bond Fund (offer) $17,194
- - - Nuveen Massachusetts Insured Municipal Bond Fund (NAV) $12,948
- - - Lehman Brothers Municipal Bond Index $19,696
Past performance is not predictive of future results.
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 Class 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 difference in expenses, which are
primarily differences in distribution and service fees.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
Portfolio Statistics
Total Net Assets $65.9 million
- - -----------------------------------
Average Effective
Maturity 17.86 years
- - -----------------------------------
Average Duration 6.56
- - -----------------------------------
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of shares
outstanding.
SEC Yield A standardized calculation that the Securities and Exchange Commission
requires mutual funds to use when advertising rates of income return. This
standardized rate ensures that investors are comparing "apples to apples" when
comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security to
pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
The Nuveen Massachusetts Insured Municipal Bond Fund's monthly dividends rose
during the fiscal period. The amount differed based on share class. Please see
Quick Facts for the latest dividend paid.
ANNUAL REPORT page 11
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 0.4%
$ 1,000 Town of Sprague, Connecticut, Environmental Improvement Revenue 10/07 at 102 A3 $ 876,860
Bonds (International Paper Company Project), 1997 Series A, 5.700%,
10/01/21 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 15.1%
State of Connecticut Health and Educational Facilities Authority, Revenue
Bonds, Greenwich Academy Issue, Series A:
1,000 5.700%, 3/01/16 3/06 at 101 AAA 1,000,310
2,000 5.750%, 3/01/26 3/06 at 101 AAA 1,938,400
1,000 State of Connecticut Health and Educational Facilities Authority, 5/02 at 102 AAA 990,030
Revenue Bonds, Yale University, 5.929%, 6/10/30
Connecticut Higher Education Supplemental Loan Authority, Revenue Bonds
(Family Education Loan Program), 1991 Series A:
365 7.000%, 11/15/05 (Alternative Minimum Tax) 11/01 at 102 A 379,188
3,440 7.200%, 11/15/10 (Alternative Minimum Tax) 11/01 at 102 A 3,566,833
Connecticut Higher Education Supplemental Loan Authority, Revenue Bonds
(Family Education Loan Program), 1996 Series A:
1,545 6.300%, 11/15/10 (Alternative Minimum Tax) 11/04 at 102 A1 1,585,973
1,170 6.350%, 11/15/11 (Alternative Minimum Tax) 11/04 at 102 A1 1,202,280
4,400 State of Connecticut Health and Educational Facilities Authority, 7/08 at 101 AA 3,613,368
Revenue Bonds, Sacred Heart University Issue, Series E, 5.000%, 7/01/28
2,875 State of Connecticut Health and Educational Facilities Authority, 7/03 at 102 BBB- 2,593,538
Revenue Bonds, Quinnipiac College Issue, Series D, 6.000%, 7/01/23
2,000 State of Connecticut Health and Educational Facilities Authority, 7/04 at 101 1/2 AAA 2,002,740
Revenue Bonds, The Loomis Chaffee School Issue, Series B, 6.000%,
7/01/25
2,500 State of Connecticut Health and Educational Facilities Authority, 7/05 at 101 AAA 2,305,325
Revenue Bonds, Kent School Issue, Series B, 5.400%, 7/01/23
1,600 State of Connecticut Health and Educational Facilities Authority, 7/06 at 102 AAA 1,576,656
Revenue Bonds, Trinity College Issue, Series E, 5.875%, 7/01/26
1,435 State of Connecticut Health and Educational Facilities Authority, 7/06 at 101 AAA 1,325,366
Revenue Bonds, The Loomis Chaffee School Issue, Series C, 5.500%,
7/01/26
1,490 State of Connecticut Health and Educational Facilities Authority, 7/08 at 101 AA 1,254,535
Revenue Bonds, Canterbury School Issue, Series A, 5.000%, 7/01/18
2,000 State of Connecticut Health and Educational Facilities Authority, 7/07 at 102 AAA 1,830,300
Revenue Bonds, Suffield Academy Issue, Series A, 5.400%, 7/01/27
State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Fairfield University, Series I:
585 5.250%, 7/01/25 7/09 at 101 AAA 524,330
2,755 5.500%, 7/01/29 7/09 at 101 AAA 2,560,332
1,250 State of Connecticut Health and Educational Facilities Authority, 7/09 at 101 Aaa 1,178,175
Revenue Bonds, The Horace Bushnell Memorial Hall Issue, Series A,
5.625%, 7/01/29
State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Connecticut State University System Issue, Series 1999C:
1,155 5.500%, 11/01/17 11/09 at 101 AAA 1,124,993
1,155 5.500%, 11/01/18 11/09 at 101 AAA 1,115,060
1,155 5.500%, 11/01/19 11/09 at 101 AAA 1,107,368
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care - 11.5%
$ 2,600 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 AAA $ 2,670,044
Revenue Bonds, Bristol Hospital Issue, Series A, 7.000%, 7/01/20
900 State of Connecticut Health and Educational Facilities Authority, 7/01 at 102 AAA 934,353
Revenue Bonds, Hospital of Raphael Issue, Series D, 6.625%, 7/01/14
2,000 State of Connecticut Health and Educational Facilities Authority, 7/02 at 102 AAA 2,107,040
Revenue Bonds, Bridgeport Hospital Issue, Series A, 6.625%, 7/01/18
800 State of Connecticut Health and Educational Facilities Authority, 7/04 at 102 AAA 791,344
Revenue Bonds, New Britain General Hospital Issue, Series B, 6.000%,
7/01/24
1,405 State of Connecticut Health and Educational Facilities Authority, 7/09 at 101 Aaa 1,252,066
Revenue Bonds, Stamford Hospital Issue, Series G, 5.000%, 7/01/18
State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Hospital for Special Care Issue, Series B:
1,000 5.375%, 7/01/17 7/07 at 102 BBB 826,810
3,500 5.500%, 7/01/27 7/07 at 102 BBB 2,799,720
1,645 State of Connecticut Health and Educational Facilities Authority, 7/06 at 102 AAA 1,484,547
Revenue Bonds, Day Kimball Hospital Issue, Series A, 5.375%, 7/01/26
1,500 State of Connecticut Health and Educational Facilities Authority, 7/06 at 102 AAA 1,457,505
Revenue Bonds, Greenwich Hospital Issue, Series A, 5.800%, 7/01/26
1,400 State of Connecticut Health and Educational Facilities Authority, 7/06 at 102 AAA 1,337,980
Revenue Bonds, Yale-New Haven Hospital Issue, Series H, 5.700%, 7/01/25
320 State of Connecticut Health and Educational Facilities Authority, 1/01 at 102 AAA 332,262
Revenue Bonds, Capital Asset Issue, Series C, 7.000%, 1/01/20
2,000 State of Connecticut Health and Educational Facilities Authority, 7/07 at 102 AAA 1,927,840
Revenue Bonds, The William W. Backus Hospital Issue, Series D, 5.750%,
7/01/27
1,500 State of Connecticut Health and Educational Facilities Authority, 11/09 at 101 AAA 1,447,125
Revenue Bonds, Catholic Health East Issue, Series 1999F, 5.750%,
11/15/29
2,725 State of Connecticut Health and Educational Facilities Authority, 7/09 at 101 AA 2,591,639
Revenue Bonds, Waterbury Hospital Issue Series C, 5.750%, 7/01/20
2,000 State of Connecticut Health and Educational Facilities Authority, 7/10 at 101 AA 1,955,260
Revenue Bonds, Eastern Connecticut Health Network Issue, Series A,
6.000%, 7/01/25
2,250 Connecticut Development Authority, Solid Waste Disposal Facilities 7/05 at 102 AAA 2,428,223
Revenue Bonds, Pfizer Inc. Project, 1994 Series, 7.000%, 7/01/25
(Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 2.4%
2,000 Housing Authority of the City of Bridgeport, Connecticut, Multifamily 12/09 at 102 N/R 1,997,400
Housing Revenue Bonds (Stratfield Apartments Project), Series 1999,
7.250%, 12/01/24
2,000 Connecticut Housing Finance Agency, Housing Mortgage Finance Program 12/09 at 100 AA 1,947,440
Bonds, 1999 Series D, 6.200%, 11/15/41 (Alternative Minimum Tax)
1,500 New Britain Senior Citizens Housing Development Corporation, Mortgage 1/02 at 102 AAA 1,546,830
Revenue Refunding Bonds (FHA-Insured Mortgage Loan - Nathan Hale
Apartments - Section 8 Assisted Project), Series 1992A,
6.875%, 7/01/24
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 9.3%
225 Connecticut Housing Finance Authority, Housing Mortgage Finance 11/02 at 102 AA 231,075
Program Bonds, 1992 Series C2, 6.700%, 11/15/22 (Alternative Minimum Tax)
1,250 Connecticut Housing Finance Authority, Housing Mortgage Finance 5/03 at 102 AA 1,276,575
Program Bonds, 1993 Series A, 6.200%, 5/15/14
2,750 Connecticut Housing Finance Authority, Housing Mortgage Finance 5/04 at 102 AA 2,752,503
Program Bonds, 1994 Series A, 6.100%, 5/15/17
1,500 Connecticut Housing Finance Authority, Housing Mortgage Finance 5/05 at 102 AA 1,501,560
Program Bonds, 1995 Series A, Subseries A-1, 6.100%, 5/15/17
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Single Family (continued)
$ 7,490 Connecticut Housing Finance Authority, Housing Mortgage Finance 11/07 at 102 AA $ 7,122,316
Program Bonds, 1997 Series B, Subseries B-2, 5.850%, 11/15/28
(Alternative Minimum Tax)
1,000 Connecticut Housing Finance Authority, Housing Mortgage Finance 11/05 at 102 AA 996,710
Program Bonds, 1995 Series F, Subseries F-1, 6.000%, 5/15/17
1,500 Connecticut Housing Finance Authority, Housing Mortgage Finance 5/06 at 102 AA 1,506,570
Program Bonds, 1996 Series B, Subseries B-1, 6.050%, 5/15/18
4,605 Connecticut Housing Finance Authority, Housing Mortgage Finance 11/06 at 102 AA 4,526,301
Program Bonds, 1996 Subseries E-2, 6.150%, 11/15/27 (Alternative
Minimum Tax)
1,490 Connecticut Housing Finance Authority, Housing Mortgage Finance 11/06 at 102 AA 1,452,541
Program Bonds, 1997 Series F, Subseries F-2, 6.000%, 11/15/27
(Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 7.0%
1,000 State of Connecticut Health and Educational Facilities Authority, 8/08 at 102 AAA 850,150
Revenue Bonds, Hebrew Home and Hospital Issue (FHA-Insured Mortgage),
Series B, 5.200%, 8/01/38
2,000 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AAA 2,209,960
Revenue Bonds, Nursing Home Program Issue, Series 1994, AHF/Hartford,
Inc. Project, 7.125%, 11/01/24
Connecticut Development Authority, First Mortgage Gross Revenue Health
Care Project Refunding Bonds (Church Homes, Inc., Congregational Avery
Heights Project - 1997 Series):
1,700 5.700%, 4/01/12 4/07 at 102 BBB 1,506,353
2,610 5.800%, 4/01/21 4/07 at 102 BBB 2,172,225
1,875 Connecticut Development Authority, First Mortgage Gross Revenue Health 12/06 at 103 BBB+ 1,519,031
Care Project Refunding Bonds (The Elim Park Baptist Home, Inc.
Project), Series 1998A, 5.375%, 12/01/18
Connecticut Development Authority, First Mortgage Gross Revenue Health
Care Project Refunding Bonds (Connecticut Baptist Homes, Inc. Project),
1999 Series:
1,000 5.500%, 9/01/15 9/09 at 102 AA 941,810
500 5.625%, 9/01/22 9/09 at 102 AA 458,290
1,000 Connecticut Development Authority, First Mortgage Gross Revenue Health 12/09 at 102 N/R 962,160
Care Project Refunding Bonds (The Mary Wade Home, Incorporated Project),
1999 Series A, 6.375%, 12/01/18
Connecticut Development Authority, Revenue Refunding Bonds (Duncaster Inc.
Project), Series 1999A:
2,200 5.250%, 8/01/19 2/10 at 102 AA 1,948,760
3,910 5.375%, 8/01/24 2/10 at 102 AA 3,468,561
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 10.8%
3,000 City of Bridgeport, Connecticut, General Obligation Bonds, 1997 Series 3/07 at 101 AAA 2,812,320
A, 5.250%, 3/01/17
1,000 City of Bridgeport, Connecticut, General Obligation Bonds, 2000 Series 7/10 at 101 AAA 1,012,560
A, 6.000%, 7/15/19
325 Town of Canterbury, Connecticut, General Obligation Bonds, 7.200%, No Opt. Call A3 371,244
5/01/09
Town of Cheshire, Connecticut, General Obligation Bonds, Issue of 1999:
660 5.625%, 10/15/18 10/09 at 101 Aa3 647,269
660 5.625%, 10/15/19 10/09 at 101 Aa3 642,378
2,800 State of Connecticut, General Obligation Capital Appreciation Bonds No Opt. Call AA 1,457,988
(College Savings Plan - 1991 Series B), 0.000%, 12/15/11
1,000 State of Connecticut, General Obligation Capital Appreciation Bonds No Opt. Call AA 607,210
(College Savings Plan 1990 Series A), 0.000%, 5/15/09
500 State of Connecticut, General Obligation Bonds (1999 Series B), 11/09 at 101 AA 485,480
5.500%, 11/01/18
3,000 State of Connecticut, General Obligation Capital Appreciation Bonds No Opt. Call AA 1,605,960
(College Savings Plan - 1993 Series A), 0.000%, 6/15/11
Town of Glastonbury, Connecticut, General Obligation Bonds, Issue of
1988:
200 7.200%, 8/15/06 No Opt. Call Aa1 223,624
200 7.200%, 8/15/07 No Opt. Call Aa1 225,722
200 7.200%, 8/15/08 No Opt. Call Aa1 227,902
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
Town of Griswold, Connecticut, General Obligation Bonds, Issue of 1989:
$ 200 7.500%, 4/01/02 No Opt. Call AAA $ 211,068
200 7.500%, 4/01/03 No Opt. Call AAA 215,290
200 7.500%, 4/01/04 No Opt. Call AAA 219,006
150 7.500%, 4/01/05 No Opt. Call AAA 166,622
340 City of Middletown, Connecticut, General Obligation Bonds, 6.900%, No Opt. Call AA 372,341
4/15/06
City of New London, Connecticut, General Obligation Bonds, Water
Department Revenue Bonds, Series 20:
120 7.300%, 12/01/05 No Opt. Call A+ 133,612
100 7.300%, 12/01/07 No Opt. Call A+ 113,696
Town of Old Saybrook, Connecticut, General Obligation Bonds:
160 7.400%, 5/01/08 No Opt. Call A2 183,120
160 7.400%, 5/01/09 No Opt. Call A2 184,368
275 6.500%, 2/15/10 No Opt. Call AAA 302,288
270 6.500%, 2/15/11 No Opt. Call AAA 297,851
Town of Plainfield, Connecticut, General Obligation Bonds:
225 7.000%, 9/01/00 No Opt. Call A3 227,826
100 7.000%, 9/01/01 No Opt. Call A3 102,875
100 7.100%, 9/01/02 9/01 at 102 A3 104,405
310 7.100%, 9/01/03 9/01 at 102 A3 325,884
100 7.200%, 9/01/04 9/01 at 102 A3 105,267
335 7.250%, 9/01/06 9/01 at 102 A3 352,886
335 7.300%, 9/01/08 9/01 at 102 A3 353,127
155 7.300%, 9/01/10 9/01 at 102 A3 163,387
3,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1998 (General 7/08 at 101 A 2,529,000
Obligation Bonds), 5.000%, 7/01/28
4,190 Commonwealth of Puerto Rico, Public Improvement Bonds of 1999 (General 7/08 at 101 AAA 3,611,948
Obligation Bonds), 5.000%, 7/01/28
City of Torrington, Connecticut, General Obligation Bonds:
700 6.400%, 5/15/11 5/02 at 102 AAA 734,041
680 6.400%, 5/15/12 5/02 at 102 AAA 710,308
City of Waterbury, Connecticut, General Obligation Tax Revenue Intercept
Bonds, 2000 Issue:
910 6.000%, 2/01/18 2/09 at 101 AA 908,462
1,025 6.000%, 2/01/20 2/09 at 101 AA 1,011,470
Town of Winchester, Connecticut, General Obligation Bonds:
140 6.750%, 4/15/06 No Opt. Call A1 152,438
140 6.750%, 4/15/07 No Opt. Call A1 153,693
140 6.750%, 4/15/08 No Opt. Call A1 154,860
140 6.750%, 4/15/09 No Opt. Call A1 155,600
140 6.750%, 4/15/10 No Opt. Call A1 155,973
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 15.6%
2,000 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AA- 1,994,320
Revenue Bonds, Nursing Home Program Issue (St. Camillus Health
Center Project), Series 1994, 6.250%, 11/01/18
945 State of Connecticut Health and Educational Facilities Authority, 7/08 at 102 AAA 796,635
Revenue Bonds, Child Care Facilities Program, Series A, 5.000%, 7/01/28
1,000 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AAA 1,011,560
Revenue Bonds, Nursing Home Program Issue (Sharon Health Care Project),
Series 1994, 6.250%, 11/01/21
5,000 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AAA 5,052,350
Revenue Bonds, Nursing Home Program Issue (Saint Joseph's Manor
Project), Series 1994, 6.250%, 11/01/16
3,695 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AAA 3,766,129
Revenue Bonds, Nursing Home Program Issue (St. Camillus Health Center
Project), Series 1994, 6.250%, 11/01/18
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship Connecticut Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
$ 3,000 State of Connecticut Health and Educational Facilities Authority, 11/04 at 102 AAA $ 3,039,600
Revenue Bonds, Nursing Home Program Issue (The Jewish Home for the
Elderly of Fairfield County Project), Series 1994, 6.250%, 11/01/20
State of Connecticut Health and Educational Facilities Authority,
Revenue Bonds, Nursing Home Program Issue (Highland View Manor, Inc.
Project), Series 1994:
1,500 7.200%, 11/01/10 (Alternative Minimum Tax) 11/04 at 102 AAA 1,636,215
4,200 7.500%, 11/01/16 (Alternative Minimum Tax) 11/04 at 102 AAA 4,653,474
State of Connecticut Health and Educational Facilities Authority, Revenue
Bonds, Nursing Home Program Issue (Wadsworth Glen Health Care Center
Project), Series 1994:
1,100 7.200%, 11/01/10 (Alternative Minimum Tax) 11/04 at 102 AAA 1,199,891
1,000 7.500%, 11/01/16 (Alternative Minimum Tax) 11/04 at 102 AAA 1,107,970
4,115 State of Connecticut Health and Educational Facilities Authority, 11/06 at 102 AA- 4,135,534
Revenue Bonds, Nursing Home Program Issue (Abbott Terrace Health Center
Project), Series 1996, 5.750%, 11/01/13
4,365 State of Connecticut Health and Educational Facilities Authority, 11/06 at 102 AA 4,316,025
Revenue Bonds, Nursing Home Program Issue (3030 Park Fairfield Health
Center Project), Series 1996, 6.250%, 11/01/21
1,150 State of Connecticut, Special Tax Obligation Bonds, Transportation No Opt. Call AA- 1,221,864
Infrastructure Purposes, 1992 Series B, 6.125%, 9/01/12
1,250 Virgin Islands Public Finance Authority, Revenue Bonds (Virgin 10/10 at 101 BBB- 1,240,050
Islands Gross Receipts Taxes Loan Note), Series 1999A, 6.500%, 10/01/24
725 Town of Woodstock, Connecticut, Special Obligation Bonds (Woodstock 3/00 at 103 AAA 748,345
Academy - 1990 Issue), (General Obligation Bonds), 6.900%, 3/01/06
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 13.1%
3,010 State of Connecticut Health and Educational Facilities Authority, 7/03 at 100 AAA 3,264,104
Revenue Bonds, University of Hartford Issue, Series C, 8.000%, 7/01/18
(Pre-refunded to 7/01/03)
1,300 State of Connecticut Health and Educational Facilities Authority, 7/00 at 101 AAA 1,500,174
Revenue Bonds, Lutheran General Health Care System (Parkside Lodges
Projects), 7.375%, 7/01/19
1,000 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 N/R*** 1,030,470
Revenue Bonds, The Taft School Issue, Series A, 7.375%, 7/01/20
(Pre-refunded to 7/01/00)
190 State of Connecticut Health and Educational Facilities Authority, 7/00 at 102 Aaa 195,843
Revenue Bonds, St. Mary's Hospital Issue, Series C, 7.375%, 7/01/20
(Pre-refunded to 7/01/00)
3,500 State of Connecticut Health and Educational Facilities Authority, 7/02 at 102 AAA 3,683,365
Revenue Bonds, Middlesex Hospital Issue, Series G, 6.250%, 7/01/12
(Pre-refunded to 7/01/02)
1,100 State of Connecticut Health and Educational Facilities Authority, 7/02 at 102 N/R*** 1,148,609
Revenue Bonds, The William W. Backus Hospital Issue, Series C, 6.000%,
7/01/12 (Pre-refunded to 7/01/02)
2,000 State of Connecticut Health and Educational Facilities Authority, 7/04 at 102 AAA 2,126,580
Revenue Bonds, Trinity College Issue, Series D, 6.125%, 7/01/24
(Pre-refunded to 7/01/04)
2,910 State of Connecticut Health and Educational Facilities Authority, 7/03 at 102 BBB-*** 3,054,482
Revenue Bonds, Quinnipiac College Issue, Series D, 6.000%, 7/01/23
(Pre-refunded to 7/01/03)
180 State of Connecticut Health and Educational Facilities Authority, 1/01 at 102 AAA 187,690
Revenue Bonds, Capital Asset Issue, Series C, 7.000%, 1/01/20
(Pre-refunded to 1/01/01)
7,000 Connecticut Development Authority, Health Care Project Refunding 9/02 at 102 A2*** 7,430,640
Bonds (Duncaster, Inc. Project - 1992 Series), 6.750%, 9/01/15
(Pre-refunded to 9/01/02)
1,605 City of New Haven, Connecticut, General Obligation Bonds, Issue of 8/01 at 102 AAA 1,701,669
1991, 7.400%, 8/15/11 (Pre-refunded to 8/15/01)
City of New Haven, Connecticut, General Obligation Bonds, Issue of 1992:
400 9.250%, 3/01/02 No Opt. Call AAA 417,560
1,000 7.400%, 3/01/12 (Pre-refunded to 3/01/02) 3/02 at 102 AAA 1,069,820
1,130 Town of Stratford, Connecticut, General Obligation Bonds, 7.300%, 3/01 at 102 N/R*** 1,184,918
3/01/12 (Pre-refunded to 3/01/01)
City of Waterbury, Connecticut, General Obligation Bonds:
535 7.250%, 3/01/02 (Pre-refunded to 3/01/01) 3/01 at 102 N/R*** 560,739
785 7.300%, 3/01/05 (Pre-refunded to 3/01/01) 3/01 at 102 N/R*** 823,151
780 7.400%, 3/01/06 (Pre-refunded to 3/01/01) 3/01 at 102 N/R*** 818,649
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities - 9.5%
$ 8,000 Bristol Resource Recovery Facility Operating Committee, Solid Waste 7/05 at 102 A2 $ 8,038,400
Revenue Refunding Bonds (Ogden Martin Systems of Bristol, Inc.
Project - 1995 Series), 6.500%, 7/01/14
Connecticut Resources Recovery Authority, 1991 Series One Subordinated
(Wallingsford Resource Recovery Project):
400 6.750%, 11/15/03 (Alternative Minimum Tax) 11/01 at 102 AA 417,212
500 6.800%, 11/15/04 (Alternative Minimum Tax) 11/01 at 102 AA 520,995
5,250 Connecticut Resources Recovery Authority, Corporate Credit Bonds/Tax 11/02 at 102 BB- 4,696,230
Exempt Interest (American REF-FUEL Company of Southeastern Connecticut
Project), 1992 Series A, 6.450%, 11/15/22 (Alternative Minimum Tax)
Eastern Connecticut Resource Recovery Authority, Solid Waste Revenue Bonds
(Wheelbrator Lisbon Project), Series 1993A:
240 5.250%, 1/01/06 (Alternative Minimum Tax) 1/03 at 102 BBB 221,098
9,665 5.500%, 1/01/20 (Alternative Minimum Tax) 1/03 at 102 BBB 7,846,820
- - -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 2.4%
770 Connecticut Development Authority, Water Facilities Refunding 6/00 at 102 A+ 788,952
Revenue Bonds (Bridgeport Hydraulic Company Project - 1990 Series),
7.250%, 6/01/20
2,000 Connecticut Development Authority, Water Facilities Revenue 12/03 at 102 AAA 2,090,520
Refunding Bonds (The Connecticut Water Company Project - 1993 Series),
6.650%, 12/15/20
1,750 Connecticut Development Authority, Water Facilities Revenue Bonds 4/07 at 102 A+ 1,683,340
(Bridgeport Hydraulic Company Project - 1995 Series), 6.150%, 4/01/35
(Alternative Minimum Tax)
1,000 State of Connecticut Clean Water Fund, Revenue Bonds, 1991 Series, 1/01 at 102 AAA 1,042,500
7.000%, 1/01/11
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 232,155 Total Investments - (cost $224,894,800) - 97.1% 223,087,700
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 2.9% 6,777,068
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $229,864,768
====================================================================================================================
</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.
See accompanying notes to financial statements.
17
<PAGE>
Portfolio of Investments
Nuveen Massachusetts Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 10.9%
$ 1,000 Massachusetts Development Finance Agency, Revenue Bonds, YMCA of Greater 11/08 at 102 BBB+ $ 822,470
Boston Issue, Series 1998, 5.450%, 11/01/28
2,000 Massachusetts Development Finance Agency, Revenue Bonds, Curry College 3/09 at 101 A 1,748,600
Issue, 1999 Series A, 5.500%, 3/01/29
2,000 Massachusetts Development Finance Agency, Revenue Bonds, Massachusetts 1/10 at 101 BBB 1,976,680
College of Pharmacy and Allied Health Sciences Issue, 1999 Series B,
6.625%, 7/01/20
1,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/02 at 102 AAA 1,015,950
Suffolk University Issue, Series B, 6.350%, 7/01/22
30 Massachusetts Health and Educational Facilities Authority, Revenue 7/01 at 102 AAA 31,181
Bonds, Boston College Issue, Series J, 6.625%, 7/01/21
2,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 10/08 at 101 AAA 1,610,620
Brandeis University Issue, Series I, 4.750%, 10/01/28
500 Massachusetts Industrial Finance Agency, Revenue Bonds (Whitehead 7/03 at 102 Aa1 432,185
Institute for Biomedical Research - 1993 Issue), 5.125%, 7/01/26
2,290 Massachusetts Industrial Finance Agency, Revenue and Refunding Bonds 7/05 at 102 AAA 2,326,686
(Lesley College Project), 1995 Series A, 6.300%, 7/01/25
- - -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 11.2%
495 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/00 at 100 A 496,485
Brockton Hospital Issue, Series B, 8.000%, 7/01/07
500 Massachusetts Health and Educational Facilities Authority, Revenue Bonds 7/00 at 102 N/R 513,285
(Cardinal Cushing General Hospital), Series 1989, 8.875%, 7/01/18
750 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/02 at 102 AAA 775,245
New England Medical Center Hospitals Issue, Series F, 6.625%, 7/01/25
1,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/03 at 102 AAA 974,860
Lahey Clinic Medical Center Issue, Series B, 5.625%, 7/01/15
Massachusetts Health and Educational Facilities Authority, Revenue
Refunding Bonds, Youville Hospital Issue (FHA-Insured Project), Series B:
2,500 6.000%, 2/15/25 2/04 at 102 Aa2 2,377,575
2,000 6.000%, 2/15/34 2/04 at 102 Aa2 1,877,600
2,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/08 at 102 AAA 1,662,960
Caregroup Issue, Series A, 5.000%, 7/01/25
1,500 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/08 at 101 AAA 1,137,255
Harvard Pilgrim Health Care Issue, Series A, 4.750%, 7/01/22
385 Massachusetts Industrial Finance Agency, Revenue Bonds (Sturdy Memorial 6/00 at 101 A 393,793
Hospital), Series 1989, 7.900%, 6/01/09
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 13.1%
940 Boston-Mount Pleasant Housing Development Corporation, Multifamily 8/02 at 102 AAA 970,277
Housing Refunding Revenue Bonds, Series 1992 A, 6.750%, 8/01/23
3,000 Massachusetts Development Finance Agency, Assisted Living Revenue Bonds 12/09 at 102 N/R 2,984,400
(Prospect House Apartments), Series 1999, 7.000%, 12/01/31
(Alternative Minimum Tax)
3,700 Massachusetts Housing Finance Agency, Housing Project Revenue Bonds, 4/03 at 102 A+ 3,722,829
6.375%, 4/01/21
1,000 Massachusetts Housing Finance Agency, Residential Development Bonds, 11/02 at 102 AAA 1,029,820
6.250%, 11/15/14
1,000 Massachusetts Housing Finance Agency, Residential Development 5/02 at 102 AAA 1,050,160
Bonds, 1992 Series D, 6.875%, 11/15/21
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 1,000 Massachusetts Industrial Finance Agency (FHA-Insured Mortgage Loan), 1/08 at 102 AAA $ 945,190
Hudner Associates Projects, 5.650%, 1/01/23
1,250 Somerville Housing Authority (Massachusetts), Mortgage Revenue 5/00 at 102 AAA 1,278,325
Bonds (GNMA Collateralized - Clarendon Hill Towers Project), Series
1990, 7.950%, 11/20/30
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 0.3%
295 Massachusetts Housing Finance Agency, Single Family Housing Revenue Bonds, 6/01 at 102 Aa3 297,829
Series 18, 7.350%, 12/01/16
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 12.9%
1,790 Massachusetts Development Finance Agency, Revenue Bonds, The May 9/09 at 102 AA 1,664,736
Institute Issue, Series 1999, 5.750%, 9/01/24
2,900 Massachusetts Development Finance Agency, Revenue Bonds, Northern 8/09 at 101 A 2,825,702
Berkshire Community Services, Inc. Issue, 1999 Series A, 6.250%,
8/15/29
885 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/03 at 102 AAA 877,557
Cable Housing and Health Services Issue, Series A, 5.625%, 7/01/13
3,285 Massachusetts Health and Educational Facilities Authority, Revenue 2/07 at 102 Aa2 3,175,938
Refunding Bonds, Youville Hospital Issue (FHA-Insured Project), Series
A, 6.250%, 2/15/41
400 Massachusetts Industrial Finance Agency, Assisted Living Facility Revenue 8/08 at 105 AAA 377,884
Bonds (TNG Draper Place Project) (GNMA Collateralized), Series 1998,
5.400%, 8/20/12 (Alternative Minimum Tax)
2,040 Massachusetts Industrial Finance Agency, Assisted Living Facility Revenue 6/09 at 102 AAA 1,784,470
Bonds (The Arbors at Taunton Project) (GNMA Collateralized), Series
1999, 5.500%, 6/20/40 (Alternative Minimum Tax)
1,055 Massachusetts Industrial Financial Agency, Revenue Bonds, Heights Crossing 2/06 at 102 AAA 1,050,822
Limited Partnership Issue (FHA-Insured Project), Series 1995, 6.000%,
2/01/15 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 11.5%
490 Town of Barnstable, Massachusetts, General Obligation Bonds, 5.750%, 9/04 at 102 AA 495,704
9/15/14
Town of Deerfield, Massachusetts, General Obligation School Bonds of 1992,
School Project Loan Act of 1948, Bank-Qualified Unlimited Tax:
420 6.200%, 6/15/09 6/02 at 102 A1 439,874
415 6.250%, 6/15/10 6/02 at 102 A1 434,642
260 City of Holyoke, Massachusetts, General Obligation Bonds, 1991 Series A, No Opt. Call BBB+ 266,713
8.000%, 6/01/01
500 City of Holyoke, Massachusetts, General Obligation School Project 8/01 at 102 Baa1 530,825
Loan Act of 1948, 7.650%, 8/01/09
750 City of Holyoke, Massachusetts, General Obligation Refunding Bonds, 11/02 at 102 BBB+ 792,368
7.000%, 11/01/08
545 City of Lowell, Massachusetts, General Obligation Qualified Bonds, 2/01 at 103 Aa3 579,651
8.300%, 2/15/05
2,500 Massachusetts Bay Transportation Authority, General Transportation No Opt. Call Aa2 2,829,975
System Bonds, 1991 Series A, 7.000%, 3/01/21
425 South Essex Sewerage District, Massachusetts, General Obligation Bonds, No Opt. Call Baa1 439,718
9.000%, 12/01/00
City of Taunton, Massachusetts, General Obligation (Electric Loan,
Act of 1969) Bonds:
1,465 8.000%, 2/01/02 No Opt. Call A3 1,545,751
1,005 8.000%, 2/01/03 No Opt. Call A3 1,082,717
1,000 City of Worcester, Massachusetts, General Obligation Bonds, 6.000%, 8/02 at 102 BBB+ 1,028,610
8/01/04
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 1.0%
865 Massachusetts Industrial Finance Agency, Library Revenue Bonds 1/05 at 102 AAA 947,763
(Malden Public Library Project), Series 1994, 7.250%, 1/01/15
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 3.1%
Massachusetts Turnpike Authority, Metropolitan Highway System Revenue
Bonds, 1997 Series C (Senior):
10,000 0.000%, 1/01/29 No Opt. Call AAA 1,676,300
1,425 5.000%, 1/01/37 1/07 at 102 AAA 1,179,045
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Massachusetts Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed - 26.1%
City of Attleboro, Massachusetts, General Obligation Bonds:
$ 450 6.250%, 1/15/10 (Pre-refunded to 1/15/03) 1/03 at 102 A3*** $ 475,601
450 6.250%, 1/15/11 (Pre-refunded to 1/15/03) 1/03 at 102 A3*** 475,601
1,000 City of Boston, Massachusetts, General Obligation Bonds, 1991 7/01 at 102 AAA 1,048,690
Series A, 6.750%, 7/01/11 (Pre-refunded to 7/01/01)
500 Boston Water and Sewer Commission (Massachusetts), General 11/01 at 102 AAA 529,285
Revenue Bonds 1991 (Senior Series), Series A, 7.000%, 11/01/18
(Pre-refunded to 11/01/01)
355 City of Haverhill, Massachusetts, General Obligation Bonds, 10/01 at 102 BBB*** 377,976
Municipal Purpose Loan of 1991 Bonds, 7.500%, 10/15/11 (Pre-refunded
to 10/15/01)
250 City of Holyoke, Massachusetts, General Obligation Bonds, 8.150%, 6/02 at 103 AAA 275,233
6/15/06 (Pre-refunded to 6/15/02)
445 City of Lowell, Massachusetts, General Obligation Qualified 1/01 at 102 Aaa 469,493
Bonds, 8.400%, 1/15/09 (Pre-refunded to 1/15/01)
1,000 City of Lynn, Massachusetts, General Obligation Bonds, 7.850%, 1/02 at 104 Aaa 1,092,770
1/15/11 (Pre-refunded to 1/15/02)
1,000 Massachusetts Bay Transportation Authority, General 3/01 at 102 Aaa 1,046,730
Transportation System Bonds, 1991 Series A, 7.000%, 3/01/11
(Pre-refunded to 3/01/01)
250 The Massachusetts Bay Transportation Authority, Certificates of 12/06 at 100 A*** 288,183
Participation, Series 1988, 7.800%, 1/15/14 (Pre-refunded to 12/22/06)
500 Massachusetts Health and Educational Facilities Authority, Revenue 9/02 at 102 AAA 530,645
Refunding Bonds, Worcester Polytechnic Institute Issue, Series E,
6.625%, 9/01/17 (Pre-refunded to 9/01/02)
1,240 Massachusetts Health and Educational Facilities Authority, Revenue 7/00 at 102 AAA 1,280,474
Bonds, Emerson Hospital Issue, Series C, 8.000%, 7/01/18 (Pre-refunded
to 7/01/00)
2,000 Massachusetts Health and Educational Facilities Authority, Revenue No Opt. Call AAA 1,865,020
Bonds, Malden Hospital Issue (FHA-Insured Project), Series A, 5.000%,
8/01/16
1,180 Massachusetts Health and Educational Facilities Authority, Revenue 7/00 at 101 1/2 N/R*** 1,212,946
Bonds, Suffolk University Issue, Series A, 8.125%, 7/01/20
(Pre-refunded to 7/01/00)
700 Massachusetts Health and Educational Facilities Authority, Revenue 7/06 at 100 AA+*** 737,366
Bonds (Daughters of Charity National Health System - The Carney
Hospital), Series D, 6.100%, 7/01/14 (Pre-refunded to 7/01/06)
2,750 Massachusetts Health and Educational Facilities Authority, Revenue 4/02 at 102 AAA 2,917,173
Bonds, New England Deaconess Hospital Issue, Series D, 6.875%,
4/01/22 (Pre-refunded to 4/01/02)
1,000 Massachusetts Health and Educational Facilities Authority, Revenue 11/02 at 102 Aaa 1,061,490
Bonds, MetroWest Health, Inc. Issue, Series C, 6.500%, 11/15/18
(Pre-refunded to 11/15/02)
970 Massachusetts Health and Educational Facilities Authority, Revenue 7/01 at 102 AAA 1,015,018
Bonds, Boston College Issue, Series J, 6.625%, 7/01/21 (Pre-refunded
to 7/01/01)
635 Massachusetts Port Authority, Revenue Bonds, Series 1982, 7/00 at 100 AAA 972,331
13.000%, 7/01/13
250 Massachusetts Industrial Finance Agency, Revenue Bonds, College of 1/02 at 102 AA-*** 262,170
the Holy Cross, 1992 Issue, 6.450%, 1/01/12 (Pre-refunded to 1/01/02)
1,145 Massachusetts Industrial Finance Agency, Revenue Bonds, Merrimack 7/02 at 102 AAA 1,226,799
College Issue, Series 1992, 7.125%, 7/01/12 (Pre-refunded to 7/01/02)
1,130 City of Peabody, Massachusetts, General Obligation Electric Bonds, 8/01 at 102 AAA 1,189,879
6.950%, 8/01/09 (Pre-refunded to 8/01/01)
2,250 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series P, 7/01 at 102 AAA 2,372,512
7.000%, 7/01/21 (Pre-refunded to 7/01/01)
1,000 City of Springfield, Massachusetts, General Obligation School 9/02 at 102 Baa3*** 1,072,280
Project Loan Act of 1948 Bonds, Series B, 7.100%, 9/01/11
(Pre-refunded to 9/01/02)
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities - 9.0%
$ 2,700 Massachusetts Development Finance Agency, Resource Recovery Revenue 12/08 at 102 BBB $ 2,264,652
Bonds (Ogden Haverhill Project), Series 1998B, 5.500%, 12/01/19
(Alternative Minimum Tax)
1,245 Massachusetts Industrial Finance Agency, Resource Recovery Revenue 7/01 at 103 N/R 1,326,298
Bonds (SEMASS Project), Series 1991A, 9.000%, 7/01/15
5,420 Massachusetts Industrial Finance Agency, Resource Recovery Revenue 12/08 at 102 BBB 4,618,920
Refunding Bonds (Ogden Haverhill Project), Series 1998A, 5.600%,
12/01/19 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 100,370 Total Investments - (cost $92,117,711) - 99.1% 90,484,560
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.9% 844,702
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $91,329,262
====================================================================================================================
</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.
See accompanying notes to financial statements.
21
<PAGE>
Portfolio of Investments
Nuveen Massachusetts Insured Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 18.7%
$1,600 Massachusetts Health and Educational Facilities Authority, Revenue 10/02 at 102 AAA $1,658,368
Bonds, Northeastern University Issue, Series E, 6.550%, 10/01/22
1,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/02 at 100 AAA 1,000,050
Bonds, Boston University Issue, Series M, 6.000%, 10/01/22
30 Massachusetts Health and Educational Facilities Authority, Revenue 7/01 at 102 AAA 31,181
Bonds, Boston College Issue, Series J, 6.625%, 7/01/21
3,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/08 at 101 AAA 2,415,930
Bonds, Brandeis University Issue, Series I, 4.750%, 10/01/28
1,030 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 AAA 1,043,565
Bonds, Bentley College Issue, Series I, 6.125%, 7/01/17
2,000 Massachusetts Health and Educational Facilities Authority, Revenue 10/09 at 101 AAA 1,684,640
Bonds, Northeastern University Issue, Series I, 5.000%, 10/01/29
1,000 Massachusetts Industrial Finance Agency, Revenue Bonds (College of the 3/06 at 102 AAA 941,650
Holy Cross - 1996 Issue), 5.500%, 3/01/20
420 Massachusetts Industrial Finance Agency, Revenue Bonds, Babson College 10/05 at 102 AAA 432,298
Issue, Series 1995A, 5.800%, 10/01/10
1,000 Massachusetts Industrial Finance Agency, Revenue Refunding Bonds, 7/01 at 102 AAA 1,037,590
Mount Holyoke College Issue, Series 1992A, 6.300%, 7/01/13
2,470 Massachusetts Industrial Finance Agency, Revenue Bonds, Western New 7/08 at 102 AAA 2,062,154
England College Issue, Series 1998, 5.000%, 7/01/28
- - ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 14.2%
500 Massachusetts Health and Educational Facilities Authority, Revenue 7/00 at 102 AAA 515,160
Bonds, University Hospital Issue, Series C, 7.250%, 7/01/19
145 Massachusetts Health and Educational Facilities Authority, Revenue 7/00 at 101 AAA 148,247
Bonds, Capital Asset Program, Series G2, 7.200%, 7/01/09
1,500 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 AAA 1,550,490
Bonds, New England Medical Center Hospitals Issue, Series F,
6.625%, 7/01/25
1,700 Massachusetts Health and Educational Facilities Authority, Revenue 7/03 at 102 AAA 1,657,262
Bonds, Lahey Clinic Medical Center Issue, Series B, 5.625%, 7/01/15
1,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/06 at 102 AAA 977,270
Bonds, Baystate Medical Center Issue, Series E, 6.000%, 7/01/26
2,000 Massachusetts Health and Educational Facilities Authority, Revenue 7/08 at 102 AAA 1,662,960
Bonds, Caregroup Issue, Series A, 5.000%, 7/01/25
505 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 AAA 515,721
Bonds, South Shore Hospital Issue, Series D, 6.500%, 7/01/22
2,290 Puerto Rico Industrial, Tourist, Educational, Medical and 1/05 at 102 AAA 2,363,555
Environmental Control Facilities Financing Authority,
Hospital Revenue Bonds (Hospital Auxilio Mutuo
Obligated Group Project), 1995 Series A, 6.250%, 7/01/16
- - ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 12.7%
2,000 Massachusetts Development Finance Agency, Assisted Living Facility 9/10 at 105 AAA 2,209,280
Revenue Bonds
(The Monastery at West Springfield Project) (GNMA Collateralized),
Series 1999A, 7.625%, 3/20/41 (Alternative Minimum Tax)
1,500 Massachusetts Housing Finance Agency, Housing Development Bonds, 1998 6/08 at 101 AAA 1,374,225
Series A, 5.375%, 6/01/16 (Alternative Minimum Tax)
205 Massachusetts Housing Finance Agency, Housing Revenue Bonds, 1989 6/00 at 103 AAA 211,728
Series A, 7.600%, 12/01/16
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
$ 1,000 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue 7/07 at 101 AAA $ 884,460
Bonds, 1997 Series C, 5.625%, 7/01/40 (Alternative Minimum Tax)
2,930 Massachusetts Housing Finance Agency, Rental Housing Mortgage Revenue 1/05 at 102 AAA 3,101,786
Bonds (FHA-Insured Mortgage Loans), 1995 Series A, 7.350%, 1/01/35
(Alternative Minimum Tax)
640 Massachusetts Industrial Finance Agency (FHA-Insured Mortgage Loan), 1/08 at 102 AAA 604,922
Hudner Associates Projects, 5.650%, 1/01/23
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 0.5%
295 Massachusetts Housing Finance Agency, Single Family Housing Revenue 6/01 at 102 Aa3 297,829
Bonds, Series 18, 7.350%, 12/01/16
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 5.9%
3,185 Massachusetts Industrial Finance Agency, Assisted Living Facility 12/07 at 102 AAA 3,025,368
Revenue Bonds (The Arbors at Amherst Project, Series 1997)
(GNMA Collateralized), 5.950%, 6/20/39 (Alternative Minimum Tax)
1,000 Massachusetts Industrial Finance Agency, Assisted Living Facility 6/09 at 102 AAA 874,740
Revenue Bonds (The Arbors at Taunton Project, Series 1999)
(GNMA Collateralized), 5.500%, 6/20/40 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 19.0%
250 Town of Groveland, Massachusetts, General Obligation Bonds, 6/01 at 102 AAA 261,710
6.900%, 6/15/07
1,000 City of Haverhill, Massachusetts, General Obligation, Hospital 9/01 at 102 AAA 1,045,350
Refunding Bonds, Series A, 9/01/10
2,625 City of Lowell, Massachusetts, General Obligation State Qualified 11/03 at 102 AAA 2,641,853
Bonds, 5.600%, 11/01/12
1,025 City of Lynn, Massachusetts, General Obligation Bonds, 6.750%, 1/15/02 No Opt. Call AAA 1,061,808
1,000 Town of Mansfield, Massachusetts, General Obligation Bonds, 1/02 at 102 AAA 1,054,450
6.700%, 1/15/11
80 Massachusetts Bay Transportation Authority, General Transportation 3/00 at 102 AAA 81,805
System Bonds, 7.250%, 3/01/03
250 Town of Methuen, Massachusetts, General Obligation Bonds, 7.400%, 5/15/04 5/00 at 102 AAA 256,688
1,500 Town of Monson, Massachusetts, General Obligation, Bank-Qualified No Opt. Call AAA 1,537,515
Unlimited Tax, School Refunding Bonds, 5.500%, 10/15/10
300 Town of North Andover, Massachusetts, General Obligation Bonds, 9/00 at 103 AAA 313,851
7.400%, 9/15/10
190 Town of Northfield, Massachusetts, General Obligation Bonds, 10/01 at 102 AAA 198,503
Municipal Purpose Loan of 1992, Bank-Qualified, 6.350%, 10/15/09
440 Quaboag Regional School District, General Obligation Bonds, 6/02 at 102 AAA 461,314
6.250%, 6/15/08
City of Salem, Massachusetts, General Obligation Bonds:
500 6.800%, 8/15/09 8/01 at 102 AAA 524,500
900 6.000%, 7/15/10 7/02 at 102 AAA 931,329
220 Taunton, Massachusetts, General Obligation Bonds, 6.800%, 9/01/09 9/01 at 103 AAA 233,002
455 Town of Wareham, Massachusetts, General Obligation School Bonds, 1/01 at 103 AAA 478,965
7.050%, 1/15/07
215 Town of Whately, Massachusetts, General Obligation Bonds, 6.350%, 1/02 at 102 AAA 225,034
1/15/09
1,210 Town of Winchendon, Massachusetts, Unlimited Tax, General Obligation 3/03 at 102 AAA 1,250,644
Bonds, 6.050%, 3/15/10
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 2.3%
1,405 Massachusetts Industrial Finance Agency, Library Revenue Bonds 1/05 at 102 AAA 1,539,430
(Malden Public Library Project), Series 1994, 7.250%, 1/01/15
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 2.4%
9,500 Massachusetts Turnpike Authority, Metropolitan Highway System No Opt. Call AAA 1,592,485
Revenue Bonds, 1997 Series C (Senior), 0.000%, 1/01/29
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 21.1%
1,000 City of Boston, Massachusetts, General Obligation Bonds, 1991 7/01 at 102 AAA 1,048,690
Series A 6.750%, 7/01/11 (Pre-refunded to 7/01/01)
500 City of Boston, Massachusetts, Revenue Bonds, Boston City Hospital 8/00 at 102 Aaa 516,775
(FHA-Insured Mortgage), Series A, 7.625%, 2/15/21 (Pre-refunded
to 8/15/00)
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Massachusetts Insured Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Guaranteed (continued)
$ 500 City of Fall River, Massachusetts, General Obligation Bonds, 7.200%, 6/01/10 6/01 at 102 AAA $ 526,660
(Pre-refunded to 6/01/01)
250 City of Holyoke, Massachusetts, General Obligation Bonds, 8.150%, 6/15/06 6/02 at 103 AAA 275,233
(Pre-refunded to 6/15/02)
250 Lynn, Water and Sewer Commission, General Revenue Bonds, 1990 Series A, 12/00 at 102 AAA 260,613
7.250%, 12/01/10 (Pre-refunded to 12/01/00)
250 Massachusetts Bay Transportation Authority, Certificates of Participation, 8/00 at 102 AAA 258,645
1990 Series A, 7.650%, 8/01/15 (Pre-refunded to 8/01/00)
The Commonwealth of Massachusetts, General Obligation Bonds, Consolidated
Loan of 1992, Series A:
25 6.500%, 6/01/08 (Pre-refunded to 6/01/02) 6/02 at 101 AAA 26,191
860 6.000%, 6/01/13 (Pre-refunded to 6/01/02) 6/02 at 100 AAA 884,106
340 Massachusetts State, General Obligation Bonds, Consolidated Loan, 6/02 at 100 AAA 349,530
Series 1992-A, 6.000%, 6/01/13 (Pre-refunded to 6/01/02)
500 Massachusetts Health and Educational Facilities Authority, Revenue 10/01 at 102 AAA 527,345
Bonds, Berklee College of Music Issue, Series C, 6.875%, 10/01/21
(Pre-refunded to 10/01/01)
1,000 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/01 at 102 AAA 1,048,420
Brigham and Women's Hospital Issue, Series D, 6.750%, 7/01/24
(Pre-refunded to 7/01/01)
250 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/00 at 102 AAA 257,780
South Shore Hospital Issue, Series C, 7.500%, 7/01/20 (Pre-refunded
to 7/01/00)
500 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/00 at 102 AAA 515,925
Stonehill College Issue, 7.700%, 7/01/20 (Pre-refunded to 7/01/00)
970 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/01 at 102 AAA 1,015,018
Boston College Issue, Series J, 6.625%, 7/01/21 (Pre-refunded to 7/01/01)
970 Massachusetts Health and Educational Facilities Authority, Revenue Bonds, 7/02 at 102 AAA 1,018,161
Bentley College Issue, Series I, 6.125%, 7/01/17 (Pre-refunded to 7/01/02)
495 Massachusetts Health and Educational Facilities Authority, Revenue 7/02 at 102 AAA 523,190
Bonds, South Shore Hospital Issue, Series D, 6.500%, 7/01/22
(Pre-refunded to 7/01/02)
1,000 Massachusetts Port Authority, Revenue Bonds, Series 1982, 13.000%, 7/01/13 7/00 at 100 AAA 1,531,230
500 Town of Monson, Massachusetts, General Obligation School Project Loan 10/00 at 102 AAA 520,905
Act of 1948 Bonds, 7.700%, 10/15/10 (Pre-refunded to 10/15/00)
270 North Middlesex Regional School District, School Bonds of 1990, 7.200%, 6/00 at 103 AAA 280,473
6/15/08 (Pre-refunded to 6/15/00)
250 Town of Palmer, Massachusetts, General Obligation School Project Loan Act 10/00 at 102 AAA 260,128
of 1948, 1990 Series B, 7.700%, 10/01/10 (Pre-refunded to 10/01/00)
Southern Berkshire Regional School District, General Obligation Bonds:
515 7.500%, 4/15/07 (Pre-refunded to 4/15/02) 4/02 at 102 AAA 553,414
1,145 7.000%, 4/15/11 (Pre-refunded to 4/15/02) 4/02 at 102 AAA 1,217,673
250 City of Westfield, Massachusetts, General Obligation Bonds, 7.100%, 12/00 at 102 AAA 260,715
12/15/08 (Pre-refunded to 12/15/00)
160 City of Worcester, Massachusetts, General Obligation Bonds, 6.900%, 5/15/07 5/02 at 102 AAA 170,284
(Pre-refunded to 5/15/02)
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities - 1.9%
$ 1,300 Massachusetts Municipal Wholesale Electric Company, Power Supply System 7/03 at 102 AAA $ 1,259,620
Revenue Bonds, 1993 Series A, 5.000%, 7/01/10
- - -----------------------------------------------------------------------------------------------------------------------------------
$73,060 Total Investments - (cost $ 65,413,189) - 98.7% 65,079,389
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.3% 848,384
-------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $65,927,773
====================================================================================================================
</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.
See accompanying notes to financial statements.
25
<PAGE>
Statement of Net Assets
February 29, 2000
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investments in municipal securities, at market value $223,087,700 $90,484,560 $65,079,389
Cash 3,693,424 -- --
Receivables:
Interest 3,651,858 1,290,429 977,794
Investments sold 200,000 1,398,818 632,475
Shares sold 186,915 17,578 5,000
Other assets 2,611 277 288
- - --------------------------------------------------------------------------------------------------------------------
Total assets 230,822,508 93,191,662 66,694,946
- - --------------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft -- 1,360,830 474,374
Payable for shares redeemed 277,221 106,781 35,759
Accrued expenses:
Management fees 98,739 40,005 28,689
12b-1 distribution and service fees 52,375 8,037 3,895
Other 90,117 52,270 25,022
Dividends payable 439,288 294,477 199,434
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities 957,740 1,862,400 767,173
- - --------------------------------------------------------------------------------------------------------------------
Net assets $229,864,768 $91,329,262 $65,927,773
====================================================================================================================
Class A Shares
Net assets $196,415,795 $16,814,363 $11,984,338
Shares outstanding 19,715,283 1,816,686 1,226,407
Net asset value and redemption price per share $ 9.96 $ 9.26 $ 9.77
Offering price per share (net asset value per share
plus maximum sales charge of 4.20% of offering price) $ 10.40 $ 9.67 $ 10.20
====================================================================================================================
Class B Shares
Net assets $ 15,931,299 $ 3,730,132 $ 1,550,101
Shares outstanding 1,602,483 402,089 158,545
Net asset value, offering and redemption price per share $ 9.94 $ 9.28 $ 9.78
====================================================================================================================
Class C Shares
Net assets $ 16,180,887 $ 4,730,056 $ 1,354,820
Shares outstanding 1,626,861 513,959 138,970
Net asset value, offering and redemption price per share $ 9.95 $ 9.20 $ 9.75
====================================================================================================================
Class R Shares
Net assets $ 1,336,787 $66,054,711 $51,038,514
Shares outstanding 133,874 7,152,132 5,217,938
Net asset value, offering and redemption price per share $ 9.99 $ 9.24 $ 9.78
====================================================================================================================
</TABLE>
26 See accompanying notes to financial statements.
<PAGE>
Statement of Operations
Year Ended February 29, 2000
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income $ 14,455,669 $ 5,897,695 $ 4,141,193
- - ---------------------------------------------------------------------------------------------------------------------
Expenses
Management fees 1,316,529 529,891 380,128
12b-1 service fees - Class A 418,906 32,599 23,576
12b-1 distribution and service fees - Class B 134,392 34,852 14,883
12b-1 distribution and service fees - Class C 129,728 37,422 11,790
Shareholders' servicing agent fees and expenses 173,551 100,400 76,369
Custodian's fees and expenses 71,666 64,539 64,246
Trustees' fees and expenses 4,858 2,010 1,469
Professional fees 3,037 10,052 9,166
Shareholders' reports - printing and mailing expenses 60,410 40,208 19,170
Federal and state registration fees 9,570 1,925 7,284
Portfolio insurance expense -- -- 3,177
Other expenses 8,204 4,883 3,554
- - ---------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 2,330,851 858,781 614,812
Custodian fee credit (20,226) (16,349) (9,940)
Expense reimbursement -- (20,381) --
- - ---------------------------------------------------------------------------------------------------------------------
Net expenses 2,310,625 822,051 604,872
- - ---------------------------------------------------------------------------------------------------------------------
Net investment income 12,145,044 5,075,644 3,536,321
- - ---------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (98,153) (155,666) 51,955
Change in net unrealized appreciation or depreciation of investments (21,884,560) (8,116,602) (5,572,241)
- - ---------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (21,982,713) (8,272,268) (5,520,286)
- - ---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ (9,837,669) $(3,196,624) $(1,983,965)
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Connecticut Massachusetts Massachusetts Insured
--------------------------- -------------------------- ---------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
2/29/00 2/28/99 2/29/00 2/28/99 2/29/00 2/28/99
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operations
Net investment income $ 12,145,044 $ 11,675,814 $ 5,075,644 $ 4,630,906 $ 3,536,321 $ 3,434,164
Net realized gain (loss) from investment
transactions (98,153) 37,313 (155,666) 9,069 51,955 10,474
Change in net unrealized appreciation
or depreciation of investments (21,884,560) 1,140,555 (8,116,602) 24,879 (5,572,241) 126,217
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations (9,837,669) 12,853,682 (3,196,624) 4,664,854 (1,983,965) 3,570,855
- - ------------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (10,657,962) (10,761,378) (834,612) (600,238) (585,940) (477,517)
Class B (614,284) (300,238) (159,314) (85,561) (65,676) (44,120)
Class C (782,580) (574,135) (228,951) (114,651) (69,087) (59,779)
Class R (59,079) (35,162) (3,792,977) (3,854,276) (2,780,997) (2,835,474)
From accumulated net realized gains from
investment transactions:
Class A -- -- -- -- (12,128) (891)
Class B -- -- -- -- (1,527) (121)
Class C -- -- -- -- (1,532) (131)
Class R -- -- -- -- (52,493) (4,898)
- - ------------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions
to shareholders (12,113,905) (11,670,913) (5,015,854) (4,654,726) (3,569,380) (3,422,931)
- - ------------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 31,868,633 37,401,420 12,772,381 19,090,381 5,630,264 8,126,094
Net proceeds from shares issued to
shareholders due to reinvestment
of distributions 5,335,507 5,622,058 3,409,712 3,182,349 2,440,826 2,357,024
- - ------------------------------------------------------------------------------------------------------------------------------------
37,204,140 43,023,478 16,182,093 22,272,730 8,071,090 10,483,118
Cost of shares redeemed (34,509,563) (27,408,991) (14,446,618) (9,388,148) (8,404,016) (6,161,130)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
Fund share transactions 2,694,577 15,614,487 1,735,475 12,884,582 (332,926) 4,321,988
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (19,256,997) 16,797,256 (6,477,003) 12,894,710 (5,886,271) 4,469,912
Net assets at the beginning of year 249,121,765 232,324,509 97,806,265 84,911,555 71,814,044 67,344,132
- - ------------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $229,864,768 $249,121,765 $ 91,329,262 $97,806,265 $65,927,773 $71,814,044
====================================================================================================================================
Balance of undistributed net investment
income at the end of year $ 46,195 $ 15,056 $ 117,293 $ 57,503 $ 66,974 $ 32,353
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship Connecticut Municipal Bond Fund
("Connecticut"), 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.
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
accounting principles generally accepted in the United States.
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 29, 2000, there were no such outstanding purchase commitments in any of
the Funds.
Investment 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 monthly as a dividend 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
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 designated state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended February 29, 2000,
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
29
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
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 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 only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 29, 2000.
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.
Custodian Fee Credit
Each Fund has an agreement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on each Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual
results may differ from those estimates.
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
Connecticut Massachusetts
------------------------------------------------------ --------------------------------------------------
Year Ended Year Ended Year Ended Year Ended
2/29/00 2/28/99 2/29/00 2/28/99
--------------------------- ------------------------- ------------------------ -----------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A 1,760,501 $ 18,283,345 1,897,699 $ 20,627,217 555,350 $ 5,352,717 639,103 $ 6,439,208
Class B 717,184 7,460,912 710,277 7,706,793 122,296 1,198,347 254,134 2,567,554
Class C 539,467 5,653,475 792,638 8,606,155 324,709 3,157,803 227,608 2,284,530
Class R 45,537 470,901 42,278 461,255 317,025 3,063,514 776,075 7,799,089
Shares issued to
shareholders due to
reinvestment of
distributions:
Class A 437,447 4,555,256 474,626 5,158,453 56,499 543,920 35,262 355,925
Class B 29,721 307,191 13,433 145,945 6,865 66,174 3,924 39,717
Class C 41,923 435,212 27,834 302,045 13,836 132,246 4,780 47,973
Class R 3,634 37,848 1,430 15,615 277,062 2,667,372 272,093 2,738,734
- - ------------------------------------------------------------------------------------------------------------------------------------
3,575,414 37,204,140 3,960,215 43,023,478 1,673,642 16,182,093 2,212,979 22,272,730
- - ------------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,731,832) (28,162,520) (2,078,959) (22,587,955) (297,369) (2,832,789) (94,086) (949,795)
Class B (176,175) (1,782,560) (34,851) (379,111) (46,593) (444,503) (14,108) (142,462)
Class C (443,381) (4,513,336) (401,917) (4,351,297) (193,535) (1,827,478) (55,487) (556,453)
Class R (4,904) (51,147) (8,327) (90,628) (977,765) (9,341,848) (770,575) (7,739,438)
- - ------------------------------------------------------------------------------------------------------------------------------------
(3,356,292) (34,509,563) (2,524,054) (27,408,991) (1,515,262) (14,446,618) (934,256) (9,388,148)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase 219,122 $ 2,694,577 1,436,161 $ 15,614,487 158,380 $ 1,735,475 1,278,723 $12,884,582
====================================================================================================================================
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Massachusetts Insured
-------------------------------------------------
Year Ended Year Ended
2/29/00 2/28/99
----------------------- ------------------------
Shares Amount Shares Amount
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold:
Class A 254,753 $ 2,598,020 306,475 $ 3,240,290
Class B 45,211 450,067 99,734 1,058,079
Class C 35,202 357,973 41,194 436,072
Class R 219,986 2,224,204 320,868 3,391,653
Shares issued to shareholders due to reinvestment of distributions:
Class A 34,368 347,267 25,691 272,136
Class B 1,344 13,625 740 7,856
Class C 4,699 47,584 4,745 50,126
Class R 200,374 2,032,350 191,284 2,026,906
- - ------------------------------------------------------------------------------------------------------------------------
795,937 8,071,090 990,731 10,483,118
- - ------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (121,499) (1,226,864) (94,783) (1,003,330)
Class B (43,851) (439,599) (7,593) (79,870)
Class C (59,605) (598,631) (9,956) (105,092)
Class R (609,886) (6,138,922) (469,182) (4,972,838)
- - ------------------------------------------------------------------------------------------------------------------------
(834,841) (8,404,016) (581,514) (6,161,130)
- - ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) (38,904) $ (332,926) 409,217 $ 4,321,988
========================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid April 3, 2000, to shareholders of record on March 9,
2000, as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend per share:
Class A $.0440 $.0420 $.0420
Class B .0375 .0360 .0355
Class C .0390 .0375 .0370
Class R .0455 .0435 .0435
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended
February 29, 2000, were as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Long-term municipal securities $ 52,735,337 $18,805,653 $ 6,515,517
Short-term municipal securities 9,600,000 4,500,000 500,000
Sales and maturities:
Long-term municipal securities 52,705,821 14,625,377 6,809,473
Short-term municipal securities 9,600,000 5,700,000 500,000
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
At February 29, 2000, the identified cost of investments owned for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$224,894,800 $92,378,674 $65,419,892
======================================================================================================================
</TABLE>
At February 29, 2000, Connecticut and 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>
Connecticut Massachusetts
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Expiration year:
2003 $810,300 $ --
2004 -- 414,343
2005 -- 156,261
2006 -- --
2007 -- --
2008 98,153 --
- - ----------------------------------------------------------------------------------------------------------------------
Total $908,453 $570,604
======================================================================================================================
</TABLE>
31
<PAGE>
Notes to Financial Statements (continued)
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
at February 29, 2000, were as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $ 5,669,293 $ 1,982,051 $ 1,816,907
depreciation (7,476,393) (3,876,165) (2,157,410)
- - --------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) $(1,807,100) $(1,894,114) $ (340,503)
========================================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trusts' investment management agreement with Nuveen Advisory Corp.
(the "Adviser"), a wholly owned subsidiary of The John Nuveen Company, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net assets of each Fund:
<TABLE>
<CAPTION>
Average Daily Net Assets 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 assets of Massachusetts and .975 of 1% of the average daily
net assets 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 29, 2000, the Distributor collected sales
charges on purchases of Class A Shares, the majority of which were paid out as
concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sales charges collected $232,865 $48,902 $35,409
Paid to authorized dealers 225,365 48,902 30,844
============================================================================
</TABLE>
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 29, 2000, the Distributor compensated
authorized dealers directly with commission advances collected at the time of
purchase as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
Commission advances $ 398,052 $ 88,384 $ 12,955
=============================================================================
</TABLE>
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 collected on Class C Shares during the first year following a
purchase are retained by the Distributor. During the fiscal year ended February
29, 2000, the Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 fees retained $ 174,708 $ 53,107 $ 16,401
=============================================================================
</TABLE>
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 CDSC on share redemptions during the
fiscal year ended February 29, 2000, as follows:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - -----------------------------------------------------------------------------
<S> <C> <C> <C>
CDSC retained $ 59,386 $ 15,002 $ 7,853
=============================================================================
</TABLE>
7. Composition of Net Assets
At February 29, 2000, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
Massachusetts
Connecticut Massachusetts Insured
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital paid-in $232,534,126 $93,676,687 $66,201,047
Balance of undistributed net investment income 46,195 117,293 66,974
Accumulated net realized gain (loss) from investment transactions (908,453) (831,567) (6,448)
Net unrealized appreciation (depreciation) of investments (1,807,100) (1,633,151) (333,800)
- - -------------------------------------------------------------------------------------------------------------------------------
Net assets $229,864,768 $91,329,262 $65,927,773
===============================================================================================================================
</TABLE>
32
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------- ---------------------------
Net
CONNECTICUT Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (7/87)**
2000 $10.90 $.53 $(.94) $(.41) $(.53) -- $(.53) $ 9.96 (3.84)%
1999 10.85 .53 .06 .59 (.54) -- (.54) 10.90 5.51
1998 10.51 .56 .34 .90 (.56) -- (.56) 10.85 8.75
1997 (d) 10.23 .42 .28 .70 (.42) -- (.42) 10.51 6.96
1996 (e) 10.38 .57 (.14) .43 (.58) -- (.58) 10.23 4.18
1995 (e) 10.17 .58 .22 .80 (.59) -- (.59) 10.38 8.21
Class B (2/97)
2000 10.88 .45 (.94) (.49) (.45) -- (.45) 9.94 (4.57)
1999 10.83 .46 .05 .51 (.46) -- (.46) 10.88 4.77
1998 10.51 .48 .32 .80 (.48) -- (.48) 10.83 7.76
1997 (f) 10.53 .04 (.02) .02 (.04) -- (.04) 10.51 .19
Class C (10/93)**
2000 10.88 .47 (.93) (.46) (.47) -- (.47) 9.95 (4.31)
1999 10.83 .48 .05 .53 (.48) -- (.48) 10.88 4.94
1998 10.49 .50 .34 .84 (.50) -- (.50) 10.83 8.17
1997 (d) 10.22 .38 .27 .65 (.38) -- (.38) 10.49 6.43
1996 (e) 10.36 .52 (.14) .38 (.52) -- (.52) 10.22 3.71
1995 (e) 10.16 .53 .20 .73 (.53) -- (.53) 10.36 7.53
Class R (2/97)
2000 10.93 .55 (.94) (.39) (.55) -- (.55) 9.99 (3.63)
1999 10.87 .56 .06 .62 (.56) -- (.56) 10.93 5.83
1998 10.51 .58 .36 .94 (.58) -- (.58) 10.87 9.17
1997 (f) 10.55 .01 (.05) (.04) -- -- -- 10.51 (.38)
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (7/87)*
2000 $196,416 .88% 5.09% .88% 5.09% .87% 5.10% 22%
1999 220,721 .89 4.89 .86 4.92 .86 4.92 7
1998 216,436 .85 5.15 .78 5.22 .78 5.22 12
1997 (d) 209,873 1.02* 5.18* .79* 5.41* .79* 5.41* 20
1996 (e) 202,219 1.03 5.23 .74 5.52 .74 5.52 24
1995 (e) 203,210 1.03 5.54 .73 5.84 .73 5.84 25
Class B (2/97)
2000 15,931 1.64 4.37 1.64 4.37 1.63 4.38 22
1999 11,223 1.64 4.14 1.61 4.17 1.61 4.17 7
1998 3,713 1.61 4.34 1.52 4.43 1.52 4.43 12
1997 (f) 102 1.59* 6.61* 1.12* 7.08* 1.12* 7.08* 20
Class C (10/93)*
2000 16,181 1.43 4.54 1.43 4.54 1.42 4.55 22
1999 16,198 1.44 4.34 1.41 4.37 1.41 4.37 7
1998 11,586 1.41 4.59 1.33 4.67 1.33 4.67 12
1997 (d) 7,087 1.57* 4.65* 1.34* 4.88* 1.34* 4.88* 20
1996 (e) 7,243 1.58 4.67 1.29 4.96 1.29 4.96 24
1995 (e) 5,536 1.58 4.97 1.28 5.27 1.28 5.27 25
Class R (2/97)
2000 1,337 .68 5.31 .68 5.31 .67 5.32 22
1999 979 .69 5.10 .66 5.13 .66 5.13 7
1998 590 .66 5.29 .57 5.38 .57 5.38 12
1997 (f) -- -- 10.97* -- 10.97* -- 10.97* 20
======================================================================================================
</TABLE>
* Annualized.
** Information included prior to the nine months ended February 28, 1997,
reflects the financial highlights of Flagship Connecticut Double Tax Exempt.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) For the nine months ended February 28.
(e) For the fiscal year ended May 31.
(f) From commencement of class operations as noted.
33
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------- ---------------------------
Net
MASSACHUSETTS Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.07 $.50 $(.82) $(.32) $(.49) $ -- $(.49) $ 9.26 (3.21)%
1999 10.08 .51 (.01) .50 (.51) -- (.51) 10.07 5.05
1998 9.89 .52 .19 .71 (.52) -- (.52) 10.08 7.38
1997 9.94 .53 (.07) .46 (.51) -- (.51) 9.89 4.73
1996 9.56 .51 .39 .90 (.52) -- (.52) 9.94 9.62
Class B (3/97)
2000 10.10 .43 (.83) (.40) (.42) -- (.42) 9.28 (4.02)
1999 10.10 .43 .01 .44 (.44) -- (.44) 10.10 4.40
1998 (d) 9.88 .45 .22 .67 (.45) -- (.45) 10.10 6.93
Class C (10/94)
2000 10.02 .44 (.82) (.38) (.44) -- (.44) 9.20 (3.87)
1999 10.02 .45 -- .45 (.45) -- (.45) 10.02 4.62
1998 9.83 .47 .19 .66 (.47) -- (.47) 10.02 6.85
1997 9.89 .45 (.08) .37 (.43) -- (.43) 9.83 3.90
1996 9.51 .44 .39 .83 (.45) -- (.45) 9.89 8.87
Class R (12/86)
2000 10.05 .52 (.82) (.30) (.51) -- (.51) 9.24 (3.03)
1999 10.05 .52 .01 .53 (.53) -- (.53) 10.05 5.36
1998 9.86 .54 .19 .73 (.54) -- (.54) 10.05 7.60
1997 9.91 .54 (.06) .48 (.53) -- (.53) 9.86 4.99
1996 9.54 .54 .38 .92 (.55) -- (.55) 9.91 9.80
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $16,814 .98% 5.15% .96% 5.17% .94% 5.19% 15%
1999 15,134 1.02 4.94 .95 5.01 .95 5.01 10
1998 9,291 1.00 5.20 .95 5.25 .95 5.25 17
1997 7,200 1.01 5.22 .99 5.24 .99 5.24 10
1996 4,290 1.17 5.04 1.00 5.21 1.00 5.21 6
Class B (3/97)
2000 3,730 1.73 4.40 1.71 4.42 1.69 4.44 15
1999 3,226 1.77 4.23 1.71 4.29 1.71 4.29 10
1998 (d) 763 1.77* 4.41* 1.70* 4.48* 1.70* 4.48* 17
Class C (10/94)
2000 4,730 1.53 4.60 1.51 4.62 1.49 4.64 15
1999 3,696 1.57 4.41 1.50 4.48 1.50 4.48 10
1998 1,924 1.55 4.64 1.50 4.69 1.50 4.69 17
1997 913 1.74 4.50 1.73 4.51 1.73 4.51 10
1996 638 2.24 3.96 1.75 4.45 1.75 4.45 6
Class R (12/86)
2000 66,055 .78 5.33 .76 5.35 .74 5.37 15
1999 75,750 .82 5.12 .75 5.19 .75 5.19 10
1998 72,934 .80 5.40 .75 5.45 .75 5.45 17
1997 72,912 .77 5.46 .75 5.48 .75 5.48 10
1996 76,773 .82 5.42 .75 5.49 .75 5.49 6
====================================================================================================
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
34
<PAGE>
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------- ---------------------------
Net
MASSACHUSETTS INSURED Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.59 $.50 $(.81) $(.31) $(.50) $(.01) $(.51) $ 9.77 (2.95)%
1999 10.57 .51 .02 .53 (.51) -- (.51) 10.59 5.09
1998 10.38 .52 .19 .71 (.52) -- (.52) 10.57 7.04
1997 10.49 .53 (.12) .41 (.52) -- (.52) 10.38 4.02
1996 10.06 .51 .44 .95 (.52) -- (.52) 10.49 9.59
Class B (3/97)
2000 10.59 .43 (.81) (.38) (.42) (.01) (.43) 9.78 (3.59)
1999 10.57 .43 .02 .45 (.43) -- (.43) 10.59 4.32
1998 (d) 10.36 .44 .21 .65 (.44) -- (.44) 10.57 6.45
Class C (9/94)
2000 10.56 .45 (.81) (.36) (.44) (.01) (.45) 9.75 (3.43)
1999 10.54 .45 .02 .47 (.45) -- (.45) 10.56 4.51
1998 10.35 .46 .19 .65 (.46) -- (.46) 10.54 6.45
1997 10.47 .45 (.13) .32 (.44) -- (.44) 10.35 3.17
1996 10.04 .43 .44 .87 (.44) -- (.44) 10.47 8.80
Class R (12/86)
2000 10.59 .52 (.80) (.28) (.52) (.01) (.53) 9.78 (2.68)
1999 10.57 .53 .01 .54 (.52) -- (.52) 10.59 5.26
1998 10.38 .54 .19 .73 (.54) -- (.54) 10.57 7.23
1997 10.50 .54 (.12) .42 (.54) -- (.54) 10.38 4.16
1996 10.06 .54 .44 .98 (.54) -- (.54) 10.50 9.99
=================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $11,984 1.02% 4.98% 1.02% 4.98% 1.00% 5.00% 10%
1999 11,208 1.01 4.77 1.01 4.77 1.01 4.77 11
1998 8,679 1.03 4.98 1.03 4.98 1.03 4.98 23
1997 7,459 1.04 5.02 1.04 5.02 1.04 5.02 10
1996 5,291 1.09 4.92 1.07 4.94 1.07 4.94 1
Class B (3/97)
2000 1,550 1.76 4.22 1.76 4.22 1.75 4.24 10
1999 1,650 1.75 4.03 1.75 4.03 1.75 4.03 11
1998 (d) 666 1.80* 4.20* 1.80* 4.20* 1.80* 4.20* 23
Class C (9/94)
2000 1,355 1.56 4.42 1.56 4.42 1.55 4.43 10
1999 1,675 1.56 4.22 1.56 4.22 1.56 4.22 11
1998 1,293 1.58 4.43 1.58 4.43 1.58 4.43 23
1997 957 1.78 4.29 1.78 4.29 1.78 4.29 10
1996 706 1.81 4.20 1.81 4.20 1.81 4.20 1
Class R (12/86)
2000 51,039 .82 5.17 .82 5.17 .80 5.19 10
1999 57,281 .81 4.97 .81 4.97 .81 4.97 11
1998 56,707 .83 5.18 .83 5.18 .83 5.18 23
1997 57,076 .80 5.26 .80 5.26 .80 5.26 10
1996 60,102 .81 5.21 .81 5.21 .81 5.21 1
======================================================================================================
</TABLE>
* Annualized.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
35
<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, Nuveen Massachusetts and Massachusetts Insured
Municipal Bond Funds) (a Massachusetts business trust), including
the portfolio of investments, as of February 29, 2000, and the
related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years 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 auditing standards
generally accepted in the United States. 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 29, 2000, by correspondence with
the custodian. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
net assets of each of the respective funds constituting the Nuveen
Flagship Multistate Trust II as of February 29, 2000, the results
of their operations for the year then ended, the changes in their
net assets for each of the two years then ended, and the financial
highlights for the periods indicated thereon in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 14, 2000
36
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
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
Chase Global Funds Services
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
37
<PAGE>
SERVING INVESTORS
FOR GENERATIONS
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, John Nuveen & Co. Incorporated has been synonymous with investments
that withstand the test of time. In fact, more than 1.3 million investors have
trusted Nuveen to help them build and sustain the wealth of a lifetime.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. We can help
you build a better, well-diversified portfolio.
Call Your Financial Adviser Today
To find out how the Nuveen Innovation Fund might round out your investment
portfolio, contact your financial adviser today. Or call Nuveen at (800)
257.8787 for more information. Ask your adviser or call for a prospectus which
details risks, fees and expenses. Please read the prospectus carefully before
you invest.
NUVEEN
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
ANNUAL REPORT February 29, 2000
NUVEEN
Investments
NUVEEN
MUNICIPAL BOND
FUNDS
New Jersey
[PHOTO APPEARS HERE]
New York
New York Insured
<PAGE>
Contents
1 Dear Shareholder
3 Nuveen Flagship New Jersey Municipal Bond Fund Portfolio Manager's
Perspective
6 Nuveen Flagship New Jersey Municipal Bond Fund Spotlight
7 Nuveen Flagship New York Municipal Bond Fund and Nuveen New York Insured
Municipal Bond Fund Portfolio Manager's Perspective
10 Nuveen Flagship New York Municipal Bond Fund Spotlight
11 Nuveen New York Insured Municipal Bond Fund Spotlight
12 Portfolio of Investments
31 Statement of Net Assets
32 Statement of Operations
33 Statement of Changes in Net Assets
35 Notes to Financial Statements
41 Financial Highlights
44 Report of Independent Public Accountants
45 Fund Information
<PAGE>
DEAR
Shareholder,
Setting financial goals is an important first step toward building wealth. At
Nuveen Investments, we believe those goals should not be considered ends in
themselves. Rather, you and your financial advisor's focus should be on
realizing your life's dreams -- the things that matter most to you and how you
can make them happen -- or make them better.
Through a well-crafted financial plan, you have the chance to shape future
generations -- to broaden your sphere of influence -- to leave your legacy.
As you develop that plan, you'll want to consider the different ways your
success can benefit others. You may find that you want to create a new set of
goals to achieve this. Working with your financial advisor, you have the ability
to make those dreams a reality -- for yourself and future generations.
A Trusted Resource As you face some of the most important, lasting decisions
you and your family will make, you'll want to draw upon the support, counsel and
objectivity of a trusted advisor. That's because your financial advisor has the
expertise and access to other professionals who can help you make informed
choices -- choices that affect not only your loved ones today, but those your
legacy will touch in the future.
Your financial advisor can provide sound financial insight, an integrated
approach to your investments and can serve as a knowledgeable friend with your
family's best interest at heart.
Family Wealth Management Too often, family wealth management is thought of in
one dimension -- as the stewardship of your household's financial resources. At
Nuveen Investments, we think of family wealth management as the map to help you
reach your financial, and your life's, destinations. It's a multi-faceted
strategy to plan for not just your needs, but the needs of future generations.
We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values.
The Economic Environment You may be reading this report at the suggestion of
your financial advisor. We've prepared the following interview to let you know
what the investment and research management teams have done during your fund's
fiscal period. Before we get to that, I want to briefly report on the economic
environment in which your Nuveen investment performed.
The end of your fund's fiscal period, February 29, 2000, was an important
day in our nation's economic life. It marked the 107th month of continued
economic expansion, the longest period of expansion in history. The only period
to rival that length was the 106-month expansion from February 1961 to December
1969, a period known best for its military conflicts, domestic unrest and
soaring inflation.
That was then; this is now.
[PHOTO OF TIMOTHY R. SCHWERTFEGER APPEARS HERE]
Timothy R. Schwertfeger
Chairman of the Board
"We are dedicated to helping you and your financial advisor develop a family
wealth management strategy unique to you and your goals and values."
Timothy R. Schwertfeger
Chairman of the Board
ANNUAL REPORT page 1
<PAGE>
"There's still faith in the emerging paradigm, which holds that improvements in
productivity enable us to have both economic growth and low inflation at the
same time."
The vigilant inflationary watch of Federal Reserve Chairman Alan Greenspan,
the growth of the Internet and other technology related developments and the
globalization of the economy are three reasons for continued economic health.
In their battle to keep inflation at bay, Greenspan's Fed raised interest
rates on February 2, 2000 and again on March 21, 2000. The latest increase
marked the fifth time the Fed has raised the federal funds rate -- the interest
that banks charge each other on overnight loans -- since June 1999.
Municipal bonds continued to serve investors well in our opinion. At the
end of February 2000, the ratio between long-term municipal bond yields and
30-year Treasury yields stood at 102%. For investors, this meant that quality
long-term municipal bonds offered yields above those of long-term Treasury
bonds --even before the tax advantages of municipals were taken into account. Of
course, Treasuries are backed by the full faith and credit of the U.S.
government. Even so, on an after-tax basis, municipal bonds continued to present
an exceptionally attractive investment option relative to Treasuries.
Over the short term, the inflation threat has meant increased price
fluctuations in the equity markets. Part of that is due to the fact that
investors and the various markets have been watching -- and reacting to -- every
announcement concerning economic statistics.
Longer term, we believe there's still faith in the emerging paradigm, which
holds that improvements in productivity enable us to have both economic growth
and low inflation at the same time. The 1960's 106-month expansion that I noted
earlier was fueled by government spending. Today's economy has been fueled by
consumer spending and improved productivity.
What Can You Do? We believe the potential presence of inflation and price swings
in the markets reinforce the importance of working with an advisor, staying
focused on the long term and adhering to your financial plan. With a sound plan
in place, you may be better positioned to weather the markets' ups and downs. As
you pursue your life's dreams, your financial advisor can serve as a valuable
resource in helping you keep market events in perspective while you focus on
your overall financial plan.
For more information on any Nuveen investment, including a prospectus,
contact your financial advisor. Or call Nuveen at (800) 621-7227 or visit our
Internet site at www.nuveen.com. Please read the prospectus carefully before you
invest or send money.
Since 1898, Nuveen has been synonymous with investments that stand the test
of time. We are committed to maintaining that reputation and working with
financial advisors to provide investment solutions that help individuals achieve
their lives dreams. Thank you for your continued confidence.
Sincerely,
/s/ Timothy R. Schwertfeger
Timothy R. Schwertfeger
Chairman of the Board
April 14, 2000
ANNUAL REPORT page 2
<PAGE>
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
- - --------------------------------------------------------------------------------
Nuveen Flagship New Jersey Municipal Bond Fund features portfolio management by
Nuveen Investment Advisory Services, a team of portfolio managers and research
analysts committed to a disciplined, research-oriented investment strategy. To
help you understand the fund's performance for the fiscal year ended February
29, 2000, we spoke with Portfolio Manager Tom Futrell of Nuveen Advisory Corp.
Q Throughout Nuveen Flagship New Jersey Municipal Bond Fund's fiscal year,
which ended February 29, 2000, the nation as a whole continued the ongoing trend
of strong economic growth. How did the New Jersey economy perform compared to
that of the rest of the nation?
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
Bond Credit Quality
[PIE CHART APPEARS HERE]
AAA/U.S. Guaranteed..63%
AA...................11%
A.....................8%
BBB/NR...............15%
Other.................3%
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
TOM The New Jersey economy also remained very strong, with an unemployment rate
of 4.1%, the same as the national average. New Jersey unemployment dipped to its
lowest levels since 1989, according to the state's labor department. State
employment increased across all sectors in 1999 except manufacturing.
Strong commercial building continued to drive an expanded real estate market.
The state has also recently approved a major tax break in an attempt to lure
financial service firms from New York City to Jersey City.
The state's bond ratings (AA+/Aa1) were affirmed by Standard and Poor's and
Moody's Investors Service, reflecting overall credit strength.
Q Given the difficult market, was municipal bond supply in New Jersey down over
the period?
TOM Actually, for the fund's fiscal year, issuance in New Jersey was up over the
prior year by 9.5%, compared to national issuance which was down 35%. The state
moved up in the national issuance ranking to the number five spot as of February
29, 2000, up from its number seven ranking during 1999. Issuance slowed down in
the last six months of the fiscal year, however, declining by 12.1% compared to
the first six months.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's income-oriented funds feature portfolio management by Nuveen Investment
Advisory Services (NIAS). NIAS follows a disciplined, research-driven investment
approach to uncover income securities that combine exceptional relative value
with above-average return potential. Drawing on 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive
research
. An active, value-oriented investment
style
. The unmatched presence of trading
leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors,
and is a key investment strategy for Nuveen Flagship New Jersey Municipal Bond
Fund.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the one-year period ended February 29, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
ANNUAL REPORT page 3
<PAGE>
"It is especially during a market like this, where choices are limited, that
Nuveen's active management, experienced research department and important
relationships with national and state dealers may offer a distinct advantage."
Q The Federal Reserve (the Fed) began its expected series of moves to raise
interest rates to try to cool off the economy, which cooled off bond markets in
the process. How did the fund perform in this environment?
TOM Although this market presented us with some long-term fund positioning
opportunities, for the fiscal year period, which ended February 29, 2000, the
Nuveen Flagship New Jersey Municipal Bond Fund reported a total return of -3.67%
for Class A shares on net asset value. Even so, the fund bested the Lipper New
Jersey Municipal Debt peer group average, which reported a 4.67% loss for the
same one-year period.
For the five-year period ended February 29, 2000, the fund had a 4.80%
gain, compared to the 4.52% gain for the Lipper peer group for the same period.*
As of February 29, 2000, the fund's SEC 30-day yield was 5.07%. For
investors in the combined 35.5% federal and state income tax bracket, that is
equivalent to a yield of 7.86% on a taxable investment.**
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
Top Five Sectors
Tax Obligation (Limited) 20%
- - -------------------------------------
Transportation 15%
- - -------------------------------------
Healthcare 10%
- - -------------------------------------
Long-Term Care 9%
- - -------------------------------------
Tax Obligation (General) 9%
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
Q Which sectors in particular were noteworthy? Can you give us some specific
examples of holdings in those sectors?
TOM In the healthcare sector, there were some lingering concerns regarding the
state bailout of two HMOs that failed during 1999 and owe $100 million in unpaid
bills to doctors and hospitals. The latest bailout proposal calls for the state
of New Jersey and other state HMOs to share the cost burden. About 10 percent of
the fund's portfolio was invested in the healthcare sector as of the period end,
and we have no plans to increase this exposure in the near future.
On a more positive note, the housing sector was very attractive since bonds
in this sector offered additional incremental yield at reasonable prices
compared to other bonds. Our research led us to a multifamily housing issue
through New Jersey Housing and Mortgage Finance. Insured by the FSA and well
run, in our opinion, we were pleased with the level of security and attractive
yield of 6.35%.
Q During periods of scarce supply and rising interest rates, how do you find
attractive buys when other investors are facing the same challenge?
TOM It is especially during a market like this, where choices are limited, that
Nuveen's active management, experienced research department and important
relationships with national and state dealers may offer a distinct advantage.
This combination allows us the opportunity to not only identify the attractive
deals that may be lesser known to other investors, but also to negotiate
structure and be among the first to participate in more widely known issues.
We participated in a unique issue through the Delaware River Port
Authority, which operates bridges and a rapid transit system that spans two
states - New Jersey and Pennsylvania. The dual state income tax exemption made
this a very attractive issue in the secondary market, and liquidity was further
bolstered by bond insurance from FSA.
* The Lipper Peer Group returns represent the average annualized total return
of the 59 funds in the Lipper New Jersey Municipal Debt Funds category for
the one-year period ended February 29, 2000, and 41 funds for the five-year
period. The returns assume reinvestment of dividends and do not reflect any
applicable sales charges.
** Taxable equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen Fund on an after-tax basis. The
taxable-equivalent yield shown is based on the 30-day SEC yield and a
combined federal and state income tax rate of 35.5%.
ANNUAL REPORT page 4
<PAGE>
Q You mentioned earlier that there were some opportunities for long-term
positioning of the funds during the period. What was involved in that
positioning?
TOM Amid rising interest rates, we were able to pursue our goal of improving
fund yields. Several of the purchases I mentioned earlier definitely contributed
to that goal, as we sold bonds with lower coupons to reinvest at higher rates.
We also improved the call structure in the portfolios. Good call structure
is important to a fund's total return. Extending the call protection helps
reduce exposure to prepayment and therefore the risk of reinvesting in what may
be an uncertain market. In the rising rate market, we sold our smaller positions
with unfavorable call structure. We generated a tax loss on the sales, which
allows us to offset future realized capital gains, then we reinvested in bonds
with what we believe to be better call structure.
Here is another example where active management offers advantages. We
search constantly for issues offering good structure, and the fund offers
investors constant liquidity and diversification.
Q What is your outlook for the New Jersey market and the fund for the coming
months?
TOM We expect the New Jersey economy to continue to be strong. After the large
anticipated New Jersey Turnpike new issue comes to market, municipal bond
issuance may level off or decrease with more Fed interest rate hikes a near
certainty, in our opinion. As we move forward, the fund plans to continue to
focus its efforts on finding bonds in the lower investment grade credit sector
that offer positive credit and structural characteristics, in an effort to
improve overall portfolio income and total return prospects.
"Extending the call protection helps reduce exposure to prepayment and therefore
the risk of reinvesting in what may be an uncertain market."
ANNUAL REPORT page 5
<PAGE>
NUVEEN FLAGSHIP NEW JERSEY MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income investment
portfolio. The longer the duration, the greater a portfolio's sensitivity to
changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by subtracting
the fund's liabilities from its assets and dividing by the number of shares
outstanding.
SEC Yield A standardized calculation that the Securities and Exchange Commission
requires mutual funds to use when advertising rates of income return. This
standardized rate ensures that investors are comparing "apples to apples" when
comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security to
pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
The Nuveen New Jersey Municipal Bond Fund's monthly dividend was reduced
slightly during the period. The amount differed based on share class. Please see
Quick Facts for the latest divided paid.
<TABLE>
<CAPTION>
Quick Facts
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 9.73 $ 9.72 $ 9.70 $ 9.73
- - -------------------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0395 $0.0330 $0.0350 $0.0410
- - -------------------------------------------------------------------------------------------------------
Fund Symbol NNJAX N/A NNJCX NMNJX
- - -------------------------------------------------------------------------------------------------------
CUSIP 67065N753 67065N746 67065N738 67065N720
- - -------------------------------------------------------------------------------------------------------
Inception Date 9/94 2/97 9/94 12/91
- - -------------------------------------------------------------------------------------------------------
* Paid March 1, 2000
Total Returns (Annualized)+
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
1-Year -3.67% -7.68% -4.51% -8.17% -4.29% -3.47%
- - -------------------------------------------------------------------------------------------------------
1-Year TER* -1.08% -5.20% -2.34% -6.00% -1.99% -0.76%
- - -------------------------------------------------------------------------------------------------------
5-Year 4.80% 3.91% 4.01% 3.84% 4.14% 5.01%
- - -------------------------------------------------------------------------------------------------------
5-Year TER* 7.65% 6.74% 6.44% 6.29% 6.65% 7.99%
- - -------------------------------------------------------------------------------------------------------
Since Inception 5.56% 5.00% 4.81% 4.81% 4.86% 5.81%
- - -------------------------------------------------------------------------------------------------------
Since Inception TER* 8.36% 7.78% 7.20% 7.20% 7.30% 8.74%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 35.5%.)
<TABLE>
<CAPTION>
Tax-Free Yields
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 5.07% 4.86% 4.33% 4.53% 5.27%
- - --------------------------------------------------------------------------------------
Taxable
Equivalent Yield 7.86% 7.53% 6.71% 7.02% 8.17%
</TABLE>
Index Comparison
<TABLE>
<CAPTION>
[MOUNTAIN CHART APPEARS HERE]
NUVEEN NUVEEN
FLAGSHIP FLAGSHIP
LEHMAN NEW JERSEY NEW JERSEY
BROTHERS MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
BOND INDEX (NAV) (OFFER)
<S> <C> <C> <C>
2/92 $10,000 $10,000 $ 9,580
2/93 $11,376 $11,268 $10,795
2/94 $12,005 $12,035 $11,530
2/95 $12,232 $12,198 $11,685
2/96 $13,583 $13,332 $12,772
2/97 $14,454 $13,979 $13,392
2/98 $15,776 $15,245 $14,605
2/99 $16,746 $16,008 $15,335
2/00 $16,395 $15,420 $14,772
</TABLE>
- - --Nuveen Flahship New Jersey Municipal Bond Fund (Offer) $14,773
- - --Nuveen Flagship New Jersey Municipal Bond Fund (NAV) $15,420
- - --Lehman Brothers Municipal Bond Index $16,395
Portfolio Statistics
Total Net Assets $110.0 million
- - -------------------------------------
Average Effective
Maturity 18.44 years
- - -------------------------------------
Average Duration 9.23
- - -------------------------------------
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 Class 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 difference in expenses, which are
primarily differences in distribution and service fees.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
ANNUAL REPORT page 6
* Paid March 1, 2000
<PAGE>
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND
From the Portfolio Manager's Perspective
Nuveen Flagship New York Municipal Bond Fund and Nuveen New York Insured
Municipal Bond Fund feature portfolio management by Nuveen Investment Advisory
Services, a team of portfolio managers and research analysts committed to a
disciplined, research-oriented investment strategy. To help you understand the
fund's performance for the fiscal year ended February 29, 2000, we spoke with
Portfolio Manager Paul Brennan of Nuveen Advisory Corp.
Q During the funds' fiscal year ended February 29, 2000, we saw the national
economy continue its unprecedented trend of expansion, while inflation and
unemployment remained low. Did New York's economy perform consistently with the
U.S.?
PAUL The New York economy was also strong, although unemployment in the state
was at 4.9% as of January 31, 2000 (the most recent figure available at this
time), higher than the national average of 4%. It was a disjointed economy,
since the ongoing bull market in stocks fueled New York City to a
disproportionately robust level compared to upstate.
The state's debt was upgraded to A+ during the year, reflecting its
increasing credit strength. Supplies of cash abound; in fact, New York City
recently postponed a major debt issue because of positive budget variances.
New issuance was down by 14% for the year, due in part to rising interest
rates, a delay in approval of the state's annual budget and the state's healthy
cash flow. Further, a 40% decline in the supply occurred over January and
February 2000 versus the prior two months.
Q As expected, the Federal Reserve (the Fed) raised interest rates several
times over the year to try to cool off the economy. This is typically a
challenging market for municipal bonds. How did you manage the fund in such an
environment?
PAUL Actually, we saw more opportunities in this market than we have seen in
markets characterized by declining interest rates. These opportunities
manifested themselves in tactics we could take to try to favorably position the
portfolio for the long term.
For one, yields were much more attractive than at the beginning of 1999, so
over the period we sold out some of the funds' positions in lower-yielding
securities and reinvested at higher yields. That helped position the funds to
strengthen their dividend-paying capabilities over the long run.
At the same time, we helped improve the funds' tax efficiency. Selling
certain high cost positions generated a tax loss, which we can use to help
offset current or future realized capital gains.
The market also presented an excellent opportunity to improve the call
structure in the funds. Favorable call protection reduces exposure to untimely
calls during periods of falling interest rates. In the rising-rate environment
when calls were not as much of a risk, call protection was undervalued. We
restructured the portfolios with new positions carrying what we believed to be
very favorable protection. Thinking long-term helped us prepare the funds for a
future time when they may benefit from call protection.
Nuveen is dedicated to providing investors access to a team of highly
experienced investment managers, each overseeing portfolios within their
specific areas of expertise. Nuveen has chosen them for their rigorously
disciplined investment approaches and their consistent long-term performance.
Drawing on decades of experience and specialized knowledge, these skilled asset
managers have earned reputations for excellence in their fields of expertise,
whether it is blue-chip growth stocks, large-cap value stocks, bonds or
international securities.
Nuveen's income-oriented funds feature portfolio management by Nuveen Investment
Advisory Services (NIAS). NIAS follows a disciplined, research-driven investment
approach to uncover income securities that combine exceptional relative value
with above-average return potential. Drawing on 300 combined years of investment
experience, the Nuveen team of portfolio managers and research analysts offers:
. A commitment to exhaustive research
. An active, value-oriented investment style
. The unmatched presence of trading leverage of a market leader.
This disciplined, research-oriented approach has paid off for investors, and is
a key investment strategy for Nuveen Flagship New York and
Nuveen New York Insured Municipal Bond Funds.
Performance figures are quoted for Class A shares at net asset value. Comments
cover the one-year period ended February 29, 2000. The views expressed reflect
those of the portfolio management team and are subject to change at any time,
based on market and other conditions.
ANNUAL REPORT page 7
<PAGE>
"We are equipped to identify what we believe are the attractive deals in the
market that may be lesser-known to other investors, and many times we can
negotiate the structure of an entire issue based on our size and market
presence."
Q How did the fund perform during the fiscal year ended February 29, 2000?
PAUL Although the Nuveen Flagship New York Municipal Bond Fund reported a total
return of -2.44% for the year on Class A shares at net asset value, it compared
quite favorably to the Lipper New York Municipal Debt peer group average, which
reported a 4.72% loss for the same one-year period. Over the five-year period,
the fund reported a 5.63% gain, compared to the 4.60% gain for the Lipper peer
group for the same period.*
As of February 29, 2000, the fund's SEC 30-day yield was 6.35%. For investors
in the combined 35.5% federal and state income tax bracket, that is equivalent
to a yield of 9.84% on a taxable investment.**
Nuveen New York Insured Municipal Bond Fund had a total return of -2.50% over
the one-year period, compared to the Lipper New York Insured Municipal Debt peer
group average return of -3.04%. The five-year period showed a 4.78% gain for the
fund and a 4.66% gain for the Lipper peer group.*
As of February 29, 2000, the Nuveen New York Insured Municipal Bond Fund's
SEC 30-day yield was 4.58%, which is equivalent to a 7.10% yield on a taxable
investment for investors in the combined 35.5% federal and state income tax
bracket.**
Q Competition to find attractive issues during periods of scarce supply and
rising interest rates must be difficult. How did you find the municipal bond
deals in this competitive market?
PAUL Having an experienced research team and relationships with national and
state dealers are key. We are equipped to identify what we believe are the
attractive deals in the market that may be lesser-known to other investors, and
many times we can negotiate the structure of an entire issue based on our size
and market presence.
An excellent example of this advantage was our participation in the initial
offering of what is commonly called tobacco bonds. The first issue of this type
was issued by New York City, through the Tobacco Settlement Asset Securitization
Corporation (TSASC), an instrumentality of New York City. The bonds in this
issue are backed by payments from tobacco companies as part of a master
settlement agreement among the attorney generals of 46 states and virtually all
the tobacco companies. Proceeds from the Aa-rated TSASC bonds are being used to
fund renovations in city schools.
Nuveen's institutional presence in New York prompted officials from New York
City to visit Nuveen prior to issuance to discuss the terms of the transaction
as well as solicit our feedback. This gave us a valuable opportunity to
thoroughly review the complex structure of the TSASC bonds, as well as to
provide insight on how the structure of the issue could be improved before the
deal actually came to market.
JIM Were there any particular sectors or purchases that were significant for
either of the funds over the fiscal year?
PAUL Our focus during the year was more on security selection as opposed to
sector selection. One purchase that offered a very attractive yield was an
issuance by Tonawonda Housing Authority on behalf of the Kibler Senior Housing
Project. This issue funded the conversion of a school into a senior housing
complex. Before investing in the project, Nuveen negotiated directly with the
borrowers to craft an appropriate security structure and purchased the entire
issue.
The healthcare sector has had ongoing struggles in the wake of the federal
Medicare reimbursement cuts a few years ago, but healthcare exposure in the
funds was light so there wasn't much of an effect. For the healthcare holdings
that are insured there was less concern.
* For the Nuveen Flagship New York Municipal Bond Fund, the Lipper Peer Group
returns represent the average annualized total return of the 102 funds in the
Lipper New York Municipal Bond Debt Funds category for the one-year period
ended February 29, 2000, and 77 funds for the five-year period. For the Nuveen
New York Insured Municipal Bond Fund the Lipper Peer Group returns represent
the 10 funds in the Lipper New York Insured Municipal Debt Funds category for
the one-year period and 8 funds in the category for the five-year period. The
returns assume reinvestment of dividends and do not reflect any applicable
sales charges.
** Taxable-equivalent yield represents the yield on a taxable investment
necessary to equal the yield of the Nuveen fund on an after-tax basis. The
taxable-equivalent yield shown is based on the 30-day SEC yield and combined
federal and state income tax rate of 35.5%.
ANNUAL REPORT page 8
<PAGE>
One interesting characteristic of this market was the prevalence of bond
buybacks. Again, Nuveen's presence in the market came in handy because as
bondholders we could participate in these tender offers to submit large blocks
of bonds for buyback, and essentially exert influence on the sale price.
Consequently, we were able to sell some bonds at above market prices.
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
Bond Credit Quality
[PIE CHART APPEARS HERE}
AAA/U.S. Guaranteed.....37%
AA......................12%
A.......................33%
BBB/NR..................18%
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
Long Island Power Authority (LIPA) initiated one such bond buyback. In an
effort to reduce debt service costs, the LIPA offered to buy back approximately
$150 million of bonds from bondholders. Nuveen was successful in selling certain
holdings back to LIPA at above market prices, which helped enhance both funds'
return.
We received early indications of another possible buyback of certain New
York City Metropolitan Transit Authority (MTA) bonds in a situation similar to
the LIPA buyback. MTA is proposing major debt restructuring, which could result
in bond refundings or buybacks. As of February 29, 2000, we are holding onto
these bonds in anticipation of another opportunity to tender bonds. Where
opportunities exist, we also plan to increase the funds' holdings of LIPA and/or
MTA debt.
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
Top Five Sectors
Tax Obligation (Limited) 21%
- - -----------------------------------------
U.S. Guaranteed 15%
- - -----------------------------------------
Education and Civic Organizations 12%
- - -----------------------------------------
Utilities 11%
- - -----------------------------------------
Healthcare 10%
- - -----------------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND
Top Five Sectors
U.S. Guaranteed 23%
- - -----------------------------------------
Healthcare 15%
- - -----------------------------------------
Tax Obligation (Limited) 14%
- - -----------------------------------------
Education and Civic Organizations 10%
- - -----------------------------------------
Housing (Multifamily) 9%
- - -----------------------------------------
As a percentage of total bond holdings as of February 29, 2000. Holdings are
subject to change.
Q What is your outlook for the funds going into the next fiscal year?
PAUL We expect overall strength in New York to continue in line with that of
the nation. Concern about an end to the long-running bull market in stocks puts
New York City's economy in a somewhat vulnerable position. On the other hand, a
bear market in stocks could have a positive effect on bond prices.
In this high tax state and in the current market, we think municipal bonds
currently offer an attractive level of income exempt from federal and local
income taxes, and we will continue to pursue our goal to maintain a competitive
and stable dividend.
Annual Report page 9
<PAGE>
NUVEEN FLAGSHIP NEW YORK MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
Terms To Know
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income
investment or portfolio. The longer the duration, the greater a portfolio's
sensitivity to changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by
subtracting the fund's liabilities from its assets and dividing by the number of
shares outstanding.
SEC Yield A standardized calculation that the Securities and Exchange
Commission requires mutual funds to use when advertising rates of income return.
This standardized rate ensures that investors are comparing "apples to apples"
when comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security
to pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
The Nuveen New York Municipal Bond Fund's monthly dividend's rose during the
fiscal period. The amount differed based on share class. Please see Quick Facts
for latest dividend paid.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Quick Facts
- - ------------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 10.17 $ 10.18 $10.20 $ 10.20
- - ------------------------------------------------------------------------------------------
February's Declared Dividend* $0.0500 $0.0435 $0.0455 $0.0520
- - ------------------------------------------------------------------------------------------
Fund Symbol NNYAX NNYBX NNYCX NTNYX
- - ------------------------------------------------------------------------------------------
CUSIP 67065N670 67065N662 67065N654 67065N647
- - ------------------------------------------------------------------------------------------
Inception Date 9/94 2/97 9/94 12/86
- - ------------------------------------------------------------------------------------------
</TABLE>
* Paid March 1, 2000
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------
Total Returns (Annualized)+
- - ------------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -2.44% -6.51% -3.18% -6.87% -2.97% -2.21%
- - ------------------------------------------------------------------------------------------
1-Year TER* 0.48% -3.71% -0.69% -4.38% -0.36% 0.82%
- - ------------------------------------------------------------------------------------------
5-Year 5.63% 4.74% 4.86% 4.70% 5.05% 5.86%
- - ------------------------------------------------------------------------------------------
5-Year TER* 8.60% 7.68% 7.41% 7.25% 7.66% 8.96%
- - ------------------------------------------------------------------------------------------
10-Year 6.74% 6.28% 6.17% 6.17% 6.06% 7.02%
- - ------------------------------------------------------------------------------------------
10-Year TER* 9.86% 9.39% 8.97% 8.97% 8.79% 10.27%
- - ------------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 35.5%.)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Tax-Free Yields
- - --------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 6.35% 6.09% 5.61% 5.81% 6.56%
- - --------------------------------------------------------------------------------
Taxable Equivalent Yield 9.84% 9.44% 8.70% 9.01% 10.17%
- - --------------------------------------------------------------------------------
</TABLE>
Index Comparison
[MOUNTAIN CHART APPEARS HERE]
NUVEEN NUVEEN
FLAGSHIP FLAGSHIP
LEHMAN NEW YORK NEW YORK
BROTHERS MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
BOND INDEX (NAV) (OFFER)
2/90 $10,000 $10,000 $ 9,580
2/91 $10,922 $10,656 $10,208
2/92 $12,013 $11,905 $11,405
2/93 $13,667 $13,632 $13,060
2/94 $14,422 $14,565 $13,953
2/95 $14,695 $14,594 $13,981
2/96 $16,318 $16,128 $15,451
2/97 $17,364 $16,947 $16,236
2/98 $18,953 $18,616 $17,834
2/99 $20,118 $19,675 $18,848
2/00 $19,696 $19,194 $18,388
- - --Nuveen Flahship New York Municipal Bond Fund (Offer) $18,388
- - --Nuveen Flagship New York Municipal Bond Fund (NAV) $19,194
- - --Lehman Brothers Municipal Bond Index $19,696
- - -----------------------------
Morningstar Rating(TM)++
- - -----------------------------
****
Overall rating among 1,678
municipal bond funds as
of 2/29/00
- - -----------------------------------------
Portfolio Statistics
- - -----------------------------------------
Total Net Assets $250.3 million
- - -----------------------------------------
Average Effective
Maturity 18.71 years
- - -----------------------------------------
Average Duration 8.35
- - -----------------------------------------
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 Class 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 difference in expenses, which are
primarily differences in distribution and service fees.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
++ The Morningstar rating is an overall rating for the municipal bond category
and relates to Class A shares only; other classes may vary. Morningstar
proprietary ratings reflect historical risk-adjusted performance as of
2/29/00 and are subject to change every month. Past performance is no
guarantee of future results. Ratings are calculated from the fund's three-,
five-, and 10-year average annual returns (if applicable) in excess of 90-day
Treasury bill returns, with appropriate fee adjustments, and a risk factor
that reflects fund performance below 90-day T-bill returns. Class A shares of
the fund received four stars for the three- and five-year periods. The top
10% of the funds in a broad asset class receive five stars and the next 22.5%
receive four stars. The fund was rated among 1,678 and 1,365 funds for the
three- and five-year periods, respectively.
ANNUAL REPORT page 10
<PAGE>
NUVEEN NEW YORK INSURED MUNICIPAL BOND FUND
Fund Spotlight as of February 29, 2000
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
Quick Facts
- - ----------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
<S> <C> <C> <C> <C>
NAV $ 9.95 $ 9.96 $ 9.94 $ 9.95
- - ----------------------------------------------------------------------------------------
February's Declared Dividend* $0.0425 $0.0360 $0.0375 $0.0440
- - ----------------------------------------------------------------------------------------
Fund Symbol NNYIX NNIMX NNYKX NINYX
- - ----------------------------------------------------------------------------------------
CUSIP 67065N639 67065N621 67065N613 67065N597
- - ----------------------------------------------------------------------------------------
Inception Date 9/94 2/97 9/94 12/86
- - ----------------------------------------------------------------------------------------
</TABLE>
* Paid March 1, 2000
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
Total Returns (Annualized)+
- - ----------------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV w/CDSC NAV NAV
<S> <C> <C> <C> <C> <C> <C>
1-Year -2.50% -6.60% -3.26% -6.97% -3.17% -2.43%
- - ----------------------------------------------------------------------------------------
1-Year TER* 0.17% -4.03% -1.01% -4.72% -0.81% 0.34%
- - ----------------------------------------------------------------------------------------
5-Year 4.78% 3.90% 4.01% 3.85% 4.17% 5.00%
- - ----------------------------------------------------------------------------------------
5-Year TER* 7.57% 6.66% 6.37% 6.22% 6.59% 7.90%
- - ----------------------------------------------------------------------------------------
10-Year 6.31% 5.85% 5.71% 5.71% 5.59% 6.55%
- - ----------------------------------------------------------------------------------------
10-Year TER* 9.25% 8.78% 8.33% 8.33% 8.16% 9.63%
- - ----------------------------------------------------------------------------------------
</TABLE>
+ 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. Class C shares
have a 1% CDSC for redemptions within one year, which is not reflected in the
one-year total returns.
* Taxable Equivalent Return (Based on a combined federal and state income tax
rate of 35.5%.)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
Tax-Free Yields
- - --------------------------------------------------------------------------------
A Shares B Shares C Shares R Shares
NAV Offer NAV NAV NAV
<S> <C> <C> <C> <C> <C>
SEC 30-Day Yield 4.58% 4.39% 3.84% 4.04% 4.79%
- - --------------------------------------------------------------------------------
Taxable Equivalent Yield 7.10% 6.81% 5.95% 6.26% 7.43%
- - --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- - ----------------------------------------------------
Index Comparison
- - ----------------------------------------------------
[MOUNTAIN CHART APPEARS HERE]
NUVEEN NUVEEN
NEW YORK NEW YORK
LEHMAN INSURED INSURED
BROTHERS MUNICIPAL MUNICIPAL
MUNICIPAL BOND FUND BOND FUND
BOND INDEX (NAV) (OFFER)
<S> <C> <C> <C>
2/90 $10,000 $10,000 $ 9,580
2/91 $10,922 $10,733 $10,282
2/92 $12,013 $11,954 $11,452
2/93 $13,667 $13,709 $13,133
2/94 $14,422 $14,438 $13,832
2/95 $14,695 $14,592 $13,979
2/96 $16,318 $16,078 $15,403
2/97 $17,364 $16,724 $16,022
2/98 $18,953 $18,021 $17,264
2/99 $20,118 $18,906 $18,112
2/00 $19,696 $18,433 $17,659
</TABLE>
- - --Nuveen New York Insured Municipal Bond Fund (Offer) $17,659
- - --Nuveen New York Insured Municipal Bond Fund (NAV) $18,433
- - --Lehman Brothers Municipal Bond Index $19,696
- - -----------------------------------------
Portfolio Statistics
- - -----------------------------------------
Total Net Assets $335.4 million
- - -----------------------------------------
Average Effective
Maturity 16.74 years
- - -----------------------------------------
Average Duration 7.36
- - -----------------------------------------
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 Class 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 difference in expenses, which are
primarily differences in distribution and service fees.
Returns are historical and do not guarantee future performance. Investment
returns and principal value will fluctuate so that when shares are redeemed,
they may be worth more or less than their original cost. Performance of classes
will differ. For additional information, please see the fund prospectus.
- - --------------------------------------------------------------------------------
Terms To Know
- - --------------------------------------------------------------------------------
The following are a few terms used throughout this report.
Duration A measure of the interest rate sensitivity of a fixed-income
investment or portfolio. The longer the duration, the greater a portfolio's
sensitivity to changes in interest rates.
Net Asset Value (NAV) The per-share value of a mutual fund, found by
subtracting the fund's liabilities from its assets and dividing by the number of
shares outstanding.
SEC Yield A standardized calculation that the Securities and Exchange
Commission requires mutual funds to use when advertising rates of income return.
This standardized rate ensures that investors are comparing "apples to apples"
when comparing advertisements from different mutual fund companies.
Taxable Equivalent Yield The yield that would have to be earned on a security
to pay as much, after tax, as what is earned from a tax-exempt bond.
Yield A fund's yield is a measure of the net investment income per share earned
over a specific one-month or 30-day period expressed as a percentage of the
maximum offering price of the fund shares at the end of the period.
ANNUAL REPORT page 11
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic Materials - 0.2%
$ 250 New Jersey Economic Development Authority, Solid Waste Disposal 4/02 at 102 Aa1 $ 263,708
Facility Revenue Bonds (Garden State Paper Company, Inc. Project),
Series 1992, 7.125%, 4/01/22 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 5.2%
960 New Jersey Economic Development Authority, Economic Development Bonds No Opt. Call N/R 1,059,869
(Yeshiva Ktana of Passaic - 1992 Project), 8.000%, 9/15/18
420 New Jersey Economic Development Authority, Insured Revenue Bonds No Opt. Call AAA 429,013
(Educational Testing Service Issue), Series 1995B, 5.500%, 5/15/05
2,230 New Jersey Economic Development Authority, School Revenue Bonds 2/08 at 101 N/R 1,974,576
(Gill/St. Bernard School), Series 1998, 6.000%, 2/01/25
805 New Jersey Educational Facilities Authority, Trenton State College 7/00 at 100 A+ 806,570
Issue Revenue Bonds, Series 1976D, 6.750%, 7/01/08
140 New Jersey Educational Facilities Authority, Seton Hall University 7/01 at 102 A- 146,322
Project Revenue Bonds, 1991 Series, Project D, 6.600%, 7/01/02
410 New Jersey Educational Facilities Authority, Revenue Refunding Bonds 7/03 at 102 BBB 397,261
(Monmouth College), Series 1993-A, 5.625%, 7/01/13
835 New Jersey Educational Facilities Authority, Princeton University 7/04 at 100 AAA 853,161
Revenue Bonds, 1994 Series A, 5.875%, 7/01/11
75 Higher Education Assistance Authority (State of New Jersey), Student 7/02 at 102 A+ 76,091
Loan Revenue Bonds, 1992 Series A, NJ Class Loan Program, 6.000%,
1/01/06 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 9.5%
700 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/00 at 102 AAA 718,858
Community Medical Center/Kensington Manor Care Center Issue, Series E,
7.000%, 7/01/20
1,200 New Jersey Health Care Facilities Financing Authority, Revenue and 7/07 at 102 AAA 1,089,084
Refunding Bonds, Holy Name Hospital Issue, Series 1997, 5.250%,
7/01/20
New Jersey Health Care Facilities Financing Authority, Revenue Bonds,
Newark Beth Israel Medical Center Issue, Series 1994:
200 5.800%, 7/01/07 7/04 at 102 AAA 209,746
200 6.000%, 7/01/16 7/04 at 102 AAA 211,290
250 New Jersey Health Care Facilities Financing Authority, Refunding 8/04 at 102 AAA 267,928
Revenue Bonds, Irvington General Hospital Issue (FHA-Insured
Mortgage), Series 1994, 6.375%, 8/01/15
400 New Jersey Health Care Facilities Financing Authority, Refunding 7/02 at 102 A- 422,072
Revenue Bonds, Atlantic City Medical Center Issue, Series C, 6.800%,
7/01/05
100 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/02 at 102 AAA 104,555
West Jersey Health System, Series 1992, 6.000%, 7/01/07
New Jersey Health Care Facilities Financing Authority, Revenue Bonds,
Monmouth Medical Center Issue, Series C:
250 5.700%, 7/01/02 No Opt. Call AAA 255,265
250 6.250%, 7/01/16 7/04 at 102 AAA 266,525
250 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/04 at 102 AAA 259,995
Dover General Hospital and Medical Center Issue, Series 1994, 5.900%,
7/01/05
1,000 New Jersey Health Care Facilities Financing Authority, Revenue and 7/07 at 102 AAA 848,040
Refunding Bonds, AHS Hospital Corporation Issue, Series 1997A, 5.000%,
7/01/27
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
New Jersey Health Care Facilities Financing Authority, Bayonne Hospital
Obligated Group Revenue Bonds, Series 1994:
$ 215 6.400%, 7/01/07 7/04 at 102 AAA $ 227,210
175 6.250%, 7/01/12 7/04 at 102 AAA 181,125
3,425 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/09 at 101 A 2,793,533
Palisades Medical Center of New York Obligated Group Issue, Series
1999, 5.250%, 7/01/28
230 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/02 at 102 Baa3 238,326
Palisades Medical Center Obligated Group Issue, Series 1992, 7.500%,
7/01/06
790 New Jersey Economic Development Authority, Economic Growth Lease 12/03 at 102 Aa3 788,191
Revenue Bonds, Remarketed 1992 Second Series B, 5.300%, 12/01/07
(Alternative Minimum Tax)
300 New Jersey Economic Development Authority, Revenue Bonds (RWJ Health 7/04 at 102 AAA 310,500
Care Corporation at Hamilton Obligated Group Project), Series 1994,
6.250%, 7/01/14
1,000 Puerto Rico Industrial, Tourist, Educational, Medical and Environmental 1/05 at 102 AAA 1,032,120
Control Facilities Financing Authority, Hospital Revenue Bonds, 1995
Series A (Hospital Auxilio Mutuo Obligated Group Project), 6.250%,
7/01/16
250 Pollution Control Financing Authority of Union County (New Jersey), No Opt. Call A3 260,280
Pollution Control Revenue Refunding Bonds, American Cyanamid Company
Issue, Series 1994, 5.800%, 9/01/09
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 7.3%
400 The Hudson County Improvement Authority, Multifamily Housing Revenue 6/04 at 100 AA 412,388
Bonds, Series 1992 A (Conduit Financing - Observer Park Project),
6.900%, 6/01/22 (Alternative Minimum Tax)
1,500 New Jersey Housing and Mortgage Finance Agency, Multi-Family Housing 3/10 at 100 AAA 1,506,600
Revenue Bonds, 2000 Series A1, 6.350%, 11/01/31 (Alternative Minimum
Tax)
1,500 New Jersey Housing and Mortgage Finance Agency, Multi-Family Housing 5/06 at 102 AAA 1,510,335
Revenue Bonds, 1996 Series A, 6.200%, 11/01/18 (Alternative Minimum Tax)
1,750 New Jersey Housing Finance Agency, Special Pledge Revenue Obligations, 5/00 at 100 A+ 1,763,860
1975 Series One, 9.000%, 11/01/18
700 New Jersey Housing and Mortgage Finance Agency, Housing Revenue Bonds, 5/02 at 102 A+ 735,686
1992 Series A, 6.950%, 11/01/13
500 New Jersey Housing and Mortgage Finance Agency, Housing Revenue Refunding 11/02 at 102 A+ 522,225
Bonds, 1992 Series One, 6.600%, 11/01/14
1,090 Housing Authority of the City of Newark, New Jersey, Housing Revenue 10/09 at 102 Aaa 1,095,243
Bonds (GNMA Collateralized - Fairview Apartments Project), 2000
Series A, 6.300%, 10/20/19 (Alternative Minimum Tax)
500 North Bergen Housing Development Corporation (North Bergen, New Jersey), 3/00 at 101 1/2 N/R 507,660
Mortgage Revenue Bonds, Series 1978 (FHA-Insured Mortgage Loan -
Section 8 Assisted Project), 7.400%, 9/01/20
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 5.4%
250 New Jersey Housing and Mortgage Finance Agency, Home Buyer Revenue Bonds, 7/04 at 102 AAA 254,145
1994 Series K, 6.300%, 10/01/16 (Alternative Minimum Tax)
4,000 New Jersey Housing and Mortgage Finance Agency, Home Buyer Revenue 10/07 at 101 1/2 AAA 3,989,560
Bonds, 1997 Series U, 5.700%, 10/01/14 (Alternative Minimum Tax)
1,450 Puerto Rico Housing Finance Corporation, Homeownership Mortgage Revenue 12/08 at 101 AAA 1,234,632
Bonds (GNMA-Guaranteed Mortgage Loans), 1998 Series A, 5.200%,
12/01/32 (Alternative Minimum Tax)
455 Virgin Islands Housing Finance Authority, Single Family Mortgage 3/05 at 102 AAA 461,638
Refunding Bonds (GNMA Mortgage Backed Securities Program),
1995 Series A, 6.450%, 3/01/16 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Industrial/Other - 0.2%
215 New Jersey Economic Development Authority, District Heating and Cooling 12/03 at 102 BBB- 215,108
Revenue Bonds (Trigen-Trenton Project), 1993 Series B, 6.100%,
12/01/04 (Alternative Minimum Tax)
</TABLE>
13
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Care - 9.0%
New Jersey Economic Development Authority, Economic Development Revenue
Bonds (United Methodist Homes of New Jersey Obligated Group Issue),
Series 1998:
$ 1,500 5.125%, 7/01/18 7/08 at 102 BBB- $ 1,150,425
3,610 5.125%, 7/01/25 7/08 at 102 BBB- 2,617,900
5,100 New Jersey Economic Development Authority, Economic Development Revenue 12/09 at 101 Aa3 4,963,983
Bonds (Jewish Community Housing Corporation of Metropolitan New Jersey -
1999 Project), 5.900%, 12/01/31
1,300 New Jersey Economic Development Authority, First Mortgage Revenue Fixed 7/08 at 102 A 1,150,955
Rate Bonds (Cadbury Corporation Project), Series 1998A, 5.500%, 7/01/18
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 8.9%
200 The City of Atlantic City, In the County of Atlantic, New Jersey, General No Opt. Call A 204,374
Obligation General Improvement Bonds, Series 1994, 5.650%, 8/15/04
100 The Board of Education of the City of Atlantic City, Atlantic County, New 12/02 at 102 AAA 104,976
Jersey, School Bonds, Series 1992, 6.000%, 12/01/06
100 County of Atlantic, New Jersey, General Improvement Bonds, 6.000%, 1/01/07 1/04 at 101 AAA 104,131
100 County of Camden, New Jersey, General Obligation Refunding Bonds, Series No Opt. Call AAA 101,797
1992, 5.500%, 6/01/02
500 The Board of Education of the Township of Hillsborough, In the County of No Opt. Call AA 525,470
Somerset, State of New Jersey, General Obligation School Purpose Bonds,
Series 1992, 5.875%, 8/01/11
400 The City of Jersey City (Hudson County, New Jersey), General Obligation No Opt. Call AA 412,912
Bonds, 1992 School Issue, 6.500%, 2/15/02
2,645 The Board of Education of the Township of Middletown, In the County of 8/07 at 100 AAA 2,630,426
Monmouth, New Jersey, School Bonds, 5.800%, 8/01/21
100 Township of Montclair, In the County of Essex, New Jersey, General 3/00 at 101 1/2 AAA 101,552
Obligation, School Bonds, 5.800%, 3/01/06
1,000 State of New Jersey, General Obligation Bonds, Series D, 5.800%, 2/15/07 No Opt. Call AA+ 1,042,050
200 State of New Jersey, General Obligation Refunding Bonds, Series D, 0.000%, No Opt. Call AA+ 173,266
2/15/03
165 Parsippany-Troy Hills Township, General Obligation, Capital Appreciation No Opt. Call AA- 113,289
Bonds, Series 1992, 0.000%, 4/01/07
185 The Board of Education of the City of Perth Amboy, In the County of No Opt. Call AAA 194,577
Middlesex, New Jersey, School Bonds, 6.200%, 8/01/04
2,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1997, 5.375%, 7/07 at 101 1/2 AAA 1,883,720
7/01/21
2,000 Commonwealth of Puerto Rico, Public Improvement Bonds of 1995, 5.750%, 7/05 at 101 1/2 AAA 1,962,580
7/01/24
250 The City of Union City, In the County of Hudson, State of New Jersey, No Opt. Call AAA 273,055
General Obligation School Purpose Bonds, Series 1992, 6.375%,
11/01/10
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 20.0%
150 The Bergen County Utilities Authority (New Jersey), 1992 Water Pollution 12/02 at 102 AAA 153,077
Control System Revenue Bonds, Series B, 6.000%, 12/15/13
500 The Essex County Improvement Authority (Essex County, New Jersey), County 12/02 at 102 Baa1 510,875
Guaranteed Pooled Revenue Bonds, Series 1992A, 6.500%, 12/01/12
1,235 The Board of Education of the Borough of Little Ferry, Bergen County, New No Opt. Call N/R 1,248,474
Jersey, Certificates of Participation, 6.300%, 1/15/08
250 Mercer County Improvement Authority (New Jersey), Solid Waste Revenue No Opt. Call Aa 203,030
Bonds, County Guaranteed, Site and Disposal Facilities Project
Refunding, 1992 Issue, 0.000%, 4/01/04
3,025 Middlesex County Improvement Authority (New Jersey), County Guaranteed 9/09 at 100 Aaa 2,911,411
Open Space Trust Fund Revenue Bonds, Series 1999, 5.250%, 9/15/15
5,280 New Jersey Economic Development Authority, Lease Revenue Bonds, Series 11/08 at 101 Aaa 4,354,786
1998 (Bergen County Administration Complex), 4.750%, 11/15/26
New Jersey Economic Development Authority, Market Transition Facility
Senior Lien Revenue Bonds, Series 1994A:
300 7.000%, 7/01/04 No Opt. Call AAA 323,784
650 5.875%, 7/01/11 7/04 at 102 AAA 667,563
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
New Jersey Sports and Exposition Authority, Convention Center Luxury
Tax Bonds, 1992 Series A:
$ 100 6.000%, 7/01/07 7/02 at 102 AAA $ 104,646
250 6.250%, 7/01/20 7/02 at 102 AAA 262,983
100 North Jersey District Water Supply Commission of the State of New 7/03 at 102 AAA 103,545
Jersey, Wanaque South Project Revenue Refunding Bonds, Series 1993,
5.700%, 7/01/05
2,350 The Ocean County Utilities Authority (New Jersey), Wastewater 7/00 at 100 AAA 2,186,370
Revenue Bonds, Refunding Series 1987, 5.000%, 1/01/14
170 Puerto Rico Aqueduct and Sewer Authority, Refunding Bonds, Series 7/06 at 101 1/2 A 154,443
1995, Guaranteed by the Commonwealth of Puerto Rico, 5.000%,
7/01/15
5,000 Puerto Rico Public Finance Corporation, 1998 Series A Bonds No Opt. Call AAA 4,494,150
(Commonwealth Appropriation Bonds), 5.125%, 6/01/24
5,000 The Union County Utilities Authority (Union County, New Jersey), 6/08 at 102 Aaa 4,241,850
Solid Waste Bonds, County Deficiency Agreement, Series 1998A1,
5.000%, 6/15/28 (Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 14.7%
2,150 Delaware River Port Authority (New Jersey), Port District Project 1/08 at 101 AAA 1,855,429
Bonds, Series B of 1998, 5.000%, 1/01/26
3,500 Delaware River Port Authority (New Jersey and Pennsylvania), 1/10 at 100 AAA 3,454,710
Revenue Bonds, Series of 1999, 5.750%, 1/01/22
Parking Authority of the City of Hoboken, County of Hudson, New Jersey,
Parking General Revenue Refunding Bonds, Series 1992A:
330 5.850%, 3/01/00 No Opt. Call Baa1 330,026
100 6.625%, 3/01/09 3/02 at 102 Baa1 103,922
1,750 New Jersey Turnpike Authority, Turnpike Revenue Bonds, Series 1991C, No Opt. Call BBB+ 1,866,375
6.500%, 1/01/08
125 The Port Authority of New York and New Jersey, Consolidated Bonds, 10/04 at 101 AAA 131,368
Ninety-Sixth Series, 6.600%, 10/01/23 (Alternative Minimum Tax)
200 The Port Authority of New York and New Jersey, Consolidated Bonds, 7/04 at 101 AA- 202,630
Ninety-Fifth Series, 5.500%, 7/15/05 (Alternative Minimum Tax)
The Port Authority of New York and New Jersey, Consolidated Bonds,
One Hundred Ninth Series:
1,500 5.375%, 7/15/22 1/07 at 101 AA- 1,380,930
2,000 5.375%, 7/15/27 1/07 at 101 AAA 1,828,320
2,000 The Port Authority of New York and New Jersey, Consolidated Bonds, 6/05 at 101 AA- 1,899,260
One Hundred Twelfth Series, 5.250%, 12/01/13 (Alternative Minimum
Tax)
3,100 The Port Authority of New York and New Jersey, Special Project Bonds, 12/07 at 100 AAA 2,984,928
Series 6, JFK International Air Terminal LLC Project, 5.750%,
12/01/25 (Alternative Minimum Tax)
45 South Jersey Transportation Authority, Transportation System Revenue 11/02 at 102 AAA 46,580
Bonds, 1992 Series B (Tax Exempt), 5.900%, 11/01/06
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 8.6%
The Essex County Improvement Authority (Essex County, New Jersey),
City of Newark, General Obligation Lease Revenue Bonds, Series 1994:
620 6.350%, 4/01/07 (Pre-refunded to 4/01/04) 4/04 at 102 BBB+*** 659,872
450 6.600%, 4/01/14 (Pre-refunded to 4/01/04) 4/04 at 102 BBB+*** 483,053
100 The Essex County Improvement Authority (Essex County, New Jersey), 12/04 at 102 AAA 109,828
County of Essex, General Obligation Lease Revenue Bonds, Series 1994
(County Jail and Youth House Projects), 6.900%, 12/01/14 (Pre-refunded
to 12/01/04)
The Monmouth County Improvement Authority (Monmouth County, New Jersey),
Revenue Bonds, Series 1992 (Howell Township Board of Education Project):
100 6.000%, 7/01/03 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 104,646
50 6.450%, 7/01/08 (Pre-refunded to 7/01/02) 7/02 at 102 AAA 52,816
200 New Jersey Economic Development Authority, Lease Rental Bonds, 1992 3/02 at 102 AAA 211,788
Series (Liberty State Park Project), 6.800%, 3/15/22 (Pre-refunded
to 3/15/02)
</TABLE>
15
<PAGE>
Portfolio of Investments
Nuveen Flagship New Jersey Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 1,480 New Jersey Health Care Facilities Financing Authority No Opt. Call AAA $1,676,574
(Hackensack Hospital), Revenue Bonds, Series 1979A, 8.750%,
7/01/09
2,065 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/01 at 102 A2*** 2,202,302
Series 1990-E (Kennedy Memorial Hospital), 8.375%, 7/01/10
(Pre-refunded to 7/01/01)
New Jersey Health Care Facilities Financing Authority, Bayonne Hospital
Obligated Group Revenue Bonds, Series 1994:
35 6.400%, 7/01/07 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 37,445
25 6.250%, 7/01/12 (Pre-refunded to 7/01/04) 7/04 at 102 AAA 26,602
365 New Jersey Health Care Facilities Financing Authority, Revenue Bonds, 7/02 at 102 Baa3*** 385,524
Palisades Medical Center Obligated Group Issue, Series 1992, 7.500%,
7/01/06 (Pre-refunded to 7/01/02)
180 New Jersey Economic Development Authority, Economic Growth Bonds, 12/02 at 101 1/2 Aa3*** 189,833
Composite Issue - 1992 Second Series A3, 6.550%, 12/01/07
(Alternative Minimum Tax) (Pre-refunded to 12/01/02)
625 New Jersey Economic Development Authority, Insured Revenue Bonds 5/05 at 102 AAA 665,181
(Educational Testing Service Issue), Series 1995B, 6.125%, 5/15/15
(Pre-refunded to 5/15/05)
100 New Jersey Educational Facilities Authority, Stevens Institute of 7/02 at 102 A*** 105,430
Technology Issue Revenue Bonds, 1992 Series A, 6.400%, 7/01/03
(Pre-refunded to 7/01/02)
195 New Jersey Turnpike Authority, Turnpike Revenue Bonds, 1984 Series, No Opt. Call AAA 214,375
10.375%, 1/01/03
200 New Jersey Wastewater Treatment Trust, Wastewater Treatment Bonds, 4/04 at 102 Aa1*** 214,574
Series 1994A, 6.500%, 4/01/14 (Pre-refunded to 4/01/04)
300 The Township of North Bergen (Hudson County, New Jersey), Fiscal Year 8/02 at 102 AAA 317,706
Adjustment General Obligation Bonds, Series 1992, 6.500%, 8/15/12
(Pre-refunded to 8/15/02)
60 Puerto Rico Highway and Transportation Authority, Highway Revenue 7/02 at 101 1/2 AAA 63,669
Bonds (Series T), 6.625%, 7/01/18 (Pre-refunded to 7/01/02)
55 South Jersey Transportation Authority, Transportation System Revenue 11/02 at 102 AAA 57,566
Bonds, 1992 Series B (Tax Exempt), 5.900%, 11/01/06 (Pre-refunded
to 11/01/02)
1,100 Sparta Township School District, General Obligation Bonds (Unlimited 9/06 at 100 AAA 1,144,330
Tax), 5.800%, 9/01/18 (Pre-refunded to 9/01/06)
100 University of Medicine and Dentistry of New Jersey, Series E, 6.500%, 12/01 at 102 AA-*** 105,090
12/01/18 (Pre-refunded to 12/01/01)
300 The Wanaque Borough Sewerage Authority (Passaic County, New Jersey), 12/02 at 102 A3*** 322,266
Sewer Revenue Bonds, Series 1992 (Bank Qualified), 7.000%, 12/01/21
(Pre-refunded to 12/01/02)
75 The Wanaque Valley Regional Sewerage Authority (Passaic County, 9/03 at 102 Baa1*** 79,080
New Jersey), Sewer Revenue Bonds, 1993 Series A, 6.125%, 9/01/22
(Pre-refunded to 9/01/03)
- - -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 7.1%
685 Pollution Control Financing Authority of Camden County (Camden County, No Opt. Call B2 668,067
New Jersey), Solid Waste Disposal and Resource Recovery System
Revenue Bonds, Series 1991 C, 7.125%, 12/01/01 (Alternative Minimum
Tax)
2,645 Pollution Control Financing Authority of Camden County (Camden County, 12/01 at 102 B2 2,502,673
New Jersey), Solid Waste Disposal and Resource Recovery System
Revenue Bonds, Series 1991 D, 7.250%, 12/01/10
300 The Port Authority of New York and New Jersey, Special Project Bonds, No Opt. Call N/R 311,850
Series 4, KIAC Partners Project, 7.000%, 10/01/07 (Alternative
Minimum Tax)
250 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, No Opt. Call BBB+ 254,328
Series Q, 5.900%, 7/01/01
790 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series P, No Opt. Call BBB+ 871,963
7.000%, 7/01/07
2,000 Puerto Rico Electric Power Authority, Power Revenue Bonds, Series T, 7/04 at 100 BBB+ 1,882,120
5.500%, 7/01/20
1,500 Puerto Rico Electric Power Authority, Power Revenue Refunding Bonds, 7/05 at 100 BBB+ 1,354,635
Series Z, 5.250%, 7/01/21
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Water and Sewer - 3.3%
$ 250 The Hoboken-Union City-Weehawken Sewerage Authority (New Jersey), Sewer 8/02 at 102 AAA $ 253,960
Revenue Bonds, Refunding Series 1992, 6.200%, 8/01/19
3,800 The North Hudson Sewerage Authority (New Jersey), Sewer Revenue Bonds, 8/06 at 101 AAA 3,390,702
Series 1996, 5.125%, 8/01/22
- - -----------------------------------------------------------------------------------------------------------------------------------
$ 115,235 Total Investments - (cost $113,784,605) - 99.4% 109,337,045
===============--------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.6% 643,015
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $109,980,060
====================================================================================================================
</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.
See accompanying notes to financial statements.
<PAGE>
Portfolio of Investments
Nuveen Flagship New York Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 700 Essex County Industrial Development Agency (New York), Environmental 11/09 at 101 A3 $ 688,646
Improvement Revenue Bonds, 1999 Series A (International Paper
Company Projects), 6.450%, 11/15/23 (Alternative Minimum Tax)
750 Jefferson County Industrial Development Agency, Multi-Modal 11/02 at 102 Baa1 780,255
Interchangeable Rate, Solid Waste Disposal Revenue Bonds (Champion
International Corporation Project), Series 1990, 7.200%, 12/01/20
(Alternative Minimum Tax)
- - ------------------------------------------------------------------------------------------------------------------------------------
Consumer Staples - 2.5%
1,500 Nassau County Tobacco Settlement Corporation (New York), Tobacco 7/09 at 101 A2 1,503,780
Settlement Asset-Backed Bonds, Series A, 6.500%, 7/15/27
2,750 Tobacco Settlement Asset Securitization Corporation (TSASC), Tobacco 7/09 at 101 Aa1 2,688,098
Flexible Amortization Bonds, Series 1999-1, 6.250%, 7/15/27
2,500 Westchester Tobacco Asset Securitization Corporation (New York), 7/10 at 101 A1 2,134,950
Tobacco Settlement Asset-Backed Bonds, Series 1999, 6.750%, 7/15/29
- - ------------------------------------------------------------------------------------------------------------------------------------
Education and Civic Organizations - 12.3%
1,750 Town of Brookhaven Industrial Development Agency, 1993 Civic Facility 3/03 at 102 BBB- 1,788,238
Revenue Bonds (Dowling College/The National Aviation and Transportation
Center Civic Facility), 6.750%, 3/01/23
2,470 Dutchess County Industrial Development Agency, Civic Facility Revenue 11/03 at 102 A 2,577,124
Bonds (The Bard College Project), Series 1992, 7.000%, 11/01/17
195 New York City Industrial Development Agency, Civic Facility Revenue 11/01 at 102 Aa1 203,880
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 6.200%, 9/01/10 9/05 at 102 Baa2 1,034,190
1,000 6.300%, 9/01/15 9/05 at 102 Baa2 1,007,060
2,000 Dormitory Authority of the State of New York, State University 5/00 at 102 A 2,050,940
Educational Facilities Revenue Bonds, Series 1990A, 7.400%, 5/15/01
750 Dormitory Authority of the State of New York, City University System No Opt. Call Baa1 841,193
Consolidated Second General Resolution Revenue Bonds, Series 1990C,
7.500%, 7/01/10
500 Dormitory Authority of the State of New York, Revenue Bonds, State 7/01 at 102 A- 526,885
University Athletic Facility Issue, Series 1991, 7.250%, 7/01/21
2,100 Dormitory Authority of the State of New York, University of Rochester 7/04 at 102 A+ 2,166,969
Revenue Bonds, Series 1994A, 6.500%, 7/01/19
1,500 Dormitory Authority of the State of New York, City University System No Opt. Call A- 1,522,725
Consolidated Second General Resolution Revenue Bonds, Series 1993A,
5.750%, 7/01/07
1,000 Dormitory Authority of the State of New York, State University 5/14 at 100 A- 912,400
Educational Facilities Revenue Bonds, Series 1993B, 5.250%, 5/15/19
4,925 Dormitory Authority of the State of New York, City University System 7/05 at 102 AAA 4,469,832
Consolidated Third General Resolution Revenue Bonds, 1995 Series 1,
5.375%, 7/01/25
1,750 Dormitory Authority of the State of New York, University of Rochester 7/09 at 101 A+ 1,648,308
Revenue Bonds, Series 1999A and 1999B, 5.625%, 7/01/24
1,250 Dormitory Authority of the State of New York, Pratt Institute Revenue 7/09 at 102 AA 1,225,600
Bonds, Series 1999, 6.000%, 7/01/24
2,700 Dormitory Authority of the State of New York, Marymount Manhattan 7/09 at 101 AA 2,722,626
College Insured Revenue Bonds, Series 1999, 6.250%, 7/01/29
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations (continued)
$ 3,515 Suffolk County Industrial Development Agency, Civic Facility Revenue 6/04 at 102 BBB- $ 3,365,613
Bonds (Dowling College Civic Facility), Series 1994, 6.625%, 6/01/24
1,000 Suffolk County Industrial Development Agency, Civic Facility Revenue 12/06 at 102 BBB- 974,420
Refunding Bonds (Dowling College Civic Facility), Series 1996, 6.700%,
12/01/20
City of Utica Industrial Development Agency (New York), Civic Facility
Revenue Bonds (Utica College Project), Series 1998A:
900 5.300%, 8/01/08 No Opt. Call N/R 857,007
1,000 5.750%, 8/01/28 8/08 at 102 N/R 862,470
- - ------------------------------------------------------------------------------------------------------------------------------------
Health Care - 9.7%
3,300 Dormitory Authority of the State of New York, Menorah Campus, Inc., 2/07 at 102 AAA 3,295,281
FHA-Insured Mortgage Nursing Home Revenue Bonds, Series 1997, 5.950%,
2/01/17
1,000 Dormitory Authority of the State of New York, NYACK Hospital Revenue 7/06 at 102 Baa 981,250
Bonds, Series 1996, 6.000%, 7/01/06
2,250 Dormitory Authority of the State of New York, The Rosalind and Joseph 2/07 at 102 AAA 2,116,507
Gurwin Jewish Geriatric Center of Long Island, Inc., FHA-Insured Mortgage
Nursing Home Revenue Bonds, Series 1997, 5.700%, 2/01/37
2,500 Dormitory Authority of the State of New York, The Brooklyn Hospital 2/09 at 101 Aaa 2,178,700
Center, FHA Insured Mortgage Hospital Revenue Bonds, Series 1999,
5.150%, 2/01/29
2,700 Dormitory Authority of the State of New York (Catholic Health Services 7/09 at 101 AAA 2,505,114
of Long Island Obligated Group), St. Francis Hospital Revenue Bonds,
Series 1999A, 5.500%, 7/01/22
1,925 New York State Medical Care Facilities Finance Agency, Hospital and 8/02 at 102 AAA 1,935,703
Nursing Home FHA-Insured Mortgage Revenue Bonds, 1992 Series B,
6.200%, 8/15/22
2,255 New York State Medical Care Facilities Finance Agency, Hospital and 8/04 at 102 AAA 2,334,940
Nursing Home FHA-Insured Mortgage Revenue Bonds, 1994 Series C,
6.400%, 8/15/14
1,000 New York State Medical Care Facilities Finance Agency, Brookdale No Opt. Call AAA 1,020,440
Hospital Medical Center Secured Hospital Revenue Bonds, 1995 Series A,
6.400%, 2/15/01
325 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 8/00 at 101 AA 332,173
Home Insured Mortgage Revenue Bonds, 1989 Series B, 7.350%, 2/15/29
1,000 New York State Medical Care Facilities Finance Agency, FHA-Insured Mortgage 2/05 at 102 AA 1,012,790
Project Revenue Bonds, 1995 Series B, 6.100%, 2/15/15
960 New York State Medical Care Facilities Finance Agency, Health Center 11/05 at 102 Aa1 983,338
Projects Revenue Bonds (Secured Mortgage Program), 1995 Series A,
6.375%, 11/15/19
1,020 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 2/04 at 102 AA 1,026,263
Home FHA-Insured Mortgage Revenue Bonds, 1994 Series A, 6.200%, 2/15/21
345 New York State Medical Care Facilities Finance Agency, Hospital and Nursing 8/01 at 102 AA 362,343
Home Insured Mortgage Revenue Bonds, 1991 Series A, 7.450%, 8/15/31
2,150 Newark-Wayne Community Hospital, Inc., Hospital Revenue Improvement and 9/03 at 102 N/R 2,214,909
Refunding Bonds, Series 1993A, 7.600%, 9/01/15
2,000 New York City Industrial Development Agency, Civic Facility Revenue Bonds 12/02 at 102 BBB 2,012,140
(1992 Jewish Board of Family and Children's Services, Inc. Project),
6.750%, 12/15/12
- - ------------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 5.2%
1,000 City of Batavia Housing Authority, Tax-Exempt Mortgage Revenue Refunding 7/01 at 102 Aaa 1,017,240
Bonds, Series 1994A (Washington Towers - FHA-Insured Mortgage),
6.500%, 1/01/23
2,000 New York City Housing Development Corporation, Multi-Family Mortgage 4/03 at 102 AAA 2,074,060
Revenue Bonds (FHA-Insured Mortgage Loan), 1993 Series A, 6.550%, 10/01/15
1,250 New York City Housing Development Corporation, Multi-Unit Mortgage 6/01 at 102 AAA 1,307,588
Refunding Bonds (FHA-Insured Mortgage Loans), 1991 Series A,
7.350%, 6/01/19
750 Dormitory Authority of the State of New York, GNMA Collateralized 8/00 at 101 AAA 759,270
Revenue Bonds (Park Ridge Housing, Inc. Project), Series 1989,
7.850%, 2/01/29
2,240 New York State Finance Agency, Housing Project Mortgage Revenue Bonds, 5/06 at 102 AAA 2,238,454
1996 Series A Refunding, 6.125%, 11/01/20
</TABLE>
19
<PAGE>
Portfolio of Investments
Nuveen Flagship New York Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Housing/Multifamily (continued)
New York State Housing Finance Agency, Insured Multi-Family Mortgage
Housing Revenue Bonds, 1992 Series A:
$ 1,650 6.950%, 8/15/12 8/02 at 102 AA $ 1,730,471
500 7.000%, 8/15/22 8/02 at 102 AA 523,185
1,000 New York State Housing Finance Agency, Multi-Family Housing Revenue 2/04 at 102 Aa1 1,037,940
Bonds (Secured Mortgage Program), 1994 Series C, 6.450%, 8/15/14
1,000 New York State Urban Development Corporation, Section 236 Revenue Bonds, 1/02 at 102 AAA 1,043,430
Series 1992A, 6.750%, 1/01/26
1,300 Tonawanda Housing Authority, New York, Housing Revenue Bonds (Kibler 9/09 at 103 N/R 1,286,389
Senior Housing, L.P. Project), Series 1999B Bonds, 7.750%, 12/01/31
- - ------------------------------------------------------------------------------------------------------------------------------------
Housing/Single Family - 2.0%
1,500 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 9/04 at 102 Aa1 1,539,960
Series 43, 6.450%, 10/01/17
1,000 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 3/05 at 102 Aa1 1,028,340
1995 Series 46, 6.600%, 10/01/19 (Alternative Minimum Tax)
2,700 State of New York Mortgage Agency, Homeowner Mortgage Revenue Bonds, 3/08 at 101 Aa1 2,398,923
Series 69, 5.500%, 10/01/28 (Alternative Minimum Tax)
- - ------------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 5.0%
2,000 Dormitory Authority of the State of New York, Bishop Henry R. Hucles 7/06 at 102 Aa1 1,893,540
Nursing Home, Inc. Revenue Bonds, Series 1996, 6.000%, 7/01/24
2,460 Dormitory Authority of the State of New York, W.K. Nursing Home 8/06 at 102 AAA 2,465,830
Corporation, FHA-Insured Mortgage Revenue Bonds, Series 1996,
5.950%, 2/01/16
1,500 Dormitory Authority of the State of New York, Concord Nursing Home, Inc. 7/10 at 101 A1 1,511,865
Revenue Bonds, Series 2000, 6.500%, 7/01/29
5,000 Syracuse Housing Authority (Syracuse, New York), FHA-Insured Mortgage 2/08 at 102 AAA 4,743,250
Revenue Bonds (Loretto Rest Residential Health Care Facility Project),
Series 1997A, 5.800%, 8/01/37
2,100 UFA Development Corporation, Utica, New York, FHA-Insured Mortgage 7/04 at 102 Aa2 2,021,712
Revenue Bonds, Series 1993, (Loretto-Utica Project), 5.950%, 7/01/35
- - ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 7.0%
5 The City of New York, General Obligation Bonds, Fiscal 1992 Series C, 8/02 at 101 1/2 AAA 5,256
Fixed Rate Bonds, Subseries C1, 6.625%, 8/01/13
1,000 The City of New York, General Obligation Bonds, Fiscal 1996 Series F, 2/06 at 101 1/2 A- 969,150
5.750%, 2/01/19
The City of New York, General Obligation Bonds, Fiscal 1996 Series G:
2,000 5.750%, 2/01/17 2/06 at 101 1/2 A- 1,954,460
2,500 5.750%, 2/01/20 2/06 at 101 1/2 A- 2,415,100
1,750 The City of New York, General Obligation Bonds, Fiscal 1997 Series D, 11/06 at 101 1/2 A- 1,781,938
Tax Exempt Bonds, 5.875%, 11/01/11
1,450 The City of New York, General Obligation Bonds, Fiscal 1992 Series B, 2/02 at 101 1/2 A- 1,536,725
7.500%, 2/01/06
5,000 The City of New York, General Obligation Bonds, Fiscal 1998 Series J, 8/08 at 101 A- 4,222,800
5.000%, 8/01/23
4,440 The City of New York, General Obligation Bonds, Fiscal 1999 Series C, 8/08 at 101 A- 3,772,402
5.000%, 8/15/22
South Orangetown Central School District, Rockland County, New York,
Serial General Obligation Bonds, Series 1990:
390 6.875%, 10/01/08 No Opt. Call A2 431,917
390 6.875%, 10/01/09 No Opt. Call A2 434,444
- - ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 21.0%
300 Albany Housing Authority, City of Albany, New York, Limited Obligation 10/05 at 102 Baa1 297,000
Bonds, Series 1995, 5.850%, 10/01/07
1,500 Albany Parking Authority, Aggregate Principal Amount, Parking Revenue No Opt. Call Baa1 509,445
Refunding Bonds, Series 1992A, 0.000%, 11/01/17
2,500 New York Housing Corporation, Senior Revenue Refunding Bonds, 11/03 at 102 AA 2,275,325
Series 1993, 5.000%, 11/01/13
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
$ 4,000 Metropolitan Transportation Authority (New York), Transit Facilities 7/03 at 101 1/2 A- $ 3,925,800
Service Contract Bonds, Series P, 5.750%, 7/01/15
1,500 New York Metropolitan Transportation Authority, Dedicated Tax Fund Bonds, 4/10 at 100 AAA 1,500,465
Series 2000A, 6.000%, 4/01/30
1,500 New York City Transitional Finance Authority, Future Tax Secured Bonds, 5/10 at 101 AA 1,496,745
Fiscal 2000 Series B, 6.000%, 11/15/29
220 Dormitory Authority of the State of New York, Judicial Facilities Lease 4/00 at 114 5/32 Baa1 252,087
Revenue Bonds (Suffolk County Issue), Series 1991A, 9.500%, 4/15/14
1,000 Dormitory Authority of the State of New York, Department of Education 7/04 at 102 A- 1,000,670
of the State of New York Issue, Series 1994A, 6.250%, 7/01/24
2,900 Dormitory Authority of the State of New York, Department of Health of 7/04 at 102 BBB+ 2,629,546
the State of New York, Series 1994, 5.500%, 7/01/23
2,225 Dormitory Authority of the State of New York, Court Facilities Lease 5/03 at 101 1/2 A- 2,089,765
Revenue Bonds (The City of New York Issue), Series 1993A,
5.700%, 5/15/22
2,500 Dormitory Authority of the State of New York, Mental Health Services 2/07 at 102 A 2,336,700
Facilities Improvement Revenue Bonds, Series 1997B, 5.625%, 2/15/21
2,000 Dormitory Authority of the State of New York, Mental Health Services 8/09 at 101 AAA 1,749,400
Facilities Improvement Revenue Bonds, Series 1999D, 5.250%, 2/15/29
1,545 New York State Environmental Facilities Corporation, State Park 3/03 at 101 A- 1,537,244
Infrastructure Special Obligation Bonds, Series 1993 A, 5.750%, 3/15/13
1,000 New York State Housing Finance Agency, Health Facilities Revenue Bonds 5/06 at 101 1/2 A- 1,022,240
(New York City), 1996 Series A Refunding, 6.000%, 11/01/08
340 New York State Housing Finance Agency, Health Facilities Revenue Bonds 11/00 at 102 BBB+ 350,040
(New York City), 1990 Series A Refunding, 8.000%, 11/01/08
2,990 New York State Housing Finance Agency, Service Contract Obligation 9/03 at 102 A- 2,969,698
Revenue Bonds, 1993 Series C Refunding, 5.875%, 9/15/14
2,000 New York State Housing Finance Agency, Service Contract Obligation 9/05 at 102 A- 2,027,960
Revenue Bonds, 1995 Series A, 6.375%, 9/15/15
250 State of New York Municipal Bond Bank Agency, Special Program Bonds 9/01 at 102 BBB+ 260,738
(City of Buffalo), 1991 Series A, 6.875%, 3/15/06
110 New York State Medical Care Facilities Finance Agency, Mental Health 8/00 at 100 A- 110,255
Services Facilities Improvement Revenue Bonds, 1988 Series A,
7.700%, 2/15/18
15 New York State Medical Care Facilities Finance Agency, Mental Health 8/04 at 102 A 15,376
Services Facilities Improvement Revenue Bonds, 1994 Series E,
6.500%, 8/15/24
7,500 New York State Urban Development Corporation, Correctional Capital 1/04 at 102 A- 6,628,200
Facilities Revenue Bonds, 1993A Refunding Series, 5.250%, 1/01/21
1,000 New York State Urban Development Corporation, Project Revenue Bonds 1/06 at 102 A- 1,006,970
(Onondaga County Convention Center), Refunding Series 1995,
6.250%, 1/01/20
5,090 New York State Urban Development Corporation, Correctional Capital 1/03 at 102 A- 4,853,824
Facilities Revenue Bonds, 1993 Refunding Series, 5.500%, 1/01/15
2,500 New York State Urban Development Corporation, Correctional Facilities 1/08 at 102 A- 2,054,550
Service Contract Revenue Bonds, Series A, 5.000%, 1/01/28
2,000 City School District of the City of Niagara Falls (New York), 6/08 at 101 BBB- 1,683,220
Certificates of Participation (High School Facility), Series 1998,
5.375%, 6/15/28
2,000 34th Street Partnership, Inc., 34th Street Business Improvement District 1/03 at 102 A1 1,819,800
(New York), Capital Improvement Bonds, Series 1993, 5.500%, 1/01/23
500 Triborough Bridge and Tunnel Authority (New York), Convention Center No Opt. Call A- 550,885
Project Bonds, Series E, 7.250%, 1/01/10
2,000 Triborough Bridge and Tunnel Authority (New York), Special Obligation 1/01 at 102 A1 2,082,400
Refunding Bonds, Series 1991B, 7.100%, 1/01/10
</TABLE>
21
<PAGE>
Portfolio of Investments
Nuveen Flagship New York Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/Limited (continued)
$2,000 Triborough Bridge and Tunnel Authority, Special Obligation Refunding 1/01 at 102 AAA $2,083,240
Bonds, Series 1991B, 7.100%, 1/01/10
1,250 Virgin Islands Public Finance Authority, Revenue Bonds (Virgin Islands 10/10 at 101 BBB- 1,240,050
Gross Receipts Taxes Loan Note), Series 1999A, 6.500%, 10/01/24
- - -----------------------------------------------------------------------------------------------------------------------------------
Transportation - 7.0%
500 Albany Parking Authority, Aggregate Principal Amount Parking Revenue 9/01 at 102 A 513,880
Refunding Bonds (Green and Hudson Garage Project - Letter of Credit
Secured), Series 1991A, 7.150%, 9/15/16
4,000 Metropolitan Transportation Authority (New York), Commuter Facilities 7/07 at 101 1/2 AAA 3,901,280
Revenue Bonds, Series 1997A, 5.750%, 7/01/21
2,000 Metropolitan Transportation Authority (New York), Commuter Facilities 7/07 at 101 AAA 1,805,660
Revenue Bonds, Series 1997C, 5.375%, 7/01/27
2,000 New York City Industrial Development Agency, Special Facility 8/07 at 102 Baa1 1,715,300
Revenue Bonds (1990 American Airlines, Inc. Project), Remarketed,
5.400%, 7/01/20 (Alternative Minimum Tax)
4,000 New York City Industrial Development Agency, Special Facility 1/04 at 102 A 3,935,600
Revenue Bonds, Series 1994 (Terminal One Group Association, L.P.
Project), 6.125%, 1/01/24 (Alternative Minimum Tax)
500 New York City Industrial Development Agency, Special Facility Revenue 12/08 at 102 A 403,120
Bonds, Series 1998 (1998 British Airways PLC Project), 5.250%,
12/01/32 (Alternative Minimum Tax)
1,000 Niagara Frontier Transportation Authority (Buffalo Niagara International 4/09 at 101 AAA 932,420
Airport), Airport Revenue Bonds, Series 1999A, 5.625%, 4/01/29
(Alternative Minimum Tax)
1,500 The Port Authority of New York and New Jersey, Special Project Bonds, 12/07 at 100 AAA 1,444,320
Series 6, JFK International Air Terminal LLC Project, 5.750%,
12/01/25 (Alternative Minimum Tax)
3,000 Triborough Bridge and Tunnel Authority (New York), General Purpose 1/10 at 100 Aa3 2,751,840
Revenue Bonds, Series 1999B, 5.500%, 1/01/30
- - -----------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 14.8%
1,600 County of Franklin Industrial Development Agency, Lease Revenue Bonds 11/02 at 102 BBB-*** 1,679,248
(County Correctional Facility Project), Series 1992, 6.750%, 11/01/12
(Pre-refunded to 11/01/02)
1,025 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds, 7/02 at 102 AAA 1,084,307
Series J, 6.500%, 7/01/18 (Pre-refunded to 7/01/02)
1,000 City of Rochelle Industrial Development Agency, Civic Facility Revenue 7/02 at 102 Baa2*** 1,057,850
Bonds (College of New Rochelle Project - 1992 Series), 6.625%,
7/01/12 (Pre-refunded to 7/01/02)
40 The City of New York General Obligation Bonds, Fiscal 1992 Series C, 8/02 at 101 1/2 AAA 42,294
6.625%, 8/01/13 (Pre-refunded to 8/01/02)
40 The City of New York General Obligation Bonds, Fiscal 1991 Series F, 11/01 at 101 1/2 AAA 42,982
Tax-Exempt Bonds, 8.250%, 11/15/19 (Pre-refunded to 11/15/01)
1,000 The City of New York General Obligation Bonds, Fiscal 1995 Series B, 8/04 at 101 Aaa 1,090,850
7.000%, 8/15/16 (Pre-refunded to 8/15/04)
550 The City of New York General Obligation Bonds, Fiscal 1992 Series B, 2/02 at 101 1/2 A-*** 585,349
7.500%, 2/01/06 (Pre-refunded to 2/01/02)
1,500 New York City Municipal Water Finance Authority (New York), Water 6/01 at 101 1/2 Aaa 1,583,775
and Sewer System Revenue Bonds, Fiscal 1991 Series C, 7.750%,
6/15/20 (Pre-refunded to 6/15/01)
5,345 New York City Industrial Development Agency, Civic Facility Revenue 7/02 at 102 Aa2*** 5,645,710
Bonds (1992 The Lighthouse, Inc. Project), 6.500%, 7/01/22
(Pre-refunded to 7/01/02)
300 State of New York Serial Bonds, Series 1991, 7.300%, 3/01/12 3/01 at 102 A+*** 314,853
(Pre-refunded to 3/01/01)
300 Dormitory Authority of the State of New York, State of New York 7/01 at 102 Baa1*** 317,976
Department of Education Revenue Bonds, Series 1991, 7.750%,
7/01/21 (Pre-refunded to 7/01/01)
400 Dormitory Authority of the State of New York, Menorah Campus, Inc., 8/01 at 102 AA*** 423,572
FHA-Insured Mortgage Revenue Bonds, Series 1991, 7.400%, 2/01/31
(Pre-refunded to 8/01/01)
250 Dormitory Authority of the State of New York, Department of Health 7/01 at 102 BBB+*** 263,208
Revenue Bonds, Veterans Home, Series 1990, 7.250%, 7/01/21
(Pre-refunded to 7/01/01)
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
$ 235 Dormitory Authority of the State of New York, Iroquois Nursing 2/01 at 102 AA-*** $ 245,479
Insured Revenue Bonds, Series 1991, 7.000%, 2/01/15
(Pre-refunded to 2/01/01)
985 Dormitory Authority of the State of New York, Dormitory Revenue Bonds, 7/04 at 102 AAA 1,095,468
State University Issue, Series X, 7.400%, 7/01/24
(Pre-refunded to 7/01/04)
1,500 Dormitory Authority of the State of New York, Department of Health 7/05 at 102 AAA 1,629,630
of the State of New York Revenue Bonds, Series 1995, 6.625%, 7/01/24
(Pre-refunded to 7/01/05)
215 New York State Energy Research and Development Authority, Electric 1/03 at 102 A-*** 229,805
Facilities Revenue Bonds (Long Island Lighting Company Project),
1992 Series D, 6.900%, 8/01/22 (Alternative Minimum Tax)
(Pre-refunded to 1/21/03)
200 New York State Housing Finance Agency, State University Construction No Opt. Call AAA 238,688
Refunding Bonds, 1986 Series A, 8.000%, 5/01/11
1,660 New York State Housing Finance Agency, Health Facilities Revenue 11/00 at 102 AAA 1,734,551
Bonds (New York City), 1990 Series A Refunding, 8.000%, 11/01/08
(Pre-refunded to 11/01/00)
250 State of New York Municipal Bond Bank Agency, Special Program 9/01 at 102 AAA 263,163
Revenue Bonds (City of Rochester), 1991 Series A, 6.750%, 3/15/11
(Pre-refunded to 9/15/01)
1,460 New York State Medical Care Facilities Finance Agency, Mental Health 2/01 at 102 Aaa 1,533,146
Services Facilities Improvement Revenue Bonds, 1991 Series A,
7.500%, 2/15/21 (Pre-refunded to 2/15/01)
1,365 New York State Medical Care Facilities Finance Agency, Mental Health 2/03 at 102 AAA 1,443,761
Services Facilities Improvement Revenue Bonds, 1992 Series F,
6.450%, 2/15/09 (Pre-refunded to 2/15/03)
New York State Medical Care Facilities Finance Agency, New York Hospital
FHA-Insured Mortgage Revenue Bonds, 1994 Series A:
1,000 6.750%, 8/15/14 (Pre-refunded to 2/15/05) 2/05 at 102 AAA 1,090,060
1,000 6.800%, 8/15/24 (Pre-refunded to 2/15/05) 2/05 at 102 AAA 1,092,240
2,700 New York State Medical Care Facilities Finance Agency, Hospital 2/05 at 102 AAA 2,942,811
Medical Center Secured Revenue Bonds, Series 1995-A, 6.800%,
8/15/12 (Pre-refunded to 2/15/05)
1,480 New York State Medical Care Facilities Finance Agency, Hospital and 2/04 at 102 AA*** 1,567,690
Nursing Home, FHA-Insured Mortgage Revenue Bonds, 1994 Series A,
6.200%, 2/15/21 (Pre-refunded to 2/15/04)
1,485 New York State Medical Care Facilities Finance Agency, Mental Health 8/04 at 102 A*** 1,591,326
Services Facilities Improvement Revenue Bonds, 1994 Series E,
6.500%, 8/15/24 (Pre-refunded to 8/15/04)
140 New York State Medical Care Facilities Finance Agency, Hospital and 8/01 at 102 AA*** 148,428
Nursing Home Insured Mortgage Revenue Bonds, 1991 Series A, 7.450%,
8/15/31 (Pre-refunded to 8/15/01)
2,000 New York State Urban Development Corporation, Project Revenue Bonds 1/01 at 102 A-*** 2,097,240
(Clarkson Center for Advanced Materials Processing Loan),
Series 1990, 7.800%, 1/01/20 (Pre-refunded to 1/01/01)
2,900 New York State Urban Development Corporation, State Facilities Revenue 4/01 at 102 Aaa 3,056,571
Bonds, Series 1991, 7.500%, 4/01/20 (Pre-refunded to 4/01/01)
1,000 Orangetown Housing Authority (Rockland County, New York), Housing 10/00 at 102 A*** 1,039,690
Facilities Revenue Bonds (Orangetown Senior Housing Center -
1990 Series), 7.600%, 4/01/30 (Pre-refunded to 10/01/00)
- - -----------------------------------------------------------------------------------------------------------------------------------
Utilities - 10.4%
6,500 Erie County Industrial Development Agency, Solid Waste Disposal 12/10 at 103 N/R 6,923,020
Facility Revenue Bonds (1998 Canfibre of Lackawanna Project),
8.875%, 12/01/13 (Alternative Minimum Tax)
4,325 Long Island Power Authority (New York), Electric System General 6/03 at 101 A- 3,864,734
Revenue Bonds, Series 1998A, 5.500%, 12/01/29
New York City Industrial Development Agency, Industrial Development
Revenue Bonds (Brooklyn Navy Yard Cogeneration Partners, L.P. Project),
Series 1997:
4,000 5.650%, 10/01/28 (Alternative Minimum Tax) 10/08 at 102 BBB- 3,471,760
5,950 5.750%, 10/01/36 (Alternative Minimum Tax) 10/08 at 102 BBB- 5,185,187
350 New York State Energy Research and Development Authority, Electric 7/00 at 101 A+ 354,288
Facilities Revenue Bonds, Series 1991 A (Consolidated Edison Company
of New York, Inc. Project), 7.500%, 1/01/26 (Alternative Minimum Tax)
1,250 New York State Energy Research and Development Authority, Electric 6/02 at 102 N/R 1,332,325
Facilities Revenue Bonds (Long Island Lighting Company Project),
1989 Series A, 7.150%, 9/01/19 (Alternative Minimum Tax)
</TABLE>
23
<PAGE>
Portfolio of Investments
Nuveen Flagship New York Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities (continued)
$ 285 New York State Energy Research and Development Authority, Electric 1/03 at 102 A- $ 295,072
Facilities Revenue Bonds (Long Island Lighting Company Project),
1992 Series D, 6.900%, 8/01/22 (Alternative Minimum Tax)
2,435 New York State Energy Research and Development Authority, Adjustable 7/05 at 102 AAA 2,442,594
Rate Pollution Control Revenue Bonds (New York State Electric and
Gas Corporation Project), 1987 Series A, 6.150%, 7/01/26
(Alternative Minimum Tax)
1,500 New York State Energy Research and Development Authority, Facilities 7/05 at 102 AAA 1,514,760
Refunding Revenue Bonds, Series 1995 A (Consolidated Edison Company of
New York, Inc. Project), 6.100%, 8/15/20
750 Onondaga County Resource Recovery Agency, System Revenue Bonds 5/02 at 102 Baa1 764,540
(Development Costs - 1992 Series), 7.000%, 5/01/15
(Alternative Minimum Tax)
- - -----------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 1.0%
2,855 New York City, Municipal Water Finance Authority, Water and Sewer 6/07 at 101 AAA 2,513,023
System Revenue Bonds, 1998 Series B, 5.250%, 6/15/29
- - -----------------------------------------------------------------------------------------------------------------------------------
$253,970 Total Investments - (cost $245,274,953) - 98.5% 246,606,821
============-----------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 1.5% 3,731,394
--------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $250,338,215
====================================================================================================================
</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.
See accompanying notes to financial statements.
24
<PAGE>
Portfolio of Investments
Nuveen New York Insured Municipal Bond Fund
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Education and Civic Organizations - 9.8%
$ 1,000 Allegany County Industrial Development Agency (New York), Civic 8/08 at 102 Aaa $ 847,450
Facility Revenue Bonds, Series 1998 (Alfred University Civic
Facility), 5.000%, 8/01/28
1,350 Town of Hempstead Industrial Development Agency, Civic Facility 7/06 at 102 AAA 1,354,739
Revenue Bonds (Hofstra University Project - Series 1996),
5.800%, 7/01/15
1,000 New York City Industrial Development Agency, Civic Facility Revenue 11/04 at 102 AAA 1,047,880
Bonds (USTA National Tennis Center Incorporated Project),
6.375%, 11/15/14
1,145 New York City Industrial Development Agency, Civic Facility Revenue 6/07 at 102 Aaa 1,112,471
Bonds (Anti-Defamation League Foundation Project),
Series 1997A, 5.600%, 6/01/17
225 Dormitory Authority of the State of New York, College and 6/00 at 101 1/2 AAA 230,222
University Revenue (Pooled Capital Program), Series 1985,
7.800%, 12/01/05
5,000 Dormitory Authority of the State of New York, New York University 7/01 at 102 AAA 5,199,650
Insured Revenue Bonds, Series 1991, 6.250%, 7/01/09
4,640 Dormitory Authority of the State of New York, Mount Sinai School of 7/04 at 102 AAA 3,968,499
Medicine Insured Revenue Bonds, Series 1994A, 5.000%, 7/01/21
1,500 Dormitory Authority of the State of New York, Sarah Lawrence 7/05 at 102 AAA 1,498,905
College Revenue Bonds, Series 1995, 6.000%, 7/01/24
5,000 Dormitory Authority of the State of New York, State University 5/06 at 102 AAA 4,618,700
Educational Facilities Revenue Bonds, Series 1996, 5.500%,
5/15/26
2,925 Dormitory Authority of the State of New York, Siena College Insured 7/07 at 102 AAA 2,822,918
Revenue Bonds, Series 1997, 5.750%, 7/01/26
4,000 Dormitory Authority of the State of New York, Fordham University 7/08 at 101 AAA 3,390,800
Insured Revenue Bonds, Series 1998, 5.000%, 7/01/28
2,530 Dormitory Authority of the State of New York, City University 7/08 at 101 AAA 2,181,568
System Consolidated Third General Resolution Revenue Bonds,
1998 Series 2, 5.000%, 7/01/23
1,760 Dormitory Authority of the State of New York, City University 7/00 at 102 AAA 1,812,026
System Consolidated Second General Resolution Revenue Bonds,
Series 1990C, 7.000%, 7/01/14
3,000 Dormitory Authority of the State of New York, Ithaca College 7/08 at 101 Aaa 2,613,690
Insured Revenue Bonds, Series 1998, 5.000%, 7/01/21
- - -----------------------------------------------------------------------------------------------------------------------------------
Health Care - 15.2%
13,730 New York City Health and Hospitals Corporation, Health System 2/03 at 102 AAA 13,160,342
Bonds, 1993 Series A, 5.750%, 2/15/22
6,460 Dormitory Authority of the State of New York, St. Vincent's 8/05 at 102 AAA 6,190,812
Hospital and Medical Center of New York, FHA-Insured Mortgage
Revenue Bonds, Series 1995, 5.800%, 8/01/25
3,730 Dormitory Authority of the State of New York, Maimonides Medical 2/06 at 102 AAA 3,613,363
Center, FHA-Insured Mortgage Hospital Revenue Bonds, Series
1996A, 5.750%, 8/01/24
2,500 Dormitory Authority of the State of New York, Secured Hospital 2/08 at 101 1/2 AAA 2,117,275
Insured Revenue Bonds (Southside Hospital), Series 1998,
5.000%, 2/15/25
3,000 Dormitory Authority of the State of New York (North Shore Health 11/08 at 101 AAA 2,550,990
System Obligated Group), North Shore University Hospital
Revenue Bonds, Series 1998, 5.000%, 11/01/23
Dormitory Authority of the State of New York (Catholic Health Services
of Long Island Obligated Group), St. Francis Hospital Revenue Bonds,
Series 1999A:
3,105 5.500%, 7/01/22 7/09 at 101 AAA 2,880,881
2,260 5.500%, 7/01/29 7/09 at 101 AAA 2,059,900
1,000 Dormitory Authority of the State of New York, New Island Hospital 7/09 at 101 AAA 965,430
Insured Revenue Bonds, Series 1999A, 5.750%, 7/01/19
</TABLE>
25
<PAGE>
Portfolio of Investments
Nuveen New York Insured Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
$3,000 New York State Medical Care Facilities Finance Agency, South Nassau 11/02 at 102 AAA $ 3,118,950
Communities Hospital Project Revenue Bonds, 1992 Series A,
6.125%, 11/01/11
3,200 New York State Medical Care Facilities Finance Agency, North Shore 11/00 at 102 AAA 3,328,064
University Hospital Mortgage Project Revenue Bonds, 1990 Series A,
7.200%, 11/01/20
1,670 New York State Medical Care Facilities Finance Agency, Our Lady of 11/01 at 102 AAA 1,742,929
Victory 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 6.600%, 11/01/10 11/01 at 102 AAA 522,635
1,550 6.625%, 11/01/18 11/01 at 102 AAA 1,612,558
1,000 New York State Medical Care Facilities Finance Agency, Aurelia Osborn 11/01 at 102 AAA 1,050,210
Fox Memorial Hospital Project Revenue Bonds, 1992 Series A,
6.500%, 11/01/19
2,500 New York State Medical Care Facilities Finance Agency, St. Mary's 11/03 at 102 AAA 2,588,975
Hospital (Rochester) Mortgage Project Revenue Bonds, 1994 Series A
Refunding, 6.200%, 11/01/14
645 New York State Medical Care Facilities Finance Agency, Hospital and 8/00 at 101 AA 659,235
Nursing Home Insured Mortgage Revenue Bonds, 1989 Series B,
7.350%, 2/15/29
2,890 New York State Medical Care Facilities Finance Agency, Montefiore 2/05 at 102 AAA 2,857,112
Medical Center, FHA-Insured Mortgage Revenue Bonds, 1995 Series A,
5.750%, 2/15/15
- - -----------------------------------------------------------------------------------------------------------------------------------
Housing/Multifamily - 9.2%
5,000 New York City Housing Development Corporation, Multifamily Housing 3/00 at 105 AAA 5,259,650
Limited Obligation Bonds, Series 1991A, Pass Through Certificates,
6.500%, 2/20/19
New York State Finance Agency, Housing Project Mortgage Revenue Bonds,
1996 Series A Refunding:
5,650 6.100%, 11/01/15 5/06 at 102 AAA 5,721,868
4,980 6.125%, 11/01/20 5/06 at 102 AAA 4,976,564
635 New York State Housing Finance Agency, Multi-Family Housing Revenue 5/00 at 102 AAA 648,824
Bonds (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 6.700%, 1/01/12 1/02 at 102 AAA 4,037,418
9,650 6.750%, 1/01/26 1/02 at 102 AAA 10,069,100
- - -----------------------------------------------------------------------------------------------------------------------------------
Long-Term Care - 1.8%
4,250 Village of East Rochester Housing Authority, FHA-Insured Mortgage 8/07 at 102 AAA 4,025,260
Revenue Bonds (St. John's Meadows Project), Series 1997A,
5.700%, 8/01/27
1,000 Dormitory Authority of the State of New York, United Cerebral Palsy 7/02 at 102 AAA 1,037,330
Association of Westchester County, Inc. Insured Revenue Bonds,
Series 1992, 6.200%, 7/01/12
1,000 Dormitory Authory of the State of New York, Sarah Neuman Nursing Home, 8/07 at 102 AAA 914,020
FHA-Insured Mortgage Nursing Home Revenue Bonds, Series 1997,
5.450%, 8/01/27
- - -----------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/General - 8.8%
1,000 City of Buffalo, New York, Refunding Serial Bonds of 1991, 2/01 at 101 AAA 1,020,240
6.150%, 2/01/04
Camden Central School District, Oneida County, New York, School District
(Serial) Bonds of 1991:
500 7.100%, 6/15/07 No Opt. Call AAA 558,035
600 7.100%, 6/15/08 No Opt. Call AAA 675,180
600 7.100%, 6/15/09 No Opt. Call AAA 680,328
275 7.100%, 6/15/10 No Opt. Call AAA 312,920
500 Greece Central School District, Monroe County, New York, General No Opt. Call AAA 528,200
Obligation Bonds, School District (Serial) Bonds of 1992,
6.000%, 6/15/09
Town of Halfmoon, Saratoga County, New York, Public Improvement (Serial)
Bonds of 1991:
385 6.500%, 6/01/09 No Opt. Call AAA 423,292
395 6.500%, 6/01/10 No Opt. Call AAA 436,041
395 6.500%, 6/01/11 No Opt. Call AAA 437,585
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax Obligation/General (continued)
Middle County Central School District at Centereach, In the Town of
Brookhaven, Suffolk County, New York, School District (Serial)
Bonds of 1991:
$ 475 6.900%, 12/15/07 No Opt. Call AAA $ 526,576
475 6.900%, 12/15/08 No Opt. Call AAA 531,259
Mount Sinai Union Free School District, County of Suffolk, New York,
School District Refunding (Serial) Bonds of 1992:
500 6.200%, 2/15/15 No Opt. Call AAA 531,940
1,035 6.200%, 2/15/16 No Opt. Call AAA 1,099,367
1,500 County of Nassau, New York, General Obligation Serial Bonds, 8/04 at 103 AAA 1,511,835
General Improvement Bonds, Series O, 5.700%, 8/01/13
1,020 City of New Rochelle, Westchester County, New York, General Obligation 8/04 at 102 AAA 1,036,483
Public Improvement Bonds, 1994 Series B, 6.200%, 8/15/22
60 The City of New York, General Obligation Bonds, Fiscal 1992 Series C 8/02 at 101 1/2 AAA 62,650
Fixed Rate Bonds, Subseries C-1, 6.250%, 8/01/10
20 The City of New York, General Obligation Bonds, Fiscal 1992 Series C, 8/02 at 101 1/2 AAA 21,024
6.625%, 8/01/12
The City of New York, General Obligation Bonds, Fiscal 1990 Series B:
1,300 7.000%, 10/01/15 4/00 at 100 AAA 1,303,146
1,025 7.000%, 10/01/17 4/00 at 100 AAA 1,027,665
310 7.000%, 10/01/18 4/00 at 100 AAA 310,685
2,000 The City of New York, General Obligation Bonds, Fiscal 1990 Series B, 4/00 at 100 AAA 2,005,200
7.000%, 10/01/16
5,000 The City of New York, General Obligation Bonds, Fiscal 1998 Series H, 8/08 at 101 AAA 4,371,150
5.125%, 8/01/25
1,590 City of Niagara Falls, Niagara County, New York, Public Improvement 3/04 at 102 AAA 1,698,486
(Serial) Bonds of 1994, 6.900%, 3/01/21
1,505 Town of North Hempstead, Nassau County, New York, General Obligation No Opt. Call AAA 1,638,825
Refunding Serial Bonds, Refunding Serial Bonds of 1992, Series B,
6.400%, 4/01/14
Rensselaer County, New York, General Obligation Serial Bonds, Series 1991:
960 6.700%, 2/15/13 No Opt. Call AAA 1,073,798
960 6.700%, 2/15/14 No Opt. Call AAA 1,072,714
960 6.700%, 2/15/15 No Opt. Call AAA 1,069,632
Rondout Valley Central School District at Accord, Ulster County, New York,
General Obligation School District (Serial) Bonds of 1991:
550 6.800%, 6/15/06 No Opt. Call AAA 599,715
550 6.850%, 6/15/07 No Opt. Call AAA 606,100
550 6.850%, 6/15/08 No Opt. Call AAA 610,572
550 6.850%, 6/15/09 No Opt. Call AAA 614,312
550 6.850%, 6/15/10 No Opt. Call AAA 615,846
600 County of Suffolk, New York, General Obligation Refunding (Serial) Bonds, 5/02 at 102 AAA 622,218
Improvement Refunding Bonds, 1993 Series B, 6.150%, 5/01/10
- - ------------------------------------------------------------------------------------------------------------------------------------
Tax Obligation/Limited - 13.8%
2,500 Metropolitan Transportation Authority, Dedicated Tax Fund Bonds, 4/07 at 101 AAA 2,219,675
Series 1996A, 5.250%, 4/01/26
2,000 Metropolitan Transportation Authority, Dedicated Tax Fund Bonds, 4/10 at 100 AAA 2,000,620
Series 2000A, 6.000%, 4/01/30
3,000 New York City Transitional Finance Authority, Future Tax Secured Bonds, 5/10 at 101 AAA 3,011,280
Fiscal 2000 Series B, 6.000%, 11/15/24
5,000 Dormitory Authority of the State of New York, Municipal Health 1/09 at 101 AAA 4,284,900
Facilities Improvement Program, Lease Revenue Bonds (New York City
Issue), 1998 Series 1, 5.000%, 1/15/23
1,750 Dormitory Authority of the State of New York, Office Facilities 4/09 at 101 AAA 1,640,275
Lease Revenue Bonds (Department of Audit and Control), Series 1999,
5.500%, 4/01/23
2,500 Dormitory Authority of the State of New York, Court Facilities 5/10 at 101 AAA 2,411,350
Lease Revenue Bonds (The City of New York Issue), Series 1999,
5.750%, 5/15/30
2,500 Dormitory Authority of the State of New York, Mental Health 8/07 at 101 AAA 2,170,825
Services Facilities Improvement Revenue Bonds, Series 1997D,
5.125%, 8/15/27
</TABLE>
27
<PAGE>
Portfolio of Investments
Nuveen New York Insured Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
Tax Obligation/Limited (continued)
$ 3,400 Dormitory Authority of the State of New York, Mental Health 8/09 at 101 AAA $2,973,980
Services Facilities Improvement Revenue Bonds, Series 1999D,
5.250%, 2/15/29
3,280 New York Local Government Assistance Corporation, Series 1993 4/04 at 100 AAA 2,812,534
B Refunding Bonds, 5.000%, 4/01/23
1,000 New York State Medical Care Facilities Finance Agency, Mental 8/04 at 102 AAA 1,063,560
Health Services Facilities Improvement Revenue Bonds, 1994
Series D, 6.150%, 2/15/15
2,000 New York State Medical Care Facilities Finance Agency, Mental 2/04 at 102 AAA 1,765,520
Health Services Facilities Improvement Revenue Bonds, 1994
Series A, 5.250%, 8/15/23
185 New York State Medical Care Facilities Finance Agency, Mental 2/02 at 102 AAA 187,024
Health Services Facilities Improvement Revenue Bonds, 1992
Series B, 6.250%, 8/15/18
150 New York State Medical Care Facilities Finance Agency, Mental 2/02 at 102 AAA 155,727
Health Services Facilities Improvement Revenue Bonds, 1992
Series A, 6.375%, 8/15/17
2,000 New York State Medical Care Facilities Finance Agency, Mental 2/04 at 102 AAA 1,796,980
Health Services Facilities Improvement Revenue Bonds, 1993
Series F Refunding, 5.250%, 2/15/19
4,000 New York State Urban Development Corporation, Revenue Bonds 4/06 at 102 AAA 3,780,760
(Sports Facility Assistance Program), 1996 Series A, 5.500%,
4/01/19
5,000 New York State Urban Development Corporation, Correctional 1/09 at 101 AAA 5,001,350
Facilities Service Contract Revenue Bonds, Series C, 6.000%,
1/01/29
8,650 Triborough Bridge and Tunnel Authority, Special Obligation 1/01 at 102 AAA 8,959,497
Refunding Bonds, Series 1991B, 6.875%, 1/01/15
- - ------------------------------------------------------------------------------------------------------------------------------------
Transportation - 8.3%
2,500 Albany County Airport Authority, Airport Revenue Bonds, 12/07 at 102 AAA 2,327,350
Series 1997, 5.500%, 12/15/19 (Alternative Minimum Tax)
3,000 Buffalo and Fort Erie Public Bridge Authority, Toll Bridge 1/05 at 101 AAA 2,894,130
System Revenue Bonds, Series 1995, 5.750%, 1/01/25
4,000 Metropolitan Transportation Authority (New York), Commuter 7/05 to 101 AAA 3,835,720
Facilities Subordinated Revenue Bonds, Series 1995-2
(Grand Central Terminal Redevelopment Project), 5.700%,
7/01/24
3,000 Metropolitan Transportation Authority (New York), Commuter 7/07 at 101 AAA 2,925,960
Facilities Revenue Bonds, Series 1997A, 5.750%, 7/01/21
3,000 Metropolitan Transportation Authority (New York), Commuter 7/07 at 102 AAA 2,622,750
Facilities Revenue Bonds, Series 1997B, 5.125%, 7/01/24
2,000 Metropolitan Transportation Authority (New York), Commuter 7/07 at 101 AAA 1,805,660
Facilities Revenue Bonds, Series 1997C, 5.375%, 7/01/27
3,500 Metropolitan Transportation Authority, Commuter Facilities 7/07 at 101 AAA 3,030,545
International Airport), Revenue Bonds, Series 1997E, 5.000%,
7/01/21
Niagara Frontier Transportation Authority (Buffalo Niagara
Airport Revenue Bonds, Series 1998:
1,000 5.000%, 4/01/18 (Alternative Minimum Tax) 4/08 at 101 AAA 872,990
1,000 5.000%, 4/01/28 (Alternative Minimum Tax) 4/08 at 101 AAA 831,210
1,000 Niagara Frontier Transportation Authority (Buffalo Niagara 4/09 at 101 AAA 932,420
International Airport), Airport Revenue Bonds, Series 1999A,
5.625%, 4/01/29 (Alternative Minimum Tax)
3,000 The Port Authority of New York and New Jersey, Special Project 12/07 at 100 AAA 2,888,640
Bonds, Series 6, JFK International Air Terminal LLC Project, 5.750%,
12/01/25 (Alternative Minimum Tax)
2,750 Triborough Bridge and Tunnel Authority, General Purpose Revenue 1/02 at 101 AAA 2,811,820
Bonds, Series X, 6.500%, 1/01/19
- - ------------------------------------------------------------------------------------------------------------------------------------
U.S. Guaranteed - 22.5%
3,385 Buffalo Municipal Water Finance Authority, Water System Revenue Bonds, 7/03 at 102 AAA 3,540,135
Series 1992, 5.750%, 7/01/19 (Pre-refunded to 7/01/03)
1,000 Erie County Water Authority (New York), Water Works System Revenue Bonds, 12/09 at 100 AAA 1,101,600
Series 1990B, 6.750%, 12/01/14
10,340 Metropolitan Transportation Authority, Transit Facilities Revenue Bonds, 7/02 at 102 AAA 10,938,272
Series J, 6.500%, 7/01/18 (Pre-refunded to 7/01/02)
28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Guaranteed (continued)
Public Improvement Serial Bonds of 1992, County of Monroe, New York,
General Obligation Bonds:
$ 375 6.500%, 6/01/15 (Pre-refunded to 6/01/01) 6/01 at 102 AAA $ 391,875
375 6.500%, 6/01/16 (Pre-refunded to 6/01/01) 6/01 at 102 AAA 391,875
350 6.500%, 6/01/17 (Pre-refunded to 6/01/01) 6/01 at 102 AAA 365,750
4,840 Nassau County Industrial Development Agency, Civic Facility Revenue 8/01 at 102 AAA 5,083,984
Bonds (Hofstra University Project - Series 1991), 6.750%, 8/01/11
(Pre-founded to 8/01/01)
The City of New York, General Obligation Bonds, Fiscal 1992 Series C
Fixed Rate Bonds, Subseries C-1:
3,940 6.250%, 8/01/10 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 4,132,469
55 6.625%, 8/01/12 (Pre-refunded to 8/01/02) 8/02 at 101 1/2 AAA 58,154
2,000 New York City Municipal Water Finance Authority, Water and Sewer 6/01 at 101 AAA 2,077,880
Revenue Bonds, Fiscal 1992 Series A, 6.750%, 6/15/16
(Pre-refunded to 6/15/01)
2,200 The Trust for Cultural Resources of the City of New York, Revenue 4/01 at 102 AAA 2,304,390
Refunding Bonds, Series 1991A (The American Museum of Natural
History), 6.900%, 4/01/21 (Pre-refunded to 4/01/01)
1,000 Dormitory Authority of the State of New York, Manhattanville College 7/00 at 102 AAA 1,031,220
Insured Revenue Bonds, Series 1990, 7.500%, 7/01/22
(Pre-refunded to 7/01/00)
6,295 Dormitory Authority of the State of New York, City University System 7/00 at 102 AAA 6,491,530
Consolidated Second General Resolution Revenue Bonds, Series 1990F,
7.500%, 7/01/20 (Pre-refunded to 7/01/00)
2,500 Dormitory Authority of the State of New York, Cooper Union Insured 7/01 at 102 AAA 2,636,500
Revenue Bonds, Series 1990, 7.200%, 7/01/20 (Pre-refunded to 7/01/01)
1,000 Dormitory Authority of the State of New York, Fordham University 7/00 at 102 AAA 1,030,270
Insured Revenue Bonds, Series 1990, 7.200%, 7/01/15
(Pre-refunded to 7/01/00)
2,630 New York State Medical Care Facilities Finance Agency, Mental Health 2/02 at 102 AAA 2,753,216
Services Facilities Improvement Revenue Bonds, 1992 Series B, 6.250%,
8/15/18 (Pre-refunded to 2/15/02)
7,000 New York State Medical Care Facilities Finance Agency, New York 2/05 at 102 AAA 7,645,680
Hospital FHA-Insured Mortgage Revenue Bonds, 1994 Series A, 6.800%,
8/15/24 (Pre-refunded to 2/15/05)
6,000 New York State Medical Care Facilities Finance Agency, Mental Health 2/02 at 102 AAA 6,291,540
Services Facilities Improvement Revenue Bonds, 1992 Series A, 6.375%,
8/15/17 (Pre-refunded to 2/15/02)
2,000 Power Authority of the State of New York, General Purpose Bonds, 1/02 at 102 AAA 2,100,540
Series Z, 6.500%, 1/01/19 (Pre-refunded to 1/01/02)
7,300 New York State Thruway Authority, General Revenue Bonds, Series A, 1/02 at 102 AAA 7,566,377
5.750%, 1/01/19 (Pre-refunded to 1/01/02)
Town of North Hempstead, Nassau County, New York, Public Improvement
(Serial) Bonds of 1991, Series B:
425 6.800%, 6/01/10 (Pre-refunded to 6/01/00) 6/00 at 102 AAA 436,365
425 6.800%, 6/01/11 (Pre-refunded to 6/01/00) 6/00 at 102 AAA 436,365
Nyack Union Free School District, Rockland County, New York, School
District Serial Bonds of 1992:
625 6.500%, 4/01/12 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 658,894
625 6.500%, 4/01/13 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 658,894
625 6.500%, 4/01/14 (Pre-refunded to 4/01/02) 4/02 at 102 AAA 658,894
2,000 Triborough Bridge and Tunnel Authority, General Purpose Revenue 1/01 at 102 AAA 2,085,440
Bonds, Series T, 7.000%, 1/01/20 (Pre-refunded to 1/01/01)
1,175 Triborough Bridge and Tunnel Authority, General Purpose Revenue 1/01 at 101 1/2 AAA 1,219,521
Bonds, Series S, 7.000%, 1/01/21 (Pre-refunded to 1/01/01)
1,750 City of Yonkers, New York, General Obligation School Bonds, Series 12/00 at 102 AAA 1,826,633
1990-C, 7.375%, 12/01/09 (Pre-refunded to 12/01/00)
- - ------------------------------------------------------------------------------------------------------------------------------------
Utilities - 2.5%
Long Island Power Authority, Electric System General Revenue Bonds,
Series 1998A:
6,520 0.000%, 12/01/19 No Opt. Call AAA 1,987,426
4,000 5.125%, 12/01/22 6/08 at 101 AAA 3,520,920
1,000 5.750%, 12/01/24 6/08 at 101 AAA 968,500
</TABLE>
29
<PAGE>
Portfolio of Investments
Nuveen New York Insured Municipal Bond Fund (continued)
February 29, 2000
<TABLE>
<CAPTION>
Principal Optional Call Market
Amount (000) Description Provisions* Ratings** Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Utilities (continued)
$ 2,000 New York State Energy Research and Development Authority, Adjustable 7/05 at 102 AAA $ 2,006,240
Rate Pollution Control Revenue Bonds (New York State Electric and Gas
Corporation Project), 1987 Series A, 6.150%, 7/01/26 (Alternative
Minimum Tax)
- - ------------------------------------------------------------------------------------------------------------------------------------
Water and Sewer - 7.7%
2,930 Buffalo Municipal Water Finance Authority, Water System Revenue 7/08 at 101 AAA 2,483,760
Bonds, Series 1998-A, 5.000%, 7/01/28
7,000 New York City Municipal Water Finance Authority, Water and Sewer 6/06 at 101 AAA 6,755,770
System Revenue Bonds, Fiscal 1996 Series B, 5.750%, 6/15/26
1,250 New York City Municipal Water Finance Authority, Water and Sewer 6/01 at 101 AAA 1,290,000
System Revenue Bonds, Fiscal 1992 Series A, 6.750%, 6/15/16
2,500 New York City Municipal Water Finance Authority, Water and Sewer 6/02 at 101 1/2 AAA 2,462,250
System Revenue Bonds, Fiscal 1993 Series A, 5.750%, 6/15/18
4,650 New York City Municipal Water Finance Authority, Water and Sewer 6/02 at 100 AAA 4,371,000
System Revenue Bonds, Fiscal 1993 Series A, 5.500%, 6/15/20
3,000 New York City Municipal Water Finance Authority, Water and Sewer 6/07 at 101 AAA 2,640,660
System Revenue Bonds, Fiscal 1998 Series B, 5.250%, 6/15/29
1,450 New York State Environmental Facilities Corporation, State Water 3/00 at 102 AAA 1,482,330
Pollution Control Revolving Fund Revenue Bonds, Series 1990 C
(Pooled Loan Issue), 7.200%, 3/15/11
1,000 Suffolk County Industrial Development Agency (Suffolk County, 2/04 at 101 AAA 941,240
New York), Suffolk County Southwest Sewer System Revenue Bonds,
Series 1994, 4.750%, 2/01/09
3,700 Suffolk County Water Authority, New York, Water System Revenue 6/03 at 102 AAA 3,278,050
Bonds, Series 1994, 5.000%, 6/01/17
- - ------------------------------------------------------------------------------------------------------------------------------------
$ 344,425 Total Investments - (cost $331,724,215) - 99.6% 334,159,693
============------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities - 0.4% 1,193,971
---------------------------------------------------------------------------------------------------------------------
Net Assets - 100% $335,353,664
=====================================================================================================================
</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.
See accompanying notes to financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
Statement of Net Assets
February 29, 2000
<S> <C> <C> <C>
New York
New Jersey New York Insured
- - ---------------------------------------------------------------------------------------------------------------
Assets
Investments in municipal securities, at market value $109,337,045 $246,606,821 $334,159,693
Cash -- 4,634,676 --
Receivables:
Interest 1,503,109 3,342,770 3,771,406
Investments sold -- 556,127 289,567
Shares sold 52,789 688,997 52,940
Other assets 811 2,425 5,888
- - ---------------------------------------------------------------------------------------------------------------
Total assets 110,893,754 255,831,816 338,279,494
- - ---------------------------------------------------------------------------------------------------------------
Liabilities
Cash overdraft 386,564 -- 668,690
Payables:
Investments purchased -- 4,103,652 --
Shares redeemed 63,187 547,857 992,857
Accrued expenses:
Management fees 74,038 18,110 143,463
12b-1 distribution and service fees 23,034 33,410 23,433
Other 107,002 52,264 103,210
Dividends payable 259,869 738,308 994,177
- - ---------------------------------------------------------------------------------------------------------------
Total liabilities 913,694 5,493,601 2,925,830
- - ---------------------------------------------------------------------------------------------------------------
Net assets $109,980,060 $250,338,215 $335,353,664
===============================================================================================================
Class A Shares
Net assets $ 46,234,809 $ 81,857,280 $ 54,363,828
Shares outstanding 4,753,197 8,050,985 5,464,981
Net asset value and redemption price per share $ 9.73 $ 10.17 $ 9.95
Offering price per share (net asset value per share plus
maximum sales charge of 4.20% of offering price) $ 10.16 $ 10.62 $ 10.39
===============================================================================================================
Class B Shares
Net assets $ 13,680,572 $ 19,803,454 $ 15,893,355
Shares outstanding 1,407,427 1,945,690 1,595,990
Net asset value, offering and redemption price per share $ 9.72 $ 10.18 $ 9.96
===============================================================================================================
Class C Shares
Net assets $ 10,007,089 $ 10,374,124 $ 4,627,401
Shares outstanding 1,031,800 1,017,117 465,480
Net asset value, offering and redemption price per share $ 9.70 $ 10.20 $ 9.94
===============================================================================================================
Class R Shares
Net assets $ 40,057,590 $138,303,357 $260,469,080
Shares outstanding 4,118,798 13,562,878 26,165,983
Net asset value, offering and redemption price per share $ 9.73 $ 10.20 $ 9.95
===============================================================================================================
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
Statement of Operations
Year Ended February 29, 2000
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment Income $ 6,838,538 $ 15,515,226 $ 21,131,930
- - ------------------------------------------------------------------------------------------------------------------
Expenses
Management fees 655,578 1,382,433 1,922,386
12b-1 service fees - Class A 103,268 161,150 110,560
12b-1 distribution and service fees - Class B 129,126 153,449 154,721
12b-1 distribution and service fees - Class C 79,627 69,761 32,715
Shareholders' servicing agent fees and expenses 137,520 220,957 309,279
Custodian's fees and expenses 68,386 97,369 92,561
Trustees' fees and expenses 3,562 4,596 8,445
Professional fees 1,630 1,650 12,893
Shareholders' reports - printing and mailing expenses 66,454 42,878 133,638
Federal and state registration fees 2,560 348 7,303
Portfolio insurance expense -- -- 6,588
Other expenses 6,313 11,523 14,298
- - ------------------------------------------------------------------------------------------------------------------
Total expenses before custodian fee credit and expense reimbursement 1,254,024 2,146,114 2,805,387
Custodian fee credit (18,630) (21,145) (8,726)
Expense reimbursement (71,000) (711,646) --
- - ------------------------------------------------------------------------------------------------------------------
Net expenses 1,164,394 1,413,323 2,796,661
- - ------------------------------------------------------------------------------------------------------------------
Net investment income 5,674,144 14,101,903 18,335,269
- - ------------------------------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss) from Investments
Net realized gain (loss) from investment transactions (442,612) (777,587) (516,349)
Net change in unrealized appreciation or depreciation of investments (9,982,626) (19,650,813) (26,997,720)
- - ------------------------------------------------------------------------------------------------------------------
Net gain (loss) from investments (10,425,238) (20,428,400) (27,514,069)
- - ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations $ (4,751,094) $ (6,326,497) $ (9,178,800)
==================================================================================================================
</TABLE>
See accompanying notes to financial statements.
32
<PAGE>
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
New Jersey
-------------------------
Year Ended Year Ended
2/29/00 2/28/99
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------
Operations
Net investment income $ 5,674,144 $ 5,254,037
Net realized gain (loss) from investment transactions (442,612) 115,134
Net change in unrealized appreciation or depreciation of investments (9,982,626) (239,717)
- - -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (4,751,094) 5,129,454
- - -------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (2,490,807) (2,238,254)
Class B (549,377) (289,199)
Class C (455,400) (361,714)
Class R (2,180,089) (2,367,199)
From accumulated net realized gains from investment transactions:
Class A -- --
Class B -- --
Class C -- --
Class R -- --
- - -------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (5,675,673) (5,256,366)
- - -------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from shares issued in the reorganization of New Jersey Intermediate -- 10,490,003
Net proceeds from sale of shares 23,313,205 32,345,835
Net proceeds from shares issued to shareholders due to reinvestment of distributions 3,366,469 3,178,514
- - -------------------------------------------------------------------------------------------------------------------
26,679,674 46,014,352
Cost of shares redeemed (27,406,311) (14,067,767)
- - -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions (726,637) 31,946,585
- - -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (11,153,404) 31,819,673
Net assets at the beginning of year 121,133,464 89,313,791
- - -------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $109,980,060 $121,133,464
===================================================================================================================
Balance of undistributed net investment income at the end of year $ 656 $ 2,185
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
33
<PAGE>
Statement of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
New York New York Insured
------------------------- -------------------------
Year Ended Year Ended Year Ended Year Ended
2/29/00 2/28/99 2/29/00 2/28/99
- - ---------------------------------------------------------------------------------------------------------------------------------
Operations
<S> <C> <C> <C> <C>
Net investment income $ 14,101,903 $ 12,946,294 $ 18,335,269 $ 18,001,673
Net realized gain (loss) from investment transactions (777,587) 1,767,488 (516,349) 2,051,978
Net change in unrealized appreciation or depreciation of investments (19,650,813) (482,766) (26,997,720) (1,737,215)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from operations (6,326,497) 14,231,016 (9,178,800) 18,316,436
- - ---------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders
From undistributed net investment income:
Class A (4,361,271) (3,991,380) (2,744,482) (2,291,771)
Class B (757,621) (318,702) (682,606) (375,855)
Class C (452,805) (328,331) (194,703) (124,512)
Class R (8,347,109) (8,212,001) (14,463,882) (15,260,254)
From accumulated net realized gains from investment transactions:
Class A (171,256) -- (21,641) (130,963)
Class B (38,412) -- (6,843) (31,353)
Class C (20,085) -- (1,774) (8,852)
Class R (305,575) -- (105,965) (822,078)
- - ---------------------------------------------------------------------------------------------------------------------------------
Decrease in net assets from distributions to shareholders (14,454,134) (12,850,414) (18,221,896) (19,045,638)
- - ---------------------------------------------------------------------------------------------------------------------------------
Fund Share Transactions
Net proceeds from sale of shares 51,408,121 32,108,889 31,304,562 30,426,780
Net proceeds from shares issued to shareholders
due to reinvestment of distributions 8,466,145 7,870,186 12,335,565 13,375,740
- - ---------------------------------------------------------------------------------------------------------------------------------
59,874,266 39,979,075 43,640,127 43,802,520
Cost of shares redeemed (47,492,353) (31,347,095) (52,615,589) (38,003,474)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from Fund share transactions 12,381,913 8,631,980 (8,975,462) 5,799,046
- - ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (8,398,718) 10,012,582 (36,376,158) 5,069,844
Net assets at the beginning of year 258,736,933 248,724,351 371,729,822 366,659,978
- - ---------------------------------------------------------------------------------------------------------------------------------
Net assets at the end of year $250,338,215 $258,736,933 $335,353,664 $371,729,822
=================================================================================================================================
Balance of undistributed net investment income at the end of year $ 284,255 $ 101,158 $ 313,071 $ 63,475
=================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
Notes to Financial Statements
1. General Information and Significant Accounting Policies
The Nuveen Flagship Multistate Trust II (the "Trust") is an open-end investment
company registered under the Investment Company Act of 1940, as amended. The
Trust comprises the Nuveen Flagship New Jersey Municipal Bond Fund ("New
Jersey"), Nuveen Flagship New York Municipal Bond Fund ("New York") and the
Nuveen New York Insured Municipal Bond Fund ("New York Insured") (collectively
"the Funds"), among others. The Trust was organized as a Massachusetts business
trust on July 1, 1996.
After the close of business on September 11, 1998, Nuveen Flagship New Jersey
Intermediate Municipal Bond Fund ("New Jersey Intermediate") reorganized into
New Jersey as approved by the shareholders of New Jersey Intermediate on August
13, 1998.
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
accounting principles generally accepted in the United States.
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 29, 2000, there were no such outstanding purchase commitments in any of
the Funds.
Investment 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 monthly as a dividend and payment
is made or reinvestment is 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.
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 designated state income taxes, to retain such
tax-exempt status when distributed to the shareholders of the Funds. All monthly
tax-exempt income dividends paid during the fiscal year ended February 29, 2000,
have been designated Exempt Interest Dividends. Net realized capital gains and
market discount distributions are subject to federal taxation.
35
<PAGE>
Notes to Financial Statements (continued)
Insurance
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, 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 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 only under limited circumstances, or by specified classes
of investors.
Derivative Financial Instruments
The Funds may invest in certain derivative financial instruments including
futures, forward, swap, and option contracts, and other financial instruments
with similar characteristics. Although the Funds are authorized to invest in
such financial instruments, and may do so in the future, they did not make any
such investments during the fiscal year ended February 29, 2000.
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.
Custodian Fee Credit
Each Fund has an agreement with the custodian bank whereby the custodian fees
and expenses are reduced by credits earned on each Fund's cash on deposit with
the bank. Such deposit arrangements are an alternative to overnight investments.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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. Actual
results may differ from those estimates.
36
<PAGE>
2. Fund Shares
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
New Jersey
----------------------------------------------------
Year Ended 2/29/00 Year Ended 2/28/99
------------------------ -------------------------
Shares Amount Shares Amount
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares issued in the reorganization of
New Jersey Intermediate:
Class A -- $ -- 853,955 $ 9,095,179
Class C -- -- 112,286 1,193,933
Class R -- -- 18,846 200,891
Shares sold:
Class A 1,031,880 10,382,720 1,377,846 14,619,825
Class B 613,401 6,270,631 839,961 8,903,892
Class C 360,453 3,684,927 416,475 4,399,120
Class R 293,764 2,974,927 419,192 4,422,998
Shares issued to shareholders due to
reinvestment of distributions:
Class A 132,266 1,345,915 113,228 1,200,274
Class B 24,234 245,622 11,053 117,220
Class C 22,706 229,919 18,796 198,846
Class R 151,879 1,545,013 156,770 1,662,174
- - ------------------------------------------------------------------------------------------------------
2,630,583 26,679,674 4,338,408 46,014,352
- - ------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (1,450,515) (14,400,959) (678,226) (7,190,108)
Class B (303,073) (3,009,282) (59,129) (626,831)
Class C (324,197) (3,273,108) (115,892) (1,227,825)
Class R (668,086) (6,722,962) (473,934) (5,023,003)
- - ------------------------------------------------------------------------------------------------------
(2,745,871) (27,406,311) (1,327,181) (14,067,767)
- - ------------------------------------------------------------------------------------------------------
Net increase (decrease) (115,288) $ (726,637) 3,011,227 $ 31,946,585
======================================================================================================
</TABLE>
37
<PAGE>
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
New York New York Insured
----------------------------------------------------- -----------------------------------------------------
Year Ended 2/29/00 Year Ended 2/28/99 Year Ended 2/29/00 Year Ended 2/28/99
------------------------- ------------------------- ------------------------- -------------------------
Shares Amount Shares Amount Shares Amount Shares Amount
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares sold:
Class A 2,790,883 $ 29,104,680 1,144,690 $ 12,559,731 1,496,280 $ 15,529,903 1,093,274 $ 11,747,659
Class B 1,036,762 10,937,779 754,802 8,315,942 715,180 7,454,738 743,984 8,011,299
Class C 528,399 5,518,626 353,162 3,894,020 147,209 1,505,110 205,983 2,218,265
Class R 554,613 5,847,036 666,093 7,339,196 666,121 6,814,811 787,360 8,449,557
Shares issued to
shareholders due to
reinvestment of
distributions:
Class A 179,500 1,892,549 161,024 1,770,662 167,792 1,725,557 148,515 1,598,123
Class B 36,081 378,936 14,049 154,837 36,951 380,102 20,611 222,064
Class C 15,250 160,948 12,193 134,459 12,055 124,036 8,421 90,556
Class R 570,094 6,033,712 526,668 5,810,228 980,490 10,105,870 1,065,213 11,464,997
- - ------------------------------------------------------------------------------------------------------------------------------------
5,711,582 59,874,266 3,632,681 39,979,075 4,222,078 43,640,127 4,073,361 43,802,520
- - ------------------------------------------------------------------------------------------------------------------------------------
Shares redeemed:
Class A (2,221,619) (23,154,539) (1,117,036) (12,242,649) (1,085,766) (11,116,343) (513,163) (5,519,037)
Class B (224,929) (2,347,237) (63,760) (700,876) (401,249) (4,062,416) (75,529) (812,400)
Class C (327,306) (3,418,515) (130,900) (1,437,273) (76,265) (776,795) (46,912) (504,054)
Class R (1,770,315) (18,572,062) (1,539,770) (16,966,297) (3,589,069) (36,660,035) (2,903,948) (31,167,983)
- - ------------------------------------------------------------------------------------------------------------------------------------
(4,544,169) (47,492,353) (2,851,466) (31,347,095) (5,152,349) (52,615,589) (3,539,552) (38,003,474)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net increase
(decrease) 1,167,413 $ 12,381,913 781,215 $ 8,631,980 (930,271) $ (8,975,462) 533,809 $ 5,799,046
====================================================================================================================================
</TABLE>
3. Distributions to Shareholders
The Funds declared dividend distributions from their tax-exempt net investment
income which were paid April 3, 2000, to shareholders of record on March 9,
2000, as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend per share:
Class A $.0395 $.0500 $.0425
Class B .0330 .0435 .0360
Class C .0350 .0455 .0375
Class R .0410 .0520 .0440
================================================================================
</TABLE>
38
<PAGE>
4. Securities Transactions
Purchases and sales (including maturities) of investments in long-term municipal
securities and short-term municipal securities for the fiscal year ended
February 29, 2000, were as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchases:
Long-term municipal securities $ 31,886,015 $ 57,501,478 $ 56,529,815
Short-term municipal securities 4,700,000 11,905,000 11,100,000
Sales and maturities:
Long-term municipal securities 30,414,561 47,915,422 61,534,383
Short-term municipal securities 4,700,000 13,805,000 14,900,000
================================================================================
</TABLE>
At February 29, 2000, the identified cost of investments owned for federal
income tax purposes were as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
$114,099,381 $245,274,953 $331,836,839
================================================================================
</TABLE>
At February 29, 2000, 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>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Expiration year:
2002 $ 256,350 $ -- $ --
2003 424,626 -- --
2004 116,050 -- --
2005 -- -- --
2006 238,550 -- --
2007 -- -- --
2008 132,876 778,471 405,215
- - --------------------------------------------------------------------------------
Total $1,168,452 $778,471 $405,215
================================================================================
</TABLE>
5. Unrealized Appreciation (Depreciation)
Gross unrealized appreciation and gross unrealized depreciation of investments
for federal income tax purposes at February 29, 2000, were as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross unrealized:
appreciation $ 1,484,801 $ 7,068,842 $ 9,699,806
depreciation (6,247,137) (5,736,974) (7,376,952)
- - --------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) $(4,762,336) $ 1,331,868 $ 2,322,854
================================================================================
</TABLE>
6. Management Fee and Other Transactions with Affiliates
Under the Trust's investment management agreement with the Adviser, each Fund
pays an annual management fee, payable monthly, at the rates set forth below
which are based upon the average daily net assets of each Fund as follows:
<TABLE>
<CAPTION>
Average Daily Net Assets 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.
39
<PAGE>
Notes to Financial Statements (continued)
The adviser has agreed to waive part of its management fees or reimburse certain
expenses of New York and New York Insured in order to limit total expenses to
.75 of 1% of the average daily net assets of New York and .975 of 1% of the
average daily net assets of 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 in any of the Funds from time to time, which may
be terminated at any time at its discretion.
During the fiscal year ended February 29, 2000, the Distributor collected sales
charges on purchases of Class A Shares, the majority of which were paid out as
concessions to authorized dealers as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales charges collected $88,103 $94,308 $98,883
Paid to authorized dealers 86,193 83,660 98,700
================================================================================
</TABLE>
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 29, 2000, the Distributor compensated
authorized dealers directly with commission advances at the time of purchase as
follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Commission advances $306,543 $491,757 $339,107
================================================================================
</TABLE>
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 collected on Class C Shares during the first year following a
purchase are retained by the Distributor. During the fiscal year ended February
29, 2000, the Distributor retained such 12b-1 fees as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
12b-1 fees retained $147,899 $161,873 $148,865
================================================================================
</TABLE>
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 CDSC on share redemptions during the
fiscal year ended February 29, 2000, as follows:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
CDSC retained $73,240 $65,745 $83,013
================================================================================
</TABLE>
7. Composition of Net Assets
At February 29, 2000, the Funds had an unlimited number of $.01 par value shares
authorized. Net assets consisted of:
<TABLE>
<CAPTION>
New York
New Jersey New York Insured
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital paid-in $115,910,192 $249,500,563 $333,122,954
Balance of undistributed
net investment income 656 284,255 313,071
Accumulated net realized gain
(loss) from investment transactions (1,483,228) (778,471) (517,839)
Net unrealized appreciation
(depreciation) of investments (4,447,560) 1,331,868 2,435,478
- - --------------------------------------------------------------------------------
Net assets $109,980,060 $250,338,215 $335,353,664
================================================================================
</TABLE>
40
<PAGE>
Financial Highlights
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------- ---------------------------
NEW JERSEY Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $10.60 $.49 $(.87) $(.38) $(.49) $ -- $(.49) $ 9.73 (3.67)%
1999 10.61 .53 (.01) .52 (.53) -- (.53) 10.60 5.00
1998 10.26 .55 .36 .91 (.56) -- (.56) 10.61 9.06
1997 (d) 10.22 .05 .04 .09 (.05) -- (.05) 10.26 .85
1997 (e) 10.40 .48 (.15) .33 (.51) -- (.51) 10.22 3.31
1996 (e) 9.73 .51 .69 1.20 (.53) -- (.53) 10.40 12.63
Class B (2/97)
2000 10.60 .41 (.88) (.47) (.41) -- (.41) 9.72 (4.51)
1999 10.61 .45 (.01) .44 (.45) -- (.45) 10.60 4.23
1998 10.26 .48 .35 .83 (.48) -- (.48) 10.61 8.25
1997 (d) 10.22 .05 .03 .08 (.04) -- (.04) 10.26 .78
Class C (9/94)**
2000 10.58 .43 (.88) (.45) (.43) -- (.43) 9.70 (4.29)
1999 10.59 .47 (.01) .46 (.47) -- (.47) 10.58 4.48
1998 10.25 .50 .34 .84 (.50) -- (.50) 10.59 8.40
1997 (d) 10.20 .04 .05 .09 (.04) -- (.04) 10.25 .90
1997 (e) 10.38 .41 (.16) .25 (.43) -- (.43) 10.20 2.53
1996 (e) 9.71 .44 .68 1.12 (.45) -- (.45) 10.38 11.80
Class R (12/91)**
2000 10.60 .51 (.87) (.36) (.51) -- (.51) 9.73 (3.47)
1999 10.62 .55 (.02) .53 (.55) -- (.55) 10.60 5.13
1998 10.27 .58 .35 .93 (.58) -- (.58) 10.62 9.29
1997 (d) 10.23 .05 .04 .09 (.05) -- (.05) 10.27 .86
1997 (e) 10.41 .49 (.14) .35 (.53) -- (.53) 10.23 3.55
1996 (e) 9.74 .55 .68 1.23 (.56) -- (.56) 10.41 12.88
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $46,235 .99% 4.74% .93% 4.80% .91% 4.82% 26%
1999 53,442 1.02 4.62 .66 4.98 .66 4.98 10
1998 35,782 1.01 4.92 .60 5.33 .60 5.33 16
1997 (d) 27,879 1.01* 5.43* .55* 5.89* .55* 5.89* --
1997 (e) 17,072 1.13 4.85 1.00 4.98 1.00 4.98 10
1996 (e) 10,661 1.25 4.85 1.00 5.10 1.00 5.10 39
Class B (2/97)
2000 13,681 1.74 4.01 1.69 4.06 1.67 4.08 26
1999 11,368 1.76 3.88 1.39 4.25 1.39 4.25 10
1998 2,981 1.77 4.16 1.36 4.57 1.36 4.57 16
1997 (d) 74 1.77* 5.71* 1.27* 6.21* 1.27* 6.21* --
Class C (9/94)**
2000 10,007 1.54 4.20 1.48 4.26 1.47 4.27 26
1999 10,290 1.57 4.07 1.21 4.43 1.21 4.43 10
1998 5,733 1.56 4.37 1.16 4.77 1.16 4.77 16
1997 (d) 2,712 1.56* 4.89* 1.10* 5.35* 1.10* 5.35* --
1997 (e) 2,611 1.88 4.09 1.75 4.22 1.75 4.22 10
1996 (e) 1,065 1.96 4.16 1.75 4.37 1.75 4.37 39
Class R (12/91)**
2000 40,058 .79 4.94 .73 5.00 .71 5.02 26
1999 46,033 .82 4.82 .47 5.17 .47 5.17 10
1998 44,817 .81 5.12 .40 5.53 .40 5.53 16
1997 (d) 42,651 .81* 5.63* .35* 6.09* .35* 6.09* --
1997 (e) 42,905 .89 5.10 .75 5.24 .75 5.24 10
1996 (e) 43,304 .98 5.20 .75 5.43 .75 5.43 39
=====================================================================================================
</TABLE>
* Annualized.
** Information included prior to the one month ended February 28, 1997,
reflects the financial highlights of the predecessor fund, Nuveen New Jersey
Tax-Free Value.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) For the one month ended February 28.
(e) For the fiscal year ended January 31.
41
<PAGE>
Financial Highlights (continued)
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Class (Inception Date)
Investment Operations Less Distributions
----------------------------- ---------------------------
Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $11.03 $.58 $(.85) $(.27) $ (57) $(.02) $(.59) $10.17 (2.44)%
1999 10.97 .55 .06 .61 (.55) -- (.55) 11.03 5.69
1998 10.53 .57 .44 1.01 (.57) -- (.57) 10.97 9.84
1997 10.61 .59 (.07) .52 (.56) (.04) (.60) 10.53 5.07
1996 10.12 .56 .48 1.04 (.55) -- (.55) 10.61 10.52
Class B (2/97)
2000 11.04 .51 (.86) (.35) (.49) (.02) (.51) 10.18 (3.18)
1999 10.98 .47 .06 .53 (.47) -- (.47) 11.04 4.88
1998 10.53 .49 .45 .94 (.49) -- (.49) 10.98 9.10
1997 (d) 10.48 .05 .04 .09 (.04) -- (.04) 10.53 .87
Class C (9/94)**
2000 11.06 .52 (.85) (.33) (.51) (.02) (.53) 10.20 (2.97)
1999 11.01 .49 .05 .54 (.49) -- (.49) 11.06 5.00
1998 10.56 .51 .45 .96 (.51) -- (.51) 11.01 9.31
1997 10.64 .55 (.11) .44 (.48) (.04) (.52) 10.56 4.31
1996 10.11 .48 .53 1.01 (.48) -- (.48) 10.64 10.13
Class R (12/86)**
2000 11.06 .60 (.84) (.24) (.60) (.02) (.62) 10.20 (2.21)
1999 11.00 .58 .05 .63 (.57) -- (.57) 11.06 5.88
1998 10.55 .59 .45 1.04 (.59) -- (.59) 11.00 10.11
1997 10.64 .59 (.05) .54 (.59) (.04) (.63) 10.55 5.26
1996 10.15 .58 .49 1.07 (.58) -- (.58) 10.64 10.80
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29 (000) Assets Assets Assets Assets Assets Assets Rate
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)**
2000 $ 81,857 .89% 5.21% .61% 5.49% .60% 5.50% 19%
1999 80,549 .94 4.88 .79 5.03 .79 5.03 28
1998 78,038 .90 5.14 .77 5.27 .77 5.27 30
1997 71,676 .95 5.39 .89 5.45 .89 5.45 37
1996 15,732 1.02 5.28 .99 5.31 .99 5.31 47
Class B (2/97)
2000 19,803 1.65 4.50 1.33 4.81 1.32 4.82 19
1999 12,121 1.68 4.16 1.57 4.27 1.57 4.27 28
1998 4,311 1.67 4.32 1.50 4.49 1.50 4.49 30
1997 (d) 124 1.65* 5.86* 1.44* 6.07* 1.44* 6.07* 37
Class C (9/94)**
2000 10,374 1.44 4.67 1.16 4.95 1.15 4.96 19
1999 8,858 1.49 4.33 1.35 4.47 1.35 4.47 28
1998 6,233 1.46 4.57 1.32 4.71 1.32 4.71 30
1997 3,965 1.64 4.73 1.57 4.80 1.57 4.80 37
1996 646 1.99 4.29 1.73 4.55 1.73 4.55 47
Class R (12/86)**
2000 138,303 .69 5.40 .42 5.67 .41 5.68 19
1999 157,209 .74 5.08 .59 5.23 .59 5.23 28
1998 160,142 .70 5.34 .57 5.47 .57 5.47 30
1997 152,598 .71 5.55 .69 5.57 .69 5.57 37
1996 154,776 .76 5.55 .74 5.57 .74 5.57 47
=====================================================================================================
</TABLE>
* Annualized.
** Information included prior to the fiscal year ended February 28, 1997,
reflects the financial highlights of the predecessor fund, Nuveen New York
Tax-Free Value.
(a) Total returns are calculated on net asset value without any sales charge
and are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
42
<PAGE>
Selected data for a share outstanding throughout each period:
<TABLE>
<CAPTION>
Investment Operations Less Distributions
----------------------------- ---------------------------
NEW YORK INSURED Net
Realized/
Unrealized
Beginning Net Invest- Net Ending
Net Invest- ment Invest- Net
Year Ended Asset ment Gain ment Capital Asset Total
February 28/29, Value Income (Loss) Total Income Gains Total Value Return (a)
- - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $10.73 $.52 $(.79) $(.27) $(.51) $ -- $(.51) $ 9.95 (2.50)%
1999 10.76 .51 .01 .52 (.52) (.03) (.55) 10.73 4.91
1998 10.50 .53 .26 .79 (.53) -- (.53) 10.76 7.76
1997 10.61 .55 (.14) .41 (.52) -- (.52) 10.50 4.02
1996 10.15 .52 .49 1.01 (.52) (.03)** (.55) 10.61 10.19
Class B (2/97)
2000 10.74 .44 (.79) (.35) (.43) -- (.43) 9.96 (3.26)
1999 10.76 .44 -- .44 (.43) (.03) (.46) 10.74 4.19
1998 10.50 .45 .26 .71 (.45) -- (.45) 10.76 6.96
1997 (d) 10.53 .03 (.02) .01 (.04) -- (.04) 10.50 .07
Class C (9/94)
2000 10.73 .46 (.80) (.34) (.45) -- (.45) 9.94 (3.17)
1999 10.74 .46 .02 .48 (.46) (.03) (.49) 10.73 4.53
1998 10.48 .47 .26 .73 (.47) -- (.47) 10.74 7.16
1997 10.61 .47 (.16) .31 (.44) -- (.44) 10.48 3.06
1996 10.12 .44 .53 .97 (.45) (.03)** (.48) 10.61 9.71
Class R (12/86)
2000 10.74 .54 (.80) (.26) (.53) -- (.53) 9.95 (2.43)
1999 10.76 .53 .02 .55 (.54) (.03) (.57) 10.74 5.18
1998 10.49 .55 .27 .82 (.55) -- (.55) 10.76 8.04
1997 10.61 .55 (.13) .42 (.54) -- (.54) 10.49 4.15
1996 10.15 .55 .49 1.04 (.55) (.03)** (.58) 10.61 10.51
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Ratios/Supplemental Data
---------------------------------------------------------------------------------
Before Credit/ After After Credit/
Reimbursement Reimbursement (b) Reimbursement (c)
------------------ ------------------ ------------------
Ratio Ratio Ratio
of Net of Net of Net
NEW YORK INSURED Invest- Invest- Invest-
Ratio ment Ratio of ment Ratio of ment
Expenses Income Expenses Income Expenses Income
Ending to to to to to to
Net Average Average Average Average Average Average Portfolio
Year Ended Assets Net Net Net Net Net Net Turnover
February 28/29, (000) Assets Assets Assets Assets Assets Assets Rate
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Class A (9/94)
2000 $ 54,364 .90% 5.02% .90% 5.02% .90% 5.02% 16%
1999 52,448 .92 4.78 .92 4.78 .92 4.78 16
1998 44,721 .88 4.98 .88 4.98 .88 4.98 17
1997 35,957 .92 5.04 .92 5.04 .92 5.04 29
1996 24,747 .93 4.97 .93 4.97 .93 4.97 17
Class B (2/97)
2000 15,893 1.65 4.28 1.65 4.28 1.65 4.28 16
1999 13,374 1.67 4.04 1.67 4.04 1.67 4.04 16
1998 5,982 1.65 4.24 1.65 4.24 1.65 4.24 17
1997 (d) 1,279 1.64* 5.17* 1.64* 5.17* 1.64* 5.17* 29
Class C (9/94)
2000 4,627 1.45 4.48 1.45 4.48 1.45 4.48 16
1999 4,103 1.47 4.25 1.47 4.25 1.47 4.25 16
1998 2,310 1.43 4.43 1.43 4.43 1.43 4.43 17
1997 2,015 1.67 4.28 1.67 4.28 1.67 4.28 29
1996 1,369 1.69 4.21 1.69 4.21 1.69 4.21 17
Class R (12/86)
2000 260,469 .70 5.21 .70 5.21 .70 5.21 16
1999 301,805 .72 4.98 .72 4.98 .72 4.98 16
1998 313,647 .68 5.18 .68 5.18 .68 5.18 17
1997 319,208 .68 5.28 .68 5.28 .68 5.28 29
1996 343,348 .67 5.26 .67 5.26 .67 5.26 17
- - -----------------------------------------------------------------------------------------------------
</TABLE>
* Annualized.
** The amounts shown include distributions in excess of capital gains of $.0024
per share.
(a) Total returns are calculated on net asset value without any sales charge and
are not annualized.
(b) After expense reimbursement from the investment adviser, where applicable.
(c) After custodian fee credit and expense reimbursement, where applicable.
(d) From commencement of class operations as noted.
43
<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 the Nuveen Flagship
Multistate Trust II (comprising the Nuveen Flagship New Jersey, Nuveen Flagship
New York and Nuveen New York Insured Municipal Bond Funds) (a Massachusetts
business trust), including the portfolio of investments, as of February 29,
2000, and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years 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 auditing standards generally accepted
in the United States. 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 29, 2000, 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 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 29, 2000, the results of their operations for the year then ended, the
changes in their net assets for each of the two years then ended, and the
financial highlights for the periods indicated thereon in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 14, 2000
44
<PAGE>
Fund Information
Board of Trustees
Robert P. Bremner
Lawrence H. Brown
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
Chase Global Funds Services
73 Tremont Street
Boston, MA 02108
(800) 257-8787
Legal Counsel
Morgan, Lewis &
Bockius LLP
Washington, D.C.
Independent Public Accountants
Arthur Andersen LLP
Chicago, IL
45
<PAGE>
SERVING INVESTORS
FOR GENERATIONS
[Photo of John Nuveen, Sr. appears here]
John Nuveen, Sr.
A 100-Year Tradition of Quality Investments
Since 1898, John Nuveen & Co. Incorporated has been synonymous with investments
that withstand the test of time. In fact, more than 1.3 million investors have
trusted Nuveen to help them build and sustain the wealth of a lifetime.
Whether your focus is long-term growth, dependable income or sustaining
accumulated wealth, Nuveen offers a wide variety of investments and services to
help meet your unique circumstances and financial planning needs. We can help
you build a better, well-diversified portfolio.
Call Your Financial Adviser Today
To find out how the Nuveen Innovation Fund might round out your investment
portfolio, contact your financial adviser today. Or call Nuveen at (800)
257.8787 for more information. Ask your adviser or call for a prospectus which
details risks, fees and expenses. Please read the prospectus carefully before
you invest.
NUVEEN
Investments
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606-1286
www.nuveen.com
<PAGE>
PART C--OTHER INFORMATION
Item 22: Financial Statements.
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
Item 23: Exhibits.
<TABLE>
<C> <S>
a.1 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.
a.2 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.
a.3 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.
a.4 Incumbency Certificate. Filed as Exhibit a.4 to Registrant's Regis-
tration Statement on Form N-1A (File No. 333-14729) and incorporated
herein by reference thereto.
b. 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.
b.1 Amendment to By-Laws. Filed as Exhibit b.1 to Post-Effective Amend-
ment No. 5 to Registrant's Registration Statement on Form N-1A (File
No. 333-14729) and incorporated herein by reference thereto.
c. 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.
d. 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.
d.1 Renewal of Investment Management Agreement dated June 1, 2000.
e. 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.
e.1 Renewal of Distribution Agreement dated July 30, 1999.
f. Not applicable.
g. 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.
h. Transfer Agency Agreement between Registrant and Chase Global Funds
Services Company. Filed as Exhibit h to Post-Effective Amendment No.
5 to Registrant's Registration Statement on Form N-1A (File No. 333-
14729) and incorporated herein by reference thereto.
i. Opinion of Morgan, Lewis & Bockius LLP.
j. Consent of Arthur Andersen LLP, Independent Public Accountants.
k. Not applicable.
l. Not applicable.
m. Amended 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 m to Post-Effective Amendment No. 5 to Registrant's
Registration Statement on Form N-1A (File No. 333-14729) and incorpo-
rated herein by reference thereto.
o. Multi-Class Plan Adopted Pursuant to Rule 18f-3. Filed as Exhibit 18
to Registrant's Registration Statement on Form N-1A (File No. 333-
14729) and incorporated herein by reference thereto.
99(a). Original Powers of Attorney for all of Registrant's Trustees autho-
rizing, among others, Gifford R. Zimmerman and Alan G. Berkshire to
execute the Registration Statement.
99(b). Certified copy of Resolution of Board of Trustees authorizing the
signing of the names of trustees and officers on the Registrant's
Registration Statement pursuant to power of attorney.
99(c). Code of Ethics and Reporting Requirements.
</TABLE>
C-1
<PAGE>
Item 24: Persons Controlled by or under Common Control with Registrant
Not applicable.
Item 25: 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
C-2
<PAGE>
wrongful acts arising out of their position with the Registrant, except for
matters which involved willful acts, bad faith, 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 26: 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 Multistate Trust II, Nuveen Flagship Multistate Trust III, Nuveen
Flagship Multistate Trust IV, Nuveen Flagship Municipal Trust, Nuveen Taxable
Funds Inc., Nuveen Municipal Money Market Fund, Inc. and Nuveen Money Market
Trust. 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 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 Dividend Advantage Municipal Fund, Nuveen California Dividend
Advantage Municipal Fund and Nuveen New York Dividend Advantage Municipal Fund.
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 John P.
Amboian, 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.
John P. Amboian is President, formerly Executive Vice-President and Chief
Financial Officer, and Director of Nuveen Advisory Corp., the investment
adviser. Mr. Amboian has, during the last two years, been President, formerly
Executive Vice-President and Chief Financial Officer of John Nuveen & Co.
Incorporated, the John Nuveen Company and Nuveen Institutional Advisory Corp.;
Executive Vice President of Rittenhouse Financial Services, Inc. and President
and Chief Operating Officer of Nuveen Senior Loan Asset Management Inc.
C-3
<PAGE>
Item 27: 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 Multistate Trust II, Nuveen Flagship Multistate
Trust III, Nuveen Flagship Multistate Trust IV, Nuveen Flagship Municipal
Trust, Nuveen Municipal Money Market Fund, Inc., Nuveen Money Market Trust,
Nuveen Taxable Funds Inc., Nuveen Investment Trust, Nuveen Investment Trust II
and Nuveen Investment Trust III. 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,
Nuveen Dividend Advantage Municipal Fund, Nuveen California Dividend Advantage
Municipal Fund, Nuveen New York Dividend Advantage Municipal Fund, Nuveen
Floating Rate Fund and Nuveen Senior Income Fund.
(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 President and Trustee
Chicago, Illinois 60606 and Director
John P. Amboian President None
333 West Wacker Drive
Chicago, IL 60606
William Adams IV Executive Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Alan G. Berkshire Senior Vice President Vice President and
333 West Wacker Drive and Secretary Assistant Secretary
Chicago, IL 60606
Robert K. Burke Vice President None
333 West Wacker Drive
Chicago, IL 60606
Peter H. D'Arrigo Vice President and Treasurer None
333 West Wacker Drive
Chicago, IL 60606
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices
Business Address with Underwriter with Registrant
- - --------------------------------------------------------------------------------
<S> <C> <C>
Kathleen M. Flanagan Vice President Vice President
333 West Wacker Drive
Chicago, Illinois 60606
Stephen D. Foy Vice President Vice President and
333 West Wacker Drive Controller
Chicago, Illinois 60606
Benjamin T. Fulton Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Richard D. Hughes Executive Vice President None
Two Radnor Corporate Center
Radnor, PA 19087
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
Paul C. Williams Vice President None
333 West Wacker Drive
Chicago, Illinois 60606
Margaret E. Wilson Senior Vice President and None
333 West Wacker Drive Corporate Controller
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 28: 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. or Chase Global Funds Services Company.
C-5
<PAGE>
Chase Global Funds Services Company, 73 Tremont Street, Boston, Massachusetts
02108, maintains all the required records in their capacity as transfer,
dividend paying, and shareholder service agents for the Funds.
Item 29: Management Services
Not applicable.
Item 30: 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-6
<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 Post-Effective
Amendment No. 6 to Registration Statement No. 333-14729 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chicago,
and State of Illinois, on the 28th day of June, 2000.
NUVEEN MULTISTATE TRUST II
/s/ Gifford R. Zimmerman
-----------------------------------------
Gifford R. Zimmerman, Vice President
Pursuant to the requirements of the Securities Act of 1933, this amendment to
the 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 28, 2000
Controller (Principal
Financial and
Accounting Officer)
Timothy R. Schwertfeger Chairman of the Board
and Trustee (Principal
Executive Officer)
Robert P. Bremner Trustee
Lawrence H. Brown Trustee
Anne E. Impellizzeri Trustee
Peter R. Sawers Trustee
William J. Schneider Trustee
Judith M. Stockdale Trustee
</TABLE>
/s/ Gifford R. Zimmerman
By____________________________
Gifford R. Zimmerman
Attorney-in-Fact
June 28, 2000
An original power of attorney authorizing, among others, Gifford R. Zimmerman
and Alan G. Berkshire to execute this Registration Statement, and Amendments
thereto, for each of the trustees of the Registrant has been executed and is
filed as an exhibit to this Registration Statement.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Name Exhibit
- - ---- -------
<S> <C>
Renewal of Investment Management Agreement dated June 1, 2000. d.1
Renewal of Distribution Agreement dated July 30, 1999. e.1
Opinion of Morgan, Lewis & Bockius LLP. i
Consent of Arthur Andersen LLP, Independent Public Accountants. j
Powers of Attorney. 99(a).
Certified copy of Resolution of Board of Trustees authorizing the
signing of the names of trustees and officers on the Registrant's Reg-
istration Statement pursuant to power of attorney. 99(b).
Code of Ethics and Reporting Requirements. 99(c).
</TABLE>
